##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- |  | ----------------------------------------------------------------------------------------



For the quarterly period ended June 20, 2003.



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|- |  | -------------------------------------------------------------------

| | EXCHANGE ACT OF 1934
| | --------------------



Commission file number 0-25087



---



HOST MARRIOTT, L.P.

(Exact Name of Registrant as specified in its Charter)



|Delaware                                             |  | 52-2095412                          
|---------------------------------------------------- |  | ------------------------------------
|(State of Incorporation)                             |  | (I.R.S. Employer Identification No.)
|                                                     | 
|6903 Rockledge Drive, Suite 1500, Bethesda, Maryland |  | 20817                               
|(Address of Principal Executive Offices)             |  | (Zip Code)                          



(240) 744-1000

(Registrants telephone number, including area code)



---



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. x  Yes ̈No



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). ̈Yes  x  No



|Class                                 |  | Units outstanding July 15, 2003
|------------------------------------- |  | -------------------------------
|Units of limited partnership interest |  | 292,145,121                    



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##### Table of Contents

INDEX





|        |  |                                                                                                                |  | Page No.
|------- |  | -------------------------------------------------------------------------------------------------------------- |  | --------
|        |  |                                                                                                               
|        |  | PART 1. FINANCIAL INFORMATION                                                                                  |  |         
|        |  |                                                                                                               
|Item 1. |  | Financial Statements (unaudited):                                                                              |  |         
|        |  |                                                                                                               
|        |  | Condensed Consolidated Balance SheetsJune 20, 2003 and December 31, 2002                                      |  | 3       
|        |  |                                                                                                               
|        |  | Condensed Consolidated Statements of OperationsQuarter Ended and Year-to-Date June 20, 2003 and June 14, 2002 |  | 4       
|        |  |                                                                                                               
|        |  | Condensed Consolidated Statements of Cash FlowsYear-to-Date June 20, 2003 and June 14, 2002                   |  | 5       
|        |  |                                                                                                               
|        |  | Notes to Condensed Consolidated Financial Statements                                                           |  | 7       
|        |  |                                                                                                               
|Item 2. |  | Managements Discussion and Analysis of Results of Operations and Financial Condition                          |  | 17      
|        |  |                                                                                                               
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                     |  | 34      
|        |  |                                                                                                               
|Item 4. |  | Controls and Procedures                                                                                        |  | 34      
|        |  |                                                                                                               
|        |  | PART II. OTHER INFORMATION AND SIGNATURE                                                                       |  |         
|        |  |                                                                                                               
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                      |  | 34      
|        |  |                                                                                                               
|Item 6. |  | Exhibits and Reports an Form 8-K                                                                               |  | 35      







2



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##### Table of Contents

|Item 1. |  | Financial Statements
|------- |  | --------------------



CONDENSED CONSOLIDATED BALANCE SHEETS

June 20, 2003 and December 31, 2002

(in millions)



|                                                                                                                                                                                 |  | June 20, 2003 |       | December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ----------------- | -
|                                                                                                                                                                                 | 
|                                                                                                                                                                                 |  | (unaudited)   |       |                   |  
|ASSETS                                                                                                                                                                           |  |               |       |                   |  
|Property and equipment, net                                                                                                                                                      |  | $             | 7,063 |                   | $
|Notes and other receivables                                                                                                                                                      |  |               | 55    |                   |  
|Due from managers                                                                                                                                                                |  |               | 98    |                   |  
|Investments in affiliates                                                                                                                                                        |  |               | 88    |                   |  
|Other assets                                                                                                                                                                     |  |               | 501   |                   |  
|Restricted cash                                                                                                                                                                  |  |               | 130   |                   |  
|Cash and cash equivalents                                                                                                                                                        |  |               | 312   |                   |  
|                                                                                                                                                                                 |  |               |       |                   |  
|Total assets                                                                                                                                                                     |  |               | 8,247 |                   |  
|                                                                                                                                                                                 |  |               |       |                   |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                             |  |               |       |                   |  
|Debt                                                                                                                                                                             |  |               |       |                   |  
|Senior notes                                                                                                                                                                     |  | $             | 3,249 |                   | $
|Mortgage debt                                                                                                                                                                    |  |               | 2,335 |                   |  
|Convertible debt obligation to Host Marriott Corporation                                                                                                                         |  |               | 492   |                   |  
|Other                                                                                                                                                                            |  |               | 102   |                   |  
|                                                                                                                                                                                 |  |               |       |                   |  
|                                                                                                                                                                                 |  |               | 6,178 |                   |  
|Accounts payable and accrued expenses                                                                                                                                            |  |               | 112   |                   |  
|Other liabilities                                                                                                                                                                |  |               | 202   |                   |  
|                                                                                                                                                                                 |  |               |       |                   |  
|Total Liabilities                                                                                                                                                                |  |               | 6,492 |                   |  
|                                                                                                                                                                                 |  |               |       |                   |  
|Minority interest                                                                                                                                                                |  |               | 91    |                   |  
|Limited partnership interests of third parties at redemption value (representing 27.1 million units and 27.7 million units at June
20, 2003 and December 31, 2002, respectively) |  |               | 239   |                   |  
|Partners Capital                                                                                                                                                                |  |               |       |                   |  
|General partner                                                                                                                                                                  |  |               | 1     |                   |  
|Cumulative redeemable preferred limited partner                                                                                                                                  |  |               | 339   |                   |  
|Limited partner                                                                                                                                                                  |  |               | 1,075 |                   |  
|Accumulated other comprehensive income (loss)                                                                                                                                    |  |               | 10    |                   |  
|                                                                                                                                                                                 |  |               |       |                   |  
|Total partners capital                                                                                                                                                          |  |               | 1,425 |                   |  
|                                                                                                                                                                                 |  |               |       |                   |  
|                                                                                                                                                                                 |  | $             | 8,247 |                   | $
|                                                                                                                                                                                 |  |               |       |                   |  



See notes to condensed
consolidated financial statements.



3



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##### Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter Ended and Year-to-Date June 20, 2003 and June 14,
2002

(unaudited, in millions, expect per unit amounts)



|                                                   |  | Quarter ended |      |   | Year-to-date  |  
|-------------------------------------------------- |  | ------------- | ---- | - | ------------- | -
|                                                   |  | June 20, 2003 |      |   | June 14, 2002 |  
|                                                   |  |               |     
|REVENUES                                           |  |               |      |   |               |  
|Rooms                                              |  | $             | 512  |   |               | $
|Food and beverage                                  |  |               | 281  |   |               |  
|Other                                              |  |               | 57   |   |               |  
|                                                   |  |               |      |   |               |  
|Total hotel sales                                  |  |               | 850  |   |               |  
|Rental income                                      |  |               | 24   |   |               |  
|Other income                                       |  |               |     |   |               |  
|                                                   |  |               |      |   |               |  
|Total revenues                                     |  |               | 874  |   |               |  
|                                                   |  |               |      |   |               |  
|OPERATING COSTS AND EXPENSES                       |  |               |      |   |               |  
|Rooms                                              |  |               | 123  |   |               |  
|Food and beverage                                  |  |               | 202  |   |               |  
|Hotel departmental expenses                        |  |               | 230  |   |               |  
|Management fees                                    |  |               | 37   |   |               |  
|Other property-level expenses                      |  |               | 78   |   |               |  
|Depreciation and amortization                      |  |               | 86   |   |               |  
|Corporate and other expenses                       |  |               | 13   |   |               |  
|                                                   |  |               |      |   |               |  
|Total operating costs and expenses                 |  |               | 769  |   |               |  
|                                                   |  |               |      |   |               |  
|OPERATING PROFIT                                   |  |               | 105  |   |               |  
|Minority interest income (expense)                 |  |               | (1   | ) |               |  
|Interest income                                    |  |               | 2    |   |               |  
|Interest expense                                   |  |               | (115 | ) |               |  
|Net gains on property transactions                 |  |               | 2    |   |               |  
|Equity in earnings (losses) of affiliates          |  |               | (3   | ) |               |  
|                                                   |  |               |      |   |               |  
|INCOME (LOSS) BEFORE INCOME TAXES                  |  |               | (10  | ) |               |  
|Provision for income taxes                         |  |               | (6   | ) |               |  
|                                                   |  |               |      |   |               |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS           |  |               | (16  | ) |               |  
|Income from discontinued operations                |  |               |     |   |               |  
|                                                   |  |               |      |   |               |  
|NET INCOME (LOSS)                                  |  |               | (16  | ) |               |  
|Less: Distributions on preferred units             |  |               | (9   | ) |               |  
|                                                   |  |               |      |   |               |  
|NET INCOME (LOSS) AVAILABLE TO COMMON UNITHOLDERS  |  | $             | (25  | ) |               | $
|                                                   |  |               |      |   |               |  
|BASIC AND DILUTED EARNINGS (LOSS) PER COMMON UNIT: |  |               |      |   |               |  
|Continuing operations                              |  | $             | (.08 | ) |               | $
|Discontinued operations                            |  |               |     |   |               |  
|                                                   |  |               |      |   |               |  
|BASIC AND DILUTED EARNINGS (LOSS) PER COMMON UNIT  |  | $             | (.08 | ) |               | $
|                                                   |  |               |      |   |               |  



See notes to condensed
consolidated financial statements.



4



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##### Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Year-to-Date June 20, 2003 and June 14, 2002

(unaudited, in millions)



|                                                         |  | Year-to-date  |    
|-------------------------------------------------------- |  | ------------- | ---
|                                                         |  | June 20, 2003 |    
|                                                         | 
|OPERATING ACTIVITIES                                     |  |               |    
|Net income (loss)                                        |  | $             | (54
|Adjustments to reconcile to cash provided by operations: |  |               |    
|Non-cash effect of discontinued operations               |  |               |   
|Depreciation and amortization                            |  |               | 174
|Income taxes                                             |  |               | (20
|Net gains on property transactions                       |  |               | (3 
|Equity in losses of affiliates                           |  |               | 9  
|Minority interest expense                                |  |               | 3  
|Changes in other assets                                  |  |               | 7  
|Changes in other liabilities                             |  |               | (17
|                                                         |  |               |    
|Cash provided by operations                              |  |               | 99 
|                                                         |  |               |    
|INVESTING ACTIVITIES                                     |  |               |    
|Acquisitions                                             |  |               | (3 
|Proceeds from sale of assets, net                        |  |               | 25 
|Capital expenditures:                                    |  |               |    
|Renewals and replacements                                |  |               | (86
|Development                                              |  |               | (3 
|Other investments                                        |  |               | (5 
|                                                         |  |               |    
|Cash used in investing activities                        |  |               | (72
|                                                         |  |               |    
|FINANCING ACTIVITIES                                     |  |               |    
|Financing costs                                          |  |               | (1 
|Scheduled principal repayments                           |  |               | (24
|Debt prepayments                                         |  |               | (32
|Distributions on preferred units                         |  |               | (18
|Distributions to minority interests                      |  |               | (4 
|Purchase of interest rate cap                            |  |               |   
|Change in restricted cash                                |  |               | 3  
|                                                         |  |               |    
|Cash used in financing activities                        |  |               | (76
|                                                         |  |               |    
|DECREASE IN CASH AND CASH EQUIVALENTS                    |  |               | (49
|CASH AND CASH EQUIVALENTS, beginning of period           |  |               | 361
|                                                         |  |               |    
|CASH AND CASH EQUIVALENTS, end of period                 |  | $             | 312
|                                                         |  |               |    



See notes to condensed
consolidated financial statements.



5



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##### Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Year-to-Date June 20, 2003 and June 14, 2002

(unaudited, in millions)



Supplemental schedule of noncash
investing and financing activities:



During February 2002, 1.1 million OP
units were issued to acquire additional interests in the partnership owning the San Diego Marriott Hotel and Marina. This transaction resulted in an increase of $10.5 million to property and equipment and equity to reflect the fair value of the
interests acquired. During April 2002, in a separate transaction, our ownership percentage in the San Diego partnership increased to 90% when certain of the minority partners in the San Diego partnership exchanged their interests for approximately
6.9 million OP Units. The transaction resulted in an increase of $56.1 million in property and equipment and a corresponding increase in minority interest liability to reflect the fair value of the interest acquired.



During January 2002, we transferred the St. Louis Marriott Pavilion to the mortgage lender.
We recorded the difference between the debt extinguished, the deferred incentive management fees forgiven and the fair value of the assets surrendered of $22 million, net of tax expense of $9 million, as income from discontinued operations in the
accompanying consolidated statements of operations.



On June 14, 2002, we
acquired the Boston Marriott Copley Place in Boston, Massachusetts for a purchase price of $214 million, including the assumption of $97 million of mortgage debt.



During June 2003, we acquired the remaining general partner interest and the preferred equity interest held by outside partners in the JW
Marriott in Washington, D.C. for approximately $3 million. We also became the sole limited partner after the partnership foreclosed on a note receivable from the other limited partner. As a result, we began consolidating the partnership and recorded
$95 million of mortgage debt secured by the hotel and property and equipment of $131 million.



See notes to condensed consolidated financial statements.



