Exhibit 99.25
______, 1998
Atlanta Marriott ▇▇▇▇▇▇▇ ▇▇ Hotel Limited Partnership
Desert Springs Marriott Limited Partnership
Hanover Marriott Limited Partnership
Marriott Diversified American Hotels, L.P.
Marriott Hotel Properties Limited Partnership
Marriott Hotel Properties II Limited Partnership
Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P.
Potomac Hotel Limited Partnership
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Gentlemen:
This letter is furnished by American Appraisal Associates, Inc. ("AAA" or
"American Appraisal"), a Delaware corporation, to Atlanta Marriott ▇▇▇▇▇▇▇ ▇▇
Hotel Limited Partnership, Desert Springs Marriott Limited Partnership, Hanover
Marriott Limited Partnership, Marriott Diversified American Hotels, L.P.,
Marriott Hotel Properties Limited Partnership, Marriott Hotel Properties II
Limited Partnership, Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P.,
and Potomac Hotel Limited Partnership (the "Partnerships"), each of which is a
Delaware limited partnership, except for Mutual Benefit Chicago Marriott Suite
Hotel Partners, L.P., which is a Rhode Island limited partnership, concerning
the issuance of a fairness opinion (the "Opinion") to each of the Partnerships
and their partners (including general partners) as discussed further below. The
general partner of each Partnership (collectively the "General Partners") is
either Host Marriott Corporation (the "Company" or "Host"), a Delaware
corporation, or a direct or indirect wholly owned subsidiary of Host.
We understand that each of the General Partners, on behalf of each of the
Partnerships, and a newly formed operating limited partnership (the "OP") are
planning to propose the mergers of the Partnerships with the OP (or subsidiaries
thereof) (the "Mergers") in connection with Host"s reorganization to permit Host
to qualify as a real estate investment trust ("REIT") for tax purposes (the
"REIT Conversion"). The OP (or its subsidiaries) will lease the hotels (the
"Hotels") to a corporation (or subsidiaries thereof) conducting the senior
living services business ("SLC") that will be spun off to the shareholders of
Host pursuant to certain leases (the "Leases") and the Hotels will be operated
by Marriott International, Inc. or subsidiaries ("Marriott") or other hotel
management companies pursuant to management agreements with the lessee. In
connection with the REIT Conversion, Host will be converted, by merger, into a
Maryland real estate investment trust ("Host REIT") and will elect to be treated
as a REIT for tax purposes and will be the direct or indirect general partner
(and a substantial limited partner) of the OP. In connection with the REIT
Conversion, Host will, among other transactions in connection with its
conversion to a REIT,
The Partnerships _________, 1998
contribute its assets to the OP in exchange for a number of units of common and
preferred partnership interests equal to the number of shares of common and
preferred stock, if any, of Host then outstanding. In the Mergers, the partners
of the Partnerships would receive units of limited partnership interest in the
OP ("OP Units") in exchange for their interests in the Partnerships. Commencing
at any time after one year following the Mergers, the holders of OP Units (other
than Host REIT) will have the right to have their OP Units redeemed by the OP
for, at Host REIT's option, common shares of Host REIT (on a one-for-one basis)
or the cash equivalent thereof. Each limited partner in each Partnership
(including any limited partners of any Partnerships who dissent with respect to
the proposed Mergers) also will have the right to elect to receive common shares
of Host REIT or unsecured notes payable by the OP in exchange for the OP Units
received in the Mergers.
The proposed Mergers, the formation of the OP, the conversion of Host into a
REIT, and the transactions to be undertaken in connection therewith are included
in the "REIT Conversion."
You have requested our Opinion as to the terms and conditions of the proposed
Mergers, as follows:
(i) The fairness and reasonableness, from a financial point of view, to
the limited partners of each Partnership, of the Exchange Value and
of the methodologies and underlying assumptions used to determine the
Exchange Value, the Adjusted Appraised Value, the Continuation Value
and the Liquidation Value of each Partnership, including, without
limitation, the assumptions used to determine the various adjustments
to the appraised values of the Hotels; and
(ii) The fairness and reasonableness, to the limited partners of each
Partnership, of the methodologies used to determine the value of an OP
Unit and to allocate the equity interest in the OP to be received by
the limited partners of each Partnership.
American Appraisal, as the world"s largest independent valuation consulting
firm, is regularly and continually engaged in the valuation of commercial real
estate and businesses and their securities in connection with tender offers,
mergers and acquisitions, recapitalizations and reorganizations, divestitures,
employee stock ownership plans, leveraged buyouts, private placements, limited
partnerships, estate and corporate matters, other financial advisory matters,
and other valuation purposes. In connection with this Opinion, American
Appraisal also performed a separate appraisal of the market value, as said term
is defined in the appraisals, of each Hotel owned by each Partnership as of
March 1, 1998 (the "Hotel Appraisals") as discussed further below.
