##### 



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

|            |  |  |  |                                                                                        
|----------- |  |  |  | ---------------------------------------------------------------------------------------
|[         ] |  |  |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934   
|OR         
|[   X   ]   |  |  |  | ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|                                            |  |                               
|------------------------------------------- |  | ------------------------------
|For the fiscal year ended December 31, 2002 |  | Commission File Number 1-14574



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FAIRMONT HOTELS & RESORTS INC.

(Exact name of Registrant as specified in its charter)


|                                                                        |  |                                                               |  |                                                  
|----------------------------------------------------------------------- |  | ------------------------------------------------------------- |  | -------------------------------------------------
|CANADA(Province or other jurisdiction of
incorporation or organization) |  | 7011(Primary Standard Industrial Classification
Code Numbers) |  | 98-0161783(I.R.S. Employer Identification Number)

100 Wellington St. W., Suite 1600, TD Center, Toronto, Ontario, Canada M5K 1B7  (416) 874-2600(Address and telephone number of Registrants principal executive offices)

CT Corporation System, 1025 Vermont Avenue N.W., Washington, D.C. 20005  (800) 955-5219(Name, address (including zip code) and telephone number (including area code) of Agent for Service in the United States)

Securities registered pursuant to Section 12(b) of the Act:

|                                           |  |                                          
|------------------------------------------ |  | -----------------------------------------
|Title of Each Class                        |  | Name of Each Exchange on Which Registered
|                                           |  |                                          
|Common Shares without nominal or par value |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this form:

|                             |  |                                         
|---------------------------- |  | ----------------------------------------
|[ x] Annual information form |  | [ x] Audited annual financial statements

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report.

At December 31, 2002, 78,779,622 Common Shares were issued and outstanding.

Indicate by check mark whether the Registrant by filing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the Exchange Act). If Yes is marked, indicate the file number assigned to
the registrant in connection with such Rule.

|        |  |     
|------- |  | ----
|YES
82- |  | NO X

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

|      |  |   
|----- |  | --
|YES X |  | NO





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##### 



PRIOR FILINGS MODIFIED AND SUPERSEDED

The Registrants Annual Report on Form 40-F for the year ended December
31, 2002, at the time of filing with the Securities and Exchange Commission,
modifies and supersedes all prior Annual Reports on Form 40-F for purposes of
any Registration Statement under the Securities Act of 1933 of the Registrant,
including without limitation the following: Form F-9 No. 33-62424, Form F-9
No. 333-11456 and Form S-8 No. 333-13960.

CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENTS DISCUSSION AND ANALYSIS



|A. |  | Audited Annual Financial Statements
|-- |  | -----------------------------------

For consolidated audited financial statements, including the report of
independent chartered accountants with respect thereto, see Annex A attached
hereto and included herein. See Note 26 of the Notes to Consolidated Financial
Statements set forth in such Annex A for a reconciliation of the important
differences between Canadian and United States generally accepted accounting
principles.



|B. |  | Managements Discussion and Analysis
|-- |  | ------------------------------------

For managements discussion and analysis, see Annex A attached hereto and
included herein under the heading Managements Discussion and Analysis.

**********************

Evaluation of Disclosure Controls and Procedures. The Chief Executive
Officer and Chief Financial Officer of the Corporation have evaluated the
effectiveness of the Corporations disclosure controls and procedures (as such
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended (the Exchange Act)), as of a date within 90 days
prior to the date of this report (the Evaluation Date). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Corporations disclosure controls and procedures are effective in alerting them
on a timely basis to material information relating to the Corporation required
to be included in the Corporations reports filed or submitted under the
Exchange Act.

Changes in Internal Controls. Since the Evaluation Date, there have not
been any significant changes in the Corporations internal controls or in other
factors that could significantly affect such controls.

UNDERTAKING

The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to: the securities registered pursuant to Form 40-F; the securities
in relation to which the obligation to file an Annual Report on Form 40-F
arises; or transactions in said securities.