6



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. |  | Organization
|-- |  | ------------



Host Marriott, L.P., or Host LP, a Delaware limited partnership, operates through an umbrella partnership structure, with Host Marriott Corporation, or
Host Marriott, a Maryland corporation, as its sole general partner. Host Marriott is a self-managed and self-administered real estate investment trust, or REIT, with its operations conducted solely through us and our subsidiaries. As of June 20,
2003, Host Marriott owned approximately 90% of the partnership interests, which are referred to as OP Units.



|2. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------



We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with
accounting principles generally accepted in the United States of America, or GAAP, in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made are adequate to prevent the information presented from
being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December
31, 2002.



In our opinion, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of June 20, 2003 and the results of our operations for the quarter ended and year-to-date June 20, 2003 and June 14, 2002 and cash flows
for year-to-date June 20, 2003 and June 14, 2002. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.



Certain reclassifications, primarily debt extinguishments as a result of adopting SFAS No. 145, have been made to the prior
period financial statements to conform to the current presentation.



Reporting Periods



We receive the results of
operations of our hotels from our managers based on their reporting cycles, which are either monthly or every four weeks. However, our year end conforms to our general partners, Host Marriott, who as a REIT is required by tax laws to report
results on a calendar year ended December 31. However, our quarterly results reflect the reporting cycle that is used by Marriott International, Inc., the manager of the majority of our properties, whose year ends on the Friday closest to December
31 and which reflect twelve weeks of operations for the first three quarters of the year and sixteen or seventeen weeks for the fourth quarter of the year. Our results are also adjusted to reflect a fiscal calendar year that has a January 1 starting
date and a December 31 ending date. In any given quarter, quarter-over-quarter results could have different starting and/or ending dates. For example, the second quarter of 2003 ended on June 20 and the second quarter of 2002 ended on June 14,
though both quarters reflect twelve weeks of operations. In addition, because our starting and ending dates may not match Marriott Internationals starting and ending dates, our first and fourth quarters of each year and year-to-date periods
may not have the same number of days as was reflected in a prior year. For example, our consolidated financial statements as of June 20, 2003 reflect 171 days, while our year-to-date results as of June 14, 2002 reflect 165 days.



Approximately one-fourth of our full-service hotels are operated by managers
other than Marriott International and report revenues on a monthly basis versus our four week period. The accompanying consolidated financial statements reflect three months of operations for the second quarter (March, April and May), but five
months of operations year-to-date (January through May). Results in the



7



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



third quarter will reflect three months of operations and fourth quarter results will reflect four months of operations for these hotels.



Principles of Consolidation



In the absence of other factors determining control, we consolidate entities
when we own over 50% of the voting shares of another company or, in the case of partnership investments, when we own a majority of the general partnership interest. The control factors we consider include the ability of minority shareholders or
other partners to participate in or block management decisions. Additionally, if we determine that we are an owner of a variable interest entity within the meaning of FASB Interpretation No. 46, Consolidation of Variable Interest
Entities and that our variable interest will absorb a majority of the entitys losses if they occur, recieve a majority of the entitys expected residual returns if they occur, or both, then we will consolidate the entity. All
material intercompany transactions and balances have been eliminated.



Accounting for Stock-based Compensation



Host
Marriott maintains two stock-based employee compensation plans. Prior to 2002, Host Marriott accounted for these plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Effective January 1, 2002, Host Marriott adopted the fair value recognition provisions of the Financial Accounting Standards Boards SFAS No. 123, Accounting for Stock-Based Compensation, and applied it
prospectively to all employee awards granted, modified or settled after January 1, 2002. The following table illustrates the effect on net income and earnings per unit if the fair value based method had been applied to all of the outstanding and
unvested awards in each period.



Quarter ended


Year-to-dateJune 20, 2003


June 14, 2002


June 20, 2003


June 14, 2002(in millions, except per unit amounts)Net income (loss), as reported

$
(16
)

$
26


$
(54
)

$
27Add: Total stock-based employee compensation expense included in reported net income, net of related tax effects


3



3



5



8Deducted: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax
effects


(3
)


(3
)


(5
)


(8
)Pro forma net income (loss)


(16
)


26



(54
)


27Distributions on preferred units


(9
)


(9
)


(18
)


(18
)Pro forma net income (loss) available to common unitholders

$
(25
)

$
17


$
(72
)

$
9Earnings (loss) per unitBasicas reported

$
(.08
)

$
.06


$
(.24
)

$
.03Basicpro forma

$
(.08
)

$
.06


$
(.24
)

$
.03Dilutedas reported

$
(.08
)

$
.06


$
(.24
)

$
.03Dilutedpro forma

$
(.08
)

$
.06


$
(.24
)

$
.03






8



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



New Accounting Pronouncements



The Financial Accounting Standards Board recently issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, or SFAS 150. This statement requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Previously, many such
instruments had been classified as equity. A freestanding financial instrument is an instrument that is entered into separately and apart from any of the entitys other financial instruments or equity transactions, or that is entered into in
conjunction with some other transaction and is legally detachable and separately exercisable, such as certain put and call options. These provisions are effective for financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June 15, 2003. We have no financial instruments that are affected by this statement.



|3. |  | Earnings (Loss) per Common Unit
|-- |  | -------------------------------



Basic earnings (loss) per common unit is computed by dividing net income (loss) available to common OP unitholders by the weighted average number of
common OP Units outstanding. Diluted earnings (loss) per unit is computed by dividing net income (loss) available to common OP unitholders as adjusted for potentially dilutive securities, by the weighted average number of common OP Units outstanding
plus potentially dilutive securities. Dilutive securities may include units distributed to Host Marriott for Host Marriott common shares granted under comprehensive stock plans, preferred OP Units held by minority partners and other minority
interests that have the option to convert their interests to common OP Units and the convertible debt obligation to Host Marriott Corporation. No effect is shown for securities if they are anti-dilutive.



Quarter ended June 20, 2003


Quarter ended June 14, 2002(in millions, except per unit amounts)Income


Units

Per Unit Amount


Income


Units

Per Unit AmountNet income (loss)

$
(16
)

292.1

$
(.05
)

$
26


289.9

$
.09Distributions on preferred units


(9
)




(.03
)


(9
)




(.03
)Basic earnings (loss)


(25
)

292.1


(.08
)


17


289.9


.06Assuming distribution of common units for shares granted under the Comprehensive Stock plan less shares assumed purchased at
average market price















3.3


Diluted earnings (loss)

$
(25
)

292.1

$
(.08
)

$
17


293.2

$
.06Year-to-date June 20, 2003


Year-to-date June 14, 2002(in millions, except per unit amounts)Income


Units

Per Unit Amount


Income


Units

Per Unit AmountNet income (loss)

$
(54
)

292.0

$
(.18
)

$
27


286.6

$
.09Distributions on preferred units


(18
)




(.06
)


(18
)




(.06
)Basic and diluted loss

$
(72
)

292.0

$
(.24
)

$
9


286.6

$
.03




|4. |  | Debt
|-- |  | ----



In the first quarter of 2003, we repurchased $8 million of our 9.25% senior notes due in 2007 at par and prepaid $17 million of mortgage debt related to
two of our Ritz-Carlton properties. We did not incur any prepayment penalties as a result of these debt extinguishments. The loss on the early extinguishment of debt related to the write-off of deferred financing fees, which was minimal, is included
in interest expense in the accompanying consolidated statements of operations.



9



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



During August 2001, we entered into a $97 million loan agreement for our four Canadian properties. As a result of a decline in operations at these
properties in late 2001 and 2002, we were required under the loan agreement to escrow cash. In April 2003, approximately $7 million of the cash escrowed in accordance with the loan was applied to the outstanding balance of the indebtedness and
approximately $2 million was released to us. As this indebtedness is denominated in United States dollars and the functional currency of the properties is Canadian dollars, at the time we entered into this loan we entered into currency forward
contracts to buy U.S. dollars at a fixed price. These forward contracts hedge the currency exposure of converting Canadian dollars into U.S. dollars on a monthly basis to cover debt service payments, including the final balloon payment. These
contracts have been designated as cash flow hedges of the debt service and balloon payments and are recorded at fair value on the balance sheet with offsetting changes recorded in accumulated other comprehensive income. As a result of the $7 million
prepayment, a portion of the forward contracts no longer qualifies for hedge accounting. The pro-rata portion of the accumulated loss included in other comprehensive income as of the date of prepayment plus the change in the fair market value of the
ineffective portion of the hedge from April 24, 2003, have been recognized in our consolidated statement of operations. All subsequent fair market value adjustments related to the ineffective portion of the hedge will be recognized in our
consolidated statement of operations. The adjustments resulted in the recognition of approximately $1 million of expense, which is included in corporate and other expenses.



Operating results at our three properties located in Toronto have not yet fully recovered from the impact of SARS-related
travel restrictions. As a result, in July 2003 we entered into an agreement with our lenders to modify certain covenants so that we would not be required to make additional prepayments at least through the end of the year. The terms of the
modification required us to provide $10 million of cash collateral and pay an additional 25 basis points of interest on the loan. If we are required to make additional prepayments, the entire hedge may become ineffective for accounting purposes, at
which time, any unrealized losses would be recognized in net income(loss). As of June 20, 2003, the unrealized loss is approximately $13 million, but is subject to adjustment based on future fluctuations in currency rates.



|5. |  | Distributions
|-- |  | -------------



On June 19, 2003, Host Marriott issued 33,182 shares of 10% Class D Cumulative Redeemable Preferred Stock to Fernwood Holdings LLC, an indirectly wholly
owned taxable subsidiary of Host LP. We, in turn, issued equivalent securities, Class D Cumulative Redeemable Preferred OP Units to Host Marriott. Dividends paid on the Class D preferred stock will equal approximately $21,000 per quarter. The holder
of the Class D preferred stock is entitled to receive cumulative cash dividends at a rate of 10% per annum of the $25.00 per share liquidation preference and these dividends are payable quarterly in arrears. Host Marriott has the option to redeem
the Class D preferred stock at any time after July 1, 2004, for $25.00 per share, plus accrued and unpaid dividends to the date of redemption. The Class D preferred OP Units are on parity with our Class A, B and C preferred OP Units.



On June 20, 2003, the Board of Directors of Host Marriott declared a
quarterly cash distribution of $0.625 per unit for each class of preferred limited partner units. The second quarter distribution was paid on July 15, 2003 to unitholders of record as of June 30, 2003.



10



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|6. |  | Geographic Information
|-- |  | ----------------------



Our foreign operations consist of four properties located in Canada and two properties located in Mexico. There were no intercompany sales between the
properties and us. The following table presents revenues for each of the geographical areas in which we own hotels.



|              |  | Quarter ended |     | Year-to-date 
|------------- |  | ------------- | --- | -------------
|              |  | June 20, 2003 |     | June 14, 2002
|              |  | (in millions) |     | (in millions)
|United States |  | $             | 850 |              
|International |  |               | 24  |              
|              |  |               |     |              
|Total revenue |  | $             | 874 |              
|              |  |               |     |              



|7. |  | Comprehensive Income (Loss)
|-- |  | ---------------------------



Our other comprehensive income (loss) consists of unrealized gains and losses on foreign currency translation adjustments, changes in the fair value of
the currency forward contracts and the receipt of cash from HMS Host Corporation, or HM Services, subsequent to the exercise of the options held by certain former and current employees of Marriott International, Inc., pursuant to our distribution
agreement with HM Services.



|                            |  | Quarter ended |     | Year-to-date 
|--------------------------- |  | ------------- | --- | -------------
|                            |  | June 20, 2003 |     |              
|                            |  | (in millions) |     | (in millions)
|Net income (loss)           |  | $             | (16 | )            
|Other comprehensive income  |  |               | 4   |              
|                            |  |               |     |              
|Comprehensive income (loss) |  | $             | (12 | )            
|                            |  |               |     |              



|8. |  | Acquisitions and Dispositions
|-- |  | -----------------------------



During June 2003, we acquired the remaining general partner interest and preferred equity interest held by outside partners in the 772-room JW Marriott,
Washington, D.C. for approximately $3 million. We also became the sole limited partner after the partnership foreclosed on a note receivable from the other limited partner. As a result, effective June 20, 2003, we consolidated the partnership, and
recorded property and equipment of $131 million and $95 million in mortgage debt.



On January 24, 2003, we sold the 299-room Ontario Airport Marriott for $26 million. Our carrying amount for this hotel on the date of sale was $24 million of fixed assets, net of depreciation, and there was no
mortgage debt. We recognized a minimal gain on the sale in the first quarter of 2003. During January 2002, we disposed of the St. Louis Marriott Pavilion through a transfer of the property to the mortgage lender. For year-to-date 2003 and 2002, our
revenues for these properties were $862,000, and $5,982,000, respectively, and our income before income taxes was $47,000, and $320,000, respectively.



|9. |  | Subsequent Events
|-- |  | -----------------



On July 18, 2003, we closed on the sale of the Norfolk Waterside Marriott, Oklahoma City Waterford Marriott and the Palm Beach Gardens Marriott for $71
million. For the second quarter of 2003 and 2002, our revenues for these properties were $5.8 million and $6.0 million, respectively,



11



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



and our income before taxes was approximately $103,000 and $250,000, respectively. Year-to-date revenues for these properties were $15.7 million and $15.9
million, respectively, and our income before taxes was $1.2 million for both year-to-date 2003 and 2002. We recorded a minimal loss on the transaction, which will be included in discontinued operations in the third quarter. The net proceeds are
expected to be used to repay debt.



