| TORONTO, May 5, 2005 - Four Seasons Hotels Inc. (TSX Symbol "FSH.SV";
NYSE Symbol "FS") today reported its results for the first quarter ended
March 31, 2005.
As previously announced, effective the first quarter of 2005, we have
adopted US dollars as our reporting currency. All amounts disclosed in
this news release (including amounts for prior periods) are in US dollars
unless otherwise noted.(1)
Highlights of the First Quarter of 2005
As described in greater detail in the accompanying Management's Discussion
and Analysis for the three months ended March 31, 2005, in each case as
compared to the same period in 2004:
-
RevPAR(2) of worldwide Core Hotels(3) increased 13.8%.
-
Gross operating margins(4) at worldwide Core Hotels and at our US Core
Hotels increased 210 basis points to 29.0% and 25.8%, respectively.
-
Revenues under management increased 13.5%.
-
Management fee revenues (excluding reimbursed costs(5) and the impact of
forward exchange contracts(6))(7) increased 28.4%, including incentive
fees which increased 33.2%.
-
Earnings before other operating items(8) increased 28.4%, and by 78.4%,
excluding the impact of the forward exchange contracts.
Additionally, during the quarter we sold approximately 80% of our equity
interest in Four Seasons Residence Club Scottsdale at Troon North.
Subsequent to the end of the first quarter, we sold approximately 53%
of our interest in Four Seasons Hotel Shanghai. We also entered into a
currency and interest rate swap of our convertible senior notes in order
to reduce our net interest costs over the near-term.
"We are very pleased with the operating results in the first quarter,
which reflect continued strong travel demand at the majority of the properties
under our management. While we have had six consecutive quarters of RevPAR
growth in our worldwide Core Hotels, the increase in our incentive fees
during this quarter is evidence that the revenue increases are translating
into greater profitability, with gross operating margins up 210 basis points
in the first quarter," commented Isadore Sharp, Chairman and Chief Executive
Officer. "Also during the quarter, we opened Four Seasons Hotel Hampshire
in England and Four Seasons Resort Langkawi in Malaysia, and more recently,
Four Seasons Hotel Doha. During the remainder of this year, we expect to
open six more new Four Seasons properties. There continues to be strong
interest on the part of our financial partners to develop and own Four
Seasons properties, which gives us tremendous confidence in the value of
the Four Seasons brand and our ability to translate it into long-term shareholder
value."
"Excluding the effects of reimbursed costs and the impact of the forward
exchange contracts that were in place in 2004, our financial results for
the quarter were very strong, with management fee revenue growth of 28.4%,
and our earnings before other operating items increasing 78%, as compared
to the first quarter last year," said Douglas L. Ludwig, Chief Financial
Officer and Executive Vice President. "In order to reduce the impact of
US dollar fluctuations relative to the Canadian dollar on our reported
financial results, effective this quarter, we have changed our reporting
currency to US dollars. We believe US dollar-reported results will give
a clearer indication of the relative strength of our management operations
as it will reduce the impact of currency fluctuations on reported revenues
from that business. From an economic perspective, we monitor our cash inflows
and outflows to ensure our true economic exposure to currency fluctuations
is carefully managed."
FIRST QUARTER OF 2005
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") for the three
months ended March 31, 2005 is provided as of May 4, 2005. It should be
read in conjunction with the interim consolidated financial statements
for that period and the MD&A for the year ended December 31, 2004 and
the audited consolidated financial statements for that period. Except as
disclosed in this MD&A, as of May 4, 2005, there has been no material
change in the information disclosed in the MD&A for the year ended
December 31, 2004. A summary of consolidated revenues, management earnings,
ownership and corporate operations earnings and net earnings for the past
eight quarters can be found in note 9.
Effective for the quarter ended March 31, 2005, we have adopted US dollars
as our reporting currency. We have not changed our functional currencies.
All amounts disclosed in this MD&A (including amounts for prior periods)
are in US dollars unless otherwise noted.
Operating Environment
Seasonality
Four Seasons hotels and resorts are affected by normally recurring seasonal
patterns and demand is usually lower in the period from December through
March than during the remainder of the year for most of our urban properties.
However, December through March is typically a period of relatively strong
demand at our resorts.
As a result, our management operations are affected by seasonal patterns,
both in terms of revenues and operating results. Urban hotels generally
experience lower revenues and operating results in the first quarter. This
negative impact on management revenues from those properties is offset
to some degree by increased travel to our resorts in the period.
Our ownership operations are particularly affected by seasonal fluctuations,
with lower revenue, higher operating losses and lower cash flow in the
first quarter, as compared to the other quarters.
Hotel Operating Results
Three months ended March 31, 2005
increase over (decrease from)
three months ended March 31, 2004
(percentage change, on US dollar basis)
Gross Operating Gross Operating Region
RevPAR Revenue (GOR) Profit (GOP)
Worldwide Core Hotels
13.8% 11.4%
20.2%
US Core Hotels
12.8% 10.1%
20.0%
Other Americas/Caribbean
Core Hotels
19.2% 15.3%
25.3%
Europe Core Hotels
5.3% 6.9%
2.9%
Middle East Core Hotels
25.6% 32.6%
59.1%
Asia/Pacific Core Hotels
18.7% 12.0%
17.8%
Underlying these operating results:
-
RevPAR for worldwide Core Hotels increased 13.8% in the first quarter of
2005, as compared to the same period in 2004, reflecting improvements in
demand and achieved room rates in most markets. Revenue improvements
and cost management efforts at the properties under management resulted
in the significant increases in gross operating profits (an increase of
20.2% as compared to the first quarter of 2004) and gross operating margins
(an increase of 210 basis points as compared to the first quarter of 2004),
despite continued pressure on profitability due to higher costs relating
primarily to labour (including health care, benefits and worker's compensation)
and energy.
-
During the quarter, group meetings and travel demand improved in the majority
of the markets relative to the same period last year. Business and
leisure demand remained strong during the quarter.
-
Virtually all of the US Core Hotels under management realized RevPAR improvements
in the first quarter of 2005, as compared to the same period in 2004, resulting
in a 12.8% increase in RevPAR in that region. The only exception was Houston,
which saw stronger than usual demand due to the Super Bowl in the first
quarter of 2004 and a subsequent general decline in occupancy levels in
the city due to lower demand levels and the opening of a large hotel in
Houston during 2004. Properties under management in Jackson Hole, Boston,
Miami, Palm Beach, New York, Aviara and Austin realized particularly strong
improvements in RevPAR and gross operating profits, relative to the average
for the region.
-
The Other Americas/Caribbean Core Hotels experienced improved demand and
higher achieved room rates, with RevPAR improving 19.2% in the first quarter
of 2005, as compared to the first quarter of 2004. The increases in RevPAR
and gross operating profits were primarily attributable to strong improvements
at the properties in the region, including Buenos Aires, Carmelo, Exuma
and Nevis. The hotels under management in Canada had more modest RevPAR
improvements relative to the overall results for the region.
-
For the first quarter of 2005, RevPAR increases in the Europe Core Hotels
reflected strong operating results at the hotels under management in Istanbul
and Prague relative to the other hotels in the region. The hotels under
management in Lisbon and Canary Wharf experienced relatively large RevPAR
and gross operating profit declines in the quarter due to lower business
and group demand and an increase in supply in Canary Wharf. This resulted
in a relatively modest gross operating profit increase for the region.