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##### 



SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies
that it meets all of the requirements for filing on Form 40-F and has duly
caused this Annual Report to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Toronto, Province of Ontario, Canada.

| |  |                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------
| |  | FAIRMONT HOTELS & RESORTS INC.                                                                          
| |  |                                                                                                         
| |  | Per: /s/ Terence P. Badour                                                                              
| |  |                                                                                                         
| |  | Terence P. Badour
       Executive Vice President, Law and Administration
       and Corporate Secretary
| |  |                                                                                                         
| |  | Date: May 15, 2003                                                                                      

CERTIFICATIONS

I, William R. Fatt, Chief Executive Officer of Fairmont Hotels & Resorts
Inc., certify that:



|1. |  | I have reviewed the report on Form 40-F of Fairmont Hotels & Resorts
Inc. (the Report);                                                                                                                                                                                                               
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, the Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by the Report;
|  
|3. |  | Based on my knowledge the financial statements, and other financial
information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in the Report;                    
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                   



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the Report is being
prepared;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the Report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in the Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (and persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### 





| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in the
Report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 15, 2003

| |  |                                                     
| |  | ----------------------------------------------------
| |  | /s/ William R. Fatt                                 
| |  |                                                     
| |  | Name: William R. Fatt
Title: Chief Executive Officer

I, M. Jerry Patava, Chief Financial Officer of Fairmont Hotels & Resorts
Inc., certify that:



|1. |  | I have reviewed the report on Form 40-F of Fairmont Hotels & Resorts
Inc. (the Report);                                                                                                                                                                                                               
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, the Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by the Report;
|  
|3. |  | Based on my knowledge the financial statements, and other financial
information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in the Report;                    
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                   



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the Report is being
prepared;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the Report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in the Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the
audit committee of registrants board of directors (and persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls; and                                                                                                                                        



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##### 





|6. |  | The registrants other certifying officer and I have indicated in the
Report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 15, 2003

| |  |                                                     
| |  | ----------------------------------------------------
| |  | /s/ M. Jerry Patava                                 
| |  |                                                     
| |  | Name: M. Jerry Patava
Title: Chief Financial Officer



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##### 



DOCUMENTS FILED AS PART OF THIS REPORT



|1. |  | Annual Information Form of Fairmont Hotels & Resorts Inc. for the year
ended December 31, 2002.                                                                                                               
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Audited Consolidated Financial Statements of Fairmont Hotels & Resorts
Inc. as of December 31, 2002 and for each of the three years then ended
and the related Managements Discussion and Analysis (Annex A).

LIST OF EXHIBITS



|A.   |  | Consent of PricewaterhouseCoopers, Independent Accountants.                                                          
|---- |  | ---------------------------------------------------------------------------------------------------------------------
|    
|99.1 |  | Certification of William R. Fatt, Chief Executive Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 
|    
|99.2 |  | Certification of M. Jerry Patava, Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.





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(FAIRMONT HOTELS & RESORTS LOGO)

FAIRMONT HOTELS & RESORTS INC.

ANNUAL INFORMATION FORM

May 1, 2003





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TABLE OF CONTENTS

|                                                                                 |  |  |    | 
|-------------------------------------------------------------------------------- |  |  | -- | 
|FORWARD-LOOKING INFORMATION                                                      |  |  | 1  | 
|RISK FACTORS                                                                     |  |  | 2  | 
|CURRENCY EXCHANGE RATES                                                          |  |  | 9  | 
|ITEM 1: CORPORATE STRUCTURE                                                      |  |  | 10 | 
|ITEM 2: GENERAL DEVELOPMENT OF THE BUSINESS                                      |  |  | 10 | 
|ITEM 3: NARRATIVE DESCRIPTION OF THE BUSINESS                                    |  |  | 12 | 
|ITEM 4: SELECTED CONSOLIDATED FINANCIAL INFORMATION                              |  |  | 35 | 
|ITEM 5: MANAGEMENTS DISCUSSION AND ANALYSIS                                     |  |  | 37 | 
|ITEM 6: DESCRIPTION OF SHARE CAPITAL, DIVIDEND POLICY AND MARKETS FOR
SECURITIES |  |  | 37 | 
|ITEM 7: DIRECTORS AND SENIOR OFFICERS                                            |  |  | 37 | 
|ITEM 8: ADDITIONAL INFORMATION                                                   |  |  | 41 | 

Notes:



|(1) |  | In this Annual Information Form, all dollar amounts are in United States dollars unless stated otherwise.
|--- |  | ---------------------------------------------------------------------------------------------------------
|   
|(2) |  | In this Annual Information Form, information is given as at May 1, 2003 unless stated otherwise.         




