1998 Annual Report - Four Seasons Hotels and Resorts

FOUR SEASONS MANAGEMENT COMMITTEE ROUND TABLE(continued)QSince late 1998 there has been a lot of discussion about the contraction in thecapital markets and how this could affect the construction of new hotels. Has theFour Seasons development program been affected by the contraction of thecapital markets?AAt this time we have not seen any negative effect on the development program for our newhotels. Because we have the leading luxury hotel global brand which is supported by thelargest sales and reservations network in the luxury sector Four Seasons has established itselfas the manager of choice for luxury hotels and resorts around the world. Four Seasons hasalso developed strong relationships with a number of strategic partners, including significantfinancial institutions, private investment funds and wealthy individuals. As virtually all ofour hotel equity investors are private capital sources, they are not dependent upon the publicequity markets. Also, our new projects have strong projected financial returns because theymay be, for example, part of a larger mixed-use development, or they are entering intomarkets with little or no existing supply of luxury hotel rooms.QIn addition to the other standard benchmarks used to predict a company’s nearand long-term financial success, more research coverage and analysis is includingEconomic Value Added (“EVA”) as a measurement. What is your view onEVA as a benchmark?AAlthough EVA is not yet a widely used method of analyzing a company’s ability to createlong-term shareholder value, it is gaining recognition and we believe that EVA is animportant predictor of a company’s financial success. The basic fundamental of EVA is thata company that earns a real rate of return in excess of its cost of capital is adding value tothe capital it employs and this should be reflected in its market value. Over the pastnumber of years, we have positioned Four Seasons to perform well from an EVA standpoint.The Corporation’s capital structure yields a very low cost of capital. The Four Seasons brandstrength and high barriers to entry into luxury hotel management allow us to generate longtermrevenue streams with relatively modest capital investment. Since making the decision tofocus on hotel management we carefully assess the risks when we deploy our capital andconsistently achieve returns over our cost of capital. We have realized eight consecutive yearsof revenue and profit margin growth, which has steadily improved our return on capitalemployed. We have also reduced the capital deployed in certain hotel investments to furtherJohn W. Young,Executive Vice PresidentHuman ResourcesBarbara M. Talbott,Executive Vice PresidentMarketingAntoine Corinthios,President Europe,Africa and Middle East8Four Seasons Hotels Inc.