AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998
REGISTRATION NO. 333-55807
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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)
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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
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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. [_]
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.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation 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 (a) any present or former director or officer or (b) 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
Articles of Incorporation and Bylaws also permit Host REIT to indemnify and
advance expenses to any person who served 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. Host REIT will 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 Maryland law, Host REIT may not indemnify a director or officer
in a suit by or in the right of the corporation if such director or officer
has been adjudged to be liable to the corporation. The Bylaws of Host REIT
require it, as a condition to advancing expenses, to obtain (a) 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 (b) 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
PAGE
----
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Financial Statement Sched-
ules.................................................................... S-1
Schedule III--Real Estate and Accumulated Depreciation................... S-2
II-1
EXHIBITS
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2.1* --Form of Agreement and Plan of Merger between the Partnerships and
the Merger Partnerships
3.1* --Form of Second Amended and Restated Agreement of Limited
Partnership of Host Marriott, L.P.
3.2* --Amended and Restated Agreement of Limited Partnership dated
December 31, 1997 of Atlanta Marriott Marquis II Limited
Partnership (incorporated by reference to Exhibit 2.a. of Atlanta
Marquis Limited Partnership's Form 10-K for the year ended December
31, 1997)
3.3* --Amended and Restated Agreement of Limited Partnership dated June
12, 1989, of Mutual Benefit Chicago Marriott Suite Hotel Partners,
L.P. (incorporated by reference to Exhibit 3.1 of Mutual Benefit
Chicago Marriott Suite Hotel Partners, L.P.'s Form 10 filed June
12, 1998)
3.4* --Second Amended and Restated Agreement of Limited Partnership dated
September 26, 1997 of Desert Springs Marriott Limited Partnership
(incorporated by reference to Exhibit 3.2 of Desert Springs Limited
Partnership's Form 10-Q for the quarter ended September 30, 1997)
3.5* --Second Amended and Restated Agreement of Limited Partnership dated
April 3, 1997 of Hanover Marriott Limited Partnership (incorporated
by reference to Exhibit 3(a) of Hanover Marriott Limited
Partnership's Form 10 filed June 12, 1998)
3.6* --Amended and Restated Agreement of Limited Partnership dated
February 7, 1990 of Marriott Diversified American Hotels, L.P.
(incorporated by reference to Exhibit 3(a) of Marriott Diversified
American Hotels, L.P.'s Form 10 filed June 12, 1998)
3.7* --Amended and Restated Agreement of Limited Partnership dated
November 27, 1985 of Marriott Hotel Properties Limited Partnership
(incorporated by reference to Exhibit 3.1 of Marriott Hotel
Properties Limited Partnership's Form 10 dated September 29, 1986)
3.8* --Amended and Restated Agreement of Limited Partnership dated June
14, 1996 of Marriott Hotel Properties II Limited Partnership
(incorporated by reference to Exhibit 3.1 of Marriott Hotel
Properties II Limited Partnership's Form 10-K for the year ended
December 31, 1996)
3.9* --Amended and Restated Agreement of Limited Partnership dated July
16, 1982 of Potomac Hotel Limited Partnership (incorporated by
reference to Exhibit 3 of Potomac Hotel Limited Partnership's Form
10-K for the year ended December 31, 1994)
3.10* --Certificate of Incorporation dated April 15, 1998 of HMC Real
Estate Corporation, the general partner of Host Marriott, L.P.
3.11* --Bylaws dated April 15, 1998 of HMC Real Estate Corporation, the
general partner of Host Marriott, L.P.
3.12* --Articles of Incorporation of HMC Merger Corporation (to be renamed
Host Marriott Corporation in connection with the REIT Conversion),
dated September 28, 1998.
3.13* --Form of Articles of Amendment and Restatement of Articles of
Incorporation of HMC Merger Corporation (to be renamed Host
Marriott Corporation in connection with the REIT Conversion)
3.14* --Bylaws of HMC Merger Corporation (to be renamed Host Marriott
Corporation in connection with the REIT Conversion), dated
September 28, 1998
3.15* --Form of Amendments to Amended and Restated Agreements of Limited
Partnership of the Partnerships
3.16* --Certificate of Formation dated July 28, 1998 of HMC Real Estate
LLC, the general partner of Host Marriott, L.P.
3.17* --Operating Agreement of HMC Real Estate LLC, the general partner of
Host Marriott, L.P.
4.1* --Form of Indenture between Host Marriott, L.P., as Issuer, and
Marine Midland Bank, as Indenture Trustee, and Form of 6.56%
Callable Note due December 15, 2005
4.3(i)* --Rights Agreement between Marriott Corporation and the Bank of New
York as Rights Agent dated February 3, 1989 (incorporated by
reference to Host Marriott Corporation Registration Statement No.
33-62444)
4.3(ii)* --First Amendment to Rights Agreement between Marriott Corporation
and Bank of New York as Rights Agent dated as of October 8, 1993
(incorporated by reference to Host Marriott Corporation
Registration Statement No. 33-51707)
II-2
EXHIBITS
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4.4* --Indenture by and among HMC Acquisition Properties, Inc., as Issuer,
HMC SFO, Inc., as Subsidiary Guarantors, and Marine Midland Bank, as
Trustee (incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-00768)
4.5* --Indenture by and among HMH Properties, Inc., as Issuer, HMH
Courtyard Properties, Inc., HMC Retirement Properties, Inc.,
Marriott Financial Services, Inc., Marriott SBM Two Corporation, HMH
Pentagon Corporation and Host Airport Hotels, Inc., as Subsidiary
Guarantors, and Marine Midland Bank, as Trustee (incorporated by
reference to Host Marriott Corporation Registration Statement
33-95058)
4.6* --Indenture by and among HMH Properties, Inc., as Issuer, and the
Subsidiary Guarantors named therein, and Marine Midland Bank, as
Trustee (incorporated by reference to Host Marriott Corporation
Current Report on Form 8-K dated August 6, 1998)
4.7* --Form of Common Stock Certificate of HMC Merger Corporation (to be
renamed Host Marriott Corporation in connection with the REIT
Conversion)
4.8* --Indenture for the 6 3/4% Convertible Debentures, dated December 2,
1996, between Host Marriott Corporation and IBJ Schroeder Bank &
Trust Company, as Indenture Trustee (incorporated by reference to
Exhibit 4.3 of Host Marriott Corporation Registration Statement No.
333-19923)
4.9* --Amended and Restated Trust Agreement, dated December 2, 1996, among
Host Marriott Corporation, IBJ Schroeder Bank & Trust Company, as
Property Trustee, Delaware Trust Capital Management, Inc., as
Delaware Trustee, and Robert E. Parsons, Jr., Bruce D. Wardinski and
Christopher G. Townsend, as Administrative Trustees (incorporated by
reference to Exhibit 4.2 of Host Marriott Corporation Registration
Statement No. 333-19923)
4.10* --Guarantee Agreement, dated December 2, 1996, between Host Marriott
Corporation and IBJ Schroeder Bank & Trust Company, as Guarantee
Trustee (incorporated by reference to Exhibit 4.6 of Host Marriott
Corporation Registration Statement No. 333-19923)
5.1* --Opinion of Hogan & Hartson L.L.P. regarding legality of the OP
Units and the Notes being registered
5.2* --Opinion of Hogan & Hartson L.L.P. regarding legality of the Common
Shares being registered
8.1* --Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
10.1* --Amended and Restated Credit Agreement dated as of June 19, 1997 and
Amended and Restated as of August 5, 1998 among Host Marriott
Corporation, Host Marriott Hospitality, Inc., HMH Properties, Inc.,
Host Marriott, L.P., HMC Capital Resources Corp., Various Banks,
Wells Fargo Bank, National Association, The Bank of Nova Scotia and
Credit Lyonnais New York Branch, as Co-Arrangers, and Bankers Trust
Company as Arranger and Administrative Agent (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K
dated September 11, 1998)
10.2* --Marriott Corporation Executive Deferred Compensation Plan dated as
of December 6, 1990 (incorporated by reference from Exhibit 19(i) of
the Host Marriott Corporation Annual Report on Form 10-K for the
fiscal year ended December 28, 1991)
10.3* --Host Marriott Corporation 1993 Comprehensive Stock Incentive Plan
effective as of October 8, 1993 (incorporated by reference from Host
Marriott Corporation Current Report on Form 8-K dated October 23,
1993)
10.4* --Distribution Agreement dated as of September 15, 1993 between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference from Host Marriott Corporation Current Report on Form
8-K dated October 23, 1993)
10.5* --Amendment No. 1 to the Distribution Agreement dated September 15,
1993 by and among Host Marriott Corporation, Host Marriott Services
Corporation and Marriott International (incorporated by reference
from Host Marriott Corporation Current Report on Form 8-K dated
January 16, 1996)
10.6* --Distribution Agreement dated December 22, 1995 by and between Host
Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference from Host Marriott Corporation Current
Report on Form 8-K dated January 16, 1996)
10.7* --Tax Sharing Agreement dated as of October 5, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference from Host Marriott Corporation Current Report on Form
8-K dated October 23, 1993)
10.8* --Assignment and License Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference from Host Marriott Corporation Current
Report on Form 8-K dated October 23, 1993)
II-3
EXHIBITS
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10.9* --Amendment No. 1 to the Assignment and License Agreement dated as of
October 8, 1993 by and between Marriott International, Inc. and Host
Marriott Corporation (incorporated by reference from Host Marriott
Corporation Current Report on Form 8-K dated January 16, 1996)
10.10* --Tax Administration Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference from Host Marriott Corporation Current
Report on Form 8-K dated October 23, 1993)
10.11* --Noncompetition Agreement dated as of October 8, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated
by reference from Host Marriott Corporation Current Report on Form
8-K dated October 23, 1993)
10.12* --Amendment No. 1 to the Noncompetition Agreement dated October 8,
1993 by and between Host Marriott Corporation and Marriott
International, Inc. (incorporated by reference from Host Marriott
Corporation Current Report on Form 8-K dated January 16, 1996)
10.13* --Form of Noncompetition Agreement between Host Marriott Corporation,
Host Marriott, L.P. Crestline Capital Corporation and other parties
named therein
#10.14* --Host Marriott Lodging Management Agreement--Marriott Hotels,
Resorts and Hotels dated September 25, 1993 by and between Marriott
Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation Registration Statement No.
33-51707)
10.15* --Employee Benefits and Other Employment Matters Allocation Agreement
dated as of December 29, 1995 by and between Host Marriott
Corporation and Host Marriott Services Corporation (incorporated by
reference from Host Marriott Corporation Current Report on Form 8-K
dated January 16, 1996)
10.16* --Tax Sharing Agreement dated as of December 29, 1995 by and between
Host Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference from Host Marriott Corporation Current
Report on Form 8-K dated January 16, 1996)
10.17* --Marriott/Host Marriott Employees' Profit Sharing Retirement and
Savings Plan and Trust (incorporated by reference to Host Marriott
Corporation Registration Statement No. 33-62444)
10.18* --Contribution Agreement dated as of April 16, 1998 among Host
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein, together with Exhibit B
10.19* --Amendment No. 1 to Contribution Agreement dated May 8, 1998
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein
10.20* --Amendment No. 2 to Contribution Agreement dated May 18, 1998 among
Host Marriott Corporation, Host Marriott, L.P. and the contributors
named therein
#10.21* --Form of Lease
#10.22* --Form of Management Agreement for Full-Service Hotels (incorporated
by reference to Host Marriott Corporation Registration Statement No.
33-51707)
12.1* --Computation of Ratios of Earnings to Fixed Charges
21.1* --List of Subsidiaries of Host Marriott, L.P.
23.1* --Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1, Exhibit
5.2 and Exhibit 8.1)
23.2* --Consent of Arthur Andersen LLP
23.3* --Consent of American Appraisal Associates, Inc.
