SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended January 3, 1997         Commission File No. 33-95058

                        HMC ACQUISITION PROPERTIES, INC.


          Delaware                                      52-1888825
   (State of Incorporation)               (I.R.S.Employer Identification Number)

                               10400 Fernwood Road
                            Bethesda, Maryland 20817
                                 (301) 380-9000

           Securities registered pursuant to Section 12(g) of the Act

                                 Title of Class
                        $350,000,000 (principal amount at
                             maturity) Senior Notes


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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. Yes X No


                       Document Incorporated by Reference

Host Marriott Corporation Notice of 1997 Annual Meeting and Proxy Statement

<PAGE>

FORWARD LOOKING STATEMENTS

Certain  matters  discussed  herein are  forward-looking  statements  within the
meaning of the  Private  Litigation  Reform Act of 1995 and as such may  involve
known and unknown  risks,  uncertainties,  and other factors which may cause the
actual results,  performance or achievements of the Company to be different from
any future  results,  performance or  achievements  expressed or implied by such
forward-looking  statements.  Although  the Company  believes  the  expectations
reflected  in  such   forward-looking   statements  are  based  upon  reasonable
assumptions,  it can give no assurance that its  expectations  will be attained.
These risks are  detailed  from time to time in the  Company's  filings with the
Securities  and Exchange  Commission.  The Company  undertakes  no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances.

ITEMS 1 AND 2.BUSINESS AND PROPERTIES

General

HMC Acquisition  Properties,  Inc. (the  "Company"),  an indirect,  wholly owned
subsidiary of Host Marriott Corporation ("Host Marriott"), was formed in 1994 to
take advantage of acquisition opportunities in the full-service hotel segment of
the lodging  industry.  The Company  currently owns 17 full-service  properties,
aggregating 6,850 rooms,  located in diverse geographic locations throughout the
United States and Canada.  Fifteen of these  properties  are operated  under the
Marriott  brand name,  12 of which are managed by Marriott  International,  Inc.
("Marriott International").  The Marriott brand name is among the most respected
and widely recognized in the lodging  industry.  Based on data provided by Smith
Travel Research,  the Company believes that its hotels  consistently  outperform
the industry average  occupancy rate by a significant  margin and averaged 74.2%
occupancy for 1996 compared to 71.1% average  occupancy for competing  hotels in
the upscale  full-service  segment of the lodging industry (the segment which is
most representative of the Company's  full-service hotels). Six of the Company's
properties have been converted to the Marriott brand name following  acquisition
by the Company or an affiliate. The conversion of such properties is intended to
increase  occupancy  and  room  rates as a result  of  Marriott  International's
nationwide  marketing and reservation  systems, as well as customer  recognition
and preference for the Marriott brand name.

The Company was originally capitalized by Host Marriott through the contribution
of four  unleveraged  hotel  properties,  with a book  value  of  $162  million,
purchased  in 1994 by  affiliates  and with an  additional  contribution  of $48
million in cash. These  contributions  were made primarily from a portion of the
proceeds of a $230 million public equity  offering by Host Marriott  consummated
in January 1994.  Since its formation,  the Company has utilized the $48 million
in cash  contributed by Host Marriott as well as borrowings  under the Company's
former Revolving Credit and Term Loan Agreement dated November 1994 (the "Credit
Facility")  and a portion of the  proceeds  of the  Company's  offering  of $350
million of senior notes (the "Senior  Notes") in December 1995 (the  "Offering")
to  acquire  an  additional  14  full-service  hotels  (one of which was sold in
December 1995).

The lodging industry as a whole, and the upscale  full-service  hotel segment in
particular, is benefiting from an improved supply and demand relationship in the
United  States.  Based on data  provided by Smith Travel  Research,  the Company
believes  that the demand for  upscale  full-service  rooms,  measured as annual
domestic  occupied room nights for its competitive set,  increased 3.8% in 1994,
1.5% in 1995 and 2.3% in 1996.  Management  believes that demand  increases have
resulted  primarily from an improved  economic  environment  and a corresponding
increase in business  travel.  In spite of increased  demand for rooms, the room
supply  growth  rate in the  full-service  segment  has  diminished.  Management
believes that this decrease in the supply  growth rate is  attributable  to many
factors  including the limited  availability  of attractive  building  sites for
full-service  hotels,  lack of available  financing for new  full-service  hotel
construction and the availability of existing  full-service  properties for sale
at a discount to their replacement value. The relatively high occupancy rates of
the Company's hotels,  along with increased demand for full-service  hotel rooms
have allowed the managers of the Company's hotels to increase average daily room
rates primarily by replacing certain discounted group business with higher rated
group and transient business and selectively raising room rates. As a result, on
a  comparable  basis,  room  revenues per  available  room,  excluding  food and
beverage and other  ancillary  revenue  ("REVPAR") for  full-service  properties
increased  approximately  12% for 1996.  Furthermore,  because lodging  property
operations have a high fixed cost component, increases in REVPAR generally yield
greater  percentage  increases in EBITDA (as defined herein).  Accordingly,  the
approximately  12% increase in REVPAR resulted in an approximately  24% increase
in  comparable   full-service   EBITDA  for  1996.  The  Company   expects  this
supply/demand  imbalance,  particularly in the upscale  full-service  sector, to
continue,  which  should  result  in  improved  REVPAR  and  EBITDA at its hotel
properties in the near term, however,  there can be no assurance that REVPAR and
EBITDA will continue to improve.

Business Strategy

The  Company's  business  strategy  is to continue  to focus on  maximizing  the
profitability of its existing full-service hotels. The Company believes that the
upscale  full-service  segment of the market offers  numerous  opportunities  to
acquire  assets  at  attractive  multiples  of cash  flow  and at  discounts  to
replacement  value,  including  underperforming  hotels which can be improved by
conversion to the Marriott brand.

There is very limited new supply of upscale  full-service  hotel rooms currently
under  construction.  According  to Smith  Travel  Research,  from 1988 to 1991,
upscale full-service room supply for the Company's  competitive set increased an
average of approximately  4% annually,  which resulted in an oversupply of rooms
in the industry. However, this growth slowed to an average of approximately 1.0%
from 1992 to 1996.  According to Coopers & Lybrand,  hotel supply in the upscale
full-service  segment is expected to grow annually at 1.8% to 1.9% through 1998.
Management  believes  that the lead  time from  conception  to  completion  of a
full-service  hotel is generally  five years or more in the types of markets the
Company is  principally  pursuing,  which will  contribute  to the continued low
growth of supply in the upscale full-service segment through 2000.

The Company intends to continue to grow its full-service hotel portfolio as cash
flow becomes  available  from  operations or  additional  financing as permitted
under the senior notes  indenture.  In carrying out this  strategy,  the Company
evaluates  each  opportunity  on an  individual  basis and may from time to time
elect to acquire  controlling  interests in a hotel joint venture,  as permitted
under the Company's bond indenture,  rather than pursue the outright acquisition
of a property, when it believes its return on investment will be maximized by so
doing.  The Company may make  acquisitions  directly or through its subsidiaries
depending on a variety of factors,  including the existence of debt, the form of
investment,  the restrictions and requirements of the senior notes indenture and
the availability of funds.

The Company  believes it is well qualified to pursue its  acquisition  strategy.
Management  has  extensive   experience  in  acquiring  and  financing   lodging
properties  and  believes its industry  knowledge,  relationships  and access to
market information provide a competitive  advantage with respect to identifying,
evaluating  and  acquiring  hotel  assets.  In  addition,  the  Company  is well
positioned to convert  acquired  properties to the  high-quality  Marriott brand
name due to its relationship with Marriott International.

In 1996, the Company  acquired the 374-room  Toronto Delta  Meadowvale hotel for
$25 million.  The Company also acquired a controlling interest in a venture that
owns the 400-room Pittsburgh City Center Marriott (formerly the Pittsburgh Hyatt
Regency)  for $18  million,  which  was  closed  for  three  months,  renovated,
converted to the Marriott brand, and re-opened in July 1996.

The Company  has  acquired a number of  properties  from  inadvertent  owners at
significant  discounts to replacement costs. Many desirable hotel properties are
held by  inadvertent  owners  such  as  banks,  insurance  companies  and  other
financial  institutions  which are motivated and willing  sellers.  While in the
Company's  experience to date,  these sellers have been primarily  United States
financial  organizations,  the  Company  believes  that  numerous  international
financial  institutions  are also inadvertent  owners of lodging  properties and
have only recently begun to dispose of such properties. The Company expects that
there  will be  increased  opportunities  to  acquire  lodging  properties  from
international financial institutions.

The  Company  believes  that there are  numerous  opportunities  to improve  the
performance  of acquired  hotels by replacing  the existing  hotel  manager with
Marriott  International  and converting the hotel to the Marriott brand.  Six of
the Company's 17 full- service hotel acquisitions were converted to the Marriott
brand following their acquisition.  Based on industry data, the Company believes
that  Marriott-flagged  properties have consistently  outperformed the industry.
Demonstrating  the strength of the Marriott  brand name,  the average  occupancy
rate during 1996 for the Company's 14 properties  that have been operated  under
the Marriott brand name for at least two years was 74.8%, compared to an average
occupancy rate of 71.1% for competing upscale full-service hotels.  Accordingly,
management  anticipates that any additional full- service properties acquired by
the Company in the future and converted from other brands to the Marriott brand,
should achieve higher occupancy rates and average room rates than has previously
been the case for those  properties  as the  properties  begin to  benefit  from
Marriott's brand recognition, reservation system and group sales organization.

Hotel Lodging Industry

The  lodging  industry  as a whole,  and the  upscale  full-service  segment  in
particular,  is  benefiting  from a cyclical  recovery as well as a shift in the
supply/demand relationship with supply relatively flat and demand strengthening.
The lodging  industry  posted  strong gains in revenues and profits in 1996,  as
demand  growth  continued  to outpace  additions  to supply.  Based on Coopers &
Lybrand  data,  the Company  expects  full-service  hotel room supply  growth to
remain  limited  through  1998  and  for  the  foreseeable   future  thereafter.
Accordingly,  the Company believes this  supply/demand  imbalance will result in
improving  occupancy and room rates which should  result in improved  REVPAR and
operating profit.

Following a period of significant  overbuilding  in the mid-to- late 1980s,  the
lodging  industry   experienced  a  severe  downturn.   Since  1991,  new  hotel
construction,  excluding casino-related  construction,  has been modest, largely
offset by the number of rooms taken out of service each year. Due to an increase
in travel and an improving economy,  hotel occupancy has grown steadily over the
past several years and room rates have improved. According to Coopers & Lybrand,
room  demand  for   upscale   full-service   properties   is  expected  to  grow
approximately 2.4% annually through 1998. Increased room demand should result in
increased  hotel occupancy and room rates.  According to Smith Travel  Research,
upscale full- service  occupancy for the Company's  competitive set grew in 1996
to 72.4%, while room rate growth exceeded inflation for the fifth straight year.
The Company  believes  that these  recent  trends will  continue,  with  overall
occupancy  increasing   slightly,   and  room  rates  increasing  at  more  than
one-and-one-half times the rate of inflation in each of the next two years.

