OFFER TO PURCHASE FOR CASH 450 OUTSTANDING UNITS OF LIMITED PARTNERSHIP
INTEREST
OF
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
AT
$80,000 NET PER UNIT
BY
MHP ACQUISITION CORP.
A WHOLLY OWNED DIRECT SUBSIDIARY OF
HOST MARRIOTT CORPORATION
--------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 P.M.,
NEW YORK CITY TIME, ON FRIDAY, DECEMBER 20, 1996, UNLESS THE OFFER IS
EXTENDED.
--------------
MHP Acquisition Corp., a Delaware corporation (the "Purchaser") which is a
wholly owned direct subsidiary of Host Marriott Corporation ("Host Marriott"
or "Parent") and an affiliate of Marriott Hotel Properties Limited
Partnership, a Delaware limited partnership (the "Partnership"), hereby offers
to purchase 450 outstanding units of limited partnership interest (the
"Units") in the Partnership, at a price of $80,000 per Unit (the "Offer
Price"), net to the seller in cash without interest thereon, upon the terms
and subject to the conditions in this Offer to Purchase and in the related
Letter of Transmittal (together with any supplement thereto, the "Letter of
Transmittal," and which, together with the Offer to Purchase, constitutes the
"Offer"). In the event more than 450 Units are validly tendered and not
properly withdrawn on or prior to 6:00 p.m. on Friday, December 20, 1996 (the
"Expiration Date"), the Purchaser will, upon the terms and subject to the
conditions of the Offer, accept for payment 450 Units on a pro rata basis
based upon the number of Units properly tendered by the Expiration Date and
not withdrawn.
--------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS:
(1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION
DATE AT LEAST 450 UNITS; AND
(2) PRIOR TO THE TIME OF ACCEPTANCE FOR PAYMENT OF UNITS TENDERED PURSUANT
TO THE OFFER, THE PARTNERSHIP HAVING RECEIVED FROM THE HOLDERS OF
RECORD OF LIMITED PARTNERSHIP INTERESTS IN THE PARTNERSHIP (THE
"LIMITED PARTNERS") HOLDING A MAJORITY OF THE OUTSTANDING UNITS
CONSENTS TO CERTAIN AMENDMENTS TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF THE PARTNERSHIP (THE "PARTNERSHIP AGREEMENT").
THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF ANY PROXIES OR
CONSENTS. SUCH SOLICITATION WILL BE MADE ONLY PURSUANT TO SEPARATE CONSENT
SOLICITATION MATERIALS COMPLYING WITH THE REQUIREMENTS OF SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
--------------
In their evaluation of the Offer, Unitholders should carefully consider the
following:
. The Offer Price was established by Host Xxxxxxxx and is not the result
of arm's length negotiations.
. The General Partner is a wholly owned direct subsidiary of Host Marriott
and an affiliate of the Purchaser and therefore has substantial
conflicts of interest with respect to the Offer.
. Although Host Marriott cannot predict the future value of the
Partnership's assets, the Offer Price could be substantially less than
the net proceeds that could be realized upon a future liquidation of the
Partnership. In accordance with the Amended and Restated Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement"),
the term of the Partnership will expire on January 1, 2106, although it
is expected that the Partnership may terminate sooner than 2106. The
General Partner currently has no plans to liquidate or dissolve the
Partnership.
. The Purchaser and Host Marriott are making the Offer with a view to
making a profit. Accordingly, there is a conflict between the desire of
the Purchaser and Host Marriott to purchase Units at a low price and the
desire of the Unitholders to sell their Units at a high price. There is
no established or regular trading market for the Units, nor is there
another reliable standard for determining the fair market value of the
Units. The Offer Price is not intended to represent the highest or most
likely price that would be achieved in an open market for a Unit or the
Partnership's assets on a per Unit basis.
. Upon consummation of the Offer, Host Xxxxxxxx, through the General
Partner and the Purchaser, will be in a position to influence
substantially all significant decisions with respect to the Partnership,
except decisions relating to matters where Host Xxxxxxxx, the Purchaser
and the General Partner or their affiliates have an actual economic
interest other than as a Unitholder.
. No unaffiliated person has been retained to represent the Limited
Partners and to act solely on their behalf to negotiate or evaluate the
Offer. If an unaffiliated person had been engaged, the terms and
conditions of the Offer might have been different, and possibly more
favorable, to Unitholders who elect to tender their Units.
. In the event the Offer is consummated and all 450 Units are purchased,
the number of Units that may be sold or exchanged in the twelve months
following consummation of the Offer will be limited. In this regard, the
General Partner is required, pursuant to the terms of the Partnership
Agreement, to impose a Transfer Restriction on any sales or exchanges of
Units that would result in a Section 708 Termination.
THE GENERAL PARTNER OF MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP IS A
WHOLLY OWNED DIRECT SUBSIDIARY OF HOST MARRIOTT AND AN AFFILIATE OF THE
PURCHASER AND, THEREFORE, HAS SUBSTANTIAL CONFLICTS OF INTEREST WITH RESPECT
TO THE OFFER. ACCORDINGLY, THE GENERAL PARTNER MAKES NO RECOMMENDATION TO ANY
HOLDER OF A UNIT (A "UNITHOLDER") AS TO WHETHER TO TENDER OR TO REFRAIN FROM
TENDERING UNITS. EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER OR
NOT TO PARTICIPATE IN THE OFFER.
AMERICAN APPRAISAL ASSOCIATES, INC. HAS DELIVERED TO HOST XXXXXXXX AND THE
PURCHASER ITS WRITTEN OPINION THAT THE TERMS AND CONDITIONS OF THE OFFER
(INCLUDING THE CONSIDERATION TO BE RECEIVED IN THE OFFER) ARE FAIR, FROM A
FINANCIAL POINT OF VIEW, TO THE UNITHOLDERS (OTHER THAN HOST XXXXXXXX, THE
PURCHASER AND THE GENERAL PARTNER). SEE "SPECIAL FACTORS--OPINION OF AMERICAN
APPRAISAL ASSOCIATES, INC."
THE PURCHASER IS A WHOLLY OWNED DIRECT SUBSIDIARY OF HOST MARRIOTT AND AN
AFFILIATE OF THE GENERAL PARTNER. THE OFFER IS BEING FINANCED BY PARENT.
ACCORDINGLY, FOR PURPOSES OF ANALYZING THE FAIRNESS OF THE OFFER, HOST
XXXXXXXX AND THE PURCHASER SHOULD BE CONSIDERED TO BE THE SAME ENTITY. THE
PURCHASER AND HOST XXXXXXXX BELIEVE THAT THE CONSIDERATION TO BE RECEIVED BY
THE UNITHOLDERS PURSUANT TO THE OFFER IS FAIR TO THE UNITHOLDERS.
IMPORTANT
Any Unitholder desiring to tender all or any portion of his or her Units
should either (i) complete and sign the Letter of Transmittal (or a facsimile
thereof) in accordance with the instructions in the Letter of Transmittal and
mail or deliver it and any other required documents to the Depositary at the
address set forth on the back cover of this Offer to Purchase or (ii) request
his or her broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for him. A Unitholder whose Units are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee must
contact such broker, dealer, commercial bank, trust company or other nominee
if he or she desires to tender such Units.
Questions and requests for assistance may be directed to the Information
Agent at its address and telephone number set forth below and on the back
cover of this Offer to Purchase. Additional copies of this Offer to Purchase,
the Letter of Transmittal and other related materials may be obtained from the
Information Agent or from brokers, dealers, commercial banks and trust
companies.
THE INFORMATION AGENT FOR THE OFFER IS:
TRUST COMPANY OF AMERICA
0000 XXXXX XXXXXX XXXXXXX
XXXXXXXXX, XXXXXXXX 00000-9523
0-000-000-0000
THE DATE OF THIS OFFER TO PURCHASE IS NOVEMBER 19, 1996
TABLE OF CONTENTS
PAGE
----
INTRODUCTION............................................................. 1
SUMMARY.................................................................. 4
RISK FACTORS............................................................. 9
SPECIAL FACTORS.......................................................... 12
Background of the Offer................................................ 12
Position of the General Partner; Fairness of the Offer................. 13
Determination of Offer Price........................................... 13
Position of Parent and the Purchaser Regarding Fairness of the Offer... 14
Opinion of American Appraisal.......................................... 15
Purpose of the Offer................................................... 22
Plans for the Partnership; Certain Effects of the Offer................ 23
Interests of Certain Persons........................................... 25
Limited Partners' Consent.............................................. 26
Effects of Proposed Amendments on Non-Tendering Unitholders............ 27
Conflicts of Interest.................................................. 31
Policies with Respect to Conflicts of Interest......................... 32
THE TENDER OFFER......................................................... 34
1.Terms of the Offer, Expiration Date and Proration................... 34
2.Acceptance for Payment and Payment for Units........................ 35
3.Procedures for Accepting the Offer and Tendering Units.............. 36
4.Withdrawal Rights................................................... 38
5.Price Range of Units; Distributions................................. 38
6.Effect of the Offer on Market for Units; Registration under the
Exchange Act.......................................................... 41
7.Source and Amount of Funds.......................................... 42
8.Conditions of the Offer............................................. 42
9.Certain Legal Matters............................................... 43
10.Fees and Expenses................................................... 44
11.Miscellaneous....................................................... 44
THE PARTNERSHIP.......................................................... 45
Business............................................................... 45
Summary Financial Information.......................................... 45
THE PURCHASER AND PARENT................................................. 47
The Purchaser.......................................................... 47
Parent................................................................. 47
Selected Consolidated Financial Data................................... 48
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................ 49
AVAILABLE INFORMATION.................................................... 52
GLOSSARY................................................................. G-1
SCHEDULE I--Information with respect to Directors and Executive Officers
of Host Marriott and Purchaser
SCHEDULE II--Information with respect to Directors and Executive Officers
of Hotel Properties Management, Inc.
SCHEDULE III--Opinion of American Appraisal Associates, Inc.
SCHEDULE IV--Financial Information of the Partnership
TO THE HOLDERS OF LIMITED PARTNERSHIP UNITS OF
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP:
INTRODUCTION
MHP Acquisition Corp., a Delaware corporation (the "Purchaser") hereby
offers to purchase 450 outstanding units of limited partnership interest (the
"Units") in Marriott Hotel Properties Limited Partnership, a Delaware limited
partnership (the "Partnership") at a price of $80,000 per Unit, net to the
seller in cash without interest thereon, upon the terms and subject to the
conditions in this Offer to Purchase and in the related Letter of Transmittal
(together with any supplements thereto, the "Letter of Transmittal," and
which, together with the Offer to Purchase, constitutes the "Offer"). The
Purchaser has been organized by, and is a wholly owned direct subsidiary of,
Host Marriott Corporation, a Delaware corporation (the "Parent" or "Host
Marriott"). The general partner of the Partnership, Hotel Properties
Management, Inc., a Delaware corporation (the "General Partner"), is a wholly
owned direct subsidiary of Parent and an affiliate of the Purchaser. Upon
consummation of the Offer, Parent, through the General Partner and the
Purchaser, will be in a position to influence substantially all significant
decisions with respect to the Partnership, except decisions relating to
matters where Parent, the Purchaser, the General Partner or their affiliates
have an actual economic interest other than as a holder of Units (a
"Unitholder"). See "Plans for the Partnership; Certain Effects of the Offer."
Under Delaware law, the General Partner has a fiduciary duty to the
Partnership and is required to exercise good faith and loyalty in all its
dealings with respect to Partnership affairs. The General Partner has advised
the Purchaser that it will conduct the affairs of the Partnership (including
its actions relating to the Consent Solicitation and response to this Offer)
in accordance with its fiduciary duty.
THE GENERAL PARTNER IS A WHOLLY OWNED DIRECT SUBSIDIARY OF HOST MARRIOTT AND
AN AFFILIATE OF THE PURCHASER AND, THEREFORE, HAS SUBSTANTIAL CONFLICTS OF
INTEREST WITH RESPECT TO THE OFFER. ACCORDINGLY, THE GENERAL PARTNER MAKES NO
RECOMMENDATION TO ANY UNITHOLDER TO TENDER OR TO REFRAIN FROM TENDERING HIS OR
HER UNITS. EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER OR NOT TO
TENDER, BASED UPON A NUMBER OF FACTORS, INCLUDING THE UNITHOLDER'S FINANCIAL
POSITION, NEED OR DESIRE FOR LIQUIDITY, OTHER FINANCIAL OPPORTUNITIES,
WILLINGNESS AND ABILITY TO BEAR THE ECONOMIC RISKS OF THE INVESTMENT AND TAX
POSITION. SEE "SPECIAL FACTORS--POSITION OF THE GENERAL PARTNER; FAIRNESS OF
THE OFFER."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS:
(1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE
EXPIRATION DATE AT LEAST 450 UNITS (THE "MINIMUM TENDER CONDITION"); AND
(2) PRIOR TO THE TIME OF ACCEPTANCE FOR PAYMENT OF UNITS TENDERED
PURSUANT TO THE OFFER, THE PARTNERSHIP HAVING RECEIVED FROM THE HOLDERS OF
RECORD OF LIMITED PARTNERSHIP INTERESTS IN THE PARTNERSHIP (THE "LIMITED
PARTNERS") HOLDING A MAJORITY OF THE OUTSTANDING UNITS CONSENTS TO CERTAIN
AMENDMENTS TO THE AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
THE PARTNERSHIP (THE "PARTNERSHIP AGREEMENT") PRIOR TO THE TIME OF
ACCEPTANCE FOR PAYMENT OF UNITS TENDERED PURSUANT TO THE OFFER (THE
"LIMITED PARTNERS' CONSENT CONDITION").
A "sale or exchange" of 50% or more of the total interest in a partnership's
capital and profit within any twelve-month period would result in termination
of the partnership for Federal income tax purposes (a "Section 708
Termination"), pursuant to Section 708(b)(1)(B) of the Internal Revenue Code
of 1986, as amended (the "Code"). In accordance with the Partnership
Agreement, no Unit may be sold or exchanged if, when added to the total of all
other Units sold or exchanged within a period of twelve consecutive months
prior thereto, such sale or exchange would, in the opinion of legal counsel
for the Partnership, result in a Section 708 Termination.
Accordingly, the Purchaser is tendering for only 450 Units (which, if
purchased, would result in the General Partner and the Purchaser owning 46.05%
of the outstanding Units, as described below). In the event the Offer is
consummated and all 450 Units are purchased, the number of Units that may be
sold or exchanged by all Unitholders (including the Purchaser and the General
Partner) in the twelve months following consummation of the Offer will be
limited. In this regard, the General Partner is required, pursuant to the
terms of the Partnership Agreement, to impose a suspension of any sales and
exchanges of Units that would result in a Section 708 Termination (the
"Transfer Restriction"). In determining applicability of the Transfer
Restriction, the General Partner is required to take into account both the 450
Units purchased pursuant to the Offer and any other sales or exchanges of
Units that occur prior to or following the consummation of the Offer.
Tendering Unitholders will not be obligated to pay brokerage commissions or,
except as otherwise provided in Instruction 5 to the Letter of Transmittal,
transfer taxes on the purchase of Units pursuant to the Offer. The Purchaser
will pay all charges and expenses associated with the Offer.
The Partnership has informed the Purchaser that, as of November 14, 1996,
there were 1,000 Units issued and outstanding, held of record by 1,165
Unitholders. The General Partner owned ten and one-half (10.5) Units as of
November 14, 1996, which represents 1.05% of the total Units. The General
Partner has informed the Purchaser that it does not intend to tender any such
Units pursuant to the Offer. The Minimum Tender Condition requires that there
be validly tendered and not withdrawn by the Expiration Date 450 Units which,
together with the 10.5 Units owned by the General Partner, would result in
ownership by the General Partner and the Purchaser of 46.05% of the Units
outstanding.
Parent has retained Trust Company of America to act as the Information Agent
(the "Information Agent"). Parent has retained GEMISYS, Inc. to act as the
Depositary in connection with the Offer.
The Limited Partners' Consent Condition requires that, immediately prior to
the time of acceptance for payment of Units tendered pursuant to the Offer,
the Partnership shall have received from Limited Partners holding a majority
of the outstanding Units valid and effective consents that have not been
rescinded or revoked to certain of the proposed amendments to the Partnership
Agreement necessary and sufficient in the judgment of the Purchaser in order
to permit the consummation of the Offer and the transactions contemplated
thereby. See "Special Factors--Limited Partners' Consent."
The Offer will expire at 6:00 P.M., New York City time, on Friday, December
20, 1996, unless extended.
2
The following chart depicts the relationship between Host Xxxxxxxx, the
Purchaser and the Partnership.
-------------------------------
Host Marriott Corporation
(Parent)
-------------------------------
100% 100%
--------------------- --------------------
Hotel Properties MHP Acquisition
Management, Inc. Corporation
(General Partner) (Purchaser)
--------------------- --------------------
Limited Partners
----------------
1%
99%
----------------------------------
Marriott Hotel Properties, L.P.
(Partnership)
----------------------------------
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
3
SUMMARY
Unitholders are urged to read carefully this Offer to Purchase, particularly
the matters discussed under "Risk Factors" and "Special Factors," and the
accompanying Letter of Transmittal before deciding whether to tender their
Units. The following is a summary of certain information contained in this
Offer to Purchase. The summary is not intended to be complete and is qualified
in its entirety by reference to the more detailed information set forth
elsewhere in this Offer to Purchase. Capitalized terms used in this summary
shall have the defined meanings as set forth in the body of the Offer to
Purchase and in the Glossary.
HOST XXXXXXXX, THE PURCHASER AND THE PARTNERSHIP
The Partnership......... The Partnership is a Delaware limited partnership
with its principal executive offices located at
00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000 and
its telephone number is (000) 000-0000. The
Partnership was formed in 1984 and currently owns
the Orlando Hotel and a 50.5% partnership
interest in the Harbor Beach Partnership, which
owns the Harbor Beach Hotel. The Hotels are
operated by MII, formerly a wholly-owned
subsidiary of Parent that was spun-off in October
1993, and is now a publicly held company.
The Partnership has no directors or officers. The
business and policymaking functions of the
Partnership are carried out through the directors
and executive officers of the General Partner.
The General Partner is Hotel Properties
Management, Inc., a Delaware corporation, which
is a wholly owned direct subsidiary of Host
Marriott and an affiliate of the Purchaser. All
the officers and directors of the General Partner
are also officers or employees of Host Xxxxxxxx;
none of the officers and directors of the General
Partner is an officer or director of the
Purchaser. Pursuant to the terms of the
Partnership Agreement as currently in effect MII
is deemed to be an affiliate of the Partnership.
Likewise, the General Partner is deemed an
affiliate of MII.
Host Marriott........... Host Marriott, a Delaware corporation, is one of
the larger owners of lodging properties in the
world. Substantially all of Host Marriott's 77
owned lodging properties are operated under
Marriott brand names and managed by MII. Host
Marriott's primary focus is on the acquisition of
full service lodging properties (primarily
Marriott Hotels, Resorts and Suites). Host
Xxxxxxxx also holds minority interests in various
partnerships that own approximately 254
additional hotel properties operated by MII. The
principal office of Host Marriott is 00000
Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000 and its
telephone number is (000) 000-0000.
The Purchaser........... The Purchaser, a Delaware corporation and a
wholly owned direct subsidiary of Host Marriott,
was incorporated on November 14, 1996, for the
purpose of acquiring the Units, and has engaged
in no activities to date, other than those inci-
dental to its organization and making the Offer.
All the officers and directors of the Purchaser
are also officers or employees of Host Marriott;
none of the officers and
4
directors of the Purchaser is an officer or
director of the General Partner. The principal
office of the Purchaser is located at 00000
Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000 and its
telephone number is (000) 000-0000.
THE OFFER
Number of Units......... The Offer relates to 450 of the 1,000 outstanding
Units.
Offer Price............. $80,000 net per Unit in cash.
Comparative Price
Information............ The Partnership sold 1,000 Units in a private
placement in 1985, for an aggregate of $100,000
per Unit, payable in six installments as follows:
$10,000 at subscription, $12,000 (May 15, 1986),
$20,500 (May 15, 1987), $19,500 (May 15, 1988),
$19,000 (May 15, 1989), and $19,000 (May 15,
1990). During 1996, the average price for the
23.5 Units that have been transferred on the rec-
ords of the Partnership was $24,664. As part of
preparing its opinion, American Appraisal esti-
mated that the net asset value per Unit which
could be obtained if the Hotels were sold as go-
ing concerns would be between $69,400 and
$102,800 per Unit, subject to the assumptions set
forth in its opinion.
Proration............... In the event more than 450 Units are validly ten-
dered and not properly withdrawn, the Purchaser
will accept for payment 450 Units on a pro rata
basis based upon the number of Units properly
tendered and not withdrawn by the Expiration
Date.
Following consummation of the Offer it is the
Purchaser's current intention to acquire addi-
tional Units beginning after the end of a twelve
month period. Any such acquisition may be made
through private purchases, a future tender offer,
or by any other means deemed advisable by the
Purchaser. The Purchaser currently anticipates
that in acquiring additional Units (other than
pursuant to a future tender offer), it will give
priority to the acquisition of fractional inter-
ests of Units resulting from proration of Units
tendered in the Offer and that such acquisitions
may be at a price equivalent to the Offer Price
on a per Unit basis. However, the Purchaser is
not obligated to make any such acquisitions and
any acquisitions of additional Units, if made,
may be at a price higher or lower than the Offer
Price. The Purchaser currently intends to wait
until at least twelve months after consummation
of the Offer to acquire any additional Units so
as to not cause a Section 708 Termination. Busi-
ness conditions existing after the end of the
twelve month period following consummation of the
Offer may make it impractical or inadvisable for
the Purchaser to acquire any additional Units at
that time. Host Xxxxxxxx does not believe that
consummation of the Offer will result in the ter-
mination of the Partnership's reporting obliga-
tions under the Exchange Act.
Conditions.............. The Offer is subject to a number of conditions,
including the tender of a minimum of 450 Units
and the approval by the Limited Partners of cer-
tain amendments to the Partnership Agreement.
5
Expiration, Proration
and Withdrawal Date.... 6:00 p.m., New York City time, Friday, December
20, 1996, unless extended.
POSITION OF THE GENERAL PARTNER
Conflicts of Interest... Since the General Partner is a wholly owned di-
rect subsidiary of Host Marriott and an affiliate
of the Purchaser, the General Partner has sub-
stantial conflicts of interest with respect to
the Offer. The General Partner owns 10.5 Units,
which represent 1.05% of the total Units out-
standing. See, "Special Factors--Purpose of the
Offer" and "--Conflicts of Interest."
No Recommendation....... The General Partner makes no recommendation to
any Unitholder whether to tender or to refrain
from tendering his or her Units. Each Unitholder
must make his or her own decision whether or not
to tender.
Fiduciary Obligations... Under Delaware Law, the General Partner has a fi-
duciary duty to the Partnership and is required
to exercise good faith and loyalty in all its
dealings with respect to Partnership affairs.
See, "Special Factors--Purpose of the Offer" and
"--Conflicts of Interest."
POSITION OF HOST XXXXXXXX
AND THE PURCHASER Host Marriott and the Purchaser believe that the
consideration to be received by Unitholders pur-
suant to the Offer is fair to the Unitholders.
American Appraisal has delivered to Host Marriott
and the Purchaser its written opinion that the
terms and conditions of the Offer, including the
consideration to be received in the Offer, are
fair, from a financial point of view, to the
Unitholders (other than Host Marriott, the Pur-
chaser and the General Partner).
PURPOSE OF THE OFFER The purpose of the Offer is for the Purchaser
and, indirectly, Host Marriott to increase the
number of Units owned and their economic interest
in the Partnership without the occurrence of a
Section 708 Termination. Consummation of the Of-
fer will allow the Purchaser and, indirectly,
Host Marriott, to have a greater economic inter-
est in, and greater control of, the quality full
service lodging properties owned by the Partner-
ship. The increase of the economic interest in
the Partnership which would result from acquisi-
tion of 450 Units, together with the approval of
certain amendments to the Partnership Agreement,
is expected to allow Host Marriott to consolidate
for accounting purposes the Hotels in Host
Marriott's financial statements. In addition, the
Purchaser and Parent are making the Offer with a
view to making a profit. The acquisition of the
Units has been structured as a cash tender offer
for 450 Units in order to (i) provide a prompt
and orderly transfer of ownership from public
Unitholders to the Purchaser, (ii) provide
Unitholders with an opportunity to dispose of
their Units for cash, (iii) permit Unitholders
who do not
6
desire to sell their Units to remain limited
partners of the Partnership, and (iv) avoid the
occurrence of a Section 708 Termination of the
Partnership.
EFFECT OF SALE IN THE OFFER The sale by a Unitholder of Units in the Offer
will eliminate the opportunity for such
Unitholder to participate in the benefit of in-
creases, if any, in the value of the Partner-
ship's businesses and properties following con-
summation of the Offer and to receive future dis-
tributions, if any, in respect of Partnership's
operations (except to the extent a tendering
Unitholder continues to hold Units due to prora-
tion of the number of Units accepted or other-
wise).
RISK FACTORS; SPECIAL FACTORS In their evaluation of the Offer, Unitholders
should carefully consider the information con-
tained under the captions "Risk Factors" and
"Special Factors."
CERTAIN TAX CONSIDERATIONS
Unitholders Who
Tender................. The sale of Units pursuant to the Offer will be
treated for federal income tax purposes as a tax-
able sale of such Units. The General Partner es-
timates that, as of December 31, 1996, a
Unitholder who purchased a Unit on the Unit Of-
fering Closing Date (November 27, 1985) and who
has held that Unit continuously since that time
would recognize approximately $143,300 of capital
gain per Unit and approximately $5,100 of ordi-
nary income per Unit if such Unitholder were to
sell the Unit at the Offer Price. The General
Partner estimates that, as of December 31, 1996,
a Unitholder who purchased a Unit on the Unit Of-
fering Closing Date, who has held that Unit con-
tinuously since that time, and whose Unit is and
has been the Unitholder's only investment in a
passive activity would have a passive activity
loss carryforward of $39,500. The amounts of tax-
able gain per Unit and ordinary income per Unit
that would be recognized by a Unitholder who ac-
quired some or all of his or her Units after the
Unit Offering Closing Date will depend upon when
such Unitholder acquired his Units and the price
paid for the Units (as adjusted for subsequent
allocations of Partnership income and loss and
subsequent Partnership distributions).
Unitholders who tender Units pursuant to the Of-
fer will be allocated Partnership taxable income
for the period November 1, 1996 through the last
day of the accounting period ending on or before
the date tenders of Units are accepted for pay-
ment (for example, the accounting period ended
November 29, 1996, if the Offer is consummated on
December 26, 1996). Although such Unitholders
will not receive a distribution with respect to
this income, the last cash distribution made to
tendering Unitholders occurred on November 1,
1996 and consisted of the cash available for dis-
tribution to Unitholders under the terms of the
Partnership Agreement for the period June 1995
through October 1996 from operations of the Or-
lando Hotel and for the period of April 1996
through October 1996 for the Harbor Beach Hotel,
based upon available cash flow from the opera-
tions of the Partnerships.
Non-Tendering
Unitholders............ Consummation of the Offer alone will not result
in taxable gain or loss for non-tendering
Unitholders.
7
All Unitholders......... Consummation of the Offer alone will not result
in a Section 708 Termination of the Partnership.
There is a risk however, that consummation of the
Offer, together with other transfers of Units
occurring before or after consummation of the
Offer, could result in a Section 708 Termination.
In that event, the average depreciation
deductions available to non-tendering and
prorated Unitholders would decrease for a period
of time following the consummation of the Offer
(thereby increasing the taxable income allocable
to their Units each such year). However, for non-
tendering Unitholders who acquired their Units on
the Unit Offering Closing Date and who have held
their Units continuously since that time, total
depreciation deductions over the useful lives of
the assets of the Partnership would not change;
only the timing of such deductions would change.
The General Partner intends to implement measures
following consummation of the Offer that are
intended to prevent a Section 708 Termination.
There can be no assurance, however, that these
measures will be successful.
LIMITED PARTNERS' CONSENT The Purchaser's obligation to accept Units for
payment pursuant to the Offer is conditioned upon
the receipt from Limited Partners holding a
majority of the outstanding Units of valid and
effective consents to certain amendments to the
Partnership Agreement necessary and sufficient in
the judgment of the Purchaser in order to permit
the consummation of the Offer. The Partnership is
soliciting these consents in consent solicitation
materials, which are being separately provided by
the General Partner to Limited Partners. The
General Partner is not entitled to vote its 10.5
Units on the proposed amendments, nor are any
Unitholders that have not been admitted as
Limited Partners. Currently, a total of 3.5 Units
(0.35% of the Units outstanding) are held by
Affiliates of the General Partner or their
officers and directors. Three of these Units are
owned by persons who are not officers or
directors of the General Partner or Parent and
the General Partner has no basis for forming an
expectation as to whether or how the holders of
three of these Units will vote, but expects that
the holder of a half-Unit will vote his half-Unit
in favor of the proposed amendments.
8
RISK FACTORS
In their evaluation of the Offer, Unitholders should carefully consider the
following:
No Arm's Length Determination of Offer Price. The Offer Price (as well as
the other terms and conditions of the Offer) was established by Host Xxxxxxxx,
which is the direct parent of the General Partner, and is not the result of
arm's length negotiations.
Conflicts of Interest with Respect to the Offer. The General Partner is a
wholly owned direct subsidiary of Host Marriott and an affiliate of the
Purchaser and, therefore, has substantial conflicts of interest with respect
to the Offer. The General Partner makes no recommendation to any Unitholder to
tender or to refrain from tendering his or her Units.
No Unaffiliated Representative Retained. No unaffiliated person has been
retained to represent the Limited Partners and to act solely on their behalf
to negotiate or evaluate the Offer. If an unaffiliated person had been
engaged, the terms and conditions of the Offer might have been different, and
possibly more favorable, to Unitholders who elect to tender their Units.
Control of the Purchaser and the General Partner. The Purchaser and the
General Partner are each a wholly owned direct subsidiary of Parent.
Consequently, Parent has at all times had the ability to control the Purchaser
and General Partner. All the officers and directors of the Purchaser and the
General Partner are also officers and/or employees of Parent.
Control by Parent of Most Partnership Decisions. The General Partner
currently controls virtually all aspects of the Partnership's operations and
the General Partner's approval is required for all Partnership actions
(including, without limitation, a sale of all or substantially all of the
Partnership's assets). Upon consummation of the Offer, Parent, through the
General Partner and the Purchaser, will be in a position to influence
substantially all significant matters affecting the Partnership, including
those that require the consent of Limited Partners holding a majority of the
Units (because the General Partner has broad rights to control the Partnership
and together with the Purchaser will beneficially own 46.05% of the
outstanding Units), except decisions relating to matters where such parties
and their affiliates have an actual economic interest other than as a
Unitholder. This power will permit Parent to influence substantially most
significant decisions and decide such matters as the timing of the liquidation
of the Partnership, a sale of more than 25% of the Partnership's assets (to an
entity other than Parent, the Purchaser, the General Partner or any of their
respective Affiliates), or a merger or other extraordinary transaction. Under
the terms of the Partnership Agreement, the Partnership can be dissolved upon
the agreement by Limited Partners holding a majority of the then outstanding
Units entitled to vote.
Control by the General Partner and Parent of Sales of Certain Assets. As a
result of one of the amendments to the Partnership Agreement upon which
consummation of the Offer is conditioned, the General Partner will be
authorized to sell certain assets of the Partnership, including the Orlando
Hotel and the Partnership's 50.5% partnership interest in the Harbor Beach
Partnership (which together constitute substantially all of the assets of the
Partnership) to an independent third party (including MII, assuming
satisfaction of the Limited Partners Consent Condition) without obtaining the
consent of the Limited Partners. The General Partner has no current intention
of selling any asset of the Partnership, including the Orlando Hotel and the
Harbor Beach Interest, or voting the Harbor Beach Interest in favor of the
sale of any asset of the Harbor Beach Partnership, including the Harbor Beach
Hotel.
