Fairmont Hotels & Resorts Inc. Third Quarter Earnings Rise
Sharply - As a result of improved operating performance and hotel
sales - TORONTO, Oct. 27 /PRNewswire-FirstCall/ -- Fairmont Hotels
& Resorts Inc. ("FHR" or the "Company") (TSX/NYSE: FHR) today
announced its unaudited financial results for the third quarter
ended September 30, 2004 using Canadian generally accepted
accounting principles. All amounts are expressed in U.S. dollars.
Third Quarter 2004 Highlights - Operating revenues(1) improved 9.9%
to $197.1 million. - EBITDA(2) increased 35.4% to $63.5 million.
Excluding the $7.4 million provision taken in 2003 related to
hurricane damage in Bermuda, EBITDA rose 16.9% in the quarter. -
Entered into an agreement to manage London's renowned Savoy Hotel.
- Sold real estate interests in two resorts for gross proceeds of
$387.1 million while maintaining long term-management contracts. -
Revenue per available room ("RevPAR") for the comparable owned
portfolio improved 17.1%. Occupancy improved 5.6 points (9.2%) and
average daily rate ("ADR") increased 7.1%. - Net income of $131.8
million and diluted earnings per share ("EPS") of $1.66 include a
$75.7 million, or $0.95 per share, gain from the two hotel sales in
the quarter and a $27.6 million, or $0.35 per share, gain from the
sale of Legacy units. 2003 net income and EPS include a $7.4
million provision for hurricane damage. Excluding these items, EPS
rose 50% over 2003 levels. "We continue to benefit from the ongoing
strength in travel demand, particularly for luxury properties, and
from our exposure to the leisure segment of the business. Our
Canadian properties have experienced a solid rebound over last year
and our U.S. and international hotels continue to produce
considerable RevPAR growth driven by both occupancy and rate
increases in most markets," said William R. Fatt, FHR's Chief
Executive Officer. "During the third quarter, our Canadian owned
properties performed to expectation however, our overall results
were affected by lower than anticipated earnings from our
investment in Legacy Hotels Real Estate Investment Trust ("Legacy"
or the "Trust"), whose portfolio was impacted by weaker than
expected U.S. travel to Canada. In addition, the recent reduction
in our ownership position in the Trust also reduced the earnings
from this investment," said Mr. Fatt. Third Quarter Ownership
Operations Revenues from hotel ownership improved 6.9% to $180.3
million, despite the lost revenues from the two hotel sales in the
third quarter. The increase was driven by a 14.6% improvement
performance at our Canadian properties. In particular, The Fairmont
Chateau Lake Louise enjoyed considerable revenue growth as a result
of ongoing strength in Asian tour business and from the addition of
the resort's new meeting facility and additional guestrooms.
Excluding the two resorts sold, U.S. and International hotel
revenues were up almost 25%, with several hotels generating
double-digit improvements over 2003. EBITDA from hotel ownership
operations of $50.3 million increased 43.7% compared to 2003 when
the Company recorded a $7.4 million provision related to the
hurricane damage in Bermuda. Excluding the hurricane provision,
hotel ownership EBITDA rose 18.6% in 2004. Owned hotel EBITDA
margin improved considerably to 27.9% from 20.8% in the third
quarter last year. Excluding the hurricane provision, margins
improved 280 basis points as a result of portfolio-wide increases
in both occupancy and ADR. RevPAR for the comparable owned
portfolio increased 17.1% in the third quarter, resulting from the
combination of a 5.6 point improvement in occupancy and a 7.1%
increase in ADR. The U.S. and International owned comparable
portfolio enjoyed solid leisure demand, which drove both occupancy
and ADR and resulted in a robust 22.8% RevPAR increase. Occupancy
growth at all of the major Canadian owned hotels generated a RevPAR
improvement of 13.8%. When compared to the third quarter of 2003,
the average Canadian dollar exchange rate for the quarter
appreciated approximately 5% against the U.S. dollar. Adjusting for
the foreign exchange impact, RevPAR for the Canadian portfolio was
up approximately 8%. Equity income generated from FHR's investment
in Legacy was $3.7 million compared to $2.6 million in the same
period last year. Legacy's portfolio continues to show significant
growth over 2003 levels given its recovery from the impact of SARS.
FHR's reduced ownership in Legacy from 35% to 24% during the
quarter impacted the Company's equity income from its investment.
