<PAGE>
 
    
 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1998     
                                                     REGISTRATION NO. 333-55807
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                ---------------
                               
                            AMENDMENT NO. 5 TO     
                                   FORM S-4
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
                                ---------------
                              HOST MARRIOTT, L.P.
                            HMC MERGER CORPORATION
      (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENT)
 
       DELAWARE                      7011                  52-2095412
       MARYLAND                      7011                  53-0085950
(State or Other Jurisdiction   (Primary Standard Industrial   (I.R.S Employer
Incorporation or Organization  Classification Code Number)   Identification No.)
 
                              10400 FERNWOOD ROAD
                           BETHESDA, MARYLAND 20817
                                (301) 380-9000
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                                ---------------
                            CHRISTOPHER G. TOWNSEND
                                GENERAL COUNSEL
                              HOST MARRIOTT, L.P.
                            HMC MERGER CORPORATION
                              10400 FERNWOOD ROAD
                           BETHESDA, MARYLAND 20817
                                (301) 380-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
                                ---------------
                                  COPIES TO:
                         J. WARREN GORRELL, JR., ESQ.
                           BRUCE W. GILCHRIST, ESQ.
                            HOGAN & HARTSON L.L.P.
                          555 THIRTEENTH STREET, N.W.
                          WASHINGTON, D.C. 20004-1109
                                (202) 637-5600
                                ---------------
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
 
  If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
 
                                ---------------
                        
                     CALCULATION OF REGISTRATION FEE     
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<TABLE>   
<CAPTION>
                                                   PROPOSED
                                        PROPOSED   MAXIMUM
 TITLE OF EACH CLASS OF     AMOUNT      MAXIMUM   AGGREGATE        AMOUNT OF
    SECURITIES TO BE        TO BE       OFFERING   OFFERING       REGISTRATION
       REGISTERED         REGISTERED    PRICE(1)   PRICE(1)           FEE
- -------------------------------------------------------------------------------
<S>                       <C>           <C>      <C>             <C>
Units of Limited
 Partnership Interest..   18,603,677(2)  $15.50  $288,357,000    $85,065.32(3)
- -------------------------------------------------------------------------------
Shares of Common Stock,
 par value
 $.01 per share........   18,603,677(2)  $15.50  $288,357,000       $-0-(3)
- -------------------------------------------------------------------------------
6.56% Callable Notes due
 December 15, 2005.....   $         (2)   N/A    $247,971,597(3)    $-0-(3)
- -------------------------------------------------------------------------------
Shares of Common Stock,
 par value
 $.01 per share........   18,603,677(4)  $15.50  $288,357,000      $85,065.32
- -------------------------------------------------------------------------------
  Total......................................................    $170,130.64(5)
</TABLE>
    
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
   
(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(f) promulgated under the Securities Act of 1933, as
    amended.     
   
(2) Represents the expected number of OP Units, Common Shares or Notes (as
    applicable) issuable upon consummation of the transactions described
    herein.     
   
(3) Investors whose securities are exchanged or canceled will receive OP
    Units, which may be retained or exchanged for Common Shares or Notes. To
    the extent Common Shares or Notes are issued in exchange for OP Units, the
    proposed maximum aggregate offering price of the OP Units will be
    proportionately reduced and vice versa. Accordingly, no further fee is due
    for the registration of the Common Shares or Notes.     
   
(4) Represents the number of Common Shares issuable upon redemption of the OP
    Units.     
   
(5) $85,086.85 previously paid.     
       
  The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a) may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT SHALL NOT   +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL  +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,       +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE.                                  +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                             SUBJECT TO COMPLETION
                              
                           DATED OCTOBER 8, 1998     
 
                   PROSPECTUS/CONSENT SOLICITATION STATEMENT
 
                              HOST MARRIOTT, L.P.
                             HMC MERGER CORPORATION
 
      THE CONSENT SOLICITATION PERIOD EXPIRES AT 5:00 P.M., EASTERN TIME,
       ON DECEMBER  , 1998, UNLESS EXTENDED (THE "SOLICITATION PERIOD").
 
  Host Marriott Corporation ("Host") has adopted a plan to restructure its
business operations so that it will qualify as a real estate investment trust
("REIT"). As part of this restructuring (the "REIT Conversion"), Host 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") in exchange for units of limited partnership interest in the
Operating Partnership ("OP Units") and the assumption of liabilities. The sole
general partner of the Operating Partnership will be HMC Merger Corporation, a
Maryland corporation to be renamed "Host Marriott Corporation" ("Host REIT"),
the entity into which Host will merge as part of the REIT Conversion. Host REIT
expects to qualify as a REIT beginning with its first full taxable year
commencing after the REIT Conversion is completed, which Host REIT currently
expects to be the year beginning January 1, 1999 (but which might not be until
the year beginning January 1, 2000).
  As part of the REIT Conversion, the Operating Partnership is proposing to
acquire by merger (the "Mergers") eight limited partnerships (the
"Partnerships") that own full-service hotels in which Host or its subsidiaries
are general partners. As more fully described in this Prospectus/Consent
Solicitation Statement (the "Consent Solicitation"), limited partners of those
Partnerships that participate in the Mergers will receive OP Units in exchange
for their partnership interests in such Partnerships (with respect to the
Partnerships, those limited partners of the Partnerships who are unaffiliated
with Host are referred to herein as the "Limited Partners"). Limited Partners
may elect to exchange such OP Units received in connection with the Mergers for
either shares of common stock, par value $.01 per share, of Host REIT ("Common
Shares") or unsecured 6.56% Callable Notes due December 15, 2005 issued by the
Operating Partnership ("Notes"). Beginning one year after the Mergers, Limited
Partners who retain OP Units will have the right to redeem their OP Units at
any time and receive, at the election of Host REIT, either Common Shares of
Host REIT on a one-for-one basis (subject to adjustment) or cash in an amount
equal to the market value of such shares (the "Unit Redemption Right").
  SEE "RISK FACTORS" BEGINNING ON PAGE 36 FOR MATERIAL RISKS RELEVANT TO AN
INVESTMENT IN THE OP UNITS, COMMON SHARES OR NOTES, INCLUDING:
  . To the extent that the anticipated benefits of the REIT Conversion are
    reflected in the value of Host's common stock before the Effective Date,
    such benefits will not be shared with the Limited Partners.
  . No independent representative was retained to negotiate on behalf of the
    Limited Partners. If one had been, the terms of the Mergers may have been
    more favorable to the Limited Partners.
  . Other conflicts of interest exist in connection with structuring the
    Mergers and the REIT Conversion which may result in decisions that do not
    fully reflect the interests of all Limited Partners.
  . Host's shareholders and the Blackstone Entities, but not the Limited
    Partners, will benefit from any appreciation in the value of the shares of
    Crestline common stock distributed in connection with the Initial E&P
    Distribution (as defined herein).
  . There is no assurance that the value of the OP Units, Common Shares or
    Notes to be received by the Limited Partners in connection with the
    Mergers will equal the fair market value of their Partnership Interests.
  . Limited Partners who retain OP Units will not be able to redeem them
    pursuant to the Unit Redemption Right until one year following the
    Mergers. Until then, Limited Partners will bear the risk of illiquidity
    and of not being able to sell in a falling market.
  . There will be no public market for the Notes. The deemed value of the OP
    Units (or the Common Shares issued in exchange therefor) will exceed the
    principal amount of the corresponding Notes in all Partnerships.
  . The receipt of Common Shares or a Note in exchange for OP Units will be a
    fully taxable transaction and will result in "phantom income" for a
    Limited Partner with a "negative capital account" with respect to his
    Partnership Interest.
     
  . The preliminary estimated initial annual cash distributions of the
    Operating Partnership during the twelve months ending December 31, 1999
    ($226 million) will exceed its estimated cash available for distribution
    and cash from contingent rents during the twelve months ending December
    31, 1999, which would require borrowings of approximately $9 million (or
    $0.04 per OP Unit) to make such distributions, and the estimated initial
    cash distributions to the Limited Partners of MHP and MHP2 following the
    Mergers will be significantly less than the estimated cash distributions
    from operations of MHP and MHP2 during 1998.     

<PAGE>
 
  . If the REIT Conversion does not occur in time for Host REIT to elect REIT
    status effective January 1, 1999, the effectiveness of Host REIT's
    election could be delayed until January 1, 2000, which would result in
    Host REIT continuing to pay substantial corporate-level income taxes in
    1999 (which would reduce the cash distributions per Common Share, but not
    the cash distributions per OP Unit) and could cause the Blackstone
    Acquisition not to be consummated.
  . The Mergers involve a fundamental change in the nature of the investment
    of a Limited Partner from an investment in a finite-life, fixed-portfolio
    partnership into an investment in an ongoing real estate company which
    will own and acquire additional hotels.
  . There is uncertainty at the time of voting as to the exact size and
    leverage of the Operating Partnership and the exact number of OP Units
    that may be received in the Mergers (which will not be known for
    approximately 25 trading days following the Mergers).
  . The Operating Partnership will be substantially dependent for its revenue
    upon the Lessees, Marriott International, Inc. and other companies that
    manage the Hotels and upon the Non-Controlled Subsidiaries, and the
    Operating Partnership will have limited control over the operations of the
    Hotels and no control over the Non-Controlled Subsidiaries.
  . Approval of the Merger and the related amendments to the partnership
    agreement by the requisite vote of the Limited Partners in a Partnership
    will bind all Limited Partners of such Partnership.
  . The inability of Host, the Operating Partnership and Host REIT to obtain
    one or more third-party consents prior to consummation of the Mergers and
    the REIT Conversion could have a material adverse effect on the Operating
    Partnership and Host REIT, and thus could reduce the value of the OP Units
    and Common Shares.
  . The Mergers will result in the Limited Partners being exposed to the
    general risks of ownership of hotels, leverage and the lack of
    restrictions on indebtedness of the Operating Partnership and Host REIT.
  . Actual or constructive ownership of more than 9.8% of the number or value
    of Host REIT's outstanding Common Shares and of more than 4.9% of the
    value of the OP Units (other than by Host REIT or The Blackstone Group) is
    prohibited, subject to waiver or modification by Host REIT or the
    Operating Partnership, as the case may be, in certain limited
    circumstances.
  . There are a variety of events and transactions that could cause a Limited
    Partner to recognize in the future all or a part of the gain that
    otherwise should be deferred by the retention of OP Units received in the
    Mergers.
  . Atlanta Marquis, Desert Springs, Hanover, MHP and PHLP are required to
    sell some of their personal property to an affiliate of the Operating
    Partnership in the Mergers, which may cause Limited Partners of such
    Partnerships (except Hanover) to recognize a relatively modest amount of
    taxable income as a result thereof (which income could be offset with any
    unused passive loss carryforwards).
  . Taxation of Host REIT as a regular corporation if it fails to qualify as a
    REIT, or taxation of the Operating Partnership as a corporation if it
    fails to qualify as a partnership for federal income tax purposes, would,
    among other things, result in a material decrease in cash available for
    distribution and a material reduction in the value of the Common Shares
    and OP Units.
  . No assurance can be provided that new legislation, Treasury Regulations,
    administrative interpretations or court decisions will not significantly
    change the tax laws with respect to Host REIT's qualification as a REIT or
    the federal income tax consequences of such qualification.
 
  THE GENERAL PARTNERS OF THE PARTNERSHIPS BELIEVE THAT THE MERGERS PROVIDE
SUBSTANTIAL BENEFITS AND ARE FAIR TO THE LIMITED PARTNERS OF EACH PARTNERSHIP
AND RECOMMEND THAT ALL LIMITED PARTNERS VOTE FOR THE MERGERS AND FOR THE
RELATED AMENDMENTS TO THE PARTNERSHIP AGREEMENTS. SEE "BACKGROUND AND REASONS
FOR THE MERGERS AND THE REIT CONVERSION--REASONS FOR THE MERGERS."
   
  The number of OP Units to be allocated to each Partnership will be based
upon (i) its respective Exchange Value (as defined herein) and (ii) the price
attributed to an OP Unit following the Mergers, determined as described herein
(which, subject to adjustment, will not be less than $9.50 or greater than
$15.50 per OP Unit) and will not be known at the time of voting. The number of
Common Shares a Limited Partner may elect to receive in connection with the
Mergers will equal the number of OP Units received. The principal amount of
Notes that Limited Partners may elect to receive will be based upon their
Partnership's Note Election Amount (as defined herein). See "Determination of
Exchange Values and Allocation of OP Units." The estimated Exchange Values and
Note Election Amounts set forth in this Consent Solicitation may increase or
decrease as a result of various adjustments, and will be finally calculated
shortly before the closing of the Mergers (the "Effective Date").     
 
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/CONSENT
SOLICITATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
 
  THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
 THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
 
  THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT IS ONLY AUTHORIZED FOR
DELIVERY TO LIMITED PARTNERS WHEN ACCOMPANIED BY ONE OR MORE SUPPLEMENTS
RELATING TO THE PARTNERSHIPS IN WHICH SUCH LIMITED PARTNERS HOLD INTERESTS.
SEE "AVAILABLE INFORMATION."
 
THE DATE OF THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT IS OCTOBER  , 1998.
 
                                      ii

<PAGE>
 
                               TABLE OF CONTENTS
 

<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
SUMMARY...................................................................   1
  Forward-Looking Statements..............................................   1
  Certain Key Definitions.................................................   1
  Overview................................................................   4
  Risk Factors............................................................   7
  The REIT Conversion.....................................................  15
  The Mergers.............................................................  20
  Reasons for the Mergers.................................................  24
  Determination of Exchange Values and Allocation of OP Units.............  26
  Description of the Common Share Election................................  28
  Description of the Note Election........................................  29
  Fairness Analysis and Opinion...........................................  29
  Recommendation..........................................................  30
  Solicitation Materials..................................................  30
  Voting Procedures.......................................................  30
  OP Unit Exchange Election Procedures....................................  31
  Federal Income Tax Consequences.........................................  31
  Summary Financial Information...........................................  34
RISK FACTORS..............................................................  36
 Risks and Effects of the Mergers.........................................  36
  Conflicts of Interest...................................................  36
  Absence of Arm's Length Negotiations; No Independent Representative.....  37
  Exchange Value May Not Equal Fair Market Value of the Partnerships'
   Hotels.................................................................  37
  Allocation of OP Units to Host REIT Is Different from Allocation of OP
   Units to the Partnerships..............................................  38
  Allocations of OP Units to the Blackstone Entities and the Private
   Partnerships Were Not Determined by the Exchange Value Methodologies...  38
  Price of OP Units or Common Shares Might Be Less than the Fair Market
   Value of the Partnership Interests.....................................  38
  Inability of Limited Partners Who Retain OP Units to Redeem OP Units for
   One Year...............................................................  38
  Value of the Notes Will Be Less than the Exchange Value.................  38
  Cash Distributions May Exceed Cash Available for Distribution; Reduced
  Cash Distributions for Certain Limited Partners.........................  39
  Timing of the REIT Conversion...........................................  39
  Changes in the Fairness Opinion.........................................  40
  Fundamental Change in the Nature of Investment; Potential
   Underperformance ......................................................  40
  Exposure to Market and Economic Conditions of Other Hotels..............  40
  Limited Partners Have No Cash Appraisal Rights..........................  40
  Uncertainties as to the Size and Leverage of the Operating Partnership..  40
  Other Uncertainties at the Time of Voting Include Number of OP Units to
   be Received............................................................  41
  Lack of Control over Hotel Operations...................................  41
  Lack of Control over Non-Controlled Subsidiaries........................  41
  Dependence of the Operating Partnership upon Crestline..................  42
  Expiration of the Leases and Possible Inability to Find Other Lessees...  42
  Requisite Vote of Limited Partners of Partnerships Binds All Limited
   Partners...............................................................  42
  Inability to Obtain Third-Party Consents May Have a Material Adverse
   Effect.................................................................  42
  Substantial Indebtedness of the Operating Partnership...................  42
  No Limitation on Debt...................................................  43
  Individual Assets May Outperform the Operating Partnership's Portfolio..  43
  Leases Could Impair the Sale or Other Disposition of the Operating
   Partnership's Hotels...................................................  43
  Management Agreements Could Impair the Sale or Other Disposition of the
   Operating Partnership's Hotels.........................................  43
</TABLE>
    
 
                                      iii

<PAGE>
 

<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
  No Control over Major Decisions.........................................  44
  Foregoing Potential Benefits of Alternatives to the REIT Conversion.....  44
  No Partner Liability....................................................  44
  Dilution................................................................  45
 Risks of Ownership of OP Units and Common Shares.........................  45
  Inability to Remove Host REIT as General Partner of the Operating
   Partnership............................................................  45
  Restrictions on Transfer of OP Units....................................  45
  Limitations on Acquisition of OP Units and Common Shares and Change in
   Control................................................................  45
  Possible Adverse Consequences of Limits on Ownership of Common Shares...  48
  Possible Differing Fiduciary Duties of General Partners and Host REIT...  48
  Effect on Common Share Price of Shares Available for Future Sale........  49
  Current Host Common Stock Price Is Not Necessarily Indicative of the
   Price of Host REIT Common Shares Following the REIT Conversion.........  49
  Effect on Common Share Price of Market Conditions.......................  49
  Effect on Common Share Price of Earnings and Cash Distributions.........  50
  Effect on Common Share Price of Market Interest Rates...................  50
  Effect on Common Share Price of Unrelated Events........................  50
  Dependence on External Sources of Capital...............................  50
 Risks of Ownership of the Notes..........................................  50
  The Notes Are Unsecured.................................................  50
  No Public Market for the Notes..........................................  50
  Limited Protection for Noteholders in the Event of a Restructuring or
   Similar Transaction....................................................  50
 Risks of Operation.......................................................  51
  Competition in the Lodging Industry.....................................  51
  General Real Estate Investment Risks....................................  51
  Rental Revenues from Hotels Subject to Prior Rights of Lenders..........  52
  Possible Underperformance of New Acquisitions...........................  52
  Seasonality.............................................................  52
  Illiquidity of Real Estate..............................................  52
  Limitations on Sale or Refinancing of Certain Hotels....................  52
  Hotels Subject to Ground Leases May Affect the Operating Partnership's
   Revenues...............................................................  52
 Federal Income Tax Risks.................................................  53
  Tax Consequences of the Mergers.........................................  53
  Effects of Subsequent Events upon Recognition of Gain...................  54
  Sale of Personal Property May Result in Gain to Limited Partners in
   Certain Partnerships...................................................  54
  Election to Exchange OP Units for Common Shares.........................  55
  Election to Exchange OP Units for Notes.................................  55
  Exercise of Unit Redemption Right.......................................  55
  Limited Partners Need to Consult with Their Own Tax Advisors............  55
 Failure of Host REIT to Qualify as a REIT................................  56
  General.................................................................  56
  Required Distributions and Payments.....................................  56
  Consequences of Failure to Qualify as a REIT............................  57
  Earnings and Profits Attributable to "C" Corporation Taxable Years......  57
  Treatment of Leases.....................................................  57
  Other Tax Liabilities; Host REIT's Substantial Deferred and Contingent
   Tax Liabilities........................................................  57
  Failure of the Operating Partnership to Qualify as a Partnership........  58
 Miscellaneous Risks......................................................  58
  Dependence upon Key Personnel...........................................  58
  Potential Litigation Related to the REIT Conversion.....................  58
  Risk Involved in Investments through Partnerships or Joint Ventures.....  59
</TABLE>
    
 
                                       iv

<PAGE>
 

<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
  Changes in Laws.........................................................  59
  Uninsured Loss..........................................................  59
  Americans with Disabilities Act.........................................  59
  Other Regulatory Issues.................................................  60
  Possible Environmental Liabilities......................................  60
CONFLICTS OF INTEREST.....................................................  61
 Substantial Benefits to Related Parties..................................  61
 Affiliated General Partners..............................................  61
 Leasing Arrangements.....................................................  61
 Different Tax Consequences upon Sale or Refinancing of Certain Hotels....  62
 Partnership Agreement....................................................  62
 Potential Conflicts Involving Marriott International and Crestline.......  62
 Absence of Arm's Length Negotiations; No Independent Representative......  62
 Potential AAA Conflicts..................................................  63
 Policies with Respect to Conflicts of Interest...........................  63
BACKGROUND AND REASONS FOR THE MERGERS AND THE REIT CONVERSION............  64
 Background of the Partnerships...........................................  64
 Background of the Mergers and the REIT Conversion........................  68
 Reasons for the Mergers..................................................  71
 Compensation and Distributions to the General Partners and Marriott
  International...........................................................  75
 Alternatives to the Mergers..............................................  76
 Recommendation of the General Partners...................................  78
DETERMINATION OF EXCHANGE VALUES AND ALLOCATION OF OP UNITS...............  79
 Overview.................................................................  79
 Methodology for Determining Exchange Values..............................  79
 Price of OP Units to Pay Exchange Values to Limited Partners.............  87
 Determination of Value of the General Partners' Interests in the
  Partnerships and Allocation of OP Units to the General Partners.........  88
FAIRNESS ANALYSIS AND OPINION.............................................  89
 Fairness Analysis........................................................  89
 Fairness Opinion.........................................................  92
THE MERGERS AND THE REIT CONVERSION.......................................  95
 General..................................................................  95
 The REIT Conversion......................................................  95
 The Mergers.............................................................. 101
 Conditions to Consummation of the Mergers................................ 103
 Extension, Amendment and Termination of the Mergers...................... 104
 Effect of REIT Conversion on Non-Participating Partnerships.............. 104
 Expenses................................................................. 105
 Accounting Treatment..................................................... 105
BUSINESS AND PROPERTIES................................................... 106
 Business of the Operating Partnership.................................... 106
 General.................................................................. 106
 Business Objectives...................................................... 107
 Business Strategy........................................................ 107
 Hotel Lodging Industry................................................... 110
 Hotel Lodging Properties................................................. 111
</TABLE>
    
 
                                       v

<PAGE>
 

<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
 Hotel Properties......................................................... 115
 1998 Acquisitions........................................................ 117
 Blackstone Acquisition................................................... 117
 Investments in Affiliated Partnerships................................... 118
 Marketing................................................................ 118
 Competition.............................................................. 119
 Relationship with HM Services............................................ 119
 Relationship with Marriott International; Marriott International
  Distribution............................................................ 119
 Employees................................................................ 120
 Environmental and Regulatory Matters..................................... 120
 Legal Proceedings........................................................ 120
 The Leases............................................................... 122
 The Management Agreements................................................ 126
 Noncompetition Agreement................................................. 130
 Indebtedness............................................................. 131
DISTRIBUTION AND OTHER POLICIES........................................... 135
 Distribution Policy...................................................... 135
 Investment Policies...................................................... 138
 Financing Policies....................................................... 139
 Lending Policies......................................................... 139
 Conflicts of Interest Policies........................................... 139
 Policies with Respect to Other Activities................................ 140
SELECTED FINANCIAL DATA................................................... 141
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
 FINANCIAL CONDITION...................................................... 143
 Lack of Comparability Following the Mergers and the REIT Conversion...... 143
 Historical Results of Operations......................................... 143
 First Two Quarters 1998 Compared to First Two Quarters 1997
  (Historical)............................................................ 143
 1997 Compared to 1996 (Historical)....................................... 145
 1996 Compared to 1995 (Historical)....................................... 147
 Pro Forma Results of Operations.......................................... 148
 100% Participation with No Notes Issued--First Two Quarters 1998 Compared
  to First Two Quarters 1997 (Pro Forma).................................. 149
 100% Participation with Notes Issued--First Two Quarters 1998 Compared to
  First Two Quarters 1997 (Pro Forma)..................................... 150
 100% Participation with No Notes Issued--1997 Compared to 1996 (Pro
  Forma).................................................................. 151
 100% Participation with Notes Issued--1997 Compared to 1996 (Pro Forma).. 152
 Liquidity and Capital Resources.......................................... 153
MANAGEMENT................................................................ 162
 Directors and Executive Officers of Host REIT............................ 162
 Committees of the Board of Directors .................................... 164
 Compensation of Directors ............................................... 165
 Executive Compensation................................................... 165
 Aggregated Stock Option Exercises and Year-End Value..................... 167
 Long-Term Incentive Plan................................................. 168
 Employment Agreements.................................................... 168
 1998 Employee Benefits Allocation Agreement.............................. 168
 Comprehensive Stock Incentive Plan....................................... 169
 Stock Purchase Plan...................................................... 170
</TABLE>
    
 
                                       vi

<PAGE>
 

<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
 401(k) Plan.............................................................. 170
 Deferred Compensation Plan............................................... 170
 Limitation of Liability and Indemnification.............................. 171
 Indemnification Agreements............................................... 172
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 173
 Relationship Between Host and Marriott International..................... 173
 Relationship Between Host and Host Marriott Services Corporation......... 176
 Relationship Between Host and Crestline Capital Corporation After the
  Initial E&P Distribution................................................ 177
PRINCIPAL SECURITY HOLDERS................................................ 180
DESCRIPTION OF OP UNITS................................................... 182
 General.................................................................. 182
 Formation................................................................ 182
 Purposes, Business and Management........................................ 182
 Host REIT May Not Engage in Other Businesses; Conflicts of Interest...... 183
 Distributions; Allocations of Income and Loss............................ 183
 Borrowing by the Operating Partnership................................... 184
 Reimbursement of Host REIT; Transactions with Host REIT and its
  Affiliates.............................................................. 184
 Liability of Host REIT and Limited Partners.............................. 184
 Exculpation and Indemnification of Host REIT............................. 185
 Sales of Assets.......................................................... 185
 Removal or Withdrawal of Host REIT; Transfer of Host REIT's Interests.... 185
 Certain Voting Rights of Holders of OP Units During the First Year
  Following the Mergers................................................... 186
 Restrictions on Transfers of Interests by Limited Partners............... 186
 Unit Redemption Right.................................................... 187
 No Withdrawal by Limited Partners........................................ 188
 Issuance of Limited Partnership Interests................................ 188
 Meetings; Voting......................................................... 188
 Amendment of the Partnership Agreement................................... 188
 Books and Reports........................................................ 189
 Power of Attorney........................................................ 189
 Dissolution, Winding Up and Termination.................................. 190
 Ownership Limitation..................................................... 190
DESCRIPTION OF CAPITAL STOCK ............................................. 191
 General.................................................................. 191
 Common Shares............................................................ 191
 Preferred Shares......................................................... 192
 Power to Issue Additional Common Shares and Preferred Shares............. 192
 Restrictions on Ownership and Transfer................................... 192
 Transfer Agent and Registrar............................................. 195
CERTAIN PROVISIONS OF MARYLAND LAW AND HOST REIT'S CHARTER AND BYLAWS..... 196
 Number of Directors; Classification and Removal of Board of Directors;
  Other Provisions........................................................ 196
 Changes in Control Pursuant to Maryland Law.............................. 197
 Advance Notice of Director Nominations and New Business.................. 197
 Meetings of Shareholders; Call of Special Meetings; Shareholder Action in
  Lieu of Meeting by Unanimous Consent.................................... 198
 Merger, Consolidation, Share Exchange and Transfer of Assets of Host
  REIT.................................................................... 198
 Amendments to Host REIT's Charter and Bylaws............................. 199
 Anti-Takeover Effect of Certain Provisions of Maryland Law and Host
  REIT's Charter and Bylaws............................................... 199
 Marriott International Purchase Right.................................... 199
 Shareholder Rights Plan.................................................. 199
</TABLE>
    
 
                                      vii

<PAGE>
 

<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
DESCRIPTION OF THE NOTES.................................................. 201
 General.................................................................. 201
 Principal and Interest................................................... 201
 Redemption............................................................... 202
 Limitation on Incurrence of Indebtedness................................. 202
 Merger, Consolidation or Sale............................................ 203
 Events of Default, Notice and Waiver..................................... 203
 Modification of the Indenture............................................ 205
 Satisfaction and Discharge............................................... 205
 No Conversion Rights..................................................... 205
 Governing Law............................................................ 205
COMPARISON OF OWNERSHIP OF PARTNERSHIP INTERESTS, OP UNITS AND
 COMMON SHARES............................................................ 206
ERISA CONSIDERATIONS...................................................... 230
 Status of Host REIT and the Operating Partnership Under ERISA............ 230
FEDERAL INCOME TAX CONSEQUENCES........................................... 231
 Introduction............................................................. 231
 Summary of Tax Opinions.................................................. 232
 Tax Status of the Operating Partnership.................................. 234
 Tax Consequences of the Mergers.......................................... 236
 Tax Treatment of Limited Partners Who Exercise Their Right to Make the
  Common Share Election or the Note Election.............................. 250
 Tax Treatment of Limited Partners Who Hold OP Units Following the
  Mergers................................................................. 251
 Federal Income Taxation of Host REIT Following the Mergers............... 263
 Taxation of Taxable U.S. Shareholders of Host REIT Generally............. 275
 Backup Withholding for Host REIT Distributions........................... 277
 Taxation of Tax-Exempt Shareholders of Host REIT......................... 278
 Taxation of Non-U.S. Shareholders of Host REIT........................... 278
 Tax Aspects of Host REIT's Ownership of OP Units......................... 281
 Other Tax Consequences for Host REIT and Its Shareholders................ 281
VOTING PROCEDURES......................................................... 283
 Distribution of Solicitation Materials................................... 283
 Form W-9 and FIRPTA Certification or Withholding Certificate Required.... 283
 No Special Meetings...................................................... 284
 Required Limited Partner Vote and Other Conditions....................... 284
OP UNIT EXCHANGE ELECTION PROCEDURES...................................... 288
 Description of the Common Share Election................................. 288
 Description of the Note Election......................................... 289
 Election Procedures...................................................... 289
 Form W-9 and FIRPTA Certification or Withholding Certificate Required.... 289
EXPERTS................................................................... 290
LEGAL MATTERS............................................................. 290
AVAILABLE INFORMATION..................................................... 290
GLOSSARY.................................................................. 292
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
    
 
                                      viii

<PAGE>
 
APPENDICES
  Appendix A--Form of Amended and Restated Agreement of Limited Partnership
              of Host Marriott, L.P.
  Appendix B--Fairness Opinion of American Appraisal Associates, Inc.
  Appendix C--Tax Opinion of Hogan & Hartson L.L.P. with respect to the
              Mergers
  Appendix D--Form of Tax Opinion of Hogan & Hartson L.L.P. with Respect to
              Qualification of Host REIT as a REIT
  Appendix E--Estimated Adjusted Basis of Limited Partners in Partnership
              Interests and "Share" of Limited Partners in Partnership
              Liabilities
 
                                       ix

<PAGE>
 
                                    SUMMARY
 
  This Summary does not purport to be complete and is qualified in its entirety
by the more detailed information appearing elsewhere in this Prospectus/Consent
Solicitation Statement, including the appendices and supplements hereto (this
"Consent Solicitation"), and is presented solely to provide an overview of the
transactions described in detail in the remainder of this Consent Solicitation
and of the business and investment considerations and risks related to the
proposed transactions. Prospective investors are advised not to rely on this
Summary, but to carefully review this entire Consent Solicitation.
 
  The information contained herein, unless otherwise indicated, assumes the
REIT Conversion (including the Blackstone Acquisition), occurs, all
Partnerships (as defined herein) participate and no Common Shares or Notes (as
defined herein) are issued (the "Full Participation Scenario").
 
FORWARD-LOOKING STATEMENTS
 
  Certain matters discussed herein or delivered in connection with this Consent
Solicitation are forward-looking statements. 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,"
"estimates" or "anticipates" or the negative thereof or other variations
thereof or comparable terminology. All forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
transactions, results, performance or achievements of the Operating Partnership
or Host REIT to be materially different from any future transactions, results,
performance or achievements expressed or implied by such forward-looking
statements. The cautionary statements set forth under the caption "Risk
Factors" and elsewhere in this Consent Solicitation identify important factors
with respect to such forward-looking statements, including the following
factors that could affect such forward-looking statements: (i) national and
local economic and business conditions that will, among other things, affect
demand for hotels 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
meeting capital expenditure requirements); (iii) the ability of the Operating
Partnership or Host REIT to compete effectively in areas such as access,
location, quality of accommodations and room rate structures; (iv) the ability
of the Operating Partnership or Host REIT to acquire or develop additional
properties and the risk that potential acquisitions or developments may not
perform in accordance with expectations; (v) the ability of Host to obtain
required consents of shareholders, lenders, debt holders, partners and ground
lessors of Host and its affiliates and of other third parties in connection
with the REIT Conversion and to consummate all of the transactions constituting
the REIT Conversion (including the Blackstone Acquisition); (vi) changes in
travel patterns, taxes and government regulations which influence or determine
wages, prices, construction procedures and costs; (vii) governmental approvals,
actions and initiatives, including the need for compliance with environmental
and safety requirements, and changes in laws and regulations or the
interpretation thereof; (viii) the effects of tax legislative action; and (ix)
in the case of Host REIT, the timing of Host REIT's election to be taxed as a
REIT and the ability of Host REIT to satisfy complex rules in order to qualify
for taxation as a REIT for federal income tax purposes and to operate
effectively within the limitations imposed by these rules. Although the
Operating Partnership and Host REIT believe the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, they can give
no assurance that their expectations will be attained or that any deviations
will not be material. The Operating Partnership and Host REIT undertake no
obligation to publicly release the result of any revisions to these forward-
looking statements that may be made to reflect any future events or
circumstances.
 
CERTAIN KEY DEFINITIONS
 
  The following terms have the meanings set forth below. See the "Glossary" at
page 291 for the definitions of other capitalized terms used in this Consent
Solicitation.
 
                                       1

<PAGE>

 
                                Host Marriott Corporation, a Delaware
"Host"........................  corporation, and either the general partner or
                                an affiliate of the general partner of each
                                Partnership, or, as the context may require,
                                Host Marriott Corporation together with its
                                subsidiaries or any of such subsidiaries.
 
"Host REIT"...................  HMC Merger Corporation, a Maryland corporation,
                                which will be the sole general partner of the
                                Operating Partnership and the successor to
                                Host, or, as the context may require, HMC
                                Merger Corporation, together with its
                                subsidiaries or any of such subsidiaries. In
                                connection with the REIT Conversion, HMC Merger
                                Corporation will change its name to "Host
                                Marriott Corporation."
 
"Operating Partnership".......  Host Marriott, L.P., a Delaware limited
                                partnership, or, as the context may require,
                                such entity together with its subsidiaries,
                                including the Non-Controlled Subsidiaries (as
                                defined herein), or any of them; also means
                                Host when used to describe such entity on a pro
                                forma basis before the REIT Conversion.
 
"Company".....................  Host (to the extent of its business and assets
                                to be contributed to the Operating Partnership)
                                with respect to periods prior to the REIT
                                Conversion, and Host REIT and the Operating
                                Partnership collectively with respect to the
                                period after the REIT Conversion.
 
"Partnership".................  Any of Atlanta Marriott Marquis II Limited
                                Partnership, a Delaware limited partnership
                                ("Atlanta Marquis"); Desert Springs Marriott
                                Limited Partnership, a Delaware limited
                                partnership ("Desert Springs"); Hanover
                                Marriott Limited Partnership, a Delaware
                                limited partnership ("Hanover"); Marriott
                                Diversified American Hotels, L.P., a Delaware
                                limited partnership ("MDAH"); Marriott Hotel
                                Properties Limited Partnership, a Delaware
                                limited partnership ("MHP"); Marriott Hotel
                                Properties II Limited Partnership, a Delaware
                                limited partnership ("MHP2"); Mutual Benefit
                                Chicago Marriott Suite Hotel Partners, L.P.
                                ("Chicago Suites"), a Rhode Island limited
                                partnership; and Potomac Hotel Limited
                                Partnership, a Delaware limited partnership
                                ("PHLP"); or, as the context may require, any
                                such entity together with its subsidiaries, or
                                any of such subsidiaries.
 
"General Partner".............  The general partner of a Partnership, each of
                                which general partner is a wholly owned, direct
                                or indirect subsidiary of Host (except in the
                                case of PHLP, in which Host is the general
                                partner).
 
"Limited Partners"............  The limited partners, excluding those
                                affiliated with Host, of the Partnerships.
 
"Partnership Interests".......  The interests of the Limited Partners in their
                                respective Partnerships.
 
 
                                       2

<PAGE>
 
                                The limited partnership interests in the
"OP Units"....................  Operating Partnership.
 
"Common Shares"...............  Shares of common stock, par value $.01 per
                                share, of Host REIT.
 
"Note"........................  An unsecured 6.56% Callable Note due December
                                15, 2005 of the Operating Partnership with a
                                principal amount equal to the Note Election
                                Amount of the Limited Partner's Partnership
                                Interest.
 
"Crestline"...................  Crestline Capital Corporation (formerly HMC
                                Senior Communities, Inc.), a Delaware
                                corporation, or, as the context may require,
                                such entity together with the Lessees (as
                                defined herein) and its other subsidiaries or
                                any of them, which currently is a wholly owned
                                subsidiary of Host but will become a separate
                                public company as part of the REIT Conversion.
 
"Non-Controlled                 The one or more taxable corporations in which
Subsidiaries".................  the Operating Partnership will own 95% of the
                                economic interest but no voting stock and which
                                will hold various assets contributed by Host
                                and its subsidiaries to the Operating
                                Partnership, which assets, if owned directly by
                                the Operating Partnership, could jeopardize
                                Host REIT's status as a REIT.
 
"Private Partnership".........  A partnership (other than a Partnership) or
                                limited liability company that owns one or more
                                full-service Hotels and that, prior to the REIT
                                Conversion, is partially but not wholly owned
                                by Host or one of its subsidiaries. The Private
                                Partnerships are not participating in the
                                Mergers.
 
"Hotel Partnership"...........  Any Partnership or Private Partnership.
 
"Merger"......................  The proposed merger of a subsidiary of the
                                Operating Partnership (a "Merger Partnership")
                                into a Partnership pursuant to this Consent
                                Solicitation, in which the Partnership will be
                                the surviving entity and will become a
                                subsidiary of the Operating Partnership.
                                
                                
"Blackstone Acquisition"......  The expected acquisition from The Blackstone
                                Group and a series of funds controlled by
                                Blackstone Real Estate Partners (collectively,
                                the "Blackstone Entities") of ownership of, or
                                controlling interests in, twelve hotels and a
                                mortgage loan secured by a thirteenth hotel in
                                exchange for OP Units, the assumption of
                                certain liabilities and other consideration,
                                including up to 18% of the shares of Crestline
                                common stock, to the extent such acquisition is
                                consummated.     
                                
        
"Initial E&P Distribution"....  One or more taxable distributions by Host or
                                Host REIT to its shareholders in connection
                                with the REIT Conversion consisting of shares
                                of common stock of Crestline and cash or other
                                consideration in an amount to be determined.
                                    
                                       3

<PAGE>
 
 
"REIT Conversion".............     
                                (i) The contribution by Host of its wholly
                                owned Hotels, its interests in the Hotel
                                Partnerships and certain other businesses and
                                assets to the Operating Partnership, (ii) the
                                recently completed refinancing and amendment of
                                the debt securities and certain credit
                                facilities of Host substantially in the manner
                                described herein, (iii) the Mergers (if and to
                                the extent consummated), (iv) the acquisition
                                (whether by merger or otherwise) by the
                                Operating Partnership of certain Private
                                Partnerships or interests therein (if and to
                                the extent consummated), (v) the Blackstone
                                Acquisition (if and to the extent consummated),
                                (vi) the creation and capitalization of the
                                Non-Controlled Subsidiaries, (vii) the merger
                                of Host into Host REIT and the distribution by
                                Host or Host REIT of Crestline common stock and
                                cash or other consideration to its shareholders
                                and the Blackstone Entities in connection with
                                the Initial E&P Distribution (as defined
                                herein), (viii) the leasing of the Hotels to
                                subsidiaries of Crestline or others and (ix)
                                such other related transactions and steps
                                occurring prior to, substantially concurrent
                                with or within a reasonable time after the
                                Effective Date as Host may determine in its
                                sole discretion to be necessary or desirable to
                                complete or facilitate the transactions
                                contemplated herein or otherwise to permit Host
                                REIT to elect to be treated as a REIT for
                                federal income tax purposes for the first full
                                taxable year commencing after the Mergers.     
 
OVERVIEW
   
  This Consent Solicitation is being furnished to the Limited Partners of each
Partnership to solicit their approval of a Merger of their Partnership with a
subsidiary of the Operating Partnership, which has been formed primarily to
continue and expand the full-service hotel ownership business of Host,
operating together with its general partner, Host REIT, as an umbrella
partnership REIT (an "UPREIT"). If the requisite Limited Partners of each
Partnership consent to a Merger of their respective Partnership and to certain
related amendments to the respective Partnership's partnership agreement and
the other conditions for consummation of a Merger (including completion of the
REIT Conversion) are satisfied or waived, the Operating Partnership will
acquire such Partnership (a "Participating Partnership") by merger and the
Limited Partners of such Participating Partnership will receive OP Units. The
number of OP Units to be received by the Limited Partners in the Mergers will
be based upon the average closing price on the NYSE of a Host REIT Common Share
for the first 20 trading days after the Effective Date of the Mergers (but,
subject to adjustment, will not be less than $9.50 or greater than $15.50 per
OP Unit even if such average trading price is less than $9.50 or greater than
$15.50 per Common Share). The maximum and minimum prices per OP Unit will be
reduced if the Blackstone Acquisition is not consummated and, as a result
thereof, the Initial E&P Distribution exceeds $2.50 per Host or Host REIT
common share. Each Limited Partner can elect, at any time prior to the end of
the Election Period (as defined herein), to receive either Common Shares or a
Note in exchange for all OP Units received in the Mergers.     
 
  The General Partners, the Operating Partnership and Host REIT believe that
participation in the Mergers will provide the following benefits to Limited
Partners:
 
  . The opportunity to receive regular cash distributions per OP Unit equal
    to the distributions paid on each Host REIT Common Share;
 
  . The ability to participate in the operations of a larger, more diverse
    enterprise with growth opportunities and generally lower leverage;
 
                                       4

<PAGE>
 
 
  . The ability to receive, in exchange for their OP Units, freely tradeable
    Host REIT Common Shares in connection with the Mergers;
 
  . The ability of Limited Partners who retain OP Units, at any time
    beginning one year following the Mergers, to liquidate their investment
    in the Operating Partnership for cash based upon the price of Host REIT
    Common Shares or, at the election of Host REIT, Host REIT Common Shares;
    and
 
  . The deferral, for Limited Partners who retain OP Units, of recognition of
    at least a substantial portion of any built-in taxable gain attributable
    to their Partnership Interests generally until such time as each Limited
    Partner elects to trigger such gain.
 
  Host and the General Partners are proposing the Mergers in connection with a
plan adopted by Host to restructure its business operations so that it will
qualify as a real estate investment trust (a "REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"). Host REIT expects to qualify as a REIT
beginning with its first full taxable year commencing after the REIT Conversion
is completed, which currently is expected to be the year commencing January 1,
1999 (but which might not be until the year beginning January 1, 2000). Host's
reasons for engaging in the REIT Conversion include the following:
 
  . Host believes the REIT structure, as a more tax efficient structure, will
    provide improved operating results through changing economic conditions
    and all phases of the hotel economic cycle.
 
  . Host believes the REIT Conversion, which will reduce corporate-level
    taxes and the need to incur debt to reduce corporate taxes through
    interest deductions, will improve its financial flexibility and allow it
    to continue to strengthen its balance sheet by reducing its overall debt
    to equity ratio over time.
 
  . As a REIT, Host believes it will be able to compete more effectively with
    other public lodging real estate companies that already are organized as
    REITs and to make performance comparisons with its peers more meaningful.
 
  . By becoming a dividend paying company, Host believes its shareholder base
    will expand to include investors attracted by yield as well as asset
    quality.
 
  . Host believes the adoption of the UPREIT structure will facilitate tax-
    deferred acquisitions of other hotels (such as in the case of the
    Blackstone Acquisition and the Mergers).
   
Host believes that these benefits justify the REIT Conversion even if the REIT
Conversion does not occur in time for Host REIT to elect REIT status effective
January 1, 1999 (in which event the effectiveness of Host's REIT election could
be delayed until January 1, 2000).     
 
  The primary business objectives of the Operating Partnership and Host REIT
will be to (i) achieve long-term sustainable growth in "Funds From Operations"
(defined as net income (or loss) computed in accordance with generally accepted
accounting principles ("GAAP"), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures) and cash flow per OP Unit or Common Share, (ii) increase asset
values by improving and expanding the initial Hotels, as appropriate, (iii)
acquire additional existing and newly developed upscale and luxury full-service
hotels in targeted markets, (iv) develop and construct upscale and luxury full-
service hotels and (v) potentially pursue other real estate investments.
 
  If the REIT Conversion is consummated as contemplated (including the
Blackstone Acquisition), the Operating Partnership is expected initially to
own, or have controlling interests in, approximately 125 full-service hotels,
located throughout the United States and Canada containing approximately 58,500
rooms and operating primarily under the Marriott, Ritz-Carlton, Four Seasons,
Swissotel and Hyatt brand names (the "Hotels").
 
                                       5

<PAGE>
 
   
  Because REITs are not permitted under current federal income tax law to
derive revenues directly from the operation of hotels, the Operating
Partnership will lease the Hotels to lessees (the "Lessees") that will operate
the Hotels under the existing management agreements and pay rent to the
Operating Partnership, as more fully described herein. The Lessees generally
will be wholly owned indirect subsidiaries of Crestline. Crestline, which
currently is a wholly owned subsidiary of Host, will become a separate public
company when Host or Host REIT distributes the common stock of Crestline and
cash or other consideration to its existing shareholders and the Blackstone
Entities in connection with the Initial E&P Distribution. Shares of Host REIT
and Crestline will become separately traded securities and the companies will
operate independently. There will be no overlap between the boards of Host REIT
and Crestline. There will be a substantial overlap of shareholders of the two
companies initially, but this overlap will diverge over time.     
   
  As the first step in a strategy to acquire non-Marriott as well as Marriott
branded hotels, Host has entered into an agreement with the Blackstone Entities
to acquire from the Blackstone Entities ownership of, or controlling interests
in, twelve upscale and luxury full-service hotel properties (the "Blackstone
Hotels") and certain other related assets (including a mortgage loan secured by
an additional hotel) in exchange for a combination of cash and the assumption
of debt totalling $862 million, 43.7 million OP Units (based upon a negotiated
value of $20.00 per OP Unit), and up to 18% of the shares of Crestline common
stock and other consideration. If the Blackstone Acquisition is consummated,
the interests in the Blackstone Hotels will be contributed by the Blackstone
Entities to the Operating Partnership as part of the REIT Conversion. The
Blackstone Hotels will be leased to Lessees that are subsidiaries of Crestline
and will continue to be managed under their existing management agreements. See
"Business and Properties--Blackstone Acquisition."     
 
  The following table sets forth certain information as of June 19, 1998 (or,
in the case of average daily rate, average occupancy and revenues per available
room ("REVPAR"), for the twenty-four weeks then ended ("First Two Quarters
1998")) for the Hotels that are expected to comprise the Operating
Partnership's initial full-service lodging portfolio:
 

<TABLE>
<CAPTION>
                               NUMBER    NUMBER   AVERAGE    AVERAGE
   CURRENT OWNER              OF HOTELS OF ROOMS DAILY RATE OCCUPANCY REVPAR(1)
   -------------              --------- -------- ---------- --------- ---------
   <S>                        <C>       <C>      <C>        <C>       <C>
   Atlanta Marquis(2)(3).....      1      1,671   $138.66     69.1%    $ 95.81
   Desert Springs(2).........      1        884    214.47     79.7      170.93
   Hanover(2)................      1        353    142.62     71.5      101.97
   MHP(2)(4).................      2      2,127    176.75     85.0      150.24
   MHP2(2)(5)................      4      3,411    152.56     80.4      122.66
   Chicago Suites............      1        256    159.98     82.0      131.18
   MDAH......................      6      1,692    114.66     77.0       88.29
   PHLP(6)...................      8      3,181    117.81     81.1       95.54
   Blackstone Hotels.........     12      5,520    175.53     72.0      126.41
   Host (historical)(6)(7)...    101     49,019    145.04     78.6      114.02
   Host (pro forma)(6)(8)....    126     58,603    146.18     77.8      113.67
</TABLE>

- --------
(1) REVPAR is a commonly used indicator of market performance of hotels. REVPAR
    measures daily room revenues generated on a per room basis by combining the
    average daily room rate charged and the average daily occupancy achieved.
    REVPAR excludes food and beverage and other ancillary revenues generated by
    the hotel.
(2) Currently included in Host's consolidated financial statements.
(3) Atlanta Marquis has an 80% residual interest in the Atlanta Marriott
    Marquis Hotel.
(4) Includes Marriott's Harbor Beach Resort, in which MHP owns a 50.5%
    interest.
(5) Includes the Santa Clara Marriott, in which MHP2 owns a 50% interest and
    Host owns the remaining 50% interest.
(6) Includes the Tampa Westshore Marriott and the Raleigh Crabtree Marriott,
    which are currently consolidated by Host. A subsidiary of Host provided
    100% nonrecourse financing totaling approximately $35 million to PHLP, in
    which Host owns the sole general partner interest, for the acquisition of
    these two hotels.
(7) Includes the hotels owned by Atlanta Marquis, Desert Springs, Hanover, MHP
    and MHP2.
(8) Includes the hotels owned by all Hotel Partnerships and the Blackstone
    Hotels, assuming the Full Participation Scenario.
 
                                       6

<PAGE>
 
 
RISK FACTORS
 
  The following is a summary of the material risks associated with the Mergers.
This summary is qualified in its entirety by the detailed discussion in the
section entitled "Risk Factors" contained in this Consent Solicitation. Some of
the significant matters Limited Partners should consider carefully include:
 
  . Substantial Benefits to Related Parties. Host REIT and its subsidiaries
    will realize substantial benefits from the Mergers and the REIT
    Conversion, including savings from a substantial reduction in corporate-
    level income taxes expected as a result of the REIT Conversion. To the
    extent that the anticipated benefits of the REIT Conversion are reflected
    in the value of Host's common stock before the Effective Date, such
    benefits will not be shared with the Limited Partners. The benefits to
    Host of the REIT Conversion will be reduced if one or more of the
    Partnerships do not participate in a Merger, thereby creating a conflict
    of interest for the General Partners in connection with the Mergers.
 
  . Absence of Arm's Length Negotiations. No independent representative was
    retained to negotiate on behalf of the Limited Partners. Although the
    General Partners have obtained the Appraisals (as defined herein) and the
    Fairness Opinion (as defined herein) from American Appraisal Associates,
    Inc., an independent, nationally recognized hotel valuation and financial
    advisory firm ("AAA"), AAA has not negotiated with the General Partners
    or Host and has not participated in establishing the terms of the
    Mergers. Consequently, the terms and conditions of the Mergers may have
    been more favorable to the Limited Partners if such terms and conditions
    were the result of arm's length negotiations.
 
  . Other Conflicts of Interest. The Mergers, the REIT Conversion and the
    recommendations of the General Partners involve the following conflicts
    of interest because of the relationships among Host, Host REIT, the
    Operating Partnership, the General Partners and Crestline. The General
    Partners, which are all subsidiaries of Host (except for PHLP, in which
    Host is the General Partner), must assess whether a Merger is fair and
    equitable to and advisable for the Limited Partners of its Partnership.
    This assessment involves considerations that are different from those
    relevant to the determination of whether the Mergers and the REIT
    Conversion are advisable for Host and its shareholders. The
    considerations relevant to that determination which create a conflict of
    interest include Host's belief that the REIT Conversion is advisable for
    its shareholders, the benefits of the REIT Conversion to Host will be
    greater if the Partnerships participate and Host REIT will benefit if the
    value of the OP Units received by the Limited Partners in the Mergers is
    less than the value of their Partnership Interests. In addition, the
    terms of the Leases of the Hotels, including the Participating
    Partnerships' Hotels, will be determined by Host and the terms of the
    Partnership Agreement, including provisions which benefit Host REIT, have
    been determined by Host. Such conflicts may result in decisions that do
    not fully reflect the interests of all Limited Partners.
 
  . Exchange Value May Not Equal Fair Market Value of the Partnerships'
    Hotels. Each Limited Partner of a Participating Partnership who retains
    OP Units or elects to exchange OP Units for Common Shares will receive
    consideration with a deemed value equal to the Exchange Value of such
    Limited Partner's Partnership Interest. The determination of the Exchange
    Value of each Partnership involves numerous estimates and assumptions.
    There is no assurance that the Exchange Value of a Partnership will equal
    the fair market value of the Hotels and other assets contributed by such
    Partnership. See "Determination of Exchange Values and Allocation of OP
    Units."
 
  . Allocation of OP Units to Host REIT Is Different from Allocation of OP
    Units to the Partnerships. Following the REIT Conversion, Host REIT will
    own a number of OP Units equal to the number of shares of Host common
    stock outstanding on the Effective Date (including the OP Units to be
    received by the General Partners and other subsidiaries of Host in the
    Mergers and the OP Units to be acquired from Limited Partners who elect
    to receive Common Shares in connection with the Mergers) and, if Host has
    outstanding shares of preferred stock at the time of the REIT Conversion,
    a corresponding number of preferred partnership interests in the
    Operating Partnership. Host REIT's OP Units, in the aggregate, should
    fairly represent the market value of Host REIT but may not be equal to
    the fair market or net asset value of the Hotels and other assets that
    Host will contribute to the Operating Partnership. The
 
                                       7

<PAGE>
 
   Partnerships will receive OP Units in the Mergers with a deemed value
   equal to the Exchange Value of such Partnership. The different methods of
   allocating OP Units to Host REIT and the Partnerships may result in
   Limited Partners not receiving the fair market value of their Partnership
   Interests and Host REIT receiving a higher percentage of the interests in
   the Operating Partnership. See "Determination of Exchange Values and
   Allocation of OP Units."
     
  . Allocations of OP Units to the Blackstone Entities and the Private
    Partnerships Were Not Determined by the Exchange Value Methodologies. The
    price and other terms of the acquisitions of certain Private Partnerships
    and the Blackstone Acquisition (and thus the allocation of OP Units
    resulting therefrom) were determined by arm's length negotiations. The
    assets to be acquired in the Blackstone Acquisition did not generate, in
    the aggregate, pro forma net income for 1997 or the First Two Quarters
    1998. If the partners' interests in the Private Partnerships and the
    assets of the Blackstone Entities had been valued by the same
    methodologies used to determine the Exchange Values in the Mergers, the
    value of the OP Units to be allocated to such partners or the Blackstone
    Entities may have been less than they actually will receive. The
    different methods of allocating OP Units may result in the Limited
    Partners receiving relatively less for their Partnership Interests than
    the partners in the Private Partnerships and the Blackstone Entities.
           
  . Price of OP Units or Common Shares Might Be Less than the Fair Market
    Value of the Partnership Interests. The price of an OP Unit for purposes
    of the Mergers will be equal to the average closing price on the NYSE of
    a Host REIT Common Share for the first 20 trading days after the
    Effective Date of the Mergers (but it will not be less than $9.50 or
    greater than $15.50 per OP Unit). This pricing mechanism has the effect
    of fixing the minimum and maximum number of OP Units to be issued in the
    Mergers. It is likely that, either initially or over time, the value of
    the publicly traded Common Shares of Host REIT (and therefore the value
    of the OP Units) will diverge from the deemed value of the OP Units used
    for purposes of the Mergers. This could result in the Limited Partners
    receiving OP Units or Common Shares with an actual value that is less
    than either the price of the OP Units for purposes of the Mergers or the
    fair market value of their Partnership Interests.     
 
  . Inability of Limited Partners Who Retain OP Units to Redeem OP Units for
    One Year. Limited Partners who retain OP Units received in the Mergers
    will be unable to redeem such OP Units for one year following the
    Mergers. Until then, Limited Partners will bear the risk of illiquidity
    and of not being able to sell in a falling market.
 
  . Value of the Notes Will be Less than the Exchange Value. In exchange for
    OP Units received in a Merger, each Limited Partner may elect to receive
    an unsecured, seven-year Note of the Operating Partnership with a
    principal amount equal to the Note Election Amount of his Partnership
    Interest. The deemed value of the OP Units will exceed the principal
    amount of the corresponding Notes in all Partnerships (because the
    Exchange Values will be higher than the Note Election Amounts) and there
    is no assurance that the Note a Limited Partner receives will have a
    value equal to either (i) the fair market value of the Limited Partner's
    share of the Hotels and other assets owned by his Partnership or (ii) the
    principal amount of the Notes. There will be no public market for the
    Notes. If the Notes are sold, they may sell at prices substantially below
    their issuance price. Noteholders are likely to receive the full
    principal amount of a Note only if they hold the Note to maturity, which
    is December 15, 2005, or if the Operating Partnership repays the Notes
    prior to maturity. Because the Notes are unsecured obligations of the
    Operating Partnership, they will be effectively subordinated to all
    secured debt of the Operating Partnership and all obligations of both the
    Participating Partnerships and the Operating Partnership's other
    subsidiaries. See "Description of the Notes." As of June 19, 1998, on a
    pro forma basis assuming the Full Participation Scenario, the Operating
    Partnership would have had aggregate consolidated debt of approximately
    $5.6 billion (including $567 million of debentures related to the
    Convertible Preferred Securities) to which the Notes were effectively
    subordinated or which ranks equally with such Notes.
 
                                       8

<PAGE>
 
     
  . Cash Distributions May Exceed Cash Available for Distribution; Reduced
    Cash Distributions for Certain Limited Partners. The preliminary
    estimated initial annual cash distributions of the Operating Partnership
    during the twelve months ending December 31, 1999 ($226 million) will
    exceed its estimated cash available for distribution ($163 million) and
    cash from contingent rents ($54 million) during the twelve months ending
    December 31, 1999 (totaling $217 million), which would require borrowings
    of approximately $9 million (or $0.04 per OP Unit) to make such
    distributions in accordance with the Operating Partnership's distribution
    policy. Moreover, if estimated cash from contingent rents were less than
    $54 million, then the Operating Partnership also would be required to
    borrow any such shortfall in order to make such distributions. In
    addition, the estimated initial annual cash distributions of the
    Operating Partnership or Host REIT to the Limited Partners of MHP and
    MHP2 per Partnership Unit ($7,645 and $12,862, respectively) will be less
    than the estimated cash distributions from operations of MHP and MHP2 per
    Partnership Unit ($16,000 and $27,164, respectively) during 1998.     
     
  . Timing of the REIT Conversion.  Host intends to cause the REIT Conversion
    to be completed as soon as possible, but there is no assurance that it
    will be completed during 1998 in time for Host REIT to elect REIT status
    effective January 1, 1999. The deadline for consummation of the Mergers
    is June 30, 1999, unless extended by mutual agreement of the Operating
    Partnership and the General Partners to a date no later than December 31,
    1999. If the REIT Conversion does not occur in 1998, the effectiveness of
    Host REIT's election could be delayed to January 1, 2000, which would
    result in Host REIT continuing to pay substantial corporate-level income
    taxes in 1999 (which would reduce Host REIT's estimated cash
    distributions per Common Share during 1999 to $0.52 per Common Share, but
    not the Operating Partnership's estimated cash distributions of $0.84 per
    OP Unit) and could cause the Blackstone Acquisition not to be
    consummated.     
 
  . Fundamental Change in Nature of Investment; Potential
    Underperformance. The Mergers and the REIT Conversion involve a
    fundamental change in the nature of a Limited Partner's investment from
    holding an interest in one or more Partnerships, some of which were
    structured as tax shelter or tax credit investments, and each of which is
    a finite-life entity, has a fixed portfolio of one or more Hotels and
    distributes the cash flow from the operation of such Hotels to its
    Limited Partners, to holding a direct or indirect interest in the
    Operating Partnership, an ongoing real estate company with an expected
    portfolio of approximately 125 Hotels that (i) collects and distributes
    to its limited partners rents received from the Lessees (which will bear
    the risks and receive the direct benefits of the Hotels' operations),
    (ii) has the ability to acquire additional hotels and (iii) is able to
    reinvest proceeds from sales or refinancings of existing Hotels in other
    hotels. In addition, each Limited Partner's investment will change from
    one that allows a Limited Partner to receive a return of capital in the
    form of distributions from any net proceeds of a sale or refinancing of a
    Partnership's assets to an investment in which a Limited Partner who
    retains OP Units likely would realize a return of capital only through
    the exercise of the Unit Redemption Right. Those Limited Partners who
    elect to receive Common Shares in connection with the Mergers will hold
    an equity interest in a publicly traded REIT that (i) provides immediate
    liquidity, (ii) intends to make distributions to its shareholders in an
    amount equal to at least 95% of its taxable income, (iii) allows
    shareholders to influence management by participation in the election of
    directors and (iv) realizes substantial corporate tax savings as long as
    certain requirements are met. A Limited Partner's share of the
    liquidation proceeds, if any, from the sale of a Partnership's Hotel or
    Hotels could be higher than the amount realized upon exercise of the Unit
    Redemption Right, the sale of Common Shares received in connection with
    the Mergers or payments on any Note received by a Limited Partner who
    elects to exchange his OP Units for such Note. An investment in the
    Operating Partnership or Host REIT may not outperform an investment in
    any individual Partnership. See "Comparison of Ownership of Partnership
    Interests, OP Units and Common Shares."
 
  . Exposure to Market and Economic Conditions of Other Hotels. As a result
    of the Mergers, Limited Partners in Participating Partnerships who retain
    OP Units or elect to receive Common Shares in
 
                                       9

<PAGE>
 
    connection with the Mergers will own interests in a much larger enterprise
    with a broader range of assets than any of the Partnerships individually. A
    material adverse change affecting the Operating Partnership's assets will
    affect all Limited Partners regardless of whether a particular Limited
    Partner previously was an investor in such affected assets. Each
    Partnership owns discrete assets, and the Mergers and the REIT Conversion
    will significantly diversify the types and geographic locations of the
    Hotels in which the Limited Partners will have interests. As a result, the
    Hotels owned by the Operating Partnership may be affected differently by
    economic and market conditions than those Hotel(s) previously owned by an
    individual Partnership.
 
  . Limited Partners Have No Cash Appraisal Rights. Limited Partners of
    Participating Partnerships who vote against the Merger will not have a
    right to receive cash based upon an appraisal of their Partnership
    Interests.
 
  . Uncertainties as to the Size and Leverage of the Operating
    Partnership. The Limited Partners cannot know at the time they vote on a
    Merger the exact size and amount of leverage of the Operating
    Partnership. Host is an existing operating company that regularly issues
    and repays debt, acquires additional hotels and disposes of existing
    hotels. Also, some or all of the Partnerships may elect not to
    participate in a Merger (a "Non-Participating Partnership"). In addition,
    outside partners in certain Private Partnerships may not consent to a
    lease of their partnership's Hotel(s). In either such case, Host will
    contribute its interests in such Partnerships and Private Partnerships to
    the Operating Partnership, but the Operating Partnership may, in turn,
    contribute such interests to a Non-Controlled Subsidiary, which will be
    subject to corporate-level income taxation. Host also may repurchase
    outstanding securities or issue new debt or equity securities prior to
    the consummation of the Mergers and the REIT Conversion.
 
  . Other Uncertainties at the Time of Voting Include the Number of OP Units
    to be Received. There are several other uncertainties at the time the
    Limited Partners must vote on the Mergers, including (i) the exact
    Exchange Value for each Partnership (which will be adjusted for changes
    in lender and capital expenditure reserves, deferred maintenance and
    other items prior to the Effective Date), (ii) the price of the OP Units
    for purposes of the Mergers, which will be determined by reference to the
    post-Merger trading prices of Host REIT's Common Shares (but will not be
    less than $9.50 or greater than $15.50) and which, together with the
    Exchange Value, will determine the number of OP Units (or Common Shares)
    the Limited Partners of each Participating Partnership will receive and
    (iii) the exact principal amount of the Notes that may be received in
    exchange for OP Units, which cannot be known until after the Note
    Election Amount is determined. For these reasons, the Limited Partners
    cannot know at the time they vote on a Merger these important aspects of
    the Merger and they will not know the number of OP Units received in a
    Merger until approximately 25 trading days after the Merger.
 
  . Current Host Common Stock Price Is Not Necessarily Indicative of the
    Price of Host REIT Common Shares Following the REIT Conversion. Host's
    current stock price is not necessarily indicative of how the market will
    value Host REIT Common Shares following the REIT Conversion. The current
    stock price of Host reflects the current market valuation of Host's
    current business and assets (including the Crestline common stock and
    cash or other consideration to be distributed in connection with the
    Initial E&P Distribution) and not solely the business and assets of Host
    REIT following the REIT Conversion. Host's current stock price also is
    affected by general market conditions.
 
  . Lack of Control over Hotel Operations and Non-Controlled Subsidiaries. Due
    to current federal income tax law restrictions on a REIT's ability to
    derive revenues directly from the operation of a hotel, the Operating
    Partnership will lease virtually all of its consolidated Hotels to the
    Lessees, which will operate the Hotels by continuing to retain the existing
    managers of the Hotels (the "Managers") pursuant to the existing long-term
    management agreements (the "Management Agreements"). The Operating
    Partnership will not operate the Hotels or participate in the decisions
    affecting the daily operations of the Hotels. The Operating Partnership
    will have only a limited ability to require the Lessees or the Managers to
    operate or manage the Hotels in any particular manner and no ability to
    govern any particular aspect
 
                                       10

<PAGE>
 
   of their day-to-day operation or management. The Operating Partnership
   also will not own any of the voting stock of the Non-Controlled
   Subsidiaries, which may own, in the aggregate, up to 20% by value of the
   Operating Partnership's assets. Therefore, the Operating Partnership will
   be dependent for its revenue upon the ability of the Lessees and the
   Managers to operate and manage the Hotels and the Non-Controlled
   Subsidiaries to operate and manage their businesses.
 
  . Dependence upon Crestline. Crestline and its subsidiaries will be the
    Lessees of substantially all of the Hotels and their rent payments will
    be the primary source of Host REIT's revenues. Crestline's financial
    condition and ability to meet its obligations under the Leases will
    determine the Operating Partnership's ability to make distributions to
    holders of OP Units, including Host REIT, and Host REIT's ability, in
    turn, to make distributions to its shareholders. As of June 19, 1998, on
    a pro forma basis, after giving effect to the REIT Conversion, Crestline
    would have had approximately $315 million of indebtedness (including $100
    million due to Host REIT to pay for hotel working capital purchased from
    Host REIT but not including guarantees of obligations of Crestline's
    subsidiaries under the Leases and the Management Agreements) and
    Crestline can incur additional indebtedness in the future. There can be
    no assurance that Crestline will have sufficient assets, income and
    access to financing to enable it to satisfy its obligations under the
    Leases. In addition, the credit rating of the Operating Partnership and
    Host REIT will be affected by the general creditworthiness of Crestline.
 
  . Expiration of the Leases and Possible Inability to Find Other
    Lessees. The Leases generally will expire seven to ten years after the
    Effective Date, and there can be no assurance that the affected Hotels
    will be relet to the Lessees (or if relet, will be relet on terms as
    favorable to the Operating Partnership). If the Hotels are not relet to
    the Lessees, the Operating Partnership will be required to find other
    lessees, which lessees must meet certain requirements set forth in the
    Management Agreements and the Code. There can be no assurance that
    satisfactory lessees could be found or as to the terms and conditions on
    which the Operating Partnership would be able to relet the Hotels or
    enter into new leases with such lessees, which could result in a failure
    of Host REIT to qualify as a REIT or in reduced cash available for
    distribution.
 
  . Requisite Vote of Limited Partners of Partnerships Binds All Limited
    Partners. For each Partnership, approval of a Merger and the related
    amendments to its partnership agreement by the requisite vote of the
    Limited Partners, as described in "Voting Procedures--Required Limited
    Partner Vote and Other Conditions," will cause the Partnership to
    participate in the Merger and will bind all Limited Partners of such
    Partnership, including Limited Partners who voted against or abstained
    from voting with respect to the Merger and the related amendments to its
    partnership agreement.
 
  . Inability to Obtain Third-Party Consents May Have a Material Adverse
    Effect. There are numerous third-party consents which are required to be
    obtained in order to consummate the Mergers and the REIT Conversion. The
    inability of Host, the Operating Partnership or Host REIT to obtain one
    or more such consents could cause a default under cross-default
    provisions of the Company's principal credit facilities or otherwise have
    a material adverse effect on the Operating Partnership and Host REIT and
    thus could reduce the value of the OP Units and Common Shares.
 
  . Competition in the Lodging Industry. The profitability of the Hotels is
    subject to general economic conditions, the management abilities of the
    Managers (including primarily Marriott International), competition, the
    desirability of particular locations and other factors relating to the
    operation of the Hotels. The full-service segment of the lodging
    industry, in which virtually all of the Hotels operate, is highly
    competitive and the Hotels generally operate in geographical markets that
    contain numerous competitors. The Hotels' success will be dependent, in
    large part, upon their ability to compete in such areas as access,
    location, quality of accommodations, room rate structure, the quality and
    scope of food and beverage facilities and other services and amenities.
    The lodging industry, including the Hotels (and thus the Operating
    Partnership), may be adversely affected in the future by (i) national and
    regional economic conditions, (ii) changes in travel patterns, (iii)
    taxes and government regulations which
 
                                       11

<PAGE>
 
    influence or determine wages, prices, interest rates, construction
    procedures and costs, (iv) the availability of credit and (v) other
    factors beyond the control of the Operating Partnership.
 
  . Substantial Indebtedness of the Operating Partnership. The Operating
    Partnership will have substantial indebtedness. As of June 19, 1998, on a
    pro forma basis assuming the Full Participation Scenario, the Operating
    Partnership had outstanding indebtedness totaling approximately $5.6
    billion (including $567 million of debentures related to the Convertible
    Preferred Securities), which represents an approximately 62% debt-to-
    total market capitalization ratio on a pro forma basis at such date
    (based upon a price per Common Share of Host REIT of $12.50). The
    Operating Partnership's business is capital intensive, and it will have
    significant capital requirements in the future. The Operating
    Partnership's leverage level could affect its ability to (i) obtain
    financing in the future, (ii) undertake refinancings on terms and subject
    to conditions deemed acceptable by the Operating Partnership, (iii) make
    distributions to partners (including Host REIT), (iv) pursue its
    acquisition strategy or (v) compete effectively or operate successfully
    under adverse economic conditions.
 
  . No Limitation on Debt. There are no limitations in Host REIT's or the
    Operating Partnership's organizational documents which limit the amount
    of indebtedness either may incur, although both the Notes and the
    Operating Partnership's other debt instruments will contain certain
    restrictions on the amount of indebtedness that the Operating Partnership
    may incur.
 
  . Rental Revenues from Hotels Subject to Prior Rights of Lenders. In
    accordance with the mortgage loan agreements with respect to outstanding
    indebtedness of certain Hotel Partnerships, the rental revenues received
    by such Hotel Partnerships under certain Leases first will be used to
    satisfy the debt service on such outstanding indebtedness with only the
    cash flow remaining after debt service being available to satisfy other
    obligations of the Hotel Partnership (including paying property taxes and
    insurance, funding the required FF&E reserves for the Hotels and capital
    improvements and paying debt service with respect to unsecured debt) and
    to make distributions to holders of OP Units (including Host REIT).
 
  . Ownership Limitations. No person or persons acting as a group may own,
    actually or constructively (as determined under the applicable Code
    provisions), (i) in excess of 9.8% of the number or value of outstanding
    Common Shares of Host REIT or (ii) in excess of 4.9% of the value of the
    OP Units (other than Host REIT and The Blackstone Group), subject to
    waiver or modification by Host REIT or the Operating Partnership, as the
    case may be, in certain limited circumstances.
     
  . Anti-Takeover Effect of Certain Provisions of Host REIT's Charter and
    Bylaws, Maryland Law and the Shareholder Rights Plan. The Articles of
    Incorporation (the "Charter") and Bylaws of Host REIT to be effective
    upon completion of the merger of Host with and into Host REIT, as well as
    provisions of Maryland law, contain certain provisions that could have
    the effect of delaying, deferring or preventing a change in control of
    Host REIT. These provisions could limit the price that certain investors
    might be willing to pay in the future for Common Shares. Certain of these
    provisions provide for a staggered board and allow Host REIT to issue,
    without shareholder approval, preferred shares or other stock having
    rights senior to those of the Common Shares. The Board of Directors also
    is authorized, without a vote of shareholders, to classify or reclassify
    unissued common or preferred shares into another class or series of
    shares. Other provisions impose various procedural and other requirements
    that could make it difficult for shareholders to effect certain corporate
    actions. The Charter also provides that no person or persons acting as a
    group may own more than 9.8% (in number or value) of the outstanding
    shares of any class or series of shares of Host REIT. Host REIT also
    intends to adopt a Shareholder Rights Plan to replace the existing
    stockholder rights plan of Host. Host REIT also will become subject to
    the business combination and control share provisions under Maryland law.
    Marriott International, Inc. ("Marriott International") has the right to
    purchase up to 20% of each class of Host's outstanding voting stock at
    the then fair market value upon the occurrence of certain change of
    control (or potential change of control) events involving Host, which
    right will continue in effect after the Mergers until June 2017,     
 
                                       12

<PAGE>
 
   subject to certain limitations intended to protect the REIT status of Host
   REIT. See "Certain Provisions of Maryland Law and Host REIT's Charter and
   Bylaws."
     
  . Effect of Subsequent Events upon Recognition of Gain. Even though the
    Limited Partners of the Participating Partnerships (other than those who
    elect to receive Common Shares or a Note in exchange for OP Units in
    connection with the Mergers) generally are not expected to recognize
    significant taxable gain at the time of the Mergers, there are a variety
    of events and transactions (including the sale of one or more of the
    Hotels or the reduction of indebtedness securing one or more of the
    Hotels or, possibly, with respect to the MHP Limited Partners, the
    transfer of MHP's interest in the Harbor Beach Resort to a Non-Controlled
    Subsidiary in connection with the REIT Conversion in the event that
    certain third-party consents to the MHP Merger and the REIT Conversion
    are not obtained) that could cause a Limited Partner to recognize all or
    a part of the gain that otherwise has been deferred through the REIT
    Conversion. See "Federal Income Tax Consequences--Tax Consequences of the
    Mergers--Effect of Subsequent Events." Certain Hotels (including the
    Blackstone Hotels) will be covered by agreements with third parties which
    will restrict the Operating Partnership's ability to dispose of those
    properties or refinance their debt. In addition, if Atlanta Marquis
    participates in the Mergers, the Operating Partnership will succeed to an
    existing agreement that will restrict its ability to dispose of the
    Atlanta Marquis Hotel or to refinance the debt secured by such Hotel
    without compensating certain outside partners for the resulting adverse
    tax consequences. The partnership agreement of the Operating Partnership,
    which is substantially in the form attached hereto as Appendix A (the
    "Partnership Agreement"), does not impose any restrictions on the
    Operating Partnership's ability to dispose of the Hotels or to refinance
    debt secured by the Hotels (but the Operating Partnership is obligated to
    pay any taxes Host REIT incurs as a result of such transactions). In
    addition, the Partnership Agreement provides that Host REIT, as general
    partner of the Operating Partnership, is not required to take into
    account the tax consequences of the limited partners in deciding whether
    to cause the Operating Partnership to undertake specific transactions
    (but the Operating Partnership is obligated to pay any taxes that Host
    REIT incurs as a result of such transactions) and the limited partners
    have no right to approve or disapprove such transactions. See
    "Description of OP Units--Sales of Assets."     
 
  . Sale of Personal Property May Result in Gain to Limited Partners in
    Certain Partnerships. In order to facilitate the participation of Atlanta
    Marquis, Desert Springs, Hanover, MHP and PHLP in the Mergers without
    adversely affecting Host REIT's qualification as a REIT, the Operating
    Partnership will require, as part of the Mergers, that Atlanta Marquis,
    Desert Springs, Hanover, MHP and PHLP sell a portion of the personal
    property associated with the Hotels owned by such Partnerships to a Non-
    Controlled Subsidiary. These sales will be taxable transactions and, with
    the exception of the sale by Hanover, may result in an allocation of a
    relatively modest amount of ordinary recapture income by each Partnership
    to its Limited Partners. This income, if any, will be allocated to each
    Limited Partner in the same proportion and to the same extent that such
    Limited Partner was allocated any deductions directly or indirectly
    giving rise to the treatment of such gains as recapture income. A Limited
    Partner who receives such an allocation of recapture income would not be
    entitled to any special distribution from his Partnership in connection
    with the sale of personal property.
 
  . Election to Exchange OP Units for Common Shares. A Limited Partner who
    elects to receive Common Shares in exchange for his OP Units in
    connection with the Mergers (the "Common Share Election") will be treated
    as having made a fully taxable disposition of his OP Units, which likely
    would be deemed to occur at the time his right to receive the Common
    Shares becomes fixed (which would be January 22, 1999 if the Effective
    Date of the Mergers is December 30, 1998). If such Limited Partner has a
    "negative capital account" with respect to his Partnership Interest, he
    will recognize "phantom income" (i.e., the income recognized would exceed
    the value of the Common Shares by the amount of his negative capital
    account). See "Federal Income Tax Consequences--Tax Treatment of Limited
    Partners Who Exercise Their Right to Make the Common Share Election or
    the Note Election." Limited Partners who elect to
 
                                       13

<PAGE>
 
    receive Common Shares in connection with the Mergers will not receive the
    Crestline common stock or any other portion of the Initial E&P
    Distribution, which will have been distributed before they become
    shareholders of Host REIT (approximately 25 trading days after the
    Effective Date of the Mergers).
 
  . Election to Exchange OP Units for Notes.  A Limited Partner who elects to
    receive a Note in exchange for his OP Units in connection with the
    Mergers (the "Note Election") will be treated as having made a taxable
    disposition of his OP Units, which likely would be deemed to occur on the
    Effective Date of the Mergers (which currently is expected to occur on
    December 30, 1998). A Limited Partner who receives a Note may be eligible
    to defer at least a portion, but not all, of that gain under the
    "installment sale" rules until principal on the Note is paid. A Limited
    Partner with a "negative capital account" with respect to his Partnership
    Interest who elects to receive a Note in connection with the Mergers will
    recognize "phantom income" in that amount in any event at the time the
    taxable disposition is deemed to occur. See "Federal Income Tax
    Consequences--Tax Treatment of Limited Partners Who Exercise Their Right
    to Make the Common Share Election or the Note Election."
 
  . Failure of Host REIT to Qualify as a REIT for Tax Purposes. Taxation of
    Host REIT as a corporation if it fails to qualify as a REIT, and Host
    REIT's subsequent liability for federal, state and local taxes on its
    income and property, would, among other things, have the effect of
    reducing cash available for distribution to Host REIT's shareholders and
    materially reducing the value of the Common Shares and OP Units.
 
  . Failure of the Operating Partnership to Qualify as a Partnership for Tax
    Purposes. Taxation of the Operating Partnership as a corporation if it
    fails to qualify as a partnership and the Operating Partnership's
    subsequent liability for federal, state and local income taxes would,
    among other things, have the effect of reducing cash available for
    distribution to holders of OP Units and Common Shares, would cause Host
    REIT to fail to qualify as a REIT for tax purposes and would cause the
    holders of OP Units to recognize substantial taxable gain at the time the
    Operating Partnership ceases to qualify as a partnership.
 
  . Failure of the Leases to Qualify as Leases. If one or more of the Leases
    of the Hotels to the Lessees were to be disregarded for tax purposes (for
    example, because a Lease was determined to lack economic substance), Host
    REIT would fail to qualify as a REIT and the Operating Partnership might
    be treated as a corporation for federal income tax purposes, which would
    have a material adverse impact on the Limited Partners and the value of
    the OP Units and the Common Shares.
 
  . Change in Tax Laws. No assurance can be provided that new legislation,
    Treasury Regulations, administrative interpretations or court decisions
    will not significantly change the tax laws with respect to Host REIT's
    qualification as a REIT or the federal income tax consequences of such
    qualification.
 
  . Limited Partners Need to Consult with Their Own Tax Advisors.  Because
    the specific tax attributes of a Limited Partner and the facts regarding
    such Limited Partner's interest in his Partnership could have a material
    impact on the tax consequences to such Limited Partner of the Mergers
    (including the decision whether to elect to receive Common Shares or a
    Note in exchange for OP Units in connection with the Mergers) and the
    subsequent ownership and disposition of OP Units, Common Shares or a
    Note, it is essential that each Limited Partner consult with his own tax
    advisors regarding the application of federal, foreign, state and local
    tax laws to such Limited Partner's personal tax situation.
 
  . Effect of Possible Classification as a Publicly Traded Partnership on
    Passive Losses. There is a significant possibility that the Operating
    Partnership could be classified as a "publicly traded partnership," in
    which event the Limited Partners would not be able to use suspended
    passive activity losses from other investments (including from the
    Partnerships) to offset income from the Operating Partnership. It is
    estimated that each Limited Partner in Atlanta Marquis, Chicago Suites,
    Desert Springs, MDAH and MHP who purchased his Partnership Interest at
    the time of the original offering of such
 
                                       14

<PAGE>
 
   Interests, has held such Partnership Interest continuously since that time
   and whose Partnership Interest has been his only investment in a passive
   activity, would have a passive activity loss carryforward as of December
   31, 1998.
 
  . Host REIT's Substantial Deferred Tax and Contingent Liabilities. Host
    REIT will have substantial deferred tax liabilities attributable to
    Host's assets and operations that are likely to be recognized in the next
    ten years (notwithstanding Host REIT's status as a REIT), and the IRS
    could assert substantial additional liabilities for taxes against Host
    for taxable years prior to the time Host REIT qualifies as a REIT. Under
    the terms of the REIT Conversion and the Partnership Agreement, the
    Operating Partnership will be responsible for paying (or reimbursing Host
    REIT for the payment of) all such tax liabilities, as well as any other
    liabilities (including contingent liabilities and liabilities
    attributable to litigation that Host REIT may incur), whether such
    liabilities are incurred by reason of Host's activities prior to the REIT
    Conversion or the activities of Host REIT subsequent thereto.
 
THE REIT CONVERSION
   
  The transactions summarized below collectively constitute the REIT
Conversion. If the required shareholder and partner approvals for the various
transactions are obtained and other conditions to the different steps in the
REIT Conversion are satisfied or waived, these transactions are expected to
occur at various times prior to the end of 1998 (or as soon thereafter as
practicable). The Mergers of the Participating Partnerships are expected to
occur at the final stage of the REIT Conversion. The Operating Partnership and
the General Partners are seeking the approval of the Mergers and the related
partnership agreement amendments at this time, in advance of satisfaction of
all other contingencies, in order to determine how the Partnerships will fit
into the UPREIT structure following the REIT Conversion, which Host desires to
implement during 1998 in order to permit Host REIT to qualify as a REIT for its
1999 taxable year. Consummation of the Mergers is not conditioned on the REIT
Conversion being completed in time for Host REIT to elect REIT status effective
January 1, 1999. If the REIT Conversion does not occur in time for Host REIT to
elect REIT status effective January 1, 1999, the effectiveness of Host REIT's
election could be delayed until January 1, 2000, which would result in Host
REIT continuing to pay substantial corporate-level income taxes in 1999 (which
would reduce Host REIT's cash distributions per Common Share but not the
Operating Partnership's cash distributions per OP Unit) and could cause the
Blackstone Acquisition not to be consummated. In view of the complexity of the
REIT Conversion and the number of transactions that must occur to complete the
REIT Conversion, Host and the General Partners believe that it is beneficial
both to the Limited Partners and the shareholders of Host to complete the REIT
Conversion as soon as practicable, even if the REIT Conversion cannot be
completed prior to January 1, 1999. If Host REIT's election to be taxed as a
REIT is not effective on January 1, 1999, Host REIT intends to operate
following the REIT Conversion in a manner that would permit it to qualify as a
REIT at the earliest time practicable, and it might pursue a merger with
another entity or other transaction that would permit it to commence a new
taxable year and elect REIT status prior to January 1, 2000. Host REIT in any
event would elect to be treated as a REIT for federal income tax purposes not
later than its taxable year commencing January 1, 2000. It is a condition to
the Mergers that they be completed by June 30, 1999, unless the General
Partners and the Operating Partnership mutually agree to extend that deadline
to a date no later than December 31, 1999.     
 
  . Contribution of Host's Lodging Assets to the Operating Partnership. As a
    preliminary step, at various times during 1998, Host will contribute its
    wholly owned full-service hotel assets, its interests in the Hotel
    Partnerships (other than its interests in the General Partners, who will
    remain in existence as subsidiaries of Host REIT and will receive OP
    Units in the Mergers) and its other assets (excluding its senior living
    assets and the cash or other consideration to be distributed in
    connection with the Initial E&P Distribution and certain other de minimis
    assets that cannot be contributed to the Operating Partnership) to the
    Operating Partnership in exchange for (i) a number of OP Units equal to
    the number of outstanding shares of common stock of Host at the time of
    the REIT Conversion (reduced by the number of OP Units to be received by
    the General Partners and other subsidiaries of Host in the Mergers),
    (ii) preferred partnership
 
                                       15

<PAGE>
 
      
   interests in the Operating Partnership corresponding to any shares of Host
   preferred stock outstanding at the time of the REIT Conversion and (iii)
   the assumption by the Operating Partnership of all liabilities of Host
   (including past and future contingent liabilities), other than liabilities
   of Crestline. Following these contributions, the Operating Partnership and
   its subsidiaries will directly or indirectly own all of Host's wholly
   owned hotels, substantially all of Host's interests in the Hotel
   Partnerships and all of Host's other assets (excluding its senior living
   assets and the cash or other consideration to be distributed in connection
   with the Initial E&P Distribution and certain other de minimis assets that
   cannot be contributed to the Operating Partnership).     
 
  . Debt Refinancing. In August 1998, Host refinanced $1.55 billion of
    outstanding public bonds (the "Bond Refinancing") through offers to
    purchase such debt securities for cash and a concurrent solicitation of
    consents to amend the terms of the debt securities to facilitate the
    transactions constituting the REIT Conversion. Host obtained the funds
    for the Bond Refinancing primarily from the issuance of new debt
    securities and a new $1.25 billion credit facility (the "New Credit
    Facility"). See "Business and Properties--Indebtedness."
 
  . Treatment of Convertible Preferred Securities. In the REIT Conversion,
    the Operating Partnership will assume primary liability for repayment of
    the $567 million of convertible subordinated debentures of Host
    underlying the $550 million of outstanding Quarterly Income Preferred
    Securities of Host ("Convertible Preferred Securities"). As the successor
    to Host, Host REIT also will be liable on the debentures and the
    debentures will become convertible into Common Shares, but the Operating
    Partnership will have primary responsibility for payment of the
    debentures, including all costs of conversion. Upon conversion by a
    Convertible Preferred Securities holder, the Operating Partnership will
    acquire Common Shares from Host REIT in exchange for an equal number of
    OP Units and distribute the Common Shares to the Convertible Preferred
    Securities holder. As a result of the distribution of Crestline common
    stock and the cash or other consideration to Host REIT shareholders in
    connection with the Initial E&P Distribution, the conversion ratio of the
    Convertible Preferred Securities will be adjusted to take into account
    certain effects of the REIT Conversion. See "Business and Properties--
    Indebtedness."
 
  . The Mergers. On the Effective Date, each Participating Partnership will
    merge with a Merger Partnership. The Participating Partnerships will be
    the surviving entities of the Mergers and will continue in existence as
    indirect subsidiaries of the Operating Partnership. In the Mergers, each
    Limited Partner will receive a number of OP Units with a deemed value
    equal to the Exchange Value of his respective Partnership Interests. If a
    Limited Partner elects to receive Common Shares or a Note in exchange for
    OP Units in connection with the Mergers, such Limited Partner will, upon
    receipt of his OP Units, tender (or be deemed to tender) all of such OP
    Units to Host REIT in exchange for an equal number of Common Shares or to
    the Operating Partnership in exchange for a Note with a principal amount
    equal to the Note Election Amount of his Partnership Interests. The
    General Partners and other subsidiaries of Host will also receive OP
    Units in exchange for their interests in the Partnerships and the General
    Partners will continue as wholly owned direct or indirect subsidiaries of
    Host REIT. Partnerships that do not participate in a Merger will continue
    as separate partnerships, but the Operating Partnership would contribute
    some or all of the interests in certain of these Partnerships (such as
    Atlanta Marquis, Desert Springs, Hanover, MHP and MHP2) that it receives
    from Host and its subsidiaries to a Non-Controlled Subsidiary.
 
  . Restructuring of the Private Partnerships. The Operating Partnership will
    acquire the partnership interests from unaffiliated partners of four
    Private Partnerships in exchange for OP Units and, accordingly, will own
    all of the interests in those Private Partnerships. For the remaining
    Private Partnerships, (i) the Operating Partnership will be a partner in
    the partnership if the unaffiliated partners consent to a lease of the
    partnership's Hotel(s) to a Lessee or (ii) if the requisite consents to
    enter into a lease are not obtained, the Operating Partnership may
    transfer its interest in such partnership to a Non-Controlled Subsidiary.
 
                                       16

<PAGE>
 
 
  . The Blackstone Acquisition.  Subject to various terms and conditions, the
    Operating Partnership expects to acquire from the Blackstone Entities
    ownership of, or controlling interests in, twelve hotels and two mortgage
    loans, one secured by one of the acquired hotels and one secured by an
    additional hotel. In addition, Host REIT will acquire a 25% interest in
    the Swissotel management company from the Blackstone Entities, which Host
    REIT will transfer to Crestline. If the Blackstone Acquisition is
    consummated, the Operating Partnership expects to issue approximately
    43.7 million OP Units (based upon a negotiated value of $20.00 per OP
    Unit), assume debt and make cash payments totaling approximately $862
    million and distribute up to 18% of the shares of Crestline common stock
    and other consideration to the Blackstone Entities.
 
  . Contribution of Assets to Non-Controlled Subsidiaries. The Operating
    Partnership will organize the Non-Controlled Subsidiaries to hold various
    assets (not exceeding, in the aggregate, 20% by value of the assets of
    the Operating Partnership) contributed by Host and its subsidiaries to
    the Operating Partnership. The direct ownership of most of these assets
    by the Operating Partnership could jeopardize Host REIT's status as a
    REIT. These assets primarily will consist of partnership or other
    interests in hotels which are not leased, certain furniture, fixtures and
    equipment used in the Hotels and certain international hotels in which
    Host owns interests. In exchange for the contribution of these assets to
    the Non-Controlled Subsidiaries, the Operating Partnership will receive
    nonvoting common stock representing 95% of the total economic interests
    of the Non-Controlled Subsidiaries. In addition, the Operating
    Partnership and, prior to the Mergers, Atlanta Marquis, Desert Springs,
    Hanover, MHP and PHLP (assuming they participate in the Mergers) will
    sell to a Non-Controlled Subsidiary an estimated $200 million in value of
    personal property associated with certain Hotels for notes or cash that
    has been contributed or loaned to the Non-Controlled Subsidiary by the
    Operating Partnership, or a combination thereof. The Operating
    Partnership could not lease this personal property to the Lessees without
    potentially jeopardizing Host REIT's qualification as a REIT. The Non-
    Controlled Subsidiary will lease such personal property to the applicable
    Lessees. The Host Marriott Employee Statutory Trust, the beneficiaries of
    which will be certain employees of Host REIT and a designated charity
    (the "Host Employee Trust"), and possibly certain other investors will
    acquire all of the voting common stock representing the remaining 5% of
    the total economic interests, and 100% of the control, of each Non-
    Controlled Subsidiary. See "The Mergers and the REIT Conversion--The REIT
    Conversion."
 
  . Leases of Hotels. The Operating Partnership, its subsidiaries and its
    controlled partnerships, including the Participating Partnerships, will
    lease virtually all of their Hotels to the Lessees pursuant to leases
    with initial terms ranging generally from seven to ten years (the
    "Leases"). See "Business and Properties--The Leases." The leased Hotels
    will be operated by the Lessees under their existing brand names pursuant
    to their existing long-term Management Agreements, which will be assigned
    to the Lessees for the terms of the applicable Leases, but under which
    the Operating Partnership will remain obligated. See "Business and
    Properties--The Management Agreements."
 
  . Host REIT Merger and Initial E&P Distribution. Host will merge into Host
    REIT upon obtaining shareholder approval of the merger. Pursuant to the
    merger agreement, Host shareholders will receive, for each share of Host
    common stock, one Host REIT Common Share. In connection with the REIT
    Conversion, Host or Host REIT will make the Initial E&P Distribution. The
    aggregate value of the Crestline common stock and the cash or other
    consideration to be distributed to Host or Host REIT shareholders and the
    Blackstone Entities is currently estimated to be approximately $525
    million to $625 million (approximately $2.10 to $2.50 per share to the
    Host or Host REIT shareholders). The actual amount of the distribution
    will be based in part upon the estimated amount of accumulated earnings
    and profits of Host as of the last day of its taxable year in which the
    Host merger into Host REIT is consummated. To the extent that the
    distributions made in connection with the Initial E&P Distribution are
    not sufficient to eliminate Host's estimated accumulated earnings and
    profits, Host REIT will make one or more additional taxable distributions
    to its shareholders (in the form of cash or securities) prior to
 
                                       17

<PAGE>
 
      
   the last day of its first full taxable year as a REIT (currently expected
   to be December 31, 1999) in an amount intended to be sufficient to
   eliminate such earnings and profits, and the Operating Partnership will
   make corresponding distributions to all holders of OP Units (including
   Host REIT) in an amount sufficient to permit Host REIT to make such
   additional distributions. See "The Mergers and the REIT Conversion--The
   REIT Conversion--Host REIT Merger and Initial E&P Distribution." Limited
   Partners who elect to receive Common Shares in connection with the Mergers
   will not receive the Crestline common stock or any other portion of the
   Initial E&P Distribution, which will have been distributed before they
   become shareholders of Host REIT (approximately 25 trading days after the
   Effective Date of the Mergers). In addition, under the terms of the
   Blackstone Acquisition, the Blackstone Entities are entitled to receive a
   pro rata portion of the same consideration received by Host REIT's
   shareholders in connection with the Initial E&P Distribution except to the
   extent the Blackstone Entities elected to receive additional OP Units in
   lieu thereof. The payment to the Blackstone Entities of Crestline common
   stock and other consideration is expected to be approximately $90 million
   to $110 million if the REIT Conversion and the Blackstone Acquisition are
   consummated.     
 
                                       18

<PAGE>
 
  Following the REIT Conversion, assuming the Full Participation Scenario, the
organizational structure of Host REIT is expected to be as follows:
 
                      [LOGO OF FLOW CHART APPEARS HERE]
- --------
(1) Represents Limited Partners and others who retain OP Units and do not elect
    to receive Common Shares or Notes; excludes Host and its subsidiaries.
    Percentage ownership in the Operating Partnership assumes all Limited
    Partners elect to retain OP Units.
(2) Also will include Limited Partners who elect to receive Common Shares in
    exchange for the OP Units received in the Mergers. Immediately following
    the merger of Host into Host REIT and the distribution by Host or Host REIT
    of Crestline common stock to its shareholders and the Blackstone Entities,
    the shareholders of Crestline will consist of the shareholders of Host REIT
    (other than Limited Partners who elect to receive Common Shares in
    connection with the Mergers) and the Blackstone Entities. The common
    ownership of the two public companies, however, will diverge over time.
(3) Percentage ownership in the Operating Partnership assumes no Limited
    Partners elect to receive either Common Shares or Notes in connection with
    the Mergers and that the price per Common Share is $15.50, which is the
    maximum price per OP Unit for purposes of the Mergers.
(4) The Operating Partnership will own all or substantially all of the equity
    interests in the Participating Partnerships, certain Private Partnerships
    and other Host subsidiaries that own Hotels, both directly and through
    other direct or indirect, wholly owned subsidiaries of the Operating
    Partnership or Host REIT. Host will contribute its partial equity interests
    in the Non-Participating Partnerships and those Private Partnerships whose
    partners have not elected to exchange their interests for OP Units to the
    Operating Partnership, and the Operating Partnership will either hold such
    partial interests or contribute them to the Non-Controlled Subsidiaries.
 
                                       19

<PAGE>
 
 
  Ownership Interests in the Operating Partnership Following the Mergers and
the REIT Conversion. Following the Mergers and the REIT Conversion, the
Operating Partnership is expected to be owned as set forth below:
 
                     OWNERSHIP OF THE OPERATING PARTNERSHIP
 

<TABLE>
<CAPTION>
    ENTITY                                                PERCENTAGE INTEREST(1)
    ------                                                ----------------------
   <S>                                                    <C>
   Host REIT.............................................          75.8%
   Limited Partners of the Partnerships..................           6.9
   Private Partnerships..................................           1.1
   Blackstone Entities...................................          16.2
                                                                  -----
     TOTAL...............................................         100.0%
                                                                  =====
</TABLE>

 
- --------
(1) Assumes that all Partnerships participate in the Mergers, that the
    Blackstone Acquisition is consummated, that all Limited Partners elect to
    retain OP Units and that the price of an OP Unit is $15.50, which is the
    maximum price for purposes of the Mergers. The percentage interest of Host
    REIT will increase, and the percentage interest of the Limited Partners
    will decrease, if Limited Partners elect to receive Common Shares or Notes
    in exchange for their OP Units in connection with the Mergers.
 
THE MERGERS
 
  Issuance of OP Units. If Limited Partners holding the requisite percentage of
outstanding Partnership Interests in a Partnership vote to approve a Merger and
certain related amendments to the Partnership's partnership agreement, then
such Participating Partnership will merge with a Merger Partnership, with the
Participating Partnership being the surviving entity. Each Limited Partner of
the Participating Partnership will receive OP Units with a deemed value equal
to the Exchange Value of such Limited Partner's Partnership Interests. Limited
Partners who retain OP Units will be issued such OP Units promptly following
the twentieth trading day following the Effective Date. The General Partners
and other Host subsidiaries that own limited partner interests in the
Partnerships also will receive OP Units in exchange for their general and
limited partner interests in the Partnerships, respectively. The price
attributed to an OP Unit, the Exchange Value of each Partnership and the
allocation of OP Units will be established in the manner described in detail
under "Determination of Exchange Values and Allocation of OP Units."
 
  Unit Redemption Right. Beginning one year after the Mergers, Limited Partners
who retain OP Units will have the right to redeem their OP Units at any time,
upon ten business days' notice to the Operating Partnership, and receive, at
the election of Host REIT, either Common Shares of Host REIT on a one-for-one
basis (subject to adjustment) or cash in an amount equal to the market value of
such shares ( the "Unit Redemption Right"). Limited Partners must redeem at
least 1,000 OP Units (or all remaining OP Units owned by the holder of OP Units
if less than 1,000 OP Units) each time the Unit Redemption Right is exercised.
See "Description of OP Units--Unit Redemption Right."
 
  Right to Exchange OP Units for Common Shares. At any time during the period
commencing on the date hereof and ending at 5:00 p.m., Eastern time, on the
fifteenth trading day after the Effective Date (the "Election Period"), Limited
Partners can elect (or revoke any such election previously made) to tender all
of the OP Units they will receive in a Merger (if their Partnership approves
the Merger) to Host REIT in exchange for an equal number of Common Shares. The
Common Shares, which will be issued promptly following the twentieth trading
day after the Effective Date of the Mergers, will be freely tradeable and
listed on the NYSE. A Limited Partner who makes the Common Share Election will
be treated as having made a taxable disposition of his OP Units, which likely
would be deemed to occur at the time his right to receive the Common Shares
becomes fixed (which would be January 22, 1999 if the Effective Date of the
Mergers is December 30, 1998). See "Description of Capital Stock" and "Federal
Income Tax Consequences--Tax Treatment of Limited Partners Who Exercise Their
Right to Make the Common Share Election or the Note Election."
 
