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Luxury hotelier’s search for growth, from Quebec to Qatar

William (Bill) Fatt, CEO of Fairmont Hotels & Resorts Inc.

ANTHONY JENKINS/The Globe and Mail

William (Bill) Fatt raises his glass of water in a toast to our meeting as we settle down to lunch.

The chief executive officer of Fairmont Hotels' parent company has just politely explained to the staff that he does not consume alcohol or meat during the first three months of the year.

We are the sole diners in the Jacques Cartier room of Quebec City's fabled Fairmont Le Château Frontenac. The hotel is undergoing a $70-million renovation, and this room has been serving as its temporary breakfast restaurant. A special lunch menu of lobster, chicken and veal dishes had been devised.

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The 62-year-old Mr. Fatt adopted his unusual health regime amid a travel schedule that takes him away from his base in Toronto for at least half of each month. "I go around the world probably three or four times a year," he says, as the waiter brings me a starter of lobster tail from Nova Scotia with coconut, salted pecans and crispy prosciutto, while Mr. Fatt is offered a plate of yellow beets, onions, salted pecans and spinach.

Much of his travel is further afield than this brief trek to Quebec City to survey the renovations. FRHI Hotels & Resorts operates more than 100 hotels in dozens of countries under the Fairmont, Raffles and Swissôtel brands. Canadians are most familiar with its iconic domestic properties, including Toronto's Royal York and Alberta's Banff Springs, but its footprint stretches from Maui to Manila, Acapulco to Abu Dhabi, and Zurich to Zimbali. There are a smattering of hotels in China, a frequent stop for Mr. Fatt.

There are also some that he's never been to: "We have three hotels in Mecca, Saudi Arabia, owned by the bin Laden family. They are massive hotels. I haven't been there because you have to be Muslim," he says.

A lot of his time is spent in the Middle East. Sixty-three per cent of Toronto-based FRHI is owned by Qatar Investment Authority, the Doha-based sovereign wealth fund, which has bought up stakes in companies ranging from Credit Suisse to Volkswagen and BlackBerry.

FRHI has about 48,000 employees and annual profit in the $100-million-plus range. But Mr. Fatt sometimes feels like an afterthought for QIA. "Some reports say that they have $10-billion a month of free cash flow," he says of Qatar's government. "That's a problem that I'd love to have right now."

FRHI certainly does not appear to be an afterthought for its second-largest investor, Saudi Prince al-Waleed bin Talal, whose company Kingdom Holding Co. now holds 35 per cent.

Prince al-Waleed, who Forbes magazine calls "one of the world's most high-profile investors" with a net worth of more than $20-billion (the Prince has argued it's higher), has owned pieces of various iconic companies, from Apple to Citibank to News Corp. He also owns a stake in Four Seasons Hotels Inc. Following a trip to Toronto in November to meet with Mr. Fatt as well as leadership of Four Seasons, the Prince went ahead and told a Bloomberg TV interviewer in Chicago that he was looking at options for the two companies, including an IPO or merger. "Clearly, we'll defer to management but they have my views very clear," he said.

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Mr. Fatt has known Prince al-Waleed since the late 1990s, and is among those who have set foot in his personal Boeing 747, which sports a throne in the area that would normally be the first-class cabin. He says the problem with an IPO is that, for now, his largest shareholder does not see a strong rationale for it. "Right now, that just isn't a priority for us," he says.

The Prince was Mr. Fatt's white knight in 2006. At the time, Fairmont, which was then publicly traded, had been put in play by legendary corporate raider Carl Icahn, who had made a partial takeover offer for the hotel firm. The Prince teamed up with Colony Capital LLC and made a $3.3-billion cash bid for Fairmont, which was then combined with Raffles Hotels & Resorts, which also owned the Swissôtel brand.

Mr. Fatt, who has the presence of a CEO but will also occasionally lean over and whisper in a conspiratorial tone, found himself running a global company virtually overnight.

Despite the fierce war of words at the time, Mr. Fatt says he got along well with Mr. Icahn. "It's just like buying a house. You're not necessarily going to be mad at the person selling the house, but you're going to be putting in an offer that's lower than the seller would like to see and vice versa."

Two years later, the financial crisis put a dent in luxury business travel, causing Fairmont's revenue to drop by more than a quarter in the span of less than a year. In 2010, Mr. Fatt struck a deal with Qatar, one that diluted Prince al-Waleed's stake in FRHI.

"When you have a company like ours, with the fixed costs that we have, you can't withstand that kind of revenue drop," Mr. Fatt says. "That was a really tough time. We had just paid a special dividend to our shareholders. … We had borrowed to pay this dividend. And we were overlevered by today's standards for sure."

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The Qataris, who were the largest purchaser of luxury hotels in the world but didn't own any hotel management companies, infused cash into FRHI, bought a hotel in Singapore from it, and promised a number of hotel management contracts.

Under Mr. Fatt's leadership, FRHI, like the Four Seasons, has concentrated on managing hotels rather than owning them.

