Fairmont Hotels & Resorts Inc. Reports Second Quarter Results
TORONTO, July 22 /PRNewswire-FirstCall/ -- Fairmont Hotels &
Resorts Inc. ("FHR" or the "Company") (TSX/NYSE: FHR) today
announced its unaudited financial results for the second quarter
ended June 30, 2004 using Canadian generally accepted accounting
principles. All amounts are expressed in U.S. dollars. Second
Quarter 2004 Highlights - Operating revenues(1) increased 20.6 % to
$210.3 million; - Revenue per available room ("RevPAR") for the
comparable owned portfolio improved 22.7%. Occupancy improved 10.7
points (19.8%) and average daily rate ("ADR") increased 2.5%; -
RevPAR for the comparable managed portfolio increased 18.0%, driven
by 5.5% ADR growth and a 7.2 point (11.8%) occupancy increase; -
EBITDA(2)increased 44.0% to $62.5 million; - Net income of $29.0
million and earnings per share ("EPS") of $0.37 increased
approximately 85% over 2003 levels excluding a favorable income tax
recovery of $24.4 million in the second quarter of 2003. "The
lodging industry continues to benefit from a widespread recovery in
travel demand. We have enjoyed a remarkable rebound in performance
at our Canadian properties since last year and are pleased to
report considerable RevPAR growth throughout our portfolio, driven
by solid occupancy and rate improvements in most markets," said
William R. Fatt, FHR's Chief Executive Officer. "Our overall
performance was in line with our expectations for the second
quarter, demonstrating significant improvement over 2003 and
continuing momentum from earlier this year." Second Quarter
Ownership Operations Revenues from hotel ownership improved 17.7%
to $180.6 million in the second quarter. The increase was driven by
solid performance improvements at our U.S. and international
properties as well as our Canadian portfolio. Most of the large
resorts recorded double-digit revenue growth over 2003, including
considerable improvements at The Fairmont Orchid, The Fairmont
Chateau Lake Louise and The Fairmont Scottsdale Princess. RevPAR of
$132.41 was up 22.7% in the second quarter, resulting from the
combination of a 10.7 point improvement in occupancy and a 2.5%
increase in average daily rate ("ADR"). The U.S. and International
owned comparable portfolio enjoyed considerable improvements in ADR
and occupancy of 4.1% and 9.3 points, respectively, resulting in
RevPAR growth of 22.5%. Solid occupancy growth at all of the
Canadian owned hotels resulted in a considerable RevPAR improvement
of 23.6%. When compared to the second quarter of 2003, the average
Canadian dollar exchange rate for the quarter appreciated
approximately 3% against the U.S. dollar. Adjusting for the foreign
exchange impact, RevPAR for the Canadian portfolio was up
approximately 20%. Equity income generated from FHR's investment in
Legacy Hotels Real Estate Investment Trust ("Legacy" or the
"Trust") was $2.8 million compared to a loss of $0.5 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. On June 28, 2004, FHR completed the sale of a land
block zoned for residential use in Vancouver's Coal Harbour. FHR
received gross proceeds of $14.1 million for its 75% interest in
the land, recording an $8.3 million profit on the sale. Overall
real estate activities generated $18.1 million in revenues and $8.4
million in EBITDA compared to $12.3 million and $6.6 million,
respectively in 2003. Second Quarter Management Operations Fairmont
Revenues under management of $445 million increased 21.7% over
2003, a portion of which was attributed to the addition of two new
management contracts. Management fee revenues were up 30.5% to
$13.7 million, as a result of higher revenues as well as
considerable improvement in incentive fees. For the Fairmont
managed portfolio, RevPAR increased 18.0% to $123.59. RevPAR for
the U.S. and International portfolio showed solid improvement with
RevPAR up 15.1%, resulting from an occupancy gain of 5.1 points
combined with an ADR increase of 6.3%. The Canadian comparable
portfolio reported a 22.5% RevPAR improvement, driven by increases
in ADR and occupancy of 6.0% and 9.3 points, respectively.
Adjusting for the foreign exchange impact, RevPAR at the Canadian
portfolio was up approximately 19% over 2003. Delta In the second
quarter, Delta's revenues under management increased 16% to $93
million. Management fee revenues of $3.6 million were up 38% from
last year. During the quarter, RevPAR increased 20.4% resulting
from a 3.1% ADR increase and a 9.7 point improvement in occupancy.
Adjusting for the foreign exchange impact, RevPAR was up
approximately 17%. Six months Consolidated Results For the six
months ended June 30, 2004, operating revenues increased 10.6% to
$378.5 million from $342.3 million in the prior period. The U.S.
and international properties were the major contributors to this
increase led by The Fairmont Scottsdale Princess. EBITDA of $96.6
million was up 12.9% from last year. Equity losses generated from
FHR's investment in Legacy were $4.5 million compared to equity
losses of $6.8 million in 2003. Legacy's portfolio continues to
gain momentum after a challenging year in 2003 given the concerns
relating to SARS. FHR continues to dispose of its undeveloped land.