                                       20

<PAGE>
 
 
  Right to Exchange OP Units for Notes. At any time during the Election Period,
Limited Partners can elect (or revoke any such election previously made) to
tender all of the OP Units they will receive in a Merger (if their Partnership
approves the Merger) to the Operating Partnership in exchange for a Note. The
principal amount of the Note received by a Limited Partner will be equal to the
Note Election Amount of his Partnership Interest, which will be less than the
value of the OP Units that such Limited Partner otherwise would have received
(because the Note Election Amount will be less than the Exchange Value for all
Partnerships). The Notes will be issued promptly following the twentieth
trading day after the Effective Date of the Mergers. Holders of Notes will
receive interest payments on a semi-annual basis on June 15 and December 15 of
each year at the rate of 6.56% per annum from and after the Effective Date of
the Mergers. A Limited Partner who makes the Note Election will be treated as
having made a taxable disposition of his OP Units, which likely would be deemed
to occur on the Effective Date of the Mergers (which currently is expected to
occur on December 30, 1998). See "Description of the Notes" and "Federal Income
Tax Consequences--Tax Treatment of Limited Partners Who Exercise Their Right to
Make the Common Share Election or the Note Election."
 
  Distribution Policy. The Operating Partnership and Host REIT intend to pay
regular quarterly distributions to holders of OP Units and Common Shares,
respectively. Host REIT and the Operating Partnership anticipate that
distributions will be paid during January, April, July and October of each
year, except that the first distribution in 1999 is expected to be paid at the
end of February if the REIT Conversion is completed in 1998.
 
  The Operating Partnership intends to distribute an amount that will enable
Host REIT to distribute to its shareholders an amount equal to 100% of its
taxable income (other than capital gains, which will be addressed on a case-by-
case basis) for each year no later than the end of January of the following
year. The Operating Partnership anticipates that distributions generally will
be paid from cash available for distribution (generally equal to cash from
operations less capital expenditures and principal amortization on
indebtedness); however, to the extent that cash available for distribution is
insufficient to make such distributions, the Operating Partnership intends to
borrow funds in order to make distributions consistent with this policy.
   
  Based upon Host's preliminary estimates of Host REIT's taxable income for the
twelve months ending December 31, 1999, Host and the Operating Partnership
currently estimate that this policy will result in an initial annual
distribution by the Operating Partnership of approximately $0.84 per OP Unit
($0.21 per quarter) during the twelve months ending December 31, 1999. If
Host's preliminary estimate of $226 million of cash distributions by the
Operating Partnership during the twelve months ending December 31, 1999 proves
accurate but the Operating Partnership's cash available for distribution were
only equal to its estimated cash available for distribution ($163 million) and
cash from contingent rents ($54 million) during 1999 totaling $217 million (or
$0.80 per OP Unit), then the Operating Partnership would be required to borrow
approximately $9 million (or $0.04 per OP Unit) to make such distributions.
Moreover, if estimated cash from contingent rents were less than $54 million,
then the Operating Partnership also would be required to borrow any such
shortfall in order to make such distributions. While the Operating Partnership
does not believe this will be necessary, it believes it would be able to borrow
the necessary amounts under the New Credit Facility or from other sources and
that any such borrowing would not have a material adverse effect on its
financial condition or results of operations.     
   
  The distributions to shareholders per Common Share are expected to be in an
amount equal to the amount distributed by the Operating Partnership per OP
Unit. However, if the REIT Conversion is not completed until after January 1,
1999, then Host REIT's distributions to shareholders in 1999 would be lower
than the Operating Partnership's distributions per OP Unit (by the amount of
Host REIT's 1999 corporate income tax payments) until its REIT election becomes
effective, which would be no later than January 1, 2000. The Operating
Partnership intends to make distributions during 1999 at the estimated level of
$0.84 per OP Unit even if the REIT election of Host REIT were not effective
until January 1, 2000, which would result in estimated distributions by Host
REIT (after estimated federal and state income tax payments) of $0.52 per
Common Share for the full year 1999.     
 
  Distributions will be made in the discretion of the Board of Directors of
Host REIT and will be affected by a number of factors, many of which are beyond
the control of Host REIT and the Operating Partnership. In order to maintain
its qualification as a REIT under the Code, Host REIT is required to distribute
(within a certain
 
                                       21

<PAGE>
 
period after the end of each year) at least 95% of its REIT taxable income for
such year. See "Distribution and Other Policies--Distribution Policy." Host
REIT and the Operating Partnership intend to establish a dividend reinvestment
plan.
   
  1998 Partnership Distributions. Limited Partners at the Effective Date of the
Mergers who retain OP Units will receive cash distributions from their
respective Partnerships for all of 1998 and, if the Mergers do not occur in
1998, any portion of 1999 prior to the Mergers for which they do not receive a
cash distribution from the Operating Partnership. Cash distributions will be
made by each Partnership in accordance with its partnership agreement on or
before June 1, 1999 in respect of 1998 operations and, if the Mergers do not
occur prior to January 1, 1999, within 90 days after the Effective Date of the
Mergers in respect of any 1999 operations. The General Partners of Chicago
Suites, Hanover, MDAH and PHLP do not expect that these Partnerships will make
any distributions in respect of 1998 operations. Limited Partners at the
Effective Date of the Mergers who receive Common Shares in exchange for OP
Units pursuant to the Common Share Election will participate in the same
distributions from the Partnerships as Limited Partners who retain OP Units and
will receive distributions from Host REIT with respect to periods after their
Common Shares are issued, which distributions are expected to equal the amount
distributed with respect to the OP Units for such periods (although Host REIT's
distributions to shareholders would be lower than the Operating Partnership's
distributions to holders of OP Units (by the amount of Host REIT's 1999
corporate income tax payments) if the REIT Conversion does not occur in 1998
and Host REIT is unable to elect REIT status effective January 1, 1999).
Neither the Operating Partnership nor Host REIT anticipates making
distributions after the Effective Date of the Mergers and prior to the issuance
of Common Shares to those Limited Partners who elect to exchange their OP Units
for Common Shares. Limited Partners at the Effective Date of the Mergers who
receive a Note in exchange for OP Units pursuant to the Note Election will
participate in the same distributions from the Partnerships as Limited Partners
who retain OP Units but will not receive any distributions from the Operating
Partnership with respect to periods after the Notes are issued.     
 
  Ownership Interests of Host in the Partnerships. The table below sets forth
the current ownership interests of Host in the Partnerships. Following the REIT
Conversion, assuming all of the Partnerships participate in the Mergers, the
Partnerships will be owned by the Operating Partnership.
 

<TABLE>
<CAPTION>
   PARTNERSHIP               LIMITED PARTNER INTERESTS GENERAL PARTNER INTERESTS
   -----------               ------------------------- -------------------------
   <S>                       <C>                       <C>
   Atlanta Marquis..........      Class A   0.28%                1.00%
                                  Class B 100.00
   Chicago Suites...........                0.00                  1.00
   Desert Springs...........                0.00                  1.00
   Hanover..................               47.62                  5.00
   MDAH.....................                0.60                  1.00
   MHP......................               48.33                  1.00
   MHP2.....................               52.75                  1.00
   PHLP.....................                0.06                  1.00
</TABLE>

 
  Limited Partner Vote Required for the Mergers. In the case of Atlanta
Marquis, a majority of Class A limited partner interests must be present in
person or by proxy to establish a quorum and must vote to approve the Merger.
Host and its affiliates own 0.28% of the outstanding Class A limited partner
interests and will vote them in favor of the Merger. In the case of each of
Chicago Suites and PHLP, the approval required for each Merger is a majority of
the outstanding limited partner interests in such Partnership. Host owns no
limited partner interests in Chicago Suites and will vote its 0.06% limited
partner interests in PHLP in favor of the Merger. In MDAH, a majority of
limited partner interests must vote to approve the Merger. Host is not entitled
to vote its 0.60% limited partner interest in MDAH on the Merger. In the case
of Desert Springs, Hanover, MHP and MHP2, a majority of the limited partner
interests held by Limited Partners must be present in person or by proxy for
the vote to be recognized and a majority of the limited partner interests
actually voting on the Merger must vote for the Merger to approve it. Host is
required to vote all of its limited partner interests in Hanover, MHP and MHP2
in the same manner as the majority of the other limited partner interests
actually voting on the matter
 
                                       22

<PAGE>
 
vote. Host or its subsidiaries own a 47.62%, 48.33% and 52.75% limited partner
interest in Hanover, MHP and MHP2, respectively. Host does not own any limited
partner interests in Desert Springs. The approval of the Merger by the
requisite percentage of limited partner interests of a Partnership will cause
the Partnership to participate in the Merger so long as the amendments to the
partnership agreement are also approved and will bind all Limited Partners of
such Partnership, including Limited Partners who voted against or abstained
from voting with respect to the Merger. See "Voting Procedures--Limited Partner
Required Vote and Other Conditions--Required Limited Partner Vote for the
Mergers."
 
  Amendments to the Partnership Agreements. In order to consummate each Merger
as currently proposed, there are a number of amendments required to be made to
the partnership agreements of the Partnerships. Limited Partners must vote
separately on the Merger and the amendments to the partnership agreement, but
the Merger will not be consummated unless both the Merger and the amendments to
the partnership agreement are approved. The effectiveness of such amendments
will be conditioned upon the Partnership's participation in a Merger. The
required amendments generally include: (i) permitting the Partnership to enter
into the Leases with the Lessees; (ii) reducing to one the number of appraisals
of the fair market value of a Partnership's Hotel(s) that the Partnership must
obtain before the General Partner can cause a Partnership to sell its assets to
the General Partner or an affiliate; and (iii) other amendments required to
allow the transactions constituting the Mergers or otherwise necessary or
desirable to consummate the Mergers or the REIT Conversion.
 
  Limited Partner Vote Required for the Amendments to the Partnership
Agreements. In the case of Atlanta Marquis, a majority of Class A limited
partner interests must be present in person or by proxy to establish a quorum
and must vote to approve the amendments to the partnership agreement. Host and
its affiliates own 0.28% of the outstanding Class A limited partner interests
and will vote them in favor of the amendments. In the case of each of Chicago
Suites and PHLP, the approval required for the amendments to the partnership
agreement is a majority of the outstanding limited partner interests in such
Partnership. Host owns no limited partner interests in Chicago Suites and will
vote its 0.06% limited partner interests in PHLP in favor of the amendments. In
MDAH, a majority of limited partner interests must vote to approve the
amendments to the partnership agreement. Host is not entitled to vote its 0.60%
limited partner interest in MDAH on the amendments. In the case of Desert
Springs, Hanover, MHP and MHP2, a majority of the limited partner interests
held by Limited Partners must be present in person or by proxy for the vote to
be recognized and a majority of the limited partner interests actually voting
on the amendments to the partnership agreements must vote for the amendments to
the partnership agreements to approve them. Host is required to vote all of its
limited partner interests in Hanover, MHP and MHP2 in the same manner as the
majority of the other limited partner interests actually voting on the matter
vote. Host or its subsidiaries own a 47.62%, 48.33% and 52.75% limited partner
interest in Hanover, MHP and MHP2, respectively. Host does not own any limited
partner interests in Desert Springs. See "Voting Procedures--Required Limited
Partner Vote and Other Conditions--Required Limited Partner Vote for the
Amendments to the Partnership Agreements."
 
  Effective Time of the Mergers. The effective time of each Merger (the
"Effective Time") will be after the merger of Host into Host REIT becomes
effective and the shares of Crestline common stock and other consideration are
distributed to Host or Host REIT's shareholders in connection with the Initial
E&P Distribution, which is expected to occur during the final stage of the REIT
Conversion. The Effective Time currently is expected to occur on or about
December 30, 1998, subject to satisfaction or waiver of the conditions to the
Mergers, but there is no assurance that it will occur at such time.
 
  Conditions to Consummation of the Mergers. Participation by each Partnership
in a Merger is subject to the satisfaction or waiver of certain conditions,
including, among others:
 
  . Limited Partner Approvals. Limited Partners holding the requisite
    percentage of Partnership Interests in such Partnership shall have
    approved the Merger and the amendments to the partnership agreement (as
    described above).
 
 
                                       23

<PAGE>
 
  . Host Shareholder Approval. Shareholders owning 66 2/3% of the outstanding
    shares of Host's common stock shall have approved the merger of Host into
    Host REIT and such merger shall have been consummated.
 
  . REIT Qualification. Host's Board of Directors shall have determined,
    based upon the advice of counsel, that Host REIT can elect to be treated
    as a REIT for federal income tax purposes effective no later than the
    first full taxable year commencing after the REIT Conversion is completed
    (which might not be until the year commencing January 1, 2000 if the REIT
    Conversion is not completed until after December 31, 1998), and Host REIT
    shall have received an opinion of counsel substantially to such effect.
 
  . NYSE Listing. The Common Shares shall have been listed on the NYSE.
 
  . Third-Party Consents. All required governmental and other third-party
    consents to the Mergers and the REIT Conversion, including consents of
    lenders, Marriott International and certain of its subsidiaries and
    ground lessors and consents to transfer material operating licenses and
    permits and the Management Agreements, shall have been received, except
    for such consents as would not reasonably be expected to have a material
    adverse effect on the business, financial condition or results of
    operations of Host REIT, the Operating Partnership and their subsidiaries
    taken as a whole.
 
  . No Adverse Tax Legislation. The United States Congress shall not have
    enacted legislation, or proposed legislation with a reasonable
    possibility of being enacted, that would have the effect of (i)
    substantially impairing the ability of Host REIT to qualify as a REIT or
    the Operating Partnership to qualify as a partnership, (ii) substantially
    increasing the federal tax liabilities of Host REIT resulting from the
    REIT Conversion or (iii) substantially reducing the expected benefits to
    Host REIT resulting from the REIT Conversion. The determination that this
    condition has been satisfied will be made by Host, in its discretion.
 
  . Completion of Mergers by June 30, 1999. The Mergers must have been
    completed by June 30, 1999, unless the Operating Partnership and the
    General Partners have mutually agreed to extend the deadline to a date no
    later than December 31, 1999.
 
  The obligation of the Operating Partnership to consummate a Merger is subject
to satisfaction or waiver of the same or similar conditions.
 
  Merger Expenses. All costs and expenses incurred in connection with the
proposed Mergers (the "Merger Expenses"), whether or not the Mergers are
approved by the Partnerships, will be borne by the Operating Partnership,
although in certain instances, transfer and recordation taxes and fees are
reflected in the Exchange Values and Note Election Amounts. The Operating
Partnership also will bear all other costs and expenses incurred by Host and
its subsidiaries in connection with the REIT Conversion (the "REIT Conversion
Expenses"). See "The Mergers and the REIT Conversion--Expenses."
 
REASONS FOR THE MERGERS
 
  The Mergers are being proposed at this time for three principal reasons:
 
  . First, the General Partners believe that the expected benefits of the
    Mergers to the Limited Partners, as set forth below, outweigh the risks
    of the Mergers to the Limited Partners, as set forth in "Risk Factors."
 
  . Second, the General Partners believe that participation in the REIT
    Conversion through the Mergers is better for the Limited Partners than
    the alternatives of continuing each Partnership as a standalone entity,
    liquidating the Partnership, reorganizing the Partnership into a separate
    REIT or pursuing a merger of one or more Partnerships with another REIT
    or UPREIT, especially in light of the opportunity to receive OP Units,
    Common Shares or Notes in connection with the Mergers. See "Determination
    of Exchange Values and Allocation of OP Units" and "Background and
    Reasons for the Mergers and the REIT Conversion--Alternatives to the
    Mergers."
 
 
                                       24

<PAGE>
 
  . Third, Host is proposing the Mergers at this time to each Partnership
    because consummation of the Merger as to each Partnership will enable
    Host to obtain the full benefits of the REIT Conversion with respect to
    its interests in such Partnership, while also giving the other partners
    of the Partnership the opportunity to enjoy the benefits of the REIT
    Conversion. See "Risk Factors--Risks and Effects of the Mergers--
    Conflicts of Interest--Substantial Benefits to Related Parties."
 
  The expected benefits from the Mergers to the Limited Partners include the
following:
 
  . Liquidity. The REIT Conversion will offer Limited Partners liquidity with
    respect to their investments in the Partnerships because Limited Partners
    can receive freely tradeable Host REIT Common Shares by electing to
    exchange OP Units for Common Shares in connection with the Mergers or,
    for those Limited Partners who retain OP Units, at any time commencing
    one year following the Mergers, by exercising their Unit Redemption
    Right, subject to certain limited exceptions. Host has approximately 204
    million shares of common stock outstanding and is expected to have a
    total common equity market capitalization of approximately $3.4 billion
    after giving effect to the Initial E&P Distribution (based on a price of
    $12.50 per Host REIT Common Share). The election to exchange OP Units for
    Common Shares in connection with the Mergers or the exercise of the Unit
    Redemption Right, however, generally would result in recognition of
    taxable income or gain.
 
  . Regular Quarterly Cash Distributions. The General Partners expect that
    the Operating Partnership will make regular quarterly cash distributions
    to holders of OP Units and that Host REIT will make regular quarterly
    cash distributions to holders of Common Shares. Host expects that these
    distributions will be higher than the estimated cash distributions from
    operations during 1998 of all Partnerships except MHP and MHP2, and in
    any event, the ability to receive distributions quarterly and in regular
    amounts would be enhanced. For additional information regarding
    historical and estimated future distributions for the Partnerships, see
    "Background and Reasons for the Mergers and the REIT Conversion--Reasons
    for the Mergers."
 
  . Substantial Tax Deferral for Limited Partners Not Electing to Exchange OP
    Units for Common Shares or Notes. The General Partners expect that
    Limited Partners of the Participating Partnerships who do not elect to
    receive Common Shares or Notes in exchange for OP Units in connection
    with the Mergers generally should be able to obtain the benefits of the
    Mergers while continuing to defer recognition for federal income tax
    purposes of at least a substantial portion, if not all, of the gain with
    respect to their Partnership Interests that otherwise would be recognized
    in the event of a liquidation of the Partnership or a sale or other
    disposition of its assets in a taxable transaction (although Limited
    Partners in Atlanta Marquis, Desert Springs, MHP and PHLP may recognize a
    relatively modest amount of ordinary income as the result of required
    sales of personal property by each such Partnership to a Non-Controlled
    Subsidiary in order to facilitate Host REIT's qualification as a REIT).
    Thereafter, such Limited Partners generally should be able to defer at
    least a substantial portion of such built-in gain until they elect to
    exercise their Unit Redemption Right or one or more of the Hotels
    currently owned by their Partnership are sold or otherwise disposed of in
    a taxable transaction by the Operating Partnership or the debt now
    secured by such Hotels is repaid, prepaid or substantially reduced. The
    federal income tax consequences of the Mergers are highly complex and,
    with respect to each Limited Partner, are dependent upon many variables,
    including the particular circumstances of such Limited Partner. See
    "Federal Income Tax Consequences--Tax Consequences of the Mergers." Each
    Limited Partner is urged to consult with his own tax advisors as to the
    consequences of a Merger in light of his particular circumstances.
 
  . Risk Diversification. Participation in a Merger, as well as future hotel
    acquisitions by the Operating Partnership, will reduce the dependence
    upon the performance of, and the exposure to the risks associated with,
    any particular Hotel or group of Hotels currently owned by an individual
    Partnership and spread such risk over a broader and more varied
    portfolio, including more diverse geographic locations and multiple
    brands. See "Business and Properties--Business Objectives."
 
 
                                       25

<PAGE>
 
     
  . Reduction in Leverage and Interest Costs. It is expected that the
    Operating Partnership will have a leverage to value ratio (approximately
    62%) that is lower than the leverage to value ratios for five of the
    Partnerships (Atlanta Marquis, Chicago Suites, Desert Springs, Hanover
    and PHLP), and that is not significantly different than the leverage
    ratios for MDAH, MHP and MHP2.     
 
  . Growth Potential. The General Partners believe that the Limited Partners,
    by directly or indirectly owning interests in a publicly traded real
    estate company focused primarily on a more diverse and growing upscale
    and luxury full-service hotel portfolio, will be able to participate in
    growth opportunities that would not otherwise be available to them.
 
  . Greater Access to Capital. With publicly traded equity securities, a
    larger base of assets and a substantially greater equity value than any
    of the Partnerships individually, Host REIT expects to have greater
    access to the capital necessary to fund the Operating Partnership's
    operations and to consummate acquisitions on more attractive terms than
    would be available to any of the Partnerships individually. This greater
    access to capital should provide greater financial stability to the
    Operating Partnership and reduce the level of risk associated with
    refinancing existing loans upon maturity, as compared to the Partnerships
    individually.
 
  . Public Market Valuation of Assets. In most instances, the units of
    limited partnership interest of each Partnership ("Partnership Units")
    currently trade at a discount to the net asset value of the Partnership's
    assets. The General Partners believe that by exchanging interests in
    their existing, non-traded, finite-life limited partnerships with a fixed
    portfolio for interests in an ongoing real estate company focused
    primarily on a more diverse and growing full-service hotel portfolio and
    providing valuation based upon publicly traded Common Shares of Host
    REIT, the Limited Partners will have the opportunity to participate in
    the recent trend toward ownership of real estate through a publicly
    traded entity, which, in many instances (although not currently), has
    resulted at various times in market valuations of public real estate
    companies in excess of the estimated net asset values of those companies.
    There can be no assurance, however, that the Common Shares of Host REIT
    will trade at a premium to the private market values of the Operating
    Partnership's assets or that they will not trade at a discount to private
    market values. Also, the benefit of Host's conversion to a REIT will not
    be shared by the Limited Partners if and to the extent that such benefit
    is reflected in the market valuation of Host's common stock prior to the
    REIT Conversion.
 
DETERMINATION OF EXCHANGE VALUES AND ALLOCATION OF OP UNITS
 
  Following consummation of the REIT Conversion, OP Units are expected to be
owned by the following groups:
 
  . Host REIT, which will own a number of OP Units equal to the number of
    outstanding Common Shares of Host REIT. These OP Units will consist of
    (i) the OP Units to be acquired in exchange for the contribution of
    Host's full-service hotel assets and other assets (excluding its senior
    living assets and the cash or other consideration to be distributed to
    shareholders of Host or Host REIT and certain other de minimis assets),
    subject to all liabilities of Host (including past and future contingent
    liabilities), other than liabilities of Crestline, (ii) the OP Units to
    be received by the General Partners and other Host subsidiaries with
    respect to their interests in the Partnerships and (iii) the OP Units to
    be acquired from Limited Partners who elect to receive Common Shares in
    connection with the Mergers. The OP Units received by the General
    Partners and other Host subsidiaries attributable to their interests in
    the Partnerships will be valued in the same manner as the OP Units
    attributable to the Limited Partners and will be determined in accordance
    with the distribution provisions in the partnership agreements of the
    Partnerships. On a pro forma basis, as of June 19, 1998, Host REIT would
    have owned approximately 204 million OP Units, based upon the number of
    outstanding shares of Host common stock at that time, of which the
    General Partners and other Host subsidiaries would have owned
    approximately 17.7 million OP Units received with respect to their
    interests in the Partnerships. If Host issues any shares of preferred
 
                                       26

<PAGE>
 
   stock prior to the REIT Conversion, Host REIT also will own a number of
   preferred partnership interests in the Operating Partnership equal to the
   number of outstanding shares of preferred stock.
 
  . The Blackstone Entities, which will receive approximately 43.7 million OP
    Units in exchange for the contribution of the Blackstone Hotels and
    certain other related assets, subject to certain liabilities.
 
  . Limited Partners of the Participating Partnerships, who will receive in
    the Mergers a number of OP Units based upon the Exchange Values of their
    respective Partnership Interests and the price per OP Unit (other than
    Limited Partners who elect to exchange such OP Units for Common Shares or
    Notes).
 
  . Partners unaffiliated with Host in four Private Partnerships, who have
    agreed to exchange their interests in their Private Partnerships for OP
    Units based upon the value of their interests in their Private
    Partnerships, as determined by negotiation with Host.
   
  In the Mergers, the Limited Partners of each Participating Partnership will
receive in exchange for their Partnership Interests a number of OP Units with
an aggregate deemed value equal to the Exchange Value of their Partnership
Interests. The price of an OP Unit for this purpose will be equal to the
average closing price on the NYSE of a Host REIT Common Share for the 20
trading days after the Effective Date of the Mergers (but, subject to
adjustment, will not be less than $9.50 or greater than $15.50 per OP Unit).
The maximum and minimum prices per OP Unit will be reduced if the Blackstone
Acquisition is not consummated and, as a result thereof, the Initial E&P
Distribution exceeds $2.50 per Host or Host REIT common share. The Limited
Partners will become partners in the Operating Partnership at the Effective
Time of the Mergers, but the OP Units will not be issued to the Limited
Partners until promptly after the twentieth trading day following the Effective
Date of the Mergers (which would be promptly after January 29, 1999 if the
Effective Date of the Mergers is December 30, 1998).     
 
  The Exchange Value of each Partnership is equal to the greatest of its
Adjusted Appraised Value, Continuation Value and Liquidation Value, each of
which has been determined as follows:
 
  . Adjusted Appraised Value. The General Partners have retained AAA to
    determine the market value of each of the Hotels as of March 1, 1998 (the
    "Appraised Value"). The "Adjusted Appraised Value" of a Partnership
    equals the Appraised Value of its Hotels, adjusted as of the Final
    Valuation Date (as defined herein) for lender reserves, capital
    expenditure reserves, existing indebtedness (including a "mark to market"
    adjustment to reflect the fair market value of such indebtedness),
    certain deferred maintenance costs, deferred management fees and transfer
    and recordation taxes and fees.
 
  . Continuation Value. The General Partners have adopted estimates prepared
    by AAA for each Partnership of the discounted present value, as of
    January 1, 1998, of the limited partners' share of estimated future cash
    distributions and estimated net sales proceeds (plus lender reserves)
    assuming that the Partnership continues as an operating business for
    twelve years and its assets are sold on December 31, 2009 for their then
    estimated market value (the "Continuation Value").
 
  . Liquidation Value. The General Partners have estimated for each
    Partnership the net proceeds to limited partners resulting from the
    assumed sale as of December 31, 1998 of the Hotels(s) of the Partnership,
    each at its Adjusted Appraised Value (after eliminating any "mark to
    market" adjustment and adding back the deduction for transfer taxes and
    fees, if any, made in deriving the Adjusted Appraised Value) less (i)
    estimated liquidation costs, expenses and contingencies equal to 2.5% of
    Appraised Value and (ii) prepayment penalties or defeasance costs, as
    applicable (the "Liquidation Value").
 
  For a complete description of the above methodologies, see "Determination of
Exchange Values and Allocation of OP Units--Methodology for Determining
Exchange Values." Each of the three valuation methodologies is dependent upon a
number of estimates, variables and assumptions, including the assumptions used
by AAA in preparing the Appraised Values of the Hotels, as well as varying
market conditions. No assurance can be given that the estimated values would be
accurate under actual conditions. See "Background and Reasons for the Mergers
and the REIT Conversion--Alternatives to the Mergers."
 
  The following table sets forth the estimated Exchange Value of each
Partnership (based upon the greatest of its estimated Adjusted Appraised Value,
estimated Continuation Value and estimated Liquidation Value), the
 
                                       27

<PAGE>
 
estimated minimum number of OP Units to be received (based upon the maximum
price of $15.50 per OP Unit) and the estimated Note Election Amount for each
Partnership, all on a per Partnership Unit basis as of the Initial Valuation
Date. The number of Common Shares received in exchange for OP Units by a
Limited Partner who elects to receive Common Shares will equal the number of OP
Units received by such Limited Partner. The estimated Exchange Values set forth
below may increase or decrease as a result of various adjustments, which will
be finally calculated immediately prior to the closing of the Mergers but will
not change as a result of less than all of the Partnerships participating in
the Mergers. The actual number of OP Units to be received by the Limited
Partners will be based on the average closing price on the NYSE of a Host REIT
Common Share for the 20 trading days after the Effective Date (but will not be
less than $9.50 or greater than $15.50 per OP Unit) and will not be finally
determined until such time.
 
ESTIMATED EXCHANGE VALUES, MINIMUM NUMBER OF OP UNITS AND NOTE ELECTION AMOUNTS
               (ALL AMOUNTS ON A PER PARTNERSHIP UNIT BASIS)/(1)/
 

<TABLE>
<CAPTION>
                                                                               ESTIMATED
                         ESTIMATED                                              MINIMUM  ESTIMATED
                         ADJUSTED        ESTIMATED    ESTIMATED      ESTIMATED NUMBER OF   NOTE
                         APPRAISED      CONTINUATION LIQUIDATION     EXCHANGE     OP     ELECTION
      PARTNERSHIP          VALUE           VALUE        VALUE        VALUE(2)  UNITS(3)  AMOUNT(4)
      -----------        ---------      ------------ -----------     --------- --------- ---------
<S>                      <C>            <C>          <C>             <C>       <C>       <C>
Atlanta Marquis......... $ 41,570         $ 45,425    $    402       $ 45,425    2,931   $ 36,340
Chicago Suites..........   33,133           24,184      31,149         33,133    2,138     31,149
Desert Springs..........   40,880           33,536      27,617         40,880    2,637     32,704
Hanover.................  123,202           98,090      88,474        123,202    7,949     98,562
MDAH....................  109,216           89,340      98,343        109,216    7,046     98,343
MHP.....................  140,032          141,074     124,261        141,074    9,102    124,261
MHP2....................  237,334          211,263     205,140        237,334   15,312    205,140
PHLP....................        0/(5)/       5,040           0/(5)/     5,040      325      4,032
</TABLE>

- --------
(1) A Partnership Unit in all of the Partnerships except Chicago Suites
    ($35,000) and PHLP ($10,000) represents an original investment of $100,000.
(2) Estimated Exchange Value is equal to the greatest of estimated Adjusted
    Appraised Value, estimated Continuation Value and estimated Liquidation
    Value.
(3) Assumes the price of an OP Unit is $15.50, which is the maximum price for
    purposes of the Mergers.
(4) The principal amount of Notes is equal to the greater of (i) the
    Liquidation Value or (ii) 80% of the Exchange Value (the "Note Election
    Amount").
(5) The estimated Adjusted Appraised Value and the estimated Liquidation Value
    for PHLP are zero because PHLP's outstanding debt is greater than the
    Appraised Value of the Hotels and the value of other assets, net of
    liabilities, owned by PHLP.
 
DESCRIPTION OF THE COMMON SHARE ELECTION
   
  Limited Partners who desire to exchange their OP Units with Host REIT for
Common Shares must indicate their election on the OP Unit Exchange Election
Form and deliver such form to the Operating Partnership at any time prior to
the end of the Election Period (which election may be revoked, and if revoked,
made again, at any time prior to the end of the Election Period). At their
discretion, the Operating Partnership and Host REIT may elect to extend the
Election Period. Even if a Limited Partner votes against the Merger, he may
still choose to exchange his OP Units for Common Shares in the event the Merger
is approved. A Limited Partner of a Participating Partnership who fails to
timely and properly return the OP Unit Exchange Election Form will receive and
retain OP Units. Each Limited Partner in a Participating Partnership who timely
and properly elects to exchange his OP Units for Common Shares (and who has not
timely revoked such election at any time during the Election Period) will
tender (or be deemed to have tendered) all of the OP Units he receives in the
Merger to Host REIT for an equal number of Common Shares. The Common Shares
will be issued to the Limited Partner promptly following the twentieth trading
day after the Effective Date of the Mergers (which would be promptly after
January 29, 1999 if the Effective Date of the Mergers is December 30, 1998).
The Common Shares are     
 
                                       28

<PAGE>
 
expected to receive quarterly cash distributions in the same amount as the cash
distributions with respect to each OP Unit. See "Description of Capital Stock--
Common Shares."
 
DESCRIPTION OF THE NOTE ELECTION
   
  Limited Partners who desire to exchange their OP Units with the Operating
Partnership for a Note must indicate their election on the OP Unit Exchange
Election Form and deliver such form to the Operating Partnership at any time
prior to the end of the Election Period (which election may be revoked, and if
revoked made again, at any time prior to the end of the Election Period). Even
if a Limited Partner votes against the Merger, he still may choose to exchange
his OP Units for a Note in the event the Merger is approved. A Limited Partner
of a Participating Partnership who fails to timely and properly return the OP
Unit Exchange Election Form will receive and retain OP Units. Each Limited
Partner in a Participating Partnership who timely and properly elects to
exchange his OP Units for a Note (and who has not timely revoked such election
at any time during the Election Period) will tender (or be deemed to have
tendered) all of the OP Units he receives in the Merger to the Operating
Partnership for the Note. The Note will be issued to the Limited Partner
promptly following the twentieth trading day after the Effective Date of the
Mergers (which would be promptly after January 29, 1999 if the Effective Date
of the Mergers is December 30, 1998). The Notes will (i) be unsecured
obligations of the Operating Partnership, (ii) have a principal amount equal to
the Note Election Amount of a Limited Partner's Partnership Interests, (iii)
mature on December 15, 2005 (approximately seven years after the closing of the
Mergers), (iv) bear interest at 6.56% per annum, which was determined based on
120% of the applicable federal rate as of the Record Date (which was 5.47%),
payable semi-annually on June 15 and December 15 each year commencing from and
after the Effective Date of the Mergers, (v) provide for optional prepayment by
the Operating Partnership at any time without penalty and mandatory prepayment
of principal from a ratable portion of the net proceeds (after repayment of
debt, sales expenses and deferred management fees) realized from any sale of
any Hotels formerly owned by the Limited Partner's Partnership and from certain
excess refinancing proceeds and (vi) provide for the payment of the remaining
principal balance at maturity. See "Description of the Notes."     
 
FAIRNESS ANALYSIS AND OPINION
 
  Fairness Analysis. The General Partners believe that the Mergers provide
substantial benefits and are fair to the Limited Partners of each Partnership
and recommend that all Limited Partners vote for the Mergers. In arriving at
this conclusion, the General Partners have relied primarily on the following
factors, as well as other factors described under "Fairness Analysis and
Opinion--Fairness Analysis:" (i) their view that the expected benefits of the
Mergers for the Limited Partners outweigh the risks and potential detriments of
the Mergers to the Limited Partners (see "Background and Reasons for the
Mergers and the REIT Conversion--Reasons for the Mergers"); (ii) their view
that the value of the OP Units allocable to the Limited Partners on the basis
of the Exchange Value established for each Partnership represents fair
consideration for the interests held by the partners of such Partnership and is
fair to the Limited Partners from a financial point of view; and (iii) the
fairness opinion of AAA, as described below.
 
  Fairness Opinion. AAA, an independent, nationally recognized hotel valuation
and financial advisory firm, has rendered the fairness opinion (the "Fairness
Opinion"), attached as Appendix B to this Consent Solicitation, which sets
forth the Appraised Values of the Hotels and concludes that: (i) the Exchange
Value and the methodologies and underlying assumptions used to determine the
Exchange Value, the Adjusted Appraised Value, the Continuation Value and the
Liquidation Value of each Partnership (including, without limitation, the
assumptions used to determine the various adjustments to the Appraised Values
of the Hotels) are fair and reasonable, from a financial point of view, to the
Limited Partners of each Partnership; and (ii) the methodologies used to
determine the value of an OP Unit and the allocation of the equity interest in
the Operating Partnership to be received by the limited partners of each
Partnership are fair and reasonable to the Limited Partners of each
Partnership. See "Fairness Analysis and Opinion--Fairness Opinion."
 
                                       29

<PAGE>
 
 
RECOMMENDATION
 
  FOR THE REASONS STATED HEREIN, THE GENERAL PARTNERS BELIEVE THAT THE MERGERS
PROVIDE SUBSTANTIAL BENEFITS AND ARE FAIR TO THE LIMITED PARTNERS OF EACH
PARTNERSHIP AND RECOMMEND THAT ALL LIMITED PARTNERS VOTE FOR THE MERGERS AND
FOR THE RELATED AMENDMENTS TO THE PARTNERSHIP AGREEMENTS. SEE "FAIRNESS
ANALYSIS AND OPINION--FAIRNESS ANALYSIS."
 
SOLICITATION MATERIALS
 
  This Consent Solicitation (including the accompanying transmittal letter),
together with the consent form (the "Consent Form") and the Questions and
Answers (the "Q & A") constitute the "Solicitation Materials" being distributed
to Limited Partners to obtain their consents to the Mergers and the amendments
to the partnership agreements.
 
  The date of first distribution of this Consent Solicitation is October  ,
1998.
 
VOTING PROCEDURES
 
  The voting procedures applicable to Limited Partners of each Partnership are
set forth in this Consent Solicitation under the heading "Voting Procedures--
Required Limited Partner Vote and Other Conditions." LIMITED PARTNERS ARE BEING
ASKED TO VOTE SEPARATELY ON THE MERGER AND THE PROPOSED AMENDMENTS TO THE
PARTNERSHIP AGREEMENT OF HIS PARTNERSHIP, BUT A PARTNERSHIP WILL NOT
PARTICIPATE IN A MERGER UNLESS BOTH PROPOSALS ARE APPROVED.
 
  A Limited Partner may mark the Consent Form to vote "FOR," "AGAINST" or
"ABSTAIN" with respect to participation in a Merger by his Partnership and
"FOR," "AGAINST" or "ABSTAIN" with respect to the amendments to the partnership
agreement of his Partnership. THE FAILURE OF A LIMITED PARTNER OF ATLANTA
MARQUIS, CHICAGO SUITES, MDAH AND PHLP TO VOTE OR AN ABSTENTION WILL HAVE THE
SAME EFFECT AS IF SUCH LIMITED PARTNER HAD VOTED HIS PARTNERSHIP INTERESTS
"AGAINST" A MERGER AND "AGAINST" THE AMENDMENTS TO THE PARTNERSHIP AGREEMENTS.
THE FAILURE OF A LIMITED PARTNER OF DESERT SPRINGS, HANOVER, MHP AND MHP2 TO
VOTE WILL MEAN THAT SUCH LIMITED PARTNER'S PARTNERSHIP INTEREST WILL NOT BE
COUNTED FOR PURPOSES OF ESTABLISHING THE NUMBER OF LIMITED PARTNER INTERESTS
REQUIRED TO RECOGNIZE THE VOTE AND MAY AFFECT THE MANNER IN WHICH HOST IS
REQUIRED TO VOTE ITS LIMITED PARTNER INTERESTS. AN ABSTENTION BY A LIMITED
PARTNER OF DESERT SPRINGS, HANOVER, MHP AND MHP2 WILL BE COUNTED FOR PURPOSES
OF ESTABLISHING THE NUMBER OF LIMITED PARTNER INTERESTS REQUIRED TO HAVE THE
VOTE RECOGNIZED BUT WILL EFFECTIVELY BE COUNTED AS A VOTE "AGAINST" A MERGER
AND "AGAINST" THE AMENDMENTS TO THE PARTNERSHIP AGREEMENTS.
 
  The period during which consents will be solicited pursuant to this Consent
Solicitation (the "Solicitation Period") will commence on the date this Consent
Solicitation and the other Solicitation Materials are first distributed to the
Limited Partners and will continue until the later of (i) December  , 1998 or
(ii) such later date as the Operating Partnership may elect, in its sole and
absolute discretion. Any Consent Form RECEIVED by the Operating Partnership (in
original or by facsimile) prior to 5:00 p.m., Eastern time, on the last day of
the Solicitation Period will be effective, provided that such Consent Form has
been properly signed. FOR ALL OF THE PARTNERSHIPS, A CONSENT FORM THAT IS
PROPERLY SIGNED BUT NOT MARKED WILL BE VOTED "FOR" A MERGER AND "FOR" THE
AMENDMENTS TO THE PARTNERSHIP AGREEMENT. A Limited Partner who has submitted a
Consent Form may withdraw or revoke the Consent Form at any time prior to the
expiration of the Solicitation Period.
 
  Investor Lists. Under Rule 14a-7 of the Exchange Act, each Partnership is
required, upon the written request of a Limited Partner, to provide to the
requesting Limited Partner (i) a statement of the approximate number of Limited
Partners in such Limited Partner's Partnership; and (ii) the estimated cost of
mailing a proxy statement, form of proxy or other similar communication to such
Limited Partners. In addition, a Limited Partner has the right, at his option,
either to (a) have his Partnership mail (at such Limited Partner's expense)
copies of
 
                                       30

<PAGE>
 
any proxy statement, proxy form or other soliciting material furnished by the
Limited Partner to the Partnership's Limited Partners designated by the Limited
Partner; or (b) have the Partnership deliver to the requesting Limited Partner,
within five business days of the receipt of the request, a reasonably current
list of the names, addresses and class of units held by the Partnership's
Limited Partners. The right to receive the list of Limited Partners is subject
to the requesting Limited Partner's payment of the cost of mailing and
duplication at a rate of $0.15 per page. See "Voting Procedures--Required
Limited Partner Vote and Other Conditions--Investor Lists."
 
OP UNIT EXCHANGE ELECTION PROCEDURES
   
  Limited Partners who desire to exchange their OP Units for Common Shares or a
Note must timely and properly complete and return the OP Unit Exchange Election
Form. A Limited Partner must make such election (or revoke any election
previously made) at any time during the Election Period, which will commence on
the first day of the Solicitation Period and will continue until 5:00 p.m.,
Eastern time, on the fifteenth trading day after the Effective Date of the
Mergers (which would be January 22, 1999 if the Effective Date of the Mergers
is December 30, 1998), unless extended. A Limited Partner who has returned an
OP Unit Exchange Election Form may withdraw or revoke such election at any time
prior to the expiration of the Election Period by either submitting a later
dated OP Unit Exchange Election Form or notifying the Operating Partnership in
writing that he wishes to withdraw such previous election.     
 
FEDERAL INCOME TAX CONSEQUENCES
 
  Tax Consequences of the Mergers. Based upon certain assumptions and
representations of the General Partners, the Operating Partnership, Host and
Host REIT, Hogan & Hartson L.L.P., counsel to Host, Host REIT and the Operating
Partnership, has opined that, except for any gain attributable to the sale of
personal property to a Non-Controlled Subsidiary, the Mergers will not result
in the recognition of taxable gain or loss at the time of the Mergers to a
Limited Partner (i) who does not elect to receive Common Shares or a Note in
exchange for his OP Units in connection with the Mergers; (ii) who does not
exercise his Unit Redemption Right on a date sooner than the date two years
after the date of the consummation of the Mergers; (iii) who does not receive a
cash distribution (or a deemed cash distribution resulting from relief from
liabilities, including as a result of the prepayment of indebtedness associated
with the Limited Partner's Partnership) in connection with the Mergers or the
REIT Conversion in excess of such Limited Partner's aggregate adjusted basis in
his Partnership Interest at the time of the Mergers; (iv) who is not required
to recognize gain by reason of an election by other Limited Partners in his
Partnership to receive Common Shares or Notes in exchange for their OP Units in
connection with the Mergers (which, in counsel's opinion, described below,
should not be the result of such election); and (v) whose "at risk" amount does
not fall below zero as a result of the Mergers or the REIT Conversion.
   
  With respect to the foregoing potential exceptions to nonrecognition
treatment, Hogan & Hartson L.L.P. has opined as follows: (i) it is more likely
than not that a Limited Partner's exercise of the Unit Redemption Right more
than one year after the date of consummation of the REIT Conversion but less
than two years after such date will not cause the Merger itself to be a taxable
transaction for such Limited Partner (or for the other Limited Partners of such
Partnership); (ii) it is more likely than not that a Limited Partner who does
not elect to exchange his OP Units for Common Shares or a Note in connection
with the Mergers will not be required to recognize gain by reason of another
Limited Partner's exercise of either such election; and (iii) a Limited
Partner's relief from Partnership liabilities allocable to such Limited Partner
in connection with the Mergers or the REIT Conversion (including as a result of
the repayment of Partnership indebtedness in connection with the REIT
Conversion) will not cause such Limited Partner to recognize taxable gain at
the time of the REIT Conversion unless (and only to the extent that) the amount
thereof exceeds such Limited Partner's adjusted basis in his Partnership
Interest at the time of the Mergers. See "Federal Income Tax Consequences--
Summary of Tax Opinions." An opinion of counsel, however, does not bind the
Internal Revenue Service (the "IRS") or the courts, and no assurance can be
provided that any such opinion will not be challenged by the IRS or will be
sustained by a court if so challenged. With one exception, neither Host REIT,
the Operating Partnership, nor the     
 
                                       31

<PAGE>
 
   
General Partners have sought any ruling from the IRS with respect to the
consequences of the Mergers or the REIT Conversion. See "Federal Income Tax
Consequences--Tax Consequences of the Mergers--IRS Ruling Request Regarding
Allocation of Partnership Liabilities." (The foregoing assumes that the ability
to exercise the Common Share Election or the Note Election either is not a
separate property right for federal income tax purposes or does not have any
ascertainable value. The Operating Partnership believes that the ability to
exercise the Common Share Election or the Note Election is not property and,
even if it were property, does not have any independent ascertainable value,
given the nature and terms of the OP Units and the terms and limited duration
of the election arrangements. If, however, the ability to exercise such
elections were considered property and to have an ascertainable value, Limited
Partners could recognize gain in amount up to the amount of such value (whether
or not they exercise such elections).     
 
  With respect to the Limited Partners' relief from Partnership liabilities in
connection with the Mergers and REIT Conversion, the General Partners and the
Operating Partnership have determined, based upon the intended allocation of
Operating Partnership liabilities following the REIT Conversion and certain
information compiled by the General Partners, that no Limited Partner whose
adjusted basis in his Partnership Interest is the same as or greater than the
basis of a Limited Partner who purchased his Partnership Interest in the
original offering by the Partnership of the Partnership Interests and who has
held such Partnership Interest at all times since (referred to herein as an
"Original Limited Partner's Adjusted Basis") and who does not elect to exchange
the OP Units will recognize taxable gain at the time of the Mergers as a result
either of relief from Partnership liabilities allocable to such Limited Partner
or a reduction in his "at risk" amount below zero. See "Federal Income Tax
Consequences--Tax Consequences of the Mergers--Relief from Liabilities/Deemed
Cash Distribution." A Limited Partner whose adjusted basis in his Partnership
Interest is less than the Original Limited Partner's Adjusted Basis for that
Partnership, however, could recognize gain, depending upon his particular
circumstances.
 
  Even though a Limited Partner who does not elect to exchange his OP Units and
whose adjusted basis in his Partnership Interest is the same as or greater than
the Original Limited Partner's Adjusted Basis for that Partnership is not
expected to recognize gain at the time of the REIT Conversion, a variety of
events and transactions subsequent to the REIT Conversion could cause such a
Limited Partner to recognize all or part of the gain that has been deferred
through the REIT Conversion. See "Federal Income Tax Consequences--Tax
Consequences of the Mergers--Effect of Subsequent Events." The Partnership
Agreement provides that Host REIT is not required to take into account the tax
consequences for the limited partners of the Operating Partnership in deciding
whether to cause the Operating Partnership to undertake specific transactions
(but the Operating Partnership is obligated to pay any taxes that Host REIT
incurs as a result of such transactions) and the limited partners have no right
to approve or disapprove such transactions. See "Description of OP Units--Sales
of Assets."
 
  The particular tax consequences of the Mergers and the REIT Conversion for a
Limited Partner will depend upon a number of factors related to the tax
situation of that individual Limited Partner and the Partnership of which he is
a Limited Partner, including, without limitation, such factors as the Limited
Partner's adjusted tax basis in his Partnership Interest, the extent to which
the Limited Partner has unused passive losses with respect to his Partnership
Interest or other investments generating passive activity losses that could
offset income arising from the Mergers and the REIT Conversion, the amount of
income (if any) required to be recognized by reason of the sale by the Limited
Partners' Partnership of personal property to a Non-Controlled Subsidiary, the
actual allocation of Operating Partnership liabilities to the Limited Partner
following the Mergers and the REIT Conversion and the amount of built-in gain
with respect to the Hotel(s) contributed to the Operating Partnership by the
Partnership in which he is a Limited Partner.
 
  A Limited Partner who elects to exchange his OP Units for Common Shares in
connection with the Mergers will be treated as having made a fully taxable
disposition of his OP Units, which likely would be deemed to occur at the time
that the right to receive Common Shares becomes fixed (which the Operating
Partnership will
 
                                       32

<PAGE>
 
treat as occurring on January 22, 1999 if the Effective Date of the Mergers is
December 30, 1998). The amount realized in connection with such disposition
will equal the sum of the fair market value of the Common Shares received, plus
the portion of the Operating Partnership's liabilities allocable to the Limited
Partner for federal income tax purposes. To the extent the amount realized
exceeds the Limited Partner's adjusted tax basis in his OP Units, the Limited
Partner will recognize gain. Such Limited Partner will not be able to defer any
portion of the gain realized from the exchange of OP Units for Common Shares
under the "installment sale" rules. See "Federal Income Tax Consequences--Tax
Treatment of Limited Partners Who Exercise Their Right to Make the Common Share
Election or the Note Election."
 
  A Limited Partner who elects to exchange his OP Units for a Note in
connection with the Mergers will be treated as having made a taxable
disposition of his OP Units, which likely would be deemed to occur on the
Effective Date of the Mergers (which currently is expected to occur on December
30, 1998). The amount realized in connection with such disposition will equal
the sum of the "issue price" of the Note (i.e., the principal amount of the
Note), plus the portion of the Operating Partnership's liabilities allocable to
the Limited Partner for federal income tax purposes. To the extent the amount
realized exceeds the Limited Partner's adjusted tax basis in his OP Units, the
Limited Partner will recognize gain. Such Limited Partner may be eligible to
defer at least a portion of that gain under the "installment sale" rules (see
"Federal Income Tax Consequences--Tax Treatment of Limited Partners Who
Exercise Their Right to Make the Common Share Election or the Note Election")
but those rules would not permit the Limited Partner to defer all of the gain
(including any gain attributable to the Limited Partner's "negative capital
account" and any gain attributable to depreciation recapture) and may require
that the Limited Partner who defers gain pay to the IRS interest on a portion
of the resulting tax that has been deferred.
 
  The discussion of federal income tax consequences in this Consent
Solicitation is not exhaustive of all possible tax consequences. For example,
it does not give a detailed discussion of any state, local or foreign tax
considerations. In addition, except to the extent discussed under the heading
"Federal Income Tax Consequences--Taxation of Non-U.S. Shareholders of Host
REIT," it does not purport to deal with tax consequences that might be relevant
to foreign corporations and persons who are not citizens or residents of the
United States.
 
  The gain, if any, required to be recognized by a Limited Partner as a
consequence of the Mergers (including any gain recognized as a result of the
sale of personal property by the Limited Partner's Partnership or as a result
of making the Common Share Election or the Note Election) can be offset by
unused passive activity losses from his Partnership and other investments.
 
  EACH LIMITED PARTNER IS STRONGLY URGED TO CONSULT WITH HIS OWN TAX ADVISOR TO
DETERMINE THE IMPACT OF SUCH LIMITED PARTNER'S PERSONAL TAX SITUATION ON THE
ANTICIPATED TAX CONSEQUENCES OF THE MERGERS AND THE REIT CONVERSION TO SUCH
LIMITED PARTNER.
 
  Qualification of Host REIT as a REIT. Host REIT expects to qualify as a REIT
for federal income tax purposes effective for its first full taxable year
commencing after the REIT Conversion is completed, which Host REIT currently
expects to be the year beginning January 1, 1999 (but which might not be until
the year beginning January 1, 2000). If it so qualifies, Host REIT will be
permitted to (i) deduct dividends paid to its shareholders, allowing the income
represented by such dividends to avoid taxation at the entity level and to be
taxed only at the shareholder level and (ii) treat retained net capital gains
in a manner so that such gains are taxed at the Host REIT level but effectively
avoid taxation at the shareholder level. Host REIT, however, will be subject to
a separate corporate income tax on any gains recognized during the ten years
following the REIT Conversion that are attributable to "built-in" gain with
respect to the assets that Host owned at the time of the REIT Conversion (which
tax would be paid by the Operating Partnership). Host REIT has substantial
deferred tax liabilities that
 
                                       33

<PAGE>
 
are likely to be recognized as "built-in" gain (or by a Non-Controlled
Subsidiary) during such period without any corresponding receipt of cash, and
the Operating Partnership will be responsible for paying such taxes. Host
REIT's ability to qualify as a REIT will depend upon its continuing
satisfaction following the REIT Conversion of various requirements related to
the nature of its assets, the sources of its income and the distributions to
its shareholders, including a requirement that Host REIT distribute to its
shareholders at least 95% of its taxable income each year.
 
  Sale of Personal Property. In order to protect Host REIT's ability to qualify
as a REIT, the Operating Partnership may require, immediately prior to the
Mergers, that certain of the Participating Partnerships (specifically, Atlanta
Marquis, Desert Springs, Hanover, MHP and PHLP) sell a portion of the personal
property associated with the Hotels owned by such Partnerships to a Non-
Controlled Subsidiary. These sales will be taxable transactions and may result
in a special allocation of any ordinary recapture income by each such
Partnership (other than Hanover) to its Limited Partners. This income, if any,
will be allocated to each such Limited Partner in the same proportion and to
the same extent that such Limited Partner previously was allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
recapture income. A Limited Partner who receives such an allocation of
recapture income will not be entitled to any special distribution from his
Partnership in connection with the sale of personal property.
 
SUMMARY FINANCIAL INFORMATION
 
  The following table sets forth unaudited pro forma financial and other
information for the Company and Host REIT and combined consolidated historical
financial information for Host. The following summary financial information
should be read in conjunction with the financial statements and notes thereto
and Management's Discussion and Analysis of Results of Operations and Financial
Condition included elsewhere in this Consent Solicitation.
   
  The unaudited pro forma financial statements as of June 19, 1998 and for the
fiscal year ended January 2, 1998 and the twenty-four weeks ended June 19, 1998
("First Two Quarters 1998") for the 100% Participation and Single Partnership
presentations are presented as if the REIT Conversion occurred as of June 19,
1998 for the pro forma balance sheets and at the beginning of the fiscal year
for the pro forma statements of operations. The unaudited REIT 2000 pro forma
information assumes that the REIT Conversion occurs on January 1, 1999, the
Blackstone Acquisition does not occur and Host does not become a REIT until
January 1, 2000. The pro forma information incorporates certain assumptions
that are described in the Notes to the Unaudited Pro Forma Financial Statements
included elsewhere in this Consent Solicitation.     
 
  The pro forma information does not purport to represent what the Company's or
Host REIT's financial position or results of operations would actually have
been if these transactions had, in fact, occurred on such date or at the
beginning of the period indicated, or to project the Company's or Host REIT's
financial position or results of operations at any future date or for any
future period.
 
  In addition, the historical information contained in the following table is
not comparable to the operations of the Company or Host REIT on a going-forward
basis because the historical information relates to an operating entity which
owns and operates hotels and senior living communities, while the Company will
own the Hotels but will lease them to the Lessees and receive rental payments
in connection therewith.
 
                                       34

<PAGE>
 
                         SUMMARY FINANCIAL INFORMATION
                                 (IN MILLIONS)
 

<TABLE>   
<CAPTION>
                               COMPANY PRO FORMA                    HOST REIT PRO FORMA
                     ------------------------------------- -------------------------------------    HOST
                               FISCAL YEAR 1997                      FISCAL YEAR 1997            HISTORICAL
                     ------------------------------------- ------------------------------------- ----------
                                      SINGLE                                SINGLE
                         100%       PARTNERSHIP  REIT 2000     100%       PARTNERSHIP  REIT 2000
                     PARTICIPATION PARTICIPATION   WITH    PARTICIPATION PARTICIPATION   WITH
                        WITH NO    WITH NO NOTES NO NOTES     WITH NO    WITH NO NOTES NO  NOTES   FISCAL
                     NOTES ISSUED     ISSUED     ISSUED(1) NOTES ISSUED     ISSUED     ISSUED(1) YEAR 1997
                     ------------- ------------- --------- ------------- ------------- --------- ----------
<S>                  <C>           <C>           <C>       <C>           <C>           <C>       <C>
REVENUES:
 Hotel revenues....     $   --        $  226       $  --      $   --        $  226       $  --     $1,093
 Rental revenues...      1,119           873         997       1,119           873         997         --
 Other revenues....          1            19           1           1            19           1         54
                        ------        ------       -----      ------        ------       -----     ------
   Total revenues..      1,120         1,118         998       1,120         1,118         998      1,147
                        ------        ------       -----      ------        ------       -----     ------
OPERATING COSTS AND
EXPENSES:
 Hotel.............        589           582         502         589           582         502        649
 Other.............         11            11          11          11            11          11         49
                        ------        ------       -----      ------        ------       -----     ------
   Total operating
   costs and
   expenses........        600           593         513         600           593         513        698
                        ------        ------       -----      ------        ------       -----     ------
Operating profit...        520           525         485         520           525         485        449
Minority interest..        (10)          (45)        (10)        (16)          (49)        (10)       (32)
Corporate
expenses...........        (44)          (44)        (44)        (44)          (44)        (44)       (47)
REIT Conversion
expenses...........         --            --          --          --            --          --         --
Interest expense...       (468)         (445)       (420)       (430)         (407)       (382)      (302)
Dividends on
Convertible
Preferred
Securities.........         --            --          --         (37)          (37)        (37)       (37)
Interest income....         27            25          34          27            25          34         52
                        ------        ------       -----      ------        ------       -----     ------
Income (loss)
before income
taxes..............         25            16          45          20            13          46         83
Benefit (provision)
for income taxes...         (1)           (1)         (2)         (1)           (1)        (19)       (36)
                        ------        ------       -----      ------        ------       -----     ------
Income (loss)
before
extraordinary items
 ...................     $   24        $   15       $  43      $   19        $   12       $  27     $   47
                        ======        ======       =====      ======        ======       =====     ======
<CAPTION>
                               COMPANY PRO FORMA                    HOST REIT PRO FORMA
                     ------------------------------------- -------------------------------------    HOST
                            FIRST TWO QUARTERS 1998               FIRST TWO QUARTERS 1998        HISTORICAL
                     ------------------------------------- ------------------------------------- ----------
                                      SINGLE                                SINGLE
                         100%       PARTNERSHIP  REIT 2000     100%       PARTNERSHIP  REIT 2000
                     PARTICIPATION PARTICIPATION   WITH    PARTICIPATION PARTICIPATION   WITH    FIRST TWO
                        WITH NO    WITH NO NOTES NO  NOTES WITH NO NOTES WITH NO NOTES NO  NOTES  QUARTERS
                     NOTES ISSUED     ISSUED     ISSUED(1)    ISSUED        ISSUED     ISSUED(1)    1998
                     ------------- ------------- --------- ------------- ------------- --------- ----------
<S>                  <C>           <C>           <C>       <C>           <C>           <C>       <C>
REVENUES:
 Hotel revenues....      $  --         $ 136       $  --       $  --         $ 136       $  --     $ 652
 Rental revenues...        342           265         303         342           265         303        --
 Other revenues....          3            21           3           3            21           3        95
                     ------------- ------------- --------- ------------- ------------- --------- ----------
   Total revenues..        345           422         306         345           422         306       747
                     ------------- ------------- --------- ------------- ------------- --------- ----------
OPERATING COSTS AND
EXPENSES:
 Hotel.............        265           282         224         265           282         224       343
 Other.............          5             5           5           5             5           5        30
                     ------------- ------------- --------- ------------- ------------- --------- ----------
   Total operating
   costs and
   expenses........        270           287         229         270           287         229       373
                     ------------- ------------- --------- ------------- ------------- --------- ----------
Operating profit...         75           135          77          75           135          77       374
Minority interest..        (11)          (46)        (11)         28           (24)         10       (30)
Corporate
expenses...........        (20)          (20)        (20)        (20)          (20)        (20)      (21)
REIT Conversion
expenses...........         --            --          --          --            --          --        (6)
Interest expense...       (216)         (202)       (192)       (198)         (184)       (174)     (162)
Dividends on
Convertible
Preferred
Securities.........         --            --          --         (17)          (17)        (17)      (17)
Interest income....         13            12          17          13            12          17        25
                     ------------- ------------- --------- ------------- ------------- --------- ----------
Income (loss)
before income
taxes..............       (159)         (121)       (129)       (119)          (98)       (107)      163
Benefit (provision)
for income taxes...          8             6           6           6             5          44       (67)
                     ------------- ------------- --------- ------------- ------------- --------- ----------
Income (loss)
before
extraordinary items
 ...................      $(151)        $(115)      $(123)      $(113)        $ (93)      $ (63)    $  96
                     ============= ============= ========= ============= ============= ========= ==========
</TABLE>
    
 
                                      AS OF JUNE 19, 1998
 

<TABLE>   
<CAPTION>
                                     COMPANY PRO FORMA                         HOST REIT PRO FORMA
                         ------------------------------------------ ------------------------------------------
                                               SINGLE                                     SINGLE
                                             PARTNERSHIP  REIT 2000                     PARTNERSHIP  REIT 2000
                         100% PARTICIPATION PARTICIPATION   WITH    100% PARTICIPATION PARTICIPATION   WITH
                           WITH NO NOTES    WITH NO NOTES NO NOTES    WITH NO NOTES    WITH NO NOTES NO  NOTES    HOST
                               ISSUED          ISSUED     ISSUED(1)       ISSUED          ISSUED     ISSUED(1) HISTORICAL
                         ------------------ ------------- --------- ------------------ ------------- --------- ----------
<S>                      <C>                <C>           <C>       <C>                <C>           <C>       <C>
BALANCE SHEET DATA:
 Property and equipment,
 net....................       $7,026          $6,504      $5,576         $7,026          $6,504      $5,576     $5,698
 Total assets...........        8,082           7,610       6,826          8,082           7,610       6,826      6,765
 Debt, excluding
 convertible debt.......        5,025           4,723       4,425          5,025           4,723       4,425      3,784
 Convertible debt ......          567             567         567             --              --          --         --
 Total liabilities......        6,664           6,415       6,033          6,460           6,076       5,724      4,917
 Convertible Preferred
 Securities.............           --              --          --            550             550         550        550
 Limited Partner
 interests of third
 parties at redemption
 value..................          989             712         333             --              --          --         --
 Equity.................          429             483         460          1,072             984         552      1,298
</TABLE>
    
- ----
   
(1)  Assumes all Partnerships participate in the Mergers, the REIT conversion
     occurs on January 1, 1999, the Blackstone Acquisition does not occur and
     that Host does not become a REIT until January 1, 2000.     
 
                                       35

<PAGE>
 
                                 RISK FACTORS
 
  In considering whether to approve a Merger, Limited Partners should consider
carefully, among other factors, the material risks described below.
 
RISKS AND EFFECTS OF THE MERGERS
 
  CONFLICTS OF INTEREST. The Mergers, the REIT Conversion and the
recommendations of the General Partners involve conflicts of interest because
of the relationships among Host, Host REIT, the Operating Partnership, the
General Partners and Crestline.
 
    SUBSTANTIAL BENEFITS TO RELATED PARTIES. To the extent that the
  anticipated benefits of the REIT Conversion are reflected in the value of
  Host's common stock prior to the Effective Date, such benefits will not be
  shared with the Limited Partners. In addition, following the REIT
  Conversion, current Host shareholders (together with the Blackstone
  Entities), but not the Limited Partners, will own the common stock of
  Crestline and will benefit from the terms of the Leases to the extent net
  revenues exceed rental payments and other expenses. The Mergers will
  facilitate the consummation, and enable Host to reap the full benefits, of
  the REIT Conversion. By converting to a REIT, Host expects to benefit from
  the advantages enjoyed by REITs in raising capital and acquiring additional
  assets, participating in a larger group of comparable companies and
  increasing its potential base of shareholders. Also, Host will realize
  significant savings through the substantial reduction of its future
  corporate-level income taxes. The benefits to Host of the REIT Conversion
  will be reduced if one or more of the Partnerships do not participate in a
  Merger, thereby creating a conflict of interest for the General Partners in
  connection with the Mergers.
 
    AFFILIATED GENERAL PARTNERS. Host has varying interests in each of the
  Partnerships and subsidiaries of Host act as General Partner of each of the
  Partnerships (except for PHLP, in which Host is the General Partner). Each
  General Partner has an independent obligation to assess whether the Merger
  is fair and equitable to and advisable for the Limited Partners of its
  Partnership. This assessment involves considerations that are different
  from those relevant to the determination of whether the Mergers and the
  REIT Conversion are advisable for Host and its shareholders. The
  considerations relevant to that determination which create a conflict of
  interest include Host's belief that the REIT Conversion is advisable for
  its shareholders, the benefits of the REIT Conversion to Host will be
  greater if the Partnerships participate and Host REIT will benefit if the
  value of the OP Units received by the Limited Partners in the Mergers is
  less than the value of their Partnership Interests. While each General
  Partner has sought faithfully to discharge its obligations to its
  Partnership, there is an inherent conflict of interest in having the
  General Partners determine the terms on which the Operating Partnership,
  which is controlled by Host, will acquire the Partnerships, for which Host
  or its subsidiaries are the General Partners, since no arm's length
  negotiations are possible because Host is on both sides of the transaction.
 
    LEASING ARRANGEMENTS. Conflicts of interest exist in connection with
  establishing the terms of the leasing arrangements being entered into as
  part of the REIT Conversion. The General Partners, all of which are
  subsidiaries of Host (except in the case of PHLP, in which Host is the
  General Partner), are recommending the Mergers, and Host is responsible for
  establishing the terms of the Mergers and the REIT Conversion, including
  the Leases. The common stock of Crestline will be distributed to Host's or
  Host REIT's shareholders and the Blackstone Entities. Accordingly, Host's
  or Host REIT's shareholders and the Blackstone Entities, as the initial
  shareholders of Crestline, will potentially benefit from the terms of the
  Leases to the extent net revenues exceed rental payments and other expenses
  but Limited Partners will not because they will not receive shares of
  Crestline common stock.
 
    POTENTIAL AAA CONFLICTS. A conflict of interest may exist in that AAA has
  been retained to perform the Appraisals and also provide the Fairness
  Opinion which, among other things, opines as to the methodologies and
  underlying assumptions that AAA used in performing the Appraisals. AAA has
  been retained by the General Partners (consisting of Host and its
  subsidiaries) to determine the Appraised Values of the Hotels and the
  Continuation Values of the Partnerships and to render the Fairness Opinion.
  Host has previously retained AAA to perform appraisals and render fairness
  and solvency opinions in connection
 
                                      36

<PAGE>
 
  with other transactions, and there is the possibility that Host REIT and
  the Operating Partnership will retain AAA to perform similar tasks in the
  future.
 
    DIFFERENT TAX CONSEQUENCES UPON SALE OR REFINANCING OF CERTAIN
  HOTELS. Certain holders of OP Units may experience different and more
  adverse tax consequences compared to those experienced by other holders of
  OP Units or by holders of Common Shares upon the sale of, or the reduction
  of indebtedness on, any of the Hotels. Therefore, such holders, including
  Host REIT and its subsidiaries, may have different objectives regarding the
  appropriate pricing and timing of any sale or refinancing of an individual
  Hotel. As provided in the Partnership Agreement, Host REIT, as general
  partner of the Operating Partnership, is not required to take into account
  the tax consequences to the limited partners in deciding whether to cause
  the Operating Partnership to undertake specific transactions (but the
  Operating Partnership is obligated to pay any taxes Host REIT incurs as a
  result of such transactions) and the limited partners have no right to
  approve or disapprove such transactions.
 
    PARTNERSHIP AGREEMENT. Conflicts of interest exist in connection with
  establishing the terms of the Partnership Agreement, including provisions
  which benefit Host REIT, all of which were determined by Host.
     
    RELATIONSHIPS WITH MARRIOTT INTERNATIONAL AND CRESTLINE. Marriott
  International currently serves as manager for all but 16 of Host's Hotels,
  and will continue to manage those Hotels pursuant to the Management
  Agreements that will be assigned to the Lessees. In addition, Marriott
  International acts as manager of hotels that will compete with Host REIT's
  Hotels. As a result, Marriott International may make decisions regarding
  competing lodging facilities which it manages that would not necessarily be
  in the best interests of Host REIT or the Lessees. Further, J.W. Marriott,
  Jr. and Richard E. Marriott, who are brothers, currently serve as directors
  of Host and directors (and, in the case of J.W. Marriott, Jr., also an
  officer ) of Marriott International. After the REIT Conversion, J.W.
  Marriott, Jr. will serve as a director of Host REIT and will continue to
  serve as a director of Marriott International, and Richard E. Marriott will
  serve as Chairman of the Board of Host REIT and continue to serve as a
  director of Marriott International. J.W. Marriott, Jr. and Richard E.
  Marriott also beneficially own (as determined for securities law purposes)
  approximately 10.6% and 10.2%, respectively, of the outstanding shares of
  common stock of Marriott International, and will beneficially own
  approximately 5.32% and 5.30%, respectively, of the outstanding shares of
  common stock of Crestline (but neither will serve as an officer or director
  thereof). As a result, J.W. Marriott, Jr. and Richard E. Marriott may have
  a potential conflict of interest with respect to their obligations as
  directors of Host REIT in connection with any decisions regarding Marriott
  International itself (including decisions relating to the Management
  Agreements involving the Hotels), Marriott International's management of
  competing lodging properties and Crestline's leasing and other businesses
  that would not necessarily be in the best interests of Host REIT.     
 
  These conflicts of interest could result in decisions that do not fully
reflect the interests of all Limited Partners. For a discussion of the
Operating Partnership's policies and agreements designed to minimize any
adverse effects from future conflicts of interest, see "Distribution and Other
Policies--Conflicts of Interest Policies."
 
  ABSENCE OF ARM'S LENGTH NEGOTIATIONS; NO INDEPENDENT REPRESENTATIVE. No
independent representative was retained to negotiate on behalf of the Limited
Partners. AAA, which performed the Appraisals and rendered the Fairness
Opinion, has not negotiated with the General Partners or Host and has not
participated in establishing the terms of the Mergers. Consequently, the terms
and conditions of the Mergers may have been more favorable to the Limited
Partners if such terms and conditions were the result of arm's length
negotiations. In this regard, the Fairness Opinion specifically does not
conclude that other methodologies for determining the Exchange Values of the
Partnerships and/or the value of the OP Units might not have been more
favorable to the Limited Partners.
 
  EXCHANGE VALUE MAY NOT EQUAL FAIR MARKET VALUE OF THE PARTNERSHIPS'
HOTELS. Each Limited Partner of a Participating Partnership who retains OP
Units or elects to exchange OP Units for Common Shares will receive
consideration with a deemed value equal to the Exchange Value of such Limited
Partner's Partnership
 
                                      37

<PAGE>
 
Interest. The determination of the Exchange Value of each Partnership involves
numerous estimates and assumptions. There is no assurance that the Exchange
Value of a Partnership will equal the fair market value of the Hotels and
other assets contributed by such Partnership. See "Determination of Exchange
Values and Allocation of OP Units."
 
  ALLOCATION OF OP UNITS TO HOST REIT IS DIFFERENT FROM ALLOCATION OF OP UNITS
TO THE PARTNERSHIPS. Following the REIT Conversion, Host REIT will own a
number of OP Units equal to the number of shares of Host common stock
outstanding on the Effective Date (including the OP Units to be received by
the General Partners and Host subsidiaries in the Mergers and the OP Units to
be acquired from the Limited Partners who elect to receive Common Shares in
connection with the Mergers) and, if Host has outstanding shares of preferred
stock at the time of the REIT Conversion, a corresponding number of preferred
partnership interests in the Operating Partnership. Host REIT's OP Units, in
the aggregate, should fairly represent the market value of Host REIT but may
not be equal to the fair market or net asset value of the Hotels and other
assets that Host will contribute to the Operating Partnership. The
Partnerships will receive OP Units in the Mergers with a deemed value equal to
the Exchange Value of such Partnership. The different methods of allocating OP
Units to Host REIT and the Partnerships may result in Limited Partners not
receiving the fair market value of their Partnership Interests and Host REIT
receiving a higher percentage of the interests in the Operating Partnership.
See "Determination of Exchange Values and Allocation of OP Units."
   
  ALLOCATIONS OF OP UNITS TO THE BLACKSTONE ENTITIES AND THE PRIVATE
PARTNERSHIPS WERE NOT DETERMINED BY THE EXCHANGE VALUE METHODOLOGIES. The
price and other terms of the acquisitions of certain Private Partnerships and
the Blackstone Acquisition (and thus the allocation of OP Units resulting
therefrom) were determined by arm's length negotiations. The assets to be
acquired in the Blackstone Acquisition did not generate, in the aggregate, pro
forma net income for 1997 or the First Two Quarters 1998. If the partners'
interests in the Private Partnerships and the assets of the Blackstone
Entities had been valued by the same methodologies used to determine the
Exchange Values in the Mergers, the value of the OP Units to be allocated to
such partners or the Blackstone Entities may have been less than they actually
will receive. The different methods of allocating OP Units may result in the
Limited Partners receiving relatively less for their Partnership Interests
than the partners in the Private Partnerships and the Blackstone Entities.
       
  PRICE OF OP UNITS OR COMMON SHARES MIGHT BE LESS THAN THE FAIR MARKET VALUE
OF THE PARTNERSHIP INTERESTS. The price of an OP Unit for purposes of the
Mergers will be equal to the average closing price on the NYSE of a Host REIT
Common Share for the first 20 trading days after the Effective Date of the
Mergers (but it will not be less than $9.50 or greater than $15.50 per OP
Unit). This pricing mechanism has the effect of fixing the minimum and maximum
number of OP Units to be issued in the Mergers. It is likely that, either
initially or over time, the value of the publicly traded Common Shares of Host
REIT (and therefore the value of the OP Units) will diverge from the deemed
value of the OP Units used for purposes of the Mergers. This could result in
the Limited Partners receiving OP Units or Common Shares with an actual value
that is less than either the price of the OP Units for purposes of the Mergers
or the fair market value of their Partnership Interests.     
 
  INABILITY OF LIMITED PARTNERS WHO RETAIN OP UNITS TO REDEEM OP UNITS FOR ONE
YEAR. Limited Partners who retain OP Units received in the Mergers will be
unable to redeem such OP Units for one year following the Mergers. Until then,
Limited Partners will bear the risk of illiquidity and of not being able to
sell in a falling market.
 
  VALUE OF THE NOTES WILL BE LESS THAN THE EXCHANGE VALUE. In exchange for OP
Units received in a Merger, each Limited Partner may elect to receive an
unsecured, seven-year Note of the Operating Partnership with a principal
amount equal to the Note Election Amount of his Partnership Interest. The
determination of the Note Election Amount is based upon numerous assumptions
and estimates. The deemed value of the OP Units will exceed the principal
amount of the corresponding Notes in all Partnerships (because the Exchange
Values will be higher than the Note Election Amounts) and there is no
assurance that the Note a Limited Partner receives will have a value equal to
either (i) the fair market value of the Limited Partner's share of the Hotels
and other
 
                                      38

<PAGE>
 
assets owned by his Partnership or (ii) the principal amount of the Notes.
There will be no public market for the Notes. If the Notes are sold, they may
sell at prices substantially below their issuance price. Noteholders are
likely to receive the full principal amount of a Note only if they hold the
Note to maturity, which is December 15, 2005, or if the Operating Partnership
repays the Notes prior to maturity. Because the Notes are unsecured
obligations of the Operating Partnership, they will be effectively
subordinated to all secured debt of the Operating Partnership and all
obligations of both the Participating Partnerships and the Operating
Partnership's other subsidiaries. See "Description of the Notes." As of June
19, 1998, on a pro forma basis assuming the Full Participation Scenario, the
Operating Partnership would have had aggregate consolidated debt of
approximately $5.6 billion (including $567 million of debentures related to
the Convertible Preferred Securities) to which the Notes were effectively
subordinated or which ranks equally with such Notes.
   
  CASH DISTRIBUTIONS MAY EXCEED CASH AVAILABLE FOR DISTRIBUTION; REDUCED CASH
DISTRIBUTIONS FOR CERTAIN LIMITED PARTNERS. Distributions will be made at the
discretion of Host REIT's Board of Directors and will be affected by a number
of factors, including the rental payments received by the Operating
Partnership from the Lessees with respect to the Leases of the Hotels, the
operating expenses of the Operating Partnership, the level of borrowings and
interest expense incurred in borrowing, the Operating Partnership's financial
condition and cash available for distribution, the taxable income of Host REIT
and the Operating Partnership, the effects of acquisitions and dispositions of
assets, unanticipated capital expenditures and distributions required to be
made on any preferred units issued by the Operating Partnership. To the extent
that cash available for distribution (generally cash from operations less
capital expenditures and principal amortization of indebtedness) is
insufficient to pay distributions in accordance with the Operating
Partnership's distribution policy or to maintain the REIT qualification of
Host REIT, the Operating Partnership intends to borrow to make such
distributions. The preliminary estimated initial annual cash distributions of
the Operating Partnership during the twelve months ending December 31, 1999
($226 million) will exceed its estimated cash available for distribution ($163
million) and cash from contingent rents ($54 million) during the twelve months
ending December 31, 1999 (totaling $217 million), which would require
borrowings of approximately $9 million (or $0.04 per OP Unit) to make such
distributions in accordance with the Operating Partnership's distribution
policy. Moreover, if estimated cash from contingent rents were less than $54
million, then the Operating Partnership also would be required to borrow any
such shortfall in order to make such distributions. Actual results may vary
substantially from the estimates and no assurance can be given that the
Operating Partnership's estimates will prove accurate or that any level of
distributions will be made or sustained. In addition, the estimated initial
annual cash distributions of the Operating Partnership or Host REIT to the
Limited Partners of MHP and MHP2 per Partnership Unit ($7,645 and $12,862,
respectively) will be less than the estimated cash distributions from
operations of MHP and MHP2 per Partnership Unit ($16,000 and $27,164,
respectively) during 1998.     
   
  TIMING OF THE REIT CONVERSION. Host currently expects to complete the REIT
Conversion during 1998, which would permit Host REIT to qualify as a REIT for
its 1999 taxable year, but it is not a condition to the Mergers that the REIT
Conversion be completed in time for Host REIT to elect REIT status effective
January 1, 1999. If the REIT Conversion does not occur in time for Host REIT
to elect REIT status effective January 1, 1999, the effectiveness of Host
REIT's election could be delayed until January 1, 2000, which would result in
Host REIT continuing to pay substantial corporate-level income taxes in 1999
(which would reduce Host REIT's cash distributions per Common Share during
1999 to $0.52 per Common Share but not the Operating Partnership's estimated
cash distributions of $0.84 per OP Unit) and could cause the Blackstone
Acquisition not to be consummated. In view of the complexity of the REIT
Conversion and the number of transactions that must occur to complete the REIT
Conversion, Host and the General Partners believe that it is beneficial both
to the Limited Partners and the shareholders of Host to complete the REIT
Conversion as soon as practicable, even if the REIT Conversion cannot be
completed prior to January 1, 1999. If Host REIT's election to be taxed as a
REIT is not effective on January 1, 1999, Host REIT intends to operate
following the REIT Conversion in a manner that would permit it to qualify as a
REIT at the earliest time practicable, and it might pursue a merger with
another entity or other transaction that would permit it to commence a new
taxable year and elect REIT status prior to January 1, 2000. Host REIT in any
event would elect to be treated as a REIT for federal income tax purposes no
later than its taxable year commencing January 1, 2000. It is a condition to
the Mergers that     
 
                                      39

<PAGE>
 
they be completed by June 30, 1999, unless the General Partners and the
Operating Partnership mutually agree to extend that deadline to a date no
later than December 31, 1999.
 
  CHANGES IN THE FAIRNESS OPINION. The Fairness Opinion will be updated by AAA
only if so requested by the Operating Partnership. If no such request is made,
changes may occur from the date of the Fairness Opinion to the Effective Date
of the Mergers that might affect the conclusions expressed in the Fairness
Opinion, some of which could be material.
 
  FUNDAMENTAL CHANGE IN THE NATURE OF INVESTMENT; POTENTIAL
UNDERPERFORMANCE. The Mergers and the REIT Conversion involve a fundamental
change in the nature of a Limited Partner's investment from holding an
interest in one or more Partnerships, some of which were structured as tax
shelter or tax credit investments, and each of which is a finite-life entity
that expires between the years 2063 and 2106, own only one or a fixed
portfolio of (or controlling interests in) Hotels and distribute the cash flow
from the operation of such Hotels to its partners, to holding a direct or
indirect interest in the Operating Partnership, an ongoing real estate
company, that (i) is expected to initially own interests in up to
approximately 125 Hotels, (ii) will distribute to its partners the rents
received from the Lessees (which will operate the Hotels and bear the risks
and receive the direct benefits of the Hotels), (iii) has the ability to
acquire additional hotels (including hotels with additional brands) and
(iv) will be able to reinvest proceeds from sales or refinancings of existing
Hotels in additional hotels.
 
  Those Limited Partners who elect to receive Common Shares in connection with
the Mergers will hold an equity interest in a publicly traded REIT that
(i) provides immediate liquidity, (ii) intends to make distributions to its
shareholders in an amount equal to at least 95% of its taxable income,
(iii) allows shareholders to influence management by participation in the
election of directors and (iv) realizes substantial corporate tax savings as
long as certain requirements are met.
 
  In addition, the Operating Partnership does not anticipate that it will
distribute to its limited partners the proceeds from properties that are sold
or refinancings, but instead generally will reinvest such proceeds to repay
indebtedness, acquire additional existing properties, develop new properties
or fund capital expenditure or other working-capital needs. Thus, in contrast
to an investment in the Partnerships, Limited Partners who retain OP Units
will not be able to realize a return of capital through distributions of sale
and refinancing proceeds. Instead, Limited Partners will be able to realize a
return of capital primarily through the exercise of their Unit Redemption
Right, thereby receiving cash or, if the OP Units are redeemed for Common
Shares, by selling the Common Shares received as a result thereof. A Limited
Partner's share of the liquidation proceeds, if any, from the sale of a
Partnership's Hotel or Hotels could be higher than the amount realized upon
exercise of the Unit Redemption Right, the sale of Common Shares received in
connection with the Mergers or payments on any Note received by a Limited
Partner in connection with the Mergers. An investment in the Operating
Partnership or Host REIT may not outperform an investment in any individual
Partnership. See "Comparison of Ownership of Partnership Interests, OP Units
and Common Shares."
 
  EXPOSURE TO MARKET AND ECONOMIC CONDITIONS OF OTHER HOTELS. As a result of
the Mergers, Limited Partners in Participating Partnerships who retain OP
Units or elect to receive Common Shares in connection with the Mergers will
own interests in a much larger enterprise with a broader range of assets than
any of the Partnerships individually. A material adverse change affecting the
Operating Partnership's assets will affect all Limited Partners regardless of
whether a particular Limited Partner previously was an investor in such
affected assets. Each Partnership owns discrete assets, and the Mergers and
the REIT Conversion will significantly diversify the types and geographic
locations of the Hotels in which the Limited Partners will have interests. As
a result, the Hotels owned by the Operating Partnership may be affected
differently by economic and market conditions than those Hotel(s) previously
owned by an individual Partnership.
 
  LIMITED PARTNERS HAVE NO CASH APPRAISAL RIGHTS. Limited Partners of
Participating Partnerships who vote against the Merger will not have a right
to receive cash based upon an appraisal of their Partnership Interests.
 
  UNCERTAINTIES AS TO THE SIZE AND LEVERAGE OF THE OPERATING PARTNERSHIP. The
Limited Partners cannot know at the time they vote on a Merger the exact size
and amount of leverage of the Operating Partnership. Host
 
                                      40

<PAGE>
 
is an existing operating company that regularly issues and repays debt,
acquires additional hotels and disposes of existing hotels. Also, some or all
of the Partnerships may elect not to participate in a Merger. In addition,
outside partners in certain Private Partnerships may not consent to a lease of
their partnership's Hotel(s). In either such case, Host will contribute its
interests in such Partnerships and Private Partnerships to the Operating
Partnership but the Operating Partnership may contribute such interests to a
Non-Controlled Subsidiary, which will be subject to corporate-level income
taxation. Host also may repurchase outstanding securities or issue new debt or
equity securities prior to the consummation of the Mergers and the REIT
Conversion.
 
  OTHER UNCERTAINTIES AT THE TIME OF VOTING INCLUDE NUMBER OF OP UNITS TO BE
RECEIVED. There are several other uncertainties at the time the Limited
Partners must vote on the Mergers, including (i) the exact Exchange Value for
each Partnership (which will be adjusted for changes in lender and capital
expenditure reserves, deferred maintenance and other items prior to the
Effective Date), (ii) the price of the OP Units for purposes of the Mergers,
which will be determined by reference to the post-Merger trading prices of
Host REIT's Common Shares (but will not be less than $9.50 or greater than
$15.50) and which, together with the Exchange Value, will determine the number
of OP Units (or Common Shares) the Limited Partners of each Participating
Partnership will receive and (iii) the exact principal amount of the Notes
that may be received in exchange for OP Units, which cannot be known until
after the Note Election Amount has been determined. For these reasons, the
Limited Partners cannot know at the time they vote on a Merger these important
aspects of the Merger and they will not know the number of OP Units received
in a Merger until approximately 25 trading days after the Merger.
 
  LACK OF CONTROL OVER HOTEL OPERATIONS. Due to current federal income tax law
restrictions on a REIT's ability to derive revenues directly from the
operation of a hotel, the Operating Partnership will lease virtually all of
its consolidated Hotels to the Lessees, which will operate the Hotels by
continuing to retain the Managers pursuant to the Management Agreements. The
Operating Partnership will not operate the Hotels or participate in the
decisions affecting the daily operations of the Hotels. The Operating
Partnership will have only limited ability to require the Lessees or the
Managers to operate or manage the Hotels in any particular manner and no
ability to govern any particular aspect of their day-to-day operation or
management. Even if Host REIT's management believes the Lessees or the
Managers are operating or managing the Hotels inefficiently or in a manner
that does not result in the maximization of rental payments to the Operating
Partnership under the Leases, the Operating Partnership has only a limited
ability to require the Lessees or the Managers to change their method of
operation or management. Therefore, the Operating Partnership will be
dependent for its revenue upon the ability of the Lessees and the Managers to
operate and manage the Hotels. The Operating Partnership is limited to seeking
redress only if the Lessees violate the terms of the Leases and then only to
the extent of the remedies set forth therein. Remedies under the Leases
include the Operating Partnership's ability to terminate a Lease upon certain
events of default such as the Lessee's failure to pay rent or failure to
maintain certain net worth requirements and breaches of other specified
obligations under the Leases. See "Business and Properties--The Leases."
Termination of a Lease, however, could impair Host REIT's ability to qualify
as a REIT for federal income tax purposes unless another suitable lessee could
be found.
 
  LACK OF CONTROL OVER NON-CONTROLLED SUBSIDIARIES. The Non-Controlled
Subsidiaries will hold various assets (not exceeding, in the aggregate, 20% by
value of the assets of the Operating Partnership), consisting primarily of
interests in hotels which are not leased, certain furniture, fixtures and
equipment used in the Hotels and certain international hotels. The direct
ownership or control of most of these assets by the Operating Partnership
could jeopardize Host REIT's status as a REIT. Although the Operating
Partnership will own 95% of the total economic interests of the Non-Controlled
Subsidiaries, the Host Employee Trust and possibly certain other investors
will own all of the voting common stock of the Non-Controlled Subsidiaries
(which will represent the remaining 5% of the total economic interest
thereof). As the owner of the voting stock of the Non-Controlled Subsidiaries,
the Host Employee Trust and possibly certain other investors will select the
directors of the Non-Controlled Subsidiaries, who will be responsible for
overseeing the operations of those entities. As a result, the Operating
Partnership will have no control over the operation or management of the
hotels or other assets owned by the Non-Controlled Subsidiaries even though it
will depend upon the Non-Controlled Subsidiaries for a significant portion of
 
                                      41

<PAGE>
 
its revenues (and the activities of the Non-Controlled Subsidiaries could
cause the Operating Partnership to be in default under its principal debt
facilities).
 
  DEPENDENCE OF THE OPERATING PARTNERSHIP UPON CRESTLINE. Crestline and its
subsidiaries will be the Lessees of substantially all of the Hotels and their
rent payments will be the primary source of the Operating Partnership's
revenues. Crestline's financial condition and ability to meet its obligations
under the Leases will determine the Operating Partnership's ability to make
distributions to its partners (including Host REIT) and Host REIT's ability,
in turn, to make distributions to its shareholders. As of June 19, 1998, on a
pro forma basis, after giving effect to the REIT Conversion, Crestline would
have had approximately $315 million of indebtedness (including $100 million
due to Host REIT to pay for hotel working capital purchased from Host REIT but
not including guarantees of obligations of Crestline's subsidiaries under the
Leases and the Management Agreements) and Crestline can incur additional
indebtedness in the future. There can be no assurance that Crestline will have
sufficient assets, income and access to financing to enable it to satisfy its
obligations under the Leases. In addition, the credit rating of the Operating
Partnership and Host REIT will be affected by the general creditworthiness of
Crestline.
 
  EXPIRATION OF THE LEASES AND POSSIBLE INABILITY TO FIND OTHER LESSEES. The
Leases generally will expire seven to ten years after the Effective Date, and
there can be no assurance that the affected Hotels will be relet to the
Lessees (or if relet, will be relet on terms as favorable to the Operating
Partnership). If the Hotels are not relet to the Lessees, the Operating
Partnership will be required to find other lessees, which lessees must meet
certain requirements set forth in the Management Agreements and the Code.
There can be no assurance that satisfactory lessees could be found or as to
the terms and conditions on which the Operating Partnership would be able to
relet the Hotels or enter into new leases with such lessees, which could
result in a failure of Host REIT to qualify as a REIT or in reduced cash
available for distribution.
 
  REQUISITE VOTE OF LIMITED PARTNERS OF PARTNERSHIPS BINDS ALL LIMITED
PARTNERS. For each Partnership, approval of a Merger and the related
amendments to its partnership agreement by the requisite vote of the Limited
Partners, as described in "Voting Procedures--Required Limited Partner Vote
and Other Conditions," will cause the Partnership to participate in the Merger
and will bind all Limited Partners of such Partnership, including Limited
Partners who voted against or abstained from voting with respect to the Merger
and the related amendments to its partnership agreement.
   
  INABILITY TO OBTAIN THIRD-PARTY CONSENTS MAY HAVE A MATERIAL ADVERSE
EFFECT. There are numerous third-party consents which are required to be
obtained in order to consummate the Mergers and the REIT Conversion. These
include consents of many hotel project lenders, ground lessors, joint venture
partners, Marriott International and others. The inability of Host, the
Operating Partnership or Host REIT to obtain one or more such consents could
cause a default under the cross-default provisions of the Company's principal
credit facilities. Although the Operating Partnership will not consummate any
Merger or the REIT Conversion unless it believes that the inability of Host,
the Operating Partnership or Host REIT to obtain one or more consents would
not reasonably be expected to have a material adverse effect on the Company's
business, financial condition or results of operations, there can be no
assurance that such a material adverse effect will not occur, which could
reduce the value of the OP Units and Common Shares.     
 
  SUBSTANTIAL INDEBTEDNESS OF THE OPERATING PARTNERSHIP. The Operating
Partnership will have substantial indebtedness. As of June 19, 1998, on a pro
forma basis assuming the Full Participation Scenario, the Operating
Partnership had outstanding indebtedness totaling approximately $5.6 billion
(including $567 million of debentures relating to the Convertible Preferred
Securities), which represents an approximately 62% debt-to-total market
capitalization ratio on a pro forma basis at such date (based upon a price per
Common Share of Host REIT of $12.50). The Operating Partnership's business is
capital intensive and it will have significant capital requirements in the
future. The Operating Partnership's leverage level could affect its ability to
(i) obtain financing in the future, (ii) undertake refinancings on terms and
subject to conditions deemed acceptable by the Operating Partnership, (iii)
make distributions to partners (including Host REIT), (iv) pursue its
acquisition strategy or (v) compete effectively or operate successfully under
adverse economic conditions. In the event that
 
                                      42

<PAGE>
 
the Operating Partnership's cash flow and working capital are not sufficient
to fund the Operating Partnership's expenditures or to service its
indebtedness, the Operating Partnership would be required to raise additional
funds through capital contributions, the refinancing of all or part of its
indebtedness, the incurrence of additional permitted indebtedness or the sale
of assets. There can be no assurance that any of these sources of funds would
be available, if at all, in amounts sufficient for the Operating Partnership
to meet its obligations. Moreover, even if the Operating Partnership were able
to meet its obligations, its leveraged capital structure could significantly
limit its ability to finance its acquisition program and other capital
expenditures, to compete effectively or to operate successfully, especially
under adverse economic conditions.
 
  NO LIMITATION ON DEBT. Host REIT will have a policy of incurring debt only
if, immediately following such incurrence, its debt-to-total market
capitalization ratio on a pro forma basis would be 60% or less. However, there
are no limitations in Host REIT's or the Operating Partnership's
organizational documents that limit the amount of indebtedness that either
entity may incur, although both the Notes and the Operating Partnership's
other debt instruments will contain certain restrictions on the amount of
indebtedness that the Operating Partnership may incur. Accordingly, the Board
of Directors could alter or eliminate this policy from time to time to the
extent permitted by its debt agreements. If this policy were changed, the
Operating Partnership could become more highly leveraged, resulting in an
increase in debt service payments that could adversely affect the Operating
Partnership's cash flow and, consequently, the cash available for distribution
to holders of OP Units and Common Shares and could increase the risk of
default on the Operating Partnership's indebtedness.
 
  INDIVIDUAL ASSETS MAY OUTPERFORM THE OPERATING PARTNERSHIP'S PORTFOLIO. If
consummated as contemplated, the Mergers and the REIT Conversion will combine
into a single entity all of the assets and liabilities associated with the
Participating Partnerships, the Private Partnerships and Host, as well as the
Blackstone Hotels. Assets of certain Participating Partnerships may, over
time, outperform the OP Units, which represent undivided interests in all of
the assets of the Operating Partnership. Although the Exchange Values of the
Participating Partnerships will be determined in part by the estimated future
cash flows of such Partnerships, Limited Partners of a Participating
Partnership that would outperform the Operating Partnership if allowed to
continue as a separate entity will nonetheless receive the same rate of return
per OP Unit as the rest of the limited partners of the Operating Partnership.
In addition, the return that such Limited Partners receive on their investment
in the Operating Partnership could be lower than the return that their
Partnership would have provided if it had not participated in the Merger.
 
  LEASES COULD IMPAIR THE SALE OR OTHER DISPOSITION OF THE OPERATING
PARTNERSHIP'S HOTELS. Each Lease generally provides for a termination payment
if the Lease is terminated by the Operating Partnership prior to the
expiration of the term of such Lease (including due to a change in the federal
income tax laws that allows the Operating Partnership to operate the Hotels
without jeopardizing Host REIT's status as a REIT), except following a default
by a Lessee and in certain other circumstances (including in connection with
the sale of up to 12 Hotels without a termination payment) or unless the
Operating Partnership leases to the Lessee a comparable substitute hotel. The
termination fee is equal to the fair market value of the Lessee's leasehold
interest in the remaining term of the Lease. The payment of such termination
fee under the Leases could have the effect of impairing the ability of the
Operating Partnership to sell its Hotels if market conditions otherwise
warrant such a sale and would reduce the net proceeds of any such sale. See
"Business and Properties--The Leases--Termination of Leases upon Disposition
of Hotels."
 
  MANAGEMENT AGREEMENTS COULD IMPAIR THE SALE OR OTHER DISPOSITION OF THE
OPERATING PARTNERSHIP'S HOTELS. Marriott International serves as the manager
for all but 16 of the Operating Partnership's Hotels and provides various
other services to Host and its subsidiaries. Although the Lessees will have
primary liability under the Management Agreements as long as the Leases are in
effect, the Operating Partnership will remain liable thereunder. The Hotels
generally may not be sold or otherwise transferred unless the transferee
assumes the Management Agreements relating thereto and meets certain other
conditions. The possible desire of the Operating Partnership, from time to
time, to finance, refinance or effect a sale of any of the properties managed
by Marriott International or another manager may, depending upon the structure
of such transactions, result in a need to modify the Management Agreements
with Marriott International or such other manager with respect to
 
                                      43

<PAGE>
 
such property. Any such modification proposed by the Operating Partnership may
not be acceptable to Marriott International or such other manager, and the
lack of consent from Marriott International or such other manager could
adversely affect the Operating Partnership's ability to consummate such
financing, refinancing or sale. In addition, certain situations could arise
where actions taken by Marriott International or another manager in its
capacity as manager of competing lodging properties would not necessarily be
in the best interests of the Operating Partnership. Nevertheless, the
Operating Partnership believes that there is sufficient mutuality of interest
between the Operating Partnership and Marriott International or another
manager to result in a mutually productive relationship.
 
  NO CONTROL OVER MAJOR DECISIONS. Currently, Limited Partners of the
Partnerships generally have the right to vote on certain major transactions,
such as (i) a sale of all or substantially all of a Partnership's assets, (ii)
a merger or consolidation of a Partnership with another entity, (iii)
incurrence of certain types and amounts of debt, (iv) amendments to the
partnership agreement or (v) removal of the General Partner, although all such
matters (except removal of the General Partner) also require the approval of
the General Partner. In contrast, limited partners of the Operating
Partnership generally will have no voting rights as to management (including a
change in control of management), debt financing (including reduction of
mortgage indebtedness, except in certain limited circumstances), sale or other
disposition of one or more Hotels (except with respect to a sale of all or
substantially all of the Hotels, although Host REIT's percentage interest in
the Operating Partnership and its ability to vote such interests give it the
ability to determine the outcome of that vote) or removal of Host REIT as
general partner of the Operating Partnership. See "Description of OP Units--
Removal or Withdrawal of Host REIT; Transfer of Host REIT's Interests," "--
Borrowing by the Operating Partnership" and "--Sales of Assets." However,
limited partners of the Operating Partnership will have certain voting rights
during the first year following the Mergers. See "Description of OP Units--
Certain Voting Rights of Holders of OP Units During the First Year Following
the Mergers." After the REIT Conversion, substantially all actions taken by
the Operating Partnership will be based upon decisions made by the management
and Board of Directors (as constituted from time to time) of Host REIT, in its
absolute discretion, as the sole general partner of the Operating Partnership.
 
  FOREGOING POTENTIAL BENEFITS OF ALTERNATIVES TO THE REIT CONVERSION. The
alternatives to participation in the REIT Conversion through a Merger include
continuation of a Partnership, sale of the Partnership's assets and
liquidation, reorganization as a separate REIT or merger of the Partnership
with an existing REIT or UPREIT. Continuation of a Partnership in accordance
with its existing business plan would not subject the Partnership to the risks
associated with a Merger or change the Limited Partners' voting rights or the
policy governing their cash distributions. Liquidation of a Partnership would
allow Limited Partners to receive the net proceeds from the sale of the
Partnership's assets and would permit valuation of the Partnership's assets
through negotiations with prospective purchasers (in many cases unrelated
third parties), making it unnecessary to rely upon other valuation methods to
estimate fair market value. Such a sale and liquidation, however, would result
in substantial taxable income for many Limited Partners at the time of
liquidation. Reorganization of a Partnership as a separate REIT would allow
certain Limited Partners to receive REIT shares immediately and achieve
liquidity (but such REIT shares would represent an investment in a
substantially smaller company with substantially fewer publicly held shares)
and to continue their investment only in their existing Hotel(s) (although
Limited Partners with negative capital accounts would be required to recognize
gain to the extent thereof upon formation of the separate REIT). Merger of a
Partnership with an existing REIT would give Limited Partners liquidity (or in
the case of a merger with an UPREIT, tax deferral advantages) but would
benefit Limited Partners more than the Mergers only if the consideration
received had a value in excess of the value of the OP Units to be received in
the Mergers. See "Background and Reasons for Mergers and the REIT Conversion--
Alternatives to the Mergers."
 