Possible Increase in Value. Xxxxxx believes that the Partnership's
properties have increased in value over the last few years and, although there
can be no assurance, may continue to appreciate in value. Current trends in
the hotel industry indicate that, at least through 1998, the outlook for the
lodging industry remains positive. Demand increases are expected to continue
to outpace supply additions. Tendering Unitholders will not be able to benefit
from any possible future increase in the value of the Partnership's
properties.
9
Alternatives to Tendering Units. As alternatives to tendering their Units,
Unitholders could retain their Units (and continue to receive cash
distributions, if any, paid by the Partnership), or seek a private sale of
their Units now or later, subject to the potential imposition of the Transfer
Restriction. Although Host Marriott cannot predict the amount of cash that may
be available for future distributions from the Partnership or the amount that
could be realized in a private sale of Units, such amounts could exceed the
Offer Price, at least in absolute terms. It is the Purchaser's current
intention to acquire additional Units, giving priority to the acquisition of
fractional interests of Units resulting from proration of Units tendered in
the Offer (unless such acquisitions are pursuant to a future tender offer)
beginning after the end of a twelve month period following consummation of the
Offer. The Purchaser is not obligated to make any such acquisitions and any
acquisitions of additional Units, if made, may be at a price higher or lower
than the Offer Price.
Offer Price May Not Represent Future Liquidation Value. Although Host
Marriott cannot predict the future value of the Partnership's assets, the
Offer Price could be substantially less than the net proceeds that could be
realized upon a future liquidation of the Partnership. In accordance with the
Partnership Agreement, the term of the Partnership will expire on January 1,
2106, although it is expected that the Partnership may terminate sooner than
2106. If the Offer Price per Unit is lower than the final per Unit liquidation
value, Parent would benefit upon the liquidation of the Partnership from the
spread between the Offer Price for the tendered Units and the final per Unit
liquidation value. Accordingly, Unitholders might receive more money, at least
in absolute terms, if they did not tender their Units and instead continued to
hold such Units and ultimately receive proceeds from the liquidation of the
Partnership. Unitholders, however, may prefer to receive the Offer Price now
rather than wait for uncertain future net liquidation proceeds.
Attractive Investment for Parent. The Purchaser and Parent are making the
Offer with a view to making a profit. Accordingly, there is a conflict between
the desire of the Purchaser and Parent to purchase Units at a low price and
the desire of the Unitholders to sell their Units at a high price.
Proration. In the event more than 450 Units are validly tendered and not
withdrawn, the Purchaser will accept for payment 450 Units on a pro rata basis
based upon the number of Units properly tendered by the Expiration Date and
not withdrawn. Accordingly, in the event of proration, tendering Unitholders
will continue to own partial interests in Units equal to the number of Units,
or fractional interests therein, not accepted by the Purchaser pursuant to
proration and will not be able to sell or transfer their entire interest in
their Units to the Purchaser.
Loss of Future Distributions. Unitholders who tender their Units in
accordance with the terms of the Offer transfer all right, title and interest
in and to all Units that are tendered and accepted and all distributions in
respect of such Units on or after the date of this Offer. Accordingly, as a
result of consummation of the Offer, the Purchaser would be entitled to
receive any future distributions from the operations of the Partnership to the
extent of the number of Units acquired in the Offer. There can be no assurance
that amounts would be available for distribution or, if available, that such
amounts would be fully distributed. Unitholders who tender their Units in
accordance with the terms of the Offer would not be entitled to receive any
such distributions with respect to the Units (or the portion thereof) accepted
for purchase.
Partnership Term. In accordance with the Partnership Agreement, the term of
the Partnership will expire on January 1, 2106, although it is expected that
the Partnership may terminate sooner than 2106. Host Xxxxxxxx currently has no
plans to liquidate or dissolve the Partnership.
Lack of Trading Market. There is no established or regular trading market
for the Units, nor is there another reliable standard for determining the fair
market value of the Units. Unitholders who desire liquidity may wish to
consider the Offer. The Offer affords Unitholders an opportunity to dispose of
their Units for cash, which alternative otherwise might not be available to
them currently or in the foreseeable future, particularly given the effect of
the possible imposition of the Transfer Restriction. However, the Offer Price
is not intended to represent the highest or most likely price that would be
achieved in an open market for a Unit or the Partnership's assets on a per
Unit basis.
10
Transfer Restriction. A "sale or exchange" of 50 percent or more of the
interest in a partnership's capital and profit within a twelve-month period
results in a Section 708 Termination. In accordance with the Partnership
Agreement, no Unit may be sold or exchanged if, when added to the total of all
other Units sold or exchanged within a period of twelve consecutive months
prior thereto, such sale or exchange would, in the opinion of legal counsel
for the Partnership, result in a Section 708 Termination. Accordingly, in the
event the Offer is consummated and all 450 Units are purchased, the number of
Units that may be sold or exchanged in the twelve months following
consummation of the Offer may be limited. In this regard, the General Partner
is required, pursuant to the terms of the Partnership Agreement, to impose the
Transfer Restriction on any sales and exchanges of Units that would result in
a Section 708 Termination. In determining the applicability of the Transfer
Restriction, the General Partner is required to take into account both the 450
Units transferred pursuant to the Offer and any other sales or exchanges of
Units that occur prior to or following the consummation of the Offer. There
can be no assurance, however, that the Transfer Restriction would be
successful in preventing a transfer that would cause a Section 708
Termination. The Purchaser has been advised by the General Partner that the
General Partner intends to assert liability against, and may seek to enjoin,
any Unitholder that attempts to sell or exchange Units in contravention of the
provisions of the Partnership Agreement. The General Partner will notify all
Limited Partners promptly after imposition of the Transfer Restriction, as
well as, when such Transfer Restriction is lifted.
EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION REGARDING THE OFFER BASED
ON HIS OR HER PARTICULAR CIRCUMSTANCES. UNITHOLDERS SHOULD CONSULT WITH THEIR
RESPECTIVE ADVISORS ABOUT THE FINANCIAL, TAX, LEGAL AND OTHER IMPLICATIONS TO
THEM OF ACCEPTING THE OFFER.
11
SPECIAL FACTORS
BACKGROUND OF THE OFFER
Marriott Hotel Properties Limited Partnership, a Delaware limited
partnership (the "Partnership") was formed in 1984 to acquire, construct, own
and operate the 1,503-room Marriott Orlando World Center Hotel (the "Orlando
Hotel"). The Partnership currently owns the Orlando Hotel and the 190 acres of
land on which it is located and a 50.5% partnership interest in Lauderdale
Beach Association (the "Harbor Beach Partnership"), a Florida general
partnership that owns the 624-room Marriott Harbor Beach Resort (the "Harbor
Beach Hotel") in Ft. Lauderdale, Florida. The Partnership has no present plans
that would result in the acquisition of any other properties.
The Orlando Hotel and the Harbor Beach Hotel (together, the "Hotels"), are
operated as part of the Marriott Hotels, Resorts and Suites full-service hotel
system. The Orlando Hotel is managed by Marriott International, Inc. (together
with its subsidiaries, "MII") under a long-term management agreement (the
"Management Agreement") and the Harbor Beach Hotel is leased to Marriott Hotel
Services, Inc. (the "Operating Tenant"), a wholly owned subsidiary of MII,
under a long-term lease (the "Operating Lease"). The Hotels have the right to
use the Marriott name pursuant to the Management Agreement and Operating
Lease, respectively. If the Management Agreement and/or the Operating Lease
are terminated, the Partnership will lose such right for all purposes other
than the name of the Partnership. See "--Interests of Certain Persons."
Host Marriott Corporation, a Delaware corporation ("Host Marriott" or
"Parent"), which is the direct parent of Hotel Properties Management, Inc., a
Delaware corporation (the "General Partner") and MHP Acquisition Corp., a
Delaware corporation (the "Purchaser"), is one of the larger owners of lodging
properties in the world, owning 77 lodging properties that are operated under
Marriott brand names and are generally (but not exclusively) managed by MII.
Host Marriott is the largest owner of hotels operated under the Marriott name
and also holds minority interests in various partnerships that own
approximately 254 additional properties operated by MII.
Host Marriott seeks to grow primarily through the acquisition of full
service hotels in the U.S. and abroad and believes that the market currently
offers opportunities to acquire such assets on favorable terms. During the 36-
week fiscal period ended September 6, 1996, Host Marriott purchased or
acquired controlling interests in 21 full service hotels totaling
approximately 9,991 rooms in separate transactions. On June 14, 1996, Host
Marriott acquired by means of a tender offer over 50% of the units of limited
partnership interest in an affiliated partnership, which owns three full
service hotels and a 50% interest in another full service hotel, together
totaling approximately 3,400 rooms, giving Host Marriott the ability to
consolidate for accounting purposes the financial results of the affiliated
partnership in Host Marriott's financial statements. During 1995, Host
Marriott acquired 9 full service hotels totaling approximately 3,900 rooms in
separate transactions for approximately $390 million. In 1994, Host Marriott
acquired 15 full service hotels totaling approximately 6,100 rooms in separate
transactions for approximately $440 million. Host Marriott also provided 100%
financing in 1994, totaling approximately $35.7 million, to an affiliated
partnership, in which Parent owns the sole general partner interest, for the
acquisition of two full service hotels (totaling 684 rooms). Additionally,
Host Marriott acquired a controlling interest in one 662-room full service
hotel through an equity investment of $16 million and debt financing of $36
million (the debt was subsequently sold in 1995).
In 1996, in connection with its strategy of growing through the acquisition
of full service hotels, Parent decided to explore and assess opportunities
relating to the full service hotels owned by the Partnership. Host Marriott
concluded that an acquisition strategy could provide a mutually beneficial
opportunity for Host Marriott and the holders ("Unitholders") of units of
limited partnership interest in the Partnership (the "Units"). From Parent's
perspective, it would provide an opportunity to acquire control of quality
full service lodging properties, while providing the Unitholders with the
opportunity to dispose of an otherwise illiquid investment at a price that
Host Xxxxxxxx believes is fair.
12
On May 1, 1996, Host Marriott retained American Appraisal Associates, Inc.
("American Appraisal"), subject to agreeing on the terms of an engagement
letter, for the purpose of rendering an opinion as to whether the terms and
conditions (including the cash consideration to be received) of the
contemplated Offer to Purchase and Letter of Transmittal (together with any
supplement thereto, the "Letter of Transmittal" and which together with the
Offer to Purchase, constitutes the "Offer") are fair, from a financial point
of view, to the Unitholders (other than Parent, the Purchaser and the General
Partner). On June 24, 1996, Host Xxxxxxxx accepted a signed engagement letter
from American Appraisal.
On August 1, 1996, the proposed transaction was presented to the Board of
Directors of Parent, which unanimously authorized making an offer.
POSITION OF THE GENERAL PARTNER; FAIRNESS OF THE OFFER
Since the General Partner is a wholly owned direct subsidiary of Parent and
an affiliate of the Purchaser, the General Partner has substantial conflicts
of interest with respect to the Offer. See "Interests of Certain Persons"
below. Accordingly, the General Partner makes no recommendation to any
Unitholder whether to tender or to refrain from tendering his or her Units.
EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER OR NOT TO TENDER
BASED UPON A NUMBER OF FACTORS, INCLUDING THE UNITHOLDER'S FINANCIAL POSITION,
NEED OR DESIRE FOR LIQUIDITY, OTHER FINANCIAL OPPORTUNITIES, WILLINGNESS AND
ABILITY TO BEAR THE ECONOMIC RISKS OF THE INVESTMENT AND TAX POSITION. The
General Partner believes, however, that the Offer provides all Unitholders who
desire liquidity the opportunity to receive cash for their Units without
paying fees or commissions often paid in connection with secondary sale
transactions. There can be no assurance, however, that a secondary sale
transaction would not result in a higher price per Unit than the price offered
by the Purchaser.
DETERMINATION OF OFFER PRICE
The price of $80,000 per Unit (the "Offer Price") (as well as the other
terms and conditions of the Offer) was established by Host Marriott, which is
the parent of the General Partner, and is not the result of arm's length
negotiations between Host Marriott or the Purchaser and the Partnership. No
unaffiliated representative has been retained to act solely on behalf of the
Unitholders to negotiate or evaluate the Offer. If an unaffiliated person had
been engaged, the terms and conditions of the Offer might have been different,
and possibly more favorable, to Unitholders who elect to tender their Units.
American Appraisal did not participate in establishing any terms of the Offer.
American Appraisal was retained solely to render its opinion as to whether the
terms and conditions of the Offer, including the consideration to be received
in the Offer, are fair, from a financial point of view, to Unitholders (other
than Host Marriott, the Purchaser and the General Partner). The General
Partner, which is controlled by Xxxxxx, makes no recommendation with respect
to the Offer because of conflicts of interest resulting from its affiliations
with Parent and the Purchaser. See "Position of the General Partner; Fairness
of the Offer" above.
Host Marriott established the Offer Price based upon its belief that such
price would be both fair to the Unitholders who desire liquidity and
acceptable to Host Marriott in view of its desire to make a profit over time
in connection with the transaction. The Offer Price was established at an
amount that would provide an internal rate of return on a pre-tax basis,
taking into account the financial condition, hotel market considerations and
risks of the Partnership, that is comparable to other hotel transactions
completed by Host Marriott. Based on other acquisitions completed by Host
Xxxxxxxx in the last two years, these rates of return typically have ranged
from 12% to 15%. The internal rate of return represents the discount rate that
must be applied to a cash flow stream over a period of time from an investment
in order for the present value of that discounted cash flow stream to equal
the amount of the original investment. In addition, Host Xxxxxxxx considered
the present value of the original installment contributions made by the
Unitholders in the Partnership, as well as the recent trading price of the
Units in secondary transactions and the level of distributions received by the
Unitholders to date. See "The Tender Offer--Section 5--Price Range of Units;
Distributions" below. Host Xxxxxxxx conducted no additional analyses in
determining the Offer Price.
13
POSITION OF PARENT AND THE PURCHASER REGARDING FAIRNESS OF THE OFFER
Parent and the Purchaser believe that the consideration to be received by
Unitholders pursuant to the Offer is fair to the Unitholders. In reaching this
determination, Parent and the Purchaser considered the following factors:
(a) The relative illiquidity of the Units, for which there is no existing
market, and the corresponding inability of Unitholders to dispose of their
Units except in privately negotiated sale transactions;
(b) The ability of Unitholders to obtain liquidity for their Units at the
present time as a way to realize the value of their holdings;
(c) The fact that the $80,000 per Unit Offer Price represents a 224%
premium over the $24,664 per Unit average price for the 23.5 Units
transferred on the records for the Partnership in 1996 and a 368% premium
over the $17,086 per Unit average price for 4.5 Units transferred on the
records of the Partnership during 1995. The prices for Units quoted herein
reflect only the sales or exchanges recorded on the transfer records of the
Partnership and information provided by the General Partner.
(d) The fact that the $80,000 per Unit Offer Price represents a 220%
premium over the $25,000 per Unit that a Unitholder not affiliated with the
Purchaser has offered to several Unitholders during 1996 for Units. The
prices for Units quoted herein represent information known to the General
Partner as of September 7, 1996 and do not represent reported bid
quotations. The Purchaser and General Partner disclaim any knowledge of
whether such person continues to make such offer;
(e) The different risk profiles of Parent and individual Unitholders.
Parent has considered, in view of its large portfolio of 77 full service
lodging properties and interests in partnerships owning approximately 254
additional lodging properties, the likelihood that the risk of increased
operating pressure on the Hotels is one that it may be better able and more
willing to bear than individual Unitholders, who do not have a diversified
portfolio of lodging properties. In this regard, Parent also has considered
the likelihood that, while individual Unitholders might be willing to
accept potential growth in profits generated by the Hotels in an improving
market, it may be better able and more willing to bear the cyclical
downturns of the U.S. lodging industry.
(f) The fact that the Offer is structured as a cash tender offer for 450
of the 1,000 outstanding Units, which will permit Unitholders to
participate if they so desire, but which will not force out Unitholders who
wish to retain their investment;
(g) The written opinion of American Appraisal described below in "Opinion
of American Appraisal" to the effect that the terms and conditions of the
Offer (including the $80,000 per Unit cash consideration to be received by
Unitholders in the Offer) are fair, from a financial point of view, to such
Unitholders (other than Parent, the Purchaser and the General Partner), as
well as the judgment of Parent that the review performed by American
Appraisal in arriving at its opinion was reasonable and analytically sound
(in this respect, Parent took such analyses into account in its overall
evaluation of the Offer but did not review the methodologies and the
appropriateness of the assumptions used by American Appraisal);
(h) A review of the possible alternatives to the Offer, including (i) the
possibility of purchasing the Hotels and/or the interest of the other
partner in the Harbor Beach Partnership, based upon the likely liquidation
value, as quantified by American Appraisal's market value analysis, of the
Partnership's assets as described in the opinion of American Appraisal,
including the potential realizable value to the Unitholders from an orderly
sale of these assets, and (ii) the possibility of private sales of Units by
Unitholders, based upon the limited trading history of the Units and
relatively low prices received for such sales in secondary market
transactions. The possibility of purchasing the Hotels and/or the interests
of the other partner in the Harbor Beach Partnership was not pursued due to
the expense and possible adverse tax consequences to both the General
Partner and Limited Partners of such a transaction;
(i) The Management Agreement pursuant to which the Orlando Hotel is
managed by MII and the Operating Lease pursuant to which the Harbor Beach
Hotel is leased to the Operating Tenant, including the extent to which
these long-term contracts would limit the universe of potential buyers of
the Hotels and adversely affect the selling price; and
14
(j) Following consummation of the Offer, the fact that it is the
Purchaser's current intention to acquire additional Units beginning after
the end of the twelve month period. Any such acquisition may be made
through private purchases, a future tender offer, or by any other means
deemed advisable by the Purchaser. The Purchaser currently anticipates that
in acquiring additional Units (other than pursuant to a future tender
offer), it will give priority to the acquisition of fractional interests of
Units resulting from proration of Units tendered in the Offer and that such
acquisitions may be at a price equivalent to the Offer Price on a per Unit
basis. However, the Purchaser is not obligated to make any such
acquisitions, and any acquisitions of additional Units, if made, may be at
a price higher or lower than the Offer Price. The Purchaser currently
intends to wait until at least twelve months after consummation of the
Offer to acquire any additional Units so as to not cause a Section 708
Termination. Business conditions existing after the end of the twelve month
period following consummation of the Offer may make it impractical or
inadvisable for the Purchaser to acquire any additional Units at that time.
Host Xxxxxxxx does not believe that consummation of the Offer will result
in the termination of the Partnership's reporting obligations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
In view of the wide variety of factors considered in connection with the
evaluation of the Offer, Parent and the Purchaser did not find it practical
to, nor did they, quantify or otherwise attempt to assign relative weights to
the specific factors considered in reaching their opinion. Parent and the
Purchaser considered each of the factors listed above in light of their
knowledge of the business and operations of the Partnership and their business
judgment. In reviewing the above factors, Parent and the Purchaser believe
that the factors described in paragraphs (a)-(d) and (f)-(j) were favorable to
the determination regarding the fairness of the Offer, and that the factors
set forth in paragraph (e) were neither favorable nor unfavorable. No other
factors were considered by Parent and the Purchaser, and Parent and the
Purchaser did not consider any of the factors to be unfavorable to the
determination that the consideration to be received by Unitholders pursuant to
the Offer is fair to the Unitholders.
Parent recognized that, while consummation of the Offer will result in all
Unitholders being entitled to receive $80,000 in cash for each of their Units,
subject to proration, it will eliminate the opportunity for such Unitholders
to participate in the benefit of increases, if any, in the value of the
Partnership's businesses and properties following the Offer. Accordingly, the
Parent gave consideration to the likelihood of increases in the value of the
Partnership's businesses and properties in light of its concentration in the
Florida market and its sensitivity to the cyclical nature of the U.S. lodging
industry, as well as its historical results of operations, but concluded that
such factors did not justify foregoing the receipt by the tendering
Unitholders of an immediate cash payment substantially in excess of the value
of Units based upon recent trading in the secondary market.
It is expected that whether or not Units are purchased pursuant to the
Offer, the Partnership, under the direction of the General Partner, will
continue as an ongoing business. However, if the Offer is consummated, the
General Partner, pursuant to terms of the Amended and Restated Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement"), will be
required to impose the Transfer Restriction on any sales and exchanges of
Units that would result in a Section 708 Termination for a twelve month period
following consummation of the Offer.
While Parent and the Purchaser believe there may be opportunities in the
Partnership's business and potential growth in future earnings and profit,
there can be no assurance that such opportunities or potential will be
realized.
OPINION OF AMERICAN APPRAISAL
Parent engaged American Appraisal on June 24, 1996 to render its opinion as
to the fairness, from a financial point of view, of the terms and conditions
of the Offer, including the consideration to be received by the Unitholders
other than Parent, the Purchaser and the General Partner. American Appraisal
is one of the nation's largest independent valuation consulting firms with
revenues in excess of $50 million and is regularly engaged in the evaluation
of commercial real estate and businesses and their securities in connection
with tender offers, mergers and acquisitions, leveraged buyouts and business
reorganizations. American Appraisal was selected based on its experience and
reputation.
15
Over the past two years, Host Xxxxxxxx has hired American Appraisal to
appraise other hotel properties and to render a fairness opinion at a total
cost of $515,000 (which is less than 1% of American Appraisal's revenues for
the same period). Affiliates of Host Marriott also have paid American
Appraisal approximately $150,000 during the last two years for solvency
services. There have been no other material relationships between American
Appraisal and its affiliates, and Host Marriott and its affiliates.
On November 19, 1996, American Appraisal rendered its opinion to Host
Marriott and Purchaser that the terms and conditions of the Offer, including
the consideration to be received in the Offer, are fair, from a financial
point of view, to Unitholders (other than Host Marriott, the Purchaser, and
the General Partner). The full text of American Appraisal's written opinion,
which sets forth the assumptions made, procedures followed and matters
considered, is attached to this Offer to Purchase as Schedule III, and is
incorporated herein by reference.
Unitholders are urged to read the opinion of American Appraisal in its
entirety.
For purposes of its opinion, American Appraisal relied without independent
verification upon the accuracy and completeness of certain relevant publicly
available information and information provided by Parent, the Partnership and
MII concerning the Partnership. It assumed that all information furnished to
it by Parent, the Partnership and MII represented complete and accurate
descriptions of the current and prospective status of the Partnership and the
Harbor Beach Partnership from an operational and financial point of view.
American Appraisal was not requested to and did not make any recommendation
to Parent or the Purchaser as to the form or amount of consideration to be
offered to the Unitholders in the Offer. Parent determined the form and amount
of consideration to be offered to Unitholders subsequent to retaining American
Appraisal. In arriving at its opinion, American Appraisal made its
determination as to the fairness, from a financial point of view, of the
consideration to be given to the Unitholders on the basis of the financial and
comparative analyses described below. American Appraisal's opinion is not
intended to be and does not constitute a recommendation to any Unitholder as
to whether to accept the consideration to be received by such Unitholder in
connection with the Offer.
In the course of its investigation, which included visits to the executive
offices of Parent and to each of the Hotels, American Appraisal conducted
interviews with each of Host Marriott's and the General Partner's management
and legal counsel and also conducted interviews with representatives of MII
and the Operating Tenant and with members of on-site management of each of the
Hotels who were familiar with the business and operations of the Partnerships
and the Hotels. American Appraisal reviewed such documents, considered such
questions, and made such studies and analyses as it deemed appropriate.
Documents and materials that it reviewed included, but were not limited to,
(i) the Annual Report on Form 10-K for the Partnership for the fiscal year
ended December 31, 1995 to be filed with the Securities and Exchange
Commission ("SEC"); (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 22, 1996, June 14, 1996, and September 6, 1996, to be
filed with the SEC; (iii) SEC Schedule 14D-1, dated November 19, 1996 and SEC
Schedule 14A, dated November 19, 1996, relating to the terms, conditions, and
background of the Offer; (iv) the Confidential Private Placement Memorandum,
(the "PPM"), dated November 1, 1985, relating to the original offering to
private investors of Units and an Agency Agreement dated as of November 1,
1985, by and among Xxxxx Xxxxxx, Xxxxxx Xxxxx & Co. Incorporated, Bear,
Xxxxxxx & Co. Inc., the Partnership and the General Partner; (v) the
Partnership Agreement; (vi) the Amended and Restated Partnership Agreement of
the Harbor Beach Partnership dated as of July 1, 1986 (the "Harbor Beach
Partnership Agreement"); (vii) the financial statements of the Partnership,
audited by Xxxxxx Xxxxxxxx LLP, for the four years ending December 31, 1995;
(viii) unaudited financial statements of the Partnership for the period ended
March 22, 1996, June 14, 1996, and September 6, 1996, and a pro forma schedule
of asset and liability balances as of October 31, 1996; (ix) the financial
statements of the Harbor Beach Partnership, audited by Xxxxxxx & Xxxxxxx
L.L.P., for the three years ended December 31, 1995 and audited by Xxxxxx
Xxxxxxxx LLP for the one year ended December 31, 1992; (x) unaudited
consolidated ledger documents of the Harbor Beach Partnership for the period
ended March 22, 1996, June 14, 1996, and September 6, 1996, and a pro forma
schedule of asset and liability balances as of October 31,
16
1996; (xi) the Management Agreement; (xii) the Harbor Beach Partnership
Assignment of Lease dated as of January 1, 1985 and Fourth Amendment to Lease
dated as of April 28, 1993; and (xiii) secondary market prices of, and trading
activity in, the Units. In addition, American Appraisal performed separate
business valuations of each of the Hotels.
In rendering its opinion, American Appraisal considered those factors that
it considered were relevant to assessing the fairness of the Offer, including,
but not limited to, its assessment of the following material factors:
. The historical and prospective operating results of the Hotels and the
Partnerships, particularly as to hotel sales and operating cash flow,
incentive management fees, lease payments, debt service and cash flow
distributions to Unitholders;
. The historical and prospective financial condition of the Hotels and the
Partnerships, including an analysis of their liquidity and near term
refinancing requirements;
. The management of the Orlando Hotel by MII and the terms and conditions
of the management agreement between MII and the Partnership;
. The management of the Harbor Beach Hotel pursuant to the Operating Lease
with the Operating Tenant;
. The expected market outlook and terms for the refinancing of each of the
Hotels' mortgage debt scheduled in 2000;
. The appraisal opinion of the current market value for each of the Hotel
properties owned by the Partnership and the Harbor Beach Partnership,
which analysis considered those factors affecting market value that
American Appraisal considered relevant, including, but not limited to,
American Appraisal's assessment of the following factors for each Hotel:
(i) economic trends and outlook in the full service hotel industry in
the United States and in the geographic areas served by the Hotels; (ii)
review of the historical operating results and a projection of future
operating results developed by American Appraisal as discussed below and
based on historical data which was provided by Parent, the Partnerships
and the Hotels and other relevant public sources; (iii) a comparison of
prices paid and imputed capitalization rates thereof, of recent sales of
hotel properties nationwide, including an analysis of full service
hotels recently purchased by Host Marriott; and (iv) an analysis of debt
free capitalization and discount rates based on market returns currently
required by investors in full service hotels:
. Data received from Parent which included: Hotel operating statements for
accounting periods during the period from December 31, 1992 through
December 31, 1995 (audited), for accounting periods ended March 22,
1996, June 14, 1996, and September 6, 1996 (unaudited) and pro forma as
of October 31, 1996, a schedule of the Partnership's secondary sales,
(see "The Tender Offer--Section 5--Price Range of Units; Distributions")
and a summary of hotel acquisitions of Host Marriott;
. Data received from, and prepared by, on-site management of each
individual Hotel, which included updated operating cash flow estimates
for 1996, Hotel capital expenditure budgets and 1996 Hotel operating
projections;
. The terms and provisions, ownership, marketability and prior
transactions of the Units;
. Discussions of all of the foregoing information, where appropriate, with
management of Parent, the Partnership and MII, and their respective
employees, agents, outside accountants and counsel; and
. American Appraisal conducted such other studies, analyses, and
investigations as American Appraisal deemed relevant or necessary for
purposes of its opinion, including discussions with firms dealing in
limited partnership secondary market transactions and a review of
studies relating to the influence that lack of marketability has on unit
values of private and publicly held real estate limited partnerships.
The foregoing factors, among others, provided a framework for American
Appraisal to perform certain financial and valuation techniques required for
the assessment of the Offer's fairness, from a financial point of view, to the
limited partners. No factors or considerations came to the attention of
American Appraisal which
17
did not support its assessments set forth below of the Offer's fairness, from
a financial point of view, to the limited partners.
1. Net Asset (Break Up) Analysis
Based upon the appraisals of the Hotels performed by American Appraisal,
American Appraisal calculated the net asset value per Unit which might be
obtained if the Partnerships were liquidated, assuming the Hotels would be
sold as going concerns, subject to the existing management and lease
agreements, over a reasonable period of time (estimated at 12 months) and the
net proceeds would be distributed in accordance with the Partnership Agreement
and the Harbor Beach Partnership Agreement. In calculating the net value to
the Unitholders under this scenario, from the value of the Hotels, (i) the
selling and other transaction costs, deferred incentive management fees and
the paydown of debt were subtracted, (ii) the cash and equivalents and other
net working capital accounts were added, and (iii) the property improvement
fund was added as it is assumed that the balance in this account would be
distributed upon liquidation to the partners and not transferred to the buyer.
This valuation analysis represents a range of capitalization rates for the
total value of the Hotels, including the property improvement fund, of 11.3%
to 12.8% with the base case representing a capitalization rate of 12.2%.
The value per unit from this analysis ranged from $69,400 to $102,800, with
the base case equal to $80,600.
American Appraisal noted that while the net asset value analysis provided an
indication of what the Unitholders could expect from a current arm's-length
sale of the Hotels, we have been advised by Parent that a sale of the Hotels
and liquidation of the Partnerships is not contemplated by the General Partner
and have further been advised that it is not known to be contemplated by any
Limited Partners.
2. Comparable Transaction Analysis
American Appraisal investigated the financial terms of recent acquisitions
and tender offers for hotel property real estate limited partnerships and
corporations to establish reasonable correlation of marketplace offering
prices to that of the Offer. One such offer proved to be comparable to the
Offer; La Quinta Motor Inns Limited Partnership ("LQLP"). The price per unit
offered and accepted by a majority represented a 33% premium over the
preannounced market price of the limited partnership units.
Another transaction reviewed and considered comparable to the Offer is
Sahara Casino Partners L.P. ("SCPLP"). The price per unit offered and accepted
by a majority represented a 24% premium over the preannounced market price of
the limited partnership units.
Correlation and adjustment of the premium and capitalization rate from the
LQLP and SCPLP tender offers to recent market price(s) of the Units and to the
latest twelve months ended June 14, 1996, net operating cash flow (defined as
earnings before depreciation, interest, taxes and amortization, less
furniture, fixtures and equipment reserve and any incentive management fee or
lease payments) of the Hotels indicates a value for the Units of $55,000 and
$84,000, respectively, with a base case equal to $73,000.
3. Unitholder Cash Distribution Analysis
American Appraisal estimated the value of the Units based on the present
value of the expected future cash distributions from the Partnerships'
operations and from an assumed sale of the Hotels in the eleventh forecast
year, subject to the existing management and lease agreements. A
capitalization rate of 11.5% was selected for estimating the future sales
proceeds of the Hotels. In calculating the net proceeds available to the
Unitholders, consideration was given to the payment of selling and other
transaction costs, deferred incentive management fees and existing debt as
well as the benefits from any estimated cash reserves. Operating results for
the Hotels and cash distributions of the Partnerships were projected by
American Appraisal as discussed herein. Existing indebtedness for both Hotels
is assumed to be refinanced in 2000. The terms of the refinancings included
8.25%,
18
20 year amortizing mortgage facilities. The projected cash distributions were
discounted to present value at rates of return that reflect current returns
from investment in real estate related limited partnerships, including limited
partnerships owning hotel properties. Such returns, which were based on the
hotel valuation experience of American Appraisal and on current written hotel
valuation and investment publications, ranged from 20.5% to 21.5% in American
Appraisal's sensitivity analysis. This analysis assumed that the Hotels would
be sold, and the net proceeds from such sale would be distributed to the
Unitholders in accordance with the Partnership Agreement. The value for the
Units from this analysis ranged from $71,000 to $78,000 per Unit, with a base
case of $74,000, before considering discounts for lack of liquidity and lack
of control.