2
The Partnerships _________, 1998
In the course of our analysis in preparing this opinion, we have relied without
independent verification upon the accuracy and completeness in all material
respects of certain relevant publicly available information and information
provided by Host and the Hotels. We assumed that all information furnished to us
by Host, the Hotels, and the Partnerships and their representatives, upon which
we relied, presented an accurate description in all material respects of the
current and prospective status of the Hotels and the Partnerships from an
operational and financial point of view.
Due Diligence
-------------
As a basis for rendering our Opinion, we have made such reviews, studies, and
analyses as we deemed necessary and pertinent in order to provide us with a
reasonable basis for the Opinion, including, but not limited to, the following:
(i) Reviewed the transaction documents and SEC reporting and/or filing
documents, including drafts of the OP"s Form S-4 for the Mergers;
(ii) Provided the Market Value of each Hotel (a "Hotel Appraisal") owned
by each Partnership in a separate short form appraisal report. Each
such report was reviewed and certified by an MAI appraiser as to its
preparation in accordance with the requirements of the Standards of
Professional Practice of the Appraisal Institute and the Uniform
Standards of Professional Appraisal Practice of the Appraisal
Foundation.
As part of our Hotel Appraisals, we reviewed historical operating
statements, 1998 budget and year-to-date results, and other
financial information as we deemed necessary as a basis for the
Opinion.
Our Hotel Appraisals also considered market transactions of similar
lodging properties as appropriate as a basis for the Market Value of
each Hotel;
(iii) Reviewed the methodologies used by each of the General Partners in
their determination of the Exchange Value of each Partnership,
including the nature and amount of all adjustments to the appraised
Market Values in determining such Exchange Values. AAA reviewed and
tested for the fairness and reasonableness of all adjustments as
well as for consideration of all adjustments deemed to be
appropriate by AAA;
3
The Partnerships ________, 1998
(iv) Reviewed the methodologies used by each of the General Partners in
their determination of the value of an OP Unit and the allocation of
the equity interest in the OP to be received by the limited partners
of each Partnership. AAA reviewed and tested for the fairness and
reasonableness of the methods and measurements made by the General
Partners;
(v) Reviewed the General Partners" determination of the Liquidation
Value of each Partnership. AAA reviewed and tested for the fairness
and reasonableness of all adjustments proposed by the General
Partners, as well as for consideration of all adjustments deemed
appropriate by AAA;
(vi) Provided an estimate of the Continuation Value of each Partnership
based upon the estimated present value of expected benefits to be
received by each limited partner interest as though the Mergers did
not occur and each Partnership"s assets were sold within a twelve
year period. AAA, as part of its analysis and review, determined
appropriate rates of growth in house profit or net operating income,
as well as reviewed other key variables affecting partnership cash
flows and other economic/financial factors affecting the
partnerships" expected operations and results; a description of
certain key assumptions applied by AAA in their estimate of the
Continuation Value is provided below;
(vii) Reviewed the terms of the ground leases of the Hotels and the
partnership agreements of each Partnership;
(viii) Reviewed audited and unaudited historical income statements, balance
sheets and statements of sources and uses of funds of each
Partnership and Host and pro forma financial information for Host
REIT;
(ix) Reviewed audited and unaudited historical operating statements of
each Hotel, as well as current operating statements and budgets;
(x) Conducted real estate valuation and financial due diligence with
respect to the Partnerships and their underlying assets,
liabilities, and equity;
(xi) Reviewed internal Marriott, Host and Partnership financial analyses
and other internally generated data for each Hotel; and
4
The Partnerships _________, 1998
(xii) Discussed all of the foregoing information, where appropriate, with
management of Marriott, Host and the Partnerships, and their
respective employees.
Continuation Value
------------------
AAA provided an estimate of the Continuation Value of each Partnership based on
the present value of the expected cash distributions for the period 1998-2009
from each respective Partnership"s operations which assumed the sale of the
underlying Hotels in year 2009. Partnership cash flow utilized a 1998 earnings
estimate and related annual stabilized growth rate (ranging from 3.4% to 4.5%,
depending upon the specific Partnership) developed by AAA in their separate
Hotel Appraisals. Partnership cash flow was discounted at a rate of 20%. Sales
proceeds in year 2009 were estimated for each Partnership at a capitalization
rate ranging from 9.8% to 10.4%, depending upon the specific character of each
Partnership. In calculating the net proceeds available to each Partnership,
consideration included the payment of selling and other transaction costs,
deferred incentive management fees and existing debt.