  NO PARTNER LIABILITY. The merger agreements pursuant to which subsidiaries
of the Operating Partnership will merge with the Partnerships provide that the
Operating Partnership will have no recourse against any of the partners in the
Participating Partnerships in the event the Operating Partnership suffers a
loss as the result of an inaccuracy in any representation or warranty made by
the Partnership in such merger agreements.
 
 
                                      44

<PAGE>
 
  DILUTION. While currently there are no specific proposals for the Operating
Partnership to issue OP Units beyond those to be issued in the REIT Conversion
and the Blackstone Acquisition, the Operating Partnership expects to pursue
acquisitions of additional hotels. These acquisitions may be financed through
the issuance of OP Units or other limited partnership interests directly to
property owners or to Host REIT in exchange for cash.
Any such OP Units or other limited partnership interests in the Operating
Partnership may have certain preferences. Additional issuances of equity
securities of Host REIT or OP Units in connection with acquisitions of
additional hotels or offerings of securities for cash may occur in the
discretion of Host REIT's Board of Directors, and would result in proportional
reductions of the percentage ownership interests of the limited partners (or
other holders of OP Units) of the Operating Partnership. See "Description of
OP Units."
 
RISKS OF OWNERSHIP OF OP UNITS AND COMMON SHARES
 
  INABILITY TO REMOVE HOST REIT AS GENERAL PARTNER OF THE OPERATING
PARTNERSHIP. The Partnership Agreement provides that limited partners may not
remove Host REIT as general partner of the Operating Partnership with or
without cause (unless neither the general partner nor its parent entity is a
"public company," in which case the general partner may be removed with or
without cause by limited partners holding percentage interests in the
Operating Partnership ("Percentage Interests") that are more than 50% of the
aggregate Percentage Interests of the outstanding limited partnership
interests entitled to vote thereon, including any such interests held by the
general partner). The inability to remove Host REIT as general partner may not
be in the best interests of the limited partners of the Operating Partnership.
See "Description of OP Units--Removal or Withdrawal of Host REIT; Transfer of
Host REIT's Interests."
 
  RESTRICTIONS ON TRANSFER OF OP UNITS. The Partnership Agreement contains
restrictions on the ability of limited partners to transfer their OP Units,
except in certain limited circumstances, without the prior written consent of
Host REIT. See "Description of OP Units--Restrictions on Transfers of
Interests by Limited Partners."
 
  LIMITATIONS ON ACQUISITION OF OP UNITS AND COMMON SHARES AND CHANGE IN
CONTROL. Host REIT's Charter and Bylaws, the Partnership Agreement, the
Shareholder Rights Plan (to be adopted by Host REIT to replace Host's existing
shareholder rights plan) and Maryland law contain a number of provisions that
could delay, defer or prevent a transaction or a change of control of Host
REIT that might involve a premium price for holders of Common Shares or
otherwise be in their best interests, including the following:
 
    OWNERSHIP LIMIT. The 9.8% ownership limit described under "--Possible
  Adverse Consequences of Limits on Ownership of Common Shares" below may
  have the effect of precluding a change in control of Host REIT by a third
  party without the consent of the Board of Directors, even if such change in
  control would be in the interest of the limited partners of the Operating
  Partnership or shareholders of Host REIT (and even if such change in
  control would not reasonably jeopardize the REIT status of Host REIT).
 
    STAGGERED BOARD. The Charter will provide that the Board of Directors
  initially shall consist of eight members and may be thereafter increased or
  decreased in accordance with the Bylaws of Host REIT, provided that the
  total number of directors may not be fewer than three nor more than 13.
  Pursuant to Host REIT's Bylaws, the number of directors shall be fixed by
  the Board of Directors within the limits set forth in the Charter. The
  Board of Directors of Host REIT will be divided into three classes of
  directors. The terms of the first, second and third classes will expire in
  1999, 2000 and 2001, respectively. Directors for each class will be chosen
  for a three-year term upon the expiration of the then current class' term,
  beginning in 1999. The staggered terms for directors may affect the
  shareholders' ability to effect a change in control of Host REIT, even if a
  change in control would be in the interest of the limited partners of the
  Operating Partnership or shareholders of Host REIT.
 
    REMOVAL OF BOARD OF DIRECTORS. Host REIT's Charter will provide that,
  except for any directors who may be elected by holders of a class or series
  of shares of capital stock other than the Common Shares, directors may be
  removed only for cause and only by the affirmative vote of shareholders
  holding at least two-thirds of the shares then outstanding and entitled to
  be cast for the election of directors. Vacancies on the Board of Directors
  may be filled by the concurring vote of a majority of the remaining
  directors and, in
 
                                      45

<PAGE>
 
  the case of a vacancy resulting from the removal of a director by the
  shareholders by at least two-thirds of all the votes entitled to be cast in
  the election of directors.
 
    PREFERRED SHARES; CLASSIFICATION OR RECLASSIFICATION OF UNISSUED SHARES
  OF CAPITAL STOCK WITHOUT SHAREHOLDER APPROVAL. Host REIT's Charter provides
  that the total number of shares of stock of all classes which Host REIT has
  authority to issue is 800,000,000 shares of stock, initially consisting of
  750,000,000 Common Shares and 50,000,000 shares of preferred stock. The
  Board of Directors is authorized, without a vote of shareholders, to
  classify or reclassify any unissued shares of stock, including Common
  Shares into preferred shares or vice versa, and to establish the
  preferences and rights of any preferred or other class or series of shares
  to be issued. The issuance of preferred shares or other shares having
  special preferences or rights could have the effect of delaying or
  preventing a change in control of Host REIT even if a change in control
  would be in the interest of the shareholders of Host REIT or limited
  partners of the Operating Partnership. Because the Board of Directors will
  have the power to establish the preferences and rights of additional
  classes or series of shares without a shareholder vote, the Board of
  Directors may afford the holders of any such class or series preferences,
  powers and rights, including voting rights, senior to the rights of holders
  of the Common Shares.
 
    CONSENT RIGHTS OF THE LIMITED PARTNERS. Under the Partnership Agreement,
  Host REIT generally will be able to merge or consolidate with another
  entity with the consent of partners holding Percentage Interests that are
  more than 50% of the aggregate Percentage Interests of the outstanding
  partnership interests entitled to vote thereon (including any such
  partnership interests held by Host REIT) as long as the holders of OP Units
  either will receive or will have the right to receive the same
  consideration as the holders of Common Shares. Host REIT, as holder of a
  majority of the OP Units, would be able to control the outcome of such
  vote. Under the Charter, the approval of the holders of at least two-thirds
  of the outstanding Host REIT Common Shares generally is necessary to
  effectuate such merger or consolidation.
 
    MARYLAND BUSINESS COMBINATION LAW. Under the Maryland General Corporation
  Law (the "MGCL"), certain "business combinations" (including certain
  issuances of equity securities) between a Maryland corporation and any
  person who owns 10% or more of the voting power of the corporation's then
  outstanding shares (an "Interested Shareholder") or an affiliate of the
  Interested Shareholder are prohibited for five years after the most recent
  date in which the Interested Shareholder becomes an Interested Shareholder.
  Thereafter, any such business combination must be approved by a
  supermajority (80%) of outstanding voting shares, and by two-thirds of
  voting shares other than voting shares held by an Interested Shareholder
  unless, among other conditions, the corporation's common shareholders
  receive a minimum price (as defined in the MGCL) for their shares and the
  consideration is received in cash or in the same form as previously paid by
  the Interested Shareholder. Host REIT will be subject to the Maryland
  business combination statute.
 
    MARYLAND CONTROL SHARE ACQUISITION LAW. Under the MGCL, "control shares"
  acquired in a "control share acquisition" have no voting rights except to
  the extent approved by a vote of two-thirds of the votes entitled to be
  cast on the matter, excluding shares owned by the acquiror and by officers
  or directors who are employees of the corporation. "Control shares" are
  voting shares which, if aggregated with all other such shares previously
  acquired by the acquiror or in respect of which the acquiror is able to
  exercise or direct the exercise of voting power (except solely by virtue of
  a revocable proxy), would entitle the acquiror to exercise voting power in
  electing directors within one of the following ranges of voting power: (i)
  one-fifth or more but less than one-third, (ii) one-third or more but less
  than a majority or (iii) a majority or more of the voting power. Control
  shares do not include shares the acquiring person is then entitled to vote
  as a result of having previously obtained shareholder approval. A "control
  share acquisition" means the acquisition of control shares, subject to
  certain exceptions. Host REIT will be subject to these control share
  provisions of Maryland law.
 
    ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS. The Bylaws of
  Host REIT impose certain advance notice requirements that must be met for
  nominations of persons for election to the Board of Directors and the
  proposal of business to be considered by shareholders. The advance notice
  provisions contained in the Bylaws generally require nominations and new
  business proposals by shareholders to be
 
                                      46

<PAGE>
 
     
  delivered to the Secretary of Host REIT not later than the close of
  business on the 60th day nor earlier than the close of business on the 90th
  day before the date on which Host REIT mailed its proxy materials for the
  prior year's annual meeting of shareholders.     
 
    MEETINGS OF SHAREHOLDERS; CALL OF SPECIAL MEETINGS; SHAREHOLDER ACTION IN
  LIEU OF MEETING BY UNANIMOUS CONSENT. Host REIT's Bylaws provide that
  annual meetings of shareholders shall be held on a date and at the time set
  by the Board of Directors during the month of May each year (commencing in
  May 1999). Special meetings of the shareholders may be called by the
  President or the Board of Directors or on the written request of
  shareholders entitled to cast a majority of all the votes entitled to be
  cast at the meeting. Any action required or permitted to be taken by the
  shareholders must be effected at a duly called annual or special meeting of
  shareholders or by unanimous written consent.
 
    MERGER, CONSOLIDATION, SHARE EXCHANGE AND TRANSFER OF ASSETS OF HOST
  REIT. Pursuant to Host REIT's Charter, subject to the terms of any class or
  series of capital stock at the time outstanding, Host REIT may merge with
  or into another entity, may consolidate with one or more other entities,
  may participate in a share exchange or may transfer its assets within the
  meaning of the MGCL if approved (i) by the Board of Directors in the manner
  provided in the MGCL and (ii) by shareholders by the affirmative vote of
  two-thirds of all the votes entitled to be cast on the matter (except that
  any merger of Host REIT with or into a trust organized for the purpose of
  changing Host REIT's form of organization from a corporation to a trust
  will require the approval of shareholders of Host REIT by the affirmative
  vote only of a majority of all the votes entitled to be cast on the
  matter). Under the MGCL, certain mergers may be accomplished without a vote
  of shareholders and a share exchange need be approved by a Maryland
  successor only by its Board of Directors. A voluntary dissolution of Host
  REIT also would require the affirmative vote of two-thirds of all the votes
  entitled to be cast on the matter.
          
    AMENDMENTS TO HOST REIT'S CHARTER AND BYLAWS. The provisions contained in
  Host REIT's Charter relating to restrictions on transferability of the
  Common Shares, the classified Board and fixing the size of the Board within
  the range set forth in the Charter, as well as the provisions relating to
  removal of directors and the filling of Board vacancies may be amended only
  by a resolution adopted by the Board of Directors and approved by
  shareholders by the affirmative vote of the holders of not less than two-
  thirds of the votes entitled to be cast on the matter. As permitted under
  the MGCL, the Charter and Bylaws of Host REIT provide that directors have
  the exclusive right to amend the Bylaws. Amendments of this provision of
  the Charter also would require Board action and approval by two-thirds of
  all votes entitled to be cast on the matter.     
 
    MARRIOTT INTERNATIONAL PURCHASE RIGHT. In connection with Host's spinoff
  of Marriott International in 1993, Marriott International obtained the
  right to purchase up to 20% of each class of Host's outstanding voting
  shares at the then fair market value upon the occurrence of certain change
  of control events involving Host (the "Marriott International Purchase
  Right"). The Marriott International Purchase Right will continue in effect
  after the Mergers (until June 2017), subject to certain limitations
  intended to protect the REIT status of Host REIT. The Marriott
  International Purchase Right may have the effect of discouraging a takeover
  of Host REIT, because any person considering acquiring a substantial or
  controlling block of Host REIT Common Shares will face the possibility that
  its ability to obtain or exercise control would be impaired or made more
  expensive by the exercise of the Marriott International Purchase Right.
 
    SHAREHOLDER RIGHTS PLAN. Host REIT intends to adopt a Shareholder Rights
  Plan to replace the existing Host shareholder rights plan. The new
  Shareholder Rights Plan is expected to provide, among other things, that
  upon the occurrence of certain events, shareholders will be entitled to
  purchase from Host REIT a newly created series of junior preferred shares,
  subject to Host REIT's Ownership Limit. The preferred share purchase rights
  will be triggered by the earlier to occur of (i) ten days following the
  date of a public announcement that a person or group acting in concert has
  acquired, or obtained the right to acquire, beneficial ownership of 20% or
  more of the outstanding Common Shares or (ii) ten business days following
  the commencement of or announcement of an intention to make a tender or
  exchange offer, the consummation of which would result in the acquiring
  person becoming the beneficial owner of 20% or more of such outstanding
  Common Shares. The preferred share purchase rights would cause substantial
  dilution
 
                                      47

<PAGE>
 
  to a person or group that attempts to acquire Host REIT on terms not
  approved by the Board of Directors. See "Description of Capital Stock" and
  "Certain Provisions of Maryland Law and Host REIT's Charter and Bylaws."
 
  POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF COMMON SHARES. To
maintain its qualification as a REIT for federal income tax purposes, not more
than 50% in value of the outstanding shares of capital stock of Host REIT may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities). See "Federal Income Tax Consequences--
Federal Income Taxation of Host REIT Following the Mergers--Requirements for
Qualification." In addition, a person who owns, directly or by attribution, 10%
or more of an interest in a tenant of Host REIT (or a tenant of any partnership
in which Host REIT is a partner) cannot own, directly or by attribution, 10% or
more of the shares of Host REIT without jeopardizing Host REIT's qualification
as a REIT. Primarily to facilitate maintenance of its qualification as a REIT
for federal income tax purposes, the ownership limit under the Host REIT
Charter will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any person or persons acting as a group of more than
9.8% of the issued and outstanding Common Shares (subject to an exception for
Common Shares held prior to the REIT Conversion so long as the holder thereof
would not own more than 9.9% in value of the outstanding shares of Host REIT)
and will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any person or persons acting as a group of more than
9.8% of the issued and outstanding shares of any class or series of Host REIT's
preferred shares (collectively, the "Ownership Limit"). The Board of Directors,
in its sole and absolute discretion, may waive or modify the Ownership Limit
with respect to one or more persons who would not be treated as "individuals"
for purposes of the Code if it is satisfied, based upon information required to
be provided by the party seeking the waiver and upon an opinion of counsel
satisfactory to the Board of Directors, that ownership in excess of this limit
will not cause a person who is an individual to be treated as owning shares in
excess of the Ownership Limit, applying the applicable constructive ownership
rules, and will not otherwise jeopardize Host REIT's status as a REIT for
federal income tax purposes (for example, by causing any tenant of the
Operating Partnership or any of the Hotel Partnerships (including, but not
limited to, Crestline and the Lessees) to be considered a "related party
tenant" for purposes of the REIT qualification rules). Common Shares acquired
or held in violation of the Ownership Limit will be transferred automatically
to a trust for the benefit of a designated charitable beneficiary, and the
person who acquired such Common Shares in violation of the Ownership Limit will
not be entitled to any distributions thereon, to vote such Common Shares or to
receive any proceeds from the subsequent sale thereof in excess of the lesser
of the price paid therefor or the amount realized from such sale. A transfer of
Common Shares to a person who, as a result of the transfer, violates the
Ownership Limit may be void under certain circumstances, and, in any event,
would deny the transferee any of the economic benefits of owning Common Shares
in excess of the Ownership Limit. See "Description of Capital Stock--
Restrictions on Ownership and Transfer." The Ownership Limit may have the
effect of delaying, deferring or preventing a change in control and, therefore,
could adversely affect the shareholders' ability to realize a premium over the
then-prevailing market price for the Common Shares in connection with such
transaction.
 
  POSSIBLE DIFFERING FIDUCIARY DUTIES OF GENERAL PARTNERS AND HOST REIT. The
General Partners, Host REIT, as general partner of the Operating Partnership,
and the Board of Directors of Host REIT, respectively, owe fiduciary duties to
their constituent owners. Although some courts have interpreted the fiduciary
duties of the Board of Directors in the same way as the duties of a general
partner in a limited partnership, it is unclear whether, or to what extent,
there are differences in such fiduciary duties. It is possible that the
fiduciary duties of the directors of Host REIT to the shareholders may be less
than those of the General Partners to their respective limited partners or Host
REIT, as general partner of the Operating Partnership, to the limited partners
of the Operating Partnership. The Partnership Agreement contains a specific
provision to the effect that Host REIT, as general partner of the Operating
Partnership, is under no obligation to consider the separate interests of the
limited partners of the Operating Partnership in taking partnership action and
also contains broad exculpatory language. Since the partnership agreements of
the Partnerships do not contain the same provisions, the fiduciary duties of
Host REIT, as general partner of the Operating Partnership, to the limited
partners of the Operating
 
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<PAGE>
 
Partnership may be less than those of the General Partners to their respective
Limited Partners. See "Comparison of Ownership of Partnership Interests, OP
Units and Common Shares--Fiduciary Duties."
 
  EFFECT ON COMMON SHARE PRICE OF SHARES AVAILABLE FOR FUTURE SALE. Sales of a
substantial number of Common Shares, or the perception that such sales could
occur, could adversely affect prevailing market prices for Common Shares.
Limited Partners who elect to receive Common Shares in connection with the
Mergers will be able to sell such shares at any time after they are received
(unless held by an affiliate of Host REIT). Beginning July 1, 1999, half of the
approximately 43.7 million OP Units expected to be issued in the Blackstone
Acquisition will become redeemable pursuant to their Unit Redemption Right, an
additional 25% will be redeemable on October 1, 1999, and the balance will be
redeemable on January 1, 2000, which means it is possible for the Blackstone
Entities to convert all of their OP Units into Common Shares prior to, or
concurrently with, the first time the Limited Partners who retain OP Units
would be able to exercise their Unit Redemption Right and possibly causing the
price of the Common Shares to decrease prior to such Limited Partners being
able to sell their Common Shares. In addition, beginning at least one year
after the Effective Date (or after a lesser period in certain circumstances),
other holders of OP Units, including Limited Partners who retain OP Units
received in the Mergers, may be able to sell Common Shares received upon
exercise of their Unit Redemption Right in the public market pursuant to
registration or exemptions from registration. Further, a substantial number of
Common Shares would, pursuant to employee benefit plans, be issued or reserved
for issuance from time to time, including Common Shares reserved for issuance
pursuant to options granted prior to the Mergers and the REIT Conversion, and
these Common Shares would be available for sale in the public markets from time
to time pursuant to exemptions from registration or upon registration.
Moreover, the issuance of additional Common Shares by Host or Host REIT in the
future (including any Common Shares that may be issued in connection with the
Initial E&P Distribution) would be available for sale in the public markets.
Although not yet certain, it is currently contemplated that the Initial E&P
Distribution will include a nontransferable right entitling Host shareholders
who receive the Initial E&P Distribution and the Blackstone Entities to elect
to receive either a specified dollar amount of cash or a specified fraction of
a share of Host common stock (or a Host REIT Common Share if the merger of Host
into Host REIT has occurred). No prediction can be made about the effect that
future sales of Common Shares would have on the market price of the Common
Shares.
 
  CURRENT HOST COMMON STOCK PRICE IS NOT NECESSARILY INDICATIVE OF THE PRICE OF
HOST REIT COMMON SHARES FOLLOWING THE REIT CONVERSION. Host's current stock
price is not necessarily indicative of how the market will value Host REIT
Common Shares following the REIT Conversion, because of the effect of the
distribution of the Crestline common stock and cash or other consideration in
connection with the Initial E&P Distribution, the acquisition of additional
assets in connection with the REIT Conversion, including the Blackstone
Acquisition, and the change in Host's organization from a taxable corporation
to a REIT. The current stock price of Host reflects the current market
valuation of Host's current business and assets (including the Crestline common
stock and the cash or other consideration that may be distributed in connection
with the Initial E&P Distribution), a significant portion of which (except for
the Crestline common stock and cash or other consideration to be distributed
and certain other de minimis assets) will be contributed directly or indirectly
to the Operating Partnership and will comprise the core of the Operating
Partnership's business and assets following the REIT Conversion. Host's common
stock price is also affected by general market conditions.
 
  EFFECT ON COMMON SHARE PRICE OF MARKET CONDITIONS. As with other publicly
traded equity securities, the value of the Common Shares will depend upon
various market conditions, which may change from time to time. Among the market
conditions that may affect the value of the Common Shares are the following:
(i) the extent of institutional investor interest in Host REIT, (ii) the
general market perception of REITs in general and hotel REITs in particular and
the attractiveness of their equity securities in comparison to other equity
securities (including securities issued by other real estate-based companies),
(iii) Host REIT's financial performance, (iv) changes in the tax laws affecting
REITs (particularly REITs that primarily own hotels) and (v) general stock and
bond market conditions. Although the Limited Partners of a Participating
Partnership will receive OP Units with an aggregate deemed value equal to the
Exchange Value of their Partnership Interests in the Merger, there
 
                                       49

<PAGE>
 
can be no assurance that the Common Shares would not trade at prices below this
deemed value at the time of or after the REIT Conversion, thereby reducing the
value of such OP Units below the Exchange Value, or that the Common Shares will
not trade at prices below the value of Host REIT's business and assets.
 
  EFFECT ON COMMON SHARE PRICE OF EARNINGS AND CASH DISTRIBUTIONS. It is
generally believed that the market value of the equity securities of a REIT is
primarily based upon the market's perception of the REIT's growth potential for
its core portfolio, the value of its real estate portfolio and its prospects
for accretive acquisitions and development. The combination of these factors
creates a market perception of a REIT's current and potential future cash
distributions, whether from operations, sales, acquisitions, development or
refinancings, and is secondarily based upon the value of the underlying assets.
For that reason, Common Shares may trade at prices that are higher or lower
than the net asset value per Common Share or per OP Unit. To the extent Host
REIT retains operating cash flow for investment purposes, working capital
reserves or other purposes rather than distributing such cash flow to
shareholders, these retained funds, while increasing the value of Host REIT's
underlying assets, may not correspondingly increase the market price of the
Common Shares. The failure of Host REIT to meet the market's expectation with
regard to future earnings and cash distributions would likely adversely affect
the market price of the Common Shares.
 
  EFFECT ON COMMON SHARE PRICE OF MARKET INTEREST RATES. One of the factors
that will influence the price of the Common Shares will be the dividend yield
on the Common Shares (as a percentage of the price of the Common Shares)
relative to market interest rates. Thus, an increase in market interest rates
may lead prospective purchasers of Common Shares to expect a higher dividend
yield, which would adversely affect the market price of the Common Shares.
 
  EFFECT ON COMMON SHARE PRICE OF UNRELATED EVENTS. As with other publicly
traded equity securities, the value of the Common Shares will depend upon
various market conditions, including conditions unrelated to real estate
investments generally. Thus, events which depress equity market prices may not
have any effect on real estate market values, with the result that the Common
Shares may trade at prices below Host REIT's net asset value.
 
  DEPENDENCE ON EXTERNAL SOURCES OF CAPITAL. As with other REITs, but unlike
corporations generally, Host REIT's ability to reduce its debt and finance its
growth largely must be funded by external sources of capital because Host REIT
generally will have to distribute to its shareholders 95% of its taxable income
in order to qualify as a REIT (including taxable income where Host REIT does
not receive corresponding cash). Host REIT's access to external capital will
depend upon a number of factors, including general market conditions, the
market's perception of Host REIT's growth potential, its current and potential
future earnings, cash distributions and the market price of the Common Shares.
 
RISKS OF OWNERSHIP OF THE NOTES
 
  THE NOTES ARE UNSECURED. The Notes, which are prepayable at any time, are
unsecured obligations of the Operating Partnership. Thus, the Notes will be
effectively subordinated to any secured debt of the Operating Partnership and
to all obligations of the Hotel Partnerships and all other subsidiaries of the
Operating Partnership. As of June 19, 1998, on a pro forma basis assuming the
Full Participation Scenario, the Operating Partnership and its subsidiaries
would have had aggregate consolidated debt to which the Notes would be
effectively subordinated or which ranks equally with such Notes of
approximately $5.6 billion (including $567 million of debentures relating to
the Convertible Preferred Securities).
 
  NO PUBLIC MARKET FOR THE NOTES. There will be no public market for the Notes.
If the Notes are sold, they may sell at prices substantially below their
issuance price. Noteholders are likely to receive the full principal amount of
a Note only if they hold the Note to maturity, which is December 15, 2005, or
if the Operating Partnership repays the Notes prior to maturity.
 
  LIMITED PROTECTION FOR NOTEHOLDERS IN THE EVENT OF A RESTRUCTURING OR SIMILAR
TRANSACTION. Other than (i) certain restrictions on the incurrence of
indebtedness, (ii) a financial covenant requiring the Operating
 
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Partnership to maintain certain coverage ratios and (iii) the customary
requirements that the surviving entity in any business combination assume the
obligations under the Notes and the Indenture and be in full compliance with
all of the provisions of the Indenture, the Indenture does not contain any
special provisions protecting Noteholders in the event of a restructuring,
reorganization or similar transaction involving the Operating Partnership,
which could increase the risk that the Notes may not be paid in full at
maturity. See "Description of the Notes."
 
RISKS OF OPERATION
 
  COMPETITION IN THE LODGING INDUSTRY. The profitability of the Hotels is
subject to general economic conditions, the management abilities of the
Managers (including primarily Marriott International), competition, the
desirability of particular locations and other factors relating to the
operation of the Hotels. The full-service segment of the lodging industry in
which the Hotels primarily operate is highly competitive and the Hotels
generally operate in geographical markets that contain numerous competitors.
The Hotels' success will be dependent, in large part, upon their ability to
compete in such areas as access, location, quality of accommodations, room rate
structure, the quality and scope of food and beverage facilities and other
services and amenities. Although the competitive position of each of the
Company's hotel properties differs from market to market, the Company believes
that its properties generally compare favorably to their competitive set in the
markets in which they operate on the basis of these factors. Furthermore, the
Company's strategy is to affiliate its properties with managers operating under
the highest quality brand names in the industry which the Company believes will
enhance their competitive position. Nonetheless, there can be no assurance that
these managers will maintain the quality of their brand names. Furthermore,
competing properties may be built or existing products enhanced such that they
offer characteristics more favorable than those offered by the Company's
properties. See "Business and Properties--Competition." The lodging industry,
including the Hotels (and thus the Operating Partnership), may be adversely
affected in the future by (i) national and regional economic conditions, (ii)
changes in travel patterns, (iii) taxes and government regulations which
influence or determine wages, prices, interest rates, construction procedures
and costs, (iv) the availability of credit and (v) other factors beyond the
control of the Operating Partnership.
 
  GENERAL REAL ESTATE INVESTMENT RISKS. Partners of the Operating Partnership
will continue to bear risks associated with real estate investments. The yields
available from equity investments in real estate and the Operating
Partnership's ability to service debt depend, in large part, upon the amount of
rental revenues generated, expenses incurred and capital expenditures required
in the operation of its business. The Operating Partnership's income and
ability to make distributions to its partners will be dependent upon the rent
payable by the Lessees exceeding the amounts required for debt service,
property taxes and other expenses payable by the Operating Partnership
(including required FF&E reserves and capital expenditures). The rental
payments payable by the Lessees will be affected in part by the sales generated
by the Managers from operation of the Hotels. The Lessees' ability to pay rent
accrued under the Leases will depend in significant part upon the ability of
the Managers to generate gross sales in excess of its requirements to meet
operating expenses. The Operating Partnership's rental income from the Hotels
may, therefore, directly or indirectly, be adversely affected by a number of
factors, including the general economic climate, local real estate conditions,
such as an oversupply of, or a reduction in demand for, hotel space, the
attractiveness of the Hotels to consumers, the quality, philosophy and
performance of management, the ability of the Lessees to maximize rental
payments to Host REIT, the ability of the Manager to effectively operate the
Hotels, competition from comparable hotels, changes in room rates and increases
in operating costs due to inflation and other factors, which increases may not
necessarily be passed through fully to guests. In addition, the Operating
Partnership's rental income from the Hotels and real estate values also are
affected by such factors as the cost of compliance with government regulation,
including zoning and tax laws, the potential for liability under applicable
laws, interest rate levels and the availability of financing. Certain
significant expenditures associated with each equity investment in a Hotel
(such as mortgage payments, if any, real estate taxes and maintenance costs)
also may not decrease even though circumstances cause a reduction in the
Operating Partnership's rental income from the Hotel. If any of the above
occurs, the Operating Partnership's ability to make distributions to its
partners, including Host REIT, and Host REIT's ability, in turn, to make
distributions to its shareholders, could be adversely affected.
 
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<PAGE>
 
  RENTAL REVENUES FROM HOTELS SUBJECT TO PRIOR RIGHTS OF LENDERS. In accordance
with the mortgage loan agreements with respect to outstanding indebtedness of
certain Hotel Partnerships, the rental revenues received by such Hotel
Partnerships under certain Leases first will be used to satisfy the debt
service on such outstanding indebtedness with only the cash flow remaining
after debt service being available to satisfy other obligations of the Hotel
Partnership (including paying property taxes and insurance, funding the
required FF&E reserves for the Hotels and capital improvements and paying debt
service with respect to unsecured debt) and to make distributions to the
holders of OP Units (including Host REIT).
 
  POSSIBLE UNDERPERFORMANCE OF NEW ACQUISITIONS. In the future, the Operating
Partnership expects to pursue acquisitions of additional full-service hotels
and other types of real estate. Acquisitions entail the risk that such
investments will fail to perform in accordance with expectations. The Operating
Partnership anticipates that, in certain circumstances, it may use OP Units as
consideration to acquire hotels from tax-sensitive sellers and, in connection
with such acquisitions, it may agree to certain restrictions on the Operating
Partnership's ability to sell, or reduce the amount of mortgage indebtedness
on, such acquired hotels, which may increase the Operating Partnership's
leverage and which may impair the Operating Partnership's ability to take
actions that would otherwise be in the best interests of its limited partners.
 
  SEASONALITY. The hotel industry is seasonal in nature. The seasonality of the
industry may, from time to time, affect either the amount of rent that accrues
under the Leases or the ability of the Lessees to make timely rent payments
under the Leases. An inability of the Lessees to make timely rent payments to
the Operating Partnership could adversely affect the ability of the Operating
Partnership to make distributions to partners (including Host REIT) and Host
REIT's ability, in turn, to make distributions to its shareholders.
 
  ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively illiquid
and, therefore, will tend to limit the ability of the Operating Partnership to
sell and purchase hotels promptly in response to changes in economic or other
conditions. This could make it difficult for the Operating Partnership to sell
any of its Hotels, even if a sale were in the interest of limited partners.
 
  LIMITATIONS ON SALE OR REFINANCING OF CERTAIN HOTELS. For reasons relating to
federal income tax considerations, the agreements by which the Operating
Partnership will acquire certain Hotels (or obtain consent to lease certain
Hotels to the Lessees) will also restrict the ability of the Operating
Partnership to dispose of or refinance the debt secured by such Hotels for
varying periods from the Effective Date, depending on the Hotel. Similarly,
upon acquiring the Blackstone Hotels, the Operating Partnership will agree not
to dispose of the Blackstone Hotels for ten years (although the Operating
Partnership may dispose of up to 50% of the value of the assets contributed to
the Operating Partnership by the Blackstone Entities commencing after five
years). In addition, if Atlanta Marquis participates in the Mergers, the
Operating Partnership will succeed to an existing agreement that will restrict
its ability to dispose of the Hotel owned by Atlanta Marquis or to refinance
the debt secured by such Hotel without compensating certain outside partners
for resulting adverse tax consequences. Thus, even if it were in the best
interests of the Operating Partnership and its limited partners to sell or
refinance the debt secured by any of these Hotels, it may be difficult or
impossible for the Operating Partnership to do so during their respective lock-
out periods.
 
  HOTELS SUBJECT TO GROUND LEASES MAY AFFECT THE OPERATING PARTNERSHIP'S
REVENUES. Of the approximately 125 Hotels in which the Operating Partnership
initially is expected to hold an interest, approximately 45 are subject to
ground leases. Such ground leases generally require increases in ground rent
payments every five years. To the extent that the rents payable under the
Leases do not increase at the same rate as the increases under the ground
leases, it could affect the Operating Partnership's cash available for
distribution and its ability to make distributions to partners, including Host
REIT, and Host REIT's ability, in turn, to make distributions to its
shareholders. In addition, any sale of a Hotel encumbered by a ground lease
would be made subject to such ground lease and the value realized by the
Operating Partnership in such sale might not be as high if such Hotel were not
sold subject to such ground lease.
 
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<PAGE>
 
FEDERAL INCOME TAX RISKS
   
  TAX CONSEQUENCES OF THE MERGERS. The Operating Partnership has received an
opinion of Hogan & Hartson L.L.P., counsel to Host, Host REIT and the
Operating Partnership, based upon certain assumptions and representations of
the General Partners, the Operating Partnership, Host and Host REIT, to the
effect that, except for any gain attributable to the sale of personal property
by a Partnership to a Non-Controlled Subsidiary, the Mergers will not result
in the recognition of taxable income or gain by a Limited Partner at the time
of the Mergers (i) who does not elect to receive Common Shares or a Note in
exchange for his OP Units in connection with the Mergers; (ii) who does not
exercise his Unit Redemption Right on a date sooner than the date two years
after the date of the consummation of the Mergers; (iii) who does not receive
a cash distribution (or deemed cash distribution resulting from relief from
liabilities, including as a result of the prepayment of indebtedness
associated with the Limited Partner's Partnership) in excess of such Limited
Partner's aggregate adjusted tax basis in his Partnership Interest at the time
of the Mergers; (iv) who is not required to recognize gain by reason of the
election by another Limited Partner in his Partnership to receive Common
Shares or a Note in exchange for his OP Units in connection with the Mergers
(which in counsel's opinion, described below, should not be the result of
either such election); and (v) whose "at risk" amount does not fall below zero
as a result of the Mergers or the REIT Conversion. The General Partners and
the Operating Partnership do not believe, with regard to a Limited Partner who
acquired his Partnership Interest in the original offering of such Partnership
Interests, who has held that Interest at all times since the offering and who
does not elect to exchange the OP Units, that the Mergers will result in such
Limited Partner (a) receiving a distribution (or deemed distribution) of cash
in excess of such Limited Partner's adjusted tax basis in his Partnership
Interest or (b) having his "at risk" amount fall below zero. The adjusted tax
basis of a Limited Partner who did not acquire his Partnership Interest in the
original offering of such Partnership Interests, however, could vary
materially from the adjusted tax basis of a Limited Partner who did.
Therefore, depending on the adjusted tax basis of such a Limited Partner in
his Partnership Interest, the Mergers could result in the receipt by such
Limited Partner of a cash distribution (or deemed cash distribution) in excess
of such Limited Partner's adjusted tax basis in his Partnership Interest, and,
accordingly, could result in the recognition of taxable income or gain by such
Limited Partner. (The foregoing assumes that the ability to exercise the
Common Share Election or the Note Election either is not a separate property
right for federal income tax purposes or does not have any ascertainable
value. The Operating Partnership believes that the ability to exercise the
Common Share Election or the Note Election is not property and, even if it
were property, does not have any independent ascertainable value, given the
nature and terms of the OP Units and the terms and limited duration of the
election arrangements. If, however, the ability to exercise such elections
were considered property and to have an ascertainable value, Limited Partners
could recognize gain in amount up to the amount of such value (whether or not
they exercise such elections)).     
   
  Hogan & Hartson L.L.P. is of the opinion that it is more likely than not
that a Limited Partner who does not elect to exchange his OP Units for Common
Shares or a Note in connection with the Mergers will not be required to
recognize gain by reason of another Limited Partner's exercise of either such
election. With respect to a Limited Partner's exercise of his Unit Redemption
Right, Hogan & Hartson L.L.P. is of the opinion that it is more likely than
not that a Limited Partner's exercise of his Unit Redemption Right more than
one year after the date of consummation of the Mergers but less than two years
after such date will not cause the Merger itself to be a taxable transaction
for the Limited Partner (or for the other Limited Partners of such
Partnership). Opinions of counsel, however, do not bind the IRS or the courts,
and no assurance can be provided that such opinions will not be challenged by
the IRS or will be sustained by a court if so challenged.     
 
  The particular tax consequences of the Mergers and the REIT Conversion for a
Limited Partner will depend upon a number of factors related to the tax
situation of that individual Limited Partner and the Partnership of which he
is a Limited Partner, including such factors as the Limited Partner's
aggregate adjusted tax basis in his Partnership Interest, the extent to which
the Limited Partner has unused passive activity losses arising in connection
with his investment in the Partnership or other investments that could offset
income arising from the Mergers and the REIT Conversion, the amount of income
(if any) required to be recognized by reason of the sale by the Limited
Partner's Partnership of personal property to a Non-Controlled Subsidiary in
connection with the REIT Conversion, the allocation of Operating Partnership
liabilities to the Limited Partner following the
 
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<PAGE>
 
Mergers and the REIT Conversion and the amount of built-in gain with respect
to the Hotels owned by the Partnership of which he is a Limited Partner. See
"Federal Income Tax Consequences--Summary of Tax Opinions." The Operating
Partnership has consulted with its advisors in connection with structuring the
Mergers and the REIT Conversion, but, with one exception, has not sought a
ruling from the IRS as to the tax consequences of the Mergers and the REIT
Conversion. See "Federal Income Tax Consequences--Tax Consequences of the
Mergers--IRS Ruling Request Regarding Allocation of Partnership Liabilities."
EACH LIMITED PARTNER IS URGED TO CONSULT WITH HIS OWN TAX ADVISOR BEFORE
DETERMINING WHETHER TO APPROVE OF AND PARTICIPATE IN THE MERGERS IN ORDER TO
DETERMINE THE ANTICIPATED TAX CONSEQUENCES OF THE MERGERS FOR SUCH LIMITED
PARTNER.
   
  There is a significant possibility that the Operating Partnership will be
considered to be a "publicly traded partnership." Host REIT and the Operating
Partnership expect to receive an opinion prior to the Effective Date from
Hogan & Hartson L.L.P. to the effect that, even if the Operating Partnership
were a "publicly traded partnership," it would qualify as a partnership for
federal income tax purposes because, based upon factual representations made
by Host, Host REIT and the Operating Partnership as to the proposed method of
operation of the Operating Partnership after the Mergers and the REIT
Conversion, at least ninety percent (90%) of its income will consist of
"qualifying income," as defined in the Code. See "Federal Income Tax
Consequences--Tax Status of the Operating Partnership." In this regard, the
Partnership Agreement will prohibit any person or persons acting as a group
(other than Host REIT and The Blackstone Group) from holding in excess of 4.9%
of the value of the interests in the Operating Partnership. If the Operating
Partnership were a publicly traded partnership that qualifies as a partnership
for federal income tax purposes because of the "qualifying income" exception,
however, a Limited Partner could be subject to certain special rules
applicable to publicly traded partnerships. In particular, a Limited Partner
would be unable to use passive activity losses from other passive activities
(including his investment in his Partnership) to offset his allocable share of
Operating Partnership gain and income, and any Operating Partnership losses
allocable to a Limited Partner could be used only as an offset against such
Limited Partner's allocable share of future Operating Partnership income and
gain and not against income and gain from other passive activities.     
   
  EFFECTS OF SUBSEQUENT EVENTS UPON RECOGNITION OF GAIN. In addition to any
gain that might be recognized at the time of the Mergers by the Limited
Partners who retain OP Units, there are a variety of subsequent events and
transactions, including (i) the sale or other taxable disposition of one or
more of the Hotels owned by the Partnerships, (ii) the refinancing or
repayment of certain liabilities secured by one or more of the Hotels owned by
the Partnerships, (iii) the issuance of additional OP Units, including in
connection with the issuance of Common Shares or other equity interests by
Host REIT and the acquisition of additional properties by the Operating
Partnership in exchange for OP Units or other equity interests in the
Operating Partnership, (iv) an increase to the basis of the Hotels owned by
the Partnerships resulting from capital expenditures, (v) the elimination over
time of the disparity between the current tax basis of the Hotels owned by the
Partnerships and the "book basis" of such Hotels (based upon their fair market
value at the time of the Mergers) and (vi) with respect to the MHP Limited
Partners only, possibly, the transfer of MHP's interest in the Harbor Beach
Resort to a Non-Controlled Subsidiary in connection with the REIT Conversion
(in the event that certain third-party consents to the REIT Conversion are not
obtained) that could cause a Limited Partner who retains OP Units to recognize
part or all of the taxable gain that otherwise has been deferred pursuant to
the Mergers.     
 
  Certain Hotels (including the Blackstone Hotels) will be covered by
agreements that will restrict the ability of the Operating Partnership to
dispose of such Hotels or refinance the debt secured by them. In addition, if
Atlanta Marquis participates in the Mergers, the Operating Partnership will
succeed to an existing agreement that will restrict its ability to dispose of
the Hotel owned by Atlanta Marquis or to refinance the debt secured by such
Hotel without compensating certain outside partners for resulting adverse tax
consequences. See "--Limitations on Sale or Refinancing of Certain Hotels"
above. The Partnership Agreement does not impose any restrictions on the
Operating Partnership's ability to dispose of the Hotels owned by the
Partnerships, however, or to refinance or repay debt secured by the Hotels
owned by the Partnerships (or to direct that a Partnership engage in such a
transaction), but the Operating Partnership is obligated to pay any taxes Host
REIT
 
                                      54

<PAGE>
 
incurs as a result of such transactions. In addition, Host REIT, as general
partner of the Operating Partnership, is not required to take into account the
tax consequences to the limited partners in deciding whether to cause the
Operating Partnership to undertake specific transactions (but the Operating
Partnership is obligated to pay any taxes that Host REIT incurs as a result of
such transactions), and the limited partners generally have no right to
approve or disapprove such transactions. See "Description of OP Units--Sales
of Assets" and "--Borrowing by the Operating Partnership."
 
  SALE OF PERSONAL PROPERTY MAY RESULT IN GAIN TO LIMITED PARTNERS IN CERTAIN
PARTNERSHIPS. In order to facilitate the participation of Atlanta Marquis,
Desert Springs, Hanover, MHP and PHLP in the Mergers without adversely
affecting Host REIT's qualification as a REIT, the Operating Partnership will
require, as part of the Mergers, that such Partnerships sell a portion of the
personal property associated with the Hotels owned by such Partnerships to a
Non-Controlled Subsidiary. These sales will be taxable transactions and, with
the exception of the sale by Hanover, may result in an allocation of a
relatively modest amount of ordinary recapture income by each Partnership to
its Limited Partners. This income, if any, will be allocated to each Limited
Partner in the same proportion and to the same extent that such Limited
Partner was allocated any deductions directly or indirectly giving rise to the
treatment of such gains as recapture income. A Limited Partner who receives
such an allocation of recapture income will not be entitled to any special
distribution from his Partnership in connection with the sale of personal
property.
 
  ELECTION TO EXCHANGE OP UNITS FOR COMMON SHARES. A Limited Partner who
elects to exchange his OP Units for Common Shares in connection with the
Mergers will be treated as having made a fully taxable disposition of his OP
Units, which likely would be deemed to occur at the time that the right to
receive Common Shares becomes fixed (which the Operating Partnership will
treat as occurring on January 22, 1999, if the Effective Date of the Mergers
is December 30, 1998). The amount realized in connection with such disposition
will equal the sum of the fair market value of the Common Shares received,
plus the portion of the Operating Partnership's liabilities allocable to the
Limited Partner for federal income tax purposes. To the extent the amount
realized exceeds the Limited Partner's adjusted tax basis in his OP Units, the
Limited Partner will recognize gain. If a Limited Partner has a "negative
capital account" with respect to his OP Units, he will recognize "phantom
income" (i.e., the income recognized would exceed the value of the Common
Shares by the amount of his negative capital account). See "Federal Income Tax
Consequences--Tax Treatment of Limited Partners Who Exercise Their Right to
Make the Common Share Election or the Note Election."
 
  ELECTION TO EXCHANGE OP UNITS FOR NOTES. A Limited Partner who elects to
receive a Note in exchange for his OP Units in connection with the Mergers
will be treated as having made a taxable disposition of his OP Units, which
likely would be deemed to occur on the Effective Date of the Mergers (which
currently is expected to be December 30, 1998). The amount realized in
connection with such disposition will equal the sum of the "issue price" of
the Note (i.e., the principal amount of the Note) plus the portion of the
Operating Partnership's liabilities allocable to the Limited Partner for
federal income tax purposes. To the extent the amount realized exceeds the
Limited Partner's adjusted tax basis in his OP Units, the Limited Partner will
recognize gain. A Limited Partner may be eligible to defer at least a portion
of that gain under the "installment sale" rules until principal on the Note is
paid (see "Federal Income Tax Consequences--Tax Treatment of Limited Partners
Who Exercise Their Right to Make the Common Share Election or the Note
Election") but those rules will not permit a Limited Partner to defer all of
the gain recognized (for example, gain attributable to his "negative capital
account" and income attributable to "depreciation recapture") and may require
that a Limited Partner who defers gain pay to the IRS interest on a portion of
the resulting tax that has been deferred. A Limited Partner with a "negative
capital account" with respect to his Partnership Interest who elects to
receive a Note will recognize "phantom income" in that amount at the time the
taxable disposition is deemed to occur in any event.
 
  EXERCISE OF UNIT REDEMPTION RIGHT. The receipt of either cash or Common
Shares, as determined by Host REIT, by a Limited Partner in connection with
the exercise of such Limited Partner's Unit Redemption Right will be a taxable
transaction and likely will result in the recognition by the Limited Partner
of substantial gain for federal income tax purposes. The amount realized in
connection with a Limited Partner's exercise of his
 
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<PAGE>
 
Unit Redemption Right will equal the sum of either the amount of cash or the
fair market value of the Common Shares received plus the portion of the
Operating Partnership's liabilities allocable to the OP Units redeemed for
federal income tax purposes. To the extent the amount realized exceeds the
Limited Partner's adjusted basis in the redeemed OP Units, the Limited Partner
will recognize gain. See "Federal Income Tax Consequences--Tax Treatment of
Limited Partners Who Hold OP Units Following the Mergers--Dissolution of the
Operating Partnership" and "--Tax Treatment of Exercise of Unit Redemption
Right." State and local income and transfer taxes may apply to such a
redemption as well.
 
  LIMITED PARTNERS NEED TO CONSULT WITH THEIR OWN TAX ADVISORS. Because the
specific tax attributes of a Limited Partner and the facts regarding such
Limited Partner's interest in his Partnership could have a material impact on
the tax consequences to such Limited Partner of the Mergers (including the
decision whether to elect to receive Common Shares or Notes in exchange for OP
Units in connection with the Mergers) and the subsequent ownership and
disposition of OP Units, Common Shares or Notes, it is essential that each
Limited Partner consult with his own tax advisors regarding the application of
federal, foreign and state and local tax laws to such Limited Partner's
personal tax situation.
 
FAILURE OF HOST REIT TO QUALIFY AS A REIT.
 
  GENERAL. Host REIT intends to operate so as to qualify as a REIT under the
Code effective for Host REIT's first taxable year commencing following the
REIT Conversion. A REIT generally is not taxed at the corporate level on
income it currently distributes to its shareholders as long as it distributes
currently at least 95% of its taxable income (excluding net capital gain). No
assurance can be provided, however, that Host REIT will so qualify or be able
to remain so qualified or that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly
change the tax laws with respect to Host REIT's qualification as a REIT or the
federal income tax consequences of such qualification. In this regard, Host
REIT expects to receive an opinion of Hogan & Hartson L.L.P. prior to the
Effective Date to the effect that Host REIT, effective for its first full
taxable year commencing following the REIT Conversion, will be organized in
conformity with the requirements for qualification as a REIT under the Code,
and that Host REIT's proposed method of operation will enable it to satisfy
the requirements for qualification and taxation as a REIT. This opinion will
be conditioned upon the completion of the REIT Conversion and upon certain
factual representations made by Host REIT and the Operating Partnership as to
matters relating to the organization and operation of Host REIT, the Operating
Partnership, the Hotel Partnerships, the Subsidiary Partnerships, the Non-
Controlled Subsidiaries, the Host Employee Trust and Crestline and the
Lessees. In addition, this opinion will be based upon the factual
representations of Host REIT concerning its business and properties as set
forth in this Consent Solicitation and will assume that the actions described
in this Consent Solicitation are completed in a timely fashion. Moreover, an
opinion of counsel does not bind the IRS or the courts, and no assurance can
be provided that such opinion will not be challenged by the IRS or will be
sustained by a court if so challenged.
 
  REQUIRED DISTRIBUTIONS AND PAYMENTS. In order to qualify as a REIT, Host
REIT will be required each year to distribute to its shareholders at least 95%
of its net taxable income (excluding any net capital gain). Due to certain
transactions entered into in prior years, Host REIT is expected to recognize
substantial amounts of "phantom" taxable income in future years that is not
matched by cash flow or EBITDA to the Operating Partnership or Host REIT. As
discussed below in "--Earnings and Profits Attributable to "C' Corporation
Taxable Years," to qualify as a REIT, Host REIT also will have to distribute
to its shareholders not later than the end of its first taxable year as a REIT
an amount equal to the earnings and profits ("E&P") accumulated by Host and
its subsidiaries and not distributed before or at the time of the REIT
Conversion (including any increases thereto resulting from subsequent IRS
audits of years prior to Host REIT's first taxable year as a REIT). In
addition, Host REIT will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions made by it with respect to the
calendar year are less than the sum of (i) 85% of its ordinary income, (ii)
95% of its capital gain net income for that year, and (iii) any undistributed
taxable income from prior periods. Host REIT intends to make distributions to
its shareholders to comply with the 95% distribution requirement and to avoid
the nondeductible excise tax and will rely for this purpose on distributions
from the Operating
 
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<PAGE>
 
Partnership. However, differences in timing between taxable income and cash
available for distribution due to, among other things, the seasonality of the
hospitality industry and the fact that some taxable income will be "phantom"
income (i.e., taxable income that is not matched by cash flow or EBITDA to the
Operating Partnership) could require the Operating Partnership to borrow funds
or to issue additional equity to enable Host REIT to meet the 95% distribution
requirement (and therefore to maintain its REIT status) and to avoid the
nondeductible excise tax. The Operating Partnership also is required to pay
(or reimburse Host REIT for) all taxes and other liabilities and expenses that
Host REIT incurs, including taxes and liabilities attributable to periods and
events prior to the REIT Conversion and any taxes that Host REIT must pay in
the event it were to fail to qualify as a REIT. In addition, the Operating
Partnership's inability to retain earnings (resulting from Host REIT's 95% and
other distribution requirements) will generally require the Operating
Partnership to refinance debt that matures with additional debt or equity.
There can be no assurance that any of these sources of funds, if available at
all, would be available to meet the Operating Partnership's distribution and
tax obligations.
 
  CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If Host REIT fails to qualify
as a REIT, it will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates. In
addition, unless entitled to relief under certain statutory provisions, Host
REIT will be disqualified from treatment as a REIT for the four taxable years
following the year during which REIT qualification is lost. The additional tax
would significantly reduce the cash available for distribution by Host REIT to
its shareholders. Failure of Host REIT to qualify as a REIT could reduce
materially the value of the Common Shares and OP Units and would cause all
distributions to shareholders to be taxable as ordinary income to the extent
of Host REIT's current and accumulated E&P (although, subject to certain
limitations under the Code, corporate distributees may be eligible for the
dividends received deduction with respect to these distributions). See
"Federal Income Tax Consequences--Federal Income Taxation of Host REIT
Following the Mergers--Failure of Host REIT to Qualify as a REIT." Failure of
Host REIT to qualify as a REIT also would result in a default under the New
Senior Notes and the New Credit Facility.
 
  EARNINGS AND PROFITS ATTRIBUTABLE TO "C" CORPORATION TAXABLE YEARS.  In
order to qualify as a REIT, Host REIT cannot have at the end of any taxable
year any undistributed E&P that is attributable to a "C" corporation taxable
year. A REIT has until the close of its first taxable year as a REIT in which
it has non-REIT E&P to distribute such accumulated E&P. Host REIT will be
required to distribute this E&P prior to the end of 1999 (the first taxable
year for which the REIT election of Host REIT currently is expected to be
effective). Failure to do so would result in disqualification of Host REIT as
a REIT at least for taxable year 1999. Host REIT believes that the Initial E&P
Distribution, together with any additional distributions of non-REIT E&P made
after the REIT Conversion but prior to December 31, 1999, will be sufficient
to distribute all of the non-REIT E&P as of December 31, 1999, but there are
substantial uncertainties relating to the estimate of Host REIT's non-REIT E&P
and the value of noncash consideration to be distributed as part of the
Initial E&P Distribution and, thus, there can be no assurance that this
requirement will be met. Hogan & Hartson L.L.P. will not provide any opinion
as to the amount of Host's undistributed E&P and will rely, for purposes of
its opinion as to the qualification of Host REIT as a REIT, upon a
representation from Host and Host REIT that Host REIT will not have any
undistributed E&P as of the end of 1999. See "Federal Income Tax
Consequences--Federal Income Taxation of Host REIT Following the Mergers--
Requirements for Qualification."
 
  TREATMENT OF LEASES. To qualify as a REIT, a REIT must satisfy two gross
income tests. Rent paid pursuant to the Leases will constitute substantially
all of the gross income of Host REIT. In order for the rent paid pursuant to
the Leases to constitute qualifying income for purposes of the gross income
tests, (a) the Leases must be respected as true leases for federal income tax
purposes and not be treated as service contracts, joint ventures or some other
type of arrangement, and (b) the Lessees must not be regarded as "related
party tenants" (as defined in the Code). Host REIT expects that Hogan &
Hartson L.L.P. will provide to Host REIT prior to the Effective Date an
opinion to the effect that, based upon certain representations of Host REIT
regarding the terms of the Leases and the expectations of Host REIT and the
Lessees with respect thereto, the Leases will be respected as leases for
federal income tax purposes. An opinion of counsel, however, does not bind the
IRS or the courts and this determination ultimately will depend upon the
accuracy of the factual representations of Host
 
                                      57

<PAGE>
 
REIT regarding the Leases. In this regard, if the Leases were not respected as
true leases for federal income tax purposes or if the Lessees were regarded as
"related party tenants," Host REIT would not be able to satisfy either of the
two gross income tests applicable to REITs and, as a result, would lose its
REIT status. Accordingly, Host REIT would be subject to corporate level income
taxation, which would significantly reduce the cash available for distribution
to its shareholders. See "Federal Income Tax Consequences--Federal Income
Taxation of Host REIT Following the Mergers--Income Tests Applicable to
REITs."
 
  OTHER TAX LIABILITIES; HOST REIT'S SUBSTANTIAL DEFERRED AND CONTINGENT TAX
LIABILITIES. Even if Host REIT qualifies as a REIT, it will be subject,
through the Operating Partnership and the Hotel Partnerships, to certain
federal, state and local taxes on its income and property. See "Federal Income
Tax Consequences-- Federal Income Taxation of Host REIT Following the
Mergers--General." In addition, Host REIT will be subject to tax at the
regular corporate rate (currently 35%) upon its share of any gain recognized
as a result of any sale by the Operating Partnership or the Hotel Partnerships
(within the 10-year period beginning on the Effective Date) of assets,
including the Hotels, in which interests were acquired by the Operating
Partnership from Host and its subsidiaries as part of the Mergers and the REIT
Conversion to the extent that such gain existed as of the first day of Host
REIT's first taxable year as a REIT. Host has substantial deferred tax
liabilities that likely will be recognized by Host REIT in the next ten years
as "built-in gain" under these rules (or by a Non-Controlled Subsidiary),
without any corresponding receipt of cash by Host REIT from the Operating
Partnership. The Operating Partnership is obligated under the Partnership
Agreement and the terms of the REIT Conversion to pay all such taxes incurred
by Host REIT, as well as any liabilities that the IRS may assert against Host
REIT for corporate income taxes for taxable years prior to the time Host REIT
qualifies as a REIT. The Non-Controlled Subsidiaries will be taxable "C"
corporations and will pay federal and state income tax on their net income at
the full applicable corporate rates. Holders of OP Units will be subject to
state and local taxation in the jurisdictions in which the Operating
Partnership directly or indirectly holds real property and such holders will
be required to file periodic tax returns in at least some of those
jurisdictions. The Operating Partnership will initially own Hotels located in
28 different states and the District of Columbia.
 
  FAILURE OF THE OPERATING PARTNERSHIP TO QUALIFY AS A PARTNERSHIP. The
Operating Partnership and Host REIT have received an opinion of Hogan &
Hartson L.L.P. to the effect that the Operating Partnership will be treated as
a partnership for federal income tax purposes. An opinion of counsel, however,
does not bind the IRS or the courts, and no assurance can be provided that
such opinion will not be challenged by the IRS or will be sustained by a court
if so challenged. If the IRS were to treat successfully the Operating
Partnership as an entity that is taxable as a corporation, Host REIT would
cease to qualify as a REIT because the value of Host REIT's ownership interest
in the Operating Partnership would exceed 5% of Host REIT's assets and because
Host REIT would be considered to hold more than 10% of the voting securities
of another corporation. See "Federal Income Tax Consequences--Federal Income
Taxation of Host REIT Following the Mergers--Asset Tests Applicable to REITs."
Moreover, the imposition of a corporate tax on the Operating Partnership would
reduce significantly the amount of cash available for distribution to its
limited partners. See "Federal Income Tax Consequences--Tax Status of the
Operating Partnership" and "--Tax Aspects of Host REIT's Ownership of OP
Units."
 
MISCELLANEOUS RISKS
 
  DEPENDENCE UPON KEY PERSONNEL. The Operating Partnership is dependent upon
the efforts of the executive officers of Host REIT. While the Operating
Partnership believes that it could find replacements for these key personnel,
the loss of their services could have a significant adverse effect on the
operations of the Operating Partnership. The Operating Partnership does not
intend to obtain key-man life insurance with respect to any of the executive
officers of Host REIT.
 
  POTENTIAL LITIGATION RELATED TO THE REIT CONVERSION. Over the last several
years, business reorganizations involving the combination of several
partnerships into a single entity occasionally have given rise to investor
lawsuits. These lawsuits have involved claims against the general partners of
the participating partnerships, the partnerships themselves and related
persons involved in the structuring of, or benefiting from, the conversion or
reorganization, as well as claims against the surviving entity and its
directors and officers. For
 
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<PAGE>
 
example, limited partners of five of the six limited partnerships controlled
by Host that own limited service and extended-stay hotels have filed a lawsuit
against Host and the general partners (which are subsidiaries of Host) of such
limited partnerships alleging, among other things, breaches of their fiduciary
duties in connection with a potential consolidation transaction. Certain other
lawsuits are pending against Host and its affiliates by limited partners in
certain Partnerships (specifically, Atlanta Marquis, Desert Springs, MHP, MHP2
and PHLP). If any lawsuits are filed in connection with any Merger or other
part of the REIT Conversion, such lawsuits could delay the closing of such
Merger or the REIT Conversion or result in substantial damage claims against
the Operating Partnership, Host REIT or the General Partners of the
Partnerships. The Partnerships are each obligated to indemnify their General
Partner for claims against them arising from their role as general partner
other than to the extent they are guilty of negligence, fraud, misconduct or
breach of fiduciary duty. Because the Operating Partnership will be acquiring
the Participating Partnerships through the Mergers, Host REIT and the
Operating Partnership indirectly will be subject to the indemnification
obligations of the Partnerships to their general partners and any obligations
of the Partnerships to pay damages to the extent not covered by any available
insurance. See "Business and Properties--Legal Proceedings." In the event any
pending lawsuits or any new lawsuits filed against any of the Partnerships or
the General Partners in connection with the REIT Conversion or the Mergers are
not resolved by final court action or settled before the Effective Date, the
Exchange Values of such Partnerships will be adjusted to account for a
litigation reserve and other contingent liabilities.
 
  RISK INVOLVED IN INVESTMENTS THROUGH PARTNERSHIPS OR JOINT VENTURES. Instead
of purchasing hotel properties directly, the Operating Partnership may invest
as a co-venturer. Joint venturers often have shared control over the operation
of the joint venture assets. Therefore, such investments may, under certain
circumstances, involve risks such as the possibility that the co-venturer in
an investment might become bankrupt, or have economic or business interests or
goals that are inconsistent with the business interests or goals of the
Operating Partnership, or be in a position to take action contrary to the
instructions or the requests of the Operating Partnership or contrary to the
Operating Partnership's policies or objectives. Consequently, actions by a co-
venturer might result in subjecting hotel properties owned by the joint
venture to additional risk. Although the Operating Partnership generally will
seek to maintain sufficient control of any joint venture to permit the
Operating Partnership's objectives to be achieved, it may be unable to take
action without the approval of its joint venture partners or its joint venture
partners could take actions binding on the joint venture without the Operating
Partnership's consent. Additionally, should a joint venture partner become
bankrupt, the Operating Partnership could become liable for such partner's
share of joint venture liabilities.
 
  CHANGES IN LAWS. Increases in real estate or business improvement district
taxes will not result in increased rental payments to the Operating
Partnership under the Leases, with the result that they may adversely affect
the Operating Partnership's cash flow from operations and its ability to
maintain the expected level of distributions. Similarly, changes in laws
increasing the potential liability for environmental conditions existing at
Hotels or increasing the restrictions on discharges or other conditions, as
well as changes in laws affecting construction and safety requirements, may
result in significant unanticipated capital expenditures, which, to the extent
such expenditures must be borne by the Operating Partnership as the lessor of
the Hotels, would adversely affect the Operating Partnership's cash flow from
operations and its ability to make distributions to limited partners,
including Host REIT, and Host REIT's ability, in turn to make distributions to
its stockholders.
 
  UNINSURED LOSS. The Operating Partnership will carry comprehensive
liability, fire, flood, extended coverage and rental loss (for rental losses
extending up to 12 months) insurance with respect to its Hotels with policy
specifications and insured limits customarily carried for similar hotels.
Certain types of losses (such as from earthquakes and environmental hazards),
however, may be either uninsurable or not economically insurable. Should an
uninsured loss occur, the Operating Partnership could lose both its capital
invested in, and anticipated profits from, one or more of its Hotels.
 
  AMERICANS WITH DISABILITIES ACT. The Hotels must comply with Title III of
the Americans with Disabilities Act (the "ADA") to the extent that such Hotels
are "public accommodations" or "commercial facilities" as defined by the ADA.
The ADA may require removal of structural barriers to access by persons
 
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<PAGE>
 
with disabilities in certain public areas of the Operating Partnership's
Hotels where such removal is readily achievable. The Operating Partnership
believes that the Hotels will not be required to make substantial non-budgeted
capital expenditures to address the requirements of the ADA. However,
noncompliance with the ADA could result in substantial capital expenditures to
remove structural barriers, as well as the imposition of fines or an award of
damages to private litigants which might adversely affect the Operating
Partnership's ability to make expected distributions to limited partners,
including Host REIT, and Host REIT's ability, in turn, to make distributions
to its shareholders. Under the Leases, the Operating Partnership would be
required to fund all such expenditures.
 
  OTHER REGULATORY ISSUES. The Operating Partnership's Hotels will be subject
to various forms of regulation in addition to the ADA, including building
codes, regulations pertaining to fire safety and other regulations which may
from time to time be enacted. The Operating Partnership may be required to
incur significant costs to comply with any future changes in such regulations.
 
  POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and local
laws, ordinances and regulations, owners or operators of real estate may be
required to investigate and clean up certain hazardous substances released at
a property, and may be held liable to a governmental entity or to third
parties for property damage or personal injuries and for investigation and
clean-up costs incurred by the parties in connection with any contamination.
In addition, some environmental laws create a lien on a contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. No assurances can be
given that (i) a prior owner, operator or occupant, such as a tenant, did not
create a material environmental condition not known to the Operating
Partnership, (ii) a material environmental condition with respect to any Hotel
does not exist or (iii) future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in the imposition of environmental liability.
 
  In addition, no assurances can be given that all potential environmental
liabilities have been identified or properly quantified. Moreover, no
assurances can be given that (i) future laws, ordinances, or regulations will
not impose any material environmental liability or (ii) the current
environmental condition of the Hotels will not be affected by the condition of
land or operations in the vicinity of the Hotels (such as the presence of
underground storage tanks) or by third parties unrelated to the Operating
Partnership.
 
                                      60

<PAGE>
 
                             CONFLICTS OF INTEREST
 
  The Mergers and the REIT Conversion were initiated by Host and are being
proposed by Host, Host REIT, the Operating Partnership and the General
Partners, which are Host or its subsidiaries. The terms and conditions of the
Mergers and the REIT Conversion and the structure of the Operating Partnership
also were formulated by Host, Host REIT, the General Partners and the
Operating Partnership. See "Background and Reasons for the Mergers and the
REIT Conversion--Background of the Mergers and the REIT Conversion."
 
  As discussed below, the establishment of the terms of the Mergers and REIT
Conversion, the recommendation by the General Partners with respect to the
Mergers and the related amendments to the partnership agreements and the
operation of the Operating Partnership involve conflicts of interest. In
resolving any conflicts of interest, each of the General Partners must act in
accordance with its fiduciary duties to the Limited Partners of its
Partnership. The directors of Host REIT, which will be the sole general
partner of the Operating Partnership, also must act in accordance with their
fiduciary duties to the shareholders of Host REIT and, to a certain extent,
the limited partners of the Operating Partnership as limited by the
Partnership Agreement. See "Comparison of Ownership of Partnership Interests,
OP Units and Common Shares--Fiduciary Duties" for a general description of
these duties.
 
SUBSTANTIAL BENEFITS TO RELATED PARTIES
 
  To the extent that the anticipated benefits of the REIT Conversion are
reflected in the value of Host's common stock prior to the Effective Date, the
Limited Partners will not enjoy the effect of such benefits on the value of
their investment. In addition, following the REIT Conversion, current Host
shareholders (together with the Blackstone Entities), but not the Limited
Partners, will own the common stock of Crestline and will benefit from the
terms of the Leases to the extent net revenues exceed rental payments and
other expenses. The Mergers will facilitate the consummation, and enable Host
to reap the full benefits, of the REIT Conversion. By converting to a REIT,
Host expects to benefit from the advantages enjoyed by REITs in raising
capital and acquiring additional assets, participating in a larger group of
comparable companies and increasing its potential base of shareholders. Also,
Host will realize significant savings through the substantial reduction of its
future corporate-level income taxes. The benefits to Host of the REIT
Conversion will be reduced if one or more of the Partnerships do not
participate in a Merger, thereby creating a conflict of interest for the
General Partners in connection with the Mergers.
 
AFFILIATED GENERAL PARTNERS
 
  Host has varying interests in each of the Partnerships, and subsidiaries of
Host act as General Partner of each of the Partnerships (except for PHLP, in
which Host is the General Partner). Each General Partner has an independent
obligation to assess whether the Merger is fair and equitable to and advisable
for the Limited Partners of its Partnership. This assessment involves
considerations that are different from those relevant to the determination of
whether the Mergers and the REIT Conversion are advisable for Host and its
shareholders. The considerations relevant to such determination which create a
conflict of interest include Host's belief that the REIT Conversion is
advisable for its shareholders, the benefits of the REIT Conversion to Host
will be greater if the Partnerships participate and Host REIT will benefit if
the value of the OP Units received by the Limited Partners in the Mergers is
less than the value of their Partnership Interests. While each General Partner
has sought faithfully to discharge its obligations to its Partnership, there
is an inherent conflict of interest in having the General Partners determine
the terms on which the Operating Partnership, which is controlled by Host,
will acquire the Partnerships, for which Host or its subsidiaries are the
General Partners, since no arm's length negotiations are possible because Host
is on both sides of the transaction.
 
LEASING ARRANGEMENTS
 
  Conflicts of interest exist in connection with establishing the terms of the
leasing arrangements being entered into as part of the REIT Conversion. The
General Partners, all of which are subsidiaries of Host (except
 
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<PAGE>
 
in the case of PHLP, in which Host is the General Partner), are recommending
the Mergers, and Host is responsible for establishing the terms of the Mergers
and the REIT Conversion, including the Leases. The common stock of Crestline
will be distributed to Host's or Host REIT's shareholders. Accordingly, Host's
or Host REIT's shareholders and the Blackstone Entities, as the initial
shareholders of Crestline, will potentially benefit from the terms of the
Leases to the extent net revenues exceed rental payments and other expenses
but Limited Partners will not because they will not receive shares of
Crestline common stock.
 
DIFFERENT TAX CONSEQUENCES UPON SALE OR REFINANCING OF CERTAIN HOTELS
 
  Certain holders of OP Units may experience different and more adverse tax
consequences compared to those experienced by other holders of OP Units or by
holders of Common Shares upon the sale of, or the reduction of indebtedness
encumbering, any of the Hotels. Therefore, such holders, including Host REIT
and its subsidiaries, may have different objectives regarding the appropriate
pricing and timing of any sale or refinancing of an individual Hotel. As
provided in the Partnership Agreement, Host REIT, as general partner of the
Operating Partnership, is not required to take into account the tax
consequences of the limited partners of the Operating Partnership in deciding
whether to cause the Operating Partnership to undertake specific transactions
(but the Operating Partnership is obligated to pay any taxes Host REIT incurs
as a result of such transactions), and the limited partners have no right to
approve or disapprove such transactions.
 
PARTNERSHIP AGREEMENT
 
  Conflicts of interest exist in connection with establishing the terms of the
Partnership Agreement, including provisions which benefit Host REIT, all of
which were determined by Host.
 
POTENTIAL CONFLICTS INVOLVING MARRIOTT INTERNATIONAL AND CRESTLINE
   
  Marriott International currently serves as manager for all but 16 of Host's
Hotels, and will continue to manage those Hotels pursuant to the Management
Agreements that will be assigned to the Lessees. In addition, Marriott
International acts as manager of hotels that will compete with Host REIT's
Hotels. As a result, Marriott International may make decisions regarding
competing lodging facilities which it manages that would not necessarily be in
the best interests of Host REIT or the Lessees. Further, J.W. Marriott, Jr.
and Richard E. Marriott, who are brothers, currently serve as directors of
Host and directors (and, in the case of J.W. Marriott, Jr., also an officer)
of Marriott International. After the REIT Conversion, J.W. Marriott, Jr. will
serve as a director of Host REIT and will continue to serve as a director of
Marriott International, and Richard E. Marriott will serve as Chairman of the
Board of Host REIT and continue to serve as a director of Marriott
International. J.W. Marriott, Jr. and Richard E. Marriott also beneficially
own (as determined for securities law purposes) approximately 10.6% and 10.2%,
respectively, of the outstanding shares of common stock of Marriott
International, and will beneficially own approximately 5.32% and 5.30%,
respectively, of the outstanding shares of common stock of Crestline (but
neither will serve as an officer or director thereof). As a result, J.W.
Marriott, Jr. and Richard E. Marriott may have a potential conflict of
interest with respect to their obligations as directors of Host REIT in
connection with any decisions regarding Marriott International itself
(including decisions relating to the Management Agreements involving the
Hotels), Marriott International's management of competing lodging properties
and Crestline's leasing and other businesses that would not necessarily be in
the best interests of Host REIT.     
 
ABSENCE OF ARM'S LENGTH NEGOTIATIONS; NO INDEPENDENT REPRESENTATIVE
 
  No independent representative was retained to negotiate on behalf of the
Limited Partners because the Mergers contain both substantive protections for
the Limited Partners (the Appraisals and the Fairness Opinion) and procedural
protections for the Limited Partners (the vote required in all instances is a
majority of limited partner interests and in those Partnerships where Host or
its affiliates own significant percentages of limited partner interest, a
majority of unaffiliated Limited Partners have the ability to approve or
disapprove the Mergers, including the related amendments to the partnership
agreements). In addition, none of the partnership agreements or applicable law
impose such a requirement. Although the General Partners have obtained the
Appraisals and
 
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<PAGE>
 
the Fairness Opinion from AAA, AAA has not negotiated with the General
Partners or Host and has not participated in establishing the terms of the
Mergers. Consequently, the terms and conditions of the Mergers may have been
more favorable to the Limited Partners if such terms and conditions were the
result of arm's length negotiations. See "Fairness Analysis and Opinion." In
this regard, the Fairness Opinion specifically does not conclude that other
methodologies for determining the Exchange Values of the Partnerships and/or
the value of the OP Units might not have been more favorable to the Limited
Partners.
 
POTENTIAL AAA CONFLICTS
 
  A conflict of interest may exist in that AAA has been retained to perform
the Appraisals and also provide the Fairness Opinion which, among other
things, opines as to the methodologies and underlying assumptions that AAA
used in performing the Appraisals. AAA has been retained by the General
Partners (consisting of Host and its subsidiaries) to determine the Appraised
Values of the Hotels and to render the Fairness Opinion. Host has previously
retained AAA to perform appraisals and give fairness and solvency opinions in
connection with other transactions, and there is the possibility that Host
REIT and the Operating Partnership will retain AAA to perform similar tasks in
the future.
 
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST
 
  The Operating Partnership has adopted certain policies and will enter into
agreements with Host REIT and its affiliates designed to minimize the adverse
effects from these potential conflicts of interest. See "Distribution and
Other Policies--Conflicts of Interest Policies" and "Business and Properties--
Noncompetition Agreements." There can be no assurance, however, that the
policies and agreements always will be successful in eliminating the influence
of such conflicts, and if they are not successful, decisions could be made at
the Host REIT level that might fail to reflect fully the interests of the
limited partners of the Operating Partnership.
 
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<PAGE>
 
        BACKGROUND AND REASONS FOR THE MERGERS AND THE REIT CONVERSION
 
BACKGROUND OF THE PARTNERSHIPS
 
  Formation of the Partnerships. From 1982 through 1990, Host sponsored the
eight Partnerships, which were formed to acquire, own and operate full-service
hotels operating under the Marriott brand name. Each Partnership is a Delaware
limited partnership, except Chicago Suites, which is a Rhode Island limited
partnership. The Partnerships raised capital from approximately 5,900
investors in eight offerings. The Partnerships are "public" partnerships
within the meaning of the applicable Commission guidelines, and separate
wholly owned subsidiaries of Host are the sole general partners of each
Partnership (except for PHLP, for which Host itself acts as general partner).
The Hotels owned by the Partnerships are managed by Marriott International and
its subsidiaries.
 
  The table below sets forth the capital raised in the original offerings,
distributions made and number of Hotels owned by each of the Partnerships as
of June 19, 1998:
 
              HISTORICAL INFORMATION CONCERNING THE PARTNERSHIPS
 

<TABLE>   
<CAPTION>
                                                                   AGGREGATE
                                             AGGREGATE         DISTRIBUTIONS TO
                                          DISTRIBUTIONS TO   LIMITED PARTNERS PER
                              TOTAL       LIMITED PARTNERS     PARTNERSHIP UNIT     NO. OF
                         LIMITED PARTNER      THROUGH               THROUGH         HOTELS
PARTNERSHIP              CAPITAL RAISED  JUNE 19, 1998/(1)/ JUNE 19, 1998/(1)//(2)/ OWNED
- -----------              --------------- ------------------ ----------------------- ------
                         (IN THOUSANDS)    (IN THOUSANDS)        (IN DOLLARS)
<S>                      <C>             <C>                <C>                     <C>
Atlanta Marquis.........    $ 53,000          $ 23,188             $ 43,751/(3)/       1/(4)/
Chicago Suites..........      11,642             2,819/(7)/           8,342            1
Desert Springs..........      88,020            84,332               93,702            1
Hanover.................       8,269               622                7,405            1
MDAH....................      40,615             9,738               23,671            6
MHP.....................     100,000            59,824/(5)/          59,824/(5)/       2/(5)/
MHP2....................      73,115           120,452/(6)/         161,681/(6)/       4/(6)/
PHLP....................      18,000                 0                    0            8
</TABLE>
    
- --------
(1) Includes distributions to the General Partners or their affiliates as
    holders of Partnership Units (but not distributions to them in their
    capacities as general partner).
(2) A Partnership Unit in all of the Partnerships except Chicago Suites
    ($35,000) and PHLP ($10,000) represents an original investment of
    $100,000.
(3) Includes approximately $8,600 per Partnership Unit of payments related to
    the reallocation of tax losses resulting from the 1990 debt refinancing.
(4) Atlanta Marquis has an 80% residual interest in the Atlanta Marriott
    Marquis Hotel.
(5) Aggregate distributions do not include $8 million ($8,000 per Partnership
    Unit) distributed in August 1998 and $6.5 million ($6,500 per Partnership
    Unit) expected to be distributed in November 1998. Also does not include
    any part of the $8.8 million in retained excess refinancing proceeds that
    would be distributed if not expended to complete the expansion of the
    Orlando Hotel. Number of Hotels owned includes Marriott's Harbor Beach
    Resort, in which MHP owns a 50.5% interest.
(6) Aggregate Distributions do not include $5 million ($6,700 per Partnership
    Unit) distributed in August 1998 and $4.2 million ($5,600 per Partnership
    Unit) expected to be distributed in November 1998. Number of Hotels owned
    includes the Santa Clara Marriott, in which MHP2 owns a 50% interest and
    Host owns the remaining 50% interest.
   
(7) Includes distributions to a limited partner who is not a holder of any of
    the 335 Partnership Units.     
 
  The following paragraphs describe, on a partnership-by-partnership basis,
the original investment objectives of each Partnership and the extent to which
such objectives have been met.
 
  Atlanta Marquis. The offering of interests in Atlanta Marriott Marquis
Limited Partnership (the predecessor of Atlanta Marquis), which was completed
in 1985, was intended to provide investors with an opportunity to benefit from
investment tax credits, tax losses, expected increasing cash flow from both
the lease and operation of the Atlanta Marriott Marquis Hotel as well as
potential capital appreciation. Based upon a
 
                                      64

<PAGE>
 
financial forecast that reflected the General Partner's judgment, in light of
the facts and circumstances at the time, with respect to the most likely set
of conditions and the most likely course of action (and subject to the various
assumptions, risks, qualifications, limitations and uncertainties described
therein and in the related private placement memorandum), it was estimated
that tax savings through 1989 would be $76,226 per Partnership Unit for an
investor in the 50% tax bracket (including a $7,845 tax credit in 1985), cash
flow to the Class A Limited Partners was expected to begin in 1986 and
increase through 1994 to an annual level of 12.2% of a Class A Limited
Partner's original investment, and it was assumed for the purpose of the
forecast that investors would receive a return of all their investment from a
sale of the underlying land to the partnership owning the hotel and a
distribution from assumed excess refinancing proceeds in 1994. Thereafter,
Class A Limited Partners would continue to benefit from ownership of the
Hotel. The financial forecast did not assume a sale of Atlanta Marquis' Hotel.
Through June 19, 1998, Atlanta Marquis Class A Limited Partners have received
distributions from cash flow of $35,127, tax credits of up to $7,500 and
allocations of tax losses of approximately $208,700 (which have been offset in
part by subsequent allocations of taxable income of approximately $4,600),
plus $8,624 of payments per Partnership Unit received with respect to the
reallocation of certain tax losses resulting from the 1990 debt refinancing
(assuming each Atlanta Marquis Limited Partner classified these amounts as
purchase price adjustments as the General Partner advised). Due to changes in
the tax law occurring after the date of the original offering (including, in
particular, the changes enacted as part of the Tax Reform Act of 1986) that,
among other things, reduced the marginal tax rates applicable to individuals
and limited the use of certain tax losses by individuals, the tax losses
allocated to the Atlanta Marquis Limited Partners did not likely result in tax
savings of the magnitude originally forecast.
   
  Chicago Suites. The offering, which was completed in 1989, was intended to
(i) preserve and protect Chicago Suites Limited Partners' capital, (ii)
generate cash distributions to the Chicago Suites Limited Partners that would
be sheltered in whole or in part from current federal income taxation and
(iii) realize expected increases in both annual cash distributions from
operations and potential long-term appreciation in the value of Chicago
Suites' Hotel. Based upon a financial forecast and facts and circumstances at
the time (and subject to the various assumptions, risks, qualifications,
limitations and other uncertainties described therein and in the related
private placement memorandum), it was estimated that cash flow to the Chicago
Suites Limited Partners would commence in 1989 and increase through 1994 to an
annual level of 11% of a Limited Partner's original investment and that in
1994 investors would receive a return of all capital invested through an
assumed refinancing. Thereafter, through 2003, it was estimated that Chicago
Suites Limited Partners would receive cash distributions at an annual level of
approximately 4% of their original investment. The financial forecast did not
assume a sale of Chicago Suites' Hotel. Through June 19, 1998, Chicago Suites
Limited Partners have received distributions from cash flow of $8,342 and no
return of capital per Partnership Unit.     
 
  Desert Springs. The offering, which was completed in 1987, was intended to
provide investors with an opportunity to benefit from substantial cash flow in
the early years of the Partnership from the rent to be received under an
airline equipment lease and from the Desert Springs' Hotel operating lease
with expected increasing cash flow and potential capital appreciation in later
years from the operation of Desert Springs' Hotel. Based upon a financial
forecast and facts and circumstances at the time (and subject to the various
assumptions, risks, qualifications, limitations and other uncertainties
described therein and in the related private placement memorandum), it was
estimated that (i) cash distributions on a tax-sheltered basis to the Desert
Springs Limited Partners would commence in 1987 at approximately 12.3% of a
Limited Partner's original investment and increase to approximately 14.4% of a
Limited Partner's original investment in 1991 and (ii) Desert Springs Limited
Partners would receive $50,000 per Partnership Unit on a tax-sheltered basis
from assumed excess refinancing proceeds in 1991. Thereafter, Desert Springs
Limited Partners would continue to benefit from ownership of Desert Springs'
Hotel and the airline equipment. The financial forecast did not assume a sale
of Desert Springs' Hotel. Desert Springs Limited Partners received cash
distributions in connection with the sale of the airline equipment through
1996 of $19,851 per Partnership Unit. Through June 19, 1998, Desert Springs
Limited Partners have received distributions from cash flow of $48,851 and a
return of capital of $25,000 per Partnership Unit.
 
 
                                      65

<PAGE>
 
  Hanover. The offering, which was completed in 1986, was intended to provide
investors with an opportunity to benefit from expected increasing cash flow
from the operation of Hanover's Hotel as well as potential capital
appreciation and tax benefits. Based upon a financial forecast (which assumed,
among other things, rent payable under the operating lease would be sufficient
to provide an annual 10% priority return to the Partnership) and facts and
circumstances at the time (and subject to the various assumptions, risks,
qualifications, limitations and other uncertainties described therein and in
the related private placement memorandum), it was estimated that (i) cash
distributions on a tax-free basis to the Hanover Limited Partners would
commence in 1987 at approximately 12.7% of a Limited Partner's original
investment and increase to approximately 15.5% of a Limited Partner's original
investment in 1991 and (ii) Hanover Limited Partners would receive $100,000
per Partnership Unit on a tax-free basis from assumed refinancing proceeds
($50,000 per Partnership Unit in 1991 and $50,000 per Partnership Unit in
1996). Thereafter, Hanover Limited Partners would continue to benefit from
ownership of Hanover's Hotel. The financial forecast did not assume a sale of
Hanover's Hotel. Through June 19, 1998, Hanover Limited Partners have received
distributions from cash flow of $7,405 and no return of capital per
Partnership Unit. In April 1997, Host completed a tender offer for Partnership
Units of Hanover in which it acquired 40 Partnership Units for an aggregate
consideration of $1.6 million or $40,000 per Partnership Unit.
 
  MDAH. The offering, which was completed in 1990, was intended to (i) provide
semi-annual cash distributions which were anticipated to be free from
significant current federal income taxation through 1999 (assuming tax losses
from MDAH were carried forward to offset MDAH income in later years), (ii)
allow Limited Partners to participate in the potential long-term appreciation
in the value of MDAH's Hotels and (iii) preserve investor capital. Based upon
a financial forecast and facts and circumstances at the time (and subject to
the various assumptions, risks, qualifications, limitations and other
uncertainties described therein and in the related private placement
memorandum), it was estimated that MDAH Limited Partners could expect cash
distributions to be made at an annualized rate of 9.2% of a Limited Partner's
original investment for 1990, 11.8% for 1991 and 12.3% for 1992. The average
annual cash return was expected to be 15.9% of a Limited Partner's original
investment for each of the ten fiscal years ending December 31, 1999. The
financial forecast did not assume a sale of MDAH's Hotels. Through June 19,
1998, MDAH Limited Partners have received distributions from cash flow of
$23,671 and no return of capital per Partnership Unit.
 
  MHP. The offering, which was completed in 1985, was intended to provide
investors with an opportunity to benefit from expected increasing cash flow
from the operation of MHP's Hotels as well as potential capital appreciation,
investment tax credits and tax losses. Based upon a financial forecast and
facts and circumstances at the time (and subject to the various assumptions,
risks, qualifications, limitations and other uncertainties described therein
and in the related private placement memorandum), it was estimated that (i)
cash flow to the MHP Limited Partners would commence in 1987 and increase
through 1995 to an annual level of 16.9% of a Limited Partner's original
investment and (ii) the MHP Limited Partners would receive $100,000 per
Partnership Unit on a tax-free basis from assumed refinancing proceeds
($50,000 per Partnership Unit in 1991 and $50,000 per Partnership Unit in
1995). In addition, tax savings through 1990 were forecast to be $79,581 per
Partnership Unit for an MHP Limited Partner in the 50% tax bracket (including
a $6,197 tax credit in 1986). Tax savings were forecast to continue through
1995 and would total $88,588 per Partnership Unit. Thereafter, MHP Limited
Partners would continue to benefit from ownership of MHP's Hotels. The
financial forecast did not assume a sale of MHP's Hotels. On November 17,
1993, one of MHP's hotels, the Warner Center Hotel, was foreclosed upon.
Through June 19, 1998, MHP Limited Partners have received distributions from
cash flow of $52,824, tax credits of $6,010 and allocations of tax losses of
approximately $149,600 (which have been offset in part by subsequent
allocations of taxable income of approximately $38,200 and capital gains of
approximately $26,200) and a return of capital of $7,000 per Partnership Unit.
In addition, $8,000 per Partnership Unit was distributed in August 1998 and
$6,500 per Partnership Unit is expected to be distributed in November 1998. An
additional $8.8 million of retained excess refinancing proceeds also would be
distributed to the extent not expended to complete the expansion of the
Orlando Hotel. Due to changes in the tax law occurring after the date of the
original offering (including, in particular, the changes enacted as part of
the Tax Reform Act of 1986) that, among other things, reduced the marginal tax
rates applicable to individuals and limited the use of certain tax losses by
individuals, the tax losses allocated to the MHP Limited Partners did not
likely result in tax savings of the magnitude originally forecast. In January
1997, Host completed a tender offer for Partnership Units of MHP
 
                                      66

<PAGE>
 
in which it acquired 463.75 Partnership Units for an aggregate consideration
of $37.1 million or $80,000 per Partnership Unit.
 
  MHP2. The offering, which was completed in 1989, was intended to provide
investors with an opportunity to benefit from (i) potential semi-annual cash
distributions from operations of MHP2's Hotels, which distributions were
anticipated to be free from significant current federal income taxation
through 1997 (assuming losses from MHP2 were carried forward to offset MHP2
income in later years), (ii) potential long-term appreciation in the value of
MHP2's Hotels and (iii) the preservation of investor capital. Based upon a
financial forecast and facts and circumstances at the time (and subject to the
assumptions, various risks, qualifications, limitations and other
uncertainties described therein and in the related private placement
memorandum), it was estimated that cash distributions to the MHP2 Limited
Partners would commence in 1989 at an annualized rate of approximately 9.6% of
a Limited Partner's original investment, which annualized rate was expected to
increase to approximately 24% of a Limited Partner's adjusted invested capital
for 1998. It was also forecast that the Limited Partners would receive a
distribution (which was expected to be free from current federal income
taxation) from assumed refinancing proceeds of approximately $60,400 per
Partnership Unit in 1993. Thereafter, the MHP2 Limited Partners would continue
to benefit from ownership of MHP2's Hotels. The financial forecast did not
assume a sale of MHP2's Hotels. Through June 19, 1998, MHP2 Limited Partners
have received distributions from cash flow of $161,681 and no return of
capital per Partnership Unit. In addition, $6,700 per Partnership Unit was
distributed from cash flow in August 1998 and $5,600 per Partnership Unit is
expected to be distributed in November 1998. In June 1996, Host completed a
tender offer for Partnership Units of MHP2 in which it acquired 377
Partnership Units for an aggregate consideration of $56.6 million or $150,000
per Partnership Unit.
 
  PHLP. The offering, which was completed in 1982, was intended to provide
investors with the opportunity for tax benefits, potential cash flow
distributions and capital appreciation. Based upon a financial forecast and
facts and circumstances at the time (and subject to the various assumptions,
risks, qualifications, limitations and other uncertainties described therein
and in the related private placement memorandum), it was estimated that cash
available for distribution was not expected to be significant for some years,
reaching 6.2% of a PHLP Limited Partner's original investment in 1993 and
rising to 20.7% of a PHLP Limited Partner's original investment by 1996. The
financial forecast did not assume a sale of PHLP's Hotels. On January 31,
1986, PHLP sold the Denver West hotel to Host. In 1993 and 1994, the Raleigh
Crabtree, Tampa Westshore and Point Clear hotels were foreclosed upon. In
1994, PHLP repurchased the Raleigh Crabtree and Tampa Westshore hotels using
proceeds from two loans advanced by a subsidiary of Host. On August 22, 1995,
PHLP sold the Dallas/Fort Worth hotel to a wholly owned subsidiary of Host and
used the proceeds to pay down debt. Through June 19, 1998, PHLP Limited
Partners have received no distributions from cash flow, tax credits up to
$1,588 and allocations of tax losses of approximately $128,000 (which have
been offset in part by subsequent allocations of taxable income of
approximately $21,300 and capital gains of approximately $49,600) and no
return of capital per Partnership Unit. Due to changes in the tax law
occurring after the date of the original offering (including, in particular,
the changes enacted as part of the Tax Reform Act of 1986) that, among other
things, reduced the marginal tax rates applicable to individuals and limited
the use of certain tax losses by individuals, the tax losses allocated to the
PHLP Limited Partners did not likely result in tax savings of the magnitude
originally forecast.
 
  Anticipated Holding Periods. None of the offering documents of the
Partnerships indicated any anticipated holding period, although the offering
documents included hypothetical assumed sale dates for purposes of providing
illustrative financial forecasts. Based upon the disclosure, which contained
appropriate cautionary language, limited partners could reasonably have
expected that they would receive substantial benefits through distributions
from some combination (depending upon the particular Partnership) of
operations, tax benefits and refinancing proceeds and, at some indefinite
future date when market conditions were favorable, and assuming a sale would
be advisable for the partners, from a sale of the Partnership's assets.
 
  Investment Liquidity. Since the Partnership Units of the Partnerships are
not listed on any national or regional stock exchange, nor quoted on any
automated quotations system, there has been limited liquidity available to
Limited Partners. No formal market for such Partnership Units exists and sales
activity in the Partnership Units has been limited and sporadic.
 
                                      67

<PAGE>
 
  The information in the following table shows the highest, lowest and
weighted average prices for sales of the Partnership Units in the Partnerships
as reported to the General Partners for the twelve months ended April 15,
1998, the date immediately prior to the public announcement of the REIT
Conversion. These prices are not indicative of total return to investors in
the respective Partnerships because prior cash distributions and tax benefits
received by each Limited Partner are not reflected in the price. There can be
no assurance that transactions in Partnership Units of any Partnership have
not occurred at prices either above the highest price or below the lowest
price set forth below.
 
                            PARTNERSHIP UNIT PRICES
            (ALL PRICE INFORMATION ON A PER PARTNERSHIP UNIT BASIS)
 

<TABLE>
<CAPTION>
                                  TRANSACTION  NUMBER OF
                                    PERIOD    PARTNERSHIP                      WEIGHTED ESTIMATED
                         ORIGINAL  12 MONTHS     UNITS    HIGHEST      LOWEST  AVERAGE  EXCHANGE
PARTNERSHIP                COST      ENDED      TRADED     PRICE       PRICE    PRICE   VALUE(1)
- -----------              -------- ----------- ----------- --------    -------- -------- ---------
<S>                      <C>      <C>         <C>         <C>         <C>      <C>      <C>
Atlanta Marquis......... $100,000   4/15/98       31.0    $ 37,000    $ 20,000 $ 32,430 $ 45,425
Chicago Suites..........   35,000   4/15/98       49.5      14,300      10,000   10,182   33,133
Desert Springs..........  100,000   4/15/98       31.0      42,200(2)   10,000   23,526   40,880
Hanover.................  100,000   4/15/98       41.0      40,000(3)   20,500   39,524  123,202
MDAH....................  100,000   4/15/98       46.0      45,600      20,000   38,475  109,216
MHP.....................  100,000   4/15/98        6.0      91,500      40,000   68,150  141,074
MHP2....................  100,000   4/15/98        4.0     155,000     150,000  153,750  237,334
PHLP....................   10,000   4/15/98      .6666         871         871      871    5,040
</TABLE>

- --------
(1) Based upon the estimated Exchange Values of Partnership Interests in each
    Partnership. The estimated Exchange Value is equal to the greatest of
    estimated Adjusted Appraised Value, estimated Continuation Value and
    estimated Liquidation Value. The actual Exchange Values will be determined
    as of the Final Valuation Date. The amounts in this column represent the
    estimated Exchange Value that would be allocable to Limited Partners per
    Partnership Unit.
(2) The $42,200 highest price per Partnership Unit paid for a Partnership Unit
    of Desert Springs was determined based on the price paid for one-half of a
    Partnership Unit prior to a distribution of $25,000 per Partnership Unit
    of capital proceeds from a refinancing.
(3) Includes 40 Hanover Partnership Units purchased by Host pursuant to a
    tender offer at a price of $40,000 per Partnership Unit on April 12, 1997.
    Excluding the tender offer purchases, there was a single Partnership Unit
    sold at a price of $20,500.
 
BACKGROUND OF THE MERGERS AND THE REIT CONVERSION
 
  Host and the other General Partners are proposing the Mergers in connection
with a plan adopted by Host to restructure its business operations so that it
will qualify as a REIT under the Code. Host REIT expects to qualify as a REIT
beginning with its first full taxable year commencing after the REIT
Conversion is completed, which currently is expected to be the year commencing
January 1, 1999. Host's reasons for engaging in the REIT Conversion include
the following:
 
  . Host believes the REIT structure, as a more tax efficient structure, will
    provide improved operating results through changing economic conditions
    and all phases of the hotel economic cycle.
 
  . Host believes the REIT Conversion, which will reduce corporate-level
    taxes and the need to incur debt to reduce corporate taxes through
    interest deductions, will improve its financial flexibility and allow it
    to continue to strengthen its balance sheet by reducing its overall debt
    to equity ratio over time.
 
  . As a REIT, Host believes it will be able to compete more effectively with
    other public lodging real estate companies that already are organized as
    REITs and to make performance comparisons with its peers more meaningful.
 
  . By becoming a dividend paying company, Host believes its shareholder base
    will expand to include investors attracted by yield as well as asset
    quality.
 
  . Host believes the adoption of the UPREIT structure will facilitate tax-
    deferred acquisitions of other hotels (such as in the case of the
    Blackstone Acquisition and the Mergers).
 
                                      68

<PAGE>
 
  Host believes that these benefits justify the REIT Conversion even if the
REIT Conversion does not occur in time for Host REIT to elect REIT status
effective January 1, 1999 (in which event, the effectiveness of Host's REIT
election could be delayed until January 1, 2000).
 
  Host explored the possibility of engaging in a business combination with a
so-called "paired share" REIT, Santa Anita, in December 1996 and January 1997.
Based upon an analysis of potential costs, the pricing of the transaction, the
time required to complete such a transaction and the possible legislative
risks associated with the "paired share" structure, Host decided not to pursue
such a transaction.
   
  During the fourth quarter of 1997, Host began to explore internally the
possibility of reorganizing as a REIT on a stand-alone basis. Host analyzed
the various consents that would need to be obtained and other requirements
that would need to be met in order to restructure its assets and operations
(including its indirect interests in the Partnerships and the Private
Partnerships) in order to qualify as a REIT. In light of the importance of its
relationship with Marriott International as the manager of substantially all
of Host's Hotels, Host began preliminary discussions with Marriott
International during January 1998 in order to ascertain whether or not
Marriott International would cooperate in Host's potential conversion to a
REIT. In February 1998, Host tentatively concluded that it would be desirable
for the Operating Partnership to use OP Units to acquire the Partnerships and
the Private Partnerships, subject to determination of satisfactory terms and
conditions for such acquisitions. In order to determine the feasibility of
this approach, Host commenced preliminary discussions in February and March
1998 with the outside partners of certain Private Partnerships to determine
whether or not they would have an interest in such a transaction. Host went to
these partners directly because, unlike with the Partnerships, in each case
there were a small number of partners with whom Host could negotiate directly
and such negotiations were permissible under applicable securities laws
without making a public offering (and, in fact, such negotiations would need
to be completed and the Private Partnerships receiving OP Units would need to
be under contract before a registration statement could be filed to offer OP
Units to the Limited Partners in the Mergers). In February 1998, the General
Partners retained AAA to commence work on the Appraisals and to render a
fairness opinion if an agreement were reached with Host to acquire the
Partnerships (subject to the requisite Limiter Partner approvals) because the
General Partners recognized that the Appraisals would be important in
determining the terms of any such acquisition by Host and that it was
important to get started as soon as possible, even if a transaction did not
materialize, due to the lengthy process involved in a public offering of OP
Units to the Limited Partners. In March 1998, Host also entered into
discussions with the Blackstone Group regarding the potential acquisition of
the twelve full-service hotels and certain other assets owned by the
Blackstone Entities because Host believed that these hotels represented the
premier hotel portfolio on the market and an acquisition would be consistent
with its desire to pursue a strategy of owning both Marriott and other upscale
and luxury hotel brands. In April 1998, Host and the Operating Partnership
entered into agreements with the Blackstone Entities for the Blackstone
Acquisition and concurrently reached a decision and publicly announced that it
would be advantageous, both for its shareholders and for the outside investors
in the Partnerships, as discussed in the following paragraphs, if Host were to
convert to a REIT and offer to the Partnerships the opportunity to participate
in the REIT Conversion through the Mergers. In May and June 1998, Host and the
Operating Partnership entered into agreements to acquire the interests of
certain outside partners in four Private Partnerships. Each of these
transactions is contingent upon the REIT Conversion. On June 2, 1998, the
Operating Partnership filed a registration statement for the OP Units to be
issued to the Limited Partners of the Partnerships in the Mergers.     
   
