EXHIBIT 2




                            FOUR SEASONS HOTELS INC.








                                  FORM 51-102F1
                      MANAGEMENT'S DISCUSSION AND ANALYSIS












                                 MARCH 14, 2005


<PAGE>

                                TABLE OF CONTENTS
                                -----------------

OVERVIEW AND OBJECTIVES........................................................1
OPERATIONAL AND FINANCIAL REVIEW AND ANALYSIS..................................4
   Overview....................................................................4
      Management Operations....................................................4
      Ownership and Corporate Operations.......................................5
   Results of Operations.......................................................6
      Management Operations....................................................6
      Ownership and Corporate Operations......................................10
      Other Income/Expense, Net...............................................12
      Net Interest Income/Expense.............................................14
      Income Tax Expense......................................................14
      Stock Option Expense....................................................14
      Net Earnings and Earnings per Share.....................................14
TWO-YEAR SUMMARY BY QUARTER...................................................15
BALANCE SHEET REVIEW AND ANALYSIS.............................................16
   Corporate Strategy Relating to Investments.................................16
   Long-Term Receivables......................................................16
   Investments in Hotel Partnerships and Corporations.........................16
      Consolidated Hotel Ownership Interests..................................16
      Other Hotel, Resort and Residence Club Ownership Interests..............16
   Investment in Management Contracts.........................................17
   Fixed Assets...............................................................17
LIQUIDITY AND CAPITAL RESOURCES...............................................19
   Contractual Obligations....................................................19
   Convertible Notes..........................................................20
   Retirement Plan Commitments................................................21
   Lease Commitments - Consolidated Hotels....................................21
   Cash from Operations.......................................................21
   Financing Activities  .....................................................22
   Investing Activities.......................................................22
      Long-Term Receivables...................................................22
      Investments in Hotel Partnerships and Corporations......................22
      Investment in Management Contracts......................................23
      Fixed Assets............................................................23
   Outstanding Share Data.....................................................23
FINANCIAL INSTRUMENTS.........................................................24
   Foreign Exchange Forward Contracts.........................................24
   Other Financial Instruments................................................24
   Fair Value of Financial Instruments........................................24
OFF-BALANCE SHEET ARRANGEMENTS................................................26
   Guarantees and Commitments.................................................26
   Indemnities................................................................26
      Disposition Indemnification Arrangements................................26
      Director and Officer Indemnification Arrangements.......................26
      Other Indemnification Arrangements......................................26
LOOKING AHEAD.................................................................28
FOUR SEASONS PORTFOLIO........................................................30
   Description of Hotels, Resorts and Residence Clubs.........................30
   Properties under Construction or Development...............................33
THREE-YEAR REVIEW.............................................................35
OPERATING RISKS...............................................................37
   Geopolitical, Economic and Lodging Industry Conditions.....................37
   Competition................................................................38


                                       (i)


<PAGE>

   Dependence on Management Agreements........................................38
   Dependence on Property Owners..............................................39
   Risk Associated with Expansion, Growth and New Construction................39
   Investments in and Advances to Managed and Owned Properties................40
   Debt Rating Risks..........................................................40
   Government Regulation......................................................40
   Political Risk.............................................................41
   Insurance..................................................................41
   Legal Proceedings..........................................................42
   Currency Exposure..........................................................42
   Seasonality................................................................42
   Intellectual Property......................................................43
   Risks Associated with Residence Club Business..............................43
   Dependence on Key Employees................................................43
CRITICAL ACCOUNTING POLICIES AND ESTIMATES....................................44
   Recoverability of Investments..............................................45
   Fixed Assets...............................................................45
   Retirement Plan............................................................46
   Income Taxes...............................................................46
IMPACT ON 2004 OF RECENTLY ISSUED CANADIAN ACCOUNTING STANDARDS...............47
RECENT CANADIAN ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED...............47
   Consolidation of Variable Interest Entities................................47
   Temporary Controlled Subsidiaries..........................................47
ADDITIONAL INFORMATION........................................................48

                                 ------------

                           FORWARD-LOOKING STATEMENTS

      This document contains "forward-looking  statements" within the meaning of
federal  securities laws,  including RevPAR,  profit margin and earnings trends;
statements  concerning the number of lodging properties  expected to be added in
this and future years;  expected  investment  spending;  and similar  statements
concerning  anticipated future events,  results,  circumstances,  performance or
expectations that are not historical facts.  These statements are not guarantees
of future  performance  and are  subject to  numerous  risks and  uncertainties,
including those described in our annual  information  form and in this document.
Those risks and uncertainties  include adverse factors generally  encountered in
the lodging  industry;  the risks  associated with world events,  including war,
terrorism,   international   conflicts,   natural  disasters,   extreme  weather
conditions,  and infectious diseases;  general economic  conditions,  supply and
demand  changes  for  hotel  rooms  and  residential   properties,   competitive
conditions  in the lodging  industry,  relationships  with  clients and property
owners, currency fluctuations and the availability of capital to finance growth.
Many of these risks and  uncertainties  can affect our actual  results and could
cause our actual results to differ materially from those expressed or implied in
any  forward-looking  statement made by us or on our behalf. All forward-looking
statements in this document are qualified by these cautionary statements.  These
statements  are made as of the date of this document and,  except as required by
applicable  law, we undertake  no  obligation  to publicly  update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.

                                 ------------

    ALL AMOUNTS  REFERRED TO IN THIS  DOCUMENT  ARE IN CANADIAN  DOLLARS  UNLESS
   OTHERWISE NOTED. OUR FINANCIAL STATEMENTS ARE PREPARED IN ACCORDANCE WITH
              CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

                                 ------------


                                      (ii)


<PAGE>

                             OVERVIEW AND OBJECTIVES

      Four  Seasons  principal  business  is the  management  of luxury  hotels,
resorts and serviced and branded residential projects whose target customers are
primarily  luxury  business  travelers,   corporate  and  incentive  groups  and
discerning  leisure  travelers.   Our  urban  hotels  and  residential  projects
generally are centrally located in the commercial and financial districts of the
world's  leading cities in North America,  South America,  Asia,  Europe and the
Middle  East.  Many of our urban  locations  also  appeal to the luxury  leisure
traveler. Our luxury resorts and residential projects are located in world-class
leisure  destinations and provide extensive  recreational and meeting facilities
to attract upscale leisure travelers and groups.

      2004 was the first full year since 2000 that  travel  demand  improved  in
virtually  all regions of the world.  From 2001 through the latter part of 2003,
the travel industry worldwide operated in a challenging  environment due to acts
of  terrorism,  the war in Iraq and  infectious  diseases.  The  impact of these
factors,  in addition to a weak global economic  environment,  had a significant
negative  impact on travel demand  throughout  the world.  Improvement in the US
travel trend  started late in the second  quarter of 2003 and by the end of 2003
had  expanded to each of the regions in which we operate,  with both leisure and
business travel trends improving. In 2004, all of the regions in which we manage
properties posted RevPAR(1) gains. Overall,  year-over-year RevPAR gains in 2004
were robust, reflecting both occupancy and achieved room rate improvements.

      Revenues at our properties improved in 2004.  However,  industry-wide cost
pressures (including increased costs for workers' compensation,  health benefits
and energy) affected the profitability of our managed  properties,  particularly
in the US. We have sought to control and manage the cost increases,  and we were
able to maintain  our  industry-wide  leadership  in gross  operating  margin(2)
performance, which remains an important business objective.

      In  addition,   volatility   in  several  of  the  world's  major  foreign
currencies, including the US and Canadian dollar (the US dollar depreciated 6.9%
in 2004 relative to the Canadian  dollar),  pound sterling,  Euro and Australian
dollar,  continued  throughout  2004.  As a global  company,  we  operate  in 28
countries around the world. While many of our financial commitments are in other
currencies  (predominantly  US  dollars),  we report our  earnings  in  Canadian
dollars. During 2004, the impact of the translation of our US dollar-denominated
management  fee  revenues  into  Canadian  dollars had a negative  impact on our
reported earnings (see "Operational and Financial Review and Analysis -- Results
of Operations -- Management Operations -- Revenues").  However, from an economic
perspective  we  are  in  a  balanced  position  as  the  US  dollar-denominated
management  fees are used to fund US dollar  expenses  such as interest,  and to
fund  our  US  dollar  investment   obligations,   including  a  number  of  our
international projects.

      We were pleased with the growth in our management  business in 2004,  with
management  earnings before other  operating  items  increasing over 27% to $101
million in 2004. In addition,  hotel ownership and corporate  operations losses,
which  includes our  leasehold  interests in Vancouver and New York (The Pierre)
and corporate  administration  and  compliance  costs,  declined by 28% to $21.6
million.  One of our  objectives  has been to reduce our  exposure to our leased
hotels.  In 2004,  we ceased to lease and  manage  Four  Seasons  Hotel  Berlin.
Although operating earnings in both New York and Vancouver improved, both hotels
generated  losses in 2004. The Pierre had committed a large portion of its rooms
to

-------------------------

1     RevPAR is defined as average room revenue per available room.  RevPAR is a
      commonly used indicator of market  performance  for hotels and resorts and
      represents the  combination of the average daily room rate and the average
      occupancy  rate achieved  during the period.  RevPAR does not include food
      and beverage or other ancillary  revenues  generated by a hotel or resort.
      RevPAR is the most  commonly  used  measure  in the  lodging  industry  to
      measure the period-over-period performance of comparable properties.

2     Gross operating  margin  represents gross operating profit as a percentage
      of gross operating revenue.


                                      - 1 -
<PAGE>

conference  business in the last half of 2004.  The room rates on this  business
were  negotiated  prior to the strong  improvement in travel demand in New York,
and as a result,  The Pierre's  achieved room rates increased more modestly than
might otherwise have been possible in this stronger demand  environment.  Travel
demand in Vancouver  remained weak relative to most North American  markets,  in
part as a result of lower than normal US travel to the market as a result of the
strong  Canadian  dollar.  We remain  focused on reducing  our exposure to these
assets and continue to take steps to improve the operating  performance of these
assets.   Corporate  administration  and  compliance  costs  increased  in  2004
primarily as a result of increased  time expended by management  and  consulting
expenses in connection with meeting the requirements of the  Sarbanes-Oxley  Act
of 2002 and other recent US and Canadian regulatory requirements.

      Also during 2004,  we sold all of our  investment  in Four Seasons  Resort
Whistler,  the majority of our 8% investment in Four Seasons Hotel Amman and all
of our ownership  interest in land relating to Four Seasons Resort Scottsdale at
Troon North. In addition, several of our properties under management,  including
Four Seasons  Resort Santa  Barbara,  Four Seasons  Resort  Scottsdale  at Troon
North,  Four Seasons Hotel Washington D.C., The Regent Beverly Wilshire and Four
Seasons Hotel Boston, were undergoing extensive renovation programs.

      During 2004, we signed more letters of intent relating to new Four Seasons
hotels and resorts than we have ever  achieved in any single year.  In 2004,  we
opened new Four  Seasons  hotels and resorts in  Budapest,  Provence,  Whistler,
Cairo  and  Costa  Rica.  We also  continued  to focus on the  customer  service
experience  that we believe has  allowed us to maintain or improve our  achieved
room rates. We believe that this focus on service and maintaining vigilance over
room rates  positions us well for  continuing to increase  RevPAR in the current
economic environment.

      We also  continued to focus our attention in 2004 on the management of our
working capital  position,  new investments  and  re-positioning  certain of our
existing  investments  and loan  positions.  Once again we met our objectives of
funding  new and  enhanced  management  agreements  through  cash  generated  by
operations  and  reducing  the losses  from our hotel  ownership  and  corporate
operations.  Our  cash and cash  equivalents  increased  to  $272.5  million  at
year-end, more than a $100 million increase over December 31, 2003. As a result,
we continued to realize our objective of maintaining a strong liquidity position
and an investment-grade balance sheet.

      Our key financial and growth objectives over the long term are:

      o    Maintain and enhance our RevPAR growth and the  operating  profits of
           the hotels and resorts that we manage.
      o    Achieve growth of the Four Seasons  portfolio through the addition of
           new  hotels and  resorts  and  selected  luxury  branded  residential
           projects.
      o    Achieve an average  return on capital  employed  of at least 10% over
           our long-term cost of capital.
      o    Achieve, on average,  compounded earnings per share growth of 20% per
           annum over the long term.
      o    Generate at least 90% of our earnings from our  management  business.
      o    Maintain a strong  balance  sheet and a low cost of capital.
      o    Deploy  the  majority  of our  annual  operating  cash flow to obtain
           and enhance  management  opportunities  that expand the Four  Seasons
           brand.
      o    Identify and pursue opportunities  that  allow  us  to  maintain high
           profit margins in our management operations.


                                      - 2 -

<PAGE>

      o    Maintain  tax  efficiency.
      o    Divest equity  investments or advances when appropriate opportunities
           arise, to allow previously committed capital to be made available for
           investments  related  to  new  or  enhanced   management  or  royalty
           opportunities.
      o    Maintain a prudent risk  profile on the  investment  of cash and cash
           equivalents.

      In achieving our  financial  and growth  objectives we seek to balance any
associated risk, including continuing to obtain and enhance long-term management
agreements,  limiting  investments  we may make,  obtaining  premium  returns in
certain  circumstances,  and  obtaining  appropriate  levels of  insurance.  See
"Operating Risks" for a description of the risks inherent in our business.


                                      - 3 -

<PAGE>

                 OPERATIONAL AND FINANCIAL REVIEW AND ANALYSIS

OVERVIEW

      We have two operating  segments:  management  operations and ownership and
corporate  operations.  Revenues from  management  operations  and ownership and
corporate  operations  as a  percentage  of  consolidated  revenues and earnings
before other operating items(3) from the two segments are summarized below.


--------------------------------------------------------------------------------
                                                             2004        2003
--------------------------------------------------------------------------------
As a percentage of consolidated revenues:
   Revenues from management operations                       64.3%       62.4%
--------------------------------------------------------------------------------
   Revenues from ownership and corporate operations          37.3        39.3
--------------------------------------------------------------------------------
   Distributions from hotel investments                       0.1         0.1
--------------------------------------------------------------------------------
   Fees paid by ownership and corporate                      (1.7)       (1.8)
   operations to management operations
--------------------------------------------------------------------------------
                                                            100.0%      100.0%
--------------------------------------------------------========================
--------------------------------------------------------------------------------
As a percentage of consolidated earnings before other
operating items:
--------------------------------------------------------------------------------
   Management operations                                    127.2%      160.8%
--------------------------------------------------------------------------------
   Ownership and corporate operations                       (27.2)      (60.8)
--------------------------------------------------------------------------------
                                                            100.0%      100.0%
--------------------------------------------------------========================

      MANAGEMENT OPERATIONS

      We are principally a management company,  and the majority of our earnings
come from our management services business. Under our management agreements,  we
generally  oversee,  as  agent  for  the  property  owner,  all  aspects  of the
day-to-day  operations of the hotels and resorts that we manage on behalf of the
owners, including sales and marketing,  advertising,  reservations,  accounting,
purchasing,  budgeting and the hiring,  training and  supervising  of staff.  In
addition,   we  generally  provide  strategic  management  services,   including
developing  and  implementing  sales,  marketing  and  advertising   strategies,
operating a central reservations  system,  recommending  information  technology
systems and developing  certain database  applications,  assisting with sourcing
the financing and development of new hotels and resorts,  providing  advice with
respect to the design and  construction of new or renovated  hotels and resorts,
assisting  with the  refurbishment  of  hotels  and  resorts,  and  providing  a
centralized   purchasing  system  for  goods.  For  providing  these  management
services,  we  generally  receive a variety of fees,  including  a base fee,  an
incentive  fee,  a  sales  and  marketing  charge,  an  advertising   charge,  a
reservation charge, and purchasing and pre-opening fees. The base fee usually is
calculated as a percentage  of the total  revenues of each hotel and resort that
we  manage,  and the  incentive  fee  (which we are  entitled  to

-------------------------

3     Earnings  before other  operating  items is equal to net earnings plus (i)
      income tax expense plus (ii) interest  expense less (iii) interest  income
      plus (iv) other expense less (v) other income plus (vi)  depreciation  and
      amortization.  Earnings  before other  operating  items is not intended to
      represent  cash flow from  operations,  as defined by  Canadian  generally
      accepted  accounting  principles  ("GAAP"),   and  earnings  before  other
      operating  items  should  not  be  considered  as an  alternative  to  net
      earnings,  cash flow from  operations or any other measure of  performance
      prescribed by GAAP. Our earnings before other operating items may also not
      be  comparable  to earnings  before  other  operating  items used by other
      companies,  which may be  calculated  differently.  We  consider  earnings
      before other  operating  items to be a meaningful  indicator of operations
      and  use it as a  measure  to  assess  our  operating  performance.  It is
      included  because we believe it can be useful in measuring  our ability to
      service debt, fund capital expenditures and expand our business.  Earnings
      before other operating  items is also used by investors,  analysts and our
      lenders as a measure of our financial performance.


                                      - 4 -

<PAGE>

receive at the majority of the  properties  we manage)  typically is  calculated
based on the profitability of the hotel or resort.

      General and administrative expenses for management operations are incurred
by us to provide these management  services,  together with those items normally
associated with corporate  overhead,  such as operations,  finance,  information
technology,  accounting,  legal,  development and other costs of maintaining the
corporate offices.  The sales,  marketing,  advertising and central  reservation
expenses,  which are generally  funded by sales and marketing,  advertising  and
reservation  charges,  are  incurred  on a  cost-recovery  basis to us and are a
function of the number of hotels and resorts we manage.  Excluding the sales and
marketing,   advertising  and  reservations  expenses,  our  other  general  and
administrative  expenses are generally  relatively stable  year-over-year.  As a
result, in an improved economic  environment,  we should derive increases in our
management  operating margin(4) from increases in management fees generated from
existing  agreements  and  the  addition  of  new  management  contracts.  For a
three-year review of management operating margin and other data, see "Three-Year
Review".

      We also manage Four  Seasons  branded and  serviced  residential  projects
pursuant to management  agreements  under which we oversee the management of the
day-to-day operations of the completed projects in return for ongoing management
fees from the owners of interests in these projects. In addition, we oversee the
sales and marketing of the Residence Club interests and are  responsible for the
branding of Four Seasons serviced and branded  residential  projects.  For these
services,  we receive fees based  generally on a percentage of the gross selling
price of the residential interests.

      OWNERSHIP AND CORPORATE OPERATIONS

      Our  earnings  from  ownership  and  corporate   operations   include  the
consolidated  results of our 100% leasehold  interests in The Pierre in New York
and Four Seasons Hotel Vancouver. In September 2004, the landlord terminated our
lease of Four Seasons  Hotel  Berlin,  and we ceased  managing the hotel,  which
reduced  the number of hotels  under  leasehold  by us to two. In  addition,  we
include in ownership  and corporate  operations  profit  distributions  from our
other  ownership  interests and corporate  overhead  expenses not related to the
management  business.  Other  ownership  interests are discussed  under "Balance
Sheet Review and Analysis -- Investments in Hotel  Partnerships and Corporations
-- Other Hotel, Resort and Residence Club Ownership Interests".

      Our  investment   strategy  is  not  to  hold  any   additional   majority
investments, other than on a temporary basis while we seek to sell that majority
interest.  However,  The Pierre in New York and Four Seasons Hotel Vancouver are
long-term  leasehold  interests that were established at an earlier stage in our
development. We continue to review our options in respect of The Pierre and Four
Seasons Hotel Vancouver to determine what, if any, alternatives may be available
to modify or restructure  our  operations  of, or investments  in, these hotels.
There can be no assurance that acceptable alternative  arrangements can be found
with  respect  to  either  of  these  hotels  or as to the  terms  of  any  such
alternative arrangements.