While room  demand has been  rising,  new hotel room  supply  growth has slowed.
Smith Travel  Research data shows that from 1988 to 1991,  upscale  full-service
room supply  increased an average of  approximately  4%  annually.  According to
Smith Travel Research,  this growth slowed to an approximate 1.0% average annual
growth rate from 1992 through 1996.  Through  1998,  upscale  full-service  room
supply growth is expected to increase to approximately 1.8% annually,  according
to Coopers & Lybrand.  The increase in room demand and slowdown in growth of new
hotel  supply  has also led to  increased  room  rates.  According  to Coopers &
Lybrand,  room rates for such hotels are expected to grow approximately 4% to 5%
annually through 1998.

As a result of the  overbuilding in the  mid-to-late  1980s,  many  full-service
hotels built have not performed as originally  planned.  Cash flow has often not
covered debt service  requirements,  causing  lenders  (e.g.,  banks,  insurance
companies,  and savings and loans) to foreclose and become "inadvertent  owners"
who are  motivated to sell these assets.  In the  Company's  experience to date,
these sellers have been primarily  United States  financial  organizations.  The
Company  believes that numerous  international  financial  institutions are also
inadvertent  owners  of  lodging  properties  and  expects  that  there  will be
increased   opportunities  to  acquire  lodging  properties  from  international
financial  institutions.  While the interest of  inadvertent  owners to sell has
created  attractive  acquisition  opportunities  with strong current yields, the
lack of room supply  growth and  increasing  room demand  should  contribute  to
higher  long-term  returns on invested  capital.  Given the relatively long lead
time to develop  urban,  convention  and resort  hotels,  as well as the lack of
project financing, management believes the growth in room supply in this segment
will be limited for an extended period of time.

Hotel Lodging Properties

The Company's  hotel  lodging  properties as of February 28, 1997 consists of 17
upscale  full-service  hotels  with a  total  of  6,850  rooms.  Fifteen  of the
Company's 17 properties  are operated under the Marriott name. The two remaining
properties  representing  596 rooms, or  approximately 9% of the Company's total
rooms,  achieved  favorable  operating  results  relative to competing hotels in
their  respective  market  segments and have not been  converted to the Marriott
brand due to either their size and/or  contractual  prohibitions.  The Company's
full-service  hotels generally  contain from 300 to 600 rooms.  Hotel facilities
typically include meeting and banquet  facilities,  a variety of restaurants and
lounges,  swimming  pools,  gift shops,  and parking  facilities.  The Company's
full-service  hotels primarily service business and pleasure travelers and group
meetings at  locations  in downtown and  suburban  areas,  near  airports and at
resort locations throughout the United States and Canada. The average age of the
Company's  properties  is 14  years,  several  of  which  have  had  substantial
renovations or major additions.

To maintain  the  overall  quality of the  Company's  lodging  properties,  each
property  undergoes  refurbishments  and  capital  improvements  on a  regularly
scheduled basis. Typically,  refurbishing has been provided at intervals of five
years,  based on an annual review of the condition of each  property.  In fiscal
years 1996,  1995 and 1994,  the Company  spent $15  million,  $9 million and $2
million,  respectively,  on capital  improvements to existing  properties.  As a
result of these expenditures, the Company has been able to maintain high quality
rooms at its properties.

The table below sets forth comparable performance  information for the Company's
comparable full-service hotels:
<TABLE>
<CAPTION>
                                                      Fiscal Year 
   
                                                    1996       1995
                                                    ----       ----
<S>                                               <C>         <C>      
 Number of properties(1) . . . . . . . . . .           13          13       
 Number of rooms . . . . . . . . . . . . . .        5,184       5,184
 Average daily rate. . . . . . . . . . . . .      $107.87      $98.90
 Occupancy % . . . . . . . . . . . . . . . .         74.1%       72.0%
 REVPAR. . . . . . . . . . . . . . . . . . .       $79.92      $71.20
 REVPAR % change . . . . . . . . . . . . . .         12.3%         --

</TABLE>

The table below sets forth performance information for the Company's properties:
<TABLE>
<CAPTION>

                                                     Fiscal Year 
    
                                                   1996       1995
                                                   ----       ----
<S>                                              <C>         <C> 
 Number of properties (2). . . . . . . . . .          17           15
 Number of rooms . . . . . . . . . . . . . .       6,850        6,076
 Average daily rate. . . . . . . . . . . . .     $106.37       $99.08
 Occupancy % . . . . . . . . . . . . . . . .        74.2%        72.2%
 REVPAR. . . . . . . . . . . . . . . . . . .      $78.88       $71.50
 REVPAR % change . . . . . . . . . . . . . .        10.3%          -- 

</TABLE>

     
(1)  Includes all properties  that were owned by the Company for all of 1995 and
     1996.
(2)  Does not include the Springfield Radisson which was sold in December 1995.

Revenues for 1996 for nearly all of the Company's  full-service hotels,  resorts
and suites were improved or comparable to 1995.  This  improvement  was achieved
through  steady  increases  in  customer  demand,  as well as  yield  management
techniques applied by the managers to maximize REVPAR on a  property-by-property
basis. REVPAR for comparable  properties increased 12% for 1996, as average room
rates  increased  9% and average  occupancy  increased  two  percentage  points.
Results were further  enhanced by a two  percentage  point increase in the house
profit margin for comparable  properties.  Due to the relatively  high occupancy
rates of the Company's  hotels,  the limited  supply of new rooms and the recent
increase in business travel, the managers of the Company's hotels have increased
average room rates by replacing certain discounted group with higher-rated group
and transient  business,  and by selectively  increasing room rates. The Company
believes that these  favorable  REVPAR growth trends should  continue due to the
limited new construction of full-service properties.

Six of the  Company's  full-service  hotel  acquisitions  were  converted to the
Marriott  brand upon  acquisition.  The  conversion  of these  properties to the
Marriott  brand is intended to increase  occupancy and room rates as a result of
Marriott International's nationwide marketing and reservation systems as well as
customer  recognition  of the  Marriott  brand  name.  In  connection  with  the
conversion  of these  properties,  the Company  employed  additional  capital to
upgrade these properties to the Company's and the new managers'  standards.  The
invested  capital with  respect to these  properties  is primarily  used for the
improvement  of common  areas as well as  upgrading  soft and hard goods  (i.e.,
carpets,  drapes,  paint,  furniture and additional  amenities).  The conversion
process  typically  causes periods of disruption to these properties as selected
rooms and common  areas are  temporarily  taken out of service.  The  conversion
properties  are  already  showing  improvements  as  the  benefits  of  Marriott
International's   marketing  and  reservation   programs  and  customer  service
initiatives  take hold.  In  addition,  these  properties  have  generally  been
integrated  into  Marriott's  systems  covering   purchasing  and  distribution,
insurance,  telecommunications  and payroll  processing.  The  Company  actively
manages  these  conversions  and, in many  cases,  has worked  closely  with the
manager to selectively  invest in enhancements  to the physical  product to make
the property more attractive to guests or more efficient to operate.

The Company's focus is on maximizing  profitability  throughout the portfolio by
concentrating  on key objectives.  The Company works with the manager to achieve
these key objectives,  which include evaluating marginal restaurant  operations,
exiting  low-rate  airline room  contracts in  strengthening  markets,  reducing
property-level  overhead  by sharing  management  positions  with other  jointly
managed hotels in the vicinity,  and selectively  making additional  investments
where favorable incremental returns are expected.

The Company and its managers  will continue to focus on cost control such as the
sharing  of  managerial  and  administrative  functions  among  hotels  in close
proximity  to each other,  in an attempt to ensure  that hotel  sales  increases
serve to  maximize  house and  operating  profit.  While  control of fixed costs
serves to improve  profit  margins as hotel sales  increase,  it also results in
more properties reaching financial  performance levels that allow the manager to
share in growth of profits in the form of incentive management fees. The Company
believes that this  strengthens the alignment of the Company's and the managers'
interests.

1996 Acquisitions

The  Company   acquired  the  374-room   Toronto  Delta   Meadowvale  hotel  for
approximately  $25 million in February 1996. In April 1996, the Company acquired
the 400-room  Pittsburgh  City Center  Marriott  (formerly the Pittsburgh  Hyatt
Regency). The hotel was acquired by a limited partnership, of which a subsidiary
of the Company is the sole general partner,  for $18.5 million. The Company owns
a 95% interest in this limited  partnership and contributed  approximately $17.5
million to the limited  partnership  to fund the  acquisition.  The property was
renovated, converted to Marriott brand, and re- opened in July 1996. In addition
to the acquisitions described above, the Company intends to pursue opportunities
for expansion through the acquisition of other full-service lodging properties.

Marketing

Fifteen of the  Company's 17 hotel  properties  are operated  under the Marriott
brand  name.  Twelve of these  Marriott  brand  hotels are  managed by  Marriott
International   and  three  are   managed  by   Interstate   Hotel   Corporation
("Interstate")   under  franchise   agreements   with  Marriott   International.
Interstate  manages another property under a franchise  agreement with the Delta
brand. The remaining hotel is managed by Durbin Companies, Inc. as a Holiday Inn
Sunspree Resort.  The Company believes that its lodging properties will continue
to enjoy competitive advantages arising from their participation in the Marriott
International  hotel  system.  Marriott  International's   nationwide  marketing
programs and reservation systems as well as the advantage of increasing customer
preference for Marriott brands should also help these  properties to maintain or
increase their premium over competitors in both occupancy and room rates. Repeat
guest  business in the  Marriott  International  hotel system is enhanced by the
Marriott  Honored Guest Awards program as Marriott  Honored Guest Awards and its
companion program, Marriott Miles, continue to expand their memberships, and now
include more than nine million members.

The  Marriott  reservation  system was  upgraded  significantly  in 1994  giving
Marriott  reservation  agents  complete  descriptions of the rooms available for
sale, and more up-to-date rate information from the properties.  The reservation
system also  features  improved  connectivity  to airline  reservation  systems,
providing travel agents with greater access to available rooms inventory for all
Marriott lodging properties. In addition, new software at Marriott's centralized
reservations centers enables agents to immediately identify the nearest Marriott
brand property with available rooms when a caller's first choice is sold out.

Properties

The  following  table sets forth  certain  information  relating  to each of the
full-service  hotel  properties  owned by the Company at February 28, 1997.  All
properties are operated by Marriott  International  unless otherwise  indicated.
Also,  the land on which the hotel is built is fee owned by the  Company  unless
otherwise indicated.

<PAGE>

<TABLE>
<CAPTION>

Location                                     Rooms   
--------                                     -----         

<S>                                           <C>     
California                                 
 Napa Valley .............................    191                 
 San Francisco Airport ...................    684               
 San Francisco Fisherman's Wharf (5) .....    255       
Colorado                           
 Denver Tech .............................    625       
 Vail Mountain Resort ....................    349      
Florida                             
 Fort Lauderdale Marina ..................    580    
 Singer Island (Holiday Inn) (4)..........    222  
Georgia                             
 Atlanta Northwest (1)....................    400       
Indiana                            
 South Bend (3)...........................    300       
North Carolina
 Charlotte (1)(5).........................    298
Oregon
 Portland ................................    503
Pennsylvania
 Pittsburgh (3)(5)(6).....................    400
Texas
 Dallas/Fort Worth (1)....................    492
 Dallas Quorum (3)........................    547
Virginia
 Westfields Conference Center ............    335
 Williamsburg.............................    295
Canada
 Toronto Delta Meadowvale(2)(4)...........    374

</TABLE>
     
(1)  Property was acquired by the Company in 1995.
(2)  Property was acquired by the Company in 1996.
(3)  The land on which the hotel is built is leased by the Company  under a long
     term lease agreement.
(4)  Property  is not  operated  as a Marriott  and is not  managed by  Marriott
     International.
(5)  Property is currently operated as a Marriott franchised property.
(6)  Property  purchased by a limited  partnership  in 1996 in which the Company
     owns a 95% interest. The remaining 5% is owned by the manager. The property
     was converted to a Marriott in 1996 subsequent to its acquisition.

