Press Release: Legacy Hotels Real Estate Investment Trust
April 15, 2002
TORONTO -- Legacy Hotels Real Estate Investment Trust ("Legacy") (TSE symbol: LGY.UN) Friday announced
its unaudited financial results for the three months ended March 31, 2002. Legacy's annual meeting of unitholders
will be held on Tuesday April 23, 2002 at 10:00 a.m. Eastern Time at The Fairmont Royal York in Toronto.
"Our first quarter results were well ahead of our initial expectations and we are hopeful that the positive
industry trends we have seen thus far will continue throughout the year. Given the current lodging environment,
we are especially encouraged by our portfolio's ability to minimize revenue per available room, or RevPAR, declines
to less than 5%," said William R. Fatt, Vice Chairman and Chief Executive Officer of Legacy. "We appear
to have successfully managed the economic turbulence in large part due to the quality and diversification of our
portfolio and the strength of the management companies supporting our properties. Canadian city centre hotels have
proven to be quite resilient and appear to be recovering at a much faster pace than our U.S. counterparts."
For the first quarter, gross operating revenues were down 1.5% to $116.0 million. The decrease is primarily attributable
to weakness throughout the North American travel industry as well as challenging conditions at our Ottawa properties.
These factors offset the additional revenues recognized from the inclusion of The Fairmont Empress and Fairmont
Le Château Frontenac for a full quarter following their acquisition on February 1, 2001.
For the quarter, hotel EBITDA(1) was $8.1 million compared to $11.4 million in 2001. The decrease is primarily
driven by the inclusion of January results at The Fairmont Empress and Fairmont Le Château Frontenac. As
destination resorts, they attract a significant portion of their business in the second and third quarters. In
addition, increases in our fixed expenses relating to higher property tax assessments in many city centres negatively
impacted the quarterly results.
Legacy reported a net loss of $15.6 million for the first quarter of 2002 compared to a loss of $8.5 million in
2001. The net loss reflects decreased hotel EBITDA coupled with increased fixed charges related to 2001 acquisitions.
Diluted distributable loss per unit increased from $0.07 in the first quarter 2001 to $0.16 this year. The majority
of this decline is attributed to the increased net loss and the impact of the recent issuance of convertible debentures.
Given the seasonality of the portfolio and the fixed nature of most operating costs, first quarter results are
not indicative of results for the full year.
Average daily rates ("ADR") at Legacy's portfolio remained relatively unchanged with overall RevPAR down
only 4.9%. At the Fairmont managed properties, RevPAR was down 4.2% due to an occupancy decline of 0.9 points and
an ADR drop of 2.7%. At the Delta managed properties, RevPAR was down 6.2% due to a 4.3 point decrease in occupancy
despite a modest increase in ADR of 0.7%. The Vancouver market in particular experienced ADR downward pressure
given the competitive supply environment.
Corporate Developments
In February 2002, Legacy completed a $150 million offering of convertible unsecured subordinated debentures. Proceeds
from the offering are expected to be used for the repayment of existing indebtedness, future acquisitions and profit
improving projects.
As previously announced on March 11, 2002, Legacy's Board of Trustees declared a first quarter distribution of
$0.185 per unit to unitholders of record as of March 28, 2002, payable on or about April 20, 2002. Distributions
are reviewed each quarter and established to a level that the Board of Trustees believes to be sustainable. For
the first quarter, Fairmont Hotels & Resorts Inc. ("FHR")(TSE and NYSE: FHR), Legacy's largest investor
with an approximate 35% interest, has elected to receive units instead of cash in accordance with the terms of
Legacy's Distribution Reinvestment Plan. This decision will be reviewed by FHR on a quarterly basis.
Outlook
"The positive operating trends of the first quarter are very encouraging. We expect a gradual improvement
in Legacy's performance throughout 2002. Minimal new hotel supply in our key markets should facilitate a continued
recovery. Our objective continues to be to provide increasing unitholder value in the form of stable and growing
distributions. To achieve this goal, we continue to evaluate acquisition prospects in Canada and in the United
States and focus on profit improving projects within our existing portfolio."
Commented Mr. Fatt, "Our significant financial resources leave us poised to take advantage of any opportunity
which we believe would complement our existing portfolio. We will resume discussions regarding the acquisition
of The Fairmont Chateau Whistler from FHR, which are anticipated to continue in the latter half of 2002 or early
in 2003."