      We have leased and managed The Pierre in New York since 1981. The lease on
The Pierre  expires in 2012 and is renewable at our option for an  additional 10
years.  We have leased and managed Four Seasons Hotel  Vancouver since 1976. The
lease on Four Seasons  Hotel  Vancouver  expires in 2020 and is renewable at our
option for an additional 15 years.

-------------------------

4     Management  operating margin represents  management  earnings before other
      operating  items,  as  a  percentage  of  management  revenues,  excluding
      reimbursed costs.


                                      - 5 -

<PAGE>

RESULTS OF OPERATIONS

      MANAGEMENT OPERATIONS

      REVENUES

      Our fees,  including our base fees, are dependent on total revenues of all
managed hotels and resorts, which consist of rooms, food and beverage, and other
revenues.  Our base fees are usually calculated as a percentage of total revenue
for each property under management.  RevPAR,  which relates to room revenues and
does not represent total revenue of a property,  provides a strong indication of
changes in revenues from  properties  under  management,  and is a commonly used
indicator  of market  performance  for hotels and resorts of room  revenue.  Our
incentive fees are typically tied to the  profitability of each property that we
manage.  Gross  operating  profit changes provide an indication of the change in
each property's  profitability.  Typically in a Four Seasons branded residential
project,  we earn a fee which is normally calculated on the basis of the selling
price of the residential  property.  These fees are typically only earned on the
initial sale of the residential  property. On an ongoing basis, we receive a fee
for our annual management and oversight of the residential property.

      Overall  gross  operating  margins  at the  hotels  and  resorts we manage
continued  to be  constrained  in 2004 as  increased  costs  related to workers'
compensation,  health  benefits  and energy have not been  completely  offset by
RevPAR  improvements.   We  expect  that  further  significant  cost  increases,
particularly relating to energy and workers' compensation,  will continue to put
pressure on gross operating profit performance in 2005.

      For the full year 2004,  RevPAR of our worldwide Core  Hotels(5),  on a US
dollar basis,  increased 15.5%, as compared to 2003, which reflects improvements
in each of the regions in which we manage  hotels and  resorts.  We believe this
reflects the  continuation  of a broader  recovery in travel demand.  Consistent
with industry practices,  we track RevPAR on a US dollar basis. RevPAR increased
by 10.7%,  on a US dollar  basis,  for the quarter  ended  December 31, 2004, as
compared to the same period in 2003, for our worldwide Core Hotels.

      Gross  operating  revenues of our  worldwide  Core Hotels,  on a US dollar
basis,  increased 14.2% for the full year 2004 compared to 2003. Gross operating
margins of our  worldwide  Core Hotels  improved 240 basis points on a full year
basis  from  26.9%  in 2003 to 29.3% in 2004.  Gross  operating  margins  of our
worldwide Core Hotels were maintained at 29.5% in the fourth quarter of 2004, as
compared to 29.4% in the same period in 2003.

      In the second  quarter of 2004,  we began  reporting the Europe and Middle
East segments as two separate  segments and, as a result, we currently report in
five geographic sectors:  the United States, Other  Americas/Caribbean,  Europe,
Middle East and Asia/Pacific. With respect to our Core Hotels, the United States
represents the most  significant  geographic  area to us, with 54.8% of revenues
under  management  for the full year 2004,  followed  by  Asia/Pacific  (17.1%),
Europe (15.1%), Other Americas/Caribbean (10.2%) and the Middle East (2.8%). The
following tables highlight our results of operations for our Core Hotels in each
of these regions.

-------------------------

5     The term "Core Hotels" means hotels and resorts under  management  for the
      full year of both 2004 and 2003.  However, if a "Core Hotel" has undergone
      or is  undergoing  an extensive  renovation  program in one of those years
      that  materially  affects the  operation of the property in that year,  it
      ceases to be included as a "Core Hotel" in either  year.  Changes from the
      2003/2002 Core Hotels are the additions of Four Seasons Hotel Amman,  Four
      Seasons  Resort  Sharm el Sheikh,  Four  Seasons  Hotel  Shanghai and Four
      Seasons Hotel Tokyo at  Marunouchi  and the deletion of Four Seasons Hotel
      Berlin, Four Seasons Resort Santa Barbara,  Four Seasons Resort Scottsdale
      at Troon North and Four Seasons Hotel Washington,  D.C., the last three of
      which are undergoing extensive renovation programs that began in 2004.


                                      - 6 -

<PAGE>

--------------------------------------------------------------------------------
                                    2004 increase over (decrease from) 2003
MARKET                             (percentage change, on a US dollar basis)
--------------------------------------------------------------------------------
                                              Gross Operating    Gross Operating
UNITED STATES                   RevPAR          Revenue (GOR)     Profit (GOP)
--------------------------------------------------------------------------------
FOURTH
QUARTER                          10.6%               9.7%            13.5%
--------------------------------------------------------------------------------
FULL YEAR                         8.7%               7.6%             8.9%
--------------------------------------------------------------------------------
              Virtually all the US Core Hotels under management  realized RevPAR
              improvements in both the fourth quarter and full year of 2004. The
              8.7% improvement in RevPAR at the US Core Hotels for the full year
              of  2004,  as  compared  to  2003,  was the  result  of  occupancy
              improvements  from 68.1% to 70.5% and a 5%  increase  in  achieved
              room  rate.  Exceptions  for the full year 2004 were Four  Seasons
              Resort  Aviara and The  Ritz-Carlton  Chicago,  both of which were
              affected by a decrease in group travel to those areas.  Hotels and
              resorts under management in Los Angeles, New York, Palm Beach, and
              Boston,   amongst   others,   outperformed   the  average   RevPAR
              improvement of the Core Hotels in the region. On a full-year basis
              in 2004,  gross  operating  margins  for the  region  remained  at
              approximately   the  same  level  as  2003,  as  cost   increases,
              particularly   related  to  energy,   health  care  and   workers'
              compensation, continued to absorb some of the RevPAR improvement.

              Exceptions  to the  RevPAR  trend in this  region  for the  fourth
              quarter  included  Four  Seasons  Hotel  San  Francisco,  where  a
              city-wide  labour dispute during the quarter  disrupted  travel to
              that market, and Houston,  where the area is absorbing significant
              new hotel room supply.  Hotels under  management in Las Vegas, Los
              Angeles, New York and Philadelphia,  amongst others,  outperformed
              the average  RevPAR  improvement of the Core Hotels in the region,
              while  hotels  under  management  in Dallas  and The  Ritz-Carlton
              Chicago had more modest RevPAR gains.  Gross operating margins for
              the region  improved  90 basis  points  for the fourth  quarter of
              2004, as compared to the fourth quarter of 2003.
--------------------------------------------------------------------------------
                                    2004 increase over (decrease from) 2003
MARKET                             (percentage change, on a US dollar basis)
--------------------------------------------------------------------------------
OTHER
AMERICAS/                                     Gross Operating    Gross Operating
CARIBBEAN                       RevPAR          Revenue (GOR)     Profit (GOP)
--------------------------------------------------------------------------------
FOURTH
QUARTER                           7.7%               6.2%            (1.1%)
--------------------------------------------------------------------------------
FULL YEAR                        18.2%              16.5%            30.2%
--------------------------------------------------------------------------------
              RevPAR for the Other Americas/Caribbean  region improved 18.2% for
              the full year of 2004,  as compared to 2003, as a result of an 810
              basis point  increase in occupancy and a 5.7% increase in achieved
              room rate (6.6% increase in achieved room rate on a local currency
              basis).  RevPAR  improvements were also seen at Four Seasons Hotel
              Toronto and Four Seasons Hotel Vancouver,  reflecting the recovery
              from the  negative  impact of Severe  Acute  Respiratory  Syndrome
              (SARS) in 2003.  All of the  properties in the region  experienced
              occupancy  improvements,  particularly  Four Seasons  Hotel Buenos
              Aires  and  Four  Seasons  Resort  Carmelo.  As a  result  of  the
              increases  in  occupancy  and  gross  operating  revenues,   gross
              operating  margins improved 310 basis points from 26.7% in 2003 to
              29.8% in 2004.

              Strong RevPAR  improvements  in the fourth  quarter of 2004 at the
              hotels  under  management  in South  America  helped  to boost the
              average RevPAR improvement in the Other Americas/Caribbean region,
              as RevPAR for the other hotels in the region


                                      - 7 -

<PAGE>
              remained  relatively  unchanged  from the fourth  quarter of 2003.
              Gross operating  margins in the region  decreased 200 basis points
              as improvements in South America were offset by declines elsewhere
              in the region, in particular in Nevis.  Gross operating margins in
              Nevis  were  unusually  high in the  fourth  quarter  of 2003 as a
              result of the accrual by the resort of revenue  related to coastal
              levies from the government in that period.
--------------------------------------------------------------------------------
                                    2004 increase over (decrease from) 2003
MARKET                             (percentage change, on a US dollar basis)
--------------------------------------------------------------------------------
                                              Gross Operating    Gross Operating
EUROPE                          RevPAR          Revenue (GOR)     Profit (GOP)
--------------------------------------------------------------------------------
FOURTH
QUARTER                          12.7%             17.1%             20.1%
--------------------------------------------------------------------------------
FULL YEAR                        20.6%             21.3%             31.6%
--------------------------------------------------------------------------------
               On a full-year  basis,  the  improvement in RevPAR,  on both a US
               dollar basis and a local currency basis, in 2004 from 2003 in the
               European  region was  partially due to the  significant  negative
               impact  that the war in Iraq had on  travel  in 2003.  The  31.6%
               increase  in gross  operating  profits for the region was largely
               attributed to the higher occupancy and achieved room rates at the
               hotels  under  management  in Dublin,  Paris and London.

               For the fourth quarter of 2004,  RevPAR  increases,  on both a US
               dollar basis and a local currency  basis,  in the European region
               reflected strong operating results at the hotels under management
               in Paris  and  London,  primarily  driven by  achieved  room rate
               improvements.  Gross operating  profits for the region as a whole
               increased,  on both a US dollar basis and a local currency basis,
               primarily  due to the  performance  at the  hotels  in Paris  and
               London.
--------------------------------------------------------------------------------
                                    2004 increase over (decrease from) 2003
MARKET                             (percentage change, on a US dollar basis)
--------------------------------------------------------------------------------
                                              Gross Operating    Gross Operating
MIDDLE EAST                     RevPAR          Revenue (GOR)     Profit (GOP)
--------------------------------------------------------------------------------
FOURTH
QUARTER                          12.3%             15.3%              9.0%
--------------------------------------------------------------------------------
FULL YEAR                        52.9%             58.3%            120.6%
--------------------------------------------------------------------------------
               Occupancy at the Middle East Core Hotels  improved on a full-year
               basis  from 47.7% in 2003 to 70.5% in 2004,  which when  combined
               with a 7.5% increase in achieved room rates,  resulted in a 52.9%
               increase in RevPAR.  The increases in occupancy and achieved room
               rates in 2004, as compared to 2003,  were primarily  attributable
               to the  significant  negative  impact that the war in Iraq had on
               travel to the region in 2003,  and the ongoing  stabilization  of
               Four Seasons Hotel Amman and Four Seasons Resort Sharm el Sheikh,
               which were added to the Core Hotels in 2004. On a local  currency
               basis,  achieved room rates increased 11.6% on a full-year basis,
               resulting  in a 58.7%  improvement  in  RevPAR.  In  2004,  gross
               operating   profits  for  the  region   demonstrated  the  strong
               profitability in the region with a 120.6%  improvement over 2003.

               RevPAR  improvements  in the fourth quarter of 2004 at the Middle
               East Core Hotels were primarily driven by increased  occupancy at
               our  properties  in Amman and  Sharm el  Sheikh.  Although  gross
               operating margins in the region declined slightly in the quarter,
               as a result of a decline at Four Seasons Hotel Cairo at The First
               Residence,  gross operating  profits increased 9%, as compared to
               the same  period  in  2003,  primarily  as a  result  of a larger
               contribution from Four Seasons Hotel Amman. In the fourth quarter
               of  2003,  Four  Seasons  Hotel  Cairo  at  The  First  Residence
               benefited   from  a  one-time   adjustment  to  the  shared  cost
               allocations for prior periods made by the owner of this mixed-use
               project.  These  adjustments  had a positive effect on the profit
               margin and  incentive  management  fees in the fourth  quarter of
               2003.


                                      - 8 -

<PAGE>

--------------------------------------------------------------------------------
                                    2004 increase over (decrease from) 2003
MARKET                             (percentage change, on a US dollar basis)
--------------------------------------------------------------------------------
                                              Gross Operating    Gross Operating
ASIA/PACIFIC                    RevPAR          Revenue (GOR)     Profit (GOP)
--------------------------------------------------------------------------------
FOURTH
QUARTER                          10.8%             7.6%               4.6%
--------------------------------------------------------------------------------
FULL YEAR                        31.9%            24.8%              48.6%
--------------------------------------------------------------------------------
               In 2004,  on a  full-year  basis,  a large  portion  of the 31.9%
               increase  in RevPAR at the  properties  under  management  in the
               Asia/Pacific region reflected a recovery from the negative impact
               of SARS in the region in 2003.  This was  particularly  so in our
               properties in Shanghai and Singapore. In addition, the properties
               in Bali  continued  to  improve  after  the  lingering  impact of
               terrorist  attacks  on that  island  in  October  of 2002.  Gross
               operating  profits  increased  48.6% and 45.2% on a US dollar and
               local   currency   basis,   respectively,   due  to  the   RevPAR
               improvements at all of the hotels and resorts under management in
               the region.

               The majority of the hotels under  management in the  Asia/Pacific
               region had strong RevPAR  improvements  for the fourth quarter of
               2004.  Exceptions were the hotels in Sydney,  Tokyo at Chinzan-so
               and Kuala Lumpur,  which experienced  modestly lower occupancy in
               the fourth  quarter of 2004,  as  compared  to the same period in
               2003. The hotels under management in Bali, Bangkok,  Shanghai and
               Tokyo at  Marunouchi  had very strong  RevPAR  improvements  as a
               result of both  occupancy  and  achieved  room rate gains.  Gross
               operating profits increased  modestly,  on both a US dollar basis
               and local currency basis,  reflecting these RevPAR  improvements.
               Due to the tsunami in Southeast  Asia on December 26, 2004,  Four
               Seasons Resort Maldives at Kuda Huraa was closed;  however, there
               was no  material  financial  impact  on the  other  Four  Seasons
               properties in the Asia/Pacific region.
--------------------------------------------------------------------------------

      Total revenues of all managed hotels and resorts were  approximately  $2.9
billion (US$2.2  billion) for the full year 2004 ($2.6 billion (US$1.8  billion)
in 2003). Hotel and resort revenues increased in 2004,  compared to 2003, due to
general  improvements in travel trends and an increase in revenues from recently
opened hotels and resorts.

      Total  management  revenues  increased  $22.7  million  or 11.6% to $218.5
million for the full year 2004,  as compared to $195.8  million in 2003 and 1.2%
to $54.1 million for the quarter  ended  December 31, 2004, as compared to $53.5
million for the same period in 2003. The increase was partially  attributable to
an  improvement  in fees of $11.2  million for the full year 2004 from  recently
opened hotels and resorts,  including  Whistler,  Great Exuma, Miami and Jackson
Hole. The decline of the US dollar  relative to the Canadian dollar did not have
a material impact on our US  dollar-denominated  management fee revenues for the
full year due to the  forward  currency  contracts  then in place.  The  foreign
exchange gains on these contracts of $14.6 million, which were deferred prior to
January 1, 2004, were recognized in 2004 as an increase of fee revenues over the
course of the year and no  further  contracts  that would give rise to a similar
gain have been entered into subsequently.

      Incentive fees are calculated  based on the profits of the hotel or resort
under  management  as  determined  in  accordance  with the relevant  management
agreement.  For the full year 2004,  incentive  fees  increased  $7.1 million to
$28.0 million, as compared to $20.9 million for 2003. Incentive fees contributed
12.8% of the total  management  revenues for the full year 2004,  as compared to
10.7% for the full year 2003.  The  increase  in  incentive  fees was  primarily
attributable  to the higher  levels of  profitability  at  virtually  all of our
properties under management,  including Shanghai, New York, Philadelphia and Las
Vegas. For the quarter ended December 31, 2004,  incentive fees were essentially
unchanged from the same period in 2003.  Incentive fees were negatively affected
during  the  fourth  quarter  of 2004 as the  result  of the  translation  of US
dollar-denominated   incentive  fees  into  Canadian  dollars,  and  by  greater
compensation  costs  incurred at the hotels and  resorts and accrued  during the
fourth quarter.  This increased  compensation expense resulted from the majority
of the  hotels  and  resorts  exceeding  their  business  plans in  2004,  which
triggered greater profit  participation for the employees than had been


                                      - 9 -

<PAGE>

incurred in 2003. In addition,  certain  expenditures that were incurred at some
of the hotels and  resorts  under  management  during  December  2004 to improve
longer-term profitability also resulted in reduced incentive fees. This included
capital  programs that negatively  affected  operations in the fourth quarter of
2004 at certain properties.

      Incentive  fees were  earned  from 35 of our 63 hotels and  resorts  under
management  for the full year  2004,  as  compared  to 33 of our 60  hotels  and
resorts under management in 2003.

      GENERAL AND ADMINISTRATIVE EXPENSES

      For the full year 2004,  general and  administrative  expenses  (including
reimbursed costs of $72.7 million)  remained  relatively  unchanged,  increasing
1.0% to $117.5  million,  as compared to $116.3  million  (including  reimbursed
costs of $75.3 million) in 2003.

      For the  fourth  quarter  of 2004,  general  and  administrative  expenses
(including  reimbursed  costs of $19.7 million)  decreased $0.9 million to $31.9
million,  as  compared to $32.8  million  (including  reimbursed  costs of $20.4
million)  for the same period in 2003.  As  described  above  under  "Management
Operations",  reimbursed  costs are incurred on a cost recovery basis to us and,
as a result, we analyze general and administrative expenses excluding reimbursed
costs.

      General and administrative expenses (excluding reimbursed costs) increased
9.2% to $44.8  million for the year ended  December 31, 2004, as compared to the
year ended December 31, 2003.  General and  administrative  expenses  (excluding
reimbursed costs) decreased 1.6% to $12.2 million in the fourth quarter of 2004,
from $12.4 million for the same period in 2003.  During 2004, as a result of the
improved  economic  and  business  environment,  we held  several  regional  and
company-wide  management meetings, some of which had been postponed for the past
three years.  The cost of these meetings  together with management  compensation
relating to profit  participation  accounted for over 75% of the increase in the
full-year general and administrative expenses (excluding reimbursed costs). This
management  compensation  cost was accrued  throughout  2004 and there was not a
similar entitlement in 2003.

      MANAGEMENT EARNINGS

      As a result of the items described above, management earnings before other
operating  items  increased  to $101.0  million for the year ended  December 31,
2004,  as compared  to $79.5  million in 2003.  For the fourth  quarter of 2004,
management  earnings before other operating items increased to $22.2 million, as
compared to $20.7 million in 2003.