FORWARD-LOOKING INFORMATION

This Annual Information Form contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
(United States) relating, but not limited, to Fairmont Hotels & Resorts Inc.
and its subsidiaries (FHR or the Corporation) operations, anticipated
financial performance, business prospects and strategies. Forward-looking
information typically contains statements with words such as anticipate,
believe, expect, plan or similar words suggesting future outcomes.

Readers are cautioned not to place undue reliance on forward-looking
information because it is possible that predictions, forecasts, projections and
other forms of forward-looking information will not be achieved by FHR. By its
nature, the Corporations forward-looking information involves numerous
assumptions, inherent risks and uncertainties including, but not limited to,
the following factors: adverse factors generally encountered in the lodging
industry; significant regulation of the lodging industry; the risks associated
with environmental regulation; the risks associated with real estate
investments; the risks associated with world events including war, terrorism,
international conflicts and contagious illness outbreaks; significant
competition; failure to obtain new or maintain existing management contracts;
FHRs acquisition, expansion and development strategy being less successful
than expected; the seasonality of FHRs business and operations; the impact of
extreme weather conditions and natural





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disasters; the potential negative effects of strikes and work stoppages;
vacation ownership is subject to extensive regulation; currency fluctuations;
debt financing risks; FHRs ability to obtain capital to finance the growth of
its business; potential covenants in FHRs financing agreements limiting its
discretion; and the inability of FHR to assure investors that a judgment of a
United States court for liabilities under U.S. securities laws would be
enforceable in Canada, or that an original action can be brought in Canada by
investors for liabilities under U.S. securities laws.

The Corporation undertakes no obligation to update publicly or otherwise
revise any forward-looking information, whether as a result of new information,
future events or otherwise, or the foregoing list of factors affecting such
information.

RISK FACTORS

This section describes some, but not all, of the risks associated with an
investment in FHRs securities. The order in which these risks are listed does
not necessarily indicate their relative importance. Investors should carefully
consider these risks in addition to the other information contained in this
Annual Information Form.

If any event arising from these risks occurs, FHRs business, prospects,
financial condition, results of operations or cash flows could be materially
adversely affected, and therefore the market price of the Corporations
securities could decline.

FHRs operations are subject to adverse factors generally encountered in the lodging industry.

The Corporation manages and owns hotels and resorts in both the luxury and
first-class segments of the lodging industry. This subjects FHR to the
operating risks inherent in the industry. In addition to the other risk
factors discussed in more detail elsewhere in this Annual Information Form,
these risk factors include:



| |  |  | cyclical downturns arising from changes in general and local economic
conditions;                                                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | varying levels of demand for rooms and related services caused by
changes in popular travel patterns;                                                                   
|
| |  |  | the financial condition of the airline industry and the resulting
impact on air travel;                                                                                 
|
| |  |  | periodic local oversupply of guest accommodations, which may
adversely affect occupancy rates and room rates achieved;                                                  
|
| |  |  | competition from other luxury and first-class hotels and resorts;                                                                                                       
|
| |  |  | the impact of internet intermediaries on pricing;                                                                                                                       
|
| |  |  | the recurring need for the renovation, refurbishment and improvement
of hotel and resort properties;                                                                    
|
| |  |  | changes in wages, prices, construction and maintenance costs that may
result from inflation, government regulations, changes in interest rates
or currency fluctuations;
|
| |  |  | the availability of financing for operating or capital requirements;                                                                                                    

2



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| |  |  | seasonal variations in cash flow; and                                                                                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | other factors including war, international conflicts, terrorism,
contagious illness outbreaks, natural disasters, extreme weather
conditions and labor shortages, work stoppages or disputes.

The effect of these factors varies among FHRs hotels based on their
geographic diversity and mix between management and ownership businesses.

The lodging industry is subject to significant regulation.

