of $131.8 million Up from Year-ago Net Income of
$11.6 million, Boosted by Sale of Two Hotels
RevPAR Up 17.1% / Hotel Operating Statistics
|TORONTO, Oct. 27, 2004 - Fairmont Hotels & Resorts Inc. ("FHR"
or the "Company") (TSX/NYSE: FHR) today announced its unaudited financial
results for the third quarter ended September 30, 2004 using Canadian generally
accepted accounting principles. All amounts are expressed in U.S. dollars.
Third Quarter 2004 Highlights
"During the third quarter, our Canadian owned properties performed to expectation however, our overall results were affected by lower than anticipated earnings from our investment in Legacy Hotels Real Estate Investment Trust ("Legacy" or the "Trust"), whose portfolio was impacted by weaker than expected U.S. travel to Canada. In addition, the recent reduction in our ownership position in the Trust also reduced the earnings from this investment," said Mr. Fatt.
Third Quarter Ownership Operations
Revenues from hotel ownership improved 6.9% to $180.3 million, despite the lost revenues from the two hotel sales in the third quarter. The increase was driven by a 14.6% improvement performance at our Canadian properties. In particular, The Fairmont Chateau Lake Louise enjoyed considerable revenue growth as a result of ongoing strength in Asian tour business and from the addition of the resort's new meeting facility and additional guestrooms. Excluding the two resorts sold, U.S. and International hotel revenues were up almost 25%, with several hotels generating double-digit improvements over 2003.
EBITDA from hotel ownership operations of $50.3 million increased 43.7% compared to 2003 when the Company recorded a $7.4 million provision related to the hurricane damage in Bermuda. Excluding the hurricane provision, hotel ownership EBITDA rose 18.6% in 2004. Owned hotel EBITDA margin improved considerably to 27.9% from 20.8% in the third quarter last year. Excluding the hurricane provision, margins improved 280 basis points as a result of portfolio-wide increases in both occupancy and ADR.
RevPAR for the comparable owned portfolio increased 17.1% in the third quarter, resulting from the combination of a 5.6 point improvement in occupancy and a 7.1% increase in ADR. The U.S. and International owned comparable portfolio enjoyed solid leisure demand, which drove both occupancy and ADR and resulted in a robust 22.8% RevPAR increase. Occupancy growth at all of the major Canadian owned hotels generated a RevPAR improvement of 13.8%. When compared to the third quarter of 2003, the average Canadian dollar exchange rate for the quarter appreciated approximately 5% against the U.S. dollar. Adjusting for the foreign exchange impact, RevPAR for the Canadian portfolio was up approximately 8%.
Equity income generated from FHR's investment in Legacy was $3.7 million compared to $2.6 million in the same period last year. Legacy's portfolio continues to show significant growth over 2003 levels given its recovery from the impact of SARS. FHR's reduced ownership in Legacy from 35% to 24% during the quarter impacted the Company's equity income from its investment.
In the third quarter, there were no land sales. Overall real estate activities, generated primarily by FHR's vacation ownership business in the third quarter of 2004, produced $4.8 million in revenues and a $0.6 million loss compared to $0.2 million in revenues and a $1.0 million loss in 2003.
Third Quarter Management Operations
Revenues under management of $454 million increased 15% over 2003. Improved operating results and the addition of two new management contracts contributed to this increase. Management fee revenues were up 12.8% to $14.1 million, commensurate with the increase in revenues under management and an improvement in incentive fees.
For the Fairmont comparable managed portfolio, RevPAR increased 12.8% to $133.71. RevPAR for the U.S. and International portfolio showed solid improvement with RevPAR up 10.8%, resulting from a 7.9% increase in ADR combined with an occupancy gain of 1.6 points. The Canadian comparable portfolio reported a 14.6% RevPAR improvement, driven by increases in ADR and occupancy of 10.7% and 2.5 points, respectively. Adjusting for the foreign exchange impact, RevPAR at the Canadian portfolio was up approximately 9% over 2003.
In the third quarter, Delta's revenues under management increased 16% to $105 million. Management fee revenues of $3.5 million were up 16.7% from last year. During the quarter, RevPAR increased 18.2% resulting from a 6.6% ADR increase and a 7.2 point improvement in occupancy. Adjusting for the foreign exchange impact, RevPAR was up approximately 12%.
Nine Months Consolidated Results
For the nine months ended September 30, 2004, operating revenues increased 10.3% to $575.6 million from $521.7 million in the prior period, despite the lost revenues from the two recent hotel sales. All owned properties contributed to this growth led by The Fairmont Chateau Lake Louise, The Fairmont Scottsdale Princess and The Fairmont Orchid. EBITDA of $160.1 million was up 20.8% from last year. Excluding the 2003 hurricane provision, EBITDA rose 14.4% in 2004.
Equity losses generated from FHR's investment in Legacy were $0.8 million compared to equity losses of $4.2 million in 2003. Legacy's portfolio continues to gain momentum after a challenging year in 2003 given the travel concerns relating to SARS.
To date in 2004, FHR has disposed of one block of the Coal Harbour lands in Vancouver and another parcel of land that was not part of the Company's principal real estate holdings in Toronto or Vancouver. Overall real estate activities generated $26.2 million in revenues and $8.2 million in EBITDA compared to $31.4 million and $14.9 million in 2003, respectively.
Net income of $160.2 million (diluted EPS of $2.01) includes a $75.7 million net gain from the two hotel sales ($0.95 per share) and a $27.6 million gain from the sale of Legacy units ($0.35 per share). Net income in 2003 included a $24.4 million ($0.31 per share) income tax recovery from a favorable tax reassessment recorded in June and a $7.4 million provision for hurricane damage in the third quarter. Excluding the 2004 gains and the 2003 tax recovery and provision, 2004 net income for the nine months was ahead of last year by approximately 20%.