American Appraisal also estimated a range of value using a cash flow
analysis which assumed no sale of the hotels. Existing indebtedness is assumed
to be refinanced in 2000, using the same assumptions as the sale scenario
previously discussed. The projected cash distributions were again discounted
to present value at rates of return deemed appropriate. The value for the
Units from this analysis ranged from $69,000 to $77,000 per Unit, with a base
case of $73,000, before considering discounts for lack of liquidity and lack
of control.
4. Unit Market Price and Trading History
American Appraisal noted that the original offering of Units pursuant to the
PPM indicated the offering price for the Units was payable in six installments
as follows: November 1985 ($10,000), May 15, 1986 ($12,000), May 15, 1987
($20,500), May 15, 1988 ($19,500), May 15, 1989 ($19,000), and May 15, 1990
($19,000). The aggregate price of $100,000 was payable over a period of
approximately 4 years and 5 months. The present value of this installment
price at November 27, 1985, the date the initial payment was paid, assuming a
return of 15% to 26% is approximately $62,000 to $74,000 per unit,
respectively. The midpoint of this analysis indicates a present value of the
original offering price of approximately $67,000 per unit.
American Appraisal noted that the Offer represented a premium of
approximately 368% and 224% over the average price paid in secondary market
transactions which occurred in 1995 and 1996 at $17,086 and $24,664,
respectively.
American Appraisal also noted that the transfer restrictions to which the
Units are subject and the lack of an established market for the Units combine
to offer little liquidity to the holders of the Units.
The Offer Price of $80,000 per Unit (i) represents a premium of 19.4% over
the original investment (present valued) for each Unit of $67,000 and (ii)
represents a discount of 20% to the original installment investment for each
Unit of $100,000. The difference in the premiums (discounts) indicated by (i)
and (ii) is a result of installment method's implied financing costs.
5. Public Limited Partnership Analysis
In researching for comparable limited partnerships, American Appraisal
determined that a limited number of real estate-based partnerships have
limited partnership units that are traded with regularity on an exchange or
through the NASDAQ over-the-counter market, and only a limited number of such
public partnerships invest in operating full or limited service hotels.
Furthermore, only one of these hotel partnerships, Red Lion Inns Limited
Partnership ("Red Lion"), was considered comparable to the Partnerships with
respect to the full service classification of its owned hotels, the similarity
of its management agreements with MII, the historic and prospective operating
results of the hotels, the near term refinancing requirements and the level
and consistency of historic and prospective distribution payouts to the
limited partners.
Analysis of Red Lions' current public price coupled with its current and
prospective distribution payout, indicated an average annualized current
distribution yield of 9.1% for this period. This yield was reflective of Red
Lion's investment quality and the considerably greater liquidity of its
publicly traded limited partnership units and was therefore not representative
of the higher distribution yield required for the Units for several reasons
including (i) the Partnership's lack of property diversification as evidenced
with its portfolio of two full
19
service hotels, (ii) the Partnership's greater financial leverage, (iii) the
Partnership's lower revenue and distribution growth potential, (iv) the
Partnership's refinancing risk of its mortgage debt maturing in 2000, (v) the
lack of an organized secondary market for the Units and (vi) the sale
restrictions on the Units. Correlation of Red Lion's distribution yield,
adjusted for the investment risks of the Units resulted in a concluded
distribution yield ranging from 12.1% to 14.1% for the Units. This adjustment,
which is supported by the rates of returns required by professional investors
in the less liquid secondary market for limited partnership units, provided a
basis to capitalize the Partnership's current and expected near term
distributions per Unit into indications of value ranging from $65,000 to
$72,000 per Unit with a base case of $68,000. Supporting the conclusions of
this analysis was the indication that the professional investors in the less
liquid secondary market for limited partnership units purchased real estate-
based limited partnership units at prices ranging from 25% to 50% below the
net asset values per Units, such as evidenced in an August 1995 presentation
to the Valuation Study Group on the secondary market for limited partnership
interests.
20
Financial Projections of American Appraisal
The Partnership does not, as a matter of course, prepare multi-year
forecasts or projections as to the sales, earnings, or other income statement
data and no such projections were available for American Appraisal. As a
result of due diligence, which included review of historical financial
statements and operating budgets and discussions with Hotel management,
American Appraisal developed projections for each Hotel and the Partnership.
THE FOLLOWING PRESENTS AN OVERVIEW OF CERTAIN OF THE PROJECTIONS DEVELOPED
BY AMERICAN APPRAISAL IN CONNECTION WITH AMERICAN APPRAISAL'S UNITHOLDER CASH
DISTRIBUTION ANALYSIS.
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
(ORLANDO AND HARBOR BEACH)
(in thousands)
PERIOD ENDING JUNE 1,
--------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
BUDGET FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST FORECAST
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Sales............. $117,758 $120,918 $124,143 $127,431 $130,785 $138,016 $141,457 $147,115 $153,000 $159,120
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Operating Profit.... 34,318 35,111 35,913 36,640 37,367 39,003 40,709 42,489 44,346 46,282
First Mortgage Debt
Service--Principal.... (7,500) (7,000) (5,500) (6,000) (2,699) (2,922) (3,163) (3,423) (3,706) (4,012)
Interest............... (12,636) (12,000) (11,465) (11,146) (10,476) (10,253) (10,012) (9,751) (9,469) (9,163)
Incentive Fees Paid--
1st 10%............... (3,432) (3,511) (3,591) (3,664) (3,737) (3,900) (4,071) (4,249) (4,435) (4,628)
Host Marriott
Repayments--
Ballroom loan......... (1,584) (3,086) (2,987) 0 0 0 0 0 0 0
Refinancing Costs...... (100) (100) (100) (100) (2,540) 0 0 0 0 0
Owner-funded Capex..... (3,316) (1,814) (1,862) (1,911) (1,962) (2,040) (2,122) (2,207) (2,295) (2,387)
Partnership First
Preferred Return (up
to $5M)............... 0 0 (51) (2,989) (499) (2,960) (2,878) (2,793) (2,705) (2,613)
Incentive Fees Paid--
2nd 10%............... (3,432) (3,511) (3,591) (3,664) (3,737) (3,900) (4,071) (4,249) (4,435) (4,628)
IMF Deferred from Prior
Years................. (1,159) (2,044) (316) 0 0 0 0 0 0 0
Partnership Second
Preferred Return (up
to $2M)............... (1,159) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000)
Additional Incentive
Management Fees....... (95) (627) (1,119) (1,294) (1,468) (1,861) (2,270) (2,697) (3,143) (3,608)
Interest Income,
Administration and
Other, Net............ 93 93 93 93 93 93 93 93 93 93
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Cash Available for
Distribution........... (2) (489) 3,423 3,966 8,344 9,260 10,216 11,213 12,252 13,336
Add: Partnership First
Preferred Return....... 0 0 51 2,989 499 2,960 2,878 2,793 2,705 2,613
Partnership Second
Preferred Return....... 1,159 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000
Cash Available from
Lauderdale Beach
Assoc.................. 1,715 1,434 1,436 1,520 1,010 2,495 2,672 2,856 3,048 3,249
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Cash Available for
Distribution........... $ 2,871 $ 2,945 $ 6,910 $ 10,474 $ 11,852 $ 16,714 $ 17,765 $ 18,863 $ 20,005 $ 21,198
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Per Limited Partner
(1000 Units)........... $ 2.84 $ 2.92 $ 6.84 $ 10.37 $ 11.73 $ 16.55 $ 17.59 $ 18.67 $ 19.81 $ 20.99
NONE OF PARENT, THE GENERAL PARTNER OR THE PURCHASER PARTICIPATED IN THE
PREPARATION OF THIS PROJECTED DATA. NONE OF THE PURCHASER, PARENT OR THE
GENERAL PARTNER HAS REVIEWED THESE PROJECTIONS FOR REASONABLENESS OR ACCURACY.
The foregoing projections were not prepared with a view to public disclosure
or compliance with the published guidelines of the Securities and Exchange
Commission or the guidelines established by the American Institute of
Certified Public Accountants regarding projections and forecasts and are
included in this Offer to Purchase only for informational purposes. The
Partnership's independent auditors have not examined, compiled or applied any
procedures with respect to this data and express no opinion or any kind of
assurance thereon. While presented with numerical specificity, this projected
data is based upon a variety of assumptions relating to the business of the
Partnership which may not be realized and is subject to significant
uncertainties and contingencies, many of which are
21
beyond the control of the Partnership and, therefore, this projected data is
inherently imprecise, and there can be no assurance that projected financial
results or any valuation assumed therein will be realized. It is expected that
there will be differences between actual and estimated or projected results
and actual results may vary materially from those shown. Notwithstanding the
foregoing, during the preparation of such projections, American Appraisal did
discuss with MII and the Operating Tenant, as the managers of the Hotels, the
basis for the assumptions made in the preparation of such projections, and as
a result of such discussions, certain revisions and modifications were made to
the projections to more accurately reflect the anticipated operations of the
Hotels.
General
In connection with American Appraisal's opinion, American Appraisal
requested existing detailed financial projections for the Partnership and the
Hotels but was informed that no such projections have been prepared. As
American Appraisal relied upon its own projections, it believes the absence of
detailed projections prepared by the Partnership did not impair or alter its
fairness determination.
No instructions were provided or limitations were placed on American
Appraisal by Parent, Purchaser, the Partnership or any of their affiliates as
to the scope and analysis of the fairness opinion. American Appraisal did not
consider, nor was it requested to consider, the tax implications to a
Unitholder or the economic implications to a non-tendering Unitholder and
therefore expressed no opinion with respect thereto.
Based on American Appraisal's study, which relied upon financial, real
estate and other factors as they existed as of the end of the Partnership's
third fiscal quarter on September 6, 1996, but which gave consideration to
material events through the date of American Appraisal's opinion (November 19,
1996), and, subject to the assumptions and limitations stated above, American
Appraisal concluded that, as of the date of American Appraisal's opinion, the
terms and conditions of the Offer (including the consideration to be received
in the Offer) are fair, from a financial point of view, to the limited
partners of the Partnership (other than Parent, the Purchaser, and the General
Partner).
THE SUMMARY SET FORTH ABOVE DESCRIBES THE MATERIAL POINTS OF MORE DETAILED
ANALYSES PERFORMED BY AMERICAN APPRAISAL IN ARRIVING AT ITS FAIRNESS OPINION.
AMERICAN APPRAISAL BELIEVES THAT ITS ANALYSES MUST BE CONSIDERED AS A WHOLE
AND THAT SELECTING PORTIONS OF ITS ANALYSES AND OF THE FACTORS CONSIDERED BY
IT, WITHOUT CONSIDERING ALL FACTORS AND ANALYSES, COULD CREATE AN INCOMPLETE
VIEW OF THE PROCESSES UNDERLYING ITS OPINION. THE PREPARATION OF A FAIRNESS
OPINION IS A COMPLEX PROCESS INVOLVING SUBJECTIVE JUDGMENTS AND IS NOT
NECESSARILY SUSCEPTIBLE TO PARTIAL ANALYSIS OR SUMMARY DESCRIPTION.
A copy of summaries of the analyses prepared by American Appraisal in
connection with its fairness opinion will be made available for inspection and
copying at the principal executive offices of the General Partner during
regular business hours by any interested Unitholder or his representative who
has been so designated in writing.
The Purchaser agreed to pay American Appraisal $180,000 for rendering its
opinion, of which $150,000 has been paid to date. The balance of the total fee
is payable upon completion or withdrawal of the Offer, and is not contingent
on consummation of the Offer. The Purchaser has also agreed to reimburse
American Appraisal for its reasonable out-of-pocket expenses, including
reasonable fees and disbursements of its counsel, estimated to be $12,000, and
to indemnify against certain liabilities, including certain liabilities
arising under the federal securities laws.
PURPOSE OF THE OFFER
The Purchaser was formed to acquire the Units for the reasons described in
"Special Factors--Background of the Offer." The acquisition of the Units has
been structured as a cash tender offer in order to provide a prompt and
orderly transfer of Units from public Unitholders to the Purchaser and to
provide tendering Unitholders with cash for their Units while allowing
Unitholders who do not desire to sell their Units the opportunity to remain as
Unitholders.
22
Neither the Partnership Agreement nor Delaware law provides any right to
Unitholders to have their respective Units appraised or redeemed in connection
with, or as a result of, the Offer. Each Unitholder has the opportunity to
make an individual decision as to whether or not to tender in the Offer. Under
the Partnership Agreement, each Unitholder is entitled, upon prior written
notice to the General Partner, at reasonable times and at such Unitholder's
own expense, (i) to obtain a list of the holders of record of limited
partnership interests (the "Limited Partners") in the Partnership, and (ii) to
inspect the books and records of the Partnership.
In lieu of appraisal rights, Unitholders may have other rights and remedies
available to them in connection with the Offer. Under Delaware law, the
General Partner has a fiduciary duty to exercise good faith, fairness and
loyalty in all of its dealings with respect to Partnership affairs. Under the
terms of the Partnership Agreement, the General Partner (and any Affiliate who
is performing services for the Partnership on behalf of the General Partner)
has no liability for (and is indemnified from) damages or otherwise to Limited
Partners or the Partnership for any liabilities, losses, judgments and
expenses that may be imposed on or incurred by the General Partner or the
Partnership arising from any action or inaction on the part of the General
Partner or the Partnership if (i) the action or inaction of the General
Partner giving rise thereto was determined by the General Partner, in good
faith, to be in the best interests of the Partnership and such action or
inaction was within the scope of the authority granted to the General Partner
by the Partnership Agreement, by law, or by the Limited Partners in accordance
with the Partnership Agreement; and (ii) the General Partner and its
Affiliates were not guilty of negligence, fraud, misconduct or breach of
fiduciary duty to the Partnership or any Limited Partners. Limited Partners,
therefore, may have certain legal remedies available under Delaware state law,
such as a civil cause of action against the General Partner for fraud,
misconduct, breach of contract or willful breach of fiduciary duty.
The Purchaser believes that the primary benefit of the Offer to Unitholders,
other than the General Partner, is that they will be provided an opportunity
for liquidity in their investment in their Units. The Purchaser and Parent are
making the Offer with a view to making a profit.
PLANS FOR THE PARTNERSHIP; CERTAIN EFFECTS OF THE OFFER
Parent and the Purchaser currently intend that, upon consummation of the
Offer, the Partnership will continue its businesses and operations
substantially as, and in such places as, they are currently being conducted.
The Purchaser has no present plans regardless of the outcome of the Offer that
would result in an extraordinary transaction, such as a merger,
reorganization, liquidation, or sale or transfer of a material amount of
assets, involving the Partnership or its subsidiaries, or any material changes
in the Partnership capitalization, distribution policy, structure or business.
It is the Purchaser's current intention to acquire additional Units beginning
after the end of the twelve month period following consummation of the Offer.
Any such acquisition may be made through private purchases, a future tender
offer, or by any other means deemed advisable by the Purchaser. The Purchaser
currently anticipates that in acquiring additional Units (other than pursuant
to a future tender offer), it will give priority to the acquisition of
fractional interests of Units resulting from proration of Units tendered in
the Offer and that such acquisitions may be at a price equivalent to the Offer
Price on a per Unit basis. However, the Purchaser is not obligated to make any
such acquisitions and any acquisitions of additional Units, if made, may be at
a price higher or lower than the Offer Price. The Purchaser currently intends
to wait until at least twelve months after consummation of the Offer to
acquire any additional Units so as to not cause a Section 708 Termination.
Business conditions existing after the end of the twelve month period
following consummation of the Offer may make it impractical or inadvisable for
the Purchaser to acquire any additional Units at that time. Host Xxxxxxxx does
not believe that consummation of the Offer will result in the termination of
the Partnership's reporting obligations under the Exchange Act.
Interest of Parent in Net Book Value and Net Income of Partnership. As a
result of the consummation of the Offer, tendering Unitholders will not have
the opportunity to participate in the future distributions, earnings, profits
and growth of the Partnership, if any, with regard to Units which are tendered
and accepted for payment. As a result of the Offer, the interest of Parent in
the net book value and net income of the Partnership and the Harbor Beach
Partnership will increase to the extent of the number of Units acquired in the
Offer. Parent and its
23
subsidiaries will be entitled to all the benefits resulting from that
increase, including any future increase in the value of the Hotels. Similarly,
Parent will bear the risk of any decrease in the value of the Hotels after the
Offer to the extent of the number of Units acquired in the Offer. The
following table illustrates the extent of the increase in Parent's interest in
the net book value and net income of the Partnership that would occur in the
event 450 Units are acquired.
450 UNITS
CURRENT (1) ACQUIRED
----------- ---------
(DOLLARS IN
THOUSANDS)
Net book value at September 6, 1996................ $ 74 $3,264
1.05% 46.05%
Net income for the thirty-six weeks ended September
6, 1996........................................... $129 $5,676
1.05% 46.05%
--------
(1) Reflects only the General Partner's ownership of 10.5 Units as of November
14, 1996. In addition, the General Partner owns a 1% general partnership
interest in the Partnership.
In addition, in evaluating the Offer, Unitholders should consider the
following effects of the Offer on non-tendering Unitholders:
. Influence over the Partnership. While the General Partner currently
controls virtually all aspects of the Partnership's operations and the General
Partner's approval is required for all Partnership actions (including, without
limitation, a sale of all or substantially all of the Partnership's assets),
after the Offer, the General Partner and the Purchaser will be in a position
to influence substantially all significant matters except those in which they
have an actual economic interest other than as a Unitholder.
. Partnership Status. Xxxxxx believes the purchase of Units by the
Purchaser, as proposed, should not adversely affect the classification of the
Partnership as a partnership for federal income tax purposes. The Partnership
will obtain an opinion from Xxxxx & Xxxxxxx L.L.P. that the purchase of Units
in connection with the Offer will not result in the Partnership being treated
as an association taxable as a corporation.
. Partnership Business. The Offer will not materially affect the operation
of the properties owned by the Partnership, since the properties will continue
to be managed by MII and the Operating Tenant and the Partnership will
continue to be managed by the General Partner.
. Federal Tax Consequences. Non-tendering Unitholders will not be subject to
any federal tax consequences as a result of consummation of the Offer unless
the Offer, together with other transfers of Units occurring in any twelve
consecutive month period prior to and following the consummation of the Offer,
were to result in a Section 708 Termination. See "Certain Federal Income Tax
Considerations--Non-Tendering Unitholders."
. Effect on Trading Market. There is no established public trading market
for the Units. Purchases of Units pursuant to the Offer, if any, will reduce
the number of Unitholders and could restrict further the non-tendering
Unitholders' ability to find purchasers for their Units. It is the Purchaser's
current intention to acquire additional Units beginning after the end of the
twelve month period following consummation of the Offer, although, the
Purchaser is not obligated to make any such acquisitions and any acquisitions
of additional Units, if made, may be at a price higher or lower than the Offer
Price. Additional acquisitions by the Purchaser could affect the non-tendering
Unitholders' ability to find purchasers for their respective Units and could
affect the price at which secondary market transactions occur.
. Transfer Restriction. In the event the Offer is consummated and all 450
Units are purchased, the number of Units that may be sold or exchanged in the
twelve months following consummation of the Offer may be limited in order to
avoid a Section 708 Termination of the Partnership. In this regard the General
Partner is required, pursuant to the terms of the Partnership Agreement, to
impose the Transfer Restriction on any sale or
24
exchange of Units that would result in 50% or more of the Units being
transferred during any twelve-month period that includes the date of
consummation of the Offering. The Purchaser has been advised that the General
Partner intends to assert liability against, and may seek to enjoin, any
Unitholder who attempts to transfer Units in contravention of the Transfer
Restriction. The potential imposition of the Transfer Restriction may restrict
further the non-tendering Unitholders' ability to find purchasers for their
Units. There can be no assurance, however, that the Transfer Restriction will
be effective to prevent a Section 708 Termination. The General Partner will
notify the Limited Partners promptly after imposition of the Transfer
Restriction, as well as, when such Transfer Restriction is lifted.
. Effect on Public Availability of Information. The Units currently are
registered under the Exchange Act, and the Partnership currently is subject to
the periodic reporting requirements of that Act. Registration of the Units
under the Exchange Act may be terminated upon application to the SEC if the
number of record holders of the Units is less than 300 persons. Because of the
pendency of an application for relief from all of the periodic reporting and
going private requirements of Section 13 of the Exchange Act and the proxy
statement, information statement and tender offer requirements of Section 14
of the Exchange Act filed by the Partnership under Section 12(h) of the
Exchange Act that suspended the application of those provisions until the
application was voluntarily withdrawn on November 18, 1996, the Partnership
was not required to, and did not, make any filings under such provisions from
October 23, 1989 until that date. Host Xxxxxxxx does not believe that
consummation of the Offer will result in termination of these reporting
obligations. For a more detailed description of certain related matters, see
"The Tender Offer--Section 6--Effect of the Offer on the Market for Units;
Registration under the Exchange Act."
INTERESTS OF CERTAIN PERSONS
In considering the Offer, Unitholders should be aware that the General
Partner is a wholly owned direct subsidiary of Parent and an affiliate of the
Purchaser. Accordingly, the General Partner has substantial conflicts of
interest with respect to the Offer.
In their evaluation of the Offer, Unitholders should carefully consider the
following:
. No Arm's Length Negotiation. The terms and conditions of the Offer
(including the Offer Price) have been established by Parent, which is an
affiliate of the General Partner, and are not the result of arm's length
negotiations between Parent and the Partnership. The General Partner has not
retained any unaffiliated person to represent the Unitholders. If an
unaffiliated person had been engaged, the terms and conditions of the Offer
might have been different, and possibly more favorable, to Unitholders who
elect to tender their Units.
. Control of the Purchaser and the General Partner. The Purchaser and the
General Partner are each a wholly owned direct subsidiary of Parent.
Consequently, the Parent has at all times had the ability to control each of
the Purchaser and the General Partner and has been (and continues to be) able
to elect all the directors of the Purchaser and the General Partner. In
addition, all the officers and directors of the Purchaser and the General
Partner are also officers and/or employees of Parent. No officer or director
of the Purchaser, the General Partner or Parent will receive any material
benefits as a result of the consummation of the Offer. Mr. Xxxxxxx XxXxxxx, an
officer of Parent, is the holder of a half-Unit and will be entitled to
participate in the Offer on the same basis as all other Unitholders.
. Control by Parent of Most Partnership Decisions. The General Partner
currently controls virtually all aspects of the Partnership's operations and
the General Partner's approval is required for all Partnership actions
(including, without limitation, a sale of all or substantially all of the
Partnership's assets). As a result of the Offer and the approval of the
proposed amendments to the Partnership Agreement, Parent will be in a position
after the Offer to influence substantially all significant matters affecting
the Partnership (except for Interested Transactions (as defined herein)) that
require the consent of Limited Partners holding a majority of the Units. This
will permit Parent to control most decisions and decide such matters as the
timing of the liquidation of the Partnership, a sale of more than 25% of the
Partnership's assets (to an entity other than Parent, Purchaser, the General
Partner or any of their respective Affiliates), a merger or other
extraordinary transaction. This also could (i) prevent non-tendering
Unitholders from taking action they desired but that Parent opposed and (ii)
enable
25
Parent to take action desired by Parent but opposed by non-tendering
Unitholders. Consequently, through the General Partner's extensive authority
to manage the Partnership and the ownership by the General Partner and the
Purchaser of 46.05% of the outstanding Units, Parent will be able to influence
decisions or take actions concerning the Partnership that may not fully
reflect the interests of all of the Limited Partners. For a discussion of the
Partnership's policies with respect to conflicts of interest, see "Conflicts
of Interest" and "Policies with Respect to Conflicts of Interest."
. Control by the General Partner and Parent of Sales of Certain Assets. As a
result of one of the amendments to the Partnership Agreement upon which
consummation of the Offer is conditioned, the General Partner will be
authorized to sell certain assets of the Partnership, including the Orlando
Hotel and the Partnership's 50.5% partnership interest in the Harbor Beach
Partnership to an independent third party without obtaining the consent of the
Limited Partners.
. Possible Increase in Value. Xxxxxx believes that the Partnership's
properties have increased in value over the last several years and, although
there can be no assurance, may continue to appreciate in value.
. Alternatives to Tendering Units. As alternatives to tendering their Units,
Unitholders could retain their Units or seek a private sale of their Units now
or later, subject to the effect of the possible imposition of the Transfer
Restriction.
. Agreements with MII. The Partnership is a party to a long-term management
agreement with MII for the Orlando Hotel, and the Harbor Beach Partnership is
a party to a long-term operating lease with the Operating Tenant for the
Harbor Beach Hotel. The Hotels are operated as part of the Marriott Hotels,
Resorts and Suites full-service hotel system.
LIMITED PARTNERS' CONSENT
A condition to the Purchaser's obligation to accept Units for payment
pursuant to the Offer is the receipt from the Limited Partners holding a
majority of the outstanding Units of valid and effective consents (on terms
acceptable to the Purchaser) to certain amendments to the Partnership
Agreement necessary and sufficient in the judgment of the Purchaser to permit
the consummation of the Offer (the "Limited Partners' Consent Condition"). The
Purchaser has made approval of the amendments to the Partnership Agreement a
condition to the Offer because it believes that the amendments will facilitate
the closing of the Offer, make its investment in the Partnership more valuable
and allow it to participate in Partnership decisions to the same extent as
non-affiliated Limited Partners. The Partnership is soliciting these consents
in consent solicitation materials, which are being separately provided to
Limited Partners. Limited Partners should review the consent solicitation
materials for full information about such amendments. The General Partner is
not entitled to vote its Units on the proposed amendments. None of the
executive officers or directors of the General Partner owns or has the right
to vote any Units. In the event the consents of Limited Partners holding at
least a majority of all outstanding Units are not received on all of the
amendments defined as "Required Amendments" in the consent solicitation
materials, the Offer will not be consummated, unless the Purchaser decides to
waive this condition. In addition some or all of the amendments for which
consent was sought may not be implemented even if such amendments receive
approval by the requisite percentage of Limited Partners.
Pursuant to the consent solicitation materials, the General Partner, at the
request of Parent and the Purchaser, is requesting Limited Partners to
consider and vote upon proposed amendments ("Amendments") to the Partnership
Agreement that would (i)(a) revise the provisions limiting the voting rights
of the General Partner and its affiliates (referred to herein as "Affiliates"
as defined in the Partnership Agreement) to permit the General Partner and its
Affiliates (including the Purchaser) to have full voting rights with respect
to all Units currently held by the General Partner or acquired by its
Affiliates except on matters where the General Partner or its Affiliates have
an actual economic interest other than as a Unitholder (an "Interested
Transaction") and (b) establish special voting standards with respect to
Interested Transactions to permit action to be taken only if (x) a majority of
Units held by Limited Partners other than the General Partner and its
Affiliates are present in person
26
or by proxy or consent for the vote on an Interested Transaction and (y) the
Interested Transaction is approved by Limited Partners holding a majority of
the outstanding Units, with all Units held by the General Partner and its
affiliates being voted in the same manner as a majority of the Units actually
voted by Limited Partners other than the General Partner and its Affiliates;
(ii) amend the definition of "Affiliate" to make clear that a publicly-traded
entity (such as MII) will not be deemed an Affiliate of the General Partner or
any of its Affiliates unless a person or group of persons directly or
indirectly owns twenty percent (20%) or more of the outstanding common stock
of the General Partner or its Affiliates and such other entity; (iii) revise
the provisions relating to the authority of the General Partner to permit the
General Partner, without obtaining the consent of the Limited Partners, to (a)
sell to an independent third party the assets of the Partnership, including
the Orlando Hotel and the Partnership's 50.5% partnership interest in the
Harbor Beach Partnership and (b) vote its interest in the Harbor Beach
Partnership in favor of the sale or other disposition of the Harbor Beach
Hotel to an independent third party; (iv)(a) revise the provision that permits
Unit transfers only on the first day of a fiscal quarter, so that the transfer
of Units to the Purchaser pursuant to the Offer could occur on the designated
closing date, rather than on the first day of a fiscal quarter and (b) revise
the provision that prohibits Unit transfers that would result in the assignor
or assignee owning a fraction of a Unit other than a half-Unit to permit
fractions of Units to be purchased by the Purchaser pursuant to the Offer, and
the subsequent assignment of such fractional interests, provided that such
fractional interests are assigned in their entirety; (v) revise the provisions
relating to the allocation of profits and losses and cash distributions so
that tendering Unitholders whose tenders are accepted will receive allocations
of profit and loss with respect to their Units up to, but not beyond, the last
day of the accounting period ending on or before the date on which payment for
Units pursuant to the Offer occurs, which will prevent Unitholders from
receiving an allocation of profits (or losses) for the period between the last
day of such accounting period and the date on which payment for Units pursuant
to the Offer occurs; (vi) amend certain terms and sections of the Partnership
Agreement in order to reflect various U.S. Treasury Department Regulations
that have been issued subsequent to the formation of the Partnership; (vii)
amend certain terms and sections of the Partnership Agreement in order to (a)
reflect the fact that after the division of Marriott Corporation's operations
into two separate public companies, Parent (formerly, Marriott Corporation) no
longer owns the management business conducted by MII, (b) delete certain
obsolete references to entities and agreements that are no longer in existence
and (c) update the Partnership Agreement to reflect the passage of time since
the formation of the Partnership Agreement; and (viii) permit the General
Partner, without the consent of the Limited Partners, to make any amendment to
the Partnership Agreement as is necessary to clarify the provisions thereof so
long as such amendment does not affect the rights of Unitholders under the
Partnership Agreement in any material respect.
EFFECTS OF PROPOSED AMENDMENTS ON NON-TENDERING UNITHOLDERS
The proposed voting amendments would affect the voting of the Purchaser with
respect to transactions not involving the General Partner or its Affiliates
and transactions in which any such party would have a direct or indirect
actual economic interest (other than as a Unitholder or general partner).
Amendments Relating to Voting Provisions
TRANSACTIONS NOT INVOLVING THE GENERAL PARTNER OR ITS AFFILIATES. The effect
of the voting amendments with respect to transactions not involving the
General Partner and its Affiliates would be to permit Parent, through the
General Partner and the Purchaser, to influence substantially all matters
affecting the Partnership (other than for Interested Transactions), that
require the consent of Limited Partners holding a majority of the Units. These
matters currently include the following:
(i) having either the Partnership or the Harbor Beach Partnership
(jointly, the "Partnerships") acquire interests in partnerships or hotel
properties other than the Harbor Beach Partnership and the Orlando Hotel
(except for additional interests in (i) the Harbor Beach Partnership, (ii)
the other Harbor Beach General Partner, or (iii) partners of the other
Harbor Beach General Partner);
(ii) selling or otherwise disposing of or consenting to the sale or
disposition of any assets of any of the Partnerships which had an original
cost in excess of 25% of the original cost basis of all assets of such
27
Partnership or voting the Partnership's general partnership interest in the
Harbor Beach Partnership in favor of the sale or other disposition of any
assets of the Harbor Beach Partnership which had an original cost in excess
of 25% of the original cost of all assets of the Harbor Beach Partnership
to a party other than the General Partner or an Affiliate thereof;
(iii) voting the Partnership's interest in the Harbor Beach Partnership
in favor of any amendment to any agreement, contract or arrangement with
any general partner of the Harbor Beach Partnership or any of its
Affiliates which reduces the responsibilities or duties of such general
partner or which increases the compensation payable to such general partner
or any of its Affiliates, or which adversely affects the rights of the
Partnership as general partner of the Harbor Beach Partnership;
(iv) incurring material debt of the Partnership in excess of the
limitations set forth in the Partnership Agreement, or voting the
Partnership's interests in the Harbor Beach Partnership in favor of the
incurrence by the Harbor Beach Partnership of such debt;
(v) agreeing to the addition of transient guest rooms at any hotel unless
(a) the hotel has had an average occupancy rate of at least 70% for a
consecutive period of at least 12 months and (b) the Partnership has
obtained debt financing to finance the costs of the addition on a
nonrecourse basis as to all the partners of such partnership and the
Partnership (including the General Partner);
(vi) incurring any debt of a Partnership which does not provide by its
terms that it shall be nonrecourse as to all of the partners of the
Partnerships;
(vii) taking any action or failing to take any action which would result
in the Partnership withdrawing as a partner of the Harbor Beach
Partnership;
(viii) transferring, selling, assigning, pledging, or otherwise disposing
of all or any portion of the Partnership's interest in the Harbor Beach
Partnership;
(ix) making any election to continue beyond its term, discontinue or
dissolve any of the Partnerships; and
(x) admitting any other Person as a general partner of the Partnership.