The Corporation is subject to numerous laws and regulations in all of the
jurisdictions in which it operates, including those relating to the preparation
and sale of food and beverages, such as health and liquor licensing laws.
FHRs properties are also subject to laws and regulations governing
relationships with employees in such areas as minimum wage and maximum working
hours, overtime, working conditions, hiring and terminating of employees and
work permits. Furthermore, the success of the Corporations strategy to expand
its existing properties, acquire new properties or to open newly-constructed
properties is contingent upon, among other things, receipt of all required
licenses, permits and authorizations, including local land use permits,
building and zoning permits, health and safety permits and liquor licenses.
Changes or concessions required by regulatory authorities could also involve
significant additional costs and delay or prevent completion of the
construction or opening of a project or could result in the loss of an existing
license. As a result of the geographic diversity of FHRs businesses, these
regulatory matters arise in a number of jurisdictions, many of which have
distinctive regulatory regimes.

Under the Americans with Disabilities Act(United States) (ADA) and
similar state legislation, all public accommodations in the U.S. are required
to meet various requirements related to access and use by disabled persons. If
a U.S. court or administrative agency determines that any of FHRs hotels in
the U.S. are not in compliance with the ADA, the result could be a judicial or
administrative order requiring compliance, imposition of a fine or an award of
damages to private litigants, including possible class damages. The
Corporation has responsibilities under the ADA for both its owned and managed
hotels in the United States. However, under the management agreements for
FHRs managed hotels in the U.S., costs associated with the ADA are generally
borne by the owner.

FHRs operations are subject to laws and regulations relating to environmental matters.

As the current or previous owner or operator of certain hotels, FHR could
be liable for the clean up of contamination and other corrective actions under
various laws, ordinances and regulations relating to environmental matters.
These laws, ordinances and regulations often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the condition
requiring the environmental response. The presence of contamination from
hazardous or toxic substances, or the failure to remediate a contaminated
property properly may affect an owners ability to sell or rent the property,
to use the property for its intended purpose, or to borrow using the property
as collateral. In addition, as FHR arranges for the disposal or treatment of
hazardous or toxic substances, it may be liable for the cost of removal or
remediation of substances at the disposal or treatment facility, regardless of
whether the facility is or was owned or operated by them. As the manager or
owner of various hotels, the Corporation could be held liable for the cost of
remedial action with respect to environmental matters.

Environmental laws require abatement or removal of certain
asbestos-containing material (ACM) in the event of damage, demolition or
renovation. FHR has an asbestos abatement program and

3



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continues to manage ACM in many of its hotels. The costs associated with
managing this program have not been, and are not anticipated to become,
material.

Each year, every property, whether managed, franchised or owned, is
required to complete an environmental questionnaire which covers such items as
the training of employees in the handling and disposal of hazardous materials,
whether there have been any environmental incidents and, if so, the remedial
action taken, as well as environmental initiatives introduced by the hotel.
This questionnaire also identifies any new laws or regulations being imposed by
local, state, provincial or federal governments and a propertys proposed
response to such laws or regulations. Laws and regulations change over time
and the Corporation may become subject to more stringent environmental laws and
regulations and may also face broader environmental liability under common law.
FHR is presently not aware of any potential material environmental liabilities
for which it will be responsible with respect to any of the properties which it
currently or has previously managed or owned, but such liabilities may exist.

Real estate investments are subject to numerous risks.

As FHR owns and leases hotels and owns other real property, it is subject
to the risks that generally relate to investments in real property. The
investment returns available from equity investments in real estate depend in
large part on the amount of income earned and capital appreciation generated by
the related properties, as well as the expenses incurred. In addition, a
variety of other factors affect income from properties and real estate values,
including governmental regulations, zoning, tax and eminent domain laws,
interest rate levels and the availability of financing. For example, new or
existing zoning or tax laws can make it more expensive and/or time-consuming to
develop real property or expand, modify or renovate properties. When interest
rates increase, the cost of acquiring, developing, expanding or renovating real
property increases and real property values may decrease as the number of
potential buyers decreases. Similarly, as financing becomes less available, it
becomes more difficult both to acquire and to sell real property. Finally,
governments can, under eminent domain laws, expropriate or take real property
for less compensation than an owner believes the property is worth. Any of
these factors could have a material adverse impact on the Corporations results
of operations or financial condition. In addition, as FHRs equity real estate
investments are in the luxury and first-class segments and are to some extent
located outside of North America, they may be relatively difficult to sell
quickly. Further, any additional properties the Corporation acquires may be
subject to the same risks. If FHRs properties do not generate revenue
sufficient to meet operating expenses, including debt service and capital
expenditures, its income will be adversely affected.

World events have an impact on our industry.