In the third quarter, there were no land sales. Overall real estate
activities, generated primarily by FHR's vacation ownership
business in the third quarter of 2004, produced $4.8 million in
revenues and a $0.6 million loss compared to $0.2 million in
revenues and a $1.0 million loss in 2003. Third Quarter Management
Operations Fairmont Revenues under management of $454 million
increased 15% over 2003. Improved operating results and the
addition of two new management contracts contributed to this
increase. Management fee revenues were up 12.8% to $14.1 million,
commensurate with the increase in revenues under management and an
improvement in incentive fees. For the Fairmont comparable managed
portfolio, RevPAR increased 12.8% to $133.71. RevPAR for the U.S.
and International portfolio showed solid improvement with RevPAR up
10.8%, resulting from a 7.9% increase in ADR combined with an
occupancy gain of 1.6 points. The Canadian comparable portfolio
reported a 14.6% RevPAR improvement, driven by increases in ADR and
occupancy of 10.7% and 2.5 points, respectively. Adjusting for the
foreign exchange impact, RevPAR at the Canadian portfolio was up
approximately 9% over 2003. Delta In the third quarter, Delta's
revenues under management increased 16% to $105 million. Management
fee revenues of $3.5 million were up 16.7% from last year. During
the quarter, RevPAR increased 18.2% resulting from a 6.6% ADR
increase and a 7.2 point improvement in occupancy. Adjusting for
the foreign exchange impact, RevPAR was up approximately 12%. Nine
Months Consolidated Results For the nine months ended September 30,
2004, operating revenues increased 10.3% to $575.6 million from
$521.7 million in the prior period, despite the lost revenues from
the two recent hotel sales. All owned properties contributed to
this growth led by The Fairmont Chateau Lake Louise, The Fairmont
Scottsdale Princess and The Fairmont Orchid. EBITDA of $160.1
million was up 20.8% from last year. Excluding the 2003 hurricane
provision, EBITDA rose 14.4% in 2004. Equity losses generated from
FHR's investment in Legacy were $0.8 million compared to equity
losses of $4.2 million in 2003. Legacy's portfolio continues to
gain momentum after a challenging year in 2003 given the travel
concerns relating to SARS. To date in 2004, FHR has disposed of one
block of the Coal Harbour lands in Vancouver and another parcel of
land that was not part of the Company's principal real estate
holdings in Toronto or Vancouver. Overall real estate activities
generated $26.2 million in revenues and $8.2 million in EBITDA
compared to $31.4 million and $14.9 million in 2003, respectively.
Net income of $160.2 million (diluted EPS of $2.01) includes a
$75.7 million net gain from the two hotel sales ($0.95 per share)
and a $27.6 million gain from the sale of Legacy units ($0.35 per
share). Net income in 2003 included a $24.4 million ($0.31 per
share) income tax recovery from a favorable tax reassessment
recorded in June and a $7.4 million provision for hurricane damage
in the third quarter. Excluding the 2004 gains and the 2003 tax
recovery and provision, 2004 net income for the nine months was
ahead of last year by approximately 20%. Capital Expenditures Hotel
related capital expenditures for the quarter totaled $14.2 million.
The Company expects that 2004 capital expenditures will be in the
range of $75 - $85 million. After five years of extensive capital
investment, FHR has completed all of its major renovation plans. As
a result, the Company expects its 2005 capital budget to be more
modest, likely in the range of approximately $55 - $65 million.