Although the General Partner currently has no plans to undertake such
activities, it may do so in the future if a majority of Units are voted by the
Purchaser or any successor thereof (which together with the General Partner
could own as much as 46.05% of the outstanding units if the offer is
consummated) and other Limited Partners in favor of such actions.
INTERESTED TRANSACTIONS. The effect of the voting amendments with respect to
Interested Transactions would be to require such transactions to be determined
by a majority of the disinterested Limited Partners who vote, because the
Units held by the Purchaser and the General Partner and its Affiliates would
be voted on such transactions in accordance with the desires of the majority
of such disinterested Limited Partners. The amendments to the quorum
requirements, however, ensure that in order for an Interested Transaction to
be acted upon by Limited Partners, a majority of the disinterested Limited
Partners must be present or represented at the meeting or in the written
consent pursuant to which the action is to be taken. Examples of Interested
Transactions would include:
(i) selling or otherwise disposing of or consenting to the sale or
disposition of any of the Hotels to the General Partner or an Affiliate, or
selling the Partnership's interest in the Harbor Beach Partnership or
consenting to a sale of the Harbor Beach Hotel to the General Partner or an
Affiliate;
(ii) effecting any amendment to any agreement, contract or arrangement
with the General Partner or any Affiliate thereof that would reduce the
responsibility or duties or would increase the compensation payable to the
General Partner or any of its Affiliates or that would otherwise adversely
affect the rights of the disinterested Limited Partners;
(iii) allowing the General Partner to withdraw voluntarily as a general
partner;
28
(iv) causing the Partnership to borrow any funds from the General Partner
or an Affiliate except as set forth in the Partnership Agreement; or
(v) causing the Partnership to acquire any property from the General
Partner and any Affiliate of the General Partner in exchange for interests
in the Partnership.
This list of Interested Transactions, however, is not exclusive. Any matter
that is required to be presented to the Limited Partners for a vote, depending
upon the particular circumstances involved, could constitute an Interested
Transaction. The General Partner has no current intention to undertake any of
the transactions in examples (i) through (v) above; however, the Partnership
currently is evaluating the costs and benefits of a possible expansion of the
facilities of the Orlando Hotel. This process is in the preliminary stages and
no decision has been made to proceed with any such expansion, however, in the
event the Partnership decides to expand the Orlando Hotel one potential source
of financing would be a loan from the General Partner or one of its
Affiliates.
Amendment to Definition of Affiliate.
The proposed Amendment to the definition of Affiliate would exclude MII (or
another public entity) from such definition for so long as the Marriott family
or some other person or group of persons does not own 20% or more of the
outstanding common stock of both the General Partner (directly or through
Parent) and MII (or such other public entity). Approval of this amendment
would eliminate transactions between the Partnership and MII from the
definition of an Interested Transaction. The Partnership Agreement currently
permits Limited Partners to terminate any agreement (including the Management
Agreement with MII and the Operating Lease with the Operating Tenant),
pursuant to which operating management of any of the Partnership's hotels is
vested in the General Partner or an Affiliate, that the Partnership has the
right to terminate as a result of the failure of the operation of such hotel
to achieve specifically defined objectives. Termination by the Limited
Partners under such circumstances can occur without the consent of the General
Partner upon the affirmative vote of Limited Partners holding a majority of
the outstanding Units. Because the revised definition of Affiliate would
exclude MII unless or until the Marriott family or some other person or
persons owns 20% or more of the outstanding common stock of both the General
Partner (directly or through Parent) and MII, the Orlando Management Agreement
and the Harbor Beach Operating Lease would be deemed to be vested in a third
party, rather than an Affiliate. However, the Partnership Agreement is
proposed to be amended to maintain the Limited Partners' right under the
Partnership Agreement to terminate a management agreement or operating lease
with MII for cause.
The Partnership Agreement currently prohibits the General Partner, without
the consent of Limited Partners holding a majority of the outstanding Units,
from causing the Partnership to amend any agreement, contract or arrangement
with the General Partner or any Affiliate in a manner that reduces the
responsibilities or duties of the General Partner, increases the compensation
payable to the General Partner or its Affiliates, or adversely affects the
rights of the limited partners. As discussed above, the proposed Amendment to
the definition of Affiliate would exclude MII unless or until the Marriott
family or some other person or group of persons owns 20% or more of the
outstanding common stock of both the General Partner (directly or through
Parent) and MII. Therefore, the Orlando Management Agreement and the Harbor
Beach Operating Lease would be deemed to be vested in a third party, rather
than an Affiliate, until such time in the future (if ever) that MII becomes an
Affiliate under the new definition. Consequently, until such time, the General
Partner could cause the Partnership to amend these agreements so as to
increase the compensation payable thereunder to MII or otherwise change the
terms of such agreements. The General Partner currently has no plans to amend
these agreements.
As discussed below under "Conflicts of Interest" and "Policies with Respect
to Conflicts of Interest," the Partnership Agreement sets forth certain
conflict of interest policies which require that agreements, contracts or
arrangements between the Partnership and the General Partner or its Affiliates
be on commercially reasonable terms and subject to certain other specific
criteria. Because the proposed amendment to the definition of Affiliate would
exclude MII, it would not be subject to the conflict of interest policies
until such time in the future (if ever) that MII becomes an Affiliate under
the new definition. Nevertheless, the General Partner will not enter
29
into any agreement, contract or arrangement with MII on terms that are unfair
to the Partnership or commercially unreasonable.
Amendments Relating to Authority of the General Partner to Sell Assets
These proposed Amendments would eliminate Limited Partner consent
requirements relating to actions by the General Partner to (i) sell or
otherwise dispose of or consent to the sale or disposition of any assets of
the Partnership which had an original cost in excess of 25% of the original
cost basis of all assets ("25% Assets") of the Partnership, (ii) vote the
Partnership's general partnership interest in the Harbor Beach Partnership
(the "Harbor Beach Interest") in favor of the sale of any 25% Assets of the
Harbor Beach Partnership, or (iii) transfer, sell, assign, pledge or otherwise
dispose of all or any portion of the Harbor Beach Interest to independent
third parties (collectively, the "25% Asset Sale Transactions") and vest the
sole authority with respect to such transactions in the General Partner. In
the event the Offer is consummated and the General Partner and its Affiliates
are granted the right to vote their Units pursuant to the proposed Amendments
described above in "--Amendments Relating to Voting Provisions," the
Purchaser, the General Partner and their Affiliates would own 46.05% of the
Units, thereby exerting a substantial influence on votes by the Limited
Partners to approve 25% Asset Sale Transactions with third parties. In votes
on these transactions with third parties, the General Partner's and its
Affiliates' interests would be aligned with those of the other Limited
Partners, since the General Partner and its Affiliates would benefit or be
harmed by these transactions in much the same way as all Limited Partners
would be (except as to tax consequences). Moreover, these Amendments would not
alter the Limited Partner consent requirements relating to 25% Asset Sale
Transactions with affiliated parties. These transactions would be Interested
Transactions under the Partnership Agreement and could only be approved with
the consent of disinterested Limited Partners owning a majority of the
outstanding Units. (For a discussion of the effects caused by the changes in
the voting provisions, see "--Amendments Relating to Voting Provisions.") The
General Partner has no current intention of selling any asset of the
Partnership, including the Orlando Hotel and the Harbor Beach Interest, or
voting the Harbor Beach Interest in favor of the sale of any asset of the
Harbor Beach Partnership, including the Harbor Beach Hotel. These Amendments
are being sought, in part, to permit the consolidation for accounting purposes
of the Partnership's Hotels in Parent's financial statements.
Revision of Transfer Restrictions.
The effect of the proposed Amendment to the quarterly transfer restrictions
would be to permit the closing of the Offer and any subsequent transfer by the
Purchaser to another entity to occur on a date that is convenient for the
parties concerned, rather than on the first day of a fiscal quarter. Because
such transfers would occur in isolated transactions, the General Partner does
not believe that as a result of such transfers, the Partnership would be
treated as an association taxable as a corporation under Section 7704 of the
Code. The effect of the proposed Amendment to the restrictions on transfers
resulting in fractional interests (other than half-Units) would be to permit
the Purchaser to prorate its purchases of Units pursuant to the Offer in
exactly the same manner for each Unitholder in the event that the Offer is
oversubscribed and would permit Unitholders whose tenders of Units were
prorated in the Offer to transfer such Units in subsequent transactions.
Therefore, the Purchaser would be able to purchase an identical percentage of
Units tendered from each Unitholder who tenders pursuant to the Offer.
Amendments to Provisions Allocating Profits and Losses and Cash
Distributions.
Because transfers of Units to the Purchaser pursuant to the Offer are
unlikely to occur on the first day of a fiscal quarter, the Partnership
Agreement currently would require the receipt of an opinion of counsel as to
the proper date on which to allocate profits and losses with respect to such
Units. The General Partner has not received, and does not plan to request,
such an opinion. Absent such an opinion, the Partnership Agreement does not
provide for the allocation of profits (and losses). The Amendment to this
section of the Partnership Agreement would require the Partnership to allocate
profits (and losses) on Units transferred to the Purchaser as of the last day
of the accounting period ending on or before the date on which payment for
Units pursuant to the Offer occurs, which will prevent Unitholders from
receiving an allocation of profits (or losses) for the period between the last
30
day of such accounting period and the date on which payment for Units pursuant
to the Offer occurs. Because the Partnership currently is generating net
taxable income, this amendment would result in less taxable income being
allocated to tendering Unitholders than could be the case currently under the
Partnership Agreement. Further, because the Partnership currently distributes
cash available for distribution only twice during the year--on or about April
15 and October 31--the Amendment to the cash distribution provisions would
cause all cash distributions with respect to Units that are transferred
pursuant to the Offer to be made to the Purchaser if such distributions are
made after the applicable closing date. Thus, each Unitholder of record as of
September 6, 1996, whose Units are tendered and accepted in the Offer received
his or her final cash distribution as to such Units on November 1, 1996. In
this regard, the Purchaser has been advised that the Partnership does not
expect to generate cash available for distribution during the period from
November 1, 1996 through the date of consummation of the Offer. These
amendments will not have any effect on non-tendering Unitholders. See "The
Tender Offer--Section 5--Price Range of Units; Distributions."
Amendments to Update Tax Provisions
The proposed Amendments to update certain tax provisions would conform the
Partnership Agreement to the changes that have occurred in the Code and the
applicable Treasury Regulations since the time the Partnership Agreement was
adopted. The Partnership Agreement currently contains tax provisions that were
applicable prior to the adoption of the Tax Reform Act of 1986 and various
Treasury Regulations governing the allocation of partnership income and loss.
The proposed Amendments would update these provisions to conform with the
currently applicable Code and regulation provisions.
Clarifying Amendments
The proposed Amendments to update the Partnership Agreement would amend
certain terms and sections of the Partnership Agreement in order to (i)
reflect the fact that after the division of Marriott Corporation's operations
into two separate public companies, Parent, as the successor to Marriott
Corporation, no longer owns the management business conducted by MII, (ii)
delete certain obsolete references to entities and agreements that are no
longer in existence and (iii) update the Partnership Agreement to reflect the
passage of time since the formation of the Partnership Agreement.
Amendment to Amendment Provisions
The proposed Amendment to the amendment provisions of the Partnership
Agreement would permit the General Partner, without the consent of the Limited
Partners, to make any amendment to the Partnership Agreement as is necessary
to clarify the provisions thereof so long as such amendment does not affect
the rights of Unitholders under the Partnership Agreement in any material
respect. Unless otherwise specified therein, the Partnership Agreement
currently requires the vote of Limited Partners holding a majority of the
Units in order to amend the Partnership Agreement for any purpose. This
proposed Amendment would allow the General Partner to take actions to clarify
any provision of the Partnership Agreement without incurring the expense and
uncertainty of a vote of the Limited Partners, so long as such amendment does
not affect the rights of Unitholders under the Partnership Agreement in any
material respect. For example, if the Partnership Agreement, as currently in
effect, contained this proposed Amendment, the Amendments described above
under the headings "Amendments to Update Tax Provisions" and "Clarifying
Amendments" would not require the consent of the Limited Partners.
CONFLICTS OF INTEREST
Because Parent and its affiliates own hotels other than those owned by the
Partnership, potential conflicts of interest exist. With respect to these
potential conflicts of interest, Parent and its affiliates retain a free right
to compete with the Hotels, including the right to develop competing hotels
now and in the future, in addition to those existing hotels that may compete
directly or indirectly. As the owner of 460.5 of the outstanding Units
31
upon consummation of the Offer, Parent, through the Purchaser and the General
Partner, could influence substantially decisions or take actions concerning
the Partnership that do not fully reflect the interests of all Limited
Partners of the Partnership.
Under Delaware law, the General Partner has unlimited liability for
obligations of the Partnership, unless those obligations are, by contract,
without recourse to the partners thereof. Since the General Partner is
entitled to manage and control the business and operations of the Partnership,
this control could lead to a conflict of interest.
Under Delaware law, the General Partner has a fiduciary duty to exercise
good faith, fairness and loyalty in all of its dealings with respect to
Partnership affairs. Neither the Offer nor the Limited Partners Consent
Condition modifies these duties. Under the terms of the Partnership Agreement,
the General Partner (and any Affiliate who is performing services for the
Partnership on behalf of the General Partner) has no liability for (and is
indemnified from) damages or otherwise to Limited Partners or the Partnership
for any liabilities, losses, judgments and expenses that may be imposed on or
incurred by the General Partner or the Partnership arising from any action or
inaction on the part of the General Partner or the Partnership if (i) the
action or inaction of the General Partner giving rise thereto was determined
by the General Partner, in good faith, to be in the best interests of the
Partnership and such action or inaction was within the scope of the authority
granted to the General Partner by the Partnership Agreement, by law, or by the
Limited Partners in accordance with the Partnership Agreement; and (ii) the
General Partner and its Affiliates were not guilty of negligence, fraud,
misconduct or breach of fiduciary duty to the Partnership or any Limited
Partners. Limited Partners, therefore, may have certain legal remedies
available under Delaware state law, such as a civil cause of action against
the General Partner for negligence, fraud, misconduct, breach of contract or
willful breach of fiduciary duty.
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST
As discussed above under "Effects of the Proposed Amendments," the proposed
Amendments to the Partnership Agreement require decisions regarding Interested
Transactions to be determined by a majority of the disinterested Limited
Partners who vote on the matter. In addition, the Partnership Agreement
requires agreements, contracts or arrangements between the Partnership and the
General Partner or its affiliates, other than arrangements for rendering
legal, tax, accounting, financial, engineering and procurement services to the
Partnership by the General Partner or its affiliates and except for
arrangements between the Partnership and an affiliate of MII which owns a time
share project near the Orlando Hotel, to be on commercially reasonable terms
and subject to the following conditions:
(i) the General Partner or any affiliate must be actively engaged in the
business of rendering such services or selling or leasing such goods
independently of its dealings with the Partnership and as an ongoing
business or must enter into and engage in such business with Marriott
system hotels or hotel owners generally and not exclusively with the
Partnerships;
(ii) any such agreement, contract or arrangement must be fair to the
Partnership, and reflect commercially reasonable terms and shall be
embodied in a written contract that precisely describes the subject matter
thereof and all compensation to be paid therefor;
(iii) no rebates or give-ups may be received by the General Partner or
any affiliate, nor may the General Partner or any affiliate participate in
any reciprocal business arrangements that would have the effect of
circumventing any of the provisions of the Partnership Agreement or the
Harbor Beach Partnership Agreement;
(iv) no such agreement, contract or arrangement as to which the Limited
Partners had previously given approval may be amended in such manner as to
increase the fees or other compensation payable to the General Partner or
any affiliate or to decrease the responsibilities or duties of the General
Partner or any affiliate in the absence of the consent of the Limited
Partners holding a majority of the Units; and
(v) any such agreement, contract or arrangement that relates to or
secures any funds advanced or loaned to the Partnership by the General
Partner or any affiliate must reflect commercially reasonable terms.
32
The proposed Amendments to the Partnership Agreement will not change the
foregoing policies with respect to conflicts of interest, except that such
policies would not apply to MII under the proposed Amendment to the definition
of "Affiliate" under the Partnership Agreement until such time in the future
(if ever) that MII becomes an Affiliate under the new definition.
Nevertheless, the General Partner will not enter into any new or amend any
existing, agreement, contract or arrangement with MII on terms that are unfair
to the Partnership or commercially unreasonable. Furthermore, the General
Partner currently has no plans to amend the Management Agreement or the
Operating Lease.
33
THE TENDER OFFER
Section 1. Terms of the Offer, Expiration Date and Proration. Upon the
terms, and subject to the conditions of, the Offer (including, if the Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the Purchaser will accept for payment and purchase 450 Units
validly tendered on or prior to the Expiration Date (as hereinafter defined)
and not validly withdrawn in accordance with Section 4 of this Offer to
Purchase. The term "Expiration Date" means 6:00 p.m., New York City time, on
Friday, December 20, 1996, unless and until the Purchaser, in its sole
discretion, shall have extended the period of time during which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by the Purchaser, shall expire.
If more than 450 Units are validly tendered, and not properly withdrawn on
or prior to the Expiration Date in accordance with Section 4, the Purchaser
will, upon the terms and subject to the conditions of the Offer, accept for
payment 450 Units on a pro rata basis based upon the number of Units properly
tendered by the Expiration Date and not withdrawn. Following consummation of
the Offer, it is the Purchaser's current intention to acquire additional Units
beginning after the end of a twelve month period. Any such acquisition may be
made through private purchases, a future tender offer, or by any other means
deemed advisable by the Purchaser. The Purchaser currently anticipates that in
acquiring additional Units (other than pursuant to a future tender offer), it
will give priority to the acquisition of fractional interests of Units
resulting from proration of Units tendered in the Offer and that such
acquisitions may be at a price equivalent to the Offer Price on a per Unit
basis. However, the Purchaser is not obligated to make any such acquisitions
and any acquisitions of additional Units, if made, may be at a price higher or
lower than the Offer Price. The Purchaser currently intends to wait until at
least twelve months after consummation of the Offer to acquire any additional
Units so as to not cause a Section 708 Termination. Business conditions
existing after the end of the twelve month period following consummation of
the Offer may make it impractical or inadvisable for the Purchaser to acquire
any additional Units at that time.
Due to the difficulty of determining the precise number of Units properly
tendered and not withdrawn, if proration is required, the Purchaser does not
expect to determine the final results of proration or pay for any Units until
at least seven (7) business days after the Expiration Date. For purposes of
the Offer, a "business day" means any day other than a Saturday, Sunday, or
federal holiday and consists of the time period from 12:01 A.M. through 12:00
Midnight, New York City time.
The Purchaser expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period during which the Offer is open
(or later to the extent permitted by applicable law) by giving oral or written
notice of such extension to the Depositary and making a public announcement
thereof. There can be no assurance that the Purchaser will exercise its right
to extend the Offer. During any such extension, all Units previously tendered
and not withdrawn will remain subject to the Offer and subject to the right of
a tendering Unitholder to withdraw such Units. See Section 4. If the Purchaser
decides to increase or decrease the number of Units being sought or to
increase or decrease the consideration offered in the Offer to Unitholders
and, at the time the notice of such increase or decrease is first published,
sent or given to Unitholders, the Offer is scheduled to expire at any time
earlier than the expiration of the period ending on the 10th business day
from, and including, the date that such notice is first so published, sent or
given, the Offer will be extended until the expiration of such period of 10
business days.
Subject to applicable rules and regulations of the SEC, the Purchaser
reserves the right, in its sole discretion, at any time or from time to time,
to (i) terminate the Offer and not accept for payment any Units, to delay
payment for any Units, regardless of whether such Units were theretofore
accepted for payment, and not to pay for any Units not theretofore accepted
for payment or paid for, if any of the conditions referred to in Section 8
have not been satisfied, or upon the occurrence of any of the conditions
specified in Section 8, (ii) waive any condition to its obligation to acquire
Units pursuant to the Offer, and (iii) otherwise amend the Offer in any
respect, by giving oral or written notice of such extension, delay in payment,
termination, waiver or amendment to the Depositary and by making a public
announcement thereof. The Purchaser acknowledges (i) that Rule 14e-1(c) under
the Exchange Act requires the Purchaser to pay the consideration offered or
return the Units
34
tendered promptly after the termination or withdrawal of the Offer and (ii)
that the Purchaser may not delay acceptance for payment of, or payment for,
any Units upon the occurrence of any of the conditions specified in Section 8
without extending the period of time during which the Offer is open.
Any extension, delay in payment, termination, waiver, or amendment will be
followed as promptly as practicable by a public announcement thereof, and such
announcement in the case of an extension will be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which the Purchaser may choose
to make any public announcement, subject to applicable law (including Rules
14d-4(c) and 14d-6(d) under the Exchange Act, which require that material
changes be promptly disseminated to holders of Units), the Purchaser shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to the Dow Xxxxx News
Service or by letter sent to the Unitholders.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OR WAIVER OF
EACH OF THE CONDITIONS SET FORTH ABOVE IN THE INTRODUCTION TO THIS OFFER TO
PURCHASE, AS WELL AS CONDITIONS DESCRIBED IN SECTION 8. If the Purchaser makes
a material change in the terms of the Offer or the information concerning the
Offer, or waives a material condition of the Offer (including a waiver of the
condition that there be validly tendered and not withdrawn prior to the
Expiration Date at least 450 Units (the "Minimum Tender Condition") or the
Limited Partners' Consent Condition), the Purchaser will extend the Offer and
disseminate additional tender offer materials to the extent required by Rules
14d-4(c) and 14d-6(d) under the Exchange Act. Those rules prescribe that the
minimum period during which an offer must remain open following material
changes in the terms of the offer or information concerning the offer, other
than a change in price or a change in percentage of securities sought or in
any dealer's soliciting fee, will depend upon the facts and circumstances,
including the relative materiality of the terms or information changed. The
SEC has announced in a published release that in its view an offer must remain
open for a minimum period of time following a material change in the terms of
an offer (including, in the SEC's view, the waiver of a minimum share
condition such as the Minimum Tender Condition) or in information concerning
an offer. The release states that an offer should remain open for a minimum of
five business days from the date the material change is first published, sent
or given to security holders and that, if material changes are made with
respect to information that approaches the significance of price and share
levels, a minimum of 10 business days may be required to allow for adequate
dissemination and investor response.
If, by the Expiration Date, the Minimum Tender Condition or the Limited
Partners' Consent Condition has not been satisfied, the Purchaser may, in its
sole discretion, elect to (i) extend the Offer and, subject to applicable
withdrawal rights, retain all tendered Units until the expiration of the
Offer, as extended, subject to the terms of the Offer, (ii) waive such
condition, and subject to complying with applicable rules and regulations of
the SEC, accept for payment all Units so tendered, or (iii) terminate the
Offer and not accept for payment any Units and return all tendered Units to
tendering Unitholders.
The Partnership has provided the Purchaser, the Depositary and the
Information Agent with a list of Unitholders and security position listings
for the purpose of disseminating the Offer to Unitholders. This Offer to
Purchase and the related Letter of Transmittal and, if required, other
relevant materials will be mailed to record holders of Units and will be
furnished for subsequent transmittal to beneficial owners of Units to brokers,
dealers, commercial banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the Unitholder list or, if applicable,
who are listed as participants in a clearing agency's security position
listing for subsequent transmittal to beneficial owners of Units.
Section 2. Acceptance for Payment and Payment for Units. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), the
Purchaser will (subject to proration) purchase by accepting for payment, and
will pay for, Units validly tendered and not properly withdrawn on or prior to
the Expiration Date as soon as legally permissible after the later to occur of
(i) the Expiration Date and (ii) the satisfaction or waiver of the conditions
related to the regulatory approvals referred to in sub-clause (f) of Section
8.
35
In all cases, payment for Units accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) a properly
completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) with any required signature guarantees and (ii) any other
documents required by the Letter of Transmittal. For a description of the
procedures for tendering Units pursuant to the Offer, see Section 3.
In addition, the Purchaser expressly reserves the right, in its sole
discretion, to delay the acceptance for payment of, or payment for, Units in
order to comply in whole or in part with any applicable law. Any such delays
will be effected in compliance with Rules 14e-1(c) under the Exchange Act,
which requires that a person who makes a tender offer pay the consideration
offered or return tendered securities promptly after the termination or
withdrawal of a tender offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment (and thereby purchased) Units validly tendered and not withdrawn as,
if and when the Purchaser gives oral or written notice to the Depositary of
the Purchaser's acceptance of such Units for payment pursuant to the Offer.
Under no circumstances will interest on the purchase price be paid by the
Purchaser, regardless of any delay in making such payment.
If, for any reason whatsoever, acceptance for payment of, or payment for,
any Units tendered pursuant to the Offer is delayed, or the Purchaser is
unable to accept for payment, or pay for, Units tendered pursuant to the
Offer, then, without prejudice to the Purchaser's rights set forth herein, the
Depositary may, nevertheless, on behalf of the Purchaser and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Units until expiration or
termination of the Offer, and such Units may not be withdrawn except to the
extent that the tendering Unitholder is entitled to, and duly exercises,
withdrawal rights as described in Section 4. The Purchaser understands that it
is the position of the staff of the SEC that the Exchange Act and the rules
and regulations promulgated thereunder require that all conditions of an
offer, other than the receipt of governmental approvals, must be satisfied or
waived prior to the expiration of such offer.
If any tendered Units are not purchased pursuant to the Offer for any reason
(other than proration) the Letter of Transmittal will be returned, without
expense to the tendering Unitholder, as soon as practicable following
expiration, termination or withdrawal of the Offer.
If, prior to the Expiration Date, the Purchaser increases the consideration
offered per Unit, the Purchaser will pay such increased consideration to all
holders of those Units purchased pursuant to the Offer, whether or not such
Units have been tendered prior to such increase in the consideration.
The Purchaser reserves the right to transfer or assign, in whole or in part,
at any time or from time to time, to one or more of Host Marriott's
subsidiaries the right to purchase Units tendered pursuant to the Offer, but
any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer nor will any such transfer or assignment in any
way prejudice the rights of tendering Unitholders to receive payment for Units
validly tendered and accepted for payment pursuant to the Offer.
Section 3. Procedures for Accepting the Offer and Tendering Units. In order
for a Unitholder to validly tender Units pursuant to the Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantees and any other documents required by the
Letter of Transmittal must be received by the Depositary at its address set
forth on the back cover of this Offer to Purchase on or prior to the
Expiration Date.
Signature Guarantees. No signature guarantee is required for tenders of
Units (i) by a registered holder of Units who has not completed either the box
entitled "Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. All other tenders of Units require that signatures on
Letters of Transmittal and, if required, Letter of Transmittal Supplements,
must be guaranteed by a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or
by a commercial bank or trust company having an office,
36
branch, agency or correspondent in the United States (collectively, an
"Eligible Institution"). See Instruction 10 of the Letter of Transmittal.
If the Units are registered in the name of a person other than the signer of
the Letter of Transmittal, then the Letter of Transmittal must be accompanied
by duly executed powers signed exactly as the name or names of the registered
holder or holders appear in the records of the Partnership, with the
signatures on the powers guaranteed by an Eligible Institution as provided in
the Letter of Transmittal. See Instructions 4 and 10 of the Letter of
Transmittal.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF EACH TENDERING UNITHOLDER. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Notwithstanding any other provision hereof, payment for Units accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantees, and
any other documents required by the Letter of Transmittal.
Back-up Federal Tax Withholding. Under federal income tax laws, the
Depositary will be required to withhold 31% of the amount of any payments made
to certain Unitholders pursuant to the Offer. To prevent such back-up federal
income tax withholding on payments made to tendering Unitholders with respect
to the purchase price of Units purchased pursuant to the Offer, each tendering
Unitholder must provide the Depositary with his or her correct taxpayer
identification number or certify that he or she is not subject to back-up
Federal income tax withholding by completing the Substitute Form W-9 included
in the Letter of Transmittal. See Instruction 9 of the Letter of Transmittal.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
Unitholder irrevocably appoints designees of the Purchaser, and each of them,
as such Unitholder's attorneys-in-fact and proxies in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of such Unitholder's rights with respect to the Units tendered by such
Unitholder and accepted for payment by the Purchaser and with respect to any
and all other Units or other securities or rights issued or issuable in
respect of such Units on or after the date of this Offer to Purchase. All such
proxies shall be considered coupled with an interest in the tendered Units.
This appointment is effective when, and only to the extent that, the Purchaser
accepts such Units for payment pursuant to the Offer. Upon such acceptance for
payment, all prior proxies given by such Unitholder with respect to such Units
or other securities or rights will, without further action, be revoked, and no
subsequent proxies may be given (and, if given, will not be deemed effective)
by such Unitholder. The designees of the Purchaser will, with respect to such
Units and other securities or rights, be empowered to exercise all voting and
other rights of such Unitholder as the designees, in their sole discretion,
may deem proper at any annual, special or adjourned meeting of the Limited
Partners, by written consent in lieu of any such meeting or otherwise. The
Purchaser reserves the right to require that, in order for Units to be deemed
validly tendered, immediately upon the Purchaser's acceptance for payment of
Units pursuant to the Offer, the Purchaser must be able to exercise full
voting and other rights with respect to such Units and other securities or
rights including voting at any meeting of Limited Partners then scheduled or
acting by written consent. In addition, by executing a Letter of Transmittal
as set forth above, a tendering Unitholder agrees promptly to remit and
transfer to the Depositary for the account of the Purchaser any and all cash
dividends, distributions, rights, other Units and other securities issued or
issuable in respect thereof on or after the date of this Offer to the
Purchaser, accompanied by appropriate documentation of transfer; and pending
such remittance or appropriate assurance thereof, the Purchaser shall be
entitled to all rights and privileges as owner of any such other Units or
other securities or property and may withhold the entire purchase price or
deduct from the purchase price the amount or value thereof, as such value may
be determined by the Purchaser in its sole discretion.
Determination of Validity. All questions as to the validity, form,
eligibility (including the timeliness of receipt) and acceptance for payment
of any tendered Units pursuant to any of the procedures described above
37
will be determined by the Purchaser, in its sole discretion, which
determination shall be final and binding. The Purchaser reserves the absolute
right to reject any and all tenders of any particular Units determined by it
not to be proper form, or the acceptance of or payment for which may, in the
opinion of Purchaser's counsel, be unlawful. The Purchaser also reserves the
absolute right, to waive any of the conditions of the Offer or any defect or
irregularity in the tender of any particular Units whether or not similar
defects or irregularities are waived in the case of other Units. The
Purchaser's interpretations of the terms and conditions of the Offer
(including the Letter of Transmittal and instructions thereto) will be final
and binding. No tender of Units will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of the
Purchaser, Host Marriott, any of their affiliates or assigns, if any, the
Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
It is a violation of Section 14(e) of the Exchange Act and Rule 14e-4
promulgated thereunder for a person to tender Units for his or her account
unless the person so tendering (i) owns such Units or (ii) owns other
securities convertible into or exchangeable for such Units or owns an option,
warrant or right to purchase such Units and intends to acquire such Units for
tender by conversion, exchange or exercise of such option, warrant or right.
Rule 14e-4 provides a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person.
A tender of Units made pursuant to any one of the procedures set forth above
will constitute the tendering Unitholder's acceptance of the terms and
conditions of the Offer, including the tendering Unitholder's representation
that (i) such Unitholder owns the Units being tendered within the meaning of
Rule 14e-4 and (ii) the tender of such Units complies with Rule 14e-4.