Competition

The cyclical nature of the United States lodging industry has been  demonstrated
over the past two decades.  Low hotel profitability during the 1974-75 recession
led to a prolonged  slump in new  construction  and, over time,  high  occupancy
rates and real price increases in the late 1970s and early 1980s. Changes in tax
and banking laws during the early 1980s  helped to  precipitate  a  construction
boom that created an oversupply of hotel rooms.  The Company  expects the United
States  upscale  hotel  supply/demand  imbalance to continue to improve over the
next few  years as room  demand  continues  to grow and room  supply  growth  is
expected to be minimal, in particular in the full-service segment.

The Company's  Marriott  hotels compete with several other major lodging brands,
including Crowne Plaza, Doubletree, Hyatt, Hilton, Radisson, Red Lion, Sheraton,
Westin,  and  Wyndham.  Competition  factors in the  industry  include  level of
service, quality of accommodations, convenience of locations and room rates.

Employees

The Company has no  employees.  All of its  management  services are provided by
employees of Host Marriott.

Environmental Matters

Under  various  federal,  state and local  environmental  laws,  ordinances  and
regulations,  a current or previous  owner or operator of real  property  may be
liable for the costs of removal or remediation of hazardous or toxic  substances
on, under or in such property. Such laws may impose liability whether or not the
owner  or  operator  knew of,  or was  responsible  for,  the  presence  of such
hazardous or toxic  substances.  In  addition,  certain  environmental  laws and
common  law  principles  could  be used  to  impose  liability  for  release  of
asbestos-containing  materials  ("ACMs"),  and third parties may seek,  recovery
from owners or operators of real properties for personal injury  associated with
exposure to released ACMs.  Environmental  laws also may impose  restrictions on
the manner in which property may be used or business may be operated,  and these
restrictions may require  expenditures.  In connection with its current or prior
ownership or operation of hotels,  the Company may be potentially liable for any
such costs or  liabilities.  Although the Company is currently  not aware of any
material environmental claims pending or threatened against it, no assurance can
be given that a material  environmental  claim will not be asserted  against the
Company.
<PAGE>

ITEM 3.LEGAL PROCEEDINGS

The  Company  is from time to time the  subject  of, or  involved  in,  judicial
proceedings.  Management believes that any liability or loss resulting from such
matters will not have a material  adverse  effect on the  financial  position or
results of operations of the Company.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

The Company's stock is not publicly traded.


ITEM 6.   SELECTED FINANCIAL DATA

The  following  table  presents  selected  historical   consolidated   financial
statement data derived from the Company's  consolidated financial statements for
fiscal  years 1996,  1995 and the period  from  September  10, 1994  (inception)
through  December  30,  1994.  Because the Company  had no  operations  prior to
January 1, 1994 and the acquired properties are not predecessor  businesses,  no
financial  statement  data for 1992 and 1993 has been  presented.  The following
data should be read in  conjunction  with the Company's  consolidated  financial
statements  and the notes  thereto,  Management's  Discussion  and  Analysis  of
Financial   Condition  and  Results  of  Operations  and  the  other   financial
information included elsewhere herein.

<TABLE>
<CAPTION>
                                                                  
                                                                      Fiscal Year         
                                                                 1996      1995      1994    
                                                                 ----      ----      ----    
                                                               (In millions, except ratio data)                                     
         
<S>                                                             <C>       <C>       <C> 
Statement of Operations Data: 
 Revenues ..................................................    $103      $ 72      $ 15
 Operating profit before corporate expenses and interest ...      55        37         6
 Corporate expenses ........................................       5         4         1
 Interest expense ..........................................      33        16         1
 Interest income ...........................................       3         1         1
 Net income before extraordinary item(1) ...................      12        11         3
 Net income ................................................      12         8         3
Balance Sheet Data:                                               
 Total assets ..............................................    $586      $588      $384
 Total debt ................................................     350       350       168
Other Data:
 EBITDA(2) .................................................   $  77      $ 49      $ 10
 Depreciation and amortization .............................      21        14         4
 Cash provided by operations ...............................      38        37        10
 Cash used in investing activities .........................      90       116       366
 Cash provided by (used in) financing activities ...........     (21)      177       367
 Ratio of earnings to fixed charges(3) .....................     1.6x      2.1x      6.0x
 EBITDA to cash interest expense ...........................     2.4x      3.1x     10.0x

</TABLE>

    
(1)  In 1995, the Company recognized a $2.6 million  extraordinary  loss, net of
     taxes, on the repayment of the Company's Credit Facility.
(2)  EBITDA,  as  defined  in the  senior  notes  indenture  (the  "Indenture"),
     consists of the sum of consolidated net income,  interest  expense,  income
     taxes,  depreciation  and  amortization  and certain other  noncash  items.
     EBITDA data is presented  because such data is used by certain investors to
     determine the Company's  ability to meet debt service  requirements  and is
     used in the  Indenture  as part of the  tests to  determine  the  Company's
     ability to incur debt and to make certain restricted payments.  The Company
     considers  EBITDA to be an indicative  measure of the  Company's  operating
     performance due to the significance of the Company's  long-lived assets and
     because  EBITDA can be used to  measure  the  Company's  ability to service
     debt,  fund capital  expenditures  and expand its business;  however,  such
     information  should  not be  considered  as an  alterative  to net  income,
     operating  profit,  cash flows from  operations,  or any other operating or
     liquidity  performance  measure prescribed by generally accepted accounting
     principles.  Cash  expenditures  for  various  long-term  assets,  interest
     expense and income  taxes have been,  and will be,  incurred  which are not
     reflected in the EBITDA presentations.
(3)  The ratio of earnings to fixed  charges is computed by dividing  net income
     before  taxes,  interest  expense  and other  fixed  charges by total fixed
     charges,  including  interest expense,  amortization of debt issuance costs
     and the portion of rent expense that is deemed to represent interest.

<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results Of Operations

The  Company  was formed on  September  10,  1994 as an  indirect,  wholly-owned
subsidiary of Host Marriott to acquire and own full- service lodging properties.
As of February 28, 1997, the Company owns 17  full-service  properties.  None of
these  properties  were owned by the Company or Host Marriott at January 1, 1994
and a substantial  portion of the properties were acquired by the Company during
the fourth quarter of 1994.

Revenues  represent  house profit from the  Company's  hotel  properties.  House
profit  reflects the net revenues  flowing to the Company as property  owner and
represents  hotel sales less property-  level expenses  excluding  depreciation,
management  fees, real and personal  property taxes,  ground and equipment rent,
insurance  and certain other costs which are  classified as operating  costs and
expenses.  The  Company's  hotel  operating  costs and expenses  are, to a great
extent,  fixed.  Therefore,  the Company derives substantial  operating leverage
from increases in revenue. This operating leverage is somewhat diluted, however,
by the impact of base  management  fees which are  calculated as a percentage of
sales,  variable lease payments and incentive  management fees tied to operating
performance above certain established levels.

For the periods  discussed  herein,  the Company's  properties have  experienced
substantial  increases  in  room  revenue  per  available  room  ("REVPAR")  for
comparable hotels. REVPAR is a commonly used indicator of market performance for
hotels which  represents the  combination of the daily room rate charged and the
average daily occupancy  achieved.  REVPAR does not include food and beverage or
other  ancillary  revenues  generated  by the  property.  The  REVPAR  increases
primarily represent strong percentage increases in room rates, while occupancies
have generally  increased  slightly for properties  that were already  operating
under  the  Marriott  brand and  increased  significantly  for those  properties
converted to the Marriott  brand.  Increases in room rates have  generally  been
achieved by the managers through shifting occupancies away from discounted group
business  to  higher-rated  group  and  transient  business.  This has been made
possible by the increased travel due to improved economic  conditions and by the
favorable  supply/demand  characteristics  existing in the hotel industry today,
particularly in the full-service segment. The Company expects this supply/demand
imbalance,   particularly  in  the  full-service  segment,  to  continue,  which
management believes should result in improved REVPAR and operating profit at its
hotel  properties  in the near term.  However,  there can be no  assurance  that
REVPAR will continue to increase in the future.

Results of Operations

1996 Compared to 1995

Revenues.  Revenues increased $31 million,  or 43%, to $103 million in 1996 from
$72 million in 1995 as a result of the addition of three full-service properties
during 1995, the addition of two full-service  properties during 1996 and strong
growth in REVPAR. In addition, fiscal year 1996 includes 53 weeks compared to 52
weeks for fiscal year 1995.

Improved  results  were  driven  by a  strong  increase  in  REVPAR  of 12%  for
comparable hotels. On a comparable basis,  average room rates increased 9% while
average  occupancy  increased two percentage points reflecting the impact of the
properties  converted to the Marriott  brand.  Management  believes  REVPAR will
continue to grow in the near future  through  steady  increases  in average room
rates, combined with less significant increases in occupancy. However, there can
be no assurance that REVPAR will continue to grow in the future.

Operating  Costs  and  Expenses.   Operating  costs  and  expenses   consist  of
depreciation,  management  fees, real and personal  property  taxes,  ground and
equipment rent, insurance and certain other costs.  Operating costs and expenses
increased $14 million,  or 40%, to $49 million in 1996 from $35 million in 1995,
primarily  reflecting the addition of five  properties  during 1995 and 1996 and
the growth in comparable revenues. As a percentage of revenues,  operating costs
and expenses represented 47% of revenues for 1996 and 48% in 1995.

Operating Profit. As a result of the changes in revenues and operating costs and
expenses discussed above,  operating profit increased  approximately $18 million
to $55  million,  or 53% of  revenues,  in  1996  from  $37  million,  or 52% of
revenues, in 1995. Several hotels, including the San Francisco Airport Marriott,
the San Francisco  Marriott  Fisherman's Wharf and Westfields  Conference Resort
posted significant improvements in operating profit. Three properties which were
renovated and converted to the Marriott brand in 1995, the Denver  Marriott Tech
Center, Marriott's Vail Mountain Resort and the Williamsburg Marriott, have also
shown  significant  improvement  over the  prior  year.  These  gains  have been
partially offset by the performance of the South Bend Marriott which experienced
lower operating profit due to increased competition.

Corporate Expenses. Corporate expenses increased $1.1 million to $4.6 million in
1996 from $3.5 million in 1995  primarily  due to higher  average  assets of the
Company which resulted in an increase in the allocation of corporate expenses to
the Company. As a percentage of revenues, corporate expenses decreased from 4.9%
of revenues in 1995 to 4.4% of revenues in 1996.

