Fairmont Hotels & Resorts Inc. Reports Fourth Quarter 2005 Results
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Fairmont Hotels & Resorts Inc. Reports Fourth Quarter 2005 Results
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2006-02-27
Fairmont Hotels & Resorts Inc. ("FHR" or the "Company") (TSX/NYSE: FHR) today announced its financial results for the three months and year ended December 31, 2005. These financial results have been prepared in accordance with Canadian generally accepted accounting principles. All amounts are expressed in U.S. dollars.
Fourth Quarter 2005 Highlights
- Diluted income per share ("diluted EPS") for the fourth quarter was
$0.88 compared to a diluted loss per share of $0.06 for the same
period in 2004. Excluding the effect of hotels sold in 2004 and 2005,
gains on asset sales, a tax recovery and other non-operating items,
diluted EPS rose to $0.12 from a diluted loss per share of $0.05 in
the fourth quarter of 2004.
- Revenues increased 40.9% to $232.4 million. Excluding the effect on
revenues of hotels sold in 2004 and 2005 and the proceeds from land
sales, revenues were up 16.8%.
- Revenue per available room(1) ("RevPAR") for the comparable(2)
Fairmont managed portfolio improved 11.8% driven by RevPAR growth of
15.4% at the comparable U.S. and International managed portfolios.
- EBITDA(3) for the fourth quarter was $116.2 million compared to
$20.4 million for the same period in 2004. Fourth quarter EBITDA
included a gain on asset sales of $122.9 million in 2005 and a loss of
$0.5 million in 2004. As a result of the sale of The Fairmont Orchid,
Hawaii on December 23, EBITDA and Adjusted EBITDA in the fourth
quarter were $2.0 million lower than previously expected due to lost
real estate earnings from the resort during the holiday season.
- Adjusted EBITDA(3) for the fourth quarter of 2005 was $31.6 million
compared to $34.2 million for the same period in 2004. Adjusted EBITDA
increased 9.9% when excluding the impact of the hotels sold in 2004
and 2005 and The Fairmont Southampton, which was closed for hurricane
repairs during the first quarter of 2004 and therefore was excluded
from FHR's comparable portfolio.
- FHR sold its real estate interest in The Fairmont Orchid for a gain of
$105.8 million while maintaining a long-term management contract.
- The Company entered into six agreements for hotel and/or residential
developments, all opening between 2007 and 2009.
- FHR completed the sale of two blocks of land in Toronto's Southtown
for gross proceeds of $42.8 million.
- The Company announced an Acquisition Agreement with Kingdom Hotels
International and Colony Capital for all of FHR's outstanding common
shares at a price of $45.00 per share in cash (see Announcements and
Corporate Activities).
"Our U.S. properties continue to benefit from the robust U.S. lodging fundamentals. In the fourth quarter, our comparable U.S. managed and owned portfolios experienced RevPAR growth of 15.0% and 9.6%, respectively, primarily driven by strong occupancy gains across all markets," said William R. Fatt, FHR's Chief Executive Officer. "Our International portfolio also had significant gains, with RevPAR at the managed and owned portfolios up 17.0% and 11.3%, respectively."
"Looking ahead to 2006, we expect current industry trends to continue with ongoing strength in our U.S. and International properties. As our Canadian portfolio earns such a significant portion of its annual earnings in the third quarter, it is too early to provide details on performance," said Mr. Fatt. "Going forward, we remain focused on enhancing the performance of our portfolio, building on the success of our brand and expanding into new key city center and resort destinations. We are excited about the opportunity to combine the Fairmont and Raffles portfolios to create a global luxury hotel leader. These two brands are an excellent strategic fit with rich histories, global brand recognition and complementary destinations."
General and administrative expenses for the quarter were $14.7 million compared to $9.2 million for the same period in 2004. Increased incentive compensation costs as a result of the Company's higher share price and one-time pension plan costs were the primary drivers.
Year-end Consolidated Results
For the year ended December 31, 2005, EBITDA was $264.8 million compared to $324.7 million for the same period in 2004. EBITDA for both periods includes gains on asset sales of $140.8 million and $152.6 million, respectively. Adjusted EBITDA was $203.1 million compared to $216.0 million for the same period in 2004. Excluding the three hotels sold and The Fairmont Southampton, which was closed for hurricane repairs during the first quarter of 2004, Adjusted EBITDA increased 4.6% to $185.4 million.
Net income for the year was $167.5 million (diluted EPS of $2.16), compared to the prior year's net income of $155.8 million (diluted EPS of $1.92). Excluding the impact of hotels sold, gains on asset sales, other non- operating items and the tax recovery, diluted EPS increased 93% to $0.87 from $0.45.