  Host decided to propose the Mergers for the Partnerships in connection with
its decision to convert to a REIT because (i) the Partnerships have numerous
limited partners and therefore Host could not negotiate with the Limited
Partners individually and (ii) Host's acquisition policy is to acquire full-
service hotels and the Partnerships represented all but one of the widely-held
full-service partnerships affiliated with Host that it did not wholly own. In
addition, Host believed it would be beneficial to the Limited Partners to
provide the tax deferral advantage of OP Units in the Mergers and in order to
do so, the offer of such equity securities could be made only through a public
offering. Also, the Mergers, by themselves, would still have required the
Operating Partnership to lease the Hotels owned by the Partnerships if they
were to result in liquidity for the Limited     
 
                                      69

<PAGE>
 
Partners due to the tax rules regarding "publicly traded partnerships."
Neither Host nor the General Partners consulted with any investors in the
Partnerships regarding the Mergers prior to the April 1998 public announcement
of the proposed REIT Conversion.
   
  In deciding to pursue and ultimately recommend a Merger, the General Partner
of each Partnership considered and evaluated two principal alternatives: (i)
continuation of the Partnership as a separate entity in a manner consistent
with its current long-term business strategy and (ii) liquidation of the
Partnership. The considerations involved in the analysis of these alternatives
are described below in "--Reasons for the Mergers," "--Alternatives to the
Mergers" and "Fairness Analysis and Opinion." Each General Partner also
recognized that two additional types of transactions, a reorganization of the
Partnership as a separate REIT or a merger with another REIT or UPREIT, would
be possible alternatives to a Merger. For the reasons described below,
however, the General Partners did not pursue either such alternative because
each General Partner believed that the speculative theoretical benefits of
these alternatives were outweighed by their disadvantages and by the benefits
of a Merger.     
 
  Each General Partner recognized that its Partnership could be reorganized as
a separate independent REIT whose shares could be listed for trading on an
exchange. The General Partners do not believe that this alternative would be
as beneficial to Limited Partners as the Mergers for the following reasons,
among others: (i) each separate REIT, on a standalone basis, would (a) be a
relatively small public company, with a substantially smaller capitalization
and public float than Host REIT, (b) have relatively high leverage,
particularly for a public REIT, (c) likely need to be externally advised
rather than internally managed and (d) have only one or a few assets
(depending on the Partnership), all of which would likely adversely affect the
trading value of the shares of the separate REIT; (ii) the organization of a
separate REIT (unless in an UPREIT structure) would be a taxable transaction
for all Limited Partners with "negative capital accounts" for tax purposes to
the extent of those negative capital accounts; (iii) if the separate REIT were
to raise additional capital contemporaneously, this would cause the
organization of the separate REIT to be a fully taxable transaction for all
Limited Partners (unless in an UPREIT structure); (iv) the organization of a
separate REIT for certain Partnerships (including Atlanta Marquis, Desert
Springs, Hanover, MHP, MHP2 and PHLP) could have a material adverse impact on
the tax and/or economic positions of Host and the General Partners in those
Partnerships, and, therefore, the General Partners of those Partnerships would
not favor this alternative; and (v) the reorganization of a Partnership as a
separate REIT would have required the Partnership's Hotel(s) to be leased to a
third-party lessee, which would have required the consent and cooperation of
Marriott International, and Marriott International was under no obligation to
provide such consent or cooperation (and might have affirmatively opposed such
arrangements with respect to certain of the Hotels owned by certain
Partnerships). The General Partners believe that these disadvantages generally
outweigh any speculative advantages of reorganizing one or more of the
Partnerships as separate REITs (particularly in light of the General Partners'
assessments of the benefits to the Limited Partners of participation in the
Mergers and the REIT Conversion), and certain of the disadvantages would make
this alternative practically impossible for certain of the Partnerships to
attain.
 
  Each General Partner also recognized that its Partnership could pursue a
merger with another REIT, particularly another UPREIT (including possibly a
merger with one of the "paired share" UPREITs that specializes in lodging
properties). The General Partners do not believe that this alternative would
be as beneficial to the Limited Partners as the Mergers for the following
reasons, among others: (i) such a merger, unless consummated with a REIT
organized in the UPREIT format, would be a fully taxable transaction for the
Limited Partners, with the result that the Limited Partners would lose the
ability to individually plan the timing of the recognition of their taxable
gain; (ii) the General Partners believe that the Marriott lodging brands are
among the most respected and widely recognized brand names in the lodging
industry and that the Limited Partners would derive greater benefit from
owning an interest in an UPREIT that specializes in owning Marriott-brand
hotels, together with the diversity provided by the Hyatt, Ritz-Carlton, Four
Seasons and Swissotel brand hotels that the Operating Partnership will own;
(iii) the acquisition of certain of the Partnerships (including Atlanta
Marquis, Desert Springs, Hanover, MHP, MHP2 and PHLP) by another REIT
specializing in the ownership and operation of lodging properties could have a
material adverse impact on the tax and/or economic positions of Host and the
 
                                      70

<PAGE>
 
General Partners in those Partnerships, and, therefore, the General Partners
of those Partnerships would not favor this alternative; and (iv) the merger of
a Partnership with another REIT (or UPREIT), including the leasing of a
Partnership's Hotel(s) to a third-party lessee, would have required the
consent and cooperation of Marriott International, and Marriott International
was under no obligation to provide such consent or cooperation (and might have
affirmatively opposed such a transaction at least with respect to certain of
the Hotels owned by certain of the Partnerships). The General Partners believe
that these disadvantages generally outweigh any speculative advantage that
might be obtained from pursuing a merger transaction with another REIT or
UPREIT (particularly in light of the General Partners' assessments of the
benefits to the Limited Partners of participation in the Mergers and the REIT
Conversion), and that certain of the disadvantages would make this alternative
practically impossible for certain of the Partnerships to attain.
 
  Due to current federal income tax law restrictions on a REIT's ability to
derive revenues directly from the operation of a hotel, Host recognized that
it would be necessary to lease its hotels to one or more lessees just as other
hotel REITs have done. Host desired to have a single lessee (or multiple
lessees controlled by a single person) in order to achieve substantial
uniformity in its lease terms and avoid protracted negotiations with multiple
parties over the terms of the lease arrangements, all of which would have been
more complicated as a result of the existing long-term management agreements
with Marriott International. Host also did not seriously attempt to
restructure the existing Marriott International management agreements as
leases (and Marriott International has not offered to do so in any of the
negotiations with Host to date) because Host understands that Marriott
International's general policy is to manage rather than lease hotels and Host
also believed that Marriott International was unlikely to be an acceptable
lessee of hotels operating under other brand names. Primarily for these
reasons, and in order to give the economic benefit of the lessee's interest in
the leases to Host's shareholders at the time of the REIT Conversion, Host
decided to enter into leases with Crestline and its subsidiaries and
distribute the stock of Crestline to Host's shareholders. Host believed that
Crestline was a more appropriate lessee than a newly formed company because
Crestline already had an independent business and substantial assets and net
worth and, thus, could perform well as a separate publicly traded company.
While Host recognized that, as with other REITs that own hotels, there would
be additional administrative and operating complexities that would result from
leasing its hotels to another party with separate interests and economic
objectives, Host believed that the advantages of the REIT Conversion
substantially outweighed these disadvantages.
   
  If the required shareholder and partner approvals for the various
transactions are obtained and other conditions to the different steps in the
REIT Conversion are satisfied or waived, these transactions are expected to
occur at various times prior to the end of 1998 (or as soon thereafter as
practicable). The Mergers of the Participating Partnerships are expected to
occur at the final stage of the REIT Conversion. The Operating Partnership and
the General Partners are seeking the approval of the Mergers and the related
partnership agreement amendments at this time, in advance of satisfaction of
all other contingencies, in order to determine how the Partnerships will fit
into the UPREIT structure following the REIT Conversion, which Host desires to
implement during 1998 in order to permit Host REIT to qualify as a REIT for
its 1999 taxable year. Consummation of the Mergers is not conditioned on the
REIT Conversion being completed in time for Host REIT to elect REIT status
effective January 1, 1999. If the REIT Conversion does not occur in time for
Host REIT to elect REIT status effective January 1, 1999, the effectiveness of
Host REIT's election could be delayed until January 1, 2000, which would
result in Host REIT continuing to pay substantial corporate-level income taxes
in 1999 (which would reduce Host REIT's cash distributions per Common Share
but not the Operating Partnership's cash distributions per OP Unit) and could
cause the Blackstone Acquisition not to be consummated. In view of the
complexity of the REIT Conversion and the number of transactions that must
occur to complete the REIT Conversion, Host and the General Partners believe
that it is beneficial both to the Limited Partners and the shareholders of
Host to complete the REIT Conversion as soon as practicable, even if the REIT
Conversion cannot be completed prior to January 1, 1999. If Host REIT's
election to be taxed as a REIT is not effective on January 1, 1999, Host REIT
intends to operate following the REIT Conversion in a manner that would permit
it to qualify as a REIT at the earliest time practicable, and it might pursue
a merger with another entity or other transaction that would permit it to
commence a new taxable year and elect REIT status prior to January 1, 2000.
    
                                      71

<PAGE>
 
Host REIT in any event would elect to be treated as a REIT for federal income
tax purposes not later than its taxable year commencing January 1, 2000. It is
a condition to the Mergers that they be completed by June 30, 1999, unless the
General Partners and the Operating Partnership mutually agree to extend that
deadline to a date no later than December 31, 1999.
 
REASONS FOR THE MERGERS
 
  The Mergers are being proposed at this time for three principal reasons:
 
  . First, the General Partners believe that the expected benefits of the
    Mergers to the Limited Partners, as set forth below, outweigh the risks
    of the Mergers to the Limited Partners, as set forth in "Risk Factors."
 
  . Second, the General Partners believe that participation in the REIT
    Conversion through the Mergers is better for the Limited Partners than
    the alternatives of continuing each Partnership as a standalone entity or
    liquidating the Partnership, reorganizing the Partnership into a separate
    REIT or pursuing a merger of one or more Partnerships with another REIT
    or UPREIT because (i) the Limited Partners will have the opportunity to
    receive OP Units, Common Shares or Notes and to acquire an interest in a
    larger, more diversified hotel company, (ii) the Exchange Value is equal
    to the highest estimated value that would be derived by Limited Partners
    from the three valuation alternatives, (iii) for all but three
    Partnerships, the estimated Adjusted Appraised Value is substantially
    higher than either the estimated Continuation Value or the estimated
    Liquidation Value, (iv) Limited Partners will obtain liquidity by
    electing to exchange the OP Units they receive for freely tradeable Host
    REIT Common Shares or, if they elect to retain such OP Units, such OP
    Units will be redeemable for Common Shares or cash, at Host REIT's
    option, commencing one year after the Effective Date and (v) Limited
    Partners will receive regular quarterly cash distributions which, for all
    Partnerships except for MHP and MHP2, are expected to be significantly
    greater than estimated cash distributions from operations from their
    current Partnerships during 1998 and for PHLP will represent the first
    cash distributions received from their investments. See "Determination of
    Exchange Values and Allocation of OP Units."
 
  . Third, Host is proposing the Mergers at this time to each Partnership
    because consummation of the Merger as to each Partnership will enable
    Host to obtain the full benefits of the REIT Conversion with respect to
    its interests in such Partnership, while also giving the other partners
    of the Partnership the opportunity to enjoy the benefits of the REIT
    Conversion. See "Risk Factors--Risks and Effects of the Mergers--
    Conflicts of Interest--Substantial Benefits to Related Parties."
 
  The expected benefits from the Mergers to the Limited Partners include the
following:
 
  Liquidity. Limited Partners' Partnership Units currently represent
relatively illiquid investments. Although there is a limited resale market for
Partnership Units, the trading volume is thin and the recent trading prices of
outstanding Partnership Units in each of the Partnerships are less than the
estimated Exchange Value of Partnership Units in each Partnership, except for
Desert Springs. See "Partnership Unit Prices" above. The REIT Conversion will
offer Limited Partners liquidity with respect to their investments in the
Partnerships because Limited Partners can receive freely tradeable Host REIT
Common Shares by electing to exchange OP Units for Common Shares in connection
with the Mergers or by exercising their Unit Redemption Right, at any time
after one year following the Mergers. Limited Partners thereby would be able
to receive, at Host REIT's election, either Common Shares of Host REIT or the
cash equivalent thereof. Host has approximately 204 million shares of common
stock outstanding and is expected to have a total common equity market
capitalization of approximately $3.4 billion after giving effect to the
Initial E&P Distribution (based on a price of $12.50 per Host REIT Common
Share). The election to exchange OP Units for Common Shares in connection with
the Mergers or the exercise of the Unit Redemption Right, however, generally
would result in recognition of taxable income or gain.
 
  Regular Quarterly Cash Distributions. Over each of the last five full
calendar years, only MHP2 Limited Partners have received cash distributions in
each year. Generally, over the last five full calendar years, Limited Partners
in the other Partnerships, except for Chicago Suites, Hanover and PHLP, have
received some cash
 
                                      72

<PAGE>
 
   
distributions. In contrast, because Host REIT is required to distribute at
least 95% of its REIT taxable income, the General Partners expect that the
Operating Partnership will make regular quarterly cash distributions to
holders of OP Units (including Host REIT) and that Host REIT will make regular
quarterly cash distributions to holders of Common Shares. Host expects that
these distributions will be higher than the estimated cash distributions from
operations during 1998 of all Partnerships except MHP and MHP2, and, in any
event, the ability to receive distributions quarterly and in regular amounts
would be enhanced. The ability to receive regular quarterly cash distributions
on a pro rata basis also will mitigate the absence of any preferential
distribution rights of the Limited Partners under the partnership agreements
of Chicago Suites, Hanover and MHP2 and will further benefit the Limited
Partners of Atlanta Marquis due to the absence of the General Partner's
preferential distribution rights. Management expects to fund such
distributions through cash available for distribution and, if necessary,
additional borrowings. Distributions will be made in the discretion of Host
REIT's Board of Directors. See "Distribution and Other Policies--Distribution
Policy." As a substantial holder of OP Units, Host REIT would also receive
regular quarterly cash distributions, with such cash distributions expected to
be in an amount at least sufficient to permit Host REIT to make cash
distributions with respect to the Common Shares as required by the Code
provisions relating to REITs. There can be no assurance that Host REIT will be
able to make such cash distributions in the future. Upon exercise of the Unit
Redemption Right, Limited Partners who receive Common Shares would be entitled
to receive cash distributions with respect to such Common Shares in an amount
per Common Share expected to be equal to the amount distributed per OP Unit.
    
  The following table sets forth the cash distributions from operations per
Partnership Unit for all of the Partnerships during 1997, actual and expected
distributions from operations during 1998 and the expected distributions
during 1999 estimated to be paid by the Operating Partnership to the Limited
Partners of each Partnership if the Mergers and the REIT Conversion occur
(computed assuming the Effective Date is December 30, 1998).
                      CASH DISTRIBUTIONS FROM OPERATIONS
                            (PER PARTNERSHIP UNIT)
 

<TABLE>
<CAPTION>
                                                                     ESTIMATED
                                                                       1999
                                                                   DISTRIBUTIONS
                                                     ACTUAL AND    FOLLOWING THE
                                                      EXPECTED      MERGERS AND
                                        1997            1998         THE REIT
            PARTNERSHIP             DISTRIBUTIONS DISTRIBUTIONS(1) CONVERSION(2)
            -----------             ------------- ---------------- -------------
<S>                                 <C>           <C>              <C>
Atlanta Marquis....................    $     0        $ 5,000(3)      $2,462
Chicago Suites.....................          0              0          1,796
Desert Springs.....................     25,000(4)       2,500          2,215
Hanover............................          0              0          6,677
MDAH...............................      3,453              0          5,919
MHP................................      7,700         16,000          7,645
MHP2...............................     29,880         27,164         12,862
PHLP...............................          0              0            273
</TABLE>

- --------
(1) Represents actual cash distributions made through August 20, 1998 and
    expected cash to be distributed during the period from August 21, 1998
    through December 31, 1998.
   
(2) Based upon preliminary estimated annual distributions during the twelve
    months ending December 31, 1999 of $0.84 per OP Unit. Limited Partners are
    cautioned that this amount may change and the changes may be material. See
    "Distribution and Other Policies--Distribution Policy." Does not include
    amounts, if any, to be distributed by the Partnerships from third and
    fourth quarter 1998 operations which will be distributed before June 1,
    1999.     
(3) Represents a distribution of $5,000 per Partnership Unit from excess funds
    that had been accumulated for refinancing costs.
(4) Represents a return of capital of approximately $25,000 per Partnership
    Unit.
 
  Substantial Tax Deferral for Limited Partners Not Electing to Exchange OP
Units for Common Shares or Notes. The General Partners expect that Limited
Partners of the Participating Partnerships who do not elect to receive Common
Shares or a Note in exchange for OP Units in connection with the Mergers
generally should be able to obtain the benefits of the Mergers while
continuing to defer recognition for federal income tax purposes
 
                                      73

<PAGE>
 
of at least a substantial portion, if not all, of the gain with respect to
their Partnership Interests that otherwise would be recognized in the event of
a liquidation of the Partnership or a sale or other disposition of its assets
in a taxable transaction (although Limited Partners in Atlanta Marquis, Desert
Springs, MHP and PHLP may recognize a relatively modest amount of ordinary
income as the result of required sales of personal property by such
Partnership to a Non-Controlled Subsidiary). Thereafter, such Limited Partners
generally should be able to defer at least a substantial portion of such
built-in gain until they elect to exercise their Unit Redemption Right or one
or more of the Hotels currently owned by their Partnership are sold or
otherwise disposed of in a taxable transaction by the Operating Partnership
or, in certain cases, the debt now secured by such Hotels is repaid, prepaid
or substantially reduced. The federal income tax consequences of the Mergers
are highly complex and, with respect to each Limited Partner, are dependent
upon many variables, including the particular circumstances of such Limited
Partner. See "Federal Income Tax Consequences--Tax Consequences of the
Mergers." Each Limited Partner is urged to consult with his own tax advisors
as to the consequences of the Mergers in light of his particular
circumstances.
 
  Risk Diversification. Upon consummation of the REIT Conversion, each Limited
Partner's investment will be converted from an investment in an individual
Partnership owning from one to eight hotels into an investment in an
enterprise that is expected initially to own or control approximately 125
Hotels and is expected to have a total market capitalization of approximately
$3.4 billion. Participation in a Merger, as well as future hotel acquisitions
by the Operating Partnership, will reduce the dependence upon the performance
of, and the exposure to the risks associated with, any particular Hotel or
group of Hotels currently owned by an individual Partnership and spread such
risk over a broader and more varied portfolio, including more diverse
geographic locations and multiple brands. See "Business and Properties--
Business Objectives."
   
  Reduction in Leverage and Interest Costs. It is expected that the Operating
Partnership will have a lower leverage to value ratio (approximately 62%) than
five of the Partnerships (Atlanta Marquis, Chicago Suites, Desert Springs,
Hanover and PHLP), which have leverage ratios that range from between
approximately 65% and 80% (calculated as a percentage of Exchange Value). The
Operating Partnership's leverage ratio is not expected to be significantly
different than the leverage ratios for MDAH, MHP and MHP2, which have leverage
ratios that range from approximately 55% to 60%. The Operating Partnership's
leverage level generally will result in interest and debt service savings and
greater financial stability.     
 
  Growth Potential. The General Partners believe that the conversion of each
Limited Partner's investment into an investment in the Operating Partnership
or Host REIT will allow Limited Partners to participate in growth
opportunities that would not otherwise be available to them. Host REIT will be
a publicly traded real estate company focused primarily on a more diverse and
growing full-service hotel portfolio. The General Partners believe that
substantial opportunities exist to acquire or develop full-service hotel
properties at attractive prices and that the Partnerships are not in a
position to take advantage of such opportunities because of (i) their lack of
access to additional sources of capital on favorable terms, (ii) restrictions
on additional acquisitions and development imposed by the partnership
agreements of the Partnerships and (iii) the fact that the Partnerships have
already committed their capital and generally are not authorized to raise
additional funds for (or reinvest net sale or refinancing proceeds in) new
investments, absent amendment of the partnership agreements of the
Partnerships or approval by a majority of the outstanding Partnership
Interests.
 
  The Operating Partnership's structure as part of an UPREIT should provide it
with substantial flexibility to structure acquisitions of additional hotels
utilizing debt, cash, OP Units or Common Shares (or any combination thereof).
In particular, the ability of the Operating Partnership to issue OP Units in
the future for the purpose of acquiring additional properties may permit the
Operating Partnership to structure acquisitions of hotel properties on a tax-
deferred basis to the sellers (i.e., sellers of properties generally will be
able to exchange their ownership interests in those properties for OP Units
without incurring an immediate income tax liability).
 
  Greater Access to Capital. With publicly traded equity securities, a larger
base of assets and a greater equity value than any of the Partnerships
individually, Host REIT expects to have greater access to the capital
necessary to fund the Operating Partnership's operations and to consummate
acquisitions on more attractive terms than would be available to any of the
Partnerships individually. Host REIT and the Operating Partnership
 
                                      74

<PAGE>
 
should have more sources of capital available to it than the Partnerships
through access to the public equity and debt capital markets, as well as from
more traditional sources of real estate financing. This greater access to
capital should provide greater financial stability to the Operating
Partnership and reduce the level of risk associated with refinancing existing
loans upon maturity, as compared to the Partnerships individually.
 
  Public Market Valuation of Assets. In most instances, the Partnership Units
of each Partnership currently trade at a discount to the net asset value of
the Partnership's assets. The General Partners believe that by exchanging
interests in their existing, non-traded, finite-life limited partnerships with
a fixed portfolio for interests in an ongoing real estate company focused
primarily on a more diverse and growing full-service hotel portfolio and
providing valuation based upon publicly traded Common Shares of Host REIT, the
Limited Partners will have the opportunity to participate in the recent trend
toward ownership of real estate through a publicly traded entity, which, in
many instances (although not currently), has resulted at various times in
market valuations of public real estate companies in excess of the estimated
net asset values of those companies. Therefore, the REIT Conversion offers
Limited Partners the opportunity to obtain OP Units or Common Shares in
exchange therefor in connection with the Mergers (and, for Limited Partners
who retain OP Units, Common Shares upon the exercise of the Unit Redemption
Right at any time commencing one year following the Mergers) whose public
market valuation in the future may exceed the fair market value of the
underlying assets of the Operating Partnership on a per OP Unit/Common Share
basis. There can be no assurance, however, that the Common Shares of Host REIT
will trade at a premium to the private market values of the Operating
Partnership's assets or that they will not trade at a discount to private
market values. Also, the benefit of Host's conversion to a REIT will not be
shared by the Limited Partners if and to the extent that such benefit is
reflected in the market valuation of Host's common stock prior to the REIT
Conversion.
   
COMPENSATION AND DISTRIBUTIONS TO THE GENERAL PARTNERS AND MARRIOTT
INTERNATIONAL     
 
  Under the partnership agreements of the Partnerships, the General Partners
do not receive any fees or compensation for services rendered to the
Partnerships as general partner but the General Partners and their affiliates
are reimbursed for certain costs and expenses incurred on behalf of the
Partnerships. In addition, each General Partner is entitled to distributions
related to its respective interests in a Partnership. Host REIT, as general
partner of the Operating Partnership, will be required to conduct all of its
business through the Operating Partnership. Following the REIT Conversion,
Host REIT will be entitled to receive cash distributions with respect to the
OP Units that it owns and the Operating Partnership will pay (or reimburse
Host REIT for) all expenses that Host REIT incurs, including taxes (subject to
certain limited exceptions). Marriott International and its affiliates receive
management fees and other reimbursements from the Partnerships under the
Management Agreements.
   
  The following table sets forth the compensation, reimbursements and
distributions paid by all of the Partnerships to the General Partners and
their affiliates and the payments made to Marriott International and its
affiliates on a combined basis for the last three fiscal years and the First
Two Quarters 1998 ("Historical") and the estimated reimbursements and
distributions that would have been paid by the Partnerships to the General
Partners and their affiliates and payments made to Marriott International and
its affiliates during the last three fiscal years and the First Two Quarters
1998 if the REIT Conversion had been in effect, assuming the Full
Participation Scenario ("Pro Forma"). The Pro Forma estimates assume a
distribution per OP Unit of $0.84 per year during 1997 and the First Two
Quarters 1998 (based upon the preliminary estimated initial annual cash
distributions per OP Unit during the twelve months ending December 31, 1999)
and no distributions during 1996 and 1995 (based upon the assumption that the
Operating Partnership and Host REIT would not have had any taxable income for
such years because Host reported net operating losses of $10 million and $83
million, respectively, on its consolidated federal income tax returns for
taxable years 1996 and 1995 and thus would not have made any distributions).
    
                                      75

<PAGE>
 
                           HISTORICAL AND PRO FORMA
     
  COMPENSATION, REIMBURSEMENTS AND DISTRIBUTIONS TO THE GENERAL PARTNERS     
   AND THEIR AFFILIATES AND PAYMENTS MADE TO MARRIOTT INTERNATIONAL AND ITS
                                  AFFILIATES
                                (IN THOUSANDS)
 

<TABLE>   
<CAPTION>
                                                                        FISCAL YEAR
                           FIRST TWO QUARTERS  --------------------------------------------------------------
                                  1998                 1997                 1996                 1995
                          -------------------- -------------------- -------------------- --------------------
                          HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA
                          ---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S>                       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Reimbursements to the
 General Partners and
 Affiliates/(1)/........   $ 1,799    $   --    $ 1,657    $   --    $ 1,168    $   --    $   568    $   --
Distributions to the
 General Partners and
 Affiliates/(2)/........     6,716      7,427    15,833     14,853     8,202          0       338          0
Payments to Marriott In-
 ternational and Affili-
 ates ..................    36,147     36,579    64,554     64,554    59,554     59,554    57,891     57,891
                           -------    -------   -------    -------   -------    -------   -------    -------
  Total.................   $44,662    $44,006   $22,044    $79,407   $68,924    $59,554   $58,797    $57,891
                           =======    =======   =======    =======   =======    =======   =======    =======
</TABLE>
    
- --------
(1) All expenses will be paid directly by the Operating Partnership;
    accordingly, there are no expected reimbursements on a pro forma basis.
   
(2) The amount of distributions payable to the General Partners and their
    affiliates on a pro forma basis in 1997 and the First Two Quarters 1998
    assumes payment of distributions at a rate of $0.84 per annum per OP Unit
    (which represents the preliminary estimated initial annual cash
    distributions per OP Unit during the twelve months ending December 31,
    1999) with respect to the estimated minimum number of OP Units that the
    General Partners and their affiliates will receive with respect to their
    general and limited partner interests in the Partnerships, assuming all
    Partnerships participate in the Mergers and the maximum price of $15.50
    per OP Unit. Such number does not reflect the aggregate number of OP Units
    Host REIT will receive in connection with the REIT Conversion. The amount
    of distributions payable to the General Partner and its affiliates on a
    pro forma basis in 1996 and 1995 are assumed to be zero (based upon the
    assumption that the Operating Partnership and Host REIT would not have had
    any taxable income for such years because Host reported net operating
    losses of $10 million and $83 million, respectively, on its consolidated
    federal income tax returns for taxable years 1996 and 1995 and thus would
    not have made any distributions). The pro forma distributions payable to
    the General Partner and its affiliates are not necessarily indicative of
    the amounts that would have been distributed per OP Unit in such periods
    if the REIT Conversion and the Mergers had been consummated as of the
    beginning of each period shown.     
 
ALTERNATIVES TO THE MERGERS
 
  In determining whether to propose the Mergers, the General Partners compared
the benefits to the Limited Partners of continuing each Partnership with the
benefits the Limited Partners could achieve by the participation of their
Partnership in the REIT Conversion through a Merger. The General Partners
considered the other principal alternative--liquidation of a Partnership--but
do not believe that liquidation is appropriate at this time because the
expected benefits of the proposed Mergers are greater.
 
  The following paragraphs discuss the advantages and disadvantages of
continuing the Partnerships as standalone partnerships and, to assist Limited
Partners in evaluating the Mergers, liquidating the Partnerships.
 
 CONTINUATION OF EACH PARTNERSHIP
 
  Benefits of Continuation. Continuing each Partnership without change, in
accordance with its existing business plan and pursuant to its current
partnership agreement, would have the following effects, some of which effects
Limited Partners may perceive as benefits:
 
  .  No Partnership would be subject to the risks associated with the Mergers
     and REIT Conversion, and instead each Partnership would remain a
     separate entity, with its own assets and liabilities and would
 
                                      76

<PAGE>
 
     pursue its original investment objectives consistent with the
     guidelines, restrictions and safeguards contained in its partnership
     agreement;
 
  .  No Partnership's performance would be affected by the performance of the
     other Hotel Partnerships or Host REIT, including the investment
     objectives, interests and intentions of the limited partners of the
     other Hotel Partnerships or the shareholders of Host REIT;
 
  .  There would be no change in the nature of the Limited Partners' voting
     rights; and
 
  .  There would be no change in the cash distribution policy of the
     Partnership.
 
  Disadvantages of Continuation. Maintaining the Partnerships as separate
entities would have the following disadvantages, among others:
 
  .  Continued illiquidity of a Limited Partner's investment due to the
     absence of an established market for interests in the Partnerships that
     provides full value for such interest;
 
  .  The inability from time to time of the Partnerships to make regular
     distributions;
 
  .  The inability of the Partnerships to take advantage of public market
     valuation of their assets, growth opportunities and other potential
     benefits of the Mergers;
 
  .  Each Partnership will continue to have a leverage to value ratio
     exceeding 55% and typically averaging between 60% and 80% (calculated as
     a percentage of Exchange Value);
 
  .  Limited Partners will continue to be subject to the risks inherent in
     the lack of broad diversity that any individual Partnership's assets
     represent; and
 
  .  Any realization by the Limited Partners of the full value attributable
     to their Partnership Units likely would require a liquidation of the
     Partnership and the sale of its Hotel or Hotels which has the
     disadvantages set forth below (see "--Liquidation of Each Partnership").
 
 LIQUIDATION OF EACH PARTNERSHIP
 
  Benefits of Liquidation. In lieu of participating in the Mergers and the
REIT Conversion, each Partnership could sell its assets (subject to the
existing Management Agreements), pay off its existing liabilities not assumed
by the buyer and distribute the net sales proceeds to its partners in
accordance with the distribution provisions of its partnership agreement. The
primary advantage of this alternative would be to provide immediate liquidity
to Limited Partners based upon the current market value of the Partnership's
real estate assets. See "--Summary of Comparative Valuation Alternatives" for
estimates of the net liquidation proceeds that might be available to the
Limited Partners upon the liquidation of each Partnership.
 
  Disadvantages of Liquidation. The General Partners do not believe that this
alternative would be as beneficial to Limited Partners as the Mergers, for the
following reasons, among others: (i) certain existing Partnership debt cannot
be defeased or prepaid at the present time (such as certain indebtedness of
Atlanta Marquis and MHP2 and Desert Springs' Senior Notes) and when the
existing debt can be defeased or prepaid, the costs of defeasance or
prepayment (with the exception of Chicago Suites, MDAH and PHLP) would
significantly decrease the sales proceeds available to Limited Partners of a
Partnership and (ii) a sale and liquidation would be a taxable event for all
Limited Partners, who would lose the ability to individually plan the timing
of the recognition of their taxable gain. In addition, because of the tax
consequences that the General Partners (and thus Host) would incur upon a
Partnership's taxable sale of its Hotel or Hotels, this is not an alternative
that the General Partners would favor, making it less likely that such an
alternative could be implemented.
 
 SUMMARY OF COMPARATIVE VALUATION ALTERNATIVES
 
  To determine the Exchange Values and to assist Limited Partners in comparing
alternatives to the Mergers, the General Partners, in conjunction with AAA,
have computed for each Partnership the estimated Adjusted Appraised Value, the
estimated Continuation Value and the estimated Liquidation Value of the
Partnership
 
                                      77

<PAGE>
 
Interests of the Limited Partners. Estimated Exchange Value is equal to the
greatest of estimated Adjusted Appraised Value, estimated Continuation Value
and estimated Liquidation Value. In addition, the table below sets forth the
minimum number of OP Units to be received by the Limited Partners in the
Partnerships based upon the estimated Exchange Value and the maximum price per
OP Unit of $15.50. For a detailed explanation of the calculation of each
value, see "Determination of Exchange Values and Allocation of OP Units." (For
the reasons described above in "--Background of the Mergers and the REIT
Conversion," the General Partners did not attempt to estimate the value of
reorganization of each Partnership as a separate REIT or merger with another
REIT or UPREIT but they do not believe that either of these alternatives would
result in a higher value for the Limited Partners than the Exchange Value to
be received through the receipt of the OP Units in the Mergers.)
 
  The estimated values set forth below may increase or decrease as a result of
various adjustments that will be finally calculated as of the Final Valuation
Date, but such estimated Exchange Values will not change as a result of less
than all of the Partnerships participating in the Mergers. The number of OP
Units to be issued to the Limited Partners will not be determined until after
the Effective Date.
 
 SUMMARY OF COMPARATIVE VALUATION ALTERNATIVES AND MINIMUM NUMBER OF OP UNITS
               (ALL AMOUNTS ON A PER PARTNERSHIP UNIT BASIS)(1)
 

<TABLE>
<CAPTION>
                    ESTIMATED                                          ESTIMATED
                    ADJUSTED      ESTIMATED    ESTIMATED    ESTIMATED   MINIMUM
                    APPRAISED    CONTINUATION LIQUIDATION   EXCHANGE   NUMBER OF
 PARTNERSHIP          VALUE         VALUE        VALUE      VALUE(2)  OP UNITS(3)
 -----------        ---------    ------------ -----------   --------- -----------
<S>                 <C>          <C>          <C>           <C>       <C>
Atlanta Marquis.... $ 41,570       $ 45,425    $    402     $ 45,425     2,931
Chicago Suites.....   33,133         24,184      31,149       33,133     2,138
Desert Springs.....   40,880         33,536      27,617       40,880     2,637
Hanover............  123,202         98,090      88,474      123,202     7,949
MDAH...............  109,216         89,340      98,343      109,216     7,046
MHP................  140,032        141,074     124,261      141,074     9,102
MHP2...............  237,334        211,263     205,140      237,334    15,312
PHLP...............        0(4)       5,040           0(4)     5,040       325
</TABLE>

- --------
(1) A Partnership Unit in all of the Partnerships except Chicago Suites
    ($35,000) and PHLP ($10,000) represents an original investment of
    $100,000.
(2) Estimated Exchange Value is equal to the greatest of estimated Adjusted
    Appraised Value, estimated Continuation Value and estimated Liquidation
    Value.
(3) Assumes the price of an OP Unit is $15.50, which is the maximum price for
    purposes of the Mergers and thus results in the minimum number of OP Units
    that may be issued.
(4) The estimated Adjusted Appraised Value and the estimated Liquidation Value
    for PHLP are zero because PHLP's outstanding debt is greater than the
    Appraised Value of the Hotels and the value of other assets, net of
    liabilities, owned by PHLP.
 
RECOMMENDATION OF THE GENERAL PARTNERS
 
  FOR THE REASONS STATED HEREIN, THE GENERAL PARTNERS BELIEVE THAT THE MERGERS
PROVIDE SUBSTANTIAL BENEFITS AND ARE FAIR TO THE LIMITED PARTNERS OF EACH
PARTNERSHIP AND RECOMMEND THAT ALL LIMITED PARTNERS VOTE FOR THE MERGERS AND
FOR THE RELATED AMENDMENTS TO THE PARTNERSHIP AGREEMENTS. SEE "FAIRNESS
ANALYSIS AND OPINION--FAIRNESS ANALYSIS."
 
                                      78

<PAGE>
 
          DETERMINATION OF EXCHANGE VALUES AND ALLOCATION OF OP UNITS
 
OVERVIEW
 
  Following consummation of the REIT Conversion, OP Units are expected to be
owned by the following groups:
 
  .  Host REIT, which will own a number of OP Units equal to the number of
     outstanding Common Shares of Host REIT. These OP Units will consist of
     (i) the OP Units to be acquired in exchange for the contribution of
     Host's full-service hotel assets and other assets (excluding its senior
     living assets and the cash or other consideration to be distributed to
     shareholders of Host or Host REIT and certain other de minimis assets),
     subject to all liabilities of Host (including past and future contingent
     liabilities), other than liabilities of Crestline, (ii) the OP Units to
     be received by the General Partners and other Host subsidiaries with
     respect to their interests in the Partnerships and (iii) the OP Units to
     be acquired from Limited Partners who elect to receive Common Shares in
     connection with the Mergers. The OP Units received by the General
     Partners and other Host subsidiaries attributable to their interests in
     the Partnerships will be determined in the same manner as the number of
     OP Units to be received by Limited Partners and will be determined in
     accordance with the distribution provisions in the partnership
     agreements of the Partnerships. On a pro forma basis, as of June 19,
     1998, Host REIT would have owned approximately 204 million OP Units,
     based upon the number of outstanding shares of Host common stock at that
     time, of which the General Partners and other Host subsidiaries would
     have owned approximately 17.7 million OP Units received with respect to
     their interests in the Partnerships. If Host issues any shares of
     preferred stock prior to the REIT Conversion, Host REIT also will own a
     number of preferred partnership interests in the Operating Partnership
     equal to the number of outstanding shares of preferred stock.
 
  .  The Blackstone Entities, which will receive approximately 43.7 million
     OP Units and other consideration in exchange for the contribution of the
     Blackstone Hotels and certain other related assets, subject to certain
     liabilities.
 
  .  Limited Partners of the Participating Partnerships, who will receive in
     the Mergers a number of OP Units based upon the Exchange Values of their
     respective Partnership Interests and the price per OP Unit (other than
     Limited Partners who elect to exchange such OP Units for Common Shares
     or Notes).
 
  .  Partners unaffiliated with Host in four Private Partnerships, who have
     agreed to exchange their interests in their Private Partnerships for OP
     Units based upon the value of their interests in their Private
     Partnerships, as determined by negotiation with Host.
 
METHODOLOGY FOR DETERMINING EXCHANGE VALUES
 
  SUMMARY. The Exchange Value of each Partnership will be equal to the
greatest of its Adjusted Appraised Value, Continuation Value and Liquidation
Value, each of which has been determined as follows:
 
  .  Adjusted Appraised Value. The General Partners have retained AAA to
     determine the market value of each of the Hotels as of March 1, 1998
     (the "Appraised Value"). The "Adjusted Appraised Value" of a Partnership
     equals the Appraised Value of its Hotels, adjusted as of the Final
     Valuation Date (as defined below) for lender reserves, capital
     expenditure reserves, existing indebtedness (including a "mark to
     market" adjustment to reflect the market value of such indebtedness),
     certain deferred maintenance costs, deferred management fees and
     transfer and recordation taxes and fees.
 
  .  Continuation Value. The "Continuation Value" of a Partnership represents
     AAA's estimate, as adopted by the General Partners, of the discounted
     present value, as of January 1, 1998, of the limited partners' share of
     estimated future cash distributions and estimated net sales proceeds
     (plus lender reserves), assuming that the Partnership continues as an
     operating business for twelve years and its assets are sold on December
     31, 2009 for their then estimated market value.
 
 
                                      79

<PAGE>
 
  .  Liquidation Value. The "Liquidation Value" of a Partnership represents
     the General Partners' estimate of the net proceeds to limited partners
     resulting from the assumed sale as of December 31, 1998 of the Hotel(s)
     of the Partnership, each at its Adjusted Appraised Value (after
     eliminating any "mark to market" adjustment and adding back the
     deduction for transfer and recordation taxes and fees, if any, made in
     deriving the Adjusted Appraised Value), less (i) estimated liquidation
     costs, expenses and contingencies equal to 2.5% of Appraised Value and
     (ii) prepayment penalties or defeasance costs, as applicable.
 
  Final determination of the Exchange Value of each Partnership will be made
as of the end of the four week accounting period ending at least 20 days prior
to the Effective Date (the "Final Valuation Date") and will be equal to the
greatest of Adjusted Appraised Value, Continuation Value and Liquidation Value
as of such date. Adjusted Appraised Value, Continuation Value and Liquidation
Value will be adjusted as of the Final Valuation Date (i) to reflect the
amount of lender and capital expenditure reserves and the amount of deferred
management fees as of such date, (ii) to increase the Adjusted Appraised Value
by any amounts actually expended by a Partnership after the Initial Valuation
Date to perform deferred maintenance that were previously subtracted in
determining the estimated Adjusted Appraised Value of such Partnership and
(iii) to reflect any changes in the Partnership's other reserves, such as for
litigation expenses and indemnification costs and any revised estimates of
transfer and recordation taxes and fees. The General Partners do not believe
that any adjustments to the Exchange Value will be material; however, if any
such changes are deemed to be material, the General Partners will provide the
Limited Partners in any Partnership so affected with an opportunity to change
their vote on the Merger.
 
  APPRAISED VALUE. The Partnerships' Hotels were appraised as of March 1, 1998
by AAA, an independent, nationally recognized hotel valuation and financial
advisory firm experienced in the appraisals of lodging properties such as the
Partnerships' Hotels. Each appraisal (an "Appraisal") was reviewed by an MAI
(Member Appraisal Institute) appraiser and certified by such MAI appraiser as
having been prepared in accordance with the requirements of the Standards of
Professional Practice of the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation.
 
  The purpose of each Appraisal is to provide an estimate of the "Market
Value" of the related Hotel. "Market Value" means the most probable price
which a property should bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller each acting
prudently and knowledgeably and assuming the price is not affected by undue
stimuli. Implicit in this definition is the consummation of a sale as of a
specified date and the passing of title from seller to buyer under conditions
whereby: (i) the buyer and seller are equally motivated; (ii) both parties are
well informed or well advised, and each is acting in what he considers his own
best interest; (iii) a reasonable time frame is allowed for exposure in the
open market; (iv) payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and (v) the price represents the
normal consideration for the property sold unaffected by special or creative
financing or sales concessions granted by anyone associated with the sale. AAA
made site visits at all of the Hotels except for three Hotels owned by MDAH
and one Hotel owned by PHLP for purposes of the Appraisals. Neither AAA nor
the General Partners believe that the lack of site visits to these Hotels
affects the determination of market value because, as part of the Appraisals,
AAA reviewed financial information of the Hotels as well as conducted
extensive interviews with the managers of the Hotels. See "Fairness Analysis
and Opinion--Fairness Opinion--Summary of Materials Considered and
Investigation Undertaken."
 
  In preparing the Appraisals, AAA relied primarily on the income
capitalization method of valuation, and then compared the value estimated by
this method with recent sales of comparable properties, as a check on the
reasonableness of the value determined through the income capitalization
method. AAA employed the following procedures for determining the Appraised
Value of each Hotel:
 
  .  Historical 1997 and Projected Year's Earnings. AAA reviewed the
     historical 1997 net operating income (i.e., income before interest,
     taxes, depreciation and amortization) ("NOI") prior to incentive
     management fees and certain capital expenditures for the applicable
     Hotel. AAA also prepared a
 
                                      80

<PAGE>
 
     projection of the net operating income prior to incentive management
     fees and certain capital expenditures for the applicable Hotel for the
     twelve month period ending February 28, 1999 (the "Projected Year"),
     using historical financial information for the Hotel, budget
     information, a survey with the manager of the Hotel addressing the
     physical condition of the Hotel, local market conditions (including
     business mix, demand generators, future trends and predictability of
     business), changes in the competitive environment, comparison with
     direct competitors of the Hotel and risk factors relating to the
     particular Hotel. The resulting gross margin (ratio of total revenues to
     net operating income prior to incentive management fees) was checked
     against AAA's database of the gross margins for similar hotels for
     reasonableness.
 
  .  Impact of Incentive Management Fees. AAA estimated a normalized annual
     amount of incentive management fees payable under the applicable
     management agreement and subtracted this amount from the net operating
     income prior to incentive management fees and certain capital
     expenditures for 1997 and the Projected Year.
 
  .  Impact of Owner Funded Capital Expenditures. AAA estimated normalized
     annual amounts of owner funded capital expenditures (over and above the
     FF&E reserve) based in part on projected owner funded capital
     expenditures estimated in the Engineering Study, including in the case
     of three Hotels (Atlanta Marquis, Desert Springs and Hanover) certain
     identified 1998 capital expenditures for which reserves have been set
     aside. The normalized amounts were then subtracted from the NOI prior to
     owner funded capital expenditures for 1997 and the Projected Year.
 
  .  Capitalization of Adjusted NOI. AAA then capitalized the amount
     resulting from the foregoing adjustments ("Adjusted NOI") for 1997 and
     the Projected Year by dividing such amounts by capitalization rates that
     AAA determined to be appropriate. A capitalization rate represents the
     relationship between net operating income and sales prices of income
     producing property. AAA selected the capitalization rates based upon its
     review of current published surveys reflecting the opinions of investors
     and participants such as REITs, hotel acquisition/management companies
     and pension funds, lenders, brokers and consultants as to current
     capitalization rates, and its own database of capitalization rates
     reflected in recent transactions, adjusted for factors specific to the
     individual Hotel, such as location, physical condition, reserve
     policies, local market volatility and competition, guest mix, renovation
     influences and other income characteristics. AAA used separate
     capitalization rates that it deemed appropriate to capitalize 1997
     historical Adjusted NOI and estimated Projected Year's Adjusted NOI. AAA
     then estimated the value of each Hotel based upon each of the values
     estimated by capitalizing 1997 and Projected Year's Adjusted NOI and its
     professional judgment.
 
  The following table sets forth the resulting Appraised Values of the Hotels
of each Partnership, as estimated by AAA.
 
                 APPRAISED VALUE OF EACH PARTNERSHIP'S HOTELS
                                (IN THOUSANDS)
 

<TABLE>
<CAPTION>
PARTNERSHIP                                                     APPRAISED VALUE
- -----------                                                     ---------------
<S>                                                             <C>
Atlanta Marquis................................................   $  255,000
Chicago Suites.................................................       34,300
Desert Springs.................................................      223,800
Hanover........................................................       49,400
MDAH...........................................................      165,900
MHP............................................................      354,261(1)
MHP2...........................................................      463,300(2)
PHLP...........................................................      265,800
                                                                  ----------
Total..........................................................   $1,811,761
                                                                  ==========
</TABLE>

- --------
(1) Excludes the 49.5% interest in the Harbor Beach Resort not owned by MHP.
(2) Excludes the 50% interest in the Santa Clara Marriott not owned by MHP2.
 
                                      81

<PAGE>
 
  The following table sets forth the effective capitalization rates for 1997
and Projected Year's Adjusted NOI resulting from AAA's estimated Appraised
Values of the Hotels.
 
            RESULTING EFFECTIVE CAPITALIZATION RATES IN APPRAISALS
 

<TABLE>
<CAPTION>
                                                                PROJECTED YEAR
                                                                   (ENDING
   PARTNERSHIP                                       1997     FEBRUARY 28, 1999)
   -----------                                     ---------  ------------------
   <S>                                             <C>        <C>
   Atlanta Marquis................................    9.3%            9.4%
   Chicago Suites.................................    9.4%           10.3%
   Desert Springs.................................    8.9%            9.3%
   Hanover........................................    9.4%           10.1%
   MDAH........................................... 9.1 - 9.9%    10.1 - 10.6%
   MHP............................................ 8.8 - 9.4%     9.8 - 10.2%
   MHP2........................................... 9.1 - 9.6%     9.7 - 11.6%
   PHLP........................................... 9.2 - 9.8%     9.7 - 10.6%
</TABLE>

 
  .  Comparison with Comparable Sales. AAA checked the Appraised Value of
     each Hotel derived by the foregoing procedures against its database of
     comparable sale transactions for reasonableness.
 
  In the case of a Hotel that is only partly owned by a Partnership, the
Appraised Value of such Hotel was reduced proportionately to the amount
attributable to such Partnership's ownership interest therein (but no
adjustment was made to reflect the effect that the outside interest might have
on decisions with respect to sales, refinancings or other major operational
matters). With respect to the Partnerships' Hotels, eleven properties were
encumbered by ground leases as of the date of the Appraisal: one owned by each
of Chicago Suites, MDAH and MHP, three owned by MHP2 and five owned by PHLP.
Accordingly, the Appraised Values of these Partnerships' Hotels have been
decreased to reflect the encumbrance of the ground leases and the interest of
the ground lessor in the operating cash flows of such Hotels. The Appraised
Value of MHP's Orlando World Center Hotel also includes AAA's estimate of the
present value of a planned expansion of the Hotel. The Appraised Values assume
all contractual provisions for FF&E reserves are adequate and have not been
reduced to reflect deferred maintenance or environmental remediation costs
with respect to the Partnerships' Hotels (but estimated deferred maintenance
costs have been deducted in estimating the Adjusted Appraised Value of each
Hotel). The Appraised Values did not take into account the costs that might be
incurred in selling a Hotel (but estimated costs for transfer and recordation
taxes and fees have been deducted in estimating the Adjusted Appraised Value
of each Hotel).
 
  The Appraisals are not guarantees of present or future values and no
assurance can be given as to the actual value of the Partnerships' Hotels. The
Appraisals should be read in conjunction with other information, such as, but
not limited to, the audited financial statements of the Partnerships.
 
  The Appraised Values, and the assumptions underlying the projections on
which the Appraised Values are based, are contingent upon a series of future
events, the outcomes of which are not necessarily within the Operating
Partnership's control and cannot be determined at this time. There can be no
assurance that another appraiser would not have arrived at a different result.
Some of the assumptions inevitably will not materialize and unanticipated
events and circumstances will occur subsequent to the date of the Appraisals.
Furthermore, the actual results achieved from the Hotels will vary from the
results projected in the Appraisals and the variations may be material.
 
  ADJUSTED APPRAISED VALUE. The Adjusted Appraised Value of each Partnership
was determined by totaling the Appraised Values of all of the Hotels of the
Partnership and then making various adjustments to the aggregate Appraised
Value, as described below.
 
  .  Lender Reserves. For Atlanta Marquis, Desert Springs, MDAH, MHP and
     MHP2, debt service reserves are required to be held by third-party
     lenders. The amount of these lender reserves as of the
 
                                      82

<PAGE>
 
     Initial Valuation Date was added to the Appraised Values of these
     Hotels. A final determination of the lender reserves of each of these
     Partnerships will be made on the Final Valuation Date and any changes in
     such reserves will be reflected in the Adjusted Appraised Value.
 
  .  1998 Capital Expenditure Reserves. For Atlanta Marquis, Desert Springs
     and Hanover, an amount equal to the capital expenditure reserves which
     were set aside as of March 1, 1998 for various identified capital
     improvements in 1998 (which amounts resulted in reductions in the
     Appraised Value as described above) was added back to the Appraised
     Value.
 
  .  Mortgage and Other Debt. The estimated principal balance and accrued
     interest (including participating interest that would accrue as a result
     of the Mergers) as of the Effective Date (assumed to be December 31,
     1998) of all mortgage and other debt of each Partnership has been
     subtracted from the Appraised Value.
 
  .  Mark to Market Adjustments. The third-party loans of the Partnerships
     have various interest rates and terms to maturity. In order to reflect
     the market value of the third-party loans of each Partnership, the
     estimated Adjusted Appraised Value for each Partnership has been
     adjusted (increased or decreased) to "mark to market" the interest rate
     for such loans. This adjustment has been estimated by comparing the
     interest cost using the applicable interest rates on existing third-
     party loans over their remaining term to the interest cost using the
     interest rate that the Operating Partnership believes it would be able
     to obtain for unsecured debt in the market as of the Final Valuation
     Date (which would have been 8.0% per annum based on a 350 basis point
     (3.50%) spread over the yield on seven-year U.S. Treasury securities as
     of September 29, 1998). The mark to market adjustment for each loan was
     calculated by determining the difference between the present values, as
     of December 31, 1998, of the interest payments over the remaining term
     of the loan from January 1, 1999 to maturity using the actual interest
     rate as the discount rate as compared to using the assumed market rate
     as the discount rate. In the case of the mezzanine loan on Desert
     Springs, the adjustment reflects the prepayment penalty that would be
     payable because it is less than the mark to market adjustment.
 
  .  Deferred Management Fees. The amount of deferred management fees
     (management fees earned by the manager pursuant to the Management
     Agreement and not paid currently) estimated to be payable under the
     Management Agreement(s) of each Partnership as of December 31, 1998 have
     been subtracted from the Appraised Value. The amount of such deferred
     management fees will be recalculated as of the Final Valuation Date.
 
  .  Deferred Maintenance Costs. The estimated cost to complete any deferred
     maintenance items identified in the Engineering Study relating to the
     applicable Hotel or Hotels of each Partnership have been subtracted from
     the Appraised Value. The adjustments for this item will be reduced at
     the Final Valuation Date to reflect amounts expended after the Initial
     Valuation Date to perform such deferred maintenance. No adjustments have
     been made for previously budgeted capital expenditures or deferred
     maintenance costs estimated in the Engineering Study that are reflected
     in the cash flow projections used for purposes of estimating Appraised
     Values.
 
  .  Transfer and Recordation Taxes and Fees. The estimated transfer and
     recordation taxes and fees required to be paid by each Partnership in
     connection with the Mergers have been subtracted from the Appraised
     Value.
 
                                       83

<PAGE>
 
  The following table sets forth the adjustments to the aggregate Appraised
Values made to derive the estimated Adjusted Appraised Value for each
Partnership as of the Initial Valuation Date.
 
              CALCULATION OF ESTIMATED ADJUSTED APPRAISED VALUES
                       AS OF THE INITIAL VALUATION DATE
              (IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT AMOUNTS)
 

<TABLE>   
<CAPTION>
                          ATLANTA     CHICAGO      DESERT
                          MARQUIS      SUITES      SPRINGS     HANOVER     MDAH       MHP          MHP2          PHLP
                         ---------    --------    ---------    --------  --------  ---------     ---------     ---------
<S>                      <C>          <C>         <C>          <C>       <C>       <C>           <C>           <C>
Appraised Value........  $ 255,000    $ 34,300    $ 223,800    $ 49,400  $165,900  $ 354,261(1)  $ 463,300(2)  $ 265,800
Lender reserves........      3,600           0        6,173           0     3,000      1,800         6,800             0
Capital expenditure re-
 serve.................     16,750           0        1,500       1,690         0          0             0             0
Mortgage debt..........   (162,047)    (22,284)    (101,632)    (29,394)  (97,371)  (192,137)(1)  (259,945)(2)  (161,136)
Other debt.............    (20,134)       (464)     (92,438)    (10,398)  (25,355)      (722)            0      (128,102)
Mark to market adjust-
 ment..................      4,693          94          411        (435)      399      2,878        (2,154)            0
Deferred management
 fees..................          0           0            0           0         0          0        (3,184)      (34,151)
Deferred maintenance
 costs.................       (607)        (46)        (650)        (72)     (825)      (245)       (1,673)       (5,212)
Transfer taxes.........          0        (274)           0           0         0          0             0          (814)
                         ---------    --------    ---------    --------  --------  ---------     ---------     ---------
Estimated Adjusted
 Appraised Value.......  $  97,255    $ 11,326    $  37,164    $ 10,791  $ 45,748  $ 165,835     $ 203,144     $       0(3)
                         =========    ========    =========    ========  ========  =========     =========     =========
Estimated General Part-
 ner's share(4)........  $  75,223(5) $    113    $     372(6) $    442  $    533  $  25,803     $  26,330     $       0
Estimated limited part-
 ner share of Host sub-
 sidiaries(7)..........  $      62    $      0    $       0    $  4,928  $    273  $  67,670     $  93,272     $       0
Estimated total limited
 partners' share(8)....  $  22,032    $ 11,213(9) $  36,792    $ 10,349  $ 45,215  $ 140,032     $ 176,814     $       0
Per Partnership Unit...  $  41,570    $ 33,133    $  40,880    $123,202  $109,216  $ 140,032     $ 237,334     $       0
</TABLE>
    
- --------
(1) Excludes 49.5% of the $122,300,000 Appraised Value of the Harbor Beach
    Resort and the $82,266,000 in mortgage debt encumbering the Hotel.
(2) Excludes 50% of the $126,200,000 Appraised Value of the Santa Clara
    Marriott Hotel but includes 100% of the $42,500,000 in mortgage debt
    encumbering the Hotel for which MHP2 is wholly responsible.
(3) The estimated Adjusted Appraised Value for PHLP is zero because PHLP's
    outstanding debt is greater than the Appraised Value of the Hotels and the
    value of other assets, net of liabilities, owned by PHLP.
(4) Excludes amounts attributable to limited partner interests of a General
    Partner, except as noted.
(5) Includes Class B limited partner interests held by the General Partner.
(6) Excludes $59.7 million attributable to the participating subordinated loan
    held by Host.
(7) Includes limited partner interests held by a General Partner.
   
(8) Includes estimated limited partner share of Host subsidiaries (except for
    Chicago Suites and Desert Springs in which no Host subsidiary owns any
    limited partner interest).     
(9) Including 1% owned by a limited partner who is not a holder of any of the
    335 outstanding Partnership Units.
 
  CONTINUATION VALUE. AAA estimated the Continuation Value of each Partnership
using the following methodology:
 
  .  Estimated Future Cash Distributions. AAA prepared estimates of future
     partnership cash flow for the Partnership for the 12-year period from
     January 1, 1998 through December 31, 2009 based upon the estimated 1998
     NOI before incentive management fees used in the Appraisals and for each
     subsequent year applying an assumed annual stabilized growth rate
     (ranging from 3.40% to 4.50%, depending upon the Partnership, as shown
     in the table below) developed by AAA for this analysis. For each year in
     the projection period, AAA estimated the amount of cash available for
     distribution to limited partners after payment of all management fees,
     debt service, owner funded capital expenditures based on the Engineering
     Study and other partnership expenses and after application of the
     applicable partnership agreement provisions. AAA assumed that each
     Partnership's FF&E reserves were adequate and understood that Host
     determined that there were no reserve shortfalls or surpluses.
 
  .  Refinancing Assumptions. For debt that matures during the 12-year
     period, AAA assumed that the debt would be refinanced with interest
     rates ranging from 7.25% to 8.60% per annum and a 20 to 30-year
     amortization schedule, with estimated refinancing costs of 2% of the
     refinanced amount being paid from operating cash flow (or added to the
     principal balance of the loan, if cash flow was estimated to be
     insufficient).
 
                                      84

<PAGE>
 
  .  Determination of Residual Value. To estimate the residual value of the
     limited partners' interest in the Partnership at the end of the 12-year
     period, AAA assumed that the Hotel(s) would be sold as of December 31,
     2009 at their then market value. AAA estimated the market value of each
     Hotel as of such date by applying an exit capitalization rate that it
     deemed appropriate, using the factors described above in connection with
     the "--Appraised Value," which are set forth in the table below, to the
     estimated Adjusted NOI for 2009 (estimated as described above). AAA then
     subtracted estimated sales costs of 2% of the estimated market value,
     added lender reserves, and subtracted the estimated outstanding
     principal balance of debt as of December 31, 2009 and deferred
     management fees to arrive at net sales proceeds available for
     distribution to partners. AAA then determined what portion of such
     estimated net sales proceeds would be distributable to the Partnership's
     limited partners under the various partnership and debt agreements.
 
  .  Discounting Distributions to Present Value. As a final step, AAA
     discounted the estimated future cash distributions to the limited
     partners from operations and estimated net sales proceeds (plus lender
     reserves) to their present value as of January 1, 1998, using a discount
     rate of 20% per annum. AAA believes that this discount rate reflects the
     return on investment that investors expect from leveraged investments of
     this nature.
 
  While the 12-year period used by AAA is somewhat arbitrary and other firms
may have used a different time period, the 12-year period was selected by AAA
because it corresponded to the time period used in the Engineering Study to
estimate owner funded capital expenditures. AAA and the General Partners
believe that such 12-year period is within the accepted range of time periods
used in valuations similar to the Continuation Value.
 
  The growth rates and exit capitalization rates used to determine the
estimated Continuation Value for each Partnership are as set forth below.
 
                    GROWTH RATES, EXIT CAPITALIZATION RATES
             AND ESTIMATED CONTINUATION VALUE FOR EACH PARTNERSHIP
          (DOLLARS IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT AMOUNTS)
 

<TABLE>   
<CAPTION>
                                                                       ESTIMATED   ESTIMATED
                                                           ESTIMATED    GENERAL     LIMITED           ESTIMATED
                                      EXIT CAPITALIZATION CONTINUATION PARTNER'S   PARTNERS'      CONTINUATION VALUE
PARTNERSHIP              GROWTH RATE      RATE (2009)        VALUE       SHARE       SHARE      (PER PARTNERSHIP UNIT)
- -----------              -----------  ------------------- ------------ ---------   ---------    ----------------------
<S>                      <C>          <C>                 <C>          <C>         <C>          <C>
Atlanta Marquis.........    4.40%             9.8%          $ 88,662    $64,587(3) $ 24,075(1)         $ 45,425
Chicago Suites..........    3.70%             9.9%             8,962        558       8,404              24,184
Desert Springs..........    4.50%             9.7%            31,007        824      30,183              33,536
Hanover.................    3.70%             9.9%             9,873      1,633       8,240(1)           98,090
MDAH....................    3.40%            10.1%            40,245      3,258      36,987(1)           89,340
MHP.....................    3.65%(2)          9.9%           153,031     11,957     141,074(1)          141,074
MHP2....................    3.40%            10.4%           167,776     10,385     157,391(1)          211,263
PHLP....................    3.60%            10.1%            12,096      3,024       9,072(1)            5,040
</TABLE>
    
- --------
   
(1) Includes amounts attributable to interests of Host and its subsidiaries.
        
(2) Reflects the average of the stabilized growth rates of Harbor Beach Resort
    (3.80% each year) and Orlando World Center (3.50% beginning in 2003 to
    reflect the effect of the planned expansion of the Hotel).
   
(3) Includes Class B limited partner interests held by the General Partner.
        
  LIQUIDATION VALUE. The Liquidation Value of each Partnership was estimated
by the General Partners and represents the estimated value of the Partnership
if all of its assets were sold as of December 31, 1998. Such value was based
upon the Adjusted Appraised Value of each Partnership, with the following
adjustments: (i) the "mark to market" adjustment used to estimate the Adjusted
Appraised Value was eliminated and instead prepayment or defeasance costs that
would be payable under existing debt agreements (regardless of whether the
debt in fact can be prepaid on December 31, 1998) were deducted from the
Appraised Value; (ii) the deduction
 
                                      85

<PAGE>
 
for transfer and recordation taxes and fees used to estimate the Adjusted
Appraised Value was eliminated and instead an amount equal to 2.5% of the
Appraised Value of each Partnership's Hotel(s) was subtracted from the
Appraised Value for estimated liquidation costs, expenses and contingencies;
and (iii) the amount of participating interest payable on the Desert Springs
subordinated loan held by Host was deducted from the Appraised Value to
reflect the net proceeds available to partners of that Partnership. The
General Partner then determined the portion of the estimated Liquidation Value
that would be distributable to limited partners under the terms of the
applicable partnership agreements and other contractual arrangements.
 
  The following table sets forth the adjustments made to Adjusted Appraised
Value to estimate the Liquidation Value for each Partnership as of the Initial
Valuation Date.
 
                  CALCULATION OF ESTIMATED LIQUIDATION VALUES
                       AS OF THE INITIAL VALUATION DATE
              (IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT AMOUNTS)
 

<TABLE>   
<CAPTION>
                         ATLANTA     CHICAGO      DESERT
                         MARQUIS      SUITES     SPRINGS     HANOVER     MDAH      MHP          MHP2         PHLP
                         --------    --------    --------    --------  --------  --------     --------     --------
<S>                      <C>         <C>         <C>         <C>       <C>       <C>          <C>          <C>
Appraised Value......... $255,000    $ 34,300    $223,800    $ 49,400  $165,900  $354,261(1)  $463,300(2)  $265,800
Lender reserves.........    3,600           0       6,173           0     3,000     1,800        6,800            0
Capital expenditure re-
 serve..................   16,750           0       1,500       1,690         0         0            0            0
Mortgage debt........... (162,047)    (22,284)   (101,632)    (29,394)  (97,371) (192,137)(1) (259,945)(2) (161,136)
Other debt..............  (20,134)       (464)    (89,669)    (10,398)  (25,355)     (722)           0     (128,102)
Prepayment/defeasance
 costs..................  (10,972)          0      (8,821)     (2,168)        0   (10,794)     (20,551)           0
Deferred management
 fees...................        0           0           0           0         0         0       (3,184)     (34,151)
Deferred maintenance
 costs..................     (607)        (46)       (650)        (72)     (825)     (245)      (1,673)      (5,212)
Sales costs.............   (6,375)       (858)     (5,595)     (1,235)   (4,148)   (8,857)     (11,583)      (6,645)
                         --------    --------    --------    --------  --------  --------     --------     --------
Estimated Liquidation
 Value.................. $ 75,215    $ 10,648    $ 25,106    $  7,823  $ 41,201  $143,306     $173,164     $      0(3)
                         ========    ========    ========    ========  ========  ========     ========     ========
Estimated General Part-
 ner's share(4)......... $ 75,002(5) $    107    $    251(6) $    391  $    487  $ 19,045     $ 20,335     $      0
Estimated limited part-
 ner share of Host sub-
 sidiaries(7)........... $      1    $      0    $      0    $  3,539  $    246  $ 60,049     $ 80,620     $      0
Estimated total limited
 partners' share(8)..... $    213    $ 10,541(9) $ 24,855    $  7,432  $ 40,714  $124,261     $152,829     $      0
Per Partnership Unit.... $    402    $ 31,149    $ 27,617    $ 88,474  $ 98,343  $124,261     $205,140     $      0
</TABLE>
    
- --------
(1) Excludes 49.5% of the $122,300,000 Appraised Value of the Harbor Beach
    Resort and the $82,266,000 in mortgage debt encumbering the Hotel.
(2) Excludes 50% of the $126,200,000 Appraised Value of the Santa Clara
    Marriott Hotel but includes 100% of the $42,500,000 in mortgage debt
    encumbering the Hotel for which MHP2 is wholly responsible.
(3) The estimated Liquidation Value for PHLP is zero because PHLP's
    outstanding debt is greater than the Appraised Value of the Hotels and the
    value of other assets, net of liabilities, owned by PHLP.
(4) Excludes amounts attributable to limited partner interests of other Host
    subsidiaries.
(5) Includes Class B limited partner interests held by the General Partner.
(6) Excludes $59.7 million attributable to the participating subordinated loan
    held by Host.
(7) Includes limited partner interests held by a General Partner, except as
    noted.
(8) Includes estimated limited partner share of Host subsidiaries (except for
    Chicago Suites and Desert Springs in which no Host subsidiary owns any
    limited partner interest).
(9) Includes 1% owned by a limited partner who is not a holder of any of the
    335 outstanding Partnership Units.
 
  ESTIMATED EXCHANGE VALUES. The following table sets forth the estimated
Exchange Value of each Partnership (based upon the greatest of its estimated
Adjusted Appraised Value, estimated Continuation Value and estimated
Liquidation Value), the estimated minimum number of OP Units to be received
(based upon the maximum price of $15.50 per OP Unit) and the estimated Note
Election Amount for each Partnership, all on a per Partnership Unit basis as
of the Initial Valuation Date. The number of Common Shares received in
exchange for OP Units will equal the number of OP Units exchanged. The
estimated Note Election Amount for each Partnership (which will be received by
Limited Partners electing to receive Notes in exchange for OP Units) is equal
to the Liquidation Value (or, if greater, 80% of the Exchange Value) for that
Partnership. The estimated values set forth below may increase or decrease as
a result of various adjustments, which will be finally
 
                                      86

<PAGE>
 
calculated as of the Final Valuation Date but will not change as a result of
less than all of the Partnerships participating in the Mergers. The actual
number of OP Units to be received by the Limited Partners will be based on the
average closing price on the NYSE of a Host REIT Common Share for the 20
trading days after the Effective Date (but will not be less than $9.50 or
greater than $15.50 per OP Unit) and will not be finally determined until such
time.
 
                          ESTIMATED EXCHANGE VALUES,
             MINIMUM NUMBER OF OP UNITS AND NOTE ELECTION AMOUNTS
                           PER PARTNERSHIP UNIT(/1/)
 

<TABLE>
<CAPTION>
                                                                                  ESTIMATED
                             ESTIMATED       ESTIMATED    ESTIMATED    ESTIMATED   MINIMUM     ESTIMATED
                         ADJUSTED APPRAISED CONTINUATION LIQUIDATION   EXCHANGE   NUMBER OF  NOTE ELECTION
      PARTNERSHIP              VALUE           VALUE        VALUE      VALUE(2)  OP UNITS(3)   AMOUNT(4)
      -----------        ------------------ ------------ -----------   --------- ----------- -------------
<S>                      <C>                <C>          <C>           <C>       <C>         <C>
Atlanta Marquis.........      $ 41,570        $ 45,425    $    402     $ 45,425     2,931      $ 36,340
Chicago Suites..........        33,133          24,184      31,149       33,133     2,138        31,149
Desert Springs..........        40,880          33,536      27,617       40,880     2,637        32,704
Hanover.................       123,202          98,090      88,474      123,202     7,949        98,562
MDAH....................       109,216          89,340      98,343      109,216     7,046        98,343
MHP.....................       140,032         141,074     124,261      141,074     9,102       124,261
MHP2....................       237,334         211,263     205,140      237,334    15,312       205,140
PHLP....................             0(5)        5,040           0(5)     5,040       325         4,032
</TABLE>

- --------
(1) A Partnership Unit in all of the Partnerships except for Chicago Suites
    ($35,000) and PHLP ($10,000) represents an original investment of
    $100,000.
(2) The estimated Exchange Value is equal to the greatest of estimated
    Adjusted Appraised Value, estimated Continuation Value and estimated
    Liquidation Value.
(3) Assumes the price of an OP Unit is $15.50, which is the maximum price used
    for purposes of the Mergers and thus results in the minimum number of OP
    Units that may be issued.
(4) The principal amount of Notes is equal to the greater of (i) the
    Liquidation Value or (ii) 80% of the Exchange Value (the "Note Election
    Amount").
(5) The estimated Adjusted Appraised Value and the estimated Liquidation Value
    for PHLP are zero because PHLP's outstanding debt is greater than the
    Appraised Value of the Hotels and the value of other assets, net of
    liabilities, owned by PHLP.
 
PRICE OF OP UNITS TO PAY EXCHANGE VALUES TO LIMITED PARTNERS
   
  Each Limited Partner of a Participating Partnership will receive in exchange
for his Partnership Interests a number of OP Units with an aggregate deemed
value equal to the Exchange Value of such Limited Partner's Partnership
Interests. The price of an OP Unit for this purpose will be equal to the
average closing price on the NYSE of a Host REIT Common Share for the 20
trading days after the Effective Date of the Mergers (but, subject to
adjustment, will not be less than $9.50 or greater than $15.50 per OP Unit).
Thus, if the 20-day average trading price is less than $9.50, the price per OP
Unit in the Mergers would be $9.50; and if such average trading price is
greater than $15.50, the price per OP Unit in the Mergers would be $15.50. The
maximum and minimum prices per OP Unit will be reduced if the Blackstone
Acquisition is not consummated and, as a result thereof, the Initial E&P
Distribution exceeds $2.50 per Host or Host REIT common share. The OP Units
will be issued to the Limited Partners promptly after the twentieth trading
day following the Effective Date of the Mergers (which would be promptly after
January 29, 1999 if the Effective Date of the Mergers is December 30, 1998).
    
  Limited Partners at the Effective Date of the Mergers who retain OP Units
will receive cash distributions from their respective Partnerships for all of
1998 and, if the Mergers do not occur in 1998, any portion of 1999 prior to
the Mergers for which period they do not receive a cash distribution from the
Operating Partnership. Cash distributions will be made by each Partnership in
accordance with its partnership agreement on or before June 1, 1999 in respect
of 1998 operations and, if the Mergers do not occur prior to January 1, 1999,
within 90 days after the Effective Date of the Mergers in respect of any 1999
operations. The General Partners of Chicago Suites, Hanover, MDAH and PHLP do
not expect that these Partnerships will make any further distributions in
respect of 1998 operations. Limited Partners at the Effective Date of the
Mergers who receive Common Shares in exchange for OP Units pursuant to the
Common Share Election will participate in the same distributions from the
Partnerships as Limited Partners who retain OP Units and will receive
distributions from Host REIT with respect to periods after their Common Shares
are issued, which distributions are expected to equal the amount distributed
with respect
 
                                      87

<PAGE>
 
   
to the OP Units for such periods (although Host REIT's distributions to
shareholders would be lower than the Operating Partnership's distributions to
holders of OP Units (by the amount of Host REIT's 1999 corporate income tax
payments) if the REIT Conversion does not occur in 1998 and Host REIT is
unable to elect REIT status effective January 1, 1999). Neither the Operating
Partnership nor Host REIT anticipates making distributions after the Effective
Date of the Mergers and prior to the issuance of Common Shares to those
Limited Partners who elect to exchange their OP Units for Common Shares.
Limited Partners at the Effective Date of the Mergers who receive Notes in
exchange for OP Units pursuant to the Note Election will participate in the
same distributions from the Partnerships as Limited Partners who retain OP
Units but will not receive any distributions from the Operating Partnership
with respect to periods after the Notes are issued.     
 
  No fractional OP Units will be issued. Fractional amounts less than 0.50 of
an OP Unit will be rounded down to the next whole number and fractional
amounts greater than or equal to 0.50 will be rounded up to the next whole
number of OP Units.
   
DETERMINATION OF VALUE OF THE GENERAL PARTNERS' INTERESTS IN THE PARTNERSHIPS
AND ALLOCATION OF OP UNITS TO THE GENERAL PARTNERS     
 
  The value of each General Partner's interest will be determined in the same
manner as the Exchange Value of the Limited Partners' Partnership Interests by
the same methodologies set forth above and giving effect to the applicable
distribution provisions in each partnership agreement. The number of OP Units
that will be received by each General Partner will be equal to the value of
its interest in the Partnership divided by the same price per OP Unit used to
determine the number of OP Units to be received by the Limited Partners.
 
  The following table sets forth the estimated value of the interest of each
General Partner and other Host subsidiaries in each Partnership based upon the
estimated aggregate Exchange Value of the Limited Partners' Partnership
Interests as of the Initial Valuation Date and the estimated minimum number of
OP Units to be received by the General Partners and other Host subsidiaries in
respect thereof.
       
    ESTIMATED VALUES OF THE GENERAL PARTNERS' AND OTHER HOST SUBSIDIARIES'
                                INTERESTS     
                        AND MINIMUM NUMBER OF OP UNITS
                   (IN THOUSANDS, EXCEPT NUMBER OF OP UNITS)
 

<TABLE>   
<CAPTION>
                          ATLANTA     CHICAGO   DESERT
                          MARQUIS      SUITES  SPRINGS     HANOVER    MDAH     MHP      MHP2     PHLP
                          --------    -------- --------    -------- -------- -------- -------- --------
<S>                       <C>         <C>      <C>         <C>      <C>      <C>      <C>      <C>
 
Aggregate Estimated
 Exchange Value.........  $ 88,662    $ 11,326 $ 37,164    $ 10,791 $ 45,748 $153,031 $203,144 $ 12,096
Limited partners' share
 of aggregate Estimated
 Exchange Value.........    24,075      11,213   36,792      10,349   45,215  141,074  176,814    9,072
                          --------    -------- --------    -------- -------- -------- -------- --------
Estimated value of the
 General Partner's
 interest(1)............  $ 64,587(4) $    113 $    372(2) $    442 $    533 $ 11,957 $ 26,330 $  3,024
Estimated value of
 limited partner
 interest of Host and
 its subsidiaries ......        68           0        0       4,928      273   68,174   93,272        5
                          --------    -------- --------    -------- -------- -------- -------- --------
Estimated total value of
 interests of the
 General Partner and
 other Host subsidiaries
 .......................  $ 64,655    $    113 $    372    $  5,370 $    806 $ 80,131 $119,602 $  3,029
                          ========    ======== ========    ======== ======== ======== ======== ========
Estimated Minimum Number
 of OP Units(3).........     4,171           7       24         346       52    5,170    7,716      195
</TABLE>
    
- --------
(1) Excludes limited partner interests owned by a General Partner.
(2) Excludes $59.7 million attributable to the participating subordinated loan
    held by Host.
(3) Assumes the price of an OP Unit is $15.50, which is the maximum price for
    purposes of the Mergers and thus results in the minimum number of OP Units
    that may be issued.
   
(4) Includes Class B limited partner interests held by the General Partner.
        
                                      88

<PAGE>
 
                         FAIRNESS ANALYSIS AND OPINION
 
FAIRNESS ANALYSIS
 
  The General Partners believe that the Mergers provide substantial benefits
and are fair to the Limited Partners of each Partnership and recommend that
all Limited Partners consent to the Mergers and the related amendments to the
partnership agreements. The General Partners base this recommendation
primarily on (i) their view that the expected benefits of the Mergers for the
Limited Partners outweigh the risks and potential detriments of the Mergers to
the Limited Partners (see "Background and Reasons for the Mergers and the REIT
Conversion--Reasons for the Mergers" and "Risk Factors"), (ii) their view that
the value of the OP Units allocable to the Limited Partners on the basis of
the Exchange Value established for each Partnership represents fair
consideration for the Partnership Interests held by the Limited Partners in
each Partnership and is fair to the Limited Partners from a financial point of
view and (iii) the Appraisals and Fairness Opinion of AAA. See "--Fairness
Opinion."
 
  No Merger is conditioned upon the consummation of any other Merger. The
General Partners have considered this fact in evaluating the fairness of the
Mergers. The General Partners believe that the fairness of the Mergers will
not be materially affected by the presence or absence of any individual
Partnership or by any particular combination of Partnerships and that the
Mergers will be fair to the Limited Partners, individually and as a whole, if
they are consummated with any combination of Participating Partnerships. The
General Partners base this belief primarily on the fact that the consideration
to be paid to the Limited Partners in each individual Partnership has been
established based upon such Partnership's Exchange Value, without regard to
any possible combination of Partnerships.
 
  In reaching the conclusions implicit in the above recommendation, the
General Partners have taken into account the following considerations, placing
the greatest weight on the first two considerations:
 
  .  The General Partners have concluded that the Exchange Value for each
     Partnership represents fair consideration for the Partnership Interests
     of the Limited Partners in the Mergers in relation to such Partnership
     because the Exchange Value is equal to the greatest of the Adjusted
     Appraised Value, Continuation Value and Liquidation Value, each of which
     is an acceptable method for determining the fair market value of a
     Partnership's assets. The General Partners also have concluded that the
     Exchange Value established for the Limited Partners in each Partnership
     fairly reflects the value of the assets held by such Partnership.
 
  .  Individual Limited Partners who retain OP Units will be able to defer
     recognition of gain until such time as they choose to realize such gain
     based on their own personal circumstances.
 
  .  The General Partners have concluded that the potential benefits of the
     Mergers to the Limited Partners, as described under "Background and
     Reasons for the Mergers and the REIT Conversion--Reasons for the
     Mergers," outweigh the potential risks and detriments of the Mergers for
     the Limited Partners, as described in "Risk Factors."
 
  .  The General Partners considered the maximum and minimum deemed values of
     OP Units established for purposes of the Mergers. The General Partners
     noted that the maximum deemed value of the OP Units, which has the
     effect of establishing a minimum number of OP Units that Limited
     Partners will receive in any Merger, supports the fairness of the
     Mergers. With regard to the minimum deemed value of the OP Units, which
     has the effect of establishing a maximum number of OP Units that Limited
     Partners will receive in any Merger, the General Partners concluded that
     such a provision is customary when there is a maximum exchange price and
     that the levels established for the minimum and maximum deemed values of
     the OP Units represent a reasonable allocation of the risk of
     fluctuation in the trading price of Host REIT Common Shares immediately
     following the Mergers. The minimum value was set at a level that is less
     than the recent average trading price of Host common stock (after
     deducting an amount equal to the estimated per share Initial E&P
     Distribution to be made in connection with the REIT Conversion) and the
     maximum is higher than such adjusted trading price. The Merger
     Agreements limit the value of the distributions that Host and Host REIT
     can make to their shareholders
 
                                      89

<PAGE>
 
        
     and to the Blackstone Entities (through the Operating Partnership) prior
     to consummation of the Mergers and provide that, if the Blackstone
     Acquisition is not consummated and as a result thereof the Initial E&P
     Distribution exceeds $2.50 per Host or Host REIT common share, then the
     maximum and minimum prices per OP Unit for purposes of the Mergers will
     be reduced by an amount equal to such excess distribution per share.
     Based upon these considerations and others, the General Partners
     concluded that the maximum and minimum deemed values of the OP Units
     support the fairness of the Mergers to the Limited Partners.     
 
  .  The General Partners considered the method of allocating the OP Units
     received by each Partnership in the Mergers between its General Partner
     and its Limited Partners. Because the OP Units are allocated in
     accordance with the distribution provisions in each Partnership's
     partnership agreement, the General Partners concluded that this method
     supports the fairness of the Mergers to the Limited Partners.
 
  .  The General Partners considered the method of allocating the OP Units to
     be owned by Host REIT and its subsidiaries (including the General
     Partners) following the REIT Conversion (without taking into account any
     OP Units that may be acquired in connection with the Common Share
     Election). The number of OP Units to be owned by Host REIT and its
     subsidiaries will be equal to the number of shares of Host common stock
     outstanding at the time. Because the formation of the Operating
     Partnership is functionally equivalent to the formation of a wholly
     owned subsidiary and reflects the one-for-one economic equivalence
     between shares of Host common stock and OP Units, the General Partners
     concluded that this method supports the fairness of the Mergers to the
     Limited Partners.
 
  .  The Fairness Opinion, in the view of the General Partners, supports the
     fairness of the Mergers, even though it includes qualifications,
     limitations and assumptions relating to its scope and other factors that
     Limited Partners should consider carefully and does not conclude that
     the Exchange Value is the best price that could be obtained. The
     availability of the Fairness Opinion is particularly significant in
     light of the absence of arm's length negotiations in establishing the
     terms of the Mergers.
 
  .  The General Partners believe that the economic terms of the leases of
     the Hotels are fair and reasonable from the standpoint of the Operating
     Partnership.
 
  .  Host REIT will benefit from the operations of the Operating Partnership
     only to the extent of the distributions received based upon its
     percentage interest in the Operating Partnership to the same extent as
     the other limited partners. The General Partners believe that this is a
     factor supporting the fairness of the Mergers to the Limited Partners.
 
  .  The General Partners believe that the value of the consideration to be
     received by the Limited Partners of each Partnership in the Mergers is
     fair in relation to the value which would be derived by such Limited
     Partners under any of the alternatives described under "Background and
     Reasons for the Mergers and the REIT Conversion--Alternatives to the
     Mergers," especially since the Exchange Value of each Partnership is
     equal to the greatest of the Adjusted Appraised Value, the Continuation
     Value and the Liquidation Value and the historic prices paid for
     Partnership Units (except for Desert Springs). The General Partners do
     not believe that the sale of any Hotel(s) and liquidation of the
     associated Partnership would obtain for Limited Partners of such
     Partnership as much value as the value to be received by such Limited
     Partners following the Mergers. In addition, while the Continuation
     Values of three of the Partnerships (Atlanta Marquis, MHP and PHLP) are
     higher than the Adjusted Appraised Values of such Partnerships, the
     General Partners believe that the Mergers provide substantial benefits
     to such Limited Partners, including those benefits described under
     "Background and Reasons for the Mergers and the REIT Conversion--Reasons
     for the Mergers," especially with respect to liquidity and regular
     quarterly cash distributions. The General Partners believe that the
     following benefits are of the greatest value and importance to the
     Limited Partners of all of the Partnerships:
 
     .  Liquidity. The Mergers and the REIT Conversion will offer Limited
        Partners liquidity with respect to their investments in the
        Partnerships because Limited Partners can elect to receive freely
        tradeable Host REIT Common Shares in connection with the Mergers. In
        addition, Limited Partners who elect to retain OP Units, at any time
        commencing one year following the Effective Date, will be able to
        exercise their Unit Redemption Right, subject to certain limited
        exceptions.
        
                                      90

<PAGE>
 
       Host has approximately 204 million shares of common stock outstanding
       and is expected to have a total common equity market capitalization
       of approximately $3.4 billion after giving effect to the Initial E&P
       Distribution (based upon a price per Host REIT Common Share of
       $12.50). The election to exchange OP Units for Common Shares in
       connection with the Mergers or the exercise of the Unit Redemption
       Right, however, generally would result in recognition of taxable
       income or gain.
 
    .  Regular Quarterly Cash Distributions. The General Partners expect
       that the Operating Partnership will make regular quarterly cash
       distributions to holders of OP Units and that Host REIT will make
       regular quarterly cash distributions to holders of Common Shares.
       Host expects that these distributions will be higher than the
       estimated cash distributions from operations during 1998 of all
       Partnerships except MHP and MHP2, and, in any event, the ability to
       receive distributions quarterly and in regular amounts would be
       enhanced. The ability to receive regular quarterly cash distributions
       on a pro rata basis also will mitigate the absence of any
       preferential distribution rights of the Limited Partners under the
       partnership agreements of Chicago Suites, Hanover and MHP2 and will
       further benefit the Limited Partners of Atlanta Marquis due to the
       absence of the General Partner's preferential distribution rights.
 
    .  Risk Diversification. Upon consummation of the REIT Conversion, each
       Limited Partner's investment will be converted from an investment in
       an individual Partnership owning from one to eight hotels into an
       investment in an enterprise that is expected initially to own or
       control approximately 125 Hotels and will have a total market
       capitalization of approximately $3.4 billion, thereby reducing the
       dependence upon the performance of, and the exposure to the risks
       associated with, any particular Hotel or group of Hotels currently
       owned by an individual Partnership and spreading such risk over a
       broader and more varied portfolio, including more diverse geographic
       locations and multiple brands.
       
    .  Reduction in Leverage and Interest Costs. It is expected that the
       Operating Partnership will have a leverage to value ratio
       (approximately 62%) that is lower than the leverage to value ratios
       for five of the Partnerships (Atlanta Marquis, Chicago Suites, Desert
       Springs, Hanover and PHLP) and that is not significantly different
       than the leverage ratios for MDAH, MHP and MHP2.     
 
    .  Substantial Tax Deferral. The General Partners expect that Limited
       Partners of the Participating Partnerships who do not elect to
       receive Common Shares or a Note in exchange for OP Units in
       connection with the Mergers generally should be able to obtain the
       benefits of the Mergers while continuing to defer recognition for
       federal income tax purposes of at least a substantial portion, if not
       all, of the gain with respect to their Partnership Interests that
       otherwise would be recognized in the event of a liquidation of the
       Partnership or a sale or other disposition of its assets in a taxable
       transaction (although Limited Partners in Atlanta Marquis, Desert
       Springs, MHP and PHLP may recognize a relatively modest amount of
       ordinary income as the result of required sales of personal property
       by each such Partnership to a Non-Controlled Subsidiary in order to
       facilitate Host REIT's qualification as a REIT). The General Partners
       considered the possibility that the REIT Conversion might not occur
       in time for Host REIT to elect REIT status effective January 1, 1999,
       in which event Host REIT's election to be taxed as a REIT could be
       delayed until January 1, 2000 (and the Blackstone Acquisition might
       not be consummated). The General Partners believe that the overall
       benefits of the Mergers and the REIT Conversion for the Limited
       Partners justify proceeding with the Mergers as promptly as
       practicable, even if Host REIT's election to be taxed as a REIT might
       not be effective until January 1, 2000. The General Partners took
       into account the complexity of the REIT Conversion, the number of
       transactions that must occur to complete the REIT Conversion and the
       benefits to the Limited Partners of positioning Host REIT to qualify
       as a REIT as soon as practicable. The General Partners also
       recognized that a delay in the election of REIT status until January
       1, 2000 would not reduce the anticipated Operating Partnership cash
       distributions per OP Unit (but the Host REIT cash distributions per
       Common Share would be reduced by the amount of corporate income taxes
       that Host REIT would have to pay for 1999).
 
                                       91

<PAGE>
 
 
  The General Partners believe that the factors described above, which support
the fairness of the Mergers to the Limited Partners of the Partnerships, when
weighed against the factors that may be disadvantageous, taken as a whole,
indicate that the Mergers are fair to the Limited Partners of all of the
Partnerships.
 
FAIRNESS OPINION
 
  AAA, an independent financial advisory firm with substantial real estate and
partnership transaction experience, was engaged by the General Partners to
perform the Appraisals and to render the Fairness Opinion that (i) the
Exchange Value and the methodologies and underlying assumptions used to
determine the Exchange Value, the Adjusted Appraised Value, the Continuation
Value and the Liquidation Value of each Partnership (including, without
limitation, the assumptions used to determine the various adjustments to the
Appraised Values of the Hotels) are fair and reasonable, from a financial
point of view, to the Limited Partners of each Partnership and (ii) the
methodologies used to determine the value of an OP Unit and the allocation of
the equity interest in the Operating Partnership to be received by the Limited
Partners of each Partnership are fair and reasonable to the Limited Partners
of each Partnership. The Fairness Opinion is addressed to each Partnership and
it may be relied upon by each of the Limited Partners of the Partnerships. The
full text of the Fairness Opinion, which contains a description of the
assumptions and qualifications applicable to the review and analysis by AAA,
is set forth in Appendix B to this Consent Solicitation and should be read in
its entirety. The material assumptions and qualifications to the Fairness
Opinion are summarized below, although this summary does not purport to be a
complete description of the various inquiries and analyses undertaken by AAA
in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex
analytical process not necessarily susceptible to partial analysis or amenable
to summary description. For a more complete description of the assumptions and
qualifications that limit the scope of the Fairness Opinion, see "--
Qualifications to Fairness Opinion" and "--Assumptions" below.
 
  The Fairness Opinion is not limited to any particular combination of
Partnerships participating in the Mergers because there is no combination of
Partnerships required in order to complete the Mergers. No Merger is
conditioned upon the consummation of any other Merger. The Fairness Opinion
addresses the fairness of the Exchange Value for each Partnership to the
Limited Partners of each Partnership, which Exchange Value has been
established for each Partnership without regard to any possible combination of
Partnerships. In light of the foregoing, the Fairness Opinion will not be
revised to reflect the actual Partnerships which participate in the Mergers.
 
  Although the General Partners advised AAA that certain assumptions were
appropriate in their view, the General Partners imposed no conditions or
limitations on the scope of the investigation by AAA or the methods and
procedures to be followed by AAA in rendering the Fairness Opinion. The fees
and expenses of AAA will be treated as a Merger Expense and will be paid by
the Operating Partnership. In addition, the General Partners have agreed to
indemnify AAA against certain liabilities. See "--Compensation and Material
Relationships."
 
  QUALIFICATIONS TO FAIRNESS OPINION. In the Fairness Opinion, AAA
specifically states that it did not: (i) specifically consider other
methodologies for allocation of the OP Units, (ii) address or conclude that
other methodologies for allocation of the OP Units to the Partnerships might
not have been more favorable to the Limited Partners in certain of the
Partnerships, (iii) negotiate with the General Partners or Host, (iv)
participate in establishing the terms of the Mergers, (v) provide an opinion
as to the terms and conditions of the Mergers other than those explicitly
stated in the Fairness Opinion, (vi) make any independent review of the
capital expenditure estimates set forth in the Engineering Study or (vii) make
any estimates of the Partnerships' contingent liabilities.
 
  In connection with preparing the Fairness Opinion, AAA was not engaged to,
and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the analysis set forth in
Appendix B. AAA will not deliver any additional written opinion of the
analysis, other than to update the written opinion if requested by the
Operating Partnership.
 
 
                                      92

<PAGE>
 
  EXPERIENCE OF AAA. AAA is the world's largest independent valuation
consulting firm and is regularly and continually engaged in the valuation of
commercial real estate and businesses and their securities in connection with
tender offers, mergers and acquisitions, recapitalizations and
reorganizations, divestitures, employee stock ownership plans, leveraged
buyout plans, private placements, limited partnerships, estate and corporate
matters, other financial advisory matters and other valuation purposes.
   
  AAA was selected because of its experience in the valuation of businesses
and their securities in connection with tender offers, mergers and
acquisitions, recapitalizations and reorganizations, including transactions
involving hotel partnerships, and the price for its services. The General
Partners did not solicit proposals from any other appraisal or investment
banking firms for the Appraisals or the Fairness Opinion. Host and its
affiliates have previously engaged AAA to provide appraisals and fairness
opinions in connection with other transactions.     
 
  SUMMARY OF MATERIALS CONSIDERED AND INVESTIGATION UNDERTAKEN. As a basis for
rendering the Fairness Opinion, AAA has made such reviews, studies and
analyses as it deemed necessary and pertinent in order to provide it with a
reasonable basis for the Fairness Opinion, including, but not limited to, the
following: (i) reviewed the transaction documents and SEC reporting and/or
filing documents, including drafts of the Form S-4 for the Mergers; (ii)
provided the Market Value of each Hotel owned by each Partnership in a
separate short form appraisal report and each such report was reviewed and
certified by an MAI appraiser as to its preparation in accordance with the
requirements of the Standards of Professional Practice of the Appraisal
Institute and the Uniform Standards of Professional Appraisal Practice of the
Appraisal Foundation; as part of the Appraisals, AAA reviewed historical
operating statements, 1998 budget and year-to-date results, and other
financial information as it deemed necessary as a basis for the Fairness
Opinion and the Appraisals also considered market transactions of similar
lodging properties as appropriate as a basis for the Market Value of each
Hotel; (iii) reviewed the methodologies used by each of the General Partners
in their determination of the Exchange Value of each Partnership, including
the nature and amount of all adjustments to the Appraised Values in
determining such Exchange Values; AAA reviewed and tested for the fairness and
reasonableness of all adjustments as well as for consideration of all
adjustments deemed to be appropriate by AAA; (iv) reviewed the methodologies
used by each of the General Partners in their determination of the value of an
OP Unit and the allocation of the equity interest in the Operating Partnership
to be received by the partners of each Partnership, and AAA reviewed and
tested for the fairness and reasonableness of the methods and measurements
made by the General Partners; (v) reviewed the General Partners' determination
of the Liquidation Value of each Partnership, and AAA reviewed and tested for
the fairness and reasonableness of all adjustments proposed by the General
Partners, as well as for consideration of all adjustments deemed appropriate
by AAA; (vi) provided an estimate of the Continuation Value of each
Partnership based upon the estimated present value of expected benefits to be
received by each limited partner interest as though the Mergers did not occur
and each Partnership's assets were sold within a twelve year period; AAA, as
part of its analysis and review, determined appropriate rates of growth in
house profit or net operating income, as well as reviewed other key variables
affecting partnership cash flows and other economic/financial factors
affecting the Partnerships' expected operations and results; (vii) reviewed
the terms of the ground leases of the Hotels and the partnership agreement of
each Partnership; (viii) reviewed audited and unaudited historical income
statements, balance sheets and statements of sources and uses of funds of each
Partnership and Host and pro forma financial information for Host REIT; (ix)
reviewed audited and unaudited historical operating statements of each Hotel,
as well as current operating statements and budgets; (x) conducted real estate
valuation and financial due diligence with respect to the Partnerships and
their underlying assets, liabilities and equity; (xi) reviewed internal
Marriott International, Host and Partnership financial analyses and other
internally generated data for each Hotel; and (xii) discussed all of the
foregoing information, where appropriate, with management of Marriott
International, Host and the Partnerships and their respective employees.
 
                                      93

<PAGE>
 
   
  ASSUMPTIONS. In rendering its opinion, AAA relied, without independent
verification, on the accuracy and completeness in all material respects of
certain relevant publicly available information and information provided to
AAA by the Host and the Hotels. AAA assumed that all information furnished by
Host, the Hotels and the Partnerships and their representatives, upon which
AAA relied, presented an accurate description in all material respects of the
current and prospective status of the Hotels and the Partnerships from an
operational and financial point of view. AAA also noted that the Fairness
Opinion was based upon financial, economic, market and other considerations as
they existed as of March 1, 1998. AAA did not conduct any subsequent due
diligence or valuation procedures, except that AAA reviewed year-to-date net
house-profit results through September 11, 1998 as reflected on Marriott
International's Format 90 reports for each Partnership and, based upon such
review and upon current financial, economic and market conditions and
indicated trends therein, AAA concluded that nothing came to AAA's attention
that would cause it to be unable to render the Fairness Opinion as of such
date.     
   
  CONCLUSIONS. AAA concluded that, based upon and subject to its analysis and
assumptions and limiting conditions, and as of October 8, 1998, the date of
the Fairness Opinion: (i) the Exchange Value and the methodologies and
underlying assumptions used to determine the Exchange Value, the Adjusted
Appraised Value, the Continuation Value and the Liquidation Value of each
Partnership (including, without limitation, the assumptions used to determine
the various adjustments to the Appraised Values of the Hotels) are fair and
reasonable, from a financial point of view, to the Limited Partners of each
Partnership and (ii) the methodologies used to determine the value of an OP
Unit and the allocation of the equity interest in the Operating Partnership to
be received by the limited partners of each Partnership are fair and
reasonable to the Limited Partners of each Partnership. In connection with
rendering the Fairness Opinion, AAA considered the possibility that the REIT
Conversion would not occur in time for Host REIT to elect REIT status
effective January 1, 1999. In concluding that such failure would not affect
the conclusions in the Fairness Opinion, AAA noted that (i) Host REIT would be
structured and would operate as if it were a REIT for the period following the
REIT Conversion and until such time as it could elect REIT status and (ii) the
methodologies used to determine the value of an OP Unit and the allocation of
the equity interest in the Operating Partnership would not be affected by the
inability of Host REIT to elect REIT status as of January 1, 1999 because the
market price of the Host REIT Common Shares during the 20-trading day period
after the Mergers should reflect, among other things, the inability of Host
REIT to elect REIT status.     
 
  SUMMARY OF METHODOLOGY. AAA evaluated each Partnership's Hotel(s) based upon
the income capitalization approach and broadly applied the sales comparison
approach. Appraisers typically use up to three approaches in valuing real
property: the cost approach, the income capitalization approach and the sales
comparison approach. The type and age of a property, market conditions and the
quantity and quality of data affect the applicability of each approach in a
specific appraisal situation. Since the Hotels are viable, existing, ongoing
enterprises with an established market presence, work force and management
team, the cost approach was not considered by AAA in the Appraisals. The
income capitalization approach estimates a Hotel's capacity to produce income
through an analysis of the market, operating expenses and net income. Net
income may then be processed into a value through either (or a combination of)
two methods: direct capitalization or discounted cash flow analysis. The sales
comparison approach looks at similar properties which have recently sold or
are currently offered for sale in the market and are analyzed and compared
with the Hotel being valued. For further description of the methodology
employed by AAA in the Appraisals, see "Determination of Exchange Values and
Allocation of OP Units."
 
  COMPENSATION AND MATERIAL RELATIONSHIPS. AAA has been paid a fee of $335,000
for its services as described herein, including the Appraisals and preparing
to deliver the Fairness Opinion. In addition, AAA will be reimbursed for all
reasonable out-of-pocket expenses, including legal fees, and will be
indemnified against certain liabilities, including certain liabilities under
the securities laws. The fee was negotiated between Host, the General Partners
and AAA. Payment of the fee to AAA is not dependent upon completion of the
Mergers. AAA has been previously engaged by Host and its affiliates to provide
appraisals, fairness opinions and solvency opinions in connection with other
transactions.
 