Overall demand in Europe was less robust than in the other regions in which
we manage hotels, in part as a result of a strong Euro relative to the
US dollar.
-
RevPAR improvements in the first quarter of 2005 at the Middle East Core
Hotels were primarily driven by a 15.7% increase in achieved room rates,
as compared to the same period in 2004. All of the hotels in the region
experienced improved demand, particularly the hotels under management in
Riyadh and Sharm el Sheikh. The 59.1% improvement in gross operating profit
was driven by a 32.6% increase in revenues, as well as lower cost pressures
relative to other regions.
-
All of the Asia/Pacific Core Hotels had RevPAR improvements. The properties
under management in Jakarta, Bali, Chiang Mai, Singapore and Shanghai had
very strong RevPAR improvements as a result of gains in both occupancy
and achieved room rates. Most of the properties in the region had increases
in gross operating profit.
Financial Review and Analysis
Three months ended March 31, 2005 compared to three months ended March
31, 2004
Management Operations
Management fee revenues (excluding reimbursed costs and the $2.7 million
impact of forward exchange contracts) increased 28.4%, or $6.4 million,
to $29 million in the first quarter of 2005, as compared to $22.6 million
in the first quarter of 2004. This increase was the result of the improvement
in revenues under management stemming from RevPAR and other revenue increases
at the worldwide Core Hotels and an increase in fees from recently opened
hotels. Management fee revenues (including reimbursed costs and the
impact of forward exchange contracts) increased 15.7%, or $5.9 million,
to $43.6 million in the first quarter of 2005, as compared to $37.6 million
in the first quarter of 2004.
Incentive fees increased 33.2% in the first quarter of 2005, as compared
to the same period in 2004, with 36 of the hotels and resorts under management
accruing incentive fees, as compared to 31 during the same period last
year. The increase in incentive fees was attributable to the improvement
in gross operating profit at the properties under management in each of
the geographic regions in which we operate. All five of our properties
under management in the Middle East accrued incentive fees during the first
quarter of 2005, as compared to three in the first quarter last year.
Several of the hotels and resorts under our management are and will
be undergoing significant renovations during this year. At the end of the
first quarter of 2005, the most significant portion of renovations at Four
Seasons Resort Scottsdale at Troon North, Four Seasons Hotel New York and
Four Seasons Hotel Newport Beach were completed. We expect the renovations
at Four Seasons hotels in Washington and Las Vegas and the resort in the
Maldives to be completed by the end of 2005. Significant renovation programs
at other hotels under management, including Boston, Santa Barbara, Philadelphia
and The Regent Beverly Wilshire are expected to be substantially completed
in 2006. The impact of the renovation programs on management fees in the
first quarter of 2005 was not material, in part as a result of seasonality,
in that the first quarter at many of the properties under renovation is
a period of weaker demand relative to the remainder of the year. Based
on the scheduling and staging of these renovations, we do not expect there
to be a material effect on fee revenues on the subsequent quarters of 2005.
General and administrative expenses (excluding reimbursed costs) increased
18.2% to $9.7 million in the first quarter of 2005, as compared to $8.2
million for the same period in 2004. General and administrative expenses
(including reimbursed costs) increased 18.1% to $24.3 million in the first
quarter of 2005, as compared to $20.6 million for the same period in 2004.
The majority of these costs are in Canadian dollars and, accordingly, a
portion of this increase is attributable to the US dollar having declined
relative to the Canadian dollar since the first quarter of 2004. On a Canadian
dollar basis, general and administrative expenses (excluding reimbursed
costs) increased 10% during the quarter, as compared to the same period
last year. The increase in these costs related primarily to an increase
in the number of employees at our corporate offices to handle the significant
unit growth in our portfolio and to cost of living increases for corporate
employees that were implemented during the first quarter of 2005.
As a result of the items described above, our management operations
earnings before other operating items (excluding reimbursed costs and the
impact of forward exchange contracts) for the first quarter of 2005 increased
34.3% to $19.3 million, as compared to $14.4 million in the first quarter
of 2004. Our management operations profit margin(10) (excluding reimbursed
costs and the impact of forward exchange contracts) was 66.5% in the first
quarter of 2005, as compared to 63.6% in the first quarter of 2004.
Our management operations earnings before other operating items (including
reimbursed costs and the impact of forward exchange contracts) for the
first quarter of 2005 increased 12.9% to $19.3 million, as compared to
$17.1 million in the first quarter of 2004. Our management operations profit
margin (including reimbursed costs and the impact of forward exchange contracts)
was 44.3% in the first quarter of 2005, as compared to 45.4% in the first
quarter of 2004.
Ownership and Corporate Operations(11)
Operating results from ownership and corporate operations before other
operating items improved 7.5% or $0.6 million to a loss of $6.8 million
in the first quarter of 2005, as compared to a loss of $7.4 million in
the first quarter of 2004.
The Pierre
RevPAR at The Pierre increased 23.3% in the first quarter of 2005, as
compared to the same period in 2004, as a result of an 8.7% improvement
in occupancy and a 9.8% increase in achieved room rates. These increases
reflected the higher travel demand in New York, particularly in leisure
travel, during the quarter. As a result, operating results at The Pierre
improved by $0.6 million to a loss of $2 million in the first quarter of
2005, as compared to a loss of $2.6 million in first quarter of 2004.
As previously disclosed, Four Seasons has been in discussions with the
landlord of The Pierre to explore alternatives whereby we could modify
or restructure our leasehold interest in the hotel. Despite these discussions,
the parties have not been able to agree on any modification or restructuring
of the lease arrangements. In recent months, the landlord retained professional
advisers to assist with the evaluation of alternatives, including the possibility
of identifying a replacement lessee and operator for The Pierre. We understand
that the landlord is now in exclusive negotiations with a potential successor
to Four Seasons in both capacities. No definitive agreement has yet been
reached, and any agreement involving an assignment of our leasehold interest
in The Pierre is subject to the approval of the shareholders of the landlord.
Therefore, there can be no assurance at this time that acceptable arrangements
with this potential successor will be concluded.
Four Seasons Hotel Vancouver
RevPAR at Four Seasons Hotel Vancouver increased 13.2% for the three
months ended March 31, 2005, as compared to the same period in 2004, primarily
as the result of an improvement in occupancy and a modest increase in achieved
room rates. Operating results at the hotel remained relatively flat, with
a loss of $2.1 million in the first quarter of 2005, as compared to a loss
of $2.0 million in the first quarter of 2004, mainly due to an offsetting
reduction in banquet revenue.
We continue to review our options in respect of Four Seasons Hotel Vancouver
to determine what, if any, alternatives may be available to modify or restructure
our operation of, or investment in, this hotel. There can be no assurance
that acceptable alternative arrangements can be found with respect to this
hotel or as to the terms of any such alternative arrangements.
Corporate Costs, including Compliance Costs
During the first quarter of 2005, our corporate and compliance costs,
including the ongoing implementation of the substantive changes to governance
and disclosure requirements applicable to public companies in the US and
Canada, were essentially unchanged at $2.4 million, as compared to the
same period in 2004.
Other Income/Expense, Net
Other expense, net for the first quarter of 2005 was $2.7 million, as
compared to other income, net of $3.3 million for the same period in 2004.
