1997 Annual Report - Four Seasons Hotels and Resorts

Hotel Ownership OperationsHotel ownership earnings in 1997 include the consolidated results of The Pierre in New York (100%), the Four SeasonsHotel Vancouver (100%) and The Ritz-Carlton Hotel Chicago (25%). In addition, the Corporation recognizes as revenuedividend distributions in respect of its 25% interest in The Regent Hong Kong and the profit distribution from its otherminority interests.In 1998, hotel ownership earnings are expected to include the consolidated results of the Four Seasons Hotel Vancouverand The Pierre in New York. In addition, the Corporation will begin consolidating the operating results of the Four SeasonsHotel Berlin upon the formal handover of the hotel lease, the timing of which depends on the outcome of an ongoingdispute (see Four Seasons Hotel Berlin below). The Corporation expects to enter into an agreement to dispose ofits 25% interest in The Ritz-Carlton Hotel Chicago in exchange for the elimination of certain management contracttermination provisions. In a separate proposed transaction the management terms of this contact will be enhanced.Leasehold InterestsThe Corporation has been in discussions with the landlords of the Four Seasons Hotel Vancouver and The Pierre inNew York since late 1994 to revise their respective lease structures to allocate major capital expenditure requirements,and in the case of Vancouver, property taxes, more equitably between the parties. To preserve its economic interest in theVancouver leasehold, the Corporation has given notice to the landlord that it intends to renew the lease for the Four SeasonsHotel Vancouver for a further 20-year period beginning in 2000. Discussions with the landlord relating to the realtytaxes are continuing. The lease provides for a maximum annual lease payment of $2.5 million.In addition, discussions with the landlord of The Pierre in New York are continuing. If these discussions do notresult in an arrangement satisfactory to Four Seasons, the lease for The Pierre, which expires in January 2002, may not berenewed. If the lease is not renewed, the Corporation’s management of The Pierre would likely cease. If this occurredit is the Corporation’s intention to seek another hotel management opportunity in New York. Because the Corporation hasnot decided whether to renew this lease, note 13(a) to the consolidated financial statements, which summarizes theCorporation’s lease commitments, reflects only the minimum lease payments for The Pierre for the remainder of the initiallease term. There is no third party debt associated with the Corporation’s leasehold interest relating to either The Pierreor the Four Seasons Hotel Vancouver, other than related rent obligations.Four Seasons Hotel BerlinThe Corporation has a 23% investment in the company that owns and has constructed the multi-use project in Berlinthat includes the hotel, as well as commercial, residential and retail space. The Corporation accounts for its investment inthis multi-use project by the cost method because the ownership structure does not give it significant influence over theproject. In addition, in 1991 Four Seasons entered into an operating lease to acquire the management of the Four SeasonsHotel Berlin. Once the hotel is operating in accordance with the Corporation’s detailed technical specification, the leasefor the hotel will commence ( “handover”) and the Corporation will begin accounting for its investment in the leaseholdinterest in the hotel on a consolidated basis. The Corporation will be responsible for funding the majority of the Four SeasonsHotel Berlin’s operating and capital requirements, including the minimum rent, to the extent not covered by hoteloperating revenues.31Four Seasons Hotels Inc.