1997 Annual Report - Four Seasons Hotels and Resorts

Minority Hotel Ownership InterestsAs at December 31, 1997, Four Seasons had minority investments in three of the hotels and resorts under managementand had made an investment in four of the hotels and resorts under construction or development. Four Seasons accountsfor its minority investments on a cost basis. The book value of Four Seasons’ minority hotel ownership interests was$46.5 million as at December 31, 1997 ($41.0 million as at December 31, 1996). These investments represent theCorporation’s share of the Four Seasons hotels and resorts in Chicago (7.7%), Aviara (7.3%), Seattle (3.4%), Punta Mita,Mexico (30.8%), Nile Plaza, Cairo (9%), Amman, Jordan (5%) and Scottsdale. The equity interest in Scottsdale is yetto be determined as the Corporation is currently making arrangements with its equity partners.Based upon the current and budgeted operating cash flow of these properties (adjusted for expected capital spendingrequirements) and recent comparable luxury hotel sales, the Corporation currently estimates that the net recoverable valuefor its minority investments at least approximates the book values of these investments (see note 5 to the consolidatedfinancial statements).None of these minority investments is material to the Corporation and each of these investments individuallyrepresents 5% or less of the total assets of the Corporation. The Corporation has no recourse debt obligations relating tothese interests, other than those disclosed in note 13(c) to the consolidated financial statements. For the year endedDecember 31, 1997, the Corporation earned $8.0 million ($11.1 million in 1996) of fee revenues and received distributionsof $363,000 ($240,000 in 1996) from these minority hotel investments.A 15% interest in the Four Seasons Resort Nevis and a 15% interest in the Four Seasons Hotel Washington weredisposed of by the Corporation during 1996 and 1997, respectively. The Corporation exchanged its 15% partnershipinterest in the Four Seasons Hotel Washington and an adjoining office building in return for an extended managementcontract. At the same time, the owner commenced a program to convert the office building into additional hotel roomsto be managed by Four Seasons, which upon their completion will provide additional fee revenues to the Corporation.During the first quarter of 1998, a 12.5% interest in the Four Seasons Hotel London was acquired by the Corporation.In addition the Corporation has agreed to dispose of its 7.7% interest in the Four Seasons Hotel Chicago in exchange forthe elimination of certain funding obligations.The following table sets forth the combined summarized financial information relating to the Corporation’s proportionateshare of these investments for the 1997 and 1996 fiscal years. This table excludes: (i) Four Seasons’ 15% investment inthe Four Seasons Resort Nevis which was disposed of in the fourth quarter of 1996 and Four Seasons’ 15% interestin the Four Seasons Hotel Washington which was disposed of effective January 1, 1997 (as at and for the year endedDecember 31, 1996, the Corporation’s proportionate share of the revenues of these two properties was $13.4 million, ofearnings before other operating items was $3.1 million, of total assets was $6.7 million, and of deficit was $0.9 million),(ii) the book value of the Corporation’s hotel ownership interests in the Four Seasons hotels and resorts in Punta Mita,Mexico, Nile Plaza, Cairo, Amman, Jordan and Scottsdale, Arizona which are still either under construction or development,and (iii) for 1996 the Corporation’s interest in the Four Seasons Resort Aviara as the resort did not begin operations untilAugust 1997. The net loss of $1.3 million in 1997 is primarily attributable to the start-up losses from this interest in theAviara resort.33Four Seasons Hotels Inc.