Announcements and Corporate Activities On September 13, 2004, FHR
announced that the Company has entered into an agreement to manage
The Savoy Hotel in London, England. Concurrently, a company
affiliated with His Royal Highness Prince Alwaleed Bin Talal Bin
Abdulaziz Al Saud and Bank of Scotland Corporate, part of HBS plc,
have entered into discussion with the hotel owner, Quinlan Private,
to purchase the hotel. Subject to the successful sale of the
property, Fairmont will assume the management responsibilities of
The Savoy in January 2005. On September 13, 2004, FHR completed the
sale of 12 million units of Legacy in a block trade resulting in
total proceeds of approximately $63 million and a gain of $27.6
million. The Company's equity interest in Legacy is now 23.7%. On
August 25, 2004, FHR completed the acquisition of the 16.5%
minority interest in the Fairmont management company from Maritz,
Wolff & Co. for approximately $70 million. The Company now owns
100% of the Fairmont brand and management company. On July 15,
2004, FHR sold its real estate interest in The Fairmont Kea Lani
Maui to Host Marriott Corporation for approximately $355 million,
resulting in a pre-tax gain of $108.7 million. Our third quarter
earnings include an after-tax gain on the sale of approximately $68
million. The resort will continue to be known as The Fairmont Kea
Lani Maui and will be managed by Fairmont under the existing
long-term management contract, which expires in 2051. On July 9,
2004, FHR sold The Fairmont Glitter Bay in Barbados to a group of
investors for $31.7 million. The sale resulted in a non-taxable
gain of about $8 million that is reflected in our third quarter
earnings. The resort continues to be managed by the Company as The
Fairmont Glitter Bay under the existing long-term management
contract. These two recent hotel sales and the block trade of
Legacy units generated significant cash proceeds, a portion of
which was used in the third quarter to repay outstanding debt on
our bank lines and mortgages on the properties sold. The Company
intends to invest a portion of the proceeds to continue the growth
of the Fairmont brand. At the end of the third quarter, total debt
was $369.1 million and cash and cash equivalents totaled $167.8
million compared to $673.2 million in debt and $47.8 million in
cash at June 30, 2004. During the quarter, FHR repurchased
1,737,900 shares under its normal course issuer bid at a total cost
of $46.4 million. The Company has repurchased a total of 1,946,300
shares at a total cost of $51.8 million during 2004. Subsequent to
the third quarter, FHR announced a new normal course issuer bid
effective October 29, 2004, authorizing the Company to purchase up
to 10% of its public float in the twelve-month period following the
bid's effective date. Outlook "This is an exciting time for our
industry and for our Company. Lodging fundamentals remain solid,
particularly for the luxury category where there is minimal new
hotel supply expected for several years. Our recently renovated
portfolio combined with the long-term strength in the leisure
segment of the business ideally position us for above average
growth," said Mr. Fatt. "In particular, we anticipate a substantial
improvement in performance in 2005 at our Lake Louise and Boston
properties following the completion of their renovation programs as
well as at The Fairmont Orchid." As a result of FHR's reduced
ownership position in Legacy and the softness in the Trust's
performance in the third quarter, FHR expects to be at the lower
end of its previous 2004 EBITDA guidance range of $185 - $195
million. This guidance includes approximately $7 million from real
estate activities. Including the gains from the sale of the Legacy
units and the two resorts of $103.3 million ($1.30 per share), net
income is now estimated to be between $160 - $166 million and
diluted EPS to be in the range of $2.01 - $2.09. The guidance
assumes a full-year tax rate of approximately 29%, down slightly
from the previous estimate reflecting the sale of Legacy units. "We
remain focused on growing the Fairmont brand. By leveraging the
strength of our balance sheet and our growing number of capital
partners, we are poised to further expand our portfolio. The
addition of London's Savoy Hotel will provide us with the
opportunity to extend our distinctive collection of properties in
this critically strategic market, provide the ideal platform for
further expansion in Europe and position the Fairmont brand for