In the first six months of 2004, overall real estate activities
generated $21.4 million in revenues and $8.8 million in EBITDA
compared to $31.2 million and $15.9 million in 2003, respectively.
Net income in 2003 included a $24.4 million, or $0.31 per share,
income tax recovery from a favorable tax reassessment recorded in
June. As a result, year-to-date net income of $28.4 million was
down 46.0% compared to the prior year while basic EPS was $0.36 in
2004 compared to $0.66 in 2003. Excluding this tax recovery, net
income and EPS were slightly higher than 2003 levels. Capital
Expenditures Hotel related capital expenditures for the quarter
totaled $24.2 million. Several projects were completed during the
quarter including: - The renovation of the meeting rooms and final
phase of the guestrooms at The Fairmont Copley Plaza Boston; and -
The construction of the meeting facility at The Fairmont Chateau
Lake Louise. The Company now expects that 2004 capital expenditures
will be in the range of $75 - $85 million. Announcements and
Corporate Activities On July 15, 2004, FHR sold its real estate
interest in The Fairmont Kea Lani Maui to Host Marriott Corporation
for $355 million, resulting in a pre-tax gain of $109 million. Our
third quarter earnings will 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.
"This was an attractive time to capitalize on our success with The
Fairmont Kea Lani Maui. It reinforces our strategy of acquiring
attractive assets, realizing the value created through improved
performance and then redeploying the capital to continue growing
the company," said Mr. Fatt. On July 9, 2004, FHR sold The Fairmont
Glitter Bay in Barbados to a group of investors for approximately
$31 million. The sale resulted in an after tax gain of about $8
million that will be reflected in our third quarter earnings. The
resort continues to be managed by the Company as The Fairmont
Glitter Bay. FHR expects to reinvest a portion of the proceeds from
these sales in additional hotels over the course of the next year.
In addition, FHR will acquire the remaining interest in the
Fairmont management company, increase its share purchases under its
existing share repurchase program and, in the interim, reduce
existing indebtedness, including the repayment of the $120 million
mortgage on The Fairmont Kea Lani Maui. During the quarter, FHR
repurchased 208,400 shares under its normal course issuer bid at a
total cost of $5.4 million. Under the current normal course issuer
bid, FHR is authorized to purchase up to 3,900,000 of its common
shares for the twelve-month period ending October 5, 2004. Outlook
"Improving industry fundamentals continue to gain momentum. This
trend is translating into a sustainable recovery for the Company.
Our group bookings are in-line with our 2004 outlook and our tour
business for the peak summer months is ahead of expectations,
returning to 2002 levels," said Mr. Fatt. "There has been some
short-term softness in U.S. travel outside of the United States.
This has affected the performance of Fairmont's Canadian properties
relative to our original expectations. This segment of our business
has rebounded significantly over 2003 levels, and we are encouraged
about the long-term growth potential of our world-class Canadian
resorts." FHR's previous 2004 EBITDA guidance of $210 - $220
million has been revised to reflect the lost earnings from the two
recent hotel sales ($13 million), the short-term softness in U.S.
travel into Canada ($6 million), lower real estate earnings ($2
million) and some modest increases in corporate expenses. FHR now
estimates that 2004 EBITDA will be in the range of $185 - $195
million, including approximately $7 million from real estate
activities. Including the $76 million gain from the two hotel sales
($0.96 per share), net income is estimated to be between $132 -
$138 million and basic EPS to be in the range of $1.67 - $1.75,
assuming a full-year tax rate of approximately 31%. "This is an
exciting time for Fairmont. Our solid balance sheet and new
development team position us to further grow the Company and expand
the Fairmont brand. In addition, our recently renovated portfolio
of world-class properties is poised to benefit from the overall
recovery in the industry," said Mr. Fatt. \"In 2004, our intent
remains to add two to four properties to our portfolio while
continuing to seek development opportunities in resort destinations
to increase the exposure of our existing portfolio." FHR has
updated its 2004 portfolio seasonality information on the Company's
website to reflect the revised earnings estimates. About Fairmont
Hotels & Resorts Inc. 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 35%
investment interest in Legacy Hotels Real Estate Investment Trust,
which owns 24 properties. FHR will hold a conference call today,
July 22, 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 July 22, 2004
through to July 29, 2004 by dialing 416.695.5800 or 1.800.408.3053
using the reservation No. 3068997. A live audio webcast of the
conference call will be available via FHR's website
(http://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.