Opinion and Assumptions
-----------------------
Based on the procedures performed and the assumptions stated herein, it is our
Opinion as to the terms and conditions of the proposed Mergers that:
(i) The Exchange Value and the methodologies and underlying assumptions
used to determine the Exchange Value, the Adjusted Appraised Value,
the Continuation Value and the Liquidation Value of each
Partnership, including, without limitation, the assumptions used to
determine the various adjustments to the appraised values of the
Hotels, are fair and reasonable, from a financial point of view, to
the limited partners of each Partnership; and
(ii) the methodologies used to determine the value of an OP Unit and the
allocation of the equity interest in the OP to be received by the
limited partners of each Partnership is fair and reasonable to the
limited partners of each Partnership.
In connection with rendering the Fairness Opinion, AAA considered the
possibility that the REIT Conversion would not occur in time for Host REIT to
elect REIT status effective January 1, 1999. In concluding that such failure
would not affect the conclusions in the Fairness Opinion, AAA noted that (i)
Host REIT would be structured and would operate as if it were a REIT for the
period following the REIT Conversion and until such time as it could elect REIT
status and (ii) the methodologies used to determine the value of an OP Unit and
the allocation of the equity interest in the Operating Partnership would not be
affected by the inability of Host REIT to elect REIT status as of January 1,
1999 because the market price of the Host REIT Common Shares during the
20-trading day period after the Mergers should reflect, among other things. the
inability of Host REIT to elect REIT status.
The Opinion specifically does not consider other methodologies for valuation or
allocation of the OP Units and does not address or conclude that other
methodologies for valuation or allocation of OP Units to the Partnerships might
not have been more favorable to the limited partners in certain of the
Partnerships.
5
The Partnerships _________, 1998
AAA has not negotiated with the Partnerships or Host and has not participated in
establishing the terms of the Mergers and has not provided an opinion as to the
terms and conditions of the Mergers other than those explicitly stated herein.
The Hotel Appraisals assume all furniture, fixtures and equipment (FF&E)
reserves for replacements are adequate and do not consider any deferred
maintenance (such as environmental concerns). The Hotel Appraisals do consider
projected capital expenditures commonly referred to as owner-funded items, based
in part on the projected owner-funded capital expenditure estimates determined
by an engineer retained by Host Marriott Corporation (the "Engineering Study").
AAA has made no independent review of the capital expenditure estimates set
forth in the Engineering Study and assumes it is correct in all material
respects. Furthermore, AAA"s Continuation Value for each Partnership relied upon
the Engineering Study for any estimated future owner funded expenditures for the
first eleven years. AAA has made no estimates of Partnership contingent
liabilities.
For purposes of the Continuation Value, AAA has assumed FF&E reserves are
adequate and understands that Host has determined that there are no reserve
shortfalls or surpluses.
The Hotel Appraisals referred to herein are not guarantees of the present or
future values of the Hotels and no assurance can be given as to the actual value
of the Hotels.
Our Opinion is limited to review of financial, economic, market, and other
considerations as they existed as of March 1, 1998. No subsequent due diligence
or valuation procedures were conducted by AAA, except that we have reviewed
year-to-date results through September __, 1998 for each Partnership and, based
upon such review and upon current financial, economic and market conditions and
indicated trends therein, we concluded that nothing came to our attention that
would cause us to be unable to render the Fairness Opinion as of such date.
AAA acknowledges and agrees that its Opinion is for the benefit of each Hotel
and the partners thereof (including the general and limited partners) and may be
relied upon by them.
AAA agrees and acknowledges that our Opinion may be disclosed, in whole or in
part, in any proxy statement, consent solicitation statement, and/or
registration statement (or proxy) and related materials utilized in connection
with the REIT Conversion and/or may be provided to and/or filed with the
Securities and Exchange Commission ("SEC") and other regulatory authorities;
provided, however, that the precise language used in any characterization of the
services and advice provided by AAA, prepared by others, must have the prior
consent of AAA, which consent will not be unreasonably withheld or delayed.
6
The Partnerships __________, 1998
Our Opinion is intended to supplement and not to substitute for anyone"s due
diligence to the extent required in this or any related transaction.
Our engagement is subject to the terms of our engagement letter dated February
12, 1998.
Respectfully submitted,
▇▇▇ ▇. ▇▇▇▇▇▇▇
Executive Vice President
7