Section 4. Withdrawal Rights. Except as otherwise provided in this Section
4, tenders of Units made pursuant to the Offer are irrevocable. Units tendered
pursuant to the Offer may be withdrawn at any time on or prior to the
Expiration Date and, unless theretofore accepted for payment as provided
herein, also may be withdrawn at any time after January 17, 1997. If, for any
reason whatsoever, acceptance for payment of any Units tendered pursuant to
the Offer is delayed or the Purchaser is unable to accept for payment or pay
for Units for any reason, then, without prejudice to the Purchaser's rights
under the Offer, but subject to compliance with Rule 14e-1(c) under the
Exchange Act, tendered Units may be retained by the Depositary on behalf of
the Purchaser and such Units may not be withdrawn except to the extent
tendering Unitholders are entitled to and duly exercise withdrawal rights as
described in this Section 4.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses or numbers set forth on the back cover of
this Offer to Purchase. Any such notice of withdrawal must specify the name of
the person who tendered the Units to be withdrawn, the number of Units to be
withdrawn, and the name of the registered holder of the Units to be withdrawn,
if different from that of the tendering Unitholder.
Withdrawals of Units may not be rescinded and any Units properly withdrawn,
thereafter, will be deemed not validly tendered for purposes of the Offer.
However, withdrawn Units may be re-tendered at any time prior to the
Expiration Date by following one of the procedures described in Section 3.
All questions as to the form and validity (including the timeliness of
receipt) of any notice of withdrawal will be determined by the Purchaser, in
its sole discretion, whose determination will be final and binding. Neither
the Purchaser, Host Marriott, any of their affiliates or assigns, if any, the
Depositary nor any other person will be under any duty to give notification of
any defects or irregularities in any notice of withdrawal or incur any
liability for failing to give any such notification.
Section 5. Price Range of Units; Distributions.
Trading. The Units are not listed on any national securities exchange or
quoted in the over the counter market, and there is no established public
trading market for the Units. There have been 40 secondary sales of
38
the Units since 1990. The General Partner monitors transfers of the Units (i)
because transfers of Units are subject to various conditions under the
Partnership Agreement and admission of the transferee as a substitute limited
partner requires the consent of the General Partner, in its sole and absolute
discretion, under the Partnership Agreement and (ii) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly
traded partnership" for tax purposes. However, the General Partner does not
have information regarding the prices at which all secondary sales
transactions in the Units have been effectuated. As ofNovember 14, 1996, there
were 1,165 holders of record of the 1,000 Units.
The Purchaser has been advised by the General Partner that a Unitholder has
made offers to certain other Unitholders to acquire Units during the past
year. Such offer is believed to have been at a price of $25,000 per Unit. The
price for Units cited herein represents information known to the General
Partner as of September 7, 1996 and does not represent reported bid
quotations. The Purchaser and General Partner disclaim any knowledge of
whether such person continues to make such offer.
The following table sets forth information based solely on the transfer
records of the Partnership and information provided by the General Partner
with regard to the number of Units transferred during each year since 1990 in
sales transactions (i.e., excluding transactions between related parties or
family members of the same beneficial owner) and the price paid in each such
transaction:
EFFECTIVE DATE NUMBER OF UNITS PRICE
-------------- ----------------- ------------
1996:
09/07/96...................................... .5 unit $12,500
06/15/96...................................... 21 units $25,000 each
06/15/96...................................... 1 unit $21,600
03/23/96...................................... 1 unit $20,500
1995:
09/09/95...................................... .5 unit $7,000
06/17/95...................................... 1 unit $25,606
03/25/95...................................... .5 unit $7,780
01/01/95...................................... .5 unit $8,500
01/01/95...................................... 2 units $14,000 each
1992:
09/12/92...................................... 1 unit $40,000
01/01/92...................................... 1 unit $32,500
1991:
03/23/91...................................... 1 unit $60,000
01/01/91...................................... 1 unit $44,000
1990:
09/08/90...................................... .5 unit $37,000
06/16/90...................................... .5 unit $38,000
03/23/90...................................... .5 unit $36,000
-----------------
33.5 Units (Total)
39
Distributions. The following table sets forth the cash distributions per
Unit, the cumulative cash distributions per Unit, the weighted average annual
percentage return per Unit, the purchase price per Unit and the average sales
price per Unit based on the transfer records of the Partnership with respect
to each year following the sale of the Units in 1985.
CUMULATIVE WEIGHTED
CASH CASH AVERAGE ANNUAL PURCHASE AVERAGE
DISTRIBUTIONS PER DISTRIBUTIONS PERCENTAGE PRICE PER SALES PRICE
YEAR UNIT * PER UNIT * RETURN PER UNIT # UNIT PER UNIT
---- ----------------- ------------- ----------------- --------- -----------
1996.................... $ 4,970 $43,318 5.36% -- $24,644
1995.................... 2,084 38,348 2.25% -- 17,086
1994.................... -- 36,264 0.00% -- =
1993.................... -- 36,264 0.00% -- =
1992.................... -- 36,264 0.00% -- 36,250
1991.................... 5,748 36,264 6.20% -- 52,000
1990.................... 10,544 30,516 12.18% $ 19,000 74,000
1989.................... 8,939 19,972 13.43% 19,000 =
1988.................... 7,230 11,033 15.26% 19,500 =
1987.................... 3,803 3,803 13.82% 20,500 =
1986.................... -- -- -- 12,000 =
1985.................... -- -- -- 10,000 =
------- ------- ----- -------- -------
Total................. $43,318 $100,000 $40,416
======= ======== =======
--------
* Excludes distributions of refinancing proceeds of $2,475/unit in 1986 and
$4,830/unit in 1987, which were a return of capital.
#Includes refinancing proceeds as a return of capital.
=Not available
The following table sets forth the cash distributions made by the
Partnership to the General Partner and the Unitholders with respect to each
year following the sale of the Units in 1985, excluding distributions of
refinancing proceeds of $2,475 per Unit in 1986 and $4,830 per Unit in 1987,
which were treated as a return of capital. Distributions with respect to each
year are made in October of such year and in April of the following year.
There can be no assurance that any future distribution will be made or, if
made, will be at the level of previous distributions.
GENERAL PARTNER'S UNITHOLDERS'
TOTAL CASH PORTION OF PORTION OF AMOUNT
YEAR DISTRIBUTION DISTRIBUTION DISTRIBUTION (1) PER UNIT
---- ------------ ----------------- ---------------- --------
1996.................. $5,020,202 $50,202 $4,970,000 $4,970
1995.................. 2,105,050 21,050 2,084,000 2,084
1994.................. -- -- -- --
1993.................. -- -- -- --
1992.................. -- -- -- --
1991.................. 5,806,060 58,060 5,748,000 5,748
1990.................. 10,650,504 106,504 10,544,000 10,544
1989.................. 9,029,292 90,292 8,939,000 8,939
1988.................. 7,303,030 73,030 7,230,000 7,230
1987.................. 3,841,414 38,414 3,803,000 3,803
--------
(1) The General Partner owned 10.5 Units as of November 14, 1996, which
represents 1.05% of the total outstanding Units.
40
Unitholders who tender their Units in accordance with the terms of the Offer
transfer all right, title and interest in and to all Units that are tendered
(subject to proration) and all distributions in respect of such Units on or
after the date of this Offer. Accordingly, as a result of consummation of the
Offer, the Purchaser would be entitled to receive any future distributions
from the Partnership's operations, to the extent of the number of Units
acquired in the Offer.
Section 6. Effect of the Offer on Market for Units; Registration under the
Exchange Act. The purchase of Units pursuant to the Offer will reduce the
number of Units that might otherwise be available for transfer, and could
adversely affect the liquidity and market value of the remaining Units.
Following consummation of the Offer, the number of Units that may be sold or
exchanged in the twelve months following consummation of the Offer will be
limited. In this regard, the General Partner is required, pursuant to the
terms of the Partnership Agreement, to impose the Transfer Restriction on any
sales and exchanges of Units that would result in a Section 708 Termination.
In determining the applicability of the Transfer Restriction, the General
Partner is required to take into account both the 450 Units transferred
pursuant to the Offer and any other sales or exchanges of Units that occur
prior to or following the consummation of the Offer. There can be no
assurance, however, that the Transfer Restriction would be successful in
preventing a transfer that would cause a Section 708 Termination. The
Purchaser has been advised by the General Partner that the General Partner
intends to assert liability against, and may seek to enjoin, any Unitholder
that attempts to sell or exchange Units in contravention of the provisions of
the Partnership Agreement.
The Units are not currently listed on any national securities exchange, and
there are no plans to list the Units on any exchange or to qualify them for
quotation on the National Association of Securities Dealers Automated
Quotation National Market System or any other interdealer quotation system.
The Units currently are registered under the Exchange Act, and the
Partnership currently is subject to the periodic reporting requirements of
that Act. Registration of the Units under the Exchange Act may be terminated
upon application to the SEC if the number of record holders of the Units is
less than 300 persons. Termination of registration also would relieve
beneficial owners of more than five percent of the Units from the obligation
to file ownership reports under Section 13(d) of the Exchange Act, and also
relieve persons deemed to be the equivalent of officers, directors or ten
percent owners of the Partnership from the need to comply with the reporting
requirements and trading restrictions of Section 16 of the Exchange Act. The
Partnership is not aware of any person who currently is subject to Section
13(d), nor does the Partnership know of any person subject to Section 16 who
owns any Units and therefore would be required to file reports and otherwise
comply with the trading limitations of that provision. Because of the pendency
of an application for relief from all of the periodic reporting and going
private requirements of Section 13 of the Exchange Act and the proxy
statement, information statement and tender offer requirements of Section 14
of the Exchange Act filed by the Partnership under Section 12(h) of the
Exchange Act that suspended the application of those provisions until the
application was voluntarily withdrawn on November 18, 1996, the Partnership
was not required to, and did not, make any filings under such provisions from
October 23, 1989 until that date. Host Xxxxxxxx does not believe that
consummation of the Offer will result in termination of these reporting
obligations.
In the event the Offer is oversubscribed, it is the Purchaser's current
intention to acquire additional Units beginning after the end of the twelve
month period following consummation of the Offer. Any such acquisition may be
made through private purchases, a future tender offer, or by any other means
deemed advisable by the Purchaser. The Purchaser currently anticipates that in
acquiring additional Units (other than pursuant to a future tender offer), it
will give priority to the acquisition of fractional interests of Units
resulting from proration of Units tendered in the Offer and that such
acquisitions may be at a price equivalent to the Offer Price on a per Unit
basis. However, the Purchaser is not obligated to make any such acquisitions
and any acquisitions of additional Units, if made, may be at a price higher or
lower than the Offer Price. The Purchaser currently intends to wait until at
least twelve months after consummation of the Offer to acquire any additional
Units so as to not cause a Section 708 Termination. Business conditions
existing after the end of the twelve month period following consummation of
the Offer may make it impractical or inadvisable for the Purchaser to acquire
any additional Units at that time.
41
Section 7. Source and Amount of Funds. The Purchaser estimates that the
maximum amount required by Purchaser to purchase the Units pursuant to the
Offer and to pay related fees and expenses is approximately $37 million. The
Purchaser will obtain all the funds necessary to finance the Offer and pay
related fees and expenses through the capital investment of Parent. Such
capital investment will come from Parent's working capital.
Section 8. Conditions of the Offer. Notwithstanding any other provisions of
the Offer, and in addition to (and not in limitation of) the Purchaser's
rights to extend and amend the Offer at any time in its sole discretion, the
Purchaser shall not be required to accept for payment, purchase or pay for,
subject to Rule 14e-1(c) under the Exchange Act, any Units tendered (whether
or not any such Units have theretofore been accepted for payment or paid for
pursuant to the Offer), and may terminate or amend the Offer and may postpone
the purchase of, and payment for, any Units not then paid for, if (i) at least
450 Units shall not have been validly tendered (and not properly withdrawn)
pursuant to the Offer, (ii) prior to the time of acceptance, consents to
certain of the proposed amendments to the Partnership Agreement have not been
received, in form acceptable to Purchaser, from Limited Partners holding a
majority of the outstanding Units, (iii) all governmental licenses, permits,
authorizations, consents and approvals relating to the purchase of Units
pursuant to the Offer shall not have been obtained on terms satisfactory to
the Purchaser and Parent or any of such approvals and consents shall have been
withdrawn, or (iv) at any time on or after November 19, 1996 and prior to the
time of acceptance for payment of any such Units, any one or more of the
following events shall occur and remain in effect:
(a) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any United States stock exchange
or in the over-the-counter market, (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) a commencement or escalation of a
war, armed hostilities or other national or international crisis directly
or indirectly involving the United States, (iv) a material adverse change
in the United States or any other currency exchange rates or a suspension
of, or limitation on, the markets therefor, (v) any limitation (whether or
not mandatory) imposed by any governmental authority on, or any other event
which might affect, the extension of credit or further extension of credit
by United States lending institutions, (vi) any significant adverse change
in United States securities or financial markets, or (vii) in the case of
any of the foregoing existing at the time of the commencement of the Offer,
a material acceleration or worsening thereof; or
(b) there shall have been threatened, instituted or pending any action,
suit, proceeding, investigation, application, claim or counterclaim by or
before any court or governmental regulatory or administrative entity, or
any court or other governmental entity shall have proposed, sought,
promulgated, entered, enforced, enacted, issued or deemed applicable to the
Offer any statute, rule, regulation, judgment, order or injunction, which,
directly or indirectly, seeks to or would (i) challenge, prohibit, delay or
otherwise adversely affect the Offer, including but not limited to the
Purchaser's acquisition of Units in connection therewith, or obtain any
damages as a result thereof, (ii) make illegal the acceptance for payment,
purchase or payment for any Units or the consummation of the Offer, (iii)
prohibit, or impose any limitations on, the Purchaser's or its Affiliates'
ownership or operation of all or a portion of its or the Partnership's
business or assets, or impose any limitation on the ability of the
Purchaser or its Affiliates to conduct such business or own such assets,
(iv) impose limitations on the ability of the Purchaser or any Affiliate of
the Purchaser effectively to exercise full rights of ownership of the
Units, including, without limitation, the right to vote the Units owned by
it on all matters properly presented to the holders of Units, or (v)
materially adversely affect the condition (financial or otherwise), results
of operations, properties, assets, liabilities or businesses of the
Partnership; or
(c) it shall be publicly disclosed, or the Purchaser shall have learned
and provided reasonable evidence to the Partnership of the fact that any
corporation, partnership, person, individual, trust, unincorporated
association, other entity or group (as defined in Section 13(d)(3) of the
Exchange Act) other than the Purchaser or Parent, (individually or
collectively, a "Person") shall have (i) acquired (by tender offer or
otherwise), directly or indirectly, beneficial ownership of at least 10% of
the then outstanding Units or (ii) entered into a definitive agreement or
an agreement in principle with the Partnership with respect to a
42
consolidation or other business combination transaction with, or an
acquisition or a material portion of the assets of, the Partnership; or
(d) any bankruptcy, reorganization arrangement or insolvency proceedings
or other proceedings for relief under any bankruptcy or similar law or laws
for the relief of debtors involving the Partnership, or the application by
the Partnership for or consent to appointment of a custodian, trustee or
receiver for itself; or
(e) any change (or any condition, event or development involving a
prospective change) shall have occurred or be threatened in the business,
properties, assets, liabilities, capitalization, condition (financial or
otherwise), operations, licenses or franchises, results of operations or
prospects of the Partnership, or in general economic or financial market
conditions in the United States or abroad, which are or may be materially
adverse to the Partnership or its Unitholders, or the Purchaser shall have
become aware of any facts which are or may be materially adverse with
respect to the value of the Partnership or the value of the Units to the
Purchaser and Parent or any of their affiliates; or
(f) any approval, permit, authorization, consent or other action of any
domestic (federal or state), foreign or supranational governmental,
administrative or regulatory agency, authority or tribunal shall not have
been obtained on terms satisfactory to Parent or the Purchaser in their
sole discretion; or
(g) the Partnership shall have authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any liquidation or business combination, any liquidation or
disposition of a material amount of assets or securities, or any comparable
event, not in the ordinary course of business consistent with past
practices; or
(h) Parent, the Purchaser and the Partnership shall have agreed that the
Purchaser shall terminate the Offer or postpone the payment for Units
thereunder.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser and may be asserted by Parent and the Purchaser regardless of the
circumstances giving rise to any such condition and may be waived by Parent
and the Purchaser, in whole or in part, at any time and from time to time, in
the discretion of Parent and the Purchaser. The failure by Parent and the
Purchaser at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right and each right will be deemed an ongoing right
which may be asserted at any time and from time to time until such time as
Units are accepted by the Purchaser.
Section 9. Certain Legal Matters.
General. The Purchaser is not aware of any license or regulatory permit that
appears to be material to the business of the Partnership that might be
adversely affected by the Purchaser's acquisition of Units as contemplated
herein.
Antitrust. The Antitrust Division of the Department of Justice (the
"Antitrust Division") and the Federal Trade Commission (the "FTC") frequently
scrutinize the legality under the antitrust laws of certain acquisitions,
mergers, and other commercial transactions. At any time before or after the
Purchaser's purchase of Units, the Antitrust Division or the FTC could take
such action under the antitrust laws as either deems necessary or desirable in
the public interest regarding such purchase, including seeking to enjoin the
purchase of Units pursuant to the Offer, the divestiture of Units purchased
thereunder or the divestiture of substantial assets of the Partnership.
Private parties as well as state attorneys general may also bring legal
actions under the antitrust laws under certain circumstances.
Based upon an examination of available information relating to the
businesses in which the Partnership is engaged, the Purchaser and Parent
believe that the acquisition of Units pursuant to the Offer would not violate
the antitrust laws. The Purchaser and Parent believe that retention of all of
the operations of the Partnership should be permitted under the antitrust
laws. Nevertheless, there can be no assurance that a challenge to the Offer on
antitrust grounds will not be made or, if such challenge is made, what the
result will be.
The Purchaser is not aware of any filings, approvals or other action by any
federal or state governmental administrative or regulatory authority that
would be required for the acquisition of Units by the Purchaser as
43
contemplated herein. Should any such other approval or action be required, it
is currently contemplated that such approval or other action would be sought.
There can be no assurance that any such additional approval or other action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to the Partnership's business in the event that
such other approvals were not obtained or such other actions were not taken.
The Purchaser's obligation under the Offer to accept for payment and pay for
Units is subject to certain conditions, including conditions relating to the
legal matters discussed in this Section 9. See Section 8--"Conditions of the
Offer."
Section 10. Fees and Expenses. Parent has retained Trust Company of America
to act as the Information Agent in connection with the Offer. The Information
Agent will be paid a fee of $1,800 plus $2.50 per call. The Information Agent
may contact holders of Units by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers, commercial banks, trust companies
and other nominees to forward the Offer material to beneficial owners. The
Information Agent will be reimbursed for certain reasonable out-of-pocket
expenses and will be indemnified against certain liabilities and expenses in
connection with the Offer, including certain liabilities under federal
securities laws.
Parent has retained GEMISYS, Inc. to act as the Depositary in connection
with the Offer. The Depositary will be paid a fee of $6,700. The Depositary
will be reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection with the
Offer, including certain liabilities under federal securities law.
Neither the Purchaser nor Parent will pay any fees or commissions to any
broker or dealer or any other person for soliciting tenders of Units pursuant
to the Offer (other than the fees to the Information Agent). Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by the
Purchaser for customary mailing and handling expenses incurred by them in
forwarding materials to their customers.
Section 11. Miscellaneous. The Offer is being made to all holders of Units.
The Purchaser is not aware of any state where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If the Purchaser becomes aware of any valid state statute prohibiting
the making of the Offer or the acceptance of Units pursuant thereto, the
Purchaser will make a good faith effort to comply with such state statute. If,
after such good faith effort, the Purchaser cannot comply with such state
statute, the Offer will not be made to nor will tenders be accepted from or on
behalf of the holders of Units in such state.
Pursuant to Rules 14d-3 and 14d-9, respectively, of the General Rules and
Regulations under the Exchange Act, Parent and the Purchaser have filed with
the SEC a Tender Offer Statement on Schedule 14D-1, and the Partnership has
filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9,
together with exhibits in each case, furnishing certain additional information
with respect to the Offer. Such Statements and any amendments thereto,
including exhibits, may be inspected and copies may be obtained at the same
places and in the same manner as set forth with respect to information
concerning the Partnership below (except that they will not be available at
the regional offices of the SEC).
44
THE PARTNERSHIP
BUSINESS
The Partnership is a Delaware limited partnership formed on August 22, 1984,
with its principal executive offices located at 00000 Xxxxxxxx Xxxx, Xxxxxxxx,
Xxxxxxxx 00000 and its telephone number is (000) 000-0000. The Partnership
owns the Orlando Hotel and the 190 acres of land on which it is located and a
50.5% partnership interest in the Harbor Beach Partnership, which owns the
Harbor Beach Hotel. The Partnership is engaged solely in the business of
owning, operating and leasing hotels and therefore is engaged in one industry
segment.
The Hotels are operated as part of the Marriott Hotels, Resorts and Suites
full-service hotel system. The Orlando Hotel is managed by MII under the
Management Agreement, and the Harbor Beach Hotel is leased to the Operating
Tenant, which is a wholly-owned subsidiary of MII, under the Operating Lease.
The Hotels have the right to use the Marriott name pursuant to the management
and lease agreements and, if these agreements are terminated, the Partnership
and the Harbor Beach Partnership will lose that right for all purposes (except
as part of the Partnership's name).
The Hotels are among the premier resorts in the Marriott system and cater
primarily to meetings/conventions and leisure travelers. Because the Hotels
are located in Florida, operating results are higher during the period from
November through April each year. The Partnership and the Harbor Beach
Partnership have no plans to acquire any new properties or sell any of the
existing properties. The Partnership currently is evaluating the costs and
benefits of a possible expansion of the facilities of the Orlando Hotel. This
process is in the preliminary stages and no decision has been made to proceed
with any such expansion.
Neither the Partnerships nor the Hotels are presently subject to any
material litigation nor, to the General Partner's knowledge, is any material
litigation threatened against the Partnerships or the Hotels, other than
routine litigation and administrative proceedings arising in the ordinary
course of business, some of which are expected to be covered by liability
insurance and which collectively are not expected to have a material adverse
effect on the business, financial condition or results of operations of the
Partnerships.
The Partnership has no directors or officers. The business and policymaking
functions of the Partnership are carried out through the directors and
executive officers of the General Partner. The name, business address,
principal occupation, five-year employment history, and citizenship of the
directors and executive officers of the General Partner are set forth in
Schedule II to this Offer to Purchase.
SUMMARY FINANCIAL INFORMATION
Set forth below is a summary of certain selected financial information with
respect to the Partnership. The Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 and Quarterly Report on Form 10-Q for
the thirty-six weeks ended September 6, 1996, filed with the SEC on November
19, 1996, are incorporated herein by reference and may be inspected or
obtained in the manner set forth in "Available Information." The following
summary is qualified in its entirety by reference to such reports and other
documents and all of the financial information and notes contained therein or
incorporated therein. Attached hereto as Schedule IV are the Partnership's
financial statements that were printed in the Partnership's Form 10-K and Form
10-Q and should be read in conjunction with a review of the summary financial
information.
45
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
THIRTY-SIX
FISCAL YEAR ENDED DECEMBER 31, WEEKS ENDED
------------------------------------------------ ------------------
SEPT. 6 SEPT. 8
1995 1994 1993 1992 1991 1996 1995
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
Revenues................ $ 67,677 $ 59,759 $ 62,204 $ 63,912 $ 62,104 $ 52,013 $ 50,993
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item and
minority interest...... $ 14,868 $ 7,834 $(24,572) $ (1,707) $ (5,193) $ 14,892 $ 14,055
Extraordinary item...... -- -- 40,356 -- -- -- --
Net income (loss) before
minority interest...... $ 14,868 $ 7,834 $ 15,784 $ (1,707) $ (5,193) $ 14,892 $ 14,055
Minority interest
income................. (1,718) (523) (1,036) (185) (779) (2,441) (2,130)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 13,150 $ 7,311 $ 14,748 $ (1,892) $ (5,972) $ 12,451 $ 11,925
======== ======== ======== ======== ======== ======== ========
Net income (loss) before
extraordinary item and
minority interest per
limited partner unit... $ 14,719 $ 7,756 $(24,326) $ (1,690) $ (5,141) $ 14,743 $ 13,914
Extraordinary item per
limited partner unit... -- -- 39,952 -- -- -- --
Minority interest per
limited partner unit... (1,701) (518) (1,026) (183) (771) (2,415) (2,108)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per
limited partner unit... $ 13,018 $ 7,238 $ 14,600 $ (1,873) $ (5,912) $ 12,328 $ 11,806
-------- -------- -------- -------- -------- -------- --------
Total Assets............ $251,217 $254,058 $257,620 $332,961 $330,043 $255,833 $258,060
-------- -------- -------- -------- -------- -------- --------
Total Obligations....... $253,483 $267,369 $278,242 $368,331 $363,521 $248,563 $261,046
-------- -------- -------- -------- -------- -------- --------
Cash Distributions per
limited partner unit
(1,000 Units).......... $ 2,084 $ -- $ -- $ -- $ 5,748 $ 2,886 $ 1,584
======== ======== ======== ======== ======== ======== ========
46
THE PURCHASER AND PARENT
THE PURCHASER
The Purchaser, a Delaware corporation and a wholly owned direct subsidiary
of Parent, was incorporated on November 14, 1996, for the purpose of acquiring
the Units, and has engaged in no activities to date, other than those
incidental to its organization and making the Offer. The principal office of
the Purchaser is located at 00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
Because the Purchaser is newly formed and has minimal assets and
capitalization, no meaningful financial information with respect to the
Purchaser is available.
PARENT
Parent, a Delaware corporation, is one of the larger owners of lodging
properties in the world. Substantially all of Parent's 77 owned lodging
properties are operated under Marriott brand names and managed by MII,
formerly a wholly owned subsidiary of Parent, and its subsidiaries. Parent's
primary focus is on the acquisition of full service lodging properties
(primarily Marriott Hotels, Resorts and Suites). Parent also holds minority
interests in various partnerships that own approximately 254 additional hotel
properties operated by MII. The principal office of Parent is 00000 Xxxxxxxx
Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
The name, business address, present principal occupation, five-year
employment history and citizenship of each of the directors and executive
officers of Parent and the Purchaser are set forth in Schedule I hereto.
Set forth below is a summary of selected consolidated financial information
with respect to Parent and its subsidiaries for the thirty-six weeks ended
September 6, 1996 and September 8, 1995, respectively, and fiscal years 1995,
1994 and 1993, excerpted from financial statements presented in Parent's
Quarterly Report on Form 10-Q for the thirty-six weeks ended September 6,
1996, and Annual Report on Form 10-K for the fiscal year ended December 31,
1995, respectively, as filed with the SEC. On December 29, 1995, Host Marriott
distributed to its shareholders through a special tax-free dividend its food,
beverage, and merchandise concessions business at airports, on toll roads, and
at stadiums, arenas and other attractions (the "Operating Group"). The
consolidated financial statements have been restated to reflect the Operating
Group as discontinued operations. More comprehensive financial information is
included in such report filed by Parent, and the following summary is
qualified in its entirety by reference to such report and the financial
information and related notes contained therein or incorporated therein, which
may be inspected and copies obtained at the offices of the SEC as set forth in
"Available Information." In addition, such material should also be available
for inspection at the offices of the New York Stock Exchange (the "NYSE"), 00
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
47
HOST MARRIOTT CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR THIRTY-SIX WEEKS ENDED
------------------------ ---------------------------
1995 1994 1993(1)(2) SEPT. 6, 1996 SEPT. 8, 1995
----- ----- ---------- ------------- -------------
(UNAUDITED)
INCOME STATEMENT DATA:
Revenues.................. $ 484 $ 380 $ 659 $ 464 $ 319
Operating profit before
corporate expenses and
interest................. 114 152 92 149 118
Interest Expense.......... 178 165 162 152 122
(Loss) Income before
extraordinary item and
cumulative effect of
accounting changes (3)... (123) (19) 52 (7) (32)
Net (Loss) Income (5)..... (143) (25) 50 (7) (49)
Earnings per common share:
(4)
(Loss) Income before
extraordinary item and
cumulative effect of
accounting changes (3)... (.39) (.09) .39 (.04) (.08)
Net (Loss) Income......... (.90) (.17) .35 (.04) (.31)
BALANCE SHEET DATA:
Total Assets.............. 3,557 3,366 3,362 4,459 3,401
Total Liabilities......... 2,882 2,656 2,857 3,379 2,731
Cash dividends declared
per common share......... 0 0 .14 0 0
--------
(1) Operating results for 1993 include the operations of MII only through the
distribution date of October 8, 1993. These operations had a net pre-tax
effect on income of $211 million and are recorded as "Profit from
operations distributed to MII" on Parent's consolidated statement of
operations for 1993 and are, therefore, not included in sales, operating
profit before corporate expenses and interest, interest expense and
interest income for the same period. The net pre-tax effect of these
operations is, however, included in income before income taxes,
extraordinary item and cumulative effect of changes in accounting
principles and in net income for 1993.
(2) Operating results in 1993 included pre-tax costs related to the
distribution totaling $13 million and a $7 million pre-tax restructuring
charge for the Operating Group.
(3) Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," was adopted in the first fiscal quarter of 1993. In the
second fiscal quarter of 1993, Parent changed its accounting method for
assets held for sale. Also, Parent recognized a $5 million loss (net-of-
tax) on the completion of the Exchange Offer.
(4) Earnings per common share is computed on a fully diluted basis by dividing
net income available for common stock by the weighted average number of
outstanding common and common equivalent shares, plus other potentially
dilutive securities.
(5) On December 29, 1995, Host Marriott distributed the Operating Group to its
shareholders through a special tax-free dividend. The consolidated
financial statements have been restated to reflect the Operating Group as
discontinued operations.
Except as set forth in this Offer to Purchase and in Schedule I (with regard
to one Unit held of record by Xx. Xxxxxx XxXxxxx), neither the Purchaser,
Parent nor any person controlling the Purchaser, nor, to the best knowledge of
the Purchaser, any of the persons listed in Schedule I or any associate or
majority-owned subsidiary of any of the foregoing, beneficially owns or has a
right to acquire any Units or has effected any transactions in the Units
during the past 60 days. Except as described in this Offer to Purchase,
neither the Purchaser, Parent nor any of their affiliates nor, to the
knowledge of Purchaser, any of the persons listed on Schedule I hereto, has
any contract, arrangement, understanding or relationship with another person
with respect to any securities of the Partnership, including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or voting of such securities, joint ventures, loan or option
arrangements, puts
48
or calls, guarantees or loans, guarantees against loss or the giving or
withholding of proxies. Except as described in this Offer to Purchase, neither
the Purchaser, Parent nor any of" their affiliates nor, to the knowledge of
the Purchaser, any of the persons listed on Schedule I hereto, has since
January 1, 1993 engaged in any business relationship or transaction with the
Partnership or any of its executive officers, directors or affiliates that
would require disclosure herein under the rules and regulations of the SEC
applicable to the Offer. Except as described in this Offer to Purchase, there
have been no contacts, negotiations or transactions since January 1, 1993
between the Purchaser, Parent, and their respective affiliates or any of the
persons listed on Schedule I hereto, on the one hand, and the Partnership or
its affiliates on the other hand, concerning a merger, consolidation,
acquisition, tender offer or other acquisition of securities, election of
directors or sale or other transfer of a material amount of assets of the
Partnership.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes (i) certain federal income tax
considerations that may be relevant to a Unitholder who tenders his or her
Units pursuant to the Offer, (ii) certain federal income tax considerations
that may be relevant to a Unitholder who does not tender his or her Units
pursuant to the Offer (a "Non-Tendering Unitholder"), and (iii) certain
federal income tax considerations that may be relevant to all Unitholders. The
summary is based upon the Code, Treasury Regulations thereunder, rulings and
other pronouncements and decisions now in effect, all of which are subject to
change. Xxxxx & Xxxxxxx L.L.P., which has acted as tax counsel to the
Partnership in connection with the Offer, has reviewed the following
discussion and is of the opinion that it fairly summarizes the federal income
tax considerations that are likely to be material to a Unitholder.
