Fairmont Hotels & Resorts Inc.

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Fairmont Hotels & Resorts Inc.

100 Wellington Street West, Suite 1600
Toronto M5K 1B7
Canada
Telephone: (416) 874-2600
Fax: (416) 874-2601
Web site: http://www.fairmont.com

Public Company
Incorporated: 1907
Employees: 30,000
Sales: $771.0 million (2004)
Stock Exchanges: Toronto New York
Ticker Symbol: FHR
NAIC: 525930 Real Estate Investment Trusts; 721110 Hotels (Except Casino Hotels) and Motels; 722211 Limited Service Restaurants

Fairmont Hotels & Resorts Inc. is a leading owner and operator of luxury and first-class hotels and resorts, with more then 80 properties operated under the Fairmont and Delta banners. The hotels, located in Canada, the United States, Mexico, Bermuda, Barbados, Monaco, and the United Arab Emirates, rely mostly on business travelers. The company also holds real estate interests in some 50 properties through FHR Real Estate Corporation and its share in Legacy Hotels Real Estate Investment Trust.

1886–1999: Fairmont Hotels and Canadian Pacific Hotels & Resorts Intersect

In 1886, William Cornelius Van Horne built and began welcoming guests to Mount Stephen House high in the wilds of the Canadian Rocky Mountains. The guest house was part of Van Horne's vision of creating rest stops along the Canadian Pacific Railway. Considered by some to be a 19th-century visionary, Van Horne declared, according to company literature, "If we can't export the scenery, we'll import the tourists."

Van Horne's business, which, in time, came to be called Canadian Pacific Hotels & Resorts, built or acquired other hotels in the years that followed: Banff Springs in 1888, Chateau Lake Louise in 1890, and Le Chateau Frontenac in 1893. During the next century, his company continued to expand across Canada and, by 1997, Canadian Pacific Limited, under the direction of CEO Bill Fatt, either owned or managed 25 properties with approximately 11,000 guestrooms under its luxury brand, Canadian Pacific Hotels. In 1998, it bought the Canadian National Railway Company's hotel chain. This purchase brought with it ownership of seven hotels, including the Chateau Laurier in Ottawa and the Jasper Park Lodge in Alberta, and made Canadian Pacific the largest owner-operated hotel company in Canada. The company had hotels as far west as Victoria, British Columbia, and as far east as St. John's, Newfoundland.

The company moved outside of Canada in 1998 with the purchase of Princess Hotels, which had properties in Mexico, Arizona, Bermuda, and Barbados. A year later, motivated to expand internationally, Canadian Pacific entered into a second international purchase agreement with Kingdom Hotels (USA) Ltd. and Maritz Wolff & Co. to acquire Fairmont Hotel Management L.P. (Fairmont L.P.). Owned by Prince al-Waleed bin Talal bin Abdulaziz Alsaud of Saudi Arabia and Lewis Wolff, Fairmont L.P.'s revenues had reached more than $400 million in the late 1990s.

Fairmont L.P. dated back to the early 1900s. Located in San Francisco, the original Fairmont Hotel had been started by two San Francisco natives, sisters Tessie and Virginia Fair in 1906. The opening was delayed by the San Francisco earthquake but finally, in 1907, the Fairmont began receiving guests for the first time. Benjamin H. Swig bought the Fairmont in 1945 and began building a portfolio of hotels as well as purchasing existing hotels, changing the name of each of his properties to "Fairmont" in honor of his company's California flagship. Under Swig, the Fairmont Hotels grew to include seven properties in key U.S. gateway cities and became a social hub for the rich and famous. These included the Grunewald in New Orleans, the renowned Plaza in New York City, and luxury hotels in San Jose, Chicago, Boston, and Dallas. In 1997, Fairmont L.P. acquired an interest in Legacy Hotels Real Estate Investment Trust.

1999–2001: Growth As a Subsidiary of Canadian Pacific Limited

The merger between Canadian Pacific Hotels and Fairmont L.P. yielded Fairmont Hotels & Resorts in 1999, the largest hotel management company in North America (as measured by the number of rooms). The new company had 29,400 rooms, 73 hotels, 26,400 employees, and two brands: Fairmont Hotels globally and Canadian Pacific Hotels in Canada. After the merger, six of Canadian Pacific's smaller properties were rebranded under the Delta Hotels name. These included hotels in Calgary, Toronto, Moncton, Halifax, and Charlottetown in Canada.

Fairmont Hotels & Resorts' parent company, Calgary-based Canadian Pacific Limited, was a diversified operating company, active in transportation, energy, and hotels at the time of the merger. The Canadian Pacific group of companies, which had grown into a Canadian icon after it built the transcontinental railway in the 1880s, also included Canadian Pacific Railway, CP Ships, PanCanadian Petroleum Ltd., and Fording Coal Ltd. Canadian Pacific's Fatt and Fairmont L.P.'s Wolff became co-chairmen of the new hotel management company. Following the merger, Fairmont Hotels & Resorts' strategy was to focus mainly on hotel management rather than hotel ownership because management of hotel properties offered a more stable income. Management fees are calculated as a percentage of hotel revenue streams whereas hotel ownership depends upon the more volatile bottom-line profit.