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Three months ended Six months ended June 30 June 30
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2004 2003 Variance 2004 2003 Variance
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OWNED HOTELS
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Worldwide 15 properties/6,882 rooms
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RevPAR 132.41 107.87 22.7% 135.86 115.58 17.5%
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ADR 204.36 199.29 2.5% 209.77 201.26 4.2%
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Occupancy 64.8% 54.1% 10.7 64.8% 57.4% 7.4 points points
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Canada 7 properties/3,336 rooms
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RevPAR 106.23 85.97 23.6% 100.08 86.12 16.2%
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ADR 156.93 154.61 1.5% 155.72 147.65 5.5%
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Occupancy 67.7% 55.6% 12.1 64.3% 58.3% 6.0 points points
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U.S. and International 8 properties/3,546 rooms
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RevPAR 156.64 127.90 22.5% 168.82 142.53 18.4%
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ADR 252.23 242.37 4.1% 258.82 251.79 2.8%
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Occupancy 62.1% 52.8% 9.3 65.2% 56.6% 8.6 points points
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FAIRMONT MANAGED HOTELS
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Worldwide 40 hotels/19,885 rooms
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RevPAR 123.59 104.76 18.0% 115.29 100.01 15.3%
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ADR 181.49 172.08 5.5% 178.33 169.28 5.3%
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Occupancy 68.1% 60.9% 7.2 64.6% 59.1% 5.5 points points
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Canada 20 properties/10,099 rooms
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RevPAR 101.20 82.62 22.5% 88.29 74.62 18.3%
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ADR 146.22 137.95 6.0% 139.05 129.11 7.7%
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Occupancy 69.2% 59.9% 9.3 63.5% 57.8% 5.7 points points
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U.S. and International 20 properties/9,786 rooms
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RevPAR 146.19 127.03 15.1% 142.34 125.38 13.5%
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ADR 218.29 205.29 6.3% 216.31 207.72 4.1%
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Occupancy 67.0% 61.9% 5.1 65.8% 60.4% 5.4 points points
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DELTA MANAGED HOTELS
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Worldwide 28 properties/8,296 rooms
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RevPAR 64.86 53.88 20.4% 59.12 50.40 17.3%
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ADR 96.11 93.22 3.1% 94.35 88.20 7.0%
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Occupancy 67.5% 57.8% 9.7 62.7% 57.1% 5.6 points points
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Comparable hotels and resorts are considered to be properties that
were fully open under FHR management for at least the entire
current and prior period. Comparable hotels and resorts statistics
exclude properties under major renovation that would have a
significant adverse effect on the properties' primary operations.
The following properties were excluded: Owned: The Fairmont
Southampton; The Fairmont Copley Plaza Boston Fairmont Managed: The
Fairmont Southampton; The Fairmont Olympic Hotel, Seattle; The
Fairmont Turnberry Isle Resort & Club, Miami Delta Managed:
None FHR's 2003 quarterly operating statistics for its 2004
comparable hotel portfolios as at June 30, 2004 are available on
the Company's website (http://www.fairmont.com/investor). 1.
Operating revenues excludes other revenues from managed and
franchised properties (consists of direct and indirect costs
relating primarily to marketing and reservation services that are
reimbursed by hotel owners on a cost recovery basis). Management
considers that the exclusion of such revenues provides a meaningful
measure of operating performance, however, it is not a defined
measure of operating performance under Canadian GAAP. It is likely
that FHR's calculation of operating revenues is different than the
calculation used by other entities. 2. EBITDA is defined as
earnings before interest, taxes and amortization. Income from
investments and other is included in EBITDA. Management considers
EBITDA to be a meaningful indicator of hotel operations and uses it
as the primary measurement of operating segment profit and loss.
However, it is not a defined measure of operating performance under
Canadian generally accepted accounting principles ("Canadian
GAAP"). It is likely that FHR's calculation of EBITDA is different
than the calculations used by other entities. EBITDA is represented
on the consolidated statements of income as "operating income
before undernoted items". Reconciliation of EBITDA to net income:
Three months ended Six months ended June 30 June 30 In millions of
dollars 2004 2003 2004 2003
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EBITDA $ 62.5 $ 43.4 $ 96.6 $ 85.6 Deduct: Amortization 18.0 17.2
37.5 33.5 Interest expense, net 9.0 8.3 19.0 14.2 Income tax
expense (recovery) 6.5 (22.2) 11.7 (14.7)
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Net income $ 29.0 $ 40.1 $ 28.4 $ 52.6
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Summary of Hotel Portfolios
--------------------------------------------------- At June 30
--------------------------------------------------- 2004 2003
--------------------------------------------------- OWNED HOTELS
--------------------------------------------------- Worldwide
--------------------------------------------------- No. of
Properties 17 17
--------------------------------------------------- No. of Rooms
7,861 7,787 ---------------------------------------------------
Canada --------------------------------------------------- No. of
Properties 7 7 ---------------------------------------------------
No. of Rooms 3,336 3,268
--------------------------------------------------- U.S. and
International ---------------------------------------------------
No. of Properties 10 10
--------------------------------------------------- No. of Rooms
4,525 4,519 ---------------------------------------------------
--------------------------------------------------- FAIRMONT
MANAGED HOTELS ---------------------------------------------------
Worldwide --------------------------------------------------- No.