      OWNERSHIP AND CORPORATE OPERATIONS

      Operating  losses from  ownership  and corporate  operations  before other
operating  items for the full year 2004 declined $8.4 million to a loss of $21.6
million,  as compared to a loss of $30.1 million in 2003. The decreased loss for
the year was  primarily  attributable  to a decrease in operating  losses at The
Pierre in New York of $5.6 million and at Four Seasons  Hotel  Vancouver of $1.7
million.  In  addition,  the  termination  of our lease and  management  of Four
Seasons Hotel Berlin  resulted in a $3.8 million  reduction in ownership  losses
for the year. In the fourth quarter of 2004, operating losses from ownership and
corporate operations before other operating items were $3.8 million, as compared
to ownership and corporate  operations  losses before other  operating  items of
$2.0  million in the fourth  quarter of 2003.  The  majority of the  increase in
ownership and corporate  operations losses for the quarter was attributable to a
reversal  of lease  costs at Four  Seasons  Berlin in 2003,  which is  discussed
below, and increased  expenses related to compliance costs,  including  internal
control  documentation and other processes related to the  Sarbanes-Oxley Act of
2002 and other recent US and Canadian requirements.


                                     - 10 -

<PAGE>

      THE PIERRE

      For the year ended  December  31,  2004,  RevPAR at The  Pierre  increased
14.6%,  as a result of both occupancy and room rate gains,  as compared to 2003,
reflecting higher travel demand in New York. As a result,  the operating results
at The  Pierre  improved  $5.6  million to a loss of $4.2  million  in 2004,  as
compared to 2003. Operating earnings at The Pierre improved $0.8 million to $1.7
million in the fourth  quarter of 2004,  as compared to $0.9 million in the same
period last year.  RevPAR at The Pierre  increased 8.5% in the fourth quarter of
2004,  as compared to the same period in 2003.  The Pierre had committed a large
portion of its rooms to conference  business  during the fourth quarter of 2004.
The room rates on this business were negotiated prior to the strong  improvement
in travel demand in New York and, as a result,  The Pierre's achieved room rates
increased more modestly than might otherwise have been possible in this stronger
demand environment.

      FOUR SEASONS HOTEL VANCOUVER

      RevPAR at Four Seasons Hotel  Vancouver  increased 8.7% for the year ended
December 31, 2004, as compared to 2003,  as a result of occupancy  improvements.
Consequently,  the  operating  results at that hotel  improved $1.7 million to a
loss of $2.8 million in 2004, as compared to 2003.  During the fourth quarter of
2004, RevPAR at Four Seasons Hotel Vancouver remained unchanged,  as compared to
the same period in 2003. Operating results at that hotel improved  approximately
$0.3 million to a loss of $1 million in the fourth  quarter of 2004, as compared
to the same period last year.

      BERLIN

      In September 2004, the landlord terminated our lease of Four Seasons Hotel
Berlin,  and we ceased  managing the hotel.  Since reaching our maximum  funding
obligation of the stipulated minimum lease payments at Four Seasons Hotel Berlin
in  August  of 2003,  the  lease  payments  had been  limited  to the cash  flow
generated by the hotel. On a full-year basis,  2004 operating  earnings were nil
as compared to an  operating  loss of $3.8  million for the same period in 2003.
During the fourth  quarter of 2003,  lease payments that had been accrued beyond
cash flow  generated  by the hotel were  reversed,  resulting in $0.8 million of
operating earnings in that period.  During the fourth quarter of 2004, operating
results were nil,  resulting  in a decline of $1.4 million  compared to the same
period last year.

      COMPLIANCE COSTS

      As a result  of the  substantive  changes  to  governance  and  disclosure
requirements  applicable  to  public  companies  in the US and  Canada,  we have
incurred  and expect to  continue  to incur,  increased  costs  relating to both
internal  compliance  functions  and third  party  services.  Although we cannot
assess the potential  amount of those costs,  experience in the US suggests that
they may be  significant,  particularly in the context of the historic levels of
our general and corporate  administrative expenses. A portion of these increased
corporate  administrative  expenses  will  be  allocable  to our  ownership  and
corporate operations.

      OTHER

      Our  ownership  interest in 12 other Four Seasons  hotels and resorts that
are open and under  management  and our  ownership  interest in three  Residence
Clubs are  accounted  for on a cost basis.  In 2004 and 2003,  we received  $0.4
million and $0.2 million of cash distributions,  respectively, from one of these
hotel and resort ownership interests.


                                     - 11 -

<PAGE>

      OTHER INCOME/EXPENSE, NET

      For the full year 2004, other expense,  net was $16.1 million, as compared
to $25.8 million in 2003. For the fourth quarter of 2004, other income,  net was
$6.2 million, as compared to $0.2 million for the same period in 2003.

--------------------------------------------------------------------------------
                                                YEARS ENDED   THREE MONTHS ENDED
                                                DECEMBER 31,      DECEMBER 31,
--------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS)                        2004    2003     2004     2003
--------------------------------------------------------------------------------
Loss on redemption of Liquid                  $(14.6) $   --    $  --   $  --
Yield Option Notes ("LYONs")
--------------------------------------------------------------------------------
Foreign exchange gain (loss)                     3.6   (14.7)     6.4     2.5
--------------------------------------------------------------------------------
Other(1)                                        (5.1)  (11.1)    (0.2)   (2.3)
--------------------------------------------------------------------------------
Other income (expense), net                   $(16.1) $(25.8)   $ 6.2   $ 0.2
---------------------------------------------===================================

1     Includes  legal and  enforcement  costs relating to Four Seasons hotels in
      Caracas and Seattle (2004 and 2003),  loss on disposal of investments  and
      settlement  of loan  receivable  from Sedona  (2004),  recoveries on items
      previously  provided for (2004 and 2003) and the writedown of Four Seasons
      Hotel Berlin (2003).

      REDEMPTION OF THE LIQUID YIELD OPTION NOTES ("LYONs")

      Included  in other  expense,  net for  2004  was a loss of  $14.6  million
related to the  redemption  of the LYONs  during the third  quarter of 2004.  As
discussed below under "Financing  Activities",  we redeemed all of our LYONs for
US$328.73 cash per US$1,000  principal  amount at maturity (the redemption price
being the issue price plus interest that was accrued but unpaid to but excluding
September  23,  2004) for an  aggregate  payment  of  US$215.5  million  ($275.7
million).

      FOREIGN EXCHANGE

      Other  expense,  net for the full year 2004  includes a $3.6  million  net
foreign  exchange gain, as compared to a $14.7 million net foreign exchange loss
for 2003.  Other  income,  net for the fourth  quarter  of 2004  includes a $6.4
million  net  foreign  exchange  gain,  compared  to a $2.5  million net foreign
exchange  gain for the same period in 2003.  These  foreign  exchange  gains and
losses arose from the translation to Canadian  dollars at current exchange rates
at the end of each month of our  non-Canadian  dollar-denominated  net  monetary
assets which are not included in our  designated  self-sustaining  subsidiaries;
they also  reflect  local  currency  foreign  exchange  gains and  losses on net
monetary assets incurred by our designated foreign self-sustaining subsidiaries.
Net  monetary  assets are the sum of our foreign  currency-denominated  monetary
assets and liabilities,  which consist  primarily of cash and cash  equivalents,
accounts  receivable,   long-term  receivables  and  long-term  obligations,  as
determined under Canadian GAAP.

       The Canadian dollar  strengthened by 6.9% (8.9(cent)) during 2004 against
the US  dollar,  causing  the  majority  of the net  foreign  exchange  gain for
accounting  purposes  in  2004,  due to our net  monetary  US  dollar  liability
position in 2004.

      The following  table sets out the exchange rates obtained from the Bank of
Canada:

--------------------------------------------------------------------------------
                                            AS AT          AS AT         AVERAGE
                                         DECEMBER 31,    DECEMBER 31,    DURING
                                            2003           2004           2004
--------------------------------------------------------------------------------
US dollar to Canadian $1.00                0.7738         0.8308         0.7683
--------------------------------------------------------------------------------
Pound sterling to Canadian $1.00           0.4335         0.4336         0.4194
--------------------------------------------------------------------------------


                                     - 12 -

<PAGE>

--------------------------------------------------------------------------------
Euro to Canadian $1.00                     0.6143         0.6138         0.6185
--------------------------------------------------------------------------------
Australian dollar to US $1.00              1.3280         1.2821         1.2471
--------------------------------------------------------------------------------

      OTHER

      Included in other  expense,  net during the year ended  December 31, 2004,
was a net loss of $4.6 million  related to the sale of all of our  investment in
Four Seasons Resort Whistler,  the majority of our 8% investment in Four Seasons
Hotel Amman and all of our  ownership  interest in land relating to Four Seasons
Resort  Scottsdale  at Troon  North,  and  costs  related  to our exit  from our
proposed  project  in  Sedona.  The  majority  of the  loss was  related  to the
settlement of our loan  receivable  from Sedona and for legal costs  incurred to
finalize the dispositions.  Included in other expense, net during the year ended
December 31, 2003 were legal and enforcement costs of $9.5 million in connection
with disputes with the owners of the Four Seasons hotels in Caracas and Seattle,
which are described below. We also wrote down our fixed asset investment in Four
Seasons Hotel Berlin to nil in the fourth  quarter of 2003,  resulting in a $3.2
million expense.

      FOUR SEASONS OLYMPIC HOTEL SEATTLE.  During the second quarter of 2003, we
settled our  disagreement  with the owner of Four Seasons Olympic Hotel Seattle,
which was subject to arbitration,  concerning the management of the hotel. Under
the  settlement,  we concluded  our  management  of Four Seasons  Olympic  Hotel
Seattle upon the sale of the hotel, which occurred on August 1, 2003. On closing
of the sale of the hotel,  we received an initial  payment,  which  included our
share of the sale proceeds as a result of our minority ownership interest in the
hotel. We will also receive annual payments over the next several years that are
not  materially  different  from the fees that we would  have  otherwise  earned
during this period under our previous management agreement for that property. We
believe that a fair and equitable  settlement  was reached and that the payments
under the settlement agreement, a portion of which was reflected in net earnings
during 2004 and 2003, will, in aggregate,  compensate us for the near-term value
of our management agreement. During 2004, we signed a letter of intent for a new
Four Seasons property in Seattle, which is expected to open after 2006.

      FOUR  SEASONS  HOTEL  CARACAS.  We are in a dispute with the owner of Four
Seasons Hotel Caracas  regarding a variety of matters relating to the completion
and ongoing operation of the hotel, including the default of a US$5 million loan
owed to us.  During the second  quarter of 2003,  we  received a judgment in the
legal  proceedings  against the owner,  which  involved  the  protection  of our
proprietary  materials.  The  court  found  against  the  owner on all  matters,
including  illegal  computer  "hacking" and unlawful and unauthorized use of our
proprietary information,  and ordered that the owner pay to us damages totalling
US$4.9 million,  plus legal costs and expenses of US$1.4 million.  The owner has
appealed the judgment  from the legal  proceeding,  but  execution  has not been
stayed  pending  appeal.  We are moving to enforce the  judgment  from the legal
proceeding  against the owner, but have not recorded any receivable arising from
the judgment as at December 31, 2004. In addition,  the  arbitration  hearing in
respect of the other  contractual  breaches  of the  management  contract by the
owner was completed  during the third quarter of 2003 and the tribunal  declared
that the owner had failed to perform all of its obligations under our management
agreements,  including, without limitation, its obligation to complete the hotel
as a  world-class  luxury  hotel and to allow us to manage  the hotel  free from
unlawful  interference of the owner.  The arbitration  tribunal  awarded damages
totalling  approximately US$8 million ($9.6 million),  plus arbitration fees and
expenses of approximately  US$240,000  ($290,000).  The owner has challenged the
enforcement of the decision from the arbitration  tribunal. We have not recorded
any receivables arising from the decision as at December 31, 2004.


                                     - 13 -

<PAGE>

      NET INTEREST INCOME/EXPENSE

      For the year ended  December 31, 2004, we had net interest  income of $1.5
million,  as  compared  to $3.4  million  in  2003.  Net  interest  income  is a
combination  of $16.9  million in interest  income and $15.4 million in interest
expense in 2004, as compared to $14.4 million and $11 million, respectively, for
2003.  During  the  fourth  quarter  of 2004,  we had net  interest  expense  of
$187,000,  as compared to net interest  income of $962,000 in the fourth quarter
of 2003.  Net  interest  expense is a  combination  of $4.1  million in interest
income and $4.3 million in interest  expense in the fourth  quarter of 2004,  as
compared to $3.7 million and $2.8 million,  respectively, for the same period in
2003.

      The increase in interest income for the full year 2004, as compared to the
same period in 2003,  was  primarily  attributable  to  increased  cash and cash
equivalents as a result of the issuance of our convertible  senior notes in June
2004.  The  increase  in  interest  expense was  primarily  attributable  to the
variance in interest  costs  relating to the  convertible  senior  notes  issued
during the second quarter of 2004, as compared to the interest costs relating to
the LYONs during 2003. As discussed below in "Liquidity and Capital  Resources",
although the  convertible  senior notes have a 1.875%  interest rate attached to
them, for accounting  purposes the convertible  senior notes are bifurcated into
debt and  equity  components,  and a  notional  interest  rate is applied to the
portion  that is allocated to debt.  While the notional  interest  rate of 5.33%
that is  applied  to the debt  component  of the  convertible  senior  notes (as
described under "Financing  Activities") is lower than the notional rate of 9.2%
that was applied to the LYONs,  a larger  component  of the  convertible  senior
notes is  allocated to debt than was the case with the LYONs.  As a result,  for
accounting  purposes the interest expense associated with the convertible senior
notes is higher than was the case for the LYONs.

      INCOME TAX EXPENSE

      Our income tax expense during the full year and fourth quarter of 2004 was
$16.3 million and $4.9 million,  respectively,  (effective tax rate of 32.9% and
23.9%,  respectively),  as  compared  to an income tax  expense of $6.6  million
(effective  tax rate of 55.2%) and $4.5 million  (effective  tax rate of 27.9%),
respectively, for the same periods in 2003.

      The  variation  from our  expected  24% tax rate is the  result of certain
items not being tax effected,  including the non-taxable  amounts related to the
redemption  of the LYONs in 2004 and, in 2004 and 2003, a portion of the foreign
exchange  gains and losses,  since they will never be realized for tax purposes.
In addition,  stock option  expense is not  deductible for Canadian tax purposes
and,  as such,  is not tax  effected.  In 2004,  the  impact of these  items was
partially  offset by a reduction in the tax rate related to the  utilization  of
certain losses,  which previously had not been recorded.  Excluding these items,
our tax rate would have been our expected 24%.

      STOCK OPTION EXPENSE

      Stock  option  expense for the full year 2004 was $2.1  million  ($892,000
allocated to Management  Operations and $1.2 million  allocated to Ownership and
Corporate  Operations),  as compared to $893,000  for 2003  ($426,000  allocated
Management   Operations  and  $467,000  allocated  to  Ownership  and  Corporate
Operations).

      We have  reviewed  the  structure  of the  compensation  program  and,  in
particular,  the use of stock  options as the  principal  element  of  long-term
incentives.  We  intend to  modify  the  long-term  incentive  component  of the
compensation  program to significantly  reduce the role of stock options and are
finalizing  our  recommendations  in respect of the  structure  of the plan that
would replace the current stock option plan.

      NET EARNINGS AND EARNINGS PER SHARE

      Net  earnings  for the year ended  December  31,  2004 were $33.2  million
($0.93  basic  earnings  per share and $0.89  diluted  earnings  per share),  as
compared to net earnings of $5.4 million  ($0.15 basic and diluted  earnings per
share) for the year ended  December 31, 2003. Net earnings for the quarter ended
December 31, 2004 were $15.6 million  ($0.43 basic  earnings per share and $0.41
diluted earnings per share), as compared to net earnings of $11.7 million ($0.33
basic  earnings per share and $0.32 diluted  earnings per share) for the quarter
ended December 31, 2003.


                                     - 14 -

<PAGE>

                           TWO-YEAR SUMMARY BY QUARTER

--------------------------------------------------------------------------------
(IN MILLIONS OF
DOLLARS EXCEPT
PER SHARE               FOURTH          THIRD         SECOND          FIRST
AMOUNTS)                QUARTER        QUARTER        QUARTER        QUARTER
--------------------------------------------------------------------------------
                      2004   2003    2004   2003    2004   2003    2004   2003
--------------------------------------------------------------------------------
Consolidated         $84.8  $87.9   $82.7  $72.6   $97.0 $ 80.8   $75.3  $72.4
revenues
--------------------------------------------------------------------------------
Earnings (loss) before
other operating items:
--------------------------------------------------------------------------------
  Management          22.2   20.7    26.3   18.8    30.1   20.5    22.5   19.6
  operations
--------------------------------------------------------------------------------
  Ownership           (3.8)  (2.0)   (6.4)  (9.4)   (1.7)  (5.5)   (9.7) (13.2)
  and corporate
  operations
--------------------------------------------------------------------------------
Net earnings (loss):
--------------------------------------------------------------------------------
  Total              $15.6  $11.7  $(11.1)  $4.4   $17.3  $(1.4)  $11.5  $(9.3)
--------------------------------------------------------------------------------
  Basic earnings     $0.43  $0.33  $(0.31) $0.13   $0.49 $(0.04)  $0.33 $(0.27)
  (loss) per
  share(1)
--------------------------------------------------------------------------------
  Diluted            $0.41  $0.32  $(0.31) $0.12   $0.46 $(0.04)  $0.31 $(0.27)
  earnings
  (loss) per
  share(1)
--------------------------------------------------------------------------------

1     Quarterly  and  year-to-year  computations  of per share  amounts are made
      independently. The sum of per share amounts for the quarters may not agree
      with per share amounts for the year.


      As discussed under "Operating  Risks --  Seasonality",  our management and
ownership  operations  are  seasonal  in nature.  In  addition  to the impact of
seasonality on our  quarter-over-quarter  operating  results,  net earnings each
quarter were  impacted by the  weakening US dollar  against the Canadian  dollar
over the course of 2004 (resulting in foreign exchange gains and losses upon the
translation to Canadian dollars of non-Canadian  dollar-denominated net monetary
assets  not  included  in  our  designated   self-sustaining   operations)  (See
"Operational and Financial Review and Analysis -- Results of Operations -- Other
Income/Expense,  Net").  The impact of certain of these items is  highlighted in
the following table:

--------------------------------------------------------------------------------
(IN MILLIONS OF         FOURTH          THIRD         SECOND          FIRST
DOLLARS)                QUARTER        QUARTER        QUARTER        QUARTER
--------------------------------------------------------------------------------
                      2004   2003    2004   2003    2004   2003    2004   2003
--------------------------------------------------------------------------------
Loss on                 -      -   $(14.6)    -       -      -       -      -
redemption of
LYONs
--------------------------------------------------------------------------------
Foreign exchange
gain (loss)           $6.4   $2.5   $(4.5)  $0.3   $(3.0) $(9.2)   $4.6  $(8.3)
--------------------------------------------------------------------------------
Other(1)             $(0.2) $(2.3)  $(4.6) $(1.2)     -   $(2.9)  $(0.3) $(4.6)
--------------------------------------------------------------------------------

1     Includes  legal and  enforcement  costs relating to Four Seasons hotels in
      Caracas and Seattle (2004 and 2003),  loss on disposal of investments  and
      settlement  of loan  receivable  from Sedona  (2004),  recoveries on items
      previously  provided for (2004 and 2003) and the writedown of Four Seasons
      Hotel Berlin (2003).


