1998 Annual Report - Four Seasons Hotels and Resorts

Four Seasons Hotel BerlinThe Corporation has a 26% investment in the company that owns and has constructed the multi-use project in Berlin,as well as a 26% interest in the company that owns the freehold interest in the hotel. In addition, in 1991 Four Seasonsentered into an operating lease to acquire the management of the Four Seasons Hotel Berlin. In addition to the lease, theCorporation had a capital exposure to the project of DM7 million, in the form of a bank loan guarantee, which wasaccrued by the Corporation in 1995 and fully funded during 1998. The hotel opened in September 1996; however, theeffective date of the commencement of the lease was postponed, as a result of a dispute with the owner arising from certainconstruction deficiencies alleged by the Corporation.In early 1999, the Corporation and the owner began discussions to settle the dispute arising from the constructiondeficiencies. As a result, the lease for the hotel is expected to commence effective January 1, 1999. As part of the settlementthe construction deficiencies relating to the hotel’s air cooling and heating systems would be repaired and the leaseagreement would be amended to limit the Corporation’s obligation to fund the Four Seasons Hotel Berlin’s operatingand capital requirements, including the minimum rent, to a maximum amount. Although these discussions are welladvanced, there can be no assurance that a settlement satisfactory to the Corporation can be reached.The hotel’s budgeted 1999 operating loss is expected to be between DM2 million and DM3 million (between$1.8 million and $2.7 million). However, the long-term outlook for the hotel is expected to be favourable onceconstruction is completed in the vicinity of the hotel and the Berlin hotel market stabilizes to higher occupancy levelsafter the expected relocation of federal government and corporate offices.35Four Seasons Hotels Inc.