23.4* --Consents of Director nominees of HMC Merger Corporation (to be
renamed Host Marriott Corporation in connection with the REIT
Conversion)
25.1* --Statement of Eligibility and Qualification of Marine Midland Bank,
as Indenture Trustee (bound separately)
99.1* --Appraisal of Houston Marriott Medical Center Hotel by American
Appraisal Associates, Inc. dated March 1, 1998
99.2* --Appraisal of Seattle Marriott Hotel, Sea-Tac by American Appraisal
Associates, Inc. dated March 1, 1998
99.3* --Appraisal of Marriott's Desert Springs Resort & Spa by American
Appraisal Associates, Inc. dated March 1, 1998
II-4
EXHIBITS
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99.4* --Appraisal of Raleigh Marriott Crabtree Valley by American Appraisal
Associates, Inc. dated March 1, 1998
99.5* --Appraisal of Atlanta Marriott Marquis by American Appraisal
Associates, Inc. dated March 1, 1998
99.6* --Appraisal of Greensboro-High Point Marriott by American Appraisal
Associates, Inc. dated March 1, 1998
99.7* --Appraisal of San Ramon Marriott at Bishop Ranch by American
Appraisal Associates, Inc. dated March 1, 1998
99.8* --Appraisal of Marriott Rivercenter by American Appraisal Associates,
Inc. dated March 1, 1998
99.9* --Appraisal of New Orleans Marriott Hotel by American Appraisal
Associates, Inc. dated March 1, 1998
99.10* --Appraisal of Santa Clara Marriott by American Appraisal Associates,
Inc. dated March 1, 1998
99.11* --Appraisal of Fairview Park Marriott by American Appraisal
Associates, Inc. dated March 1, 1998
99.12* --Appraisal of Detroit Marriott Livonia Hotel by American Appraisal
Associates, Inc. dated March 1, 1998
99.13* --Appraisal of Biscayne Bay Marriott Hotel & Marina by American
Appraisal Associates, Inc. dated March 1, 1998
99.14* --Appraisal of Marriott's Mountain Shadow Resort & Golf Club by
American Appraisal Associates, Inc. dated March 1, 1998
99.15* --Appraisal of Southfield Marriott Hotel by American Appraisal
Associates, Inc. dated March 1, 1998
99.16* --Appraisal of Marriott At Research Triangle Park by American
Appraisal Associates, Inc. dated March 1, 1998
99.17* --Appraisal of Tampa Marriott Westshore by American Appraisal
Associates, Inc. dated March 1, 1998
99.18* --Appraisal of Albuquerque Marriott by American Appraisal Associates,
Inc. dated March 1, 1998
99.19* --Appraisal of Fullerton Marriott Hotel by American Appraisal
Associates, Inc. dated March 1, 1998
99.20* --Appraisal of Dayton Marriott by American Appraisal Associates, Inc.
dated March 1, 1998
99.21* --Appraisal of Marriott's Harbor Beach Resort by American Appraisal
Associates, Inc. dated March 1, 1998
99.22* --Appraisal of Marriott's Orlando World Center by American Appraisal
Associates, Inc. dated March 1, 1998
99.23* --Appraisal of Chicago Marriott Suites O'Hare by American Appraisal
Associates, Inc. dated March 1, 1998
99.24* --Appraisal of Hanover Marriott Hotel by American Appraisal
Associates, Inc. dated March 1, 1998
99.25* --Form of Fairness Opinion of American Appraisal Associates, Inc.
99.26 --Questions and Answers
99.27* --Consent Form
99.28* --OP Unit Exchange Election Form
99.29 --Letter of Transmittal
- --------
* Previously filed.
** To be filed by amendment.
# Agreement filed is illustrative of numerous other agreements to which the
Company is a party.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
II-5
The registrants undertake that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of a registrant pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
The undersigned hereby undertake to supply by means of a post-effective
amendment to Part II of the registration statement no later than 15 days prior
to the end of the Solicitation Period a copy of the signed tax opinion of
Hogan & Hartson L.L.P. with respect to qualification of HMC Merger Corporation
as a REIT and with respect to the treatment of the Operating Partnership as a
partnership for federal income tax purposes even if it were a "publicly traded
partnership" substantially in the form and to the effect of Appendix D to the
prospectus/consent solicitation statement included in the registration
statement.
II-6
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANTS HAVE
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BETHESDA, STATE OF
MARYLAND, ON OCTOBER 14, 1998.
Host Marriott, L.P.
By: HMC Real Estate LLC,
---------------------------------
AS GENERAL PARTNER OF HOST
MARRIOTT, L.P.
By: /s/ Robert E. Parsons, Jr.
-------------------------------
NAME: ROBERT E. PARSONS, JR.
TITLE: PRESIDENT
HMC Merger Corporation
By: /s/ Robert E. Parsons, Jr.
-------------------------------
NAME: ROBERT E. PARSONS, JR.
TITLE: PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert E. Parsons, Jr. President and
- ------------------------------------- Manager of HMC Real October 14, 1998
ROBERT E. PARSONS, JR. Estate LLC (Chief
Executive Officer
and Chief Financial
Officer); President
and Initial
Director of HMC
Merger Corporation
(Chief Executive
Officer and Chief
Financial Officer)
/s/ Donald D. Olinger Vice President of
- ------------------------------------- HMC Real Estate LLC October 14, 1998
DONALD D. OLINGER and HMC Merger
Corporation (Chief
Accounting Officer)
/s/ Christopher G. Townsend Vice President and
- ------------------------------------- Manager of HMC Real October 14, 1998
CHRISTOPHER G. TOWNSEND Estate LLC; Vice
President and
Initial Director of
HMC Merger
Corporation
II-7
[For all states except Florida and Texas]
QUESTIONS & ANSWERS
1. IF MY PARTNERSHIP VOTES FOR THE MERGER, WHAT WILL I RECEIVE IN EXCHANGE FOR
MY PARTNERSHIP UNIT?
If your Partnership votes to approve the Merger and the Merger is
consummated, all of the Limited Partners in your Partnership will receive
units of limited partnership interest in the Operating Partnership ("OP
Units"). Each OP Unit is intended to be the economic equivalent of a Host REIT
Common Share.
You can retain the OP Units issued to you in the Merger or make the
following elections at any time from the beginning of the solicitation period
until the 15th trading day following the closing of the Merger (the "Election
Period"):
. COMMON SHARE ELECTION: to exchange the OP Units that you would receive
in the Merger for an equal number of shares of Host REIT Common Shares,
or
. NOTE ELECTION: to exchange the OP Units that you would receive in the
Merger for a Note issued by the Operating Partnership (see the Answer to
Question 11 below).
If you elect to retain the OP Units issued to you in the Merger, you will
have the right, beginning one year after the Merger, to exchange your OP Units
at any time for either Common Shares of Host REIT, on a one-for-one basis, or
cash in an amount equal to the market value of such shares, at the election of
Host REIT (the "Unit Redemption Right").
The following table sets forth for each Partnership, on a per Partnership
Unit basis, the estimated Exchange Value for that Partnership and the
estimated dollar amount of the Note that would be issued to a Limited Partner
electing to receive a Note. (For a description of how these amounts were
determined, see the Answers to Questions 6 and 11 below).
ESTIMATED ESTIMATED PRINCIPAL
PARTNERSHIP EXCHANGE VALUE AMOUNT OF NOTE
- ----------- -------------- -------------------
Atlanta Marquis.............................. $ 45,425 $ 36,340
Chicago Suites............................... $ 33,133 $ 31,149
Desert Springs............................... $ 40,880 $ 32,704
Hanover...................................... $123,202 $ 98,562
MDAH......................................... $109,216 $ 98,343
MHP.......................................... $141,074 $124,261
MHP2......................................... $237,334 $205,140
PHLP......................................... $ 5,040 $ 4,032
The number of OP Units that you will receive in the Merger will be
determined by dividing the Exchange Value for your Partnership Interest by the
average closing price on the New York Stock Exchange for the Host REIT Common
Shares for the first 20 trading days following the Merger (but that price
would not be greater than $15.50 or less than $9.50). Your OP Units, Host REIT
Common Share or Note, as applicable, will be issued promptly after this
determination is made.
The following table sets forth for each Partnership (on a per Partnership
Unit basis) the estimated minimum number of OP Units and the estimated maximum
number of OP Units, and the number of OP Units that would be issued at the
midpoint between the minimum and maximum, each computed based upon the
estimated Exchange Values.
ESTIMATED ESTIMATED ESTIMATED
MINIMUM NUMBER OF MAXIMUM
NUMBER OF OP UNITS AT THE NUMBER OF
OP UNITS MIDPOINT(1) OP UNITS
($15.50 PER OP UNIT) ($12.50 PER OP UNIT) ($9.50 PER OP UNIT)
-------------------- -------------------- -------------------
Atlanta Marquis.. 2,931 3,634 4,782
Chicago Suites... 2,138 2,651 3,488
Desert Springs... 2,637 3,270 4,303
Hanover.......... 7,949 9,856 12,969
MDAH............. 7,046 8,737 11,496
MHP.............. 9,102 11,286 14,850
MHP2............. 15,312 18,987 24,982
PHLP............. 325 403 531
- --------
(1) Assumes that the average closing price of Host REIT Common Shares for the
20 trading days following the Mergers is $12.50, the midpoint between the
minimum price ($9.50) and the maximum price ($15.50).
For example, if the Merger closes on December 30, 1998, the Election Period
would end on January 22, 1999, the period for determining the value of the
Host REIT Common Shares would end January 29, 1999, and the OP Units (or
Common Shares or Notes) would be distributed to the Limited Partners on or
about February 5, 1999.
2. DESCRIBE AN OP UNIT.
An OP Unit will constitute a limited partnership interest in the Operating
Partnership. The OP Units are structured with the intent that they be
economically equivalent to the Host REIT Common Shares. All holders of OP
Units will be entitled to share in cash distributions from, and in the profits
and losses of, the Operating Partnership. Thus, the cash distributions per OP
Unit are expected to correspond to the cash distributions per share paid by
Host REIT with respect to the Common Shares. Commencing one year after the
Mergers, each holder of an OP Unit will have the right at any time to exchange
his OP Units on a one-for-one basis for Host REIT Common Shares or the cash
equivalent thereof (at the election of Host REIT).
3. HOW DO I SUBMIT MY VOTE WITH RESPECT TO THE MERGER? HOW WOULD I EXERCISE
THE ELECTION TO RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH THE
MERGER?
You vote with respect to the Merger by fully completing the Consent Form
(YELLOW) and returning the Consent Form to the Tabulation Agent, at the
following address:
Gemisys
7103 South Revere Parkway
Englewood, Colorado 80172
(Postage Paid Envelope Enclosed) or
VIA FACSIMILE
800-387-7365
2
prior to 5:00 p.m., Eastern time, on the last day of the Solicitation Period,
which will be December 12, 1998, unless extended by the General Partners and
the Operating Partnership. You will receive a written notice if the
Solicitation Period is extended.
In order to vote in favor of the Merger, you must vote FOR the Merger and
FOR the amendments to the partnership agreement. A vote AGAINST either the
Merger or the amendments effectively will be a vote AGAINST the Merger.
If you are a Limited Partner in Atlanta Marquis, Chicago Suites, MDAH or
PHLP and you either fail to return the Consent Form or return the Consent Form
and abstain as to either matter, that action effectively will be a vote
AGAINST the Merger.
If you are a partner in Desert Springs, Hanover, MHP or MHP 2 and return the
Consent Form but abstain as to either matter, that action also effectively
will be a vote AGAINST the Merger; if you do not return the Consent Form, you
will not be counted for purposes of determining whether the required majority
of Limited Partners is present for purposes of having a vote to approve the
Merger.
IF YOU WANT TO ELECT TO RECEIVE COMMON SHARES OR A NOTE, YOU NEED TO
COMPLETE AN OP UNIT EXCHANGE ELECTION FORM (BLUE) AND RETURN IT TO THE
TABULATION AGENT AT ANY TIME PRIOR TO 5:00 P.M., EASTERN TIME, ON THE 15TH
TRADING DAY FOLLOWING THE EFFECTIVE DATE OF THE MERGERS. You can return the OP
Unit Exchange Election Form with your Consent Form, but you are not required
to do so. In addition, you are permitted to submit an OP Unit Exchange
Election Form even if you do not return a Consent Form or if you return a
Consent Form but vote against the Merger.
If you submit an OP Unit Exchange Election Form prior to the end of the
Election Period, you are free up until the end of the Election Period to
revoke any election made previously (and make a new election) so long as the
Tabulation Agent receives written notice of such action prior to the end of
the Election Period. Once the Effective Time of the Mergers has occurred, the
Operating Partnership will give you notice of when the Election Period will
expire.
4. WHAT ARE THE RISKS TO ME IF I APPROVE THE MERGER?
The risk factors associated with the Mergers are described in several
sections of the Consent Solicitation, including the "Summary--Risk Factors,"
"Risk Factors," and "Conflicts of Interest." Some of these risk factors are:
.Substantial Benefits to Related Parties
.Absence of Arm's Length Negotiations
.Other Conflicts of Interest
.No Opportunity to Benefit from Crestline Stock
.Exchange Value May Not Equal Fair Market Value of the Partnerships' Hotels
.Inability of Limited Partners Who Retain OP Units to Redeem OP Units for
One Year
3
.Value of the Notes Will be Less than the Exchange Value
.Election of Common Shares or Notes is a Taxable Transaction
.Cash Distributions May Exceed Cash Available for Distribution; Reduced
Cash Distributions for Certain Limited Partners
.Timing of the REIT Conversion
.Fundamental Change in Nature of Investment
.Uncertainties as to the Size and Leverage of the Operating Partnership
.Lack of Control over Hotel Operations and Non-Controlled Subsidiaries;
Dependence upon Crestline
.Requisite Vote of Limited Partners of Partnerships Binds All Limited
Partners
.Inability to Obtain Third-Party Consents May Have a Material Adverse
Effect
.Exposure to Market and Economic Conditions of Other Hotels
.No Limitation on Debt
.Ownership Limitations
.Effect of Subsequent Events upon Recognition of Gain
.Sale of Personal Property May Result in Gain to Limited Partners in
Certain Partnerships
.Failure of Host REIT to Qualify as a REIT for Tax Purposes; Failure of
the Operating Partnership to Qualify as a Partnership for Tax Purposes
.Change in Tax Laws
5. WHAT ARE THE BENEFITS TO ME IN PARTICIPATING IN THE MERGER?
The General Partners believe that the Mergers provide substantial benefits
to the Limited Partners. Those benefits include:
.Liquidity
.Regular Quarterly Cash Distributions
.Substantial Tax Deferral for Limited Partners Not Electing to Exchange
OP Units for Common Shares or Notes
.Risk Diversification
.Reduction in Leverage and Interest Costs
.Growth Potential
.Greater Access to Capital
.Public Market Valuation of Assets
6. HOW WAS THE ESTIMATED EXCHANGE VALUE OF A PARTNERSHIP UNIT DETERMINED?
The method used for determining the estimated Exchange Value of a
Partnership Unit is described in several sections of the Consent Solicitation,
including the "Summary--Determination of Exchange Values and Allocation of OP
Units," "Risk Factors" and
4
"Conflicts of Interest." In addition, there is an entire section,
"Determination of Exchange Values and Allocation of OP Units," beginning on
page 79 of the Consent Solicitation with an overview. We encourage you to
review this information as more fully described in the Consent Solicitation.
