PHOTO COURTESY THE ORCHID AT MAUNA LANI
Fairmont Hotels & Resorts Inc. announced yesterday it is buying the Orchid at Mauna Lani on the Big Island's Kohala coast for $140 million from Colony Capital LLC.
Fairmont ups The purchase of the Orchid at Mauna Lani for $140 million is the second major Hawaii investment in 20 months by Fairmont Hotels & Resorts Inc.
investment in Hawaii
with Orchid buy
The chain bought Maui’s Kea Lani resort last year
By Russ Lynch
rlynch@starbulletin.comOn top of its February 2001 acquisition of the Kea Lani resort on Maui, that adds up to a commitment of some $345 million into the purchase of just two hotels in Hawaii.
Fairmont is based in Toronto, but probably best known to Hawaii residents for its Fairmont Hotel in San Francisco.
Fairmont's investment also comes at a time when tourism has yet to recover from the fallout of the Sept. 11 attacks. Why put money in now?
"We like Hawaii," said Tom Storey, Fairmont executive vice president for business development and strategy.
Storey said decisions are based on hard financial data, such as the expected return on the investment and Fairmont's ability to market the hotels, as well as a long-term view.
In February 2001, Fairmont paid $214.3 million in cash for the 450-room Kea Lani Resort at Wailea, Maui, which included just under $50 million for the land. The total divides out to about $476,000 a room.
Yesterday's announcement of the agreement to buy the Orchid, which has 538 guest rooms and suites, for $140 million plus some closing expenses, works out to $260,000 a room. The price is lower, but the Orchid stands on leasehold land.
Storey said that a hotel is expected to get 1/1,000th of its purchase price for each room every day, on average, at 70 percent occupancy.
That means $260 a night at the Orchid and $476 a night at the Kea Lani -- room rates Fairmont is comfortable with, Storey said.
To start with, Fairmont is paying about half what it cost to build the Orchid, which started out as the Ritz-Carlton Mauna Lani. The seller, Colony Capital LLC, bought the hotel from Japanese owners for $75 million in 1995. Owen Blicksilver, a spokesman for Los Angeles-based Colony, said yesterday that Colony has put about $14 million into improvements at the hotel since buying it. So Colony is getting about $140 million for an investment of less then $90 million. Fairmont considers that it has a good deal, picking up a fully developed, fully operational hotel for a reasonable price.
And like Kea Lani, the Orchid fits with Fairmont's portfolio of 79 luxury hotels in Canada, the United States and four other countries, Storey said. In December, when the deal closes, the name will be changed to the Fairmont Orchid, Hawaii and it will be marketed along with the other Fairmont luxury resorts. Fairmont also will take over the management of the hotel, which has been run by Starwood Hotels & Resorts since 1996.
The Orchid fits because of its size, meeting space, spa operations and restaurants, its 32 acres of oceanfront property and its proximity to two 18-hole golf courses, Storey said.
Fairmont is not worried that Japanese travel to Hawaii has fallen or that only a few Japanese visitors go to islands other than Oahu, he said.
"People think the Japanese travel business is homogenous. It's not so. The middle of the market drives the business (but) at the Orchid, what you're looking at there is high-end destination travelers with an orientation toward golf," Storey said. "We have a pretty good awareness and a pretty good reputation with high-end Japanese."
And the Japanese are by no means the only market for such properties. State figures show they have been dominated for years by visitors from the U.S. mainland.
So far, Fairmont has been open about its finances in Hawaii. While the Kea Lani purchase price in February 2001 initially was not disclosed, the details showed up in Fairmont's annual report at $49.7 million for the 22 acres of land, $192.4 million for the buildings and $7.6 million for furniture, fixtures and equipment.
As part of the deal, Fairmont inherited about $35 million in debt, effectively reducing the value of the deal to $214 million.
Storey said that Fairmont, as a public company, decided its finances needed to be "transparent" to shareholders because of the current atmosphere of suspicion about public companies.
Fairmont was spun off about a year ago from Canadian Pacific Ltd., a railway, shipping and energy company that also owned and managed hotels. It became a separate company traded publicly on the Toronto Stock Exchange and the New York Stock Exchange under the symbol FHR.
Yesterday, the company reported a third-quarter net income of $39 million, down from $116.8 million a year earlier, but said the main difference was a lot of reorganization expenses in the 2001 quarter.
Income from continuing operations of $39 million in the latest quarter was up 139.2 percent from an operating loss of $99.4 million in the 2001 quarter.
As a private company, Colony does not have to disclose that kind of detail. Colony has been a significant investor in Hawaii resorts since it headed an investor group that bought the 1,200-room Hyatt Regency Waikoloa in 1993 for about $60 million, a fraction of the $360 million it cost to build.
It partnered with minority investors, including Hilton Hotels, in what is now the Hilton Waikoloa Village.
Colony also bought what is now the W Honolulu Diamond Head, a boutique hotel of about 50 rooms that it recently put on the market.
The Toronto-based company owns 79 hotels in Canada, the United States and around the world. Some facts about the company: Fairmont
Other properties: Last year it paid $214.3 million in cash for the Kea Lani Resort. Its most notable property is the Fairmont Hotel in San Francisco.
Brands: Mainly the Fairmont and Delta brands.
Finances: Net income of $39 million in the third quarter.
Ticker: FHR
Stock price: $24.80