                                      94

<PAGE>
 
                      THE MERGERS AND THE REIT CONVERSION
 
GENERAL
 
  Limited Partners of each Partnership are being asked to approve the
acquisition of their Partnership by the Operating Partnership through the
merger of their Partnership with a Merger Partnership as part of the REIT
Conversion. In each Merger, the Participating Partnership will survive, and
each Limited Partner thereof will receive OP Units with a deemed value equal
to the Exchange Value of his Partnership Interests (or, if the Limited Partner
elects to tender such OP Units to Host REIT, an equal number of Common Shares
or, if the Limited Partner elects to tender such OP Units to the Operating
Partnership, a Note in a principal amount equal to the Note Election Amount of
his Partnership Interests). If the REIT Conversion, including the Mergers and
the Blackstone Acquisition, is consummated as contemplated, the Operating
Partnership is expected to acquire and initially own, or have controlling
interests in, approximately 125 full-service Hotels located throughout the
United States and Canada, containing approximately 58,500 rooms and operating
primarily under the Marriott, Ritz-Carlton, Four Seasons, Swissotel and Hyatt
brand names.
 
THE REIT CONVERSION
   
  The transactions summarized below collectively constitute the REIT
Conversion. If the required corporate (Board and shareholder) and partnership
approvals for the various transactions are obtained and other conditions to
the different steps in the REIT Conversion are satisfied or waived, these
transactions are expected to occur at various times prior to the end of 1998
(or as soon thereafter as practicable). The Mergers of the Participating
Partnerships are expected to occur at the final stage of the REIT Conversion.
The Operating Partnership and the General Partners are seeking the approval of
the Mergers and the related partnership agreement amendments at this time, in
advance of satisfaction of all other contingencies, in order to determine how
the Partnerships will fit into the UPREIT structure following the REIT
Conversion, which Host desires to implement during 1998 in order to permit
Host REIT to qualify as a REIT for its 1999 taxable year. Consummation of the
Mergers is not conditioned on the REIT Conversion being completed in time for
Host REIT to elect REIT status effective January 1, 1999. If the REIT
Conversion does not occur in time for Host REIT to elect REIT status effective
January 1, 1999, the effectiveness of Host REIT's election could be delayed
until January 1, 2000, which would result in Host REIT continuing to pay
substantial corporate-level income taxes in 1999 (which would reduce Host
REIT's cash distributions per Common Share but not the Operating Partnership's
cash distributions per OP Unit) and could cause the Blackstone Acquisition not
to be consummated. In view of the complexity of the REIT Conversion and the
number of transactions that must occur to complete the REIT Conversion, Host
and the General Partners believe that it is beneficial both to the Limited
Partners and the shareholders of Host to complete the REIT Conversion as soon
as practicable, even if the REIT Conversion cannot be completed prior to
January 1, 1999. If Host REIT's election to be taxed as a REIT is not
effective on January 1, 1999, Host REIT intends to operate following the REIT
Conversion in a manner that would permit it to qualify as a REIT at the
earliest time practicable, and it might pursue a merger with another entity or
other transaction that would permit it to commence a new taxable year and
elect REIT status prior to January 1, 2000. Host REIT in any event would elect
to be treated as a REIT for federal income tax purposes not later than its
taxable year commencing January 1, 2000. It is a condition to the Mergers that
they be completed by June 30, 1999, unless the General Partners and the
Operating Partnership mutually agree to extend that deadline to a date no
later than December 31, 1999.     
 
  .  Contribution of Host's Lodging Assets to the Operating Partnership. As a
     preliminary step, at various times during 1998, Host will contribute its
     wholly owned full-service hotel assets, its interests in the Hotel
     Partnerships (other than its interests in the General Partners, who will
     remain in existence as subsidiaries of Host REIT and will receive OP
     Units in the Mergers) and its other assets (excluding its senior living
     assets and cash or other consideration to be distributed in connection
     with the Initial E&P Distribution and certain other de minimis assets
     that cannot be contributed to the Operating Partnership) to the
     Operating Partnership in exchange for (i) a number of OP Units equal to
     the number of outstanding shares of common stock of Host at the time of
     the REIT Conversion (reduced by the number of OP Units to be received by
     the General Partners and other subsidiaries of Host in the Mergers),
     (ii) preferred partnership interests in the Operating Partnership
     corresponding to any shares of Host preferred stock outstanding at the
     time of the REIT Conversion and (iii) the assumption by the Operating
     Partnership of all liabilities of Host (including past and future
     contingent liabilities and
 
                                      95

<PAGE>
 
        
     liabilities for the Plans in accordance with the 1998 Employee Benefits
     Allocation Agreement), other than liabilities of Crestline. Following
     these contributions, the Operating Partnership and its subsidiaries will
     directly or indirectly own all of Host's wholly owned hotels,
     substantially all of Host's interests in the Hotel Partnerships and all
     of Host's other assets (excluding its senior living assets and the cash
     or other consideration to be distributed in connection with the Initial
     E&P Distribution and certain other de minimis assets that cannot be
     contributed to the Operating Partnership).     
 
  .  Debt Refinancing. In August 1998, Host refinanced $1.55 billion of
     outstanding public bonds through offers to purchase such debt securities
     for cash and a concurrent solicitation of consents to amend the terms of
     the debt securities to facilitate the transactions constituting the REIT
     Conversion. Host obtained the funds for this Bond Refinancing primarily
     from the issuance of new debt securities and the New Credit Facility.
     See "Business and Properties--Indebtedness."
 
  .  Treatment of Convertible Preferred Securities. In the REIT Conversion,
     the Operating Partnership will assume primary liability for repayment of
     the $567 million of convertible subordinated debentures of Host
     underlying the $550 million of Convertible Preferred Securities. As the
     successor to Host, Host REIT also will be liable on the debentures and
     the debentures will become convertible into Common Shares, but the
     Operating Partnership will have primary responsibility for payment of
     the debentures, including all costs of conversion. Upon conversion by a
     Convertible Preferred Securities holder, the Operating Partnership will
     acquire Common Shares from Host REIT in exchange for an equal number of
     OP Units and distribute the Common Shares to the Convertible Preferred
     Securities holder. As a result of the distribution of Crestline common
     stock and any cash and other consideration to Host or Host REIT
     shareholders in connection with the Initial E&P Distribution, the
     conversion ratio of the Convertible Preferred Securities will be
     adjusted to take into account certain effects of the REIT Conversion.
     See "Business and Properties--Indebtedness."
 
  .  The Mergers. On the Effective Date, each Participating Partnership will
     merge with a Merger Partnership. The Participating Partnerships will be
     the surviving entities of the Mergers and will continue in existence as
     indirect subsidiaries of the Operating Partnership. In the Mergers, each
     Limited Partner will receive a number of OP Units with a deemed value
     equal to the Exchange Value of his respective Partnership Interests. If
     a Limited Partner elects to receive Common Shares or a Note in exchange
     for OP Units in connection with the Mergers, such Limited Partner will,
     upon receipt of his OP Units, tender (or be deemed to tender) all of
     such OP Units to Host REIT for an equal number of Common Shares or to
     the Operating Partnership in exchange for a Note with a principal amount
     equal to the Note Election Amount of his Partnership Interests. The
     General Partners and other subsidiaries of Host will also receive OP
     Units in exchange for their interests in the Partnerships and the
     General Partners will continue as wholly owned direct or indirect
     subsidiaries of Host REIT. Any Partnership that does not participate in
     a Merger will continue as a separate partnership with its own assets and
     liabilities and with its current Limited Partners. There will be no
     change in its investment objectives, policies or restrictions or the
     fees or distributions payable to the applicable General Partner or
     Manager. Each Partnership that does not participate in a Merger will
     remain subject to the terms of its current partnership agreement. The
     Operating Partnership would contribute some or all of the interests in
     certain of these Partnerships (such as Atlanta Marquis, Desert Springs,
     Hanover, MHP and MHP2) that it receives from Host and its subsidiaries
     to a Non-Controlled Subsidiary.
 
  .  Restructuring of the Private Partnerships. The Operating Partnership
     will acquire the partnership interests from unaffiliated partners of
     four Private Partnerships in exchange for OP Units and, accordingly,
     will own all of the interests in those Private Partnerships. For the
     remaining Private Partnerships, (i) the Operating Partnership will be a
     partner in the partnership if the unaffiliated partners consent to a
     lease of the partnership's Hotel(s) to a Lessee or (ii) if the requisite
     consents to enter into a lease are not obtained, the Operating
     Partnership may transfer its interest in such partnership to a Non-
     Controlled Subsidiary. The determination of the action to be taken with
     respect to the Operating Partnership's interest in these Private
     Partnerships will be based primarily upon the character of the income
     therefrom under the REIT tax rules.
 
 
                                      96

<PAGE>
 
      The partners in the following Private Partnerships will receive the
    estimated number of OP Units set forth below in connection with the
    REIT Conversion (assuming a price of $15.50 per OP Unit):
 

<TABLE>
<CAPTION>
                                                   NEGOTIATED VALUE OF NUMBER OF
     PARTNERSHIP                                        OP UNITS       OP UNITS
     -----------                                   ------------------- ---------
     <S>                                           <C>                 <C>
     HMC BN Limited Partnership...................     $20,600,000     1,329,032
     Ivy Street Hotel Limited Partnership.........       4,050,000       261,290
     Times Square Marquis Hotel, L.P. ............       7,499,000       483,806
     HMC/RGI Hartford Limited Partnership.........      10,500,000       677,419
</TABLE>

 
  .  The Blackstone Acquisition. Subject to various terms and conditions, the
     Operating Partnership expects to acquire from the Blackstone Entities
     ownership of, or controlling interests in, twelve hotels and two
     mortgage loans, one secured by one of the acquired hotels and one
     secured by an additional hotel. In addition, Host REIT will acquire a
     25% interest in the Swissotel management company from the Blackstone
     Entities, which Host REIT will transfer to Crestline. If the Blackstone
     Acquisition is consummated, the Operating Partnership expects to issue
     approximately 43.7 million OP Units (based upon a negotiated value of
     $20.00 per OP Unit), assume debt and make cash payments totaling
     approximately $862 million and distribute up to 18% of the shares of
     Crestline common stock and other consideration to the Blackstone
     Entities. Fifty percent of the OP Units issued in the Blackstone
     Acquisition will become redeemable on July 1, 1999, an additional 25%
     will become redeemable on October 1, 1999 and the balance will become
     redeemable on January 1, 2000. Holders of OP Units issuable in the
     Blackstone Acquisition will have registration rights under a shelf
     registration statement with respect to Host REIT Common Shares received
     in connection with the exercise of their redemption rights.
 
      In connection with the Blackstone Acquisition, Host agreed to cause a
    person designated by Blackstone Real Estate Acquisitions L.L.C.
    ("Blackstone") to be appointed to serve as a director of Host (or a
    director of Host REIT following the REIT Conversion) and to continue to
    include a person designated by Blackstone in the slate of directors
    nominated by the board of directors for so long as Blackstone and its
    affiliates own at least 5% of the outstanding OP Units. Mr. Schreiber
    has been appointed to be the initial Blackstone designee. If the
    Blackstone Acquisition does not close, the Blackstone designee will
    resign. Host also agreed that, if more than two directors of Crestline
    also are directors of Host REIT, Blackstone will be entitled to
    designate a director of Crestline. The Operating Partnership does not
    expect that there will be any common directors of Crestline and Host
    REIT.
 
      Host also agreed to certain limitations on sales of the properties
    acquired in the Blackstone Acquisition lasting for five years after the
    REIT Conversion for 50% of the properties and for an additional five
    years for the remaining properties.
 
      Each Blackstone Entity has agreed that, until the earlier of the
    fifth anniversary of the closing of the Blackstone Acquisition and the
    date on which the Blackstone Entities do not own, in the aggregate,
    more than 5% of the outstanding OP Units and Common Shares, such
    Blackstone Entity will not, and will use its best efforts to cause its
    affiliates to not, directly or indirectly (i) subject to certain
    exceptions, acquire or agree to acquire beneficial ownership of any
    securities or partnership interests of Host REIT, the Operating
    Partnership or Crestline, if after giving effect thereto, such
    Blackstone Entity and its affiliates (together with the other members
    of any group (as defined in Section 13d-1 of the Exchange Act) of which
    any of them is a part) would (A) directly or indirectly own more than
    9.8% of any class of voting securities of such entity or more than
    19.9% of the aggregate value of all outstanding voting securities of
    Host REIT and OP Units or (B) violate the ownership limitations or
    transfer restrictions set forth in the Charter, the Partnership
    Agreement of the Operating Partnership or the Articles of Incorporation
    of Crestline, (ii) sell, transfer, pledge or otherwise dispose of any
    OP Units or any voting securities of Host REIT or Crestline in
    violation of such ownership limitations or transfer restrictions, (iii)
    participate in any proxy contest in opposition to the position taken by
    the directors or general partner, as applicable, of Host REIT, the
    Operating Partnership or Crestline, (iv) seek to cause a disposition
    (by way of merger, business combination, sale or otherwise) of a
 
                                      97

<PAGE>
 
     material portion of the assets or securities or partnership interests,
     or a change in the composition of the directors or management, of Host
     REIT, the Operating Partnership or Crestline or (v) initiate or propose
     to the holders of securities or partnership interests, as applicable,
     of Host REIT, the Operating Partnership or Crestline, or otherwise
     solicit their approval of, any proposal to be voted by such holders.
 
  .  Contribution of Assets to Non-Controlled Subsidiaries. The Operating
     Partnership will organize the Non-Controlled Subsidiaries to hold
     various assets (not exceeding, in the aggregate, 20% by value of the
     assets of the Operating Partnership) contributed by Host and its
     subsidiaries to the Operating Partnership. The direct ownership of most
     of these assets by the Operating Partnership could jeopardize Host
     REIT's status as a REIT. These assets primarily will consist of
     partnership or other interests in hotels which are not leased, certain
     furniture, fixtures and equipment used in the Hotels and certain
     international hotels in which Host owns interests. In exchange for the
     contribution of these assets to the Non-Controlled Subsidiaries, the
     Operating Partnership will receive nonvoting common stock representing
     95% of the total economic interests of the Non-Controlled Subsidiaries.
     In addition, the Operating Partnership and, prior to the Mergers,
     Atlanta Marquis, Desert Springs, Hanover, MHP and PHLP (assuming they
     participate in the Mergers) will sell to a Non-Controlled Subsidiary an
     estimated $200 million in value of personal property associated with
     certain Hotels for notes or cash that has been contributed or loaned to
     the Non-Controlled Subsidiary by the Operating Partnership, or a
     combination thereof. The Operating Partnership could not lease this
     personal property to the Lessees without potentially jeopardizing Host
     REIT's qualification as a REIT. The Non-Controlled Subsidiary will lease
     such personal property to the applicable Lessees. The Host Employee
     Trust, a Delaware statutory business trust, and possibly certain other
     investors will acquire all of the voting common stock representing the
     remaining 5% of the total economic interests, and 100% of the control,
     of each Non-Controlled Subsidiary. The income beneficiaries of the Host
     Employee Trust will be employees of Host REIT eligible to participate in
     the Comprehensive Stock Incentive Plan (excluding directors of Host REIT
     and certain other highly compensated employees). Upon termination of the
     Host Employee Trust, the residual assets, if any, are to be distributed
     to a charitable organization designated in its declaration of trust.
 
  .  Leases of Hotels. The Operating Partnership, its subsidiaries and its
     controlled partnerships, including the Participating Partnerships, will
     lease virtually all of their Hotels to the Lessees pursuant to the
     Leases. See "Business and Properties--The Leases." The leased Hotels
     will be operated by the Lessees under their existing brand names
     pursuant to their existing long-term Management Agreements, which will
     be assigned to the Lessees for the terms of the applicable Leases, but
     under which the Operating Partnership will remain obligated. See
     "Business and Properties--The Management Agreements."
 
  .  Host REIT Merger and Initial E&P Distribution. Host will merge into Host
     REIT upon obtaining shareholder approval of the merger. Pursuant to the
     merger agreement, Host shareholders will receive, for each share of Host
     common stock, one Host REIT Common Share.
   
       In connection with the REIT Conversion, Host or Host REIT will make the
     Initial E&P Distribution. The aggregate value of the Crestline common stock
     and the cash or other consideration to be distributed to Host or Host REIT
     shareholders and the Blackstone Entities as the Initial E&P Distribution is
     currently estimated to be approximately $525 million to $625 million
     (approximately $2.10 to $2.50 per share to the Host or Host REIT
     shareholders). The actual amount of the distribution will be based in part
     upon the estimated amount of accumulated earnings and profits of Host as of
     the last day of its taxable year in which the Host merger into Host REIT is
     consummated. To the extent that the distributions made in connection with
     the Initial E&P Distribution are not sufficient to eliminate Host's
     estimated accumulated earnings and profits, Host REIT will make one or more
     additional taxable distributions to its shareholders (in the form of cash
     or securities) prior to the last day of its first full taxable year as a
     REIT (currently expected to be December 31, 1999) in an amount intended to
     be sufficient to eliminate such earnings and profits, and the Operating
     Partnership will make corresponding distributions to all holders of OP
     Units (including Host REIT) in an amount sufficient     
 
                                      98

<PAGE>
 
    to permit Host REIT to make such additional distributions. Limited
    Partners who elect to receive Common Shares in connection with the
    Mergers will not receive the Crestline common stock or any other
    portion of the Initial E&P Distribution, which will have been
    distributed before they become shareholders of Host REIT (approximately
    25 trading days after the Effective Date of the Mergers). In addition,
    under the terms of the Blackstone Acquisition, the Blackstone Entities
    are entitled to receive a pro rata portion of the same consideration
    received by Host REIT's shareholders in connection with the Initial E&P
    Distribution except to the extent the Blackstone Entities elected to
    receive additional OP Units in lieu thereof. The payment to the
    Blackstone Entities of Crestline common stock and other consideration
    is expected to be approximately $90 million to $110 million if the REIT
    Conversion and the Blackstone Acquisition are consummated.
 
      Following the distribution, Crestline's principal assets will include
    the senior living assets of Host, which are expected to consist of 31
    senior living communities, a 25% interest in the Swissotel management
    company acquired from the Blackstone Entities and the Lessees. Certain
    REITs have spun-off public operating companies to conduct certain
    activities which REITs are prohibited from conducting and have
    described such structure as a "paper-clip" structure. There is no
    established definition of a "paper-clip" structure. While the Operating
    Partnership and Crestline clearly expect to have a mutually beneficial,
    long-term relationship, they do not believe that their relationship
    should be characterized as a "paper-clip" structure because they will
    operate as separate public companies with independent business plans,
    there will be no overlap between officers and directors of the two
    companies (other than one officer of Host who will be a director but
    not an officer of Crestline), there are no rights of first refusal or
    other similar arrangements (other than the noncompetition arrangements)
    with respect to future acquisitions between Host REIT and Crestline and
    they expect the shareholders of the two companies to diverge over time.
    Crestline also will be engaged in the businesses of owning senior
    living communities and asset management of hotels, neither of which
    will be conducted by Host REIT. Crestline further intends to pursue
    leasing opportunities for both full-service and limited-service hotels
    with majority owners other than Host REIT.
 
                                      99

<PAGE>
 
  Following the REIT Conversion, assuming the Full Participation Scenario, the
organizational structure of Host REIT is expected to be as follows:
 
                          [FLOW CHART APPEARS HERE]

- --------
(1) Represents Limited Partners and others who retain OP Units and do not elect
    to receive Common Shares or Notes; excludes Host and its subsidiaries.
    Percentage ownership in the Operating Partnership assumes all Limited
    Partners elect to retain OP Units.
(2) Also will include Limited Partners who elect to receive Common Shares in
    exchange for the OP Units received in the Mergers. Immediately following
    the merger of Host into Host REIT and the distribution by Host or Host REIT
    of Crestline common stock to its shareholders and the Blackstone Entities,
    the shareholders of Crestline will consist of the shareholders of Host REIT
    (other than Limited Partners who elect to receive Common Shares in
    connection with the Mergers) and the Blackstone Entities. The common
    ownership of the two public companies, however, will diverge over time.
(3) Percentage ownership in the Operating Partnership assumes no Limited
    Partners elect to receive either Common Shares or Notes in connection with
    the Mergers and that the price per Common Share is $15.50, which is the
    maximum price per OP Unit for purposes of the Mergers.
(4) The Operating Partnership will own all or substantially all of the equity
    interests in the Participating Partnerships, certain Private Partnerships
    and other Host subsidiaries that own Hotels, both directly and through
    other direct or indirect, wholly owned subsidiaries of the Operating
    Partnership or Host REIT. Host will contribute its partial equity interests
    in the Non-Participating Partnerships and those Private Partnerships whose
    partners have not elected to exchange their interests for OP Units to the
    Operating Partnership, and the Operating Partnership will either hold such
    partial interests or contribute them to the Non-Controlled Subsidiaries.
 
                                      100

<PAGE>
 
  Ownership Interests in the Operating Partnership Following the Mergers and
the REIT Conversion. Following the Mergers and the REIT Conversion, the
Operating Partnership is expected to be owned as set forth below:
 
                    OWNERSHIP OF THE OPERATING PARTNERSHIP
 

<TABLE>
<CAPTION>
    ENTITY                                                PERCENTAGE INTEREST(1)
    ------                                                ----------------------
   <S>                                                    <C>
   Host REIT.............................................          75.8%
   Limited Partners of the Partnerships..................           6.9
   Private Partnerships..................................           1.1
   Blackstone Entities...................................          16.2
                                                                  -----
     Total...............................................         100.0%
                                                                  =====
</TABLE>

- --------
(1) Assumes that all Partnerships participate in the Mergers, that the
    Blackstone Acquisition is consummated, that all Limited Partners elect to
    retain OP Units, and that the price of an OP Unit is $15.50, which is the
    maximum price for purposes of the Mergers. The percentage interest of Host
    REIT will increase, and the percentage interest of Limited Partners will
    decrease, if Limited Partners elect to receive Common Shares or Notes in
    exchange for their OP Units in connection with the Mergers.
 
THE MERGERS
 
  Issuance of OP Units. If Limited Partners holding the requisite percentage
of outstanding Partnership Interests in a Partnership vote to approve a Merger
and certain related amendments to the partnership agreements, then such
Participating Partnership will merge with a Merger Partnership, with the
Participating Partnership being the surviving entity. Each Limited Partner of
the Participating Partnership will receive OP Units with a deemed value equal
to the Exchange Value of such Limited Partner's Partnership Interests. Limited
Partners who retain OP Units will be issued such OP Units promptly following
the twentieth trading day following the Effective Date. The General Partners
and other Host subsidiaries that own limited partner interests in the
Partnerships also will receive OP Units in exchange for their general and
limited partner interests in the Partnerships, respectively. The price
attributed to an OP Unit, the Exchange Value of each Partnership and the
allocation of OP Units will be established in the manner described in detail
under "Determination of Exchange Values and Allocation of OP Units."
 
  Unit Redemption Right. Beginning one year after the Mergers, Limited
Partners who retain OP Units will have the right to redeem their OP Units at
any time, upon ten business days' notice to the Operating Partnership, and
receive, at the election of Host REIT, either Common Shares of Host REIT on a
one-for-one basis (subject to adjustment) or cash in an amount equal to the
market value of such shares. Limited Partners must redeem at least 1,000 OP
Units (or all remaining OP Units owned by the holder of OP Units if less than
1,000 OP Units) each time the Unit Redemption Right is exercised. See
"Description of OP Units--Unit Redemption Right."
 
  Right to Exchange OP Units for Common Shares. At any time during the
Election Period, Limited Partners can elect (or revoke any such election
previously made) to tender all of the OP Units they will receive in a Merger
(if their Partnership approves the Merger) to Host REIT in exchange for an
equal number of Common Shares. The Common Shares, which will be issued
promptly following the twentieth trading day after the Effective Date of the
Mergers, will be freely tradeable and listed on the NYSE. A Limited Partner
who makes the Common Share Election will be treated as having made a taxable
disposition of his OP Units, which likely would be deemed to occur at the time
his right to receive the Common Shares becomes fixed (which would be January
22, 1999 if the Effective Date of the Mergers is December 30, 1998). See
"Description of Capital Stock--Common Shares" and "Federal Income Tax
Consequences--Tax Treatment of Limited Partners Who Exercise Their Right to
Make the Common Share Election or the Note Election."
 
  Right to Exchange OP Units for Notes. At any time during the Election
Period, Limited Partners can elect (or revoke any such election previously
made) to tender all of the OP Units they will receive in a Merger (if their
Partnership approves the Merger) to the Operating Partnership in exchange for
a Note. The principal amount
 
                                      101

<PAGE>
 
of the Note received by a Limited Partner will be equal to the Note Election
Amount of his Partnership Interest, which will be less than the value of the
OP Units that such Limited Partner otherwise would have received (because the
Note Election Amount will be less than the Exchange Value for each
Partnership). The Notes will be issued promptly following the twentieth
trading day after the Effective Date of the Mergers. Holders of Notes will
receive interest payments on a semi-annual basis on June 15 and December 15 of
each year at the rate of 6.56% per annum from and after the Effective Date of
the Mergers. A Limited Partner who makes the Note Election will be treated as
having made a taxable disposition of his OP Units, which likely would be
deemed to occur on the Effective Date of the Mergers (which currently is
expected to occur on December 30, 1998). See "Description of the Notes" and
"Federal Income Tax Consequences--Tax Treatment of Limited Partners Who
Exercise Their Right to Make the Common Share Election or the Note Election."
 
  No fractional OP Units will be issued by the Operating Partnership in the
Mergers. In lieu thereof, fractional amounts less than 0.50 of an OP Unit will
be rounded down to the next whole number of OP Units and fractional amounts
greater than or equal to 0.50 will be rounded up to the next whole number of
OP Units.
 
  For a description of the OP Units, including restrictions on transfer and
the Unit Redemption Right, see "Description of OP Units."
   
  1998 Partnership Distributions. Limited Partners at the Effective Date of
the Mergers who retain OP Units will receive cash distributions from their
respective Partnerships for all of 1998 and, if the Mergers do not occur in
1998, any portion of 1999 prior to the Mergers for which they do not receive a
cash distribution from the Operating Partnership. Cash distributions will be
made by each Partnership in accordance with its partnership agreement on or
before June 1, 1999 in respect of 1998 operations and, if the Mergers do not
occur prior to January 1, 1999, within 90 days after the Effective Date of the
Mergers in respect of any 1999 operations. The General Partners of Chicago
Suites, Hanover, MDAH and PHLP do not expect that these Partnerships will make
any distributions in respect of 1998 operations. Limited Partners at the
Effective Date of the Mergers who receive Common Shares in exchange for OP
Units pursuant to the Common Share Election will participate in the same
distributions from the Partnerships as Limited Partners who retain OP Units
and will receive distributions from Host REIT with respect to periods after
their Common Shares are issued, which distributions are expected to equal the
amount distributed with respect to the OP Units for such periods (although
Host REIT's distributions to shareholders would be lower than the Operating
Partnership's distributions to holders of OP Units (by the amount of Host
REIT's 1999 corporate income tax payments) if the REIT Conversion does not
occur in 1998 and Host REIT is unable to elect REIT status effective January
1, 1999). Neither the Operating Partnership nor Host REIT anticipates making
distributions after the Effective Date of the Mergers and prior to the
issuance of Common Shares to those Limited Partners who elect to exchange
their OP Units for Common Shares. Limited Partners at the Effective Date of
the Mergers who receive a Note in exchange for OP Units pursuant to the Note
Election will participate in the same distributions from the Partnerships as
Limited Partners who retain OP Units but will not receive any distributions
from the Operating Partnership with respect to periods after the Notes are
issued.     
 
  Ownership Interest of Host in the Partnerships. The table below sets forth
the current ownership interests of Host in the Partnerships. Following the
REIT Conversion, assuming all of the Partnerships participate in the Mergers,
the Partnerships will be owned by the Operating Partnership.
 

<TABLE>
<CAPTION>
PARTNERSHIP                  LIMITED PARTNER INTERESTS GENERAL PARTNER INTERESTS
- -----------                  ------------------------- -------------------------
<S>                          <C>                       <C>
Atlanta Marquis.............      Class A   0.28%                1.00%
                                  Class B 100.00
Chicago Suites..............                0.00                 1.00
Desert Springs..............                0.00                 1.00
Hanover.....................               47.62                 5.00
MDAH........................                0.60                 1.00
MHP.........................               48.33                 1.00
MHP2........................               52.75                 1.00
PHLP........................                0.06                 1.00
</TABLE>

 
                                      102

<PAGE>
 
  Amendments to the Partnership Agreements. In order to consummate each Merger
as currently proposed, there are a number of amendments required to be made to
the partnership agreements of the Partnerships. Limited Partners must vote
separately on the Merger and the amendments to the partnership agreement, but
the Merger will not be consummated unless both the Merger and the amendments
to the partnership agreement are approved. The effectiveness of such
amendments will be conditioned upon the Partnership's participation in a
Merger. The required amendments generally include (i) permitting the
Partnership to enter into the Leases with the Lessees; (ii) reducing to one
the number of appraisals of the fair market value of a Partnership's Hotel(s)
that the Partnership must obtain before the General Partner can cause a
Partnership to sell its assets to the General Partner or an affiliate; and
(iii) other amendments required to allow the transactions constituting the
Mergers or otherwise necessary or desirable to consummate the Mergers or the
REIT Conversion.
 
  No Partner Liability. Each Partnership will make certain representations and
warranties to the Operating Partnership regarding itself and its Hotels in
connection with its Merger. The merger agreements in which such
representations and warranties are contained will provide that the Operating
Partnership will have no recourse against any of the partners in the
Participating Partnerships in the event the Operating Partnership suffers a
loss as a result of any inaccuracies in such representations and warranties.
 
  Closing Adjustments. The General Partners currently expect that the Adjusted
Appraised Value of each Partnership will be greater than either the
Continuation Value or Liquidation Value of each Partnership (except for
Atlanta Marquis, MHP and PHLP, where the Continuation Value is expected to be
the greatest of the three values), which means that the Exchange Values of
such Partnerships (other than Atlanta Marquis, MHP and PHLP) will be equal to
their Adjusted Appraised Values. The Adjusted Appraised Values of the
Partnerships may increase or decrease as a result of adjustments made prior to
the Effective Date to reflect (i) the amount of lender and capital expenditure
reserves and the amount of deferred management fees, (ii) any amounts actually
expended by a Partnership after the Initial Valuation Date to perform deferred
maintenance previously used in determining the estimated Exchange Value of
such Partnership and (iii) any changes in the Partnership's other reserves,
such as for litigation expenses and indemnification costs and for any revised
estimates of transfer and recordation taxes and fees. See "Determination of
Exchange Values and Allocation of OP Units."
 
  Effective Time of the Mergers. The Effective Time will be after the merger
of Host into Host REIT becomes effective and the shares of Crestline common
stock and cash or other consideration are distributed to Host or Host REIT's
shareholders in connection with the Initial E&P Distribution, which is
expected to occur during the final stage of the REIT Conversion. The Effective
Time currently is expected to occur on or about December 30, 1998, subject to
satisfaction or waiver of the conditions to the Mergers. There is no assurance
that the Effective Time will occur before January 1, 1999, and if the
Effective Time occurs on or after January 1, 1999, the effectiveness of Host
REIT's election of REIT status could be delayed until January 1, 2000, which
would result in Host REIT continuing to pay significant corporate-level income
taxes in 1999 and could cause the Blackstone Acquisition not to be
consummated.
 
CONDITIONS TO CONSUMMATION OF THE MERGERS
 
  Participation by each Partnership in a Merger is subject to the satisfaction
or waiver of certain conditions, including, among others:
 
  .  Limited Partner Approvals. Limited Partners holding the requisite
     percentage of Partnership Interests in such Partnership shall have
     approved the Merger and the amendments to the partnership agreement (as
     described above).
 
  .  Host Shareholder Approval. Shareholders owning 66 2/3% of the
     outstanding shares of Host's common stock shall have approved the merger
     of Host into Host REIT and such merger shall have been consummated.
 
  .  REIT Qualification. Host's Board of Directors shall have determined,
     based upon the advice of counsel, that Host REIT can elect to be treated
     as a REIT for federal income tax purposes effective no later than the
     first full taxable year commencing after the REIT Conversion is
     completed (which might not be until
 
                                      103

<PAGE>
 
     the year commencing January 1, 2000 if the REIT Conversion is not
     completed until after December 31, 1998), and Host REIT shall have
     received an opinion of counsel substantially to such effect.
 
  .  NYSE Listing. The Common Shares shall have been listed on the NYSE.
 
  .  Third-Party Consents. All required governmental and other third-party
     consents to the Mergers and the REIT Conversion, including consents of
     lenders, Marriott International and certain of its subsidiaries and
     ground lessors and consents to transfer material operating licenses and
     permits and the Management Agreements, shall have been received, except
     for such consents as would not reasonably be expected to have a material
     adverse effect on the business, financial condition or results of
     operations of Host REIT, the Operating Partnership and their
     subsidiaries taken as a whole.
 
  .  No Adverse Tax Legislation. The United States Congress shall not have
     enacted legislation, or proposed legislation with a reasonable
     possibility of being enacted, that would have the effect of
     (i) substantially impairing the ability of Host REIT to qualify as a
     REIT or the Operating Partnership to qualify as a partnership, (ii)
     substantially increasing the federal tax liabilities of Host REIT
     resulting from the REIT Conversion or (iii) substantially reducing the
     expected benefits to Host REIT resulting from the REIT Conversion. The
     determination that this condition has been satisfied will be made by
     Host, in its discretion.
 
  .  Completion of Mergers by June 30, 1999. The Mergers must have been
     completed by June 30, 1999, unless the Operating Partnership and the
     General Partners have mutually agreed to extend the deadline to a date
     no later than December 31, 1999.
 
  The obligation of the Operating Partnership to consummate a Merger is
subject to satisfaction or waiver of the same or similar conditions.
 
EXTENSION, AMENDMENT AND TERMINATION OF THE MERGERS
 
  The Operating Partnership, Host REIT and the General Partners reserve the
right, subject to limitations under applicable law, to (i) amend the terms of
any Merger or the REIT Conversion by giving written notice of such amendment
to the Limited Partners, (ii) extend the Solicitation Period or delay
consummation of any Merger, (iii) terminate the solicitation of consents
pursuant to this Consent Solicitation as to any or all of the Partnerships and
(iv) terminate the REIT Conversion or any Merger whether or not all of the
conditions thereto have been satisfied or waived. If the terms of any Merger
or the REIT Conversion are amended in a manner determined by the Operating
Partnership, Host REIT and the General Partners to constitute a material
adverse change with respect to any Limited Partner, they will promptly
disclose such amendment in a manner reasonably calculated to inform the
applicable Limited Partners of such amendment and will extend the Solicitation
Period for an appropriate time period if the Solicitation Period would
otherwise expire during such extension period.
 
  If an event occurs or any matter is brought to the attention of the
Operating Partnership or Host REIT that, in its judgment, materially adversely
affects one or more of the Partnerships, any Merger or the REIT Conversion,
the Operating Partnership and Host REIT reserve the right (but does not have
the obligation) to terminate the solicitation of consents with respect to the
Merger of any Partnership, decide not to consummate the REIT Conversion,
modify the terms of the REIT Conversion or any Merger or take such other
actions as may be in their best interests.
 
EFFECT OF REIT CONVERSION ON NON-PARTICIPATING PARTNERSHIPS
 
  Each Non-Participating Partnership will continue to operate as a separate
legal entity with its own assets and liabilities and with its current Limited
Partners. There will be no change in its investment objectives, policies or
restrictions or the fees or distributions payable to the applicable General
Partner or Manager. Each Non-Participating Partnership will remain subject to
the terms of its current partnership agreement. Host may contribute some or
all of its ownership interest in a Non-Participating Partnership to a Non-
Controlled Subsidiary.
 
                                      104

<PAGE>
 
EXPENSES
 
  The Operating Partnership, Host REIT and the Partnerships will incur
substantial costs and expenses in connection with structuring and consummating
the Mergers, including legal fees, accounting fees and other costs and
expenses associated with these transactions.
 
  The Merger Expenses, whether or not the Mergers are approved by the
Partnerships, will be borne as follows: If some or all of the Mergers are
consummated, the Merger Expenses of the Participating Partnerships would be
borne by the Operating Partnership. Transfer and recordation taxes and fees
will be taken into account in determining the Exchange Value for the
applicable Partnership whose Exchange Value is based upon Adjusted Appraised
Value. Those Partnerships which have an Exchange Value equal to their
respective estimated Continuation Values, Atlanta Marquis, MHP and PHLP, will
have their transfer and recordation taxes and fees paid by the Operating
Partnership. If a Merger is rejected, then the General Partner of such
Partnership would pay such Partnership's share of the Merger Expenses. The
REIT Conversion Expenses, other than the Merger Expenses, will be borne by
Host and the Operating Partnership.
 
  Assuming the Full Participation Scenario, the expenses of the Mergers are
estimated to be as follows:
 
                                MERGER EXPENSES
 

<TABLE>
<S>                                                                  <C>
Information and Tabulation Agents................................... $  200,000
Printing, postage and brochures.....................................  2,500,000
Travel, public relations, graphics, etc.............................    200,000
Transfer fees, taxes and title......................................  1,500,000
Legal fees and expenses.............................................  2,500,000
Appraisals and Fairness Opinion (including fees and expenses).......    465,000
Accounting fees and expenses........................................    600,000
Miscellaneous.......................................................    250,000
                                                                     ----------
  Total Merger expenses............................................. $8,215,000
                                                                     ==========
</TABLE>

 
ACCOUNTING TREATMENT
 
  The contribution by Host of its assets (other than its senior living assets
and cash or other consideration to be distributed to its shareholders and
certain other assets) to the Operating Partnership in exchange for OP Units
and the subsequent contributions by the Operating Partnership of certain of
such assets to the Non-Controlled Subsidiaries will be accounted for at Host's
historical (carryover) basis. The acquisition of the Hotel Partnerships in
exchange for OP Units and the Blackstone Acquisition will be accounted for as
purchases.
 
                                      105

<PAGE>
 
                            BUSINESS AND PROPERTIES
 
BUSINESS OF THE OPERATING PARTNERSHIP
 
  Host REIT and the Operating Partnership have been formed primarily to
continue, in an UPREIT structure, the full-service hotel ownership business
currently conducted by Host. The primary business objectives of Host REIT and
the Operating Partnership will be to (i) achieve long-term sustainable growth
in Funds From Operations and cash flow per OP Unit or Common Share, (ii)
increase asset values by improving and expanding the initial Hotels, as
appropriate, (iii) acquire additional existing and newly developed upscale and
luxury full-service hotels in targeted markets (primarily focusing on downtown
hotels in core business districts in major metropolitan markets and select
airport and resort /convention locations), (iv) develop and construct upscale
and luxury full-service hotels and (v) potentially pursue other real estate
investments. Host REIT will operate as a self-managed and self-administered
REIT and its operations will be conducted solely through the Operating
Partnership and its subsidiaries. Following the REIT Conversion, the Hotels
are expected to consist of approximately 125 hotels, representing
approximately 58,500 rooms, located throughout the United States and Canada.
 
  The Hotels will be generally operated under the Marriott, Ritz-Carlton, Four
Seasons, Swissotel and Hyatt brand names and managed by subsidiaries of
Marriott International and other companies. These brand names are among the
most respected and widely recognized brand names in the lodging industry.
Subsequent to the REIT Conversion, the Hotels will be leased by the Operating
Partnership to the Lessees and will be managed on behalf of the Lessees by
subsidiaries of Marriott International and other companies (the "Managers").
 
  Host REIT will be the sole general partner of the Operating Partnership and
will manage all aspects of the business of the Operating Partnership. This
will include decisions with respect to (i) sales and purchases of hotels, (ii)
the financing of the hotels, (iii) the leasing of the hotels and (iv) capital
expenditures for the hotels (subject to the terms of the leases and the
Management Agreements). Host REIT will be managed by its Board of Directors
and will have no employees who are not also employees of the Operating
Partnership.
 
  Under current federal income tax law, REITs are not permitted to derive
revenues directly from the operations of hotels. Therefore, the Operating
Partnership will lease the Hotels, through its subsidiaries, to the Lessees
under the Leases. See "--The Leases" below. The Lessees will pay rent to the
Operating Partnership generally equal to a specified Minimum Rent plus, to the
extent it would exceed Minimum Rent, Percentage Rent. The Lessees will operate
the Hotels pursuant to the Management Agreements with the Managers. Each of
the Management Agreements provides for certain base and incentive management
fees, plus reimbursement of certain costs, as further described below. See "--
The Management Agreements." Such fees and cost reimbursements will be the
obligation of the Lessees and not the Operating Partnership (although the
obligation to pay such fees could adversely affect the ability of the Lessees
to pay the required rent to the Operating Partnership).
 
  The Leases, through the Percentage Rent provisions, are designed to allow
the Operating Partnership to participate in any growth in room sales at the
Hotels above specified levels, which management expects can be achieved
through increases in room rates and occupancies. Although the economic trends
affecting the hotel industry will be the major factor in generating growth in
lease revenues, the abilities of the Lessees and the Managers will also have a
material impact on future sales growth.
 
  In addition to external growth generated by new acquisitions, the Operating
Partnership intends to carefully and periodically review its portfolio to
identify opportunities to selectively enhance existing assets to improve
operating performance through major capital improvements. The Operating
Partnership's Leases will provide the Operating Partnership with the right to
approve and finance major capital improvements.
 
GENERAL
 
  The Company's primary focus is on the acquisition of upscale and luxury
full-service hotel lodging properties. Since the beginning of 1994 through the
date hereof, the Company has acquired 79 full-service hotels
 
                                      106

<PAGE>
 
representing more than 36,000 rooms for an aggregate purchase price of
approximately $3.9 billion. Based upon data provided by Smith Travel Research,
the Company believes that its full-service hotels outperform the industry's
average occupancy rate by a significant margin and averaged 78.4% occupancy
for 1997 compared to a 71.1% average occupancy for competing hotels in the
upscale and luxury full-service segment of the lodging industry, the segment
which is most representative of the Company's full-service hotels.
 
  The upscale and luxury full-service segments of the lodging industry are
benefiting from a favorable supply and demand relationship in the United
States, especially in the principal sub-markets in which the Company operates,
considering hotels of similar size and quality. Management believes that
demand increases have primarily resulted from a strong domestic economic
environment and a corresponding increase in business travel. In spite of
increased demand for rooms, the room supply growth rate in the full-service
segment has not similarly increased. Management believes that this slower
increase in the supply growth rate in the full-service segment is attributable
to many factors, including (i) the limited availability of attractive building
sites for full-service hotels, (ii) the lack of available financing for new
full-service hotel construction and (iii) the availability of existing full-
service properties for sale at a discount to their replacement cost. The
relatively high occupancy rates of the Company's hotels, along with increased
demand for full-service hotel rooms, have allowed the Managers of the
Company's hotels to increase average daily room rates by selectively raising
room rates and by replacing certain discounted group business with higher-rate
group and transient business. As a result, on a comparable basis, room revenue
per available room ("REVPAR") for the Company's full-service properties
increased approximately 12.6% in 1997. The Company expects this supply/demand
imbalance in the upscale and luxury full-service segments to continue, which
should result in improved REVPAR at its hotel properties in the near term;
however, there can be no assurance that such supply/demand imbalance will
continue or that REVPAR will continue to improve.
 
BUSINESS OBJECTIVES
 
  The Operating Partnership's primary business objective is to increase its
"Funds from Operations" (defined as net income (or loss) computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of properties, plus real
estate related depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures) per OP Unit and cash flow and
enhance its value by:
 
  .  Acquiring additional existing upscale and luxury full-service hotels,
     including Marriott and Ritz-Carlton hotels and other hotels operated by
     leading management companies such as Four Seasons, Hyatt and Swissotel,
     which satisfy the Operating Partnership's investment criteria, including
     entering into joint ventures when the Operating Partnership believes its
     return on investment will be maximized by doing so.
 
  .  Developing new upscale and luxury full-service hotels, including
     Marriott and Ritz-Carlton hotels and other hotels operated by leading
     management companies such as Four Seasons, Hyatt and Swissotel, which
     satisfy the Operating Partnership's investment criteria, employing
     transaction structures which mitigate risk to the Operating Partnership.
 
  .  Participating in the growth in sales for each of the hotels through
     leases which provide for the payment of rent based upon the lessees'
     gross hotel sales in excess of specified thresholds.
 
  .  Enhancing existing hotel operations by completing selective capital
     improvements which are designed to increase gross hotel sales.
 
BUSINESS STRATEGY
 
  The Company's primary business strategy is to continue to focus on
maximizing the profitability of its existing full-service hotel portfolio and
acquiring and, in limited cases, constructing, additional high quality, full-
service hotel properties, including controlling interests in joint ventures,
partnerships or other entities holding such hotel properties. Although
competition for acquisitions has increased, the Company believes that the
upscale and luxury full-service segments of the market offer opportunities to
acquire assets at attractive multiples of cash flow and at discounts to
replacement value, including underperforming hotels which can be improved by
 
                                      107

<PAGE>
 
conversion to the Marriott or Ritz-Carlton brands. The Company believes that
the upscale and luxury full-service segments are very promising because:
 
  .  There is a limited supply of new upscale and luxury full-service hotel
     rooms currently under construction in the sub-markets in which the
     Company operates. According to Smith Travel Research, from 1988 to 1991,
     upscale and luxury full-service room supply for the Company's
     competitive set increased an average of approximately 4% annually which
     resulted in an oversupply of rooms in the industry. However, this growth
     slowed to an average of approximately 1% from 1992 through 1997.
     Furthermore, the lead time from conception to completion of construction
     of a full-service hotel is generally three to five years or more in the
     markets in which the Company is principally pursuing acquisitions, which
     management believes will contribute to the continued low growth of room
     supply relative to the growth of room demand in the upscale and luxury
     full-service segments through 2000.
 
  .  Many desirable hotel properties continue to be held by inadvertent
     owners such as banks, insurance companies and other financial
     institutions, both domestic and international, which are motivated and
     willing sellers. In recent years, the Company has acquired a number of
     properties from inadvertent owners at significant discounts to
     replacement cost, including luxury hotels operating under the Ritz-
     Carlton brand. While in the Company's experience to date, these sellers
     have been primarily U.S. financial organizations, the Company believes
     that numerous international financial institutions are also inadvertent
     owners of U.S. lodging properties and have only recently begun to
     dispose of such properties. The Company expects that there will be
     increased opportunities to acquire lodging properties from international
     financial institutions and expects to dedicate significant resources to
     aggressively pursue these opportunities.
 
  .  The Company believes that there are numerous opportunities to improve
     the performance of acquired hotels by replacing the existing hotel
     manager with Marriott International and converting the hotel to the
     Marriott brand. Based upon data provided by Smith Travel Research, the
     Company believes that Marriott-flagged properties have consistently
     outperformed the industry. Demonstrating the strength of the Marriott
     brand name, the average occupancy rate for the Company's comparable
     full-service properties was 79.4%, compared to the average occupancy
     rate of 71.1% for competing upscale and luxury full-service hotels. In
     addition, the Company's comparable properties generated a 29% REVPAR
     premium over its competitive set. Accordingly, management anticipates
     that any additional full-service properties acquired by the Company in
     the future and converted from other brands to the Marriott brand should
     achieve higher occupancy rates and average room rates than has
     previously been the case for those properties as the properties begin to
     benefit from Marriott's brand name recognition, reservation system and
     group sales organization. The Company intends to pursue additional full-
     service hotel acquisitions, some of which may be conversion
     opportunities. Sixteen of the Company's 79 acquired full-service hotels
     from the beginning of 1994 through the date hereof were converted to the
     Marriott brand following their acquisition.
 
  .  The Company intends to increase its pool of potential acquisition
     candidates by considering acquisitions of select non-Marriott and non-
     Ritz-Carlton hotels that offer long-term growth potential and are
     consistent with the overall quality of its current portfolio. The
     Company will focus on upscale and luxury full-service properties in
     difficult to duplicate locations with high barriers to entry, such as
     hotels located in downtown, airport and resort/convention locations,
     which are operated by quality managers. In April 1998, the Company
     reached a definitive agreement with the Blackstone Entities to acquire
     interests in twelve upscale and luxury full-service hotels and a
     mortgage loan secured by a thirteenth hotel in the U.S. and certain
     other assets in a transaction valued at the time of the agreement,
     including the assumption of debt. The Company expects to pay
     approximately $862 million in cash and assumed debt, issue approximately
     43.7 million OP Units (based upon a negotiated value of $20.00 per OP
     Unit) and distribute up to 18% of the shares of Crestline common stock
     to the Blackstone Entities in exchange for the assets received from the
     Blackstone Entities. The Blackstone portfolio consists of two Ritz-
     Carltons, three Four Seasons (including one in which the Operating
     Partnership's only interest will be a mortgage loan), one Grand Hyatt,
     three Hyatt Regencies and four Swissotel properties. See "--Blackstone
     Acquisition."
 
                                      108

<PAGE>
 
  The Company believes it is well qualified to pursue its acquisition and
development strategy. Management has extensive experience in acquiring and
financing lodging properties and believes its industry knowledge,
relationships and access to market information provide a competitive advantage
with respect to identifying, evaluating and acquiring hotel assets.
 
  During 1997, the Company acquired, or purchased controlling interests in, 17
full-service hotels, containing 8,624 rooms, for an aggregate purchase price
of approximately $765 million (including the assumption of approximately $418
million of debt). The Company also completed the acquisition of the 504-room
New York Marriott Financial Center, following the acquisition of the mortgage
on the hotel for $101 million in late 1996.
 
  The Company holds minority interests and serves as a general partner or
limited partner in various partnerships that own, as of the date hereof, an
aggregate of 240 hotel properties, 20 of which are full-service properties,
managed or franchised by Marriott International. In 1997, the Company
acquired, or obtained controlling interests in, five affiliated partnerships,
adding 10 hotels to its portfolio. In January, the Company acquired a
controlling interest in MHP. MHP owns the 1,503-room Marriott Orlando World
Center and a 50.5% interest in the 624-room Marriott Harbor Beach Resort. In
April, the Company acquired a controlling interest in the 353-room Hanover
Marriott. In the fourth quarter, the Company acquired the Chesapeake Hotel
Limited Partnership ("CHLP"). CHLP owns the 430-room Boston Marriott Newton;
the 681-room Chicago Marriott O'Hare; the 595-room Denver Marriott Southeast;
the 588-room Key Bridge Marriott in Virginia; the 479-room Minnesota Airport
Marriott; and the 221-room Saddle Brook Marriott in New Jersey. In December
1997, the Company obtained a controlling interest in the partnership that owns
the 884-room Marriott's Desert Springs Resort and Spa in California.
 
  In 1998, the Company acquired a controlling interest in the partnership that
owns the Atlanta Marriott Marquis, containing 1,671 rooms, for approximately
$239 million, including the assumption of approximately $164 million of
mortgage debt. The Company also acquired a controlling interest in a
partnership that owns three full-service hotels, containing a total of 1,029
rooms, for approximately $50 million and the outstanding interest in the 289-
room Park Ridge Marriott in New Jersey for $24 million. More recently, the
Company acquired the 281-room Ritz-Carlton, Phoenix for $75 million, the 397-
room Ritz-Carlton in Tysons Corner, Virginia for $96 million and the 487-room
Torrance Marriott for $52 million. In the third quarter of 1998, the Company
acquired the 308-room Ritz-Carlton, Dearborn for approximately $65 million,
the 336-room Ritz-Carlton, San Francisco for approximately $161 million and
the 404-room Memphis Marriott (which was converted to the Marriott brand upon
acquisition) for approximately $16 million. The Company is continually engaged
in discussions with respect to other potential acquisition properties.
 
  In addition to investments in partnerships in which it already held minority
interests, the Company has been successful in adding properties to its
portfolio through partnership arrangements with either the seller of the
property or the incoming managers (typically Marriott International or a
Marriott franchisee). During 1997, the Company acquired interests in five such
partnerships which owned five full-service hotels, including the 197-room
Waterford Hotel in Oklahoma City, Oklahoma; the 404-room Norfolk Waterside
Marriott in Norfolk, Virginia; the 380-room Hartford/Farmington Marriott near
Farmington, Connecticut; the 380-room former Manhattan Beach Radisson Plaza in
Manhattan Beach, California; and the 299-room Ontario Airport Marriott in
Ontario, California. The Waterford Hotel and the Manhattan Beach Radisson
Plaza have been converted to the Marriott brand. As discussed above, in 1998,
the Company acquired a controlling interest in a partnership that owns three
hotels: the 359-room Albany Marriott in New York; the 350-room San Diego
Marriott Mission Valley in California; and the 320-room Minneapolis Marriott
Southwest in Minnesota. The Company has the financial flexibility and, due to
its existing partnership investment portfolio, the administrative
infrastructure in place to accommodate such arrangements. The Company views
this ability as a competitive advantage and expects to enter into similar
arrangements to acquire additional properties in the future.
 
  The Company believes there is a significant opportunity to acquire
additional Ritz-Carlton hotels due to the Company's relationship with Marriott
International and due to the number of Ritz-Carlton brand hotels currently
owned by inadvertent owners. The Company also intends to purchase upscale and
luxury full-service hotels with the intention of converting them to the Ritz-
Carlton brand.
 
                                      109

<PAGE>
 
  The Company currently owns six international properties, with 2,550 rooms,
located in Canada and Mexico. The overbuilding and economic stress currently
being experienced in some European and Pacific Rim countries may eventually
lead to additional international acquisition opportunities. The Company will
acquire international properties only when such acquisitions achieve
satisfactory returns after adjustments for currency and country risks.
 
  In addition to acquisitions, the Company plans to selectively develop new
upscale and luxury full-service hotels in major urban markets and
convention/resort locations with strong growth prospects, unique or difficult
to duplicate sites, high barriers to entry for other new hotels and limited
new supply. The Company intends to target only development projects that show
promise of providing financial returns that represent a premium to
acquisitions. In 1997, the Company announced that it will develop the 717-room
Tampa Convention Center Marriott for $104 million, including a $16 million
subsidy provided by the City of Tampa.
 
  The Company may also expand certain existing hotel properties where strong
performance and market demand exists. Expansions to existing properties
creates a lower risk to the Company as the success of the market is generally
known and development time is significantly shorter than new construction. The
Company recently committed to add approximately 500 rooms and an additional
15,000 square feet of meeting space to the 1,503-room Marriott Orlando World
Center.
 
HOTEL LODGING INDUSTRY
 
  The upscale and luxury full-service segments of the lodging industry
continue to benefit from a favorable cyclical imbalance in the supply/demand
relationship in which room demand growth has exceeded supply growth, which has
remained fairly limited. The lodging industry posted strong gains in revenues
and profits in 1997, as demand growth continued to outpace additions to
supply. The Company believes that upscale and luxury full-service hotel room
supply growth will remain limited through at least 1998. Accordingly, the
Company believes this supply/demand imbalance will result in improving
occupancy and room rates which should result in improved REVPAR and operating
profit.
 
  Following a period of significant overbuilding in the mid-to-late 1980s, the
lodging industry experienced a severe downturn. Since 1991, new hotel
construction, excluding casino-related construction, has been modest and
largely offset by the number of rooms taken out of service each year. Due to
an increase in travel and an improving economy, hotel occupancy has grown
steadily over the past several years and room rates have improved. The Company
believes that room demand for upscale and luxury full-service properties will
continue to grow at approximately the rate of inflation. Increased room demand
should result in increased hotel occupancy and room rates. According to Smith
Travel Research, upscale and luxury full-service occupancy for the Company and
its competitive set grew in 1997 to 72.5%, while room rate growth continued to
exceed inflation. While room demand has been rising, new hotel supply growth
has been minimal. Smith Travel Research data shows that upscale and luxury
full-service room supply increased an average of only 1% annually from 1991
through 1997. According to Coopers & Lybrand, L.L.P., hotel supply in the
upscale and luxury full-service segment is expected to grow annually at 1.8%
to 1.9% through 1998. The increase in room demand and minimal growth in new
hotel supply has also led to increased room rates. The Company believes that
these recent trends will continue, with overall occupancy increasing slightly
and room rates increasing at more than one and one-half times the rate of
inflation in 1998.
 
  As a result of the overbuilding in the mid-to-late 1980s, many full-service
hotels have not performed as originally planned. Cash flow has often not
covered debt service requirements, causing lenders (e.g., banks, insurance
companies and savings and loans) to foreclose and become "inadvertent owners"
who are motivated to sell these assets. In the Company's experience to date,
these sellers have been primarily U.S. financial organizations. The Company
believes that numerous international financial institutions are also
inadvertent owners of lodging properties and expects there will be increased
opportunities to acquire lodging properties from international financial
institutions. While the interest of inadvertent owners to sell has created
attractive acquisition opportunities with strong current yields, the lack of
supply growth and increasing room night demand should contribute to higher
long-term returns on invested capital. Given the relatively long lead time to
develop urban, convention and resort hotels, as well as the lack of project
financing, management believes the growth in room supply in this segment will
be limited, at least until the year 2000.
 
                                      110

<PAGE>
 
HOTEL LODGING PROPERTIES
 
  The Company's lodging portfolio consists of 104 upscale and luxury full-
service hotels with over 50,000 rooms. The Company's hotel lodging properties
represent quality assets in the upscale and luxury full-service lodging
segments. All but three of the Company's hotel properties are currently
operated under the Marriott or Ritz-Carlton brand names.
 
  The following tables set forth certain information with respect to the
operations of the Hotels to be owned by the Operating Partnership following
the REIT Conversion on a historical and pro forma basis for fiscal year 1997
and for the First Two Quarters 1998.
 

<TABLE>
<CAPTION>
                                                                 FISCAL YEAR 1997
                                                    -------------------------------------------
                                                                              AVERAGE
      PARTNERSHIP        NO. OF HOTELS NO. OF ROOMS HOTEL REVENUES OCCUPANCY DAILY RATE REVPAR
      -----------        ------------- ------------ -------------- --------- ---------- -------
                                                    (IN THOUSANDS)
<S>                      <C>           <C>          <C>            <C>       <C>        <C>
Atlanta Marquis(1)......        1          1,671      $   85,397     69.8%    $127.36   $ 88.95
Chicago Suites..........        1            256           6,568     83.2      146.83    122.14
Desert Springs(2).......        1            884          33,369     73.0      169.55    123.77
Hanover.................        1            353           6,735     80.8      123.55     99.82
MDAH....................        6          1,692          26,699     76.4      102.97     78.63
MHP(3)..................        2          2,127          75,211     80.3      155.44    124.84
MHP2(4).................        4          3,411          69,014     80.7      133.75    107.91
PHLP(5).................        8          3,181          50,323     78.5      105.21     82.63
Blackstone Hotels.......       12          5,520         147,524     72.8      166.72    121.33
Host (historical)(6)....       95         45,718         946,726     78.4      133.74    104.84
Host (pro forma)(6)(7)
 .......................      126         58,603       1,324,601     77.7      133.01    103.30
</TABLE>

 

<TABLE>
<CAPTION>
                                                              FIRST TWO QUARTERS 1998
                                                    -------------------------------------------
                                                                              AVERAGE
      PARTNERSHIP        NO. OF HOTELS NO. OF ROOMS HOTEL REVENUES OCCUPANCY DAILY RATE REVPAR
      -----------        ------------- ------------ -------------- --------- ---------- -------
                                                    (IN THOUSANDS)
<S>                      <C>           <C>          <C>            <C>       <C>        <C>
Atlanta Marquis(1)......        1          1,671       $ 41,957      69.1%    $138.66   $ 95.81
Chicago Suites..........        1            256          3,358      82.0      159.98    131.18
Desert Springs(2).......        1            884         65,051      79.7      214.47    170.93
Hanover.................        1            353          3,391      71.5      142.62    101.97
MDAH....................        6          1,692         14,521      77.0      114.66     88.29
MHP(3)..................        2          2,127         47,968      85.0      176.75    150.24
MHP2(4).................        4          3,411         37,946      80.4      152.56    122.66
PHLP(5).................        8          3,181         29,480      81.1      117.81     95.54
Blackstone Hotels.......       12          5,520         79,346      72.0      175.53    126.41
Host (historical)(6)....      101         49,019        577,472      78.6      145.04    114.02
Host (pro forma)(6)(7)
 .......................      126         58,603        715,360      77.8      146.18    113.67
</TABLE>

- --------
(1) Atlanta Marquis has an 80% residual interest in the Atlanta Marriott
    Marquis Hotel. Revenues represents sales generated by the Hotel.
(2) Subsequent to November 25, 1997, revenues reflect gross hotel sales. Prior
    to that date, revenues reflected hotel rental income.
(3) Includes Marriott's Harbor Beach Resort, in which MHP owns a 50.5%
    interest.
(4) Includes the Santa Clara Marriott, in which MHP2 owns a 50% interest and
    Host owns the remaining 50% interest.
(5) Includes the Tampa Westshore Marriott and the Raleigh Crabtree Marriott,
    which are currently consolidated by Host. A subsidiary of Host provided
    100% nonrecourse financing totaling approximately $35 million to PHLP, in
    which Host owns the sole general partner interest, for the acquisition of
    these two hotels.
(6) Includes the hotels owned by Desert Springs, Hanover, MHP and MHP2 for
    both fiscal year 1997 and First Two Quarters 1998 and Atlanta Marquis for
    First Two Quarters 1998.
(7) Includes the hotels owned by all Hotel Partnerships and the Blackstone
    Hotels, assuming the Full Participation Scenario.
 
 
                                      111

<PAGE>
 
  One commonly used indicator of market performance for hotels is room revenue
per available room, or REVPAR, which measures daily room revenues generated on
a per room basis. This does not include food and beverage or other ancillary
revenues generated by the property. REVPAR represents the combination of the
average daily room rate charged and the average daily occupancy achieved. The
Company has reported annual increases in REVPAR since 1993.
 
  To maintain the overall quality of the Company's lodging properties, each
property undergoes refurbishments and capital improvements on a regularly
scheduled basis. Typically, refurbishing has been provided at intervals of
five years, based on an annual review of the condition of each property. For
the First Two Quarters 1998, First Two Quarters 1997, fiscal years 1997, 1996
and 1995, the Company spent $79 million, $60 million, $131 million, $87
million and $56 million, respectively, on capital improvements to existing
properties. As a result of these expenditures, the Company will be able to
maintain high quality rooms at its properties.
 
  The Company's hotels average nearly 500 rooms. Twelve of the Company's
hotels have more than 750 rooms. Hotel facilities typically include meeting
and banquet facilities, a variety of restaurants and lounges, swimming pools,
gift shops and parking facilities. The Company's hotels primarily serve
business and pleasure travelers and group meetings at locations in downtown
and suburban areas, near airports and at resort convention locations
throughout the United States. The properties are generally well situated in
locations where there are significant barriers to entry by competitors
including downtown areas of major metropolitan cities at airports and
resort/convention locations where there are limited or no development sites.
Marriott International serves as the manager for 88 of the 104 hotels owned by
the Company and all but three are part of Marriott International's full-
service hotel system. The average age of the properties is 15 years, although
several of the properties have had substantial, more recent renovations or
major additions. In 1997, for example, the Company substantially completed a
two-year $30 million capital improvement program at the New York Marriott
Marquis which included renovations to all guestrooms, refurbishment of
ballrooms, restaurant updates and retail additions. In early 1998, the Company
completed a $15 million capital improvement program at the Denver Marriott
Tech Center. The program included replacement of guestroom interiors,
remodeling of the lobby, ballroom, meeting rooms and corridors, as well as
renovations to the exterior of the building.
 
  The chart below sets forth performance information for the Company's
comparable hotels:
 

<TABLE>
<CAPTION>
                                        FIRST TWO QUARTERS      FISCAL YEAR
                                        --------------------  ----------------
                                          1998       1997      1997     1996
                                        ---------  ---------  -------  -------
   <S>                                  <C>        <C>        <C>      <C>
   COMPARABLE FULL-SERVICE HOTELS(1)
   ---------------------------------
   Number of properties................        78         78       54       54
   Number of rooms.....................    38,589     38,589   27,074   27,044
   Average daily rate.................. $  146.64  $  135.21  $134.49  $121.58
   Occupancy percentage................      79.6%      79.8%    79.4%    78.0%
   REVPAR.............................. $  116.66  $  107.85  $106.76  $ 94.84
   REVPAR % change.....................       8.2%       --      12.6%     --
</TABLE>

- --------
(1) Consists of the 78 properties owned by the Company for the entire First
    Two Quarters 1998 and First Two Quarters 1997, respectively, and the 54
    properties owned by the Company for the entire 1997 and 1996 fiscal years,
    respectively, except for the 85-room Sacramento property, which is
    operated as an independent hotel. These properties, for the respective
    periods, represent the "comparable properties." Properties held for less
    than all of the periods discussed above, respectively, are not considered
    comparable.
 
                                      112

<PAGE>
 
  The chart below sets forth certain performance information for the Company's
hotels:
 

<TABLE>
<CAPTION>
                                FIRST TWO QUARTERS          FISCAL YEAR
                                --------------------  -------------------------
                                  1998       1997      1997     1996     1995
                                ---------  ---------  -------  -------  -------
<S>                             <C>        <C>        <C>      <C>      <C>
Number of properties...........       101         86       95       79       55
Number of rooms................    49,019     40,387   45,718   37,210   25,932
Average daily rate(1)..........   $145.04    $135.74  $133.74  $119.94  $110.30
Occupancy percentage(1)........      78.6%      79.7%    78.4%    77.3%    75.5%
REVPAR(1)......................   $114.02    $108.15  $104.84  $ 92.71  $ 83.32
</TABLE>

- --------
(1) Excludes the information related to the 85-room Sacramento property, which
    is operated as an independent hotel.
 
  Revenues in 1997 for nearly all of the Company's hotels were improved or
comparable to 1996. This improvement was achieved through steady increases in
customer demand, as well as yield management techniques applied by the manager
to maximize REVPAR on a property-by-property basis. REVPAR for comparable
properties increased 12.6% for fiscal year 1997 as average room rates
increased almost 11% and average occupancy increased over one percentage
point. Overall, this resulted in outstanding sales growth. Sales expanded at a
9% rate for comparable hotels and house profit margins increased by over two
percentage points. REVPAR in 1997 for all of the Company's properties
(including both comparable and non-comparable properties) increased 12.9% as
average room rates increased over 11% and average occupancy increased over one
percentage point. For the First Two Quarters 1998, REVPAR for comparable
properties increased 8.2% as average room rates increased 8.5% and average
occupancy decreased slightly. Sales for the First Two Quarters 1998 expanded
at 9% rate for comparable hotels and the house profit margin increased by one
percentage point. REVPAR for the First Two Quarters 1998 for all of the
Company's properties increased 5.4% as average room rates increased nearly 7%
and average occupancy decreased over one percentage point. The Company
believes that its hotels consistently outperform the industry's average REVPAR
growth rates. The relatively high occupancy rates of the Company's hotels,
along with increased demand for upscale and luxury full-service hotel rooms,
allowed the managers of the Company's hotels to increase average room rates by
selectively raising room rates and replacing certain discounted group business
with higher-rate group and transient business. The Company believes that these
favorable REVPAR growth trends should continue due to the limited new
construction of full-service properties and the expected improvements from the
conversion of seven properties to the Marriott brand in 1996 and 1997.
 
  A number of the Company's full-service hotel acquisitions were converted to
the Marriott brand upon acquisition--most recently the Coronado Island
Marriott Resort and the Manhattan Beach Marriott were converted in the second
half of 1997. The conversion of these properties to the Marriott brand is
intended to increase occupancy and room rates as a result of Marriott
International's nationwide marketing and reservation systems, its Marriott
Rewards program, group sales force, as well as customer recognition of the
Marriott brand name. The Marriott brand name has consistently delivered
occupancy and REVPAR premiums over other brands. Based upon data provided by
Smith Travel Research, the Company's comparable properties have an eight
percentage point occupancy premium and a 29% REVPAR premium over its
competitive set for 1997. The Company actively manages the conversions and, in
many cases, has worked closely with the manager to selectively invest in
enhancements to the physical product to make the property more attractive to
guests or more efficient to operate. The invested capital with respect to
these properties is primarily used for the improvement of common areas, as
well as upgrading soft and hard goods (i.e., carpets, drapes, paint, furniture
and additional amenities). The conversion process typically causes periods of
disruption to these properties as selected rooms and common areas are
temporarily taken out of service. Historically, the conversion properties have
shown improvements as the benefits of Marriott International's marketing and
reservation programs, group sales force and customer service initiatives take
hold. In addition, these properties have generally been integrated into
Marriott International's systems covering purchasing and distribution,
insurance, telecommunications and payroll processing.
 
 
                                      113

<PAGE>
 
  Following the REIT Conversion, the Lessees and the Managers will continue to
focus on cost control in an attempt to ensure that hotel sales increases serve
to maximize house and operating profit. While control of fixed costs serves to
improve profit margins as hotel sales increase, it also results in more
properties reaching financial performance levels that allow the Managers to
share in the growth of profits in the form of incentive management fees. The
Company believes this is a positive development as it strengthens the
alignment of the Company's, the Lessees' and the Managers' interests.
 
  During 1996, the Company completed its divestiture of limited service
properties through the sale and leaseback of 16 Courtyard and 18 Residence Inn
properties. These properties, along with 37 Courtyard properties sold and
leased back during 1995, continue to be reflected in the Company's revenues
and are managed by Marriott International under long-term management
agreements. Following the REIT Conversion, these properties will be subleased
to a subsidiary of Crestline. During 1997, limited service properties
represented 2% of the Company's hotel EBITDA, compared to 5% in 1996, and the
Company expects this percentage to continue to decrease as the Company
continues to acquire primarily full-service properties.
 
  The following table presents full-service hotel information by geographic
region for fiscal year 1997:
 

<TABLE>
<CAPTION>
                                                                        AGGREGATE
                                   AVERAGE                              COMPLETED
                                    NUMBER            AVERAGE           RENOVATION
                          NUMBER   OF GUEST  AVERAGE   DAILY           EXPENDITURES
GEOGRAPHIC REGION        OF HOTELS  ROOMS   OCCUPANCY  RATE   REVPAR  (IN THOUSANDS)
- -----------------        --------- -------- --------- ------- ------- --------------
<S>                      <C>       <C>      <C>       <C>     <C>     <C>
Atlanta.................      7      441      76.5%   $131.69 $100.74    $ 4,115
Florida.................     11      511      80.9     131.78  106.64     14,007
Mid-Atlantic............     12      364      76.1     111.71   85.00      3,477
Midwest.................     10      418      74.3     107.65   79.99      2,751
New York................     10      708      84.7     173.85  147.22     15,232
Northeast...............      7      367      75.2      96.75   72.72      9,260
South Central...........     15      525      76.5     120.81   92.39     15,190
Western.................     21      519      79.5     140.07  111.39     19,806
Latin America...........      2      436      62.7     129.54   81.17        290
  Average-all regions...    --       485      78.4     133.74  104.84        --
</TABLE>

 
                                      114

<PAGE>
 
HOTEL PROPERTIES
 
  The following table sets forth, as of September 28, 1998, the location and
number of rooms relating to each of the Company's hotels. All of the properties
are operated under Marriott brands by Marriott International, unless otherwise
indicated.
 

<TABLE>
<CAPTION>
LOCATION                                                                   ROOMS
- --------                                                                   -----
<S>                                                                        <C>
Alabama
 Grand Hotel Resort and Golf Club.........................................   306
Arizona
 Scottsdale Suites........................................................   251
 The Ritz-Carlton, Phoenix (1)............................................   281
California
 Coronado Island Resort (2)(6)............................................   300
 Costa Mesa Suites........................................................   253
 Desert Springs Resort and Spa (3)(4).....................................   884
 Manhattan Beach (5)(6)...................................................   380
 Marina Beach (6).........................................................   368
 Newport Beach............................................................   570
 Newport Beach Suites.....................................................   250
 Ontario Airport (7)......................................................   299
 Sacramento Airport (6)(8)................................................    85
 San Diego Marriott Hotel and Marina (6).................................. 1,355
 San Diego Mission Valley (9).............................................   350
 San Francisco Airport....................................................   684
 San Francisco Fisherman's Wharf (10).....................................   285
 San Francisco Moscone Center (6)......................................... 1,498
 San Ramon (6)............................................................   368
 Santa Clara (6)..........................................................   754
 The Ritz-Carlton, Marina del Rey (1)(6)(11)..............................   306
 The Ritz-Carlton, San Francisco (1)......................................   336
 Torrance.................................................................   487
Colorado
 Denver Southeast (6)(12).................................................   595
 Denver Tech Center.......................................................   625
 Denver West (6)..........................................................   307
 Marriott's Mountain Resort at Vail.......................................   349
Connecticut
 Hartford/Farmington (7)..................................................   380
 Hartford/Rocky Hill (6)..................................................   251
Florida
 Fort Lauderdale Marina...................................................   580
 Harbor Beach Resort (3)(4)(6)............................................   624
 Jacksonville (6)(9)......................................................   256
 Miami Airport (6)........................................................   782
 Orlando World Center (3)(4).............................................. 1,503
 Palm Beach Gardens (6)(10)...............................................   279
 Singer Island (Holiday Inn) (8)..........................................   222
 Tampa Airport (6)........................................................   295
 Tampa Westshore (6)(13)..................................................   309
 The Ritz-Carlton, Naples (1).............................................   463
Georgia
 Atlanta Marriott Marquis (3)(4).......................................... 1,671
 Atlanta Midtown Suites (6)...............................................   254
 Atlanta Norcross.........................................................   222
 Atlanta Northwest........................................................   400
 Atlanta Perimeter (6)....................................................   400
 JW Marriott Hotel at Lenox (6)...........................................   371
 The Ritz-Carlton, Atlanta (1)............................................   447
 The Ritz-Carlton, Buckhead (1)...........................................   553
Illinois
 Chicago/Deerfield Suites.................................................   248
 Chicago/Downers Grove Suites.............................................   254
 Chicago/Downtown Courtyard...............................................   334
 Chicago O'Hare (6)(12)...................................................   681
Indiana
 South Bend (6)...........................................................   300
Louisiana
 New Orleans (4).......................................................... 1,290
Maryland
 Bethesda (6).............................................................   407
 Gaithersburg/Washingtonian Center........................................   284
Massachusetts
 Boston/Newton (3)........................................................   430
Michigan
 Detroit Romulus..........................................................   245
 The Ritz-Carlton, Dearborn (1)...........................................   306
Minnesota
 Minneapolis/Bloomington (12).............................................   479
 Minneapolis City Center (6)..............................................   583
 Minneapolis Southwest (9)................................................   320
Missouri
 Kansas City Airport (6)..................................................   382
 St. Louis Pavilion (6)...................................................   672
New Hampshire
 Nashua...................................................................   251
New Jersey
 Hanover (3)(4)...........................................................   353
 Newark Airport (6).......................................................   590
 Park Ridge (6)...........................................................   289
 Saddle Brook (6)(12).....................................................   221
New York
 Albany (9)...............................................................   359
 New York Marriott Financial Center (14)..................................   504
 New York Marriott Marquis (6)............................................ 1,911
 Marriott World Trade Center (6)..........................................   820
North Carolina
 Charlotte Executive Park (10)............................................   298
 Raleigh Crabtree Valley (13).............................................   375
Oklahoma
 Oklahoma City............................................................   354
 Oklahoma City Waterford (5)..............................................   197
Oregon
 Portland.................................................................   503
Pennsylvania
 Philadelphia (Convention Center) (6)..................................... 1,200
 Philadelphia Airport (6).................................................   419
 Pittsburgh City Center (6)(10)...........................................   400
Tennesee
 Memphis (2)(6)...........................................................   404
Texas
 Dallas/Fort Worth........................................................   492
 Dallas Quorum (6)........................................................   547
 El Paso (6)..............................................................   296
 Houston Airport (6)......................................................   566
 JW Marriott Houston (6)..................................................   503
 Plaza San Antonio (6)(10)................................................   252
 San Antonio Rivercenter (4)(6)...........................................   999
 San Antonio Riverwalk (6)................................................   500
</TABLE>

 
                                      115

<PAGE>
 
HOTEL PROPERTIES (CONTINUED)

<TABLE>
<CAPTION>
LOCATION                                                                  ROOMS
- --------                                                                  ------
<S>                                                                       <C>
Utah
 Salt Lake City (6).....................................................     510
Virginia
 Dulles Airport (6).....................................................     370
 Key Bridge (6)(12).....................................................     588
 Norfolk Waterside (6)(7)...............................................     404
 Pentagon City Residence Inn............................................     300
 The Ritz-Carlton, Tysons Corner (6)....................................     397
 Washington Dulles Suites...............................................     254
 Westfields.............................................................     335
 Williamsburg...........................................................     295
Washington, D.C.
 Washington Metro Center................................................     456
Canada
 Calgary................................................................     380
 Toronto Airport (15)...................................................     423
 Toronto Eaton Centre (6)...............................................     459
 Toronto Delta Meadowvale (8)...........................................     374
Mexico
 Mexico City Airport (15)...............................................     600
 JW Marriott Hotel, Mexico City (15)....................................     314
                                                                          ------
 TOTAL..................................................................  50,067
                                                                          ======
</TABLE>

 
  Properties that are currently not consolidated by Host and are subject to
the Mergers:
 

<TABLE>
<CAPTION>
HOTEL                                                           STATE      ROOMS
- -----                                                           -----      -----
<S>                                                         <C>            <C>
MDAH
 Fairview Park (6)......................................... Virginia         395
 Dayton.................................................... Ohio             399
 Research Triangle Park.................................... North Carolina   224
 Detroit Marriott Southfield............................... Michigan         226
 Detroit Marriott Livonia.................................. Michigan         224
 Fullerton (6)............................................. California       224
                                                                           -----
                                                                           1,692
                                                                           -----
<CAPTION>

HOTEL                                                           STATE      ROOMS
- -----                                                           -----      -----
<S>                                                         <C>            <C>
Chicago Suites
 Marriott O'Hare Suites (6)................................ Illinois         256
                                                                           -----
PHLP
 Albuquerque (6)........................................... New Mexico       411
 Greensboro-High Point (6)................................. North Carolina   299
 Houston Medical Center (6)................................ Texas            386
 Miami Biscayne Bay (6).................................... Florida          605
 Marriott Mountain Shadows Resort.......................... Arizona          337
 Seattle SeaTac Airport.................................... Washington       459
                                                                           -----
                                                                           2,497
                                                                           -----
 TOTAL.................................................................... 4,445
                                                                           =====
</TABLE>

 
  Properties that are included in the Blackstone portfolio are as follows:
 

<TABLE>
<CAPTION>
HOTEL                                                           STATE     ROOMS
- -----                                                           -----     -----
<S>                                                         <C>           <C>
Four Seasons, Atlanta...................................... Georgia         246
Four Seasons, Philadelphia................................. Pennsylvania    365
Grand Hyatt, Atlanta....................................... Georgia         439
Hyatt Regency, Burlingame.................................. California      793
Hyatt Regency, Cambridge................................... Massachusetts   469
Hyatt Regency, Reston...................................... Virginia        514
Swissotel, Atlanta......................................... Georgia         348
Swissotel, Boston.......................................... Massachusetts   498
Swissotel, Chicago......................................... Illinois        630
The Drake (Swissotel), New York............................ New York        494
The Ritz-Carlton, Amelia Island............................ Florida         449
The Ritz-Carlton, Boston (1)............................... Massachusetts   275
                                                                          -----
 TOTAL................................................................... 5,520
                                                                          =====
</TABLE>

- --------
 (1) Property is operated as a Ritz-Carlton. The Ritz-Carlton Hotel Company,
     L.L.C. manages the property and is wholly owned by Marriott
     International.
 (2) This property was acquired by the Company and converted to the Marriott
     brand in 1997 or 1998.
 (3) The Company acquired a controlling interest in the partnership that owns
     this property in 1997 or 1998. The Company previously owned a general
     partner interest in the partnership.
 (4) Property is held within a partnership and is currently consolidated by
     Host.
 (5) The Company acquired a controlling interest in the newly-formed
     partnership that owns this property in 1997. The property was converted
     to the Marriott brand and is operated as a Marriott franchised property.
 (6) The land on which the hotel is built is leased under one or more long-
     term lease agreements.
 (7) The Company acquired a controlling interest in the newly-formed
     partnership that owns this property in 1997. The property is operated as
     a Marriott franchised property.
 (8) Property is not operated under the Marriott brand and is not managed by
     Marriott International.
 (9) The Company acquired a controlling interest in the partnership that owns
     this property in 1998. The property will be operated as a Marriott
     franchised property.
(10) Property is operated as a Marriott franchised property.
(11) Property was acquired by the Company in 1997.
(12) The Company acquired the partnership that owns this property in 1997. The
     Company previously owned a general partner interest in the partnership.
(13) Property is owned by PHLP. A subsidiary of the Company provided 100%
     nonrecourse financing totaling approximately $35 million to PHLP, in
     which the Company owns the sole general partner interest, for the
     acquisition of these two hotels. The Company consolidates these
     properties in the accompanying financial statements.
(14) The Company completed the acquisition of this property in early 1997. The
     Company previously had purchased the mortgage loan secured by the hotel
     in late 1996.
(15) Property will be transferred to the Non-Controlled Subsidiary in
     conjunction with the REIT Conversion and no longer consolidated by the
     Company.
 
                                      116

<PAGE>
 
1998 ACQUISITIONS
 
  In January 1998, the Company acquired an additional interest in Atlanta
Marquis, which owns an interest in the 1,671-room Atlanta Marriott Marquis
Hotel, for approximately $239 million, including the assumption of
approximately $164 million of mortgage debt. The Company previously owned a
1.3% general and limited partnership interest. In March 1998, the Company
acquired a controlling interest in the partnership that owns three hotels: the
359-room Albany Marriott, the 350-room San Diego Marriott Mission Valley and
the 320-room Minneapolis Marriott Southwest for approximately $50 million. In
the second quarter of 1998, the Company acquired the partnership that owns the
289-room Park Ridge Marriott in Park Ridge, New Jersey for $24 million. The
Company previously owned a 1% managing general partner interest and a note
receivable interest in such partnership. In addition, the Company acquired the
281-room Ritz-Carlton, Phoenix for $75 million, the 397-room Ritz-Carlton in
Tysons Corner, Virginia for $96 million and the 487-room Torrance Marriott
near Los Angeles, California for $52 million. In the third quarter of 1998,
the Company acquired the 308-room Ritz-Carlton, Dearborn for approximately $65
million, the 336-room Ritz-Carlton, San Francisco for approximately $161
million and the 404-room Memphis Crowne Plaza (which was converted to the
Marriott brand upon acquisition) for approximately $16 million. In April 1998,
the Company, through the Operating Partnership, entered into an agreement to
acquire certain assets from various affiliates of The Blackstone Group. See
"--Blackstone Acquisition."
 
BLACKSTONE ACQUISITION
 
  In April 1998, the Company reached a definitive agreement with the
Blackstone Entities to acquire ownership of, or controlling interests in,
twelve hotels and two mortgage loans, one secured by one of the acquired
hotels and one secured by an additional hotel. In addition, the Company will
acquire a 25% interest in the Swissotel management company from the Blackstone
Entities, which the Company will transfer to Crestline in connection with the
distribution of Crestline common stock to the Company's shareholders and the
Blackstone Entities. If the Blackstone Acquisition is consummated, the
Operating Partnership expects to issue approximately 43.7 million OP Units
(based upon a negotiated value of $20.00 per OP Unit), assume debt and make
cash payments totaling approximately $862 million and distribute up to 18% of
the shares of Crestline common stock and other consideration to the Blackstone
Entities. The consideration received by the Blackstone Entities was determined
through negotiations between the Company and Blackstone because the
transaction could be negotiated privately and was not based upon appraisals of
the assets. Each OP Unit will be exchangeable for one Common Share (or its
cash equivalent, at the Company's election). Upon completion of the Blackstone
Acquisition and the REIT Conversion, the Blackstone Entities will own
approximately 16% of the outstanding OP Units. John G. Schreiber, co-chairman
of the Blackstone Real Estate Partners' investment committee, has joined the
Board of Directors of the Company.
 
  The Blackstone portfolio is one of the premier collections of hotel real
estate properties. It includes: 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); 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 (which will be transferred
to Crestline).
   
  At the closing of the Blackstone Acquisition, the Blackstone portfolio will
be contributed to the Operating Partnership and its hotels will be leased to
subsidiaries of Crestline and will continue to be managed on behalf of the
Lessees under their existing management agreements. The Operating
Partnership's acquisition of the Blackstone portfolio is subject to certain
conditions, including the REIT Conversion being consummated by March 31, 1999
and Host REIT qualifying as a REIT for 1999 (which condition may not be
satisfied if the REIT Conversion is not completed prior to January 1, 1999).
    
                                      117

<PAGE>
 
INVESTMENTS IN AFFILIATED PARTNERSHIPS
 
  The Company and certain of its subsidiaries also manage the Company's
partnership investments and conduct the partnership services business. As
such, as of the date hereof, the Company and/or its subsidiaries own an
investment in, and generally serve as a general partner or managing general
partner for, 18 unconsolidated partnerships which collectively own 20 Marriott
full-service hotels, 120 Courtyard hotels, 50 Residence Inns and 50 Fairfield
Inns. In addition, the Company holds notes receivable (net of reserves) from
partnerships totaling approximately $23 million at January 2, 1998. Thirteen
of the 20 full-service hotels owned by the unconsolidated partnerships will be
acquired by the Operating Partnership in connection with the REIT Conversion.
 
  As the managing general partner of these partnerships, the Company and its
subsidiaries are responsible for the day-to-day management of partnership
operations, which includes payment of partnership obligations from partnership
funds, preparation of financial reports and tax returns and communications
with lenders, limited partners and regulatory bodies. The Company or its
subsidiaries are usually reimbursed for the cost of providing these services.
 
  Hotel properties owned by the unconsolidated partnerships generally were
acquired from the Company or its subsidiaries in connection with limited
partnership offerings. These hotel properties are currently operated under
management agreements with Marriott International. As the managing general
partner of such partnerships, the Company or its subsidiaries oversee and
monitor Marriott International's performance pursuant to these agreements.
 
  The Company's interests in these partnerships range from 1% to 50%. Cash
distributions provided from these partnerships are tied to the overall
performance of the underlying properties and the overall level of debt owed by
the partnership. Partnership distributions to the Company were $1 million for
the First Two Quarters 1998, $4 million for the First Two Quarters 1997, $5
million in each of 1997 and 1996 and $3 million in 1995. All partnership debt
is nonrecourse to the Company and its subsidiaries, except that the Company is
contingently liable under various guarantees of debt obligations of certain of
these partnerships. Such commitments are limited in the aggregate to $60
million at January 2, 1998. Subsequent to year-end, such maximum commitments
were reduced to $20 million in connection with the refinancing and acquisition
of a controlling interest in the Atlanta Marriott Marquis. In most cases,
fundings of such guarantees represent loans to the respective partnerships.
 
MARKETING
 
  As of September 28, 1998, 88 of the Company's 104 hotel properties are
managed or franchised by Marriott International as Marriott or Ritz-Carlton
brand hotels. Thirteen of the 16 remaining hotels are operated as Marriott
brand hotels under franchise agreements with Marriott International. The
Company believes that these Marriott-managed and franchised properties will
continue to enjoy competitive advantages arising from their participation in
the Marriott International hotel system. Marriott International's nationwide
marketing programs and reservation systems as well as the advantage of the
strong customer preference for Marriott brands should also help these
properties to maintain or increase their premium over competitors in both
occupancy and room rates. Repeat guest business in the Marriott hotel system
is enhanced by the Marriott Rewards program, which expanded the previous
Marriott Honored Guest Awards program. Marriott Rewards membership includes
more than 7.5 million members.
 
  The Marriott reservation system provides Marriott reservation agents
complete descriptions of the rooms available for sale and up-to-date rate
information from the properties. The reservation system also features
connectivity to airline reservation systems, providing travel agents with
access to available rooms inventory for all Marriott and Ritz-Carlton lodging
properties. In addition, software at Marriott's centralized reservations
centers enables agents to immediately identify the nearest Marriott or Ritz-
Carlton brand property with available rooms when a caller's first choice is
fully occupied.
 
 
                                      118

<PAGE>
 
COMPETITION
 
  The Company's hotels compete with several other major lodging brands in each
segment in which they operate. Competition in the industry is based primarily
on the level of service, quality of accommodations, convenience of locations
and room rates. Although the competitive position of each of the Company's
hotel properties differs from market to market, the Company believes that its
properties compare favorably to their competitive set in the markets in which
they operate on the basis of these factors. The following table presents key
participants in segments of the lodging industry in which the Company
competes:
 

<TABLE>
<CAPTION>
SEGMENT                  REPRESENTATIVE PARTICIPANTS
- -------                  ---------------------------
<S>                      <C>
Luxury Full-Service..... Ritz-Carlton; Four Seasons
Upscale Full-Service.... Crowne Plaza; Doubletree; Hyatt; Hilton; Marriott Hotels, Resorts
                         and Suites; Radisson; Red Lion; Sheraton; Swissotel; Westin; Wyndham
</TABLE>

RELATIONSHIP WITH HM SERVICES
 
  On December 29, 1995, the Company distributed to its shareholders through a
special dividend (the "Special Dividend") all of the outstanding shares of
common stock of Host Marriott Services Corporation ("HM Services"), formerly a
direct, wholly owned subsidiary of the Company which, as of the date of the
Special Dividend, owned and operated the food, beverage and merchandise
concessions at airports, on tollroads and at stadiums and arenas and other
tourist attractions. The Special Dividend provided Company shareholders with
one share of common stock of HM Services for every five shares of Company
common stock held by such shareholders on the record date of December 22,
1995.
 
  For the purpose of governing certain of the ongoing relationships between
the Company and HM Services after the Special Dividend, and to provide an
orderly transition, the Company and HM Services have entered into various
agreements, including agreements to (i) allocate certain responsibilities with
respect to employee compensation, benefit and labor matters; (ii) define the
respective parties' rights and obligations with respect to deficiencies and
refunds of federal, state and other income or franchise taxes relating to the
Company's businesses for tax years prior to the Special Dividend and with
respect to certain tax attributes of the Company after the Special Dividend;
(iii) provide certain administrative and other support services to each other
for a transitional period on an as-needed basis; and (iv) to provide for the
issuance of HM Services common stock in connection with the exercise of
certain outstanding warrants to purchase shares of Company common stock.
 
RELATIONSHIP WITH MARRIOTT INTERNATIONAL; MARRIOTT INTERNATIONAL DISTRIBUTION
 
  Prior to October 8, 1993, the Company was named "Marriott Corporation." In
addition to conducting its existing hotel ownership business and the business
of HM Services (prior to its distribution to shareholders through the Special
Dividend), Marriott Corporation engaged in lodging and senior living services
management, timeshare resort development and operation, food service and
facilities management and other contract services businesses (the "Management
Business"). On October 8, 1993, the Company completed the Marriott
International Distribution (as defined herein). Marriott International
conducts the Management Business as a separate publicly traded company.
 
  The Company and Marriott International have entered into agreements which
provide, among other things, for Marriott International to (i) manage or
franchise various hotel properties owned or leased by the Company, (ii)
advance up to $225 million to the Company under the Marriott International
line of credit, which was terminated in 1997, (iii) provide first mortgage
financing of $109 million for the Philadelphia Marriott Hotel, which was
repaid in December 1996, (iv) provide financing for certain Company
acquisitions, (v) guarantee the Company's performance in connection with
certain loans or other obligations and (vi) provide certain limited
administrative services. The Company views its relationship with Marriott
International as providing various advantages, including access to high
quality management services, strong brand names and superior marketing and
reservation systems.
 
 
                                      119

<PAGE>
 
  Marriott International has the right to purchase up to 20% of the voting
stock of the Company if certain events involving a change of control (or
potential change of control) of the Company occur, subject to certain
limitations (including a limitation effective after the REIT Conversion
intended to help protect the qualification of Host REIT as a REIT). See
"Certain Relationships and Related Transactions--Relationship Between Host and
Marriott International."
 
EMPLOYEES
 
  Currently, the Company and its subsidiaries collectively have approximately
225 corporate employees, and approximately 300 other employees (primarily
employed at one of its non-U.S. hotels) which are covered by collective
bargaining agreements that are subject to review and renewal on a regular
basis. The Company believes that it has good relations with its labor unions
and has not experienced any material business interruptions as a result of
labor disputes. Following the REIT Conversion, the Operating Partnership
expects to have approximately 175 employees. The balance of the Company's
current employees are expected to become employees of Crestline following the
REIT Conversion.
 
ENVIRONMENTAL AND REGULATORY MATTERS
 
  Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws may impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, certain
environmental laws and common law principles could be used to impose liability
for release of asbestos-containing materials ("ACMs"), and third parties may
seek recovery from owners or operators of real properties for personal injury
associated with exposure to released ACMs. Environmental laws also may impose
restrictions on the manner in which property may be used or business may be
operated, and these restrictions may require expenditures. In connection with
its current or prior ownership or operation of hotels, the Company may be
potentially liable for any such costs or liabilities. Although the Company is
currently not aware of any material environmental claims pending or threatened
against it, no assurance can be given that a material environmental claim will
not be asserted against the Company.
 
LEGAL PROCEEDINGS
 
  Following the Mergers and the REIT Conversion, the Operating Partnership
will assume all liability arising under legal proceedings filed against Host
and will indemnify Host REIT as to all such matters. Host and the other
defendants believe all of the lawsuits in which Host is a defendant, including
the following lawsuits, are without merit and the defendants intend to defend
vigorously against such claims. However, no assurance can be given as to the
outcome of any of the lawsuits.
 
  Texas Multi-Partnership Lawsuit.  On March 16, 1998, limited partners in
several limited partnerships sponsored by Host filed a lawsuit, Robert M.
Haas, Sr. and Irwin Randolph Joint Tenants, et al. v. Marriott International,
Inc., et al., Case No. 98-CI-04092, in the 57th Judicial District Court of
Bexar County, Texas, alleging that the defendants conspired to sell hotels to
the partnerships for inflated prices and that they charged the partnerships
excessive management fees to operate the partnerships' hotels. The plaintiffs
further allege that the defendants committed fraud, breached fiduciary duties
and violated the provisions of various contracts. The plaintiffs are seeking
unspecified damages. Although the partnerships have not been named as
defendants, their partnership agreements include provisions which require the
partnerships to indemnify the general partners against losses, expenses and
fees. The defendants filed answers and defenses to the petition.
 
  Limited Service Transaction.  On February 11, 1998, a group of four
individuals, all of whom are limited partners in partnerships sponsored by
Host, filed a putative class action lawsuit, Ruben, et al. v. Host Marriott
Corporation, et al., Civil Action No. 16186, in Delaware State Chancery Court,
alleging that the proposed merger of the partnerships (the "Consolidation")
into an UPREIT structure constitutes a breach of the fiduciary duties
 
                                      120

<PAGE>
 
owed to the limited partners of the partnerships by Host and the general
partners of the partnerships. In addition, the plaintiffs allege that the
Consolidation breaches various agreements relating to the partnerships. The
plaintiffs are seeking, among other things, certification of a class,
injunctive relief to prohibit the consummation of the Consolidation or, in the
alternative, rescission of the merger and damages. Although the partnerships
have not been named as defendants, their partnership agreements include
provisions which require the partnerships to indemnify the general partners
against losses, expenses and fees. The defendants have filed a motion to
dismiss.
 
  Atlanta Marquis.  Certain limited partners of Atlanta Marriott Marquis
Limited Partnership ("AMMLP"), filed a putative class action lawsuit, Hiram
and Ruth Sturm v. Marriott Marquis Corporation, et al., Case No. 97-CV-3706,
in the U.S. District Court for the Northern District of Georgia, on December
12, 1997 against AMMLP's general partner, its directors and Host, regarding
the merger of AMMLP into a new partnership (the "AMMLP Merger") as part of a
refinancing of the partnership's debt. The plaintiffs allege that the
defendants misled the limited partners in order to induce them to approve the
AMMLP Merger, violated securities regulations and federal roll-up regulations
and breached their fiduciary duties to the partners. The plaintiffs sought to
enjoin, or in the alternative, rescind, the AMMLP Merger and damages. The
partnership agreement includes provisions which require the partnership to
indemnify the general partners against losses, expenses and fees. The
defendants have filed a motion to dismiss.
 
  Another limited partner of AAMLP sought similar relief and filed a separate
lawsuit, styled Poorvu v. Marriott Marquis Corporation, et al., Civil Action
No. 16095-NC, on December 19, 1997, in Delaware State Chancery Court. The
defendants have filed an answer to the complaint.
 
  Courtyard II.  A group of partners in Courtyard by Marriott II Limited
Partnership ("CBM II") filed a lawsuit, Whitey Ford, et al. v. Host Marriott
Corporation, et al., Case No. 96-CI-08327, on June 7, 1996, in the 285th
Judicial District Court of Bexar County, Texas, against Host, Marriott
International and others alleging breach of fiduciary duty, breach of
contract, fraud, negligent misrepresentation, tortious interference, violation
of the Texas Free Enterprise and Antitrust Act of 1983 and conspiracy in
connection with the formation, operation and management of CBM II and its
hotels. The plaintiffs are seeking unspecified damages. On January 29, 1998,
two other limited partners filed a petition in intervention seeking to convert
the lawsuit into a class action. The defendants have filed an answer, the
class has been certified, class counsel has been appointed and discovery is
underway. Trial is presently scheduled for May 1999.
 
  MHP2.  Two groups of limited partners of Marriott Hotel Properties II
Limited Partnership ("MHP2") are each asserting putative class claims in
lawsuits filed in the United States District Court for the Southern District
of Florida on May 10, 1996, Leonard Rosenblum, as Trustee of the Sylvia
Bernice Rosenblum Trust, et al. v. Marriott MHP Two Corporation, et al., Case
No. 96-8377-CIV-HURLEY, and, on December 18, 1997, Mackenzie Patterson Special
Fund 2, L.P. et al. v. Marriott MHP Two Corporation, et al., Case No. 97-8989-
CIV-HURLEY respectively, against Host and certain of its affiliates alleging
that the defendants violated their fiduciary duties and engaged in fraud and
coercion in connection with a tender offer for MHP2 units. The District Court
dismissed the Mackenzie Patterson case on August 4, 1998 and remanded the
Rosenblum case to Palm Beach County Circuit Court on July 25, 1998. The
defendants have moved to dismiss Rosenblum's fifth amended complaint in the
case now styled Leonard Rosenblum, as Trustee of the Sylvia Bernice Rosenblum
Trust, et al. v. Marriott MHP Two Corporation, et al., Case No. CL-96-4087-AD,
or, in the alternative, to deny class certification.
 
  PHLP.  On July 15, 1998, one limited partner in PHLP filed a class action
lawsuit styled Michael C. deBerardinis v. Host Marriott Corporation, Civil
Action No. WMN 98-2263, in the United States District Court for the District
of Maryland. The plaintiff alleges that Host misled the limited partners in
order to induce them into approving the sale of one of the Partnership's
hotels, violated the securities regulations by issuing a false and misleading
consent solicitation and breached fiduciary duties and the partnership
agreement. The complaint seeks unspecified damages. Host intends to vigorously
defend against the claims asserted in the lawsuit.
 
 
                                      121

<PAGE>
 
THE LEASES
 
  In order for Host REIT to qualify as a REIT, neither Host REIT nor the
Operating Partnership may operate the Hotels or related properties.
Accordingly, the Operating Partnership will lease the Hotels to the Lessees,
which will be wholly owned indirect subsidiaries of Crestline. The following
summary of the principal terms of the Leases is qualified in its entirety by
reference to the Leases, a form of which has been filed as an exhibit to the
Registration Statement of which this Consent Solicitation is a part.
 