The Exchange Value of each Partnership is equal to the greatest of its
Adjusted Appraised Value, Continuation Value and Liquidation Value.
Adjusted Appraised Value. The General Partners retained American Appraisal
Associates, Inc. ("AAA") to determine the market value of the hotels owned by
each of the Partnerships as of March 1, 1998 ("Appraised Value"). The Adjusted
Appraised Value of each Partnership equals the Appraised Value of its hotel(s)
(adjusted as of the end of the "accounting period" ending not less than 20
days before the Mergers), adjusted 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 for each Partnership was arrived
at through the use of estimates prepared by AAA for the 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 at the end of 2009
for their then estimated market value.
Liquidation Value. The Liquidation Value for each Partnership is the General
Partner's estimate of the net proceeds to limited partners resulting from the
assumed sale of the Partnership's hotel(s) as of December 31, 1998, 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.
The Exchange Value is the highest of the three valuations. The following
table sets forth for each Partnership (on a per Partnership Unit basis) the
estimated Adjusted Appraised Value, estimated Continuation Value, estimated
Liquidation Valuation, and the resulting estimated Exchange Value.
ESTIMATED
ADJUSTED ESTIMATED ESTIMATED ESTIMATED
APPRAISED CONTINUATION LIQUIDATION EXCHANGE
VALUE VALUE VALUE VALUE
--------- ------------ ----------- ---------
Atlanta Marquis.................... $ 41,570 $ 45,425 $ 402 $ 45,425
Chicago Suites..................... $ 33,133 $ 24,184 $ 31,149 $ 33,133
Desert Springs..................... $ 40,880 $ 33,536 $ 27,617 $ 40,880
Hanover............................ $123,202 $ 98,090 $ 88,474 $123,202
MDAH............................... $109,216 $ 89,340 $ 98,343 $109,216
MHP................................ $140,032 $141,074 $124,261 $141,074
MHP2............................... $237,334 $211,263 $205,140 $237,334
PHLP............................... 0 $ 5,040 0 $ 5,040
5
As described above in the answer to Question 1, the number of OP Units that
you will receive as a result of a Merger (or Host REIT Common Shares if you
elect to receive Common Shares in connection with the Merger) will be
determined based upon the final Exchange Value for your Partnership Interest
(which will be determined prior to the closing of the Mergers) and the average
closing price for Host REIT Common Shares on the New York Stock Exchange for
the 20 trading days following the Merger (but in no event will it 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.
The General Partners believe that the value of the OP Units allocable to the
Limited Partners in each Partnership on the basis of the Exchange Value
established for that Partnership represents fair consideration for the
Partnership Interests held by the Limited Partners in that Partnership and is
fair from a financial point of view.
7. WHAT WILL THE FEDERAL INCOME TAX EFFECT OF THIS TRANSACTION BE FOR ME?
The Mergers are not expected to result in the immediate recognition of
taxable income or gain by an "original" Limited Partner (i.e., a Limited
Partner who purchased his Partnership Interest at the time the Interests were
originally offered for purchase and who has retained those Interests since
that time) who does not elect to receive the Common Shares or a Note in
connection with the Merger (except for a small amount of ordinary income that
might be recognized by the Limited Partners in Atlanta Marquis, Desert
Springs, MHP and PHLP resulting from the sale of certain personal property by
each such Partnership). If you are not an "original" Limited Partner, you need
to review with your tax advisor the specific tax consequences to you of the
Merger.
. IF YOU RETAIN YOUR OP UNITS FOLLOWING THE MERGER, there are a variety of
future events and transactions that could cause you to recognize part or
all of the taxable gain deferred at the time of the Merger. These events
could include, for example, your exercise of your Unit Redemption Right,
a sale by the Operating Partnership of one or more of the Hotels owned
by your Partnership, or a repayment or other reduction of part or all of
the nonrecourse debt secured by the Hotels owned by your Partnership.
. IF YOU ELECT TO RECEIVE EITHER COMMON SHARES OR A NOTE IN CONNECTION
WITH THE MERGER, you will be considered to have made a taxable
disposition of your OP Units and will recognize taxable gain equal to
the sum of the fair market value of the Common Shares received (or the
principal amount of the Note), plus your "share" of the Operating
Partnership's liabilities (as determined for federal income tax
purposes), less your adjusted basis in your Partnership Interest.
. IF YOU ELECT TO RECEIVE COMMON SHARES, the gain likely would be
recognized at the time your right to receive Common Shares becomes fixed
(which would be January 22, 1999, if the Mergers occur on December 30,
1998).
. IF YOU ELECT TO RECEIVE A NOTE, the taxable disposition likely would be
deemed to occur when the Mergers are completed (which currently is
expected to be December 30, 1998), but you may be able to elect to use
the "installment method" to defer the recognition of at least a portion
of the gain attributable to receipt of a Note.
6
Any gain that you recognize if you elect to receive Common Shares or a Note
in connection with the Mergers (or other income recognized as a result of the
Mergers) can be offset by unused passive activity losses that you may have
either from your investment in your Partnership or from other investments.
The tables on pages 8 and 9 show for each Partnership the estimated gain to
an "original" Limited Partner owning one Partnership Unit who purchased the
Partnership Unit for cash if the Limited Partner elects to receive Common
Shares or a Note in connection with the Mergers (together with the
hypothetical federal income tax that would be owed if such gain simply were to
be multiplied by the maximum federal income tax rate applicable to gain of
that type).
The tables on page 10 show for each Partnership the estimated gain to an
"original" Limited Partner owning one Partnership Unit purchased pursuant to
the installment payment plan if the Limited Partner elects to receive Common
Shares or a Note in connection with the Mergers (together with the
hypothetical federal income tax that would be owed if such gain simply were to
be multiplied by the maximum federal income tax rate applicable to gain of
that type).
The table on page 11 shows for each Partnership, on a per Partnership Unit
basis, the estimated unused passive activity loss carryforwards that an
"original" Limited Partner would have as of December 31, 1998.
The information in these tables is derived from the information set forth in
the Supplement for your Partnership to the Consent Solicitation Statement
under the caption "Federal Income Tax Consequences--Tax Treatment of the [Your
Partnership] Limited Partners Who Exercise Their Right to Make the Common
Share Election or the Note Election" and "Federal Income Tax Consequences--Tax
Treatment of [Your Partnership] Limited Partners Who Hold OP Units Following
the Merger--Impact on Passive Activity Losses of an Investment in a Publicly
Traded Partnership," and certain key assumptions that are described in the
Supplement under the caption "Federal Income Tax Consequences--Assumptions
Used in Determining Tax Consequences of the Merger." It is essential that you
review the information in these sections of the applicable Supplement and the
assumptions set forth (or referenced) therein in conjunction with the tables
on the following pages.
THE SPECIFIC TAX ATTRIBUTES OF A PARTICULAR LIMITED PARTNER COULD HAVE A
MATERIAL IMPACT ON THE TAX CONSEQUENCES OF THE MERGER, AND THE SUBSEQUENT
OWNERSHIP AND DISPOSITION OF YOUR OP UNITS, COMMON SHARES OR NOTES. THEREFORE,
IT IS ESSENTIAL THAT YOU CONSULT WITH YOUR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS TO YOUR PERSONAL TAX SITUATION
(PARTICULARLY IN CONNECTION WITH A DECISION WHETHER OR NOT TO ELECT TO RECEIVE
COMMON SHARES OR A NOTE IN CONNECTION WITH THE MERGERS), AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
7
ESTIMATE (ON A PER PARTNERSHIP UNIT BASIS) OF TAXABLE GAIN RECOGNIZED
BY AN "ORIGINAL" LIMITED PARTNER WHO PAID CASH FOR HIS PARTNERSHIP UNIT
AND WHO ELECTS TO RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH
THE MERGERS.
COMMON SHARE ELECTION NOTE ELECTION
------------------------------ ------------------------------
MAXIMUM HYPOTHETICAL MAXIMUM HYPOTHETICAL
GAIN TAX RATE FEDERAL TAX GAIN TAX RATE FEDERAL TAX
-------- -------- ------------ -------- -------- ------------
ATLANTA MARQUIS
Capital Gain..... $ 57,478 20.0% $11,496 $ 48,393 20.0% $ 9,679
(S) 1250 Gain.... 137,463 25.0% 34,366 137,463 25.0% 34,366
(S) 1245 Gain.... 4,131 39.6% 1,636 4,131 39.6% 1,636
-------- ------- -------- -------
Total.......... $199,072 $47,497 $189,987 $45,680
======== ======= ======== =======
CHICAGO SUITES
Capital Gain..... $ 75 20.0% $ 15 $ 0 20.0% $ 0
(S) 1250 Gain.... 10,176 25.0% 2,544 8,267 25.0% 2,146
(S) 1245 Gain.... 887 39.6% 351 887 39.6% 351
-------- ------- -------- -------
Total.......... $ 11,138 $ 2,910 $ 9,154 $ 2,498
======== ======= ======== =======
DESERT SPRINGS
Capital Gain..... $ 27,478 20.0% $ 5,496 $ 19,302 20.0% $ 3,860
(S) 1250 Gain.... 19,008 25.0% 4,752 19,008 25.0% 4,752
(S) 1245 Gain.... 1,252 39.6% 496 1,252 39.6% 496
-------- ------- -------- -------
Total.......... $ 47,738 $10,743 $ 39,562 $ 9,108
======== ======= ======== =======
HANOVER
Capital Gain..... $ 34,934 20.0% $ 6,987 $ 10,294 20.0% $ 2,059
(S) 1250 Gain.... 14,352 25.0% 3,588 14,352 25.0% 3,588
(S) 1245 Gain.... 1,036 39.6% 410 1,036 39.6% 410
-------- ------- -------- -------
Total.......... $ 50,322 $10,985 $ 25,682 $ 6,057
======== ======= ======== =======
To be reviewed together with the information set forth in the Supplement to
the Consent Solicitation for your Partnership under the captions "Federal
Income Tax Consequences--Tax Treatment of the [Your Partnership] Limited
Partners Who Exercise Their Right to Make the Common Share Election or the
Note Election" and "Federal Income Tax Consequences--Tax Treatment of [Your
Partnership] Limited Partners Who Hold OP Units Following the Merger--Impact
on Passive Activity Losses of an Investment in a Publicly Traded Partnership,"
and certain key assumptions that are described in the Supplement under the
caption "Federal Income Tax Consequence--Assumptions Used in Determining Tax
Consequences of the Merger."
8
ESTIMATE (ON A PER PARTNERSHIP UNIT BASIS) OF TAXABLE GAIN RECOGNIZED
BY AN "ORIGINAL" LIMITED PARTNER WHO PAID CASH FOR HIS PARTNERSHIP UNIT
AND WHO ELECTS TO RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH
THE MERGERS.
COMMON SHARE ELECTION NOTE ELECTION
------------------------------ ------------------------------
MAXIMUM HYPOTEHTICAL MAXIMUM HYPOTHETICAL
GAIN TAX RATE FEDERAL TAX GAIN TAX RATE FEDERAL TAX
-------- -------- ------------ -------- -------- ------------
MDAH [1]
Capital Gain..... $ 24,073 20.0% $ 4,815 $ 13,200 20.0% $ 2,640
(S) 1250 Gain.... 32,941 25.0% 8,235 32,941 25.0% 8,235
(S) 1245 Gain.... 6,352 39.6% 2,515 6,352 39.6% 2,515
-------- ------- -------- -------
Total.......... $ 63,366 $15,565 $ 52,493 $13,391
======== ======= ======== =======
MHP2
Capital Gain..... $104,750 20.0% $20,950 $ 72,556 20.0% $14,511
(S) 1250 Gain.... 70,652 25.0% 17,663 70,652 25.0% 17,663
(S) 1245 Gain.... 3,269 39.6% 1,295 3,269 39.6% 1,295
-------- ------- -------- -------
Total.......... $178,671 $39,908 $146,477 $33,469
======== ======= ======== =======
PHLP
Capital Gain..... $ 0 20.0% $ 0 $ 0 20.0% $ 0
(S) 1250 Gain.... 52,287 25.0% 13,072 51,279 25.0% 12,820
(S) 1245 Gain.... 3,605 39.6% 1,428 3,605 39.6% 1,428
-------- ------- -------- -------
Total.......... $ 55,892 $14,499 $ 54,884 $14,247
======== ======= ======== =======
- --------
[1] If the Limited Partner elected to reduce his basis in his MDAH Partnership
Unit in lieu of recognizing cancellation of debt income in 1993 then the
estimated total tax would be $16,493 and $14,318 for Limited Partners who
elect to receive Common Shares and a Note, respectively.
To be reviewed together with the information set forth in the Supplement to
the Consent Solicitation for your Partnership under the captions "Federal
Income Tax Consequences--Tax Treatment of the [Your Partnership] Limited
Partners Who Exercise Their Right to Make the Common Share Election or the
Note Election" and "Federal Income Tax Consequences--Tax Treatment of [Your
Partnership] Limited Partners Who Hold OP Units Following the Merger--Impact
on Passive Activity Losses of an Investment in a Publicly Traded Partnership,"
and certain key assumptions that are described in the Supplement under the
caption "Federal Income Tax Consequences--Assumptions Used in Determining Tax
Consequences of the Merger."