of Properties 44 42
--------------------------------------------------- No. of Rooms
21,643 20,732 ---------------------------------------------------
Canada --------------------------------------------------- No. of
Properties 21 21
--------------------------------------------------- No. of Rooms
10,422 10,361 ---------------------------------------------------
U.S. and International
--------------------------------------------------- No. of
Properties 23 21
--------------------------------------------------- No. of Rooms
11,221 10,371 ---------------------------------------------------
DELTA MANAGED HOTELS
--------------------------------------------------- Worldwide
--------------------------------------------------- No of
Properties 38 39
--------------------------------------------------- No. of Rooms
11,163 11,677 ---------------------------------------------------
Fairmont Hotels & Resorts Inc. Consolidated Balance Sheets
(Stated in millions of U.S. dollars) ASSETS June 30 December 31
2004 2003 ------------ ----------- (Unaudited) Current assets Cash
and cash equivalents $ 47.8 $ 31.7 Accounts receivable 83.6 64.1
Inventory 14.5 14.2 Prepaid expenses and other 20.7 24.6 Assets
held for sale (note 3) 271.1 - ------------ ----------- 437.7 134.6
Investments in partnerships and corporations (note 5) 69.0 53.1
Investment in Legacy Hotels Real Estate Investment Trust 96.9 105.9
Non-hotel real estate 91.4 95.1 Property and equipment 1,381.9
1,656.2 Goodwill 140.5 132.0 Intangible assets 214.3 216.7 Other
assets and deferred charges (note 5) 102.0 109.4 ------------
----------- $ 2,533.7 $ 2,503.0 ------------ -----------
------------ ----------- LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities Accounts payable and accrued liabilities $
111.8 $ 124.0 Dividends payable 3.2 3.2 Current portion of
long-term debt (note 3) 201.5 117.8 Liabilities related to assets
held for sale (note 3) 10.6 - ------------ ----------- 327.1 245.0
Long-term debt (note 4) 471.7 539.8 Other liabilities 88.7 91.4
Future income taxes 97.7 80.9 ------------ ----------- 985.2 957.1
------------ ----------- Shareholders' Equity (note 6) 1,548.5
1,545.9 ------------ ----------- $ 2,533.7 $ 2,503.0 ------------
----------- ------------ ----------- Fairmont Hotels & Resorts
Inc. Consolidated Statements of Income (Stated in millions of U.S.
dollars, except per share amounts) (Unaudited) Three months Six
months ended June 30 ended June 30 2004 2003 2004 2003 ---------
-------- -------- --------- Revenues Hotel ownership operations $
180.6 $ 153.5 $ 336.0 $ 293.9 Management operations 11.6 8.6 21.1
17.2 Real estate activities 18.1 12.3 21.4 31.2 --------- --------
-------- --------- Operating revenues 210.3 174.4 378.5 342.3 Other
revenues from managed and franchised properties 8.9 7.5 17.8 14.5
--------- -------- -------- --------- 219.2 181.9 396.3 356.8
Expenses Hotel ownership operations 135.3 118.2 252.0 223.7
Management operations 6.3 7.0 12.9 11.0 Real estate activities 9.7
5.7 12.6 15.3 --------- -------- -------- --------- Operating
expenses 151.3 130.9 277.5 250.0 Other expenses from managed and
franchised properties 9.1 8.0 18.2 14.9 --------- -------- --------
--------- 160.4 138.9 295.7 264.9 Income (loss) from equity
investments and other 3.7 0.4 (4.0) (6.3) --------- --------
-------- --------- Operating income before undernoted items 62.5
43.4 96.6 85.6 Amortization 18.0 17.2 37.5 33.5 Interest expense,
net 9.0 8.3 19.0 14.2 --------- -------- -------- --------- Income
before income tax expense 35.5 17.9 40.1 37.9 --------- --------
-------- --------- Income tax expense (recovery) Current 2.6 1.2
5.5 6.5 Future 3.9 (23.4) 6.2 (21.2) --------- -------- --------
--------- 6.5 (22.2) 11.7 (14.7) --------- -------- --------
--------- Net income $ 29.0 $ 40.1 $ 28.4 $ 52.6 --------- --------
-------- --------- --------- -------- -------- --------- Weighted
average number of common shares outstanding (in millions) (note 6)
Basic 79.1 79.4 79.1 79.3 Diluted 79.9 80.1 79.9 80.0 Basic
earnings per common share $ 0.37 $ 0.51 $ 0.36 $ 0.66 Diluted
