1997 Annual Report - Four Seasons Hotels and Resorts

ANNUAL INFORMATION FORM(continued)Luxury Vacation Ownership and Residential PropertiesAs part of its program to leverage its brand name and capitalize on its existing operational and marketing base, Four Seasonsis exploring opportunities such as luxury vacation ownership properties and hotel-serviced residential real estate developmentsintegrated with Four Seasons managed hotels and resorts. In 1997, Four Seasons began the sales and marketing of the firstFour Seasons Resort Club, a luxury vacation ownership property adjacent to the Four Seasons Resort Aviara in southernCalifornia. Other luxury vacation ownership projects are under development in connection with the Four Seasons resortsplanned for Scottsdale, Arizona and Punta Mita, Mexico. Four Seasons expects to pursue similar vacation ownership andresidential development initiatives in a number of its future resort and urban developments. Four Seasons expects to earna range of management fees, including royalty fees for the use of the Four Seasons brand, for the provision of managementservices in connection with these projects and to receive fee income for overseeing the sales and marketing of thevacation ownership projects.Regent Joint VentureThe Corporation also expects to earn fee income from its December 1996 alliance with Carlson, which is intended toenhance the future development of Regent hotels around the world. The Corporation believes that the growth potentialfor the Regent brand inherent in this strategic joint venture surpasses the level the Corporation would have beenable to achieve for Regent on its own. Carlson is a global leader in hospitality services and marketing, and a successfulbrand franchiser.Under the terms of this arrangement, Carlson acquired the rights to the Regent name for new development and hasagreed to create a luxury hotel division to embark on a development program to expand the chain of Regent hotels throughthe addition of new franchise arrangements and management contracts. Four Seasons will continue to manage (and receivebase and incentive fees from) the existing nine Regent hotels, and will have the opportunity, and in certain circumstancesthe obligation, to manage new Regent hotels that require management. In addition to its share of management fees fromnew Regent hotels, Four Seasons is entitled to receive payments from Carlson calculated as a percentage of the gross royaltyrevenue of the new franchise development effort. These payments will be nominal as the development program getsunderway, and thereafter will be determined by the future success of the new enterprise to generate revenue. Carlson isresponsible for the operating costs relating to the Regent venture. The goal of the alliance is to maximize the global value ofthe Regent brand name by creating a larger chain of Regent properties throughout the world.Cash Flow GrowthThe cash flow dynamics of the Corporation have changed as a result of its growth as a hotel management company.The Corporation does not require large amounts of capital to maintain existing management agreements or its hotelownership positions, which are typically minority interests. In 1997, the Corporation utilized more than 80% of itsoperating cash flow to make investments that allowed the Corporation to obtain new management agreements.16Four Seasons Hotels Inc.