9
ESTIMATE (ON A PER PARTNERSHIP UNIT BASIS) OF TAXABLE GAIN
RECOGNIZED BY AN "ORIGINAL" LIMITED PARTNER WHO PURCHASED HIS
PARTNERSHIP UNIT ON THE INSTALLMENT PLAN AND WHO ELECTS TO
RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH THE MERGER.
COMMON SHARE ELECTION NOTE ELECTION
------------------------------ ------------------------------
MAXIMUM HYPOTHETICAL MAXIMUM HYPOTHETICAL
GAIN TAX RATE FEDERAL TAX GAIN TAX RATE FEDERAL TAX
-------- -------- ------------ -------- -------- ------------
DESERT SPRINGS
Capital Gain..... $ 27,277 20.0% $ 5,455 $ 19,101 20.0% $ 3,820
(S) 1250 Gain.... 19,008 25.0% 4,752 19,008 25.0% 4,752
(S) 1245 Gain.... 1,252 39.6% 496 1,252 39.6% 496
-------- ------- -------- -------
Total.......... $ 47,537 $10,703 $ 39,361 $ 9,068
======== ======= ======== =======
HANOVER
Capital Gain..... $ 24,640 20.0% $ 4,928 $ 0 20.0% $ 0
(S) 1250 Gain.... 12,246 25.0% 3,062 12,246 25.0% 3,062
(S) 1245 Gain.... 1,036 39.6% 410 1,036 39.6% 410
-------- ------- -------- -------
Total.......... $ 37,922 $ 8,400 $ 13,282 $ 3,472
======== ======= ======== =======
MDAH [2]
Capital Gain..... $ 25,022 20.0% $ 5,004 $ 14,149 20.0% $ 2,830
(S) 1250 Gain.... 32,941 25.0% 8,235 32,941 25.0% 8,235
(S) 1245 Gain.... 6,352 39.6% 2,515 6,352 39.6% 2,515
-------- ------- -------- -------
Total.......... $ 64,315 $15,755 $ 53,442 $13,580
======== ======= ======== =======
MHP
Capital Gain..... $ 66,487 20.0% $13,297 $ 49,674 20.0% $ 9,935
(S) 1250 Gain.... 133,537 25.0% 33,384 133,537 25.0% 33,384
(S) 1245 Gain.... 10,808 39.6% 4,280 10,808 39.6% 4,280
-------- ------- -------- -------
Total.......... $210,832 $50,962 $194,019 $47,599
======== ======= ======== =======
MHP2
Capital Gain..... $103,840 20.0% $20,768 $ 71,646 20.0% $14,329
(S) 1250 Gain.... 70,652 25.0% 17,663 70,652 25.0% 17,663
(S) 1245 Gain.... 3,269 39.6% 1,295 3,269 39.6% 1,295
-------- ------- -------- -------
Total.......... $177,761 $39,726 $145,567 $33,287
======== ======= ======== =======
- --------
[2] If the Limited Partner elected to reduce his basis in his MDAH Partnership
Unit in lieu of recognizing cancellation of debt income in 1993 then the
estimated total tax would be $16,682 and $14,508 for Limited Partners who
elect to receive Common Shares and a Note, respectively.
To be reviewed together with the information set forth in the Supplement to
the Consent Solicitation for your Partnership under the captions "Federal
Income Tax Consequences--Tax Treatment of the [Your Partnership] Limited
Partners Who Exercise Their Right to Make the Common Share Election or the
Note Election" and "Federal Income Tax Consequences--Tax Treatment of [Your
Partnership] Limited Partners Who Hold OP Units Following the Merger--Impact
on Passive Activity Losses of an Investment in a Publicly Traded Partnership,"
and certain key assumptions that are described in the Supplement under the
caption "Federal Income Tax Consequences--Assumptions Used in Determining Tax
Consequences of the Merger."
10
If you purchased your Partnership Unit at the time of the original offering
for your Partnership and the Partnership Unit has been your only investment in
a passive activity, your estimated passive activity loss carryforward, per
Partnership Unit, as of December 31, 1998, would be as follows:
PASSIVE
ACTIVITY LOSS
PARTNERSHIP CARRYFORWARD
- ----------- ----------------------
(PER PARTNERSHIP UNIT)
Atlanta Marquis......................................... $127,233
Chicago Suites.......................................... $ 4,384
Desert Springs
Partnership Unit acquired for cash.................... $ 2,110
Partnership Unit acquired under the installment plan.. $ 9,179
Hanover................................................. $ 0
MDAH
Partnership Unit acquired for cash.................... $ 12,096
Partnership Unit acquired for cash and Limited Partner
elected to reduce his basis in lieu of cancellation
of indebtedness...................................... $ 28,656
Partnership Unit acquired under the installment plan.. $ 35,483
Partnership Unit acquired under the installment plan
and Limited Partner elected to reduce his basis in
lieu of cancellation of indebtedness................. $ 40,635
MHP..................................................... $ 1,217
MHP2.................................................... $ 0
PHLP.................................................... $ 0
8. WHY DOESN'T THE PARTNERSHIP JUST SELL THE HOTELS TO HOST OR ANOTHER
PURCHASER, INSTEAD OF MERGING OUR PARTNERSHIP INTO THE OPERATING
PARTNERSHIP?
A sale of the Partnership's assets would result in the liquidation and
termination of each Partnership. A sale would result in each Limited Partner,
as well as Host Marriott, recognizing a substantial tax gain, and receiving
proceeds approximating the Liquidation Value, which in each case is
significantly less than the Exchange Value.
9. WHY IS HOST MARRIOTT CORPORATION CONVERTING TO A REIT?
Host Marriott Corporation believes that 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. In this
regard, Host believes the REIT Conversion, which will reduce corporate-level
taxes and the need to incur debt to reduce 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. Host
also believes that the REIT conversion will make performance comparisons with
its peers more meaningful.
11
By becoming a dividend paying company, Host believes its shareholder base
will expand to include investors attracted by yield as well as asset quality.
In addition, the adoption of the UPREIT structure is expected to facilitate
tax-deferred acquisitions of other quality hotel properties.
10. WHY IS THE OPERATING PARTNERSHIP LEASING THE HOTELS? WHAT IS CRESTLINE?
WILL I RECEIVE ANY CRESTLINE STOCK?
Under current federal income tax law, REITs are not permitted to derive
revenues directly from the operation of hotels. Therefore, the Operating
Partnership will lease its hotels to Crestline. Crestline currently is a
wholly owned subsidiary of Host, but Crestline will become a separate public
company when Host distributes the common stock of Crestline and other
consideration to Host's existing shareholders and the Blackstone entities in
connection with the REIT Conversion. This distribution will be done in
connection with Host's required distribution of its accumulated earnings and
profits in order to qualify as a REIT. Shares of Host REIT and Crestline will
be separately traded securities, and the two companies will operate
independently.
The Limited Partners will not receive any Crestline stock in connection with
the Mergers. The pricing mechanism for the Mergers--which is based upon the
average closing price for Host REIT Common Shares for the 20 trading days
following the Mergers (all of which will be after the Crestline stock has been
distributed)--is designed to ensure that your OP Units are fairly valued after
giving effect to Host's distribution of the Crestline stock to its
shareholders.
11. WHAT WILL BE THE TERMS OF THE NOTE IF I ELECT TO RECEIVE A NOTE?
The Notes will be direct, senior unsecured and unsubordinated obligations of
the Operating Partnership. The Notes will mature on December 15, 2005, or
approximately seven years following the Mergers. The Notes will bear interest
at a fixed rate of interest equal to 6.56% per annum. Interest will be payable
in arrears on each June 15 and December 15, commencing on June 15, 1999. The
principal amount of the Notes with respect to each Partnership will be equal
to the Liquidation Value, or if greater, 80% of the Exchange Value for your
Partnership Interest. (See the Answer to Question 1 for these amounts.) For a
table showing the estimated principal amount of the Notes with respect to each
Partnership, on a per Partnership Unit basis, see the Answer to Question 1.
12. I CURRENTLY OWN A VERY ILLIQUID INVESTMENT; WILL THIS CHANGE IF I VOTE FOR
THE MERGER?
Your Partnership Units are relatively illiquid investments. Although there
may be a limited resale market for your Partnership Units, the trading volume
is thin and the recent average trading prices of the outstanding Partnership
Units in each of the Partnerships are less than the estimated Exchange Value
for the Partnership Units. The Merger will offer you liquidity because you can
elect to exchange OP Units received in the Merger for Common Shares. In
addition, if you elect to retain your OP Units following the Mergers, you will
have
12
the right at any time, commencing one year following the Mergers, to exchange
your OP Units, on a one-for-one basis, for Host REIT Common Shares or the cash
equivalent thereof, at the election of Host REIT.
13. DO ALL EIGHT PARTNERSHIPS NEED TO VOTE "FOR" A MERGER FOR THE TRANSACTION
INVOLVING MY PARTNERSHIP TO BE COMPLETED?
No. Each Partnership votes individually on the transaction, and no Merger is
conditioned upon the consummation of any other Merger.
14. ON PAGE 136 OF THE CONSENT SOLICITATION, HOST ESTIMATES THAT THE
DISTRIBUTIONS PER OP UNIT DURING 1999 WILL BE APPROXIMATELY $0.84 PER OP
UNIT (ASSUMING THE MERGER OCCURS IN 1998). IF THIS ESTIMATE IS CORRECT,
HOW MUCH CASH WOULD A LIMITED PARTNER OWNING ONE PARTNERSHIP UNIT RECEIVE
FOR 1999, AND HOW DOES THAT COMPARE WITH THE DISTRIBUTION FROM MY
PARTNERSHIP FOR 1997 AND 1998?
Based upon preliminary estimates of Host REIT's taxable income for 1999, the
Operating Partnership currently estimates its initial annual distribution will
be approximately $0.84 per OP Unit ($0.21 per quarter) during 1999, a portion
of which may come from borrowings. Distributions are expected to be paid in
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 actual amount of cash distributions that
you would receive for 1999 if you were to retain the OP Units issued to you in
the Mergers would depend upon the number of OP Units issued to you in the
Merger with respect to your Partnership Interest. The Answer to Question 1
explains how that number will be determined.
If Host's preliminary estimate of $226 million of cash distributions by the
Operating Partnership during 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 estimated cash from
contingent rents ($54 million) during 1999, 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 its 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.
13
The following table sets forth for each Partnership, on a per Partnership
Unit basis, the actual cash distributions made from operations during 1997 and
the actual and expected distribution levels from operations during 1998, as
well as three alternative expected distributions that would be made with
respect to OP Units for 1999 if the Mergers and the REIT Conversion occur
(assuming that the Mergers occur on December 30, 1998), computed assuming that
the OP Units are valued for purposes of the Mergers at $9.50 (the minimum
price), $15.50 (the maximum price), and $12.50 (the midpoint between the
minimum price and the maximum price).
ESTIMATED 1999 DISTRIBUTIONS
FOLLOWING THE MERGERS (2)
-----------------------------------
ACTUAL AND AVERAGE AVERAGE AVERAGE
1997 EXPECTED 1998 SHARE PRICE SHARE PRICE SHARE PRICE
DISTRIBUTION DISTRIBUTIONS(1) $9.50 $15.50 $12.50
------------ ---------------- ----------- ----------- -----------
Atlanta Marquis......... $ 0 $ 5,000(3) $ 4,017 $ 2,462 $ 3,053
Chicago Suites.......... 0 0 2,930 1,796 2,227
Desert Springs.......... 25,000(4) 2,500 3,615 2,215 2,747
Hanover................. 0 0 10,894 6,677 8,279
MDAH.................... 3,453 0 9,657 5,919 7,339
MHP..................... 7,700 16,000 12,474 7,645 9,480
MHP2.................... 29,880 27,164 20,985 12,862 15,949
PHLP.................... 0 0 446 273 339
- --------
(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," in the Consent
Solicitation. Does not include amounts, if any, to be distributed by the
Partnerships from third and fourth quarter 1998 operations which will be
distributed by the Partnerships 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.
15. IF I HAVE FURTHER QUESTIONS, WHOM CAN I CONTACT?
As noted above, the General Partners encourage Limited Partners to consult
with their own financial and tax advisors regarding this transaction. If you
or your advisors have questions, please contact the following:
FOR QUESTIONS REGARDING THE MERGER OR HELP IN COMPLETING THE CONSENT FORM
(YELLOW) OR OP UNIT EXCHANGE ELECTION FORM (BLUE), CONTACT THE INFORMATION
AGENT:
Shareholder Communications Corporation 800-733-8481 ext. 445
TO SPEAK TO A REPRESENTATIVE OF THE GENERAL PARTNER OR HOST MARRIOTT
CORPORATION, CALL:
301-380-2070
14
[For Florida and Texas only]
QUESTIONS & ANSWERS
1. IF MY PARTNERSHIP VOTES FOR THE MERGER, WHAT WILL I RECEIVE IN EXCHANGE FOR
MY PARTNERSHIP UNIT?
If your Partnership votes to approve the Merger and the Merger is
consummated, all of the Limited Partners in your Partnership will receive
units of limited partnership interest in the Operating Partnership ("OP
Units"). Each OP Unit is intended to be the economic equivalent of a Host REIT
Common Share.