continued international growth," said Mr. Fatt. 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 24%
investment interest in Legacy Hotels Real Estate Investment Trust,
which owns 24 properties. FHR will hold a conference call today,
October 27, 2004 at 1:00 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 October
27, 2004 through to November 3, 2004 by dialing 416.695.5800 or
1.800.408.3053 using the reservation No. 3101928. 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 Nine months ended September 30 September 30
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2004 2003 Variance 2004 2003 Variance
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OWNED HOTELS
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Worldwide 13 properties/ 6,364 rooms
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RevPAR 136.82 116.85 17.1% 123.83 104.73 18.2%
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ADR 205.99 192.32 7.1% 192.50 182.65 5.4%
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Occupancy 66.4% 60.8% 5.6 points 64.3% 57.3% 7.0 points
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Canada 7 properties/ 3,336 rooms
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RevPAR 173.78 152.77 13.8% 125.19 108.67 15.2%
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ADR 220.81 207.67 6.3% 180.95 171.20 5.7%
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Occupancy 78.7% 73.6% 5.1 points 69.2% 63.5% 5.7 points
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U.S. and International 6 properties/ 3,028 rooms
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RevPAR 96.07 78.23 22.8% 122.35 100.50 21.7%
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ADR 181.67 166.49 9.1% 207.19 198.03 4.6%
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Occupancy 52.9% 47.0% 5.9 points 59.1% 50.8% 8.3 points
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FAIRMONT MANAGED HOTELS
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Worldwide 40 hotels/ 19,885 rooms
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RevPAR 133.71 118.58 12.8% 121.50 106.30 14.3%
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ADR 194.17 177.71 9.3% 183.90 172.38 6.7%
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Occupancy 68.9% 66.7% 2.2 points 66.1% 61.7% 4.4 points
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Canada 20 properties/ 10,099 rooms
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RevPAR 137.64 120.15 14.6% 105.08 90.12 16.6%
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ADR 184.41 166.60 10.7% 156.16 143.81 8.6%
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Occupancy 74.6% 72.1% 2.5 points 67.3% 62.7% 4.6 points
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U.S. and International 20 properties/ 9,786 rooms
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RevPAR 129.66 116.99 10.8% 138.10 122.55 12.7%
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ADR 206.08 190.94 7.9% 212.99 202.01 5.4%
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Occupancy 62.9% 61.3% 1.6 points 64.8% 60.7% 4.1 points
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DELTA MANAGED HOTELS
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Worldwide 28 properties/ 8,296 rooms
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RevPAR 76.74 64.95 18.2% 65.04 55.31 17.6%
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ADR 103.21 96.83 6.6% 97.67 91.43 6.8%
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Occupancy 74.3% 67.1% 7.2 points 66.6% 60.5% 6.1 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; The Fairmont Kea
Lani Maui (sold July 2004); The Fairmont Glitter Bay (sold July
2004) Fairmont Managed: The Fairmont Southampton; The Fairmont
Olympic Hotel, Seattle; The Fairmont Turnberry Isle Resort &
Club, Miami Delta Managed: None (excludes Delta franchised hotels)
FHR's 2003 quarterly operating statistics for its 2004 comparable
hotel portfolios as at September 30, 2004 are available on the
Company's website (http://www.fairmont.com/investor). Quarterly
statistics have been revised to reflect the recent asset sales. 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, amortization and gain on sales of
investments and hotel assets. 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 Nine months ended September 30 September 30 In
millions of dollars 2004 2003 2004 2003
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EBITDA $ 63.5 $ 46.9 $ 160.1 $ 132.5 Deduct (Add): Gain on sales of