Interest Expense.  Interest expense  increased  approximately $17 million to $33
million, due to the impact of the increase in the overall level of debt, as well
as a higher  average  interest  rate,  as a result  of the  December  1995  debt
offering.

Extraordinary  Item.  In connection  with the repayment of the Company's  Credit
Facility in 1995, the Company  recognized an extraordinary  loss of $2.6 million
(net of an income tax benefit of $1.4  million),  representing  the write-off of
deferred financing fees.

Net  Income.  Net income  increased  $4.1  million to $12.3  million,  or 12% of
revenues, in 1996 from $8.2 million, or 11% of revenues, in 1995 due to improved
lodging results,  partially  offset by the change in interest expense  discussed
above.

1995 Compared to 1994

Revenues.  Revenues  increased $57 million to approximately  $72 million in 1995
from $15  million  in 1994 as a result  of the  addition  of three  full-service
properties during 1995, a full year of revenues from twelve properties purchased
during the third and fourth  quarters of 1994.  However,  revenues for 1995 were
adversely impacted by the conversion of five properties.  The conversion process
typically causes periods of disruption to these properties as selected rooms and
common  areas are  temporarily  taken out of  service.  Due to these  disruptive
periods,  the time necessary for integration into the nationwide Marriott system
and the Company's  realization of the anticipated effect of these  improvements,
the operating  results for 1995 do not reflect the full impact of conversion for
these five  properties.  The Company expects to begin to realize the benefits of
conversion improvements within six to 12 months of their completion.

Operating  Costs and  Expenses.  Operating  costs and expenses  increased to $35
million, or 48% of revenues,  in 1995, from $9 million,  or 58% of revenues,  in
1994 due to the  acquisition of three  full-service  properties  during 1995 and
twelve properties purchased during the third and fourth quarters of 1994.

Operating Profit. Operating profit increased to $37 million, or 52% of revenues,
in 1995 from $6  million,  or 42% of  revenues,  in 1994 due to the  changes  in
revenues and operating costs discussed above.

Corporate  Expenses.  Corporate expenses increased $2.6 million to $3.5 million,
from $.9 million in 1994 due to the substantial increase in the number of hotels
acquired in 1994 and in 1995.  As a percentage of revenues,  corporate  expenses
decreased from 6.1% of revenues in 1994 to 4.9% of revenues in 1995.

Interest Expense. Interest expense increased $15 million, to $16 million, due to
the Company  incurring a full year of  interest  expense on the Credit  Facility
(which was  entered  into  during the  fourth  quarter of 1994),  along with the
impact of the  substantial  increase in debt as a result of the  acquisition  of
full-service properties during 1995.

Extraordinary  Item.  In connection  with the repayment of the Company's  Credit
Facility in 1995, the Company  recognized an extraordinary  loss of $2.6 million
(net of an income tax benefit of $1.4  million),  representing  the write-off of
deferred financing fees.

Net Income. Net income increased to $8.2 million,  or 11% of revenues,  in 1995,
from $2.9 million, or 20% of revenues, in 1994 due to the items discussed above.


Liquidity and Capital Resources

The Company funds its capital  requirements with a combination of operating cash
flow and external  financing.  The Company believes that the financial resources
generated  from ongoing  operations  will be sufficient to enable it to meet its
capital expenditure and debt service needs for the foreseeable future.  However,
certain  events  such  as  significant  acquisitions  would  require  additional
financing.

The  Company's  cash flow provided by  operations  was $38 million in 1996,  $37
million in 1995 and $10 million in 1994.

The Company's cash used in investing  activities  was $90 million,  $116 million
and $366  million  in  fiscal  years  1996,  1995 and  1994,  respectively.  The
Company's cash used in investing  activities  consists primarily of acquisitions
of hotel properties, contributions to the property improvement funds and capital
expenditures  for upgrading  acquired  hotels to the Company's and the managers'
standards or to enhance the acquired hotels' profit potential.

During 1996, the Company  acquired the 374-room  Toronto Delta  Meadowvale hotel
for $25 million and a  controlling  interest in a venture that owns the 400-room
Pittsburgh  Marriott City Center for $18 million.  Also during the first quarter
of 1996, the Company  acquired for $20 million,  a minority  interest in a joint
venture owned by Host Marriott that controls two hotels in Mexico City,  Mexico.
The Company  subsequently  sold its interest to Host Marriott for $20 million in
the third quarter of 1996.  During 1995, the Company  acquired three  additional
full-service  properties totalling 1,189 rooms for $89 million. The Company sold
the Springfield Radisson Hotel (which was acquired in December 1994 as part of a
portfolio of seven hotels) in December 1995 for net cash proceeds of $3 million,
which approximated its carrying value.  During 1994, the Company, or affiliates,
acquired  thirteen  full-  service  properties  totalling  5,085  rooms for $361
million.  Affiliates of the Company  acquired four of the thirteen full- service
properties in 1994  totalling  1,899 rooms for $159  million.  These four hotels
were contributed to the Company on September 10, 1994, its formation date.

The Company incurs capital  expenditures  for upgrading  acquired  hotels to the
Company's and the managers' standards as well as a result of certain improvement
projects for  non-conversion  hotels.  The Company  incurred  approximately  $16
million and $14 million in conversion  costs for the converted  hotels in fiscal
years 1996 and 1995,  respectively.  Also,  during  1996 and 1995,  the  Company
expended $9 million and $7 million,  respectively, in other improvement projects
at existing  Marriott  hotels and expects to incur an additional $14 million for
these or similar projects in early 1997.

The Company,  through the managers,  routinely makes  disbursements to cover the
cost of certain  non-routine  repairs and  maintenance  to the hotels  which are
normally capitalized,  and the costs of replacements and renewals to the hotels'
property and equipment.  Such  disbursements  are generally equal to 5% of gross
hotel sales and were $15  million,  $9 million  and $2 million for fiscal  years
1996,   1995  and  1994,   respectively.   The  Company   anticipates   spending
approximately  $18  million  in  capital  expenditures  for the  renovation  and
refurbishment of the Company's existing properties in 1997.

The Company's  cash used in financing  activities was $21 million in fiscal year
1996. The Company's  cash provided by financing  activities was $177 million and
$367 million in fiscal years 1995 and 1994,  respectively.  The  Company's  cash
from financing  activities  primarily  consisted of the proceeds of the Offering
and the draws and  repayments  of the Credit  Facility,  as well as dividends to
parent and contributed capital from Host Marriott. The Company made draws on the
Credit  Facility of $59  million and $168  million in fiscal year 1995 and 1994,
respectively,  to fund the acquisition of full-service properties. During fiscal
year 1995 and 1994, the Company made  repayments of $226 million and $1 million,
respectively, under the Credit Facility.

The Company is required to make semi-annual cash interest payments on the Senior
Notes at their stated  interest  rate.  The Company will not be required to make
principal  payments on the Senior Notes until  maturity,  except in the event of
certain changes in control. In addition,  under the terms of the Indenture,  the
Company has the ability to enter into a revolving  credit  facility of up to $25
million,  which  would be  available  for  working  capital  and  other  general
corporate  purposes,  and  to  incur  other  indebtedness  as  specified  in the
Indenture.

On December  20, 1995,  the Company  issued $350 million of 9% senior notes (the
"Senior  Notes").  The Senior Notes were issued at par and have a final maturity
of December  2007.  The net proceeds  totalled $340 million and were utilized to
repay in full the  outstanding  borrowings  of $210 million  under the Company's
$230 million revolving credit facility (the "Credit  Facility"),  which was then
terminated,  to acquire  three  full-service  properties  and to finance  future
acquisition of full-service  hotel properties with the remaining  proceeds.  The
Senior  Notes are  fully and  unconditionally  guaranteed  (limited  only to the
extent  necessary  to  avoid  such  guarantees  being  considered  a  fraudulent
conveyance under applicable law), on a joint and several basis, by the Company's
wholly-owned  subsidiaries.  The Indenture  contains covenants that, among other
things,  limit  the  ability  of the  Company  and  its  subsidiaries  to  incur
additional  indebtedness,  issue  preferred  stock,  pay dividends or make other
distributions,  repurchase  capital stock or subordinated  indebtedness,  create
certain liens,  enter into certain  transactions  with affiliates,  sell certain
assets,  issue or sell  stock of the  Company's  subsidiaries,  and  enter  into
certain mergers and consolidations.  In addition,  under certain  circumstances,
the Company  will be required to offer to purchase the Senior Notes at par value
with the proceeds of certain asset sales. Distributions of the Company's equity,
including earnings  accumulated  subsequent to December 20, 1995, are restricted
but are available for the payment of dividends to the extent that the cumulative
amount of such  dividends  from the date of the  Indenture  does not  exceed $15
million plus an amount equal to the excess of the Company's  EBITDA over 200% of
the Company's  interest  expense and the amount of capital  contributions to the
Company subsequent to December 20, 1995. During 1996, the Company made dividends
totalling  approximately  $20 million to Host  Marriott as  permitted  under the
Indenture.

EBITDA

The Company believes that consolidated Earnings Before Interest Expense,  Taxes,
Depreciation  and  Amortization  and certain other noncash items ("EBITDA") is a
meaningful  measure of its operating  performance due to the significance of the
Company's long-lived assets (and the related depreciation  thereon), and because
EBITDA can be used to measure  the  Company's  ability  to  service  debt,  fund
capital  expenditures  and  expand  its  business.  EBITDA  is used  by  certain
investors to determine the Company's  ability to meet debt service  requirements
and is used in the  Indenture  as part of the tests  determining  the  Company's
ability  to  incur  debt  and  to  make  certain  restricted  payments.   EBITDA
information should not be considered as an alternative to net income,  operating
profit,  cash  flows  from  operations,  or any  other  operating  or  liquidity
performance  measure  prescribed  by generally  accepted  accounting  principles
("GAAP").  EBITDA increased $28 million, or 57%, to $77 million in 1996 from $49
million in 1995. The increase in EBITDA is due to the acquisition of five hotels
in 1995 and 1996 as well as an increase in comparable  properties' EBITDA of 24%
in 1996. The Company's ratio of EBITDA to cash interest expense (defined as GAAP
interest expense less  amortization of deferred  financing costs) was 2.4 to 1.0
for 1996 and 3.1 to 1.0 for 1995. The ratio of earnings to fixed charges was 1.6
to 1.0  and  2.1 to 1.0 in 1996  and  1995,  respectively.  The  following  is a
reconciliation of EBITDA to income before extraordinary item (in thousands):
<TABLE>
<CAPTION>

                                        Fifty-three Weeks   Fifty-two Weeks
                                             Ended               Ended
                                        January 3, 1997     December 29, 1995
                                        ---------------     -----------------

<S>                                          <C>                 <C>    
EBITDA ...............................       $76,623             $49,036
Interest expense .....................       (32,591)            (16,266)
Depreciation and amortization ........       (21,246)            (14,415)
Income taxes applicable to operations.        (8,063)             (7,519)
Gain (loss) on dispositions of assets and
 other non-cash charges, net .........        (2,380)                (17)
                                              ------              ------ 
 Income before extraordinary item ....       $12,343             $10,819
                                             =======             =======
</TABLE>


<PAGE>

Inflation

The Company's lodging properties are impacted by inflation through its effect on
increasing  costs and on the managers'  ability to increase  room rates.  Unlike
other real estate operations,  hotels have the ability to change room rates on a
daily basis,  so the impact of higher  inflation  generally  can be passed on to
customers.