Various events, including war, international conflicts, terrorism and
contagious illness outbreaks (such as Severe Acute Respiratory Syndrome), or
the perceived threat of these events, may cause disruption in domestic and
international travel. Recent world events have negatively impacted the lodging
industry and could have a material adverse impact on FHRs results of
operations or financial condition.

There is a great deal of competition in the lodging industry.

There is intense competition between the operators of both luxury and
first-class hotels for guests, to secure new management contracts and to
acquire hotels. Competition for guests is based primarily on brand name
recognition, convenience of location, quality of the property, room rates and
the range and quality of food, services and amenities offered. Demographic,
political or other changes in one or more of FHRs markets could adversely
affect the convenience or desirability of its properties.

4



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FHR also competes for management contracts and acquisition opportunities
with other luxury and first-class hotel managers and owners who may have
substantially greater financial resources. This competition may have the
effect of reducing the number of suitable investment opportunities available to
the Corporation and increasing its acquisition costs.

Failure to obtain new or maintain existing management contracts could adversely affect FHRs results of operations.

Management contracts expire or are acquired, terminated or renegotiated in
the normal course of business. FHR manages hotels for various third party
hotel owners subject to the terms of each propertys management contract.
These contracts can generally be terminated by the non-defaulting party upon
default in payment or unremedied failure to comply with the terms of the
contract. Typically, the Corporations management contracts are subject to
economic performance tests that, if not met or remedied, could allow a contract
to be terminated by the owner prior to the expiration of its term. Failure to
maintain the standards specified in the contract or to meet the other terms and
conditions of a contract could result in the loss or cancellation of a
management contract. Some management contracts can also be terminated if the
owner sells the property to a new owner that does not want to retain the
existing contract. In certain cases, these contracts provide for a termination
payout upon cancellation of the contract.

In many jurisdictions, in the event of bankruptcy or insolvency
proceedings in respect of a hotel, a management contract may be subject to
termination or may not be enforceable against a trustee in bankruptcy or other
similar representative of the owner. In such circumstances, the management
company would generally have an unsecured claim for breach of contract against
the owner of the property or its estate.

Further, in the event of enforcement proceedings by a secured lender in
respect of a hotel, a management contract may not be enforceable by FHR against
the lender unless, to the extent permitted by applicable bankruptcy or
insolvency laws, the lender has executed a non-disturbance agreement.
Generally, FHR attempts to obtain non-disturbance agreements with lenders to
the owners of hotels that the Corporation manages. However, in the absence of
a non-disturbance agreement, the risk of loss of a management contract
increases when the propertys owner incurs debt that cannot be adequately
serviced.

Both Fairmont Hotels Inc. (Fairmont) and Delta Hotels Limited (Delta)
manage properties for third party owners. The average remaining length of
Fairmonts management contracts is more than 40 years while the average
remaining length of Deltas management contracts is more than 10 years.
Approximately 65% of Fairmont and Deltas management revenues are insulated
against the potential loss of these management contracts as 46 of the hotels
and resorts presently managed by Fairmont and Delta are directly or indirectly
owned by FHR or Legacy.

FHRs acquisition, expansion and development strategy may be less successful than expected, and therefore growth may be limited.

FHR intends to increase revenues and net income by increasing the number
of hotels under management through the acquisition of new properties, the
expansion of existing properties, the securing of new management agreements and
strategic partnerships for new development. The Corporations ability to
successfully pursue new growth opportunities will depend on its ability to
identify appropriate management opportunities and properties suitable for
acquisition and expansion, to negotiate management or construction contracts or
purchases on satisfactory terms, to obtain the necessary financing and permits
and to integrate new management contracts or properties into its operations.

5



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FHRs business and operations are seasonal.

FHRs hotels are affected by normal recurring seasonal patterns. The
Canadian and U.S. city center properties tend to experience a slowdown in
demand during the December through March period. As a result, the majority of
these properties typically incur a loss in the first quarter of each year.
This negative impact on operations at the city center hotels is offset, to some
degree, by increased travel to the Corporations warm weather and ski resorts
in these months and may, in the future, be offset to a greater extent if FHR
expands its portfolio of resort properties.

Operations may be adversely affected by extreme weather conditions and the impact of natural or other disasters.