Legacy will host a conference call today at 4:30 p.m. Eastern Time to discuss these results. Please dial 416-641-6659
or 1-888-243-1119 to access the call. You will be required to identify yourself and the organization on whose behalf
you are participating. Media will be in a listen-only mode for the duration of the call. A recording of this call
will be made available beginning at 6:30 p.m. on April 12, 2002 through to 6:30 p.m. on April 19, 2002. To access
the recording please dial 1-800-633-8625 and use the reservation number 20502124.
A live audio webcast of the conference call will be available via Legacy's website (www.legacyhotels.ca).
An archived recording of the webcast will remain available on this website following the conference call. To listen
to the webcast, users require a sound-enabled computer with a Pentium or equivalent processor, 16MB RAM, Windows
95 (or later) or Mac OS or Linux, a 28.8 Kbps Internet connection (or better) and the appropriate version of the
Microsoft Media Player. A free, downloadable version of the Microsoft Media Player can be downloaded at the Microsoft
Media Player download site (http://www.microsoft.com/windows/windowsmedia/en/download/default.asp)
or via Legacy's website.
Legacy is Canada's premier hotel real estate investment trust with 21 luxury and first class hotels across Canada
with over 9,500 rooms. The portfolio includes landmark properties such as Fairmont Le Château Frontenac,
The Fairmont Royal York and The Fairmont Empress. Fairmont Hotels & Resorts manages the 10 luxury hotels and
Delta Hotels manages the 11 first class properties.
This press release contains certain forward-looking statements relating, but not limited to, Legacy's operations,
anticipated financial performance, business prospects and strategies. Forward-looking information typically contains
statements with words such as "anticipate", "believe", "expect", "plan"
or similar words suggesting future outcomes. Such forward-looking statements are subject to risks, uncertainties
and other factors, which could cause actual results to differ materially from future results expressed, projected
or implied by such forward-looking statements. Such factors include, but are not limited to economic, competitive
and lodging industry conditions. Legacy disclaims any responsibility to update any such forward-looking statements.
---------------------- 1. Hotel EBITDA is defined as income before interest, taxes, amortization, advisory fees and other income and expenses. Management considers hotel EBITDA to be a meaningful indicator of hotel operations, however, it is not a defined measure of operating performance under Canadian generally accepted accounting principles. Legacy's calculation of hotel EBITDA may be different than the calculation used by other entities.
Legacy Hotels Real Estate Investment Trust
Summary Statistics
(Unaudited)
Three months ended March 31
2002 2001
----------- -----------
RevPAR $ 79.94 $ 84.02
Average Daily Rate $ 137.71 $ 139.42
Occupancy 58.1% 60.3%
RevPAR - Fairmont Regional
British Columbia $ 77.32 $ 88.94
Alberta 85.06 71.68
Saskatchewan and Manitoba 66.68 61.66
Ontario 102.51 115.57
Quebec 86.47 81.34
----------- -----------
Total $ 87.70 $ 91.56
----------- -----------
RevPAR - Delta Regional
Alberta $ 96.02 $ 86.61
Saskatchewan and Manitoba 58.68 58.57
Ontario 79.36 88.34
Quebec 63.24 72.78
Maritimes 55.23 58.66
----------- -----------
Total $ 67.29 $ 71.77
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In thousands of Canadian dollars (except per unit amounts)
Operating revenues $ 115,989 $ 117,723
Gross operating profit 23,505 25,320
Hotel EBITDA 8,076 11,364
Net loss (15,577) (8,490)
Distributable loss (12,987) (5,627)
Distributable loss per unit on a diluted basis $ (0.16) $ (0.07)
Distributions and dividends 16,868 20,550
Distributions per unit 0.185 0.250
Hotel EBITDA margin 7.0% 9.7%
1. Revenue per available room, average daily rates and occupancy
figures are based on the current portfolio of properties.
