Fairmont Hotels & Resorts Inc. Reports First Quarter Results
Hotel ownership EBITDA increases 11% - - Company secures management contracts on three hotel developments
TORONTO | Fairmont Hotels & Resorts Inc. ("FHR" or the "Company") (TSX/NYSE: FHR) today announced its unaudited financial results for the first quarter ended March 31, 2004 using Canadian generally accepted accounting principles. All amounts are expressed in U.S. dollars.
On a comparable basis, revenue per available room ("RevPAR") for Fairmont's managed hotels increased 12.4% and RevPAR at the Company's owned portfolio improved 12.9% in the first quarter. Favorable foreign exchange movements continued to contribute to an improvement in operating statistics for the Canadian properties.
Commenting on today's development announcements (see Announcements and Corporate Activities), Mr. Fatt said, "We have been working on growing our pipeline of development opportunities and are delighted to expand our portfolio to include a number of purpose-built luxury properties in such exclusive locations as the Mayan Riviera in Mexico and The Palm, Jumeirah in Dubai. We look forward to working with our new partners on these exciting developments and for the opportunity to work together on future projects."
On April 12, The Fairmont Southampton opened on schedule after seven months of repairs following the hurricane in Bermuda last September. The Company has extensive insurance coverage for both property damage and business interruption. In the first quarter, hotel ownership expenses were reduced by business interruption insurance recoveries, restoring EBITDA(1) generated by The Fairmont Southampton to previously expected levels.
First Quarter Consolidated Results
Operating revenues(2) were up slightly to $168.2 million from $167.9 million in 2003. Lower revenues from real estate activities offset improved hotel operating results during the quarter. First quarter EBITDA of $34.1 million was down from $42.2 million in the previous year. This decline relates exclusively to lower land sales in 2004. Net loss for the quarter was $0.6 million ($0.01 loss per share) compared to net income of $12.5 million ($0.16 earnings per share) in the same period of 2003. EBITDA and net income (loss) include earnings from real estate activities of $0.4 million ($0.01 per share) and $9.3 million ($0.12 per share) in 2004 and 2003, respectively.
First Quarter Ownership Operations
Revenues from hotel ownership improved 10.7% to $155.4 million in the first quarter. The increase was driven by solid improvements in the performance of the U.S. and international properties. All of the major U.S. and international hotels posted double digit revenue growth with the exception of The Fairmont Southampton, which was closed for repairs due to Hurricane Fabian. The appreciation in the Canadian dollar offset the decline in Canadian operating revenues and increased Canadian expenses in the quarter. Canadian ski destinations experienced weaker U.S. leisure demand primarily as a result of strong U.S. competition. In addition, the Canadian resorts had a solid first quarter in 2003 prior to the impact of world events. When compared to the first quarter of 2003, the average Canadian dollar exchange rate for the quarter appreciated approximately 14% against the U.S. dollar.
RevPAR of $139.34 was up 12.9% in the first quarter, resulting from a 3.9 point improvement in occupancy combined with a 6.0% increase in average daily rate ("ADR"). The Fairmont Scottsdale Princess posted strong rate and occupancy growth in the quarter contributing to a 15.0% RevPAR improvement at the U.S. and International comparable portfolio. The Canadian owned hotels had RevPAR growth of 8.8%, driven by the appreciation in the Canadian dollar and offset slightly by an occupancy drop of 0.3 points. Adjusting for the foreign exchange impact, RevPAR for the Canadian portfolio was down approximately 5%.
Equity losses generated from FHR's investment in Legacy Hotels Real Estate Investment Trust ("Legacy" or the "Trust") were $7.3 million compared to losses of $6.3 million in the same period last year. Legacy's performance was comparable to 2003, however the appreciation in the Canadian dollar exaggerated this loss.
In a continued effort to divest of non-hotel assets, FHR completed the sale of a parcel of land that was inherited upon the Canadian Pacific reorganization in 2001. This parcel was not part of the Company's interest in the Toronto or Vancouver lands. This sale contributed to the $0.4 million in EBITDA from real estate activities compared to $9.3 million earned in 2003.
First Quarter Management Operations
Revenues under management of $374 million increased 21% over 2003, half of which was driven by the addition of two new management contracts since last summer. Management fee revenues were up 20.2% to $12.5 million, in line with the increase in revenues under management.
For the Fairmont managed portfolio, RevPAR increased 12.4% to $106.93. RevPAR for the U.S. and International portfolio showed solid improvement with RevPAR up 11.9%, driven by a 5.8 point occupancy gain. The Canadian comparable portfolio reported a 13.2% RevPAR improvement, driven by increases in ADR and occupancy of 9.2% and 2.1 points, respectively. Adjusting for the foreign exchange impact, RevPAR at the Canadian portfolio was relatively unchanged from 2003.
In the first quarter, Delta's revenues under management increased by $12 million to $80 million. Management fee revenues of $2.5 million were down $0.6 million from last year when a one-time payout relating to the termination of two management contracts was received. During the quarter, RevPAR increased 13.9% resulting from an 11.2% ADR increase and a 1.3 point improvement in occupancy. Adjusting for the foreign exchange impact, RevPAR was unchanged in 2003.
Hotel related capital expenditures for the quarter totaled $19.8 million.Several projects were underway during the quarter including: - The renovation of the meeting rooms and final phase of the guestrooms at The Fairmont Copley Plaza Boston (completed in mid-April); and - The construction of the meeting facility at The Fairmont Chateau Lake Louise (to open in mid-May).