On July 30, 2003, we called
$71 million of our 7 7/8% senior notes due in 2005 for early redemption on August 29. The terms of this debt
require that we pay holders a premium in exchange for the right to retire their debt in advance of its maturity date. We will also incur a loss on the early extinguishment of debt related to the acceleration of the related deferred financing fees.



|10. |  | Supplemental Guarantor and Non-Guarantor Subsidiary Information
|--- |  | ---------------------------------------------------------------



All of our subsidiaries guarantee our senior notes except those owning 85 of the full service hotels and HMH HPT RIBM LLC and HMH HPT CBM LLC, the
lessees of the Residence Inn and Courtyard properties, respectively. The separate financial statements of each guaranteeing subsidiary (each, a Guarantor Subsidiary) are not presented because we have concluded that such financial
statements are not material to investors. The guarantee of each Guarantor Subsidiary is full and unconditional and joint and several and each Guarantor Subsidiary is our wholly owned subsidiary.



The following condensed combined consolidating information sets forth the
financial position as of June 20, 2003 and December 31, 2002, results of operations for the quarter ended and year-to-date June 20, 2003 and June 14, 2002 and cash flows for year-to-date June 20, 2003 and June 14, 2002 of the parent, Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries:



12



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Supplemental Condensed Combined Consolidating Balance Sheets

(in millions)



June 20, 2003



|                                                              |  | Parent |       |   | Guarantor Subsidiaries |   | Non-Guarantor Subsidiaries |  | Eliminations |       |  | Consolidated
|------------------------------------------------------------- |  | ------ | ----- | - | ---------------------- | - | -------------------------- |  | ------------ | ----- |  | ------------
|Property and equipment, net                                   |  | $      | 1,048 |   |                        | $ | 2,112                      |  | $            | 3,903 |  | $           
|Notes and other receivables                                   |  |        | 725   |   |                        |   | 50                         |  |              | 109   |  |             
|Due from managers                                             |  |        | (5    | ) |                        |   | 10                         |  |              | 93    |  |             
|Investments in affiliate                                      |  |        | 2,555 |   |                        |   | 1,335                      |  |              | 93    |  |             
|Rent receivable                                               |  |        |      |   |                        |   | 17                         |  |              | 36    |  |             
|Other assets                                                  |  |        | 209   |   |                        |   | 179                        |  |              | 240   |  |             
|Restricted cash                                               |  |        | 30    |   |                        |   | 4                          |  |              | 96    |  |             
|Cash and cash equivalents                                     |  |        | 103   |   |                        |   | 1                          |  |              | 208   |  |             
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Total assets                                                  |  | $      | 4,665 |   |                        | $ | 3,708                      |  | $            | 4,778 |  | $           
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Debt                                                          |  | $      | 2,553 |   |                        | $ | 1,190                      |  | $            | 2,686 |  | $           
|Convertible debt obligation to Host Marriott                  |  |        | 492   |   |                        |   |                           |  |              |      |  |             
|Other liabilities                                             |  |        | 61    |   |                        |   | 146                        |  |              | 478   |  |             
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Total liabilities                                             |  |        | 3,106 |   |                        |   | 1,336                      |  |              | 3,164 |  |             
|Minority interests                                            |  |        |      |   |                        |   |                           |  |              | 91    |  |             
|Limited partner interest of third parties at redemption value |  |        | 239   |   |                        |   |                           |  |              |      |  |             
|Partners capital                                             |  |        | 1,320 |   |                        |   | 2,372                      |  |              | 1,523 |  |             
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Total liabilities and partners capital                       |  | $      | 4,665 |   |                        | $ | 3,708                      |  | $            | 4,778 |  | $           
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             



December 31, 2002



|                                                              |  | Parent |       |   | Guarantor Subsidiaries |   | Non-Guarantor Subsidiaries |  | Eliminations |       |  | Consolidated
|------------------------------------------------------------- |  | ------ | ----- | - | ---------------------- | - | -------------------------- |  | ------------ | ----- |  | ------------
|Property and equipment, net                                   |  | $      | 1,070 |   |                        | $ | 2,150                      |  | $            | 3,811 |  | $           
|Notes and other receivables                                   |  |        | 729   |   |                        |   | 51                         |  |              | 107   |  |             
|Due from managers                                             |  |        | (5    | ) |                        |   | 9                          |  |              | 78    |  |             
|Investments in affiliate                                      |  |        | 2,654 |   |                        |   | 1,473                      |  |              | 101   |  |             
|Rent receivable                                               |  |        |      |   |                        |   | 21                         |  |              | 36    |  |             
|Other assets                                                  |  |        | 211   |   |                        |   | 177                        |  |              | 211   |  |             
|Restricted cash                                               |  |        | 31    |   |                        |   | 4                          |  |              | 98    |  |             
|Cash and cash equivalents                                     |  |        | 159   |   |                        |   | 1                          |  |              | 201   |  |             
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Total assets                                                  |  | $      | 4,849 |   |                        | $ | 3,886                      |  | $            | 4,643 |  | $           
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Debt                                                          |  | $      | 2,552 |   |                        | $ | 1,212                      |  | $            | 2,622 |  | $           
|Convertible debt obligation to Host Marriott                  |  |        | 492   |   |                        |   |                           |  |              |      |  |             
|Other liabilities                                             |  |        | 84    |   |                        |   | 106                        |  |              | 404   |  |             
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Total liabilities                                             |  |        | 3,128 |   |                        |   | 1,318                      |  |              | 3,026 |  |             
|Minority interests                                            |  |        |      |   |                        |   |                           |  |              | 92    |  |             
|Limited partner interest of third parties at redemption value |  |        | 245   |   |                        |   |                           |  |              |      |  |             
|Partners capital                                             |  |        | 1,476 |   |                        |   | 2,568                      |  |              | 1,525 |  |             
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             
|Total liabilities and partners capital                       |  | $      | 4,849 |   |                        | $ | 3,886                      |  | $            | 4,643 |  | $           
|                                                              |  |        |       |   |                        |   |                            |  |              |       |  |             



13



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Supplemental Condensed Combined Statements of Operations

(in millions)



Quarter ended June 20, 2003



|                                          |  | Parent |     |   | Guarantor Subsidiaries |   |     | Non-Guarantor Subsidiaries |  |   | Eliminations |   |  | Consolidated |    
|----------------------------------------- |  | ------ | --- | - | ---------------------- | - | --- | -------------------------- |  | - | ------------ | - |  | ------------ | ---
|REVENUES                                  |  | $      | 34  |   |                        | $ | 51  |                            |  | $ | 857          |   |  | $            | (68
|Depreciation and amortization             |  |        | (15 | ) |                        |   | (26 | )                          |  |   | (45          | ) |  |              |   
|Hotel operating expenses                  |  |        |    |   |                        |   |    |                            |  |   | (592         | ) |  |              |   
|Other property-level expenses             |  |        | (15 | ) |                        |   | (18 | )                          |  |   | (45          | ) |  |              |   
|Rental expense                            |  |        |    |   |                        |   |    |                            |  |   | (119         | ) |  |              | 119
|Minority interest                         |  |        |    |   |                        |   |    |                            |  |   | (1           | ) |  |              |   
|Interest expense                          |  |        | (48 | ) |                        |   | (24 | )                          |  |   | (55          | ) |  |              | 12 
|Interest income                           |  |        | 9   |   |                        |   | 3   |                            |  |   | 2            |   |  |              | (12
|Corporate and other expenses              |  |        | 1   |   |                        |   | (5  | )                          |  |   | (9           | ) |  |              |   
|Net gains on property transactions        |  |        |    |   |                        |   | 1   |                            |  |   | 1            |   |  |              |   
|Equity in earnings (losses) of affiliates |  |        | (33 | ) |                        |   | (15 | )                          |  |   | (5           | ) |  |              | 50 
|                                          |  |        |     |   |                        |   |     |                            |  |   |              |   |  |              |    
|Income (loss) before income taxes         |  |        | (67 | ) |                        |   | (33 | )                          |  |   | (11          | ) |  |              | 101
|Provision for income taxes                |  |        |    |   |                        |   |    |                            |  |   | (6           | ) |  |              |   
|                                          |  |        |     |   |                        |   |     |                            |  |   |              |   |  |              |    
|NET INCOME (LOSS)                         |  | $      | (67 | ) |                        | $ | (33 | )                          |  | $ | (17          | ) |  | $            | 101
|                                          |  |        |     |   |                        |   |     |                            |  |   |              |   |  |              |    



Quarter ended June
14, 2002



|                                          |  | Parent |     |   | Guarantor Subsidiaries |   |     | Non-Guarantor Subsidiaries |  |   | Eliminations |   |  | Consolidated |    
|----------------------------------------- |  | ------ | --- | - | ---------------------- | - | --- | -------------------------- |  | - | ------------ | - |  | ------------ | ---
|REVENUES                                  |  | $      | 38  |   |                        | $ | 48  |                            |  | $ | 900          |   |  | $            | (69
|Depreciation and amortization             |  |        | (16 | ) |                        |   | (23 | )                          |  |   | (45          | ) |  |              |   
|Hotel operating expenses                  |  |        |    |   |                        |   |    |                            |  |   | (602         | ) |  |              |   
|Other property-level expenses             |  |        | (17 | ) |                        |   | (13 | )                          |  |   | (41          | ) |  |              |   
|Rental expense                            |  |        |    |   |                        |   |    |                            |  |   | (147         | ) |  |              | 147
|Minority interest                         |  |        |    |   |                        |   |    |                            |  |   | (4           | ) |  |              |   
|Interest expense                          |  |        | (49 | ) |                        |   | (25 | )                          |  |   | (52          | ) |  |              | 12 
|Interest income                           |  |        | 11  |   |                        |   | 2   |                            |  |   | 3            |   |  |              | (12
|Corporate and other expenses              |  |        | (5  | ) |                        |   | (3  | )                          |  |   | (4           | ) |  |              |   
|Net gains on property transactions        |  |        |    |   |                        |   |    |                            |  |   | 1            |   |  |              |   
|Equity in earnings (losses) of affiliates |  |        | (14 | ) |                        |   | (6  | )                          |  |   |             |   |  |              | 21 
|                                          |  |        |     |   |                        |   |     |                            |  |   |              |   |  |              |    
|Income (loss) before income taxes         |  |        | (52 | ) |                        |   | (20 | )                          |  |   | 9            |   |  |              | 99 
|Provision for income taxes                |  |        |    |   |                        |   |    |                            |  |   | (11          | ) |  |              |   
|                                          |  |        |     |   |                        |   |     |                            |  |   |              |   |  |              |    
|INCOME (LOSS) FROM CONTINUING OPERATIONS  |  |        | (52 | ) |                        |   | (20 | )                          |  |   | (2           | ) |  |              | 99 
|Income from discontinued operations       |  |        |    |   |                        |   | 1   |                            |  |   |             |   |  |              |   
|                                          |  |        |     |   |                        |   |     |                            |  |   |              |   |  |              |    
|NET INCOME (LOSS)                         |  | $      | (52 | ) |                        | $ | (19 | )                          |  | $ | (2           | ) |  | $            | 99 
|                                          |  |        |     |   |                        |   |     |                            |  |   |              |   |  |              |    



14



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##### Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Supplemental Condensed Combined Statements of Operations

(in millions)



Year-to-date June 20, 2003



|                                          |  | Parent |      |   | Guarantor Subsidiaries |   |     | Non-Guarantor Subsidiaries |  |   | Eliminations |   |  | Consolidated |     
|----------------------------------------- |  | ------ | ---- | - | ---------------------- | - | --- | -------------------------- |  | - | ------------ | - |  | ------------ | ----
|REVENUES                                  |  | $      | 72   |   |                        | $ | 96  |                            |  | $ | 1,643        |   |  | $            | (132
|Depreciation and amortization             |  |        | (29  | ) |                        |   | (53 | )                          |  |   | (92          | ) |  |              |    
|Hotel operating expenses                  |  |        |     |   |                        |   |    |                            |  |   | (1,143       | ) |  |              |    
|Other property-level expenses             |  |        | (30  | ) |                        |   | (34 | )                          |  |   | (85          | ) |  |              |    
|Rental expense                            |  |        |     |   |                        |   |    |                            |  |   | (237         | ) |  |              | 237 
|Minority interest                         |  |        |     |   |                        |   |    |                            |  |   | (3           | ) |  |              |    
|Interest expense                          |  |        | (100 | ) |                        |   | (50 | )                          |  |   | (109         | ) |  |              | 25  
|Interest income                           |  |        | 19   |   |                        |   | 7   |                            |  |   | 4            |   |  |              | (25 
|Corporate and other expenses              |  |        | (3   | ) |                        |   | (7  | )                          |  |   | (17          | ) |  |              |    
|Net gains on property transactions        |  |        |     |   |                        |   | 1   |                            |  |   | 2            |   |  |              |    
|Equity in earnings (losses) of affiliates |  |        | (88  | ) |                        |   | (35 | )                          |  |   | (10          | ) |  |              | 124 
|                                          |  |        |      |   |                        |   |     |                            |  |   |              |   |  |              |     
|Income (loss) before income taxes         |  |        | (159 | ) |                        |   | (75 | )                          |  |   | (47          | ) |  |              | 229 
|Provision for income taxes                |  |        |     |   |                        |   |    |                            |  |   | (2           | ) |  |              |    
|                                          |  |        |      |   |                        |   |     |                            |  |   |              |   |  |              |     
|NET INCOME (LOSS)                         |  | $      | (159 | ) |                        | $ | (75 | )                          |  | $ | (49          | ) |  | $            | 229 
|                                          |  |        |      |   |                        |   |     |                            |  |   |              |   |  |              |     