earnings per common share $ 0.36 $ 0.50 $ 0.36 $ 0.66 Fairmont
Hotels & Resorts Inc. Consolidated Statements of Cash Flows
(Stated in millions of U.S. dollars) (Unaudited) Three months Six
months ended June 30 ended June 30 2004 2003 2004 2003 ---------
-------- -------- --------- Cash provided by (used in) Operating
activities Net Income $ 29.0 $ 40.1 $ 28.4 $ 52.6 Items not
affecting cash Amortization of property and equipment 17.3 16.6
36.1 32.2 Amortization of intangible assets 0.7 0.6 1.4 1.3
(Income) loss from equity investments and other (3.7) (0.4) 4.0 6.3
Future income taxes 3.9 (23.4) 6.2 (21.2) Unrealized foreign
exchange loss 10.2 - 10.2 - Distributions from investments - 4.4 -
4.4 Other (3.5) (10.4) (1.0) (7.7) Changes in non-hotel real estate
0.5 2.7 0.3 10.1 Changes in non-cash working capital items (note 7)
(45.3) (22.9) (36.3) (34.6) --------- -------- -------- ---------
9.1 7.3 49.3 43.4 --------- -------- -------- --------- Investing
activities Additions to property and equipment (24.2) (19.8) (44.0)
(35.6) Acquisitions, net of cash acquired - - - 6.0 Investments in
partnerships and corporations - (0.6) - (0.7) Collection of loans
receivable 0.1 - 8.9 - Issuance of loans receivable (2.0) - (7.0) -
--------- -------- -------- --------- (26.1) (20.4) (42.1) (30.3)
--------- -------- -------- --------- Financing activities Issuance
of long-term debt 2.8 23.2 82.7 146.7 Repayment of long-term debt
(2.0) (1.0) (65.6) (143.5) Issuance of common shares 0.3 0.1 0.6
0.1 Repurchase of common shares (5.4) (11.8) (5.4) (16.8) Dividends
paid - - (3.2) (2.4) --------- -------- -------- --------- (4.3)
10.5 9.1 (15.9) --------- -------- -------- --------- Effect of
exchange rate changes on cash (0.1) 2.0 (0.2) 3.5 ---------
-------- -------- --------- Increase (decrease) in cash (21.4)
(0.6) 16.1 0.7 Cash and cash equivalents - beginning of period 69.2
50.3 31.7 49.0 --------- -------- -------- --------- Cash and cash
equivalents - end of period $ 47.8 $ 49.7 $ 47.8 $ 49.7 ---------
-------- -------- --------- --------- -------- -------- ---------
Fairmont Hotels & Resorts Inc. Consolidated Statements of
Retained Earnings (Stated in millions of U.S. dollars) (Unaudited)
Three months Six months ended June 30 ended June 30 2004 2003 2004
2003 --------- -------- -------- --------- Balance - Beginning of
period $ 77.5 $ 49.8 $ 78.1 $ 38.5 Net income 29.0 40.1 28.4 52.6
--------- -------- -------- --------- 106.5 89.9 106.5 91.1
Repurchase of common shares (note 6) (2.2) (4.3) (2.2) (5.5)
Dividends (3.2) (2.4) (3.2) (2.4) --------- -------- --------
--------- Balance - End of period $ 101.1 $ 83.2 $ 101.1 $ 83.2
--------- -------- -------- --------- --------- -------- --------
--------- Fairmont Hotels & Resorts Inc. Notes to Consolidated
Financial Statements (Stated in millions of U.S. dollars)
(Unaudited) 1. Fairmont Hotels & Resorts Inc. ("FHR") has
operated and owned hotels and resorts for over 116 years and
currently manages properties principally under the Fairmont and
Delta brands. At June 30, 2004, FHR managed or franchised 82 luxury
and first-class hotels. FHR owns 83.5% of Fairmont Hotels Inc.
("Fairmont"), which at June 30, 2004, managed 44 properties in
major city centers and key resort destinations throughout Canada,
the United States, Mexico, Bermuda, Barbados and the United Arab
Emirates. Delta Hotels Limited ("Delta"), a wholly owned subsidiary
of FHR, managed or franchised 38 Canadian hotels and resorts at
June 30, 2004. In addition to hotel and resort management, as at
June 30, 2004, FHR had hotel ownership interests ranging from
approximately 15% to 100% in 24 properties, located in Canada, the
United States, Mexico, Bermuda, Barbados and the United Arab
Emirates. FHR also has an approximate 35% equity interest in Legacy
Hotels Real Estate Investment Trust ("Legacy"), which owns 24
hotels and resorts across Canada and the United States. FHR also
owns real estate properties that are suitable for either commercial
or residential development, and has a vacation ownership product.