Announcements and Corporate Activities
On December 9, 2005, Icahn Partners LP and Icahn Partners Master Fund LP commenced a formal unsolicited partial takeover bid for approximately 41% of the outstanding common shares of the Company at a price of $40.00 per share. On December 22, 2005, Fairmont's Board of Directors issued its Circular recommending that the Icahn offer be rejected, as it was not in the best interest of its shareholders. At the same time, the Board of Directors disclosed that it was actively exploring strategic alternatives to maximize value for shareholders, which might include a possible transaction with one or more third parties.
On January 30, 2006, Fairmont announced that it had entered into an Acquisition Agreement with a Canadian company owned by Kingdom Hotels International and Colony Capital, which is expected to acquire all of Fairmont's outstanding common shares at a price of $45.00 per share in cash. The total value of this transaction, including debt is $3.9 billion. The transaction was unanimously approved by Fairmont's Board of Directors following receipt of the recommendation of a Special Committee of the Board. Fairmont's Board has agreed to recommend to its shareholders that they vote in favor of the transaction.
The closing of the transaction, which is expected to occur in May, is not subject to any financing condition. The closing is subject to certain other customary conditions, including regulatory approvals. The proposed transaction is expected to close in the second quarter of 2006, shortly after receipt of shareholder and court approvals. The transaction is to be carried out by way of a statutory plan of arrangement and, accordingly, will be subject to the approval of 66 2/3% of the votes cast by Fairmont's shareholders at a meeting of shareholders scheduled for April 18, 2006 as well as court approval.
Fairmont has been advised by Kingdom and Colony of their intention to combine the Fairmont and Raffles portfolios following the completion of the transaction, transforming the companies into a global luxury hotel leader with 120 hotels in 24 countries. Fairmont will continue as a hotel management company headquartered in Canada and Raffles, based in Singapore, will also retain its separate brand identity. Raffles owns and manages a portfolio of 33 properties located primarily across Asia and Europe, including its flagship property built in 1887, the Raffles Hotel, Singapore.
New Developments
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The Company has entered into an agreement to manage a mixed-use luxury development in the Turks & Caicos Islands to be branded the "Fairmont Three Cays". The project will include 300 guestroom units, several Fairmont branded residential developments including Fairmont Heritage Place, a Willow Stream spa and a championship golf course, all of which will be managed by FHR. The Company will make an investment for a 19.9% equity interest in the resort when the property opens in 2009.
We announced an agreement to manage a luxury mixed-use property within Tamarack Resort, an all-season mountain destination located 90 miles north of Boise, Idaho. When the property opens in 2008, it will include a 225-room condo hotel, a spa and several residential components.
The Company has entered into an agreement to manage a mixed-use project located in South Africa's province of KwaZulu-Natal. Projected to open in 2009, the development will include a luxury resort, a championship golf course, a spa and vacation ownership products.
We announced an agreement to manage Fairmont's first branded luxury condominium development. The 129 residences will be built in southern California on a 20-acre site in the exclusive community of Indian Wells and are expected to open in late 2007.
We announced that the Company had entered into an agreement to once again manage The Plaza in New York City when it reopens in 2007. The Plaza is currently undergoing an extensive $350 million renovation, which will include 282 guestroom units. The restored Plaza will also contain elegant residential condominiums and high-end retail space.
The Company has entered into a joint venture to develop and manage its first urban private residence club in San Francisco's historic Ghirardelli Square. As part of the agreement, FHR will make a minority equity investment in the development, which is expected to open in mid-2007.
Dispositions
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We sold The Fairmont Orchid, Hawaii to Westbrook Partners for gross proceeds of $250 million and continue to manage the resort under a long-term management contract. The Company realized a pre-tax gain of $105.8 million on the sale of this property, which it purchased in December 2002 for $140 million.
The Company completed the sale of two blocks of land in Toronto's Southtown for gross proceeds of $42.8 million, resulting in an after-tax gain of approximately $17.1 million.
Other Activities
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During the quarter, FHR entered into a mortgage loan for $75.0 million secured by The Fairmont Scottsdale Princess. The proceeds were used to repay a $59.9 million mortgage on The Fairmont Copley Plaza, Boston with the balance to be used for general corporate purposes.
During the quarter, FHR repurchased 450,400 shares under its normal course issuer bid for a total cost of $14.9 million. During the year, FHR repurchased 4.4 million shares at a cost of $141.2 million. The Company ceased purchasing shares under its normal course issuer bid following the 13D filing of Mr. Carl Icahn on November 7, 2005.
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