Year-to-date June
14, 2002



|                                          |  | Parent |      |   | Guarantor Subsidiaries |   |     | Non-Guarantor Subsidiaries |  |   | Eliminations |   |  | Consolidated |     
|----------------------------------------- |  | ------ | ---- | - | ---------------------- | - | --- | -------------------------- |  | - | ------------ | - |  | ------------ | ----
|REVENUES                                  |  | $      | 68   |   |                        | $ | 87  |                            |  | $ | 1,671        |   |  | $            | (122
|Depreciation and amortization             |  |        | (30  | ) |                        |   | (47 | )                          |  |   | (90          | ) |  |              |    
|Hotel operating expenses                  |  |        |     |   |                        |   |    |                            |  |   | (1,118       | ) |  |              |    
|Other property-level expenses             |  |        | (29  | ) |                        |   | (26 | )                          |  |   | (78          | ) |  |              |    
|Rental expense                            |  |        |     |   |                        |   |    |                            |  |   | (270         | ) |  |              | 270 
|Minority interest                         |  |        |     |   |                        |   |    |                            |  |   | (9           | ) |  |              |    
|Interest expense                          |  |        | (98  | ) |                        |   | (48 | )                          |  |   | (103         | ) |  |              | 23  
|Interest income                           |  |        | 21   |   |                        |   | 3   |                            |  |   | 6            |   |  |              | (23 
|Corporate and other expenses              |  |        | (8   | ) |                        |   | (7  | )                          |  |   | (14          | ) |  |              |    
|Net gains on property transactions        |  |        |     |   |                        |   |    |                            |  |   | 2            |   |  |              |    
|Equity in earnings (losses) of affiliates |  |        | (45  | ) |                        |   | 2   |                            |  |   | (3           | ) |  |              | 43  
|                                          |  |        |      |   |                        |   |     |                            |  |   |              |   |  |              |     
|Income (loss) before income taxes         |  |        | (121 | ) |                        |   | (36 | )                          |  |   | (6           | ) |  |              | 191 
|Provision for income taxes                |  |        |     |   |                        |   |    |                            |  |   | (15          | ) |  |              |    
|                                          |  |        |      |   |                        |   |     |                            |  |   |              |   |  |              |     
|INCOME (LOSS) FROM CONTINUING OPERATIONS  |  |        | (121 | ) |                        |   | (36 | )                          |  |   | (21          | ) |  |              | 191 
|Income from discontinued operations       |  |        |     |   |                        |   | 1   |                            |  |   | 13           |   |  |              |    
|                                          |  |        |      |   |                        |   |     |                            |  |   |              |   |  |              |     
|NET INCOME (LOSS)                         |  | $      | (121 | ) |                        | $ | (35 | )                          |  | $ | (8           | ) |  | $            | 191 
|                                          |  |        |      |   |                        |   |     |                            |  |   |              |   |  |              |     



15



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##### Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Supplemental Condensed Combined Statements of Cash Flows

(in millions)



Year-to-date June 20, 2003



|                                                 |  | Parent |      |   | Guarantor Subsidiaries |   |      | Non-Guarantor Subsidiaries |  |   | Consolidated |  
|------------------------------------------------ |  | ------ | ---- | - | ---------------------- | - | ---- | -------------------------- |  | - | ------------ | -
|OPERATING ACTIVITIES                             |  |        |      |   |                        |   |      |                            |  |   |              |  
|Cash provided by (used in) operations            |  | $      | (49  | ) |                        | $ | 49   |                            |  | $ | 99           |  
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|INVESTING ACTIVITIES                             |  |        |      |   |                        |   |      |                            |  |   |              |  
|Proceeds from sale of assets, net                |  |        |     |   |                        |   | 25   |                            |  |   |             |  
|Acquisitions                                     |  |        |     |   |                        |   |     |                            |  |   | (3           | )
|Capital expenditures                             |  |        | (13  | ) |                        |   | (36  | )                          |  |   | (45          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|Cash used in investing activities                |  |        | (13  | ) |                        |   | (11  | )                          |  |   | (48          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|FINANCING ACTIVITIES                             |  |        |      |   |                        |   |      |                            |  |   |              |  
|Financing costs                                  |  |        | (1   | ) |                        |   |     |                            |  |   |             |  
|Scheduled principal repayments                   |  |        |     |   |                        |   | (3   | )                          |  |   | (21          | )
|Prepayment of debt                               |  |        | (8   | ) |                        |   | (17  | )                          |  |   | (7           | )
|Distributions on preferred OP units              |  |        | (18  | ) |                        |   |     |                            |  |   |             |  
|Distributions to minority interests              |  |        |     |   |                        |   |     |                            |  |   | (4           | )
|Change in restricted cash                        |  |        | 3    |   |                        |   |     |                            |  |   |             |  
|Transfers to/from Parent                         |  |        | 30   |   |                        |   | (18  | )                          |  |   | (12          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|Cash provided by (used in) financing activities  |  |        | 6    |   |                        |   | (38  | )                          |  |   | (44          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  | $      | (56  | ) |                        | $ |     |                            |  | $ | 7            |  
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|                                                
|Year-to-date June 14, 2002                      
|                                                 |  |        |      |  
|                                                 |  | Parent |      |   | Guarantor Subsidiaries |   |      | Non-Guarantor Subsidiaries |  |   | Consolidated |  
|OPERATING ACTIVITIES                             |  |        |      |   |                        |   |      |                            |  |   |              |  
|Cash provided by (used in) operations            |  | $      | (43  | ) |                        | $ | 58   |                            |  | $ | 169          |  
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|INVESTING ACTIVITIES                             |  |        |      |   |                        |   |      |                            |  |   |              |  
|Scheduled principal repayments                   |  |        |     |   |                        |   | (117 | )                          |  |   |             |  
|Capital expenditures and other investments       |  |        | (18  | ) |                        |   | (29  | )                          |  |   | (49          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|Cash used in investing activities                |  |        | (18  | ) |                        |   | (146 | )                          |  |   | (49          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|FINANCING ACTIVITIES                             |  |        |      |   |                        |   |      |                            |  |   |              |  
|Financing costs                                  |  |        | (7   | ) |                        |   |     |                            |  |   |             |  
|Scheduled principal repayments                   |  |        |     |   |                        |   | (2   | )                          |  |   | (20          | )
|Debt prepayments                                 |  |        | (14  | ) |                        |   |     |                            |  |   |             |  
|Distributions on preferred OP units              |  |        | (18  | ) |                        |   |     |                            |  |   |             |  
|Distributions to minority interests              |  |        |     |   |                        |   |     |                            |  |   | (7           | )
|Purchase of interest rate cap                    |  |        | (3   | ) |                        |   |     |                            |  |   |             |  
|Change in restricted cash                        |  |        | (9   | ) |                        |   |     |                            |  |   |             |  
|Transfers to/from Parent                         |  |        | (32  | ) |                        |   | 90   |                            |  |   | (58          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|Cash provided by (used in) financing activities  |  |        | (83  | ) |                        |   | 88   |                            |  |   | (85          | )
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  | $      | (144 | ) |                        | $ |     |                            |  | $ | 35           |  
|                                                 |  |        |      |   |                        |   |      |                            |  |   |              |  





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|Item 2. |  | Managements Discussion and Analysis of Results of Operations and Financial Condition
|------- |  | -------------------------------------------------------------------------------------



Overview



The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial
statements included elsewhere in this report. This discussion includes forward-looking statements about our business and operations. We identify forward-looking statements in this report by using words or phrases such as believe,
expect, may be, intend, predict, project, plan, objective, will be, should, estimate, or anticipate, or the negative
thereof or other variations thereof or comparable terminology. All forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause our actual transactions,
results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include those risk factors
included in our 2002 annual report on Form 10-K dated March 31, 2003 and in other filings with the Securities and Exchange Commission, or the SEC. Although we believe the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly
release any updates or revisions to any forward-looking statement contained in this Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.



As of June 20, 2003, Host Marriott, L.P., a Delaware limited partnership,
operating through an umbrella partnership structure with Host Marriott as sole general partner, is the owner of 123 hotel properties, which operate primarily in the luxury and upper-upscale hotel segments. Host Marriott operates as a self-managed
and self-administered REIT with its operations conducted solely through us and our subsidiaries. As of June 20, 2003, Host Marriott owned approximately 90% of our outstanding OP Units. As of July 15, 2003, the National Association of Real Estate
Investment Trusts ranks Host Marriott as the largest lodging REIT.



Our hotels
are operated under brand names that are among the most respected and widely recognized in the lodging industryincluding Marriott, Ritz-Carlton, Four Seasons, Hilton and Hyatt. The majority of our properties are located in central business
districts of major cities, near airports and in resort/convention locations. Our portfolio depends on revenue from large and small group business, business travel, as well as leisure and discount travelers. The target profile of our portfolio
includes upper-upscale and luxury properties in hard to duplicate locations that may allow us to maintain room rate and occupancy premiums over our competitors. We seek to maximize the value of our portfolio through aggressive asset management, by
directing the managers of our hotels to reduce operating costs and increase revenues through effective marketing efforts and by completing selective capital improvements.



Our results of operations primarily represent hotel-level sales, which are room, food and beverage and other ancillary income such as
telephone, parking and other guest services. Operating expenses consist of the costs to provide these services as well as depreciation, management fees, real and personal property taxes, utilities, ground rent, equipment rent, property insurance and
other costs.



A significant component of the cost of owning and operating
hotels is fixed in nature and does not necessarily decrease when circumstances such as market factors cause a reduction in property revenues. As a result, changes in revenues (represented by RevPAR as defined below) can result in a greater
percentage change in our earnings and cash flows. In response to the decline in the operations of our hotels, we have been working with our managers to achieve certain cost reductions at the properties. We believe that these efforts have slowed the
decline in the operating margins of our hotels and created



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meaningful efficiencies that we believe will be long-term. In 2003, our operating margin has continued to decrease from
comparable periods in 2002 due to declining revenues as a result of the effect on travel of such factors as the war in Iraq, terrorist threat levels, travel reduction related to severe acute respiratory syndrome (SARS), the weak economy and because
certain of our costs, such as insurance, utilities, wages and benefits, have increased at a rate greater than inflation.



Our customers can be broadly grouped into three segments: transient, group and contract. The transient segment, which includes the individual corporate and leisure
traveler, is generally accommodated at a premium rate when compared to our group and contract business. The transient segment of our business has been the most severely impacted by the current operating environment. As a result, our managers have
been working to increase our group and contract business, which is generally accommodated at discounted rates, in order to maintain occupancy.



Comparable Hotel-Level Results, Reporting Periods and Operating Statistics



Comparable Hotel-level Results



We define our comparable hotels as full-service properties (1) that are owned or leased by us and the operations of which we include in our consolidated results, (2) for
which we reported operating results throughout the reporting periods being compared, and (3) has not sustained substantial property damage or undergone large-scale capital projects. Comparable hotel-level results do not present operating results for
our non-hotel properties or the results of our leased limited service hotels.



As of June 20, 2003, we consider 119 of our portfolio of 123 full-service hotels to be comparable hotels for the periods presented. The hotels whose operating results are excluded from comparable hotel-level results for the periods
presented are the New York Financial Center Marriott (substantially damaged in the September 11, 2001 terrorist attacks and re-opened in January 2002), the Boston Marriott Copley Place (acquired in June 2002), The Ritz-Carlton, Naples Golf Resort
(opened in January 2002) and the JW Marriott, Washington, D.C. (consolidated in the second quarter of 2003). The comparable hotel-level results include the results of the Norfolk Waterside Marriott, the Oklahoma City Waterford Marriott and the Palm
Beach Gardens Marriott, which were sold on July 18, 2003 and will be considered non-comparable when we present our third quarter hotel operating results.