Hotel related capital expenditures for the quarter totaled $14.2 million. The Company expects that 2004 capital expenditures will be in the range of $75 - $85 million. After five years of extensive capital investment, FHR has completed all of its major renovation plans. As a result, the Company expects its 2005 capital budget to be more modest, likely in the range of approximately $55 - $65 million.
Announcements and Corporate Activities
On September 13, 2004, FHR announced that the Company has entered into an agreement to manage The Savoy Hotel in London, England. Concurrently, a company affiliated with His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud and Bank of Scotland Corporate, part of HBS plc, have entered into discussion with the hotel owner, Quinlan Private, to purchase the hotel. Subject to the successful sale of the property, Fairmont will assume the management responsibilities of The Savoy in January 2005.
On September 13, 2004, FHR completed the sale of 12 million units of Legacy in a block trade resulting in total proceeds of approximately $63 million and a gain of $27.6 million. The Company's equity interest in Legacy is now 23.7%.
On August 25, 2004, FHR completed the acquisition of the 16.5% minority interest in the Fairmont management company from Maritz, Wolff & Co. for approximately $70 million. The Company now owns 100% of the Fairmont brand and management company.
On July 15, 2004, FHR sold its real estate interest in The Fairmont Kea Lani Maui to Host Marriott Corporation for approximately $355 million, resulting in a pre-tax gain of $108.7 million. Our third quarter earnings include an after-tax gain on the sale of approximately $68 million. The resort will continue to be known as The Fairmont Kea Lani Maui and will be managed by Fairmont under the existing long-term management contract, which expires in 2051.
On July 9, 2004, FHR sold The Fairmont Glitter Bay in Barbados to a group of investors for $31.7 million. The sale resulted in a non-taxable gain of about $8 million that is reflected in our third quarter earnings. The resort continues to be managed by the Company as The Fairmont Glitter Bay under the existing long-term management contract.
These two recent hotel sales and the block trade of Legacy units generated significant cash proceeds, a portion of which was used in the third quarter to repay outstanding debt on our bank lines and mortgages on the properties sold. The Company intends to invest a portion of the proceeds to continue the growth of the Fairmont brand. At the end of the third quarter, total debt was $369.1 million and cash and cash equivalents totaled $167.8 million compared to $673.2 million in debt and $47.8 million in cash at June 30, 2004.
During the quarter, FHR repurchased 1,737,900 shares under its normal course issuer bid at a total cost of $46.4 million. The Company has repurchased a total of 1,946,300 shares at a total cost of $51.8 million during 2004. Subsequent to the third quarter, FHR announced a new normal course issuer bid effective October 29, 2004, authorizing the Company to purchase up to 10% of its public float in the twelve-month period following the bid's effective date.
"This is an exciting time for our industry and for our Company. Lodging fundamentals remain solid, particularly for the luxury category where there is minimal new hotel supply expected for several years. Our recently renovated portfolio combined with the long-term strength in the leisure segment of the business ideally position us for above average growth," said Mr. Fatt. "In particular, we anticipate a substantial improvement in performance in 2005 at our Lake Louise and Boston properties following the completion of their renovation programs as well as at The Fairmont Orchid."
As a result of FHR's reduced ownership position in Legacy and the softness in the Trust's performance in the third quarter, FHR expects to be at the lower end of its previous 2004 EBITDA guidance range of $185 - $195 million. This guidance includes approximately $7 million from real estate activities.
Including the gains from the sale of the Legacy units and the two resorts of $103.3 million ($1.30 per share), net income is now estimated to be between $160 - $166 million and diluted EPS to be in the range of $2.01 - $2.09. The guidance assumes a full-year tax rate of approximately 29%, down slightly from the previous estimate reflecting the sale of Legacy units.
"We remain focused on growing the Fairmont brand. By leveraging the
strength of our balance sheet and our growing number of capital partners,
we are poised to further expand our portfolio. The addition of London's
Savoy Hotel will provide us with the opportunity to extend our distinctive
collection of properties in this critically strategic market, provide the
ideal platform for further expansion in Europe and position the Fairmont
brand for continued international growth," said Mr. Fatt.
FHR is one of North America's leading owner/operators of luxury hotels and resorts. FHR's managed portfolio consists of 82 luxury and first-class properties with more than 33,000 guestrooms in the United States, Canada, Mexico, Bermuda, Barbados and the United Arab Emirates. FHR owns Fairmont Hotels Inc., North America's largest luxury hotel management company, as measured by rooms under management, with 44 distinctive city center and resort hotels such as The Fairmont San Francisco, The Fairmont Banff Springs and The Fairmont Scottsdale Princess. FHR also owns Delta Hotels, Canada's largest first-class hotel management company, which manages and franchises 38 city center and resort properties in Canada. In addition to hotel management, FHR holds real estate interests in 22 properties and an approximate 24% investment interest in Legacy Hotels Real Estate Investment Trust, which owns 24 properties.
This press release contains certain forward-looking statements relating, but not limited to, FHR's operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as "anticipate", "believe", "expect", "plan" or similar words suggesting future outcomes.
Fairmont Hotels & Resorts Inc.
|Also See:||Fairmont Anticipates Assuming Management of The Savoy in January 2005 / September 2004|
|The Savoy, 114 Year Old Luxury Hotel in London, Returns a Profit for U.S. Owner Blackstone / August 2003|
|Fairmont Reports Year-end 2003 Net Income of $50.7 million, Down 45.2% Compared to Prior Year; Intends to Add Two to Four Hotels in 2004 / Hotel Operating Statistics / January 2004|
|Fairmont Posts Fourth Quarter Net Income of $11 million; Aided by Balanced Customer Mix and Geographical Diversity / Jan 2003|