                                     - 15 -

<PAGE>

                        BALANCE SHEET REVIEW AND ANALYSIS

CORPORATE STRATEGY RELATING TO INVESTMENTS

      An important  part of our overall  strategy is to maintain the strength of
our balance sheet.  Accordingly,  we intend to continue to be disciplined in the
allocation  of our capital.  We also intend to seek to dispose of certain of our
equity investments,  which could contribute further cash and cash equivalents in
the  near-term.  Our capital  investment  plans remain focused on allocating the
majority  of our  capital  for  investment  opportunities  that are  intended to
establish  new long-term  management  contracts in key  destinations  or enhance
existing management  arrangements.  Investments in, or advances in respect of or
to owners of,  properties  will only be made where we believe  that the  overall
economic  return to us will justify the investment or advance.  In that context,
we also assess the long-term  value that we anticipate  that the investment will
contribute to our brand.

      These investments and advances must meet our financial criteria, including
certain  minimum  return  hurdles and a  manageable  risk  profile.  We consider
whether the structure should be in the form of an investment or an advance, and,
among other things,  the relative risk and returns of the investment or advance,
including  interest,  dividends and fee income.  We generally  seek to limit our
total  long-term  capital  exposure  to no more  than  20% of the  total  equity
required for a property.  We generally structure  investments to be able to have
our interest diluted if additional capital is required.  Depending on the nature
of the  investment  or advance,  it will be  characterized  on our  consolidated
balance  sheet  as  "Investments  in  hotel   partnerships  and   corporations",
"Investment in management contracts" or "Long-term receivables".

      As part of our ongoing  balance  sheet  evaluation,  we have  reviewed our
significant  investments  and advances and have  determined  that no  additional
provision was necessary  during 2004 relating to impairment of the book value of
any of our investments or advances,  which is discussed under  "Operational  and
Financial  Review and  Analysis  --  Results  of  Operations  --  Ownership  and
Corporate Operations".

LONG-TERM RECEIVABLES

      Included on our balance  sheet as at December  31, 2004 is $215.5  million
(2003 - $197.6 million) of long-term  receivables relating primarily to advances
in respect of, and to owners of, properties that we manage.  Significant secured
and unsecured long-term  receivables relate to our managed properties in London,
Hampshire, Sydney, Nevis and San Francisco.

INVESTMENTS IN HOTEL PARTNERSHIPS AND CORPORATIONS

      CONSOLIDATED HOTEL OWNERSHIP INTERESTS

      We have a 100%  leasehold  interest  in each of The Pierre in New York and
Four Seasons Hotel  Vancouver.  Our lease was terminated and we ceased  managing
Four Seasons  Hotel Berlin in September  2004.  See  "Operational  and Financial
Review and  Analysis -- Overview -- Ownership  and  Corporate  Operations".  Our
consolidated  financial  statements  reflect  the  consolidation  of the balance
sheets of The Pierre in New York and Four Seasons Hotel  Vancouver.  There is no
third party debt associated with these leasehold interests.

      OTHER HOTEL, RESORT AND RESIDENCE CLUB OWNERSHIP INTERESTS

      For a listing of other  hotels and resorts  under  management  in which we
have equity  investments,  see "Four Seasons Portfolio -- Description of Hotels,
Resorts  and  Residence  Clubs".  During  2004,  we


                                     - 16 -

<PAGE>

also  funded a new equity  investment  in one of the hotels  and  resorts  under
construction,  Four Seasons  Hotel Silicon  Valley at East Palo Alto (15%),  and
funded an additional  equity  investment in one  property,  Four Seasons  Resort
Jackson Hole (10%).

      In  accordance  with  Canadian  GAAP,  we account for these  other  equity
investments  on a cost basis  because  either the  percentage  ownership  or the
structure does not give us significant influence over these investments,  or the
investments  were acquired  before May 1, 2003 with the  intention  that they be
disposed of in the  foreseeable  future.  Beginning  January 1, 2005, we will be
required to either equity  account or  consolidate  our  investments in which we
have a greater than 20% ownership interest.  In March 2005, we sold the majority
of our 71% equity  interest in Four Seasons  Residence Club  Scottsdale at Troon
North for proceeds approximating book value. As a result of the sale, our equity
interest in Four Seasons  Residence Club Scottsdale at Troon North is below 20%.
We continue to manage this property under a long-term  management  contract.  We
are  continuing  to  look  at  other  divestment  opportunities,  including  our
investment  in Four Seasons  Hotel  Shanghai.  The book value of other  property
ownership  interests was $158.1 million as at December 31, 2004 ($157.6  million
as at December 31,  2003).  Based upon the current and budgeted  operating  cash
flow of  each of  these  properties  (adjusted  for  expected  capital  spending
requirements),  we currently estimate that the net recoverable amount of each of
these  investments  at  least   approximates  our  book  value.  This  valuation
determination  was made subject to assumptions  that are limited by, among other
things,  the  availability of reliable  comparable  data, and the uncertainty of
predictions concerning future events and results.  Accordingly, by their nature,
estimates of recoverable amounts are subjective and do not necessarily result in
precise determinations.  Should the underlying assumptions change, the estimated
recoverable amounts could change by a material amount.

      Each of these other equity investments  individually  represents less than
5% of our total assets,  and none of these investments  individually is material
to us.  We are  not  liable  for  any  further  obligations  relating  to  these
investments,  other than any commitment  discussed under "Four Seasons Portfolio
-- Properties  under  Construction  or  Development"  and "Liquidity and Capital
Resources".  For the year ended  December  31,  2004,  we earned fee revenues of
$35.3  million  ($31.1  million in 2003) from our other equity  investments.  In
addition, we received  distributions of $0.4 million ($0.2 million in 2003) from
certain of our ownership interests and funded $0.4 million in 2004 ($0.2 million
in 2003) as our share of cash flow distribution to, or cash flow shortfall from,
certain of our ownership interests in 2004.

INVESTMENT IN MANAGEMENT CONTRACTS

      Included in our balance  sheet as at December  31, 2004 is $218.2  million
(2003 - $203.7 million) relating to our investment in management contracts.  The
largest  component of these  amounts  relates to management  contracts  acquired
during the Regent  transaction in 1992,  including the management  contracts for
the Four Seasons  hotels in New York and Milan and Four  Seasons  Resort Bali at
Jimbaran Bay. The most significant  amounts  advanced for individual  management
contracts  include  amounts  advanced  in the  context of  obtaining  management
contracts for Four Seasons Hotel George V Paris,  Four Seasons Resort Scottsdale
at Troon North and Four Seasons  Hotel  Hampshire,  and amounts  advanced in the
context of improving the management  contracts for Four Seasons Resort Nevis and
The Ritz-Carlton Hotel Chicago.

FIXED ASSETS

      Owners of  properties  that we manage are  contractually  responsible  for
funding the capital  requirements  of the  properties,  including guest room and
common area  renovations,  and for maintaining  capital reserves to fund ongoing
annual maintenance capital expenditures  required by the management  agreements.
The  owners  annually  spend an  average  of  between  3% and 5% of hotel  gross
revenues on capital  expenditures  to maintain  properties  at the Four  Seasons
standard (other than in newly constructed or recently renovated properties where
the  annual  amounts  generally  range  from 1% to 2% in the  initial  years  of
operation following opening and major  refurbishment).  Capital expenditures are
funded  primarily by working  capital  generated  from property  operations  and
through advances from the owners. Our share


                                     - 17 -

<PAGE>
of  capital  expenditures  in 2004 and  2003  was  immaterial  for  those  hotel
properties in which we have a minority equity interest or pursuant to management
contract obligations.


                                     - 18 -

<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

      As at  December  31,  2004,  our  cash and cash  equivalents  were  $272.5
million,  as compared to $170.7 million as at December 31, 2003. Our investments
in cash and cash equivalents are highly liquid,  with maturities of less than 90
days.   These   investments   include  bank  deposits,   guaranteed   investment
certificates and money market funds held with major financial institutions.

      In November  2004,  we finalized a new committed  bank credit  facility of
US$125 million ($150.5  million),  which expires  September 2007, and replaces a
credit facility of US$100 million ($120.4 million).  As at December 31, 2004, no
amounts were borrowed under the credit facility. However,  approximately US$10.9
million ($13.1 million) of letters of credit were issued under the facility.  No
amounts have been drawn under these letters of credit.  We believe that,  absent
unusual  opportunities,  this bank credit  facility,  when combined with cash on
hand and internally  generated cash flow,  should be more than adequate to allow
us to finance our normal operating needs and anticipated  investment commitments
related to our current growth objectives.

      Our commitments include the contractual  obligations and other commitments
described  below in this  "Liquidity and Capital  Resources"  section as well as
those  described  under  "Off-Balance  Sheet  Arrangements"  and  "Four  Seasons
Portfolio -- Properties under Construction or Development".

CONTRACTUAL OBLIGATIONS

--------------------------------------------------------------------------------
CONTRACTUAL                   PAYMENTS DUE BY PERIOD
OBLIGATIONS---------------------------------------------------------------------
(IN MILLIONS                TOTAL      LESS THAN     1 - 3     4 - 5     AFTER 5
OF DOLLARS)                              1 YEAR      YEARS     YEARS      YEARS
--------------------------------------------------------------------------------
Convertible                $303.9        $3.0       $  --       $300.9    $  --
Notes(1)
--------------------------------------------------------------------------------
Operating                    84.9        10.4        18.5        17.7      38.3
Leases(2)
--------------------------------------------------------------------------------
Other                        41.2         5.5         5.8         2.0      27.9
Long-Term
Obligations(3)
--------------------------------------------------------------------------------
Total                      $430.0       $18.9       $24.3      $320.6     $66.2
Contractual
Obligations(4)
--------------------------------------------------------------------------------

1     The amount  represents  the  principal  amount plus  accrued  interest at
      December 31, 2004 of US$252.5 million.  See "Convertible Notes".

2     This amount  excludes the future minimum lease payments in connection with
      Four Seasons Hotel London.  See note 15(a) to our  consolidated  financial
      statements.

3     This amount mainly includes pension obligations, which represent estimated
      future benefit  payments and are net of allocations to the properties,  as
      well as other long-term obligations.

4     This  does  not  include  the  amounts  that  are   disclosed  as  capital
      commitments in the chart under "Four Seasons Portfolio -- Properties under
      Construction or Development".


      During 2003, we agreed to donate $20 million to the Canadian Opera Company
for its new opera house,  which will be named the "Four  Seasons  Centre for the
Performing Arts". We believe that our association with this project, which is to
be built to  world-class  standards,  should,  among other  things,  enhance the
long-term value of our brand in a manner  consistent with and  complementary  to
the brand recognition  associated with the properties we manage.  The commitment
is being funded in tranches tied to the development of the project over the next
several years. As at December 31, 2004, we had funded $7 million.  The remaining
commitment of $13 million is included in other  commitments  under  "Off-Balance
Sheet Arrangements -- Guarantees and Commitments".


                                     - 19 -

<PAGE>

CONVERTIBLE NOTES

      During  1999,  we issued LYONs for US$655.5  million  principal  amount at
maturity  (September 23, 2029) for gross proceeds of US$172.5  million.  We were
entitled to redeem the LYONs  commencing in September 2004 for cash equal to the
issue price plus accrued  interest  calculated at 4 1/2% per annum. As discussed
above in "Other  Income/Expense,  Net",  during the third  quarter  of 2004,  we
exercised  this  right and  redeemed  all of our LYONs  for  US$328.73  cash per
US$1,000  principal  amount at maturity  (the  redemption  price being the issue
price plus interest  that was accrued but unpaid to but excluding  September 23,
2004) for an aggregate payment of US$215.5 million ($275.7 million).

      During  the second  quarter  of 2004,  we issued  US$250  million  ($341.1
million) principal amount of convertible senior notes. We used a majority of the
net  proceeds  from the  issuance of the  convertible  senior notes to repay the
LYONs and intend to use the remainder for general corporate purposes,  including
the  making of  investments  in, or  advances  in  respect  of or to owners  of,
properties  with a view to  obtaining  new  management  agreements  or enhancing
existing management agreements.  These notes bear interest at the rate of 1.875%
per annum (payable semi-annually in arrears on January 30 and July 30 to holders
of record on January 15 and July 15, beginning January 30, 2005) and will mature
on July 30,  2024,  unless  earlier  redeemed  or  repurchased.  The  notes  are
convertible  into our Limited  Voting  Shares at an initial  conversion  rate of
13.9581  shares per US$1,000  principal  amount (equal to a conversion  price of
approximately   US$71.64   ($86.23)  per  Limited  Voting  Share),   subject  to
adjustments in certain events,  in circumstances in which (i) the Limited Voting
Shares  have traded for more than 130% of the  conversion  price for a specified
period, (ii) the notes have a trading price of less than 95% of the market price
of the Limited  Voting  Shares into which they may be converted  for a specified
period,  (iii) we call the notes for  redemption,  or (iv)  specified  corporate
transactions  or  a  "fundamental  change"  occurs.  We  may  choose  to  settle
conversion in our Limited  Voting  Shares,  cash or a combination of our Limited
Voting  Shares and cash.  Holders of the notes will have the right to require us
to  purchase  the notes for their  principal  amount  plus  accrued  and  unpaid
interest on July 30,  2009,  July 30,  2014 and July 30, 2019 and in  connection
with  certain  events.  We will pay cash for any notes so  purchased on July 30,
2009.  Repurchase  of notes made on July 30,  2014 and July 30, 2019 may be made
(at our option) in cash,  our Limited Voting Shares or a combination of cash and
our Limited Voting Shares.  Subject to conversion rights, we will have the right
to redeem the  convertible  senior notes for their  principal  amount,  plus any
accrued and unpaid interest, beginning August 4, 2009.

      In  accordance  with  Canadian  GAAP,  the  convertible  senior  notes are
bifurcated on our financial  statements into a debt component  (representing the
principal  value of a bond of  US$211.8  million  ($288.9  million),  which  was
estimated based on the present value of a US$250 million  ($341.1  million) bond
maturing in 2009, yielding 5.33% per annum, compounded semi-annually, and paying
a coupon  of  1.875%  per  annum)  and an  equity  component  of  $50.4  million
(representing  the value of the  conversion  feature of the  convertible  senior
notes).  For  further  details,  see note  10(a) to our  consolidated  financial
statements.

      In  connection  with the  offering of the  convertible  senior  notes,  we
entered into a five-year  interest rate swap with an initial  notional amount of
US$211.8  million  ($288.9  million),  pursuant  to which we agreed  to  receive
interest at a fixed rate of 5.33% per year and pay interest at six-month  LIBOR,
in arrears,  plus 0.4904%. In October 2004, we terminated the interest rate swap
agreement and received proceeds of US$9 million ($11.3 million).  The book value
of the  interest  rate  swap at the date of  termination  was  approximately  $2
million.  The  recognition  of the  resulting  gain  was  deferred  and is being
amortized  over the next 4.75 years,  which would have been the  remaining  swap
term. This will result in an effective interest rate on the notes for accounting
purposes  of 4.6% for 2005.  Taking into  account  the net present  value of the
termination of the swap,  including the $9.3 million gain, the economic interest
cost associated with the convertible senior notes is less than 1%.


                                     - 20 -

<PAGE>

RETIREMENT PLAN COMMITMENTS

      We maintain an unfunded, multi-employer, non-contributory, defined benefit
retirement  plan on behalf of  ourselves  and the owners of most of our  managed
properties.  This plan  provides  retirement  benefits for certain of our senior
executives as well as for hotel and resort general managers,  based on years and
level of service and annual  salary.  The portion of the plan  applicable to the
general  managers is the  responsibility  of the owners of properties  that such
general managers manage.

      The accrued  benefit  liability  of $32.8  million that is recorded on our
consolidated  balance sheet in "Long-term  obligations" as at December 31, 2004,
is net of an allocation to the properties  that we manage for their share of the
accrued  benefit   liability  in  respect  of  the  general  managers  of  those
properties.

      Since it was  introduced,  there  have  been a number  of  changes  in the
environment in which the retirement plan operates that have resulted in the plan
no longer  serving the purposes for which it was intended as  effectively  as it
did  originally.  We are in the process of refining  the terms of a plan that we
would expect to replace the retirement plan and afford Four Seasons,  the owners
of properties  managed by Four Seasons and the participants in the plan enhanced
transparency and reduced uncertainty.

LEASE COMMITMENTS - CONSOLIDATED HOTELS

      In  addition to the  obligations  identified  on our  balance  sheet as at
December 31, 2004, our two consolidated  hotels (The Pierre in New York and Four
Seasons Hotel Vancouver) are leasehold  interests subject to individual property
leases.

      In September 2004, the landlord terminated our lease of Four Seasons Hotel
Berlin,  and we ceased  managing the hotel.  Since reaching our maximum  funding
obligation of the stipulated minimum lease payments at Four Seasons Hotel Berlin
in  August  of 2003,  the  lease  payments  had been  limited  to the cash  flow
generated by the hotel.

      The total annual lease  obligations  for The Pierre and Four Seasons Hotel
Vancouver  represented annual payments of approximately $9.2 million in 2004 and
are  expected to be  approximately  the same in 2005.  These lease  expenses are
treated  as an  expense  of  our  Ownership  and  Corporate  Operations  on  our
consolidated statement of operations.

CASH FROM OPERATIONS

      During the three months and year ended  December  31,  2004,  we generated
cash of $39.7  million  and $57.4  million  from  operations,  respectively,  as
compared to generating cash of $21.9 million and $66 million,  respectively, for
the same periods in 2003.

      The  increase  in cash from  operations  of $17.8  million  in the  fourth
quarter of 2004, as compared to the same period in 2003, resulted primarily from
the proceeds received on termination of the interest rate swap of $11.3 million,
a decrease in working capital of $3.3 million, an increase in current income tax
received  of $3.2  million and an increase  in cash  contributed  by  management
operations  of $1.7  million,  partially  offset by an  increase in cash used in
ownership and corporate operations of $1.7 million.

      The decrease in cash from  operations of $8.6 million in 2004, as compared
to 2003,  resulted  primarily from the cash applied to the interest accreted for
accounting  purposes of $33.1 million  related to the redemption of the LYONs in
the third  quarter of 2004 and an increase in working  capital of $26.3  million
(primarily  as a result of a larger  income tax refund that was received in 2003
and an  increase  in the  accrual  related to  incentive  fee  improvements  and
improved fees from  residential  projects),  partially  offset by an increase in
cash  contributed  by  management  operations  of $22.3  million,  the  proceeds
received on termination  of the interest rate swap of $11.3 million,  a decrease
in cash  used in  ownership  and  corporate  operations  of $9.2  million  and a
decrease in legal and enforcement  costs paid of $8.1 million  (discussed  under
"Operational and Financial Review and Analysis -- Results of Operations -- Other
Income/Expense, Net").


                                     - 21 -

<PAGE>

FINANCING ACTIVITIES (EXCLUDING CONVERTIBLE NOTES DISCUSSED ABOVE)

      In 2004, we received proceeds of $42.8 million relating to the exercise of
options by employees to purchase 1,367,054 Limited Voting Shares, as compared to
option  exercise  proceeds of $7.7  million in 2003  relating to the purchase of
366,260 Limited Voting Shares.

      We paid $3.8 million and $3.6  million in dividends  during 2004 and 2003,
respectively,  based on a dividend  policy of $0.11 per Limited Voting Share and
$0.055 per Variable  Multiple  Voting  Share per annum,  paid  semi-annually  in
January and July. We do not expect to change our dividend policy in 2005.

INVESTING ACTIVITIES

      LONG-TERM RECEIVABLES

      In  2004  we  advanced  $33.0  million,  in the  aggregate,  as  long-term
receivables.  These  included:  $22.0  million  relating to Four  Seasons  Hotel
Hampshire,  which opened in February 2005, $7.3 million relating to Four Seasons
Resort  Scottsdale  at Troon North and $2.4  million  relating  to Four  Seasons
Resort Great Exuma at Emerald Bay.