Results for the three and six months ended June 30, 2004 are not
necessarily indicative of the results that may be expected for the
full year due to seasonal and short-term variations. Revenues are
typically higher in the second and third quarters versus the first
and fourth quarters of the year. 2. These interim consolidated
financial statements do not include all disclosures as required by
Canadian generally accepted accounting principles ("GAAP") for
annual consolidated financial statements and should be read in
conjunction with the audited consolidated financial statements for
the year ended December 31, 2003 presented in the annual report.
The accounting policies used in the preparation of these interim
consolidated financial statements are consistent with the
accounting policies used in the December 31, 2003 audited
consolidated financial statements, except as discussed below.
Hedging Relationships Effective January 1, 2004, FHR implemented
new guidance on accounting for hedging relationships. The new
guidelines specify the circumstances in which hedge accounting is
appropriate, including the identification, documentation,
designation and effectiveness of hedges and also the discontinuance
of hedge accounting. The adoption of this accounting guidance did
not have an impact on the Company's financial statements. Generally
Accepted Accounting Principles and General Standards of Financial
Statement Presentation The Canadian Institute of Chartered
Accountants has issued new accounting standards surrounding GAAP
and financial statement presentation. These standards lay out a
framework for the application of GAAP and the fair presentation of
financial standards in accordance with GAAP and are effective for
years beginning January 1, 2004. No changes to accounting
principles or financial statement presentation were required as FHR
was already in full compliance with these new standards. Assets
Held for Sale Long-lived assets are classified as held for sale
when specific GAAP criteria are met. Assets held for sale are
measured at the lower of their carrying amounts and fair values
less costs to dispose and are no longer amortized. Assets
classified as held for sale and liabilities related to these assets
are reported separately on the balance sheet. A component of FHR
that is held for sale is reported as a discontinued operation if
the operations and cash flows of the component will be eliminated
from ongoing operations as a result of the sale and FHR will not
have a significant continuing involvement in the operations of the
component after the sale. 3. In June 2004, FHR finalized an
agreement with Host Marriott Corporation to sell The Fairmont Kea
Lani Maui for cash proceeds of $355.0. As such, the assets and the
liabilities of The Fairmont Kea Lani Maui have been reclassified to
"Assets held for sale" and "Liabilities related to assets held for
sale", respectively. As at June 30, 2004, The Fairmont Kea Lani
Maui had property and equipment with a carrying value of $242.4 and
a working capital deficit of $2.5. The transaction closed on July
15, 2004 and the mortgage of $120.0 on this property was repaid. As
of June 30, 2004, the mortgage was classified on the balance sheet
as current portion of long-term debt. The after-tax gain on the
sale of approximately $68.0 will be recognized in the third
quarter. The resort will continue to be managed by Fairmont under a
long-term management contract. The assets and liabilities of this
property are currently included in the hotel ownership segment
(note 8). In June 2004, FHR finalized an agreement to sell The
Fairmont Glitter Bay for cash proceeds of approximately $31.0. As
such, the assets and the liabilities of The Fairmont Glitter Bay
have been reclassified to "Assets held for sale" and "Liabilities
related to assets held for sale" respectively. As at June 30, 2004,
The Fairmont Glitter Bay had property and equipment with a carrying
value of $20.6. The transaction closed on July 9, 2004 and the
mortgage of $5.2 on this property was repaid. The after-tax gain on
the sale of approximately $8.0 will be recognized in the third
quarter. As of June 30, 2004, the mortgage was classified on the
balance sheet as current portion of long-term debt. The resort will
continue to be managed by Fairmont under a long-term management
contract. The assets and liabilities of this property are currently
included in the hotel ownership segment (note 8). 4. In March 2004,