The following description is not intended to be exhaustive of all possible
tax considerations. For example, this summary does not give a detailed
discussion of any state, local, or foreign tax considerations. Nor does it
discuss all aspects of federal income taxation that may be relevant to
specific Unitholders in light of their particular circumstances. Except where
indicated, the discussion below describes general federal income tax
considerations applicable to individuals who are citizens or residents of the
United States. Accordingly, the following discussion has limited application
to domestic corporations and persons subject to specialized federal income tax
treatment, such as foreign persons, tax-exempt entities, regulated investment
companies and insurance companies.
UNITHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE TAX
CONSEQUENCES TO THEM OF A SALE OF THEIR UNITS PURSUANT TO THE OFFER OR OF A
DECISION NOT TO SELL IN LIGHT OF THEIR SPECIFIC TAX SITUATION.
UNITHOLDERS WHO TENDER UNITS
Tax Treatment of Sale of Units by Unitholder. The sale of Units pursuant to
the Offer will be treated for federal income tax purposes as a taxable sale of
such Units. The gain or loss recognized by a Unitholder upon a sale of Units
pursuant to the Offer will be based on the difference between the amount
considered realized by the Unitholder for tax purposes and the Unitholder's
adjusted tax basis in such Units. See "Basis of Units" below. The amount
realized in connection with the sale of the Units will equal the sum of the
cash received plus the portion of the Partnership's nonrecourse liabilities
allocable to the Units sold. The General Partner estimates that, as of
December 31, 1996, the dollar amount of the Partnership's nonrecourse
liabilities allocable to each Unit is approximately $184,300. To the extent
that the amount realized exceeds the Unitholder's adjusted basis for the Units
sold, such Unitholder will recognize gain. The General Partner estimates that,
as of December 31, 1996, a Unitholder who purchased a Unit on the closing date
of the initial private placement of Units, November 27, 1985 (the "Unit
Offering Closing Date"), and has held that Unit continuously since that time
would recognize gain in the amount of approximately $143,300 per Unit if such
Unitholder were to sell the entire Unit at the Offer Price at the time the
Offer is consummated.
49
Except as described below, any gain recognized upon a sale of Units will be
treated as gain attributable to the sale or disposition of a capital asset. A
Unitholder would recognize ordinary income, however, to the extent that the
amount realized upon the sale of a Unit that is considered attributable to the
Unitholder's share of the "unrealized receivables" of the Partnership (as
defined in Section 751 of the Code) exceeds the basis attributable to those
assets. "Unrealized receivables" include, to the extent not previously
includable in Partnership income, any rights to payment for services rendered
or to be rendered and also any amounts that would be subject to recapture as
ordinary income (for example, depreciation recapture with respect to personal
property) if the Partnership had sold its assets at their fair market value at
the time of the sale of a Unit. The General Partner estimates that, as of
December 31, 1996 and assuming that a Unitholder purchased his or her Unit on
the Unit Offering Closing Date and has held that Unit continuously since that
time, the amount of ordinary income with respect to a Unit sold at the Offer
Price would be approximately $5,100. This amount depends, in part, upon the
General Partner's estimate of the relative values of the real property and
personal property components currently owned by the Partnership. There can be
no assurance, however, that the IRS would not claim that more value is
allocable to the personal property components, which could result in a
Unitholder who sells his or her Units pursuant to the Offer recognizing more
ordinary income than estimated by the General Partner (and, thus, less capital
gain). The General Partner estimates that, as of December 31, 1996, a
Unitholder who purchased a Unit on the Unit Offering Closing Date, who has
held the Unit since that time and whose Unit is and has been the Unitholder's
only investment in a passive activity would have a passive activity loss
carryforward of $39,500.
A Unitholder who tenders Units pursuant to the Offer also will recognize
ordinary income in an amount equal to the Partnership accreted income
allocable to such Units through the last day of the accounting period ending
on or before the date tenders of Units are accepted for payment. Although such
a Unitholder will not receive a distribution with respect to this accreted
income, the last cash distribution made to tendering Unitholders which
occurred on November 1, 1996, consisted of the cash available for distribution
to Unitholders, on a per Unit basis, under the terms of the Partnership
Agreement for the period of June 1995 through October 1996 from operations of
the Orlando Hotel and for the period of April 1996 through October 1996 for
the Harbor Beach Hotel, based on available cash flow from the operations of
the Partnerships.
Basis of Units. In general, a Unitholder had an initial tax basis in his or
her Units ("Initial Basis") equal to cash investment in the Partnership (plus
his or her proportionate share of the Partnership's nonrecourse liabilities at
the time he or she acquired his or her Units). A Unitholder's Initial Basis
generally has been increased by (a) such Unitholder's share of Partnership
taxable income and (b) any increases in his or her share of liabilities of the
Partnership. Generally, such Unitholder's Initial Basis has been decreased
(but not below zero) by (i) his or her share of Partnership cash
distributions, (ii) any decreases in his or her share of liabilities of the
Partnership, (iii) his or her share of losses of the Partnership, and (iv) his
or her share of nondeductible expenditures of the Partnership that are not
chargeable to capital. (Because "syndication costs" are chargeable to capital
and not deductible for tax purposes, a Unitholder's basis in his or her Units
would include his or her share of the syndication costs incurred by the
Partnership at formation.) The General Partner estimates that, as of December
31, 1996 and assuming that a Unitholder purchased his or her Unit on the Unit
Offering Closing Date and has held that Unit continuously since that time, the
Unitholder would have an adjusted basis in that Unit of approximately
$115,900.
Passive Activity Income. Any gain recognized by the Unitholders in
connection with the sale of their Units pursuant to the Offer will constitute
"passive activity income" for purposes of the "passive activity loss"
limitation rules. Accordingly, such income generally may be offset by losses
from all sources, including suspended "passive activity losses" with respect
to the Partnership and "passive" or active losses from other activities. Each
Unitholder should consult with his or her own tax advisor concerning whether,
and the extent to which, the Unitholder has available suspended "passive
activity" losses from either the Partnership or other investments that may be
used to offset gain from a sale of Units pursuant to the Offer.
* * *
The foregoing summary sets forth the estimate by the General Partner of the
adjusted tax basis per Unit, the taxable gain per Unit and ordinary income per
Unit that would be recognized by a Unitholder who purchased the
50
Units on the Unit Offering Closing Date, has held that Unit continuously since
that time, and sells the Unit at the Offer Price at the time the Offer is
consummated. The estimated amounts could be quite different, however, for a
Unitholder who acquired some or all of his or her Units after the Unit
Offering Closing Date. The amount of gain (and ordinary income) recognized by
such Unitholders will depend upon when they acquired their Units and the price
paid for the Units (as adjusted for subsequent allocations of Partnership
income and loss and subsequent Partnership distributions). BECAUSE THE INCOME
TAX CONSEQUENCES OF A SALE OF UNITS PURSUANT TO THE OFFER WILL NOT NECESSARILY
BE THE SAME FOR ALL UNITHOLDERS, UNITHOLDERS CONSIDERING TENDERING THEIR UNITS
SHOULD CONSULT THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX
SITUATIONS.
NON-TENDERING UNITHOLDERS
No Gain or Loss. The consummation of the Offer will not result in taxable
gain or loss for Non-Tendering Unitholders.
ALL UNITHOLDERS
The following discussion may be relevant to Non-Tendering Unitholders and to
Unitholders that tender Units pursuant to the Offer, to the extent such
tendering Unitholders remain Unitholders subsequent to consummation of the
Offer. A Unitholder that tenders Units pursuant to the Offer would remain a
Unitholder subsequent to consummation of the Offer, for example, if proration
occurs or if such Unitholder does not tender all of its Units.
Partnership Termination. The acceptance for payment of 450 Units
(approximately 45% of the total interest in the Partnership's capital and
profit) upon the consummation of the Offer alone will not result in a Section
708 Termination of the Partnership. A Section 708 Termination is caused by a
"sale or exchange" of 50% or more of the total interest in a partnership's
capital and profit within a twelve-month period. To ensure that consummation
of the Offer, together with other transfers of Units does not result in a
Section 708 Termination, the General Partner is required, pursuant to the
terms of the Partnership Agreement, to impose the Transfer Restriction on any
sales and exchanges of Units during the twelve-month period following
consummation of the Offer that would result in a Section 708 Termination.
There is a risk, however, that other transfers of Units, made in contravention
of the Partnership Agreement and the Transfer Restriction, together with
acceptance for payment of 450 Units upon the consummation of the Offer, could
result in a Section 708 Termination. The Purchaser has been advised by the
General Partner that the General Partner intends to assert liability against,
and may seek to enjoin, any Unitholder that attempts to sell or exchange Units
in contravention of the Transfer Restriction. See "Risk Factors--Transfer
Restriction."
In the event that the transfer of Units in contravention of the Partnership
Agreement and the Transfer Restriction results in a Section 708 Termination,
the average depreciation deductions available to non-tendering Unitholders
would decrease for a period of time following the consummation of the Offer
(thereby increasing the taxable income allocable to their Units each such
year). However, for non-tendering Unitholders who acquired their Units on the
Unit Offering Closing Date and who have held their Units continuously since
that time, total depreciation deductions over the useful lives of the assets
of the Partnership would not change; only the timing of such deductions would
change.
Partnership Status. Parent believes the purchase of Units by the Purchaser,
as proposed, should not adversely affect the status of whether the Partnership
is classified as a partnership for federal income tax purposes. The
Partnership will obtain an opinion from Xxxxx & Xxxxxxx L.L.P. that the
purchase of Units in connection with the Offer will not result in the
Partnership being treated as an association taxable as a corporation.
51
AVAILABLE INFORMATION
The Partnership and Parent are each subject to the information and reporting
requirements of the Exchange Act and as a result are required to file reports
and other information with the SEC relating to their respective business,
financial condition and other matters. Certain information, as of particular
dates, concerning the Partnership's and Xxxxxx's respective directors and
officers, the principal holders of their respective securities, any material
interests of these persons in transactions with the Partnership or Parent and
other matters is required to be disclosed in proxy statements distributed to
the Partnership's Unitholders and Parent's security holders, respectively, and
filed with the SEC. Such reports, proxy statements and other information may
be inspected at the public reference facilities of the SEC at Room 0000, 000
Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, and should also be available for
inspection at the regional offices of the SEC in New York (0 Xxxxx Xxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000) and in Chicago (Citicorp Center,
000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000). Copies may be
obtained by mail, at prescribed rates, from the SEC's principal office at 000
Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000. The SEC maintains a "web site'
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of such
site is "xxxx://xxx.xxx.xxx."
* * * * *
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED.
MHP Acquisition Corp.
November 19, 1996
52
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF HOST XXXXXXXX AND PURCHASER
The following table sets forth the name, business address and principal
occupation or employment at the present time and during the last five years,
and the name, principal business and address of any corporation or other
organization in which such employment is or was conducted, of each director
and executive officer of Host Marriott and the Purchaser. Each such person is
a citizen of the United States and the business address of each such person is
00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000. Except as otherwise noted, each
occupation set forth opposite a person's name refers to employment with Host
Marriott and the Purchaser and each such person has held such occupation for
at least the past five years.
I. HOST MARRIOTT
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND MATERIAL OCCUPATIONS,
TERM OFFICES OR EMPLOYMENT HELD DURING THE
NAME EXPIRES PAST FIVE YEARS
---- ------- -------------------------------------
DIRECTORS:
Xxxxxxx X. Xxxxxxxx* 1998 Xxxxxxx X. Xxxxxxxx, 57, is a director of
Chairman of the Board Marriott International, Inc., Host Marriott
Director since 1979 Services Corporation, Potomac Electric Power
Company, and is Chairman of the Board of
First Media Corporation. He also serves as a
director of certain subsidiaries of Host
Marriott and is a past President of the
National Restaurant Association. For
additional information on Mr. Xxxxxxxx, see
"Officers" below.
X.X. Xxxxxxxx, Xx.* 1999 X.X. Xxxxxxxx, Xx. 64, is Chairman of the
Director since 1964 Board and President of Marriott
International, Inc. and a director of Host
Marriott Services Corporation, General Motors
Corporation, Outboard Marine Corporation and
the U.S.-Russia Business Roundtable. He
serves on the Boards of Trustees of the Mayo
Foundation and the National Geographic
Society, and the Advisory Board of the Boy
Scouts of America. He is on the President's
Committee of the American Red Cross and the
Executive Committee of the World Travel and
Tourism Council.
X. Xxxxxxxx Xxxxx 1998 Xx. Xxxxx, 47, is a private investor and
Director since 1992 Chairman and Chief Executive Officer of Big
Flower Press Holdings, Inc. and Chairman of
Treasure Chest Advertising Company, Inc. He
was formerly a general partner of Kohlberg
Kravis Xxxxxxx & Company (a New York and San
Francisco-based investment firm). He also
serves on the Boards of Directors of
Foodbrands America, Inc., Culligan Water
Technologies, Inc., Samsonite Corporation and
the New York YMCA, and on the Board of
Trustees of Bucknell University.
--------
* X.X. Xxxxxxxx, Xx. and Xxxxxxx X. Xxxxxxxx are brothers.
I-1
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND MATERIAL OCCUPATIONS,
TERM OFFICES OR EMPLOYMENT HELD DURING THE
NAME EXPIRES PAST FIVE YEARS
---- ------- -------------------------------------
Xxxxxxx X. Xxxxxx 1997 Xx. Xxxxxx, 52, serves as a director of Prime
President and Chief Retail, Inc., Cousins Property, Inc., D.R.
Executive Officer Xxxxxx, Inc. and the District of Columbia
Director since 1995 Early Childhood Collaborative. He is also a
member of the Executive Committee of the
Federal City Council. For additional
information on Xx. Xxxxxx, see "Officers"
below.
Xxx Xxxx XxXxxxxxxx 1997 Xx. XxXxxxxxxx, 54, is a member of the
Director since 1993 Executive Committee of the Federal City
Council and Vice Chairman of the Aspen
Institute. She was formerly President and
Chief Executive Officer of New American
Schools Development Corporation. Xx.
XxXxxxxxxx has served with distinction in
several U.S. Administrations in such
positions as Secretary of Labor and Under
Secretary of the Department of the Interior.
Xx. XxXxxxxxxx also serves as a director of
AMR Corporation, Federal National Mortgage
Association, General Motors Corporation,
Xxxxxxx Company, Nordstrom, Potomac Electric
Power Company, Union Camp Corporation and
Vulcan Materials Company. Additionally, Xx.
XxXxxxxxxx serves as a member of the
governing boards of a number of civic, non
profit organizations, including the Public
Agenda Foundation and the Conservation Fund.
Xx. XxXxxxxxxx is on the Board of Overseers
for the Xxxxxxx School of the University of
Pennsylvania and is a Trustee of the Center
for Strategic and International Studies.
Xxxxx X. Xxxxxxx, Xx. 1999 Xx. Xxxxxxx, 77, is a retired Vice Chairman
Director since 1969 of Xxxx-Xxxxx & Xxxxxxxx, Inc. He also served
as a director of Signet Banking Corporation
from 1973 until 1989.
Xxxxxx X. Xxxxxx 1997 Xx. Xxxxxx, 58, is a director of The
Director since July International Forum, an executive education
1996 program of the Xxxxxxx School at the
University of Pennsylvania. He was formerly
Vice Chairman of CS First Boston. Xx. Xxxxxx
also serves as a director of New York Life
Insurance Company, Gryphon Holdings, Inc. and
Home State Holdings, Inc.
OFFICERS:
Xxxxxxx X. Xxxxxxxx Xxxxxxx X. Xxxxxxxx joined Host Xxxxxxxx in
Chairman of the Board 1965 and has served in various executive
capacities. In 1979, Mr. Xxxxxxxx was elected
to the Board of Directors. In 1984, he was
elected Executive Vice President and in 1986
he was elected Vice Chairman of the Board of
Directors. In 1993, Mr. Xxxxxxxx was elected
Chairman of the Board. Mr. Xxxxxxxx also has
been responsible for management of Host
Xxxxxxxx's government affairs functions.
I-2
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND MATERIAL OCCUPATIONS,
OFFICES OR EMPLOYMENT HELD DURING THE
NAME PAST FIVE YEARS
---- -------------------------------------
Xxxxxxx X. Xxxxxx Xx. Xxxxxx, 52, joined Host Xxxxxxxx in
President and Chief September 1995. From 1991 until 1995, Mr.
Executive Officer Xxxxxx was chairman of Xxxxxx Realty
Director since 1995 Corporation and prior to that served as Chief
Financial Officer of The Xxxxxx Xxxx Company.
Prior to joining The Xxxxxx Xxxx Company, Xx.
Xxxxxx served as Administrator of the General
Services Administration, as Assistant
Secretary of the Treasury and was co-founder
and national managing partner of Xxxxxxxx
Xxxx Residential Companies.
Xxxxxx X. Xxxxxxx, Xx. Xxxxxx X. Xxxxxxx, Xx., 41, joined Host
Executive Vice President Marriott's Corporate Financial Planning Staff
and in 1981, was made Director--Project Finance
Chief Financial Officer in 1984, Vice President--Project Finance in
1986 and Assistant Treasurer in 1988. In
1993, he was elected Senior Vice President
and Treasurer of Host Xxxxxxxx, and in 1995
he was elected Executive Vice President and
Chief Financial Officer of Host Marriott.
Xxxxxxx X. XxXxxxx Xxxxxxx X. XxXxxxx, 56, joined Host Marriott
Executive Vice President in 1973 as an attorney. He was appointed
and Assistant General Counsel in 1976, and was
General Xxxxxxx promoted to Vice President and Assistant
General Counsel in 1986. He became Vice
President and Associate General Counsel in
1990 and became Senior Vice President and
General Counsel in 1993 and Executive Vice
President in 1995. Prior to joining Host
Marriott, Xx. XxXxxxx was employed as an
attorney in the airline and aircraft
manufacturing industries. Xx. XxXxxxx is the
record holder of one-half Unit of the
Partnership.
Xxxxxxxxxxx X. Xxxxxxxx Xxxxxxxxxxx X. Xxxxxxxx, 34, joined Host
Executive Vice President Marriott in October 1995 as Executive Vice
President. Prior to joining Host Xxxxxxxx,
Xx. Xxxxxxxx served as President of Xxxxxx
Realty Corporation from 1991 to 1995 and as
Chief Development Officer and in various
positions with The Xxxxxx Xxxx Company from
1984 through 1991.
Xxxxxx X. Xxxxxxx Xxxxxx X. Xxxxxxx, 38, joined Host Marriott
Vice President and in 1993 as Director--Corporate Accounting. In
Corporate Controller October 1993 he was promoted to Senior
Director and Assistant Controller of Host
Xxxxxxxx and was promoted to Vice President--
Corporate Accounting in 1995. Xx. Xxxxxxx was
elected Vice President and Corporate
Controller in 1996. Prior to joining Host
Marriott, Xx. Xxxxxxx was with the public
accounting firm of Deloitte & Touche.
I-3
II. MHP ACQUISITION CORP.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND MATERIAL OCCUPATIONS,
OFFICES OR EMPLOYMENT HELD DURING THE
NAME PAST FIVE YEARS
---- -------------------------------------
Xxxxxxxxxxx X. Xxxxxxxx Xxxxxxxxxxx X. Xxxxxxxx, 34, joined Host
President, Chief Operating Marriott in October 1995 as Executive Vice
Officer President. Prior to joining Host Xxxxxxxx,
and Director Xx. Xxxxxxxx served as President of Xxxxxx
Realty Corporation from 1991 to 1995 and as
Chief Development Officer and in various
positions with The Xxxxxx Xxxx Company from
1984 through 1991.
Xxxxx X. Xxxxxxxxx Xxxxx X. Xxxxxxxxx, 36, joined Host Marriott
Vice President and in 1987 as a Senior Financial Analyst of
Treasurer Financial Planning & Analysis and was named
Manager in June 1988. He was appointed
Director, Financial Planning & Analysis in
1989, Director of Project Finance in January
1990, Senior Director of Project Finance in
June 1993, Vice President, Project Finance in
June 1994 and Senior Vice President of
International Development in October 1995. In
June 1996, Xx. Xxxxxxxxx was named Senior
Vice President and Treasurer of Host
Xxxxxxxx, and was elected Vice President and
Treasurer of the Purchaser. Prior to joining
Host Marriott, Xx. Xxxxxxxxx was with the
public accounting firm Price Waterhouse.
Xxxxx X.X. Xxxxxx Xxxxx X.X. Xxxxxx, 35, joined Host Xxxxxxxx
Secretary in January 1996 as a Senior Attorney. Prior
to joining Host Marriott, Xx. Xxxxxx was an
associate at the law firm of Xxxxx & Xxxxxxx
L.L.P.
The Purchaser is a newly formed wholly owned subsidiary of Host Marriott and
has engaged in no activities to date, other than those incidental to its
organization and making the Offer. No officer or director of the Purchaser
devotes a significant percentage of time to the Purchaser. To the extent that
any officer or director does devote time to the Purchaser, the Purchaser is
entitled to reimbursement for the cost of providing such services. Any such
costs may include a charge for overhead, but without a profit to the
Purchaser. For the period from the formation of the Purchaser (November 14,
1996) to the date of this Offer to Purchase, no amounts for administrative
expenses have been reimbursed to the Purchaser.
I-4
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF HOTEL PROPERTIES MANAGEMENT, INC.
The following table sets forth the name, business address and principal
occupation or employment at the present time and during the last five years,
and the name, principal business and address of any corporation or other
organization in which such employment is or was conducted, of each director
and executive officer of Hotel Properties Management, Inc. Except as otherwise
noted, each such person is a citizen of the United States and the business
address of each such person is 00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
Except as otherwise noted, each occupation set forth opposite a person's name
refers to employment with Hotel Properties Management, Inc., and each such
person has held such occupation for at least the past five years.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND MATERIAL OCCUPATIONS,
OFFICES OR EMPLOYMENT HELD
NAME AND BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------------- ------------------------------------
Xxxxx X. Xxxxxxxxx Xx. Xxxxxxxxx, 41, was elected President of the
General Partner in November 1995 and Treasurer of
the General Partner in July 1996. He has been
Director and Chief Accounting Officer of the General
Partner since October 1993, and was Vice President--
Finance from October 1993 to November 1995. Xx.
Xxxxxxxxx joined Host Marriott in 1989 as Director--
Partnership Services. He was promoted to Vice
President--Lodging Partnerships in 1994 and to
Senior Vice President--Asset Management in 1996.
Prior to joining Host Marriott, Xx. Xxxxxxxxx spent
ten years with Price Waterhouse.
Xxxxxx X. Xxxxxxx, Xx. Xx. Xxxxxxx, 41, has been a Vice President of the
General Partner since November 1995 and Director of
the General Partner since September 1988. From 1988
to October 1995, Xx. Xxxxxxx was President of the
General Partner. Xx. Xxxxxxx joined Host Xxxxxxxx's
Corporate Planning Financial Staff in 1981, was made
Director--Project Finance of Host Xxxxxxxx's
Treasury Department in 1984, Vice President--Project
Finance of Host Xxxxxxxx's Treasury Department in
1986 and Assistant Treasurer of Host Marriott in
1988. In 1993, he was elected Senior Vice President
and Treasurer of Host Xxxxxxxx, and in 1995 he was
elected Executive Vice President and Chief Financial
Officer of Host Marriott.
Xxxxxxx X. Xxxxxxxx Xx. Xxxxxxxx, 44, has been a Vice President of the
General Partner since August 1991 and was made a
Director in October 1993. Xx. Xxxxxxxx joined Host
Marriott in 1982 as Manager--Income Taxes. He was
made Director--Income Taxes in 1985 and Vice
President--Income Taxes in 1990. Xx. Xxxxxxxx became
Vice President--Partnership Services in 1991, and
was promoted to Vice President--Taxes for Host
Xxxxxxxx in October 1993.
II-1
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND MATERIAL OCCUPATIONS,
OFFICES OR EMPLOYMENT HELD
NAME AND BUSINESS ADDRESS DURING THE PAST FIVE YEARS
------------------------- ------------------------------------
Xxxxxxxxxxx X. Xxxxxxxx Xx. Xxxxxxxx, 49, has been Vice President, Director
and Secretary of the General Partner since September
1988. Xx. Xxxxxxxx joined Host Xxxxxxxx's Law
Department in 1982 as a Senior Attorney. In 1984,
Xx. Xxxxxxxx was made Assistant Secretary of Host
Xxxxxxxx and in 1986 was made Assistant General
Counsel. In 1993, he was made Senior Vice President,
Corporate Secretary and Deputy General Counsel of
Host Xxxxxxxx.
The Partnership has no directors or officers nor does it have any employees.
Under the Partnership Agreement, however, the General Partner has the
exclusive right to conduct the business and affairs of the Partnership subject
only to the Management Agreement. The General Partner is required to devote to
the Partnership such time as may be necessary for the proper performance of
its duties, but the officers and the directors of the General Partner are not
required to devote their full time to the performance of such duties. No
officer or director of the General Partner devotes a significant percentage of
time to Partnership matters. To the extent that any officer or director does
devote time to the Partnership, the General Partner is entitled to
reimbursement for the cost of providing such services. Any such costs may
include a charge for overhead, but without a profit to the General Partner.
For the fiscal years ending December 31, 1995, 1994 and 1993, administrative
expenses reimbursed to the General Partner totaled $129,000, $200,000 and
$198,000, respectively.
II-2
SCHEDULE III
OPINION OF AMERICAN APPRAISAL
November 19, 1996
Host Marriott Corporation
00000 Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
MHP Acquisition Corp.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
To the General Partner and Limited Partners of
Marriott Hotel Properties Limited Partnership
MHP Acquisition Corp., a Delaware corporation (the "Purchaser"), proposes to
purchase 450 of the outstanding units of limited partnership interest
("Units") of Marriott Hotel Properties Limited Partnership, a Delaware limited
partnership ("MHP"), at a price of $80,000 per Unit, net to the seller in cash
without interest thereon (the "Offer Price") pursuant to the terms and
conditions of an Offer to Purchase and Letter of Transmittal furnished to
Unitholders (the "Offer"). The Purchaser has been organized by and is a wholly
owned direct subsidiary of Host Marriott Corporation, a Delaware corporation
(the "Parent" or "Host Marriott"). The General Partner of MHP, Hotel
Properties Management, Inc. (the "General Partner"), a Delaware corporation,
is a wholly owned direct subsidiary of Parent and an affiliate of the
Purchaser.
American Appraisal Associates, Inc. ("American Appraisal") was retained by
Host Marriott to express and provide a written opinion as to whether the terms
and conditions of the Offer (including the consideration to be received in the
Offer) are fair, from a financial point of view, to the Holder of Units
("Unitholders") of MHP (other than the Parent, Purchaser and General Partner).
Our Opinion is as of the date set forth above.
MHP was organized in 1984 to engage in the business of acquiring, developing,
owning and operating a hotel and acquiring, owning and selling or otherwise
disposing of partnership interests in certain hotel partnerships. MHP
currently owns and operates the 1,503-room Marriott Orlando World Center Hotel
and underlying land, in Orlando, Florida (the "Orlando Hotel"); and also owns
a 50.5% general partnership interest in the Lauderdale Beach Association
("LBA") (together with MHP, the "Partnerships"), a Florida general partnership
formed in 1982, which owns the 624-room Marriott Harbor Beach Resort situated
on approximately 16.5 acres of leased land in Ft. Lauderdale, Florida (the
"Harbor Beach Hotel") (together with the Orlando Hotel, the "Hotels"). The
Marriott Warner Center Hotel (the "Warner Center Hotel"), in which MHP
formerly owned an indirect interest, but which was foreclosed upon in 1993,
has been excluded from the analysis for purposes of this opinion.
American Appraisal, as the world's largest independent valuation consulting
firm, is regularly and continually engaged in the valuation of commercial real
estate and businesses and their securities in connection with tender offers,
mergers and acquisitions, recapitalizations and reorganizations, divestitures,
employee stock ownership plans, leveraged buyouts, private placements, limited
partnerships, estate and corporate matters, and other financial advisory
matters, and other valuation purposes. In connection with this opinion,
American Appraisal performed a separate business valuation of each of the
Orlando Hotel and Harbor Beach Hotel.
In the course of our analysis in preparing this opinion, we have relied
without independent verification, upon the accuracy and completeness of
certain relevant publicly available information and information provided by
Host Marriott and MHP concerning the Partnerships. We assumed that all
information furnished to us by Host Marriott and the Partnerships and their
representatives, except as otherwise set forth herein, on which we relied,
represented complete and accurate description of the current and prospective
status of the Partnerships from an operational and financial point of view. As
part of our investigation, we developed projections for the Hotels and the
Partnerships.
In the course of our investigation, which included visits to the executive
offices of Host Marriott and to each of the Hotels owned by the Partnerships,
we conducted interviews with each of Host Marriott's and MHP management, their
outside accounting firms, and legal counsel, and also conducted interviews
with representatives of Marriott International, Inc. ("MII"), the manager of
the Orlando Hotel, and with members of on-site management of each of the
Hotels who were familiar with the business and operations of the Partnerships
and of the Hotels. For the Harbor Beach Hotel, we also conducted interviews
with representatives of Marriott Hotel Services, Inc. ("MHSI") a wholly-owned
subsidiary of MII, which is the operating tenant of the Harbor Beach Hotel.
We reviewed such documents, considered such questions, and made such studies
and analyses as we deemed appropriate. Documents and materials of the
Partnerships that we reviewed included, but were not limited to, the
following:
. Annual Report on Form 10-K of MHP for the fiscal year ended December 31,
1995, as filed with the Securities and Exchange Commission ("SEC");
. Quarterly Reports on Form 10-Q for the fiscal quarters ended March 22,
1996, June 14, 1996, and September 6, 1996, as filed with the SEC;
. SEC Schedule 14D-1, dated November 19, 1996 and SEC Schedule 14A, dated
November 19, 1996, relating to the terms, conditions, and background of the
Offer;
. Confidential Private Placement Memorandum, (the "PPM"), dated November 1,
1985, relating to the original offering to private investors of limited
partnership interests in MHP and an Agency Agreement dated as of November
1, 1985, by and among Xxxxx Xxxxxx, Xxxxxx Xxxxx & Co. Incorporated, Bear,
Xxxxxxx & Co. Inc., MHP and the General Partner;
. Amended and Restated Agreement of Limited Partnership of MHP dated as of
November 27, 1985 (the "MHP Partnership Agreement");
. Amended and Restated Partnership Agreement of LBA dated as of July 1, 1986
(the "LBA Partnership Agreement");
. Financial statements of the MHP, audited by Xxxxxx Xxxxxxxx L.L.P., for the
four years ended December 31, 1995, unaudited financial statements for the
period ended March 22, 1996, June 14, 1996, and September 6, 1996, and
proforma schedule of asset and liability balances as of October 31, 1996;
. Financial statements of LBA, audited by Xxxxxxx & Xxxxxxx X.X.X., for the
three years ended December 31, 1995, and audited by Xxxxxx Xxxxxxxx L.L.P.
for the year ended December 31, 1992, unaudited consolidated ledger
documents for the period ended March 22, 1996, June 14, 1996 and September
6, 1996, and proforma schedule of asset and liability balances as of
October 31, 1996;
. Orlando World Center Hotel Management, as Amended and Restated, dated
October 25, 1985;
. LBA Assignment of Lease dated as of January 1, 1985 and Fourth Amendment to
Lease dated as of April 28, 1993;
. Secondary market prices of, and trading activity in, the Units;
In rendering its opinion, we considered those factors we considered relevant
to assessing the fairness of the Offer, including, but not limited to the
following:
. The historical and prospective operating results of the Hotels and the
Partnerships, particularly as to hotel sales and operating cash flow,
incentive management fees, lease payments, debt service and cash flow
distributions to Unitholders;
. The historical and prospecting financial condition of the Hotels and the
Partnerships, including an analysis of their liquidity and near term
refinancing requirements;
2
. The historical and prospective operating results of the Hotels are
summarized as follows:
. The average daily room rates ("ADR") and occupancy rates for the Orlando
Hotel and the Harbor Beach Hotel for the year ended December 31, 1994
were $127.00, 75.9%; and $153.08, 71.4%, respectively.