2. Distributions and dividends include part VI.1 tax payable
on exchangeable share dividends and convertible debenture
distributions
3. Hotel EBITDA margin represents hotel EBITDA as a percentage
of operating revenues
Legacy Hotels Real Estate Investment Trust
Consolidated Balance Sheets
(Stated in thousands of Canadian dollars)
(Unaudited)
ASSETS
March 31 December 31
2002 2001
----------- -----------
Current assets
Cash and cash equivalents $ 134,071 $ 14,696
Accounts receivable 27,650 35,037
Materials and supplies 5,531 5,102
Prepaid expenses 8,713 2,968
----------- -----------
175,965 57,803
Property and equipment 1,431,070 1,432,257
Goodwill (note 1) 39,516 39,516
Other assets 11,958 12,285
----------- -----------
$1,658,509 $1,541,861
----------- -----------
----------- -----------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 65,110 $ 63,482
Accrued distributions and dividends 16,091 -
Current portion of long term debt 103,227 105,048
Other 132 132
----------- -----------
184,560 168,662
Long-term debt 562,649 576,777
Other liabilities 2,486 2,344
Future income taxes 48,252 48,606
Unitholders' interest
Units (note 3) 640,428 638,342
Contributed surplus 49 49
Exchangeable shares (note 4) 126,420 126,420
Convertible debentures (note 5) 144,919 -
Deficit (51,254) (19,339)
----------- -----------
860,562 745,472
----------- -----------
$1,658,509 $1,541,861
----------- -----------
----------- -----------
Legacy Hotels Real Estate Investment Trust
Consolidated Statements of Operations
(Stated in thousands of Canadian dollars except per unit amounts)
(Unaudited)
Three months ended March 31
2002 2001
------------ -----------
Operating revenues
Room $ 68,777 $ 70,048
Food and beverage 39,709 40,534
Other 7,503 7,141
----------- -----------
115,989 117,723
Operating expenses 92,484 92,403
----------- -----------
Gross operating profit 23,505 25,320
Hotel management fees 3,722 4,189
Property taxes, rent and insurance 11,707 9,767
----------- -----------
Operating income from hotel operations
before undernoted items 8,076 11,364
Other income
Gain on settlement of debentures 177 -
Other expenses
Amortization of property and equipment 8,867 7,539
Advisory fee 1,671 1,321
Other 560 499
----------- -----------
11,098 9,359
----------- -----------
Income (loss) before interest expense, income
tax expense and goodwill amortization (2,845) 2,005
Interest expense, net 12,239 9,967
----------- -----------
Loss before income tax expense and
goodwill amortization (15,084) (7,962)
Income tax expense
Current 149 105
Future 344 230
----------- -----------
493 335
----------- -----------
Net loss before goodwill amortization (15,577) (8,297)
Goodwill amortization - 193
----------- -----------
Net loss for the period $ (15,577) $ (8,490)
----------- -----------
----------- -----------
Basic and diluted net loss per unit (note 6) $ (0.21) $ (0.11)
----------- -----------
----------- -----------
Legacy Hotels Real Estate Investment Trust
Consolidated Statements of Retained Earnings (Deficit)
(Stated in thousands of Canadian dollars)
(Unaudited)
Three months ended March 31
2002 2001
----------- -----------
Deficit - beginning of period (19,339) (4,593)
Net loss for the period (15,577) (8,490)
Distributions in the period (12,716) (16,875)
Dividends on exchangeable shares (1,942) (2,661)
Part VI.1 tax on exchangeable share dividend (777) (1,014)
Part VI.1 tax deduction 699 913
Accretion of convertible debenture issuance
costs (note 5) (169) -
Distributions on convertible debentures (1,433) -
----------- -----------
Deficit - end of period (51,254) (32,720)
----------- -----------
----------- -----------
Legacy Hotels Real Estate Investment Trust
Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)
Three months ended March 31
2002 2001
----------- -----------
Cash provided by (used in):
Operating activities
Net loss for the period $ (15,577) $ (8,490)
Items not affecting cash
Amortization of property and equipment 8,867 7,539
Goodwill amortization - 193
Gain on settlement of debentures (177) -
Part VI.1 tax (777) (1,014)
Future income taxes 344 230
Other 176 92
Changes in non-cash working capital (note 8) 2,841 407
----------- -----------
(4,303) (1,043)
----------- -----------
Investing activities
Acquisition - (181,711)
Additions to property and equipment (7,680) (15,075)
Other assets 327 (4,016)
----------- -----------
(7,353) (200,802)
----------- -----------
Financing activities
Net proceeds from unit issuance (note 3) 2,086 31
Increase in bank loans - 14,999
Net proceeds from mortgages - 189,000
Net proceeds from convertible debentures 144,750 -
Repurchase of debentures for cancellation (14,548) -
Mortgage payments (1,224) (58)
Repayment of deferred liabilities (33) (33)
----------- -----------
131,031 203,939