      In 2004, we were repaid $11.7 million, in the aggregate,  of our long-term
receivables,  of which the largest  component  is $7.7  million  relating to the
settlement of our loan receivable from our proposed project in Sedona.

      In 2003,  we  advanced  $18.2  million,  in the  aggregate,  as  long-term
receivables.  These included: $7.3 million relating to Four Seasons Resort Costa
Rica, which opened in 2004, $5.0 million relating to Four Seasons Residence Club
Scottsdale  at Troon North,  $2.7 million  relating to Four Seasons Hotel Buenos
Aires and $2.3 million  relating to the proposed  development  of a Four Seasons
Residence Club in Sedona, which was abandoned in 2004.

      In 2003, we were repaid $11.8 million, in the aggregate,  of our long-term
receivables.  The largest  component of this included:  $4.6 million of our loan
relating to the  renovation  of Four  Seasons  Hotel  Bangkok,  $2.8  million of
deferred  incentive fees and $1.8 million of a loan that had been written off in
a prior year.

      INVESTMENTS IN HOTEL PARTNERSHIPS AND CORPORATIONS

      To fund capital  requirements  in  properties in which we have an interest
(primarily in properties under  construction or development),  we invested $48.7
million in 2004 ($18.0 million in 2003).  These 2004  investments  included Four
Seasons  Resort  Whistler  (which we  subsequently  sold in the third quarter of
2004), Four Seasons Hotel Silicon Valley at East Palo Alto (15%), and funding of
an additional  equity  investment in one opened  property,  Four Seasons  Resort
Jackson Hole (10%).  These  investments were partially offset by the sale of the
majority of our 8% investment in Four Seasons Hotel Amman.

      The 2003 investments  included $7.7 million related to Four Seasons Resort
Costa Rica (which  opened in January  2004),  and $9.2  million  related to Four
Seasons Resort and Residence Club Jackson Hole (which opened in December  2003).
In 2003, we also disposed of our equity  interest in Four Seasons  Olympic Hotel
Seattle and our  investment in preferred  shares  relating to Four Seasons Hotel
London for total proceeds of $10.8 million.  In addition,  our 30.8% interest in
Four  Seasons  Residence  Club in Punta Mita was reduced to 19% during 2003 as a
result of an investment in the project by a new shareholder.


                                     - 22 -

<PAGE>

      INVESTMENT IN MANAGEMENT CONTRACTS

      We invested $15.8 million, in aggregate,  in management  contracts in 2004
($1.8 million in 2003), including investments with respect to Four Seasons Hotel
Hampshire,  Four Seasons Resort  Whistler and Four Seasons Resort Costa Rica. In
2003 we invested $1.8 million which did not include  significant  investments in
any individual management contract.

      FIXED ASSETS

      Our capital expenditures were $8.4 million for the year ended December 31,
2004 and $2.9  million  in the  fourth  quarter of 2004,  as  compared  to $19.3
million and $13.9 million,  respectively, for the same periods in 2003. In 2004,
we commenced  construction on our corporate office expansion.  During the fourth
quarter of 2003, we purchased land in Toronto for $11.2 million  relating to our
corporate office expansion.

OUTSTANDING SHARE DATA

--------------------------------------------------------------------------------
DESIGNATION                                 OUTSTANDING AS AT MARCH 14, 2005
--------------------------------------------------------------------------------
Variable Multiple Voting Shares(1)                                     3,725,698
--------------------------------------------------------------------------------
Limited Voting Shares                                                 32,883,188
--------------------------------------------------------------------------------
Options to acquire  Limited Voting Shares:
--------------------------------------------------------------------------------
   Outstanding                                                         4,575,143
--------------------------------------------------------------------------------
   Exercisable                                                         2,763,161
--------------------------------------------------------------------------------
Convertible  Senior  Notes  issued                           US$250.6 million(3)
June 2004 and due 2024(2)                   (Canadian equivalent $302.3 million)
--------------------------------------------------------------------------------

1     Convertible  into Limited  Voting Shares at any time at the option of the
      holder on a one-for-one basis.

2     The terms of the convertible  senior notes are more fully described under
      "Financing Activities".

3     This amount is equal to the issue price of the  convertible  senior  notes
      issued in June  2004 and due 2024  plus  accrued  interest  calculated  at
      1.875% per annum.


                                     - 23 -

<PAGE>

                              FINANCIAL INSTRUMENTS

FOREIGN EXCHANGE FORWARD CONTRACTS

      We use derivative  financial  instruments in the management of our foreign
currency exposures, when we believe it is appropriate.  We do not use derivative
financial instruments for trading or speculative purposes.

      Because a  significant  portion  of our  revenues  is  derived  in foreign
currencies  (primarily US dollars) and  expenditures we incur for our management
operations are denominated  primarily in Canadian dollars, we enter into foreign
exchange forward  contracts from time to time to protect  ourselves in the event
of a strengthening  Canadian currency.  We estimate future foreign currency cash
flows   on  an   ongoing   basis,   based   on  our   projections   of   foreign
currency-denominated  management  fees and  other  transactions.  We enter  into
foreign exchange forward  contracts in proportion to the magnitude and timing of
these  anticipated  cash flows.  For a description  of foreign  currency-related
risks, see "Operating Risks -- Currency Exposure". We are also subject to credit
risks related to the counterparties to our foreign exchange forward contracts.

      We  enter  into  hedges  of our  foreign  currency  exposures  on  foreign
currency-denominated long-term receivables and other monetary assets by entering
into offsetting foreign exchange forward contracts, when we deem it appropriate.
As at  December  31,  2004,  we did  not  have  any  contracts  of  this  nature
outstanding.

      Foreign exchange  translation gains and losses on foreign exchange forward
contracts used to hedge anticipated  foreign  currency-denominated  revenues are
recognized as an adjustment of the revenues when the revenues are recorded,  and
the portion of the premium or  discount on the  contract  relating to the period
prior to recognition of the revenues is also  recognized as an adjustment of the
revenues when they are  recorded.  The portion of the premium or discount on the
contract  that relates to the resulting  accounts  receivable is amortized as an
adjustment of interest expense over the remaining term of the contract. Realized
and  unrealized  gains or losses  associated  with  contracts,  which  have been
terminated or cease to be effective prior to maturity,  are deferred under other
current or non-current assets or liabilities on our balance sheet and recognized
in income in the period in which the associated revenue is recognized.

OTHER FINANCIAL INSTRUMENTS

      In  addition  to the  foreign  exchange  forward  contracts,  we have  the
following  financial  instruments at December 31, 2004:  cash  equivalents  (see
"Liquidity and Capital  Resources"),  long-term  receivables (see "Balance Sheet
Review and Analysis -- Long-Term  Receivables"),  convertible  senior notes (see
"Liquidity and Capital Resources -- Convertible Notes") and short-term financial
instruments, including current receivables and current accounts payable.

FAIR VALUE OF FINANCIAL INSTRUMENTS

      The estimated fair value of a financial  instrument is the amount at which
the  instrument  could be exchanged in a transaction  between  willing  parties,
other than a forced or liquidation sale. These estimates,  although based on the
relevant market  information about the financial  instrument,  are subjective in
nature and  involve  uncertainties  and  matters of  significant  judgment  and,
therefore,  cannot be determined  with precision.  Changes in assumptions  could
materially affect the estimates.

      As cash  equivalents,  current  receivables,  current accounts payable and
certain other  short-term  financial  instruments  are all short-term in nature,
their carrying amounts  approximate fair values.  The fair


                                     - 24 -

<PAGE>

value of our 2004 and 2003 convertible  notes is based on market quotes obtained
from one of our financial  advisors.  The fair value of foreign exchange forward
contracts is estimated from quotes obtained from our counterparties for the same
or similar financial instruments.

      We do not have  plans to sell loans  receivable  to third  parties  and we
expect to realize or settle them in the ordinary  course of  business.  The fair
values of these instruments cannot be reasonably estimated because no active and
liquid market exists for these  instruments,  and a market rate of interest (for
instruments  having  similar terms and  characteristics)  that is required to be
used in estimation  techniques,  such as discounted  cash flow analysis,  cannot
reasonably be determined due to the unusual terms of these instruments.

      The fair values of our financial instruments are as follows:

--------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS)                  ESTIMATED FAIR VALUE   CARRYING AMOUNT
--------------------------------------------------------------------------------
2004:
--------------------------------------------------------------------------------
  Convertible senior notes(1)                    $(388.0)            $(311.3)
--------------------------------------------------------------------------------
2003:
--------------------------------------------------------------------------------
  Convertible notes(1)                            (289.0)             (273.4)
--------------------------------------------------------------------------------
  Foreign exchange forward contracts                15.0                 0.6
--------------------------------------------------------------------------------

1     The  carrying  amount  of  the  convertible  notes  includes  the  amounts
      allocated to both  long-term  obligations  and  shareholders'  equity.  It
      excludes,  however,  the offering  expenses and  underwriters'  commission
      related to the shareholders' equity component of the notes of $1.8 million
      in 2004 (2003 - $6.9 million), which are recorded in shareholders' equity.


                                     - 25 -

<PAGE>

                         OFF-BALANCE SHEET ARRANGEMENTS

      In addition to the financial  instruments  discussed above we have various
off-balance  sheet  arrangements,  the most  significant  of which are discussed
below.

GUARANTEES AND COMMITMENTS

      As at December 31, 2004,  we have  provided  certain  guarantees  and have
other  commitments in connection  with properties  under our  management.  These
include  guarantees  in  respect  of four  projects  totalling  a maximum of $24
million,  as well as a  $361,000  guarantee  of  relocation  costs  for  certain
employees. We have lease commitments in respect of Four Seasons Hotel London, as
well as a lease  commitment in respect of Four Seasons Hotel Prague,  (see notes
15(a) and 15(c),  respectively,  to our consolidated financial  statements).  In
addition, we have four other commitments totalling $29.3 million, which includes
our donation to the Canadian  Opera Company for the "Four Seasons Centre for the
Performing Arts", which is more fully described under "Contractual  Obligations"
above,  and the remaining three other  commitments  are to properties  under our
management.  We have also guaranteed certain obligations of various officers and
employees in the  aggregate  amount of $296,000,  all of which were entered into
before 2002.

      To the extent we are called  upon to honour any one of these  commitments,
we  generally  have either the right to be repaid from hotel  operations  and/or
have various forms of security or recourse to the owner of the  property.  We do
not anticipate  funding any amount  pursuant to these  commitments  during 2005,
with  the  exception  of $7.0  million  for the  "Four  Seasons  Centre  for the
Performing  Arts",  and $1.5  million  relating  to our other  commitments.  Our
assessment of our potential  liability for such matters could change as a result
of, among other things, the associated risks and uncertainties.

INDEMNITIES

      DISPOSITION INDEMNIFICATION ARRANGEMENTS

      In  connection  with  the  sale  of  all or a part  of our  interest  in a
property,  we may agree to provide  an  indemnity  against  claims  relating  to
breaches of specific  covenants or representations  and warranties.  The maximum
amount of the  indemnification in these transactions is generally limited to the
purchase  price  paid for the  interest  being  purchased.  The  nature of these
indemnities  prevents the  calculation of an exact amount that may be payable to
the  indemnified  parties.  In the  context  of two  dispositions,  we  received
indemnity  agreements in our favour for our guarantee  obligations that remained
in place  notwithstanding  the disposition.  We believe that the indemnification
agreements  in our favour  should fully  indemnify  us for any possible  payment
under these existing guarantees.

      DIRECTOR AND OFFICER INDEMNIFICATION ARRANGEMENTS

      To the extent permitted by law, we indemnify individuals that are, or have
been, directors or officers against certain claims that may be made against them
as a result of their  being,  or having  been,  a  director  or  officer  at our
request. We have purchased directors' and officers' liability insurance that may
be available in respect of certain of these claims.

      OTHER INDEMNIFICATION ARRANGEMENTS

      In the ordinary  course of our  business,  we enter into other  agreements
with third parties that may contain indemnification provisions pursuant to which
the parties to the  agreements  agree to indemnify one another if certain events
occur  (such as, but not  limited to,  changes in laws and  regulations  or as a
result of  litigation  claims or  liabilities  that  arise in  respect of tax or
environmental matters).


                                     - 26 -
<PAGE>

      The terms of our  indemnification  provisions  vary based on the contract,
which  (together  with the fact that any amounts that could be payable  would be
dependent on the outcome of future, contingent events, the nature and likelihood
of  which  cannot  be  determined  at this  time)  precludes  us from  making  a
reasonable  estimate of the maximum potential amount we could be required to pay
to  counterparties.   We  believe  that  the  likelihood  that  we  would  incur
significant liability under these obligations is remote.  Historically,  we have
not made any significant  payments under such indemnification  arrangements.  No
amount has been recorded in the consolidated  financial  statements with respect
to these indemnification  provisions.  Our assessment of our potential liability
could change in the future as a result of currently unforeseen circumstances.


                                     - 27 -

<PAGE>

                                  LOOKING AHEAD

      Our business plan  objectives  for 2005 continue to focus on those aspects
of the business that we believe  provide the greatest  potential for  maximizing
shareholder  value by, among other things,  contributing  to long-term cash flow
and enhancing our market position and brand,  including continued opening of new
Four Seasons  properties,  maintaining and enhancing  market share,  maintaining
room rates and  increasing  the RevPAR and  profitability  of the  properties we
manage.

      In addition to Four  Seasons  Hotel  Hampshire,  which  opened in February
2005, we expect to open five new hotels and resorts in 2005 or the early part of
2006. The average term of the management  contracts for these five properties is
53 years,  and these  management  contracts  are  expected  to  provide  us with
significant long-term fee income. For a discussion of our capital commitments in
connection with these projects,  see "Four Seasons Portfolio -- Properties under
Construction or Development".

      We  believe  that  maintaining  room  rates is one of the  most  important
factors in being  well-positioned  for the  increase  in travel  demand  that is
expected to occur with global  economic  recovery.  Over the past four years, we
have been generally successful at increasing room rates from the levels achieved
in 2000 without  sacrificing  occupancy.  During 2005, we intend to maintain our
focus on value to our guests by continuing to deliver our exceptional quality of
service,  while at the same time  controlling  costs. We also intend to focus on
enhancing our premium  service quality and rate premiums at each of the ten Four
Seasons  hotels and resorts that opened over the past 24 months and the five new
Four Seasons projects that are expected to open later in 2005 or early in 2006.

      We expect that the improving  economic  environment  should translate into
continued  improvement in travel demand,  particularly  business travel. We also
expect that leisure travel demand,  which overall has been more resilient in the
past few years than business travel,  will remain stable.  On a full-year basis,
we continue to expect our average  daily room rates for 2005 to exceed the rates
achieved  in 2004.  We also  expect  our  business  model to perform at or above
industry levels consistent with past experience.

      If the travel  trends  that we  experienced  in 2004  continue,  we expect
RevPAR,  on a US dollar basis, for worldwide Core Hotels in the first quarter of
2005 and the full year 2005 to  increase  by more than 10%,  both as compared to
their  respective  periods in 2004. We expect that this  improvement will result
from occupancy and pricing  improvements  in all geographic  regions in 2005. If
current trends continue,  we expect the full-year gross operating margins of our
worldwide Core Hotels to increase more than 200 basis points in 2005.

      A part of our business  strategy is to invest a portion of available  cash
to obtain new management agreements or enhance existing management arrangements.
These  investments  or  advances  will only be made where we expect our  overall
economic return to justify the investment or advance.  In this context,  we also
assess the  long-term  value that we anticipate  that the  investment or advance
will  contribute to our brand.  During the year ended December 31, 2004, we made
investments in a variety of projects, including Silicon Valley and Jackson Hole.
For the quarter and year ended  December  31,  2004,  we funded $8.5 million and
$93.6 million,  respectively,  in management  opportunities,  including  amounts
advanced as loans receivable, investment in hotel partnerships and investment in
management contracts ($5.2 million and $42.6 million, respectively, for the same
periods in 2003).  In 2005,  we expect to fund  approximately  US$90  million in
respect of investments in, or advances to, various  projects,  including


                                     - 28 -

<PAGE>

Geneva and Damascus,  plus additional  funding in Buenos Aires and Exuma and the
expansion of corporate  office  facilities.  We  anticipate  selling two or more
interests  in  properties  during  2005,  from which we expect to receive  total
aggregate  proceeds of  approximately  US$20  million.  To this end, we sold the
majority of our 71% equity interest in Four Seasons Residence Club Scottsdale at
Troon North for proceeds approximating book value in March 2005.


                                     - 29 -

<PAGE>

                             FOUR SEASONS PORTFOLIO

DESCRIPTION OF HOTELS, RESORTS AND RESIDENCE CLUBS

      The  following  table  provides  an  overview  of the  properties  that we
currently manage:

--------------------------------------------------------------------------------
                                                    APPROXIMATE    APPROXIMATE
                                                     NUMBER OF       EQUITY
                                                    ROOMS/UNITS     INTEREST(1)
--------------------------------------------------------------------------------
UNITED STATES
--------------------------------------------------------------------------------
Four Seasons Hotel Atlanta, GEORGIA                     244            --
--------------------------------------------------------------------------------
Four Seasons Hotel Austin, TEXAS                        291            --
--------------------------------------------------------------------------------
Four Seasons Resort Aviara, CALIFORNIA                  329           7.3%(2)
--------------------------------------------------------------------------------
Four Seasons Residence Club Aviara, CALIFORNIA          120           7.3%(2)
--------------------------------------------------------------------------------
The Regent Beverly Wilshire (Beverly Hills),            395            --
CALIFORNIA
--------------------------------------------------------------------------------
Four Seasons Biltmore Resort (Santa Barbara),           213            --
CALIFORNIA
--------------------------------------------------------------------------------
Four Seasons Hotel Boston, MASSACHUSETTS(3)             272            --
--------------------------------------------------------------------------------
Four Seasons Hotel Chicago, ILLINOIS                    343            --
--------------------------------------------------------------------------------
The Ritz-Carlton Hotel Chicago, ILLINOIS                435            --
--------------------------------------------------------------------------------
Four Seasons Hotel Houston, TEXAS(3)                    404            --
--------------------------------------------------------------------------------
Four Seasons Resort Hualalai at                         243            --
Historic Ka'upulehu, HAWAII
--------------------------------------------------------------------------------
Four Seasons Resort Jackson Hole,                       146            10%(2),
WYOMING(3)                                                             (5)
--------------------------------------------------------------------------------
Four Seasons Residence Club Jackson Hole,                16(4)         10%(2)
WYOMING
--------------------------------------------------------------------------------
Four Seasons Resort and Club Dallas                     357            --
at Las Colinas, TEXAS
--------------------------------------------------------------------------------
Four Seasons Hotel Las Vegas, NEVADA                    424            --
--------------------------------------------------------------------------------
Four Seasons Hotel Los Angeles, CALIFORNIA              285            --(5)
--------------------------------------------------------------------------------
Four Seasons Resort Maui at Wailea, HAWAII              377            --
--------------------------------------------------------------------------------
Four Seasons Hotel Miami, FLORIDA                       221           4.7%(2)
--------------------------------------------------------------------------------
Four Seasons Hotel Newport Beach, CALIFORNIA            295            --
--------------------------------------------------------------------------------
Four Seasons Hotel New York, NEW YORK                   362            --
--------------------------------------------------------------------------------
Four Seasons Resort Palm Beach, FLORIDA                 210            --
--------------------------------------------------------------------------------
Four Seasons Hotel Philadelphia,                        364            --
PENNSYLVANIA
--------------------------------------------------------------------------------
The Pierre in New York, NEW YORK                        201(6)        100%(7)
--------------------------------------------------------------------------------
Four Seasons Hotel San Francisco,                       277            --
CALIFORNIA(3)
--------------------------------------------------------------------------------
Four Seasons Resort Scottsdale at Troon North,          210           3.9%(2),
ARIZONA                                                               (5),(8)
--------------------------------------------------------------------------------
Four Seasons Residence Club                              44          14.2%(2),
Scottsdale at Troon North, ARIZONA                                     (5)
--------------------------------------------------------------------------------
Four Seasons Hotel Washington,                          211            --
DISTRICT OF COLUMBIA
--------------------------------------------------------------------------------
OTHER AMERICAS/CARIBBEAN
--------------------------------------------------------------------------------
Four Seasons Hotel Buenos Aires,                        165            --
ARGENTINA
--------------------------------------------------------------------------------
Four Seasons Resort Carmelo, URUGUAY                     44            --
--------------------------------------------------------------------------------
Four Seasons Resort Costa Rica at                       165          11.4%(7)
Peninsula Papagayo, COSTA RICA(3)
--------------------------------------------------------------------------------
Four Seasons Resort Great Exuma at                      183            --
Emerald Bay, THE BAHAMAS(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Mexico City, MEXICO                  240            --
--------------------------------------------------------------------------------
Four Seasons Resort Nevis, WEST INDIES(3)               196            --
--------------------------------------------------------------------------------
Four Seasons Resort Punta Mita, MEXICO(3)               140            --
--------------------------------------------------------------------------------