We present below certain operating results for the periods presented in this quarterly report for our comparable hotels, including hotel-level operating profit. We
believe that the comparable hotel-level results help us and our investors evaluate the ongoing operating performance of our hotels and facilitate comparisons with other REITs and hotel owners. Management uses these measures to establish a baseline
to assess property-level results, including when we acquire or sell assets. While these measures are based on GAAP, costs such as depreciation and amortization, income taxes, interest expense, corporate expenses, and other corporate items have been
incurred by us and are not reflected in this presentation. In addition, we adjust the revenues and expenses at these properties so that the results reflect comparable reporting periods as discussed below. We believe that excluding these items
provides the most accurate measure of the performance of our comparable hotels. As a result, the comparable hotel-level results do not represent our total revenues, expenses or operating profit and these hotel-level results should not be used to
evaluate the performance of Host Marriott, L.P., as a whole. However, our consolidated statement of operations includes such amounts, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP
measures.



Reporting Periods



We receive the results of operations of our hotels from our managers based on their
reporting cycles, which are either monthly or every four weeks. However, our year end conforms to our general partners, Host Marriott, who as a REIT is required by tax laws to report results on a calendar year ended December 31. However, our
quarterly results reflect the reporting cycle that is used by Marriott International, Inc.,



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the manager of the majority of our properties, whose year ends on the Friday closest to December 31 and which reflect
twelve weeks of operations for the first three quarters of the year and sixteen or seventeen weeks for the fourth quarter of the year. Our results are also adjusted to reflect a fiscal calendar year that has a January 1 starting date and a December
31 ending date. In any given quarter, quarter-over-quarter results could have different starting and/or ending dates. For example, the second quarter of 2003 ended on June 20 and the second quarter of 2002 ended on June 14, though both quarters
reflect twelve weeks of operations. In addition, because our starting and ending dates may not match Marriott Internationals starting and ending dates, our first and fourth quarters of each year and year-to-date periods may not have the same
number of days as was reflected in a prior year. For example, our consolidated financial statements as of June 20, 2003 reflect 171 days, while our year-to-date results as of June 14, 2002 reflect 165 days.



Approximately one-fourth of our full-service hotels are operated by managers other than
Marriott International and report revenues on a monthly basis versus our four week period. The accompanying consolidated financial statements reflect three months of operations for the second quarter (March, April and May), but five months of
operations year-to-date (January through May). Results in the third quarter will reflect three months of operations and fourth quarter results will reflect four months of operations for these hotels.



Operating Statistics



Our reported hotel operating statistics (i.e., RevPAR, average daily rate and average occupancy) for the quarters ended June 20, 2003 and
June 14, 2002 reflect results for the twelve week periods from March 29, 2003 to June 20, 2003 and March 23, 2002 to June 14, 2002, respectively, for our Marriott-managed hotels and results for March, April and May for operations of all other hotels
which report results on a monthly basis.



Our reported hotel operating
statistics for year-to-date June 20, 2003 and year-to-date June 14, 2002 reflect results for the twenty four week periods (or 168 days) from January 4, 2003 to June 20, 2003 and December 29, 2001 to June 14, 2002, respectively, for our
Marriott-managed hotels and results for January through May for operations of all other hotels which report results on a monthly basis.



Recent Events



Effective June 26, 2003, we re-branded our 500-room Swissôtel-Boston as a Hyatt Regency. We believe that the broader brand name recognition and management resources of Hyatt will help improve operations and
drive increased profitability in the long term. This re-branding is consistent with our strategy to engage the leading hotel management companies to operate our properties.



During June 2003, we acquired the remaining general partner interest and the preferred equity interest held by outside partners in the
772-room JW Marriott, Washington, D.C. for approximately $3 million. We also became the sole limited partner after the partnership foreclosed on a note receivable from the other limited partner. As a result, effective June 20, 2003, we consolidated
the partnership. This resulted in an increase to property and equipment of $131 million and an increase in debt of $95 million for the mortgage on the property.



On July 18, 2003, we closed on the sale of the Norfolk Waterside Marriott, Oklahoma City Waterford Marriott and the Palm Beach Gardens Marriott for $71 million. We
recorded a minimal loss on the transaction, which will be included in discontinued operations in the third quarter.



On July 30, 2003, we called $71 million of our 77/8% senior notes due in 2005 for early redemption on August 29. The terms of this debt require that we pay holders a premium in exchange for the right to retire this



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debt in advance of its maturity date. We will also incur a loss on the early extinguishment of debt related to the
acceleration of the related deferred financing fees.



Lodging Performance



The current operating environment for our hotels remains challenging as
demand continues to be soft and booking cycles short. We use a measure common in the industry to evaluate the operations of a hotelroom revenue per available room, or RevPAR. RevPAR is defined as the product of the average daily room rate
charged and the average daily occupancy achieved. RevPAR does not include food and beverage or other ancillary revenues such as parking, telephone or other guest services generated by the property. Additionally, we also present certain operating
results and statistics on a comparable hotel basis.



The operating environment
during the second quarter of 2003 was difficult due to reduced airline travel, weak economic conditions, concern over terrorist threat levels and the lingering effects of SARS, primarily at our Toronto, Canada properties. In addition, the effect of
the war in Iraq on business and leisure travel resulted in a significant drop in occupancy during March and April of 2003. This effect is particularly significant for the 25% of our hotels which report on a different quarterly accounting calendar
than us, as these hotels second quarter results include operations for March through May. See Comparable Hotel-Level Results, Reporting Periods and Operating Statistics for further detail. During the most recent quarter, the
lodging industry and our company experienced declines in RevPAR and operating profits because of reduced demand and rising operating expenses, including increased insurance costs. We expect these conditions to persist throughout 2003. We are
expecting RevPAR for our comparable hotels to decline by 2.5% to 4.0% for the third quarter and decline by 3.0% to 5.0% for the full year 2003. Although we and our operators continue to focus on reducing costs and maintaining margins, it is becoming
more difficult to offset revenue declines with decreases in expenses. Certain important components of our operating costs, such as wages, benefits, utilities and insurance, are expected to increase at a rate greater than inflation in 2003. Thus,
operating profits and margins for each quarter in 2003 were, or are expected to be, below 2002 levels.



For the second quarter of 2003, RevPAR for our comparable hotels decreased approximately 8.2% when compared to the same period in 2002. The decline is the result of a decrease in average occupancy of 3.6 percentage
points and the decline in average room rates of 3.5%. The comparable hotels in all of our key markets experienced declines in RevPAR due to the difficult operating environment, except Florida, which experienced a 0.2% RevPAR increase driven by
strong performance in our Tampa market, which increased by 20%. Our North Central region experienced a RevPAR decline of only 2.1%, as our Downtown Chicago properties benefited from positive RevPAR growth and a strong convention market. Our
Washington, D.C. region also continued to outperform the portfolio, with a RevPAR decline of just 2.5%, as several of our Northern Virginia hotels enjoyed a strong quarter.



Our Canadian hotels were significantly affected in the quarter as a result of the SARS epidemic, particularly in Toronto where RevPAR
declined by 31%. The Atlanta market also had a difficult quarter with RevPAR declines of 16.4% as a result of increased convention competition from markets such as Orlando or New Orleans for large group functions. Operations in San Francisco
continued to be weak, with RevPAR falling 13%, although these results were generated by softer demand in the suburbs and airport markets as opposed to the downtown hotels. Our San Diego market, which continued to benefit from a solid convention
calendar, experienced a RevPAR decline of just 2% for the quarter. RevPAR for our New York hotels declined by 11%, as soft performance in the suburban markets was partially offset by better performance at the Marquis, which was down just 8%. Our
Philadelphia market, which outperformed virtually all of last year, suffered from tough comparisons and a slow convention schedule, leading to a RevPAR decline of 10%.



Each of our market types (downtown, resort, airport and suburban), experienced declines in RevPAR for the second quarter of 2003 when
compared to the second quarter of 2002. Our resort hotels had the best



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results for the quarter, with RevPAR declining just 5.8%. Within this market type, The Ritz-Carlton, Naples enjoyed a
RevPAR increase of 2.7%. Our suburban hotels and urban hotels experienced RevPAR declines of 8.0% and 8.6% respectively. Our airport hotels, which were most affected by the decline in travel because of concerns surrounding the Iraq war, fell by
10.1%.



The following table presents certain operating results and statistics
for the periods presented in this report for our comparable hotels that we believe are useful to investors, including comparable hotel-level operating profit. See Comparable Hotel-Level Results, Reporting Periods and Operating Statistics
for further detail.



Comparable Hotel-Level Results (a)

(in millions, except hotel statistics)



|                                                    |  | Quarter ended |        |    | Year-to-date  |  
|--------------------------------------------------- |  | ------------- | ------ | -- | ------------- | -
|                                                    |  | June 20, 2003 |        |    | June 14, 2002 |  
|Number of hotels                                    |  |               | 119    |    |               |  
|Number of rooms                                     |  |               | 56,942 |    |               |  
|Percent change in Comparable RevPAR                 |  |               | (8.2   | )% |               |  
|                                                    |  |               |        |   
|Comparable hotel sales                              |  |               |        |    |               |  
|Room                                                |  | $             | 485    |    |               | $
|Food and beverage                                   |  |               | 270    |    |               |  
|Other                                               |  |               | 57     |    |               |  
|                                                    |  |               |        |    |               |  
|Comparable hotel sales (b)                          |  |               | 812    |    |               |  
|                                                    |  |               |        |    |               |  
|Comparable hotel expenses                           |  |               |        |    |               |  
|Room                                                |  |               | 117    |    |               |  
|Food and beverage                                   |  |               | 193    |    |               |  
|Other                                               |  |               | 34     |    |               |  
|Management fees, ground rent and other costs        |  |               | 273    |    |               |  
|                                                    |  |               |        |    |               |  
|Comparable hotel expenses (c)                       |  |               | 617    |    |               |  
|                                                    |  |               |        |    |               |  
|                                                    |  |               |        |   
|Comparable Hotel-Level Operating Profit             |  |               | 195    |    |               |  
|                                                    |  |               |        |   
|Non-comparable hotel results, net (d)               |  |               | 8      |    |               |  
|Office building and limited service properties, net |  |               | 1      |    |               |  
|Other income                                        |  |               |       |    |               |  
|Depreciation and amortization                       |  |               | (86    | )  |               |  
|Corporate and other expenses                        |  |               | (13    | )  |               |  
|                                                    |  |               |        |    |               |  
|                                                    |  |               |        |   
|Operating Profit for Host Marriott, L.P.            |  | $             | 105    |    |               | $
|                                                    |  |               |        |    |               |  

---

|(a) |  | For further detail, see Comparable Hotel-Level Results, Reporting Periods and Operating Statistics.
|--- |  | -----------------------------------------------------------------------------------------------------



|(b) |  | The reconciliation of total revenues per the consolidated statements of operations to the comparable hotel sales is as follows (in millions):
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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|                                                                                                                        |  | Quarter ended |     |   | Year-to-date |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | --- | - | ------------ | -
|                                                                                                                        |  | June 20, 2003 |     |   | June 14,2002 |  
|Revenues per the consolidated statement of operations                                                                   |  | $             | 874 |   |              | $
|Non-comparable hotel sales                                                                                              |  |               | (55 | ) |              |  
|Hotel sales for the property for which we receive rental income, net                                                    |  |               | 10  |   |              |  
|Rental income for office buildings and limited service hotels                                                           |  |               | (17 | ) |              |  
|Other income                                                                                                            |  |               |    |   |              |  
|Adjustment for hotel sales for comparable hotels to reflect twenty-four weeks of operations for Marriott-managed
hotels |  |               |    |   |              |  
|                                                                                                                        |  |               |     |   |              |  
|Comparable hotel sales                                                                                                  |  | $             | 812 |   |              | $
|                                                                                                                        |  |               |     |   |              |  



|(c) |  | The reconciliation of operating costs per the consolidated statements of operations to the comparable hotel expenses is as follows (in millions):
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                                           |  | Quarter ended |     |   | Year-to-date |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --- | - | ------------ | -
|                                                                                                                           |  | June 20,2003  |     |   | June 14,2002 |  
|Operating costs and expenses per the consolidated statements of operations                                                 |  | $             | 769 |   |              | $
|Non-comparable hotel expenses                                                                                              |  |               | (48 | ) |              |  
|Hotel expenses for the property for which we receive rental income                                                         |  |               | 11  |   |              |  
|Rent expense for office buildings and limited service hotels                                                               |  |               | (16 | ) |              |  
|Adjustment for hotel expenses for comparable hotels to reflect twenty-four weeks of operations for Marriott-managed
hotels |  |               |    |   |              |  
|Depreciation and amortization                                                                                              |  |               | (86 | ) |              |  
|Corporate and other expenses                                                                                               |  |               | (13 | ) |              |  
|                                                                                                                           |  |               |     |   |              |  
|Comparable hotel expenses                                                                                                  |  | $             | 617 |   |              | $
|                                                                                                                           |  |               |     |   |              |  



|(d) |  | Non-comparable hotel results, net includes the following items: (i) the results of operations of our non-comparable hotels and (ii) the difference between the comparable hotel-level
operating profit which reflects 168 days of operations year-to-date and the operating results included in the consolidated statement of operations which reflects 171 and 165 days for year-to-date 2003 and 2002, respectively. For further detail see
Comparable Hotel-Level Results, Reporting Periods and Operating Statistics.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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The following tables set forth performance information for our full-service hotels by geographic region as of June 20,
2003 and June 14, 2002 for our comparable hotels, as well as all full-service hotels:



Comparable Hotels by Region(1)



|              |  | As of June 20, 2003 |  | Quarter ended June 20, 2003 |  | Quarter ended June 14, 2002 |        |                               |     
|------------- |  | ------------------- |  | --------------------------- |  | --------------------------- | ------ | ----------------------------- | ----
|              |  | No. of Properties   |  | No. of Rooms                |  | Average Daily Rate          |        | Average Occupancy Percentages |     
|Atlanta       |  | 15                  |  | 6,563                       |  | $                           | 133.67 |                               | 63.8
|DC Metro      |  | 13                  |  | 4,998                       |  |                             | 141.80 |                               | 76.4
|Florida       |  | 13                  |  | 7,582                       |  |                             | 166.59 |                               | 72.1
|International |  | 6                   |  | 2,552                       |  |                             | 110.16 |                               | 61.4
|Mid-Atlantic  |  | 9                   |  | 6,222                       |  |                             | 179.66 |                               | 75.5
|Mountain      |  | 8                   |  | 3,313                       |  |                             | 103.78 |                               | 64.3
|New England   |  | 6                   |  | 2,277                       |  |                             | 125.86 |                               | 63.1
|North Central |  | 15                  |  | 5,395                       |  |                             | 123.23 |                               | 67.4
|Pacific       |  | 22                  |  | 11,526                      |  |                             | 149.32 |                               | 66.5
|South Central |  | 12                  |  | 6,514                       |  |                             | 128.39 |                               | 76.7
|              |  |                     |  |                             |  |                             |        |                               |     
|All Regions   |  | 119                 |  | 56,942                      |  |                             | 142.98 |                               | 69.5
|              |  |                     |  |                             |  |                             |        |                               |     



Comparable Hotels by
Region(1)



|              |  | As of June 20, 2003 |  | Year-to-date June 20, 2003 |  | Year-to-date June 14, 2002 |        |                               |     
|------------- |  | ------------------- |  | -------------------------- |  | -------------------------- | ------ | ----------------------------- | ----
|              |  | No. of Properties   |  | No. of Rooms               |  | Average Daily Rate         |        | Average Occupancy Percentages |     
|Atlanta       |  | 15                  |  | 6,563                      |  | $                          | 136.26 |                               | 66.0
|DC Metro      |  | 13                  |  | 4,998                      |  |                            | 139.90 |                               | 71.0
|Florida       |  | 13                  |  | 7,582                      |  |                            | 170.83 |                               | 74.5
|International |  | 6                   |  | 2,552                      |  |                            | 107.85 |                               | 64.1
|Mid-Atlantic  |  | 9                   |  | 6,222                      |  |                            | 173.89 |                               | 72.6
|Mountain      |  | 8                   |  | 3,313                      |  |                            | 109.42 |                               | 64.7
|New England   |  | 6                   |  | 2,277                      |  |                            | 121.10 |                               | 59.4
|North Central |  | 15                  |  | 5,395                      |  |                            | 118.51 |                               | 63.9
|Pacific       |  | 22                  |  | 11,526                     |  |                            | 153.04 |                               | 66.5
|South Central |  | 12                  |  | 6,514                      |  |                            | 130.89 |                               | 77.2
|              |  |                     |  |                            |  |                            |        |                               |     
|All Regions   |  | 119                 |  | 56,942                     |  |                            | 143.78 |                               | 69.1
|              |  |                     |  |                            |  |                            |        |                               |     

---

|(1) |  | Results include the operations of the Norfolk Waterside Marriott, Oklahoma City Waterford Marriott and the Palm Beach Gardens Marriott, which were sold on July 18, 2003. Excluding
these hotels, our RevPAR would be $99.71 and $99.64, respectively, for the quarter ended and year-to-date June 20, 2003 and $108.75 and $107.16, respectively, for the quarter ended and year-to-date June 14, 2002. For further detail, see
Comparable Hotel-Level Results, Reporting Periods and Operating Statistics.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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All Full-Service Hotels by Region(1)



|              |  | As of June 20, 2003  |  | Quarter ended June 20, 2003 |  | Quarter ended June 14, 2002 |        |                               |     
|------------- |  | -------------------- |  | --------------------------- |  | --------------------------- | ------ | ----------------------------- | ----
|              |  | No. of Properties(2) |  | No. of Rooms(2)             |  | Average Daily Rate          |        | Average Occupancy Percentages |     
|Atlanta       |  | 15                   |  | 6,563                       |  | $                           | 133.67 |                               | 63.8
|DC Metro      |  | 14                   |  | 5,770                       |  |                             | 141.80 |                               | 76.4
|Florida       |  | 14                   |  | 7,877                       |  |                             | 170.68 |                               | 71.7
|International |  | 6                    |  | 2,552                       |  |                             | 110.16 |                               | 61.4
|Mid-Atlantic  |  | 10                   |  | 6,726                       |  |                             | 180.86 |                               | 75.2
|Mountain      |  | 8                    |  | 3,313                       |  |                             | 103.78 |                               | 64.3
|New England   |  | 7                    |  | 3,416                       |  |                             | 149.55 |                               | 69.4
|North Central |  | 15                   |  | 5,395                       |  |                             | 123.23 |                               | 67.4
|Pacific       |  | 22                   |  | 11,526                      |  |                             | 149.32 |                               | 66.5
|South Central |  | 12                   |  | 6,514                       |  |                             | 128.39 |                               | 76.7
|              |  |                      |  |                             |  |                             |        |                               |     
|All Regions   |  | 123                  |  | 59,652                      |  |                             | 145.12 |                               | 69.8
|              |  |                      |  |                             |  |                             |        |                               |     



All Full-Service
Hotels by Region(1)



|              |  | As of June 20, 2003  |  | Year-to-date June 20, 2003 |  | Year-to-date June 14, 2002 |        |                               |     
|------------- |  | -------------------- |  | -------------------------- |  | -------------------------- | ------ | ----------------------------- | ----
|              |  | No. of Properties(2) |  | No. of Rooms(2)            |  | Average Daily Rate         |        | Average Occupancy Percentages |     
|Atlanta       |  | 15                   |  | 6,563                      |  | $                          | 136.26 |                               | 66.0
|DC Metro      |  | 14                   |  | 5,770                      |  |                            | 139.90 |                               | 71.0
|Florida       |  | 14                   |  | 7,877                      |  |                            | 174.80 |                               | 74.1
|International |  | 6                    |  | 2,552                      |  |                            | 107.85 |                               | 64.1
|Mid-Atlantic  |  | 10                   |  | 6,726                      |  |                            | 175.64 |                               | 72.5
|Mountain      |  | 8                    |  | 3,313                      |  |                            | 109.42 |                               | 64.7
|New England   |  | 7                    |  | 3,416                      |  |                            | 140.98 |                               | 65.3
|North Central |  | 15                   |  | 5,395                      |  |                            | 118.51 |                               | 63.9
|Pacific       |  | 22                   |  | 11,526                     |  |                            | 152.79 |                               | 66.5
|South Central |  | 12                   |  | 6,514                      |  |                            | 130.89 |                               | 77.2
|              |  |                      |  |                            |  |                            |        |                               |     
|All Regions   |  | 123                  |  | 59,652                     |  |                            | 145.48 |                               | 69.2
|              |  |                      |  |                            |  |                            |        |                               |     

---

|(1) |  | Results include the operations of the Norfolk Waterside Marriott, Oklahoma City Waterford Marriott and the Palm Beach Gardens Marriott, which were sold on July 18, 2003. For further
detail, see Comparable Hotel-Level Results, Reporting Periods and Operating Statistics.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | The number of properties and the room count reflect all consolidated properties as of June 20, 2003. However, the results of operations do not include the JW Marriott, Washington,
D.C. We acquired the remaining partnership interests in this hotel during June 2003 and began to consolidate these operations effective June 20, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2003 Compared to 2002



Our quarterly reporting periods most closely follow the reporting periods of the manager who manages the majority of our properties. For further detail, see
Comparable Hotel-Level Results, Reporting Periods and Operating Statistics.



Revenues. Hotel sales decreased $43 million, or 5%, to $850 million for the second quarter of 2003 and decreased $28 million, or 2%, to $1.6 billion year-to-date. The decrease in revenues primarily reflects the continued
weakness in the lodging industry due to reduced travel by business and leisure travelers and the slow growth of the economy. For year-to-date 2003, this was partially offset by hotel sales recorded for the six extra days in the first quarter of 2003
due to our reporting cycle. This decrease in revenues also



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reflects an 8.2% and 7.0% decline in comparable RevPAR for the second quarter and year-to-date, respectively, when
compared to 2002.



During the second quarter of 2003, our RevPAR decline was
attributable to reduced demand in the group, contract and transient segments of our business. In particular, the decline was driven by further deterioration in our corporate transient and corporate group business. The decline in group demand was
most pronounced in our larger group hotels, which were affected in April and May by higher attrition levels and a reduction in short term bookings prompted by war-related concerns.



Rental income was $24 million for the second quarter of 2003 and the second quarter of 2002 but increased $1 million, or 2%, to $51 million
year-to-date when compared to the same period in 2002. Rental income year-to-date 2003 and 2002 includes: 1) lease income from our limited service hotel leases of $32 million and $31 million, respectively, 2) lease income from one full-service hotel
of $17 million for both periods and 3) office space rental income of $2 million for both periods.



Operating Costs and Expenses. Operating costs and expenses were $769 million for the second quarter of 2003 and the second quarter of 2002 and increased $46 million, or 3%, to $1.5 billion for
year-to-date 2003. This increase is primarily the result of increased costs for insurance, utilities, wages and benefits at the hotels. In addition, for year-to-date 2003, the increase is also attributable to the six extra days included in the first
quarter of 2003. Rental and other expense year-to-date June 20, 2003 and June 14, 2002 includes: 1) expense for our limited service hotel leases of $32 million for both periods, 2) expense related to one full-service property of $3 million for both
periods, and 3) office building expenses of approximately $1 million for both periods. These expenses are included in other property-level expenses on the consolidated statements of operations.



Corporate and Other Expenses. Year-to-date 2003, corporate and other expenses
decreased $2 million, primarily as a result of a decrease in restricted stock compensation expense.



Minority Interest Income (Expense).Minority interest expense declined $3 million for the second quarter of 2003 and $6 million year-to-date when compared to the same periods in 2002. The decrease is
primarily due to a decrease in the earnings from our consolidated hotel partnerships that have minority partners.



Discontinued Operations. During January 2002, we transferred the St. Louis Marriott Pavilion to the mortgage lender in a non-cash transaction. In accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which we adopted January 1, 2002, we recorded the difference between the debt extinguished, the deferred incentive management fees forgiven and the fair
value of the assets surrendered of $22 million, net of tax expense of $9 million, as income from discontinued operations in the accompanying consolidated statements of operations. During January 2003, we sold the Ontario Airport Marriott. The
operating results and net gain from discontinued operations for the hotel for 2003 were minimal. The operating results for the hotel were $1 million for year-to-date 2002.



Liquidity and Capital Resources



Our principal sources of cash are cash from operations, the sale of assets, borrowings under our credit facility and our ability to obtain additional financing through
various financial markets. Our principal uses of cash are payments of debt, capital expenditures, asset acquisitions, operating costs, corporate expenses, and distributions to our OP Unitholders. We believe our sources of cash will be sufficient to
meet our liquidity needs.



As of June 20, 2003, we had $312 million of cash and
cash equivalents, which was a decrease of $49 million from our December 31, 2002 balance, principally due to debt principal amortization and the decline in operations. In addition, we have $130 million of restricted cash as a result of lender and



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management agreement restrictions (including reserves for debt service, real estate taxes, insurance, furniture and
fixtures, as well as cash collateral and excess cash flow deposits).



We will
continue to maintain higher than normal cash balances in 2003 until we see consistent improvement in operations. We believe we have sufficient cash to deal with our minimal near-term debt maturities, as well as any incremental decline in business.
We currently have $250 million of availability under our credit facility and have no amounts outstanding thereunder. During the second quarter of 2003, we successfully modified the credit facility to provide more flexibility in meeting certain tests
under the covenants. As part of the modification, effective on or before November 2003, the commitment under the credit facility will be reduced to $300 million, with current availability of not more than $250 million. However, availability under
the credit facility could increase to $300 million if at any time after the third quarter of 2003 our leverage ratio falls below 6.75x.



Through December 2004, approximately $189 million of our mortgage debt matures, and we will have an additional $85 million of regularly scheduled amortization on our
mortgage debt. The 2003 debt maturities include $65 million of mortgage debt on the Marriott World Trade Center hotel and $95 million from the recently consolidated JW Marriott, Washington, D.C. hotel. We currently intend to refinance the $95
million mortgage, which matures in December 2003, with floating rate debt. We have no other significant refinancing requirements until 2005.