You can retain the OP Units issued to you in the Merger or make the
following elections at any time from the beginning of the solicitation period
until the 15th trading day following the closing of the Merger (the "Election
Period"):
. COMMON SHARE ELECTION: to exchange the OP Units that you would receive
in the Merger for an equal number of shares of Host REIT Common Shares,
or
. NOTE ELECTION: to exchange the OP Units that you would receive in the
Merger for a Note issued by the Operating Partnership (see the Answer to
Question 11 below).
If you elect to retain the OP Units issued to you in the Merger, you will
have the right, beginning one year after the Merger, to exchange your OP Units
at any time for either Common Shares of Host REIT, on a one-for-one basis, or
cash in an amount equal to the market value of such shares, at the election of
Host REIT (the "Unit Redemption Right").
The following table sets forth for each Partnership, on a per Partnership
Unit basis, the estimated Exchange Value for that Partnership and the
estimated dollar amount of the Note that would be issued to a Limited Partner
electing to receive a Note. (For a description of how these amounts were
determined, see the Answers to Questions 6 and 11 below).
ESTIMATED ESTIMATED PRINCIPAL
PARTNERSHIP EXCHANGE VALUE AMOUNT OF NOTE
- ----------- -------------- -------------------
Atlanta Marquis.............................. $ 45,425 $ 36,340
Chicago Suites............................... $ 33,133 $ 31,149
Desert Springs............................... $ 40,880 $ 32,704
Hanover...................................... $123,202 $ 98,562
MDAH......................................... $109,216 $ 98,343
MHP.......................................... $141,074 $124,261
MHP2......................................... $237,334 $205,140
PHLP......................................... $ 5,040 $ 4,032
The number of OP Units that you will receive in the Merger will be
determined by dividing the Exchange Value for your Partnership Interest by the
average closing price on the New York Stock Exchange for the Host REIT Common
Shares for the first 20 trading days following the Merger (but that price
would not be greater than $15.50 or less than $9.50). Your OP Units, Host REIT
Common Share or Note, as applicable, will be issued promptly after this
determination is made.
The following table sets forth for each Partnership (on a per Partnership
Unit basis) the estimated minimum number of OP Units and the estimated maximum
number of OP Units, and the number of OP Units that would be issued at the
midpoint between the minimum and maximum, each computed based upon the
estimated Exchange Values.
ESTIMATED ESTIMATED ESTIMATED
MINIMUM NUMBER OF MAXIMUM
NUMBER OF OP UNITS AT THE NUMBER OF
OP UNITS MIDPOINT(1) OP UNITS
($15.50 PER OP UNIT) ($12.50 PER OP UNIT) ($9.50 PER OP UNIT)
-------------------- -------------------- -------------------
Atlanta Marquis.. 2,931 3,634 4,782
Chicago Suites... 2,138 2,651 3,488
Desert Springs... 2,637 3,270 4,303
Hanover.......... 7,949 9,856 12,969
MDAH............. 7,046 8,737 11,496
MHP.............. 9,102 11,286 14,850
MHP2............. 15,312 18,987 24,982
PHLP............. 325 403 531
- --------
(1) Assumes that the average closing price of Host REIT Common Shares for the
20 trading days following the Mergers is $12.50, the midpoint between the
minimum price ($9.50) and the maximum price ($15.50).
For example, if the Merger closes on December 30, 1998, the Election Period
would end on January 22, 1999, the period for determining the value of the
Host REIT Common Shares would end January 29, 1999, and the OP Units (or
Common Shares or Notes) would be distributed to the Limited Partners on or
about February 5, 1999.
2. DESCRIBE AN OP UNIT.
An OP Unit will constitute a limited partnership interest in the Operating
Partnership. The OP Units are structured with the intent that they be
economically equivalent to the Host REIT Common Shares. All holders of OP
Units will be entitled to share in cash distributions from, and in the profits
and losses of, the Operating Partnership. Thus, the cash distributions per OP
Unit are expected to correspond to the cash distributions per share paid by
Host REIT with respect to the Common Shares. Commencing one year after the
Mergers, each holder of an OP Unit will have the right at any time to exchange
his OP Units on a one-for-one basis for Host REIT Common Shares or the cash
equivalent thereof (at the election of Host REIT).
3. HOW DO I SUBMIT MY VOTE WITH RESPECT TO THE MERGER? HOW WOULD I EXERCISE
THE ELECTION TO RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH THE
MERGER?
You vote with respect to the Merger by fully completing the Consent Form
(YELLOW) and returning the Consent Form to the Tabulation Agent, at the
following address:
Gemisys
7103 South Revere Parkway
Englewood, Colorado 80172
(Postage Paid Envelope Enclosed) or
VIA FACSIMILE
800-387-7365
2
prior to 5:00 p.m., Eastern time, on the last day of the Solicitation Period,
which will be December 12, 1998, unless extended by the General Partners and
the Operating Partnership. You will receive a written notice if the
Solicitation Period is extended.
In order to vote in favor of the Merger, you must vote FOR the Merger and
FOR the amendments to the partnership agreement. A vote AGAINST either the
Merger or the amendments effectively will be a vote AGAINST the Merger.
If you are a Limited Partner in Atlanta Marquis, Chicago Suites, MDAH or
PHLP and you either fail to return the Consent Form or return the Consent Form
and abstain as to either matter, that action effectively will be a vote
AGAINST the Merger.
If you are a partner in Desert Springs, Hanover, MHP or MHP 2 and return the
Consent Form but abstain as to either matter, that action also effectively
will be a vote AGAINST the Merger; if you do not return the Consent Form, you
will not be counted for purposes of determining whether the required majority
of Limited Partners is present for purposes of having a vote to approve the
Merger.
IF YOU WANT TO ELECT TO RECEIVE COMMON SHARES OR A NOTE, YOU NEED TO
COMPLETE AN OP UNIT EXCHANGE ELECTION FORM (BLUE) AND RETURN IT TO THE
TABULATION AGENT AT ANY TIME PRIOR TO 5:00 P.M., EASTERN TIME, ON THE 15TH
TRADING DAY FOLLOWING THE EFFECTIVE DATE OF THE MERGERS. You can return the OP
Unit Exchange Election Form with your Consent Form, but you are not required
to do so. In addition, you are permitted to submit an OP Unit Exchange
Election Form even if you do not return a Consent Form or if you return a
Consent Form but vote against the Merger.
If you submit an OP Unit Exchange Election Form prior to the end of the
Election Period, you are free up until the end of the Election Period to
revoke any election made previously (and make a new election) so long as the
Tabulation Agent receives written notice of such action prior to the end of
the Election Period. Once the Effective Time of the Mergers has occurred, the
Operating Partnership will give you notice of when the Election Period will
expire.
4. WHAT ARE THE RISKS TO ME IF I APPROVE THE MERGER?
The risk factors associated with the Mergers are described in several
sections of the Consent Solicitation, including the "Summary--Risk Factors,"
"Risk Factors," and "Conflicts of Interest." Some of these risk factors are:
.Substantial Benefits to Related Parties
.Absence of Arm's Length Negotiations
.Other Conflicts of Interest
.No Opportunity to Benefit from Crestline Stock
.Exchange Value May Not Equal Fair Market Value of the Partnerships' Hotels
.Inability of Limited Partners Who Retain OP Units to Redeem OP Units for
One Year
3
.Value of the Notes Will be Less than the Exchange Value
.Election of Common Shares or Notes is a Taxable Transaction
.Cash Distributions May Exceed Cash Available for Distribution; Reduced
Cash Distributions for Certain Limited Partners
.Timing of the REIT Conversion
.Fundamental Change in Nature of Investment
.Uncertainties as to the Size and Leverage of the Operating Partnership
.Lack of Control over Hotel Operations and Non-Controlled Subsidiaries;
Dependence upon Crestline
.Requisite Vote of Limited Partners of Partnerships Binds All Limited
Partners
.Inability to Obtain Third-Party Consents May Have a Material Adverse
Effect
.Exposure to Market and Economic Conditions of Other Hotels
.No Limitation on Debt
.Ownership Limitations
.Effect of Subsequent Events upon Recognition of Gain
.Sale of Personal Property May Result in Gain to Limited Partners in
Certain Partnerships
.Failure of Host REIT to Qualify as a REIT for Tax Purposes; Failure of
the Operating Partnership to Qualify as a Partnership for Tax Purposes
.Change in Tax Laws
5. WHAT ARE THE BENEFITS TO ME IN PARTICIPATING IN THE MERGER?
The General Partners believe that the Mergers provide substantial benefits
to the Limited Partners. Those benefits include:
.Liquidity
.Regular Quarterly Cash Distributions
.Substantial Tax Deferral for Limited Partners Not Electing to Exchange
OP Units for Common Shares or Notes
.Risk Diversification
.Reduction in Leverage and Interest Costs
.Growth Potential
.Greater Access to Capital
.Public Market Valuation of Assets
6. HOW WAS THE ESTIMATED EXCHANGE VALUE OF A PARTNERSHIP UNIT DETERMINED?
The method used for determining the estimated Exchange Value of a
Partnership Unit is described in several sections of the Consent Solicitation,
including the "Summary--Determination of Exchange Values and Allocation of OP
Units," "Risk Factors" and
4
"Conflicts of Interest." In addition, there is an entire section,
"Determination of Exchange Values and Allocation of OP Units," beginning on
page 79 of the Consent Solicitation with an overview. We encourage you to
review this information as more fully described in the Consent Solicitation.
The Exchange Value of each Partnership is equal to the greatest of its
Adjusted Appraised Value, Continuation Value and Liquidation Value.
Adjusted Appraised Value. The General Partners retained American Appraisal
Associates, Inc. ("AAA") to determine the market value of the hotels owned by
each of the Partnerships as of March 1, 1998 ("Appraised Value"). The Adjusted
Appraised Value of each Partnership equals the Appraised Value of its hotel(s)
(adjusted as of the end of the "accounting period" ending not less than 20
days before the Mergers), adjusted 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 for each Partnership was arrived
at through the use of estimates prepared by AAA for the 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 at the end of 2009
for their then estimated market value.
Liquidation Value. The Liquidation Value for each Partnership is the General
Partner's estimate of the net proceeds to limited partners resulting from the
assumed sale of the Partnership's hotel(s) as of December 31, 1998, 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.
The Exchange Value is the highest of the three valuations. The following
table sets forth for each Partnership (on a per Partnership Unit basis) the
estimated Adjusted Appraised Value, estimated Continuation Value, estimated
Liquidation Valuation, and the resulting estimated Exchange Value.
ESTIMATED
ADJUSTED ESTIMATED ESTIMATED ESTIMATED
APPRAISED CONTINUATION LIQUIDATION EXCHANGE
VALUE VALUE VALUE VALUE
--------- ------------ ----------- ---------
Atlanta Marquis.................... $ 41,570 $ 45,425 $ 402 $ 45,425
Chicago Suites..................... $ 33,133 $ 24,184 $ 31,149 $ 33,133
Desert Springs..................... $ 40,880 $ 33,536 $ 27,617 $ 40,880
Hanover............................ $123,202 $ 98,090 $ 88,474 $123,202
MDAH............................... $109,216 $ 89,340 $ 98,343 $109,216
MHP................................ $140,032 $141,074 $124,261 $141,074
MHP2............................... $237,334 $211,263 $205,140 $237,334
PHLP............................... 0 $ 5,040 0 $ 5,040
5
As described above in the answer to Question 1, the number of OP Units that
you will receive as a result of a Merger (or Host REIT Common Shares if you
elect to receive Common Shares in connection with the Merger) will be
determined based upon the final Exchange Value for your Partnership Interest
(which will be determined prior to the closing of the Mergers) and the average
closing price for Host REIT Common Shares on the New York Stock Exchange for
the 20 trading days following the Merger (but in no event will it 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.
The General Partners believe that the value of the OP Units allocable to the
Limited Partners in each Partnership on the basis of the Exchange Value
established for that Partnership represents fair consideration for the
Partnership Interests held by the Limited Partners in that Partnership and is
fair from a financial point of view.
7. WHAT WILL THE FEDERAL INCOME TAX EFFECT OF THIS TRANSACTION BE FOR ME?
The Mergers are not expected to result in the immediate recognition of
taxable income or gain by an "original" Limited Partner (i.e., a Limited
Partner who purchased his Partnership Interest at the time the Interests were
originally offered for purchase and who has retained those Interests since
that time) who does not elect to receive the Common Shares or a Note in
connection with the Merger (except for a small amount of ordinary income that
might be recognized by the Limited Partners in Atlanta Marquis, Desert
Springs, MHP and PHLP resulting from the sale of certain personal property by
each such Partnership). If you are not an "original" Limited Partner, you need
to review with your tax advisor the specific tax consequences to you of the
Merger.
. IF YOU RETAIN YOUR OP UNITS FOLLOWING THE MERGER, there are a variety of
future events and transactions that could cause you to recognize part or
all of the taxable gain deferred at the time of the Merger. These events
could include, for example, your exercise of your Unit Redemption Right,
a sale by the Operating Partnership of one or more of the Hotels owned
by your Partnership, or a repayment or other reduction of part or all of
the nonrecourse debt secured by the Hotels owned by your Partnership.