  Lessees. There generally will be a separate Lessee for each Hotel or group
of Hotels that is owned by a separate subsidiary of Host REIT. Each Lessee
will be a Delaware limited liability company, whose purpose will be limited to
acting as lessee under the applicable Lease(s).
   
  For those Hotels where it is the Manager, Marriott International or a
subsidiary will have a noneconomic membership interest in the Lessee entitling
it to certain voting rights but no economic rights. The operating agreements
for such Lessees will provide that the Crestline member of the Lessee will
have full control over the management of the business of the Lessee, except
with respect to certain decisions for which the consent of both members will
be required. These decisions are (i) dissolving, liquidating, consolidating,
merging, selling or leasing all or substantially all of the assets of the
Lessee; (ii) engaging in any other business or acquiring any assets or
incurring any liabilities not reasonably related to the conduct of the
Lessee's business; (iii) instituting voluntary bankruptcy or similar
proceedings or consenting to involuntary bankruptcy or similar proceedings;
(iv) terminating the Management Agreement relating to the Lessee's hotel,
other than by reason of a breach by the Manager or upon exercise of express
termination rights in the Management Agreement; (v) challenging the status or
rights of the Manager or the enforceability of the membership rights; or (vi)
incurring debt in excess of certain limits. Upon any termination of the
applicable Management Agreement, these special voting rights of Marriott
International (or its subsidiary) will cease.     
 
  Lease Terms.  Each Lease will have a fixed term ranging generally from seven
to ten years (depending upon the Lease), subject to earlier termination upon
the occurrence of certain contingencies described in the Leases (including,
particularly, the provisions described herein under "Damage or Destruction,"
"Termination of the Leases upon Disposition of Hotels" and "Termination of the
Leases upon Changes in Tax Laws").
 
  Minimum Rent; Percentage Rent; Additional Charges. Each Lease will require
the Lessee to pay (i) Minimum Rent (as defined below) in a fixed dollar amount
per annum plus (ii) to the extent it exceeds Minimum Rent, Percentage Rent
based upon specified percentages of aggregate sales from the applicable Hotel,
including room sales, food and beverage sales and other income ("Gross
Revenues"), in excess of specified thresholds.
 
  "Minimum Rent" will be a fixed dollar amount specified in each Lease less
the FF&E Adjustment (which is described under "Personal Property Limitation"
below). Any amounts other than Minimum Rent and Percentage Rent due to the
Lessor under the Leases are referred to as "Additional Charges."
 
  The amount of Minimum Rent and the Percentage Rent thresholds will be
adjusted each year (the "Annual Adjustment"). The Annual Adjustment with
respect to Minimum Rent shall equal a percentage of any increase in the
Consumer Price Index ("CPI") during the previous twelve months. The Annual
Adjustment with respect to Percentage Rent thresholds shall be a specified
percentage equal to the weighted average of a percentage of any increase in
CPI plus a specified percentage of any increase in a regional labor cost index
agreed upon by the Lessor and the Lessee during the previous twelve months.
Neither Minimum Rent nor Percentage Rent thresholds will be decreased because
of the Annual Adjustment.
   
  Rental payments will be made on a Fiscal Year basis. The "Fiscal Year" shall
mean the fiscal year used by the Manager. Payments of Rent (defined herein)
will be made within two business days after the required payment date under
the Management Agreement for each Accounting Period. "Accounting Period" shall
mean for those Hotels where Marriott International is the Manager, any of the
thirteen four-week accounting periods which are used in the Manager's
accounting system. Rent payable for each Accounting Period will be the sum
    
                                      122

<PAGE>
 
   
of (i) the excess (if any) of (x) the greater of cumulative Minimum Rent year-
to-date or cumulative Percentage Rent year-to-date over (y) the total amount
of Minimum Rent and Percentage Rent paid year-to-date plus (ii) any Additional
Charges due ("Rent"). If the total amount of Minimum Rent and Percentage Rent
paid year-to-date, as of any rent payment date, is greater than both
cumulative Minimum Rent year-to-date and cumulative Percentage Rent year-to-
date, then the Lessor will remit the difference to the Lessee.     
 
  The Leases will generally provide for a Rent adjustment in the event of
damage, destruction, partial taking, certain capital expenditures or an FF&E
Adjustment.
 
  Lessee Expenses.  Each Lessee will be responsible for paying all of the
expenses of operating the applicable Hotel(s), including all personnel costs,
utility costs and general repair and maintenance of the Hotel(s). The Lessee
also will be responsible for all fees payable to the applicable Manager,
including base and incentive management fees, chain services payments and
franchise or system fees, with respect to periods covered by the term of the
Lease. The Lessee will not be obligated to bear the cost of any capital
improvements or capital repairs to the Hotels or the other expenses borne by
the Lessor, as described below.
 
  Lessor Expenses. The Lessor will be responsible for the following expenses:
real estate taxes, personal property taxes (to the extent the Lessor owns the
personal property), casualty insurance on the structures, ground lease rent
payments, required expenditures for FF&E (including maintaining the FF&E
reserve, to the extent such is required by the applicable Management
Agreement) and capital expenditures.
 
  The consent of the Lessor will be required for any capital expenditures
funded by the Lessor (except in an emergency or where the Owner's consent is
not required under the Management Agreement) or a change in the amount of the
FF&E Reserve payment.
   
  Crestline Guarantee. Crestline and certain of its subsidiaries will enter
into a limited guarantee of the Lease and Management Agreement obligations of
each Lessee. For each of four identified "pools" of Hotels, the cumulative
limit of the guarantee at any time will be 10% of the aggregate rents under
all Leases in such pool paid with respect to the preceding thirteen full
Accounting Periods (with an annualized amount based upon the Minimum Rent for
those Leases that have not been in effect for thirteen full Accounting
Periods). In the event of a payment default under any Lease or failure of
Crestline to maintain certain minimum net worth or debt service coverage
ratios, the obligations under the guarantees of Leases in each pool will be
secured by excess cash flow of each Lessee in such pool, which will be
collected, held in a cash collateral account, and disbursed in accordance with
agreed cash management procedures.     
 
  Security.  The obligations of the Lessee will be secured by a pledge of all
personal property (tangible and intangible) of the Lessee related to or used
in connection with the operation of the Hotels (including any cash and
receivables from the Manager or others held by the Lessee as part of "working
capital").
 
  Working Capital.  Each Lessor will sell the existing working capital
(including Inventory and Fixed Asset Supplies (as defined in the Uniform
System of Accounts for Hotels) and receivables due from the Manager, net of
accounts payable and accrued expenses) to the applicable Lessee upon the
commencement of the Lease at a price equal to the fair market value of such
assets. The purchase price will be represented by a note evidencing a loan
that bears interest at a rate per annum equal to the "long-term applicable
federal rate" in effect on the commencement of the Lease. Interest owed on the
working capital loan will be due simultaneously with each periodic Rent
payment and the amount of each payment of interest will be credited against
such Rent payment. The principal amount of the working capital loan will be
payable upon termination of the Lease. At the termination or expiration of the
Lease, the Lessee will sell to the Lessor the then existing working capital at
a price equal to the value of such assets at that time. The Lessor will pay
the purchase price of the working capital by offsetting the purchase price
against the outstanding principal balance of the working capital loan. To the
 
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extent that the value of the working capital delivered to the Lessor exceeds
the value of the working capital delivered by the Lessor to the Lessee at the
commencement of the Lease, the Lessor shall pay to the Lessee an amount equal
to the difference in cash. To the extent that the value of the working capital
delivered to the Lessor is less than the value of the working capital
delivered by the Lessor to the Lessee at the commencement of the Lease, the
Lessee shall pay to the Lessor an amount equal to the difference in cash.
 
  Termination of Leases upon Disposition of Full-Service Hotels. In the event
the applicable Lessor enters into an agreement to sell or otherwise transfer
any full-service Hotel free and clear of the applicable Lease, the Lessor must
pay the Lessee a termination fee equal to the fair market value of the
Lessee's leasehold interest in the remaining term of the Lease. For purposes
of determining the fair market value, a discount rate of 12% will be assumed,
and the annual income for each remaining year of the Lease will be assumed to
be the average annual income generated by the Lessee during the three fiscal
years preceding the termination date or if the Hotel has not been in operation
for at least three fiscal years, then the average during the preceding fiscal
years that have elapsed, and if the Hotel has not been in operation for at
least twelve months, then the assumed annual income shall be determined on a
pro forma basis. Alternatively, the Lessor will be entitled to (i) substitute
a comparable Hotel or Hotels (in terms of economics and quality for the Lessor
and the Lessee as agreed to by the Lessee) for any Hotel that is sold or (ii)
sell the Hotel subject to the Lease (subject to the Lessee's reasonable
approval if the sale is to an entity that does not have sufficient financial
resources and liquidity to fulfill the "owner's" obligations under the
Management Agreement and the Lessor's obligations under the Lease, or does not
satisfy specified character standards) without being required to pay a
termination fee. In addition, the Lessors collectively and the Lessees
collectively will each have the right to terminate up to twelve Leases without
being required to pay any fee or other compensation as a result of such
termination, but the Lessors will be permitted to exercise such right only in
connection with sales of Hotels to an unrelated third party or the transfer of
a Hotel to a joint venture in which the Operating Partnership does not have a
two-thirds or greater interest.
 
  Termination of the Leases upon Changes in Tax Laws.  In the event that
changes in the federal income tax laws allow the Lessors, or subsidiaries or
affiliates of the Lessors, to directly operate the Hotels without jeopardizing
Host REIT's status as a REIT, the Lessors will have the right to terminate
all, but not less than all, of the Leases (excluding Leases of Hotels that
must still be leased following the tax law change) in return for paying the
Lessees the fair market value of the remaining terms of the Leases, valued in
the same manner as provided above under "Termination of Leases upon
Disposition of Hotels." The payment will be payable in cash or, subject to
certain conditions, Common Shares, at the election of the Lessor and Host
REIT.
   
  Damage or Destruction.  If a Hotel is partially or totally destroyed and is
no longer suitable for use as a hotel (as reasonably determined by the
Lessor), the Lease of such Hotel shall automatically terminate and the
insurance proceeds shall be retained by the Lessor, except for any proceeds
attributable to personal property owned by the Lessee or business interruption
insurance. In this event, no termination fee shall be owed to the Lessee. If a
Hotel is partially destroyed, but is still suitable for use as a hotel (as
reasonably determined by the Lessor), the Lessee, subject to the Lessor
agreeing to release the insurance proceeds to fund any shortfall in the
insurance proceeds, shall apply the insurance proceeds to restore the Hotel to
its preexisting condition. The Lessor shall fund any shortfall in insurance
proceeds less than or equal to five percent of the estimated cost of repair.
The Lessor may fund, in its sole discretion, any shortfall in insurance
proceeds greater than five percent of the estimated cost of the repair,
provided that if the Lessor elects not to fund such shortfall, the Lessee may
terminate the Lease and the Lessor shall pay to the Lessee a termination fee
equal to the Lessee's Operating Profit for the immediately preceding Fiscal
Year. The term "Lessee's Operating Profit" shall mean for any Fiscal Year an
amount equal to revenues due to the Lessee from the leased property after the
payment of all expenses relating to the operation of leasing of the leased
property less rent paid to the Lessor. If and to the extent any damage or
destruction results in a reduction of Gross Revenues which would otherwise be
realizable from the operation of the Hotel, the Lessor shall receive all loss
of income insurance and the Lessee shall have no obligation to pay rent, for
any Accounting Period until the effects of the damage are restored, in excess
of the greater of (i) one-thirteenth of the total Rent paid in the fiscal year
prior to the casualty or (ii) Percentage Rent calculated for the current
Accounting Period.     
 
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  Events of Default.  Except as otherwise provided below, and subject to the
notice and, in some cases, cure periods in the Lease, the Lease may be
terminated without penalty by the applicable Lessor if any of the following
Events of Default (among others) occur:     
 
  .  Failure to pay Rent within ten days after the due date;
 
  .  Failure to comply with, or observe any of, the terms of the Lease (other
     than the failure to pay Rent) for 30 days after notice from the Lessor,
     including failure to properly maintain the Hotel (other than by reason
     of the failure of the Lessor to perform its obligations under the
     Lease), such period to be extended for up to an additional 90 days if
     such default cannot be cured with due diligence within 30 days;
 
  .  Acceleration of maturity of certain indebtedness of the Lessee with a
     principal amount in excess of $1,000,000;
 
  .  Failure of Crestline to maintain minimum net worth or debt service
     coverage ratio requirements;
     
  .  Filing of any petition for relief, bankruptcy or liquidation by or
     against the Lessee or any parent company of the Lessee;     
 
  .  The Lessee voluntarily ceases to operate the Hotel for 30 consecutive
     days, except as a result of a casualty, condemnation or emergency
     situation;
     
  .  A change in control of Crestline, the Lessee or any subsidiary of
     Crestline that is a direct or undirect parent of the Lessee. Unless the
     change in control involves an "adverse party" which would include a
     competitor in the hotel business, a party without adequate financial
     resources, a party that has been convicted of a felony (or controlled by
     such a person), or a party who would jeopardize Host REIT's
     qualification as a REIT, the Lessor must pay a termination fee equal to
     the Lessee's Operating Profit from the Hotel for the immediately
     preceding Fiscal Year); or     
     
  .  The Lessee, or Crestline or Lessee's direct parent defaults under the
     assignment of Management Agreement, the guarantees described above, the
     noncompetition agreement described below and certain other related
     agreements between the parties or their affiliates.     
       
  Assignment of Lease.  A Lessee will be permitted to sublet all or part of
the Hotel or assign its interest under its Lease, without the consent of the
Lessor, to any wholly owned and controlled single purpose subsidiary of
Crestline, provided that Crestline continues to meet the minimum net worth
test and all other requirements of the Lease. Transfers to other parties will
be permitted if approved by the Lessor.
 
  Subordination to Qualifying Mortgage Debt. The rights of each Lessee will be
expressly subordinate to qualifying mortgage debt and any refinancing thereof.
A default under the loan documents may result in the termination of the Lease
by the lender. The lender will not be required to provide a non-disturbance
agreement to the Lessee.
 
  The Lessor will be obligated to compensate the Lessee, on a basis equal to
the lease termination provision described in "Termination of Leases upon
Disposition of Hotels" above, if the Lease is terminated because of a non-
monetary default under the terms of a loan that occurs because of an action or
omission by the Lessor (or its affiliates) or a monetary default where there
is not an uncured monetary Event of Default of the Lessee. In addition, if any
loan is not refinanced in a timely manner, and the loan amortization schedule
is converted to a cash flow sweep structure, the Lessee has the right to
terminate the Lease after a twelve-month cure period and the Lessor will owe a
termination fee as provided above. During any period of time that a cash flow
sweep structure is in effect, the Lessor will compensate the Lessee for any
lost revenue resulting from such cash flow sweep. The Operating Partnership
will guarantee these obligations.
       
       
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  Personal Property Limitation.  If a Lessor reasonably anticipates that the
average tax basis of the items of the Lessor's FF&E and other personal
property that are leased to the applicable Lessee will exceed 15% of the
aggregate average tax basis of the real and personal property subject to the
applicable Lease, the following procedures will apply, subject to obtaining
lender consent where required:
 
  .  The Lessor will acquire any replacement FF&E that would cause the
     applicable limits to be exceeded (the "Excess FF&E"), and immediately
     thereafter the Lessee would be obligated either to acquire such Excess
     FF&E from the Lessor or to cause a third party to purchase such FF&E.
     
  .  The Lessee would agree to give a right of first opportunity to a Non-
     Controlled Subsidiary to acquire the Excess FF&E and to lease the Excess
     FF&E to the Lessee at an annual rental equal to the Market Leasing
     Factor (as defined below) times the cost of the Excess FF&E. If such
     Non-Controlled Subsidiary does not agree to acquire the Excess FF&E and
     to enter into such lease, then the Lessee may either acquire the Excess
     FF&E itself or arrange for another third party to acquire such Excess
     FF&E and to lease the same to Lessee.     
     
  .  The annual Rent under the applicable Lease would be reduced in
     accordance with a formula based on Market Recovery rates.     
         
  Certain Actions under the Leases. The Leases prohibit the Lessee from taking
the following actions with respect to the Management Agreement without notice
to the Lessor and, if the action would have a material adverse effect on the
Lessor, the consent of the Lessor: (i) terminate the Management Agreement
prior to the expiration of the term thereof; (ii) amend, modify or assign the
Management Agreement; (iii) waive (or fail to enforce) any right of the
"Owner" under the Management Agreement; (iv) waive any breach or default by
the Manager under the Management Agreement (or fail to enforce any right of
the "Owner" in connection therewith); (v) agree to any change in the Manager
or consent to any assignment by the Manager; or (vi) take any other action
which reasonably would be expected to materially adversely affect the Lessor's
rights or obligations under the Management Agreement for periods following the
termination of the Lease (whether upon the expiration of its term or upon
earlier termination as provided for therein).
 
  Change in Manager.  A Lessee will be permitted to change the Manager or the
brand affiliation of a Hotel only with the approval of the applicable Lessor,
which approval may not be unreasonably withheld. Any replacement manager must
be a nationally recognized manager with substantial experience in managing
hotels of comparable quality. No such replacement can extend beyond the term
of the Lease without the consent of the Lessor, which consent may be withheld
in the Lessor's sole discretion.
 
THE MANAGEMENT AGREEMENTS
 
 General
 
  The Lessees will lease the Hotels from the Hotel Partnerships under the
Management Agreements between the Hotel Partnerships and the subsidiaries of
Marriott International and other companies that currently manage the Hotels.
Following the REIT Conversion and as a result of their assumptions of
obligations under the Management Agreements, the Lessees will have
substantially all of the rights and obligations of the "Owners" of the Hotels
under the Management Agreements for the period during which the Leases are in
effect (including the obligation to pay the management and other certain fees
thereunder) and will hold the Operating Partnership harmless with respect
thereto. See "--Management Services Provided by Marriott International and
Affiliates--Assignment of Management Agreements."
 
 Relationship with Marriott International
 
  Subsidiaries of Marriott International will serve as Managers for a
substantial majority of the Operating Partnership's Hotels which will be
leased to the Lessees, pursuant to the Management Agreements. Marriott
International and its subsidiaries also provide various other services to Host
REIT and its affiliates and to Crestline and its affiliates. With respect to
these contractual arrangements, the potential exists for disagreement
 
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as to contract compliance. Additionally, the possible desire of Host REIT and
the Operating Partnership to finance, refinance or effect a sale of any of the
Hotels leased to the Lessees and managed by subsidiaries of Marriott
International may, depending upon the structure of such transactions, result in
a need to modify the Management Agreements with respect to such Hotel. Any such
modification proposed by Host REIT or the Operating Partnership may not be
acceptable to Marriott International or the applicable Lessee, and the lack of
consent from either Marriott International or the applicable Lessee that has
assumed the Management Agreement could adversely affect the Operating
Partnership's ability to consummate such financing or sale. In addition,
certain situations could arise where actions taken by Marriott International in
its capacity as manager of competing lodging properties would not necessarily
be in the best interests of the Operating Partnership, Host REIT or the
Lessees. Nevertheless, the Operating Partnership believes that there is
sufficient mutuality of interest between the Operating Partnership, the Lessees
and Marriott International to result in a mutually productive relationship.
 
 Management Services Provided by Marriott International and Affiliates
 
  General. Under each Management Agreement related to a Marriott International-
managed Hotel, the Manager will provide complete management services to the
applicable Lessees in connection with its management of such Lessee's Hotels
following the REIT Conversion. Except where specifically noted, these
relationships are substantially identical to those that exist between the
applicable Manager and Host or the applicable Hotel Partnership currently, and
that would exist between the Operating Partnership's subsidiaries and the
Manager in the event the Leases expire or otherwise terminate while the
Management Agreements remain in effect. The services provided by each Manager
to each Lessee will include the following:
 
  Assignment of Management Agreements. The Management Agreements applicable to
each Hotel will be assigned to the applicable Lessee for the term of the Lease
of such Hotel. The Lessee will be obligated to perform all of the obligations
of the Lessor under the Management Agreement during the term of its Lease,
other than certain retained obligations including, without limitation, payment
of property taxes, property casualty insurance and ground rent, and maintaining
a reserve fund for FF&E replacements and capital expenditures, for which the
Lessor will retain responsibility. Although the Lessee will assume obligations
of the Lessor under the Management Agreement, the Lessor will not be released
from its obligations and, if the Lessee fails to perform any obligations, the
Manager will be entitled to seek performance by or damages from the Lessor. If
the Lease is terminated for any reason, any new or successor Lessee must meet
certain requirements for an "Approved Lessee" or otherwise be acceptable to
Marriott International. The requirements for an "Approved Lessee" includes that
the entity (i) has sufficient financial resources and liquidity to fill the
obligations under the Management Agreement, (ii) is not in control of or
controlled by persons who have been convicted of felonies, (iii) is not
engaged, or affiliated with any person or entity engaged in the business of
operating a branded hotel chain having 5,000 or more guest rooms in competition
with Marriott International, and (iv) must be a single purpose entity in which
Marriott International has a noneconomic membership interest with the same
rights as it has in Lessee. Any new lease must be in substantially the same
form as the Lease or otherwise be acceptable to Marriott International.
 
  Operational Services. The Managers will have sole responsibility and
exclusive authority for all activities necessary for the day-to-day operation
of the Hotels, including establishment of all room rates, the processing of
reservations, procurement of inventories, supplies and services, periodic
inspection and consultation visits to the Hotels by the Managers' technical and
operational experts and promotion and publicity of the Hotels. The Manager will
receive compensation from the Lessee in the form of a base management fee and
an Incentive Management Fee, which are normally calculated as percentages of
gross revenues and operating profits, respectively.
 
  Executive Supervision and Management Services. The Managers will provide all
managerial and other employees for the Hotels; review the operation and
maintenance of the Hotels; prepare reports, budgets and projections; provide
other administrative and accounting support services, such as planning and
policy services, financial planning, divisional financial services, risk
planning services, product planning and development,
 
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employee planning, corporate executive management, legislative and governmental
representation and certain in-house legal services; and protect the "Marriott"
trademark and other tradenames and service marks. The Manager also will provide
a national reservations system.
 
  Chain Services. The Management Agreements will require the Manager to furnish
certain services (the "Chain Services") that are furnished generally on a
central or regional basis to hotels in the Marriott hotel system. Such services
will include the following: (i) the development and operation of computer
systems and reservation services, (ii) regional management and administrative
services, regional marketing and sales services, regional training services,
manpower development and relocation costs of regional personnel and (iii) such
additional central or regional services as may from time to time be more
efficiently performed on a regional or group level. Costs and expenses incurred
in providing such services are allocated among all hotels in the Marriott hotel
system managed by the Manager or its affiliates and each applicable Lessee will
be required to reimburse the Manager for its allocable share of such costs and
expenses.
 
  Working Capital and Fixed Asset Supplies. The Lessee will be required to
maintain working capital for each Hotel and fund the cost of fixed asset
supplies, which principally consist of linen and similar items. The applicable
Lessee will also be responsible for providing funds to meet the cash needs for
the operations of the Hotels if at any time the funds available from operations
are insufficient to meet the financial requirements of the Hotels.
 
  Use of Affiliates. The Manager employs the services of its affiliates to
provide certain services under the Management Agreements. Certain of the
Management Agreements provide that the terms of any such employment must be no
less favorable to the applicable Lessee, in the reasonable judgment of the
Manager, than those that would be available from the Manager.
 
  FF&E Replacements. The Management Agreements generally provide that once each
year the Manager will prepare a list of FF&E to be acquired and certain routine
repairs that are normally capitalized to be performed in the next year ("FF&E
Replacements") and an estimate of the funds necessary therefor. Under the terms
of the Leases, the Operating Partnership, as lessor, is required to provide to
the applicable Lessee, all necessary FF&E for the operation of the Hotels
(including funding any required FF&E Replacements). For purposes of funding the
FF&E Replacements, a specified percentage (generally 5%) of the gross revenues
of the Hotel will be deposited by the Manager into a book entry account (the
"FF&E Reserve Account"). These amounts will be treated under the Leases as paid
by the Lessees to the Operating Partnership and will be credited against their
rental payments. If the Manager determines that more than 5% of the gross
revenues of the Hotel will be required to fund repairs for a certain period,
the Manager may increase the percentage of gross revenues to be deposited into
the FF&E Reserve Account for such periods. In such event, the Operating
Partnership may elect to fund such increases through annual increases in the
amount deposited by the Manager in the FF&E Reserve Account or to make a lump-
sum contribution to the FF&E Reserve Account of the additional amounts
required. If the Operating Partnership adopts the first election, the
deductions will be credited against the rental obligations of the Lessee. If
the Operating Partnership fails to elect either option within thirty days of
the request for additional funds or fails to pay the lump-sum within 60 days of
its election to do so, the Manager may terminate the Management Agreement.
Under certain circumstances, the Manager may make repairs in addition to those
set forth on its list, but in no event may it expend more than the amount in
the FF&E Reserve Account without the consent of the Operating Partnership and
the Lessee.
 
  Under certain of the Management Agreements, the Operating Partnership must
approve the FF&E Replacements, including any FF&E Replacements proposed by the
Manager that are not contained on the annual list which was approved by the
Operating Partnership and the Lessee. If the Manager and the Operating
Partnership agree, the Operating Partnership will acquire or otherwise provide
the FF&E Replacements set forth on the approved list. If the Operating
Partnership and the Manager are unable to agree on the list within 60 days of
its submission, the Operating Partnership will be required to make only those
FF&E Replacements specified on such list that are no more extensive than the
system standards for FF&E Replacements that the Manager requires for Marriott
hotels. For purposes of funding the FF&E Replacements required to be paid for
by the
 
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Operating Partnership, each Management Agreement and the Operating
Partnership's loan agreements require the Operating Partnership to deposit a
designated amount into the FF&E Reserve Account periodically. The Lessees will
have no obligation to fund the FF&E Reserve Accounts (and any amounts deposited
therein by the Manager from funds otherwise due the Lessee under the Management
Agreement will be credited against the Lessee's rental obligation).
 
  Under each Lease, the Operating Partnership will be responsible for the costs
of FF&E Replacements and for decisions with respect thereto (subject to its
obligations to the Lessee under the Lease).
 
  Building Alterations, Improvements and Renewals. The Management Agreements
require the Manager to prepare an annual estimate of the expenditures necessary
for major repairs, alterations, improvements, renewals and replacements to the
structural, mechanical, electrical, heating, ventilating, air conditioning,
plumbing and vertical transportation elements of each Hotel. Such estimate will
be submitted to the Operating Partnership and the Lessee for their approval. In
addition to the foregoing, the Management Agreements generally provide that the
Manager may propose such changes, alterations and improvements to the Hotel as
are required, in the Manager's reasonable judgment, to keep the Hotel in a
competitive, efficient and economical operating condition or in accordance with
Marriott standards. The cost of the foregoing shall be paid from the FF&E
Reserve Account; to the extent that there are insufficient funds in such
account, the Operating Partnership is required to pay any shortfall. Under the
Management Agreements (and the Leases), neither the Operating Partnership nor
the Lessee may unreasonably withhold consent to repairs and other changes which
are required under applicable law or any of the Manager's "life-safety"
standards and, if the Operating Partnership and the Lessee fail to approve any
of the other proposed repairs or other changes within 60 days of the request
therefor, the Manager may terminate the Management Agreement. Under certain
other of the Management Agreements, if the Operating Partnership and the
Manager are unable to agree on the estimate within 60 days of its submission,
the Operating Partnership will be required to make only those expenditures that
are no more extensive than the Manager requires for Marriott hotels generally,
as the case may be. Under the terms of the Leases, the Operating Partnership
will be responsible for the costs of the foregoing items and for decisions with
respect thereto (subject to its obligations to the Lessees under the Leases).
 
  Service Marks.  During the term of the Management Agreements, the service
mark "Marriott" and other symbols, logos and service marks currently used by
the Manager and its affiliates may be used in the operation of the Hotels.
Marriott International (or its applicable affiliates) intends to retain its
legal ownership of these marks. Any right to use the service marks, logo and
symbols and related trademarks at a Hotel will terminate with respect to that
Hotel upon termination of the Management Agreement with respect to such Hotel.
 
  Termination Fee.  Certain of the Management Agreements provide that if the
Management Agreement is terminated prior to its full term due to casualty,
condemnation or the sale of the Hotel, the Manager will receive a termination
fee as specified in the specific Management Agreement. Under the Leases, the
responsibility for the payment of any such termination fee as between the
Lessee and the Operating Partnership will depend upon the cause for such
termination.
 
  Termination for Failure to Perform. Substantially all of the Management
Agreements may be terminated based upon a failure to meet certain financial
performance criteria, subject to the Manager's right to prevent such
termination by making certain payments to the Lessee based upon the shortfall
in such criteria.
 
  Events of Default.  Events of default under the Management Agreements
include, among others, the following: (i) the failure of either party to make
payments pursuant to the Management Agreement within ten days after written
notice of such nonpayment has been made, (ii) the failure of either party to
perform, keep or fulfill any of the covenants, undertakings, obligations or
conditions set forth in the Management Agreement and the continuance of such
default for a period of 30 days after notice of said failure or, if such
default is not susceptible of being cured within 30 days, the failure to
commence said cure within 30 days or thereafter fails to diligently pursue such
efforts to completion, (iii) if either party files a voluntary petition in
bankruptcy or insolvency or a petition for reorganization under any bankruptcy
law or admits that it is unable to pay its debts
 
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as they become due, (iv) if either party consents to an involuntary petition
in bankruptcy or fails to vacate, within 90 days from the date of entry
thereof, any order approving an involuntary petition by such party; or (v) if
an order, judgment or decree by any court of competent jurisdiction, on the
application of a creditor, adjudicating either party as bankrupt or insolvent
or approving a petition seeking reorganization or appointing a receiver,
trustee, or liquidator or all or a substantial part of such party's assets is
entered, and such order, judgment or decree continues unstayed and in effect
for any period of 90 days.
 
  As described above, all fees payable under the Management Agreements will
become obligations of the Lessees, to be paid by the Lessees, as modified
prior to the consummation of the REIT Conversion, for so long as the Leases
remain in effect. The Lessees' obligations to pay these fees, however, could
adversely affect the ability of one or more Lessees to pay Base Rent or
Percentage Rent payable under the Leases, even though such amounts otherwise
are due and owing to the Operating Partnership. Moreover, the Operating
Partnership remains obligated to the Manager to the extent the Lessee fails to
pay these fees.
 
NONCOMPETITION AGREEMENT
   
  Crestline, Host and the Non-Controlled Subsidiary which will lease to
Crestline any Excess FF&E existing as the commencement of the Leases (the
"Initial FF&E Lessor") will enter into a noncompetition agreement in
connection with the Initial E&P Distribution. Pursuant to this non-competition
agreement, Crestline will agree, among other things, that until the earlier of
December 31, 2008 and the date on which it is no longer a Lessee for more than
25% of the hotels owned by Host at the time of the Initial E&P Distribution,
it will not (i) own, operate or otherwise control (as owner or franchisor) any
full-service hotel brand or franchise, or purchase, finance or otherwise
invest in full-service hotels, or act as an agent or consultant with respect
to any of the foregoing activities, except for acquisitions of property used
in hotels as to which Crestline is the Lessee, investments in full-service
hotels which represent an immaterial portion of a merger or similar
transaction or a minimal portfolio investment in another entity, limited
investments (whether debt or equity) in full-service hotels as to which
Crestline is the Lessee or activities undertaken with respect to its business
of providing asset management services to hotel owners, or (ii) without the
consent of Host, manage any of the hotels owned by Host, other than to provide
asset management services as described in "Certain Relationships and Related
Transactions--Relationship between Host REIT and Crestline Capital Corporation
After the Initial E&P Distribution--Asset Management Agreement." Host and the
Initial FF&E Lessor will agree, among other things, that, (i) until December
31, 2003, neither of them will purchase, finance or otherwise invest in senior
living communities, or act as an agent or consultant with respect to any of
the foregoing activities (except for acquisitions of communities which
represent an immaterial portion of a merger or similar transaction or for
minimal portfolio investments in other entities) and (ii) until the earlier of
December 31, 2008 and the date on which Crestline is no longer a Lessee for
more than 25% of the hotels owned by Host at the time of the Initial E&P
Distribution, neither of them will lease, as tenant or subtenant, limited- or
full-service hotel properties and act as operator or franchisee thereof or
provide asset management services to owners of hotels, or purchase, finance or
otherwise invest in persons or entities which engage in any of the foregoing
activities, or act as an agent or consultant with respect to any of the
foregoing activities (except for acquisitions of entities which engage in any
of the foregoing activities where the prohibited activities represent an
immaterial portion of a merger or similar transaction, or minimal portfolio
investments in other entities which engage in any of the foregoing activities,
or certain leasing arrangements existing at the time of the Initial E&P
Distribution or entered into in the future between Host and the Initial FF&E
Lessor or Host and certain other related parties, or the management by Host of
any hotels in which Host or the Initial FF&E Lessor has an equity interest).
In addition, both Crestline and Host will agree not to hire or attempt to hire
any of the other company's senior employees at any time prior to December 31,
2000.     
 
                                      130

<PAGE>
 
INDEBTEDNESS
 
  As of June 19, 1998, the Company had the following debt outstanding:
 

<TABLE>
<CAPTION>
                                                                 OUTSTANDING
                                                              PRINCIPAL BALANCE
                                                              AT JUNE 19, 1998
                                                             ------------------
                                                                (IN MILLIONS)
<S>                                                          <C>
Properties Notes, with a rate of 9 1/2% due May 2005.......        $   600
New Properties Notes, with a rate of 8 7/8% due July 2007..            600
Acquisitions Notes, with a rate of 9% due December 2007....            350
Senior Notes, with an average rate of 9 3/4% at June 19,
 1998, maturing through 2012...............................             35
                                                                   -------
  Total Notes..............................................          1,585
                                                                   -------
Mortgage debt (nonrecourse) secured by $2.6 billion of real
 estate assets,
 with an average rate of 8.5% at June 19, 1998, maturing
 through 2022..............................................          1,868(1)
Line of Credit, secured by $500 million of real estate as-
 sets, with a variable rate of Eurodollar plus 1.7% or Base
 Rate (as defined) plus 0.7% at the option of the Operating
 Partnership (7.4% at June 19, 1998) due June 2004 ........             22
                                                                   -------
  Total Mortgage Debt......................................          1,890
                                                                   -------
Other notes, with an average rate of 7.4% at June 19, 1998,
 maturing through 2017.....................................             87
Capital lease obligations..................................              8
                                                                   -------
  Total Other Debt.........................................             95
                                                                   -------
  Total Debt...............................................        $ 3,570(2)
                                                                   =======
</TABLE>

- --------
(1) Includes consolidated mortgage indebtedness of Atlanta Marquis, Desert
    Springs, Hanover, MHP and MHP2, which, on an individual Partnership basis,
    is as follows:
 

<TABLE>
<CAPTION>
                                 OUTSTANDING
                             PRINCIPAL BALANCE AT MATURITY  INTEREST      1998
                                 JUNE 19, 1998      DATE      RATE    DEBT SERVICE
                             -------------------- --------- --------- -------------
                                (IN MILLIONS)                         (IN MILLIONS)
   <S>                       <C>                  <C>       <C>       <C>
   Atlanta Marquis
     First mortgage debt...          $163         02/11/10      7.4%      $14.1
                                     ----                                 -----
   Desert Springs
     First mortgage debt...           102         12/11/22      7.8%        9.4
     Mezzanine debt........            20         12/12/10   10.365%        2.8
                                     ----                                 -----
       Total Desert Springs
        debt...............           122                                  12.2
                                     ----                                 -----
   Hanover
     Mortgage debt.........            30         08/01/04     8.58%        3.0
                                     ----                                 -----
   MHP
     First mortgage debt...           151         01/01/08     7.48%       12.7
     Second mortgage debt..            83         05/01/00    9.125%        9.2
     Construction loan.....             3         01/01/08     7.48%        --
                                     ----                                 -----
       Total MHP debt......           237                                  21.9
                                     ----                                 -----
   MHP2
     Mortgage debt.........           220         10/11/07     8.22%       22.6
                                     ----                                 -----
       Total consolidated
        debt included
        above..............          $772                                 $73.8
                                     ====                                 =====
</TABLE>

 
 
                                      131

<PAGE>
 
(2) The consolidated Company debt of $3,570 million does not include
    indebtedness of Chicago Suites, MDAH and PHLP, which, on an individual
    Partnership basis, is as follows, and would increase the Operating
    Partnership's total indebtedness to $3,873 million at June 19, 1998.
 

<TABLE>
<CAPTION>
                                 OUTSTANDING
                             PRINCIPAL BALANCE AT MATURITY                        1998
                                JUNE 19, 1998       DATE     INTEREST RATE    DEBT SERVICE
                             -------------------- -------- ------------------ -------------
                                (IN MILLIONS)                                 (IN MILLIONS)
   <S>                       <C>                  <C>      <C>                <C>
   Chicago Suites
     Mortgage debt.........         $ 24.3        06/12/01 3 month LIBOR + 2%     $ 2.5(a)
                                    ------
   MDAH
     Note A................           73.1        12/15/99     LIBOR + 1%           5.9
     Note B................           27.8        12/15/99       LIBOR              1.6
     Note C................            9.3        12/15/10    No interest           --
                                    ------                                        -----
                                     110.2                                          7.5(b)
                                    ------
   PHLP
     Mortgage debt.........          168.9        12/22/99    LIBOR + 1.5%         20.2(c)
                                    ------
       Total unconsolidated
        debt...............         $303.4
                                    ======
</TABLE>

  --------
  (a) Scheduled principal and interest payments are forecast at $2.5 million
      for 1998. In June 1998, $766,000 in principal was repaid from 1997
      excess cash. A principal payment will be made in June 1999 from 1998
      excess cash.
  (b) Scheduled principal and interest payments are forecast at $5.9 million
      for Note A and $1.6 million for Note B. Additionally, in June 1998,
      $2.9 million in principal was repaid on Note A and $8.5 million was
      repaid on Note B from 1997 excess cash. A principal payment will be
      made in May 1999 from 1998 excess cash.
  (c) Interest expense is forecast at $14.2 million for 1998. Minimum
      principal payments are $6.0 million. On February 23, 1998, $3.8 million
      was repaid in principal from 1997 excess cash. A principal payment will
      be made in February 1999 from 1998 excess cash.
 
  Aggregate debt maturities at June 19, 1998, excluding capital lease
obligations, are (in millions):
 

<TABLE>
   <S>                                                                    <C>
   1998.................................................................. $  302
   1999..................................................................     29
   2000..................................................................    133
   2001..................................................................     76
   2002..................................................................    150
   Thereafter............................................................  2,872
                                                                          ------
                                                                          $3,562
                                                                          ======
</TABLE>

 
  Bond Refinancing. On August 5, 1998, HMH Properties, Inc. ("HMH
Properties"), a subsidiary of Host that will merge into the Operating
Partnership prior to the Effective Date, issued $1.7 billion of 7 7/8% senior
notes issued in two series, consisting of $500 million due 2005 and $1.2
billion due 2008 (the "New Senior Notes"). The New Senior Notes are guaranteed
by Host, Host Marriott Hospitality, Inc. and certain subsidiaries of HMH
Properties and are secured by pledges of equity interests in certain
subsidiaries of HMH Properties. The Operating Partnership will assume the New
Senior Notes in connection with the REIT Conversion and the guarantee by Host
is expected to terminate on the Effective Date.
 
  The indenture under which the New Senior Notes were issued contains
covenants restricting the ability of HMH Properties and certain of its
subsidiaries to incur indebtedness, acquire or sell assets or make investments
in other entities, and make distributions to equityholders of HMH Properties
and (following the REIT Conversion) the Operating Partnership. Following the
REIT Conversion, the indenture permits the Operating
 
                                      132

<PAGE>
 
Partnership to make distributions to holders of OP Units, including Host REIT,
in amounts equal to the greater of (i) 95% of FFO plus net proceeds of equity
offerings (provided that no event of default under the indenture has occurred
and is continuing and the Operating Partnership is able to incur debt under
the applicable indenture covenants) or (ii) an amount sufficient to permit
Host REIT to maintain its status as a REIT and satisfy certain other
requirements (provided that no event of default under the indenture has
occurred and is continuing and the Operating Partnership has a consolidated
debt to adjusted total assets ratio that is less than a specified level). The
indenture also permits the Operating Partnership to make distributions to Host
REIT sufficient to enable Host REIT to make the E&P Distribution. The New
Senior Notes also contain a financial covenant requiring the maintenance of a
specified ratio of unencumbered assets to unsecured debt.
 
  New Credit Facility. On August 5, 1998, HMH Properties entered into a $1.25
billion credit facility (the "New Credit Facility") provided by a syndicate of
financial institutions (the "Lenders") led by Bankers Trust Company. The New
Credit Facility provides the Company with (i) a $350 million term loan
facility (subject to increases as provided in the succeeding paragraph) and
(ii) a $900 million revolving credit facility. The New Credit Facility will
have an initial term of three years with two one-year options to extend. The
proceeds of the New Credit Facility, along with the proceeds from the New
Senior Notes, were used to fund the purchase of $1.55 billion of senior notes
of HMH Properties at the initial closing on August 5, 1998, and repay $22
million of outstanding borrowings under a line of credit provided by the
Lenders to certain subsidiaries of Host and will be used (i) to acquire full-
service hotels and other real estate assets including, under certain
circumstances, senior living properties, (ii) under certain circumstances, to
develop new full-service hotels and (iii) for general working capital
purposes.
 
  The term loan facility was funded on the closing date of the New Credit
Facility. The $350 million term loan facility may be increased by up to $250
million after the initial closing and will be available, subject to terms and
conditions thereof and to the commitment of sufficient Lenders, in up to two
drawings to be made on or prior to the second anniversary of the closing of
the New Credit Facility. The Lenders will advance funds under the revolving
credit facility as requested by the Company with minimum borrowing amounts and
frequency limitations to be agreed upon, subject to customary conditions
including, but not limited to, (i) no existing or resulting default or event
of default under the New Credit Facility and (ii) continued accuracy of
representations and warranties in all material respects. As of September 28,
1998, approximately $350 million was outstanding under the New Credit
Facility.
 
  The interest rate applicable to the New Credit Facility and the unused
commitment fee applicable to the revolving portion of the New Credit Facility
are calculated based on a spread over LIBOR that will fluctuate based on the
quarterly recalculation of a leverage ratio set forth in the New Credit
Facility. The New Credit Facility provides that in the event that the Company
achieves one of several investment grade long-term unsecured indebtedness
ratings, the spread over LIBOR applicable to the New Credit Facility will be
fixed based on the particular rating achieved. If the Company elects to
exercise its one-year extensions, the Company will be required to amortize
approximately 22.5% per annum of the principal amount outstanding under the
New Credit Facility at the end of the initial three-year term.
 
  The Company's obligations under the New Credit Facility are guaranteed,
subject to certain conditions, on a senior basis by Host, Host Marriott
Hospitality, Inc. and certain of HMH Properties' existing and future
subsidiaries. The New Credit Facility will be assumed by the Operating
Partnership in connection with the REIT Conversion and the guarantee of Host
is expected to terminate on the Effective Date. In addition, certain
subsidiaries of Host Marriott other than HMH Properties and its subsidiaries
may, under certain circumstances, guarantee the obligations under the New
Credit Facility in the future. Borrowings under the New Credit Facility will
rank pari passu with the New Senior Notes and other existing and future senior
indebtedness of the Company. The New Credit Facility is secured, on an equal
and ratable basis, with the New Senior Notes by a pledge of the capital stock
of certain direct and indirect subsidiaries of HMH Properties. In addition,
the New Credit Facility may, under certain circumstances in the future, be
secured by a pledge of capital stock of certain subsidiaries of Host other
than HMH Properties and its subsidiaries.
 
 
                                      133

<PAGE>
 
  The New Credit Facility includes financial and other covenants that require
the maintenance of certain ratios with respect to, among other things, maximum
leverage, limitations on indebtedness, minimum net worth and interest and
fixed charge coverage and that restrict payment of distributions and
investments, acquisitions and sales of assets by the Company. Following the
REIT Conversion, the New Credit Facility permits the Operating Partnership to
make distributions to holders of OP Units, including Host REIT, in an
aggregate amount for every four fiscal quarters equal to the greater of (i)
85% of adjusted funds from operations plus the net proceeds of equity
offerings and (ii) the minimum amount necessary to permit Host REIT to
maintain its status as a REIT and to satisfy certain other requirements,
provided that no specified default or event of default has occurred under the
New Credit Facility and is continuing. The New Credit Facility also permits
the Operating Partnership to make distributions to Host REIT sufficient to
enable Host REIT to make the E&P Distribution.
 
                                      134

<PAGE>
 
                        DISTRIBUTION AND OTHER POLICIES
 
  The following is a discussion of the anticipated policies with respect to
distributions, investments, financing, lending, conflicts of interest and
certain other activities of the Operating Partnership and Host REIT. Upon
consummation of the REIT Conversion, the Operating Partnership's policies with
respect to these activities will be determined by the Board of Directors of
Host REIT and may be amended or revised from time to time at the discretion of
the Board of Directors without notice to, or a vote of, the shareholders of
Host REIT or the limited partners of the Operating Partnership, except that
changes in certain policies with respect to conflicts of interest must be
consistent with legal and contractual requirements.
 
DISTRIBUTION POLICY
 
  Host REIT and the Operating Partnership intend to pay regular quarterly
distributions to holders of Common Shares and OP Units. Host REIT and the
Operating Partnership anticipate that distributions will be paid during
January, April, July and October of each year, except that the first
distribution in 1999 is expected to be paid at the end of February if the REIT
Conversion is completed in 1998. The following discussion and the information
set forth in the table and footnotes below should be read in conjunction with
the Pro Forma Statements of Operations and notes thereto, "Summary--Forward
Looking Statements," "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
 
  Although the Code generally requires a REIT to distribute 95% of its taxable
income for each year (within a certain period after the end of such year), the
Operating Partnership will establish its initial distribution at a level that
will enable Host REIT to distribute to its shareholders an amount equal to
100% of its taxable income (other than capital gains, which will be addressed
on a case-by-case basis) for each year no later than the end of January of the
following year. The Operating Partnership anticipates that distributions
generally will be paid from cash available for distribution, but to the extent
that cash available for distribution is insufficient, the Operating
Partnership intends to borrow funds in order to make distributions consistent
with such distribution policy. Based upon Host's preliminary estimate of Host
REIT's taxable income for the twelve months ending December 31, 1999, Host and
the Operating Partnership currently estimate that this policy will result in
an initial annual distribution by the Operating Partnership of approximately
$0.84 per OP Unit ($0.21 per quarter) during the twelve months ending December
31, 1999.
   
  The Operating Partnership has estimated its cash available for distribution
during the twelve months ending December 31, 1999 based upon the Operating
Partnership's pro forma cash from operations during the fifty-two weeks ended
June 19, 1998 (the "Last Twelve Months"), adjusted for certain known material
events and/or contractual commitments that either have occurred or will occur
prior to December 31, 1999. No effect was given to any changes in working
capital resulting from changes in current assets and liabilities (which
changes are not expected to be material) or to any immaterial changes in the
net amount of cash estimated to be used for (or provided by) investing
activities or financing activities. Rental income is recognized only for
leases to be executed at or prior to completion of the REIT Conversion. The
estimates of cash available for distribution are not intended to be a
projection or forecast of the Operating Partnership's results of operations or
its liquidity. The following table describes the calculation of the Operating
Partnership's pro forma cash from operations during the Last Twelve Months and
its estimated cash available for distribution, cash from contingent rents and
borrowings to make estimated distributions during the twelve months ending
December 31, 1999:     
 
                                      135

<PAGE>
 

<TABLE>   
<CAPTION>
                                                                   (DOLLARS IN
                                                                    MILLIONS,
                                                                  EXCEPT PER OP
                                                                  UNIT AMOUNTS)
                                                                  -------------
<S>                                                               <C>
Pro forma income before extraordinary items for the fiscal year
 ended January 2, 1998...........................................     $  24
  Plus: Pro forma income (loss) before extraordinary items for
   the First Two Quarters 1997...................................       161
  Less: Pro forma income (loss) before extraordinary items for
      the First Two Quarters 1998................................      (151)
                                                                      -----
Pro forma income before extraordinary items for the Last Twelve
 Months..........................................................        34
  Plus: Pro forma loss on sale of real estate for the Last Twelve
      Months(1)..................................................        15
  Plus: Pro forma real estate related depreciation and
      amortization for the Last Twelve
      Months(2)..................................................       337
  Plus: Pro forma portion of cash from operations of
      unconsolidated equity investments for the Last Twelve
      Months, net of pro forma equity in earnings of affiliates
      for the Last Twelve Months(3)..............................        37
  Less: One-time gain for the Last Twelve Months(4)..............       (10)
  Less: Pro forma portion of cash from operations relating to
      minority owners for the Last Twelve Months, net of pro
      forma portion of minority interest relating to OP Units for
      the Last Twelve Months(5)..................................        (8)
                                                                      -----
Pro forma cash from operations during the Last Twelve Months.....       405
Adjustments:
  FF&E reserves(6)...............................................      (178)
  Principal repayments(7)........................................       (64)
                                                                      -----
Estimated cash available for distribution during the twelve
 months ending December 31, 1999.................................       163
                                                                      -----
Adjustments:
  Estimated cash from contingent rents(8)........................        54
  Estimated borrowings to make estimated initial annual cash
   distributions ................................................     $   9
                                                                      -----
Total estimated initial annual cash distributions during the
 twelve months ending December 31, 1999(9).......................     $ 226
                                                                      =====
Estimated initial annual cash distributions per OP Unit during
 the twelve months ending December 31, 1999(10)..................     $0.84
                                                                      =====
</TABLE>
    
- --------
 (1) Represents loss on sale of real estate for the last two quarters 1997 of
     $15 million.
 (2) Represents pro forma real estate related depreciation and amortization
     for the fiscal year ended January 2, 1998 of $339 million minus pro forma
     real estate related depreciation and amortization for the First Two
     Quarters 1997 of $153 million plus pro forma real estate related
     depreciation and amortization for the First Two Quarters 1998 of $151
     million.
 (3) Represents pro forma portion of cash from operations of unconsolidated
     equity investments, net of pro forma equity in earnings of affiliates,
     for the fiscal year ended January 2, 1998 of $39 million minus pro forma
     portion of cash from operations of unconsolidated equity investments, net
     of pro forma equity in earnings of affiliates, for the First Two Quarters
     1997 of $15 million plus pro forma portion of cash from operations of
     unconsolidated equity investments, net of pro forma equity in earnings of
     affiliates, for the First Two Quarters 1998 of $16 million.
 (4) Represents pro forma one-time gain for the last two quarters 1997 of $10
     million.
 (5) Represents pro forma portion of cash from operations relating to minority
     owners, net of pro forma portion of minority interest relating to OP
     Units, for the fiscal year ended January 2, 1998 of $10 million minus pro
     forma portion of cash from operations relating to minority owners, net of
     pro forma portion of minority interest relating to OP Units, for the
     First Two Quarters 1997 of $5 million plus pro forma portion of cash from
     operations relating to minority owners, net of pro forma portion of
     minority interest relating to OP Units, for the First Two Quarters 1998
     of $3 million.
 (6) Represents FF&E reserves for the year ending December 31, 1999 of $178
     million based on pro forma FF&E for the Last Twelve Months. Any
     differences between such estimated amount and the Last Twelve Month pro
     forma amount are not expected to be material.
 (7) Represents principal repayments required for the year ending December 31,
     1999 of $64 million based on the terms of the pro forma indebtedness at
     June 19, 1998.
   
 (8) The amount of contingent rent received but deferred pursuant to EITF 98-
     9, "Accounting for Contingent Rents in Interim Financial Periods," at
     June 19, 1998 and June 20, 1997 was $261 million and $207 million,
     respectively. The difference of $54 million represents the elimination of
     the net effect of these two deferred items, which has the effect of
     applying the applicable lease rental terms to the historical gross sales
     from the leased Hotels for the last Twelve Months to estimate rental
     revenues for the calendar year 1999. Interim and annual revenues will be
     impacted to the extent percentage rent threshold's under the leases are
     not met or exceeded. If the rental revenues represented by this     
 
                                      136

<PAGE>
 
    adjustment were not realized for the twelve months ending December 31,
    1999, then the Operating Partnership would be required to borrow the
    amount of the shortfall under the New Credit Facility or from other
    sources to make estimated initial annual cash distributions during 1999.
 (9) Based on a total of 269.4 million OP Units outstanding on a pro forma
     basis after the Mergers (based upon the maximum price of $15.50 per OP
     Unit) and the preliminary estimated cash distributions during the twelve
     months ending December 31, 1999 of $0.84 per OP Unit.
(10) Based on a total of 269.4 million OP Units outstanding on a pro forma
     basis after the Mergers (based upon the maximum price of $15.50 per OP
     Unit).
   
  If Host's preliminary estimate of $226 million of cash distributions by the
Operating Partnership during the twelve months ending December 31, 1999 proves
accurate but the Operating Partnership's aggregate estimated cash available
for distribution and estimated cash from contingent rents during the twelve
months ending December 31, 1999 were only $217 million, then the Operating
Partnership would be required to borrow approximately $9 million (or $0.04 per
OP Unit) to make such distributions to enable Host REIT to distribute 100% of
its estimated taxable income in accordance with its distribution policy.
Moreover, if estimated cash from contingent rents were less than $54 million,
then the Operating Partnership also would be required to borrow any such
shortfall in order to make such distributions. While the Operating Partnership
does not believe this will be necessary, it believes it would be able to
borrow the necessary amounts under the New Credit Facility or from other
sources (see "Business and Properties--Indebtedness") and that any such
borrowing would not have a material adverse effect on its financial condition
or results of operations.     
 
  The distributions to shareholders per Common Share are expected to be equal
to the amount distributed by the Operating Partnership per OP Unit. However,
if the REIT Conversion is not completed until after January 1, 1999, then Host
REIT's distributions to shareholders in 1999 would be lower than the Operating
Partnership's distributions per OP Unit (by the amount of Host REIT's 1999
corporate income tax payments) until its REIT election becomes effective,
which would be no later than January 1, 2000. The Operating Partnership
intends to make distributions during 1999 at the estimated level described
below even if the REIT election of Host REIT were not effective until January
1, 2000.
   
  The following table describes the calculation of Host REIT's estimated
initial cash distributions and estimated cash distributions per Common Share
for the twelve months ending December 31, 1999, based on the Operating
Partnership's estimated cash distributions of $0.84 per OP Unit, if the REIT
Conversion were to occur on January 1, 1999 but Host REIT's REIT election were
not effective until January 1, 2000:     
 

<TABLE>   
<S>                                                                      <C>
Estimated cash distributions by the Operating Partnership for the
 twelve months ending December 31, 1999................................  $  226
  Less: Estimated cash distributions to OP Unitholders (other than Host
   REIT)...............................................................     (55)
                                                                         ------
Host REIT's share of estimated cash distributions by the Operating
 Partnership for the twelve months ending December 31, 1999............     171
  Less: Estimated cash payments for federal and state income taxes (if
   Host REIT has not yet made REIT election)(1)........................   (64.5)
                                                                         ------
Estimated cash distributions by Host REIT (if Host REIT has not yet
 made a REIT election) for the twelve months ending December 31, 1999..  $106.5
                                                                         ======
Estimated cash distributions per Common Share (if Host REIT has not yet
 made a REIT election) for the twelve months ending December 31,
 1999(2)...............................................................  $ 0.52
                                                                         ======
</TABLE>
    
- -------
   
(1) Estimated cash tax payments based on applying Host REIT's blended
    statutory tax rate (assumed to be a federal rate of 35%, plus a blended
    state rate of 5% net of the federal benefit), taking into account
    utilization of Host REIT's estimated alternative minimum tax ("AMT")
    credit carryforwards (approximately $21 million) and estimated AMT
    preferences (approximately $55 million), and applying the resulting
    effective rate (25%) to estimated taxable income for the year.     
(2) Based on a total of 204.2 million Common Shares outstanding.
 
  Investors are cautioned that Host expects that its preliminary estimate of
1999 taxable income (and the resulting estimated distributions during 1999)
may materially change as a result of issuances of additional
 
                                      137

<PAGE>
 
common or preferred stock by Host either prior to or following the Mergers
(which could reduce the distribution per OP Unit in accordance with its
distribution policy), changes in operations, acquisitions or dispositions of
assets, changes in the preliminary estimate of taxable income for 1999 and
various other factors (some of which may be beyond the control of Host REIT
and the Operating Partnership). Distributions will be made in the discretion
of Host REIT's Board of Directors and will be affected by a number of factors,
including the rental payments received by the Operating Partnership from the
Lessees with respect to the Leases of the Hotels, the operating expenses of
the Operating Partnership, the level of borrowings and interest expense
incurred in borrowing, the Operating Partnership's financial condition and
cash available for distribution, the taxable income of Host REIT and the
Operating Partnership, the effects of acquisitions and dispositions of assets,
unanticipated capital expenditures and distributions required to be made on
any preferred units issued by the Operating Partnership. Actual results may
vary substantially from the estimates and no assurance can be given that the
Operating Partnership's estimates will prove accurate or that any level of
distributions will be made or sustained.
 
  For a discussion of the tax treatment of distributions to holders of OP
Units, see "Federal Income Tax Consequences--Tax Treatment of Holders of OP
Units--Treatment of Operating Partnership Distributions." For a discussion of
the annual distribution requirements applicable to REITs, see "Federal Income
Tax Consequences--Taxation of Host REIT Following the REIT Conversion--Annual
Distribution Requirements Applicable to REITs." For a discussion of the tax
treatment of distributions to the holders of Common Shares, see "Federal
Income Tax Consequences--Taxation of Taxable U.S. Shareholders of Host REIT
Generally," "--Taxation of Tax-Exempt Shareholders of Host REIT" and "--
Taxation of Non-U.S. Shareholders of Host REIT."
 
INVESTMENT POLICIES
 
  Investments in Real Estate or Interests in Real Estate. Host REIT is
required to conduct all of its investment activities through the Operating
Partnership. The Operating Partnership's investment objectives are to (i)
achieve long-term sustainable growth in Funds From Operations per OP Unit or
Common Share, (ii) increase asset values by improving and expanding the
initial Hotels, as appropriate, (iii) acquire additional existing and newly
developed upscale and luxury full-service hotels in targeted markets, (iv)
develop and construct upscale and luxury full-service hotels and (v)
potentially pursue other real estate investments. The Operating Partnership's
business will be primarily focused on upscale and luxury full-service hotels.
Where appropriate, and subject to REIT qualification rules and limitations
contained in the Partnership Agreement, the Operating Partnership may sell
certain of its hotels.
 
  The Operating Partnership also may participate with other entities in
property ownership through joint ventures or other types of co-ownership.
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness may be incurred in connection
with acquiring investments. Any such financing or indebtedness will have
priority over the Operating Partnership's equity interest in such property.
 
  Investments in Real Estate Mortgages. While the Operating Partnership will
emphasize equity real estate investments, it may, in its discretion, invest in
mortgages and other similar interests. The Operating Partnership does not
intend to invest to a significant extent in mortgages or deeds of trust, but
may acquire mortgages as a strategy for acquiring ownership of a property or
the economic equivalent thereof, subject to the investment restrictions
applicable to REITs. See "Business and Properties--Blackstone Acquisition,"
"Federal Income Tax Consequences--Federal Income Taxation of Host REIT
Following the Mergers--Income Tests Applicable to REITs" and "--Asset Tests
Applicable to REITs." As of June 19, 1998, the Operating Partnership held two
mortgages secured by hotels. In addition, the Operating Partnership may invest
in mortgage-related securities and/or may seek to issue securities
representing interests in such mortgage-related securities as a method of
raising additional funds.
 
  Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage ownership limitations
and gross and asset income tests necessary for REIT qualification, the
Operating Partnership also may invest in securities of other entities engaged
in real estate
 
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<PAGE>
 
activities or invest in securities of other issuers, including for the purpose
of exercising control over such entities. The Operating Partnership may
acquire all or substantially all of the securities or assets of other REITs or
similar entities where such investments would be consistent with the Operating
Partnership's investment policies. No such investments will be made, however,
unless the Board of Directors determines that the proposed investment would
not cause either Host REIT or the Operating Partnership to be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
 
FINANCING POLICIES
 
  The Operating Partnership's and Host REIT's organizational documents
currently contain no restrictions on incurring debt. Host REIT and the
Operating Partnership, however, will have a policy of incurring debt only if
upon such incurrence the debt-to-total market capitalization of Host REIT and
the Operating Partnership would be 60% or less. In addition, the New Senior
Notes indenture and the New Credit Facility impose limitations on the
incurrence of indebtedness. The Indenture for the Notes also limits the amount
of Debt (as defined in the Indenture, see "Description of the Notes--
Limitations on Incurrence of Debt") that the Operating Partnership may incur
if, immediately after giving effect to the incurrence of such additional Debt,
the aggregate principal amount of all outstanding Debt of the Operating
Partnership and its Subsidiaries (as defined in the Indenture) on a
consolidated basis is greater than 75% of the Operating Partnership's
undepreciated total assets on the date of such incurrence. Indentures for debt
issued to replace the public bonds may contain other restrictions. The
Operating Partnership may, from time to time, reduce its outstanding
indebtedness by repurchasing a portion of such outstanding indebtedness,
subject to certain restrictions contained in the Partnership Agreement and the
terms of its outstanding indebtedness. The Operating Partnership will from
time to time reevaluate its borrowing policies in light of then current
economic conditions, relative costs of debt and equity capital, market
conditions, market values of properties, growth and acquisition opportunities
and other factors. Consequently, the Operating Partnership's financing policy
is subject to modification and change. The Operating Partnership may waive or
modify its borrowing policy without any vote of the shareholders of Host REIT
or the limited partners of the Operating Partnership.
 
  To the extent that the Board of Directors determines to seek additional
capital, Host REIT or the Operating Partnership may raise such capital through
equity offerings, debt financing or retention of cash flow or a combination of
these methods. As long as the Operating Partnership is in existence, the net
proceeds of all equity capital raised by Host REIT will be contributed to the
Operating Partnership in exchange for OP Units in the Operating Partnership,
which will dilute the ownership interest of limited partners of the Operating
Partnership.
 
  In the future, the Operating Partnership may seek to extend, expand, reduce
or renew its New Credit Facility, or obtain new credit facilities or lines of
credit, subject to its general policy relating to the ratio of debt-to-total
market capitalization, for the purpose of making acquisitions or capital
improvements or providing working capital or meeting the taxable income
distribution requirements for REITs under the Code. In the future, Host REIT
and the Operating Partnership also may determine to issue securities senior to
the Common Shares or OP Units, including preferred shares and debt securities
(either of which may be convertible into Common Shares or OP Units or may be
accompanied by warrants to purchase Common Shares or OP Units).
 
  The Operating Partnership has not established any limit on the number or
amount of mortgages that may be placed on any single hotel or on its portfolio
as a whole, although the Operating Partnership's objective is to reduce its
reliance on secured indebtedness.
 
LENDING POLICIES
 
  The Operating Partnership may consider offering purchase money financing in
connection with the sale of a hotel where the provision of such financing will
increase the value received by the Operating Partnership for the hotel sold.
 
CONFLICTS OF INTEREST POLICIES
 
  Under the MGCL, no contract or transaction between a Maryland corporation
and any of its directors or between a Maryland corporation and any other
corporation, firm, or other entity in which any of its directors is a
 
                                      139

<PAGE>
 
director, or has a material financial interest, shall be void or voidable
solely for this reason, or solely because the director is present at the
meeting of the board or committee of the board which authorizes, approves, or
ratifies the contract or transaction, or solely because such director's or
directors' votes are counted for such purpose, if (i) the fact of common
directorship or interest is disclosed or known to the board of directors or
the committee, and the board or committee authorizes, approves, or ratifies
the contract or transaction by the affirmative vote of a majority of
disinterested directors, even if the disinterested directors constitute less
than a quorum, (ii) the fact of common directorship or interest is disclosed
or known to the stockholders entitled to vote, and the contract or transaction
is authorized, approved, or ratified by a majority of the votes cast by the
stockholders entitled to vote other than the votes of shares owned of record
or beneficially by the interested corporation, firm or other entity, or (iii)
the contract or transaction is fair and reasonable to the corporation. Common
or interested directors or the stock owned by them or by an interested
corporation, firm, or other entity may be counted in determining the presence
of a quorum at a meeting of the board of directors or a committee of the board
or at a meeting of the stockholders, as the case may be, at which the contract
or transaction is authorized, approved or ratified.
 
  Host REIT's Board of Directors has also adopted a policy to address
conflicts of interest. In addition, Maryland and Delaware law impose certain
duties on the Board of Directors and Host REIT, as general partner of the
Operating Partnership (to the extent such duties have not been eliminated
pursuant to the Charter or the Partnership Agreement). There can be no
assurance, however, that these policies always will be successful in
eliminating the influence of such conflicts. If they are not successful,
decisions could be made that may fail to reflect fully the interests of all
limited partners of the Operating Partnership.
 
  Host REIT has adopted a policy which would require that all material
contracts and transactions between Host REIT, the Operating Partnership or any
of its subsidiaries, on the one hand, and a director or executive officer of
Host REIT or any entity in which such director or executive officer is a
director or has a material financial interest, on the other hand, must be
approved by the affirmative vote of a majority of the disinterested directors.
Where appropriate in the judgment of the disinterested directors, the Board of
Directors may obtain a fairness opinion or engage independent counsel to
represent the interests of nonaffiliated security holders, although the Board
of Directors will have no obligation to do so.
 
  In addition, under Delaware law (where the Operating Partnership is formed),
Host REIT, as general partner, has a fiduciary duty to the Operating
Partnership and, consequently, such transactions are subject to the duties of
care and loyalty that Host REIT, as general partner, owes to limited partners
of the Operating Partnership (to the extent such duties have not been
eliminated pursuant to the terms of the Partnership Agreement). The
Partnership Agreement provides that (i) in considering to dispose of any of
the assets of the Operating Partnership, Host REIT shall take into account the
tax consequences to it of any such disposition and shall have no liability to
the Operating Partnership or the limited partners for decisions based upon or
influenced by such tax consequences (and the Operating Partnership generally
is obligated to pay any taxes Host REIT incurs as result of such
transactions), (ii) Host REIT, as general partner, is under no obligation to
consider the separate interests of the limited partners (including, without
limitation, tax consequences) in deciding whether to cause the Operating
Partnership to take, or decline to take, any action and (iii) any act or
omission by Host REIT, as a general partner, undertaken in the good faith
belief that such action is necessary or desirable to protect the ability of
Host REIT to continue to qualify as a REIT or to allow Host REIT to avoid
incurring liability for taxes under Section 857 or 4981 of the Code (relating
to required distributions) is deemed approved by all limited partners.
 
POLICIES WITH RESPECT TO OTHER ACTIVITIES
 
  The Operating Partnership may, but does not presently intend to, make
investments other than as previously described. Host REIT will make
investments only through the Operating Partnership. Host REIT and the
Operating Partnership will have authority to offer their securities and to
repurchase or otherwise reacquire their securities and may engage in such
activities in the future. Host REIT and the Operating Partnership also may
make loans to joint ventures in which they may participate in the future to
meet working capital needs. Neither Host REIT nor the Operating Partnership
will engage in trading, underwriting, agency distribution or sale of
securities of other issuers. Host REIT's policies with respect to such
activities may be reviewed and modified from time to time by Host REIT's
directors without notice to, or the vote of, its shareholders.
 
 
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<PAGE>
 
                            SELECTED FINANCIAL DATA
 
  The following table presents certain selected historical financial data of
Host which has been derived from Host's audited Consolidated Financial
Statements for the five most recent fiscal years ended January 2, 1998 and the
unaudited condensed consolidated financial statements for the First Two
Quarters 1998 and First Two Quarters 1997. The income statement data for
fiscal year 1993 does not reflect the Marriott International Distribution and
related transactions and, accordingly, the table presents data for Host for
1993 that includes amounts attributable to Marriott International. As a result
of the Marriott International Distribution and related transactions, the
assets, liabilities and businesses of Host have changed substantially.
 
  The information contained in the following table is not comparable to the
operations of Host or the Operating Partnership on a going-forward basis
because the historical information relates to an operating entity which owns
and operates its hotels, while the Company will own the Hotels but will lease
them to the Lessees and receive rental payments in connection therewith.
 

<TABLE>   
<CAPTION>
                             FIRST
                         TWO QUARTERS                   FISCAL YEAR
                         --------------  ----------------------------------------------
                          1998    1997   1997(1)  1996(2)  1995(3)  1994(1)  1993(1)(4)
                         ------  ------  -------  -------  -------  -------  ----------
                          (UNAUDITED)             (IN MILLIONS)
<S>                      <C>     <C>     <C>      <C>      <C>      <C>      <C>
INCOME STATEMENT DATA:
  Revenues.............. $  747  $  522  $1,147   $  732   $  484   $  380     $  659
  Operating profit......    374     215     449      233      114      152         92
  Interest expense......    162     122     302      237      178      165        164
  Income (loss) from
   continuing
   operations...........     96      32      47      (13)     (62)     (13)        56
  Net income (loss)(5)..     96      37      50      (13)    (143)     (25)        50
OTHER OPERATING DATA:
  Cash from operations..    206     193     464      201      142      146        415
  Cash provided by (used
   in) investing
   activities...........     11    (200) (1,046)    (504)    (208)    (178)      (262)
  Cash provided by (used
   in) financing
   activities...........   (213)   (188)    389      806      200       26       (389)
  Comparative FFO(6)
   (unaudited)..........    206     145     295      164      136      N/A        N/A
  Depreciation and
   amortization.........    125     102     240      168      122      113        N/A
RATIO DATA (UNAUDITED):
  Ratio of earnings to
   fixed charges(7).....    2.0x    1.5x    1.3x     1.0x     --       --         N/A
  Deficiency of earnings
   to fixed charges(7)..    --      --      --       --        70       12        N/A
BALANCE SHEET DATA:
  Cash, cash equivalents
   and short-term
   marketable
   securities........... $  561  $  509  $  865   $  704   $  201   $   67     $   73
  Total assets..........  6,765   5,324   6,526    5,152    3,557    3,366      3,362
  Debt..................  3,784   2,715   3,783    2,647    2,178    1,871      2,113
</TABLE>
    
- --------
(1) In the First Two Quarters 1997 and fiscal year 1997, Host recognized a $5
    million and a $3 million, respectively, extraordinary gain, net of taxes,
    on the extinguishment of certain debt. In 1994, Host recognized a $6
    million extraordinary loss, net of taxes, on the required redemption of
    senior notes. In 1993, Host recognized a $4 million extraordinary loss,
    net of taxes, on the completion of an exchange offer for its then
    outstanding bonds.
(2) Fiscal year 1996 includes 53 weeks.
(3) Operating results for 1995 include a $10 million pre-tax charge to write
    down the carrying value of five limited service properties to their net
    realizable value and a $60 million pre-tax charge to write down an
    undeveloped land parcel to its estimated sales value. In 1995, Host
    recognized a $20 million extraordinary loss, net of taxes, on the
    extinguishment of debt.
(4) Operating results for 1993 include the operations of Marriott
    International through the Marriott International Distribution date of
    October 8, 1993. These operations had a net pre-tax effect on income of
    $211 million for the year ended December 31, 1993 and are recorded as
    "Profit from operations distributed to Marriott International" on Host's
 
                                      141

<PAGE>
 
     consolidated statements of operations and are, therefore, not included in
     sales, operating profit before corporate expenses and interest, interest
     expense and interest income for the same period. The net pre-tax effect of
     these operations is, however, included in income before income taxes,
     extraordinary item and cumulative effect of changes in accounting
     principles and in net income for the same periods. Statement of Financial
     Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," was
     adopted in the first quarter of 1993. In the second quarter of 1993, Host
     changed its accounting method for assets held for sale. During 1993, Host
     recorded a $34 million credit to reflect the adoption of SFAS No. 109 and a
     $32 million charge, net of taxes, to reflect the change in its accounting
     method for assets held for sale. Operating results in 1993 included pre-tax
     expenses related to the Marriott International Distribution totaling $13
     million.
(5)  Host recorded a loss from discontinued operations, net of taxes, as a
     result of the Special Dividend (as defined herein) of $61 million in
     1995, $6 million in 1994, and $4 million in 1993. The 1995 loss from
     discontinued operations includes a pre-tax charge of $47 million for the
     adoption of SFAS No. 121, "Accounting For the Impairment of Long-Lived
     Assets and Long-Lived Assets to be Disposed Of," a pre-tax $15 million
     restructuring charge and an extraordinary loss of $10 million, net of
     taxes, on the extinguishment of debt.
(6)  Host considers Comparative Funds From Operations ("Comparative FFO,"
     which represents Funds From Operations, as defined by the National
     Association of Real Estate Investment Trusts, Inc. ("NAREIT"), plus
     deferred tax expense) a meaningful disclosure that will help the
     investment community to better understand the financial performance of
     Host, including enabling its shareholders and analysts to more easily
     compare Host's performance to REITs. FFO is defined by NAREIT as net
     income computed in accordance with GAAP, excluding gains or losses from
     debt restructurings and sales of properties, plus real estate related
     depreciation and amortization, and after adjustments for unconsolidated
     partnerships and joint ventures. FFO should not be considered as an
     alternative to net income, operating profit, cash flows from operations
     or any other operating or liquidity performance measure prescribed by
     GAAP. FFO is also not an indicator of funds available to fund the Host's
     cash needs, including its ability to make distributions. Host's method of
     calculating FFO may be different from methods used by other REITs and,
     accordingly, may not be comparable to such other REITs.
(7)  The ratio of earnings to fixed charges is computed by dividing net income
     before interest expense and other fixed charges by total fixed charges,
     including interest expense, amortization of debt issuance costs and the
     portion of rent expense that is deemed to represent interest. The
     deficiency of earnings to fixed charges is largely the result of
     depreciation and amortization of $122 million and $113 million in 1995
     and 1994, respectively.
 
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<PAGE>
 

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                            AND FINANCIAL CONDITION
 
LACK OF COMPARABILITY FOLLOWING THE MERGERS AND THE REIT CONVERSION
 
  Because substantially all of the Company's Hotels will be leased following
the Mergers and the REIT Conversion, the Company does not believe that the
historical results of operations of Host will be comparable to the results of
operations of the Company following the Mergers and the REIT Conversion. For
pro forma information giving effect to the Mergers and the REIT Conversion
(including the Leases), see "Unaudited Pro Forma Financial Information."
 
HISTORICAL RESULTS OF OPERATIONS
 
  Revenues primarily represent house profit from hotel properties and senior
living communities, net gains (losses) on property transactions and equity in
the earnings (losses) of affiliates. House profit reflects the net revenues
flowing to Host as property owner and represents gross hotel sales less
property-level expenses (excluding depreciation, management fees, property
taxes, ground and equipment rent, insurance and certain other costs which are
classified as operating costs and expenses included in the accompanying
financial statements). Other operating costs and expenses include idle land
carrying costs and certain other costs.
 
  Host's hotel operating costs and expenses are, to a great extent, fixed.
Therefore, Host derives substantial operating leverage from increases in
revenue. This operating leverage is somewhat diluted, however, by the impact
of base management fees which are calculated as a percentage of sales,
variable lease payments and incentive management fees tied to operating
performance above certain established levels. Successful hotel performance
resulted in certain of Host's properties reaching levels which allowed the
manager to share in the growth of profits in the form of higher management
fees. Host expects that this trend will continue in 1998 as the upscale and
luxury full-service segments continue to strengthen. At these higher operating
levels, Host's and the managers' interests are closely aligned, which helps to
drive further increases in profitability, but moderates operating leverage.
 
  For the periods discussed herein, Host's hotel properties have experienced
substantial increases in room revenues generated per available room
("REVPAR"). REVPAR is a commonly used indicator of market performance for
hotels which represents the combination of the average daily room rate charged
and the average occupancy achieved. REVPAR does not include food and beverage
or other ancillary revenues generated by the property. The REVPAR increase
primarily represents strong percentage increases in room rates, while
occupancy increases have been more moderate. Increases in average room rates
have generally been achieved by the managers through shifting occupancies away
from discounted group business to higher-rated group and transient business
and by selectively increasing room rates. This has been made possible by
increased travel due to improved economic conditions and by the favorable
supply/demand characteristics existing in the upscale and luxury full-service
segments of the lodging industry. Host expects this favorable relationship
between supply growth and demand growth to continue in the upscale and luxury
markets in which it operates, which should result in improved REVPAR and
operating profits at its hotel properties in the near term. However, there can
be no assurance that REVPAR will continue to increase in the future.
 
FIRST TWO QUARTERS 1998 COMPARED TO FIRST TWO QUARTERS 1997 (HISTORICAL)
 
  Revenues. Revenues primarily represent house profit from Host's hotel
properties, net gains (losses) on property transactions and equity in earnings
(losses) of affiliates. Revenues increased $225 million, or 43%, to $747
million for the twenty-four weeks ended June 19, 1998 ("First Two Quarters
1998") from $522 million for the twenty-four weeks ended June 20, 1997 ("First
Two Quarters 1997"). Host's revenue and operating profit were impacted by
improved lodging results for comparable full-service hotel properties, the
addition of 18 full-service hotel properties during 1997 and eight full-
service properties during the First Two Quarters 1998, the acquisition of 30
senior living communities in 1997 and one senior living community in 1998 and
the gain on the sale of two hotel properties in the First Two Quarters 1998.
 
                                      143

<PAGE>
 
  Hotel sales (gross hotel sales, including room sales, food and beverage
sales, and other ancillary sales such as telephone sales) increased $317
million, or 25%, to $1,574 million in the First Two Quarters 1998, reflecting
the REVPAR increases for comparable units and the addition of full-service
properties in 1997 and 1998. Improved results for Host's full-service hotels
were driven by strong increases in REVPAR for comparable units of 8.2% to
$116.66 for the First Two Quarters 1998. Results were further enhanced by a
one percentage point increase in the house profit margin for comparable full-
service properties. On a comparable basis for Host's full-service hotel
properties, average room rates increased over eight percent, while average
occupancy decreased slightly.
 
  Revenues generated from Host's 31 senior living communities totaled $39
million for the First Two Quarters 1998. For the First Two Quarters 1998,
average occupancy was almost 92% and the average per diem rate was almost $88,
which resulted in revenue per available unit ("REVPAU") of $80.65. Senior
living communities' sales totaled $110 million for the First Two Quarters
1998.
 
  Revenues were also impacted by the gains on the sales of two hotel
properties. The New York East Side Marriott was sold for $191 million
resulting in a pre-tax gain of approximately $40 million. The Napa Valley
Marriott was sold for $21 million resulting in a pre-tax gain of approximately
$10 million.
 
  Operating Costs and Expenses. Operating costs and expenses principally
consist of depreciation, management fees, property taxes, ground, building and
equipment rent, insurance and certain other costs. Operating costs and
expenses increased $66 million to $373 million in the First Two Quarters 1998
from $307 million for the First Two Quarters 1997, primarily representing
increased hotel and senior living communities' operating costs, including
depreciation and management fees. Hotel operating costs increased $52 million
to $343 million for the First Two Quarters 1998 primarily due to the addition
of 26 full-service properties during 1997 and the First Two Quarters 1998 and
increased management fees and rentals tied to improved property results. As a
percentage of hotel revenues, hotel operating costs and expenses decreased to
53% of revenues in the First Two Quarters 1998 from 57% of revenues in the
First Two Quarters 1997 due to the significant increases in REVPAR discussed
above, as well as the operating leverage as a result of a significant portion
of Host's hotel operating costs and expenses being fixed. Host's senior living
communities' operating costs and expenses were $20 million for the First Two
Quarters 1998.
 
  Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, Host's operating profit increased $159 million,
or 74%, to $374 million for the First Two Quarters 1998. Hotel operating
profit increased $88 million, or 40%, to $309 million, or 47% of hotel
revenues, for the First Two Quarters 1998 from $221 million, or 43% of hotel
revenues, for the First Two Quarters 1997. Specifically, hotels in New York
City and Toronto reported significant improvements for the First Two Quarters
1998. Results in Mexico City have also improved as the Mexican economy
continues to strengthen. Properties in Florida reported some minor softness in
results due to exceptionally poor weather in 1998. Host's senior living
communities generated $19 million of operating profit for the First Two
Quarters 1998.
 
  Minority Interest. Minority interest expense increased $6 million to $30
million for the First Two Quarters 1998, primarily reflecting the impact of
the consolidation of affiliated partnerships and the acquisition of
controlling interests in newly-formed partnerships during 1997 and the First
Two Quarters 1998.
 
  Corporate Expenses. Corporate expenses increased $3 million to $21 million
for the First Two Quarters 1998. As a percentage of revenues, corporate
expenses decreased to 2.8% of revenues for the First Two Quarters 1998 from
3.4% in the First Two Quarters 1997, reflecting Host's efforts to control its
corporate expenses in spite of the substantial growth in revenues.
 
  REIT Conversion Expenses. REIT Conversion Expenses reflect the professional
fees and other expenses associated with the Company's conversion to a REIT.
 
  Interest Expense. Interest expense increased 33% to $162 million in the
First Two Quarters 1998, primarily due to additional debt of approximately
$580 million assumed in connection with the 1997 and 1998
 
                                      144

<PAGE>
 
full-service hotel additions, approximately $300 million assumed in connection
with the acquisition of senior living communities, as well as the issuance of
$600 million of 8 7/8% senior notes in July 1997.
 
  Dividends on Convertible Preferred Securities. The dividends on Convertible
Preferred Securities reflect the dividends accrued on the $550 million in
6.75% Convertible Preferred Securities issued by Host in December 1996.
 
  Interest Income. Interest income increased $3 million to $25 million for the
First Two Quarters 1998, primarily reflecting interest earned on cash held for
future hotel investments.
 
  Income before Extraordinary Item. Income before extraordinary item for the
First Two Quarters 1998 was $96 million, compared to $32 million for the First
Two Quarters 1997.
 
  Extraordinary Gain. In March 1997, Host purchased 100% of the outstanding
bonds secured by a first mortgage on the San Francisco Marriott Hotel. Host
purchased the bonds for $219 million, which was an $11 million discount to the
face value of $230 million. In connection with the redemption and defeasance
of the bonds, Host recognized an extraordinary gain of $5 million, which
represents the $11 million discount and the write-off of deferred financing
fees, net of taxes.
 
  Net Income. Host's net income for the First Two Quarters 1998 was $96
million compared to $37 million for the First Two Quarters 1997. For the First
Two Quarters 1998 and 1997, basic earnings per common share were $.47 and
$.18, respectively and diluted earnings per common share were $.45 and $.18,
respectively.
 
1997 COMPARED TO 1996 (HISTORICAL)
 
  Revenues. Revenues increased $415 million, or 57%, to $1.1 billion for 1997.
Host's revenue and operating profit were impacted by:
 
  -- improved lodging results for comparable full-service hotel properties;
 
  -- the addition of 23 full-service hotel properties during 1996 and 18
     full-service properties during 1997;
 
  -- the addition of 30 senior living communities in 1997;
 
  -- the 1996 sale and leaseback of 16 Courtyard properties and 18 Residence
     Inns; and
 
  -- the 1997 results including 52 weeks versus 53 weeks in 1996.
 
  Hotel revenues increased $376 million, or 52%, to $1.1 billion in 1997, as
all three of the Company's lodging concepts reported growth in REVPAR. Hotel
sales increased $864 million, or 44%, to over $2.8 billion in 1997, reflecting
the REVPAR increases for comparable units and the addition of full-service
properties during 1996 and 1997. Improved results for the Company's full-
service hotels were driven by strong increases in REVPAR for comparable units
of 12.6% in 1997. Results were further enhanced by a more than two percentage
point increase in the house profit margin for comparable full-service
properties. On a comparable basis for Host's full-service properties, average
room rates increased almost 11%, while average occupancy increased over one
percentage point.
 
  Revenues generated from Host's 1997 third quarter acquisition of 29 senior
living communities totaled $37 million. During 1997, average occupancy of the
communities was 92% and the average per diem rate was $84, which resulted in
1997 REVPAR of $77. Overall occupancies for 1997 were lower than the
historical and anticipated future occupancies due to the significant number of
expansion units added during the year, the overall disruption to the
communities as a result of the construction and the time required to fill the
expansion units. Senior living communities' sales totaled $111 million for
1997.
 
  Operating Costs and Expenses. Operating costs and expenses increased $199
million to $698 million for 1997, primarily representing increased hotel and
senior living communities' operating costs, including depreciation and
management fees. Hotel operating costs increased $188 million to $649 million,
primarily due
 
                                      145

<PAGE>
 
to the addition of 41 full-service properties during 1996 and 1997, and
increased management fees and rentals tied to improved property results. As a
percentage of hotel revenues, hotel operating costs and expenses decreased to
59% of revenues for 1997, from 64% of revenues for 1996, reflecting the impact
of increased 1997 revenues on relatively fixed operating costs and expenses.
Host's senior living communities operating costs and expenses were $20 million
(54% of revenues) for 1997.
 
  Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, Host's operating profit increased $216 million,
or 93%, to $449 million in 1997. Hotel operating profit increased $188
million, or 73%, to $444 million, or 41% of hotel revenues, for 1997 compared
to $256 million, or 36% of hotel revenues, for 1996. In nearly all markets,
Host's hotels recorded improvements in comparable operating results. In
particular, Host's hotels in the Northeast, Mid-Atlantic and Pacific coast
regions benefited from the upscale and luxury full-service room supply and
demand imbalance. Hotels in New York City, Philadelphia, San Francisco/Silicon
Valley and in Southern California performed particularly well. In 1998, Host
expects results to be strong in these markets and other gateway cities in
which the Company owns hotels. In 1997, Host's suburban Atlanta properties
(three properties totaling 1,022 rooms) generally reported decreased results
due to higher activity in 1996 related to the Summer Olympics and the impact
of the additional supply added to the suburban areas. However, the majority of
Host's hotel rooms in Atlanta are in the core business districts in downtown
and Buckhead where they realized strong year-over-year results and were only
marginally impacted by the additional supply. Host's senior living communities
generated $17 million (46% of revenues) of operating profit.
 
  Minority Interest. Minority interest expense increased $26 million to $32
million for 1997, primarily reflecting the impact of the consolidation of
affiliated partnerships and the acquisition of controlling interests in newly-
formed partnerships during 1996 and 1997.
 
  Corporate Expenses.  Corporate expenses increased $4 million to $47 million
in 1997. As a percentage of revenues, corporate expenses decreased to 4.1% of
revenues in 1997 from 5.9% of revenues in 1996. This reflects Host's efforts
to carefully control its corporate expenses in spite of the substantial growth
in revenues.
 
  Interest Expense.  Interest expense increased $65 million to $302 million in
1997, primarily due to the additional mortgage debt of approximately $1.1
billion assumed in connection with the 1996 and 1997 full-service hotel
additions, approximately $315 million in debt incurred in conjunction with the
acquisition of senior living communities, as well as the issuance of $600
million of 8 7/8% senior notes in July 1997.
 
  Dividends on Convertible Preferred Securities of Subsidiary Trust. The
dividends on the Convertible Preferred Securities reflect the dividends on the
$550 million in 6.75% Convertible Preferred Securities issued by Host in
December 1996.
 
  Interest Income. Interest income increased $4 million to $52 million for
1997, primarily reflecting the interest income on the available proceeds
generated by the December 1996 offering of Convertible Preferred Securities
and the proceeds generated by the issuance of the 8 7/8% senior notes in July
1997.
 
  Income (Loss) Before Extraordinary Items. Income before extraordinary items
for 1997 was $47 million, compared to a $13 million loss before extraordinary
items for 1996 as a result of the items discussed above.
 
  Extraordinary Gain (Loss). In March 1997, Host purchased 100% of the
outstanding bonds secured by a first mortgage on the San Francisco Marriott
Hotel. Host purchased the bonds for $219 million, which was an $11 million
discount to the face value of $230 million. In connection with the redemption
and defeasance of the bonds, Host recognized an extraordinary gain of $5
million, which represents the $11 million discount less the write-off of
unamortized deferred financing fees, net of taxes. In December 1997, Host
refinanced the mortgage debt secured by the Marriott's Orlando World Center.
In connection with the refinancing, Host recognized an extraordinary loss of
$2 million, which represents payment of a prepayment penalty and the write-off
of unamortized deferred financing fees, net of taxes.
 
 
                                      146

<PAGE>
 
  Net Income (Loss). Host's net income in 1997 was $50 million, compared to a
net loss of $13 million in 1996. Basic earnings per common share was $.25 for
1997, compared to a basic loss per common share of $.07 in 1996. Diluted
earnings per common share was $.24 for 1997 compared to a diluted loss per
common share of $.07 in 1996.
 
1996 COMPARED TO 1995 (HISTORICAL)
 
  Revenues. Revenues increased $248 million, or 51%, to $732 million in 1996.
Host's revenue and operating profit were impacted by:
 
  -- improved lodging results for comparable full-service hotel properties;
 
  -- the addition of nine full-service hotel properties during 1995 and 23
     full-service properties during 1996;
 
  -- the 1996 and 1995 sale and leaseback of 53 of Host's Courtyard
     properties and 18 of Host's Residence Inns;
 
  -- the 1996 change in the estimated depreciable lives and salvage values
     for certain hotel properties which resulted in additional depreciation
     expense of $15 million;
 
  -- the 1996 results including 53 weeks versus 52 weeks in 1995;
 
  -- the $60 million pre-tax charge in 1995 to write down the carrying value
     of one undeveloped land parcel to its estimated sales value;
 
  -- a $10 million pre-tax charge in 1995 to write down the carrying value of
     certain Courtyard and Residence Inn properties held for sale to their
     net realizable values included in "Net gains (losses) on property
     transactions"; and
 
  -- the 1995 sale of four Fairfield Inns.
 
  Hotel revenues increased $243 million, or 51%, to $717 million in 1996, as
all three of Host's lodging concepts reported growth in REVPAR. Hotel sales
increased $590 million, or 44%, to $1.9 billion in 1996, reflecting the REVPAR
increases for comparable units and the addition of full-service properties
during 1995 and 1996.
 
  Improved results for Host's full-service hotels were driven by strong
increases in REVPAR for comparable units of 11% in 1996. Results were further
enhanced by an almost two percentage point increase in the house profit margin
for comparable full-service properties. On a comparable basis for Host's full-
service properties, average room rates increased 8%, while average occupancy
increased over two percentage points.
 
  Operating Costs and Expenses. Operating costs and expenses increased $129
million to $499 million for 1996, primarily representing increased hotel
operating costs, including depreciation, partially offset by the $60 million
pre-tax charge in 1995 to write down the carrying value of one undeveloped
land parcel to its estimated sales value. Hotel operating costs increased $180
million to $461 million, primarily due to the addition of 32 full-service
properties during 1995 and 1996, increased management fees and rentals tied to
improved property results and a change in the depreciable lives and salvage
values of certain large hotel properties ($15 million). As a percentage of
hotel revenues, hotel operating costs and expenses increased to 64% of
revenues for 1996, from 59% of revenues for 1995, reflecting the impact of the
lease payments on the Courtyard and Residence Inn properties which have been
sold and leased back, and the change in depreciable lives and salvage values
for certain large hotel properties discussed above, as well as the shifting
emphasis to full-service properties. Full-service hotel rooms accounted for
100% of Host's total hotel rooms on January 3, 1997, versus 84% on December
29, 1995.
 
  Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, Host's operating profit increased $119 million,
or 104%, to $233 million in 1996. Hotel operating profit increased $63
million, or 33%, to $256 million, or 36% of hotel revenues, for 1996 compared
to $193 million, or 41% of
 
                                      147

<PAGE>
 
hotel revenues, for 1995. Across the board, the Company's hotels recorded
substantial improvements in comparable operating results. In addition, several
hotels, including the New York Marriott Marquis, the New York Marriott East
Side, the Philadelphia Marriott, the San Francisco Marriott and the Miami
Airport Marriott posted particularly significant improvements in operating
profit for the year. Host's Atlanta properties also posted outstanding
results, primarily due to the 1996 Summer Olympics. Additionally, several
hotels which recently converted to the Marriott brand, including the Denver
Marriott Tech Center, the Marriott's Mountain Resort at Vail and the
Williamsburg Marriott, recorded strong results compared to the prior year as
they completed renovations and began to realize the benefit of their
conversions.
 
  Corporate Expenses. Corporate expenses increased $7 million to $43 million
in 1996. As a percentage of revenues, corporate expenses decreased to 5.9% of
revenues in 1996 from 7.4% of revenues in 1995. This reflects Host's efforts
to carefully control its corporate administrative expenses in spite of the
substantial growth in revenues.
 
  Interest Expense. Interest expense increased 33% to $237 million in 1996,
primarily due to the additional mortgage debt of approximately $696 million
incurred in connection with the 1996 full-service hotel additions and the
issuance of $350 million of notes issued by HMC Acquisition Properties, Inc.,
a wholly-owned subsidiary of Host, in December 1995, partially offset by the
net impact of the 1995 redemptions of Host Marriott Hospitality, Inc. notes
("Hospitality Notes").
 
  Loss from Continuing Operations. The loss from continuing operations for
1996 decreased $49 million to $13 million, as a result of the changes
discussed above.
 
  Net Loss. Host's net loss in 1996 was $13 million, compared to a net loss of
$143 million in 1995, which included a $61 million loss from discontinued
operations and a $20 million extraordinary loss primarily representing
premiums paid on bond redemptions and the write-off of deferred financing fees
and discounts on the debt. The basic and diluted loss per common share was
$.07 for 1996 and $.90 for 1995.
 
PRO FORMA RESULTS OF OPERATIONS
 
  Because substantially all of the Company's Hotels will be leased to the
Lessees following the REIT Conversion, the Company does not believe that
Host's historical results of operations will be comparable to the results of
operations of the Company following the REIT Conversion. Accordingly, a
comparison of the Company's pro forma results of operations for the First Two
Quarters 1998 to the First Two Quarters 1997 and fiscal year 1997 to fiscal
year 1996 have been included below. The following discussion and analysis
should be read in conjunction with the Company's combined consolidated
financial statements and the Company's unaudited pro forma financial
statements and related notes thereto included elsewhere in this Consent
Solicitation. The following discussion and analysis has been prepared assuming
the following two scenarios:
 
  . All Partnerships participate and no Notes are issued ("100% Participation
    with No Notes Issued").
 
  . All Partnerships participate and Notes are issued with respect to 100% of
    the OP Units allocable to each Partnership ("100% Participation with
    Notes Issued").
 
  These presentations do not purport to represent what combination will result
from the Mergers and the REIT Conversion, but instead are designed to
illustrate what the composition of the Company would have been like under the
above scenarios. Furthermore, the unaudited pro forma financial statements do
not purport to represent what the Company's results of operations or cash
flows would actually have been if the Mergers and REIT Conversion had in fact
occurred on such date or at the beginning of such period or to project the
Company's results of operations or cash flows for any future date or period.
 
                                      148

<PAGE>
 
100% PARTICIPATION WITH NO NOTES ISSUED--FIRST TWO QUARTERS 1998 COMPARED TO
FIRST TWO QUARTERS 1997 (PRO FORMA)
 
  The following table presents the results of operations for the First Two
Quarters 1998 and the First Two Quarters 1997 on a pro forma basis under the
scenarios discussed above:
 

<TABLE>
<CAPTION>
                                    100% PARTICIPATION     100% PARTICIPATION
                                   WITH NO NOTES ISSUED     WITH NOTES ISSUED
                                   ----------------------  --------------------
                                    FIRST TWO QUARTERS     FIRST TWO QUARTERS
                                   ----------------------  --------------------
                                      1998        1997       1998       1997
                                   ----------  ----------  ---------  ---------
                                                 (IN MILLIONS)
<S>                                <C>         <C>         <C>        <C>
Rental revenues..................  $      342  $      336  $     342  $     336
Total revenues...................         345         337        345        337
Operating costs and expenses.....         270         272        269        271
Operating profit before minority
 interest, corporate expenses and
 interest expense................          75          65         76         66
Minority interest................         (11)         (7)       (11)        (7)
Corporate expenses...............         (20)        (18)       (20)       (18)
Interest expense.................        (216)       (221)      (224)      (229)
Interest income..................          13          13         13         13
                                   ----------  ----------  ---------  ---------
Income (loss) before income
 taxes...........................        (159)       (168)      (166)      (175)
Benefit (provision) for income
 taxes...........................           8           7          8          8
                                   ----------  ----------  ---------  ---------
Income (loss) before
 extraordinary items.............  $     (151) $     (161) $    (158) $    (167)
                                   ==========  ==========  =========  =========
</TABLE>

 
  Revenues. Revenues primarily represent lease revenues, net gains (losses) on
property transactions and equity in earnings (losses) of affiliates, including
the Non-Controlled Subsidiaries. Revenues increased $8 million, or 2%, to $345
million for the First Two Quarters 1998 from $337 million for the First Two
Quarters 1997. EITF 98-9, "Accounting for Contingent Rents in Interim
Financial Periods," requires a lessor to defer recognition of contingent
rental income in interim periods until the specified target that triggers the
contingent rental income is achieved. Based on the structure of the Company's
leases, only minimum rent was recorded in the First Two Quarters 1998 and
First Two Quarters 1997. On a pro forma basis, the Company would have received
rental payments of $603 million and $543 million, respectively, resulting in
deferred revenue of $261 million and $207 million, respectively, for the First
Two Quarters 1998 and First Two Quarters 1997.
 
  Hotel sales (gross hotel sales, including room sales, food and beverage
sales, and other ancillary sales such as telephone sales) increased $136
million, or 8.1%, to over $1.9 billion in the First Two Quarters 1998,
reflecting the REVPAR increases for the Company's hotels. Improved results for
the Company's hotels were driven by strong increases in REVPAR of 8.3% to
$113.67 for the First Two Quarters 1998. Average room rates increased 9%,
while average occupancy decreased slightly to 77.8%.
 
  Operating Costs and Expenses. Operating costs and expenses principally
consist of depreciation, property taxes, ground, rent, insurance and certain
other costs. Operating costs and expenses decreased $2 million to $270 million
in the First Two Quarters 1998. As a percentage of rental revenues, hotel
operating costs and expenses decreased to 77% of rental revenues in the First
Two Quarters 1998 from 79% of rental revenues in the First Two Quarters 1997
due to the increase in minimum rent under the Company's leases.
 
  Operating Profit. As a result of the changes in rental revenues and
operating costs and expenses discussed above, the Company's operating profit
increased $10 million, or 15%,to $75 million for the First Two Quarters 1998.
Hotel operating profit increased $7 million, or 10%, to $77 million, or 23% of
rental revenues, for the First Two Quarters 1998 from $70 million, or 21% of
rental revenues, for the First Two Quarters 1997. The Company's hotels
recorded significant improvements in comparable operating results, however,
due to EITF 98-9, only minimum rent could be recorded. Specifically, hotels in
New York City, Boston, Toronto and Atlanta
 
                                      149

<PAGE>
 
reported significant improvements for the First Two Quarters 1998. Properties
in Florida reported some temporary declines in operating results due to
exceptionally poor weather in 1998.
 
  Minority Interest. Minority interest expense increased $4 million to $11
million for the First Two Quarters 1998, primarily reflecting improved lodging
results.
 
  Corporate Expenses. Corporate expenses increased $2 million to $20 million
for the First Two Quarters 1998 due to increased staffing levels and the
impact of inflation.
 
  Interest Expense. Interest expense decreased $5 million to $216 million in
the First Two Quarters 1998, primarily due to the impact of principal
amortization on the Company's mortgage debt.
 