Mr. Fatt, who has a history in accounting and investment banking, got into the hotel business when he was working at Canadian Pacific, which he had joined as treasurer.

"Within I think about six months, I became CFO, the fifth largest company in Canada at the time, and I was 37 years old," he says. "I realized pretty quickly after becoming CFO that we had the same level of debt in our company as the Reichmanns had when they went bankrupt, and we were losing $1-billion a year. It was a fascinating trial by fire. Seventeen different businesses, and we got it down to five."

He was one of the potential successors for then-CEO David O'Brien. "I didn't have any operating experience and the guy in the hotel company was retiring," Mr. Fatt recalls. He took charge of a business, CP Hotels, that had 25 Canadian hotels and "the mandate was either try to grow the business outside of Canada, become more of an international force, or sell it," he says. "So we just started to try to grow."

When he bought Princess Hotels in 1998, he scooped up the highly desirable Scottsdale Princess. "We decided that we would immediately reflag it as the Canadian Pacific Scottsdale Princess. Revenues went down by 10 per cent within no time. It was a fiasco."

The next year, CP Hotels took over the U.S. Fairmont chain, ultimately adopting its brand. Canadian Pacific broke itself up in 2001, dividing into five businesses, one of which was Fairmont Hotels & Resorts Inc.

Despite his years in the business, Mr. Fatt doesn't consider himself an expert in how to run a hotel. "I'm not an operational kind of guy," he says. "My background is more on the financial side, and I worked in the mergers and acquisitions area for a while, so I'm more a person who deals with strategy and growth. I like to say sometimes that the hotels wouldn't trust me with a toaster. I have my views on what I like and don't like, but I personally have never worked in a hotel."

Like his early days in the hotel industry, Mr. Fatt's goal today is also growth. That could come through getting contracts to manage more individual hotels, buying physical properties if need be, or adding entire portfolios. On Friday, FRHI announced that it has teamed up with California financier Richard Blum to buy the Claremont Hotel Club & Spa in Berkeley, a hotel built in 1915 that will now undergo an upgrade.

"There are a limited number of companies that we'd be interested in around the world, but there are some," Mr. Fatt says. "Four Seasons would be an example. I don't want to in any way imply that that's likely – but that would be an example of a portfolio addition that would be really, really good. And we pay a lot of money for portfolio additions that strategically fit with us."

The two companies have talked a few times, but their shareholders have never met eye-to-eye on details, such as valuations.

As we dive into our main courses, Mr. Fatt explains that it's the Frontenac's owners – Ivanhoe Cambridge, the real estate arm of the Caisse de dépôt et placement du Québec – who must pay for the renovations to the property where we're dining.

"We certainly work with them, give them our thoughts," Mr. Fatt says. "These are all decisions of the owner that have to be blessed by us."

The hotel has hosted guests from Queen Elizabeth to Angelina Jolie, and was the site of pivotal talks by U.S. President Franklin D. Roosevelt, British Prime Minister Winston Churchill and Canada's Prime Minister during World War II, William Lyon Mackenzie King.

The renovation will result in guests having their choice of modern or heritage-style rooms. "This hotel is sitting on 400 years of history and it's neat because you're within a walled city, the only walled city in North America. So it's a very special kind of place. And some people like to go all the way with that experience."

Mr. Fatt sometimes feels like he's working when he's staying in hotels, even on vacation. But that's not to say he doesn't enjoy it.

"I've talked about retiring a bunch of times. But I like the business a lot. You get to travel around the world and see really interesting people and talk with them. Comparing that to sitting at my cottage and doing whatever, this is just a lot of fun."

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CURRICULUM VITAE

PERSONAL

Born in Toronto in 1951.

His father, who passed away in the early '90s, was a stock broker. His mother, now 88, was a stay-at-home mom.

Four sisters

Now divorced; two sons in their mid-twenties, both of whom are married

EDUCATION

Has an economics degree from York University in Toronto (he did one year at McMaster University in Hamilton).

"I couldn't afford to go to an MBA school, so I figured that a CA would be the next best thing in terms of a graduate degree. I started working at what is now KPMG... I never ended up writing my CA exams. I only had one course out of 15 that I needed... but I got offered another job at a much higher salary."

CAREER

Worked in accounting, went to work for a firm called Revenue Properties.

Was hired by what was then called Consumers Gas, now called Enbridge Gas Distribution. "When I was 26, I was the assistant treasurer with no treasurer in place."

He left when the firm was taken over, and worked for J.P. Morgan in mergers and acquisitions. "It was interesting but not my thing. When you're working in a company, you're the client and you get to shop around and get different advice and you have access to lots of things...when you're working for a bank, you're much more of a salesperson."

Joined Canadian Pacific as treasurer, became CFO.

Became head of CP's hotel business, which had 25 Canadian hotels and went on to buy the U.S. Fairmont chain in 1999.

OTHER

On the board of Jim Pattison Group; is chairman of Cadillac Fairview Corp. Ltd., the real estate arm of the Ontario Teachers' Pension Plan.

Practises Taekwondo (his sons both have second level black belts; he has a blue belt).

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