investments and hotel assets (144.2) - (144.2) - Amortization 16.8
17.5 54.3 51.0 Interest expense, net 6.7 8.9 25.7 23.1 Income tax
expense (recovery) 52.4 8.9 64.1 (5.8)
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Net income $ 131.8 $ 11.6 $ 160.2 $ 64.2
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Summary of Hotel Portfolios
------------------------------------------ At September 30
------------------------------------------ 2004 2003
------------------------------------------ OWNED HOTELS
------------------------------------------ Worldwide
------------------------------------------ No. of Properties 15 17
------------------------------------------ No. of Rooms 7,343 7,787
------------------------------------------
------------------------------------------ Canada
------------------------------------------ No. of Properties 7 7
------------------------------------------ No. of Rooms 3,336 3,268
------------------------------------------
------------------------------------------ U.S. and International
------------------------------------------ No. of Properties 8 10
------------------------------------------ No. of Rooms 4,007 4,519
------------------------------------------
------------------------------------------ FAIRMONT MANAGED HOTELS
------------------------------------------ Worldwide
------------------------------------------ No. of Properties 44 43
------------------------------------------ No. of Rooms 21,643
21,182 ------------------------------------------
------------------------------------------ Canada
------------------------------------------ No. of Properties 21 21
------------------------------------------ No. of Rooms 10,422
10,361 ------------------------------------------
------------------------------------------ U.S. and International
------------------------------------------ No. of Properties 23 22
------------------------------------------ No. of Rooms 11,221
10,821 ------------------------------------------
------------------------------------------ DELTA MANAGED HOTELS
------------------------------------------ Worldwide
------------------------------------------ No of Properties 38 39
------------------------------------------ No. of Rooms 11,163
11,465 ------------------------------------------ Fairmont Hotels
& Resorts Inc. Consolidated Balance Sheets (Stated in millions
of U.S. dollars) ASSETS September 30 December 31 2004 2003
------------ ------------ (Unaudited) Current assets Cash and cash
equivalents $ 167.8 $ 31.7 Accounts receivable 94.2 64.1 Inventory
14.8 14.2 Prepaid expenses and other 15.5 24.6 ------------
------------ 292.3 134.6 Investments in partnerships and
corporations (note 6) 71.9 53.1 Investment in Legacy Hotels Real
Estate Investment Trust (note 4) 70.8 105.9 Non-hotel real estate
97.6 95.1 Property and equipment (note 3) 1,409.7 1,656.2 Goodwill
160.3 132.0 Intangible assets 218.5 216.7 Other assets and deferred
charges (note 6) 98.9 109.4 ------------ ------------ $ 2,420.0 $
2,503.0 ------------ ------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts
payable and accrued liabilities $ 123.1 $ 121.3 Taxes Payable 52.1
2.7 Dividends payable - 3.2 Current portion of long-term debt (note
7) 4.0 117.8 ------------ ------------ 179.2 245.0 Long-term debt
(note 3 and 5) 365.1 539.8 Other liabilities 91.3 91.4 Future
income taxes 120.9 80.9 ------------ ------------ 756.5 957.1
------------ ------------ Shareholders' Equity (note 8) 1,663.5
1,545.9 ------------ ------------ $ 2,420.0 $ 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
ended Nine months ended September 30 September 30 2004 2003 2004
2003 ---------- ---------- ---------- ---------- Revenues Hotel
ownership operations $ 180.3 $ 168.6 $ 516.3 $ 462.5 Management
operations 12.0 10.6 33.1 27.8 Real estate activities 4.8 0.2 26.2
31.4 ---------- ---------- ---------- ---------- Operating revenues
197.1 179.4 575.6 521.7 Other revenues from managed and franchised
properties 10.4 9.2 28.2 23.7 ---------- ---------- ----------
---------- 207.5 188.6 603.8 545.4 Expenses Hotel ownership
operations 125.9 130.0 377.9 353.7 Management operations 7.5 4.7
20.4 15.7 Real estate activities 5.4 1.2 18.0 16.5 ----------
---------- ---------- ---------- Operating expenses 138.8 135.9
416.3 385.9 Other expenses from managed and franchised properties
10.4 9.7 28.6 24.6 ---------- ---------- ---------- ----------
149.2 145.6 444.9 410.5 Income (loss) from equity investments and