. The average daily room rates ("ADR") and occupancy rates for the Orlando
Hotel and the Harbor Beach Hotel for the year ended December 31, 1995
were $132.18, 78.6%; and $156.55, 79.7%, respectively.
. Projected year one (ending June 1, 1997) ADR's normalized anticipated
ADR annual changes and stabilized occupancy rates for the Orlando Hotel
and the Harbor Beach Hotel are $137.47, 4.0%, 75.0%; and $163.59, 4.0%,
76.0%, respectively;
. For the projected operating years ended June 1997-2006, the impact of
inflation on projected operating costs and expenses is expected to be
3.5% for all of the Hotels;
. The historical and prospective operating results of the Partnerships are
summarized as follows:
. Revenues and net operating income ("NOI"), as defined in the valuation
report which was supplementally furnished to the SEC by Parent and
Purchaser, for MHP for the year ended December 31, 1994 were $103.5
million and $24.3 million, respectively;
. Latest year ended December 31, 1995 revenues and net operating income
("NOI") for MHP were $114.4 million and $28.2 million, respectively;
. Latest 12 months ended September 6, 1996 revenues and NOI for MHP were
$114.9 million and $28.3 million;
. Projected year one (ending June 1, 1997) revenues and NOI for MHP are
$117.8 million and $28.3 million (excluding estimated payment of
deferred incentive management fees (IMF) and additional IMF),
respectively;
. Projected growth in revenues and NOI for the ten year period ended June
1, 2006 for MHP is expected to be 3.4% and 3.2%, compounded,
respectively;
. Rental income and NOI for LBA for the year ended December 31, 1994 were
$17.3 million and $10.8 million, respectively.
. Latest year ended December 31, 1995 rental income and NOI for LBA were
$19.8 million and $12.2 million, respectively;
. Latest 12 months ended September 6, 1996, rental income and NOI for LBA
were $20.4 million and $12.7 million, respectively;
. Projected year one (ending June 1, 1997) rental income and NOI for LBA
are $21.4 million and $13.5 million, respectively.
. Projected growth in rental income and NOI for the ten year period ended
June 1, 2006 for LBA is expected to be 2.2% and 1.6%, respectively;
. Prior cash flow distributions per Unit by MHP to Unitholders for the 5
years ended December 31, 1995 were $5,748, $0, $0, $0, and $2,084,
respectively; partial year distributions (through November 1, 1996) in
1996 were $4,970 per Unit;
. Projected cash flow distributions per Unit by MHP to Unitholders for the
periods ended June 1, 1997-2001 are $2,843, $2,915, $6,841, $10,370, and
$11,733;
. The management of the Orlando Hotel by MII and the terms and conditions of
the management between MII and MHP;
. The management of the Harbor Beach Hotel pursuant to an operating lease
with MHSI;
. The expected market outlook and terms for the refinancing of each of the
Hotels' mortgage debt scheduled in 2000;
3
. Our appraisal opinion of the current market value for each of the Hotel
properties owned by MHP and LBA, such analysis considering those relevant
factors affecting market value, including, but not limited to, for each
Hotel:
Economic trends and outlook in the full service hotel industry in the
United States and in the geographic areas served by the Hotels;
Review of the historical operating results and a projection of future
operating results developed by American Appraisal as discussed below and
based on historical data which was provided by Host Marriott, the
Partnerships and the hotels and other relevant public sources;
Comparison of prices paid and imputed capitalization rates thereof, of
recent sales of hotel properties nationwide, including an analysis of
full service hotels recently purchased by Host Marriott;
Analysis of debt free capitalization and discount rates based on market
returns currently required by investors in full service hotels;
. Reviewed internal Host Marriott, MHP and MII financial analyses and other
internally generated data for MHP; data received from Host Marriott
included: Hotel Operating Statements 12/31/92-12/31/95 and unaudited
3/22/96, 6/14/96, and 9/6/96 and proforma 10/31/96, MHP Schedule of
Secondary Sales, Host Marriott Summary of Hotel Acquisitions; data received
from the Hotels included: Updated Operating Cash Flow Estimates for 1996,
Hotel Capital Expenditure Budgets and 1996 Hotel Operating Projections.
. The terms and provisions, ownership, marketability and prior transactions
of the Units;
. Discussed all of the foregoing information, where appropriate, with
management of Host Marriott, MHP and MII, and their respective employees,
agents, outside accountants and counsel;
. Conducted such other studies, analyses and investigations as we deemed
relevant or necessary for purposes of this opinion, including discussions
with firms dealing in limited partnership secondary market transactions and
review of studies relating to the influence that lack of marketability has
on unit values of private and publicly held real estate limited
partnerships;
The foregoing factors, among others, provided a framework for American
Appraisal to perform certain financial and valuation techniques required for
the assessment of the Offer's fairness, from a financial point of view, to the
Unitholders, such analyses including, among other things, the following:
. NET ASSET (BREAK UP) ANALYSIS
Based upon the appraisals of the Hotels performed by American Appraisal,
American Appraisal calculated the net asset value per Unit which might be
obtained if the Partnerships were liquidated, assuming the Hotels would be
sold as going concerns, subject to the existing management and lease
agreements, over a reasonable period of time (estimated at 12 months) and
the net proceeds were distributed in accordance with the MHP and LBA
Partnership Agreements. In calculating the net value to the Unitholders
under this scenario, from the value of the Hotels, (i) the selling and
other transaction costs, deferred incentive management fees and the paydown
of debt were subtracted, (ii) the cash and equivalents and other net
working capital accounts were added, and (iii) the property improvement
fund was added as it is assumed that the balance in this account would be
distributed upon liquidation to the partners and not transferred to the
buyer.
This valuation analysis represents a range of capitalization rates for the
total value of the Hotels, including the property improvement fund, of
11.3% to 12.8%, with the base case representing a capitalization rate of
12.2%.
The value per unit from this analysis ranged from $69,400 to $102,800, with
the base case equal to $80,600.
American Appraisal noted that while the net asset value analysis provided
an indication of what the Unitholders could expect from a current arm's-
length sale of the Hotels, we have been advised by the Parent
4
that a sale of the Hotels and liquidation of the Partnerships is not
contemplated by the General Partner and have further been advised that it
is not known to be contemplated by any Limited Partners.
. COMPARABLE TRANSACTION ANALYSIS
American Appraisal investigated the financial terms of recent acquisitions
and tender offers for hotel property real estate limited partnerships and
corporations to establish reasonable correlation of marketplace offering
prices to that of the Offer. One such offer proved to be comparable to the
Offer; La Quinta Motor Inns Limited Partnership ("LQLP"). The price per
unit offered and accepted by a majority represented a 33% premium over the
preannounced market price of the limited partnership units.
Another transaction reviewed and considered comparable to the Offer is
Sahara Casino Partners L.P. ("SCPLP"). The price per unit offered and
accepted by a majority represented a 24% premium over the preannounced
market price of the limited partnership units.
Correlation and adjustment of the premium and capitalization rate from the
LQLP and SCPLP tender offers to recent market price(s) of the Units and to
the latest twelve months ended September 6, 1996, net operating cash flow
(defined as earnings before depreciation, interest, taxes and amortization,
less furniture, fixtures and equipment reserve and any incentive management
fee or lease payments) of the Hotels indicates a value for the Units of
$55,000 and $84,000, respectively, with a base case of $73,000.
. UNITHOLDER CASH DISTRIBUTION ANALYSIS
American Appraisal estimated the value of the Units based on the present
value of the expected future cash distributions from the Partnerships'
operations and from an assumed sale of the Hotels in the eleventh forecast
year, subject to the existing management and lease agreements. A
capitalization rate of 11.5% was selected for estimating the future sales
proceeds of the Hotels. In calculating the net proceeds available to the
Unitholders, consideration was given to the payment of selling and other
transaction costs, deferred incentive management fees and existing debt as
well as the benefits from any estimated cash reserves. Operating results
for the Hotels and cash distributions of the Partnerships were projected by
American Appraisal as discussed herein. Existing indebtedness for both
Hotels is assumed to be refinanced in 2000. The terms of the refinancings
included 8.25%, 20 year amortizing mortgage facilities. The projected cash
distributions were discounted to present value at rates of return that
reflect current returns from investment in real estate related limited
partnerships, including limited partnerships owning hotel properties. Such
returns, which were based on the hotel valuation experience of American
Appraisal and on current written hotel valuation and investment
publications, ranged from 20.5% to 21.5% in our sensitivity analysis. This
analysis assumed that the Hotels would be sold, and the net proceeds from
such sale would be distributed to the Unitholders in accordance with the
Partnership Agreement. The value for the Units from this analysis ranged
from $71,000 to $78,000 per Unit, with a base case of $74,000, before
considering discounts for lack of liquidity and lack of control.
American Appraisal also estimated a range of value using a cash flow
analysis which assumed no sale of the Hotels. Existing indebtedness is
assumed to be refinanced in 2000, using the same assumptions as the sale
scenario previously discussed. The projected cash distributions were again
discounted to present value at rates of return deemed appropriate. The
value for the Units from this analysis ranged from $69,000 to $77,000 per
Unit, with a base case of $73,000, before considering discounts for lack of
liquidity and lack of control.
. UNIT MARKET PRICE AND TRADING HISTORY
The original MHP transaction terms according to the PPM indicated the
offering price for the Units was payable in six installments as follows:
December 31, 1985 ($10,000), May 15, 1986 ($12,000), May 15, 1987
($20,500), May 15, 1988 ($19,500), May 15, 1989 ($19,000), and May 15, 1990
($19,000). The aggregate price of $100,000 was payable over a period of
approximately 4 years and 5 months. The present value of this installment
price at November 27, 1985, the date initial payment was paid, assuming a
return
5
of 15% to 26% is approximately $62,000 to $74,000 per unit, respectively.
The midpoint of this analysis indicates a present value of the original
offering price of approximately $67,000 per unit.
American Appraisal noted that the Offer represented a premium of
approximately 368% and 224% over the average price paid in secondary market
transactions which occurred in 1995 and 1996 at $17,086 and $24,664,
respectively.
American Appraisal also notes that the transfer restrictions to which the
Units are subject and the lack of an established market for the Unites
combine to offer little liquidity to the holders of the Units.
The Offer Price of $80,000 per Unit (i) represents a premium of 19.4% over
the original investment (present valued) for each Unit of $67,000 and (ii)
represents a discount of 20% to the original installment investment for
each unit of $100,000. The difference in the premiums (discounts) indicated
by (i) and (ii) is a result of installment method's implied financing
costs.
. Public Limited Partnership Analysis
In researching for comparable limited partnerships, American Appraisal
determined that a limited number of real estate-based partnerships have
limited partnership units that are traded with regularity on an exchange or
through the NASDAQ over-the-counter market, and only a limited number of
such public partnerships invest in operating full or limited service
hotels. Furthermore, only one of these hotel partnerships, Red Lions Inns
Limited Partnership ("Red Lion"), was considered comparable to the
Partnerships with respect to the full service classification of its owned
hotels, the similarity of their management agreements with MII, the
historic and prospective operating results of the hotels, the near term
refinancing requirements and the level and consistency of historic and
prospective distribution payouts to the limited partners.
Analysis of Red Lions' current public price coupled with its current and
prospective distribution payout, indicated an average annualized current
distribution yield of 9.1%. This yield was reflective of Red Lion's
investment quality and the considerably greater liquidity of its publicly
traded limited partnership units and was therefore not representative of
the higher distribution yield required for the Units for several reasons
including (i) MHP's lack of property diversification as evidenced with its
portfolio of two full service hotels, (ii) MHP's greater financial
leverage, (iii) MHP's lower revenue and distribution growth potential, (iv)
MHP's refinancing risk of its mortgage debt maturing in 2000, (v) the lack
of an organized secondary market for the Units and (vi) the sale
restrictions on the Units. Correlation of Red Lion's distribution yield,
adjusted for the investment risks of the Units resulted in a concluded
distribution yield ranging from 12.1% to 14.1% for the Units. This
adjustment, which is supported by the rates of returns required by
professional investors in the less liquid secondary market for limited
partnership units, provided a basis to capitalize MHP's expected near term
distributions per Unit into indications of value ranging from $65,000 to
$72,000 per Unit with a base case of $68,000. Supporting the conclusions of
this analysis was the indication that the professional investors in the
less liquid secondary market for limited partnership units purchased real
estate-based limited partnership units at prices ranging from 25% to 50%
below the net asset values per Units, such as evidenced in an August 1995
presentation to the Valuation Study Group on the secondary market for
limited partnership interests.
In connection with our opinion, Host Xxxxxxxx and/or MHP imposed the following
limits on our analysis:
1. American Appraisal has requested existing detailed financial
projections for MHP, LBA and each of the Hotels, but has been informed that
no such projections have been prepared.
We have not considered nor have we been requested to consider the tax
implications to a Unitholder or economic implications to a non-tendering
Unitholder and therefore express to opinion with respect thereto.
Based on our study, which relied upon financial, real estate and other factors
as they existed as of the end of the Partnerships' third quarter on September
6, 1996 but which gave consideration to material events through the date of
our opinion, and subject to the assumptions and limitations stated herein, it
is our opinion, as of the
6
date of our opinion, that the terms and conditions of the Offer (including the
consideration to be received in the Offer are fair, from a financial point of
view, to the Unitholders of the Marriott Hotel Properties Limited Partnership
(other than the Parent, Purchaser and General Partner)).
Our engagement is subject to the terms and conditions of our engagement letter
dated May 1, 1996.
Sincerely yours,
American Appraisal Associates, Inc.
/s/ Xxx X. Xxxxxxx
--------------------------------------
Xxx X. Xxxxxxx
Executive Vice President
030273
7
SCHEDULE IV
FINANCIAL INFORMATION OF THE PARTNERSHIP
INDEX TO FINANCIAL INFORMATION
OF MARRIOTT HOTEL PROPERTIES
LIMITED PARTNERSHIP
PAGE
------
A. Condensed Consolidated Financial Statements for the Period Ended
September 6, 1996 and September 8, 1995 (unaudited)
1. Condensed Consolidated Statement of Operations.................. IV-1
2. Condensed Consolidated Balance Sheet............................ IV-2
3. Condensed Consolidated Statements of Cash Flows................. IV-3
4. Notes to Condensed Consolidated Financial Statements............ IV-4
Audited Financial Statements for the Years Ended December 31, 1995,
B. 1994 and 1993
1. Report of Independent Public Accountants........................ IV-6
2. Consolidated Statement of Operations............................ IV-7
3. Consolidated Balance Sheets--December 31, 1995 and 1994......... IV-8
4. Consolidated Statement of Cash Flows............................ IV-9
5. Statement of Changes in Partners' Capital (Deficit)............. IV-10
6. Notes to Consolidated Financial Statements...................... IV-11
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
TWELVE WEEKS ENDED THIRTY-SIX WEEKS ENDED
------------------------- -------------------------
SEPTEMBER 6, SEPTEMBER 8, SEPTEMBER 6, SEPTEMBER 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
REVENUES
Hotel................... $ 6,582 $ 8,166 $35,222 $35,129
Rental income........... 1,829 1,907 16,096 15,428
Interest and other
income................. 385 219 695 436
------- ------- ------- -------
8,796 10,292 52,013 50,993
------- ------- ------- -------
OPERATING COSTS AND
EXPENSES
Interest................ 4,980 5,083 15,098 14,923
Depreciation and
amortization........... 2,740 2,706 8,127 8,080
Incentive management
fee.................... 807 1,084 5,189 5,302
Base management fee..... 626 688 2,496 2,481
Ground rent, property
taxes and other........ 2,108 2,178 6,211 6,152
------- ------- ------- -------
11,261 11,739 37,121 36,938
------- ------- ------- -------
(LOSS) INCOME BEFORE
MINORITY INTEREST........ (2,465) (1,447) 14,892 14,055
MINORITY INTEREST IN LOSS
(INCOME)................. 934 905 (2,441) (2,130)
------- ------- ------- -------
NET (LOSS) INCOME......... $(1,531) $ (542) $12,451 $11,925
======= ======= ======= =======
ALLOCATION OF NET (LOSS)
INCOME
General Partner......... $ (17) $ (6) $ 123 $ 119
Limited Partners........ (1,514) (536) 12,328 11,806
------- ------- ------- -------
$(1,531) $ (542) $12,451 $11,925
======= ======= ======= =======
NET (LOSS) INCOME PER
LIMITED PARTNER UNIT
(1,000 Units)............ $(1,514) $ (536) $12,328 $11,806
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
IV-1
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 6, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
ASSETS
------
Property and equipment, net......................... $222,059 $222,458
Due from Marriott International, Inc. and
affiliates......................................... 6,641 7,136
Minority interest................................... 10,229 11,185
Other assets........................................ 5,070 6,888
Cash and cash equivalents........................... 11,834 3,550
-------- --------
$255,833 $251,217
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
Mortgage debt....................................... $234,940 $239,860
Note payable and amounts due to Host Marriott
Corporation........................................ 6,209 6,484
Note payable and amounts due to Marriott
International, Inc. and affiliates................. 4,216 6,052
Accounts payable and accrued interest............... 3,198 1,087
-------- --------
Total Liabilities................................. 248,563 253,483
-------- --------
PARTNERS' CAPITAL (DEFICIT)
General Partner..................................... 181 87
Limited Partners.................................... 7,089 (2,353)
-------- --------
Total Partners' Capital (Deficit)................. 7,270 (2,266)
-------- --------
$255,833 $251,217
======== ========
See Notes to Condensed Consolidated Financial Statements.
IV-2
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THIRTY-SIX WEEKS ENDED
-------------------------
SEPTEMBER 6, SEPTEMBER 8,
1996 1995
------------ ------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income......................................... $12,451 $11,925
Noncash items...................................... 10,927 10,989
Changes in operating accounts...................... 1,030 (2,818)
------- -------
Cash provided by operations...................... 24,408 20,096
------- -------
INVESTING ACTIVITIES
Additions to property and equipment................ (7,728) (4,369)
Changes in property improvement funds and capital
reserve escrow.................................... 1,588 (156)
------- -------
Cash used in investing activities................ (6,140) (4,525)
------- -------
FINANCING ACTIVITIES
Repayments of mortgage debt........................ (4,920) (4,531)
Capital distributions to partners.................. (2,908) (1,600)
Capital distributions to minority interest......... (1,485) (990)
Repayments to Marriott International, Inc. and
affiliates........................................ (362) (331)
Repayments to Host Marriott Corporation............ (269) --
Payment of financing costs......................... (40) (6)
------- -------
Cash used in financing activities................ (9,984) (7,458)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS................ 8,284 8,113
CASH AND CASH EQUIVALENTS at beginning of period..... 3,550 2,743
------- -------
CASH AND CASH EQUIVALENTS at end of period........... $11,834 $10,856
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest.......... $12,271 $13,735
======= =======
See Notes to Condensed Consolidated Financial Statements.
IV-3
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared by Marriott Hotel Properties Limited Partnership (the "Partnership")
without audit. Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted from the accompanying
statements. The Partnership believes the disclosures made are adequate to make
the information presented not misleading. However, the condensed consolidated
financial statements should be read in conjunction with the Partnership's
financial statements and notes thereto included in the Partnership's 1995 Form
10-K for the fiscal year ended December 31, 1995. In the opinion of the
Partnership, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of the
Partnership as of September 6, 1996 and December 31, 1995 and the results of
operations for the twelve and thirty-six weeks ended September 6, 1996 and
September 8, 1995. Interim results are not necessarily indicative of fiscal
year performance because of seasonal and short-term variations.
The Partnership owns Marriott's Orlando World Center and a 50.5% interest in
a partnership owning Marriott's Harbor Beach Resort (the "Harbor Beach
Partnership"), whose financial statements are consolidated herein. The
remaining 49.5% general partnership interest in the Harbor Beach Partnership
is reported as minority interest. All significant intercompany balances and
transactions have been eliminated.
For financial reporting purposes, net profits and net losses of the
Partnership are allocated 99% to the limited partners and 1% to the General
Partner. Significant differences exist between the net profits and net losses
for financial reporting purposes and the net profits and net losses reported
for Federal income tax purposes. These differences are due primarily to the
use, for income tax purposes, of accelerated depreciation methods, shorter
depreciable lives of the assets, differences in the timing of the recognition
of management fee expense and the expensing of certain costs incurred during
construction which have been capitalized in the accompanying condensed
consolidated financial statements.
2. Hotel revenues represent house profit from the Orlando Hotel since the
Partnership has delegated substantially all of the operating decisions related
to the generation of house profit of the Orlando Hotel to Marriott
International, Inc. (the "Manager"). House profit reflects hotel operating
results which flow to the Partnership as property owner and represents gross
hotel sales less property-level expenses, excluding depreciation and
amortization, base and incentive management fees, property taxes and certain
other costs, which are disclosed separately in the condensed consolidated
statement of operations.
IV-4
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Hotel revenues consist of hotel operating results for the Orlando Hotel for
the twelve and thirty-six weeks ended (in thousands):
TWELVE WEEKS ENDED THIRTY-SIX WEEKS ENDED
------------------------- -------------------------
SEPTEMBER 6, SEPTEMBER 8, SEPTEMBER 6, SEPTEMBER 8,
1996 1995 1996 1995
------------ ------------ ------------ ------------
HOTEL SALES
Rooms.................... $10,180 $10,936 $41,175 $40,960
Food and beverage........ 8,595 9,810 33,012 33,379
Other.................... 2,087 2,158 9,000 8,345
------- ------- ------- -------
20,862 22,904 83,187 82,684
------- ------- ------- -------
HOTEL EXPENSES
Departmental Direct Costs
Rooms.................... 2,433 2,559 8,493 8,326
Food and beverage........ 5,829 6,176 20,384 20,502
Other hotel operating ex-
penses.................. 6,018 6,003 19,088 18,727
------- ------- ------- -------
14,280 14,738 47,965 47,555
------- ------- ------- -------
HOTEL REVENUES............. $ 6,582 $ 8,166 $35,222 $35,129
======= ======= ======= =======
3. In the first quarter of 1996, the Partnership adopted Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of
SFAS No. 121 did not have an effect on its condensed consolidated financial
statements.
IV-5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PARTNERS OF
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheet of Marriott
Hotel Properties Limited Partnership (a Delaware limited partnership) and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in partners' capital (deficit) and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the 1995 and 1994 financial
statements of Lauderdale Beach Association, which statements reflect total
assets and total revenues of 25 percent and 29 percent in 1995, respectively,
and 25 percent and 29 percent in 1994, respectively, of the consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts included
for that entity, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Marriott Hotel Properties Limited
Partnership and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Xxxxxx Xxxxxxxx LLP
Washington, D.C.
April 4, 1996
IV-6
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
1995 1994 1993
------- ------- --------
REVENUES
Hotels (Note 3).................................. $47,251 $41,201 $ 43,550
Rental income.................................... 19,747 17,273 17,797
Interest and other............................... 679 1,285 857
------- ------- --------
67,677 59,759 62,204
------- ------- --------
OPERATING COSTS AND EXPENSES
Interest (including interest paid to related
parties of $1.0 million, $1.0 million and $0.9
million in 1995, 1994 and 1993, respectively)... 21,864 22,128 28,785
Depreciation and amortization.................... 11,739 12,327 14,601
Incentive management fees (paid to related
parties)........................................ 7,047 6,073 5,819
Base management fees (paid to related parties)... 3,431 3,104 3,556
Property taxes................................... 3,104 3,230 3,904
Ground rent, insurance and other................. 5,624 5,063 10,129
Write-down of Warner Center Hotel to estimated
fair market value............................... -- -- 19,982
------- ------- --------
52,809 51,925 86,776
------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
MINORITY INTEREST................................. 14,868 7,834 (24,572)
EXTRAORDINARY ITEM
Gain on debt extinguishment resulting from Warner
Center Hotel foreclosure........................ -- -- 40,356
------- ------- --------
INCOME BEFORE MINORITY INTEREST.................... 14,868 7,834 15,784
MINORITY INTEREST IN INCOME........................ (1,718) (523) (1,036)
------- ------- --------
NET INCOME......................................... $13,150 $ 7,311 $ 14,748
======= ======= ========
ALLOCATION OF NET INCOME
General Partner.................................. $ 132 $ 73 $ 148
Limited Partners................................. 13,018 7,238 14,600
------- ------- --------
$13,150 $ 7,311 $ 14,748
======= ======= ========
NET INCOME PER LIMITED PARTNER UNIT (1,000 Units).. $13,018 $ 7,238 $ 14,600
======= ======= ========
The accompanying notes are an integral part of these financial statements.
IV-7
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
1995 1994
-------- --------
ASSETS
------
Property and equipment, net............................... $222,458 $228,122
Minority interest......................................... 11,185 11,418
Due from Marriott International, Inc. and its affiliates.. 7,136 6,895
Property improvement funds................................ 4,363 2,615
Deferred financing costs, net of accumulated
amortization............................................. 2,266 1,053
Prepaid land rent and other receivables................... 259 263
Restricted cash........................................... -- 949
Cash and cash equivalents................................. 3,550 2,743
-------- --------
$251,217 $254,058
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
Mortgage debt............................................. $239,860 $248,830
Note payable and amounts due to Host Marriott
Corporation.............................................. 6,484 9,149
Note payable and amounts due to Marriott International,
Inc...................................................... 6,052 8,628
Accounts payable and accrued interest..................... 1,087 762
-------- --------
Total Liabilities..................................... 253,483 267,369
PARTNERS' CAPITAL (DEFICIT)
General Partner
Capital contribution.................................... 1,010 1,010
Capital distributions................................... (462) (441)
Cumulative net losses................................... (461) (593)
-------- --------
87 (24)
-------- --------
Limited Partners
Capital contributions, net of offering costs of
$10,978................................................ 89,022 89,022
Investor notes receivable............................... (47) (47)
Capital distributions................................... (45,654) (43,570)
Cumulative net losses................................... (45,674) (58,692)
-------- --------
(2,353) (13,287)
-------- --------
Total Partners' Deficit............................... (2,266) (13,311)
-------- --------
$251,217 $254,058
======== ========
The accompanying notes are an integral part of these financial statements.
IV-8
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
1995 1994 1993
-------- -------- --------
OPERATING ACTIVITIES
Net income...................................... $ 13,150 $ 7,311 $ 14,748
Extraordinary item.............................. -- -- 40,356
-------- -------- --------
Income (loss) before extraordinary item......... 13,150 7,311 (25,608)
Noncash items:
Depreciation and amortization.................. 11,739 12,327 14,601
Minority interest in income.................... 1,718 523 1,036
Amortization of deferred financing costs as
interest...................................... 1,041 1,659 2,435
Loss (gain) on disposal of property and
equipment..................................... 48 (948) 3,303
Deferred portion of base and incentive
management fees............................... -- 1,608 2,023
Interest roll-up on note payable to Marriott
International, Inc............................ -- 64 --
Write down of Warner Center Hotel to estimated
fair market value............................. -- -- 19,982
Interest on debt service guarantee advances.... -- -- 330
Changes in operating accounts:
Payment of deferred incentive management fees.. (1,972) -- --
Due to/from Marriott International, Inc........ (360) (931) 1,075
Accounts payable and accrued interest.......... 325 (703) (9,827)
Due to Host Marriott Corporation............... 62 (3) (171)
Prepaid land rent and other receivables........ 4 (23) (322)
-------- -------- --------
Cash provided by operations.................. 25,755 20,884 8,857
-------- -------- --------
INVESTING ACTIVITIES
Additions to property and equipment............. (6,123) (6,822) (4,665)
Changes in property improvement funds........... (1,748) (1,579) 241
Withdrawal from (deposits to) capital reserve
escrow......................................... 949 (949) --
Proceeds from sale of land...................... -- 1,109 --
Return of security deposit...................... -- -- 1,250
-------- -------- --------
Cash used in investing activities............ (6,922) (8,241) (3,174)
-------- -------- --------
FINANCING ACTIVITIES
Repayments of mortgage debt and capital lease
obligations.................................... (8,970) (9,842) (23,289)
Repayments to Host Marriott Corporation......... (2,727) (4,489) (1,415)
Financing costs................................. (2,254) (309) (3,940)
-------- -------- --------
Capital distributions to partners............... (2,105) -- --
Capital distributions to minority interest...... (1,485) (495) (2,003)
(Repayments of) proceeds from note payable to
Marriott International, Inc.................... (485) 2,800 --
Proceeds from loan escrow account............... -- 340 7,899
Capital contributions from minority interest.... -- 39 456
Proceeds from line of credit from Host Marriott
Corporation.................................... -- -- 8,067
-------- -------- --------
Cash used in financing activities............ (18,026) (11,956) (14,225)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... $ 807 $ 687 $ (8,542)
CASH AND CASH EQUIVALENTS at beginning of year... 2,743 2,056 10,598
-------- -------- --------
CASH AND CASH EQUIVALENTS at end of year......... $ 3,550 $ 2,743 $ 2,056
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest....... $ 20,893 $ 21,122 $ 35,665
======== ======== ========
The accompanying notes are an integral part of these financial statements.
IV-9
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
GENERAL LIMITED
PARTNER PARTNER TOTAL
------- -------- --------
Xxxxxxx, December 31, 1992......................... $(245) $(35,125) $(35,370)
Net income....................................... 148 14,600 14,748
----- -------- --------
Balance, December 31, 1993......................... (97) (20,525) (20,622)
Net income....................................... 73 7,238 7,311
----- -------- --------
Balance, December 31, 1994......................... (24) (13,287) (13,311)
Net income....................................... 132 13,018 13,150
Capital distributions............................ (21) (2,084) (2,105)
----- -------- --------
Balance, December 31, 1995......................... $ 87 $ (2,353) $ (2,266)
===== ======== ========
These accompanying notes are an integral part of these financial statements.
IV-10
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Marriott Hotel Properties Limited Partnership (the "Partnership"), a
Delaware limited partnership, was formed on August 22, 1984, to acquire,
construct, own and operate the 1,503-room Marriott Orlando World Center Hotel
(the "Orlando Hotel"). On October 8, 1993, Marriott Corporation's operations
were divided into two separate companies: Host Marriott Corporation and
Marriott International, Inc. ("MII"). On December 29, 1995, Host Marriott
Corporation's operations were divided into two separate companies: Host
Marriott Corporation ("Host Marriott") and Host Marriott Services Corporation.
The Orlando Hotel is managed as part of the Marriott Hotels, Resorts and
Suites full-service hotel system by MII (the "Manager").
Between November 1, 1985 and November 27, 1985 (the "Closing Date"), 1,000
limited partnership interests (the "Units"), representing a 99% interest in
the Partnership, were sold in a private placement. The General Partner is
Hotel Properties Management, Inc. (the "General Partner"), a Delaware
corporation and a wholly-owned subsidiary of Host Marriott, with a 1% general
partnership interest. On the Closing Date, the Partnership purchased from
affiliates of Host Marriott (i) a 99% limited partnership interest in the
Warner Center Marriott Hotel Limited Partnership (the "Warner Center
Partnership"), which owned the 473-room Warner Center Marriott Hotel (the
"Warner Center Hotel") in Los Angeles, California and (ii) a 49% general
partnership interest in, and a loan receivable of $3,680,000 from, Lauderdale
Beach Association (the "Harbor Beach Partnership"), a general partnership that
owns Marriott's 624-room Harbor Beach Resort (the "Harbor Beach Hotel") in Ft.
Lauderdale, Florida. As a result of certain transactions, the Partnership now
owns a 50.5% interest in the Harbor Beach Partnership. The limited partners
paid $10,000,000 in cash on the Closing Date ($10,000 per Unit) and executed
investor notes aggregating $45,350,000 ($45,350 per Unit) due in five annual
installments through May 15, 1990.
The Harbor Beach Hotel is leased to Marriott Hotel Services, Inc. (the
"Operating Tenant"), a wholly-owned subsidiary of MII, and is operated as part
of the Marriott Hotels, Resorts and Suites full-service hotel system.
The Warner Center Partnership defaulted on its first mortgage on July 1,
1993 (see Note 6). On July 16, 1993, the Lender officially recorded the
default with the State of California and commenced foreclosure proceedings.