Disposition of Hotel Investments
In March 2005, we sold approximately 80% of our equity interest in Four
Seasons Residence Club Scottsdale at Troon North for proceeds approximating
book value. As a result of the sale, our equity interest in Four Seasons
Residence Club Scottsdale at Troon North is approximately 14% and as such,
we will account for this investment on a cost basis in the future.
Subsequent to the end of the first quarter, we sold approximately 53%
of our equity interest in Four Seasons Hotel Shanghai, which reduced our
interest to approximately 10% and as such, we will account for this investment
on a cost basis in the future. As a result of the sale, we revalued this
US dollar investment at March 31, 2005 at current exchange rates and recorded
a loss of $1.9 million. There will not be any further material impact on
our earnings as a result of this sale.
Foreign Exchange
Other income for the first quarter of 2005 included a $0.4 million foreign
exchange loss, as compared to a $3.5 million foreign exchange gain for
the same period in 2004.
Foreign exchange gains and losses arose primarily from the translation
to Canadian dollars (using current exchange rates at the end of each quarter)
of our foreign currency-denominated net monetary assets, which are not
included in our designated foreign self-sustaining subsidiaries. They also
reflected local currency foreign exchange gains and losses on net monetary
assets incurred by our designated foreign self-sustaining subsidiaries.
Net monetary assets is the difference between our foreign currency-denominated
monetary assets and our foreign currency-denominated monetary liabilities,
and consists primarily of cash and cash equivalents, accounts receivable,
long-term receivables and long-term obligations, as determined under Canadian
generally accepted accounting principles ("GAAP"). In the first quarter
of 2004, the majority of the foreign exchange gain was attributable to
the weakening of the Canadian dollar relative to the pound sterling, whereas
in the first quarter of 2005 the Canadian dollar was generally stable relative
to the pound sterling.
Ongoing fluctuations in rates of exchange between currencies will likely
result in future foreign exchange gains or losses.
Net Interest Income
During the first quarter of 2005, we had net interest income of $0.4
million, as compared to $0.9 million in the first quarter of 2004. Net
interest income is a combination of approximately $3.9 million in interest
income and approximately $3.5 million in interest expense in the first
quarter of 2005, as compared to $3.1 million and $2.2 million, respectively,
for the same period in 2004.
The increase in interest income for the first quarter of 2005, as compared
to the same period in 2004, was primarily attributable to increased cash
and cash equivalents as a result of the issuance of our convertible senior
notes in June 2004 and higher deposit interest rates.
The increase in interest expense was primarily attributable to the variance
in interest expense relating to the convertible senior notes issued during
the second quarter of 2004, as compared to the interest costs relating
to our previously outstanding Liquid Yield Option Notes ("LYONs") during
2004.
As discussed below in "Liquidity and Capital Resources", although the
rate of interest payable pursuant to the terms of the convertible senior
notes is 1.875% per annum, for accounting purposes the convertible senior
notes are bifurcated into debt and equity components under Canadian GAAP,
and a notional interest rate is applied to the portion that is allocated
to the debt component. While the notional interest rate of 5.33% per annum
(4.6% per annum after taking into account the impact of the interest rate
swap agreement that terminated in October 2004 and is described below under
"Financing Activities") that is applied to the debt component of the convertible
senior notes (as described below under "Financing Activities") is lower
than the notional rate of 9.2% per annum that was applied to the LYONs,
a larger component of the convertible senior notes is allocated to debt
than was the case with the LYONs. As a result, for accounting purposes
the interest expense associated with the convertible senior notes is higher
than was the case for the LYONs.
Income Tax Expense
Our effective tax rate in the first quarter of 2005 was 27%, as compared
to an effective tax rate of 22% in the first quarter of 2004. The variation
from our expected 24% tax rate is the result of certain items not being
tax effected, including a portion of the foreign exchange gains and losses,
since they will never be realized for tax purposes. Excluding these items,
our tax rate would have been our expected 24%.
Stock Option Expense
Stock option expense for the first quarter of 2005 was $0.5 million,
as compared to $0.3 million for the same period in 2004. In the first
quarters of 2005 and 2004, stock option expense was allocated between Management
Operations ($0.2 million and $0.1 million, respectively) and Ownership
and Corporate Operations ($0.3 million and $0.2 million, respectively).
Net Earnings and Earnings per Share
Net earnings for the quarter ended March 31, 2005 were $5.2 million
($0.14 basic and diluted earnings per share), as compared to net earnings
of $8.7 million ($0.25 basic earnings per share and $0.24 diluted earnings
per share) for the quarter ended March 31, 2004. As described above, net
earnings for the quarter ended March 31, 2005 included $2.3 million loss
related to a $0.4 million foreign exchange loss and a $1.9 million loss
related to the revaluation of our equity interest in the Four Seasons Hotel
Shanghai as a result of the sale of the majority of that interest. For
the quarter ended March 31, 2004, net earnings included $6.2 million gain
related to a $3.5 million foreign exchange gain and a $2.7 million gain
on forward exchange contracts included in management fee revenues.
Liquidity and Capital Resources
Financing Activities
During the second quarter of 2004, we issued $250 million principal
amount of convertible senior notes. For details relating to the terms of
the convertible senior notes, please refer to our MD&A for the year
ended December 31, 2004.
In accordance with Canadian GAAP, the convertible senior notes are bifurcated
on our financial statements into a debt component (representing the principal
value of a bond of $211.8 million as at June 18, 2004, which was estimated
based on the present value of a $250 million bond maturing in 2009, yielding
5.33% per annum, compounded semi-annually, and paying interest at a rate
of 1.875% per annum) and an equity component of $39 million (representing
the value of the conversion feature of the convertible senior notes) as
at June 18, 2004. For further details, see note 10(a) to our annual consolidated
financial statements for the year ended December 31, 2004.
In connection with the offering of the convertible senior notes, we
entered into a five-year interest rate swap agreement with an initial notional
amount of $211.8 million, pursuant to which we agreed to receive interest
at a fixed rate of 5.33% per year and pay interest at six-month LIBOR,
in arrears, plus 0.4904%. In October 2004, we terminated the interest rate
swap agreement and received proceeds of $9 million. The recognition of
the resulting gain was deferred and is being amortized through to July
30, 2009, which would have been the maturity date of the swap. This has
resulted in an effective interest rate on the convertible senior notes
for accounting purposes of 4.6% for the first quarter of 2005.
In April 2005, we entered into a new currency and interest rate swap
agreement to July 30, 2009, pursuant to which we have agreed to receive
interest at a fixed rate of 5.33% per annum on an initial notional amount
of $215.8 million (C$269.2 million ) and pay interest at a floating rate
of six-month Canadian Bankers Acceptances ("BA") in arrears plus 1.1% per
annum. On July 30, 2009, we will pay C$311.8 million and receive
$250 million under the swap. We have designated the swap as a fair value
hedge of our convertible senior notes. Any future translation differences
on our convertible senior notes from US dollars to Canadian dollars should
not have a material impact on our net earnings. This swap will allow us
to take advantage of lower floating interest rates, which should result
in an economic and accounting savings of approximately 139 basis points
at current six-month BA rates, or approximately $3.0 million on an annualized,
pre-tax basis.
As at March 31, 2005, no amounts were borrowed under our $125 million
bank credit facility. However, approximately $10.9 million of letters of
credit were issued under that facility. No amounts have been drawn under
these letters of credit. We believe that, absent unusual opportunities
or developments, this credit facility, when combined with cash on hand
and internally generated cash flow, should be more than adequate to allow
us to finance our normal operating needs and anticipated investment commitments
related to our current growth objectives.