FHR entered into a new $400 unsecured credit facility due March
2007. The interest rate is floating and is calculated based on the
borrower's choice of prime rate, bankers acceptance or LIBOR plus a
spread. 5. In April 2004, FHR finalized an agreement to invest
$15.6 for a 14.5% interest in The Fairmont Dubai. This investment
is accounted for using the equity method. In the quarter, $15.6 was
reclassified from "Other assets and deferred charges" to
"Investments in partnerships and corporations". 6. Shareholders'
equity June 30, December 31, 2004 2003 ------------- -------------
Common shares $ 1,199.6 $ 1,202.2 Other equity 19.2 19.2
Contributed surplus 142.3 142.3 Foreign currency translation
adjustments 86.3 104.1 Retained earnings 101.1 78.1 -------------
------------- $ 1,548.5 $ 1,545.9 ------------- ------------- The
diluted weighted-average number of common shares outstanding is
calculated as follows: Three months ended Six months ended June 30
June 30 2004 2003 2004 2003 ----------- ----------- -----------
----------- (in millions) (in millions) Weighted-average number of
common shares outstanding - basic 79.1 79.4 79.1 79.3 Stock options
0.8 0.7 0.8 0.7 ----------- ----------- ----------- -----------
Weighted-average number of common shares outstanding - diluted 79.9
80.1 79.9 80.0 ----------- ----------- ----------- -----------
Under a normal course issuer bid, FHR may repurchase for
cancellation up to approximately 3.9 million, or approximately 5%
of its outstanding common shares. During the six months ended June
30, 2004, FHR repurchased 208,400 shares (208,400 during the second
quarter) for total consideration of $5.4 ($5.4 for the second
quarter), of which, $3.2 was charged to common shares and $2.2 was
charged to retained earnings. During the six months ended June 30,
2004, FHR issued 38,568 shares (21,378 shares for the second
quarter) pursuant to the Key Employee Stock Option Plan. $0.6 was
credited to common shares ($0.3 for the second quarter) for
proceeds from options exercised. At June 30, 2004, 78,944,445
common shares were outstanding (2003 - 79,046,316). During the six
months ended June 30, 2004, 10,000 stock options were granted (nil
in the second quarter). Assuming FHR elected to recognize the cost
of its stock-based compensation based on the estimated fair value
of stock options granted after January 1, 2002 but before January
1, 2003, net income and basic and diluted earnings per share would
have been: Three months ended Six months ended June 30 June 30 2004
2003 2004 2003 ----------- ----------- ----------- -----------
Reported net income $ 29.0 $ 40.1 $ 28.4 $ 52.6 Net income assuming
fair value method used $ 28.9 $ 39.6 $ 28.2 $ 51.9 Basic earnings
per share $ 0.37 $ 0.50 $ 0.36 $ 0.65 Diluted earnings per share $
0.36 $ 0.49 $ 0.35 $ 0.65 ----------- ----------- -----------
----------- 7. Changes in non-cash working capital: Three months
ended Six months ended June 30 June 30 2004 2003 2004 2003
----------- ----------- ----------- ----------- Decrease (increase)
in current assets Accounts receivable $ (25.9) $ (0.2) $ (25.2) $
(9.9) Inventory (0.9) 0.3 (1.3) (0.5) Prepaid expenses and other
(8.9) (9.1) (7.9) (10.0) Increase (decrease) in current liabilities
Accounts payable and accrued liabilities (9.6) (13.9) (1.9) (14.2)
----------- ------------ ----------- ---------- $ (45.3) $ (22.9) $
(36.3) $ (34.6) ----------- ----------- ----------- ----------- 8.
Segmented Information FHR has five reportable operating segments in
two core business activities, ownership and management operations.
The segments are hotel ownership, investment in Legacy, real estate
activities, Fairmont and Delta. Hotel ownership consists of real
estate interests ranging from approximately 15% to 100% in 24
properties. The investment in Legacy consists of an approximate 35%
equity interest in Legacy, which owns 24 hotels and resorts across
Canada and the United States. Real estate activities consists
primarily of two large undeveloped land blocks in Toronto and
Vancouver and a vacation ownership product. Fairmont is a North
American luxury hotel and resort management company and Delta is a
Canadian first-class hotel and resort management company. The
performance of all segments is evaluated primarily on earnings
before interest, taxes and amortization ("EBITDA"), which is
defined as income before interest, income taxes and amortization.
