1997 Annual Report - Four Seasons Hotels and Resorts

ANNUAL INFORMATION FORM(continued)and supervising of staff. For providing these services, Four Seasons typically receives a base fee calculated as a percentage of grossrevenues of the hotel. In addition, Four Seasons may receive incentive fees based on the operating performance of the hotel. 3Four Seasons makes minority investments in, or loans in respect of, properties where it is necessary to obtain newmanagement agreements and when the overall economic return to Four Seasons justifies the investment. The Corporationgenerally seeks to limit its total capital exposure to no more than 20% of the total equity required for the new property, andtypically can choose to have its ownership interest diluted if additional capital is required. The Corporation structures itsownership interests separately from its management interests so as to enable the Corporation to dispose of ownershipinterests as sale opportunities arise, without affecting its management interests.Four Seasons holds an ownership interest in, or has loans to, 11 of the 41 hotels and resorts currently undermanagement. 4 Four Seasons’ most significant ownership interests are: a 100% leasehold interest in the Four SeasonsHotel Vancouver, The Pierre in New York, and the Four Seasons Hotel Berlin, 5 a 25% leasehold interest in The RegentHong Kong and a 25% investment in The Ritz-Carlton Hotel Chicago. 6 The Corporation also holds secured cash flowloans in connection with the transactions involving the Four Seasons Hotel London in 1995 and 1998 7 and has a loanoutstanding in connection with the Hôtel George V in Paris.In order to further capitalize on the value of the Four Seasons brand, the Corporation has begun to license andmanage luxury vacation ownership projects. The Corporation will receive fees for the use of the Four Seasons brand inconnection with these projects, and for services provided in the oversight of the sales and marketing of the vacationownership units. In addition, the Corporation will receive fees from the owners of the vacation ownership units forservices provided in the ongoing management of these units.To realize the growth potential of the Regent brand, the Corporation has entered into an agreement with the CarlsonHospitality Group of Minneapolis (“Carlson”). Pursuant to the arrangement Carlson will franchise the Regent brand, andthe Corporation will receive a share of the franchise revenue generated by Carlson. Four Seasons will continue to managethe existing Regent hotels and will have the opportunity to manage new Regent properties. 8Competitive StrengthsThe hotel industry is highly competitive. The Corporation believes that it has several distinguishing competitivestrengths, including:Strong Brand RecognitionFour Seasons hotels and resorts are widely recognized for the exceptional quality of their guest facilities, service andatmosphere, and have been named more frequently than any other competitor among the world’s best hotels and travelexperiences by Institutional Investor, Condé Nast Traveler, AAA Five Diamond and others. The Corporation believes thatits brand name recognition cannot easily be replicated by competitors, as it is dependent upon the establishment of aglobal chain of unique properties of the highest quality.3 See “Hotel Management Operations” beginning on page 21.4 See “Hotel Ownership Operations” beginning on page 23.5 See discussion under “Four Seasons Hotel Berlin” on page 31.6 The Corporation expects to reach an agreement to dispose of its interest in The Ritz-Carlton Hotel Chicago in exchange for the elimination of certaintermination provisions in the management agreement for that hotel.7 See discussion under “Four Seasons Hotel London” on page 32.8 See discussion under “Regent Joint Venture” on page 16.12Four Seasons Hotels Inc.