Our cash and cash equivalents were $198.2 million as at March 31, 2005,
as compared to $226.4 million as at December 31, 2004.
Long-term obligations (as determined under Canadian GAAP) increased
from $256.8 million as at December 31, 2004 to $258.6 million as at March
31, 2005, primarily as a result of the accretion of interest on the convertible
senior notes.
Contractual Obligations and Other Commitments
We have provided certain guarantees and have other similar commitments
typically made in connection with properties under our management totalling
a maximum of $40.9 million. These contractual obligations and other commitments
are more fully described in the MD&A for the year ended December 31,
2004. Since year-end, we have reduced one of our bank guarantees
and extended a new commitment to one property under our management, resulting
in a net decrease in guarantees and other commitments of $4.6 million.
In addition to funding relating to our management opportunities described
under "Investing/Divesting Activities" below, we expect a net increase
in guarantees and other commitments of approximately $7.0 million over
the remainder of the current year.
Cash From Operations
During the first quarter of 2005, we expended $4.6 million in cash in
operations, as compared to generating $3.7 million in cash from operations
for the same period in 2004. This decrease in cash from operations of $8.3
million resulted primarily from an increase in non-cash working capital
of $7.7 million, primarily caused by the settlement of incentive compensation
accrued as at December 31, 2004 and a $2.9 million increase in current
income tax paid, partially offset by an increase in cash contributed by
management operations of $2.4 million and a decrease in cash expended in
ownership and corporate operations of $0.7 million.
Investing/Divesting Activities
Part of our business strategy is to invest a portion of available cash
to obtain management agreements or enhance existing management arrangements.
These investments in, or advances in respect of or to owners of, properties
are made where we believe that the overall economic return to Four Seasons
justifies the investment or advance.
During the quarter, we funded $27.4 million to properties under development
or management, including amounts advanced as loans receivable to properties
in Geneva, Toronto and Washington, and minor equity interests in properties
in Damascus and Jackson Hole. This level of investment was consistent with
our business plan. During the remaining three quarters of 2005, we expect
to fund up to $75 million in respect of investments in, or advances in
respect of or to owners of, various projects, including properties in Buenos
Aires, Punta Mita and Exuma and a new resort in the Maldives, plus additional
funding for the property in Geneva and the expansion of corporate office
facilities.
Cash used in capital investments for the three months ended March 31,
2005 is net of the proceeds received on the sale of our equity interest
in Four Seasons Residence Club Scottsdale at Troon North (as discussed
in "Other Income/Expense, Net").
Outstanding Share Data
Outstanding
as at
Designation
April 29, 2005
Variable Multiple Voting Shares(a)
3,725,698
Limited Voting Shares
32,883,188
Options to acquire Limited Voting
Shares:
Outstanding
4,575,143
Exercisable
2,808,761
Convertible Senior Notes issued June
2004 and due 2024(b) $251.2 million(c)
(a) Convertible into Limited Voting
Shares at any time at the option of
the holder
on a one-for-one basis.
(b) Details on the convertible senior
notes are more fully in our annual
MD&A for
the year ended December 31, 2004.
(c) This amount is equal to the issue
price of the convertible senior
notes issued
June 2004 and due 2024 plus accrued interest calculated at 1.875% per annum.
Looking Ahead
If the travel trends that we experienced in 2004 and the first quarter
of 2005 continue, and based on current demand reflected in our reservation
activity, we expect RevPAR for worldwide Core Hotels in the second quarter
of 2005 and the full year 2005 to increase by more than 12% and by more
than 11%, respectively, as compared to the corresponding periods in 2004.
We expect that this improvement will result from occupancy and pricing
improvements in all geographic regions. If current trends continue, we
expect gross operating margins of our worldwide Core Hotels to increase
more than 220 basis points for the full year of 2005, as compared to the
full year of 2004.
Change in Reporting Currency to US Dollars
Effective the first quarter of 2005, we have adopted US dollars as our
reporting currency. All amounts disclosed in this MD&A (including amounts
for prior periods) are in US dollars unless otherwise noted.
The consolidated financial statements in Canadian dollars have been
translated to US dollars using the foreign exchange rates applicable at
each balance sheet date for assets and liabilities, and the weighted average
exchange rates of the corresponding quarters for the consolidated statements
of operations, consolidated statements of cash provided by operations and
consolidated statements of cash flow. Equity transactions have been translated
to US dollars at the historical exchange rates for 2005 and 2004 with opening
equity accounts on January 1, 2004 translated at the exchange rate on that
date. These exchange rates are disclosed in notes 1 and 9. Any resulting
exchange gain or loss was charged or credited to "Equity adjustment from
foreign currency translation", which is included as a separate component
of shareholders' equity.
We have not changed the functional currencies of our entities. As a
result, while US dollar reporting will minimize the currency fluctuations
related to the majority of our US dollar management fee revenues, it will
not eliminate foreign currency fluctuations related to our management fees
in other currencies, or the majority of our management operations general
and administrative expenses, which are incurred in Canadian dollars. It
will also not eliminate foreign currency gains and losses related to unhedged
net monetary asset and liability positions.