----------- -----------
Increase in cash balance during the period 119,375 2,094
Cash balance - beginning of period 14,696 (5,731)
----------- -----------
Cash balance - end of period $ 134,071 $ (3,637)
----------- -----------
----------- -----------
Represented by:
Cash and cash equivalents 134,071 -
Bank indebtedness - (3,637)
----------- -----------
$ 134,071 $ (3,637)
----------- -----------
----------- -----------
Supplemental disclosure
Income taxes paid 4,888 90
Interest paid 7,468 3,824
Legacy Hotels Real Estate Investment Trust
Notes to consolidated financial statements
(Stated in thousands of Canadian dollars except per unit amounts)
(Unaudited)
1. These interim consolidated financial statements do not include all
disclosures as required by Canadian generally accepted accounting
principles for annual consolidated financial statements and should be
read in conjunction with the audited consolidated financial statements
for the year ended December 31, 2001. The accounting policies used in
the preparation of these interim consolidated financial statements are
consistent with the accounting policies used in the December 31, 2001
audited consolidated financial statements, except as discussed below:
Goodwill
On January 1, 2002, Legacy Hotels Real Estate Investment Trust
("Legacy") adopted the new recommendations of the Canadian Institute
of Chartered Accountants ("CICA") with respect to goodwill and other
intangible assets. Under the new recommendations, goodwill and
intangible assets with indefinite lives are no longer amortized, but
are subject to impairment tests on at least an annual basis. Any
impairment of goodwill or other intangible assets will be expensed in
the period of impairment. Other intangible assets with definite lives
will continue to be amortized over the estimated useful lives and are
also tested for impairment. The recommendations of this new policy
have been applied prospectively.
Legacy has completed its impairment testing on the balance of goodwill
as at January 1, 2002. As a result of this testing, there are no
impairment losses.
Upon adoption of these recommendations, it was determined that no
reclassifications of goodwill and intangible assets were required
under CICA recommendations on business combinations. Legacy has
determined that none of its intangible assets, other than goodwill,
have indefinite lives and, accordingly, continues to amortize such
intangible assets over their estimated useful lives.
A reconciliation of previously reported net income, net income per
unit and diluted net income per unit to the amounts adjusted for
the exclusion of goodwill amortization is as follows:
Three months ended March 31
2002 2001
----------- -----------
Net loss $ (15,577) $ (8,490)
Goodwill amortization - 193
----------- -----------
Adjusted net loss (15,577) (8,297)
----------- -----------
Basic and diluted net loss per unit $ (0.21) $ (0.11)
Goodwill amortization per unit - -
----------- -----------
Adjusted basic and diluted net loss
per unit $ (0.21) $ (0.11)
----------- -----------
Unit-based compensation
Legacy accounts for grants under its unit option plan using the
intrinsic value method of accounting for unit-based compensation
costs. Under the new CICA recommendations on unit-based compensation
plans, Legacy will be providing pro forma net income and pro forma
earnings per share, as if the fair value based accounting method had
been used to account for unit-based compensation costs for any options
granted after January 1, 2002.
2. Results for the three months ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the full year due
to seasonal and short-term variations. Revenues are typically higher
in the second and third quarters versus the first and fourth quarters
of the year in contrast to fixed costs such as amortization and
interest, which are not significantly impacted by seasonal or
short-term variations.
3. In March 2002, Legacy issued 15,000 units for options exercised
pursuant to the unit option plan for $108. Also, in March 2002,
Legacy issued 236,912 units to a subsidiary of FHR through a private
placement for proceeds of $1,978. At March 31, 2002, 68,735,601 units
were outstanding (2001 - 67,501,893). No options were granted during
the three months ended March 31, 2002.
4. The exchangeable shares are entitled to a per share dividend equal
to the ordinary unit distribution, less Part VI.1 taxes payable.
Each exchangeable share is retractable at the fair market value
of a Legacy unit after a minimum holding period of five years.
The exchangeable shares are tied to voting certificates issued
by Legacy that are entitled to one vote per voting certificate
at meetings of unitholders. At March 31, 2002, 14,700,000
(2001 - 14,700,000) exchangeable shares were outstanding.