FHR operates properties in a variety of locales, some of which are subject
to extreme weather patterns that may affect the hotels as well as customer
travel. Extreme weather conditions can, from time to time, have a significant
adverse financial impact upon individual properties or particular regions.
However, the effect of any particular event is mitigated by the geographic
diversity of the Corporations hotel portfolio.

Properties may also be vulnerable to the effects of destructive forces,
such as earthquakes, fire, storms and flooding. Although FHRs properties are
insured against property damage, damages resulting from so-called acts of God
or otherwise, including acts of terrorism, may exceed the limits of the
insurance coverage or be outside the scope of that coverage.

FHRs ability to operate its facilities may be adversely affected if relations with employees were to deteriorate.

Relations with employees in various countries, including the more than
14,000 employees represented by 22 labor unions, could deteriorate due to
disputes related to, among other things, wage or benefit levels or FHRs
response to changes in government regulation of workers and the workplace.
FHRs operations rely heavily on employees, whether they are employed directly
or supervised by Fairmont or Delta, and these employees ability to provide
high-quality personal service to guests. Any labor shortage or stoppage caused
by disagreements with employees, including those represented by labor unions,
could adversely affect FHRs ability to provide these services and could result
in the temporary closure of a particular hotel, reduce occupancy and room
revenue or potentially damage FHRs reputation. Management of FHR believes
that its relationships with employees are generally favorable. Various
programs maintained by Fairmont and Delta contribute to these relationships and
mitigate to some extent against potential labor disputes.

Vacation Ownership is subject to extensive regulation.

FHR intends to develop and operate vacation ownership resorts and is
therefore subject to extensive government regulation in the jurisdiction where
the vacation ownership resorts are located and in which vacation ownership
interests (VOIs) are marketed and sold. In addition, the laws of many
jurisdictions in which FHR may sell VOIs grant the purchasers of this type of
interest the right to rescind the purchase contract at any time within a
statutory rescission period. Although management believes that FHR is in
material compliance with all applicable laws and regulations to which vacation
ownership marketing, sales and operations are currently subject to, changes in
these requirements or a determination by a regulatory authority that FHR is not
in compliance could adversely affect the Corporation. Additionally, if the
purchaser of a VOI defaults, FHR may not have recovered its marketing, selling
and general and administrative costs related to the sale of the VOI.

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Currency fluctuations may have a material adverse effect on FHRs financial statements.

FHR has hotel management and ownership operations in Canada, the United
States, Mexico, Bermuda, Barbados and the United Arab Emirates and records
sales and liabilities in the currencies of these jurisdictions, while it
reports earnings in U.S. dollars. As a result, the Corporations earnings and
financial position could be affected by foreign exchange rate fluctuations,
specifically changes in the value of the U.S. dollar, through both (i)
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 U.S. dollar; and (ii) 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 adversely affect operating
margins.

With respect to the translation risk, even though the fluctuations of
currencies against the U.S. dollar can be substantial and therefore
significantly impact comparisons with prior periods, the translation impact is
a reporting consideration and does not affect the underlying results of
operations, as is the case with transaction risk. FHR endeavors to match
foreign currency revenues and costs, and assets and liabilities, to provide a
natural hedge against translation and transaction risks, although this is not a
perfect hedge.

In addition to translation risk and transaction risk, a significant
increase in the value of the Canadian dollar may have an adverse impact on the
level of foreign demand at Canadian hotels. However, given that these hotels
target an affluent clientele, the risk of a significant decline in foreign
demand is reduced.

FHR is subject to a number of risks associated with debt financing.

As a result of incurring debt, FHR is subject to a number of risks
associated with debt financing, including the risk that cash flow from
operations will be insufficient to meet required payments of principal and
interest; the risk that, to the extent that it maintains floating rate
indebtedness, interest rates will fluctuate; and risks resulting from the fact
that the agreements governing loan and credit facilities contain covenants
imposing certain limitations on the Corporations ability to acquire and
dispose of assets.

Although it anticipates that it will be able to repay or refinance
existing indebtedness and any other indebtedness when it matures, there can be
no assurance that FHR will be able to do so or that the terms of such
refinancings will be favorable. FHRs leverage may have important
consequences. For example, FHRs ability to obtain additional financing for
acquisitions, working capital, capital expenditures or other purposes, if
necessary, may be impaired or financing may not be available on favorable
terms. A substantial decrease in operating cash flow or an increase in
expenses could make it difficult for the Corporation to meet its debt service
requirements and force it to modify its operations. FHR may have higher levels
of debt than some of its competitors, placing it at a competitive disadvantage
to those competitors with lower amounts of indebtedness and/or higher credit
ratings.