                                     - 30 -

<PAGE>

--------------------------------------------------------------------------------
                                                    APPROXIMATE    APPROXIMATE
                                                     NUMBER OF       EQUITY
                                                    ROOMS/UNITS     INTEREST(1)
--------------------------------------------------------------------------------
Four Seasons Hotel Toronto, ONTARIO, CANADA             380            --
--------------------------------------------------------------------------------
Four Seasons Hotel Vancouver, BRITISH                   376           100%(7)
COLUMBIA, CANADA
--------------------------------------------------------------------------------
Four Seasons Resort Whistler, BRITISH                   273            --(5)
COLUMBIA, CANADA
--------------------------------------------------------------------------------
ASIA/PACIFIC
--------------------------------------------------------------------------------
Four Seasons Resort Bali at Jimbaran                    147             --
Bay, INDONESIA
--------------------------------------------------------------------------------
Four Seasons Resort Bali at Sayan,                       60             --
INDONESIA(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Bangkok, THAILAND                    340             --
--------------------------------------------------------------------------------
Four Seasons Resort Chiang Mai,  THAILAND                80             --
--------------------------------------------------------------------------------
Four Seasons Hotel Jakarta, INDONESIA(3)                365              2%(2),
                                                                         (10)
--------------------------------------------------------------------------------
The Regent Kuala Lumpur, MALAYSIA                       468             --
--------------------------------------------------------------------------------
Four Seasons Resort Maldives at Kuda Hurra,             106             --
MALDIVES
--------------------------------------------------------------------------------
Four Seasons Hotel Shanghai, PEOPLE'S                   439           21.2%(2),
REPUBLIC OF CHINA                                                     (5),(9)
--------------------------------------------------------------------------------
Four Seasons Hotel Singapore, SINGAPORE                 254             --
--------------------------------------------------------------------------------
The Regent Singapore, SINGAPORE                         441             --
--------------------------------------------------------------------------------
Four Seasons Hotel Sydney, AUSTRALIA                    531           15.2%(7)
--------------------------------------------------------------------------------
Grand Formosa Regent Taipei, TAIWAN                     538             --
--------------------------------------------------------------------------------
Four Seasons Hotel Tokyo at Chinzan-so,                 283             --
JAPAN
--------------------------------------------------------------------------------
Four Seasons Hotel Tokyo at                              57             --
Marunouchi, JAPAN
--------------------------------------------------------------------------------
MIDDLE EAST
--------------------------------------------------------------------------------
Four Seasons Hotel Amman, JORDAN                        193            1.6%(2)
--------------------------------------------------------------------------------
Four Seasons Hotel Cairo at The First                   269             --
Residence, EGYPT(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Cairo at Nile Plaza,                 365            7.8%(2)
EGYPT(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Riyadh, SAUDI ARABIA                 249             --
--------------------------------------------------------------------------------
Four Seasons Resort Sharm el Sheikh,                    136             --
EGYPT(3)
--------------------------------------------------------------------------------
EUROPE
--------------------------------------------------------------------------------
Four Seasons Hotel Gresham Palace                       179           18.3%(2)
Budapest, HUNGARY
--------------------------------------------------------------------------------
Four Seasons Hotel Dublin, IRELAND                      259             --
--------------------------------------------------------------------------------
Four Seasons Hotel Hampshire, ENGLAND                   133             --(5)
--------------------------------------------------------------------------------
Four Seasons Hotel Istanbul, TURKEY                      65             --(11)
--------------------------------------------------------------------------------
Four Seasons Hotel The Ritz Lisbon, PORTUGAL            282             --
--------------------------------------------------------------------------------
Four Seasons Hotel Canary Wharf, ENGLAND                142             --(12)
--------------------------------------------------------------------------------
Four Seasons Hotel London, ENGLAND                      220           12.5%(5),
                                                                      (7),(13)
--------------------------------------------------------------------------------
Four Seasons Hotel Milan, ITALY                         118             --
--------------------------------------------------------------------------------
Four Seasons Hotel George V Paris,                      245             --
FRANCE
--------------------------------------------------------------------------------
Four Seasons Hotel Prague, CZECH REPUBLIC               161             --(5)
--------------------------------------------------------------------------------
Four Seasons Resort Provence at Terre                   115             --
Blanche, FRANCE(3)

------------------------------------------------------------

1    In the ordinary  course,  we make investments in, or advances in respect of
     or to owners of,  properties  to obtain  new  management  agreements  or to
     enhance  existing  management  agreements  where  we  believe  the  overall
     economic return to us will justify the investment or advance.  We generally
     seek to limit our total long-term  capital  exposure to no more than 20% of
     the  total  equity  required  for a  property.  For a  description  of  our
     investments  in, or advances made in respect of or to owners of properties,
     and other  commitments  in respect of existing  properties,  including  the
     equity  investments  listed in this chart,  see  "Balance  Sheet Review and
     Analysis" and "Liquidity and Capital Resources".

2    Freehold interest.


                                     - 31 -

<PAGE>

3    This project includes,  or is expected to include, a Four Seasons Residence
     Club or a Four Seasons branded residential component.

4    Four Seasons  Residence Club Jackson Hole,  Wyoming may have up to 40 units
     at full build out.

5    In addition to providing  management  services to this property,  we have a
     guarantee or other commitment in respect of this property. See "Off-Balance
     Sheet Arrangements -- Guarantees and Commitments".

6    Includes  approximately 30 cooperative suites leased from individual owners
     and operated as hotel rooms.

7    Leasehold interest.

8    We have a preferred  profits  interest  derived  from  previously  existing
     subordinated  loans to the  resort  of  approximately  US$17.4  million  in
     aggregate  plus a loan in the amount of US$6.0  million  to an entity  that
     owns approximately 85% of the entity that owns the hotel.

9    We anticipate that we will reduce our equity  interest  through a sale to a
     third party.

10   The Regent Jakarta was  re-branded as Four Seasons Hotel Jakarta  effective
     July 14, 2004.

11   Subject  to  satisfaction  of  certain  conditions,  we may  acquire an 18%
     leasehold  interest in conjunction with a proposed expansion and renovation
     of Four Seasons Hotel Istanbul.

12   We have made a loan of  (pound)3  million to the owner of the Four  Seasons
     Hotel Canary Wharf,  which is  convertible  into an equity  interest in the
     hotel on the occurrence of certain events.

13   Four Seasons Hotels Limited ("FSHL") is the tenant of the land and premises
     constituting Four Seasons Hotel London. FSHL has entered into a sublease of
     the hotel with the entity on whose  behalf we manage the hotel.  The annual
     rent payable by FSHL under the lease is the same as the annual rent that is
     payable by the sub-tenant pursuant to the sublease. Indirectly, we now hold
     a 12.5% ownership interest in the sub-tenant.


                                     - 32 -

<PAGE>

PROPERTIES UNDER CONSTRUCTION OR DEVELOPMENT

      We currently have 26 properties under construction or development that are
to be operated  under the Four Seasons name. We expect nine of those  properties
to  include  a  Residence  Club or  other  residential  branded  component.  The
following table provides an overview of these properties:

--------------------------------------------------------------------------------
                                                          TOTAL        CAPITAL
                                                         CAPITAL     COMMITMENT
                                                       COMMITMENT     NOT YET
                                                          AS AT      FUNDED AS
                                                        MARCH 14,   AT MARCH 14,
                                         APPROXIMATE      2005          2005
HOTEL/RESORT/RESIDENCE CLUB               NUMBER OF       (IN           (IN
AND LOCATION(1),(2)                      ROOMS/UNITS    MILLIONS)     MILLIONS)
--------------------------------------------------------------------------------
SCHEDULED 2005/2006 OPENINGS
--------------------------------------------------------------------------------
Four Seasons Hotel Alexandria,             125             --            --
EGYPT(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Damascus,               305           US$5            --
SYRIA
--------------------------------------------------------------------------------
Four Seasons Hotel Doha, QATAR(3)          230           US$4(4)       US$4
--------------------------------------------------------------------------------
Four Seasons Hotel Florence, ITALY         120       (euro)10(4)   (euro)10
--------------------------------------------------------------------------------
Four Seasons Hotel Geneva,                 100          US$19       US$15.4
SWITZERLAND
--------------------------------------------------------------------------------
Four Seasons Hotel Hong Kong,              395             --            --
PEOPLE'S REPUBLIC OF CHINA(3)
--------------------------------------------------------------------------------
Four Seasons Resort Lanai at               100             --            --
Koele, HAWAII, USA
--------------------------------------------------------------------------------
Four Seasons Resort Lanai at               250             --            --
Manele Bay, HAWAII, USA
--------------------------------------------------------------------------------
Four Seasons Resort Langkawi,               90             --            --
MALAYSIA
--------------------------------------------------------------------------------
Four Seasons  Resort  Maldives at          115           US$4          US$4
Landaa Giraavaru, MALDIVES
--------------------------------------------------------------------------------
Four Seasons Hotel Mumbai, INDIA           235             --            --
--------------------------------------------------------------------------------
Four Seasons Residence Club                 35        US$36.8       US$35.7
Punta Mita, MEXICO(5)
--------------------------------------------------------------------------------
Four Seasons Hotel Silicon                 200         US$6.7        US$0.8
Valley at East Palo Alto,
CALIFORNIA, USA
--------------------------------------------------------------------------------
Four Seasons Private Residences             35             --            --
Whistler, BRITISH COLUMBIA,
CANADA(6)
--------------------------------------------------------------------------------
BEYOND 2006
--------------------------------------------------------------------------------
Four Seasons Hotel Baltimore,              200           US$5          US$5
MARYLAND, USA(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Beijing,                325           US$1          US$1
PEOPLE'S REPUBLIC OF CHINA
--------------------------------------------------------------------------------
Four Seasons Hotel Beirut,                 235           US$5          US$5
LEBANON
--------------------------------------------------------------------------------
Four Seasons Resort Bora Bora,             105         US$6.5(4)     US$6.5
FRENCH POLYNESIA
--------------------------------------------------------------------------------
Four Seasons Hotel Dubai, UNITED           250             --            --
ARAB EMIRATES(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Istanbul at             170          US$12(7)    US$10.5
the Bosphorus, TURKEY
--------------------------------------------------------------------------------
Four Seasons Hotel Kuwait City,            225             --            --
KUWAIT
--------------------------------------------------------------------------------
Four Seasons Hotel Moscow,                 210          US$10         US$10
RUSSIA(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Moscow                   80           US$5          US$5
Kamenny Island, RUSSIA(3)
--------------------------------------------------------------------------------


                                     - 33 -

<PAGE>

--------------------------------------------------------------------------------
                                                          TOTAL        CAPITAL
                                                         CAPITAL     COMMITMENT
                                                       COMMITMENT     NOT YET
                                                          AS AT      FUNDED AS
                                                        MARCH 14,   AT MARCH 14,
                                         APPROXIMATE      2005          2005
HOTEL/RESORT/RESIDENCE CLUB               NUMBER OF       (IN           (IN
AND LOCATION(1),(2)                      ROOMS/UNITS    MILLIONS)     MILLIONS)
--------------------------------------------------------------------------------
Four Seasons Resort Puerto Rico,             250          US$10         US$10
PUERTO RICO(3)
--------------------------------------------------------------------------------
Four Seasons Hotel Seattle,                  150           US$5          US$5
WASHINGTON, USA(3)
--------------------------------------------------------------------------------
Four Seasons Resort Vail,                    120           US$6          US$6
COLORADO, USA
--------------------------------------------------------------------------------

1  Information   concerning  hotels,   resorts  and  Residence  Clubs  or  other
   residential  branded  components under  construction or under  development is
   based upon  agreements  and  letters  of intent  and may change  prior to the
   completion of the project.  We have estimated the dates of scheduled openings
   based upon information  provided by the various  developers.  There can be no
   assurance  that the  dates  of  scheduled  openings  will be  achieved,  that
   estimated capital  commitments will not change or that these projects will be
   completed. In particular,  where a property is scheduled to open near the end
   of a year there is a greater  possibility  that the year of opening  could be
   changed.

2  We have made an investment in Orlando,  Florida, which we expect to include a
   Four  Seasons  Residence  Club  and/or  a Four  Seasons  branded  residential
   component.  The  financing  for this project has not yet been  completed  and
   therefore a scheduled opening date cannot be established at this time.

3  We expect this project to include a Four Seasons Residence Club and/or a Four
   Seasons branded residential component.

4  All or a portion of the  capital  commitment  is to be  provided by way of an
   operating  deficit loan that may or may not be required to be funded.  In the
   case of Four Seasons Hotel Doha, Four Seasons Hotel Florence and Four Seasons
   Resort Bora Bora, we do not expect the operating deficit loans that we are to
   provide  to  exceed  US  $4  million,  (euro)10  million  and  US$4  million,
   respectively, if they are funded.

5  Four Seasons Residence Club Punta Mita remains under development  adjacent to
   Four Seasons Resort Punta Mita.

6  Four Seasons Private  Residences  Whistler are under development  adjacent to
   Four Seasons Resort Whistler.

7  This capital commitment relates to our purchase of an equity interest in Four
   Seasons Hotel  Istanbul at the Bosphorus as well as the existing Four Seasons
   Hotel Istanbul.


                                     - 34 -

<PAGE>

                                THREE-YEAR REVIEW

--------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS EXCEPT                   2004        2003        2002(1)
PER SHARE AMOUNTS)
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
--------------------------------------------------------------------------------
Consolidated revenues(2),(3)                   $339.8      $313.6      $339.1
--------------------------------------------------------------------------------
Management operations:
--------------------------------------------------------------------------------
   Revenues (excluding reimbursed              $145.8      $120.5      $118.7
   costs(3))
--------------------------------------------------------------------------------
   Management earnings before                   101.0        79.5        82.0
   other operating items
--------------------------------------------------------------------------------
Ownership and corporate
operations:
--------------------------------------------------------------------------------
   Revenues                                     126.7       123.2       141.3
--------------------------------------------------------------------------------
   Distribution from hotel                        0.4         0.2         1.3
   investments
--------------------------------------------------------------------------------
   Ownership and corporate loss                 (21.6)      (30.1)      (19.6)
   before other operating items
--------------------------------------------------------------------------------
Earnings before other operating                  79.4        49.5        62.4
items(4)
--------------------------------------------------------------------------------
Depreciation and amortization                   (15.3)      (15.0)      (14.8)
--------------------------------------------------------------------------------
Other expense, net(5)                           (16.1)      (25.8)      (22.9)
--------------------------------------------------------------------------------
Earnings from operations(6)                      48.0         8.7        24.7
--------------------------------------------------------------------------------
Interest income, net                              1.5         3.4         3.2
--------------------------------------------------------------------------------
Earnings before income taxes(7)                  49.5        12.0        27.9
--------------------------------------------------------------------------------
Income tax expense                              (16.3)       (6.6)       (6.7)
--------------------------------------------------------------------------------
Net earnings                                    $33.2        $5.4       $21.2
--------------------------------------------------------------------------------
Earnings per share:
--------------------------------------------------------------------------------
   Basic                                        $0.93       $0.15       $0.61
--------------------------------------------------------------------------------
   Diluted                                      $0.89       $0.15       $0.59
--------------------------------------------------------------------------------
Weighted average number of shares
(millions):
--------------------------------------------------------------------------------
   Limited Voting Shares                         31.8        31.1        31.1
--------------------------------------------------------------------------------
   Variable Multiple Voting Shares                3.8         3.9         4.0
--------------------------------------------------------------------------------
CASH FLOW DATA:
--------------------------------------------------------------------------------
Cash provided by operations                     $57.4       $66.0       $41.8
--------------------------------------------------------------------------------
Cash provided by (used in)                      125.7         3.9       (13.3)
financing
--------------------------------------------------------------------------------
Cash used in capital investments                (54.9)      (40.1)      (74.3)
--------------------------------------------------------------------------------
BALANCE SHEET DATA:
--------------------------------------------------------------------------------
Cash and cash equivalents                      $272.5      $170.7      $165.0
--------------------------------------------------------------------------------
Total assets                                  1,085.8       946.7       991.4
--------------------------------------------------------------------------------
Long-term obligations                           309.1       120.1       129.1
--------------------------------------------------------------------------------
Shareholders' equity                            704.0       765.5       801.2
--------------------------------------------------------------------------------
OTHER DATA:
--------------------------------------------------------------------------------
Total revenues of all managed                $2,912.0    $2,600.4    $2,845.4
hotels and resorts(8)
--------------------------------------------------------------------------------
Management operating margin(9)                   69.3%       66.0%       69.0%
--------------------------------------------------------------------------------
Management earnings before other                127.2%      160.8%      131.4%
operating items as a percentage
of earnings before other
operating items
--------------------------------------------------------------------------------
Market price per share at                      $98.11      $66.33      $44.40
year-end
--------------------------------------------------------------------------------
Cash dividends declared per share:
--------------------------------------------------------------------------------
   Limited Voting Shares                       $ 0.11       $0.11       $0.11
--------------------------------------------------------------------------------
   Variable Multiple Voting Shares             $0.055      $0.055      $0.055
--------------------------------------------------------------------------------
Shares outstanding (millions):
--------------------------------------------------------------------------------


                                     - 35 -

<PAGE>
--------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS EXCEPT                   2004        2003        2002(1)
PER SHARE AMOUNTS)
--------------------------------------------------------------------------------
   Limited Voting Shares                         32.9        31.4        30.9
--------------------------------------------------------------------------------
   Variable Multiple Voting Shares                3.7         3.8         4.0
--------------------------------------------------------------------------------
Market capitalization at year-end            $3,591.7    $2,337.6    $1,548.5
--------------------------------------------------------------------------------
Employees(10)                                  31,300      28,640      27,720
--------------------------------------------------------------------------------

1     In December 2003, the Canadian Institute of Chartered Accountants ("CICA")
      amended  Section 3870 of its  Handbook to require  entities to account for
      employee  stock  options  using  the fair  value-based  method,  beginning
      January 1, 2004. In accordance with one of the  transitional  alternatives
      permitted  under amended Section 3870, we have  prospectively  adopted the
      fair value-based  method to all employee stock options granted on or after
      January 1, 2003. Accordingly,  options granted prior to that date continue
      to be accounted for using the settlement  method, and results for the year
      ended  December  31,  2002  have  not  been  restated.   The   prospective
      application of adopting the fair value-based  method effective  January 1,
      2003 resulted in a decrease in net earnings of $0.9 million and a decrease
      in basic and diluted earnings per share of $0.03 and $0.02,  respectively,
      for the year ended December 31, 2003.