  Interest Income. Interest income was unchanged at $13 million for the First
Two Quarters 1998 and 1997, respectively.
 
  Loss before Extraordinary Items. The loss before extraordinary items for the
First Two Quarters 1998 was $151 million, compared to $161 million for the
First Two Quarters 1997.
 
100% PARTICIPATION WITH NOTES ISSUED--FIRST TWO QUARTERS 1998 COMPARED TO
FIRST TWO QUARTERS 1997 (PRO FORMA)
 
  Revenues. Revenues increased $8 million, or 2%,to $345 million for the First
Two Quarters 1998 from $337 million for the First Two Quarters 1997. Based on
the structure of the Company's leases, only minimum rent was recorded in the
First Two Quarters 1998 and First Two Quarters 1997. On a pro forma basis, the
Company would have received rental payments of $603 million and $543 million,
respectively, resulting in deferred revenue of $261 million and $207 million,
respectively, for the First Two Quarters 1998 and First Two Quarters 1997.
 
  Hotel sales (gross hotel sales, including room sales, food and beverage
sales, and other ancillary sales such as telephone sales) increased $136
million, or 8.1%, to over $1.9 billion in the First Two Quarters 1998,
reflecting the REVPAR increases for the Company's hotels. Improved results for
the Company's hotels were driven by strong increases in REVPAR of 8.3% to
$113.67 for the First Two Quarters 1998. Average room rates increased 9%,
while average occupancy decreased slightly to 77.8%.
 
  Operating Costs and Expenses. Operating costs and expenses decreased $2
million to $269 million in the First Two Quarters 1998. As a percentage of
rental revenues, hotel operating costs and expenses decreased to 77% of
revenues in the First Two Quarters 1998 from 79% of rental revenues in the
First Two Quarters 1997 due to the increase in minimum rent under the
Company's leases.
 
  Operating Profit. As a result of the changes in rental revenues and
operating costs and expenses discussed above, the Company's operating profit
increased $10 million, or 15%,to $76 million for the First Two Quarters 1998.
Hotel operating profit increased $7 million, or 10%,to $78 million, or 23% of
rental revenues, for the First Two Quarters 1998 from $71 million, or 21% of
rental revenues, for the First Two Quarters 1997. Once again, the Company's
hotels recorded significant improvements in comparable operating results;
however, due to EITF 98-9, only minimum rent could be recorded. Specifically,
hotels in New York City, Boston, Toronto and Atlanta reported significant
improvements for the First Two Quarters 1998. Properties in Florida reported
some temporary declines in operating results due to exceptionally poor weather
in 1998.
 
  Minority Interest. Minority interest expense increased $4 million to $11
million for the First Two Quarters 1998, primarily reflecting improved lodging
results.
 
  Corporate Expenses. Corporate expenses increased $2 million to $20 million
for the First Two Quarters 1998 due to increased staffing levels and the
impact of inflation.
 
                                      150

<PAGE>
 
  Interest Expense. Interest expense decreased $5 million to $224 million in
the First Two Quarters 1998, primarily due to the impact of principal
amortization on the Company's mortgage debt.
 
  Interest Income. Interest income remained unchanged at $13 million for the
First Two Quarters 1998 and 1997, respectively.
 
  Loss before Extraordinary Items. The loss before extraordinary items for the
First Two Quarters 1998 was $158 million, compared to $167 million for the
First Two Quarters 1997.
 
100% PARTICIPATION WITH NO NOTES ISSUED--1997 COMPARED TO 1996 (PRO FORMA)
 
  The following table presents the results of operations for the Company for
1997 and 1996 on a pro forma basis under the two pro forma scenarios:
 

<TABLE>
<CAPTION>
                           100% PARTICIPATION WITH   100% PARTICIPATION WITH
                               NO NOTES ISSUED            NOTES ISSUED
                           ------------------------  ------------------------
                                 FISCAL YEAR               FISCAL YEAR
                           ------------------------  ------------------------
                              1997         1996         1997         1996
                           -----------  -----------  -----------  -----------
                                            (IN MILLIONS)
<S>                        <C>          <C>          <C>          <C>
Rental revenues........... $     1,119  $     1,036  $     1,119  $     1,036
Total revenues............       1,120        1,030        1,120        1,030
Operating costs and
 expenses.................         600          589          598          587
Operating profit before
 minority interest,
 corporate expenses and
 interest expense.........         520          441          522          443
Minority interest.........         (10)          (9)         (10)          (9)
Corporate expenses........         (44)         (39)         (44)         (39)
Interest expense..........        (468)        (481)        (485)        (498)
Interest income...........          27           27           27           27
                           -----------  -----------  -----------  -----------
Income (loss) before
 income taxes.............          25          (61)          10          (76)
Benefit (provision) for
 income taxes.............          (1)           3           (1)           4
                           -----------  -----------  -----------  -----------
Income (loss) before
 extraordinary items...... $        24  $       (58) $         9  $       (72)
                           ===========  ===========  ===========  ===========
</TABLE>

 
  Revenues. Revenues increased $90 million, or 8.7%, to $1,120 million for
1997. The Company's revenue and operating profit were principally impacted by
improved lodging results for its hotel properties, which led to a substantial
increase in rental revenues. The 1997 results also included 52 weeks versus 53
weeks in 1996.
 
  Hotel sales increased $264 million, or 7.3%, to nearly $3.9 billion in 1997,
reflecting the increases in REVPAR. Improved results for the Company's full-
service hotels were driven by strong increases in REVPAR of 9.8% to $103.30 in
1997. Average room rates increased nearly 9%, while average occupancy
increased slightly to 77.7%.
 
  Operating Costs and Expenses. Operating costs and expenses increased $11
million to $600 million for 1997. As a percentage of rental revenues, hotel
operating costs and expenses decreased to 53% of rental revenues for 1997,
from 56% of rental revenues for 1996, reflecting the impact of increased 1997
rental revenues on relatively fixed operating costs and expenses.
   
  Operating Profit. As a result of the changes in rental revenues and
operating costs and expenses discussed above, the Company's operating profit
increased $79 million, or 18%,to $520 million in 1997. Hotel operating profit
increased $71 million, or 15%, to $530 million, or 47% of rental revenues, for
1997 compared to $459 million, or 44% of rental revenues, for 1996. In nearly
all markets, the Company's hotels recorded improvements in comparable
operating results. In particular, the Company's hotels in the Northeast, Mid-
Atlantic and Pacific coast regions benefited from the upscale and luxury full-
service room supply and demand imbalance. Hotels in New York City,
Philadelphia, San Francisco/Silicon Valley and in Southern California
performed particularly     
 
                                      151

<PAGE>
 
well. In 1998, the Company expects results to be strong in these markets and
other gateway cities in which the Company owns hotels. In 1997, the Company's
suburban Atlanta properties (three properties totaling 1,022 rooms) generally
reported decreased results due to higher activity in 1996 related to the
Summer Olympics and the impact of the additional supply added to the suburban
areas. However, the majority of the Company's hotel rooms in Atlanta are in
the core business districts in downtown and Buckhead where they realized
strong year-over-year results and were only marginally impacted by the
additional supply.
 
  Minority Interest. Minority interest expense increased $1 million to $10
million in 1997.
 
  Corporate Expenses. Corporate expenses increased $5 million to $44 million
in 1997 due to increased staffing levels and the impact of inflation.
 
  Interest Expense. Interest expense decreased $13 million to $468 million in
1997, primarily due to the impact of principal amortization on the Company's
mortgage debt.
 
  Interest Income. Interest income remained the same at $27 million for 1997,
reflecting the interest income earned on the loan to the Non-Controlled
Subsidiary for its acquisition of furniture and equipment, the working capital
loan to Crestline, and a mortgage note on one property.
 
  Income (Loss) Before Extraordinary Items. Income before extraordinary items
for 1997 was $24 million, compared to a $58 million loss before extraordinary
items for 1996 as a result of the items discussed above.
 
100% PARTICIPATION WITH NOTES ISSUED--1997 COMPARED TO 1996 (PRO FORMA)
 
  Revenues. Revenues increased $90 million, or 8.7%, to $1,120 million for
1997. The Company's revenue and operating profit were principally impacted by
improved lodging results for the Company's hotel properties, which led to a
substantial increase in rental revenues. The 1997 results also included 52
weeks versus 53 weeks in 1996.
 
  Hotel sales increased $264 million, or 7.3%, to nearly $3.9 billion in 1997,
reflecting increases in REVPAR. Improved results for the Company's full-
service hotels were driven by strong increases in REVPAR of 9.8% to $103.30 in
1997. Average room rates increased nearly 9%, while average occupancy
increased slightly to 77.7%.
 
  Operating Costs and Expenses. Operating costs and expenses increased $11
million to $598 million for 1997. As a percentage of rental revenues, hotel
operating costs and expenses decreased to 52% of rental revenues for 1997,
from 56% of rental revenues for 1996, reflecting the impact of increased 1997
rental revenues on relatively fixed operating costs and expenses.
 
  Operating Profit. As a result of the changes in rental revenues and
operating costs and expenses discussed above, the Company's operating profit
increased $79 million, or 18%, to $522 million in 1997. Hotel operating
profit increased $71 million, or 15%, to $532 million, or 48% of rental
revenues, for 1997 compared to $461 million, or 44% of rental revenues, for
1996. In nearly all markets, the Company's hotels recorded improvements in
comparable operating results. In particular, the Company's hotels in the
Northeast, Mid-Atlantic and Pacific coast regions benefited from the upscale
and luxury full-service room supply and demand imbalance. Hotels in New York
City, Philadelphia, San Francisco/Silicon Valley and in Southern California
performed particularly well. In 1998, the Company expects results to be strong
in these markets and other gateway cities in which the Company owns hotels. In
1997, the Company's suburban Atlanta properties (three properties totaling
1,022 rooms) generally reported decreased results due to higher activity in
1996 related to the Summer Olympics and the impact of the additional supply
added to the suburban areas. However, the majority of the Company's hotel
rooms in Atlanta are in the core business districts in downtown and Buckhead
where they realized strong year-over-year results and were only marginally
impacted by the additional supply.
 
  Minority Interest. Minority interest increased $1 million to $10 million for
1997.
 
                                      152

<PAGE>
 
  Corporate Expenses. Corporate expenses increased $5 million to $44 million
in 1997 due to increased staffing levels and the impact of inflation.
 
  Interest Expense. Interest expense decreased $13 million to $485 million in
1997, reflecting the impact of principal amortization on the Company's
mortgage debt.
 
  Interest Income. Interest income remained unchanged at $27 million for 1997.
Interest income includes the interest income earned on the loan to the Non-
Controlled Subsidiary for its acquisition of furniture and equipment, the
working capital loan to Crestline, and a mortgage note on one property.
 
  Income (Loss) Before Extraordinary Items. Income before extraordinary items
for 1997 was $9 million, compared to a $72 million loss before extraordinary
items for 1996 as a result of the items discussed above.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Host funds its capital requirements with a combination of operating cash
flow, debt and equity financing and proceeds from sales of selected properties
and other assets. Host utilizes these sources of capital to acquire new
properties, fund capital additions and improvements and make principal
payments on debt.
 
  Capital Transactions. Host has recently substantially changed its debt
financing through the following series of transactions which were intended to
facilitate the consummation of the REIT Conversion.
 
  On April 20, 1998, Host and certain of its subsidiaries filed a shelf
registration statement on Form S-3 (the "Shelf Registration") with the
Securities and Exchange Commission for $2.5 billion in securities, which may
include debt, equity or any combination thereof. Host anticipates that any net
proceeds from the sale of offered securities will be used for refinancing of
Host's indebtedness, for acquisitions and general corporate purposes.
 
  On August 5, 1998, HMH Properties, an indirect wholly owned subsidiary of
Host, which owns 61 of Host's hotels, purchased substantially all of its (i)
$600 million in 9 1/2% senior notes due 2005, (ii) $350 million in 9% senior
notes due 2007 and (iii) $600 million in 8 7/8% senior notes due 2007
(collectively, the "Old Senior Notes"). Concurrently with each offer to
purchase, HMH Properties solicited consents (the "1998 Consent Solicitations")
from registered holders of the Old Senior Notes to certain amendments to
eliminate or modify substantially all of the restrictive covenants and certain
other provisions contained in the indentures pursuant to which the Old Senior
Notes were issued. HMH Properties simultaneously utilized the Shelf
Registration to issue an aggregate of $1.7 billion in New Senior Notes. The
New Senior Notes were issued in two series, $500 million of 7 7/8% Series A
notes due in 2005 and $1.2 billion of 7 7/8% Series B notes due in 2008. The
1998 Consent Solicitations facilitated the merger of HMC Capital Resources
Holdings Corporation ("Capital Resources"), a wholly owned subsidiary of Host,
with and into HMH Properties. Capital Resources, the owner of eight of Host's
hotel properties, was the obligor under the $500 million revolving credit
facility (the "Old Credit Facility"). The Operating Partnership will assume
the New Senior Notes in connection with the REIT Conversion and the guarantee
of Host is expected to terminate on the Effective Date.
 
  In conjunction with the issuance of the New Senior Notes, HMH Properties
entered into the $1.25 billion New Credit Facility with a group of commercial
banks. The New Credit Facility has an initial three-year term with two one-
year extension options. Borrowings under the New Credit Facility generally
bear interest at the Eurodollar rate plus 1.75%. The interest rate and
commitment fee (currently 0.35%) on the unused portion of the New Credit
Facility fluctuate based on certain financial ratios. The New Senior Notes and
the New Credit Facility are guaranteed by Host and its wholly owned
subsidiary, Host Marriott Hospitality, Inc., and certain subsidiaries of HMH
Properties and are secured by pledges of equity interests in certain
subsidiaries of HMH Properties. The New Credit Facility will be assumed by the
Operating Partnership in connection with the REIT Conversion and the guarantee
of Host is expected to terminate on the Effective Date. As of September 28,
1998, approximately $350 million was outstanding under the New Credit
Facility.
 
                                      153

<PAGE>
 
  The New Credit Facility and the indenture under which the New Senior Notes
were issued contain covenants restricting the ability of HMH Properties and
certain of its subsidiaries to incur indebtedness, grant liens on their
assets, acquire or sell assets or make investments in other entities, and make
distributions to equityholders of HMH Properties, Host, and (following the
REIT Conversion) the Operating Partnership and Host REIT. The New Credit
Facility and the New Senior Notes also contain certain financial covenants
relating to, among other things, maintaining certain levels of tangible net
worth and certain ratios of EBITDA to interest and fixed charges, total debt
to EBITDA, unencumbered assets to unsecured debt, and secured debt to total
debt.
 
  The New Credit Facility replaces Host's Old Credit Facility. The net
proceeds from the offering and borrowings under the New Credit Facility were
used by Host to purchase substantially all of the Existing Senior Notes, to
repay amounts outstanding under the Existing Credit Facility and to make bond
premium and consent payments totaling $178 million. These costs, along with
the write-off of deferred financing fees of approximately $55 million related
to the Existing Senior Notes and the Existing Credit Facility, will be
recorded as a pre-tax extraordinary loss on the extinguishment of debt in the
third quarter of 1998.
 
  In June 1997, HMC Capital Resources Corporation ("Capital Resources"), a
wholly owned subsidiary of Host, entered into the Old Credit Facility with a
group of commercial banks under which it may borrow up to $500 million for
certain permitted uses. As a result of this transaction, Host terminated its
line of credit with Marriott International.
 
  In July 1997, HMH Properties and HMC Acquisition Properties, Inc.
("Acquisitions"), indirect, wholly owned subsidiaries of Host, completed
consent solicitations with holders of their senior notes (the "1997 Consent
Solicitations") to amend certain provisions of their senior notes indentures.
The 1997 Consent Solicitations facilitated the merger of Acquisitions with and
into HMH Properties (the "HMH Properties Merger"). The amendments to the
indentures also increased the ability of HMH Properties to acquire, through
certain subsidiaries, additional properties subject to nonrecourse
indebtedness and controlling interests in corporations, partnerships and other
entities holding attractive properties and increased the threshold for
distributions to affiliates to the excess of HMH Properties' earnings before
interest expense, income taxes, depreciation and amortization and other non-
cash items subsequent to the 1997 Consent Solicitations over 220% of HMH
Properties' interest expense. HMH Properties paid dividends to Host of $54
million, $29 million and $36 million in 1997, 1996 and 1995, respectively, as
permitted under the indentures.
 
  Concurrent with the 1997 Consent Solicitations and the HMH Properties
Merger, HMH Properties issued an aggregate of $600 million of 8 7/8% senior
notes at par with a maturity of July 2007. HMH Properties received net
proceeds of approximately $570 million, net of the costs of the 1997 Consent
Solicitations and the offering.
 
  In addition to the capital resources provided by its new debt financings,
Host Marriott Financial Trust (the "Issuer"), a wholly owned subsidiary trust
of Host, has outstanding 11 million shares of 6 3/4% convertible quarterly
income preferred securities (the "Convertible Preferred Securities"), with a
liquidation preference of $50 per share (for a total liquidation amount of
$550 million) issued in December 1996. The Convertible Preferred Securities
represent an undivided beneficial interest in the assets of the Issuer and,
pursuant to various agreements entered into in connection with the
transaction, are fully, irrevocably and unconditionally guaranteed by Host.
Proceeds from the issuance of the Convertible Preferred Securities were
invested in 6 3/4% Convertible Subordinated Debentures (the "Debentures") due
December 2, 2026 issued by Host. The Issuer exists solely to issue the
Convertible Preferred Securities and its own common securities (the "Common
Securities") and invest the proceeds therefrom in the Debentures, which are
its sole assets. Each of the Convertible Preferred Securities is convertible
at the option of the holder into shares of Host common stock at the rate of
2.6876 shares per Convertible Preferred Security (equivalent to a conversion
price of $18.604 per share of Host common stock). The Debentures are
convertible at the option of the holders into shares of Company common stock
at a conversion rate of 2.6876 shares for each $50 in principal amount of
Debentures. The conversion rate is subject to adjustments in certain events,
including (i) payment of dividends (and other distributions) on Host common
stock by Host in shares of Host common stock; (ii) distributions to all
holders of Host common stock of rights or warrants entitling such holders (for
a period not to exceed 45 days) to subscribe for or purchase Host common
 
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<PAGE>
 
stock at an exercise price less than the market price of Host common stock;
(iii) subdivisions and combinations of Host common stock; (iv) payment of
dividends (and other distributions) on Host common stock consisting of
indebtedness of Host, capital stock or other securities, assets or cash (other
than certain cash dividends at an annualized rate of up to 12.5% of the market
price of Host common stock); (v) payments for Host common stock by Host or any
of its subsidiaries in respect of a tender or exchange offer (other than an
odd-lot offer) at a price per share in excess of 110% of the market price of
Host common stock; (vi) consummation by Host of certain mergers, a
consolidation, a sale of all or substantially all of its assets, a
recapitalization or certain reclassifications of Host common stock. The
distribution of the capital stock of Crestline to all holders of Host REIT
common stock would, and certain other elements of the REIT Conversion (such as
other distributions of Host's accumulated earnings and profits) may, result in
an adjustment to the conversion price of the Debentures. The Issuer will only
convert Debentures pursuant to a notice of conversion by a holder of
Convertible Preferred Securities. During 1997 and 1996, no shares were
converted into common stock. Holders of the Convertible Preferred Securities
are entitled to receive preferential cumulative cash distributions at an
annual rate of 6 3/4% accruing from the original issue date, commencing March
1, 1997, and payable quarterly in arrears thereafter. The distribution rate
and the distribution and other payment dates for the Convertible Preferred
Securities will correspond to the interest rate and interest and other payment
dates on the Debentures. Host may defer interest payments on the Debentures
for a period not to exceed 20 consecutive quarters. If interest payments on
the Debentures are deferred, so too are payments on the Convertible Preferred
Securities. Under this circumstance, Host will not be permitted to declare or
pay any cash distributions with respect to its capital stock or debt
securities that rank pari passu with or junior to the Debentures. Subject to
certain restrictions, the Convertible Preferred Securities are redeemable at
the Issuer's option upon any redemption by Host of the Debentures after
December 2, 1999. Upon repayment at maturity or as a result of the
acceleration of the Debentures upon the occurrence of a default, the
Debentures shall be subject to mandatory redemption, from which the proceeds
will be applied to redeem Convertible Preferred Securities and Common
Securities, together with accrued and unpaid distributions.
 
  In connection with consummation of the REIT Conversion, the Company will
assume primary liability for repayment of the convertible debentures of Host
underlying the Convertible Preferred Securities. Upon conversion by a
Convertible Preferred Securities holder, the Company will purchase Common
Shares from Host REIT in exchange for a like number of OP Units and distribute
the Common Shares to the Convertible Preferred Securities holder.
 
  In March 1996, Host completed the issuance of 31.6 million shares of common
stock for net proceeds of nearly $400 million.
 
  In December 1995, Acquisitions issued $350 million of 9% senior notes (the
"Acquisitions Notes"). The Acquisitions Notes were issued at par and have a
final maturity of December 2007. The net proceeds totaled $340 million and
were utilized to repay in full the outstanding borrowings of $210 million
under Acquisitions' $230 million revolving credit facility (the "Revolver"),
which was then terminated to acquire three full-service properties and to
finance future acquisitions of full-service hotel properties with the
remaining proceeds.
 
  In May 1995, two wholly owned subsidiaries of Host Marriott Hospitality,
Inc. ("Hospitality"), a wholly owned subsidiary of Host, issued an aggregate
of $1 billion of 9.5% senior secured notes in two concurrent offerings. HMH
Properties and Host Marriott Travel Plazas, Inc. ("HMTP"), the
operator/manager of HM Services' food, beverage and merchandise concessions
business, issued $600 million and $400 million, respectively, of senior notes.
The net proceeds of approximately $971 million were used to defease, and
subsequently redeem, all of Hospitality's remaining bonds and to repay
borrowings under the line of credit with Marriott International. The HMTP
senior notes were included in the HM Services' special dividend.
 
  During 1995, Host replaced its line of credit with a line of credit from
Marriott International pursuant to which Host had the right to borrow up to
$225 million. The line of credit with Marriott International was terminated as
a result of the Capital Resources transaction discussed above.
 
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<PAGE>
 
  Asset Dispositions. Host historically has sold, and may from time to time in
the future consider opportunities to sell, certain of its real estate
properties at attractive prices when the proceeds could be redeployed into
investments with more favorable returns. During the second quarter of 1998,
Host sold the 662-room New York Marriott East Side for proceeds of $191
million and recorded a pre-tax gain of approximately $40 million and the Napa
Valley Marriott for proceeds of $21 million and recorded a pre-tax gain of
approximately $10 million. During 1997, Host sold the 255-room Sheraton Elk
Grove Suites for proceeds of approximately $16 million. Host also sold 90% of
its 174-acre parcel of undeveloped land in Germantown, Maryland, for
approximately $11 million, which approximated its carrying value. During the
first and second quarters of 1996, 16 of the Host's Courtyard properties and
18 of the Host's Residence Inn properties were sold (subject to a leaseback)
to Hospitality Properties Trust for approximately $314 million and Host will
receive approximately $35 million upon expiration of the leases. A gain on the
transactions of approximately $46 million was deferred and is being amortized
over the initial term of the leases. During the first and third quarters of
1995, 37 of Host's Courtyard properties were sold to and leased back from
Hospitality Properties Trust for approximately $330 million. Host received net
proceeds from the two 1995 transactions of approximately $297 million and will
receive approximately $33 million upon expiration of the leases. A deferred
gain of $14 million on the sale/leaseback transactions is being amortized over
the initial term of the leases. In 1995, Host also sold its four remaining
Fairfield Inns for net cash proceeds of approximately $6 million, which
approximated their carrying value.
 
  In cases where Host has made a decision to dispose of particular properties,
Host assesses impairment of each individual property to be sold on the basis
of expected sales price less estimated costs of disposal. Otherwise, Host
assesses impairment of its real estate properties based on whether it is
probable that undiscounted future cash flows from such properties will be less
than their net book value. If a property is impaired, its basis is adjusted to
its fair market value. In the second quarter of 1995, Host made a
determination that its owned Courtyard and Residence Inn properties were held
for sale and recorded a $10 million charge to write down the carrying value of
five individual Courtyard and Residence Inn properties to their estimated net
sales values.
 
  Capital Acquisitions, Additions and Improvements.  Host seeks to grow
primarily through opportunistic acquisitions of full-service hotels. Host
believes that the upscale and luxury full-service hotel segments of the market
offer opportunities to acquire assets at attractive multiples of cash flow and
at discounts to replacement value, including under performing hotels which can
be improved by conversion to the Marriott or Ritz-Carlton brands. During 1997,
Host acquired eight full-service hotels (3,600 rooms) and controlling
interests in nine additional full-service hotels (5,024 rooms) for an
aggregate purchase price of approximately $766 million (including the
assumption of approximately $418 million of debt). Host also completed the
acquisition of the 504-room New York Marriott Financial Center, after
acquiring the mortgage on the hotel for $101 million in late 1996. During
1996, Host acquired six full-service hotels (1,964 rooms) for an aggregate
purchase price of $189 million and controlling interests in 17 additional
full-service properties (8,917 rooms) for an aggregate purchase price of
approximately $1.1 billion (including the assumption of $696 million of debt).
During 1995, Host acquired nine hotels totaling approximately 3,900 rooms in
separate transactions for approximately $390 million ($141 million of which
was financed through first mortgage financing on four of the hotels).
 
  In the first quarter of 1998, Host acquired a controlling interest in the
partnership that owns the 1,671-room Atlanta Marriott Marquis Hotel for $239
million, including the assumption of $164 million of mortgage debt. Host also
acquired a controlling interest in the partnership that owns the 359-room
Albany Marriott, the 350-room San Diego Marriott Mission Valley and the 320-
room Minneapolis Marriott Southwest for approximately $50 million. In the
second quarter of 1998, the Company acquired the 289-room Park Ridge Marriott
for $24 million and acquired the 281-room Ritz-Carlton, Phoenix for $75
million. Host is continually engaged in discussions with respect to other
potential acquisition properties. In addition, Host acquired the 397-room
Ritz-Carlton, Tysons Corner, Virginia and the 487-room Torrance Marriott near
Los Angeles, California. In the third quarter of 1998, Host acquired the 308-
room Ritz-Carlton, Dearborn for approximately $65 million, the
 
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<PAGE>
 
336-room Ritz-Carlton, San Francisco for approximately $161 million and the
404-room Memphis Marriott (which was converted to the Marriott brand upon
acquisition) for approximately $16 million.
 
  On April 17, 1998, Host announced that it had reached a definitive agreement
with the Blackstone Entities to acquire interests in twelve world-class luxury
hotels and certain other assets. If the Blackstone Acquisition is consummated,
the Operating Partnership expects to pay approximately $862 million in cash
and assumed debt and to issue approximately 43.7 million OP Units (based upon
a negotiated value of $20.00 per OP Unit) and other consideration. The
Blackstone portfolio consists of two Ritz-Carltons, two Four Seasons, one
Grand Hyatt, three Hyatt Regencies and four Swissotel properties and the
mortgage on a third Four Seasons. These hotels are located in major urban and
convention/resort markets with significant barriers to new competition. The
Blackstone Acquisition is expected to close as part of, and is contingent
upon, the REIT Conversion. At that time, the Blackstone hotels and other
assets will be acquired by the Company. The hotels will be leased to Lessees
and will be managed on behalf of the Lessees under their existing management
contracts.
 
  Under the terms of its hotel management agreements, Host is generally
required to spend approximately 5% of gross hotel sales to cover the capital
needs of the properties, including major guest room and common area
renovations which occur every five to six years.
 
  Host completed the construction of the 1,200-room Philadelphia Marriott,
which opened on January 27, 1995. The construction costs of this hotel were
funded 60% through a loan from Marriott International which was repaid in the
fourth quarter of 1996. In March 1997, Host obtained a $90 million mortgage
which bears interest at a fixed rate of 8.49% and matures in 2009.
Construction of a second hotel in Philadelphia, the 419-room Philadelphia
Airport Marriott (the "Airport Hotel"), was completed and opened on November
1, 1995. The Airport Hotel was financed principally with $40 million of
proceeds from an industrial development bond financing. Host also completed
construction of a 300-room Residence Inn in Arlington, Virginia, which opened
in March 1996. Capital expenditures for these three hotels totaled $11 million
in 1996 and $64 million in 1995.
 
  In November 1997, Host announced that it had committed to develop and
construct the 717-room Tampa Convention Center Marriott for a cost estimated
at approximately $88 million, net of an approximate $16 million subsidy
provided by the City of Tampa.
 
  Host may also expand certain existing hotel properties where strong
performance and market demand exists. Expansions to existing properties
creates a lower risk to Host as the success of the market is generally known
and development time is significantly shorter than new construction. Host
recently committed to add approximately 500 rooms and an additional 15,000
square feet of meeting space to the 1,503-room Marriott's Orlando World
Center.
 
  In 1997, Host acquired the outstanding common stock of the Forum Group from
Marriott Senior Living Services, Inc. ("MSLS"), a subsidiary of Marriott
International. Host purchased the Forum Group portfolio of 29 senior living
communities for approximately $460 million, including approximately $270
million in debt. The properties will continue to be operated by MSLS. In
addition, Host plans to add approximately 1,060 units to these communities for
approximately $107 million through a expansion plan which will be completed in
1999. In 1997, approximately $56 million (549 units) of the expansion plan had
been completed (including $33 million of debt financing provided by Marriott
International). Host also acquired 49% of the remaining 50% interest in the
venture which owned the 418-unit Leisure Park senior living community from
Marriott International for approximately $23 million, including approximately
$15 million of debt.
 
  During the first quarter of 1998, Host acquired the Gables at Winchester in
suburban Boston, a 124-unit senior living community, for $21 million and
entered into conditional purchase agreements to acquire two Marriott Brighton
Gardens assisted living communities from the Summit Companies of Denver,
Colorado. After the anticipated completion of construction in the first
quarter of 1999, Host may acquire these two 160-unit properties located in
Denver and Colorado Springs, Colorado, for $35 million, if they achieve
certain operating
 
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performance criteria. All three of these communities will be operated by MSLS
under long-term operating agreements.
 
  Under the terms of its senior living communities' management agreements,
Host is generally required to spend an amount of gross revenues to cover
certain routine repairs and maintenance and replacements and renewals to the
communities' property and improvements. The amount Host is required to spend
will be 2.65% through fiscal year 2002, 2.85% for fiscal years 2003 through
2007, and 3.5% thereafter. Host anticipates spending approximately $6 million
in 1998.
 
  As part of the Initial E&P Distribution, Host REIT and the Operating
Partnership will distribute shares of Crestline common stock (which will own
the Forum Group portfolio and other senior living communities described above)
to Host REIT's shareholders and the Blackstone Entities.
 
  Debt Payments. At January 2, 1998, Host and its subsidiaries had $1,585
million of senior notes, approximately $2.0 billion of non-recourse mortgage
debt secured by real estate assets and approximately $219 million of unsecured
and other debt.
 
  Scheduled maturities over the next five years were $942 million as of
January 2, 1998, a significant portion of which represents the maturity of the
mortgage on the New York Marriott Marquis of approximately $270 million in
December 1998. Management anticipates that the mortgage will be refinanced by
the end of 1998 on comparable terms. Host's interest coverage, defined as
EBITDA divided by cash interest expense, improved to nearly 2.5 times in 1997
from 2.0 times in 1996.
 
  At January 2, 1998, Host was party to an interest rate exchange agreement
with a financial institution (the contracting party) with an aggregate
notional amount of $100 million. Under this agreement, Host collects interest
based on specified floating interest rates of one month LIBOR (rate of 6% at
January 2, 1998) and pays interest at fixed rates (rate of 7.99% at January 2,
1998). This agreement expires in 1998, in conjunction with the maturity of the
mortgage on the New York Marriott Marquis. Also in 1997, Host was party to two
additional interest rate swap agreements with an aggregate notional amount of
$400 million. These agreements expired in May 1997. Host realized a net
reduction of interest expense of $1 million in 1997, $6 million in 1996 and $5
million in 1995 related to interest rate exchange agreements. Host monitors
the creditworthiness of its contracting parties by evaluating credit exposure
and referring to the ratings of widely accepted credit rating services. The
Standard and Poors' long-term debt ratings for the contracting party is A- for
its sole outstanding interest rate exchange agreement. Host is exposed to
credit loss in the event of non-performance by the contracting party to the
interest rate swap agreement; however, Host does not anticipate non-
performance by the contracting party.
 
  Cash Flows. Host's cash flow from continuing operations in 1997, 1996 and
1995 totaled $464 million, $205 million and $110 million, respectively. Cash
flow from operations in the First Two Quarters 1998 and First Two Quarters
1997 totaled $206 million and $193 million, respectively. Cash flow from
operations increased principally due to improved lodging results and the
significant acquisitions of hotels.
 
  Host's cash used in investing activities from continuing operations in 1997,
1996 and 1995 totaled $1,046 million, $504 million and $156 million,
respectively. Cash used in investing activities was $49 million and $200
million for the First Two Quarters 1998 and the First Two Quarters 1997,
respectively. Cash from investing activities primarily consists of net
proceeds from the sales of certain assets, offset by the acquisition of hotels
and other capital expenditures previously discussed, as well as the purchases
and sales of short-term marketable securities. Cash used in investing
activities was significantly impacted by the purchase of $354 million of
short-term marketable securities in 1997 and the net sale of $308 million of
short-term marketable securities in the First Two Quarters 1998.
 
  Host's cash from financing activities from continuing operations was $389
million for 1997, $806 million for 1996 and $204 million for 1995. Cash used
in financing activities was $213 million and $188 million, respectively, for
the First Two Quarters 1998 and First Two Quarters 1997. Host's cash from
financing activities
 
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primarily consists of the proceeds from debt and equity offerings, the
issuance of the Convertible Preferred Securities, mortgage financing on
certain acquired hotels and borrowings under the Line of Credit, offset by
redemptions and payments on senior notes, prepayments on certain hotel
mortgages and other scheduled principal payments.
 
  The ratio of earnings to fixed charges was 2.0 to 1.0, 1.5 to 1.0, 1.3 to
1.0, 1.0 to 1.0 and .7 to 1.0 for the First Two Quarters 1998, the First Two
Quarters 1997, 1997, 1996 and 1995, respectively. The deficiency of earnings
to fixed charges of $70 million for 1995 is largely the result of depreciation
and amortization of $122 million. In addition, the deficiency for 1995 was
impacted by the $60 million pre-tax charge to write down the carrying value of
one undeveloped land parcel to its estimated sales value.
 
  Comparative FFO. Host believes that Comparative Funds From Operations
("Comparative FFO," which represents Funds From Operations, as defined by
NAREIT, plus deferred tax expense) is a meaningful disclosure that will help
the investment community to better understand the financial performance of
Host, including enabling its shareholders and analysts to more easily compare
Host's performance to REITs. FFO is defined by NAREIT as net income computed
in accordance with GAAP, excluding gains or losses from debt restructurings
and sales of properties, plus real estate related depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. FFO should not be considered as an alternative to net income,
operating profit, cash flows from operations or any other operating or
liquidity performance measure prescribed by GAAP. FFO is also not an indicator
of funds available to fund Host's cash needs, including its ability to make
distributions. Host's method of calculating FFO may be different from methods
used by other REITs and, accordingly, is not comparable to such other REITs.
Comparative FFO increased $61 million, or 42%, to $206 million in the First
Two Quarters 1998. Comparative FFO increased $131 million, or 80%, to $295
million in 1997. The following is a reconciliation of Host's income (loss)
before extraordinary items to Comparative FFO (in millions):
 

<TABLE>
<CAPTION>
                                                      FIRST
                                                  TWO QUARTERS   FISCAL YEAR
                                                  -------------- ------------
                                                   1998    1997  1997   1996
                                                  ------  ------ -----  -----
   <S>                                            <C>     <C>    <C>    <C>
   Income (loss) before extraordinary items...... $   96  $   32 $  47  $ (13)
   Real estate related depreciation and
    amortization.................................    125     101   240    168
   Other real estate activities..................    (52)      2     6      7
   Partnership adjustments.......................     (8)    --    (13)     1
   REIT Conversion expenses......................      6     --    --     --
   Deferred taxes................................     39      10    15      1
                                                  ------  ------ -----  -----
     Comparative FFO............................. $  206  $  145 $ 295  $ 164
                                                  ======  ====== =====  =====
</TABLE>

 
  The Company considers Comparative FFO to be an indicative measure of Host's
operating performance due to the significance of Host's long-lived assets and
because such data is considered useful by the investment community to better
understand Host's results, and can be used to measure Host's ability to
service debt, fund capital expenditures and expand its business; however, such
information should not be considered as an alternative to net income,
operating profit, cash from operations or any other operating or liquidity
performance measure prescribed by generally accepted accounting principles.
Cash expenditures for various long-term assets and income taxes have been, and
will be, incurred which are not reflected in the Comparative FFO presentation.
 
  Partnership Activities. Host has general and limited partner interests in
numerous limited partnerships which own 240 hotels (including 20 full-service
hotels) as of the date hereof, managed by Marriott International. Debt of the
hotel limited partnerships is typically secured by first mortgages on the
properties and is generally nonrecourse to the partnership and the partners.
However, Host has committed to advance amounts to certain affiliated limited
partnerships, if necessary, to cover certain future debt service requirements.
Such commitments were limited, in the aggregate, to an additional $60 million
at January 2, 1998. Subsequent to year-end, this amount was reduced to $20
million in connection with the refinancing and acquisition of a controlling
interest in
 
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the partnership which owns the Atlanta Marriott Marquis. Amounts repaid to the
Company under these guarantees totaled $2 million and $13 million in 1997 and
1996, respectively. Fundings by Host under these guarantees amounted to $10
million in 1997 and $8 million in 1995.
 
  Leases. Host leases certain property and equipment under noncancelable
operating leases, including the long-term ground leases for certain hotels,
generally with multiple renewal options. The leases related to the 53
Courtyard properties and 18 Residence Inn properties sold during 1995 and 1996
are nonrecourse to Host and contain provisions for the payment of contingent
rentals based on a percentage of sales in excess of stipulated amounts. Host
remains contingently liable on certain leases related to divested non-lodging
properties. Such contingent liabilities aggregated $110 million at January 2,
1998. However, management considers the likelihood of any substantial funding
related to these divested properties' leases to be remote.
 
  Inflation. Host's hotel lodging properties are impacted by inflation through
its effect on increasing costs and on the managers' ability to increase room
rates. Unlike other real estate, hotels have the ability to change room rates
on a daily basis, so the impact of higher inflation generally can be passed on
to customers.
 
  A substantial portion of Host's debt bears interest at fixed rates. This
debt structure largely mitigates the impact of changes in the rate of
inflation on future interest costs. However, Host currently is exposed to
variable interest rates through an interest rate exchange agreement with a
financial institution with an aggregate notional amount of $100 million. Under
this agreement, Host collects interest based on the specified floating rates
of one month LIBOR (rate of 6% at January 2, 1998) and pays interest at fixed
rates (rate of 7.99% at January 2, 1998). This agreement expires in 1998 in
conjunction with the maturity of the mortgage on the New York Marriott
Marquis. Host's Line of Credit and the mortgage on the San Diego Marriott
Hotel and Marina ($199 million at January 2, 1998) bears interest based on
variable rates. Accordingly, the amount of Host's interest expense under the
interest rate swap agreements and the floating rate debt for a particular year
will be affected by changes in short-term interest rates.
 
  Year 2000 Issues. Over the last few years, Host has invested in implementing
new accounting systems which are Year 2000 compliant. Accordingly, Host
believes that future costs associated with Year 2000 issues will be minimal
and not material to Host's consolidated financial statements.
 
  However, Host does rely upon accounting software used by the managers and
operators of its properties to obtain financial information. Management
believes that the managers and operators have begun to implement changes to
the property specific software to ensure that software will function properly
in the Year 2000 and does not expect to incur significant costs related to
these modifications.
 
  Accounting Standards. Host adopted Statements of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
and SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during 1995. Adoption of these statements
did not have a material effect on Host's continuing operations. See the
discussion below for a discussion of the impact of the adoption of SFAS No.
121 on discontinued operations.
 
  SFAS No. 121 requires that an impairment loss be recognized when the
carrying amount of an asset exceeds the sum of the undiscounted estimated
future cash flows associated with the asset. Under SFAS No. 121, Host reviewed
the impairment of its assets employed in its operating group business lines
(airport, toll plaza and sports and entertainment) on an individual operating
unit basis. For each individual operating unit determined to be impaired, an
impairment loss equal to the difference between the carrying value and the
fair market value of the unit's assets was recognized. Fair market value was
estimated to be the present value of expected future cash flows of the
individual operating unit, as determined by management, after considering such
factors as future air travel and toll-pay vehicle data and inflation. As a
result of the adoption of SFAS No. 121, Host recognized a non-cash, pre-tax
charge against earnings during the fourth quarter of 1995 of $47 million,
which was reflected in discontinued operations.
 
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<PAGE>
 
  In the fourth quarter of 1996, the Company adopted SFAS No. 123, "Accounting
for Stock Based Compensation." The adoption of SFAS No. 123 did not have a
material effect on Host's financial statements.
 
  During 1997, Host adopted SFAS No. 128, "Earnings Per Share," SFAS No. 129,
"Disclosure of Information About Capital Structure" and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
adoption of these statements did not have a material effect on Host's
consolidated financial statements and the appropriate disclosures required by
these statements have been incorporated herein.
 
  In the First Quarter 1998, Host adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in financial statements.
The objective of SFAS No. 130 is to report a measure of all changes in equity
of an enterprise that result from transactions and other economic events of
the period other than transactions with owners. Comprehensive income is the
total of net income and all other nonowner changes in equity.
 
  Host's only component of other comprehensive income is the right to receive
up to 1.4 million shares of Host Marriott Services Corporation's common stock
or an equivalent cash value subsequent to exercise of the options held by
certain former and current employees of Marriott International. For the First
Two Quarters 1998 and First Two Quarters 1997, Host's other comprehensive
income was $1 million and $3 million, respectively. As of June 19, 1998 and
January 2, 1998, Host's accumulated other comprehensive income was
approximately $11 million and $10 million, respectively.
 
  On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus on EITF 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." EITF 97-2 addresses the circumstances in which a
management entity may include the revenues and expenses of a managed entity in
its financial statements.
   
  Host has considered the impact of EITF 97-2 on its financial statements and
has determined that EITF 97-2 requires the Company to include property-level
sales and operating expenses of its hotels and senior living communities in
its statements of operations. Host will adopt EITF 97-2 in the fourth quarter
of 1998, with retroactive effect in prior periods to conform to the new
presentation. Application of EITF 97-2 to the consolidated financial
statements for the First Two Quarters 1998, First Two Quarters 1997 and Fiscal
Years 1997, 1996 and 1995 would have increased both revenues and operating
expenses by approximately $922 million, $745 million, $1,713 million, $1,225
million and $878 million, respectively, and would have had no impact on
operating profit, net income or earnings per share.     
 
  EITF 98-9, "Accounting for Contingent Rent in Interim Financial Periods",
was issued on May 21, 1998. EITF 98-9 requires a lessor to defer recognition
of contingent rental income in interim periods until the specified target that
triggers the contingent rental income is achieved. EITF 98-9 has no impact on
Host prior to the REIT Conversion, but will impact the revenue recognized
under the Leases on a quarterly basis following the REIT Conversion.
 
                                      161

<PAGE>
 
                                  MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS OF HOST REIT
 
  The following table sets forth certain information with respect to persons
who will be Directors immediately after the completion of the REIT Conversion,
and the executive officers of Host REIT (or the Operating Partnership), all of
whom are currently directors, executive officers or key employees of Host.
 

<TABLE>
<CAPTION>
          NAME            AGE POSITION WITH HOST REIT (OR THE OPERATING PARTNERSHIP)
          ----            --- ------------------------------------------------------
<S>                       <C> <C>
Richard E. Marriott(1)..   59 Chairman of the Board of Directors
J.W. Marriott, Jr.(1)...   66 Director
R. Theodore Ammon.......   48 Director
Robert M. Baylis........   59 Director
Ann Dore McLaughlin.....   56 Director
Harry L. Vincent, Jr....   78 Director
John G. Schreiber.......   51 Director
Terence C. Golden.......   53 Director, President and Chief Executive Officer
Robert E. Parsons,
 Jr. ...................   42 Executive Vice President and Chief Financial Officer
Christopher J.
 Nassetta...............   36 Executive Vice President and Chief Operating Officer
Christopher G.
 Townsend...............   50 Senior Vice President, General Counsel and Corporate Secretary
Donald D. Olinger.......   39 Senior Vice President and Corporate Controller
</TABLE>

- --------
(1) Richard E. Marriott and J.W. Marriott, Jr. are brothers.
 
  The following is a biographical summary of the experience of the persons who
will be Directors and executive officers of Host REIT after the REIT
Conversion:
 
  Richard E. Marriott.  Mr. Richard E. Marriott has been a Director of Host
since 1979 and is a Director of Marriott International, Inc., Host Marriott
Services Corporation, Potomac Electric Power Company and the Polynesian
Cultural Center, and he is Chairman of the Board of First Media Corporation.
He also serves as a Director of certain subsidiaries of Host and is a past
President of the National Restaurant Association. In addition, Mr. Marriott is
the President and a Trustee of the Marriott Foundation for People with
Disabilities. Mr. Marriott's term as a Director of Host REIT will commence at
or prior to the REIT Conversion and will expire at the 2001 annual meeting of
shareholders. Mr. Marriott joined Host in 1965 and has served in various
executive capacities. In 1984, he was elected Executive Vice President, and in
1986, he was elected Vice Chairman of the Board of Directors. In 1993, Mr.
Marriott was elected Chairman of the Board. Mr. Marriott also has been
responsible for management of Host's government affairs functions.
 
  J.W. Marriott, Jr. Mr. J.W. Marriott, Jr. has been a Director of Host since
1964 and is Chairman of the Board and Chief Executive Officer of Marriott
International, Inc., and a Director of Host Marriott Services Corporation,
General Motors Corporation and the U.S.-Russia Business Council. He also
serves on the Boards of Trustees of the Mayo Foundation, Georgetown University
and the National Geographic Society. He is on the President's Advisory
Committee of the American Red Cross, the Executive Committee of the World
Travel & Tourism Council and is a member of the Business Council and the
Business Roundtable. Mr. Marriott's term as a Director of Host REIT will
commence at or prior to the REIT Conversion and will expire at the 1999 annual
meeting of shareholders.
 
  R. Theodore Ammon. Mr. Ammon has been a Director of Host since 1992 and is a
private investor and Chairman of Big Flower Holdings, Inc. He was formerly a
General Partner of Kohlberg Kravis Roberts & Company (a New York and San
Francisco-based investment firm) from 1990 to 1992, and was an executive of
such firm prior to 1990. Mr. Ammon is also a member of the Board of Directors
of Samsonite Corporation and Culligan Water Technologies, Inc. In addition, he
serves on the Board of Directors of the New York YMCA, Jazz @ Lincoln Center
and the Institute of International Education and on the Board of Trustees of
Bucknell University. Mr. Ammon's term as a Director of Host REIT will commence
at or prior to the REIT Conversion and will expire at the 2001 annual meeting
of shareholders.
 
                                      162

<PAGE>
 
  Robert M. Baylis. Mr. Baylis has been a Director of Host since 1996 and is a
Director of The International Forum, an executive education program of the
Wharton School of the University of Pennsylvania. He was formerly Vice
Chairman of CS First Boston. Mr. Baylis also serves as a Director of New York
Life Insurance Company, Covance, Inc. and Gryphon Holdings, Inc. In addition,
he is an overseer of the University of Pennsylvania Museum of Archeology and
Anthropology. Mr. Baylis's term as a Director of Host REIT will commence at or
prior to the REIT Conversion and will expire at the 2000 annual meeting of
shareholders.
 
  Ann Dore McLaughlin. Ms. McLaughlin has been a Director of Host since 1993
and currently is Chairman of the Aspen Institute. She formerly served as
President of the Federal City Council from 1990 until 1995. Ms. McLaughlin has
served with distinction in several U.S. Administrations in such positions as
Secretary of Labor and Under Secretary of the Department of the Interior. She
also serves as a Director of AMR Corporation, Fannie Mae, General Motors
Corporation, Kellogg Company, Nordstrom, Potomac Electric Power Company, Union
Camp Corporation, Donna Karan International, Inc., Vulcan Materials Company,
Harman International Industries, Inc. and Sedgwick Group plc. Ms. McLaughlin's
term as a Director of Host REIT will commence at or prior to the REIT
Conversion and will expire at the 2000 annual meeting of shareholders.
 
  Harry L. Vincent, Jr. Mr. Vincent has been a Director of Host since 1969 and
is a retired Vice Chairman of Booz-Allen & Hamilton, Inc. He also served as a
Director of Signet Banking Corporation from 1973 until 1989. Mr. Vincent's
term as a Director of Host REIT will commence at or prior to the REIT
Conversion and will expire at the 1999 annual meeting of shareholders.
 
  John G. Schreiber. Mr. Schreiber has been a Director of Host since 1998 and
is President of Schreiber Investments, Inc. and a Senior Advisor and Partner
of Blackstone Real Estate Advisors, L.P. Mr. Schreiber serves as a Trustee of
AMLI Residential Properties Trust and as a Director of Urban Shopping Centers,
Inc., JMB Realty Corporation and a number of mutual funds advised by T. Rowe
Price Associates, Inc. Prior to his retirement as an officer of JMB Realty
Corporation in 1990, Mr. Schreiber was Chairman and CEO of JMB/Urban
Development Company and an Executive Vice President of JMB Realty Corporation.
Mr. Schreiber's term as a Director of Host REIT will commence at or prior to
the REIT Conversion and will expire at the 1999 annual meeting of
shareholders.
 
  Terence C. Golden.  Mr. Golden has been a Director of Host since 1995 and
was named President and Chief Executive Officer of Host in 1995. Mr. Golden
also serves as a Director of certain subsidiaries of Host. He also serves as
Chairman of Bailey Realty Corporation and Bailey Capital Corporation and
various affiliated companies. In addition, Mr. Golden is Chairman of the
Washington Convention Center and a Director of Prime Retail, Inc., Cousins
Properties, Inc., The Morris and Gwendolyn Cafritz Foundation and the District
of Columbia Early Childhood Collaborative. He is also a member of the
Executive Committee of the Federal City Council. Mr. Golden will be President
and Chief Executive Officer of Host REIT commencing at or prior to the REIT
Conversion and his term as a Director of Host REIT will commence at or prior
to the REIT Conversion and will expire at the 2000 annual meeting of
shareholders. Prior to joining Host, Mr. Golden was Chairman of Bailey Realty
Corporation and prior to that had served as Chief Financial Officer of The
Oliver Carr Company. Before joining The Oliver Carr Company, he served as
Administrator of the General Services Administration and as Assistant
Secretary of Treasury, and he was co-founder and national managing partner of
Trammel Crow Residential Companies.
 
  Robert E. Parsons, Jr. Mr. Parsons joined Host's Corporate Financial
Planning staff in 1981 and was made Assistant Treasurer in 1988. In 1993, Mr.
Parsons was elected Senior Vice President and Treasurer of Host, and in 1995,
he was elected Executive Vice President and Chief Financial Officer of Host.
Since September 1998, Mr. Parsons has been President and an initial Director
of Host REIT but he will resign from such positions upon or prior to the REIT
Conversion. Mr. Parsons will be Executive Vice President and Chief Financial
Officer of Host REIT commencing at or prior to the REIT Conversion.
 
  Christopher J. Nassetta. Mr. Nassetta joined Host in October 1995 as
Executive Vice President and was elected Chief Operating Officer of Host in
1997. Mr. Nassetta will be Executive Vice President and Chief
 
                                      163

<PAGE>
 
Operating Officer of Host REIT commencing at or prior to the REIT Conversion.
Prior to joining Host, Mr. Nassetta served as President of Bailey Realty
Corporation from 1991 until 1995. He had previously served as Chief
Development Officer and in various other positions with The Oliver Carr
Company from 1984 through 1991.
 
  Christopher G. Townsend. Mr. Townsend joined Host's Law Department in 1982
as a Senior Attorney. In 1984, Mr. Townsend was made Assistant Secretary of
Host, and in 1986, he was made Assistant General Counsel. In 1993, Mr.
Townsend was elected Senior Vice President, Corporate Secretary and Deputy
General Counsel. In January 1997, he was elected General Counsel. Since
September 1998, Mr. Townsend has been Vice President and an initial Director
of Host REIT but he will resign from such positions upon or prior to the REIT
Conversion. Mr. Townsend will be Senior Vice President, General Counsel and
Secretary of Host REIT commencing at or prior to the REIT Conversion.
 
  Donald D. Olinger. Mr. Olinger joined Host in 1993 as Director--Corporate
Accounting. Later in 1993, Mr. Olinger was promoted to Senior Director and
Assistant Controller. He was promoted to Vice President-- Corporate Accounting
in 1995. In 1996, he was elected Senior Vice President and Corporate
Controller. Since September 1998, Mr. Olinger has been Vice President of Host
REIT but he will resign from such position at or prior to the REIT Conversion.
Mr. Olinger will be Senior Vice President and Corporate Controller of Host
REIT commencing at or prior to the REIT Conversion. Prior to joining Host, Mr.
Olinger was with the public accounting firm of Deloitte & Touche.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
  Promptly following the consummation of the REIT Conversion, the Board of
Directors of Host REIT will establish the following committees:
 
  Audit Committee. The Audit Committee will be comprised of five Directors who
are not employees of Host REIT, namely, R. Theodore Ammon (Chair), Harry L.
Vincent, Jr., Ann Dore McLaughlin, John G. Schreiber and Robert M. Baylis. The
Audit Committee will meet at least three times a year with the independent
auditors, management representatives and internal auditors; recommend to the
Board of Directors appointment of independent auditors; approve the scope of
audits and other services to be performed by the independent and internal
auditors; consider whether the performance of any professional service by the
auditors other than services provided in connection with the audit function
could impair the independence of the outside auditors; and review the results
of internal and external audits, the accounting principles applied in
financial reporting, and financial and operational controls.
 
  Compensation Policy Committee. The Compensation Policy Committee will be
comprised of six Directors who are not employees of Host REIT, namely, Harry
L. Vincent, Jr. (Chair), R. Theodore Ammon, John G. Schreiber, Robert M.
Baylis, J.W. Marriott, Jr. and Ann Dore McLaughlin. The Compensation Policy
Committee's functions will include recommendations on policies and procedures
relating to senior officers' compensation and various employee stock plans,
and approval of individual salary adjustments and stock awards in those areas.
 
  Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee will be comprised of six Directors who are not employees
of Host REIT, namely, Ann Dore McLaughlin (Chair), Harry L. Vincent, Jr., John
G. Schreiber, R. Theodore Ammon, J.W. Marriott, Jr. and Robert M. Baylis. It
will consider candidates for election as Directors and will be responsible for
keeping abreast of and making recommendations with regard to corporate
governance in general. In addition, the Nominating and Corporate Governance
Committee will fulfill an advisory function with respect to a range of matters
affecting the Board of Directors and its Committees, including the making of
recommendations with respect to qualifications of Director candidates,
compensation of Directors, the selection of committee chairs, committee
assignments and related matters affecting the functioning of the Board.
 
                                      164

<PAGE>
 
  Host REIT may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated
by the Board of Directors.
 
COMPENSATION OF DIRECTORS
 
  Directors who are also officers of Host REIT will receive no additional
compensation for their services as Directors. Directors elected by the holders
of Common Shares and who are not officers will receive an annual retainer fee
of $25,000 as well as an attendance fee of $1,250 for each shareholders'
meeting, meeting of the Board of Directors or meeting of a committee of the
Board of Directors, regardless of the number of meetings held on a given day.
The chair of each committee of the Board of Directors will receive an
additional annual retainer fee of $1,000, except for the chair of the
Compensation Policy Committee, Mr. Vincent, who will receive an annual
retainer fee of $6,000. (The higher annual retainer fee paid to the chair of
the Compensation Policy Committee relates to his additional duties which
include, among other things, the annual performance appraisal of the chief
executive officer on behalf of the Board, although the final appraisal is
determined by the Board.) Any individual Director receiving these fees may
elect to defer payment of all such fees or any portion thereof pursuant to
Host REIT's Executive Deferred Compensation Plan and/or Host REIT's Non-
Employee Directors' Deferred Stock Compensation Plan. Directors will also be
reimbursed for travel expenses and other out-of-pocket costs incurred in
attending meetings or in visiting hotels or other properties controlled by
Host REIT or by Marriott International.
 
  In 1997, the following Directors of the Company received special one-time
awards of Company common stock in the amounts indicated: Mr. Ammon, 4,000
shares; Mr. Baylis, 7,000 shares; Ms. McLaughlin, 7,000 shares and Mr.
Vincent, 7,000 shares. The special one-time awards of Company common stock
vest at the rate of 10% per year of a Director's service on the Board, with
credit given for each year of service already completed, and will also become
fully vested upon the death or disability of the Directors.
 
EXECUTIVE COMPENSATION
 
  The table below sets forth a summary of the compensation paid by Host for
the last three fiscal years to the Chief Executive Officer and the four
additional most highly compensated executive officers of Host for Host's
fiscal year 1997 (the "Named Executive Officers").
 

<TABLE>
<CAPTION>
                                                                           LONG-TERM
                                                                          COMPENSATION
                                                                      --------------------
                                        ANNUAL COMPENSATION              AWARDS    PAYOUTS
                                 ----------------------------------   ------------ -------
                                                                       RESTRICTED
NAME AND                  FISCAL                       OTHER ANNUAL      STOCK      LTIP      ALL OTHER
PRINCIPAL POSITION         YEAR  SALARY(1)(2) BONUS(3) COMPENSATION   AWARDS(4)(5) PAYOUTS COMPENSATION(6)
- ------------------        ------ ------------ -------- ------------   ------------ ------- ---------------
<S>                       <C>    <C>          <C>      <C>            <C>          <C>     <C>
Richard E. Marriott.....   1997    $271,449   $108,580   $110,789(7)  $         0    $ 0      $ 22,668(8)
 Chairman of the           1996     262,951    105,180    114,969(7)            0      0        21,439(8)
 Board                     1995     250,554    100,000    107,463(7)            0      0        12,634
Terence C. Golden(9)....   1997     619,045    557,141     58,783(10)     354,693      0        66,105
 President and Chief       1996     600,017    480,013          0      10,476,603      0       560,827(11)
 Executive Officer         1995     190,656    152,152          0               0      0             0
Robert E. Parsons, Jr...   1997     338,889    254,167          0               0      0        36,231
 Executive Vice            1996     328,447    263,490          0       3,658,277      0        26,273
 President and Chief       1995     213,767    123,649          0               0      0        10,951
 Financial Officer
Christopher J.
 Nassetta(9)............   1997     338,889    254,167          0               0      0        36,231
 Executive Vice            1996     328,447    263,490          0       3,647,513      0       119,168(11)
 President and Chief       1995      78,000     50,700          0               0      0             0
 Operating Officer
Christopher G.
 Townsend...............   1997     202,962    111,629          0       1,015,800      0        18,405
 Senior Vice President,    1996     186,232    102,428          0               0      0        15,891
 General Counsel           1995     156,375     93,825          0               0      0         7,658
</TABLE>

 
                                      165

<PAGE>
 
- --------
(1) Fiscal year 1996 base salary earnings were for 53 weeks.
(2) Salary amounts include base salary earned and paid in cash during the
    fiscal year, the amount of base salary deferred at the election of the
    executive officer under the Host Marriott Corporation Executive Deferred
    Compensation Plan and the increase in base salary for the period October
    1, 1997 through the end of the fiscal year which was paid in 1998.
(3) Bonus includes the amount of cash bonus earned pursuant to Host's
    Performance-Based Annual Incentive Bonus Plan (which was approved by the
    shareholders in 1996) and to the named individual's performance-based
    bonus plan during the fiscal year, which is either paid subsequent to the
    end of each fiscal year or deferred under the Deferred Compensation Plan.
(4) During 1997, the Compensation Policy Committee (the "Committee") of the
    Board of Directors approved the grant of restricted stock to certain key
    employees of Host, including Mr. Townsend. In 1996, the Committee approved
    similar grants of restricted stock to certain key employees of Host,
    including Messrs. Golden, Parsons and Nassetta. Mr. Golden also received
    grants of restricted stock on November 6, 1997 and on August 1, 1996 which
    were pursuant to the terms of his restricted stock agreement with Host.
    Messrs. Golden, Parsons and Nassetta each received awards which vest over
    a five-year period, and Mr. Townsend received an award which vests over a
    three-year period. All such awards consist of shares subject to
    restrictions relating primarily to continued employment ("General
    Restrictions") and shares subject to annual performance objectives such as
    financial performance of Host ("Performance Restrictions"). Performance
    objectives are established by the Committee and are subject to annual
    review and revision. Sixty percent of the shares awarded to each executive
    officer have annual Performance Restrictions, and forty percent of the
    shares awarded have General Restrictions conditioned upon continued
    employment. In addition, Messrs. Parsons and Nassetta each received an
    award of restricted stock which vests sixty percent on December 31, 1998
    and forty percent on December 31, 2000, subject to the attainment of
    certain performance criteria and to the named individual's continued
    employment ("Special Team Awards"). All Special Team Awards are presented
    above as "Restricted Stock Awards," and the value stated above is the fair
    market value on the date of the grant. At Mr. Golden's request and in
    order to motivate the management team to enhance shareholder value, the
    Committee issued these Special Team Awards of the shares of restricted
    stock to key executives of Host in connection with Mr. Golden's joining
    Host. The dollar value of those awards has been reflected in the
    Restricted Stock Awards column of the table for the Named Executive
    Officers. In the event that the executives to whom restricted stock was
    granted do not continue in the employ of Host or do not meet the
    performance criteria set by the Committee, those shares will be forfeited,
    and the Committee has retained the right to grant any forfeited restricted
    shares to Mr. Golden.
(5)  The aggregate number and value of shares of deferred stock and restricted
     stock subject to "General Restrictions" and "Performance Restrictions"
     (see footnote 4 above) held by each Named Executive Officer as of the end
     of fiscal year 1997 are as follows: Mr. R.E. Marriott, 264,000 shares
     valued at $5,071,440; Mr. Golden, 655,231 shares valued at $12,586,987;
     Mr. Nassetta, 240,267 shares valued at $4,615,529; Mr. Parsons, 261,531
     shares valued at $5,073,335; and Mr. Townsend, 56,321 shares valued at
     $1,078,485. During the period in which any restrictions apply, holders of
     restricted stock are entitled to receive all dividends or other
     distributions paid with respect to such stock. Under the terms of certain
     restricted stock award agreements granted under the long-term incentive
     plan, each share of restricted stock vests upon a change in control of
     Host. The stock bonus awards granted by Host are generally derived based
     on dividing 20% of each individual's annual cash bonus award by the
     average of the high and low trading prices for a share of common stock on
     the last trading day of the fiscal year. No voting rights or dividends
     are attributed to award shares until such award shares are distributed.
     Stock bonus awards may be denominated as current awards or deferred
     awards. A current award is distributed in 10 annual installments
     commencing one year after the award is granted. A deferred award is
     distributed in a lump sum or in up to 10 annual installments following
     termination of employment. Deferred award shares contingently vest pro
     rata in annual installments commencing one year after the stock bonus
     award is granted to the employee. Awards are not subject to forfeiture
     once the employee reaches age 55 with 10 years of service with Host or
     upon (i) retirement after 20 years of service, (ii) disability or (iii)
     death.
(6)  Amounts included in "All Other Compensation" represent total matching
     Host contribution amounts received under the Retirement and Savings Plan
     and the Deferred Compensation Plan. In 1997, the amounts attributable to
     the Retirement and Savings Plan account for each Named Executive Officer
     were as follows: Mr. R.E. Marriott, $9,024; Mr. Golden, $7,939; Mr.
     Nassetta, $9,024; Mr. Parsons, $9,500; and Mr. Townsend, $8,448. The
     amounts attributable to the Deferred Compensation Plan for each named
     executive officer were as follows: Mr. R.E. Marriott, $13,644; Mr.
     Golden, $58,166; Mr. Nassetta, $27,207; Mr. Parsons, $26,731; and Mr.
     Townsend, $9,957.
(7)  Amount includes $92,000 in 1997, $86,700 in 1996, and $86,200 in 1995 for
     the allocation of Host personnel for non-Host business.
(8)  Effective beginning in 1996, Mr. R.E. Marriott waived (i) payments due to
     be made to him under the Deferred Compensation Plan following his
     retirement and (ii) common stock due to be distributed to him under
     Host's 1997 Comprehensive Stock Incentive Plan following his retirement.
     In connection with this waiver, Host entered into an
 
                                      166

<PAGE>
 
      arrangement to purchase life insurance policies for the benefit of a trust
      established by Mr. R.E. Marriott. The cost of the life insurance policies
      to Host has been actuarially determined and will not exceed the projected
      after-tax cost Host expected to incur in connection with the payments
      under the Deferred Compensation Plan and the stock distributions under
      Host's 1997 Comprehensive Stock Incentive Plan that were waived by Mr.
      R.E. Marriott.
(9)   Mr. Golden joined Host as President and Chief Executive Officer on
      September 1, 1995. Mr. Nassetta joined Host as Executive Vice President
      on October 1, 1995.
(10)  Amount represents reimbursement of travel expenses of Mr. Golden's
      spouse when she accompanies him on Host business trips.
(11)  As part of their restricted stock agreements with Host, Messrs. Golden
      and Nassetta were awarded 44,910 and 8,421 shares of Host common stock,
      respectively, on February 1, 1996. The value of the shares was $516,465
      for Mr. Golden and $96,842 for Mr. Nassetta.
 
  For a comparison of the reimbursements and distributions currently payable
to the General Partners and their affiliates and the reimbursements and
distributions to be paid by Host REIT, on a pro forma basis, to the General
Partners following the Mergers and the REIT Conversion, see "Background and
Reasons for the Mergers and the REIT Conversion-- Reimbursements and
Distributions to the General Partners and Marriott International."
 
AGGREGATED STOCK OPTION EXERCISES AND YEAR-END VALUE
 
  The table below sets forth, on an aggregated basis, (i) information
regarding the exercise during fiscal year 1997 of options to purchase Host
common stock (and shares of the common stock of other companies which Host has
previously spun off) by each of the executive officers listed on the Executive
Compensation table above, and (ii) the value on January 2, 1998 of all
unexercised options held by such individuals. Host did not grant any options
to the executive officers listed on the preceding table in fiscal year 1997.
Terence C. Golden and Christopher J. Nassetta do not have any options to
purchase stock in any of the companies listed in the following table.
 
                     AGGREGATED STOCK OPTION EXERCISES IN
              LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
 

<TABLE>
<CAPTION>
                                                                                            VALUE OF UNEXERCISED IN-
                                                              NUMBER OF SHARES                         THE
                                                           UNDERLYING UNEXERCISED               MONEY OPTIONS AT
                                                         OPTIONS AT FISCAL YEAR END            FISCAL YEAR END (2)
                                                                     (#)                               (#)
                                                         --------------------------------   -------------------------
                                      SHARES
                                    ACQUIRED ON  VALUE
                                     EXERCISE   REALIZED
          NAME           COMPANY(1)     (#)       ($)    EXERCISABLE       UNEXERCISABLE    EXERCISABLE UNEXERCISABLE
          ----           ---------- ----------- -------- ---------------   --------------   ----------- -------------
<S>                      <C>        <C>         <C>      <C>               <C>              <C>         <C>
R. E. Marriott..........      HM      35,000    421,379             55,700                0    944,307         0
                             HMS           0          0             11,140                0    145,741         0
                              MI           0          0             55,700                0  3,198,557         0
                           TOTAL      35,000    421,379            122,540                0  4,288,605         0
R. E. Parsons, Jr.......      HM       2,500     40,825             20,225                0    311,837         0
                             HMS         500      5,993              4,045                0     49,212         0
                              MI           0          0              1,625                0     85,423         0
                           TOTAL       3,000     46,819             25,895                0    446,472         0
C. G. Townsend..........      HM           0          0              6,975                0    110,745         0
                             HMS           0          0              1,395                0     17,354         0
                              MI           0          0                  0                0          0         0
                           TOTAL           0          0              8,370                0    128,100         0
</TABLE>

- --------
(1) "HM" represents options to purchase Host common stock ("Host Options").
    "HMS" represents options to purchase HM Services common stock. "MI"
    represents options to purchase Marriott International common stock. In
    connection with Host's issuance on December 29, 1995 of a special dividend
    (the "HMS Special Dividend") of HM Services common stock to Host's
    stockholders, and pursuant to the Host Marriott Corporation 1993
    Comprehensive Stock Incentive Plan, all Host Options held by employees of
    Host were adjusted to reflect the HMS Special Dividend by providing each
    option holder with the option to purchase one share of HM Services common
    stock for every option to purchase five shares of Host Common Stock held
    as of the close of business on December 29, 1995. The exercise price of
    the HM Services options was set, and the price of Host Options was
    adjusted, so that the economic value of Host Options prior to the HMS
    Special Dividend was preserved and not increased or decreased as a result
    of the HMS Special Dividend. In addition, in connection with Host's
    issuance on October 8, 1993 of a special dividend (the "MI Special
    Dividend") of Marriott International common stock to Host's stockholders,
    and pursuant to the Host Marriott Corporation 1993 Comprehensive Stock
    Incentive
 
                                      167

<PAGE>
 
    Plan, all Host Options held by employees of Host were adjusted to reflect
    the MI Special Dividend by providing each option holder with the option to
    purchase one share of Marriott International common stock for every option
    to purchase one share of Host Common Stock held as of the close of business
    on October 8, 1993. The exercise price of the Marriott International options
    was set, and the price of Host Options was adjusted, so that the economic
    value of Host Options prior to the MI Special Dividend was preserved and not
    increased or decreased as a result of the MI Special Dividend.
(2) Based on a per share price for Host common stock of $19.21, a per share
    price for HM Services common stock of $14.43, and a per share price for
    Marriott International common stock of $68.56. These prices reflect the
    average of the high and low trading prices on the New York Stock Exchange
    on January 2, 1998.
 
LONG-TERM INCENTIVE PLAN
 
  The table below sets forth the number of shares of Host common stock awarded
under a long-term incentive plan on February 1, 1996 to Messrs. Parsons and
Nassetta and on January 22, 1997 to Mr. Townsend.
   
  Richard E. Marriott and Terence C. Golden did not receive any of the type of
awards reported in the following table. These awards represent the number of
restricted shares of Host common stock that may vest during or at the end of a
three-year period, subject to the satisfaction of certain time and performance
restrictions established by the Compensation Policy Committee of the Board of
Directors. The vesting provisions governing these awards are subject to review
and revision by the Compensation Policy Committee. The performance criteria
are set in advance of the completion of the performance year, and if the time
and performance criteria are not achieved, the full number of shares will be
forfeited.     
 
  The shares may be paid in full if either of the following two formulas is
met:
 
  . Prior to November 1, 1998, the average price of Host common stock traded
    on the NYSE during any consecutive 60-day period shall increase to 172.8%
    of the price of Host common stock on November 2, 1995; or
 
  . The average of the high and low prices of Host common stock traded on the
    NYSE for each of the first five days of trading prior to November 1, 1998
    is 172.8% of the price of Host common stock on November 2, 1995.
 
  The price of Host common stock on November 2, 1995 was determined to be
$11.08 (which reflects an adjustment for the distribution of the common stock
of Host Marriott Services Corporation to Host's stockholders on December 29,
1995), and therefore the target price under the two formulas is $19.146 (i.e.,
172.8% of $11.08). This increase represents a 20% compounded annual growth
rate in the price of Host common stock.
 
                           LONG-TERM INCENTIVE PLAN
                          AWARDS IN LAST FISCAL YEAR
 

<TABLE>
<CAPTION>
                                                     PERFORMANCE OR OTHER PERIOD
NAME                                NUMBER OF SHARES  UNTIL MATURITY OR PAYOUT
- ----                                ---------------- ---------------------------
<S>                                 <C>              <C>
Robert E. Parsons, Jr. ............      84,206                3 years
Christopher J. Nassetta............      84,206                3 years
Christopher G. Townsend............      20,000                3 years
</TABLE>

 
EMPLOYMENT AGREEMENTS
 
  The Operating Partnership expects to have employment agreements with certain
of its executive officers but there is no assurance that this will be the
case. The terms of such agreements currently are under negotiation and are not
expected to be finalized until the Effective Date.
 
1998 EMPLOYEE BENEFITS ALLOCATION AGREEMENT
 
  As part of the REIT Conversion, Host, the Operating Partnership and
Crestline expect to enter into an Employee Benefits and Other Employment
Matters Allocation Agreement ("1998 Employee Benefits Allocation
 
                                      168

<PAGE>
 
   
Agreement"). The 1998 Employee Benefits Allocation Agreement is expected to
govern the allocation of responsibilities with respect to various
compensation, benefits and labor matters. Under the 1998 Employee Benefits
Allocation Agreement, Crestline is expected to assume from Host REIT certain
liabilities relating to covered benefits and labor matters with respect to
individuals who are employed by Host REIT or its affiliates before the
Effective Date who will be employed by Crestline or its affiliates
("Transferred Employees") and the Operating Partnership is expected to assume
from Host certain other liabilities relating to employee benefits and labor
matters. The 1998 Employee Benefits Allocation Agreement is also expected to
govern the treatment of awards under the Host Marriott Corporation 1997
Comprehensive Stock Incentive Plan, formerly called the Host Marriott
Corporation 1993 Comprehensive Stock Incentive Plan (the "Comprehensive Stock
Incentive Plan"), as part of the REIT Conversion. The 1998 Employee Benefits
Allocation Agreement is expected to require Crestline to establish the
Crestline Capital Corporation 1998 Comprehensive Stock Incentive Plan to grant
awards of Crestline common stock. Additionally, the 1998 Employee Benefits
Allocation Agreement is expected to provide that the Operating Partnership
will adopt the Comprehensive Stock Incentive Plan.     
 
COMPREHENSIVE STOCK INCENTIVE PLAN
 
  Host sponsors the Comprehensive Stock Incentive Plan for purposes of
attracting and retaining highly qualified employees. Host has reserved
44,442,911 shares of Host common stock for issuance pursuant to the
Comprehensive Stock Incentive Plan. As part of the REIT Conversion, the
Comprehensive Stock Incentive Plan is expected to be adopted by the Operating
Partnership. Shares of Host common stock issued or reserved under the
Comprehensive Stock Incentive Plan are expected to be exchanged for Host REIT
Common Shares and Crestline common stock, according to the terms of the 1998
Employee Benefits Allocation Agreement.
 
  Under the terms of the Comprehensive Stock Incentive Plan, Host may award
eligible full-time employees (i) options to purchase Host common stock, (ii)
deferred shares of Host common stock, (iii) restricted shares of Host common
stock, (iv) stock appreciation rights, (v) special recognition awards or (vi)
other equity-based awards, including but not limited to, phantom shares of
Host common stock, performance shares of Host common stock, bonus shares of
Host common stock, dividend equivalent units or similar securities or rights.
After the REIT Conversion, all grants under the Comprehensive Stock Incentive
Plan will be for Host REIT Common Shares.
 
  The Company intends to continue to award options to purchase Host common
stock under the Comprehensive Stock Incentive Plan after the REIT Conversion.
Options granted to officers and key employees of the Company will have an
exercise price of not less than the fair market value on the date of grant.
Incentive stock options granted under the Comprehensive Stock Incentive Plan
expire no later than 10 years after the date of grant and non-qualified stock
options expire up to 15 years after the date of grant.
 
  Under the terms of the Comprehensive Stock Incentive Plan, Host may award
deferred shares of Host common stock to eligible full-time employees. Deferred
shares may be granted as part of a bonus award or deferred stock agreement.
After the REIT Conversion, the Company intends to award deferred shares of
Host REIT Common Shares under the Comprehensive Stock Incentive Plan. Deferred
shares generally vest over ten years in annual installments commencing one
year after the date of grant.
 
  The Comprehensive Stock Incentive Plan also provides for the issuance of
restricted shares of Host common stock to officers and key executives to be
distributed over the next three or five years in annual installments based on
continued employment and the attainment of certain performance criteria. The
Company intends to award restricted shares of Host REIT Common Shares after
the REIT Conversion.
 
  Under the terms of the Comprehensive Stock Incentive Plan, Host may grant
bonus awards to eligible full-time employees. Bonus awards may be part of a
management incentive program which pays part of the annual performance bonus
awarded to managers and other key employees in shares of Host common stock. A
bonus award entitles the holder to receive a distribution of Host's common
stock in accordance with the underlying
 
                                      169

<PAGE>
 
agreement. Holders of bonus awards vest in the shares covered by their award
over ten years in annual installments commencing one year after grant. Unless
the holder of a bonus award elects otherwise, vested shares are distributed in
10 consecutive, approximately equal, annual installments. After the REIT
Conversion, the Company intends to award bonus awards for shares of Host REIT
Common Shares.
 
  The Comprehensive Stock Incentive Plan authorizes Host to grant stock
appreciation rights ("SAR") to eligible full-time employees. SARs awarded
under the Comprehensive Stock Incentive Plan give the holder the right to an
amount equal to the appreciation in the value of the Host common stock over a
specified price. SARs may be paid in the Host common stock, cash or other form
or combination form of payout. After the REIT Conversion, the Company intends
to award SARs on Host REIT Common Shares.
   
  Under the Comprehensive Stock Incentive Plan, Host may award an eligible
full-time employee or officer a Special Recognition Award. Special Recognition
Awards may be paid in the form of Host common stock or an option to purchase
Host common stock at an amount not less than fair market value on the date of
grant. After the REIT Conversion, the Company intends to award Special
Recognition Awards or Host REIT Common Shares to eligible full-time employees
or officers.     
 
STOCK PURCHASE PLAN
 
  Host sponsors the Host Marriott Corporation Employee Stock Purchase Plan
(the "Stock Purchase Plan"). Under the terms of the Stock Purchase Plan, an
individual who is: (i) an active eligible employee on the last day of the
prior plan year, (ii) working more than 20 hours per week and (iii)
customarily employed more than five months in a calendar year may, on the
first day of the plan year, purchase Host common stock through contributions
or payroll deductions at the lower of the fair market value on the first or
last day of such plan year. The Company expects to continue the Stock Purchase
Plan after the REIT Conversion.
 
401(K) PLAN
 
  Host sponsors the Host Marriott Corporation Retirement and Saving Plan (the
"401(k) Plan"). The 401(k) Plan has received a favorable ruling from the IRS
as to its tax-qualified status. The 401(k) Plan is expected to be adopted by
the Operating Partnership as part of the REIT Conversion. The 401(k) Plan is
available to all eligible employees immediately upon their date of hire. A
participant may elect to contribute from 1% to 15% of his compensation to the
401(k) Plan. Each year, Host makes a fixed matching contribution equal to 50%
of the first 6% of the compensation contributed to the 401(k) Plan by
employees. In addition, Host may make a discretionary contribution, in an
amount, if any, determined annually by the Board, to the 401(k) Plan for the
benefit of eligible employees.
 
  Under the terms of the 401(k) Plan, participants may elect to invest part or
all of their plan benefits in Host common stock. As part of the REIT
Conversion, all shares of Host common stock held under the 401(k) Plan are
expected to be converted to Host REIT Common Shares and Crestline common
stock. After the REIT Conversion, the Company expects to allow the 401(k)
Plan's participants to elect to invest all or part of their plan benefits in
Host REIT Common Shares.
 
DEFERRED COMPENSATION PLAN
   
  Host sponsors the Host Marriott Corporation Non-Employee Director's Deferred
Stock Compensation Plan (the "Deferred Compensation Plan") for purposes for
attracting and retaining qualified non-employee Directors. Under the terms of
the Deferred Compensation Plan, a non-employee Director may elect to defer
payment of part or all of his Directors' fees from Host until such individual
is no longer a member of the Board. In addition, the Deferred Compensation
Plan provides for: (i) a special one time grant of Host common stock to
participants who were directors of Host on May 1, 1997; and (ii) annual grants
of 750 shares of Host common stock effective on May 14, 1997 and at each
annual meeting thereafter. Currently, fees that are deferred under the
Deferred Compensation Plan are converted into shares of Host common stock
using the fair market value of such shares on the date of deferral. After the
REIT Conversion, Host REIT intends to invest Directors' fees deferred under
the Deferred Compensation Plan in Host REIT Common Shares.     
 
                                      170

<PAGE>
 
  Non-Employee Directors may elect to receive payment of their benefits under
the Deferred Compensation Plan in cash or Host common stock. After the REIT
Conversion, Host REIT expects to allow participants of the Deferred
Compensation Plan to elect to receive their benefits in cash or Host REIT
Common Shares.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
  The MGCL permits a Maryland corporation to include in its Charter a
provision limiting the liability of its directors and officers to the
corporation and its shareholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) acts committed in bad faith or active and
deliberate dishonesty established by a final judgment as being material to the
cause of action. The Charter of Host REIT contains such a provision which
eliminates such liability to the maximum extent permitted by Maryland law.
 
  The Charter of Host REIT authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (i) any
present or former director or officer or (ii) any individual who, while a
director of Host REIT and at the request of Host REIT, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise from and against any
claim or liability to which such person may become subject or which such
person may incur by reason of his or her status as a present or former
Director or officer of Host REIT. The Bylaws of Host REIT obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer who is made party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director or officer of Host REIT and at the request of Host REIT, serves or
has served another corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
trustee, director, officer or partner of such corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity, against any claim or liability to which he may
become subject by reason of such status. The Charter and Bylaws also permit
Host REIT to indemnify and advance expenses to any person who served as a
predecessor of Host REIT in any of the capacities described above and to any
employee or agent of Host REIT or a predecessor of Host REIT. The Bylaws
require Host REIT to indemnify a director or officer who has been successful,
on the merits or otherwise, in the defense of any proceeding to which he is
made a party by reason of his service in that capacity.
 
  The MGCL permits a Maryland corporation to indemnify and advance expenses to
its directors, officers, employees and agents. The MGCL permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may
be made a party by reason of their service in those or other capacities unless
it is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful. However, under the MGCL, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation. In accordance with the MGCL, the Bylaws of Host REIT require it,
as a condition to advancing expenses, to obtain (1) a written affirmation by
the director or officer of his good faith belief that he has met the standard
of conduct necessary for indemnification by Host REIT as authorized by the
Bylaws and (2) a written statement by or on his behalf to repay the amount
paid or reimbursed by Host REIT if it shall ultimately be determined that the
standard of conduct was not met.
 
  The Partnership Agreement also provides for indemnification of Host REIT and
its officers and trustees to the same extent that indemnification is provided
to officers and directors of Host REIT in its Charter, and limits the
liability of Host REIT and its officers and directors to the Operating
Partnership and its respective partners to the same extent that the liability
of the officers and directors of Host REIT to Host REIT and its shareholders
is limited under Host REIT's Charter.
 
                                      171

<PAGE>
 
  Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, Host REIT has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
 
INDEMNIFICATION AGREEMENTS
 
  Host REIT intends to enter into indemnification agreements with each of its
directors and officers. The indemnification agreement will require, among
other things, that Host REIT indemnify its directors and officers to the
fullest extent permitted by law and advance to its directors and officers all
related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted.
 
                                      172

<PAGE>
 
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
RELATIONSHIP BETWEEN HOST AND MARRIOTT INTERNATIONAL
 
  Host and Marriott International, prior to October 8, 1993, were operated as
a single consolidated company. On October 8, 1993 in connection with the
issuance of a special dividend (the "Marriott International Distribution"),
the consolidated company's businesses were split between Host and Marriott
International. Thereafter, Host retained the capital intensive lodging real
estate business (the "Ownership Business") and the airport/tollroad
concessions business (the "Host/Travel Plazas Business"), while Marriott
International took over the management of the lodging and service management
businesses (the "Management Business"). (On December 29, 1995, Host
distributed the Host/Travel Plazas Business to the shareholders of Host
Marriott Services Corporation; see "--Relationship between Host and Host
Marriott Services Corporation" below.) On the date of the Marriott
International Distribution, Host and its subsidiaries and Marriott
International and its subsidiaries entered into certain contractual
arrangements governing their relationship following the Marriott International
Distribution.
 
  J.W. Marriott, Jr. and Richard E. Marriott beneficially own approximately
10.6%, and 10.2%, respectively, of the outstanding shares of common stock of
Marriott International. By reason of their ownership of such shares of common
stock of Marriott International and their positions as Chairman and a
Director, respectively, of Marriott International, J.W. Marriott, Jr. and
Richard E. Marriott, who will also be a Director and Chairman, respectively,
of Host REIT, could be deemed in control of Marriott International within the
meaning of the federal securities laws. Other members of the Marriott family
might also be deemed control persons of Marriott International by reason of
their ownership of shares of Marriott International and/or their relationship
to other family members.
 
  Prior to the Marriott International Distribution, Host and Marriott
International entered into a Distribution Agreement (the "Marriott
International Distribution Agreement"), which provided for, among other
things, (i) the division between Host and Marriott International of certain
liabilities and (ii) certain other agreements governing the relationship
between Host and Marriott International following the Marriott International
Distribution.
 
  Subject to certain exceptions, the Marriott International Distribution
Agreement provided for, among other things, assumptions of liabilities and
cross-indemnities designed to allocate, effective as of the Marriott
International Distribution, financial responsibility for the liabilities
arising out of or in connection with the Management Business to Marriott
International and its subsidiaries, and financial responsibility for the
liabilities arising out of or in connection with the Ownership Business and
Host/Travel Plazas Business, along with the consolidated company's liabilities
under a substantial portion of its pre-existing financing and long-term debt
obligations, to Host and its retained subsidiaries. The agreements executed in
connection with the Marriott International Distribution Agreement also set
forth certain specific allocations of liabilities between Host and Marriott
International.
 
  Under the Marriott International Distribution Agreement, Marriott
International obtained the Marriott International Purchase Right, which
provided Marriott International with the right, until June 2017, to purchase
up to 20% of each class of Host's voting stock (determined after assuming full
exercise of the right) at its then fair market value (based on an average of
trading prices during a specified period), upon the occurrence of certain
specified events generally involving a change in control of Host. The Marriott
International Purchase Right may be exercised for a 30-day period following
the date a person or group of affiliated persons has (i) become the beneficial
owner of 20% or more of the total voting power of the then outstanding shares
of Host's voting stock or (ii) announced a tender offer for 30% more of the
total voting power of the then outstanding shares of Host's common stock. The
purchase price for the common stock to be purchased upon the exercise of the
Marriott International Purchase Right is determined by taking the average of
the closing sale price of the common stock during the 30 consecutive trading
days preceding the date the Marriott International Purchase Right becomes
exercisable.The Marriott International Purchase Right will continue in effect
with respect to Host REIT after the Mergers, subject to the following
limitations intended to protect
 
                                      173

<PAGE>
 
the REIT status of Host REIT. The Marriott International Purchase Right will
be exercisable only to the extent that neither (i) Marriott International or
any entity in which it has a direct or indirect interest and which would be
deemed, under the applicable attribution rules, to own the shares of Host REIT
owned by Marriott International or which would be deemed to own, taking into
account the applicable attribution rules, more than 9.8% of Crestline, any
subsidiary of Crestline or any other tenant of Host REIT nor (ii) any owners
of direct or indirect interests in Marriott International would, as a result
of such exercise, own, taking into account the applicable attribution rules,
more than 9.8% of both Host REIT and Crestline, any subsidiary of Crestline or
any other tenant of Host REIT. In addition to the foregoing limitation, the
Marriott International Purchase Right will be exercisable only if such
acquisition and ownership of Host REIT Common Shares would not cause the
Operating Partnership to be considered to own, directly or by attribution, 10%
or more of Crestline, any subsidiary of Crestline or any other tenant of Host
REIT.
 
  The Marriott International Purchase Right will have an antitakeover effect
to the extent that any person considering acquiring a substantial or
controlling block of Host REIT's Common Shares will face the possibility that
its ability to exercise control would be impaired by the exercise of Marriott
International's Purchase Right. In addition, the exercise price of the
Marriott International Purchase Right could be lower than the price at which a
potential acquiror might be willing to purchase a 20% block of Common Shares
because the purchase price for the Marriott International Purchase Right is
based on the average trading price during a 30-day period which may be prior
to the announcement of a takeover event. This potential price differential
might have a further antitakeover effect by discouraging potential acquirors
of Host REIT.
 
  For the purpose of governing certain of the ongoing relationships between
Host and Marriott International after the Marriott International Distribution,
Host and Marriott International have entered into other agreements. Host
believes that the agreements are fair to both parties and contain terms which
are generally comparable to those which would have been reached in arm's-
length negotiations with unaffiliated parties. Among such other agreements
between Host and Marriott International are:
 
    (i) Lodging Management and Franchise Agreements. Marriott International
  and certain of its subsidiaries have entered into management agreements
  with Host and certain of its subsidiaries to manage for fees the Marriott
  Hotels, Resorts and Suites, Ritz-Carlton hotels, Courtyard hotels and
  Residence Inns owned or leased by Host and its subsidiaries. Marriott
  International has also entered into franchise agreements with Host and
  certain of its subsidiaries to allow Host to use the Marriott brand,
  associated trademarks, reservation systems and other related items in
  connection with Host's operation of ten Marriott hotels not managed by
  Marriott International.
 
    Each of those management and franchise agreements reflects market terms
  and conditions and is substantially similar to the terms of management and
  franchise agreements with other third-party owners regarding lodging
  facilities of a similar type. In 1997, Host paid to Marriott International
  fees of $166 million from the managed and franchised lodging properties
  owned or leased by Host.
 
    In addition, Host or one of its subsidiaries is a partner in several
  unconsolidated partnerships (some of which will be consolidated in
  connection with the REIT Conversion) that, at the end of 1997, owned 241
  lodging properties operated by Marriott International or certain of its
  subsidiaries under long-term agreements. In such cases, Host or its
  subsidiary typically serves as the general partner. In 1997, these
  unconsolidated partnerships paid to Marriott International fees of $119
  million pursuant to such agreements. The partnerships also paid $23 million
  in rent to Marriott International in 1997 for land leased from Marriott
  International upon which certain of the limited service partnerships'
  hotels are located.
 
    In connection with the REIT Conversion, these management and franchise
  agreements will be assigned to the Lessees for the term of the applicable
  Leases (but the Operating Partnership will remain obligated in the event
  the Lessees fail to perform their obligations).
 
    (ii) Credit Agreement. In 1995, Marriott International and a subsidiary
  of Host entered into a Credit Agreement pursuant to which the subsidiary
  had the right to borrow up to $225 million from Marriott International. In
  1997, however, Host entered into a revolving line of credit agreement with
  third parties, and as a result, Host terminated the revolving line of
  credit under the Credit Agreement with Marriott
 
                                      174

<PAGE>
 
  International. Host remains subject to various covenants and guaranty
  reimbursement obligations under the Credit Agreement.
 
    (iii) Tax Sharing Agreement. Host and Marriott International have entered
  into a tax sharing agreement that defines the parties' rights and
  obligations with respect to deficiencies and refunds of federal, state and
  other income or franchise taxes relating to Host's businesses for tax years
  prior to the Marriott International Distribution and with respect to
  certain tax attributes of Host after the Marriott International
  Distribution. Host and Marriott International have agreed to cooperate with
  each other and to share information in preparing tax returns and in dealing
  with other tax matters.
 
    (iv) Noncompetition Agreement. Host and Marriott International entered
  into a noncompetition agreement that defines the parties' rights and
  obligations with respect to certain businesses operated by Marriott
  International and Host. In general, under the noncompetition agreement,
  Host and its subsidiaries are prohibited from entering into or acquiring
  any business that competes with the hotel management business as conducted
  by Marriott International until October 8, 2000. See "--Senior Living
  Communities Acquisitions."
 
    (v) Administrative Services Agreements. Marriott International and Host
  have entered into a number of agreements pursuant to which Marriott
  International has agreed to provide certain continuing administrative
  services to Host and its subsidiaries. Such services are provided on market
  terms and conditions. In general, the administrative services agreements
  can be kept in place at least through the end of 1998.
 
    (vi) Marriott International Guarantees. In connection with the Marriott
  International Distribution, Host and Marriott International entered into
  agreements pursuant to which Marriott International has agreed to guarantee
  Host's performance in connection with certain partnership, real estate and
  project loans and other Host obligations. Such guarantees are limited in an
  aggregate principal amount of up to $107 million at June 19, 1998. Marriott
  International has not been required to make any payments pursuant to the
  guarantees.
 
  In addition to the foregoing agreements, Host and Marriott International
have had occasion to enter into other agreements in the ordinary course of
business. Host believes that such agreements are fair to both parties and
contain terms which are generally comparable to those which would have been
reached in arm's-length negotiations with unaffiliated parties. Among such
other agreements between Host and Marriott International are:
 
    (a) Hotel Acquisitions. Marriott International has provided, and Host
  expects that Marriott International in the future will provide, financing
  to Host for a portion of the cost of acquiring properties to be operated or
  franchised by Marriott International. In 1997, Marriott International did
  not provide any new acquisition financing, although Host remained indebted
  to Marriott International for acquisition financing from prior years.
  Marriott International provided Host with $70 million of mortgage financing
  in 1995 for the acquisition of three full-service hotels at an average
  interest rate of 8.5%. Marriott International subsequently sold one of the
  loans in 1996. In 1996, Marriott International and Host formed a joint
  venture (which will be owned by a Non-Controlled Subsidiary) and Marriott
  International provided Host with $29 million in debt financing at an
  average interest rate of 12.7% and with $28 million in preferred equity,
  for the acquisition of two full-service hotels in Mexico City.
 
    (b) Senior Living Communities Acquisitions. On June 21, 1997, Host
  acquired the outstanding common stock of Forum Group, Inc. (the "Forum
  Group") from Marriott Senior Living Services, Inc., a subsidiary of
  Marriott International. Host purchased the Forum Group portfolio of 29
  premier senior living communities for approximately $460 million, including
  approximately $270 million in debt ($59 million of which was provided by
  Marriott International). In 1997, Host had completed $56 million of the
  approximately $107 million expansion plan to add approximately 1,060 units
  to these communities. As a result, an additional $33 million of debt
  financing has been provided by Marriott International and Marriott
  International may provide additional financing as the expansion plan is
  completed. The properties will continue to be managed by Marriott
  International. From the date of acquisition through the end of 1997, Host
  paid to Marriott International management fees of $6 million from the
  senior living properties owned
 
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<PAGE>
 
  by Host. In connection with the acquisition, Host and Marriott
  International entered into a noncompetition agreement that defines the
  parties' rights and obligations with respect to the operation of senior
  living services by Marriott International and Host. In general, under the
  noncompetition agreement, Host and its subsidiaries are prohibited from
  entering into or acquiring any business that competes with the senior
  living management business as conducted by Marriott International until
  2017. In 1997, Host also acquired all but 1% of the remaining 50% interest
  in the joint venture which owned the 418-unit Leisure Park senior living
  community from Marriott International for approximately $23 million,
  including approximately $15 million of mortgage debt assumed by Host. As
  part of the REIT Conversion, the senior living communities business will be
  distributed to Host's shareholders; thus, the Limited Partners whose
  Partnership participates in a Merger will not own an interest in this
  business.
 
    (c) 1993 Employee Benefits Allocation Agreement. Host and Marriott
  International have entered into an Employee Benefits and Other Employment
  Matters Allocation Agreement ("1993 Employee Benefits Allocation
  Agreement") that provides for the allocation of certain responsibilities
  with respect to employment compensation, benefit and labor matters. The
  1993 Employee Benefits Allocation Agreement was amended as of March 27,
  1998 to: (i) reflect various conversions and redenominations that were
  necessary as a result of the spin-off and acquisitions described in
  Marriott International's February 12, 1998 Proxy, and to add New Marriott
  MI, Inc. (renamed Marriott International, Inc.) as a party to the 1993
  Employee Benefits Allocation Agreement. In general, the 1993 Employee
  Benefits Allocation Agreement provides that Host retained all employee
  liabilities for employees who on or after the Marriott International
  Distribution were employees of Host, and that old Marriott International,
  Inc., which was renamed Sodexo Marriott Services, Inc. in 1998, retained
  all liabilities for employees who on or after the Marriott Distribution
  were employees of Marriott International. Pursuant to the 1993 Employee
  Benefits Allocation Agreement, and in connection with the Marriott
  Distribution, Host also adjusted outstanding awards under the Host employee
  benefit plans. The 1993 Employee Benefits Allocation Agreement is expected
  to be amended as part of the REIT Conversion to add the Operating
  Partnership and Crestline as parties to the agreement and to reflect the
  1998 Employee Benefits Allocation Agreement.
 
RELATIONSHIP BETWEEN HOST AND HOST MARRIOTT SERVICES CORPORATION
 
  On December 29, 1995, Host issued a special dividend (the "HMSC
Distribution") which split Host's businesses between Host and Host Marriott
Services Corporation ("HM Services"). Prior to December 29, 1995, HM Services
was a wholly owned subsidiary of Host. Thereafter, Host retained the capital
intensive lodging real estate business (the "Ownership Business"), while HM
Services took over the airport/tollroad concessions business (the "Host/Travel
Plazas Business"). Host and its subsidiaries and HM Services and its
subsidiaries have entered into certain relationships following the HMSC
Distribution.
 
  Richard E. Marriott and J.W. Marriott, Jr. beneficially own approximately
6.75% and 6.88%, respectively, of the outstanding shares of common stock of HM
Services. By reason of their ownership of such shares of common stock of HM
Services and their positions as Directors of HM Services, Richard E. Marriott
and J.W. Marriott, Jr., who are also Chairman and a Director, respectively, of
Host, could be deemed in control of HM Services within the meaning of the
federal securities laws. Other members of the Marriott family might also be
deemed control persons of HM Services by reason of their ownership of shares
of HM Services and/or their relationship to other family members.
 
  Prior to the HMSC Distribution, Host and HM Services entered into a
Distribution Agreement (the "HMSC Distribution Agreement"), which provided
for, among other things, (i) certain asset transfers to occur prior to the
HMSC Distribution, (ii) the HMSC Distribution, (iii) the division between Host
and HM Services of certain liabilities and (iv) certain other agreements
governing the relationship between Host and HM Services following the HMSC
Distribution.
 
  Subject to certain exceptions, the HMSC Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed
to allocate, effective as of the HMSC Distribution,
 
                                      176

<PAGE>
 
financial responsibility for the liabilities arising out of or in connection
with the Host/Travel Plazas Business to HM Services and its subsidiaries and
financial responsibility for the liabilities arising out of or in connection
with the Ownership Business to Host and its retained subsidiaries. The
agreements executed in connection with the HMSC Distribution Agreement also
set forth certain specific allocations of liabilities between Host and HM
Services. The HMSC Distribution Agreement also provides that HM Services will
assume its proportionate share of Host's current obligation for certain
employee benefit awards denominated in Host common stock currently held by
employees of Marriott International.
 
  For the purpose of governing certain of the ongoing relationships between
Host and HM Services after the HMSC Distribution, Host and HM Services have
entered into other agreements. Host believes that the agreements are fair to
both parties and contain terms which are generally comparable to those which
would have been reached in arm's-length negotiations with unaffiliated
parties. Among such other agreements between Host and HM Services are:
 
    (i) Tax Sharing Agreement. Host and HM Services have entered into a tax
  sharing agreement that defines the parties' rights and obligations with
  respect to deficiencies and refunds of federal, state and other income or
  franchise taxes relating to Host's businesses for tax years prior to the
  HMSC Distribution and with respect to certain tax attributes of Host after
  the HMSC Distribution. Host and HM Services have agreed to cooperate with
  each other and to share information in preparing tax returns and in dealing
  with other tax matters.
 