There can be no assurance that FHR will be able to obtain the necessary additional capital to finance the growth of its business.

The acquisition and expansion of hotels, as well as the ongoing
renovations, refurbishment and improvements required to maintain or upgrade
existing properties, are capital intensive. Such costs are funded from
operating cash flow and financings. The availability of future borrowings and
access to the capital markets for financing depends on prevailing market
conditions and the acceptability of financing terms offered. FHR cannot ensure
that future debt or equity financings will be available, or available on

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acceptable terms, in an amount sufficient to fund its needs. In addition, an
inability to obtain financing for a project could cause cancellation or
short-term interruption of construction or development of projects.

Covenants in FHRs financing agreements could limit its discretion in operating its businesses.

FHRs financing agreements contain covenants that include limits on
additional debts secured by mortgaged properties, limits on liens on property,
minimum EBITDA to interest coverage ratios and limits on mergers, asset sales
and capital expenditures. Future financing agreements may contain similar, or
even more restrictive, provisions and covenants. If the Corporation fails to
comply with the restrictions in present or future financing agreements, a
default may occur. A default could allow creditors to accelerate the related
debt as well as any other debt to which a cross-acceleration or cross-default
provision applies. A default could also allow creditors to foreclose on the
properties securing such debt. Credit facilities typically require the
repayment of funds or cash flow sweeps when certain coverage ratios are not
met.

FHR cannot assure investors that a judgment of a United States court for
liabilities under U.S. securities laws would be enforceable in Canada, or that
an original action can be brought in Canada by investors for liabilities under
U.S. securities laws.

FHR is a Canadian corporation. A majority of its directors and officers
are residents of Canada and most of the Corporations assets and the assets of
its directors and officers are located outside the United States. As a result,
it may be difficult for investors to effect service of process within the
United States on FHR or its directors and officers or enforce judgments
obtained in U.S. courts against the Corporation or its directors and officers
based upon the civil liability provisions of U.S. federal or state securities
laws.

The Corporation has been advised by counsel that there is doubt as to
whether a judgment of a U.S. court based solely upon the civil liability
provisions of U.S. federal or state securities laws would be enforceable in
Canada against it or its directors and officers. There is also doubt as to
whether an original action could be brought in Canada against FHR or its
directors and officers to enforce liabilities based solely upon U.S. federal or
state securities laws.

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CURRENCY EXCHANGE RATES

Except where otherwise indicated, all dollar amounts used in this Annual
Information Form are expressed in United States dollars and $ and US$ means
United States dollars. The following table sets out: (i) the noon rates of
exchange for the United States dollar, expressed in United States dollars per
Canadian dollar, in effect at the end of the periods indicated; (ii) the
average noon exchange rates for these periods; and (iii) the high and low
exchange rates during these periods, based on the rates quoted by the Bank of
Canada.

|                                |  |                 |           |                         |  |      |           |      |  |  |           |  |  |  |           | 
|------------------------------- |  | --------------- | --------- | ----------------------- |  | ---- | --------- | ---- |  |  | --------- |  |  |  | --------- | 
|                                |  | January 1, 2003 |           | Years ended December 31
|                                |  | through         |           |                        
|U.S. Dollar per Canadian Dollar |  | May 1, 2003     |           | 2002                    |  | 2001 |           | 2000
|                                |  |                 |           |                         |  |      |           |     
|Noon rate at end of period      |  |                 | US$0.7048 |                         |  |      | US$0.6331 |      |  |  | US$0.6279 |  |  |  | US$0.6666 | 
|Average noon rate for period    |  |                 | 0.6756    |                         |  |      | 0.6368    |      |  |  | 0.6446    |  |  |  | 0.6733    | 
|High for period                 |  |                 | 0.7048    |                         |  |      | 0.6598    |      |  |  | 0.6697    |  |  |  | 0.6967    | 
|Low for period                  |  |                 | 0.6489    |                         |  |      | 0.6179    |      |  |  | 0.6241    |  |  |  | 0.6417    | 

On May 1, 2003, the rate of exchange based on the noon rate as quoted by
the Bank of Canada was US$0.7048. On June 30, 2001, the rate of exchange based
on the noon rate as quoted by the Bank of Canada was US$0.6589. All historical
financial information in this document up to June 30, 2001 has been converted
into United States currency using this exchange rate. After June 30, 2001,
financial information has been converted based on actual noon rates or average
noon rates for the period as appropriate.