Changes in Accounting Policies
During the three months ended March 31, 2005, we adopted The Canadian
Institute of Chartered Accountants' ("CICA") new accounting standards on
variable interest entities and temporary controlled investments, as discussed
in note 1 to the interim consolidated financial statements. The adoption
of these changes did not have a material impact on our consolidated financial
statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
(In thousands of US dollars
March 31,
except per share amounts)
2005 2004
Consolidated revenues (note 4)
$ 63,097 $ 57,121
MANAGEMENT OPERATIONS
Revenues:
Fee revenues (note 4(a))
$ 29,027 $ 25,327
Reimbursed costs
14,544 12,319
43,571 37,646
Expenses:
General and administrative
expenses
(9,734) (8,238)
Reimbursed costs
(14,544) (12,319)
(24,278) (20,557)
19,293 17,089
OWNERSHIP AND CORPORATE OPERATIONS
Revenues
20,517 20,332 Expenses:
Cost of sales and expenses
(26,351) (26,854)
Fees to Management Operations
(991) (857)
(6,825) (7,379)
Earnings before other operating items
12,468 9,710
Depreciation and amortization
(3,029) (2,751)
Other income (expense), net (notes
4(a) and 5) (2,710)
3,279
Earnings from operations
6,729 10,238
Interest income, net
382 871
Earnings before income taxes
7,111 11,109
Income tax expense:
Current
(1,924) (2,116)
Future
15 (288)
(1,909) (2,404)
Net earnings
$ 5,202 $ 8,705
Basic earnings per share (note 3(a))
$ 0.14 $ 0.25
Diluted earnings per share (note 3(a))
$ 0.14 $ 0.24
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
(Unaudited)
March 31, December 31,
(In thousands of US dollars)
2005 2004
ASSETS
Current assets:
Cash and cash equivalents
$ 198,164 $ 226,377
Receivables
79,940 81,541
Inventory
1,418 1,439
Prepaid expenses
5,564 2,981
285,086 312,338
Long-term receivables
198,180 179,060
Investments in hotel partnerships
and
corporations
129,967 131,338
Fixed assets
61,963 59,939
Investment in management contracts
177,512 181,273
Investment in trademarks and trade
names
4,363 4,424
Future income tax assets
3,707 3,711
Other assets
28,855 30,064
$ 889,633 $ 902,147
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 47,492
$ 60,415
Long-term obligations
due within one year
3,744 3,766
51,236 64,181
Long-term obligations (note 2)
254,893 253,066
Shareholders' equity (note 3):
Capital stock
248,995 248,980
Convertible notes
36,920 36,920
Contributed surplus
8,581 8,088
Retained earnings
197,331 192,129
Equity adjustment from
foreign
currency translation
91,677 98,783
583,504 584,900
Subsequent events (notes 5 and 9)
$ 889,633 $ 902,147
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH PROVIDED
BY OPERATIONS
Three months ended
(Unaudited)
March 31,
(In thousands of US dollars)
2005 2004
Cash provided by (used in) operations:
MANAGEMENT OPERATIONS
Earnings before other operating items
$ 19,293 $ 17,089
Items not requiring an outlay of funds
585 390
Working capital provided by Management
Operations 19,878
17,479
OWNERSHIP AND CORPORATE OPERATIONS
Loss before other operating items
(6,825) (7,379)
Items not requiring an outlay of funds
276 165
Working capital used in Ownership
and
Corporate Operations
(6,549) (7,214)
13,329 10,265
Interest received, net
1,667 2,831
Current income tax paid
(3,106) (164)
Change in non-cash working capital
(16,413) (8,762)
Other
(113) (447)
Cash provided by (used in) operations
$ (4,636) $ 3,723
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
(Unaudited)
March 31,
(In thousands of US dollars)
2005 2004
Cash provided by (used in):
Operations:
$ (4,636) $ 3,723
Financing:
Long-term obligations
including
current portion
132 88
Issuance of shares
5,617 3,060
Dividends paid
(1,558) (1,391)
Cash provided by financing
4,191 1,757
Capital investments:
Long-term receivables
(20,465) 665
Hotel investments
(7,180) (970)
Disposal of hotel investment
(note 5)
5,346
-
Fixed assets
(3,607) (3,308)
Investments in trademarks
and trade names
and management contracts
(131) (278)
Other assets
(51) (842)
Cash used in capital investments
(26,088) (4,733)
Increase (decrease) in cash and cash
equivalents (26,533)
747
Increase (decrease) in cash and cash
equivalents
due to unrealized foreign exchange
gain (loss) (1,680)
133
Cash and cash equivalents, beginning
of period 226,377
132,099
Cash and cash equivalents, end of
period $ 198,164
$ 132,979
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED
EARNINGS
Three months ended
(Unaudited)
March 31,
(In thousands of US dollars)
2005 2004
Retained earnings, beginning of period
$ 192,129 $ 169,364
Net earnings
5,202 8,705
Retained earnings, end of period
$ 197,331 $ 178,069
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(In thousands of US dollars except
share amounts)
In these interim consolidated financial
statements, the words "we", "us", "our", and other similar words are references
to Four Seasons Hotels Inc. and its consolidated subsidiaries. These
interim consolidated financial statements do not include all disclosures
required by Canadian generally accepted accounting principles ("GAAP")
for annual financial statements and should be read in conjunction with
our most recently prepared annual consolidated financial statements for
the year ended December 31, 2004.
1. Significant accounting policies:
The significant accounting policies
used in preparing these interim consolidated financial statements are consistent
with those used in preparing our annual consolidated financial statements
for the year ended December 31, 2004, except as disclosed below:
(a) Change in reporting currency:
We have historically
prepared our consolidated financial statements in Canadian dollars. Effective
for the three months ended March 31, 2005, we have adopted US dollars as
our reporting currency. With the majority of our management fee revenues
in US dollars, reporting in US dollars should reduce the volatility on
reported results relating to the impact of fluctuations in the rate of
exchange between the US and Canadian dollar relating to these revenues
and, as a result, we believe it will provide our financial statement users
with more meaningful information. We have not changed the functional currency
of Four Seasons Hotels Inc., which remains Canadian dollars, or the functional
currencies of any of its subsidiaries.
The consolidated
financial statements in Canadian dollars have been translated to US dollars
using the foreign exchange rates applicable at each balance sheet date
for assets and liabilities, and the weighted average exchange rates of
the corresponding quarters for the consolidated statements of operations,
consolidated statements of cash provided by operations and consolidated
statements of cash flows. Equity transactions have been translated to US
dollars at the historical exchange rates with opening equity accounts on
January 1, 2003 translated at the exchange rate on that date. Any resulting
exchange gain or loss was charged or credited to "Equity adjustment from
foreign currency translation" included as a separate component of shareholders'
equity.
(b) Variable interest entities:
The Canadian
Institute of Chartered Accountants ("CICA") issued Accounting Guideline
No. 15, "Consolidation of Variable Interest Entities" ("AcG-15"), which
establishes criteria to identify variable interest entities ("VIE") and
the primary beneficiary of such entities. Entities that qualify as VIEs
must be consolidated by their primary beneficiary. Effective January 1,
2005, we adopted AcG-15 and have concluded that we do not have to consolidate
any interest under AcG-15.
(c) Investments in hotel partnerships
and corporations:
In conjunction
with the issuance of Section 3475, "Disposal of Long-Lived Assets and Discontinued
Operations", the CICA eliminated the exception from consolidation for a
temporary controlled subsidiary. Beginning January 1, 2005, we were
required to either equity account or consolidate our temporary investments
in which we have over a 20% equity interest. In March 2005, we sold the
majority of our equity interest in Four Seasons Residence Club Scottsdale
at Troon North (note 5), and in April 2005, we sold the majority of our
equity interest in Four Seasons Hotel Shanghai. As a result of the sales,
our equity interests in each property was reduced to less than 20%.
The change in accounting for these temporary investments did not have a
material impact on our consolidated financial statements for the three
months ended March 31, 2005.
2. Bank credit facility:
We have a committed bank credit facility
of $125,000, which expires in September 2007. As at March 31, 2005, no
amounts were borrowed under this credit facility. However, approximately
$10,900 of letters of credit were issued under this credit facility as
at March 31, 2005. No amounts have been drawn under these letters of credit.
3. Shareholders' equity:
As at March 31, 2005, we have outstanding
Variable Multiple Voting Shares ("VMVS") of 3,725,698, outstanding Limited
Voting Shares ("LVS") of 32,883,188 and outstanding stock options of 4,575,143
(weighted average exercise price of C$59.33 ($49.05)).
(a) Earnings per share:
A reconciliation
of the net earnings and weighted average number of VMVS and LVS used to
calculate basic and diluted earnings per share is as follows:
Three months ended
(Unaudited)
March 31,
(In thousands
of US dollars) 2005
2004
Net
Net
earnings Shares earnings
Shares
Basic earnings
per share amounts
$ 5,202 36,608,763 $ 8,705 35,289,622 Effect
of assumed dilutive conversions:
Stock option plan
- 1,535,543
- 1,435,122
Diluted earnings
per
share amounts $ 5,202
38,144,306 $ 8,705 36,724,744
The diluted
earnings per share calculation excluded the effect of the assumed conversions
of 9,000 stock options to LVS, under our stock option plan, during the
three months ended March 31, 2005 (2004 - 1,407,796 stock options), as
the inclusion of these conversions would have resulted in an anti-dilutive
effect. There was no dilution relating to the convertible senior notes
issued in 2004, as the contingent conversion price was not reached during
the period. In addition, the dilution relating to the conversion of our
convertible notes (issued in 1999 and redeemed in September 2004) to 3,463,155
LVS, by application of the "if-converted method", has been excluded from
the calculation as the inclusion of this conversion would have resulted
in an anti-dilutive effect for the three months ended March 31, 2004.