New Accounting Standards

The Company adopted  Statement of Financial  Accounting  Standards  ("SFAS") No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed  Of," during the fourth  quarter of 1995.  The adoption of
SFAS  No.  121  did  not  have a  material  effect  on the  Company's  financial
statements.



<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>

                                                            
The following financial information is included on the pages
indicated:
                                                                          Page
<S>                                                                             <C>
Report of Independent Public Accountants ................................       16
Consolidated Balance Sheets as of January 3, 1997 and December 29,
1995 ....................................................................       17
Consolidated Statements of Operations for the Fiscal Years Ended
 January 3, 1997, December 29, 1995, and the Period from September 10, 
 1994 (inception) through December 30, 1994 .............................       18
Consolidated Statements of Shareholder's Equity for the Fiscal Years 
 Ended January 3, 1997, December 29, 1995 and the Period from September
 10, 1994 (inception) through December 30, 1994 .........................       19
Consolidated Statements of Cash Flows for the Fiscal Years Ended
 January 3, 1997, December 29, 1995 and the Period from September 10,
 1994 (inception) through December 30, 1994 .............................       20
Notes to Consolidated Financial Statements ..............................       21
</TABLE>



<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To HMC Acquisition Properties, Inc.:

We have audited the accompanying  consolidated balance sheets of HMC Acquisition
Properties,  Inc. and  subsidiaries as of January 3, 1997 and December 29, 1995,
and the related consolidated statements of operations,  shareholder's equity and
cash flows for the two fiscal  years  ended  January 3, 1997 and the period from
September 10, 1994 through December 30, 1994. These financial statements and the
schedule referred to below are the  responsibility of the Company's  management.
Our  responsibility  is to express an opinion on these financial  statements and
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of HMC  Acquisition
Properties,  Inc. and  subsidiaries  as of January 3, 1997 and December 29, 1995
and the  results  of their  operations  and their  cash flows for the two fiscal
years in the period ended January 3, 1997 and the period from September 10, 1994
through  December 30, 1994 in  conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements taken as a whole. The schedule listed in the index at Item
14(a)(2)  (Schedule III Real Estate and Accumulated  Depreciation)  is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
financial statements taken as a whole.



                                 Arthur Andersen LLP
Washington, D.C.
February 28, 1997

<PAGE>

               HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                     JANUARY 3, 1997 AND DECEMBER 29, 1995
                       (in thousands, except share data)
<TABLE>
<CAPTION>


                                                          1996          1995
                                                          ----          ----
                             ASSETS

<S>                                                     <C>            <C>
Property and equipment, net .......................     $529,130       $455,602 
Due from hotel managers ...........................       16,050         10,915
Other assets ......................................        7,799         14,671
Cash and cash equivalents .........................       33,282        107,119
                                                        --------        -------
                                                        $586,261       $588,307
                                                        ========       ========
              LIABILITIES AND SHAREHOLDER'S EQUITY

Debt ...............................................    $350,000       $350,000
Deferred income taxes ..............................      15,676          9,718
Other liabilities ..................................       4,419          4,839
                                                         -------       --------
 Total liabilities .................................     370,095        364,557
                                                         -------       --------

Shareholder's equity
 Common stock, 100 shares issued and outstanding ...          --             --
 Additional paid-in capital ........................     214,374        214,374
 Retained earnings .................................       1,792          9,376
                                                        --------       --------
  Total shareholder's equity .......................     216,166        223,750
                                                         -------        -------
                                                        $586,261       $588,307
                                                        ========       ========

</TABLE>























                 See Notes to Consolidated Financial Statements

<PAGE>

               HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
         FOR THE FISCAL YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995
                              AND THE PERIOD FROM
            SEPTEMBER 10, 1994 (INCEPTION) THROUGH DECEMBER 30, 1994
                                 (in thousands)
<TABLE>
<CAPTION>



                                                          1996            1995            1994
                                                        --------        --------        --------
<S>                                                     <C>             <C>             <C>      
REVENUES ..........................................     $103,259        $ 72,163        $ 14,649
                                                        --------        --------        --------

OPERATING COSTS AND EXPENSES
 Depreciation and amortization ....................       21,246          14,401           4,114
 Base and incentive management fees (including fees
  to Marriott International, Inc. of $13,007, 
  $9,980, and $2,025, respectively)................       14,742          10,906           2,044
 Property taxes ...................................        7,924           6,327           1,783
 Ground rent, insurance and other .................        4,662           3,266             563
                                                         -------         -------         -------
  Total operating costs and expenses ..............       48,574          34,900           8,504
                                                         -------         -------         -------
OPERATING PROFIT BEFORE
  CORPORATE EXPENSES AND INTEREST .................       54,685          37,263           6,145
Corporate expenses ................................       (4,582)         (3,514)           (894)
Interest expense ..................................      (32,591)        (16,266)           (875)
Interest income ...................................        2,894             855             592
                                                         -------         -------         -------
INCOME BEFORE INCOME TAXES
 AND EXTRAORDINARY ITEM ...........................       20,406          18,338           4,968
Provision for income taxes ........................       (8,063)         (7,519)         (2,037)
                                                        --------         -------         ------- 
INCOME BEFORE EXTRAORDINARY ITEM ..................       12,343          10,819           2,931
Extraordinary loss on extinguishment of debt
 (net of income tax benefit of $1,408 in 1995) ....           --          (2,615)             --
                                                        --------         -------         -------      
NET INCOME ........................................     $ 12,343         $ 8,204         $ 2,931
                                                        ========         =======         =======


</TABLE>
















                 See Notes to Consolidated Financial Statements.

<PAGE>

               HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
           FOR THE PERIOD FROM SEPTEMBER 10, 1994 (INCEPTION) THROUGH
                               DECEMBER 30, 1994
        AND FOR THE FISCAL YEARS ENDED DECEMBER 29, 1995 AND JANUARY 3,
                                      1997
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                     
                                                                   Additional      
                                                    Common          Paid-In      Retained
                                                    Stock           Capital      Earnings
                                                    ------         ----------    --------
<S>                                                <C>           <C>           <C>  
Balance, September 10, 1994 (inception)
 issuance of 100 shares of
 no par common stock (Note 1)...............       $     --      $210,000      $     --
Net income (since inception) ...............             --            --         1,172
                                                    -------       -------       -------
 Balance, December 30, 1994  ...............             --       210,000         1,172
Net income .................................             --            --         8,204
Capital Contribution .......................             --         4,374            --
                                                    -------       -------       -------       
 Balance, December 29, 1995 ................             --       214,374         9,376
Net income .................................             --            --        12,343
Dividend to Host Marriott Corporation ......             --            --       (19,927)
                                                    -------       -------       ------- 
 Balance, January 3, 1997 ..................       $     --      $214,374      $  1,792
                                                   ========      ========      ========


</TABLE>




























                See Notes to Consolidated Financial Statements.

<PAGE>

               HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
         FOR THE FISCAL YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995
                              AND THE PERIOD FROM
            SEPTEMBER 10, 1994 (INCEPTION) THROUGH DECEMBER 30, 1994
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                 1996           1995           1994
                                                                 ----           ----           ----

<S>                                                           <C>            <C>            <C>
OPERATING ACTIVITIES
Net income .................................................  $ 12,343       $  8,204       $  2,931
Extraordinary loss on extinguishment of debt, net of taxes..        --          2,615             --           
Adjustments to reconcile to cash provided by operations:
 Depreciation and amortization .............................    21,246         14,401          4,114
 Income taxes ..............................................     7,883          7,436          2,037
 Other .....................................................       658            632             47
 Changes in operating accounts:
  Due from hotel managers ..................................    (1,593)        (1,426)            38
  Other assets .............................................       760          1,768           (457)
  Other liabilities ........................................    (3,779)         3,415            861
                                                               -------        -------        -------
 Cash provided by operations ...............................    37,518         37,045          9,571
                                                               -------        -------        -------

INVESTING ACTIVITIES
Acquisitions ...............................................   (61,405)       (88,931)      (360,538)
Net proceeds from sale of assets ...........................    20,000          3,182             --
Capital expenditures .......................................   (40,033)       (30,861)        (2,366)
Other ......................................................    (8,690)           256         (3,519)
                                                               -------       --------        ------- 
 Cash used in investing activities .........................   (90,128)      (116,354)      (366,423)
                                                               -------       --------       -------- 

FINANCING ACTIVITIES
Dividend to Host Marriott Corporation ......................   (19,927)            --             --
Proceeds from borrowings, net ..............................        --        399,830        164,169
Repayments of debt .........................................        --       (226,427)        (1,000)
Contributed capital, including advances from affiliates ....        --          3,195        210,000
Transfers to HMC Acquisitions, Inc..........................        --             --         (6,487)
Other ......................................................    (1,300)            --             --
                                                               -------        -------        -------            
 Cash (used in) provided by financing activities ...........   (21,227)       176,598        366,682
                                                               -------        -------        -------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........   (73,837)        97,289          9,830
CASH AND CASH EQUIVALENTS, beginning of year ...............   107,119          9,830             --
                                                               -------        -------        -------       

CASH AND CASH EQUIVALENTS, end of year .....................   $33,282       $107,119       $  9,830
                                                               =======       ========       ========


</TABLE>






                See Notes to Consolidated Financial Statements.

<PAGE>

               HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

HMC Acquisition Properties,  Inc. (the "Company"),  a wholly owned subsidiary of
HMC Acquisitions,  Inc. ("Acquisitions"),  which is a wholly owned subsidiary of
Host  Marriott   Corporation  ("Host  Marriott"),   was  formed  as  a  Delaware
corporation on September 10, 1994 ("Formation Date") to acquire and own a number
of  full-service  hotels.  At  January  3,  1997,  the  Company  owned 17 hotels
throughout  the United  States and Canada,  15 of which are  operated  under the
Marriott brand.

Acquisitions,  or another affiliate of the Company,  acquired four of the hotels
during 1994 prior to the Formation  Date.  These  hotels,  with a total net book
value of $162 million on the Formation  Date,  were  contributed to the Company.
The consolidated financial statements present the accounts of each of the hotels
for  the  period  from  the  date  of  acquisition  of  each  such  property  by
Acquisitions,  or another  affiliate  of the Company,  through  January 3, 1997.
Acquisitions  made an  additional  capital  contribution  to the  Company on the
Formation  Date in the form of a receivable  totalling  $48  million,  which was
subsequently  collected  by the  Company  and the  proceeds  utilized to acquire
additional  full- service hotel  properties.  During  December 1995, the Company
received an additional  capital  contribution from Acquisitions of approximately
$4.4 million, including $3.2 million in cash.

The consolidated financial statements present the financial position, results of
operations,  and cash flows of the  Company  as if it were a  separate  indirect
subsidiary of Host Marriott for all periods presented.