EBITDA includes income from investments and other. Amortization,
interest and income taxes are not allocated to the individual
segments. All transactions among operating segments are conducted
at fair market value. The following tables present revenues,
EBITDA, total assets and capital expenditures for FHR's reportable
segments: Three months ended June 30, 2004
------------------------------------------------------------
Ownership Management --------------------------- -------------
Inter- Real segment Hotel estate Fair- elimina- Ownership Legacy
activities mont Delta tion(a) Total --------- ------- ---------
------ ------- ------- --------- Operating revenues $ 180.6 $ - $
18.1 $ 13.7 $ 3.6 $ (5.7) $ 210.3 Other revenues from managed and
franchised properties - - - 6.2 2.7 - 8.9 -------- 219.2 Income
(loss) from equity investments and other 0.9 2.8 - - - - 3.7
EBITDA(b) 40.5 2.8 8.4 8.4 2.6 (0.2) 62.5 Total assets(c) 1,925.2
96.9 95.9 363.6 73.2 (21.1) 2,533.7 Capital expenditures 23.9 - -
0.3 - 24.2 Three months ended June 30, 2003
------------------------------------------------------------
Ownership Management --------------------------- -------------
Inter- Real segment Hotel estate Fair- elimina- Ownership Legacy
activities mont Delta tion(a) Total --------- ------- ---------
------ ------- ------- --------- Operating revenues $ 153.5 $ - $
12.3 $ 10.5 $ 2.6 $ (4.5) $ 174.4 Other revenues from managed and
franchised properties - - - 5.8 1.7 - 7.5 -------- 181.9 Income
(loss) from equity investments and other 0.9 (0.5) - - - - 0.4
EBITDA(b) 31.7 (0.5) 6.6 4.2 1.9 (0.5) 43.4 Total assets(c) 2,087.3
102.1 105.6 348.0 77.0 (265.4) 2,454.6 Capital expenditures 19.4 -
- 0.4 - - 19.8 Six months ended June 30, 2004
------------------------------------------------------------
Ownership Management --------------------------- -------------
Inter- Real segment Hotel estate Fair- elimina- Ownership Legacy
activities mont Delta tion(a) Total --------- ------- ---------
------ ------- ------- --------- Operating revenues $ 336.0 $ - $
21.4 $ 26.2 $ 6.1 $ (11.2) $ 378.5 Other revenues from managed and
franchised properties - - - 12.7 5.1 - 17.8 -------- 396.3 Income
(loss) from equity investments and other 0.5 (4.5) - - - - (4.0)
EBITDA(b) 73.3 (4.5) 8.8 15.3 4.1 (0.4) 96.6 Total assets(c)
1,925.2 96.9 95.9 363.6 73.2 (21.1) 2,533.7 Capital expenditures
43.5 - - 0.5 - 44.0 Six months ended June 30, 2003
------------------------------------------------------------
Ownership Management --------------------------- -------------
Inter- Real segment Hotel estate Fair- elimina- Ownership Legacy
activities mont Delta tion(a) Total --------- ------- ---------
------ ------- ------- --------- Operating revenues $ 293.9 $ - $
31.2 $ 20.9 $ 5.7 $ (9.4) $ 342.3 Other revenues from managed and
franchised properties - - - 10.6 3.9 - 14.5 -------- 356.8 Income
(loss) from equity investments and other 0.5 (6.8) - - - - (6.3)
EBITDA(b) 61.3 (6.8) 15.9 11.2 4.4 (0.4) 85.6 Total assets(c)
2,087.3 102.1 105.6 348.0 77.0 (265.4) 2,454.6 Capital expenditures
35.0 - - 0.6 - - 35.6 (a) Revenues represent management fees that
are charged by Fairmont of $5.6 (2003 - $4.4) and $11.1 (2003-$9.3)
for the three and six months ended June 30, 2004 respectively, and
Delta of $0.1 (2003 - $0.1) and $0.1 (2003-$0.1) for the three and
six months ended June 30, 2004 respectively, to the hotel ownership
operations, which are eliminated on consolidation. EBITDA
represents expenses not reimbursed relating to marketing and
reservation services performed by FHR under the terms of its hotel
management and franchise agreements. Total assets represent the
elimination of inter-segment loans net of corporate assets. (b) The
following costs are not allocated to the individual segments in
evaluating net income: Three months ended Six months ended June 30
June 30 2004 2003 2004 2003 ----------- ----------- -----------
----------- Amortization $ 18.0 $ 17.2 $ 37.5 $ 33.5 Interest
expense, net 9.0 8.3 19.0 14.2 Income tax expense (recovery) 6.5
(22.2) 11.7 (14.7) 9. As required under the terms and conditions of
the 3.75% convertible senior notes due 2023, the debt and the
common shares issuable upon conversion of the shares were
registered on Form F-10 with the United States Securities and
Exchange Commission on April 6, 2004. 10. At June 30, 2004, FHR has
a payable to Legacy of $7.0 in connection with various management
contracts, and reciprocal loan agreements with Legacy for $86.6. A
subsidiary of FHR has a 25% participation amounting to $10.7 in the
first mortgage on The Fairmont Olympic Hotel, Seattle. 11. FHR has
recorded pension and other post employment benefit expenses as
follows: Three months Six months ended June 30 ended June 30 2004
2003 2004 2003 -------- -------- -------- -------- (in millions)
(in millions) Pension $ 0.5 $ 0.1 $ 1.0 $ 0.1 Other post-employment
benefits 0.1 - 0.2 - -------- -------- -------- -------- $ 0.6 $
0.1 $ 1.2 $ 0.1 -------- -------- -------- -------- DATASOURCE:
Fairmont Hotels & Resorts Inc. CONTACT: Contacts: M. Jerry
Patava, Executive Vice President and Chief Financial Officer, Tel:
(416) 874-2450; Emma Thompson, Executive Director Investor
Relations, Tel: (416) 874-2485; Email: ; Website:
http://www.fairmont.com/
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