1998 Annual Report - Four Seasons Hotels and Resorts

Hotel Management FocusAs a result of an extensive asset disposition program carried out between 1993 and 1997, and through the addition of anumber of new management agreements, Four Seasons is now principally a global hotel management company. AlthoughFour Seasons will continue to make loans or investments to secure long-term management contracts, these investmentswill generally be minority interests and will only be made in order to expand its management business and where theoverall economic return to Four Seasons justifies the investment.Management agreements for the hotels and resorts managed by the Corporation generally are long-term, having anaverage remaining term of approximately 57 years for Four Seasons hotels and approximately 16 years for Regent hotels,including extension periods available at Four Seasons’ option. These agreements entitle Four Seasons to earn base fees,as well as a range of fees for pre-opening development, purchasing, marketing and reservation services. The Corporationhas the ability to participate in the profits of the hotels under its management through incentive fees available at 39hotels and resorts under management. These incentive fees are generally based on the defined operating profits of thehotel or resort. In 1998, Four Seasons received incentive fees from 30 of its hotels and resorts. During the same period,31 of the hotels and resorts under its management each generated over $1.0 million annually in base and incentive fees,and the average base and incentive fees earned for all managed hotels were $2.2 million per hotel or resort.Strategic RelationshipsStrategic relationships are an important source of financing for future development opportunities to expand Four Seasons’hotel management operations. Four Seasons has established relationships with numerous institutional and private equitysources that invest in and develop luxury hotel properties. Several of the existing owners have an ownership interest inmore than one Four Seasons hotel or resort. One owner has an ownership interest in five hotels and two others have anownership interest in four hotels. In addition, in 1994, a company controlled by His Royal Highness Prince Alwaleed BinTalal Bin Abdulaziz Al Saud (“Prince Alwaleed”) purchased a significant minority position in FSHI. Since purchasing itsinterest in FSHI, companies controlled by Prince Alwaleed (collectively “Kingdom”) have purchased a majorityinterest in the Four Seasons Hotel London, and have purchased the Hôtel George V in Paris, which Four Seasonsexpects to manage as a Four Seasons hotel in late 1999 when it reopens following an extensive renovation program.Kingdom also has a minority interest in the Four Seasons resorts in Aviara. Kingdom has invested or is expected tomake a minority investment in a number of additional properties under various stages of development that theCorporation expects to manage under the Four Seasons brand name, such as the Four Seasons hotels in Kuda Huraa,Maldives; Cairo; Amman; and Riyadh.Strong Management TeamFour Seasons’ corporate executive management team consists of 11 individuals who are responsible for the globalstrategic direction of the Corporation and who have an average of 18 years of experience with Four Seasons. This teamis supported by 19 corporate vice presidents, who are responsible for various aspects of the Corporation’s daily operations,as well as by 47 general managers, who together have an average of 13 years of experience with Four Seasons. It is afundamental strategy of Four Seasons to develop its senior management team from within to ensure consistency of theservice culture and work ethic.15Four Seasons Hotels Inc.