(b) Stock-based compensation:
We use the
fair value-based method to account for all employee stock options granted
on or after January 1, 2003. Accordingly, options granted prior to that
date continue to be accounted for using the settlement method.
There were
no stock options granted in the three months ended March 31, 2005. The
fair value of stock options granted in the three months ended March 31,
2004 was estimated using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rates ranging from 2.96% to 3.81%;
semi-annual dividend per LVS of C$0.055; volatility factor of the expected
market price of our LVS of 30%; and expected lives of the options ranging
between four and seven years, depending on the level of the employee who
was granted stock options. For the options granted in the three months
ended March 31, 2004, the weighted average fair value of the options at
the grant dates was C$27.00 ($20.49). For purposes of stock option expense
and pro forma disclosures, the estimated fair value of the options is amortized
to compensation expense over the options' vesting period.
Pro forma
disclosure is required to show the effect of the
application
of the fair value-based method to employee stock options granted on or
after January 1, 2002 and not accounted for using the fair value-based
method. For the three months ended March 31, 2005 and 2004, if we had applied
the fair value-based method to options granted from January 1, 2002 to
December 31, 2002, our net earnings and basic and diluted earnings per
share would have been adjusted to the pro forma amounts indicated below:
(Unaudited)
Three months ended
(In thousands
of US dollars
March 31,
except per
share amounts)
2005 2004
Stock option
expense included
in compensation
expense
$ (494) $ (313)
Net earnings,
as reported
$ 5,202 $ 8,705
Additional
expense that would have been
recorded
if all outstanding stock options
granted
during 2002 had been expensed
(691) (652)
Pro forma net
earnings
$ 4,511 $ 8,053
Earnings per
share:
Basic, as reported
$ 0.14 $ 0.25
Basic, pro forma
0.12 0.23
Diluted, as reported
0.14 0.24
Diluted, pro forma
0.12 0.22
4. Consolidated revenues:
Three months ended
(Unaudited)
March 31,
(In thousands of US dollars)
2005 2004
Revenues from Management Operations(a)
$ 43,571 $ 37,646 Revenues from Ownership
and Corporate Operations
20,517 20,332 Fees from Ownership and
Corporate Operations to Management Operations
(991) (857)
$ 63,097 $ 57,121
------------------------
------------------------
(a) Effective January 1, 2004, we ceased
designating our US dollar
forward contracts
as hedges of our US dollar fee revenues. These contracts were entered into
during 2002, and all of these contracts matured during 2004. The foreign
exchange gains on these contracts of $11,201, which were deferred prior
to January 1, 2004, were recognized in 2004 as an increase of fee revenues
over the course of the year. During the three months ended March 31, 2004,
we recognized $2,720 of the deferred gain in fee revenues. We did not hedge
any of our US dollar fee revenues during the three months ended March 31,
2005. In addition, effective January 1, 2004, the US dollar forward contracts
were marked-to-market on a monthly basis with the resulting changes in
fair values being recorded as a foreign exchange gain or loss and was included
in other income (expense), net. This resulted in a $428 foreign exchange
loss for the three months ended March 31, 2004.
5. Other income (expense), net:
Included in other income (expense),
net for the three months ended March 31, 2005 is a net foreign exchange
loss of $393 (2004 - net foreign exchange gain of $3,513) related to the
foreign currency translation gains and losses on unhedged net monetary
asset and liability positions, primarily in US dollars, euros, pounds sterling
and Australian dollars, and foreign exchange gains and losses incurred
by our designated foreign self-sustaining subsidiaries.
In March 2005, we sold the majority
of our equity interest in Four Seasons Residence Club Scottsdale at Troon
North for gross proceeds of $5,346, which approximated book value. As a
result of the sale, our equity interest in the residence club was reduced
to approximately 14%. Subsequent to March 31, 2005, we sold approximately
53% of our equity interest in Four Seasons Hotel Shanghai, which reduced
our interest to approximately 10%. As a result of the sale, we revalued
this US dollar investment at March 31, 2005 at current exchange rates and
recorded a loss of $1,930, which is included in other income (expense),
net, during the three months ended March 31, 2005.
6. Pension benefit expense:
The pension benefit expense, after
allocation to managed properties, for the three months ended March 31,
2005 was $621 (2004 - $575).
7. Guarantees and other commitments:
We have provided certain guarantees
and have other similar commitments typically made in connection with properties
under our management totalling a maximum of $40,900. These contractual
obligations and other commitments are more fully described in the consolidated
financial statements for the year ended December 31, 2004. Since December
31, 2004, we have reduced one of our bank guarantees and extended a new
commitment to one property under our management, resulting in a net decrease
in guarantees and other commitments of $4,600.
8. Seasonality:
Our hotels and resorts are affected
by normally recurring seasonal patterns and demand is usually lower in
the period from December through March than during the remainder of the
year for most of our urban properties. However, December through March
is typically a period of relatively strong demand at our resorts.
As a result, our management operations
are affected by seasonal patterns, both in terms of revenues and operating
results. Urban hotels generally experience lower revenues and operating
results in the first quarter. This negative impact on management
revenues from those properties is offset to some degree by increased travel
to our resorts in the period.
Our ownership operations are particularly
affected by seasonal fluctuations, with lower revenue, higher operating
losses and lower cash flow in the first quarter, as compared to the other
quarters.
9. Currency and interest rate
swap:
In April 2005, we entered into a currency
and interest rate swap agreement to July 30, 2009, pursuant to which we
have agreed to receive interest at a fixed rate of 5.33% per annum on an
initial notional amount of $215,842 and pay interest at a floating rate
of six-month Canadian Bankers Acceptance in arrears plus 1.1% per annum
on an initial notional amount of C$269.2 million. On July 30, 2009, we
will pay C$311.8 million and receive $250,000 under the swap. We have designated
the swap as a fair value hedge of our convertible senior notes, which were
issued in 2004.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA -
CORE HOTELS(1)
Three months ended
March 31,
(Unaudited)
2005 2004
Variance
Worldwide
No. of Properties
53 53
-
No. of Rooms
14,003 14,003
-
Occupancy(2)
67.2% 62.9%
4.3pts.
ADR(3)
- in US dollars
$356 $331
7.8%
RevPAR(4) - in US
dollars
$224 $197
13.8%
Gross operating margin(5)
29.0% 26.9%
2.1pts.
United States
No. of Properties
21 21
-
No. of Rooms
6,475 6,475
-
Occupancy(2)
71.4% 67.5%
3.9pts.
ADR(3)
- in US dollars
$374 $352
6.3%
RevPAR(4) - in US
dollars
$264 $234
12.8%
Gross operating margin(5)
25.8% 23.7%
2.1pts.
Other Americas/Caribbean
No. of Properties
8 8
-
No. of Rooms
1,724 1,724
-
Occupancy(2)
65.0% 60.4%
4.6pts.
ADR(3)
- in US dollars
$411 $375
9.6%
RevPAR(4) - in US
dollars
$269 $225
19.2%
Gross operating margin(5)
36.1% 33.2%
2.9pts.
