TORONTO (CP) – The major operator of luxury hotels and resorts reported Friday a $12.3-million loss in the third quarter, hammered by a $17.5-million net asset writedown for its investments in Caracas, Venezuela, and Sydney, Australia – both facing unclear ownership futures.
Looking ahead, Four Seasons – a microcosm of geopolitical problems and struggling economies – has reduced its full-year profit forecast. And, amid mounting uncertainty, it says unforeseen circumstances could throw even those diminished expectations out the window.
“Ongoing economic uncertainty and geopolitical tensions make the short-term operating outlook very difficult to predict,” Doug Ludwig, chief financial officer for the Toronto-based hotel management chain, told analysts in a bleak conference call.
Four Seasons Hotels and Resorts currently managing 56 properties in 25 countries.
Cautioning that a more severe economic downturn, further acts of terrorism and a war with Iraq could throw projections off line, the company said it now anticipates a full-year profit of 55 to 59 cents a share – between $17 million and $18.2 million. That includes the 50 cents per share loss for the Caracas and Sydney investments.
That’s down from a 2002 profit forecast at the end of the second quarter of up to $1.57 a share – or $48.4 million – which was itself a downgrade of predictions earlier this year of $1.76 a share, or $54.3 million.
In 2001, the company made $86.4 million or $2.48 a share.
“Nonetheless, we believe the future for Four Seasons remains extremely bright,” Ludwig told analysts. “By our nature, our business is very long-term, with management contracts averaging almost 60 years in length.”
But the company is having a hard time predicting its short-term outlook, coming off a third quarter in which business and leisure travel took a nosedive in the middle of September – a time when tensions in the Middle East were intensifying.
The third-quarter loss amounts to 35 cents a share, compared with a profit of $32 million or 80 cents per share a year earlier. Consolidated revenues were $62.2 million, up from $57.2 million.
The writedown in Caracas is due to the closure of the debt-plagued hotel. The writedown in Sydney – where Four Seasons has invested $43.8 million – reflects a prolonged slump in domestic and international tourism traffic in Australia, just two years after the Summer Olympics were held “down under.”
Many other incidents are plaguing operations, including:
– Cancellations at two resorts in the Indonesian resort of Bali, where last month bombings in the city’s nightclub district killed nearly 200 people.
– The Four Seasons Hotel Prague closed because of severe flooding and isn’t expected to reopen until next July. The Regent Hotel Jakarta, which was also closed because of flooding in February of this year, is also being repaired and no reopen date has yet been scheduled.
– The New York City market still hasn’t fully recovered from the Sept. 11 terrorist attacks, particularly hurting the company’s luxury hotel, The Pierre.
– Legal disputes in Caracas and Seattle will cost Four Seasons about $2 million in the fourth quarter. It hasn’t resolved arrangements to restructure debt at the Caracas hotel; in Seattle, Four Seasons is disputing termination of a management agreement for a hotel that its owner is trying to sell.
Aside from its two resorts in Hawaii and Four Seasons hotels in Paris and Milan, leisure travel demand “appears to be softening” in the fourth quarter. Dropping travel demand was already evident in the third quarter, when hotels in Berlin, Cairo and Lisbon all experienced occupancy levels of 50 per cent or lower, Ludwig said.
Despite all the uncertainty on the horizon, Four Seasons is going forward with plans to open hotels next year in Budapest; the Bahamas; Hampshire, England; Jackson Hole, Wyo.; Miami; and Terre Blanche, France.
Longer-term plans will see hotels open in Lebanon, Egypt and Saudi Arabia – though Ludwig said the company has to evaluate how to reduce risks to investments in potentially volatile regions.
“What we’re being careful to rethink at this point is not our desire to be in these locations,” he said. “We have to be more careful about the way we structure our security arrangements . . . in those markets.”
On the Toronto stock market Thursday, Four Seasons shares (TSX:FSH) fell 57 cents to $48. The 52-week high is $91.31 and the low is $44.10.
“Although we are disappointed with recent performance, we believe the results chiefly reflect short-term weakness in the global economy and in global travel demand generally,” chairman and CEO Isadore Sharp said in a release.
“We will continue to manage our business by creating and maintaining our long-term management contracts.”
By Steve Erwin, The Waterloo Record
