TORONTO - April 28, 1998- Four Seasons Hotels Inc.(TSE:FSH.) (ME:FSH.) (NYSE:FS) today reported its results for the first quarter ended March 31, 1998.
Net earnings increased 33.7 percent to $7.7 million ($0.23 basic and fully diluted earnings per share) for the three months ended March 31, 1998, as compared to $5.8 million ($0.19 basic and fully diluted earnings per share) for the first quarter of 1997, due primarily to the growth of Four Seasons' management operations and reduced interest expense.
"The first quarter results demonstrate the continued growth of our management business and the importance of our geographic diversity," commented Isadore Sharp, chairman and chief executive officer. "Despite the impact of the turmoil in Asia we were able to achieve significant growth in our earnings as a result of increased management fees from recently added properties and from vacation ownership. In addition, the reduction in interest expense, which is a result of the restructuring of the company's debt last year, was fully reflected in the first quarter. Four Seasons is now in a strong financial position to pursue the many exciting development opportunities that are currently in front of the company."
Improved Operating Performance
In the first quarter of 1998, REVPAR (room revenue per available room, defined as occupancy multiplied by achieved room rate), on a U.S. dollar basis, for Core Hotels in North America and in Europe, increased 10.4 percent and 8.3 percent, respectively, when compared to the same period in 1997. As a result of the financial disruption in Asia, REVPAR, on a U.S. dollar basis, in the company's Asian Core Hotels decreased 31.2 percent in the first quarter of 1998, as compared to the same period in 1997.
The gross operating profit margin of Core Hotels in North America and Europe increased from 30.7 percent to 33.4 percent and from 36.1 percent to 38.4 percent, respectively, for the first quarter of 1998, as compared to the first quarter of 1997. As a result of the decline in REVPAR in Asia, the gross operating profit margin of the Core Hotels in that region declined from 35.4 percent to 31.9 percent.
The overall increase in Core Hotels' gross operating profit resulted in a 48 percent increase in the company's management incentive fee revenues (which are tied to the profitability of certain of the managed hotels) in the first quarter of 1998, as compared to the first quarter of 1997.
Total revenues of all managed hotels increased to $521.6 million for the quarter ended March 31, 1998, as compared to $485.3 million in the first quarter of 1997. North American and European Core Hotels made up 82 percent of the revenues and 83 percent of the gross operating profits of all Core Hotels for the quarter ended March 31, 1998. Total fee revenues were $27.8 million in the first quarter of 1998, as compared to $24.2 million for the quarter ended March 31, 1997.
Hotel management earnings, before depreciation and amortization, for the first quarter of 1998 increased 17.9 percent to $16.9 million, as compared to $14.3 million in the first quarter of 1997. Operating margins from the hotel management business increased to 60.8 percent in the first quarter of 1998 from 59.2 percent for the first quarter of 1997.
Existing Hotel Management Terms Improved
During the quarter, Four Seasons and a corporation indirectly controlled by His Royal Highness Prince Alwaleed Bin Talal Abdulaziz Al Saud ("Kingdom") acquired the 50 percent interest in the Four Seasons Hotel London that Kingdom did not already own. As a result of this transaction, Four Seasons holds a 12.5 percent interest in the Four Seasons Hotel London and Kingdom holds an 87.5 percent interest.
Four Seasons invested 16.3 million for this acquisition as a loan bearing interest at 10 percent per annum. Concurrent with this transaction the management arrangements for the hotel were significantly improved. Through December 31, 1997, Four Seasons held a 25 percent ownership interest in The Ritz-Carlton Hotel Chicago (a Four Seasons hotel) and a 7.7 percent ownership interest in the Four Seasons Hotel Chicago.
During the first quarter of 1998, Four Seasons agreed with the majority owners of those properties to dispose of its interests in exchange for the elimination of (i) approximately $16 million of debt related to The Ritz-Carlton Hotel Chicago that was consolidated by Four Seasons, (ii) certain management contract termination provisions relating to The Ritz-Carlton Hotel Chicago, and (iii) certain lease funding obligations for the Four Seasons Hotel Chicago. In a separate transaction, the management agreement for The Ritz-Carlton Hotel Chicago was extended with improved fee terms.
Hotel Ownership Results
Hotel ownership operations lost $4.3 million before depreciation and amortization in the first quarter of 1998, compared to a loss of $779,000 in the first quarter of 1997. This loss is due in part to the normal seasonality of the first quarter but primarily as a result of a decrease in the dividend distributions from The Regent Hong Kong and the accrual for losses from the Four Seasons Hotel Berlin.