5. On February 14, 2002, Legacy issued $150 million of 7.75% unsecured
subordinated convertible debentures maturing on April 1, 2007 (the
"Convertible Debentures"). The Convertible Debentures may be converted
into Legacy units at the option of the holder at any time prior to
maturity at a conversion price of $8.75 per Legacy unit, subject to
certain adjustments in accordance with the terms of the trust
indenture governing the terms of the Convertible Debentures. The
Convertible Debentures may not be redeemed by Legacy prior to April 1,
2004. Thereafter, the Convertible Debentures may be redeemed by
Legacy, in whole at any time or in part from time to time, on at least
30 days' notice at a redemption price equal to par plus accrued and
unpaid interest, provided that the current market price exceeds 115%
of the then current conversion price.
Legacy may elect to pay interest and principal upon maturity or
redemption by issuing units to a trustee in the case of interest
payments and to the Convertible Debenture holders in the case of
payment of principal. The number of units to be issued upon redemption
will be determined by dividing the principal amount of the Convertible
Debentures by 95% of the current market price of the units on the date
fixed for redemption or the maturity date. Legacy paid issuance costs
totalling $5,250 in connection with this offering.
The term "current market price" is defined to mean the weighted-
average trading price of Legacy units on the Toronto Stock Exchange
for the 20 consecutive trading days ending five trading days preceding
the date of the applicable event.
The Convertible Debentures have been classified as equity on the
consolidated balance sheet since Legacy may elect to satisfy the
interest and principal obligations through the issuance of Legacy
units. Similarly, interest payments and issuance costs will be
charged directly to retained earnings.
6. Net loss per unit is based on net loss available to unitholders
divided by the weighted average number of units and exchangeable
shares outstanding during the period, calculated as follows:
Three months ended March 31
2002 2001
----------- -----------
Net loss $ (15,577) $ (8,490)
Part VI.1 tax, net of deduction (78) (101)
Accretion of convertible debenture
issuance costs (169) -
Distributions on convertible debentures (1,433) -
----------- -----------
Net loss available to unitholders $ (17,257) $ (8,591)
----------- -----------
Weighted average number of units
outstanding - basic (thousands) 68,522 67,498
Weighted average number of exchangeable
shares outstanding - basic (thousands) 14,700 9,800
----------- -----------
83,222 77,298
----------- -----------
Dilutive effect of unit options - -
----------- -----------
Diluted weighted average number of units 83,222 77,298
----------- -----------
For the three months ended March 31, 2002, debentures convertible into
17,142,857 units (2001 - nil) and options on 102,061 (2001 - 124,108)
units were excluded from the computation of diluted net loss and
diluted distributable loss per unit because their effects were not
dilutive.
7. Distributable loss per unit is based on the number of units and
exchangeable shares outstanding on each distribution date and has been
calculated in accordance with the terms of the Declaration of Trust as
follows:
Three months ended March 31
2002 2001
----------- -----------
Net loss $ (15,577) $ (8,490)
Add (deduct):
Amortization of property and equipment 8,867 7,539
Goodwill amortization - 193
Income tax expense 493 335
Gain on settlement of debentures (177) -
Distributions on convertible debentures (1,433) -
Capital replacement reserve (5,160) (5,204)
----------- -----------
Distributable loss $ (12,987) $ (5,627)
----------- -----------
Number of units outstanding on distribution
date - basic (thousands) 68,736 67,502
Number of exchangeable shares outstanding
on distribution date - basic (thousands) 14,700 14,700
----------- -----------
83,436 82,202
----------- -----------
Dilutive effect of unit options - -
----------- -----------
Diluted units outstanding (thousands) 83,436 82,202
----------- -----------
Basic and diluted distributable
loss per unit $ (0.16) $ (0.07)
----------- -----------
Distributions per unit $ 0.185 $ 0.250
----------- -----------
For the three months ended March 31, 2002, debentures convertible into
17,142,857 units (2001 - nil) and options on 102,061 (2001 - 124,108)
units were excluded from the computation of diluted net loss and
diluted distributable loss per unit because their effects were not
dilutive.
8. Changes in non-cash working capital
Three months ended March 31
2002 2001
----------- -----------
Decrease in accounts receivable $ 7,387 $ 4,659
Increase in materials and supplies (429) (211)
Increase in prepaid expenses (5,745) (6,383)
Increase in accounts payable
and accrued liabilities 1,628 2,342
----------- -----------
$ 2,841 $ 407
----------- -----------
9. Certain of the prior period figures have been reclassified to conform
with the presentation adopted for 2002.
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For further information