. IF YOU ELECT TO RECEIVE EITHER COMMON SHARES OR A NOTE IN CONNECTION
WITH THE MERGER, you will be considered to have made a taxable
disposition of your OP Units and will recognize taxable gain equal to
the sum of the fair market value of the Common Shares received (or the
principal amount of the Note), plus your "share" of the Operating
Partnership's liabilities (as determined for federal income tax
purposes), less your adjusted basis in your Partnership Interest.
. IF YOU ELECT TO RECEIVE COMMON SHARES, the gain likely would be
recognized at the time your right to receive Common Shares becomes fixed
(which would be January 22, 1999, if the Mergers occur on December 30,
1998).
. IF YOU ELECT TO RECEIVE A NOTE, the taxable disposition likely would be
deemed to occur when the Mergers are completed (which currently is
expected to be December 30, 1998), but you may be able to elect to use
the "installment method" to defer the recognition of at least a portion
of the gain attributable to receipt of a Note.
6
Any gain that you recognize if you elect to receive Common Shares or a Note
in connection with the Mergers (or other income recognized as a result of the
Mergers) can be offset by unused passive activity losses that you may have
either from your investment in your Partnership or from other investments.
The tables on pages 8 and 9 show for each Partnership the estimated gain to
an "original" Limited Partner owning one Partnership Unit who purchased the
Partnership Unit for cash if the Limited Partner elects to receive Common
Shares or a Note in connection with the Mergers (together with the
hypothetical federal income tax that would be owed if such gain simply were to
be multiplied by the maximum federal income tax rate applicable to gain of
that type).
The tables on page 10 show for each Partnership the estimated gain to an
"original" Limited Partner owning one Partnership Unit purchased pursuant to
the installment payment plan if the Limited Partner elects to receive Common
Shares or a Note in connection with the Mergers (together with the
hypothetical federal income tax that would be owed if such gain simply were to
be multiplied by the maximum federal income tax rate applicable to gain of
that type).
The table on page 11 shows for each Partnership, on a per Partnership Unit
basis, the estimated unused passive activity loss carryforwards that an
"original" Limited Partner would have as of December 31, 1998.
The information in these tables is derived from the information set forth in
the Supplement for your Partnership to the Consent Solicitation Statement
under the caption "Federal Income Tax Consequences--Tax Treatment of the [Your
Partnership] Limited Partners Who Exercise Their Right to Make the Common
Share Election or the Note Election" and "Federal Income Tax Consequences--Tax
Treatment of [Your Partnership] Limited Partners Who Hold OP Units Following
the Merger--Impact on Passive Activity Losses of an Investment in a Publicly
Traded Partnership," and certain key assumptions that are described in the
Supplement under the caption "Federal Income Tax Consequences--Assumptions
Used in Determining Tax Consequences of the Merger." It is essential that you
review the information in these sections of the applicable Supplement and the
assumptions set forth (or referenced) therein in conjunction with the tables
on the following pages.
THE SPECIFIC TAX ATTRIBUTES OF A PARTICULAR LIMITED PARTNER COULD HAVE A
MATERIAL IMPACT ON THE TAX CONSEQUENCES OF THE MERGER, AND THE SUBSEQUENT
OWNERSHIP AND DISPOSITION OF YOUR OP UNITS, COMMON SHARES OR NOTES. THEREFORE,
IT IS ESSENTIAL THAT YOU CONSULT WITH YOUR OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS TO YOUR PERSONAL TAX SITUATION
(PARTICULARLY IN CONNECTION WITH A DECISION WHETHER OR NOT TO ELECT TO RECEIVE
COMMON SHARES OR A NOTE IN CONNECTION WITH THE MERGERS), AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
7
ESTIMATE (ON A PER PARTNERSHIP UNIT BASIS) OF TAXABLE GAIN RECOGNIZED
BY AN "ORIGINAL" LIMITED PARTNER WHO PAID CASH FOR HIS PARTNERSHIP UNIT
AND WHO ELECTS TO RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH
THE MERGERS.
COMMON SHARE ELECTION NOTE ELECTION
------------------------------ ------------------------------
MAXIMUM HYPOTHETICAL MAXIMUM HYPOTHETICAL
GAIN TAX RATE FEDERAL TAX GAIN TAX RATE FEDERAL TAX
-------- -------- ------------ -------- -------- ------------
ATLANTA MARQUIS
Capital Gain..... $ 57,478 20.0% $11,496 $ 48,393 20.0% $ 9,679
(S) 1250 Gain.... 137,463 25.0% 34,366 137,463 25.0% 34,366
(S) 1245 Gain.... 4,131 39.6% 1,636 4,131 39.6% 1,636
-------- ------- -------- -------
Total.......... $199,072 $47,497 $189,987 $45,680
======== ======= ======== =======
CHICAGO SUITES
Capital Gain..... $ 75 20.0% $ 15 $ 0 20.0% $ 0
(S) 1250 Gain.... 10,176 25.0% 2,544 8,267 25.0% 2,146
(S) 1245 Gain.... 887 39.6% 351 887 39.6% 351
-------- ------- -------- -------
Total.......... $ 11,138 $ 2,910 $ 9,154 $ 2,498
======== ======= ======== =======
DESERT SPRINGS
Capital Gain..... $ 27,478 20.0% $ 5,496 $ 19,302 20.0% $ 3,860
(S) 1250 Gain.... 19,008 25.0% 4,752 19,008 25.0% 4,752
(S) 1245 Gain.... 1,252 39.6% 496 1,252 39.6% 496
-------- ------- -------- -------
Total.......... $ 47,738 $10,743 $ 39,562 $ 9,108
======== ======= ======== =======
HANOVER
Capital Gain..... $ 34,934 20.0% $ 6,987 $ 10,294 20.0% $ 2,059
(S) 1250 Gain.... 14,352 25.0% 3,588 14,352 25.0% 3,588
(S) 1245 Gain.... 1,036 39.6% 410 1,036 39.6% 410
-------- ------- -------- -------
Total.......... $ 50,322 $10,985 $ 25,682 $ 6,057
======== ======= ======== =======
To be reviewed together with the information set forth in the Supplement to
the Consent Solicitation for your Partnership under the captions "Federal
Income Tax Consequences--Tax Treatment of the [Your Partnership] Limited
Partners Who Exercise Their Right to Make the Common Share Election or the
Note Election" and "Federal Income Tax Consequences--Tax Treatment of [Your
Partnership] Limited Partners Who Hold OP Units Following the Merger--Impact
on Passive Activity Losses of an Investment in a Publicly Traded Partnership,"
and certain key assumptions that are described in the Supplement under the
caption "Federal Income Tax Consequence--Assumptions Used in Determining Tax
Consequences of the Merger."
8
ESTIMATE (ON A PER PARTNERSHIP UNIT BASIS) OF TAXABLE GAIN RECOGNIZED
BY AN "ORIGINAL" LIMITED PARTNER WHO PAID CASH FOR HIS PARTNERSHIP UNIT
AND WHO ELECTS TO RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH
THE MERGERS.
COMMON SHARE ELECTION NOTE ELECTION
------------------------------ ------------------------------
MAXIMUM HYPOTEHTICAL MAXIMUM HYPOTHETICAL
GAIN TAX RATE FEDERAL TAX GAIN TAX RATE FEDERAL TAX
-------- -------- ------------ -------- -------- ------------
MDAH [1]
Capital Gain..... $ 24,073 20.0% $ 4,815 $ 13,200 20.0% $ 2,640
(S) 1250 Gain.... 32,941 25.0% 8,235 32,941 25.0% 8,235
(S) 1245 Gain.... 6,352 39.6% 2,515 6,352 39.6% 2,515
-------- ------- -------- -------
Total.......... $ 63,366 $15,565 $ 52,493 $13,391
======== ======= ======== =======
MHP2
Capital Gain..... $104,750 20.0% $20,950 $ 72,556 20.0% $14,511
(S) 1250 Gain.... 70,652 25.0% 17,663 70,652 25.0% 17,663
(S) 1245 Gain.... 3,269 39.6% 1,295 3,269 39.6% 1,295
-------- ------- -------- -------
Total.......... $178,671 $39,908 $146,477 $33,469
======== ======= ======== =======
PHLP
Capital Gain..... $ 0 20.0% $ 0 $ 0 20.0% $ 0
(S) 1250 Gain.... 52,287 25.0% 13,072 51,279 25.0% 12,820
(S) 1245 Gain.... 3,605 39.6% 1,428 3,605 39.6% 1,428
-------- ------- -------- -------
Total.......... $ 55,892 $14,499 $ 54,884 $14,247
======== ======= ======== =======
- --------
[1] If the Limited Partner elected to reduce his basis in his MDAH Partnership
Unit in lieu of recognizing cancellation of debt income in 1993 then the
estimated total tax would be $16,493 and $14,318 for Limited Partners who
elect to receive Common Shares and a Note, respectively.
To be reviewed together with the information set forth in the Supplement to
the Consent Solicitation for your Partnership under the captions "Federal
Income Tax Consequences--Tax Treatment of the [Your Partnership] Limited
Partners Who Exercise Their Right to Make the Common Share Election or the
Note Election" and "Federal Income Tax Consequences--Tax Treatment of [Your
Partnership] Limited Partners Who Hold OP Units Following the Merger--Impact
on Passive Activity Losses of an Investment in a Publicly Traded Partnership,"
and certain key assumptions that are described in the Supplement under the
caption "Federal Income Tax Consequences--Assumptions Used in Determining Tax
Consequences of the Merger."
9
ESTIMATE (ON A PER PARTNERSHIP UNIT BASIS) OF TAXABLE GAIN
RECOGNIZED BY AN "ORIGINAL" LIMITED PARTNER WHO PURCHASED HIS
PARTNERSHIP UNIT ON THE INSTALLMENT PLAN AND WHO ELECTS TO
RECEIVE COMMON SHARES OR A NOTE IN CONNECTION WITH THE MERGER.
COMMON SHARE ELECTION NOTE ELECTION
------------------------------ ------------------------------
MAXIMUM HYPOTHETICAL MAXIMUM HYPOTHETICAL
GAIN TAX RATE FEDERAL TAX GAIN TAX RATE FEDERAL TAX
-------- -------- ------------ -------- -------- ------------
DESERT SPRINGS
Capital Gain..... $ 27,277 20.0% $ 5,455 $ 19,101 20.0% $ 3,820
(S) 1250 Gain.... 19,008 25.0% 4,752 19,008 25.0% 4,752
(S) 1245 Gain.... 1,252 39.6% 496 1,252 39.6% 496
-------- ------- -------- -------
Total.......... $ 47,537 $10,703 $ 39,361 $ 9,068
======== ======= ======== =======
HANOVER
Capital Gain..... $ 24,640 20.0% $ 4,928 $ 0 20.0% $ 0
(S) 1250 Gain.... 12,246 25.0% 3,062 12,246 25.0% 3,062
(S) 1245 Gain.... 1,036 39.6% 410 1,036 39.6% 410
-------- ------- -------- -------
Total.......... $ 37,922 $ 8,400 $ 13,282 $ 3,472
======== ======= ======== =======
MDAH [2]
Capital Gain..... $ 25,022 20.0% $ 5,004 $ 14,149 20.0% $ 2,830
(S) 1250 Gain.... 32,941 25.0% 8,235 32,941 25.0% 8,235
(S) 1245 Gain.... 6,352 39.6% 2,515 6,352 39.6% 2,515
-------- ------- -------- -------
Total.......... $ 64,315 $15,755 $ 53,442 $13,580
======== ======= ======== =======
MHP
Capital Gain..... $ 66,487 20.0% $13,297 $ 49,674 20.0% $ 9,935
(S) 1250 Gain.... 133,537 25.0% 33,384 133,537 25.0% 33,384
(S) 1245 Gain.... 10,808 39.6% 4,280 10,808 39.6% 4,280
-------- ------- -------- -------
Total.......... $210,832 $50,962 $194,019 $47,599
======== ======= ======== =======
MHP2
Capital Gain..... $103,840 20.0% $20,768 $ 71,646 20.0% $14,329
(S) 1250 Gain.... 70,652 25.0% 17,663 70,652 25.0% 17,663
(S) 1245 Gain.... 3,269 39.6% 1,295 3,269 39.6% 1,295
-------- ------- -------- -------
Total.......... $177,761 $39,726 $145,567 $33,287
======== ======= ======== =======
- --------
[2] If the Limited Partner elected to reduce his basis in his MDAH Partnership
Unit in lieu of recognizing cancellation of debt income in 1993 then the
estimated total tax would be $16,682 and $14,508 for Limited Partners who
elect to receive Common Shares and a Note, respectively.
To be reviewed together with the information set forth in the Supplement to
the Consent Solicitation for your Partnership under the captions "Federal
Income Tax Consequences--Tax Treatment of the [Your Partnership] Limited
Partners Who Exercise Their Right to Make the Common Share Election or the
Note Election" and "Federal Income Tax Consequences--Tax Treatment of [Your
Partnership] Limited Partners Who Hold OP Units Following the Merger--Impact
on Passive Activity Losses of an Investment in a Publicly Traded Partnership,"
and certain key assumptions that are described in the Supplement under the
caption "Federal Income Tax Consequences--Assumptions Used in Determining Tax
Consequences of the Merger."
