Fairmont Hotels & Resorts Inc. (“FHR”) (TSE and NYSE Symbol: FHR) this week reported results for the first quarter ended March 31, 2002. All amounts are expressed in U.S. dollars.
FHR`s financial results for the three months ended March 31, 2001 contain substantial non-recurring items related to the reorganization of Canadian Pacific Limited (“CPL”), including the operating results of CPL`s four discontinued businesses, reorganization expenses and CPL corporate expenses. CPL`s reorganization became effective September 30, 2001. Given the inclusion of these non-recurring charges, prior period net income and earnings per share are not considered by management to be comparable with the current year. Management has prepared a proforma 2001 quarterly earnings per share (“EPS”) statement, which will be available on FHR`s website, www.fairmont.com/investor, this afternoon, prior to the conference call.
First Quarter Consolidated Results
Revenues of $126.7 million for the quarter were down 5.8% from $134.5 million last year. EBITDA1 was $38.1 million for the quarter compared to $37.8 million in the same period in 2001. EBITDA benefited from approximately $3.7 million in cost reductions that are not likely to be repeated.
Income from continuing operations was $13.6 million for the first quarter of 2002 compared to a loss from continuing operations of $4.5 million in the prior period. Income from continuing operations per share was $0.17 in 2002 compared to a loss from continuing operations per share of $0.08 for the same period in 2001.
Operating results significantly surpassed expectations and reflect better business trends than anticipated. In addition, we benefited from lower debt levels and the elimination of CPL corporate activities offset by a weakening in the Canadian dollar.
Given the seasonality of hotel operations and the fixed nature of most operating costs, first quarter results are not indicative of results for the full year.
“We are pleased with our EBITDA and EPS performance in the first quarter of 2002, exceeding the company`s previous quarterly guidance. Operating results surpassed expectations as a result of a sharper than anticipated recovery in travel volumes. Expenses were contained based on our original expectation of lower business levels in the first quarter,” said William R. Fatt, Chief Executive Officer of FHR. “Revenue per available room, or RevPAR, at our owned properties declined by 7.1% while RevPAR at Fairmont managed hotels, which include a significant number of U.S. city center hotels, declined by 10.2%, both ahead of published industry results. Based on these positive first quarter results and our current outlook, we believe it is now appropriate to increase modestly our previous EBITDA and EPS guidance for 2002.”
As a result of stronger than anticipated first quarter earnings, FHR has increased its full year 2002 EBITDA guidance range from $180 - $190 million to $190 - $200 million. This guidance continues to anticipate an improvement in business conditions, particularly in the latter half of 2002. FHR estimates that EPS for the year will be approximately $1.00, which is an increase from the original guidance of $0.79 - $0.87.
For the second quarter of 2002, FHR anticipates EBITDA of approximately $50 million, or basic EPS of about $0.28, however investors are cautioned that quarterly performance tends to be more difficult to predict.
Mr. Fatt said, “It appears that the positive trends we have seen thus far will continue for the balance of the year and into 2003. Minimal new hotel supply over the next few years should contribute to improved performance in the luxury sector. We continue to view the U.S. as a key growth market and expect to take advantage of near-term expansion opportunities resulting from our strong balance sheet and proven operating capabilities.”
Revenues from hotel ownership operations decreased 3.3% in the first quarter of 2002. The decline resulted primarily from weaker industry conditions, a changed mix of properties and currency fluctuations. These negative factors were offset by improved quarter-over-quarter performance at certain resort locations due to significant renovation activities during 2001.
RevPAR for comparable hotels decreased 7.1% for the three months ended March 31, 2002, resulting from a 2.7 point drop in occupancy and a 3.2% decrease in average daily rate (“ADR”). Approximately $2.41 or 25% of the $9.63 decline in RevPAR was caused by currency fluctuations. The U.S. and international comparable statistics showed the greatest RevPAR decline at 9.3%. RevPAR at our Canadian comparable portfolio declined 3.6%, all of which related to currency fluctuations. In the absence of these fluctuations, RevPAR at the Canadian properties would have realized a slight improvement over the prior quarter.
The reduction in revenues was significantly less than the decrease in RevPAR in the first quarter. This was due primarily to the exclusion of the two Bermuda properties from RevPAR statistics as a result of the major renovations in 2001 that have significantly improved operating results in 2002.
FHR is one of North America`s leading owner/operators of luxury hotels and resorts. FHR`s portfolio consists of 77 luxury and first class properties with approximately 31,000 rooms in Canada, the United States, Mexico, Bermuda, Barbados and the United Arab Emirates. It holds a 67 percent controlling interest in Fairmont Hotels & Resorts (“Fairmont”), North America`s largest luxury hotel management company. Fairmont manages 38 distinct city center and resort hotels such as The Fairmont San Francisco, The Fairmont Banff Springs, Fairmont Le Chateau Frontenac, The Fairmont Scottsdale Princess and The Plaza in New York City. FHR also holds a 100 percent interest in Delta Hotels, Canada`s largest first class hotel management company, which manages and franchises a portfolio of 39 city center and resort properties in Canada. In addition to hotel management, FHR holds real estate interests in 21 properties, two large undeveloped land blocks and an approximate 35 percent investment interest in Legacy Hotels Real Estate Investment Trust, which owns 21 properties.