In 2003, we sold four hotels not considered by our management as core or important hotels. We will continue to pursue opportunities to dispose of other
non-core assets consistent with our strategy of recycling capital. We continue to have discussions with potential buyers for certain of our non-core hotels. We believe that, if consummated, sales of non-core properties could result in additional
proceeds of $50 to $150 million for the remainder of the year. We intend to use the proceeds from dispositions to repay debt, though we may elect to invest in our current portfolio or to acquire additional hotels. There can be no assurance that any
further dispositions will occur.



We remain interested in pursuing single asset
and portfolio acquisitions and have discussed the possibility of these transactions with several interested parties. We believe that there will be opportunities over the next several years to acquire assets that are consistent with our target
profile of upper-upscale and luxury properties in hard to duplicate urban, convention and resort locations. The purchase price for any new acquisition may be funded, in part, by the issuance of equity securities. However, we cannot be certain as to
the size or timing of acquisition opportunities or of our ability to obtain acquisition financing, if needed.



Cash provided by Operations. Our cash provided by continuing operations for 2003 decreased $85 million, or 46%, to $99 million when compared to the same period in 2002. The decrease is primarily due to the
decline in operations at our hotels, which we previously discussed, and a $23 million payment for previously deferred income taxes related to the repayment of a partnership note.



Cash used in Investing Activities. Capital expenditures at our properties have decreased by $2 million, or 2%, to $94 million when
compared to the same period in 2002. Capital improvements and room refurbishments occur at intervals of approximately seven years; however, the exact timing is based on an annual review of the condition of each property. In general, we have spent
approximately $200 to $250 million annually on refurbishments and capital improvements. We expect capital expenditures for 2003 to be $200 million to $220 million, the vast majority of which would be funded by the furniture and fixture reserves
established at our hotels (typically 5% of property revenues) and, to a lesser extent, by our available cash. During the first quarter of 2003, we received $25 million in net proceeds from our sale of the Ontario Airport Marriott. On July 18, 2003,
we sold the Norfolk Waterside Marriott, Oklahoma City Waterford Marriott and the Palm Beach Gardens Marriott for approximately $71 million.



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Cash used in Financing Activities. Cash used in financing activities for 2003 primarily consisted of debt
prepayments of $32 million (described below), principal repayments on mortgage debt of $24 million and preferred OP Unit distributions of $18 million. On June 20, 2003, we announced that the Board of Directors of Host Marriott declared a
quarterly cash distribution of $0.625 per unit for each class of preferred OP Units, which was paid on July 15, 2003 to preferred unitholders of record on June 30, 2003. We did not issue a distribution on our common OP Units during the first or
second quarters of 2003 or 2002.



In the first quarter of 2003, we repurchased
$8 million of our 9.25% senior notes due in 2007 at par and prepaid $17 million of mortgage debt related to two of our Ritz-Carlton properties. During the second quarter of 2003, we made a prepayment of $7 million on the mortgage debt secured by our
four Canadian hotels.



To reduce future cash interest payments, as well as
future amounts due at maturity or upon redemption, we may from time to time purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such
securities. Host Marriotts Board of Directors has authorized us to purchase or retire certain of our senior notes using cash reserves in an amount not to exceed the lesser of the net proceeds from asset sales (other than sales structured as
tax-free exchanges) or $150 million, of which $124 million is available. Repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. On July 30, 2003, we called
$71 million of our 77/8% senior notes due in 2005 for early redemption.



Debt. As of June 20, 2003, our total consolidated debt was $6.2 billion. The weighted
average interest rate of all our debt is approximately 7.7% and our current average maturity is five years. Additionally, 91% of our debt has a fixed rate of interest as of June 20, 2003. Over time, we expect to increase the proportion of floating
rate debt in our capital structure to 20% to 25% of our total debt. We may do this through the use of derivative instruments including interest rate swaps.



Under the terms of our senior notes indenture and the credit facility, our ability to incur indebtedness is subject to restrictions and the satisfaction of various
conditions, including an EBITDA-to-interest coverage ratio (as defined in the senior notes indenture) of at least 2.0 to 1.0. We do not currently meet this interest coverage ratio incurrence test. As a result, our ability to incur indebtedness is
limited to indebtedness specifically permitted under the credit facility and the senior notes indenture, such as borrowings under the credit facility and borrowings in connection with a refinancing of existing debt.



Our failure to meet this interest coverage ratio also restricts our ability to pay
distributions on our common and preferred OP Units, except to the extent necessary for Host Marriott to maintain its status as a REIT. Required income distributions for 2002 for Host Marriott to maintain REIT status were satisfied in part by payment
of distributions on the preferred OP Units in 2002. We believe that the remaining 2002 income distribution requirement should be facilitated by the payment of distributions that were declared on the preferred OP Units in the first and second
quarters of 2003, and those which are expected to be declared on preferred OP Units in the third quarter of 2003. While we currently have, and continue to expect to have, more than adequate cash to pay distributions on our preferred OP Units, the
payment of any fourth quarter distribution on our preferred OP Units will depend on 2003 operating performance and its impact on Host Marriotts taxable income and whether our EBITDA-to-interest coverage ratio is at least 2.0 to 1.0. Host
Marriotts taxable income will vary based on a number of factors including our results from operations and level of capital expenditures.



Based on our current outlook of Host Marriotts taxable income and our EBITDA-to-interest coverage ratio, we think it is unlikely we will pay a fourth quarter 2003
preferred OP unit distribution. The ability to pay the preferred distribution in subsequent quarters will depend on several factors, including (i) our ability to



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comply with or modify restrictive covenants in our senior notes indenture and our credit facility that restrict our
ability to pay distributions and (ii) the amount of Host Marriotts taxable income or loss.



We have not paid a distribution on our common OP Units since the third quarter of 2001, and we do not currently expect to pay a common distribution for the remainder of 2003. The decision to reinstate the distribution
on our common OP Units (including the amount of any such distribution) will be made by Host Marriotts Board of Directors and will depend on several factors, including those described above, as well as our liquidity and any accrued unpaid
distributions on our preferred OP Units.



We have $3.2 billion of senior notes
outstanding that are currently rated by Moodys and Standard & Poors. As a result of the significantly reduced operating levels, the ratings on these senior notes and the senior notes issued by many other lodging companies have been
downgraded or placed on negative credit watch. On February 13, 2003, Standard and Poors downgraded its rating on our senior debt from BB- to B+. At the same time Standard & Poors also downgraded its rating on Host Marriotts
preferred stock from B- to CCC+. On February 28, 2003, Moodys affirmed its rating of Ba3 on our senior notes debt and B3 on Host Marriotts preferred stock. While we have no significant senior note maturities until 2005, if operations
were to decline further, or if our credit ratios do not otherwise improve, the ratings on our senior notes could be reduced further. Moodys and Standard & Poors also rate Host Marriotts preferred stock and each of these
agencies have indicated that, to the extent that we are unable to continue to make distribution payments on our preferred units (by virtue of the limitations imposed on us under our senior notes indenture), they may downgrade the rating they assign
to Host Marriotts preferred stock, which may, in turn, result in a further downgrade of our senior notes. If we were unable to subsequently improve our credit ratings, our cost to issue additional senior notes, to refinance this debt as it
comes due or to issue additional preferred OP Units would likely increase.



All
of our mortgage debt is recourse solely to specific assets except in instances of fraud, misapplication of funds and other customary recourse provisions. We have 31 assets that are secured by mortgage debt. Twelve of these assets are secured by
mortgage debt that contains restrictive covenants that require the mortgage servicer or lender to retain and hold in escrow the cash flow after debt service when it declines below specified operating levels. The impact of these covenants is
discussed below.



Eight of our hotel properties secure a $601 million mortgage
loan that is the sole asset of a trust that issued commercial mortgage pass-though certificates, which we refer to as the CMBS Loan. The hotels securing the CMBS Loan are the New York Marriott Marquis, the San Francisco Airport Hyatt Regency, the
Cambridge Hyatt Regency, the Reston Hyatt Regency, the Boston Hyatt Regency, The Drake Hotel New York, the Swissôtel Atlanta and the Swissôtel Chicago, which we refer to as the CMBS Portfolio. The CMBS Loan contains a provision that
requires the mortgage servicer to retain certain excess cash flow from the CMBS Portfolio after payment of debt service if net cash flow after payment of taxes, insurance, ground rent and reserves for furniture, fixtures and equipment for the
trailing twelve months declines below $96 million. Annual debt service is $64 million. As a result of the effect of the weak economy on our operations, this provision was triggered beginning in the third quarter of 2002 and will remain in effect
until the CMBS Portfolio generates the necessary minimum cash flow for two consecutive quarters, at which point, the cash that has been escrowed will be returned to us. As of June 20, 2003, approximately $13 million of cash has been escrowed.
Additional amounts will be escrowed, and these amounts may be significant. There can be no assurance that the CMBS Portfolio will reach the minimum cash flow for the required period of time so that the cash will be released.



During August 2001, we entered into a $97 million loan agreement for our four Canadian
properties. As a result of a decline in operations at these properties in late 2001 and 2002, we were required under the loan agreement to escrow cash. In April 2003, approximately $7 million of the cash escrowed in accordance with the loan was
applied to the outstanding balance of the indebtedness and approximately $2 million was released to us. As this indebtedness is denominated in United States dollars and the functional currency of the properties is Canadian dollars, at the time we
entered into this loan we entered



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into currency forward contracts to buy U.S. dollars at a fixed price. These forward contracts hedge the currency exposure
of converting Canadian dollars into U.S. dollars on a monthly basis to cover debt service payments, including the final balloon payment. These contracts have been designated as cash flow hedges of the debt service and balloon payments and are
recorded at fair value on the balance sheet with offsetting changes recorded in accumulated other comprehensive income. As a result of the $7 million prepayment, a portion of the forward contracts no longer qualifies for hedge accounting. The
pro-rata portion of the accumulated loss included in other comprehensive income as of the date of prepayment plus the change in the fair market value of the ineffective portion of the hedge from April 24, 2003 have been recognized in our
consolidated statement of operations. All subsequent fair market value adjustments related to the ineffective portion of the hedge will be recognized in our consolidated statement of operations. The adjustments resulted in the recognition of
approximately $1 million of expense, which is included in corporate and other expenses.



Operating results at our three properties located in Toronto have not yet fully recovered from the impact of SARS related travel restrictions. As a result, we entered into an agreement with our lenders to modify certain covenants so that we
would not be required to make additional prepayments at least through the end of the year. The terms of the modification required us to provide $10 million of cash collateral and pay an additional 25 basis points of interest on the loan. If we are
required to make additional prepayments, the entire hedge may become ineffective for accounting purposes, at which time, any unrealized losses would be recognized in net income (loss). As of June 20, 2003, the unrealized loss is approximately $13
million, but is subject to adjustment based on future fluctuations in currency rates.



Other Real Estate Investments.We own a 50% interest in a joint venture with Marriott International that owns, through two limited partnerships, 120 Courtyard by Marriott properties totaling 17,550 rooms. The joint venture has
approximately $905 million of debt. This debt is comprised of first mortgage loans secured by the properties owned by each of the two partnerships, senior notes secured by the ownership interest in one partnership and mezzanine debt. The mezzanine
debt is an obligation of the joint venture and was provided by an affiliate of Marriott International. None of the debt is recourse to, or guaranteed by, us or any of our subsidiaries. RevPAR at the Courtyard hotels declined 7.1% in the second
quarter of 2003 when compared to the second quarter of 2002 and 4.8% year-to-date. Based on our current forecasts for the full year 2003, the hotels in one of these two partnerships may not generate sufficient cash flow from operations to fund its
debt service obligations. If there is insufficient cash flow to fund its debt service obligations, the partnership would continue to make use of (i) a senior note debt service reserve, (ii) certain rights to require repayment to the partnership of a
portion of its ground rent previously paid and (iii) subordination provisions for current payments in its ground leases and management agreements to cover any shortfall. As of June 20, 2003, the joint venture has deferred a total of $3.6 million in
ground rent and base management fees. Interest does not accrue on such deferred amounts, but these amounts must be repaid prior to distributions to equityholders. In addition, we anticipate that the joint venture will defer interest payments on the
mezzanine debt at least until the fourth quarter of 2003. As of June 20, 2003, the joint venture has deferred $13 million of interest payments on the mezzanine debt. Deferral of the interest payments due on the mezzanine debt is not a default. To
the extent deferred, unpaid mezzanine debt interest amounts are added to principal and earn interest at 13%. As of June 20, 2003, the partnerships and the joint venture maintained aggregate unrestricted cash balances of approximately $19 million.