Europe
No. of Properties
8 8
-
No. of Rooms
1,492 1,492
-
Occupancy(2)
54.7% 57.9%
(3.2)pts.
ADR(3)
- in US dollars
$497 $456
9.0%
RevPAR(4) - in US
dollars
$292 $278
5.3%
Gross operating margin(5)
27.3% 28.3%
(1.0)pts.
Middle East
No. of Properties
4 4
-
No. of Rooms
847 847
-
Occupancy(2)
72.7% 65.8%
6.9pts.
ADR(3)
- in US dollars
$219 $189
15.7%
RevPAR(4) - in US
dollars
$157 $125
25.6%
Gross operating margin(5)
48.0% 40.0%
8.0pts.
Asia/Pacific
No. of Properties
12 12
-
No. of Rooms
3,465 3,465
-
Occupancy(2)
64.3% 56.9%
7.4pts.
ADR(3)
- in US dollars
$241 $227
6.0%
RevPAR(4) - in US
dollars
$117 $98
18.7%
Gross operating margin(5)
30.0% 28.5%
1.5pts.
(1) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2005 and 2004. However, if a "Core Hotel" has undergone or is undergoing
an extensive renovation program in one of those years that materially affects
the operation of the property in that year, it ceases to be included as
a "Core Hotel" in either year. Changes from the 2004/2003 Core Hotels
are the additions of Four Seasons Resort Jackson Hole, Four Seasons Hotel
Miami, Four Seasons Resort Great Exuma at Emerald Bay, Four Seasons Hotel
Prague, Four Seasons Hotel Riyadh and Four Seasons Hotel Jakarta, and the
deletion of Four Seasons Resort Maldives at Kuda Huraa (which closed for
repairs in December 2004 following damage from the tsunami in southeast
Asia).
(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 calculated as straight
average for
each region.
(4) RevPAR is defined as average room
revenue per available room. It is a
non-GAAP measure.
We use RevPAR because it is a commonly used indicator of market performance
for hotels and resorts 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 or resort. RevPAR is the most commonly used measure in the lodging
industry to measure the period-over-period performance of comparable properties.
Our calculation of RevPAR may be different than the calculation used by
other lodging companies.
(5) Gross operating margin represents
gross operating profit as a
percentage
of gross operating revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA -
ALL MANAGED HOTELS
As at
March 31,
(Unaudited)
2005 2004
Variance
Worldwide
No. of Properties
65(1) 62
3
No. of Rooms
16,602(1) 15,977
625
United States
No. of Properties
24 24
-
No. of Rooms
7,109 7,109
-
Other Americas/Caribbean
No. of Properties
10 10
-
No. of Rooms
2,162 2,101
61
Europe
No. of Properties
11 10
1
No. of Rooms
1,919 1,811
108
Middle East
No. of Properties
5(1) 4
1
No. of Rooms
1,212(1) 847
365
Asia/Pacific
No. of Properties
15 14
1
No. of Rooms
4,200 4,109
91
(1) Since March 31, 2005, we commenced
management of Four Seasons Hotel
Doha, which
has 232 rooms. The property is not reflected in this table.
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED
HOTELS
Three months ended
(Unaudited)
March 31,
(In thousands of US dollars)
2005 2004
Revenues under management(1)
$ 601,563 $ 530,190
(1) Revenues under management consist
of rooms, food and beverage,
telephone
and other revenues of all the hotels and resorts which we manage. Approximately
63% of the fee revenues (excluding reimbursed costs) we earned were calculated
as a percentage of the total revenues under management of all hotels and
resorts.
FOUR SEASONS HOTELS INC.
SCHEDULED OPENING OF PROPERTIES UNDER
CONSTRUCTION OR
IN ADVANCED STAGES OF DEVELOPMENT
Hotel/Resort/Residence Club and Location(1),(2)
Approximate
Number of Rooms
Scheduled 2005/2006 openings
Four Seasons Hotel Alexandria, Egypt(x)
125
Four Seasons Hotel Damascus, Syria
305
Four Seasons Hotel Florence, Italy
120
Four Seasons Hotel Geneva, Switzerland
100
Four Seasons Hotel Hong Kong, People's
Republic of China(x)
395
Four Seasons Resort Lanai at Koele,
HI, USA
100
Four Seasons Resort Lanai at Manele
Bay, HI, USA
250
Four Seasons Resort Maldives at Landaa
Giraavaru, Maldives
115
Four Seasons Hotel Mumbai, India(x)
235
Four Seasons Residence Club Punta
Mita, Mexico
35
Four Seasons Hotel Silicon Valley
at East Palo Alto, CA, USA
200
Four Seasons Hotel Westlake Village,
CA, USA
270
Four Seasons Private Residences Whistler,
B.C., Canada
35
Beyond 2006
Four Seasons Hotel Baltimore, MD, USA(x)
200
Four Seasons Hotel Beijing, People's
Republic of China
325
Four Seasons Hotel Beirut, Lebanon
235
Four Seasons Resort Bora Bora, French
Polynesia
105
Four Seasons Hotel Dubai, UAE(x)
250
Four Seasons Hotel Istanbul at the
Bosphorus, Turkey
170
Four Seasons Hotel Kuwait City, Kuwait
225
Four Seasons Hotel Moscow, Russia(x)
210
Four Seasons Hotel Moscow Kamenny
Island, Russia(x)
80
Four Seasons Resort Puerto Rico, Puerto
Rico(x)
250
Four Seasons Hotel Seattle, WA, USA(x)
150
Four Seasons Resort Vail, CO, USA(x)
120
(x) Expected to include a residential
component.
(1) Information concerning hotels,
resorts and Residence Clubs under
construction
or under development is based upon agreements and letters of intent and
may be subject to change prior to the completion of the project. The dates
of scheduled openings have been estimated by management based upon information
provided by the various developers at the time of this report. There can
be no assurance that the date of scheduled opening will be achieved or
that these projects will be completed. In particular, in the case where
a property is scheduled to open near the end of a year, there is a greater
possibility that the year of opening could be changed. The process and
risks associated with the management of new properties are dealt with in
greater detail in our 2004 Annual Report.
(2) We have made an investment in
Orlando, in which we expect to include
a Four Seasons
Residence Club and/or a Four Seasons branded residential component. The
financing for this project has not yet been completed and therefore a scheduled
opening date cannot be established at this time.
|
Additional Information
Additional information about us (including our most recent
annual information form, annual MD&A and our audited financial statements
for the year ended December 31, 2004) is available on SEDAR at http://www.sedar.com.
1. The following Canadian/US
dollar foreign exchange rates were used to
translate
the specified periods:
Average foreign Foreign
Average foreign Foreign
exchange exchange
exchange exchange
rate used for rate as at
rate used for rate as at
First Quarter March 31,
First Quarter December 31,
2005
2005
2004
2004
1.22652
1.2096
1.31785 1.2036
2. RevPAR is defined as average
room revenue per available room. It is a
non-GAAP measure.
We use RevPAR because it is a commonly used indicator of market performance
for hotels and resorts 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 or resort. RevPAR is the most commonly used measure in the lodging
industry to measure the period-over-period performance of comparable properties.
Our calculation of RevPAR may be different than the calculation used by
other lodging companies.