FHR currently expects that total hotel capital expenditures in 2004 will be $90 - $100 million, including approximately $15 million that was originally expected to be spent in 2003.
Announcements and Corporate Activities
The Company announced today that it has entered into an agreement with Obrascon Huarte Lain, S.A. to manage a resort near Playa del Carmen in Mayakoba, Mexico. Located 40 miles from Cancun on the Mayan Riviera, this 401-room luxury resort is expected to open in late 2005 and will be flagged "The Fairmont Mayakoba, Riviera Maya". FHR will invest approximately $10 million for an equity interest of about 15% in the resort.
FHR has also entered into a joint venture with Nile City Investment Company to manage a 552-room luxury hotel on the Nile River in central Cairo, Egypt. FHR and Kingdom Hotel Investment Group ("KHI"), the chairman of which is His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz al Saud, will each invest approximately $10 million for an equity interest of about 15% each in the property, which is anticipated to open in 2006.
The Company has also entered into a strategic alliance with Kuwait-based International Financial Advisors Company ("IFA") through IFA Hotels & Resorts to open a resort in Dubai on The Palm, Jumeirah, an extensive development project in the Arabian Gulf that is currently being completed. Situated on the best location of The Palm, Jumeirah, the Fairmont project will include a 300- room luxury resort and 460 vacation residences. "The Fairmont Palm Jumeirah Resort, Dubai" is expected to open in late 2006. FHR and KHI will each invest approximately $15 million for a 10% equity interest each in this development. IFA, KHI and the Company are also exploring other resort projects in the Middle East, East Africa and South Africa.
FHR has entered into an agreement with a syndicate of banks for a three- year $400 million unsecured revolving term credit facility. The credit facility bears interest at floating rates and replaces the Company's existing credit facility that would have matured in September. The credit facility is available for general corporate purposes.
FHR has not repurchased any shares under its normal course issuer bid in 2004.
Investment in Legacy
In 1997, FHR was instrumental in the creation of Legacy. Since that time, the Company has held an approximate one-third interest in the equity of the Trust and Legacy and the Company have had a mutually beneficial strategic relationship during which time Legacy has acquired 15 hotels from FHR from inception until 2001 and is currently the largest third party owner of Fairmont properties.
To date, FHR has accounted for its investment in Legacy on an equity basis. Pursuant to recent changes in accounting rules that came into effect in 2004 under U.S. GAAP and which will come into effect in 2005 under Canadian GAAP, FHR will likely be required to consolidate within its financial statements Legacy's financial results. FHR believes that consolidating Legacy would complicate investors' ability to assess FHR's financial performance. Based on the Company's analysis to date, were FHR to reduce its equity investment in Legacy to less than 25%, the Company could continue to equity account for its Legacy holding without consolidation.
Accordingly, FHR may, subject to favorable market conditions, reduce its investment in the Trust during 2004, pursuant to one or several transactions. FHR believes that the mutual benefits of their relationship would remain substantially unchanged notwithstanding a reduction in its equity interest.
"We expect that the improving industry fundamentals and economic environment will continue to translate into a strong recovery. Our existing bookings for our critical group business throughout our portfolio continue to be ahead of levels at this time last year for 2003", commented Mr. Fatt. "In addition, we are excited about the opportunity for our recently renovated resort portfolio to benefit from improving business conditions and growing leisure travel demand that is expected over the long-term."
Continued Mr. Fatt, "We are however cautious about the level of U.S. leisure business coming into the Canadian resorts during the critical summer season. We will have a better indication of this customer segment's demand levels later in the spring."
The Company's full-year guidance is unchanged. FHR estimates that 2004 EBITDA will be in the range of $210 - $220 million, including approximately $9 million from real estate activities. Net income is estimated to be between $65 and $71 million and basic EPS to be in the range of $0.82 - $0.90, assuming a full-year tax rate of 28%.
It is the Company's intention to adopt U.S. GAAP in 2004. This change will simplify comparisons of FHR's financial statements with those of its peers and is not expected to have a significant impact on net earnings or the Company's financial condition.
"The growth of the Fairmont brand remains a major focus for the Company and we are encouraged by the improvement in brand awareness. In 2004, we intend to add two to four properties to our portfolio while continuing to seek development opportunities in resort destinations and further increase the exposure of our existing portfolio," said Mr. Fatt.
FHR is one of North America's leading owner/operators of luxury hotels and resorts. FHR's managed portfolio consists of 83 luxury and first-class properties with more than 33,000 guestrooms in the United States, Canada, Mexico, Bermuda, Barbados and the United Arab Emirates. It holds an 83.5% controlling interest in Fairmont Hotels Inc., North America's largest luxury hotel management company, as measured by rooms under management. Fairmont manages 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 39 city center and resort properties in Canada. In addition to hotel management, FHR holds real estate interests in 23 properties and an approximate 35% investment interest in Legacy Hotels Real Estate Investment Trust, which owns 24 properties.
FHR will hold a conference call today, April 27, 2004 at 1:30 p.m. Eastern Time to discuss its results. To participate, please dial 416.405.9328 or 1.800.387.6216. You will be requested to identify yourself and the organization on whose behalf you are participating. A recording of this call will be made available beginning at 4:30 p.m. Eastern Time on April 27, 2004 through to May 4, 2004 by dialing 416.695.5800 or 1.800.408.3053 using the reservation No. 3030016. A live audio webcast of the conference call will be available via FHR's website (www.fairmont.com/investor). An archived recording of the webcast will remain available on FHR's website following the conference call.
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. 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. FHR disclaims any responsibility to update any such forward-looking statements.