FFO per Diluted Unit and EBITDA



FFO per Diluted Unit



The National Association of Real Estate Investment Trusts, or NAREIT, defines Funds From Operations, or FFO, as net income (computed in
accordance with GAAP) excluding gains (or losses) from sales of real estate and real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO is presented on a per unit basis after
making adjustments for the effects of dilutive securities. We use FFO per diluted unit as a measure of our performance because



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historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes
predictably over time. However, because real estate values have historically risen or fallen with market conditions, most industry investors have considered presentation of operating results for real estate companies that use historical cost
accounting to be less informative. NAREIT adopted the definition of FFO in order to promote an industry-wide standard measure of REIT operating performance. Accordingly, as a member of NAREIT, we have adopted FFO per share as a measure to evaluate
our performance in comparison to our peer group in NAREIT, substantially all of which use the same measure. We believe that the presentation of FFO per diluted unit provides useful information to investors regarding our results of operations because
it is a better measure of our operating performance. In addition, it facilitates comparisons between us and other REITs, including when making investment decisions. FFO per diluted unit is also used by Host Marriotts Compensation Policy
Committee of their Board of Directors to establish criteria for performance-based compensation and in the annual budget process.



EBITDA



Earnings Before Interest, Income Taxes, Depreciation and Amortization, or EBITDA, is a commonly used measure of performance in many industries which management believes provides useful information to investors
regarding our results of operations. EBITDA helps us and our investors evaluate the ongoing operating performance of our properties and facilitates comparisons between us and lodging REITs, hotel owners who are not REITs and other capital-intensive
companies. Management uses EBITDA to provide a baseline when evaluating property-level results. Management also uses EBITDA as one measure in determining the value of acquisitions and dispositions and, like FFO per diluted unit, it is widely used by
management in the annual budget process.



Adjusted EBITDA



Management has historically adjusted EBITDA when evaluating our performance because we
believe that the exclusion of certain recurring items described below is necessary to provide the most accurate measure of the performance of our investment portfolio and to more fully reflect the ongoing value of the Company as a whole. Due to
recent guidance provided by the SEC, we now do not reflect such items when calculating EBITDA but, instead, adjust for these items and refer to this measure as Adjusted EBITDA. Adjusted EBITDA for the second quarter of 2003 reflects EBITDA adjusted
for the following items:



| |  |  | Gains and Losses on Dispositions and Related Debt Extinguishments  We exclude the effect of the gains and losses recorded on the disposition of assets and the related debt
extinguishments because we believe that including them in EBITDA is not consistent with reflecting the ongoing performance of our remaining assets. In addition,material gains or losses from the depreciated value of the assets disposed of, and the
related debt extinguishments could be less important to investors, given that the depreciated asset often does not reflect the market value of real estate assets (as noted above for FFO).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidated Partnership Adjustments  We exclude the minority interest in the income or loss of our consolidated partnerships because we believe that including them in EBITDA
does not reflect the impact of the minority interest position on our performance because these amounts effectively include our minority partners pro-rata portion of depreciation, amortization and interest expense, which are excluded from
EBITDA. However, we believe the cash distributions paid to minority partners is a more relevant measure, and have included the effect of these cash distributions in the calculation of Adjusted EBITDA.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Equity Investment Adjustments  We exclude the equity in earnings (losses) of unconsolidated investments in partnerships and joint ventures because our percentage in the
earnings (losses)
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | does not reflect the impact of our minority interest position on our performance and these amounts effectively include our pro-rata portion of depreciation, amortization and
interest expense, which are excluded from EBITDA. However, we believe that cash distributions we receive are a more relevant measure of the performance of our investment and, therefore, we include the cash distributed to us from these investments in
the calculation of Adjusted EBITDA.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In previous periods, we also
adjusted EBITDA for non-cash items such as stock compensation expense and fair market value adjustments to hedge instruments and foreign currency adjustments. Due to recent guidance provided by the SEC, we have modified our calculation to exclude
these adjustments and, accordingly, have adjusted our prior period presentations to conform to the new presentation.



Limitations on the Use of Non-GAAP Financial Measures



FFO per diluted unit, as presented, may not be comparable to measures calculated by other companies who do not use the NAREIT definition. Although FFO per diluted share
is a useful measure when comparing our results to REITs, it may not be helpful to investors when comparing us to non-REITs. EBITDA and Adjusted EBITDA, as presented, may not be comparable to measures calculated by other companies. This information
should not be considered as an alternative to net income, operating profit, cash from operations, or any other operating performance measure prescribed by GAAP. Cash expenditures for various long-term assets (such as renewal and replacement capital
expenditures), interest expense (for EBITDA and Adjusted EBITDA purposes only) and other items have been and will be incurred and are not reflected in the EBITDA, Adjusted EBITDA and FFO per diluted unit presentations. Additionally, FFO per diluted
unit, EBITDA and Adjusted EBITDA should not be considered as a measure of our liquidity or indicative of funds available to fund our cash needs, including our ability to make cash distributions.In addition, FFO per diluted unit does not
measure, and, should not be used as a measure of amounts that accrue directly to unitholders benefit. However, our consolidated statement of operations and cash flows include disclosure of our interest expense, capital expenditures and other
items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.



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The following tables provide a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA and reconciliation of
net income (loss) available to common unitholders to Funds from Operations per Diluted Unit (in millions, except per unit amounts):



Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA



|                                                                 |  | Quarter ended |     |   | Year-to-date |  
|---------------------------------------------------------------- |  | ------------- | --- | - | ------------ | -
|                                                                 |  | June 20,      |     |   | June 14,     |  
|                                                                 |  | 2003          |     |   | 2002         |  
|Net income (loss)                                                |  | $             | (16 | ) |              | $
|Interest expense                                                 |  |               | 115 |   |              |  
|Depreciation and amortization                                    |  |               | 86  |   |              |  
|Income tax expense                                               |  |               | 6   |   |              |  
|                                                                 |  |               |     |   |              |  
|EBITDA of Host L.P.                                              |  |               | 191 |   |              |  
|Gain and losses on dispositions and related debt extinguishments |  |               | (1  | ) |              |  
|Consolidated partnership adjustments:                            |  |               |     |   |              |  
|Minority interest (income) expense                               |  |               | 1   |   |              |  
|Distributions to minority interest partners                      |  |               | (3  | ) |              |  
|Equity investment adjustments:                                   |  |               |     |   |              |  
|Equity in (earnings) losses of affiliates                        |  |               | 3   |   |              |  
|Distributions received from equity investments                   |  |               | 2   |   |              |  
|                                                                 |  |               |     |   |              |  
|Adjusted EBITDA of Host L.P.                                     |  | $             | 193 |   |              | $
|                                                                 |  |               |     |   |              |  



Reconciliation of
Net Income (Loss) Available to

Common Unitholders to Funds From Operations per Diluted Unit



|                                                                                                                                                  |  | Quarter ended June 20, 2003 |     |   | Quarter ended June 14, 2002 |      
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --- | - | --------------------------- | -----
|                                                                                                                                                  |  | Income (Loss)               |     |   | Unit                        |      
|Net income (loss) available to common unitholders                                                                                                 |  | $                           | (25 | ) |                             | 292.1
|Adjustments:                                                                                                                                      |  |                             |     |   |                             |      
|Depreciation and amortization                                                                                                                     |  |                             | 85  |   |                             |     
|Partnership adjustments                                                                                                                           |  |                             | 4   |   |                             |     
|Adjustments for dilutive securities:                                                                                                              |  |                             |     |   |                             |      
|Assuming distribution of common units for shares granted under the comprehensive stock plan less shares assumed purchased at
average market price |  |                             |    |   |                             | 2.8  
|Assuming conversion of Convertible Preferred Securities                                                                                           |  |                             |    |   |                             |     
|                                                                                                                                                  |  |                             |     |   |                             |      
|FFO per diluted unit(a)                                                                                                                           |  | $                           | 64  |   |                             | 294.9
|                                                                                                                                                  |  |                             |     |   |                             |      
|                                                                                                                                                  |  |                            
|                                                                                                                                                  |  | Year-to-date June 20, 2003  |     |   | Year-to-date June 14, 2002  |      
|                                                                                                                                                  |  | Income(Loss)                |     |   | Unit                        |      
|Net income (loss) available to common unitholders                                                                                                 |  | $                           | (72 | ) |                             | 292.0
|Adjustments:                                                                                                                                      |  |                             |     |   |                             |      
|Gain from discontinued operations                                                                                                                 |  |                             |    |   |                             |     
|Depreciation and amortization                                                                                                                     |  |                             | 171 |   |                             |     
|Partnership adjustments                                                                                                                           |  |                             | 11  |   |                             |     
|Adjustments for dilutive securities:                                                                                                              |  |                             |     |   |                             |      
|Assuming distribution of common units for shares granted under the comprehensive stock plan less shares assumed purchased at
average market price |  |                             |    |   |                             | 2.7  
|Assuming conversion of Convertible Preferred Securities                                                                                           |  |                             |    |   |                             |     
|                                                                                                                                                  |  |                             |     |   |                             |      
|FFO per diluted unit(a)                                                                                                                           |  | $                           | 110 |   |                             | 294.7
|                                                                                                                                                  |  |                             |     |   |                             |      





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|(a) |  | FFO per diluted unit in accordance with NAREIT is adjusted for the effects of dilutive securities. Dilutive securities may include units distributed to Host Marriott for Host
Marriott common shares granted under comprehensive stock plans, those preferred OP Units held by minority partners, other minority interests that have the option to convert their limited partnership interest to common OP Units and the convertible
debt obligation of Host Marriott Corporation. No effect is shown for securities if they are anti-dilutive.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The deficiency of earnings to fixed charges and preferred unit distributions was $52.8 million year-to-date 2003 and our ratio of earnings to fixed charges was 1.1 to 1.0
year-to-date 2002. In accordance with SEC regulations, the ratio is calculated as the sum of pre-tax income from continuing operations before adjustments for minority interest and income (loss) from equity investments plus amortization of
capitalized interest, distributions from equity investments and fixed charges less capitalized interest and distributions on preferred units divided by fixed charges which is the sum of interest expensed and capitalized, distributions on convertible
debt obligation of Host Marriott Corporation and preferred units and the estimate of interest within rental expense.



New Accounting Pronouncements



The Financial Accounting Standards Board recently issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity. This statement requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Previously, many such instruments had been
classified as equity. A freestanding financial instrument is an instrument that is entered into separately and apart from any of the entitys other financial instruments or equity transactions, or that is entered into in conjunction with some
other transaction and is legally detachable and separately exercisable, such as certain put and call options. These provisions are effective for financial instruments entered into ormodified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. We have no financial instruments that are affected by this statement.





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|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk
|------- |  | ----------------------------------------------------------



During June 2003, in connection with the consolidation of the partnership owning the JW Marriott in Washington, DC, we assumed $95 million of mortgage debt that matures
in December 2003. In March 2003, we repurchased $8 million of 9.25% senior notes due in 2007 at par. On January 30, 2003, we prepaid $17 million of 8.03% mortgage debt related to two of our Ritz-Carlton properties. As a result of the $7 million
prepayment on the Canadian mortgage debt, a portion of the foreign currency hedge on the debt became ineffective. Accordingly, a portion of the change in the fair market value of the forward contracts is recorded in net income (loss). There have
been no other changes to, nor have we purchased or sold any other derivative instruments or debt, other than regular principal amortization on our debt, that would affect our exchange rate sensitivity and interest rate sensitivity described in our
annual report on Form 10-K in Item 7a. Quantitative and Qualitative Disclosures about Market Risk.



|Item 4. |  | Controls and Procedures
|------- |  | -----------------------



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain
unconsolidated entities. As we do not control or manage these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to its consolidated
subsidiaries.



As of June 20, 2003, the end of the quarter covered by this
report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.



There has been no change in our internal controls over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reports.



PART II. OTHER INFORMATION



|Item 2. |  | Changes in Securities and Use of Proceeds
|------- |  | -----------------------------------------



On June 19, 2003, Host Marriott issued 33,182 shares of 10% Class D Cumulative Redeemable Preferred Stock for a purchase price of $829,550 in cash to Fernwood Holdings
LLC, an indirectly wholly owned taxable subsidiary of Host LP. We, in turn, issued equivalent securities, Class D Cumulative Redeemable Preferred OP Units to Host Marriott. The holder of the Class D preferred stock is entitled to receive cumulative
cash dividends at a rate of 10% per annum of the $25.00 per share liquidation preference and these dividends are payable quarterly in arrears. Host Marriott has the option to redeem the Class D preferred stock at any time after July 1, 2004 for
$25.00 per share, plus accrued and unpaid dividends to the date of redemption. The Class D preferred OP Units are on parity with our Class A, Class B and Class C preferred OP Units.



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|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



|(a) |  | The exhibits listed on the accompanying Exhibit Index are filed as part of this report and such Exhibit Index is incorporated herein by reference.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------



|· |  | On May 19, 2003, we filed a current report on Form 8-K to file exhibits that describe our most recent amendment to our credit facility.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | Exhibits
|--- |  | --------



|Exhibit No. |  | Description                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.41       |  | Separation Agreement and Release dated as of May 30, 2003.                                                                                                  
|            | 
|10.42       |  | Host Marriott Severance Plan for members of senior management adopted as of March 6, 2003.                                                                  
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|            | 
|32          |  | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.*





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SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|               |  |  |  | HOST MARRIOTT, L.P.
|-------------- |  |  |  | -------------------
|August 4, 2003 |  |  |  |                    
|               |  |  |  |                    
|               |  |  |  |                    
|               |  |  |  |                    



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