    (ii) Guarantees of Concession Agreements. Host and HM Services have
  entered into agreements pursuant to which Host has agreed to guarantee HM
  Services' performance in connection with certain tollroad concessions
  operated by HM Services. Host has not been required to make any payment
  pursuant to the guarantees and does not anticipate making any such payment
  in 1998.
 
    (iii) 1995 Employee Benefits Allocation Agreement. Host and HM Services
  have entered into an Employee Benefits and Other Employment Matters
  Allocation Agreement (the "1995 Employee Benefits Allocation Agreement")
  that provides for the allocation of certain responsibilities with respect
  to employee compensation, benefits and labor matters. In general, the 1995
  Employee Benefits Allocation Agreement provides that Host retain all
  employee liabilities for employees who on or after the HMSC Distribution
  were employees of Host, and that HM Services retain all employee
  liabilities for employees who on or after the HMSC Distribution were
  employees of HM Services. Pursuant to the 1995 Employee Benefits Allocation
  Agreement, and in connection with the HMSC Distribution, Host also adjusted
  outstanding awards under Host employee benefit plans. The 1995 Employee
  Benefits Allocation Agreement is expected to be amended as part of the REIT
  Conversion to add the Operating Partnership and Crestline as parties to the
  agreement and to reflect the 1998 Employee Benefits Allocation Agreement.
 
RELATIONSHIP BETWEEN HOST AND CRESTLINE CAPITAL CORPORATION AFTER THE INITIAL
E&P DISTRIBUTION
 
  For the purposes of governing certain of the ongoing relationships between
Crestline and Host after the Initial E&P Distribution and to provide
mechanisms for an orderly transition, Crestline and Host will enter into, in
addition to the Leases, various agreements, as described below.
 
  Distribution Agreement
 
  Prior to the Initial E&P Distribution, Crestline and Host will enter into a
distribution agreement (the "Distribution Agreement"), which will provide for,
among other things, (i) the distribution of shares of Crestline in connection
with the Initial E&P Distribution; (ii) the division between Crestline and
Host of certain assets and liabilities; (iii) the contribution to Crestline of
Host's 3% general partnership interest in Boynton Beach Limited Partnership,
which owns a senior living community located in Boynton Beach; and (iv)
certain other agreements governing the relationship between Crestline and Host
following the Initial E&P Distribution.
 
  Subject to certain exceptions, the Distribution Agreement will provide for,
among other things, assumptions of liabilities and cross-indemnities designed
to allocate to Crestline, effective as of the date of the Initial E&P
 
                                      177

<PAGE>
 
Distribution, financial responsibility for liabilities arising out of or in
connection with the business of the senior living communities.
 
  The Distribution Agreement also will provide that by the date of the Initial
E&P Distribution, Crestline and Host will take all necessary actions which may
be required to amend Crestline's Articles of Incorporation and Bylaws.
 
  The Distribution Agreement also will provide that each of Crestline and Host
will be granted access to certain records and information in the possession of
the other, and will require the retention by each of Crestline and Host for a
period of ten years following the Initial E&P Distribution of all such
information in its possession, and thereafter will require that each party
give the other prior notice of its intention to dispose of such information.
The Distribution Agreement also will require the allocation of shared
privileges with respect to certain information and will require each of
Crestline and Host to obtain the consent of the other prior to waiving any
shared privilege.
 
  Tax Sharing Agreement
 
  Crestline and Host will enter into a tax sharing agreement (the "Tax Sharing
Agreement") which will define each party's rights and obligations with respect
to deficiencies and refunds of federal, state and other income or franchise
taxes relating to Crestline's business for taxable years prior to the Initial
E&P Distribution and with respect to certain tax attributes of Crestline after
the Initial E&P Distribution. Generally, Host will be responsible for filing
consolidated returns and paying taxes for periods prior to the date of the
Initial E&P Distribution, and Crestline will be responsible for filing returns
and paying taxes for subsequent periods.
 
  Asset Management Agreement
 
  Crestline and Host will enter into an asset management agreement (the "Asset
Management Agreement"), pursuant to which Crestline will agree to provide
review and advice on the management and operation of the hotels in order to
assist Host in making strategic decisions. Generally, Crestline will provide
the following consulting services in its capacity as the Lessee of the hotels:
(i) review of operating and financial results (including site visits) and meet
with Host, at least quarterly, to review such results of the hotels; (ii)
review of financial statements and budgets, including periodic accounting
statements, annual operating budgets, FF&E budgets and management analysis
reports; (iii) revenue and capital spending projections; (iv) administration
of hotel mortgages; (v) advice relating to any changes to the hotel management
agreements; (vi) review of market conditions and competition for each of the
hotels; and (vii) monitoring and negotiating with governmental agencies in
connection with any condemnation proceedings against the hotels. Crestline
will be paid a fee of $4.5 million for each fiscal year for its consulting
services under the Asset Management Agreement. The Asset Management Agreement
will have a term of two years with an automatic one year renewal, unless
terminated earlier by either party.
 
  Corporate Transitional Services Agreement
 
  Crestline and Host will, prior to the date of the Initial E&P Distribution,
enter into a transitional services agreement (the "Corporate Transitional
Services Agreement") pursuant to which Crestline and Host will provide certain
limited services to each other for a fee. Among other things, Host will
provide centralized administrative and computer systems services to Crestline.
 
  Non-Competition Agreement
 
  Crestline and Host will enter into a non-competition agreement that limits
the respective parties' future business opportunities. See "Business and
Properties--Non-Competition Agreement."
 
 
                                      178

<PAGE>
 
  1998 Employee Benefits and Other Employment Matters Allocation Agreement
 
  As part of the REIT Conversion, Host, the Operating Partnership and
Crestline expect to enter into the 1998 Employee Benefits Allocation Agreement
relating to various compensation, benefits and labor matters. See
"Management--1998 Employee Benefits Allocation Agreement."
 
  Guaranty and Pooling Agreements
 
  Crestline and certain of its subsidiaries will enter into a limited guaranty
of the lease and management agreement obligations of each Lessee. For each of
the four identified "pools" of hotels, the cumulative limit of the guaranty at
any time will be 10% of the aggregate rents under all Leases in such pool paid
with respect to the preceding twelve full calendar months (with an annualized
amount based upon the Minimum Rent for those full-service Leases that have not
been in effect for 12 full calendar months).
 
                                      179

<PAGE>
 
                          PRINCIPAL SECURITY HOLDERS
 
  The following table sets forth, as of July 31, 1998, the beneficial
ownership of OP Units and Common Shares of (i) each person who is expected to
hold more than a 5% interest in the Operating Partnership or Host REIT, (ii)
directors of Host REIT, (iii) the Chief Executive Officer and the four most
highly compensated executive officers of Host REIT and (iv) the directors and
executive officers of Host REIT as a group. Unless otherwise indicated in the
footnotes, all of such interests are owned directly and the indicated person
or entity has sole voting and investment power.
 
  The "Percent of All Common Shares and OP Units" represents the number of
Common Shares and OP Units the person is expected to hold immediately after
the REIT Conversion, as a percentage of the total number of Common Shares and
OP Units expected to be outstanding immediately after the REIT Conversion
(excluding OP Units held by Host REIT and its subsidiaries). The information
in this table assumes that all transactions comprising the REIT Conversion are
consummated as currently expected. The address of each beneficial owner is
10400 Fernwood Road, Bethesda, Maryland 20817 unless otherwise indicated.
 

<TABLE>
<CAPTION>
                                                                       PERCENT  PERCENT OF
                                     PERCENT OF NUMBER OF  PERCENT OF  OF ALL   ALL COMMON
                          NUMBER OF    ALL OP     COMMON     COMMON    COMMON   SHARES AND
          NAME             OP UNITS   UNITS(1)  SHARES(2)  SHARES(3)  SHARES(4) OP UNITS(5)
          ----            ---------- ---------- ---------- ---------- --------- -----------
<S>                       <C>        <C>        <C>        <C>        <C>       <C>
R. Theodore Ammon.......           0     *          15,500     *          *          *
Robert M. Baylis........           0     *          13,500     *          *          *
Terence C. Golden(6)....           0     *         781,684     *          *          *
J.W. Marriott,
 Jr.(6)(7)(8)...........      14,625     *      13,275,014    6.49%      6.50%      4.93%
Richard E.
 Marriott(6)(8)(9)......      12,350     *      13,203,209    6.46       6.46       4.90
Ann Dore McLaughlin.....           0     *           9,500     *          *          *
John G. Schreiber(11)...     875,000    1.34%            0     *          *          *
Harry L. Vincent, Jr....           0     *          25,100     *          *          *
Christopher J.
 Nassetta(6)............           0     *         356,201     *          *          *
Robert E. Parsons,
 Jr.(6).................           0     *         404,244     *          *          *
Christopher G.
 Townsend(6)............           0     *         109,417     *          *          *
Blackstone
 Entities(12)...........  43,700,000   67.02             0     *        17.61      16.20
Dresdner RCM Global
 Investors LLC(13)......           0     *      13,595,975    6.65       6.65       5.04
FMR Corp.(14)...........           0     *      22,532,574   11.02      11.02       8.35
Southeastern Asset
 Management, Inc.(15)...           0     *      36,758,000   17.98      17.98      13.63
ALL DIRECTORS AND
 EXECUTIVE OFFICERS AS A
 GROUP (11
 PERSONS)(6)(10)........     901,975    1.38%   24,209,204   11.84%     12.23%      9.31%
</TABLE>

- --------
 *less than 1%
 
 (1) Represents the number of OP Units held by the person as a percentage of
     the total number of OP Units to be issued to persons other than Host REIT
     and its subsidiaries in the REIT Conversion (65.2 million OP Units),
     assuming a maximum value of $15.50 per OP Unit.
 (2) Consists of Common Shares received in the REIT Conversion as a result of
     ownership of Host.
 (3) Represents the number of Common Shares held by the person as a percentage
     of the total number of Common Shares expected to be outstanding
     immediately following the REIT Conversion (204.5 million Common Shares).
 (4) Assumes that all OP Units held by the person are redeemed for Common
     Shares. The total number of Common Shares and OP Units outstanding used
     in calculating this percentage (204.2 million Common Shares plus the
     number of OP Units beneficially owned by the person) assumes that none of
     the OP Units held by other persons are redeemed for Common Shares.
 (5) Assumes that all OP Units held by the person are redeemed for Common
     Shares. The total number of Common Shares and OP Units outstanding used
     in calculating this percentage (269.7 million) assumes that all of the OP
     Units held by other persons also are redeemed for Common Shares.
 (6) Includes (i) the shares of unvested restricted stock granted under Host's
     1993 and 1997 Comprehensive Stock Incentive Plans, which are voted by the
     holder thereof and (ii) the following number of shares which could be
     acquired by the named persons through the exercise of stock options
     within 60 days of July 31, 1998: for J.W. Marriott, Jr., 810,447 shares;
     for Richard E. Marriott, 55,700 shares; for Mr. Parsons, 15,225 shares;
     for Mr. Townsend, 6,975 shares; and for
 
                                      180

<PAGE>
 
     all directors and executive officers as a group, 913,147 shares. Does not
     include any other shares reserved, contingently vested or awarded under
     the above-named Plan.
 (7) Common Shares includes: (i) 1,977,450 shares held in trust for which J.W.
     Marriott, Jr. is the trustee or a co-trustee; (ii) 68,426 shares held by
     the wife of J.W. Marriott, Jr.; (iii) 704,555 shares held in trust for
     which the wife of J.W. Marriott, Jr. is the trustee or a co-trustee; (iv)
     2,451,787 shares held by the J. Willard Marriott Foundation of which J.W.
     Marriott, Jr. is a co-trustee; (v) 2,707,590 shares held by a limited
     partnership whose general partner is a corporation of which J.W.
     Marriott, Jr. is the controlling shareholder; and (vi) 80,000 shares held
     by a limited partnership whose general partner is J.W. Marriott, Jr.;
     does not include shares held by the adult children of J.W. Marriott, Jr.,
     of which J.W. Marriott, Jr. disclaims beneficial ownership of all such
     shares.
 (8) By virtue of their ownership of shares of Host common stock and their
     positions as Chairman and Director, respectively, Richard E. Marriott and
     J.W. Marriott, Jr. could be deemed in control of Host within the meaning
     of the federal securities laws. Other members of the Marriott family
     might also be deemed control persons by reason of their ownership of
     shares and/or their relationship to other family members. J.W. Marriott,
     Jr., Richard E. Marriott, their mother Alice S. Marriott and other
     members of the Marriott family and various trusts established by members
     of the Marriott family owned beneficially an aggregate of 25,179,933
     shares, or 12.31% of the total shares outstanding of Host common stock as
     of July 31, 1998.
 (9) Common Shares includes: (i) 1,874,709 shares held in trust for which
     Richard E. Marriott is the trustee or a co-trustee; (ii) 68,219 shares
     held by the wife of Richard E. Marriott; (iii) 603,828 shares held in
     trust for which the wife of Richard E. Marriott is the trustee or a co-
     trustee; (iv) 2,451,787 shares held by the J. Willard Marriott Foundation
     of which Richard E. Marriott is a co-trustee; and (v) 2,302,729 shares
     held by a corporation of which Richard E. Marriott is the controlling
     shareholder; does not include shares held by the adult children of
     Richard E. Marriott, of which Richard E. Marriott disclaims beneficial
     ownership of all such shares.
(10) Common Shares includes the total number of shares held by trusts for
     which both J.W. Marriott, Jr. and Richard E. Marriott are co-trustees.
     Beneficial ownership of such shares is attributable to each of J.W.
     Marriott, Jr. and Richard E. Marriott in the table above under the
     Director subheading, but such shares are included only once in reporting
     the total number of shares owned by all directors and executive officers
     as a group. All directors and executive officers as a group (other than
     members of the Marriott family) owned beneficially an aggregate of
     1,757,788 shares, or 0.86%, of the total shares outstanding as of
     July 31, 1998. In addition, Host's Retirement and Savings Plan owned
     65,257 shares, or 0.03% of the total shares outstanding as of July 31,
     1998.
(11) OP Units include only John G. Schreiber's proportionate share of OP Units
     to be received by the Blackstone Entities in the Blackstone Acquisition;
     John G. Schreiber disclaims beneficial ownership of all other OP Units to
     be acquired by the Blackstone Entities.
(12) The Blackstone Entities constitute a series of affiliated partnerships.
     Initially, a majority of the OP Units received pursuant to the Blackstone
     Acquisition will be held by such affiliated partnerships, but eventually
     will be distributed by such affiliated partnerships to their partners.
(13) Represents shares of Host common stock held by Dresdner RCM Global
     Investors LLC ("Dresdner RCM") and its affiliates, RCM Limited L.P. ("RCM
     Limited") and RCM General Corporation ("RCM General"), and by Dresdner
     Bank AG, of which Dresdner RCM is a wholly owned subsidiary. Dresdner RCM
     has reported in a Schedule 13G under the Exchange Act, filed with the
     Commission, sole dispositive power over 12,943,675 shares and shared
     dispositive power over 282,000 shares. Of these shares, Dresdner RCM has
     reported sole voting power over 8,854,200 shares and does not share
     voting power with respect to any shares. In addition, Dresdner Bank AG
     has reported in a separate Schedule 13G under the Exchange Act, filed
     with the Commission, sole dispositive and voting power over 370,300
     shares of Host common stock, and such shares are included in the number
     reported in this table. The principal business address of Dresdner RCM,
     RCM Limited and RCM General is Four Embarcadero Center, San Francisco,
     California 94111. The principal business address of Dresdner Bank AG is
     Jurgen Ponto-Platz 1, 60301 Frankfurt, Germany.
(14) Represents shares of Host common stock held by FMR Corp. ("FMR") and its
     subsidiaries, Fidelity Management Trust Company ("FMT") and Fidelity
     Management & Research Company ("FM&R"). FMR has reported in a Schedule
     13G under the Exchange Act, filed with the Commission, that FMR, through
     its control of FM&R and certain investment funds for which FM&R acts as
     an investment adviser, has sole power to dispose of 22,474,835 shares of
     Host common stock owned by such investment funds, including the
     15,610,500 shares of Host common stock (or 7.64% of the total shares
     outstanding of Host common stock as of July 31, 1998) held by the
     Fidelity Magellan Fund. FMR has no power to vote or direct the voting of
     the shares of Host Common Stock owned by the investment funds, which
     power resides with the Board of Trustees of such investment funds. FMR,
     through its control of FMT and certain institutional accounts for which
     FMT serves as investment manager, has sole dispositive power over 57,739
     shares, the sole power to vote or direct the voting of 44,301 shares, and
     no power to vote or direct the voting of 13,438 shares of Host common
     stock owned by the institutional accounts. The principal business address
     for FMR, FMT and FM&R is 82 Devonshire Street, Boston, Massachusetts
     02109.
(15) Represents shares of Host common stock held by Southeastern Asset
     Management, Inc. ("SAM"). SAM has reported in a Schedule 13G under the
     Exchange Act, filed with the Commission, sole dispositive power over
     21,730,700 shares, shared dispositive power over 14,968,300 shares and no
     dispositive power over 59,000 shares. Of these shares, SAM has reported
     sole voting power over 18,338,100 shares, shared voting power over
     14,968,300 shares and no power to vote 3,451,600 shares. The principal
     business address of SAM is 6075 Poplar Avenue, Suite 900, Memphis,
     Tennessee 38119.
 
                                      181

<PAGE>
 
                            DESCRIPTION OF OP UNITS
 
  Limited Partners whose Partnership participates in a Merger will receive OP
Units in exchange for their Partnership Interests. Limited Partners who elect
to receive Common Shares or Notes will tender (or be deemed to have tendered)
all of the OP Units they receive to Host REIT in exchange for Common Shares or
to the Operating Partnership in exchange for Notes. See "The Mergers and the
REIT Conversion--The Mergers--Issuance of OP Units," "--Right to Exchange OP
Units for Common Shares" and "--Right to Exchange OP Units for Notes."
Commencing one year after the Mergers, each limited partner in the Operating
Partnership (other than Host REIT) will be entitled to have each of his OP
Units redeemed by the Operating Partnership at any time for cash equal to the
fair market value at the time of redemption of one Common Share (subject to
adjustment to reflect any stock split, stock dividend or other transaction
affecting the number of Common Shares outstanding but not affecting the number
of OP Units outstanding), or, at the option of Host REIT, one Common Share
(subject to adjustment as described herein). The material terms of the Common
Shares, including a summary of certain provisions of Host REIT's Charter and
Bylaws, are set forth in "Description of Capital Stock" and "Certain
Provisions of Maryland Law and Host REIT's Charter and Bylaws." The material
terms of the OP Units, including a summary of certain provisions of the
Partnership Agreement, are set forth below. The following description of the
terms and provisions of the OP Units and certain other matters does not
purport to be complete and is subject to, and qualified in its entirety by,
reference to applicable provisions of Delaware law and the Partnership
Agreement. A copy of the Partnership Agreement in substantially the form in
which it will be adopted (subject to such modifications as do not materially
and adversely affect the rights of the holders of OP Units to be issued in the
Mergers) is attached as Appendix A to this Consent Solicitation. Each person
acquiring OP Units in the Mergers or thereafter will be deemed bound by the
terms and conditions of the Partnership Agreement. For a comparison of the
voting and certain other rights of Limited Partners of the Partnerships,
holders of OP Units in the Operating Partnership and shareholders of Host
REIT, see "Comparison of Ownership of Partnership Interests, OP Units and
Common Shares."
 
GENERAL
 
  Holders of OP Units (other than Host REIT in its capacity as general
partner) will hold a limited partnership interest in the Operating
Partnership, and all holders of OP Units (including Host REIT in its capacity
as general partner) will be entitled to share in cash distributions from, and
in the profits and losses of, the Operating Partnership. Because Host REIT
will hold a number of OP Units equal to the number of Common Shares
outstanding, each OP Unit generally will receive distributions in the same
amount paid on each Common Share. See "Distribution and Other Policies--
Distribution Policy."
 
  Holders of OP Units will have the rights to which limited partners are
entitled under the Partnership Agreement and the Delaware Revised Uniform
Limited Partnership Act (the "Delaware Act). The OP Units to be issued in the
Mergers will not be listed on any exchange or quoted on any national market
system. The Partnership Agreement imposes certain restrictions on the transfer
of OP Units, as described below.
 
FORMATION
 
  The Operating Partnership was formed as a Delaware limited partnership under
the Delaware Act on April 15, 1998. Upon the consummation of the REIT
Conversion, Host REIT will be admitted to the Operating Partnership as the
sole general partner of the Operating Partnership. Following the REIT
Conversion, Host REIT will hold a substantial number of the OP Units. Of the
OP Units allocated to Host REIT, a 0.1% interest in the Operating Partnership
will be held by Host REIT as the general partner of the Operating Partnership,
and the remaining OP Units allocated to Host REIT will be held by Host REIT as
a limited partner in the Operating Partnership.
 
PURPOSES, BUSINESS AND MANAGEMENT
 
  The purpose of the Operating Partnership includes the conduct of any
business that may be lawfully conducted by a limited partnership formed under
the Delaware Act, except that the Partnership Agreement
 
                                      182

<PAGE>
 
requires the business of the Operating Partnership to be conducted in such a
manner that will permit Host REIT to qualify as a REIT under Section 856 of
the Code, unless Host REIT ceases to qualify as a REIT for reasons other than
the conduct of the business of the Operating Partnership. Subject to the
foregoing limitation, the Operating Partnership may enter into partnerships,
joint ventures or similar arrangements and may own interests directly or
indirectly in any other entity.
 
  Host REIT, as general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership
by virtue of being a holder of OP Units.
 
  In particular, the limited partners expressly acknowledge in the Partnership
Agreement that Host REIT is acting on behalf of the Operating Partnership's
limited partners and Host REIT's shareholders collectively, and is under no
obligation to consider the tax consequences to limited partners when making
decisions for the benefit of the Operating Partnership. Host REIT intends to
make decisions in its capacity as general partner of the Operating Partnership
so as to maximize the profitability of Host REIT and the Operating Partnership
as a whole, independent of the tax effects on the limited partners. See
"Federal Income Tax Consequences--Tax Treatment of Limited Partners Who Hold
OP Units Following the Mergers." Host REIT and the Operating Partnership will
have no liability to a limited partner as a result of any liabilities or
damages incurred or suffered by, or benefits not derived by, a limited partner
as a result of the act or omission of Host REIT as general partner of the
Operating Partnership unless Host REIT acted, or failed to act, in bad faith
and the act or omission was material to the loss, liability or benefit not
derived.
 
HOST REIT MAY NOT ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
 
  Host REIT, as general partner, may not conduct any business other than the
business of the Operating Partnership without the consent of limited partners
holding percentage interests in the Operating Partnership ("Percentage
Interests") that are more than 50% of the aggregate Percentage Interests of
the outstanding limited partnership interests entitled to vote thereon,
excluding any such interests held by Host REIT. Other persons (including
officers, directors, employees, agents and other affiliates of Host REIT) will
not be prohibited under the Partnership Agreement from engaging in other
business activities. However, Host REIT, on behalf of the Operating
Partnership, has adopted certain policies regarding noncompetition provisions
and avoidance of conflicts of interest. See "Distribution and Other Policies--
Conflicts of Interest Policies." In addition, the Partnership Agreement does
not prevent another person or entity that acquires control of Host REIT in the
future from conducting other businesses or owning other assets, even though
such businesses or assets may be ones that it would be in the best interests
of the limited partners for the Operating Partnership to own.
 
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
 
  The Partnership Agreement provides for the quarterly distribution of
Available Cash (as determined in the manner provided in the Partnership
Agreement) to Host REIT and the limited partners as holders of OP Units in
proportion to their percentage interests in the Operating Partnership.
"Available Cash" is generally defined as net income plus depreciation and
amortization and any reduction in reserves and minus interest and principal
payments on debt, capital expenditures, any additions to reserves and other
adjustments. At the time of the REIT Conversion, neither Host REIT nor the
limited partners will be entitled to any preferential or disproportionate
distributions of Available Cash (except to the extent that Host REIT receives
preferred units in the Operating Partnership with economic rights that mirror
the economic rights of any preferred stock that Host has outstanding at the
time of the REIT Conversion). The Partnership Agreement provides for the
allocation to Host REIT, as general partner, and the limited partners of items
of Operating Partnership income and loss as described in "Federal Income Tax
Consequences--Tax Treatment of Limited Partners Who Hold OP Units Following
the Mergers--Allocations of Operating Partnership Income, Gain, Loss and
Deduction."
 
 
                                      183

<PAGE>
 
BORROWING BY THE OPERATING PARTNERSHIP
 
  Host REIT is authorized to cause the Operating Partnership to borrow money
and to issue and guarantee debt as it deems necessary for the conduct of the
activities of the Operating Partnership, including financing and refinancing
the assets of the Operating Partnership. Such debt may be secured by
mortgages, deeds of trust, liens or encumbrances on properties of the
Operating Partnership. Host REIT also may cause the Operating Partnership to
borrow money to enable the Operating Partnership to make distributions,
including distributions to holders of OP Units, including Host REIT, in an
amount sufficient to permit Host REIT, as long as it qualifies as a REIT, to
avoid the payment of any federal income tax. See "Distribution and Other
Policies--Financing Policies."
 
REIMBURSEMENT OF HOST REIT; TRANSACTIONS WITH HOST REIT AND ITS AFFILIATES
 
  Host REIT will not receive any compensation for its services as general
partner of the Operating Partnership. Host REIT, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions as
other partners in the Operating Partnership. The Operating Partnership will
pay all expenses relating to the Operating Partnership's organization, the
REIT Conversion, the acquisition and ownership of its assets and its
operations. The Operating Partnership will be responsible for and will pay (or
reimburse) all expenses and liabilities of any nature that Host REIT may incur
(including expenses and liabilities arising out of the REIT Conversion and
expenses related to the ongoing operations of Host REIT and to the management
and administration of any subsidiaries of Host REIT permitted under the
Partnership Agreement). The Operating Partnership also will be responsible for
paying any and all taxes incurred by Host REIT, except that the Operating
Partnership will not be responsible for any taxes that Host REIT would not
have been required to pay if it qualified as a REIT for federal income tax
purposes or any taxes imposed on Host REIT by reason of its failure to
distribute to its shareholders an amount equal to its taxable income. The
Operating Partnership, however, will not be responsible for expenses or
liabilities incurred by Host REIT that are excluded from the scope of the
indemnification provisions of the Partnership Agreement.
 
  Except as expressly permitted by the Partnership Agreement, Host REIT and
its affiliates will not engage in any transactions with the Operating
Partnership, except on terms that are determined in good faith by the general
partner to be fair and reasonable and no less favorable to the Operating
Partnership than would be obtained from an unaffiliated third party.
 
LIABILITY OF HOST REIT AND LIMITED PARTNERS
 
  Host REIT, as general partner of the Operating Partnership, will be liable
for all general recourse obligations of the Operating Partnership to the
extent not paid by the Operating Partnership. Host REIT will not be liable for
the nonrecourse obligations of the Operating Partnership.
 
  The limited partners of the Operating Partnership will not be required to
make additional capital contributions to the Operating Partnership. Assuming
that a limited partner does not take part in the control of the business of
the Operating Partnership and otherwise acts in conformity with the provisions
of the Partnership Agreement, the liability of a limited partner for
obligations of the Operating Partnership under the Partnership Agreement and
the Delaware Act will be limited, subject to certain exceptions, generally to
the loss of such limited partner's investment in the Operating Partnership
represented by his OP Units. Under the Delaware Act, a limited partner may not
receive a distribution from the Operating Partnership if, at the time of the
distribution and after giving effect thereto, the liabilities of the Operating
Partnership, other than liabilities to parties on account of their interests
in the Operating Partnership and liabilities for which recourse is limited to
specified property of the Operating Partnership, exceed the fair value of the
Operating Partnership's assets, other than the fair value of any property
subject to nonrecourse liabilities of the Operating Partnership, but only to
the extent of such liabilities. The Delaware Act provides that a limited
partner who receives a distribution knowing at the time that it violates the
foregoing prohibition is liable to the Operating Partnership for the amount of
the distribution. Unless otherwise agreed, such a limited partner will not be
liable for the return of such distribution after the expiration of three years
from the date of such distribution.
 
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<PAGE>
 
  The Operating Partnership expects to qualify to conduct business in various
states in which the conduct of its business requires such qualification.
Maintenance of limited liability may require compliance with certain legal
requirements of those jurisdictions and certain other jurisdictions.
Limitations on the liability of a limited partner for the obligations of a
limited partnership have not been clearly established in many jurisdictions.
Accordingly, if it were determined that the right, or exercise of the right by
the limited partners, to make certain amendments to the Partnership Agreement
or to take other action pursuant to the Partnership Agreement constituted
"control" of the Operating Partnership's business for the purposes of the
statutes of any relevant jurisdiction, the limited partners might be held
personally liable for the Operating Partnership's obligations. The Operating
Partnership will operate in a manner Host REIT deems reasonable, necessary and
appropriate to preserve the limited liability of the limited partners.
 
EXCULPATION AND INDEMNIFICATION OF HOST REIT
 
  The Partnership Agreement generally provides that Host REIT, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any limited partner for losses sustained, liabilities incurred
or benefits not derived as a result of errors in judgment or mistakes of fact
or law or of any act or omission, unless Host REIT acted, or failed to act, in
bad faith and the act or omission was material to the loss, liability or
benefit not derived. In addition, Host REIT is not responsible for any
misconduct or negligence on the part of its agents, provided Host REIT
appointed such agents in good faith. Host REIT may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisors, and any action it takes or omits to take in reliance
upon the opinion of such persons, as to matters that Host REIT reasonably
believes to be within their professional or expert competence, shall be
conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
 
  The Partnership Agreement also provides for indemnification of Host REIT,
the directors and officers of Host REIT and such other persons as Host REIT
may from time to time designate against any judgments, penalties, fines,
settlements and reasonable expenses actually incurred by such person in
connection with the proceeding unless it is established that: (i) the act or
omission of the indemnified person was material to the matter giving rise to
the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty; (ii) the indemnified person actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the indemnified person had reasonable
cause to believe that the act or omission was unlawful. The Operating
Partnership is obligated to advance to an indemnified person reasonable
expenses incurred or expected to be incurred by such indemnified person if
such indemnified person certifies to the Operating Partnership that his
conduct has met the standards for indemnification and that he will repay any
amounts received if it is determined subsequently that his conduct did not
meet such standards.
 
SALES OF ASSETS
 
  Under the Partnership Agreement, Host REIT generally has the exclusive
authority to determine whether, when and on what terms the assets of the
Operating Partnership (including the Hotels) will be sold. In addition, Host
REIT is not required to take into account the tax consequences to the limited
partners in deciding whether to cause the Operating Partnership to undertake a
specific transaction. A sale of all or substantially all of the assets of the
Operating Partnership (or a merger of the Operating Partnership with another
entity) requires an affirmative vote of limited partners holding Percentage
Interests that are more than 50% of the aggregate Percentage Interests of the
outstanding limited partnership interests entitled to vote thereon (including
Percentage Interests held by Host REIT).
 
REMOVAL OR WITHDRAWAL OF HOST REIT; TRANSFER OF HOST REIT'S INTERESTS
 
  The Partnership Agreement provides that the limited partners may not remove
Host REIT as general partner of the Operating Partnership with or without
cause (unless neither Host REIT nor its parent entity is a "public company,"
in which case Host REIT may be removed with or without cause by limited
partners holding
 
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<PAGE>
 
Percentage Interests that are more than 50% of the aggregate Percentage
Interests of the outstanding limited partnership interests entitled to vote
thereon, including any such interests held by the general partner). In
addition, Host REIT may not transfer any of its interests as general or
limited partner of the Operating Partnership or withdraw as a general partner,
except, in each case, in connection with a merger or sale of all or
substantially all of its assets, provided that (i) the limited partners of the
Operating Partnership either will receive, or will have the right to receive,
substantially the same consideration as holders of Common Shares,
(ii) following such merger or other consolidation, substantially all of the
assets of the surviving entity consist of OP Units and (iii) such transaction
has been approved by partners holding Percentage Interests that are more than
50% of the aggregate Percentage Interests of the outstanding interests in the
Operating Partnership entitled to vote thereon (including any such interests
held by Host REIT). Host REIT initially will hold a majority of the OP Units
and thus would control the outcome of this vote. See "--Sales of Assets."
 
  Although Host REIT cannot transfer its partnership interests except in a
transaction in which substantially all of the assets of the surviving entity
consist of OP Units, the Partnership Agreement does not prevent a transaction
in which another entity acquires control (or all of the shares of capital
stock) of Host REIT and that other entity owns assets and conducts businesses
outside of the Operating Partnership.
 
CERTAIN VOTING RIGHTS OF HOLDERS OF OP UNITS DURING THE FIRST YEAR FOLLOWING
THE MERGERS
 
  During the first year following the Mergers, if a vote of the shareholders
of Host REIT is required, then (i) a sale of all or substantially all of the
assets of the Operating Partnership, (ii) a merger involving the Operating
Partnership and (iii) any issuance of OP Units in connection with an issuance
of Common Shares representing 20% or more of the outstanding Common Shares
which would require shareholder approval under the rules of the NYSE, would
require the approval of a majority of all outstanding OP Units (or, in the
case of clause (iii), a majority of the OP Units that are voted, provided that
at least a majority of the OP Units are voted), including OP Units held by
Host REIT, voting as a single class with Host REIT voting its OP Units in the
same proportion as its shareholders vote. In addition, during the one-year
period following the Mergers, any taxable sale or sales of Hotels representing
more than 10% of the aggregate Appraised Value of the Hotels of any
Partnership would require, in addition to any other approval requirements, the
approval of a majority of all outstanding OP Units held by persons who
formerly were Limited Partners of such Partnership, voting as a separate
class.
 
RESTRICTIONS ON TRANSFERS OF INTERESTS BY LIMITED PARTNERS
 
  The Partnership Agreement provides that no limited partner shall, without
the prior written consent of Host REIT (which consent may be withheld in Host
REIT's sole and absolute discretion), sell, assign, distribute or otherwise
transfer all or any portion of his interest in the Operating Partnership,
except that a limited partner may transfer, without the consent of Host REIT,
all or a portion of its limited partnership interest (i) in the case of a
limited partner who is an individual, to a member of his immediate family, any
trust formed for the benefit of himself and/or members of his immediate
family, or any partnership, limited liability company, joint venture,
corporation or other business entity comprised only of himself and/or members
of his immediate family and entities the ownership interests in which are
owned by or for the benefit of himself and/or members of his immediate family,
(ii) in the case of a limited partner which is a trust, to the beneficiaries
of such trust, (iii) in the case of a limited partner which is a partnership,
limited liability company, joint venture, corporation or other business entity
to which OP Units were transferred pursuant to (i) above, to its partners,
owners, or stockholders, as the case may be, who are members of the immediate
family of or are actually the person(s) who transferred OP Units to it
pursuant to (i) above, (iv) in the case of a limited partner which acquired OP
Units as of the closing of the Mergers and which is a partnership, limited
liability company, joint venture, corporation or other business entity, to its
partners, owners, stockholders or Affiliates thereof, as the case may be, or
the Persons owning the beneficial interests in any of its partners, owners or
stockholders or Affiliates thereof (it being understood that this clause (iv)
will apply to all of each Person's partnership interests whether the OP Units
relating thereto were acquired on the date hereof or hereafter), (v) in the
case of a limited partner which is a partnership, limited liability company,
joint venture, corporation or other business entity other than any of the
foregoing described in clause (iii) or (iv), in accordance with the terms of
any agreement between such limited
 
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<PAGE>
 
partner and the Operating Partnership pursuant to which such partnership
interest was issued, (vi) pursuant to a gift or other transfer without
consideration, (vii) pursuant to applicable laws of descent or distribution,
(viii) to another limited partner and (ix) pursuant to a grant of security
interest or other encumbrance effected in a bona fide transaction or as a
result of the exercise of remedies related thereto. All of the foregoing
transfers are subject to the provisions of the Partnership Agreement which
require compliance with securities laws, prohibit transfers affecting the tax
status of the Operating Partnership or the qualification of Host REIT as a
REIT for tax purposes, prohibit transfers to holders of nonrecourse
liabilities of the Operating Partnership and are also subject to the rules on
substitution of limited partners. In addition, Limited Partners will be
permitted to dispose of their OP Units following the first anniversary of the
Mergers by exercising their Unit Redemption Right. See "--Unit Redemption
Right" below.
 
  The right of any permitted transferee of OP Units to become a substitute
limited partner is subject to the consent of Host REIT, which consent Host
REIT may withhold in its sole and absolute discretion. If Host REIT does not
consent to the admission of a transferee of OP Units as a substitute limited
partner, the transferee will succeed to all economic rights and benefits
attributable to such OP Units (including the Unit Redemption Right), but will
not become a limited partner or possess any other rights of limited partners
(including the right to vote).
 
  Transfers of OP Units may be effected only by means of entries in the record
of the Operating Partnership, and Host REIT will require evidence satisfactory
to it of compliance with all transfer restrictions prior to recording any
transfer.
 
UNIT REDEMPTION RIGHT
 
  Subject to certain limitations, holders of OP Units (other than Host REIT)
may exercise the Unit Redemption Right by providing notice to the Operating
Partnership at any time commencing one year after the Mergers. Unless Host
REIT elects to assume and perform the Operating Partnership's obligation with
respect to the Unit Redemption Right, as described below, the redeeming holder
of OP Units will receive cash from the Operating Partnership in an amount
equal to the market value of the OP Units to be redeemed. The market value of
an OP Unit for this purpose will be equal to the average of the daily market
price of a Common Share on the NYSE for the ten consecutive trading days
before the day on which the redemption notice was given. The market price for
each such trading day shall be the closing price, regular way, on such day, or
if no such sales take place on such day, the average of the closing bid and
asked prices on such day. In lieu of the Operating Partnership's acquiring the
OP Units for cash, Host REIT will have the right (except as described below,
if the Common Shares are not publicly traded) to elect to acquire the OP Units
directly from a holder of OP Units exercising the Unit Redemption Right, in
exchange for either cash or Common Shares, and, upon such acquisition, Host
REIT will become the owner of such OP Units. In either case, acquisition of
such OP Units by Host REIT will be treated as a sale of the OP Units to Host
REIT for federal income tax purposes. See "Federal Income Tax Consequences--
Tax Consequences of the Mergers--Unit Redemption Right." Upon exercise of the
Unit Redemption Right, the right of the holder of OP Units to receive
distributions for the OP Units so redeemed or exchanged will cease. At least
1,000 OP Units (or all remaining OP Units owned by the holder of OP Units if
less than 1,000 OP Units) must be redeemed each time the Unit Redemption Right
is exercised. The redemption generally will occur on the tenth business day
after notice of the exercise of the Unit Redemption Right by a holder of OP
Units is given to the Operating Partnership, except that no redemption or
exchange can occur if delivery of Common Shares would be prohibited either
under the provisions of Host REIT's Charter relating to restrictions on
ownership and transfer of Common Shares or under applicable federal or state
securities laws as long as the Common Shares are publicly traded. See
"Description of Capital Stock--Restrictions on Ownership and Transfer."
 
  In the event that the Common Shares are not publicly traded but another
entity whose stock is publicly traded owns more than 50% of the shares of
capital stock of Host REIT (referred to as the "Parent Entity"), the Unit
Redemption Right will be determined by reference to the publicly traded shares
of the Parent Entity and the general partner will have the right to elect to
acquire the OP Units to be redeemed for publicly traded stock of the Parent
Entity. In the event that the Common Shares are not publicly traded and there
is no Parent Entity with
 
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<PAGE>
 
publicly traded stock, the Unit Redemption Right would be based upon the fair
market value of the Operating Partnership's assets at the time the Unit
Redemption Right is exercised (as determined in good faith by Host REIT), and,
unless otherwise agreed by the redeeming limited partner, Host REIT and the
Operating Partnership would be obligated to satisfy the Unit Redemption Right
in cash, payable on the thirtieth business day after notice to the Operating
Partnership of exercise of the Unit Redemption Right.
 
NO WITHDRAWAL BY LIMITED PARTNERS
 
  No limited partner has the right to withdraw from or reduce his capital
contribution to the Operating Partnership, except as a result of the
redemption, exchange or transfer of OP Units pursuant to the terms of the
Partnership Agreement.
 
ISSUANCE OF LIMITED PARTNERSHIP INTERESTS
 
  Host REIT is authorized, without the consent of the limited partners, to
cause the Operating Partnership to issue additional OP Units to Host REIT, to
the limited partners or to other persons for such consideration and upon such
terms and conditions as Host REIT deems appropriate. The Operating Partnership
also may issue to any of the foregoing persons or entities partnership
interests in different series or classes, which may be senior to the OP Units,
including with respect to distributions and upon liquidation. If additional OP
Units or partnership interests in different series or classes of equity
securities are issued to Host REIT, then Host REIT must issue additional
Common Shares or securities having substantially similar rights to such
partnership interests, and must contribute the proceeds received by Host REIT
from such issuance to the Operating Partnership. Consideration for additional
partnership interests may be cash or any property or other assets permitted by
the Delaware Act. No limited partner has preemptive, preferential or similar
rights with respect to capital contributions to the Operating Partnership or
the issuance or sale of any partnership interests therein.
 
MEETINGS; VOTING
 
  Meetings of the limited partners may be called only by Host REIT, on its own
motion or upon written request of limited partners owning at least 10% of the
then outstanding OP Units (including those held by Host REIT). Limited
partners may vote either in person or by proxy at meetings. Any action that is
required or permitted to be taken by the limited partners may be taken either
at a meeting of the limited partners or without a meeting if consents in
writing setting forth the action so taken are signed by limited partners
holding Percentage Interests which are not less than the minimum Percentage
Interest that would be necessary to authorize or take such action at a meeting
of the limited partners at which all limited partners entitled to vote on such
action were present. On matters as to which limited partners are entitled to
vote, each limited partner (including Host REIT to the extent it holds limited
partnership interests) will have a vote equal to its Percentage Interest. A
transferee of OP Units who has not been admitted as a substituted limited
partner with respect to such OP Units will have no voting rights with respect
to such OP Units, even if such transferee holds other OP Units as to which it
has been admitted as a limited partner. The Partnership Agreement does not
provide for annual meetings of the limited partners, and Host REIT does not
anticipate calling such meetings.
 
AMENDMENT OF THE PARTNERSHIP AGREEMENT
 
  Amendments to the Partnership Agreement may be proposed by Host REIT or by
limited partners owning at least 25% of the then outstanding OP Units.
Generally, the Partnership Agreement may be amended with the approval of Host
REIT, as general partner, and limited partners (including Host REIT) holding
Percentage Interests that are more than 50% of the aggregate Percentage
Interests of the outstanding limited partnership interests entitled to vote
thereon. Certain provisions regarding, among other things, the rights and
duties of Host REIT as general partner (e.g., restrictions on Host REIT's
power to conduct businesses other than owning OP Units, the dissolution of the
Operating Partnership or the rights of limited partners), may not be amended
without the approval of limited partners (excluding Host REIT) holding
Percentage Interests that are more than 50% of the aggregate Percentage
Interests of the outstanding limited partnership interests entitled to vote
thereon.
 
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<PAGE>
 
Notwithstanding the foregoing, Host REIT, as general partner, will have the
power, without the consent of the limited partners, to amend the Partnership
Agreement as may be required to (i) add to the obligations of Host REIT as
general partner or surrender any right or power granted to Host REIT as
general partner, (ii) reflect the admission, substitution, termination or
withdrawal of partners in accordance with the terms of the Partnership
Agreement, (iii) establish the rights, powers, duties and preferences of any
additional partnership interests issued in accordance with the terms of the
Partnership Agreement, (iv) reflect a change that does not materially
adversely affect any limited partner, or cure any ambiguity, correct or
supplement any provisions of the Partnership Agreement not inconsistent with
law or with other provisions of the Partnership Agreement, or make other
changes concerning matters under the Partnership Agreement that are not
otherwise inconsistent with the Partnership Agreement or applicable law or (v)
satisfy any requirements of federal, state or local law.
 
  Certain amendments that would, among other things, (i) convert a limited
partner's interest into a general partner's interest, (ii) modify the limited
liability of a limited partner, (iii) alter the interest of a partner in
profits or losses, or the rights to receive any distributions (except as
permitted under the Partnership Agreement with respect to the admission of new
partners or the issuance of additional OP Units (including partnership
interests in a different class or series to the extent otherwise authorized
under the Partnership Agreement), which actions will have the effect of
changing the percentage interests of the partners and thus altering their
interests in profits, losses and distributions), (iv) amend the limited
partners' right to transfer or (v) alter the Unit Redemption Right, must be
approved by Host REIT and each limited partner that would be adversely
affected by such amendment.
 
BOOKS AND REPORTS
 
  Host REIT is required to keep the Operating Partnership's books and records
at the principal office of the Operating Partnership. The books of the
Operating Partnership are required to be maintained for financial and tax
reporting purposes on an accrual basis. The limited partners will have the
right to receive copies of the most recent Commission filings by Host REIT and
the Operating Partnership, the Operating Partnership's federal, state and
local income tax returns, a list of limited partners, the Partnership
Agreement, the partnership certificate and all amendments thereto and certain
information about the capital contributions of the partners. Host REIT may
keep confidential from the limited partners any information that Host REIT
believes to be in the nature of trade secrets or other information the
disclosure of which Host REIT in good faith believes is not in the best
interests of the Operating Partnership or which the Operating Partnership is
required by law or by agreements with unaffiliated third parties to keep
confidential.
 
  Host REIT will furnish to each limited partner, no later than the date on
which Host REIT mails its annual report to its shareholders, an annual report
containing financial statements of the Operating Partnership (or Host REIT, if
it prepares consolidated financial statements including the Operating
Partnership) for each fiscal year, including a balance sheet and statements of
operations, cash flow, partners' equity and changes in financial position. The
financial statements will be audited by a nationally recognized firm of
independent public accountants selected by Host REIT. In addition, if and to
the extent that Host REIT mails quarterly reports to its shareholders, Host
REIT will furnish to each limited partner, no later than the date on which
Host REIT mails such reports to its shareholders, a report containing
unaudited financial statements of the Operating Partnership (or Host REIT, if
it prepares consolidated financial statements including the Operating
Partnership) as of the last day of the calendar quarter and such other
information as may be required by applicable law or regulation or as Host REIT
deems appropriate.
 
  Host REIT will use reasonable efforts to furnish to each limited partner,
within 90 days after the close of each taxable year, the tax information
reasonably required by the limited partners for federal and state income tax
reporting purposes.
 
POWER OF ATTORNEY
 
  Pursuant to the terms of the Partnership Agreement, each limited partner and
each assignee appoints Host REIT, any liquidator and the authorized officers
and attorneys-in-fact of each, as such limited partner's or assignee's
attorney-in-fact to do the following: execute, swear to, acknowledge, deliver,
file and record in the
 
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<PAGE>
 
appropriate public offices various certificates, documents and other
instruments (including, among other things, the Partnership Agreement and the
certificate of limited partnership and all amendments or restatements thereof)
that Host REIT deems appropriate or necessary to effectuate the terms or
intent of the Partnership Agreement. The Partnership Agreement provides that
such power of attorney is irrevocable, will survive the subsequent incapacity
of any limited partner and the transfer of all or any portion of such limited
partner's or assignee's OP Units and will extend to such limited partner's or
assignee's heirs, successors, assigns and personal representatives.
 
DISSOLUTION, WINDING UP AND TERMINATION
 
  The Operating Partnership will continue until December 31, 2098, unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term and its affairs wound up upon the
occurrence of the earliest of: (i) the withdrawal of Host REIT as general
partner without the permitted transfer of Host REIT's interest to a successor
general partner (except in certain limited circumstances); (ii) an election to
dissolve the Operating Partnership prior to December 31, 2058 made by Host
REIT with the consent of the limited partners who hold 90% of the OP Units
(including OP Units held by Host REIT), (iii) the sale of all or substantially
all of the Operating Partnership's assets and properties for cash or for
marketable securities; (iv) the entry of a decree of judicial dissolution of
the Operating Partnership pursuant to the provisions of the Delaware Act; (v)
the entry of a final non-appealable order for relief in a bankruptcy
proceeding of the general partner, or the entry of a final non-appealable
judgment ruling that the general partner is bankrupt or insolvent (except
that, in either such case, in certain circumstances the limited partners
(other than Host REIT) may vote to continue the Operating Partnership and
substitute a new general partner in place of Host REIT); or (vi) an election
by Host REIT in its sole and absolute discretion on or after December 31,
2058. Upon dissolution, Host REIT, as general partner, or any liquidator will
proceed to liquidate the assets of the Operating Partnership and apply the
proceeds therefrom in the order of priority set forth in the Partnership
Agreement.
 
OWNERSHIP LIMITATION
 
  In order to help the Operating Partnership avoid being treated as a
corporation for federal income tax purposes, the Partnership Agreement
expressly provides that no person (other than Host REIT and the wholly owned
subsidiaries (direct and indirect) thereof) or persons acting as a group may
own, actually or constructively, more than 4.9% by value of any class of
interests in the Operating Partnership. The Partnership Agreement contains
self-executing mechanisms intended to enforce this prohibition. For a
description of the consequences of the Operating Partnership being treated as
a corporation for federal income tax purposes, see "Federal Income Tax
Consequences--Tax Status of the Operating Partnership." As general partner of
the Operating Partnership, Host REIT, in its sole and absolute discretion, may
waive or modify this ownership limitation if it is satisfied that ownership in
excess of this limit will not cause the Operating Partnership to be treated as
a corporation for federal income tax purposes. Host has agreed to grant The
Blackstone Group an exception to this prohibition subject to the condition
that neither The Blackstone Group, nor any person or entity that would be
considered to own OP Units owned by The Blackstone Group, may own, directly or
by attribution, 9.8% or more of the stock of Crestline or the equity of any of
the Lessees.
 
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<PAGE>
 
                         DESCRIPTION OF CAPITAL STOCK
 
  The summary of the terms of the capital stock of Host REIT set forth below
does not purport to be complete and is subject to and qualified in its
entirety by reference to the form of the Articles of Incorporation (the
"Charter") and Bylaws of Host REIT to be effective upon completion of the
merger of Host with and into Host REIT, copies of which have been filed as
Exhibits to the Registration Statement of which this Consent Solicitation is a
part.
 
GENERAL
   
  Host REIT's Charter provides that the total number of shares of capital
stock of all classes which Host REIT has authority to issue is 800,000,000
shares of capital stock, initially consisting of 750,000,000 shares of common
stock, par value $.01 per share, and 50,000,000 shares of preferred stock, par
value $.01 per share. The Board of Directors is authorized, without a vote of
shareholders, to classify or reclassify any unissued shares of capital stock
and to establish the preferences and rights of any preferred or other class or
series of capital stock to be issued. At October 5, 1998, 100 Common Shares
were issued and outstanding.     
 
COMMON SHARES
 
  Subject to the preferential rights of any other classes or series of shares
of capital stock and to the provisions of the Charter regarding restrictions
on transfers of shares of capital stock, holders of Common Shares are entitled
to receive distributions if, as and when authorized and declared by the Board
of Directors, out of assets legally available therefor and to share ratably in
the assets of Host REIT legally available for distribution to its shareholders
in the event of its liquidation, dissolution or winding-up after payment of,
or adequate provision for, all known debts and liabilities of Host REIT. Host
REIT currently intends to pay regular quarterly distributions.
 
  Subject to the provisions of Host REIT's Charter regarding restrictions on
transfer of shares of capital stock, each outstanding Common Share entitles
the holder to one vote on all matters submitted to a vote of shareholders,
including the election of directors, and, except as provided with respect to
any other class or series of shares of Host REIT capital stock, the holders of
Common Shares will possess the exclusive voting power. There is no cumulative
voting in the election of directors, which means that the holders of a
majority of the outstanding Common Shares can elect all of the directors then
standing for election.
 
  Holders of Common Shares have no preferences, conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of Host
REIT. Subject to the provisions of Host REIT's Charter regarding restrictions
on transfer of capital stock, Common Shares have equal distribution,
liquidation and other rights.
 
  Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, consolidate, effect a share exchange or transfer its assets
within the meaning of the MGCL unless approved by the Board of Directors and
by shareholders holding at least two-thirds of the shares entitled to vote on
the matter (unless a greater or lesser percentage (but not less than a
majority of all the votes entitled to be cast) is set forth in the
corporation's charter). Under Host REIT's Charter, any merger, consolidation,
share exchange or transfer of its assets must be approved (i) by the Board of
Directors in the manner provided in the MGCL and (ii) by shareholders to the
extent required under the MGCL. Host REIT's Charter generally provides for
shareholder approval of such transactions by a two-thirds vote of all the
votes entitled to be cast, except that any merger of Host REIT with or into a
trust organized for the purpose of changing Host REIT's form of organization
from a corporation to a trust will require the approval of shareholders of
Host REIT by the affirmative vote only of a majority of all the votes entitled
to be cast on the matter. In addition, under the MGCL, certain mergers may be
accomplished without a vote of shareholders. For example, no shareholder vote
is required for a merger of a subsidiary of a Maryland corporation into its
parent, provided the parent owns at least 90 percent of the subsidiary. In
addition, a merger need not be approved by shareholders of a Maryland
successor corporation if
 
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the merger does not reclassify or change the outstanding shares or otherwise
amend the charter, and the number of shares to be issued or delivered in the
merger is not more than 20 percent of the number of its shares of the same
class or series outstanding immediately before the merger becomes effective. A
share exchange need be approved by a Maryland successor only by its Board of
Directors. Any amendments to the provisions contained in Host REIT's Charter
relating to restrictions on transferability of shares, the classified Board
and fixing the size of the Board within the range set forth in the Charter, as
well as the provisions relating to removal of directors, the filling of Board
vacancies and the exclusive authority of the Board of Directors to amend the
Bylaws will require the approval of the Board of Directors and shareholders by
the affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast on the matter. Other amendments to the Charter may be
effected by requisite action of the Board of Directors and approval by
shareholders by the affirmative vote of not less than a majority of the votes
entitled to be cast on the matter.     
 
  The Charter will authorize the Board of Directors to reclassify any unissued
Common Shares into other classes or series of capital stock, including
preferred shares and to establish the number of shares in each class or series
and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption for each such class or
series.
 
PREFERRED SHARES
   
  The Charter initially will authorize the Board of Directors to issue 50
million preferred shares and to classify or reclassify any unissued preferred
shares into one or more classes or series of capital stock, including Common
Shares. Prior to issuance of shares of any class or series of capital stock
other than Common Shares, the Board of Directors is required under the MGCL to
set, subject to the provisions of the Charter regarding the restriction on
transfer of capital stock, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such class or series. Thus, the Board of Directors could authorize the
issuance of preferred shares or other capital stock with terms and conditions
which could have the effect of delaying, deferring or preventing a transaction
or a change in control of Host REIT that might involve a premium price for
holders of Common Shares or otherwise be in their best interest. As of the
date hereof, no shares other than Common Shares are outstanding, but Host REIT
may issue preferred shares or other capital stock in the future, including as
a result of the issuance of preferred stock by Host prior to the REIT
Conversion. Although the Board of Directors has no intention at the present
time of doing so (other than in connection with the proposed Shareholders
Rights Plan), it could authorize Host REIT to issue a class or series of
shares that could, depending upon the terms of such class or series, delay,
defer or prevent a transaction or a change in control of Host REIT that might
involve a premium price for holders of Common Shares or otherwise be in their
best interest.     
 
POWER TO ISSUE ADDITIONAL COMMON SHARES AND PREFERRED SHARES
 
  Host REIT believes that the power of the Board of Directors to issue
additional authorized but unissued Common Shares or preferred shares and to
classify or reclassify unissued Common Shares or preferred shares and
thereafter to cause Host REIT to issue such classified or reclassified shares
of capital stock in one or more classes or series will provide Host REIT with
increased flexibility in structuring possible future financings and
acquisitions and in meeting other needs which might arise. The additional
classes or series, as well as the Common Shares, will be available for
issuance without further action by Host REIT's shareholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which Host REIT's securities may be listed or
traded.
 
RESTRICTIONS ON OWNERSHIP AND TRANSFER
 
  For Host REIT to qualify as a REIT under the Code, no more than 50% in value
of its outstanding shares of stock may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code to include
 
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<PAGE>
 
certain entities) during the last half of a taxable year (other than the first
year for which an election to be treated as a REIT has been made) or during a
proportionate part of a shorter taxable year. In addition, if Host REIT, or
one or more owners (actually or constructively) of 10% or more of Host REIT,
actually or constructively owns 10% or more of a tenant of Host REIT (or a
tenant of any partnership in which Host REIT is a partner), the rent received
by Host REIT (either directly or through any such partnership) from such
tenant will not be qualifying income for purposes of the REIT gross income
tests of the Code. A REIT's shares also must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of twelve months or
during a proportionate part of a shorter taxable year (other than the first
year for which an election to be treated as a REIT has been made).
 
  Primarily because the Board of Directors believes it is desirable for Host
REIT to qualify as a REIT, the Charter, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than (i) 9.8% of the lesser of the
number or value of Common Shares outstanding (subject to an exception for
Common Shares held prior to the REIT Conversion so long as the holder thereof
would not own more than 9.9% in value of the outstanding shares of capital
stock of Host REIT) or (ii) 9.8% of the lesser of the number or value of the
issued and outstanding preferred or other shares of any class or series of
Host REIT (the "Ownership Limit"). The Ownership Limitation prohibits Marriott
International and its subsidiaries and affiliates (including members of the
Marriott family) from collectively owning shares of capital stock in excess of
the Ownership Limit, but Host REIT's Board of Directors intends to grant an
exception (pursuant to the applicable provisions of the Charter) that would
permit Marriott International to exercise its right to purchase up to 20% of
each class of Host REIT's voting stock in connection with a change in control
of Host REIT (but only in the event that (i) Marriott International and its
subsidiaries and affiliates (including members of the Marriott family) do not
own at such time or thereafter, directly and by attribution, 10% or more of
Crestline or any of the Lessees and (ii) such ownership of Host REIT shares
would not cause the Operating Partnership to be considered to own, directly or
by attribution, 10% or more of Crestline or any of the Lessees). See "Certain
Relationships and Related Transactions--Relationship Between Host and Marriott
International." The ownership attribution rules under the Code are complex and
may cause Common Shares owned actually or constructively by a group of related
individuals and/or entities to be owned constructively by one individual or
entity. As a result, the acquisition or ownership of less than 9.8% of the
Common Shares (or the acquisition or ownership of an interest in an entity
that owns, actually or constructively, Common Shares) by an individual or
entity could, nevertheless, cause that individual or entity, or another
individual or entity, to own constructively in excess of 9.8% of the
outstanding Common Shares and thus subject such Common Shares to the Ownership
Limit. The Board of Directors may grant an exemption from the Ownership Limit
with respect to one or more persons who would not be treated as "individuals"
for purposes of the Code if it is satisfied, based upon an opinion of counsel
and such other evidence as is satisfactory to the Board of Directors in its
sole discretion, that such ownership will not cause a person who is an
individual to be treated as owning Common Shares in excess of the Ownership
Limit, applying the applicable constructive ownership rules, and will not
otherwise jeopardize Host REIT's status as a REIT (for example, by causing any
tenant of the Operating Partnership or the Partnerships (including but not
limited to Crestline and the Lessees) to be considered a "related party
tenant" for purposes of the REIT qualification rules). As a condition of such
waiver, the Board of Directors may require undertakings or representations
from the applicant with respect to preserving the REIT status of Host REIT.
 
  The Board of Directors of Host REIT has the authority to increase the
Ownership Limit from time to time, but does not have the authority to do so to
the extent that after giving effect to such increase, five beneficial owners
of Common Shares could beneficially own in the aggregate more than 49.5% of
the outstanding Common Shares.
 
  The Charter further prohibits (i) any person from actually or constructively
owning shares of beneficial interest of Host REIT that would result in Host
REIT being "closely held" under Section 856(h) of the Code or otherwise cause
Host REIT to fail to qualify as a REIT and (ii) any person from transferring
shares of capital stock of Host REIT if such transfer would result in shares
of capital stock of Host REIT being owned by fewer than 100 persons.
 
 
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  Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of capital stock of Host REIT that will or
may violate any of the foregoing restrictions on transferability and ownership
is required to give notice immediately to Host REIT and provide Host REIT with
such other information as Host REIT may request in order to determine the
effect of such transfer on Host REIT's status as a REIT.
 
  If any purported transfer of shares of capital stock of Host REIT or any
other event would otherwise result in any person violating the Ownership Limit
or the other restrictions in the Charter, then any such purported transfer
will be void and of no force or effect with respect to the purported
transferee (the "Prohibited Transferee") as to that number of shares that
exceeds the Ownership Limit (referred to as "excess shares") and the
Prohibited Transferee shall acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to any such shares in excess of the Ownership Limit (the "Prohibited
Owner") shall cease to own any right or interest) in such excess shares. Any
such excess shares described above will be transferred automatically, by
operation of law, to a trust, the beneficiary of which will be a qualified
charitable organization selected by Host REIT (the "Beneficiary"). Such
automatic transfer shall be deemed to be effective as of the close of business
on the Business Day (as defined in the Charter) prior to the date of such
violating transfer. Within 20 days of receiving notice from Host REIT of the
transfer of shares to the trust, the trustee of the trust (who shall be
designated by Host REIT and be unaffiliated with Host REIT and any Prohibited
Transferee or Prohibited Owner) will be required to sell such excess shares to
a person or entity who could own such shares without violating the Ownership
Limit, and distribute to the Prohibited Transferee an amount equal to the
lesser of the price paid by the Prohibited Transferee for such excess shares
or the sales proceeds received by the trust for such excess shares. In the
case of any excess shares resulting from any event other than a transfer, or
from a transfer for no consideration (such as a gift), the trustee will be
required to sell such excess shares to a qualified person or entity and
distribute to the Prohibited Owner an amount equal to the lesser of the fair
market value of such excess shares as of the date of such event or the sales
proceeds received by the trust for such excess shares. In either case, any
proceeds in excess of the amount distributable to the Prohibited Transferee or
Prohibited Owner, as applicable, will be distributed to the Beneficiary. Prior
to a sale of any such excess shares by the trust, the trustee will be entitled
to receive, in trust for the Beneficiary, all dividends and other
distributions paid by Host REIT with respect to such excess shares, and also
will be entitled to exercise all voting rights with respect to such excess
shares. Subject to Maryland law, effective as of the date that such shares
have been transferred to the trust, the trustee shall have the authority (at
the trustee's sole discretion and subject to applicable law) (i) to rescind as
void any vote cast by a Prohibited Transferee prior to the discovery by Host
REIT that such shares have been transferred to the trust and (ii) to recast
such vote in accordance with the desires of the trustee acting for the benefit
of the Beneficiary. However, if Host REIT has already taken irreversible
corporate action, then the trustee shall not have the authority to rescind and
recast such vote. Any dividend or other distribution paid to the Prohibited
Transferee or Prohibited Owner (prior to the discovery by Host REIT that such
shares had been automatically transferred to a trust as described above) will
be required to be repaid to the trustee upon demand for distribution to the
Beneficiary. If the transfer to the trust as described above is not
automatically effective (for any reason) to prevent violation of the Ownership
Limit, then the Charter provides that the transfer of the excess shares will
be void.
 
  In addition, shares of capital stock of Host REIT held in the trust shall be
deemed to have been offered for sale to Host REIT, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction
that resulted in such transfer to the trust (or, in the case of a devise or
gift, the market value at the time of such devise or gift) and (ii) the market
value of such shares on the date Host REIT, or its designee, accepts such
offer. Host REIT will have the right to accept such offer until the trustee
has sold the shares held in the trust. Upon such a sale to Host REIT, the
interest of the Beneficiary in the shares sold will terminate and the trustee
will distribute the net proceeds of the sale to the Prohibited Owner.
 
  The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best
interests of Host REIT to attempt to qualify, or to continue to qualify, as a
REIT.
 
 
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<PAGE>
 
  All certificates representing shares of capital stock will bear a legend
referring to the restrictions described above.
 
  All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5% as
provided in the rules and regulations promulgated under the Code) of the
lesser of the number or value of the outstanding shares of capital stock of
Host REIT must give a written notice to the Operating Partnership within 30
days after the end of each taxable year. In addition, each shareholder will,
upon demand, be required to disclose to Host REIT in writing such information
with respect to the direct, indirect and constructive ownership of shares of
capital stock as the Board of Directors deems reasonably necessary to comply
with the provisions of the Code applicable to a REIT, to comply with the
requirements of any taxing authority or governmental agency or to determine
any such compliance.
 
  These ownership limitations could have the effect of delaying, deferring or
preventing a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares
over the then prevailing market price or which such holders might believe to
be otherwise in their best interest.
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Common Shares will be First Chicago
Trust Company of New York.
 
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<PAGE>
 
     CERTAIN PROVISIONS OF MARYLAND LAW AND HOST REIT'S CHARTER AND BYLAWS
 
  The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of Host REIT does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and the forms of
the Charter and Bylaws of Host REIT to be effective upon completion of the
merger of Host with and into Host REIT.
 
  The Charter and Bylaws of Host REIT will contain certain provisions that
could make more difficult an acquisition or change in control of Host REIT by
means of a tender offer, a proxy contest or otherwise. These provisions are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage person seeking to acquire control of
Host REIT to negotiate first with the Board of Directors. Host REIT believes
that the benefits of these provisions outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in an improvement of their terms. See also "--
Restrictions on Ownership and Transfer."
 
  NUMBER OF DIRECTORS; CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS; OTHER
PROVISIONS
 
  The Charter will provide that the Board of Directors initially will consist
of eight members and may thereafter be increased or decreased in accordance
with the Bylaws of Host REIT, provided that the total number of directors may
not be fewer than three nor more than 13. Pursuant to Host REIT's Bylaws, the
number of directors shall be fixed by the Board of Directors within the limits
set forth in the Charter. Further, the Charter will provide that the Board of
Directors will be divided into three classes of directors, with each class to
consist as nearly as possible of an equal number of directors. The term of
office of the first class of directors will expire at the 1999 annual meeting
of shareholders; the term of the second class of directors will expire at the
2000 annual meeting of shareholders; and the term of the third class of
directors will expire at the 2001 annual meeting of shareholders. At each
annual meeting of shareholders, the class of directors to be elected at such
meeting will be elected for a three-year term, and the directors in the other
two classes will continue in office. Because shareholders will have no right
to cumulative voting for the election of directors, at each annual meeting of
shareholders the holders of a majority of the outstanding Common Shares will
be able to elect all of the successors to the class of directors whose term
expires at that meeting.
 
  Host REIT's Charter also will provide that, except for any directors who may
be elected by holders of a class or series of shares of capital stock other
than the Common Shares, directors may be removed only for cause and only by
the affirmative vote of shareholders holding at least two-thirds of all the
votes entitled to be cast for the election of directors. Vacancies on the
Board of Directors may be filled by the concurring vote of a majority of the
remaining directors and, in the case of a vacancy resulting from the removal
of a director by the shareholders, by the shareholders by at least two-thirds
of all the votes entitled to be cast in the election of directors. Under
Maryland law, directors may fill any vacancy only until the next annual
meeting of shareholders. A vote of shareholders holding at least two-thirds of
all the votes entitled to be cast thereon is required to amend, alter, change,
repeal or adopt any provisions inconsistent with the foregoing classified
board and director removal provisions. These provisions may make it more
difficult and time-consuming to change majority control of the Board of
Directors of Host REIT and, thus, may reduce the vulnerability of Host REIT to
an unsolicited proposal for the takeover of Host REIT or the removal of
incumbent management.
 
  Because the Board of Directors will have the power, without a vote of
shareholders, to classify or reclassify any unissued shares of capital stock
and to establish the preferences and rights of any preferred or other class or
series of shares to be issued, the Board of Directors may afford the holders
of any class or series of senior shares of capital stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of Common
Shares. The issuance of any such senior shares of capital stock could have the
effect of delaying, deferring or preventing a change in control of Host REIT.
 
  See "Management--Limitation on Liability and Indemnification" for a
description of the limitations on liability of directors and officers of Host
REIT and the provisions for indemnification of directors and officers provided
for under applicable Maryland law and the Charter.
 
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<PAGE>
 
  CHANGES IN CONTROL PURSUANT TO MARYLAND LAW
 
  Maryland Business Combination Law.  Under the MGCL, certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any Interested Shareholder or an affiliate of the
Interested Shareholder, are prohibited for five years after the most recent
date on which the Interested Shareholder becomes an Interested Shareholder.
Thereafter, any such business combination must be approved by two super-
majority shareholder votes unless, among other conditions, the corporation's
common shareholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its common shares. The Board
of Directors of Host REIT has not opted out of the business combination
provisions of the MGCL. Consequently, the five-year prohibition and the super-
majority vote requirements will apply to a business combination involving Host
REIT; however, as permitted by the MGCL, Host REIT's Board of Directors may
elect to opt out of these provisions in the future.
 
  Maryland Control Share Acquisition Law. Under the MGCL, "control shares"
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on
the matter, excluding shares owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares which, if aggregated with all other such shares previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority or (iii)
a majority or more of all voting power. Control shares do not include shares
the acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
 
  A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of shareholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any shareholders meeting.
 
  If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
shareholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a shareholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.
 
  The control share acquisition statute does not apply to (a) shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) acquisitions approved or exempted by the charter or
bylaws of the corporation. The Board of Directors of Host REIT has not opted
out of the control share provisions of the MGCL but, as permitted by the MGCL,
may elect to opt out of these provisions in the future.
 
  ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
 
  The Bylaws of Host REIT provide that (i) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by shareholders may be made only
(A) pursuant to Host REIT's notice of meeting, (B) by the Board of Directors
or (C) by a shareholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the Bylaws and (ii)
with respect to special meetings of the shareholders, only the business
specified in Host
 
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<PAGE>
 
   
REIT's notice of meeting may be brought before the meeting of shareholders and
nominations of persons for election to the Board of Directors may be made only
(A) pursuant to Host REIT's notice of the meeting, (B) by the Board of
Directors or (C) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by a shareholder who is entitled
to vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws. The advance notice provisions contained in the Bylaws
generally require nominations and new business proposals by shareholders to be
delivered by the Secretary of Host REIT not later than the close of business
on the 60th day nor earlier than the close of business on the 90th day before
the date on which Host REIT first mailed its proxy materials for the prior
year's annual meeting of shareholders.     
 
  MEETINGS OF SHAREHOLDERS; CALL OF SPECIAL MEETINGS; SHAREHOLDER ACTION IN
LIEU OF MEETING BY UNANIMOUS CONSENT
 
  Host REIT's Bylaws provide that annual meetings of shareholders shall be
held on a date and at the time set by the Board of Directors during the month
of May each year (commencing in May 1999). Special meetings of the
shareholders may be called by the President or the Board of Directors. The
Secretary of Host REIT also is required to call a special meeting of the
shareholders on the written request of shareholders entitled to cast a
majority of all the votes entitled to be cast at the meeting. Pursuant to the
MGCL and Host REIT's Bylaws, any action required or permitted to be taken by
the shareholders must be effected at a duly called annual or special meeting
of shareholders and may not be effected by any consent in writing by
shareholders, unless such consent is unanimous.
 
  MERGER, CONSOLIDATION, SHARE EXCHANGE AND TRANSFER OF ASSETS OF HOST REIT
   
  Pursuant to Host REIT's Charter, subject to the terms of any class or series
of shares at the time outstanding, Host REIT may merge with or into another
entity, may consolidate with one or more other entities, may participate in a
share exchange or may transfer its assets within the meaning of the MGCL, but
any such merger, consolidation, share exchange or transfer of assets must be
approved (i) by the Board of Directors in the manner provided in the MGCL and
(ii) by shareholders to the extent required under the MGCL. In general, such
transactions by a Maryland corporation, such as Host REIT, must first be
approved by a majority of the entire Board of Directors and thereafter
approved by shareholders by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter (unless the charter provides for a
greater or lesser shareholder vote but not less than a majority of the votes
entitled to be cast on the matter). Host REIT's Charter generally provides for
shareholder approval of such transactions by a two-thirds vote of all votes
entitled to be cast, except that any merger of Host REIT with or into a trust
organized for the purpose of changing Host REIT's form of organization from a
corporation to a trust will require the approval of shareholders of Host REIT
by the affirmative vote only of a majority of all the votes entitled to be
cast on the matter. Under the MGCL, certain mergers may be accomplished
without a vote of shareholders. For example, no shareholder vote is required
for a merger of a subsidiary of a Maryland corporation into its parent,
provided the parent owns at least 90 percent of the subsidiary. In addition, a
merger need not be approved by shareholders of a Maryland successor
corporation if the merger does not reclassify or change the outstanding shares
or otherwise amend the charter, and the number of shares to be issued or
delivered in the merger is not more than 20% of the number of its shares of
the same class or series outstanding immediately before the merger becomes
effective. A share exchange need be approved by a Maryland successor only by
its Board of Directors. Under the MGCL, a "transfer of assets" is defined to
mean any sale, lease, exchange or other transfer of all or substantially all
of the assets of the corporation but does not include (i) a transfer of assets
by a corporation in the ordinary course of business actually conducted by it,
(ii) a mortgage, pledge or creation of any other security interest in any or
all of the assets of the corporation, whether or not in the ordinary course of
its business, (iii) an exchange of shares of stock through voluntary action
under any agreement with the shareholders or (iv) a transfer of assets to one
or more persons if all the equity interests of the person or persons are
owned, directly or indirectly, by the corporation. Pursuant to the MGCL, a
voluntary dissolution of Host REIT also would require the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter.     
 
 
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<PAGE>
 
       
  AMENDMENTS TO HOST REIT'S CHARTER AND BYLAWS
   
  Under the MGCL, in order to amend the charter, the board of directors first
must adopt a resolution setting forth the proposed amendment and declaring its
advisability and direct that the proposed amendment be submitted to
shareholders for their consideration either at an annual or special meeting of
shareholders. Thereafter, the proposed amendment must be approved by
shareholders by the affirmative vote of two-thirds of all the votes entitled
to be cast on the matter, unless a greater or lesser proportion of votes (but
not less than a majority of all votes entitled to be cast) is specified in the
charter. The provisions contained in Host REIT's Charter relating to
restrictions on transferability of the Common Shares, the classified Board and
fixing the size of the Board within the range set forth in the Charter, as
well as the provisions relating to removal of directors and the filling of
Board vacancies may be amended only by a resolution adopted by the Board of
Directors and approved at an annual or special meeting of the shareholders by
the affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast on the matter. Other amendments to the Charter generally
may be effected by requisite action of the Board of Directors and approval by
shareholders by the affirmative vote of not less than a majority of the votes
entitled to be cast on the matter. As permitted under the MGCL, the Bylaws of
Host REIT provide that directors have the exclusive right to amend the Bylaws.
Amendment of this provision of the Charter also would require Board action and
approval by holders of not less than two-thirds of all votes entitled to be
cast on the matter.     
 
  ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND HOST REIT'S
CHARTER AND BYLAWS
 
  The business combination and control share provisions of the MGCL, the
provisions of the Charter on the classification of the Board of Directors,
fixing the size of the Board of Directors within a specified range and removal
of directors, the provisions authorizing the Board of Directors, without a
vote of shareholders, to classify or reclassify any unissued shares into one
or more classes or series, the provisions relating to mergers, consolidations,
share exchanges and transfers of assets, the provisions for amending certain
provisions of the Charter and for amending the Bylaws, the advance notice
provisions of the Bylaws and the limitations on the ability of shareholders to
call special meetings, could delay, defer or prevent a transaction or a change
of control of Host REIT that might involve a premium price for holders of
Common Shares or otherwise be in their best interests. The share transfer
restrictions that will be contained in the Charter, which are intended to help
Host REIT satisfy certain requirements under the Code to qualify as a REIT for
federal income tax purposes, could also delay, defer or prevent a transaction
or a change of control of Host REIT that might involve a premium price for
holders of Common Shares or otherwise be in their best interests.
 
  MARRIOTT INTERNATIONAL PURCHASE RIGHT
 
  In connection with Host's spinoff of Marriott International in 1993,
Marriott International obtained the Marriott International Purchase Right
which entitles Marriott to purchase up to 20% of each class of Host's
outstanding voting shares at the then fair market value upon the occurrence of
certain change of control events involving Host. The Marriott International
Purchase Right will continue in effect after the Mergers (until June 2017),
subject to certain limitations intended to help protect the REIT status of
Host REIT. The Marriott International Purchase Right may have the effect of
discouraging a takeover of Host REIT, because any person considering acquiring
a substantial or controlling block of Host REIT Common Shares will face the
possibility that its ability to obtain or exercise control would be impaired
or made more expensive by the exercise of the Marriott International Purchase
Right.
 
  SHAREHOLDER RIGHTS PLAN
 
  Host currently has in effect a stockholder rights plan, and it has preferred
stock purchase rights attached to its common stock pursuant to such rights
plan. Prior to the completion of the merger of Host with and into Host REIT,
the Board of Directors intends to adopt a Shareholder Rights Plan ("Rights
Agreement") to replace the existing Host plan and declare a dividend of one
preferred share purchase right (a "Right") for each outstanding Common Share.
All Common Shares issued by Host REIT between the date of adoption of the
Rights Agreement
 
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<PAGE>
 
and the Distribution Date (as defined below), or the date, if any, on which
the Rights are redeemed would have Rights attached to them. It is expected
that the Rights will expire ten years after adoption of the Rights Agreement,
unless earlier redeemed or exchanged. Each Right, when exercisable, would
entitle the holder to purchase a fraction of a share of a newly created series
of junior participating preferred shares. Until a Right is exercised, the
holder thereof, as such, would have no rights as a shareholder of Host REIT
including, without limitation, the right to vote or to receive dividends.
 
  The Rights Agreement is expected to provide that the Rights initially attach
to all certificates representing Common Shares then outstanding. The Rights
would separate from the Common Shares and a distribution of Rights
certificates would occur (a "Distribution Date") upon the earlier to occur of
(i) ten days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding Common Shares (the "Share Acquisition Date") or (ii) ten business
days (or such later date as the Board of Directors may determine) following
the commencement of a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a person of 20% or more of
the outstanding Common Shares. Until the Distribution Date, the Rights would
be evidenced by the Common Share certificates, and would be transferred with,
and only with, the Common Share certificates.
 
  It is expected that, if a Person becomes the beneficial owner of 20% or more
of the then outstanding Common Shares (except pursuant to an offer for all
outstanding Common Shares which the directors by a two-thirds vote determine
to be fair to and otherwise in the best interests of Host REIT and its
shareholders), each holder of a Right would, after the end of a redemption
period, have the right (subject to the Ownership Limit and the other ownership
restrictions contained in the Charter) to exercise the Right by purchasing
Common Shares (or, in certain circumstances, cash, property or other
securities of Host REIT) having a value equal to two times such amount.
 
  If at any time following the Share Acquisition Date, (i) Host REIT is
acquired in a merger or other business combination transaction in which it is
not the surviving corporation (other than a merger which follows an offer
described in the preceding paragraph) or (ii) 50% or more of Host REIT's
assets or earning power is sold or transferred, each holder of a Right would
have the right to receive, upon exercise, common shares of the acquiring
company having a value equal to two times the purchase price of the Right.
 
  It is expected that, in general, the Board of Directors of Host REIT may
redeem the Rights at a nominal price per Right at any time until ten days
after an Acquiring Person has been identified as such. If the decision to
redeem the Rights occurs after a person becomes an Acquiring Person, the
decision will require the concurrence of directors by a two-thirds vote.
 
  The Rights would have certain anti-takeover effects. The Rights would cause
substantial dilution to a person or group that attempts to acquire Host REIT.
The Rights, however, would not interfere with any merger or other business
combination approved by the Board of Directors since the Board may, at its
option, at any time prior to any person becoming an Acquiring Person, redeem
all rights or amend the Rights Agreement to exempt the person from the Rights
Agreement.
 
 
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<PAGE>

                           DESCRIPTION OF THE NOTES
 
  The Notes will be issued under the Indenture between the Operating
Partnership and Marine Midland Bank, as trustee (the "Indenture Trustee"). A
copy of the form of Indenture is filed as an exhibit to the Registration
Statement of which this Consent Solicitation is a part. The terms of the Notes
include those provisions contained in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders
of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to and qualified in
its entirety by reference to the Indenture. As used in this section, the term
"Operating Partnership" means Host Marriott, L.P. and not any of its
Subsidiaries, unless otherwise expressly stated or the context otherwise
requires.
 
GENERAL
   
  A separate series of Notes will be issued to Limited Partners of each
Partnership who elect to receive Notes in exchange for the OP Units received
in connection with the Mergers. The terms of each series of Notes will be
substantially identical. The Notes will be direct, senior unsecured and
unsubordinated obligations of the Operating Partnership and will rank pari
passu with each other and with all other unsecured and unsubordinated
indebtedness of the Operating Partnership from time to time outstanding. The
Notes will be recourse obligations of the Operating Partnership, but the
holders thereof will not have recourse against any partner of the Operating
Partnership (including Host REIT, as general partner of the Operating
Partnership). The Notes will be effectively subordinated to mortgages and
other secured indebtedness of the Operating Partnership to the extent of the
value of the property securing such indebtedness. The Notes also will be
effectively subordinated to all existing and future third party indebtedness
and other liabilities of the Operating Partnership's Subsidiaries (including
the Partnerships). As of June 19, 1998, on a pro forma basis assuming the Full
Participation Scenario, the Operating Partnership and its Subsidiaries would
have had aggregate consolidated debt of approximately $5.6 billion (including
$567 million of debentures relating to the Convertible Preferred Securities),
to which the Notes were effectively subordinated or which ranked equal with
such Notes.     
   
  The Notes will mature on December 15, 2005 (the "Maturity Date"), which is
approximately seven years following the currently expected Effective Date. The
Notes are not subject to any sinking fund provisions, although the Operating
Partnership is required to make mandatory prepayments of principal in certain
events. See "--Principal and Interest."     
 
  Except as described under "--Limitation on Incurrence of Debt" and "--
Merger, Consolidation or Sale," the Indenture does not contain any other
provisions that would limit the ability of the Operating Partnership or any of
its Subsidiaries to incur indebtedness or that would afford Holders (as
defined below) of the Notes protection in the event of (i) a highly leveraged
or similar transaction involving the Operating Partnership, the management of
the Operating Partnership or Host REIT, or any subsidiary of any of them, (ii)
a change of control of the Operating Partnership or Host REIT or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the Holders of the Notes. In
addition, subject to the limitations set forth under "--Merger, Consolidation
or Sale," the Operating Partnership may, in the future, enter into certain
transactions such as the sale of all or substantially all of its assets or the
merger or consolidation of the Operating Partnership that would increase the
amount of the Operating Partnership's indebtedness or substantially reduce or
eliminate the Operating Partnership's assets, which may have an adverse effect
on the Operating Partnership's ability to service its indebtedness, including
the Notes. The Operating Partnership and its management have no present
intention of engaging in a highly leveraged or similar transaction involving
the Operating Partnership.
 
  The Notes will be issued in fully registered form.
 
PRINCIPAL AND INTEREST
 
  The principal amount of the Notes with respect to each Partnership will be
equal to the Note Election Amount for such Partnership, which will be equal to
the Liquidation Value or, if greater, 80% of the Exchange Value for such
Partnership.
 
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<PAGE>
 
  The Notes will bear interest at a fixed rate of interest equal to 6.56% per
annum, which was determined based on 120% of the applicable federal rate as of
the Record Date. Interest will accrue from the closing of the Mergers or from
the immediately preceding Interest Payment Date (as defined below) to which
interest has been paid, payable semi-annually in arrears on each June 15 and
December 15, commencing June 15, 1999 (each, an "Interest Payment Date"), and
on the Maturity Date, to the persons (the "Holders") in whose names the Notes
are registered in the security register for the Notes at the close of business
on the date 14 calendar days prior to such payment day regardless of whether
such day is a Business Day, as defined in the Indenture. Interest on the Notes
will be computed on the basis of a 360-day year of twelve 30-day months.
 
  The principal of each Note payable on the Maturity Date will be paid against
presentation and surrender of such Note at an office or agency maintained by
the Operating Partnership in New York City (the "Paying Agent") in United
States dollars. Initially, the Indenture Trustee will act as Paying Agent.
 
REDEMPTION
 
  The Notes of any series may be redeemed at any time at the option of the
Operating Partnership, in whole or from time to time in part, at a redemption
price equal to the sum of the principal amount of the Notes being redeemed
plus accrued interest thereon to the redemption date (the "Redemption Price").
 
  In the event that, following the closing of the Mergers, any Partnership (i)
sells or otherwise disposes of any Hotel owned by the Partnership immediately
prior to the Merger and realizes net cash proceeds in excess of (a) the amount
required to repay mortgage indebtedness (outstanding immediately prior to the
Mergers) secured by such Hotel or otherwise required to be applied to the
reduction of indebtedness of such Partnership and (b) the costs incurred by
the Partnership in connection with such sale or other disposition or (ii)
refinances (whether at maturity or otherwise) any indebtedness secured by any
Hotel owned by the Partnership immediately prior to the Merger and realizes
net cash proceeds in excess of (a) the amount of indebtedness secured by such
Hotel at the time of the Mergers, calculated prior to any repayment or other
reduction in the amount of such indebtedness in the Mergers and (b) the costs
incurred by the Operating Partnership or such Partnership in connection with
such refinancing (in either case, "Net Cash Proceeds"), the Operating
Partnership will be required within 90 days of the receipt of the total Net
Cash Proceeds to redeem at the Redemption Price an aggregate amount of
principal of the particular series of the Notes which were issued to the
Holders who were partners of such Partnership prior to the REIT Conversion
equal to 80% of such Net Cash Proceeds.
   
  If the paying agent (other than the Operating Partnership, any of its
Subsidiaries or an affiliate thereof) holds on the redemption date of any
Notes money sufficient to pay such Notes, then on and after that date such
Notes will cease to be outstanding and interest on them will cease to accrue.
    
  Notice of any optional or mandatory redemption of any Notes will be given to
Holders at their addresses, as shown in the security register for the Notes,
not more than 60 nor less than 30 days prior to the date fixed for redemption.
The notice of redemption will specify, among other items, the Redemption Price
and the principal amount of the Notes held by such Holder to be redeemed.
 
  If less than all the Notes of any series are to be redeemed, the Indenture
Trustee shall select, in such manner as it shall deem fair and appropriate,
the Notes to be redeemed in whole or in part.
 

LIMITATION ON INCURRENCE OF INDEBTEDNESS
 
  The Operating Partnership will not, and will not permit any of its
Subsidiaries to, incur any indebtedness (including acquired indebtedness)
other than intercompany indebtedness (representing indebtedness to which the
only parties are the Operating Partnership, Host REIT and/or any of their
subsidiaries, but only so long as such indebtedness is held solely by any of
such parties) that is subordinate in right of payment to the Notes, if
immediately after giving effect to the incurrence of such indebtedness, the
aggregate principal amount of all outstanding indebtedness of the Operating
Partnership and its Subsidiaries on a consolidated basis, determined in
accordance with GAAP, is greater than 75% of the Operating Partnership's Total
Assets.
 
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<PAGE>
 
  As used in the Indenture and the description thereof herein:
 
    "Subsidiary" means (i) a corporation, partnership, limited liability
  company, trust, REIT or other entity a majority of the voting power of the
  voting equity securities of which are owned, directly or indirectly, by the
  Operating Partnership or by one or more Subsidiaries of the Operating
  Partnership, (ii) a partnership, limited liability company, trust, REIT or
  other entity not treated as a corporation for federal income tax purposes,
  a majority of the equity interests of which are owned, directly or
  indirectly, by the Operating Partnership or a Subsidiary of the Operating
  Partnership or (iii) one or more corporations which, either individually or
  in the aggregate, would be Significant Subsidiaries (as defined below,
  except that the investment, asset and equity thresholds for purposes of
  this definition shall be 5%), the majority of the value of the equity
  interests of which are owned, directly or indirectly, by the Operating
  Partnership or by one or more Subsidiaries.
 
    "Total Assets" means the sum of (i) Undepreciated Real Estate Assets and
  (ii) all other assets (excluding intangibles) of the Operating Partnership
  and its Subsidiaries determined on a consolidated basis (it being
  understood that the accounts of Subsidiaries shall be consolidated with
  those of the Operating Partnership only to the extent of the Operating
  Partnership's proportionate interest therein).
 
    "Undepreciated Real Estate Assets" means, as of any date, the cost (being
  the original cost to the Operating Partnership or any of its Subsidiaries
  plus capital improvements) of real estate assets of the Operating
  Partnership and its Subsidiaries on such date, before depreciation and
  amortization of such real estate assets, determined on a consolidated basis
  (it being understood that the accounts of Subsidiaries shall be
  consolidated with those of the Operating Partnership only to the extent of
  the Operating Partnership's proportionate interest therein).
 
MERGER, CONSOLIDATION OR SALE
 
  The Operating Partnership will not merge or consolidate with or into, or
sell, lease, convey, transfer or otherwise dispose of all or substantially all
of its property and assets (as an entirety or substantially as an entirety in
one transaction or a series of related transactions) to any individual,
corporation, limited liability company, partnership, joint venture,
association, joint stock company, trust, REIT, unincorporated organization or
government or any agency or political subdivision thereof (any such entity, a
"Person"), or permit any Person to merge with or into the Operating
Partnership, unless: (i) either the Operating Partnership shall be the
continuing Person or the Person (if other than the Operating Partnership)
formed by such consolidation or into which the Operating Partnership is merged
or that acquired such property and assets of the Operating Partnership shall
be an entity organized and validly existing under the laws of the United
States of America or any state or jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Indenture
Trustee, all of the obligations of the Operating Partnership, on the Notes and
under the Indenture; (ii) immediately after giving effect, on a pro forma
basis, to such transaction, no Default or Event of Default shall have occurred
and be continuing; and (iii) the Operating Partnership will have delivered to
the Indenture Trustee an officers' certificate and an opinion of counsel, in
each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with such conditions.
 
EVENTS OF DEFAULT, NOTICE AND WAIVER
 
  The following events are "Events of Default" with respect to the Notes of
any series: (i) default for 30 days in the payment of any installment of
interest on any Note of such series; (ii) default in the payment of the
principal of any Note when due and payable at maturity, redemption, by
acceleration or otherwise; (iii) default in the payment of any mandatory
redemption of principal on or before the date 90 days after the receipt of the
total Net Cash Proceeds from the applicable sale or other disposition or
refinancing of a Hotel giving rise to the obligation to make such redemption;
(iv) default in the performance of any other covenant or agreement of the
Operating Partnership contained in the Indenture, such default having
continued for 60 days after written notice as provided in the Indenture; and
(v) certain events of bankruptcy, insolvency or reorganization, or court
 
                                      203

<PAGE>
 
appointment of a receiver, liquidator, assignee or trustee of the Operating
Partnership or any Significant Subsidiary or any of their respective property.
The term "Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Operating Partnership (as defined by Regulation S-X
promulgated under the Securities Act).
 
  If an Event of Default under the Indenture occurs and is continuing, then in
every such case other than a bankruptcy-related Event of Default as described
in (v) above, in which case the principal amount of the Notes shall ipso facto
become immediately due and payable, the Indenture Trustee or the Holders of
not less than 25% in principal amount of the outstanding Notes of any series
may declare the principal amount of all of the Notes of any series to be due
and payable immediately by written notice thereof to the Operating Partnership
(and to the Indenture Trustee if given by the Holders). However, at any time
after such a declaration of acceleration with respect to any series of Notes
has been made, but before a judgment or decree for payment of the money due
has been obtained by the Indenture Trustee, the Holders of not less than a
majority of the principal amount of outstanding Notes of any series may
rescind and annul such declaration and its consequences if (i) the Operating
Partnership shall have paid or deposited with the Indenture Trustee all
required payments of the principal of and interest on the Notes of any series,
plus certain fees, expenses, disbursements and advances of the Indenture
Trustee and (ii) all Events of Default, other than the nonpayment of
accelerated principal of (or specified portion thereof) and interest on the
Notes have been cured or waived. The Indenture provides that the Holders of
not less than a majority of the principal amount of the outstanding Notes of a
series may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of or
interest on any Note or (y) in respect of a covenant or provision contained in
the Indenture that cannot be modified or amended without the consent of the
Holder of each outstanding Note affected thereby.
 
  The Indenture Trustee will be required to give notice to the Holders of
Notes within 90 days of a default under the Indenture unless such default has
been cured or waived; provided, however, that the Indenture Trustee may
withhold notice to the Holders of any default (except a default in the payment
of the principal of or interest on any Note or in the payment of any mandatory
redemption installment in respect of any Note) if specified Responsible
Officers (as defined in the Indenture) of the Indenture Trustee determine in
good faith such withholding to be in the interest of such Holders.
 
  The Indenture provides that no Holders of Notes may institute any
proceeding, judicial or otherwise, with respect to the Indenture or for the
appointment of a receiver or trustee, or for any other remedy thereunder,
except in the case of failure of the Indenture Trustee, for 60 days, to act
after it has received a written request to institute proceedings in respect of
an Event of Default from the Holders of not less than 25% in principal amount
of the outstanding Notes, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any Holder of
Notes from instituting suit for the enforcement of payment of the principal of
and interest on such Notes at the respective due dates thereof.
 
  Subject to provisions in the Indenture relating to its duties in case of
default, the Indenture Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
Holders of any outstanding Notes under the Indenture, unless such Holders
shall have offered to the Indenture Trustee thereunder reasonable security or
indemnity. The Holders of not less than a majority in principal amount of the
outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee,
or of exercising any trust or power conferred upon the Indenture Trustee.
However, the Indenture Trustee may refuse to follow any direction which is in
conflict with any law or the Indenture, which may involve the Indenture
Trustee if the Indenture Trustee in good faith determines that the proceeding
will involve the Indenture Trustee in personal liability or which may be
unduly prejudicial to the Holders of Notes of such series not joining therein.
 
  Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Indenture Trustee a certificate, signed by one
of several specified officers of Host REIT, stating whether or not such
officer has knowledge of any default under the Indenture and, if so,
specifying each such default and the nature and status thereof.
 
 
                                      204

<PAGE>
 
MODIFICATION OF THE INDENTURE
 
  Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership and the Indenture Trustee without the consent of
any Holder of Notes for any of the following purposes: (i) to cure any
ambiguity, defect or inconsistency in the Indenture; (ii) to evidence the
succession of another Person to the Operating Partnership as obligor under the
Indenture; (iii) to permit or facilitate the issuance of the Notes in
uncertificated form; (iv) to make any change that does not adversely affect
the rights of any Holder of Notes; (v) to provide for the issuance of and
establish the form and terms and conditions of the Notes of any series as
permitted by the Indenture; (vi) to add to the covenants of the Operating
Partnership or to add Events of Default for the benefit of Holders or to
surrender any right or power conferred upon the Operating Partnership in the
Indenture; (vii) to evidence and provide for the acceptance of appointment by
a successor Indenture Trustee or facilitate the administration of the trusts
under the Indenture by more than one Indenture Trustee; (viii) to provide for
guarantors or collateral for the Notes of any series; or (xi) to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
 
  Modifications and amendments of the Indenture, other than those described
above, will be permitted to be made only with the consent of the Holders of
not less than a majority in principal amount of all outstanding Notes which
are affected by such modification or amendment; provided, however, that no
such modification or amendment may, without the consent of each Holder of such
Note affected thereby, (i) change the stated maturity of the principal of, or
any installment of interest on, any such Note; (ii) reduce the principal
amount of or interest on any such Note, (iii) change the place of payment, or
the coin or currency, for the payment of principal of or interest on any such
Note; (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Note; (v) waive a default in the
payment of principal of or interest on the Notes (other than a recission of
acceleration of the Notes of any series and a waiver of the payment default
that resulted from such acceleration, as provided in the Indenture); or (vi)
reduce the percentages of outstanding Notes of any series necessary to modify
or amend the Indenture or to waive compliance with certain provisions thereof
or certain defaults and consequences.
 
  The Indenture provides that the Holders of not less than a majority in
principal amount of outstanding Notes have the right to waive compliance by
the Operating Partnership with certain covenants in the Indenture.
 
SATISFACTION AND DISCHARGE
 
  The Operating Partnership may discharge certain obligations to Holders of
Notes that have not already been delivered to the Indenture Trustee for
cancellation and that either have become due and payable or will become due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Indenture Trustee, in trust, funds in an
amount sufficient to pay the entire indebtedness on such Notes in respect of
principal and interest to the date of such deposit (if such Notes have become
due and payable) or to the stated maturity or redemption date, as the case may
be, and delivering to the Indenture Trustee an officers' certificate and a
legal opinion stating that the conditions precedent to such discharge have
been complied with.
 
NO CONVERSION RIGHTS
 
  The Notes will not be convertible into or exchangeable for any capital stock
of Host REIT or equity interest in the Operating Partnership.
 
GOVERNING LAW
 
  The Indenture will be governed by and shall be construed in accordance with
the laws of the State of New York.
 
                                      205

<PAGE>
 
                    COMPARISON OF OWNERSHIP OF PARTNERSHIP
                     INTERESTS, OP UNITS AND COMMON SHARES
   
  The information below highlights a number of the significant differences
between the Partnerships, the Operating Partnership and Host REIT relating to,
among other things, form of organization, investment objectives, policies and
restrictions, asset diversification, capitalization, management structure,
compensation and fees and investor rights, and compares certain legal rights
associated with the ownership of Partnership Interests, OP Units and Common
Shares, respectively. These comparisons are intended to assist Limited
Partners in understanding how their investments will be changed if, as a
result of the Mergers and the REIT Conversion, their Partnership Interests are
exchanged for OP Units, which are exchangeable with Host REIT for Host REIT
Common Shares if timely and properly elected during the Election Period or, if
retained, are redeemable at the option of the holder thereof beginning one
year after the Mergers, for either Common Shares or the cash equivalent
thereof, at the option of Host REIT. THIS DISCUSSION IS SUMMARY IN NATURE AND
DOES NOT CONSTITUTE A COMPLETE DISCUSSION OF THESE MATTERS. LIMITED PARTNERS
SHOULD CAREFULLY REVIEW THE BALANCE OF THIS CONSENT SOLICITATION FOR
ADDITIONAL IMPORTANT INFORMATION.     
 
      PARTNERSHIPS           OPERATING PARTNERSHIP            HOST REIT
- -------------------------------------------------------------------------------
 
                       FORM OF ORGANIZATION AND PURPOSE
 
                                                     
All of the Partnerships    The Operating Partner-     Host REIT is a Maryland
are Delaware limited       ship is a Delaware lim-    corporation and will be
partnerships, except for   ited partnership. Fol-     the sole general partner
Chicago Suites, which is   lowing the Mergers, the    of the Operating Part-
a Rhode Island limited     Operating Partnership      nership. Host REIT will
partnership. The General   will succeed to the own-   make an election to be
Partner of each Partner-   ership of the Partici-     taxed as a REIT under
ship is Host or a direct   pating Partnerships        the Code and intends to
or indirect wholly owned   through wholly owned       maintain its qualifica-
subsidiary of Host. The    subsidiaries. The sole     tion as a REIT. Host
purpose of each Partner-   general partner of the     REIT's only significant
ship, other than Atlanta   Ope