2     Consolidated   revenues  are   comprised  of  revenues   from   management
      operations,   revenues  from   ownership  and  corporate   operations  and
      distributions  from  hotel  investments,  less  fees  from  ownership  and
      corporate operations to management operations.

3     As a result of  adopting  Section  1100,  "Generally  Accepted  Accounting
      Principles",  which was issued by the CICA,  and was effective  January 1,
      2004, we have included the reimbursement of all out-of-pocket  expenses in
      both revenues and expenses instead of recording  certain  reimbursed costs
      as a "net" amount.  The change in the  accounting  treatment of reimbursed
      costs resulted in an increase in consolidated  revenues for the year ended
      December 31, 2004 of $41.3  million  (2003 - $45.2  million;  2002 - $54.5
      million), but did not have an impact on net earnings.

4     Earnings  before other  operating  items is equal to net earnings plus (i)
      income tax expense plus (ii) interest  expense less (iii) interest  income
      plus (iv) other expense less (v) other income plus (vi)  depreciation  and
      amortization.  Earnings  before other  operating  items is not intended to
      represent cash flow from  operations,  as defined by Canadian GAAP, and it
      should not be considered as an alternative to net earnings, cash flow from
      operations or any other  measure of  performance  prescribed by GAAP.  Our
      earnings  before  other  operating  items  may also not be  comparable  to
      earnings before other operating items used by other  companies,  which may
      be calculated  differently.  We consider  earnings  before other operating
      items to be a meaningful  indicator of operations  and use it as a measure
      to assess our operating performance.  It is included because we believe it
      can be useful in  measuring  our  ability to service  debt,  fund  capital
      expenditures  and expand our  business.  Earnings  before other  operating
      items is also used by investors,  analysts and our lenders as a measure of
      our financial performance.

5     Other expense,  net is comprised of foreign exchange gain/loss,  gain/loss
      on  sale  of  investments,  recovery  of/provision  for  loss,  legal  and
      enforcement costs and loss on redemption of LYONs.

6     Earnings from operations  represent  earnings before other operating items
      less (i) depreciation  and amortization  plus (ii) other income less (iii)
      other expense.

7     Earnings before income taxes  represent  earnings from operations plus (i)
      interest income less (ii) interest expense.

8     Total  revenues of all managed hotels and resorts  consist of rooms,  food
      and beverage,  telephone and other  revenues of all the hotels and resorts
      that we manage.

9     Management  operating margin represents  management  earnings before other
      operating  items,  as  a  percentage  of  management  revenues,  excluding
      reimbursed costs.

10    We directly employ, and are financially responsible for, approximately 500
      people at our  various  corporate  offices,  worldwide  sales  offices and
      central reservations offices. In addition,  there are approximately 30,800
      employees  located at the 63 hotels and resorts and three  Residence Clubs
      that we manage.  All costs  relating  to these  property-based  employees,
      including  wages,  salaries  and health and  insurance  benefits,  are the
      responsibility  of the property  owners and are generally  paid out of the
      operating cash flow of the property.


                                     - 36 -

<PAGE>

                                 OPERATING RISKS

      Our business is subject to many risks and  uncertainties,  including those
discussed below.

GEOPOLITICAL, ECONOMIC AND LODGING INDUSTRY CONDITIONS

      We focus exclusively on the luxury segment of the lodging industry,  which
is subject to operating  risks  inherent in the industry.  These risks  include,
among other things:

      o    changes  in  general,  local  and  industry-specific   economic  and
           financial conditions, such as the airline industry,

      o    periodic overbuilding in the industry or a specific market,

      o    varying levels of demand for rooms and related  services  (including
           food and beverage and function space),

      o    competition from other properties,

      o    changes in travel patterns,

      o    the recurring need for renovation,  refurbishment and improvement of
           hotel and resort properties,

      o    changes in wages,  benefits,  prices,  construction  and maintenance,
           insurance  and  operating  costs that may result  from  inflation  or
           otherwise,

      o    government regulations,

      o    changes in taxes and interest rates,

      o    currency fluctuations,

      o    the  availability  and cost of  financing  for  operating or capital
           requirements,

      o    natural disasters,

      o    extreme weather conditions,

      o    labour disputes,

      o    infectious diseases, and

      o    war, civil unrest,  terrorism,  international conflict and political
           instability.

      We operate and own luxury  hotels,  resorts and other serviced and branded
residential  projects in many areas of the world and our revenues are  dependent
upon the results of the individual  properties.  The conditions listed above can
have,  and have  from  time to time  had,  a  significant  adverse  impact  upon
individual  properties or particular  regions. A period of economic recession or
downturn in any of the world's primary  outbound travel markets could materially
and  adversely  affect,  and have from  time to time  materially  and  adversely
affected, our business, results of operations and financial condition, including
fee revenue and  ownership  earnings.  An economic  downturn  generally  affects
ownership results to a significantly  greater degree than management results due
to the high fixed costs associated with hotel ownership.


                                     - 37 -

<PAGE>

COMPETITION

      The luxury segment of the hotel and resort  industry is subject to intense
competition,  both  for  guests  and  for  the  acquisition  of  new  management
agreements.  Competition  for guests  arises  primarily  from other luxury hotel
chains,  individual  luxury  hotels and resorts  and a limited  number of luxury
properties  operated by larger hotel chains. That competition is primarily based
on, among other things, brand name recognition, location, room rates and quality
of service and  accommodations.  Demographic,  geographic  and other  changes in
specific market conditions could materially and adversely affect the convenience
or  desirability  of the locales in which  hotels and resorts that we manage are
located.

      We compete for management  opportunities  with other hotel  operators.  We
believe that our ability to obtain  management  agreements is based primarily on
the value and quality of our management services, brand name recognition and the
economic  advantages to the hotel owner of retaining our management services and
using our brand name. We also believe that an owner's assessment of the economic
advantages of retaining our management  services and using our brand name is, in
part,  a function  of the  success of the hotels  and  resorts  currently  under
management  by us.  Competitive  factors also include  relationships  with hotel
owners and investors,  marketing  support,  reservation  system capacity and the
ability  to  make  investments  that  may  be  necessary  to  obtain  management
agreements.  Our failure to compete successfully for expansion  opportunities or
to attract and maintain relationships with current hotel owners could materially
and  adversely  affect  our  business,   results  of  operations  and  financial
condition.

DEPENDENCE ON MANAGEMENT AGREEMENTS

      Management  agreements  expire in the ordinary course,  and may in certain
circumstances  be renegotiated and be subject to termination upon the occurrence
of specified  events.  Failure to obtain new  management  agreements or maintain
existing  management  agreements  could  materially  and  adversely  affect  our
business,  results of operations and financial  condition.  We manage hotels and
resorts for various  owners subject to the terms of each  property's  management
agreements.  Those agreements  generally can be terminated by the non-defaulting
party upon default in payment or unremedied  failure to comply with the terms of
the agreements  unless,  in most cases,  such default or unremedied  failure was
caused by typical force majeure  events.  Most of the management  agreements are
subject to performance  tests that, if not met, could allow the agreements to be
terminated by the owner prior to the expiration of their  respective  terms. The
failure to maintain  the  standards  specified  in the  agreement or to meet the
other terms and conditions of an agreement,  including a performance test, could
result in the loss or cancellation of a management agreement. Typically, but not
in all cases,  we have  certain  rights to cure a default to avoid  termination.
Substantially  all of the management  agreements  include  typical force majeure
events,  which,  if they were to occur  would  prevent  the  termination  of the
management agreements. Some management agreements also can be terminated subject
to a payment to us if the  property is sold by the owner to a new owner who does
not wish to retain the existing agreement.

      In the  event of  bankruptcy  involving  a  property  and  foreclosure,  a
management agreement may be terminated in most jurisdictions,  unless the lender
has executed a  non-disturbance  agreement that is enforceable  under applicable
bankruptcy laws. We generally have  non-disturbance  agreements with the lenders
to  owners  of hotels  and  resorts  that we  manage.  Where no  non-disturbance
agreement is in place or where it is not enforceable under applicable bankruptcy
laws,  the risk of loss of a  management  agreement  increases  where  debt that
cannot be serviced adequately is incurred by the owner at the property level. In
some  jurisdictions,  particularly in the United States,  management  agreements
have  been  construed  by  courts  to  create  an  agency  relationship  that is
terminable by the owner,  notwithstanding  any  provision of the agreement  that
purports to make the agreement not terminable under such


                                     - 38 -

<PAGE>

circumstances. In such circumstances, we would generally have an unsecured claim
for  breach  of  contract  against  the  owner of the  hotel or its  trustee  in
bankruptcy.

      Management  agreements  for hotels and  resorts we manage  currently  have
remaining  terms  (including   extension  periods  at  our  election)  averaging
approximately  52 years.  Renewal of  management  agreements at the end of their
term is the subject of negotiation between us and the relevant owners. There can
be no assurance that any particular  management  agreement or agreements will be
renewed or with respect to the terms and conditions of any renewal.

DEPENDENCE ON PROPERTY OWNERS

      As a result of our strategic decision to focus on management as opposed to
ownership of hotel and resort properties, our growth opportunities are dependent
in part on our ability to establish and maintain satisfactory  relationships and
enhance those relationships with existing and new property owners.  Those growth
opportunities  are also  dependent on access to capital by these  investors.  In
2004, no owner had interests in any combination of hotels,  resorts and serviced
and branded  residential  properties managed by Four Seasons that represented in
excess of 10% of our total  consolidated  revenues.  A failure by us to maintain
satisfactory  relationships  with any owner or owners of a significant number of
properties  could have a material  adverse  effect on our  business,  results of
operations and financial condition.

RISK ASSOCIATED WITH EXPANSION, GROWTH AND NEW CONSTRUCTION

      An element of our  business  strategy is to increase  the number of hotels
and resorts  under  management.  That  expansion is  dependent  upon a number of
factors,  including the identification of appropriate management  opportunities,
competing   successfully  for  the  management   agreements  relating  to  those
opportunities,  availability  of  financing  for  new  developments  and  timely
completion of  construction of new hotels and resorts (or the  refurbishment  of
existing properties) that are, or are to be, managed by us.

      From time to time, the hotel industry has experienced periods during which
financial  institutions  generally have been reluctant to provide  financing for
the construction of real estate properties,  including hotels and resorts. There
can be no  assurance  that we will be able to obtain  financing  for projects or
that the terms on which such financing can be obtained will be acceptable to us.
The inability to obtain financing for a project could cause  cancellation of, or
short-term  interruption  in, the progress or  completion  of  properties  under
construction or development.

      Additionally,  any construction  project entails significant  construction
risks  that  could  delay or result  in a  substantial  increase  in the cost of
construction.  The opening of newly constructed  properties,  in particular,  is
contingent upon, among other things,  receipt of all required licences,  permits
and  authorizations,  including  local  land use  permits,  building  and zoning
permits,  health and safety permits and liquor licences.  Changes or concessions
required by regulatory  authorities  could also involve  significant  additional
costs and delays or prevent  completion of construction or opening of a project.
As a result of the global nature of our business, these regulatory matters arise
in a number of jurisdictions, many of which have distinctive regulatory regimes.


                                     - 39 -

<PAGE>

INVESTMENTS IN AND ADVANCES TO MANAGED AND OWNED PROPERTIES

      We have made  investments  in, and/or  advances in respect of or to owners
of,  several of the hotels and resorts  that we manage,  to enable us to acquire
the management  agreements for those properties or to enhance the terms of those
agreements.  Currently,  we hold an ownership or leasehold  interest in, or have
made  advances in respect  of, 30 of the 64 hotels and  resorts  that we manage,
including a 100% leasehold  interest in each of Four Seasons Hotel Vancouver and
The Pierre in New York.  We also have made,  or expect to make in the near term,
investments  in,  or  advances  in  respect  of or to  owners  of,  17 of the 26
properties under construction or development. In addition, we have an investment
in three  Four  Seasons  Residence  Club  properties.  The  book  value of total
investments and advances as at December 31, 2004 was approximately $564 million.

      In addition to the risks  associated with the operation of a hotel, we are
subject  to risks  generally  related  to  owning  and  leasing  real  estate in
connection with these  properties.  These risks include,  among others,  adverse
changes in general  or local  economic  conditions,  local  real  estate  market
conditions,  property and income taxes,  interest rates, the availability,  cost
and terms of financing, the financial stability of the property owner, liability
for  long-term  lease  obligations,  the  availability  and  costs of  insurance
coverage,  the potential for uninsured  casualty and other losses, the impact of
present or future  legislation  or regulation  (including  those relating to the
environment),  adverse  changes  in  zoning  laws and other  regulations,  civil
unrest, terrorism, war and political instability. In addition, these investments
in real  estate  are  relatively  illiquid  and our  ability  to  dispose of our
ownership  interests,  particularly  our  leasehold  interests,  in  response to
changes in economic or other  conditions  may be limited.  Further,  advances to
owners of  properties  are  typically  subordinated  and,  in any event,  may be
subject to loss in the event of  insolvency of the owner to which an advance was
made. Any of these factors could result in material  operating losses by us or a
particular  hotel or resort and possibly the whole or partial loss of our equity
investment  in the property or the  inability to collect  advances  outstanding.
Holding an interest in a hotel also introduces  risks associated with funding of
capital  expenditures  and  incurring our  proportionate  share of any operating
losses. Where cash and working capital reserves provided by hotel operations are
insufficient,   debt  service,  major  repairs,   renovations,   refurbishments,
alterations or other capital expenditures generally must be funded by the owners
of the hotels and resorts, including us in some cases.

DEBT RATING RISKS

      Our  corporate  rating is  currently  investment  grade (BBB-) as rated by
Standard & Poor's.  Our senior  unsecured debt is currently  rated by three debt
rating agencies (Standard & Poor's: BBB- with stable outlook; Moody's: Baa3 with
stable outlook;  Dominion Bond Rating Services:  BBB- with stable outlook). As a
result of current global economic and political  events, it is possible that the
rating  agencies may downgrade the rating and/or outlook for many of the lodging
companies,  which  would  result  in an  increase  in our  borrowing  costs.  In
addition,  pricing  of any  amounts  drawn  under  our  syndicated  bank  credit
facilities (which are undrawn but under which US$10.9 million ($13.1 million) of
letters of credit were issued at December 31,  2004)  includes a spread to LIBOR
ranging  between  0.875% and 2.25%,  depending  upon the ratings from Standard &
Poor's and Moody's and certain financial ratios.

GOVERNMENT REGULATION

      We are subject to laws,  ordinances  and  regulations  relating  to, among
other things, taxes, environmental matters, the preparation and sale of food and
beverages,  accessibility  for disabled  persons and general building and zoning
requirements in the various jurisdictions in which we manage hotels and resorts.
Owners and managers of hotels and resorts also may be subject to laws  governing
the


                                     - 40 -

<PAGE>

relationship  with employees,  including  minimum wage  requirements,  overtime,
working conditions and work permit requirements.  Compliance with these laws can
affect the  revenues  and profits of hotels and  resorts  managed by us or could
materially  and  adversely  affect  our  business,  results  of  operations  and
financial condition.

      Four  Seasons,  as the  current or  previous  owner or operator of certain
hotels,  could be liable for  investigation  and clean-up of  contamination  and
other  corrective  or  remedial  action  under  various  laws,   ordinances  and
regulations relating to environmental matters. These laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the  condition  requiring  environmental  response  and  whether  the  party  is
currently  or formerly  the owner or manager of the  property.  The  presence of
contamination  from  hazardous or toxic  substances,  or the failure to properly
remediate a  contaminated  property,  may affect the ability to use the property
for its intended purpose,  to sell or rent the property,  or to borrow using the
property as  collateral.  Persons who arrange for the  disposal or  treatment of
hazardous  or toxic  substances  also may be liable  for the cost of  removal or
remediation of substances at the disposal or treatment  facility.  In connection
with the operation and ownership of various properties,  we could be held liable
for the cost of remedial action with respect to  environmental  matters.  We are
not aware of any potential material environmental  liabilities for which we will
be responsible  with respect to any of the properties  which we currently manage
or previously managed.

      Pursuant to the management  agreements to which we are a party,  the owner
is responsible for the costs and expenses of the employees at each hotel and for
all costs, expenses and liabilities incurred in connection with the operation of
the hotel,  including  compliance with government  regulations.  However, as the
manager,  we may be  contingently  liable for certain  liabilities in respect of
which we do not maintain  insurance,  including  certain  workers'  compensation
claims,  environmental  liabilities  and,  in  respect  of hotels in the  United
States, claims arising under the AMERICANS WITH DISABILITIES ACT.

      We  generally  obtain  indemnities  from the owners of the hotels  that we
manage  in  respect  of these  liabilities.  The value of those  indemnities  is
dependent upon,  among other things,  the financial  condition of the owners who
have provided them.

POLITICAL RISK

      We currently  manage and/or have an equity  interest in hotels and resorts
in 28 countries and currently have development  plans to open hotels and resorts
in nine additional  countries  around the world. In certain of these  countries,
from time to time,  the related  assets and revenues may be exposed to political
and other risks associated with foreign investment.  In some  jurisdictions,  at
certain  times,  there may be a risk that we may have  difficulty  enforcing our
contractual  rights  relating  to  our  assets  including  our   non-disturbance
agreements and any security  relating to our loan  receivables if due process of
law is not respected.

INSURANCE

      All hotels and resorts  managed by us are  required to be insured  against
property damage, business interruption and liability at the expense of the owner
of the property. Under these policies we are also typically insured against loss
of fee income in the event of a temporary  business  interruption  at any of the
hotels and resorts that we manage. In addition,  we obtain  indemnities from the
owners of the hotels and resorts that we manage in respect to damages  caused by
acts,  omissions  and  liabilities  of the  employees of the property or of Four
Seasons,  other than damages  resulting from certain actions of Four Seasons and
certain  senior  management  personnel.  If we  were  held  liable  for  amounts
exceeding the limits of our insurance  coverage or for claims  outside the scope
of that  coverage  or if the  indemnities  were  insufficient


                                     - 41 -

<PAGE>

for any reason,  including as a result of the owner's or indemnitor's  financial
condition, our business,  results of operations and financial condition could be
materially and adversely affected.

Events of September 11, 2001 severely affected an already  tightening  insurance
market.  Premiums have  increased  and  underwriters  are imposing  increasingly
restrictive  terms and  conditions.  All lines of coverage  generally  have been
affected;  however,  commercial  properties  generally  continue  to be the most
difficult to insure.  Exposures for terrorism,  cyber perils and toxic mould are
now common exclusions.

LEGAL PROCEEDINGS

      In the  ordinary  course of our  business,  we are named as a defendant in
legal proceedings  resulting from incidents taking place at properties we own or
manage. We maintain comprehensive liability insurance and also require owners to
maintain adequate insurance coverage. We believe such coverage to be of a nature
and amount sufficient to ensure that we are adequately  protected from suffering
material financial loss as a result of such claims.

