1999 Annual Report - Four Seasons Hotels and Resorts

(a) The cash flow bond, which is due in 2005, was received by the Corporation in 1995 as consideration for the sale of its
50% interest in the Four Seasons Hotel London to an affiliate of Kingdom Investments Inc. (“Kingdom”), which is a
significant shareholder of FSHI. Principal and interest on the bond are payable annually every March out of 50%
of the available cash flow (as defined in the bond indenture) from the hotel. The bond is secured by the purchaser’s
original investment in the hotel. During 1999, principal repayment of £0.9 million (1998 – £0.4 million) was
received by the Corporation, as well as all interest accrued on the bond to March 1999. Interest income from the
bonds has been fully accrued in 1999, as the Corporation believes there is reasonable assurance the interest will be
received in March 2000.
(b) The loan, which is due in 2038, was made by the Corporation to an affiliate of Kingdom to finance the acquisition by
the affiliate of a further 37.5% interest in the Four Seasons Hotel London (note 5(c)). Principal and interest on the loan
are payable annually every March out of the other 50% of the available cash flow from the hotel. The loan is secured by
the affiliate’s additional indirect interest in the hotel. During 1999, the Corporation received payment for all interest
accrued in 1998. Interest income from the loan has been fully accrued in 1999, as the Corporation believes there is
reasonable assurance the interest will be received in March 2000.
(c) In 1998, the Corporation advanced a non-interest bearing loan to the purchaser of The Regent Hotel Sydney in the
amount of Australian $12,822. Upon agreement between the Corporation and the owner of the hotel in 1999 of: (i) the
proposed renovation program for the hotel; (ii) the terms and conditions of a shareholders’ agreement; and (iii) a revised
hotel management agreement, Australian $5,520 of the loan was converted into a 15.2% equity interest in the hotel.
The remaining Australian $7,302 was converted into two unsecured bonds of Australian $3,651 each, which bear
interest at a rate of 10.5% per annum, compounded monthly, beginning July 28, 1998. One of the bonds matures in 2000
and the other matures in 2001. It is expected that the bonds will be refinanced at maturity. As at December 31, 1999,
accrued interest on the bonds amounted to Australian $1,178.
During 1999, the Corporation advanced Australian $16,500 to the owners of the hotel to partially finance a major
renovation project at the hotel. The loan, which is to be repaid annually from available cash (as defined in the loan
agreement), bears interest at 7.5% per annum, compounded quarterly, and is secured by an indirect interest in the
hotel. As at December 31, 1999, accrued interest on the loan amounted to Australian $735.
Interest income from the bonds and the loan have been fully accrued in 1999, as the Corporation believes there
is reasonable assurance the interest will be received.
(d) In connection with the acquisition of the Four Seasons Hotel George V, Paris by an affiliate of Kingdom, the Corporation
advanced, in 1997, a loan to an affiliate of Kingdom in the amount of approximately French francs 161.6 million to
finance, in part, the renovation of the hotel. The loan is secured by Kingdom’s indirect interest in the hotel.
Following an extensive renovation program, the hotel was reopened in December 1999 and the Corporation began
managing the hotel pursuant to a long-term management agreement. The renovation loan was exchanged for a 40-year
credit facility to another affiliate of Kingdom. At maturity, an affiliate of Kingdom can purchase the loan for a nominal
amount. As a result, the Corporation reclassified the loan to “Investment in management contracts” and will amortize
it over 40 years. The loan will be repaid in accordance with an agreed upon formula if the management agreement is
terminated for any reason.
The Corporation continues to receive interest at a rate of 6% per annum on the French francs 161.6 million
advance.
(e) The Corporation received a promissory note relating to the sale of the Inn on the Park Toronto in 1996. The note
has a face value of $10,000, bears interest at 6% per annum and is repayable over the period to January 17, 2001.
At maturity, the debtor has the option to extend the note for a further five years. The debtor also has the option to
prepay any or all of the principal and interest outstanding, without penalty, at any time. The note has been recorded at
a discounted amount, using a rate of interest that takes into account the risks associated with the note. The principal
and interest due on the note for 1999 and 1998 was received by the Corporation.
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F our Seasons Hotels Inc.
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