The  Company  operates as a unit of Host  Marriott,  utilizing  Host  Marriott's
employees, insurance and administrative services. Through December 20, 1995, the
Company also utilized Host  Marriott's  centralized  systems for cash management
and  substantially  all  cash  received  by the  Company  was  deposited  in and
commingled  with Host  Marriott's and  Acquisition's  general  corporate  funds.
Subsequent to December 20, 1995, the Company maintained  separate cash accounts.
The Company has no  employees.  Host  Marriott  provides the services of certain
employees to the Company.  Certain operating expenses,  capital expenditures and
other cash  requirements  of the Company are paid by Host  Marriott  and charged
directly or allocated to the Company.  Certain general and administrative  costs
of Host  Marriott  are  allocated  to the  Company,  principally  based  on Host
Marriott's specific  identification of individual cost items and otherwise based
upon  estimated  levels of effort  devoted  by its  general  and  administrative
departments to individual  entities or relative measures of size of the entities
based on assets.  In the  opinion of  management,  the  methods  for  allocating
corporate,  general  and  administrative  expenses  and other  direct  costs are
reasonable.  It is not  practicable  to estimate  the costs that would have been
incurred by the Company if it had been operated on a stand-alone basis, however,
management  believes that these expenses are comparable to the expected  expense
levels on a forward-looking basis.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries   and  controlled   affiliates.   All  material   intercompany
transactions and balances have been eliminated.

Fiscal Year

The Company's fiscal year ends on the Friday nearest to December 31. Fiscal year
1996 includes 53 weeks compared to 52 weeks for fiscal year 1995.


Revenues and Expenses

Revenues  represent  house profit from the Company's  hotels because the Company
has  delegated  substantially  all of the  operating  decisions  related  to the
generation of house profit from the hotels to Marriott  International  and other
hotel  managers  (together,  the  "Managers").  House  profit  reflects  the net
revenues flowing to the Company as property owner and represents hotel operating
results less property-level  expenses,  excluding depreciation and amortization,
base and incentive  management  fees, real and personal  property taxes,  ground
rent and equipment rent, insurance and certain other costs, which are classified
as operating costs and expenses in the accompanying statement of operations.


<PAGE>

Property and Equipment

Property and equipment is recorded at cost.  Replacements  and  improvements are
capitalized.  Depreciation is computed using the  straight-line  method over the
estimated useful lives of the assets,  generally 40 years for buildings and 3 to
10 years for furniture and equipment.  Leasehold improvements are amortized over
the shorter of the lease term or the useful lives of the related improvements.

The Company assesses  impairment of its real estate  properties based on whether
the estimated net undiscounted  future cash flows from each individual  property
(excluding  debt service) will be less than its net book value. If a property is
impaired, its basis is adjusted to its fair market value less cost to sell.

Deferred Charges

Deferred  financing  costs related to long-term  debt are deferred and amortized
over the remaining life of the debt.

Cash and Cash Equivalents

The Company  considers all  highly-liquid  investments  with a maturity of three
months or less at the date of purchase to be cash equivalents.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Reclassifications

Certain amounts have been reclassified for comparative purposes.

New Statement of Financial Accounting Standards

The Company adopted  Statement of Financial  Accounting  Standards  ("SFAS") No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed  Of" during the fourth  quarter of 1995.  The  adoption of
SFAS No.  121 did not  have a  material  effect  on the  Company's  consolidated
financial statements.


Note 2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at January 3, 1997 and December
29, 1995 (in thousands):
<TABLE>
<CAPTION>

                                                                 
                                                         1996          1995
                                                         ----          ----

<S>                                                   <C>           <C>
     Land ..................................          $ 71,634      $ 68,077
     Building and leasehold improvements ...           414,440       345,428
     Furniture and equipment ...............            54,673        38,587
     Construction in progress ..............            24,678        20,388
                                                       -------       -------
                                                       565,425       472,480
     Less accumulated depreciation and amortization    (36,295)      (16,878)
                                                       -------       ------- 
                                                      $529,130      $455,602
                                                      ========      ========
</TABLE>

Note 3. DEBT

At January 3, 1997,  the Company's  debt consists of $350 million of 9.0% senior
notes (the "Senior Notes") which are due December 2007. The Company's  revolving
credit and term loan  agreement  ("Credit  Facility")  was  repaid in full,  and
terminated,  with a portion of the net proceeds  from the offering of the Senior
Notes in December 1995 (the "Offering"). In connection with the repayment of the
Credit  Facility  in 1995,  the  Company  recognized  an  extraordinary  loss of
$2,615,000 (net of an income tax benefit of $1,408,000).
<PAGE>

The  Senior  Notes  will  mature  in 2007  and  are  fully  and  unconditionally
guaranteed  on a joint and  several  basis by the  Company's  subsidiaries.  The
senior  note  indenture   ("Indenture")  governing  the  Senior  Notes  contains
covenants  that,  among other  things,  limit the ability of the Company and its
subsidiaries to incur  additional  indebtedness  and issue preferred  stock, pay
dividends or make other distributions,  repurchase capital stock or subordinated
indebtedness,  create  certain  liens,  enter  into  certain  transactions  with
affiliates,   sell  certain  assets,  issue  or  sell  stock  of  the  Company's
subsidiaries,  and enter into certain mergers and  consolidations.  In addition,
under  certain  circumstances,  the Company is required to offer to purchase the
Senior Notes at par value with the proceeds of certain asset sales.  The Company
will be required to make  semi-annual  interest  payments on the Senior Notes at
their stated  interest  rate. The Company will not be required to make principal
payments  on the Senior  Notes  until  maturity,  except in the event of certain
changes in control.

Under the terms of the Offering,  distributions  by the Company to Host Marriott
are available through the payment of dividends generally only to the extent that
the cumulative  amount of such dividends from the date of the Indenture does not
exceed $15 million plus an amount equal to the excess of the Company's  earnings
before interest expense,  taxes,  depreciation,  amortization and other non-cash
items ("EBITDA"),  as defined by the Indenture,  over 200% of the Company's cash
interest  expense   (defined  as  interest  expense  under  generally   accepted
accounting  principles less  amortization of deferred  financing costs) plus the
amount of capital  contributions to the Company subsequent to December 20, 1995.
The Company made a distribution of $19,927,000 to Host Marriott in 1996.

Cash paid for interest was  $31,815,000,  $15,459,000  and $37,000 in 1996, 1995
and 1994,  respectively.  Deferred  financing costs, which are included in other
assets,  amounted to $9,235,000  and  $8,725,000 at January 3, 1997 and December
29, 1995, respectively. Accumulated amortization of the deferred financing costs
was $791,000 and zero at January 3, 1997 and December 29, 1995, respectively.


Note 4. INCOME TAXES

The Company  accounts for income taxes in accordance with SFAS 109,  "Accounting
for Income Taxes." SFAS 109 requires the  recognition of deferred tax assets and
liabilities   equal  to  the  expected  future  tax  consequences  of  temporary
differences.  At January 3, 1997 and December 29, 1995, the Company had deferred
tax  liabilities of  approximately  $15,658,000  and  $9,718,000,  respectively,
attributable to accelerated depreciation on its property and equipment.

The income tax provision (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>

                                             1996          1995          1994
                                             ----          ----          ----

<S>                                        <C>          <C>          <C> 
     Current-Federal ...................   $ 1,942      $  (595)      $   486
            -State .....................       163         (103)          126
                                             -----        -----         -----
                                             2,105         (698)          612
                                             -----        -----         -----
     Deferred-Federal ..................     4,888        6,413         1,104
             -State ....................     1,070        1,804           321
                                             -----        -----         -----
                                             5,958        8,217         1,425
                                             -----        -----         -----
                                           $ 8,063      $ 7,519       $ 2,037
                                           =======      =======       =======
</TABLE>

A reconciliation  of the statutory  Federal tax rate to the Company's  effective
income tax rate follows:
<TABLE>
<CAPTION>
                                                         1996      1995      1994
                                                         ----      ----      ----

<S>                                                      <C>       <C>       <C>  
     Statutory Federal tax rate ...................      35.0%     35.0%     35.0%
     State income tax, net of Federal tax benefit..       3.9       6.0       6.0   
     Additional tax on foreign source income ......       0.6        --        --
                                                         ----      ----      ----        
     Effective income tax rate ....................      39.5%     41.0%     41.0%
                                                         ====      ====      ==== 
</TABLE>

The Company is included in the  consolidated  Federal  income tax return of Host
Marriott and its affiliates (the "Group"). Tax expense allocated to the Company,
as a member of the Group, is based upon the Company's  relative  contribution to
the  Group's   consolidated   taxable   income/loss  and  changes  in  temporary
differences.  This allocation method results in Federal tax expense allocated to
the Company for all periods  presented  substantially  equal to the expense that
would be recognized if the Company and its subsidiaries filed a separate return.

Substantially all income taxes of the Group, including income taxes allocated to
the Company,  are paid by Host Marriott.  As of January 3, 1997 and December 29,
1995,  the Company was due  $206,000  and  $2,300,000,  respectively,  from Host
Marriott for tax-related balances.

Cash paid for taxes was $180,000 in 1996,  $83,000,  and zero in 1996,  1995 and
1994, respectively.

Note 5. LEASES

The Company  leases  certain  property  and  equipment,  including  land,  under
non-cancelable operating leases, generally with multiple renewal options. Future
minimum annual rental  commitments for all  non-cancelable  operating  leases at
January 3, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>


     <S>                                                    <C>   
     1997.............................................      $  2,129
     1998.............................................         1,799
     1999.............................................         1,441
     2000.............................................         1,343
     2001.............................................           754
     Thereafter.......................................         4,584
                                                             -------
     Total minimum lease payments.....................      $ 12,050
                                                            ========
</TABLE>

One ground lease contains  contingent rental provisions whereby rent is equal to
the greater of $350,000 per year,  or 5% of gross room revenue.  Rental  expense
under all leases was $1,870,000,  $1,538,000 and $253,000, respectively, for the
fiscal  years ended  January 3, 1997,  December  29, 1995 and December 30, 1994,
including contingent rent of $499,000, $419,000, and $59,000, respectively.

Note 6. MANAGEMENT AND FRANCHISE AGREEMENTS

Management Agreements

The Company is party to management  agreements (the  "Agreements") for 12 of its
17 hotels  which  provide  for  Marriott  International  to manage  the  hotels,
generally  for a term of 15 years with renewal  terms of up to an  additional 16
years.  The Agreements  generally  provide for payment of base  management  fees
equal to three percent of gross revenues and incentive management fees generally
equal to 40% of hotel operating  profits (as defined in the  Agreements)  over a
priority  return  (as  defined)  to the  Company,  with total  annual  incentive
management  fees not to exceed  20% of  cumulative  hotel  operating  profit (as
defined).  For certain full-service hotels acquired after September 8, 1995, the
incentive  management fee is equal to 20% of operating  profit.  The Company may
terminate  the  Agreements  if  specified  performance  thresholds  are not met,
subject to the right of Marriott  International  to cure.  In the event of early
termination of the Agreements,  Marriott  International  will receive additional
fees  based  on the  unexpired  term and  expected  future  base  and  incentive
management  fees.  No  management  agreement  with  respect to a single  lodging
facility is cross-collateralized or cross-defaulted to any other agreement and a
single  agreement  may be cancelled  under  certain  conditions,  although  such
cancellation will not cause the cancellation of any other management agreement.