A year after the merger, in 2000, Fairmont Hotels & Resorts was attracting companywide acclaim with revenues of more than $150 million. The merger had brought awareness of the Fairmont name and created opportunities for global expansion. In 1999, Canada's largest owner-operated hotel corporation began expansion in Hawaii, purchasing the Kea Lani Maui from investors. In 2001, after Canadian Pacific Limited underwent restructuring with the creation of a holding company, it entered into a joint venture to manage the Fairmont Dubai, a 400-room hotel opposite the Dubai World Trade Center. At the time, its total number of hotels was 38. In its second deal with Arab royalty that year, Canadian Pacific also bought a 50 percent stake in the Fairmont Copley Plaza in Boston, which it had managed since 1996. Meanwhile, Delta's holdings had increased to 40, primarily in Canada.

2001–04: An Increasing Focus on Management and International Presence

Canadian Pacific spun off all five of its operating subsidiaries in 2001. Hours after the spinoff, Fairmont Hotels & Resorts launched a buyback of its yet-to-be-issued stock, which would trade on the Toronto stock exchange. Earlier in the year, it had sold two of its Canadian properties while retaining long-term management contracts for each. The timing, given the fallout of the September 11th attacks, made it difficult for the hotel chain to go public, and the Fairmont struggled to keep its share price strong so that it was not at risk of being bought out by one of the larger U.S.-based hotel chains. CEO Fatt went on a cross-country road show in 2001 to convince investors of the company's solidity and changed its reporting currency to the U.S. dollar. New hotel construction stopped. However, when the Fairmont Dubai opened for business in the summer of 2002, Fairmont was stronger than ever.

In fact, Fairmont actually benefited from some of the changes brought about following September 11th. Fairmont's controlling interest in its real estate investment trust (REIT), Legacy Hotels, enabled it to take advantage of depressed markets. Canadian law allowed the company to sell some of its more mature hotels to the REIT in order to free up assets to buy less productive hotels with potential for expansion.

Company Perspectives:

At Fairmont Hotels & Resorts, our distinctive properties have defined luxury for over a century, becoming international landmarks in the process. Today, Fairmont is a growth organization, building on our unique strengths and established reputation. Fairmont Hotels & Resorts is growing towards its goal of establishing a global presence, and we have the resources to make our vision a reality. As we expand our brand worldwide, one thing will remain constant—any hotel under the Fairmont flag will do more than just sell rooms, for we are in the business of creating extraordinary guest experiences in extraordinary places.

Key Dates:

1886:: Cornelius Van Horne opens what will become the first Canadian Pacific Hotels & Resorts property along the Canadian National Railway.
1907:: Tessie and Virginia Fair open the first Fairmont Hotel in San Francisco.
1945:: Benjamin H. Swig purchases the Fairmont Hotel and begins acquiring additional hotels.
1988:: Canadian Pacific Limited purchases seven hotels from Canadian National Railway Co.
1997:: Fairmont Hotels acquires an interest in Legacy Hotels Real Estate Investment Trust.
1998:: Fairmont Hotels purchases Delta and the Princess Hotel portfolio.
1999:: Canadian Pacific Hotels & Resorts acquires Fairmont Hotels Management L.P. and forms Fairmont Hotels & Resorts.
2001:: Canadian Pacific Limited divides into five new public companies, one of which is Canadian Pacific Hotels & Resorts, and is renamed Fairmont Hotels & Resorts.

By 2002, Fairmont was actively pursuing the goal of becoming an operator of premier resorts and hotels with elite city-center locations. It began managing the 75-year-old Sonoma Mission Inn & Spa in California, the Legacy-acquired Monarch Hotel in Washington, D.C., and The Orchid at Mauna Lani on Hawaii, named to Condé Nast Traveler's Gold List. Other management agreements followed in 2003 and 2004: in Puerto Rico, Florida, and near Playa del Carmen, Mexico. Fairmont also sold off some of its properties—the Kea Lani Maui and the Glitter Bay in Barbados—but signed on to continue to manage these properties.

At the same time, Fairmont began to strengthen its international presence with agreements to manage unopened hotels and resorts in Abu Dhabi and Dubai in the United Arab Emirates and in Cairo and by investing in luxury hotels in key European markets. In 2004, in a joint venture with Kingdom Hotels and Bank of Scotland Corporate, it agreed to manage the Savoy in London and to purchase the Monte Carlo Grand Hotel in Monaco.

At the close of 2004, Fairmont sold off part of its share in Legacy Hotels Real Estate Investment Trust. Its portfolio at the time consisted of more than 80 luxury or first-class hotels and more than 40 city center and resort hotels in Canada, the United States, Mexico, Bermuda, Barbados, and the United Arab Emirates. As published in its annual report, its goal was to increase the number of hotels under its management through management agreements, strategic partnerships for development, the acquisition of new properties, and the expansion of existing properties.

Principal Subsidiaries

FHR Holdings Inc.; FHR Properties Inc.; Fairmont Hotels Inc.; Delta Hotels Limited; FHR Real Estate Corporation.

Principal Competitors

Four Seasons Hotels Inc.; Hilton Hotels Corporation; Global Hyatt Corporation; Marriott International, Inc.; Radisson Hotels & Resorts; Ritz-Carlton Hotel Company, L.L.C.; Starwood Hotels & Resorts Worldwide, Inc.; Wyndham International, Inc.