other 5.2 3.9 1.2 (2.4) ---------- ---------- ---------- ----------
Operating income before undernoted items 63.5 46.9 160.1 132.5
Amortization 16.8 17.5 54.3 51.0 Interest expense, net 6.7 8.9 25.7
23.1 Gain on sales of investments and hotel assets (note 3 and 4)
(144.2) - (144.2) - ---------- ---------- ---------- ----------
Income before income tax expense 184.2 20.5 224.3 58.4 ----------
---------- ---------- ---------- Income tax expense (recovery)
Current 44.5 2.5 50.0 9.0 Future 7.9 6.4 14.1 (14.8) ----------
---------- ---------- ---------- 52.4 8.9 64.1 (5.8) ----------
---------- ---------- ---------- Net income $ 131.8 $ 11.6 $ 160.2
$ 64.2 ---------- ---------- ---------- ---------- Weighted average
number of common shares outstanding (in millions) (note 8) Basic
78.4 79.1 78.9 79.2 Diluted 79.3 79.9 79.7 80.0 Basic earnings per
common share $ 1.68 $ 0.15 $ 2.03 $ 0.81 Diluted earnings per
common share $ 1.66 $ 0.15 $ 2.01 $ 0.80 Fairmont Hotels &
Resorts Inc. Consolidated Statements of Cash Flows (Stated in
millions of U.S. dollars) (Unaudited) Three months ended Nine
months ended September 30 September 30 2004 2003 2004 2003
---------- ---------- ---------- ---------- Cash provided by (used
in) Operating activities Net Income $ 131.8 $ 11.6 $ 160.2 $ 64.2
Items not affecting cash Amortization of property and equipment
16.0 16.9 52.1 49.1 Amortization of intangible assets 0.8 0.6 2.2
1.9 (Income) loss from equity investments and other (5.2) (3.9)
(1.2) 2.4 Future income taxes 7.9 6.4 14.1 (14.8) Unrealized
foreign exchange gain (13.3) - (3.1) - Gain on sales of investments
and hotel assets (144.2) - (144.2) - Distributions from investments
4.2 - 4.2 4.4 Other 5.8 (2.8) 7.8 (9.0) Changes in non-hotel real
estate (0.7) (2.7) (0.4) 7.4 Changes in non-cash working capital
items (note 9) 52.0 15.1 15.7 (19.5) ---------- ----------
---------- ---------- 55.1 41.2 107.4 86.1 ---------- ----------
---------- ---------- Investing activities Additions to property
and equipment (14.2) (19.9) (58.2) (55.5) Acquisitions, net of cash
acquired - - - 6.0 Investments in partnerships and corporations
(1.9) - (4.9) (0.7) Sales of investments and hotel assets 443.6 -
443.6 - Collection of loans receivable 0.1 - 9.0 - Issuance of
loans receivable - (26.8) (7.0) (28.3) ---------- ----------
---------- ---------- 427.6 (46.7) 382.5 (78.5) ----------
---------- ---------- ---------- Financing activities Issuance of
long-term debt - 14.8 82.7 161.5 Repayment of long-term debt
(313.9) (7.7) (379.5) (151.2) Issuance of common shares 0.3 0.5 0.9
0.6 Repurchase of common shares (46.4) - (51.8) (16.8) Dividends
paid (3.2) (2.4) (6.4) (4.8) ---------- ---------- ----------
---------- (363.2) 5.2 (354.1) (10.7) ---------- ----------
---------- ---------- Effect of exchange rate changes on cash 0.5 -
0.3 3.5 ---------- ---------- ---------- ---------- Increase
(decrease) in cash 120.0 (0.3) 136.1 0.4 Cash and cash equivalents
- beginning of period 47.8 49.7 31.7 49.0 ---------- ----------
---------- ---------- Cash and cash equivalents - end of period $
167.8 49.4 $ 167.8 49.4 ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- Fairmont Hotels &
Resorts Inc. Consolidated Statements of Retained Earnings (Stated
in millions of U.S. dollars) (Unaudited) Three months ended Nine
months ended September 30 September 30 2004 2003 2004 2003
---------- ---------- ---------- ---------- Balance - Beginning of
period $ 101.1 $ 83.2 $ 78.1 $ 38.5 Net income 131.8 11.6 160.2
64.2 ---------- ---------- ---------- ---------- 232.9 94.8 238.3
102.7 Repurchase of common shares (note 8) (18.2) - (20.4) (5.5)
Dividends - - (3.2) (2.4) ---------- ---------- ----------
---------- Balance - End of period $ 214.7 $ 94.8 $ 214.7 $ 94.8
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- 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 September 30, 2004, FHR managed or franchised 82
luxury and first-class hotels. FHR owns Fairmont Hotels Inc.
("Fairmont"), which at September 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
September 30, 2004. In addition to hotel and resort management, as
at September 30, 2004, FHR had hotel ownership interests ranging
from approximately 15% to 100% in 22 properties, located in Canada,
the United States, Mexico, Bermuda, Barbados and the United Arab
Emirates. FHR also has an approximate 24% 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 nine months ended September 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.