Pursuant to the terms of the Agreements  with Marriott  International,  Marriott
International  is required to furnish the hotels with certain  services  ("Chain
Services")  which are generally  provided on a central or regional  basis to all
hotels in the Marriott  International  full-service hotel system. Chain Services
include  central  training,  advertising and promotion,  a national  reservation
system,  computerized  payroll  and  accounting  services,  and such  additional
services as needed  which may be more  efficiently  performed  on a  centralized
basis.  Costs and expenses  incurred in providing  such  services are  allocated
among all  domestic  full-service  hotels  managed,  owned or leased by Marriott
International or its  subsidiaries.  In addition,  the full-service  hotels also
participate in Marriott's Honored Guest Awards Program. The cost of this program
is  charged  to all  hotels in the  Marriott  International  full-service  hotel
system.

Pursuant to the terms of the management  agreements,  the Company is required to
provide the Managers  with working  capital to meet the  operating  needs of the
hotels.  The Managers  convert cash  advanced by the Company into other forms of
working capital consisting primarily of operating cash,  inventories,  and trade
receivables  and  payables.  Under the  terms of the  Agreements,  the  Managers
maintain possession of, and sole control over, the components of working capital
and, accordingly,  the Company reports total amounts so advanced to the Managers
as a component of due from hotel  managers.  Upon  termination of the management
agreements, the working capital will be returned to the Company. Working capital
advances  to  Managers  as of January 3, 1997 and  December  29,  1995  totalled
$9,314,000, and $8,241,000, respectively.

Prior  to  December  20,  1995,   the   management   agreements   with  Marriott
International also provided for the establishment of a property improvement fund
for the hotels to cover the cost of certain  non-routine repairs and maintenance
to the hotels which are normally  capitalized,  and the cost of replacements and
renewals to the hotels' property and improvements. Contributions to the property
improvement  fund were  generally  equal to 5% of gross hotel  sales.  Aggregate
contributions  to  the  property  improvement  fund  for  all  the  hotels  were
$9,118,000 and $2,366,000 for 1995 and 1994,  respectively.  In conjunction with
the  consummation of the Offering,  a separate  property  improvement fund is no
longer  required,  however,  the Company expects to expend  approximately  5% of
gross hotel sales on such capital expenditures in the future.

Agreements with managers other than Marriott International exist for five of the
Company's  hotels.  Such  agreements  generally  contain  similar  terms  as the
agreements with Marriott International,  however,  incentive management fees are
only  earned  on two  of the  five  properties  and  the  duration  ranges  from
month-to-month to ten years.

Franchise Agreements

The Company has entered into franchise  agreements  with Marriott  International
for three hotels. Pursuant to these franchise agreements,  the Company generally
pays a franchise fee of six percent of room sales plus three percent of food and
beverage sales as well as certain other fees for advertising  and  reservations.
The terms of the franchise  agreements  are from 15 to 30 years.  Franchise fees
paid to Marriott International for 1996, 1995 and 1994 were $1,123,000, $746,000
and $14,000, respectively.

Two other  hotels are subject to  franchise  agreements  with brands  other than
Marriott.  The terms of the franchise  agreements range from three to ten years.
Franchise  fees paid range from 1.5% to 5% of room sales and certain  other fees
are paid  for  reservations  and  advertising.  Franchise  fees  paid for  these
properties, including franchise fees related to the hotel sold in December 1995,
were $300,000 and $430,000 for 1996 and 1995, respectively.

<PAGE>

Note 7. REVENUES

As discussed in Note 1, revenues reflect house profit from the Company's hotels.
House profit reflects the net revenues  flowing to the Company as property owner
and represents all gross hotel operating revenues, less all gross property-level
expenses, excluding depreciation and amortization, base and incentive management
fees, real and personal property taxes, ground and equipment rent, insurance and
certain other costs,  which are classified as operating costs and expenses.  The
following  table  presents  the  details  of  the  Company's  house  profit  (in
thousands):
<TABLE>
<CAPTION>

                                                1996         1995          1994
                                                -----        ----          ----
<S>                                          <C>          <C>          <C>
Sales
 Rooms ...................................   $ 190,633    $ 140,286    $  29,416
 Food and beverage .......................      92,682       71,903       18,648
 Other ...................................      18,573       13,573        3,183
                                              --------     --------     --------
  Total Hotel Sales ......................     301,888      225,762       51,247
                                              --------     --------     --------
Department Costs
 Rooms ...................................      46,564       34,971        7,994
 Food and beverage .......................      71,422       56,039       14,251
 Other ...................................      10,082        7,676        2,018
                                              --------     --------     --------
  Total Department Costs .................     128,068       98,686       24,263
                                             ---------    ---------    ---------
 Department profit .......................     173,820      127,076       26,984
 Other deductions ........................     (70,561)     (54,913)     (12,335)
                                             ---------    ---------    --------- 
 House Profit ............................   $ 103,259    $  72,163    $  14,649
                                             =========    =========    =========

</TABLE>

Note 8.  ACQUISITIONS AND DISPOSITION

In the first quarter of 1996,  the Company  purchased a hotel for  approximately
$25 million. The Company also purchased a controlling interest in a venture that
owns another full-service property for approximately $18 million.

In the first quarter of 1995,  the Company  purchased a hotel for  approximately
$15 million using proceeds from a draw under the Credit  Facility.  In the third
quarter of 1995,  the Company  purchased a 492-room  hotel from a partnership in
which Host Marriott serves as general partner,  for  approximately  $44 million,
also using  proceeds  from a draw under the Credit  Facility.  A third hotel was
purchased  in the fourth  quarter of 1995 for  approximately  $29 million  using
proceeds from the Offering.  The Company purchased 13 hotels for a total of $361
million at various  points  during 1994,  primarily in the fourth  quarter.  The
results of  operations  of the  acquired  hotels are  included in the  Company's
results of operations from their date of acquisition as discussed above.  During
the fourth quarter of 1995, the Company sold one of the hotels  acquired in 1994
for $3 million, which approximated its carrying value.

Note 9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's  obligations under the Senior Notes is estimated
to be $354  million and $350  million at January 3, 1997 and  December 29, 1995,
respectively.  The Senior Notes are valued based on the quoted market price. The
fair values of other  financial  instruments  are estimated to be equal to their
carrying value.

Note 10. SUPPLEMENTAL GUARANTOR SUBSIDIARIES INFORMATION

All of the subsidiaries of the Company  guarantee the Senior Notes. The separate
financial  statements  of  each  guaranteeing  subsidiary  (each,  a  "Guarantor
Subsidiary")  are not presented  because the Company's  management has 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 a  wholly-owned  subsidiary  of the Company.  At
February 28, 1997,  there is no  subsidiary  of the Company the capital stock of
which  comprises a substantial  portion of the  collateral  for the Senior Notes
within the meaning of Rule 3-10 of Regulation S-X.
<PAGE>

Summarized  operating  results of the Guarantor  Subsidiaries are as follows (in
thousands):
<TABLE>
<CAPTION>

                                           1996       1995       1994
                                           ----       ----       ----
<S>                                     <C>        <C>        <C>   
     Revenues ......................    $ 18,129   $ 10,801   $  2,808
     Operating profit...............      11,413      7,208      1,838
     Net income ....................       3,250      2,906        912
</TABLE>

Summarized  balance sheet information of the Guarantor  Subsidiaries  consist of
the following as of January 3, 1997 and December 29, 1995 (in thousands):
<TABLE>
<CAPTION>

                                                  1996         1995
                                               ---------    ----------
<S>                                            <C>          <C>    
     Property and equipment, net . . . . . .   $  94,427     $  63,044
     Other assets. . . . . . . . . . . . . .       6,853         5,333
                                                 -------       -------
      Total assets . . . . . . . . . . . . .   $ 101,280     $  68,377
                                               =========     =========

     Debt. . . . . . . . . . . . . . . . . .   $  60,465     $  40,679
     Other liabilities . . . . . . . . . . .       8,387            --
                                                 -------       -------       
      Total liabilities. . . . . . . . . . .      68,852        40,679
     Equity. . . . . . . . . . . . . . . . .      32,428        27,698
                                                 -------       -------
      Total liabilities and equity . . . . .   $ 101,280     $  68,377
                                               =========     =========
</TABLE>

The  operating  results and balance  sheet  information  include the pushed down
effects of that portion of the Company's debt and corporate  expenses  allocated
to the Guarantor Subsidiaries.

Note 11. LITIGATION

The  Company  is from time to time the  subject  of, or  involved  in,  judicial
proceedings.  Management believes that any liability or loss resulting from such
matters would not have a material adverse effect on the  consolidated  financial
position or results of operations of the Company.

<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                            PART III

The Company's directors, executive officers and management are employees of Host
Marriott.  Certain  information  required  by  Items  10-13 is  incorporated  by
reference  from the Host Marriott 1997 Annual  Meeting of  Shareholders - Notice
and Proxy Statement.

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
       
Set forth  below is certain  information  with  respect to the  persons  who are
executive officers of the Company.
<TABLE>
<CAPTION>

                                                 Other Positions and
                                             Business Experience Prior to
                                             Becoming an Executive Officer
 Name and Title                Age                  of the Company 
---------------                ---           ----------------------------------
<S>                            <C>           <C>                            
Robert E.  Parsons,  Jr.       41            Robert  E.  Parsons,  Jr.  joined  Host  Marriott's Corporate  Financial Planning
President and Director                       staff in 1981 and was made  Assistant  Treasurer in 1988. In 1993, Mr. Parsons was
                                             elected Senior Vice President and Treasurer of Host Marriott,  and in 1995, he was
                                             elected Executive Vice President and Chief Financial Officer of Host Marriott.  Mr.
                                             Parsons was elected  Vice  President of the Company in 1993 and was elected
                                             Senior Vice President in 1995. In 1996,  Mr. Parsons was elected  President and
                                             Director of the Company.


Christopher G. Townsend        49            Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Executive Vice President                     Senior Attorney.  In 1984, Mr. Townsend was made Assistant Secretary of Host
and Director                                 Marriott, and in 1986, he was made Assistant General Counsel.  In 1993, Mr. Townsend
                                             was elected Senior Vice President, Corporate Secretary and Deputy General Counsel of
                                             Host Marriott.  In January 1997, he was elected General Counsel of Host Marriott.
                                             Mr. Townsend was elected Vice President of the Company in 1993, Senior Vice President
                                             in 1995, and Executive Vice President and Director in 1996.

Bruce D. Wardinski             36            Bruce Wardinski joined Host Marriott in 1987 as a Senior Financial
Vice President and                           Analyst of Financial Planning & Analysis and was named Manager in June 1988.  He was 
Treasurer                                    appointed Host Marriott's Director of Financial Planning & Analysis in 1989, Director
                                             of Project Finance in January 1990, Senior Director of Project Finance in June
                                             1993, Vice President of Project Finance in June 1994, and Senior Vice President of
                                             International Development in October 1995. In 1996, Mr. Wardinski was named Senior Vice
                                             President and Treasurer of Host Marriott. Also in 1996, Mr. Wardinski was elected Vice
                                             President and Treasurer of the Company.  Prior to joining Host Marriott, Mr. Wardinski
                                             was with the public accounting firm of Price Waterhouse.