The dividend distribution from The Regent Hong Kong was $346,000 in the first quarter of 1998, compared to $2.1 million in the same period in 1997. The decrease was expected due to the continued economic disruption and reduced travel in the region.
Four Seasons holds a 100 percent leasehold interest in the Four Seasons Berlin Hotel. Four Seasons will assume the turnkey lease upon completion of the hotel ("handover"). Four Seasons has received notice from the landlord that it believes this handover should have occurred, but Four Seasons does not agree with the landlord's position.
Four Seasons believes that there are certain construction deficiencies that must be corrected before it is required to accept the lease and begin consolidating the results of the Four Seasons Hotel Berlin. Proceedings to resolve the dispute regarding the handover have commenced. Nonetheless, the company has accrued an operating loss (after funding by its partner and payment of management fees) of approximately $793,000 from the hotel in the first quarter of 1998. This level of loss is consistent with the expected start up losses from the hotel.
Decline in Net Interest Costs
During 1997, Four Seasons completed a restructuring of its balance sheet, including an equity issue during the first quarter and a refinancing of long-term debt in the third quarter. As a result of the refinancing, the company's effective interest rate declined to 6.8 percent in the first quarter of 1998, as compared to 9.4 percent in the first quarter of 1997. Primarily as a result of providing the acquisition financing for the Four Seasons Hotel London, debt levels in the first quarter of 1998 have increased from $140 million at Dec. 31, 1997 to $156 million at March 31, 1998.
Additions to Management Portfolio
The company has recently assumed management of the Four Seasons Hotel, The Ritz Lisbon and the Four Seasons Resort Kuda Huraa in the Maldives. A second Four Seasons Resort in Bali also opened during the quarter. The company currently has 15 new hotels and resorts under construction or in advanced stages of development and is evaluating over 50 additional management opportunities in various locations around the world.
"The fundamentals of Four Seasons' core operating business continue to be strong. To date in 1998 we have added three new properties to our portfolio, the Four Seasons Hotel, The Ritz Lisbon, our second Four Seasons Resort in Bali and the Four Seasons Resort Kuda Huraa in the Maldives," commented Douglas Ludwig, executive vice president and chief financial officer.
"We believe that, notwithstanding events in Asia, 1998 should be a good year for the company as a result of the contribution of these and other recently opened properties, and the effect of a full year of sales of our first vacation ownership project in Aviara in Carlsbad, Calif. In addition we should enjoy a significant reduction in our net interest costs as a result of lower debt levels, lower net interest costs and interest income from our loans to the Four Seasons hotels in London and Paris."
Four Seasons Hotels and Resorts is the world's largest operator of luxury hotels. The company currently manages 42 hotels in 18 countries and has an additional 15 properties under construction or advanced stages of development in an additional eight countries.
All dollar amounts referred in this press release are Canadian dollars unless otherwise noted. Certain statements contained in this press release that do not relate to historical information are "forward looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and are thus prospective.
Such forward-looking statements are subject to risks, uncertainties
and other factors which could cause actual results to differ materially
from future results expressed, projected or implied by such forward-looking
statements. Such factors include, but are not limited to economic, competitive,
and lodging industry conditions. These factors are discussed in greater
detail in the company's filings with the Canadian and United States Securities
regulators. The company disclaims any responsibility to update any such
|No. of Properties||34||34||--|
|No. of Rooms||10,588||10,588||--|
|ADR (3) - in U.S. dollars||$256.53||$251.01||2.2 %|
|REVPAR (4) - in U.S. dollars||$179.95||$179.68||0.1 %|
|Gross operating margin (5)||33.4 %||32.2 %||1.2 %|
(1) The term "Core Hotels" means hotels and resorts under management or anticipated to be under management for the full year of both 1998 and 1997. Changes from the 1997/1996 Core Hotels are the additions of Four Seasons Hualalai (Kona), the Four Seasons Istanbul and the Regent Jakarta.
(2) Occupancy percentage is defined as the total number of rooms occupied divided by the total number of rooms available.
(3) ADR is defined as average daily room rate per room occupied.
(4) REVPAR is defined as average room revenue per available room.REVPAR
is a commonly used indicator of market performance for hotels and represents
the combination of the average daily room rate and the average occupancy
rate achieved during the period. REVPAR does not include food and beverage
or other ancillary
revenues generated by a hotel.
(5) Gross operating margin represents gross operating profit as
a percent of gross operating revenue.