Fairmont Hotels & Resorts Inc. (FHR or the Company) announced its unaudited financial results for the first quarter ended March 31, 2003…
Fairmont Hotels & Resorts Inc. (FHR or the Company) announced its unaudited financial results for the first quarter ended March 31, 2003. All amounts are expressed in U.S. dollars.
Despite the current environment, we are pleased to report EBITDA(1) of $42.2 million, which met our expectations and represented an increase of 10.8% over the prior year, said William R. Fatt, chief executive officer of FHR. Our owned portfolio continues to benefit from our strength in the leisure market and a considerable Canadian component. Favorable exchange rate movements also contributed to an improvement in results. On a comparable basis, revenue per available room (RevPAR) for our owned portfolio was about flat, down 0.5%, and RevPAR at all of our Fairmont managed hotels declined 4.1%.
Continued Mr. Fatt, The lodging industry is facing an exceptionally challenging environment. War in Iraq, weak U.S. and global economies, problems in the airline industry and severe acute respiratory syndrome have all combined to depress industry conditions. In March, we saw a noticeable deterioration in business once the war became imminent.
First Quarter Consolidated Results
Operating revenues(2) increased 17.9% to $167.9 million in 2003 and first quarter EBITDA improved 10.8% to $42.2 million from $38.1 million in 2002. This met management`s EBITDA expectation for the quarter of $37.5 – $47.5 million. Real estate activities contributed $9.3 million in EBITDA in 2003 versus $0.5 million in the first quarter of 2002.
Net income was $12.5 million compared to $13.6 million in 2002 and earnings per share (EPS) was $0.16 compared to $0.17 in 2002. Higher than expected gains from land sales helped EPS exceed management`s expectation of $0.105 – $0.145.
First Quarter Hotel Ownership Operations
Revenues from hotel ownership improved 13.4% to $140.4 million compared to 2002. The acquisitions of The Fairmont Orchid, Hawaii in December 2002 and The Fairmont Copley Plaza Boston this February generated virtually all of this increase, as revenues from the remaining properties were comparable with 2002.
RevPAR was relatively flat at $115.25 compared to $115.83 in the first quarter of 2002, resulting from a 4.0% increase in average daily rate (ADR) offset by a 2.6 point drop in occupancy. The Canadian owned hotels posted a RevPAR increase of 3.7%, driven by a 9.6% improvement in ADR notwithstanding a 3.5 point occupancy decline. RevPAR decreased by 2.8% at the U.S. and International comparable portfolio on reduced occupancy combined with a fairly flat ADR. Performance was supported by strength at The Fairmont Banff Springs and The Fairmont Kea Lani Maui as well as favorable currency fluctuations that positively impacted the Canadian hotel results.
First Quarter Management Operations
Fairmont
Revenues under management of $309 million increased 8.8% over 2002, mainly from the addition of four new management contracts during the latter half of 2002. Management fee revenues increased to $10.4 million from $8.8 million in 2002, in line with the increase in revenues under management.
RevPAR was down 4.1% during the first quarter, resulting from a 2.6% improvement in ADR, which was offset by a 3.9 point occupancy decline. RevPAR was up 1.1% at Fairmont`s Canadian comparable portfolio, largely due to a significant increase in ADR, offset by an occupancy decline. The U.S. and International portfolio experienced a RevPAR decline of 7.3% driven by decreases in both occupancy and ADR. Strong performance at The Fairmont Banff Springs and favorable currency fluctuations positively impacted operating statistics for FHR`s Canadian properties.
Delta
In the first quarter of 2003, revenues under management increased 5.3% to $68 million resulting in management fee revenues rising to $3.1 million compared to $2.2 million in 2002. A one-time payment received relating to the termination of two management contracts in 2000 and 2001 also improved management revenues. During the quarter, RevPAR increased 11.2%, resulting from a 2.8 point improvement in occupancy and a 5.9% rise in ADR, which was driven by favorable currency fluctuations.
Capital Expenditures
Hotel related capital expenditures for the quarter totaled $15.8 million. Projects underway during the quarter included guestroom renovations at The Fairmont Copley Plaza Boston and the ongoing construction of the meeting facility at The Fairmont Chateau Lake Louise.
Over the past few years, FHR has invested significantly in its portfolio, including substantial capital investments in seven of its key properties. Attractive returns on the capital invested are expected to be achieved once the properties realize the full benefit of these improvements, which typically occurs two to three years after completion. FHR expects that total capital expenditures in 2003 will be in the range of $110-$120 million.
In the second quarter, FHR will begin a renovation program at The Fairmont Orchid, Hawaii, which is expected to be completed in early 2004. Plans include refurbishments to the restaurants and public areas, the conversion of one floor to Fairmont Gold and the renovation of the resort`s current spa. Also in May, The Fairmont Royal Pavilion will close for approximately six months to renovate the resort`s guestrooms. In October, the final phase of guestroom renovations will begin at The Fairmont Copley Plaza Boston and is expected to conclude in early 2004.
Corporate Activities
On March 4, FHR completed the sale of land in Vancouver`s Coal Harbour to the province of British Columbia, for the expansion of the city`s Convention & Exhibition Centre. The selling price for the land was approximately $18.6 million. FHR received gross proceeds of about $13.9 million for its 75% interest in the land. This real estate sale was incorporated in the Company`s full-year earnings guidance provided in January.
On February 14, FHR completed a three-year, $120 million financing secured by The Fairmont Kea Lani Maui. The proceeds were used to repay existing bank debt.
On February 4, FHR acquired the remaining 50% equity interest in The Fairmont Copley Plaza Boston from entities controlled by Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud of Saudi Arabia. One million common shares were issued to satisfy in part the Company`s obligation under the agreement. FHR assumed approximately $64.5 million of secured debt on the hotel.
The Company has the capacity to repurchase up to 10% of its outstanding shares in the twelve-month period ending October 2, 2003. During the quarter, FHR repurchased 249,400 shares for a total cost of $5.0 million. No shares were repurchased in the fourth quarter of 2002.
Outlook
Commented Mr. Fatt, The current operating environment remains a challenge due to the war in Iraq, a weak U.S. economy and the recent concerns about severe acute respiratory syndrome. Given the uncertainty of the impact these factors will have on our business in the near-term, we are suspending our quarterly and full-year guidance. We expect to resume providing earnings estimates as soon as conditions stabilize.
We continue to believe that we will outperform the industry in 2003. We have invested heavily in many of our world-class properties and as a result, our unique collection is in the best physical condition ever, said Mr. Fatt. Our strong balance sheet provides financial strength during this challenging time and gives us the capability to grow should the right opportunities present themselves. These competitive advantages, combined with a good control of operating expenses, position us well to withstand the current environment and benefit from a rebound in the industry.
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