10
If you purchased your Partnership Unit at the time of the original offering
for your Partnership and the Partnership Unit has been your only investment in
a passive activity, your estimated passive activity loss carryforward, per
Partnership Unit, as of December 31, 1998, would be as follows:
PASSIVE
ACTIVITY LOSS
PARTNERSHIP CARRYFORWARD
- ----------- ----------------------
(PER PARTNERSHIP UNIT)
Atlanta Marquis......................................... $127,233
Chicago Suites.......................................... $ 4,384
Desert Springs
Partnership Unit acquired for cash.................... $ 2,110
Partnership Unit acquired under the installment plan.. $ 9,179
Hanover................................................. $ 0
MDAH
Partnership Unit acquired for cash.................... $ 12,096
Partnership Unit acquired for cash and Limited Partner
elected to reduce his basis in lieu of cancellation
of indebtedness...................................... $ 28,656
Partnership Unit acquired under the installment plan.. $ 35,483
Partnership Unit acquired under the installment plan
and Limited Partner elected to reduce his basis in
lieu of cancellation of indebtedness................. $ 40,635
MHP..................................................... $ 1,217
MHP2.................................................... $ 0
PHLP.................................................... $ 0
8. WHY DOESN'T THE PARTNERSHIP JUST SELL THE HOTELS TO HOST OR ANOTHER
PURCHASER, INSTEAD OF MERGING OUR PARTNERSHIP INTO THE OPERATING
PARTNERSHIP?
A sale of the Partnership's assets would result in the liquidation and
termination of each Partnership. A sale would result in each Limited Partner,
as well as Host Marriott, recognizing a substantial tax gain, and receiving
proceeds approximating the Liquidation Value, which in each case is
significantly less than the Exchange Value.
9. WHY IS HOST MARRIOTT CORPORATION CONVERTING TO A REIT?
Host Marriott Corporation believes that 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. In this
regard, Host believes the REIT Conversion, which will reduce corporate-level
taxes and the need to incur debt to reduce 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. Host
also believes that the REIT conversion will make performance comparisons with
its peers more meaningful.
11
By becoming a dividend paying company, Host believes its shareholder base
will expand to include investors attracted by yield as well as asset quality.
In addition, the adoption of the UPREIT structure is expected to facilitate
tax-deferred acquisitions of other quality hotel properties.
10. WHY IS THE OPERATING PARTNERSHIP LEASING THE HOTELS? WHAT IS CRESTLINE?
WILL I RECEIVE ANY CRESTLINE STOCK?
Under current federal income tax law, REITs are not permitted to derive
revenues directly from the operation of hotels. Therefore, the Operating
Partnership will lease its hotels to Crestline. Crestline currently is a
wholly owned subsidiary of Host, but Crestline will become a separate public
company when Host distributes the common stock of Crestline and other
consideration to Host's existing shareholders and the Blackstone entities in
connection with the REIT Conversion. This distribution will be done in
connection with Host's required distribution of its accumulated earnings and
profits in order to qualify as a REIT. Shares of Host REIT and Crestline will
be separately traded securities, and the two companies will operate
independently.
The Limited Partners will not receive any Crestline stock in connection with
the Mergers. The pricing mechanism for the Mergers--which is based upon the
average closing price for Host REIT Common Shares for the 20 trading days
following the Mergers (all of which will be after the Crestline stock has been
distributed)--is designed to ensure that your OP Units are fairly valued after
giving effect to Host's distribution of the Crestline stock to its
shareholders.
11. WHAT WILL BE THE TERMS OF THE NOTE IF I ELECT TO RECEIVE A NOTE?
The Notes will be direct, senior unsecured and unsubordinated obligations of
the Operating Partnership. The Notes will mature on December 15, 2005, or
approximately seven years following the Mergers. The Notes will bear interest
at a fixed rate of interest equal to 6.56% per annum. Interest will be payable
in arrears on each June 15 and December 15, commencing on June 15, 1999. The
principal amount of the Notes with respect to each Partnership will be equal
to the Liquidation Value, or if greater, 80% of the Exchange Value for your
Partnership Interest. (See the Answer to Question 1 for these amounts.) For a
table showing the estimated principal amount of the Notes with respect to each
Partnership, on a per Partnership Unit basis, see the Answer to Question 1.
12. I CURRENTLY OWN A VERY ILLIQUID INVESTMENT; WILL THIS CHANGE IF I VOTE FOR
THE MERGER?
Your Partnership Units are relatively illiquid investments. Although there
may be a limited resale market for your Partnership Units, the trading volume
is thin and the recent average trading prices of the outstanding Partnership
Units in each of the Partnerships are less than the estimated Exchange Value
for the Partnership Units. The Merger will offer you liquidity because you can
elect to exchange OP Units received in the Merger for Common Shares. In
addition, if you elect to retain your OP Units following the Mergers, you will
have
12
the right at any time, commencing one year following the Mergers, to exchange
your OP Units, on a one-for-one basis, for Host REIT Common Shares or the cash
equivalent thereof, at the election of Host REIT.
13. DO ALL EIGHT PARTNERSHIPS NEED TO VOTE "FOR" A MERGER FOR THE TRANSACTION
INVOLVING MY PARTNERSHIP TO BE COMPLETED?
No. Each Partnership votes individually on the transaction, and no Merger is
conditioned upon the consummation of any other Merger.
14. ON PAGE 136 OF THE CONSENT SOLICITATION, HOST ESTIMATES THAT THE
DISTRIBUTIONS PER OP UNIT DURING 1999 WILL BE APPROXIMATELY $0.84 PER OP
UNIT (ASSUMING THE MERGER OCCURS IN 1998). IF THIS ESTIMATE IS CORRECT,
HOW MUCH CASH WOULD A LIMITED PARTNER OWNING ONE PARTNERSHIP UNIT RECEIVE
FOR 1999, AND HOW DOES THAT COMPARE WITH THE DISTRIBUTION FROM MY
PARTNERSHIP FOR 1997 AND 1998?
Based upon preliminary estimates of Host REIT's taxable income for 1999, the
Operating Partnership currently estimates its initial annual distribution will
be approximately $0.84 per OP Unit ($0.21 per quarter) during 1999, a portion
of which may come from borrowings. Distributions are expected to be paid in
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 actual amount of cash distributions that
you would receive for 1999 if you were to retain the OP Units issued to you in
the Mergers would depend upon the number of OP Units issued to you in the
Merger with respect to your Partnership Interest. The Answer to Question 1
explains how that number will be determined.
If Host's preliminary estimate of $226 million of cash distributions by the
Operating Partnership during 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 estimated cash from
contingent rents ($54 million) during 1999, 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 its 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.
13
The following table sets forth for each Partnership, on a per Partnership
Unit basis, the actual cash distributions made from operations during 1997 and
the actual and expected distribution levels from operations during 1998, as
well as three alternative expected distributions that would be made with
respect to OP Units for 1999 if the Mergers and the REIT Conversion occur
(assuming that the Mergers occur on December 30, 1998), computed assuming that
the OP Units are valued for purposes of the Mergers at $9.50 (the minimum
price), $15.50 (the maximum price), and $12.50 (the midpoint between the
minimum price and the maximum price).
ESTIMATED 1999 DISTRIBUTIONS
FOLLOWING THE MERGERS (2)
-----------------------------------
ACTUAL AND AVERAGE AVERAGE AVERAGE
1997 EXPECTED 1998 SHARE PRICE SHARE PRICE SHARE PRICE
DISTRIBUTION DISTRIBUTIONS(1) $9.50 $15.50 $12.50
------------ ---------------- ----------- ----------- -----------
Atlanta Marquis......... $ 0 $ 5,000(3) $ 4,017 $ 2,462 $ 3,053
Chicago Suites.......... 0 0 2,930 1,796 2,227
Desert Springs.......... 25,000(4) 2,500 3,615 2,215 2,747
Hanover................. 0 0 10,894 6,677 8,279
MDAH.................... 3,453 0 9,657 5,919 7,339
MHP..................... 7,700 16,000 12,474 7,645 9,480
MHP2.................... 29,880 27,164 20,985 12,862 15,949
PHLP.................... 0 0 446 273 339
- --------
(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," in the Consent
Solicitation. Does not include amounts, if any, to be distributed by the
Partnerships from third and fourth quarter 1998 operations which will be
distributed by the Partnerships 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.
15. IF I HAVE FURTHER QUESTIONS, WHOM CAN I CONTACT?
As noted above, the General Partners or help in completing the Consent Form
(YELLOW) or OP Unit Exchange Election Form (BLUE), Limited Partners to consult
with their own financial and tax advisors regarding this transaction. If you
or your advisors have questions, please contact the following:
FOR QUESTIONS REGARDING THE MERGER OR HELP IN COMPLETING THE CONSENT FORM
(YELLOW) OR OP UNIT EXCHANGE ELECTION FORM (BLUE), CONTACT THE INFORMATION
AGENT:
Shareholder Communications Corporation 800-733-8481 ext. 445
14
EXHIBIT 99.29
[FORM OF LP TRANSMITTAL LETTER]
[For all states except Florida and Texas]
HOST MARRIOTT CORPORATION
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817-1109
(301) 380-9000
October 13 , 1998
Dear [Partnership] Limited Partner:
As publicly announced in April 1998, Host Marriott Corporation, a Delaware
corporation ("Host"), has adopted a plan to restructure its business
operations so that it will qualify as a real estate investment trust ("REIT")
for federal income tax purposes. As part of the restructuring and related
transactions (the "REIT Conversion"), Host proposes to merge into HMC Merger
Corporation (to be renamed "Host Marriott Corporation"), a Maryland
corporation ("Host REIT"), and thereafter continue and expand its full-service
hotel ownership business. Host REIT will operate through Host Marriott, L.P.,
a Delaware limited partnership (the "Operating Partnership"), of which Host
REIT will be the sole general partner. This is commonly called an "UPREIT"
structure and it is used to facilitate tax-deferred acquisitions of
properties.
In connection with the REIT Conversion, the Operating Partnership is
proposing to acquire Limited Partnership, a limited partnership (the
"Partnership"), through a merger (the "Merger") of the Partnership with a
subsidiary of the Operating Partnership ("Merger Sub"). As a limited partner
in the Partnership, your written consent is being solicited to approve
(i) the proposed Merger of the Partnership pursuant to the Agreement and
Plan of Merger, dated as of October 8, 1998 (the "Merger Agreement"), by
and among Host REIT, the Operating Partnership, Merger Sub and the
Partnership and the transactions contemplated thereby and
(ii) certain related amendments to the partnership agreement of the
Partnership intended to facilitate the Merger and the REIT Conversion.
Included in this package are:
. The Prospectus/Consent Solicitation Statement (the "Consent
Solicitation");
. A Supplement that contains specific information with respect to the
Partnership;
. A Consent Form (YELLOW) for voting--marked specifically for the
Partnership;
. An OP Unit Exchange Election Form (BLUE) and
. A list of commonly asked Questions and Answers, including telephone
numbers for assistance.
Capitalized terms used but not defined herein have the same meaning given to
them in the enclosed Prospectus/Consent Solicitation Statement (the "Consent
Solicitation").
If the Merger and the amendments are approved and the Merger is consummated,
you will be entitled to receive units of limited partnership interest in the
Operating Partnership ("OP Units") in exchange for your interests in the
Partnership. This generally will be a tax-deferred transaction. The OP Units
are economically equivalent to Host REIT Common Shares.
The number of OP Units you will receive will be based upon the Exchange Value
of the Partnership (determined as described in the Consent Solicitation) and the
value of the OP Units, which will be based on the average closing trading price
on the New York Stock Exchange of the Host REIT Common Shares over the first 20
trading days after the Merger (but will not be less than $9.50 or more than
$15.50 per OP Unit).
Beginning one year after the Merger, you may elect to have your OP Units
exchanged for freely-traded Host REIT Common Shares on a one-for-one basis (or
its cash equivalent, as determined by Host REIT). At your option, you also may
elect, at any time prior to the end of the Election Period (described
below), to exchange all of the OP Units received in the Merger for either an
equal number of Host REIT Common Shares or a 6.56% Callable Note due December
15, 2005 of the Operating Partnership (a "Note") in a principal amount equal
to the Note Election Amount. Exercise of either the Common Share Election or
the Note Election would be a taxable transaction.
The accompanying Consent Solicitation provides detailed information
concerning the proposed Merger and the amendments to the Partnership's
partnership agreement, the reasons for the General Partner's recommendations
in favor of the Merger, information about the Partnership, Host REIT and the
Operating Partnership and certain additional information. WE URGE YOU TO
CAREFULLY CONSIDER ALL OF THE INFORMATION IN THE CONSENT SOLICITATION,
INCLUDING THE INFORMATION SET FORTH UNDER "SUMMARY--RISK FACTORS" BEGINNING ON
PAGE SIX AND "RISK FACTORS" BEGINNING ON PAGE OF THE CONSENT SOLICITATION
FOR A DESCRIPTION OF THE MATERIAL RISKS OF AN INVESTMENT IN THE OP UNITS,
NOTES OR COMMON SHARES.