CURRENCY EXPOSURE

      We  have  entered  into  management  agreements  with  respect  to  hotels
throughout the world and record sales and  liabilities  in the local  currencies
for many of these hotels.  We report our results in Canadian  dollars.  However,
our most  relevant  currency  risk is in US  dollars,  as more  than half of our
revenues and assets currently are US dollar-denominated,  as are the majority of
our long-term obligations and investment  commitments.  As a result, our results
and financial  position are affected by foreign exchange rate  fluctuations and,
most  significantly,  changes  in  the  value  of  the US  dollar  through  both
translation  risk (which is the risk that financial  statements for a particular
period or as of a certain  date depend on the  prevailing  exchange  rate of the
various  currencies  against the US dollar) and  transaction  risk (which is the
risk that the currency of costs and  liabilities  fluctuates  in relation to the
currency of revenues and assets,  which may materially and adversely  affect our
business,  results of operations and financial  condition).  With respect to the
translation risk, the fluctuations of currencies against the Canadian dollar can
be substantial,  and our reported  results could  fluctuate  materially and have
fluctuated materially as a result of foreign exchange fluctuations.

      We endeavour to match foreign currency revenues to costs,  liabilities and
investment  commitments  to  provide a natural  hedge  against  translation  and
transaction  risks,  although there can be no assurance that these measures will
be effective in the  management of those risks.  We also endeavour to manage our
currency  exposure  through,  among other  things,  the use of foreign  exchange
forward  contracts.  In  addition,  certain  currencies  are subject to exchange
controls or are not freely tradeable and as a result are relatively illiquid. We
attempt to minimize our foreign  currency risk by monitoring  our cash position,
keeping fee receivables  current,  monitoring the political and economic climate
and considering  whether to insure  convertibility risk in each country in which
we manage a property.  In certain hotels, the foreign currency risks are further
mitigated by pricing room rates in US dollars.  However,  no  assurances  can be
given as to  whether  our  strategies  relating  to  currency  exposure  will be
successful or that foreign exchange  fluctuations will not materially  adversely
affect our business, results of operations and financial condition.

SEASONALITY

      Our hotels  and  resorts  are  affected  by  normally  recurring  seasonal
patterns and, for most of the  properties,  demand is lower in December  through
March than during the remainder of the year.


                                     - 42 -

<PAGE>

      Management operations are seasonal in nature, as fee revenues are affected
by the  seasonality of hotel and resort  revenues and operating  results.  Urban
hotels generally  experience  lower revenues and operating  results in the first
quarter,  which has a negative  impact on  management  revenues.  However,  this
negative impact on management  revenues  generally is offset, to some degree, by
increased  travel  to  resorts  in that  quarter  and may be offset to a greater
extent as the portfolio of resort properties that we manage increases.  In 2002,
this normal  seasonality was also affected by the delayed recovery in the global
economy, and ongoing geopolitical  concerns,  which have continued to negatively
affect business travel on a global basis. In addition, specific local events can
cause,  and from  time to time have  caused,  unanticipated  disruptions  to the
operations of certain of our properties.

      Our   ownership   operations   are   particularly   affected  by  seasonal
fluctuations,  with lower revenue,  operating  profit and cash flow in the first
quarter;  ownership  positions  typically  incur an operating  loss in the first
quarter of each year. Typically, the fourth quarter is the strongest quarter for
the majority of the hotels,  although  this was not true in 2001, as a result of
the  terrorist  attacks in the United  States,  nor in 2002,  as a result of the
difficult economic environment and continued geopolitical instability.

INTELLECTUAL PROPERTY

      In the highly  competitive  service  industry in which we  operate,  trade
names,  trademarks,  service marks and logos are very important in the sales and
marketing  of those  services.  We have a  significant  number  of trade  names,
trademarks,  service  marks and  logos,  and  significant  time and  effort  are
expended each year on  surveillance,  registration  and  protection of our trade
names,  trademarks,  service marks and logos. The loss or infringement of any of
our trade names,  trademarks,  service marks and logos could have a material and
adverse effect on our business, results of operations and financial condition.

RISKS ASSOCIATED WITH RESIDENCE CLUB BUSINESS

      We currently  operate three Residence Clubs. We are expanding our presence
in the luxury segment of the interval and fractional ownership industry,  with a
number of other projects under development.  Our ability to successfully develop
and sell  interests  in  Residence  Clubs that are built,  and the various  fees
earned by us from each Residence Club project, could be materially and adversely
affected by one or any  combination of the factors  described in this "Operating
Risks" section.  Additionally,  the laws of many  jurisdictions  in which we may
sell interests in our Residence Clubs grant  purchasers the right to rescind the
purchase contract at any time within a statutory rescission period.  Although we
believe that we are in compliance in all material  respects with applicable laws
and  regulations  to  which  Residence  Club  marketing,  sales  and  operations
currently are subject,  changes in these  requirements or a  determination  by a
regulatory  authority  that  we  are  not in  compliance  could  materially  and
adversely  affect our business,  results of operations and financial  condition.
Additionally,  if a purchaser  of an  ownership  interest  in a  Residence  Club
defaults, we may not recover the marketing,  selling and general  administrative
costs related to that sale.

DEPENDENCE ON KEY EMPLOYEES

      Our  success  depends  in  part on the  continued  service  of our  senior
executives,  who  have  an  average  of 22  years  of  experience  with  us.  In
particular,  our senior  management is responsible  for the  development  and/or
maintenance  of ongoing  relationships  with new and  existing  investors in the
properties  that are managed by us. The  unanticipated  departure of individuals
responsible for those relationships could have a material and adverse effect on,
among other things, relationships affecting properties that are, or that may be,
managed by us.


                                     - 43 -

<PAGE>

                  CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      The  significant   accounting   policies  used  by  us  in  preparing  our
consolidated  financial  statements are described in note 1 to our  consolidated
financial  statements  and should be read to ensure a proper  understanding  and
evaluation of the estimates and judgments made by management in preparing  those
financial  statements.  Our  consolidated  financial  statements are prepared in
accordance with Canadian GAAP. We also prepare a reconciliation to United States
generally accepted  accounting  principles,  which is included as note 18 to the
consolidated financial statements.

      Although  all of the  policies  identified  in note 1 to the  consolidated
financial  statements are important in understanding the consolidated  financial
statements,  the policies  discussed  below are  considered  by management to be
central to understanding the financial statements because of the higher level of
measurement uncertainties involved in their application.

      INVESTMENTS IN OTHER HOTEL PARTNERSHIPS AND CORPORATIONS (note 1(f) to the
consolidated  financial statements) are cost accounted when, among other things,
we own less than a 20% interest in the project, we have no significant influence
or the  investment  was acquired prior to May 1, 2003 with the intention that it
be disposed of in the foreseeable future.  Beginning January 1, 2005, we will be
required to either equity account or consolidate  our  investments  with greater
than 20% ownership  interest.  See "Four  Seasons  Portfolio --  Description  of
Hotels,  Resorts and Residence  Clubs" for our pro-rata share of these ownership
interests.

      DEFERRED  CHARGES are costs incurred during the  negotiation,  structuring
and  execution  of new  contracts  relating to projects  that,  in  management's
judgment, have a high probability of opening, which are deferred and capitalized
on the balance sheet, as allowed under Canadian GAAP, and are expensed/amortized
when  the  property  is  opened  (note  1(h)  to  the   consolidated   financial
statements).

      REVENUE  RECOGNITION:  INCENTIVE  FEES are accrued as earned  based on the
profitability of the managed  property,  subject to the terms of each individual
management contract. We accrue incentive fees in interim consolidated  financial
statements  based upon the  amount  that  would be due under the  incentive  fee
formula as if the relevant  management  agreement was terminated at the relevant
reporting date. Generally,  on termination,  our management contracts entitle us
to  receive  incentive  fees  earned  up to the  date of  termination.  However,
conditions in the general and local hospitality industry, competition from other
hotels,  changes in travel patterns, and other factors can affect the property's
profitability  in a  subsequent  interim  period,  reducing or  eliminating  the
incentive fee accrued in a previous interim period.

      Under  Canadian  GAAP,  we are also  required  to make  estimates  when we
account  for  and  report  assets,  liabilities,   revenues  and  expenses,  and
contingencies. We are also required to evaluate the estimates that we use.

      We base our estimates on past experience and other factors that we believe
are  reasonable  under the  circumstances.  Because this  process of  estimation
involves  varying  degrees of judgment and  uncertainty,  the amounts  currently
reported  in  the  financial  statements  could,  in  the  future,  prove  to be
inaccurate.

      We believe the following  critical  accounting  estimates involve the more
significant  judgments and estimates used in the preparation of our consolidated
financial statements.


                                     - 44 -

<PAGE>

RECOVERABILITY OF INVESTMENTS

      Estimates   are  required  to  be  used  by   management   to  assess  the
recoverability of our investments in long-term  receivables,  hotel partnerships
and corporations, management contracts, and trademarks and trade names.

      Long-term  receivables are reviewed for impairment when significant events
or circumstances occur, including, but not limited to, the following: changes in
general   economic   trends,   defaults  in  interest  or  principal   payments,
deterioration in a borrower's financial condition or creditworthiness (including
severe losses in the current year or recent years), or a significant  decline in
the value of the  security  underlying  a loan.  We measure  the  impairment  of
long-term  receivables  based on the present value of expected future cash flows
(discounted at the original effective interest rate) or the estimated fair value
of the collateral.  If an impairment  exists, we establish a specific  allowance
for  doubtful  long-term  receivables  for the  difference  between the recorded
investment  and the  present  value of the  expected  future  cash  flows or the
estimated  fair  value  of the  collateral.  We  apply  this  impairment  policy
individually  to  all  long-term  receivables  and do  not  aggregate  long-term
receivables for the purpose of applying this policy.

      Investments in hotel  partnerships  and  corporations  are written down to
their  estimated  recoverable  amount in the event of a decline in value that is
other than temporary.

      Investments  in management  contracts and  investments  in trademarks  and
trade  names  are  reviewed  for  impairment   whenever  events  or  changes  in
circumstances  indicate that the carrying  amount of  investments  in management
contracts or investments  in trademarks and trade names may not be  recoverable.
Recoverability  is  measured  by a  comparison  of the  carrying  amount  of the
investment to estimated  undiscounted future cash flows expected to be generated
by the  investment.  If  the  carrying  amount  of the  investment  exceeds  its
estimated  undiscounted future cash flows, an impairment charge is recognized by
the  amount by which the  carrying  amount of the  investment  exceeds  its fair
value.

      Estimates  of  recoverable  amounts  and  future  cash  flows are based on
estimates of the  profitability  of the related  managed  properties,  which, in
turn,  depend upon  assumptions  regarding  future  conditions in the general or
local hospitality industry,  including competition from other hotels, changes in
travel patterns,  and other factors that affect the properties'  gross operating
revenues and profits. Estimates of recoverable amounts and future cash flows may
also  depend  upon,  among  other  things,   periodic  independent   valuations,
assumptions  regarding local real estate market conditions,  property and income
taxes,  interest rates and the  availability,  cost and terms of financing,  the
impact of present or future  legislation  or  regulation,  debt  incurred by the
properties that rank ahead of debt owed to us, owners'  termination rights under
the terms of the management agreements,  disputes with owners, and other factors
affecting  the   profitability   and  saleability  of  the  properties  and  our
investments.

      These   assumptions,   estimates  and   evaluations  are  subject  to  the
availability of reliable comparable data, ongoing geopolitical  concerns and the
uncertainty of predictions concerning future events.  Accordingly,  estimates of
recoverable  amounts and future cash flows are subjective and may not ultimately
be  achieved.   Should  the  underlying   circumstances  change,  the  estimated
recoverable amounts and future cash flows could change by a material amount.

FIXED ASSETS

      Fixed assets include land, buildings,  furniture,  fixtures, equipment and
leasehold interests and improvements  (including our 100% leasehold interests in
each of The Pierre in New York and Four Seasons Hotel Vancouver),  which are all
recorded at cost. Our fixed assets are reviewed for impairment  whenever  events
or changes in  circumstances  indicate  that  their  carrying  amount may not be
recoverable.  An impairment loss will be recorded if the projected  undiscounted
future cash flows from the fixed  assets are less than the net book value of the
fixed  assets.  Impairment  losses are  measured by the excess of the book value
over the fair value of the asset.  Future cash flows are  forecasted on an asset
specific  basis based on our  intentions  with respect to the asset,  historical
results  and  recent  trends  or  events  that may  impact  the  asset's  future
performance,  including  general economic  conditions.  As discussed above under
"Operational  and  Financial  Review and  Analysis -  Overview -  Ownership  and
Corporate  Operations",  we  continue  to review  our  options in respect of The
Pierre and Four Seasons Hotel Vancouver to determine what, if any,  alternatives
may be available to modify or restructure  our operations of, or investments in,
these hotels.


                                     - 45 -

<PAGE>

RETIREMENT PLAN

      We maintain an unfunded, multi-employer, non-contributory, defined benefit
retirement  plan on behalf of  ourselves  and the owners of most of our  managed
properties (see "Retirement Plan Commitments"  discussed above).  The portion of
the plan applicable to the general managers is the  responsibility of the owners
of properties that such general managers manage.  The accrued benefit  liability
of  $32.8   million  that  is  recorded  on  our  balance  sheet  in  "Long-term
obligations"  as at December 31, 2004,  is net of an allocation of $26.9 million
to the  properties  that we  manage  for  their  share  of the  accrued  benefit
liability  in respect of the general  managers of those  properties.  Due to the
long-term  nature  of  this  plan,  the  calculation  of  benefit  expenses  and
liabilities  depends on various  assumptions,  such as discount rates,  expected
rates of increase in future compensation  levels,  retirement age, mortality and
the  allocation  to  the  properties  that  we  manage.  These  assumptions  are
determined  by management  and are reviewed  annually by the  actuaries.  Actual
future experience that differs from the assumed or future changes in assumptions
may affect the amounts of benefit liability and expense.  For further details on
our retirement  plan expense and liability,  see note 15(b) of our  consolidated
financial statements.

INCOME TAXES

      We account for income taxes using the  liability  method and calculate our
income  tax  provision  based on the  expected  tax  treatment  of  transactions
recorded in our consolidated financial statements. Under this method, future tax
assets and liabilities are recognized based on differences  between the bases of
assets and  liabilities  used for  financial  statement and income tax purposes,
using  substantively  enacted tax rates.  In determining  the current and future
components of the tax  provision,  management  interprets  tax  legislation in a
variety of jurisdictions  and makes assumptions about the expected timing of the
reversal of future tax assets and  liabilities.  If our  interpretations  differ
from those of the tax  authorities,  enacted  tax rates  change or the timing of
reversals is not as anticipated,  the tax provision could materially increase or
decrease in future periods.

      In measuring  the amount of future income tax assets and  liabilities,  we
are  periodically  required to develop  estimates of the tax basis of assets and
liabilities.  In circumstances where the applicable tax laws and regulations are
either unclear or subject to ongoing varying  interpretations,  changes in these
estimates could occur that could materially  affect the amounts of future income
tax assets and liabilities  recorded in our consolidated  financial  statements.
For the year ended  December 31, 2004, the most  significant  tax basis estimate
that would be  affected by  differences  in  interpretation  of tax laws was the
accumulated net operating losses carried forward of $25.4 million.

      For every  material  future tax  asset,  we  evaluate  the  likelihood  of
realization  of some portion or all of the asset.  This  evaluation is based on,
among other things, expected levels of future taxable income and the pattern and
timing of reversals of temporary timing differences that give rise to future tax
assets and liabilities.  If, based on the available evidence,  we determine that
it is more  likely  than not (a  likelihood  of more  than 50%) that all or some
portion  of a future  tax asset  will not be  realized,  we  record a  valuation
allowance  against that asset.  For the year ended December 31, 2004, the future
income tax asset was $4.5 million, net of a valuation allowance of $3.0 million.


                                     - 46 -

<PAGE>

         IMPACT ON 2004 OF RECENTLY ISSUED CANADIAN ACCOUNTING STANDARDS

      The CICA issued  Accounting  Guideline  No. 13,  "Hedging  Relationships",
which   establishes   requirements   for  the   identification,   documentation,
designation and  effectiveness  of hedging  relationships  and was effective for
fiscal years beginning on or after July 1, 2003.  Effective  January 1, 2004, we
ceased  designating  our US dollar forward  contracts as hedges of our US dollar
revenues.  These  contracts  were  entered  into during  2002,  and all of these
contracts  matured during 2004. The foreign exchange gains on these contracts of
$14.6 million,  which were deferred prior to January 1, 2004, were recognized in
2004 as an  increase  of fee  revenues  over the  course of the year.  Effective
January 1, 2004, our US dollar forward contracts are being marked-to-market on a
monthly  basis with the  resulting  changes in fair values  being  recorded as a
foreign  exchange gain or loss. There was no impact on net earnings for the year
ended December 31, 2004 of ceasing to designate our US dollar forward  contracts
as hedges of our US dollar revenues.

      As a  result  of  adopting  the CICA  Section  1100,  "Generally  Accepted
Accounting Principles",  which was issued in 2003 and was effective for 2004, we
began  recording all  reimbursed  costs in revenue on a gross,  rather than net,
basis. These costs include marketing,  reservations, and advertising charges, as
well as the out-of-pocket  expense charges,  which we charge to properties under
management on a cost recovery basis.  For 2003,  reimbursed costs have also been
reclassified on a consistent basis and included in revenues.

      Effective  January 1,  2004,  we also  adopted  the  following  accounting
standards: Accounting for Asset Retirement Obligations, Impairment of Long-Lived
Assets, Revenue Recognition and Revenue Arrangements with Multiple Deliverables.
The  application  of these  accounting  treatments did not have an impact on our
annual consolidated financial statements.

         RECENT CANADIAN ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

      In June 2003, the CICA issued Accounting Guideline No. 15,  "Consolidation
of  Variable  Interest  Entities"  ("AcG-15").  AcG-15  establishes  criteria to
identify variable interest entities ("VIE") and the primary  beneficiary of such
entities.  Entities that qualify as VIEs must be  consolidated  by their primary
beneficiary.  All other holders of significant  variable interests in a VIE must
disclose  the  nature,  purpose,  size and  activity of the VIE as well as their
maximum exposure to losses as a result of involvement with a VIE. AcG-15 will be
effective for our fiscal periods beginning after December 31, 2004. Based on the
current  interpretations  and the analysis  completed to date, we do not believe
that we will be required to consolidate any interest under AcG-15.

TEMPORARY CONTROLLED SUBSIDIARIES

      In December  2002,  in  conjunction  with the  issuance  of Section  3475,
"Disposal of Long-Lived Assets and Discontinued Operations," the CICA eliminated
the exception from  consolidation for a temporary  controlled  subsidiary.  This
change is  effective  for fiscal years  beginning  on or after  October 1, 2004,
irrespective of when those investments  occurred.  Beginning January 1, 2005, we
will be required to either equity  account or  consolidate  our  investments  in
which we have a greater than 20% ownership interest.  In March 2005, we sold the
majority of our 71% equity interest in Four Seasons Residence Club Scottsdale at
Troon North for proceeds  approximating book value. As a result of the sale, our
equity  interest in Four Seasons  Residence  Club  Scottsdale  at Troon North is
below 20%.  We continue to manage  this  property  under a long-term  management
contract.  We anticipate that we will reduce our equity interest to below 20% in
Four Seasons Hotel Shanghai through disposition to a third party during 2005.


                                     - 47 -

<PAGE>

                             ADDITIONAL INFORMATION

      Additional   information  about  us  (including  our  most  recent  Annual
Information Form) is available on SEDAR at www.sedar.com.







































                                     - 48 -