Donald D. Olinger             38             Donald D. Olinger joined Host Marriott in 1993 as Director - Corporate Accounting. 
Vice President and                           Later in 1993, Mr. Olinger was promoted to Senior Director and Assistant Controller
Corporate Controller                         of Host Marriott.  He was promoted to Vice President - Corporate Accounting in 1995.
                                             In 1996, he was elected Senior Vice President and Corporate Controller of Host
                                             Marriott.  Mr. Olinger was elected Vice President and Corporate Controller of the
                                             Company in 1996.  Prior to joining Host Marriott, Mr. Olinger was with the public
                                             accounting firm of Deloitte & Touche.
</TABLE>


Item 11.       EXECUTIVE COMPENSATION

The officers and directors of the Company are employees of Host Marriott and are
compensated by Host Marriott.  The officers and directors are required to devote
to the Company such time as may be necessary for the proper performance of their
duties,  but are not  required to devote their full time to the  performance  of
such duties.  No officer or director of the Company  receives  any  compensation
from the Company.

Certain general and  administrative  costs of Host Marriott are allocated to the
Company; such allocations totaled $4.6 million, $3.5 million and $0.9 million in
1996, 1995 and 1994, respectively.

<PAGE>

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  Company  has 100  shares  of common  stock  with no par  value  issued  and
outstanding,   all  of  which  are  held  beneficially  and  of  record  by  HMC
Acquisitions,  Inc. No  executive  officer or  director of the Company  owns any
shares of the Company's common stock.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company  operates as a unit of Host  Marriott  and HMC  Acquisitions,  Inc.,
utilizing Host Marriott's employees, insurance and administrative services. Host
Marriott contracts with Marriott International for certain of these services. In
addition,  Host Marriott provides certain corporate,  general and administrative
services to the Company.

Additional  information regarding certain relationships and related transactions
of the Company are  incorporated by reference from the Host Marriott 1997 Annual
Meeting of Shareholders - Notice and Proxy Statement.


                             PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

       (1)     FINANCIAL STATEMENTS

          All financial statements of the registrant as set forth
          under Item 8 of this Report on Form 10-K.

       (2)     FINANCIAL STATEMENT SCHEDULES

          The following financial information is filed herewith on
          the pages indicated.

          Financial Schedule:

          III. Real Estate and Accumulated Depreciation

          All other schedules are omitted because they are not applicable or the
          required  information  is  included  in  the  consolidated   financial
          statements or notes thereto.

<PAGE>

       (3)     EXHIBITS

Exhibit No.    Description                        
3.1  Certificate of Incorporation of the Company
3.2  Bylaws of the Company
4.1  Indenture dated as of December 20, 1995, by and among the Company, HMC SFO,
     Inc. as  Subsidiary  guarantor and Marine  Midland  Bank, as Trustee,  with
     respect to the 9% Senior Notes due 2007 to the Company.
4.2  First Supplemental Indenture,  dated as of April 16, 1996, by and among the
     Company,  HMC AP Canada,  Inc. as Subsidiary  Guarantor and Marine  Midland
     Bank,  as  Trustee,  with  respect  to the 9% Senior  Notes due 2007 of the
     Company.
10.1 Purchase  Agreement,  dated as of  December  15,  1995,  by and  among  the
     Company,  HMC SFO, Inc. as Subsidiary  Guarantor  and  Donaldson,  Lufkin &
     Jenrette Securities Corporation, BT Securities Corporation, Goldman Sachs &
     Co., Citicorp Securities,  Inc., Montgomery  Securities,  Salomon Brothers,
     Inc., and Smith Barney, Inc. as the Initial Purchasers.
10.2 Registration  Agreement,  dated as of December 20, 1995, by and between the
     Company,  HMC SFO, Inc. as Subsidiary  Guarantor  and  Donaldson,  Lufkin &
     Jenrette Securities Corporation, BT Securities Corporation, Goldman Sachs &
     Co., Citicorp Securities,  Inc., Montgomery  Securities,  Salomon Brothers,
     Inc., and Smith Barney, Inc. as the Initial Purchasers.
10.3 Management Agreement between HMC Acquisition Properties,  Inc. and Marriott
     Hotel Services, Inc.
12   Computation of Ratio of Earnings to Fixed Charges
21   Subsidiaries of HMC Acquisition Properties, Inc.
27   Financial Data Schedule

     (b)  REPORTS ON FORM 8-K

          None.


<PAGE>

                                   SIGNATURES


Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities  Act of
1934,  the  Registrant has duly caused this Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, on this 27th day of March, 1997.

                                   HMC Acquisition Properties, Inc.


                                   By  /s/ Robert E. Parsons,Jr.
                                       -------------------------   
                                       Robert E. Parsons Jr.
                                       President and Director

     Pursuant to the requirements of the Securities Act of 1934,
this Form 10-K has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>

     Signatures                              Title                        Date
     ----------                              -----                        ----

<S>                                   <C>                                <C>
/s/ ROBERT E. PARSONS, JR.            President and Director             March 27, 1997
---------------------------
    Robert E. Parsons, Jr.            (Principal Executive Officer)


/s/ CHRISTOPHER G. TOWNSEND           Executive Vice President           March 27, 1997
---------------------------
    Christopher G. Townsend           and Director


/s/ BRUCE D. WARDINSKI                Vice President and Treasurer       March 27, 1997
---------------------------
    Bruce D. Wardinski                (Principal Financial Officer)


/s/ DONALD D. OLINGER                 Vice President and                 March 27, 1997
---------------------------
    Donald D. Olinger                 Corporate Controller
                                      (Principal Accounting Officer)

</TABLE>

<PAGE>

                                                                    Schedule III
                                                                     Page 1 of 2
                     
                        HMC ACQUISITION PROPERTIES, INC.
                 REAL ESTATE AND ACCUMULATED DEPRECIATION
                              January 3, 1997
                              (in thousands)
<TABLE>
<CAPTION>
                                                                              Gross Amount at                         
                                        Initial Costs                         January 3, 1997
                                     --------------------               ----------------------------
                                                           Subsequent                                                  Date of     
                                             Buildings &      Costs              Buildings &            Accumulated  Completion of
                                    Land    Improvements  Capitalized  Land     Improvements  Total    Depreciation  Construction
                                    ----    ------------  -----------  ----     ------------  -----    ------------  -------------
<S>                                 <C>      <C>           <C>          <C>      <C>           <C>      <C>           <C>        

Full-service Hotels:
  Dallas Marriott Quorum
   Dallas, TX .................     $     0  $  26,749     $  1,139     $   --   $  27,888     $ 27,888  $ (1,725)    N/A        
  Denver Marriott Tech Center
   Denver, CO .................       6,401     26,200          492       6,401     26,692       33,093    (1,393)    N/A
  Ft. Lauderdale Marina Marriott
   Ft. Lauderdale, FL .........       6,135     30,036        1,638       6,135     31,674       37,809    (3,265)    N/A
  Marriott Mountain Resort at Vail
   Vail, CO ...................       4,407     19,851        5,956       4,407     25,807       30,214    (1,248)    N/A
  Portland Marriott
   Portland, OR ...............       5,545     39,981        2,102       5,545     42,083       47,628    (2,259)    N/A
  San Francisco Airport Marriott
   San Francisco, CA ..........      11,090     47,724        8,090      11,090     55,814       66,904    (2,863)    N/A
  San Francisco Marriott-
   Fisherman's Wharf
   San Francisco, CA ..........       6,000     20,208           --       6,000     20,208       26,208    (1,052)    N/A
  Westfields International
   Conference Center
   Chantilly, VA ..............       6,611     32,187        1,367       6,611     33,554       40,165    (2,089)    N/A
  Atlanta Northwest Marriott
   Atlanta, GA. ...............       4,988     19,848           --       4,988     19,848       24,836      (501)    N/A
  Dallas Fort Worth Airport
   Marriott
   Dallas, TX .................       5,998     37,262        1,875       5,998     39,137       45,135    (1,563)    N/A
  Other full-service properties, each
   less than 5% of total ......      14,459     80,566       11,169      14,459     91,735      106,194    (3,165)    N/A     
                                     ------     ------       ------      ------     ------      -------    -------            
Total .........................   $  71,634   $380,612    $  33,828    $ 71,634  $ 414,440    $ 486,074  $(21,123)
                                  =========   =========   =========    ========  =========    =========  ========= 
<CAPTION>
                                                        Depreciation
Description                            Date Acquired        Life
-----------                            -------------    -------------

<S>                                    <C>              <C>
Full-service Hotels:
  Dallas Marriott Quorum
     Dallas, TX. . . . . . . . . .        1994             40
  Denver Marriott Tech Center
     Denver, CO. . . . . . . . . .        1994             40
  Ft. Lauderdale Marina Marriott
     Ft. Lauderdale, FL. . . . . .        1994             40
  Marriott Mountain Resort at Vail
     Vail, Co. . . . . . . . . . .        1994             40
  Portland Marriott
     Portland, OR                         1994             40
  San Francisco Airport Marriott
     San Francisco, CA. . . . . .         1994             40
  San Francisco Marriott-
     Fisherman's Wharf
     San Francisco, CA. . . . . .         1994             40
  Westfields International
     Conference Center
     Chantilly, VA. . . . . . . .         1994             40
  Atlanta Northwest Marriott
     Atlanta, GA. . . . . . . . .         1995             40
  Dallas Fort Worth Airport
     Marriott
     Dallas, TX. . . . . . . . . .        1995             40
  Other full-service properties,
     each less than 5% of total. .      Various            40
</TABLE>




<PAGE>

                                                                    Schedule III
                                                                     Page 2 of 2

                        HMC ACQUISITION PROPERTIES, INC.
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                 January 3, 1997
                                 (in thousands)


Notes:

(A)  The change in total cost of  properties  for the fiscal years ended January
     3, 1997, December 29, 1995 and December 30, 1994 is as follows:
<TABLE>
<CAPTION>

     <S>                                    <C>
     Balance at December 31, 1993           $      --
       Additions:
          Acquisitions                        333,762
          Capital expenditures                    990
                                              -------
     Balance at December 30, 1994             334,752
       Additions:
          Acquisitions                         81,908
          Capital expenditures                  1,902
       Deductions:
          Dispositions and other               (5,057)
                                              ------- 
     Balance at December 29, 1995             413,505
       Additions:
          Acquisitions                         38,862
          Capital expenditures                 33,707
                                              -------
     Balance at January 3, 1997             $ 486,074
                                            =========
</TABLE>

(B)  The change in  accumulated  depreciation  and  amortization  for the fiscal
     years ended January 3, 1997,  December 29, 1995 and December 30, 1994 is as
     follows:
<TABLE>
<CAPTION>

<S>                                         <C>
     Balance at December 31, 1993           $      --
       Depreciation and amortization            2,268
                                              -------
     Balance at December 30, 1994               2,268
       Depreciation and amortization            7,310
                                              -------
     Balance at December 29, 1995               9,578
       Depreciation and amortization           11,545
                                              -------
     Balance at January 3, 1997             $  21,123
                                            =========
</TABLE>

(C)  The  aggregate  cost of  properties  for  Federal  income tax  purposes  is
     approximately $405,000 at January 3, 1997.