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. On July 15, 2004, FHR finalized the
sale of The Fairmont Kea Lani Maui for cash proceeds of $355.4. The
mortgage of $120.0 on this property was repaid. FHR recognized a
gain on the sale of $67.8, net of income taxes of $41.0. The resort
will continue to be managed by Fairmont under a long-term
management contract. On July 9, 2004, FHR finalized the sale of The
Fairmont Glitter Bay for cash proceeds of approximately $31.7. The
mortgage of $5.2 on this property was repaid. FHR recognized a
non-taxable gain on the sale of $7.9. The resort will continue to
be managed by Fairmont under a long-term management contract. 4. On
September 13, 2004, FHR sold 12,000,000 units of Legacy for
approximately $63.0 in cash and recognized a gain of $27.6. The
sale decreases FHR's investment in Legacy to 23.7% from
approximately 35%. As at September 30, 2004, FHR owned 24,639,143
units of Legacy. 5. In March 2004, FHR entered into a new $400.0
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. 6. 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 due to significant influence and through contractual
arrangements. In the second quarter, $15.6 was reclassified from
"Other assets and deferred charges" to "Investments in partnerships
and corporations". 7. On August 23, 2004, FHR purchased the
remaining 16.5% of outstanding shares of Fairmont from Maritz,
Wolff & Co. for approximately $70.0 in cash. FHR now owns 100%
of Fairmont. The company had already been consolidating 100% of
Fairmont, by previously having recorded an obligation of $69.0
representing the minimum amount a minority shareholder was entitled
to receive under a put option. During the third quarter, FHR
increased its previously reported goodwill and future income tax
balances by $16.7. As a result of this transaction, current portion
of long-term debt decreased by $69.0. 8. Shareholders' equity
September 30, December 31, 2004 2003 ------------- -------------
Common shares $ 1,175.9 $ 1,202.2 Other equity 19.2 19.2 Treasury
stock (4.2) - Contributed surplus 142.3 142.3 Foreign currency
translation adjustments 115.6 104.1 Retained earnings 214.7 78.1
------------- ------------- $ 1,663.5 $ 1,545.9 -------------
------------- The diluted weighted-average number of common shares
outstanding is calculated as follows: Three months ended Nine
months ended September 30 September 30 2004 2003 2004 2003
--------- --------- --------- --------- (in millions) (in millions)
Weighted-average number of common shares outstanding - basic 78.4
79.1 78.9 79.2 Stock options 0.9 0.8 0.8 0.8 --------- ---------
--------- --------- Weighted-average number of common shares
outstanding - diluted 79.3 79.9 79.7 80.0 --------- ---------
--------- --------- Effective October 2004, FHR may repurchase for
cancellation up to 10% of its outstanding common shares. The
amounts and timing of repurchases are at FHR's discretion. Under
the previous issuer bid which ended on October 7, 2004, during the
nine months ended September 30, 2004, FHR repurchased 1,946,300
shares (1,737,900 during the third quarter). Total consideration
relating to the repurchase amounted to $51.8 ($46.4 for the third
quarter), of which $27.2 was charged to common shares, $20.4 was
charged to retained earnings, and $4.2 to treasury stock. Of the
1,946,300 shares, 150,000 shares were classified as treasury stock
as they were repurchased prior to September 30, 2004 and cancelled
on October 1, 2004. During the nine months ended September 30,
2004, FHR issued 48,939 shares (10,371 shares for the third
quarter) pursuant to the Key Employee Stock Option Plan of which
$0.9 was credited to common shares ($0.3 for the third quarter) for
proceeds from options exercised. At September 30, 2004, 77,366,916
common shares were outstanding (2003 - 79,080,159). During the nine
months ended September 30, 2004, 10,000 stock options were granted
(nil in the third 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 Nine months ended
September 30 September 30 2004 2003 2004 2003 --------- ---------
--------- --------- Reported net income $ 131.8 $ 11.6 $ 160.2 $
64.2 Net income assuming fair value method used $ 131.7 $ 11.4 $
159.9 $ 63.3 Basic earnings per share $ 1.68 $ 0.14 $ 2.03 $ 0.80
Diluted earnings per share $ 1.66 $ 0.14 $ 2.01 $ 0.79 9. Changes
in non-cash working capital: Three months ended Nine months ended
September 30 September 30 2004 2003 2004 2003 --------- ---------
--------- --------- Decrease (increase) in current assets Accounts
receivable $ (5.9) $ 10.8 $ (31.1) $ 0.9 Inventory 0.1 0.8 (1.2)
0.3 Prepaid expenses and other 6.6 9.1 (1.3) (0.9) Increase