The transfer of ownership of the Warner Center Hotel to the Lender occurred on
November 17, 1993 (the "Foreclosure Date"). The foreclosure was followed by
the dissolution of the Warner Center Partnership. The foreclosure did not have
further adverse effect on the financial condition of the Partnership since the
Warner Center Partnership loan was non-recourse to the Partnership and the
partners.
Partnership Allocations and Distributions
The Partnership generally allocates net profits and losses, cash available
for distribution and tax credits as follows: (i) first, 1% to the General
Partner and 99% to the limited partners until cumulative distributions of sale
and refinancing proceeds ("Capital Receipts") equal to 50% of capital
contributions have been distributed; (ii) next, 15% to the General Partner and
85% to the limited partners until cumulative distributions of Capital Receipts
equal to all capital contributions have been distributed; and (iii)
thereafter, 30% to the General Partner and 70% to the limited partners.
Capital Receipts not retained by the Partnership will generally be
distributed (i) first, 1% to the General Partner and 99% to the limited
partners until the General Partner and the limited partners (collectively the
IV-11
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Partners") have received cumulative distributions of Capital Receipts equal
to their capital contributions; and (ii) thereafter, 30% to the General
Partner and 70% to the limited partners.
Gains are generally allocated (i) first, to Partners with negative capital
accounts, (ii) next, in amounts necessary to bring each Partner's capital
account balance equal to their invested capital, defined as the excess of
paid-in capital contributions over cumulative distributions of Capital
Receipts, and (iii) thereafter, 30% to the General Partner and 70% to the
limited partners.
Upon the sale of substantially all of the assets, gains and sales proceeds
will be distributed based on a specific allocation, as stated in the
partnership agreement, in order to provide the limited partners (if proceeds
are sufficient) a 15% cumulative return, as defined, to the extent not
previously received from cash distributions.
For financial reporting purposes, net losses of the Partnership are
allocated 1% to the General Partner and 99% to the limited partners.
The Harbor Beach Partnership generally allocates profits and losses, cash
distributions, gains and losses, and Capital Receipts in the ratio of
ownership interests.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership's records are maintained on the accrual basis of accounting
and its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Working Capital and Supplies
Pursuant to the terms of the management agreement discussed in Note 8, the
Partnership is required to provide the Manager with working capital and
supplies to meet the operating needs of the Orlando Hotel. The Manager
converts cash advanced by the Partnership into other forms of working capital
consisting primarily of operating cash, inventories, and trade receivables and
payables which are maintained and controlled by the Manager. Upon the
termination of the management agreement, the Manager is required to convert
working capital and supplies into cash and return it to the Partnership. As a
result of these conditions, the individual components of working capital and
supplies controlled by the Manager are not reflected in the accompanying
consolidated balance sheet.
Revenues and Expenses
Hotel Revenues represents house profit from the Orlando Hotel (and also for
the Warner Center Hotel for 1993) since the Partnership has delegated
substantially all of the operating decisions related to the generation of
house profit of the Hotels to the Manager. House profit reflects hotel
operating results which flow to the Partnership as property owner and
represents gross hotel sales less property-level expenses, excluding
depreciation and amortization, base and incentive management fees, real and
personal property taxes, ground and equipment rent, insurance and certain
other costs, which are disclosed separately in the Consolidated Statement of
Operations.
IV-12
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Principles of Consolidation
The consolidated financial statements for the year ended December 31, 1995
and 1994, include the accounts of the Partnership and the Harbor Beach
Partnership (collectively the "Partnerships"). The accompanying financial
statements for the year ended December 31, 1993, also include the accounts of
the Warner Center Partnership. The accounts of the Warner Center Partnership
for 1993 reflect operations for the period from January 1, 1993, through the
Foreclosure Date. The 49.5% general partnership interest in the Harbor Beach
Partnership owned by an unrelated party is reported as minority interest. The
Partnership has recorded the minority shareholders allocable share of losses
on the accompanying consolidated balance sheet as minority interest because
all individual partners with deficit capital accounts must fund the amount of
that deficit upon dissolution or liquidation of the Harbor Beach Partnership.
The Partnership periodically assesses the impairment of the minority interest
asset for impairment based on the underlying operations of the Harbor Beach
Partnership. All significant intercompany balances and transactions have been
eliminated.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization
are computed using the straight-line method over the following estimated
useful lives of the assets, less a 10% estimated residual value on the
original building cost and land improvements related to the Orlando Hotel:
Land improvements........................................... 40 to 50 years
Building and improvements................................... 40 to 50 years
Leasehold improvements...................................... 40 years
Furniture and equipment..................................... 3 to 10 years
All property and equipment is pledged as security for the mortgage debt
described in Note 6.
On June 8, 1994, the Partnership sold approximately two acres of land
adjacent to the Orlando Hotel to Marriott Ownership Resorts, Inc. ("MORI"), an
affiliate of MII. Proceeds from the transaction, net of selling costs, totaled
$1.1 million and were used to pay down principal on the Orlando Mortgage Debt
(see Note 6). This transaction resulted in recognition of $951,000 of gain
which is included in Interest and Other Revenues on the Consolidated Statement
of Operations for the year ended December 31, 1994.
On the Foreclosure Date, ownership of the Warner Center Hotel was
transferred through foreclosure to the Lender (see Note 6).
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with
obtaining the mortgage debt (see Note 6) and are amortized over the term
thereof. The Orlando Mortgage Debt, which is described in Note 6, was
refinanced on October 31, 1995. Deferred financing costs associated with the
refinancing of the Orlando Mortgage Debt totaled $2,276,000. Deferred
financing costs associated with the restructuring of the Harbor Beach Mortgage
Debt (see Note 6) amounted to $350,000. Accumulated amortization of deferred
financing costs were $360,000 and $3,285,000 at December 31, 1995 and 1994,
respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents.
IV-13
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes, but rather allocates its profits and losses to the individual partners.
Significant differences exist between the net loss for financial reporting
purposes and the net loss reported in the Partnership's tax return. These
differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods, shorter depreciable lives of the assets,
differences in the timing of the recognition of base and incentive management
fee expense and the expensing of certain costs incurred during construction
which have been capitalized in the accompanying financial statements. As a
result of these differences, the excess of the tax basis in net Partnership
liabilities over the net liabilities reported in the accompanying financial
statements amounted to $93,026,000 and $85,993,000 as of December 31, 1995 and
1994, respectively.
New Statement of Financial Accounting Standards
The Partnership is required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" no later than its year ending
December 31, 1996. The Partnership does not expect that the adoption of SFAS
No. 121 will have a material effect on its financial statements.
NOTE 3. HOTEL REVENUES
Hotel Revenues consist of Hotel operating results for the Orlando Hotel for
the two years ended December 31, 1995, and for the Orlando and Warner Center
Hotels for the year ended December 31, 1993 (Warner Center Hotel through the
Foreclosure Date) (in thousands):
1995 1994 1993
-------- -------- --------
HOTEL SALES
Rooms........................................... $ 56,881 $ 52,731 $ 60,469
Food and beverage............................... 45,708 40,290 46,070
Other........................................... 11,762 10,447 11,994
-------- -------- --------
114,351 103,468 118,533
-------- -------- --------
HOTEL EXPENSES
Departmental Direct Costs
Rooms.......................................... 11,665 11,337 13,087
Food and beverage.............................. 28,784 25,828 30,866
Other hotel operating expenses.................. 26,651 25,102 31,030
-------- -------- --------
67,100 62,267 74,983
-------- -------- --------
HOTEL REVENUES................................... $ 47,251 $ 41,201 $ 43,550
======== ======== ========
IV-14
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
1995 1994
--------- --------
Land and improvements................................... $ 30,893 $ 30,741
Building and improvements............................... 150,861 150,012
Leasehold improvements.................................. 80,646 79,567
Furniture and equipment................................. 62,811 62,898
--------- --------
325,211 323,218
Less accumulated depreciation and amortization.......... (102,753) (95,096)
--------- --------
$ 222,458 $228,122
========= ========
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts.
AS OF DECEMBER 31, 1995 AS OF DECEMBER 31, 1994
------------------------ ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ------------ ----------- ------------
(IN THOUSANDS)
Mortgage debt............. $ 239,860 $ 248,287 $ 248,830 $ 248,830
Note payable due to Host
Marriott Corporation..... $ 6,420 $ 6,420 $ 9,149 $ 9,149
Incentive management fees
payable to Marriott
International, Inc....... $ 3,520 $ 2,775 $ 5,492 $ 2,424
Note payable due to
Marriott International,
Inc...................... $ 2,379 $ 2,379 $ 2,864 $ 2,864
The estimated fair value of mortgage debt is based on the expected future
debt service payments discounted at estimated market rates. Notes payable due
to Host Marriott Corporation and Marriott International, Inc. and Incentive
management fees payable to Marriott International, Inc. are valued based on
the expected future payments from operating cash flow discounted at risk
adjusted rates.
NOTE 6. DEBT
The Partnerships have entered into various long-term loan agreements to
provide non-recourse mortgage financing for the Hotels. Combined mortgage debt
maturities, at December 31, 1995, are (in thousands):
1996.............................................................. $ 8,781
1997.............................................................. 8,523
1998.............................................................. 7,168
1999.............................................................. 5,826
2000.............................................................. 209,562
--------
$239,860
========
Orlando Mortgage
On January 12, 1993 (the "Orlando Closing Date"), the General Partner
refinanced the Orlando Hotel Mortgage Debt (the "Orlando Mortgage Debt"). On
the Orlando Closing Date, the Partnership paid $29.3
IV-15
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
million to the Lender which was applied $12.0 million to the outstanding
principal balance, $13.5 million to interest due through the Orlando Closing
Date and $3.8 million to financing costs. The Orlando Mortgage Debt carried a
fixed rate of interest of 6.705% and required semi-annual principal
amortization totaling $22 million through its maturity on June 16, 1995 (the
"Maturity Date"). In 1994 net proceeds of $1.1 million from the sale of land
adjacent to the Orlando Hotel (see Note 2) were used to pay down the principal
balance. As of December 31, 1994, $160,979,000 was outstanding under the
Orlando Mortgage Debt.
Pursuant to the terms of the refinancing, Host Marriott provided a guarantee
of debt service payments up to $10 million. Payments under the guarantee
constituted advances to the Partnership and were to accrue interest at the
Xxxxxx Guaranty Trust Company prime rate. As of the Maturity Date, no amounts
were outstanding under the guarantee.
On the Maturity Date, the Lender granted the Partnership a forbearance on
the loan extending it from June 16, 1995, through October 31, 1995. The
Partnership paid interest monthly in arrears at a floating rate equal to the
applicable Federal Funds rate plus 225 basis points. During the forbearance
period, the weighted average interest rate was 7.94%. On October 31, 1995, the
Partnership successfully completed a modification and extension of the Orlando
Mortgage Debt. The mortgage debt carries a fixed rate of interest of 8.44% and
requires semi-annual amortization of principal. The loan matures on June 16,
2000 with unamortized principal of $127.0 million due at that time. No debt
service guarantee was provided. As of December 31, 1995, the outstanding
principal balance was $152,979,000.
The Orlando Mortgage Debt is secured by the Orlando Hotel, all personal
property associated with the Orlando Hotel, the land on which the Orlando
Hotel and golf course are located and an assignment of certain operating
agreements.
Harbor Beach Mortgage
The original Harbor Beach loan agreement provided $86.6 million for
construction of the Harbor Beach Hotel. On June 30, 1986, this debt was
refinanced with a major insurance company. The $92 million replacement loan
(the "Harbor Beach Mortgage Debt") bore interest at a fixed rate of 9.375% and
required payments of interest only through July 1988 and monthly payments of
principal and interest in the amount of $765,000 thereafter until maturity on
July 1, 1993. Upon maturity, the Lender granted the Harbor Beach Partnership a
forbearance of the loan for a fee of $165,000. Under the forbearance
agreement, the Harbor Beach Partnership continued to pay the Lender through
March 29, 1994, payments of principal and interest in accordance with the
terms of the Harbor Beach Mortgage Debt.
On March 29, 1994 (the "Harbor Beach Closing Date"), the Harbor Beach
Partnership completed the restructuring of the Harbor Beach Mortgage Debt. The
restructured mortgage debt carries a fixed rate of interest of 9.125% (the
"Contract Interest Rate") and is payable monthly in arrears. Interest only at
the Contract Interest Rate was due and payable for the first twelve payments
through and including April 1, 1995. For the period from the Harbor Beach
Closing Date through April 1, 1995, the difference between the interest only
payment and $772,600 (the "Payment Amount") was contributed to an escrow
account with the Lender to fund capital improvements at the Harbor Beach
Hotel. The balance of the escrow fund was included in Restricted Cash in the
financial statements as of December 31, 1994. The Payment Amount represents
the amount necessary to amortize the outstanding principal balance, as of the
Harbor Beach Closing Date, over a 22-year effective amortization period. The
loan matures on May 1, 2000. The restructured mortgage debt is collateralized
by all property and assets of the Harbor Beach Hotel. No debt service
guarantee was provided. As of December 31, 1995 and 1994, the outstanding
principal balance was $86,882,000 and $87,852,000, respectively.
IV-16
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Warner Center Mortgage
The Warner Center Partnership entered into a loan agreement with Connecticut
General Life Insurance Company (the "Lender") to provide $47 million of non-
recourse mortgage debt to fund construction of the Warner Center Hotel, which
was converted to permanent financing on July 23, 1987 (the "Warner Center
Mortgage Debt"). The Warner Center Mortgage Debt carried interest at a fixed
rate of 10.47% per annum (the "Contract Rate") and required no amortization of
principal until maturity on July 23, 1997. The loan was secured by the Warner
Center Hotel and an assignment of the Warner Center Hotel's management
agreement. As additional security, Host Marriott provided a $5,300,000
guarantee of debt service payments. Payments under the guarantee constituted
loans to the Warner Center Partnership and accrued interest at the Bankers
Trust Company prime rate plus 1%.
The Warner Center Partnership defaulted on its first mortgage on July 1,
1993, as cash flow from hotel operations was insufficient to pay debt service
and Host Marriott's limited debt service guarantee was exhausted. On November
17, 1993, ownership of the Warner Center Hotel was transferred through
foreclosure to the Lender. Accounting for the foreclosure required the write
down of the Warner Center Hotel's assets to their estimated fair market value
at the time of the foreclosure. This resulted in recording a loss of $20.0
million for the year ended December 31, 1993. Additionally, the Partnership
recorded an extraordinary gain of $40.4 million which consisted of two
portions: 1) a gain of $27.0 million on the foreclosure, which represented the
difference between the mortgage debt of $51.7 million extinguished as a result
of the foreclosure and the estimated fair market value of the Warner Center
Hotel as of the Foreclosure Date, and 2) a gain of $13.4 million resulting
from debt extinguished due to the dissolution of the Warner Center
Partnership. Advances on the debt service guarantee from Host Marriott which
were forgiven amounted to $5,405,000 with accrued interest of $2,063,000, and
a note payable to Host Marriott which was forgiven totaled $187,000 with
accrued interest of $10,000.
Notes Payable to Host Marriott
ORLANDO BALLROOM LOAN
During 1990, Host Xxxxxxxx agreed to provide interim financing of up to $14
million to fund the construction of a new ballroom and exhibition hall at the
Orlando Hotel. Construction was completed in February 1990. On December 31,
1990, the interim financing was converted to a permanent loan from Host
Marriott with $13.2 million advanced. Interest only, at the Bankers Trust
Company prime rate, was payable from the Partnership's cash flow after debt
service. On June 16, 1992, in conjunction with the refinancing of the Orlando
Mortgage Debt, the Orlando ballroom loan was converted from a term loan to a
revolving line of credit with a floating interest rate equal to the Bankers
Trust Company prime rate. The weighted average effective interest rate for the
years ended December 31, 1995 and 1994 was 8.8% and 7.1%, respectively (rate
as of December 31, 1995, was 8.5%). As of December 31, 1995 and 1994, the
outstanding principal balance was $6,420,000 and $9,149,000, respectively.
ORLANDO ROOMS RENOVATION LOAN
The Partnership secured a loan with Host Marriott to fund up to $11 million
for a rooms renovation project which began in August 1990 and was completed in
April 1991. Advances under the Host Xxxxxxxx loan accrued interest at the
Bankers Trust Company prime rate. Total renovation costs of $10.2 million were
funded through Host Marriott loan advances of $6.7 million and property
improvement fund expenditures of $3.5 million. Interest during the renovation
phase was capitalized into the cost of the project. The weighted average
effective interest rate on the Host Marriott loan for the year ended December
31, 1994, was 6.0%. The outstanding principal balance was paid in full during
1994. Payments of interest and principal were funded from the property
improvement fund.
IV-17
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Debt
HARBOR BEACH ROOMS RENOVATION LOAN
On July 21, 1994, the Harbor Beach Partnership entered into a loan agreement
with Marriott International Capital Corporation, a wholly-owned subsidiary of
MII, in conjunction with a rooms and suites refurbishment at the Harbor Beach
Hotel. The loan provided financing of up to $2.8 million, plus accrued
interest through December 31, 1994, to fund costs in excess of funds available
in the Harbor Beach Partnership's property improvement fund. This unsecured
loan carries a fixed rate of interest of 8%. Accrued interest totaling $64,000
was rolled into the principal balance at December 31, 1994. Payments of
principal and interest based upon a five-year amortization period commenced in
January 1995. Under the terms of the loan, the debt service payments are
included as a deduction in determining the fees paid to MHSI, as described in
Note 8. As of December 31, 1995 and 1994, the outstanding principal balance
was $2,379,000 and $2,864,000, respectively.
NOTE 7. LEASES
The Harbor Beach Partnership, through an assignment of a lease on January
15, 1982, acquired all rights of the Lessee to a 99-year lease with a 25-year
renewal option for the land on which the Harbor Beach Hotel is located. On
April 28, 1993, the lessor sold its rights under the lease to an unrelated
party. A provision under the sale of the lease provided for the early refund
to the Harbor Beach Partnership of the remaining $1,250,000 balance of an
initial $2,500,000 security deposit paid to the lessor and a $500,000 payment
to facilitate the modification of the lease. Lease payments are made quarterly
in advance in accordance with a lease year that operates from December 1
through November 30. The annual rental for the lease year ended November 1994
was $1,430,000 and increased to $1,560,000 in December 1994 for lease years
1995 through 1999. After lease year 1999, annual rentals for each succeeding
five-year period increase by an amount equal to 10% of the previous annual
rental.
Minimum annual rentals during the term of the lease are (in thousands):
YEAR
----
1996............................................................. $ 1,560
1997............................................................. 1,560
1998............................................................. 1,560
1999............................................................. 1,573
2000............................................................. 1,716
Thereafter....................................................... 314,572
--------
Total Minimum Lease Payments..................................... $322,541
========
The Warner Center Partnership leased land on which the Warner Center Hotel
was located from an unrelated party for an initial term of 30 years with five
successive 10-year renewal options. Upon the Foreclosure Date, the lease
obligation reverted to the Lender. Ground rent expense under the Warner Center
Partnership land lease was $514,000 for the period from January 1, 1993,
through the Foreclosure Date.
NOTE 8. MANAGEMENT AND OPERATING LEASE AGREEMENTS
The Partnership has entered into a long-term management agreement with the
Manager, and the Harbor Beach Partnership has entered into a long-term
operating lease with the Operating Tenant. As a result of the dissolution of
the Warner Center Partnership, the Warner Center Hotel's management agreement
was terminated. The Hotels are operated as part of the Marriott Hotels,
Resorts and Suites full-service hotel system. Significant provisions under the
agreements are as follows:
IV-18
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Orlando Hotel. The management agreement provides for an initial term of 25
years, commencing with the opening of the Orlando Hotel (March 24, 1986), and
five 10-year renewals at the Manager's option. The Manager is paid a base
management fee of 3% of gross hotel sales and is also entitled to an incentive
management fee equal to 20% of operating profit, as defined, and an additional
incentive management fee equal to 30% of the following amount: (i) 80% of
operating profit in each fiscal year less (ii) the greater of (a) $25,000,000
or (b) debt service on the Orlando Mortgage Debt plus $7,000,000. Payment of
the incentive management fee is subordinate to debt service and retention of
specified amounts of operating profit by the Partnership. Unpaid incentive
management fees are deferred without interest and are payable from future
operating cash flow, as defined, but are due upon termination of the
management agreement only if the termination is the result of a default by the
Partnership. Unpaid incentive management fees as of December 31, 1995 and
1994, were $3,520,000 and $5,492,000, respectively.
Under the management agreement, the Manager is required to furnish the
Orlando Hotel with certain services ("Chain Services") which are generally
provided on a central or regional basis to all hotels in the Marriott full-
service hotel system. Chain Services include central training, advertising and
promotion, a national reservation system, computerized payroll and accounting
services, and such additional services as needed which may be more efficiently
performed on a centralized basis. Costs and expenses incurred in providing
such services are allocated among all domestic full-service hotels managed,
owned or leased by MII or its subsidiaries. In addition, the Hotel
participates in MII's Honored Guest Awards Program ("HGA"). The cost of this
program is charged to all hotels in the Marriott full-service hotel system
based upon the HGA sales at each hotel. The total amount of Chain Services and
HGA costs allocated to the Orlando Hotel was $3,336,000, $2,825,000 and
$2,359,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Warner Center Hotel. The management agreement provided for an initial term
of 30 years, commencing with the opening of the Warner Center Hotel (February
28, 1986), and three 10-year renewals at the Manager's option. The Manager was
paid a base management fee of 3% of gross sales; however, to facilitate a
restructuring of the Warner Center Mortgage Debt, the Manager had agreed to
defer 1% of its base management fee during the period beginning March 1, 1992
through May 31, 1993. As a result of the dissolution of the Warner Center
Partnership, the management agreement was terminated. Unpaid incentive
management fees as of the Foreclosure Date, which were forgiven, amounted to
$5,236,000. Also, deferred base management fees due to the Manager which were
forgiven amounted to $269,000 as of the Foreclosure Date.
The Manager was also reimbursed for its cost of providing Chain Services to
the Warner Center Hotel. The total amount of Chain Services and HGA costs
allocated to the Warner Center Hotel was $628,000 for the period from January
1, 1993, through the Foreclosure Date.
Harbor Beach Hotel. The operating lease provides for an initial 36-year term
commencing with the opening of the Harbor Beach Hotel (October 29, 1984), with
options to renew for six successive 10-year periods based on certain defined
conditions. The annual rental paid to the Harbor Beach Partnership includes
the following:
. basic rental: annual rental payable under the land lease and insurance
costs
. percentage rental: determined by multiplying the applicable percentage
set annually by the Harbor Beach Partnership by revenues
. performance rental: first $9,720,000 of operating profit of the Harbor
Beach Hotel, as defined
. additional performance rental: 50% of operating profit of the Harbor
Beach Hotel, as defined, in excess of $9,720,000
. contingent rental: up to 50% of operating profit of the Harbor Beach
Hotel, as defined, in excess of $9,720,000 if the aggregate annual rental
is otherwise insufficient to cover debt service.
IV-19
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the terms of the Harbor Beach rooms renovation loan (see Note
6), the annual performance rental is adjusted upward by the annual debt
service required under the loan. For the five-year period beginning with 1995
and ending in 1999, annual performance rental is increased by $696,557 to
$10,416,557. Subsequent to year-end 1999, performance rental will return to
$9,720,000.
Percentage rental is intended to cover the cost of utilities, repairs and
maintenance, and the required contribution to the property improvement fund
(4% for 1994 and 5% for 1995 and thereafter) and is therefore adjusted
annually in order to equal the actual applicable costs. Any payments of
contingent rental reduce future payments of additional performance rental
(subject to limitations) in subsequent years. No contingent rental has been
accrued as of December 31, 1995 and 1994.
Rental income under the Harbor Beach Partnership operating lease for the
three years ended December 31, 1995, was (in thousands):
1995 1994 1993
------- ------- -------
Basic Rental...................................... $ 1,616 $ 1,469 $ 1,704
Percentage Rental................................. 5,921 4,978 5,056
Performance Rental................................ 10,417 9,720 9,720
Additional Performance Rental..................... 1,793 1,106 1,317
------- ------- -------
$19,747 $17,273 $17,797
======= ======= =======
Cost and accumulated depreciation of the rental property were $99,077,000
and $33,990,000, respectively, at December 31, 1995, and $100,068,000 and
$32,470,000, respectively, at December 31, 1994.
Working Capital Advances
Pursuant to the terms of the Orlando Hotel management agreement, the
Partnership is required to provide the Manager with working capital and
supplies to meet the operating needs of the Orlando Hotel. The Manager
converts cash advanced by the Partnership into other forms of working capital
consisting primarily of operating cash, inventories, and trade receivables and
payables which are maintained and controlled by the Manager. Upon termination
of the hotel management agreement, the working capital and supplies are to be
returned to the Partnership. The individual components of working capital and
supplies controlled by the Manager are not reflected in the Partnership's
Consolidated Balance Sheet. As of December 31, 1995, and 1994, $4,707,000 has
been advanced to the Manager for working capital and supplies which is
included in Due from Marriott International, Inc. on the accompanying
Consolidated Balance Sheet. The supplies advanced to the Manager are recorded
at their estimated net realizable value. As of December 31, 1995 and 1994,
accumulated amortization related to the revaluation of these supplies totaled
$762,000.
Upon foreclosure of the Warner Center Hotel in 1993, working capital and
supplies that had been provided by the Warner Center Partnership were
transferred to the Lender.
Property Improvement Funds
The management agreement and the operating lease provide for the
establishment of a property improvement fund for each of the Hotels.
Contributions to the property improvement funds are equal to a percentage of
gross sales of each hotel. Pursuant to the terms of the Orlando Mortgage Debt
refinancing, contributions to the fund for the Orlando Hotel were 4% through
maturity of the refinanced mortgage in June 1995. Contributions increased to
5% subsequent to maturity and will remain at 5% thereafter. Contributions to
the fund for the Orlando Hotel totaled $5,120,000 and $4,139,000 for the years
ended December 31, 1995 and
IV-20
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1994, respectively. Contributions to the fund for the Harbor Beach Hotel were
4% for 1993 and 1994 and increased to 5% in 1995. Contributions to the fund
for the Harbor Beach Hotel totaled $2,610,000 and $1,850,000 for the years
ended December 31, 1995 and 1994, respectively. The property improvement fund
of the Warner Center Hotel was transferred to the Lender as a result of the
Warner Center Hotel foreclosure.
NOTE 9. COMPARATIVE LEASED HOTEL OPERATING RESULTS
The Harbor Beach Hotel is a leased property whose income to the Partnership
is included in the "Consolidated Statement of Operations" as rental income.
The following is a comparative summary of hotel operating results for the
Harbor Beach Hotel for the three years ended December 31, 1995 (in thousands):
1995 1994 1993
------- ------- -------
HOTEL SALES
Rooms............................................... $28,384 $24,835 $25,431
Food and beverage................................... 19,366 17,037 17,850
Other............................................... 4,857 4,659 5,133
------- ------- -------
52,607 46,531 48,414
------- ------- -------
HOTEL EXPENSES
Department Direct Costs
Rooms............................................. 5,332 4,768 4,809
Food and beverage................................. 12,140 10,974 11,765
Other operating expenses............................ 21,219 19,127 19,697
------- ------- -------
38,691 34,869 36,271
------- ------- -------
HOTEL REVENUES...................................... $13,916 $11,662 $12,143
======= ======= =======
IV-21
GLOSSARY
Affiliates affiliates of the General Partner as defined in the Part-
nership Agreement.
Amendments the proposed amendments to the Partnership Agreement
which are the subject of the consent solicitation materi-
als, that the General Partner, at the request of Parent
and the Purchaser, is requesting Limited Partners to con-
sider and vote upon as a condition to the Offer.
American American Appraisal Associates, Inc., an independent valu-
Appraisal ation consulting firm.
Code the Internal Revenue Code of 1986, as amended.
Depositary GEMISYS, Inc.
Exchange Act the Securities Exchange Act of 1934, as amended.
Expiration Date 6:00 p.m., New York City time, on Friday, December 20,
1996.
General Partner Hotel Properties Management, Inc., a Delaware corpora-
tion, a wholly owned direct subsidiary of Parent and an
affiliate of the Purchaser.
Harbor Beach the Marriott Harbor Beach Resort in Ft. Lauderdale, Flor-
Hotel xxx.
Harbor Beach the Partnership's general partnership interest in the
Interest Harbor Beach Partnership.
Harbor Beach the Lauderdale Beach Association, a Florida general part-
Partnership nership that owns the Harbor Beach Hotel, and of which
the Partnership owns 50.5% of the partnership interest.
Host Marriott Host Marriott Corporation. Also referred to herein as
Parent.
Hotels the Orlando Hotel and the Harbor Beach Hotel.
Information Agent Trust Company of America.
Interested matters subject to the vote of Limited Partners where the
Transaction General Partner or its Affiliates have an actual economic
interest other than as a Unitholder
Letter of the Letter of Transmittal related to the Offer to Pur-
Transmittal chase, together with any supplement thereto.
Limited Partners the holders of record of limited partnership interests in
the Partnership
Limited Partners' the condition to consummation of the Offer requiring that
Consent the Partnership receive from the Limited Partners holding
Condition a majority of the outstanding units consents to certain
amendments to the Partnership Agreement prior to the time
of acceptance for payment of Units tendered pursuant to
the Offer
Management the long-term management agreement pursuant to which MII
Agreement manages the Orlando Hotel
XXX Xxxxxxxx International, Inc., together with its subsidi-
aries.
the condition to consummation of the Offer requiring that
Minimum Tender there be validly tendered and not withdrawn prior to the
Condition Expiration Date at least 450 Units.
G-1
Offer
the offer by Purchaser to purchase 450 Units upon the
terms and subject to the conditions set forth in the Of-
fer to Purchase and the Letter of Transmittal.
Offer Price $80,000 per Unit.
Offer to Purchase The Offer to Purchase of which this Glossary forms a
part, by which the Purchaser makes the Offer.
Operating Lease
the long-term lease pursuant to which the Operating Ten-
ant leases the Harbor Beach Hotel.
Operating Tenant Marriott Hotel Services, Inc., a wholly-owned subsidiary
of MII
Orlando Hotel the Marriott Orlando World Center Hotel.
Partnership
Marriott Hotel Properties Limited Partnership, a Delaware
limited partnership.
Partnership the Amended and Restated Agreement of Limited Partnership
Agreement of the Partnership.
Parent Host Marriott Corporation. Also referred to herein as
Host Marriott.
Purchaser
MHP Acquisition Corp., a Delaware corporation.
SEC the Securities and Exchange Commission.
Section 708 a termination of the partnership for federal income tax
Termination purposes that would result from a "sale or exchange" of
50% or more of the total interest in a partnership's cap-
ital and profit within any twelve-month period, pursuant
to Section 708(b)(1)(B) of the Code.
Securities Act
the Securities Act of 1933, as amended.
Transfer a suspension of any sales and exchanges of Units that
Restriction would result in a Section 708 Termination.
25% Assets assets of the Partnership which had an original cost in
excess of 25% of the original cost basis of all assets of
the Partnership.
25% Asset Sale
Transactions the transfer, sell, assign, pledge or otherwise dispose
of all or any portion of the Harbor Beach Interest to in-
dependent third parties.
Unitholder a holder of a Unit.
Units units of limited partnership interest in the Partnership.
G-2
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, and any other required
documents should be sent or delivered by each Unitholder of the Partnership or
his or her broker, dealer, commercial bank, trust company or other nominee to
the Depositary, at one of the addresses set forth below:
The Depositary for the Offer is:
GEMISYS, INC.
By Mail or Overnight Courier: By Facsimile or Telex:
0-000-000-0000
GEMISYS, Inc. -----------------------------
Attention: Proxy Department
0000 Xxxxx Xxxxxx Parkway For Confirmation and other
Englewood, CO 80112-9523 Information:
0-000-000-0000
-----------------------------
Questions and requests for assistance may be directed to the Information
Agent at its address and telephone number listed below. Additional copies of
this Offer to Purchase, the Letter of Transmittal and other tender offer
materials may be obtained from the Information Agent as set forth below, and
will be furnished promptly at the Purchaser's expense. You may also contact
your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
Trust Company of America
0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000-9523
0-000-000-0000