3. The term "Core Hotels" means
hotels and resorts under management for
the full year
of both 2005 and 2004. However, if a "Core Hotel" has undergone or is undergoing
an extensive renovation program in one of those years that materially affects
the operation of the property in that year, it ceases to be included as
a "Core Hotel" in either year. Changes from the 2004/2003 Core Hotels
are the additions of Four Seasons Resort Jackson Hole, Four Seasons Hotel
Miami, Four Seasons Resort Great Exuma at Emerald Bay, Four Seasons Hotel
Prague, Four Seasons Hotel Riyadh and Four Seasons Hotel Jakarta, and the
deletion of Four Seasons Resort Maldives at Kuda Huraa (which closed for
repairs in December 2004 following damage from the tsunami in southeast
Asia).
4. Gross operating margin represents
gross operating profit as a
percentage
of gross operating revenue.
5. Reimbursed costs includes
the reimbursement of all out-of-pocket
costs, including
sales and marketing and advertising fees.
6. Effective January 1, 2004,
we ceased designating our US dollar
forward contracts
as hedges of our US dollar fee revenues. These contracts were entered into
during 2002, and all of these contracts matured during 2004. The foreign
exchange gains on these contracts of $11.2 million, which were deferred
prior to January 1, 2004, were recognized in 2004 as an increase of fee
revenues over the course of the year. Foreign exchange gains on forward
exchange contracts were recorded as increases in management fee revenues
in the quarters of 2004 and 2003 as follows:
First Second Third Fourth
(In millions
of US dollars) Quarter Quarter
Quarter Quarter
2004
$2.7 $2.8 $2.6
$3.1
2003
$0.5 $1.5 $1.4
$2.3
7. Including the reimbursed costs
and forward exchange contracts,
management
fee revenues increased 15.7%, or $5.9 million, to $43.6 million in the
first quarter of 2005, as compared to $37.6 million for the same period
in 2004. We provide the information excluding the above items because the
foreign exchange contracts applied only to the period in 2004 and the reimbursed
costs have no net impact on earnings from management operations.
8. Earnings before other operating
items is equal to net earnings plus
(i) income
tax expense plus (ii) interest expense less (iii) interest income plus
(iv) other expense less (v) other income plus (vi) depreciation and amortization.
Earnings before other operating items is not intended to represent cash
flow from operations, as defined by Canadian GAAP, and it should not be
considered as an alternative to net earnings, cash flow from operations
or any other measure of performance prescribed by GAAP. Our earnings before
other operating items may also not be comparable to earnings before other
operating items used by other companies, which may be calculated differently.
We consider earnings before other operating items to be a meaningful indicator
of operations and use it as a measure to assess our operating performance.
It is included because we believe it can be useful in measuring our ability
to service debt, fund capital expenditures and expand our business. Earnings
before other operating items is also used by investors, analysts and our
lenders as a measure of our financial performance.
9. Eight Quarter Summary:
(In millions
of US dollars
except per
share
amounts) First
Quarter Fourth Quarter Third Quarter Second Quarter
2005 2004 2004 2003(a)
2004 2003(a) 2004 2003(a)
Consolidated
revenues(b) $63.1
$57.1 $69.5 $66.8 $63.3 $52.6
$71.4 $57.7
Earnings
(loss)
before other
operating
items:
Management
operations 19.3
17.1 18.2 15.7 20.1
13.7 22.1 14.6
Ownership
and
corporate
operations (6.8)
(7.4) (3.1) (1.5) (4.9) (6.8)
(1.3) (3.9)
Net earnings
(loss):
Total
$5.2 $8.7 $12.8 $8.9
$(8.5) $3.2 $12.8 $(1.0)
Basic
earnings
(loss) per
share(c) $0.14
$0.25 $0.35 $0.25 $(0.24) $0.09 $0.36
$(0.03)
Diluted
earnings
(loss) per
share(c) $0.14
$0.24 $0.34 $0.24 $(0.24) $0.09 $0.34
$(0.03)
Average
Canadian/
US foreign
exchange
rate used
for
specified
quarter 1.22652
1.31785 1.22033 1.3155 1.30758 1.37927 1.3586 1.39863
(a) In December 2003, the CICA amended
Section 3870 of its Handbook to
require entities
to account for employee stock options using the fair value-based method,
beginning January 1, 2004. In accordance with one of the transitional alternatives
permitted under amended Section 3870, in the fourth quarter of 2003 we
prospectively adopted the fair value-based method with respect to all employee
stock options granted on or after January 1, 2003. Accordingly, options
granted prior to that date continue to be accounted for using the settlement
method. In accordance with the new standard, however, the reported
results for the first three quarters of 2003 are required to be restated.
The prospective application of adopting the fair value-based method effective
January 1, 2003 resulted in the following restatements:
Second Quarter
2003 - increase in net loss of $0.1 million and no effect on basic and
diluted loss per share; Third Quarter and Fourth Quarter 2003 - in each
quarter, a decrease in net earnings of $0.3 million and a decrease in basic
and diluted earnings per share of $0.01 for each quarter.
(b) As a result of adopting Section
1100, "Generally Accepted Accounting
Principles",
which was issued by the CICA in July 2003 and was effective January 1,
2004, we have included the reimbursement of all out-of-pocket expenses
in both revenues and expenses, instead of recording certain reimbursed
costs as a "net" amount. As a result of this change, consolidated revenues
have been restated as follows:
Second Quarter
2003 - increase of $7.8 million; Third Quarter 2003 - increase of $7.5
million; Fourth Quarter 2003 - increase of $9.6 million.
Consolidated
revenues is comprised of the following:
First Fourth
Third Second
Quarter Quarter
Quarter Quarter
(In millions
--------------------------------------------------------
of US dollars)
2005 2004 2004 2003 2004
2003 2004 2003
Revenues from
Management
Operations
$43.6 $37.6 $44.3 $40.6 $41.9 $33.8
$44.2 $34.3
Revenues from
Ownership and
Corporate
Operations
20.5 20.3 26.6 27.4 22.4
19.6 28.1 24.6
Distributions from
hotel investments 0.0
0.0 0.0 0.0 0.0
0.1 0.3 0.0
Fees from
Ownership and
Corporate
Operations to
Management
Operations
(1.0) (0.9) (1.4) (1.2) (1.0) (0.9)
(1.2) (1.1)
$63.1 $57.1 $69.5 $66.8 $63.3 $52.6
$71.4 $57.7
(c) Quarterly computations of per share
amounts are made independently on
a quarter-by-quarter
basis and may not be identical to annual computations of per share amounts.
10. The management operations profit
margin represents management
operations
earnings before other operating items, as a percent of management operations
revenue.
11. Included in ownership and corporate
operations are the consolidated
revenues and
expenses from our 100% leasehold interests in The Pierre in New York, Four
Seasons Hotel Vancouver and Four Seasons Hotel Berlin (until the Berlin
lease termination on September 26, 2004), distributions from other ownership
interests in properties that Four Seasons manages and corporate overhead
expenses related, in part, to these ownership interests.
(x) (x) (x)
All dollar amounts referred to in
this news release are US dollars unless otherwise noted. The financial
statements are prepared in accordance with Canadian generally accepted
accounting principles.
(x) (x) (x)
This news release contains "forward-looking statements" within the meaning
of applicable securities laws, including RevPAR, profit margin and earnings
trends; statements concerning the number of lodging properties expected
to be added in this and future years; expected investment spending; and
similar statements concerning anticipated future events, results, circumstances,
performance or expectations that are not historical facts.
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