(decrease) in current liabilities Accounts payable and accrued
liabilities 2.9 (6.1) - (17.3) Taxes payable 48.3 0.5 49.3 (2.5)
--------- --------- --------- --------- $ 52.0 $ 15.1 $ 15.7 $
(19.5) --------- --------- --------- --------- 10. 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 22
properties. The investment in Legacy consists of an approximate 24%
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 September 30, 2004
--------------------------------------------------------- Ownership
Management --------------------------- ------------ Inter- Real
segment Hotel estate Fair- Elimina- Ownership Legacy activities
mont Delta tion(a) Total --------- ------ ---------- ------ -----
-------- ------ Operating revenues $ 180.3 $ - $ 4.8 $ 14.1 $ 3.5 $
(5.6) $ 197.1 Other revenues from managed and franchised properties
- - - 8.2 2.2 - 10.4 -------- 207.5 Income (loss) from equity
investments and other 1.5 3.7 - - - - 5.2 EBITDA(b) 50.3 3.7 (0.6)
8.2 1.9 - 63.5 Total assets(c) 2,028.1 70.8 99.1 340.0 77.1 (195.1)
2,420.0 Capital expenditures 12.0 - - 2.2 - - 14.2 Three months
ended September 30, 2003
--------------------------------------------------------- Ownership
Management --------------------------- ------------ Inter- Real
segment Hotel estate Fair- Elimina- Ownership Legacy activities
mont Delta tion(a) Total --------- ------ ---------- ------ -----
-------- ------ Operating revenues $ 168.6 $ - $ 0.2 $ 12.5 $ 3.0 $
(4.9) $ 179.4 Other revenues from managed and franchised properties
- - - 7.0 2.2 - 9.2 -------- 188.6 Income (loss) from equity
investments and other 1.3 2.6 - - - - 3.9 EBITDA(b) 35.0 2.6 (1.0)
8.6 2.2 (0.5) 46.9 Total assets(c) 2,121.6 105.5 100.2 351.5 73.1
(269.2) 2,482.7 Capital expenditures 19.3 - - 0.6 - - 19.9 Nine
months ended September 30, 2004
--------------------------------------------------------- Ownership
Management --------------------------- ------------ Inter- Real
segment Hotel estate Fair- Elimina- Ownership Legacy activities
mont Delta tion(a) Total --------- ------ ---------- ------ -----
-------- ------ Operating revenues $ 516.3 $ - $ 26.2 $ 40.2 $ 9.6
$(16.7) $ 575.6 Other revenues from managed and franchised
properties - - - 20.9 7.3 - 28.2 -------- 603.8 Income (loss) from
equity investments and other 2.0 (0.8) - - - - 1.2 EBITDA(b) 123.7
(0.8) 8.2 23.4 6.0 (0.4) 160.1 Total assets(c) 2,028.1 70.8 99.1
340.0 77.1 (195.1) 2,420.0 Capital expenditures 55.5 - - 2.7 - -
58.2 Nine months ended September 30, 2003
--------------------------------------------------------- Ownership
Management --------------------------- ------------ Inter- Real
segment Hotel estate Fair- Elimina- Ownership Legacy activities
mont Delta tion(a) Total --------- ------ ---------- ------ -----
-------- ------ Operating revenues $ 462.5 $ - $ 31.4 $ 33.4 $ 8.7
$(14.3) $ 521.7 Other revenues from managed and franchised
properties - - - 17.6 6.1 - 23.7 -------- 545.4 Income (loss) from
equity investments and other 1.8 (4.2) - - - - (2.4) EBITDA(b) 96.3
(4.2) 14.9 19.9 6.5 (0.9) 132.5 Total assets(c) 2,121.6 105.5 100.2
351.5 73.1 (269.2) 2,482.7 Capital expenditures 54.3 - - 1.2 - -
55.5 (a) Revenues represent management fees that are charged by
Fairmont of $5.5 (2003 - $4.8) and $16.4 (2003 - $14.1) for the
three and nine months ended September 30, 2004 respectively, and
Delta of $0.1 (2003 - $0.1) and $0.3 (2003 - $0.2) for the three
and nine months ended September 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 Nine months ended
September 30 September 30 2004 2003 2004 2003 --------- ---------
--------- --------- Amortization $ 16.8 $ 17.5 $ 54.3 $ 51.0
Interest expense, net 6.7 8.9 25.7 23.1 Income tax expense
(recovery) 52.4 8.9 64.1 (5.8) Gain on sales of investments and
hotel assets (144.2) - (144.2) - (c) Hotel ownership assets include
$69.6 (2003 - $51.2) of investments accounted for using the equity
method. 11. 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. 12. At September 30, 2004, FHR has a payable to Legacy of
$5.0 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 $10.6 in the first
mortgage on The Fairmont Olympic Hotel, Seattle. 13. FHR recorded
pension and other post employment benefit expenses as follows:
Three months ended Nine months ended September 30 September 30 2004
2003 2004 2003 --------- --------- --------- --------- (in
millions) (in millions) Pension $ (0.1) $ 1.1 $ 0.9 $ 1.3 Other
post-employment benefits 0.1 - 0.2 - --------- --------- ---------
--------- $ - $ 1.1 $ 1.1 $ 1.3 --------- --------- ---------
--------- 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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