Some of the material risks include the following: (i)
substantial benefits to related partners; (ii) absence of arm's length
negotiations; (iii) other conflicts of interest; (iv) no opportunity to
benefit from Crestline common stock; (v) Exchange Value may not equal fair
market value of the Partnerships' Hotels; (vi) inability of Limited Partners
who retain OP Units to redeem OP Units for one year; (vii) value of the Notes
will be less than the Exchange Value; (viii) election of Common Shares or
Notes is a taxable transaction; (ix) cash distributions may exceed cash
available for distribution; reduced cash distributions for certain Limited
Partners; (x) timing of the REIT Conversion; (xi) fundamental change in nature
of investment; (xii) uncertainties as to the size and leverage of the
Operating Partnership; (xiii) lack of control over hotel operations and Non-
Controlled Subsidiaries; dependence upon Crestline; (xiv) requisite vote of
Limited Partners of the Partnerships binds all Limited Partners; (xv)
inability to obtain third-party consents may have a material adverse effect;
(xvi) exposure to market and economic conditions of other hotels; (xvii)
ownership limitations; (xviii) no limitation on debt; (xix) effect of
subsequent events upon recognition of gain; (xx) sale of personal property may
result in gain to Limited Partners in certain Partnerships; (xxi) failure of
Host REIT to qualify as a REIT for tax purposes; failure of the Operating
Partnership to qualify as a Partnership for tax purposes; and (xxii) change in
tax laws.
The General Partner believes that the Merger provides substantial benefits
to you as a Limited Partner, including: (i) the opportunity to receive regular
cash distributions per OP Unit equal to the distributions paid on each Host
REIT Common Share; (ii) the ability to participate in the operations of a
larger, more diverse enterprise with growth opportunities and generally lower
leverage; (iii) the ability to receive, in exchange for your OP Units, freely
tradeable Host REIT Common Shares in connection with the Merger; (iv) the
ability of Limited Partners who retain OP Units, at any time beginning one
year following the Merger, 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 (v) the deferral, for
Limited Partners who retain their 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.
AFTER CAREFUL CONSIDERATION, THE GENERAL PARTNER HAS DETERMINED THAT THE
MERGER IS ADVISABLE FOR AND FAIR TO THE LIMITED PARTNERS AND RECOMMENDS THAT
ALL LIMITED PARTNERS VOTE TO APPROVE THE MERGER AND THE RELATED AMENDMENTS TO
THE PARTNERSHIP AGREEMENT. IN ORDER TO MAKE CERTAIN THAT THE MERGER IS
APPROVED, A LIMITED PARTNER WHO FAVORS THE MERGER SHOULD VOTE FOR THE MERGER
AND FOR THE AMENDMENTS TO THE PARTNERSHIP AGREEMENT.
The close of business on September 18, 1998 has been set by [GP ENTITY] (the
"General Partner") as the record date for determining Limited Partners entitled
to vote on the Merger and the related amendments to the partnership agreement.
IT IS IMPORTANT THAT YOUR PARTNERSHIP UNITS BE VOTED, REGARDLESS OF THE NUMBER
OF PARTNERSHIP UNITS YOU HOLD. Therefore, please promptly complete, sign, date
and return the Consent Form (yellow) in the enclosed prepaid envelope as soon as
possible but in any event no later than 5:00 p.m., Eastern time, on December 12,
1998 (the "Solicitation Period"). You may change or revoke your vote during the
Solicitation
2
Period as described in the Consent Solicitation. In addition, if you desire to
exchange your OP Units for Common Shares or Notes, please make certain you check
the appropriate box on the enclosed OP Unit Exchange Election Form (blue) and
sign, date and return the Form at any time prior to 5:00 p.m., Eastern time, on
the 15th trading day after the Merger (the "Election Period"). We will notify
you at a later time of the actual date for the end of the Election Period. You
may change or revoke your election of Common Shares or Notes at any time during
the Election Period.
Your prompt cooperation would be greatly appreciated.
Sincerely, Sincerely,
HMC Merger Corporation, a Maryland Host Marriott, L.P., a Delaware
corporation limited partnership
By: HMC Real Estate LLC, a
Delaware limited liability
company, as general partner of
Host Marriott, L.P.
_____________________________________
ROBERT E. PARSONS, JR. --------------------------------------
PRESIDENT ROBERT E. PARSONS, JR.
PRESIDENT
Sincerely,
, as general partner of
Limited Partnership
_____________________________________
BRUCE F. STEMERMAN
PRESIDENT
YOUR VOTE IS VERY IMPORTANT
PLEASE PROMPTLY COMPLETE, SIGN AND DATE
AND RETURN THE ENCLOSED CONSENT FORM (YELLOW)
IF YOU OR YOUR ADVISORS HAVE ANY QUESTIONS REGARDING THE MERGER, PLEASE
CONTACT THE FOLLOWING INFORMATION AGENT:
Shareholder Communications Corporation at: 1-800-733-8481 ext-445
TO SPEAK TO A REPRESENTATIVE OF THE GENERAL PARTNER OR HOST MARRIOTT
CORPORATION, PLEASE CALL:
Partnership Investor Relations at: 301-380-2070
3
EXHIBIT 99.29
[FORM OF LP TRANSMITTAL LETTER]
[For Florida and Texas only]
HOST MARRIOTT CORPORATION
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817-1109
(301) 380-9000
October 13, 1998
Dear [Partnership] Limited Partner:
As publicly announced in April 1998, Host Marriott Corporation, a Delaware
corporation ("Host"), has adopted a plan to restructure its business
operations so that it will qualify as a real estate investment trust ("REIT")
for federal income tax purposes. As part of the restructuring and related
transactions (the "REIT Conversion"), Host proposes to merge into HMC Merger
Corporation (to be renamed "Host Marriott Corporation"), a Maryland
corporation ("Host REIT"), and thereafter continue and expand its full-service
hotel ownership business. Host REIT will operate through Host Marriott, L.P.,
a Delaware limited partnership (the "Operating Partnership"), of which Host
REIT will be the sole general partner. This is commonly called an "UPREIT"
structure and it is used to facilitate tax-deferred acquisitions of
properties.
In connection with the REIT Conversion, the Operating Partnership is
proposing to acquire Limited Partnership, a limited partnership (the
"Partnership"), through a merger (the "Merger") of the Partnership with a
subsidiary of the Operating Partnership ("Merger Sub"). As a limited partner
in the Partnership, your written consent is being solicited to approve
(i) the proposed Merger of the Partnership pursuant to the Agreement and
Plan of Merger, dated as of October 8, 1998 (the "Merger Agreement"), by
and among Host REIT, the Operating Partnership, Merger Sub and the
Partnership and the transactions contemplated thereby and
(ii) certain related amendments to the partnership agreement of the
Partnership intended to facilitate the Merger and the REIT Conversion.
Included in this package are:
. The Prospectus/Consent Solicitation Statement (the "Consent
Solicitation");
. A Supplement that contains specific information with respect to the
Partnership;
. A Consent Form (YELLOW) for voting--marked specifically for the
Partnership;
. An OP Unit Exchange Election Form (BLUE) and
. A list of commonly asked Questions and Answers, including telephone
numbers for assistance.
Capitalized terms used but not defined herein have the same meaning given to
them in the enclosed Prospectus/Consent Solicitation Statement (the "Consent
Solicitation").
If the Merger and the amendments are approved and the Merger is consummated,
you will be entitled to receive units of limited partnership interest in the
Operating Partnership ("OP Units") in exchange for your interests in the
Partnership. This generally will be a tax-deferred transaction. The OP Units
are economically equivalent to Host REIT Common Shares.
The number of OP Units you will receive will be based upon the Exchange Value
of the Partnership (determined as described in the Consent Solicitation) and the
value of the OP Units, which will be based on the average closing trading price
on the New York Stock Exchange of the Host REIT Common Shares over the first 20
trading days after the Merger (but will not be less than $9.50 or more than
$15.50 per OP Unit).
Beginning one year after the Merger, you may elect to have your OP Units
exchanged for freely-traded Host REIT Common Shares on a one-for-one basis (or
its cash equivalent, as determined by Host REIT). At your option, you also may
elect, at any time prior to the end of the Election Period (described
below), to exchange all of the OP Units received in the Merger for either an
equal number of Host REIT Common Shares or a 6.56% Callable Note due December
15, 2005 of the Operating Partnership (a "Note") in a principal amount equal
to the Note Election Amount. Exercise of either the Common Share Election or
the Note Election would be a taxable transaction.
The accompanying Consent Solicitation provides detailed information
concerning the proposed Merger and the amendments to the Partnership's
partnership agreement, the reasons for the General Partner's recommendations
in favor of the Merger, information about the Partnership, Host REIT and the
Operating Partnership and certain additional information. WE URGE YOU TO
CAREFULLY CONSIDER ALL OF THE INFORMATION IN THE CONSENT SOLICITATION,
INCLUDING THE INFORMATION SET FORTH UNDER "SUMMARY--RISK FACTORS" BEGINNING ON
PAGE SIX AND "RISK FACTORS" BEGINNING ON PAGE OF THE CONSENT SOLICITATION
FOR A DESCRIPTION OF THE MATERIAL RISKS OF AN INVESTMENT IN THE OP UNITS,
NOTES OR COMMON SHARES.
Some of the material risks include the following: (i)
substantial benefits to related partners; (ii) absence of arm's length
negotiations; (iii) other conflicts of interest; (iv) no opportunity to
benefit from Crestline common stock; (v) Exchange Value may not equal fair
market value of the Partnerships' Hotels; (vi) inability of Limited Partners
who retain OP Units to redeem OP Units for one year; (vii) value of the Notes
will be less than the Exchange Value; (viii) election of Common Shares or
Notes is a taxable transaction; (ix) cash distributions may exceed cash
available for distribution; reduced cash distributions for certain Limited
Partners; (x) timing of the REIT Conversion; (xi) fundamental change in nature
of investment; (xii) uncertainties as to the size and leverage of the
Operating Partnership; (xiii) lack of control over hotel operations and Non-
Controlled Subsidiaries; dependence upon Crestline; (xiv) requisite vote of
Limited Partners of the Partnerships binds all Limited Partners; (xv)
inability to obtain third-party consents may have a material adverse effect;
(xvi) exposure to market and economic conditions of other hotels; (xvii)
ownership limitations; (xviii) no limitation on debt; (xix) effect of
subsequent events upon recognition of gain; (xx) sale of personal property may
result in gain to Limited Partners in certain Partnerships; (xxi) failure of
Host REIT to qualify as a REIT for tax purposes; failure of the Operating
Partnership to qualify as a Partnership for tax purposes; and (xxii) change in
tax laws.
The General Partner believes that the Merger provides substantial benefits
to you as a Limited Partner, including: (i) the opportunity to receive regular
cash distributions per OP Unit equal to the distributions paid on each Host
REIT Common Share; (ii) the ability to participate in the operations of a
larger, more diverse enterprise with growth opportunities and generally lower
leverage; (iii) the ability to receive, in exchange for your OP Units, freely
tradeable Host REIT Common Shares in connection with the Merger; (iv) the
ability of Limited Partners who retain OP Units, at any time beginning one
year following the Merger, 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 (v) the deferral, for
Limited Partners who retain their 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.
AFTER CAREFUL CONSIDERATION, THE GENERAL PARTNER HAS DETERMINED THAT THE
MERGER IS ADVISABLE FOR AND FAIR TO THE LIMITED PARTNERS AND RECOMMENDS THAT
ALL LIMITED PARTNERS VOTE TO APPROVE THE MERGER AND THE RELATED AMENDMENTS TO
THE PARTNERSHIP AGREEMENT. IN ORDER TO MAKE CERTAIN THAT THE MERGER IS
APPROVED, A LIMITED PARTNER WHO FAVORS THE MERGER SHOULD VOTE FOR THE MERGER
AND FOR THE AMENDMENTS TO THE PARTNERSHIP AGREEMENT.
The close of business on September 18, 1998 has been set by [GP ENTITY] (the
"General Partner") as the record date for determining Limited Partners entitled
to vote on the Merger and the related amendments to the partnership agreement.
IT IS IMPORTANT THAT YOUR PARTNERSHIP UNITS BE VOTED, REGARDLESS OF THE NUMBER
OF PARTNERSHIP UNITS YOU HOLD. Therefore, please promptly complete, sign, date
and return the Consent Form (yellow) in the enclosed prepaid envelope as soon as
possible but in any event no later than 5:00 p.m., Eastern time, on December 12,
1998 (the "Solicitation Period"). You may change or revoke your vote during the
Solicitation
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Period as described in the Consent Solicitation. In addition, if you desire to
exchange your OP Units for Common Shares or Notes, please make certain you
check the appropriate box on the enclosed OP Unit Exchange Election Form (Blue)
and sign, date and return the Form at any time prior to 5:00 p.m., Eastern time,
on the 15th trading day after the Merger (the "Election Period"). We will notify
you at a later time of the actual date for the end of the Election Period. You
may change or revoke your election of Common Shares or Notes at any time during
the Election Period.
Your prompt cooperation would be greatly appreciated.
Sincerely, Sincerely,
HMC Merger Corporation, a Maryland Host Marriott, L.P., a Delaware
corporation limited partnership
By: HMC Real Estate LLC, a
Delaware limited liability
company, as general partner of
Host Marriott, L.P.
_____________________________________
ROBERT E. PARSONS, JR. --------------------------------------
PRESIDENT ROBERT E. PARSONS, JR.
PRESIDENT
Sincerely,
, as general partner of
Limited Partnership
_____________________________________
BRUCE F. STEMERMAN
PRESIDENT
YOUR VOTE IS VERY IMPORTANT
PLEASE PROMPTLY COMPLETE, SIGN AND DATE
AND RETURN THE ENCLOSED CONSENT FORM (YELLOW)
IF YOU OR YOUR ADVISORS HAVE ANY QUESTIONS REGARDING THE MERGER, PLEASE
CONTACT THE FOLLOWING INFORMATION AGENT:
Shareholder Communications Corporation at: 1-800-733-8481 ext. 445
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