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ITEM 1: CORPORATE STRUCTURE

The issuers full corporate name is Fairmont Hotels & Resorts Inc. FHR is
incorporated under the Canada Business Corporations Act.

The articles of the Corporation provide for authorized capital of an
unlimited number of common shares, an unlimited number of first preferred
shares and an unlimited number of second preferred shares.

As of May 1, 2003 the intercorporate relationships among FHR, its
principal subsidiaries and Legacy Hotels Real Estate Investment Trust
(Legacy) are depicted in the diagram below.

(CHART SHOWING CORPORATE STRUCTURE)



---

|(1) |  | FHRPI holds FHRs interests in the Southtown and Coal Harbour lands.                                                 
|--- |  | ---------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Legacy is an unincorporated closed-end real estate investment trust formed
under the laws of the Province of Alberta.

ITEM 2: GENERAL DEVELOPMENT OF THE BUSINESS

FHR has operated and owned hotels and resorts for over 115 years. Until
September 2001, the Corporation was known as Canadian Pacific Limited (CPL).
Effective October 1, 2001, pursuant to the plan of arrangement approved by the
shareholders of CPL and by the court, CPL completed a major reorganization (the
Arrangement), which divided CPL into five new public companies  Canadian
Pacific Railway Limited, CP Ships Limited, PanCanadian Energy Corporation and
Fording Inc., while retaining its investment in Canadian Pacific Hotels &
Resorts Inc. which has since been renamed FHR Holdings Inc. (FHRHI).

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In 1997, FHRHI was a Canadian hotel management and ownership business with
25 properties, with approximately 11,000 guestrooms and one luxury brand,
Canadian Pacific Hotels. The portfolio was primarily a combination of FHRs
original Canadian Pacific properties and seven hotels purchased from Canadian
National Railway Co. in 1988. In November 1997, FHR sold 11 city center
business hotels to Legacy concurrent with Legacys commencement of operations
and initial public offering. FHR acquired an approximate 33% interest in
Legacy under this offering. In 1998, FHR purchased Delta, which at the time
had 27 hotels and 10,000 guestrooms under management or franchise. Also in
1998, FHR purchased the Princess hotel portfolio, a group of seven warm weather
resorts in Mexico, Bermuda, Barbados and the United States.

In October 1999, Fairmont was created through the combination of FHRs
luxury hotel management business with that of Fairmont Hotel Management L.P.
(Fairmont L.P.), a U.S. based luxury hotel manager. Fairmont immediately
became the largest luxury hotel management company in North America as measured
by the number of rooms under management. FHR contributed management contracts
for 27 luxury properties while Fairmont L.P. contributed management contracts
for seven hotels in key United States gateway cities and all rights to the
Fairmont brand. This acquisition provided FHR with an international luxury
brand under which it now operates its world-class hotels and its luxury hotel
management business.

Significant Acquisitions

In November 2000, FHR acquired the remaining 80% of The Fairmont Chateau
Whistler for approximately $94 million.

In January 2001, FHR acquired the remaining 51% of its Barbados hotels,
The Fairmont Royal Pavilion and The Fairmont Glitter Bay for approximately $20
million. In February 2001, FHR acquired The Fairmont Kea Lani Maui on the
Wailea coast in Maui, Hawaii for approximately $215 million. In July 2001, FHR
purchased a 50% equity interest in The Fairmont Copley Plaza Boston for $21
million in cash from interests controlled by Prince Alwaleed Bin Talal Bin
Abdulaziz Al Saud (Prince Alwaleed). In February 2003, FHR acquired the
remaining 50% equity interest controlled by Prince Alwaleed. The total
purchase price for 100% of The Fairmont Copley Plaza Boston was approximately
$117 million and was satisfied by the issuance of one million common shares,
the assumption of a mortgage at $64.5 million and cash paid of $30.7 million.
In November 2001, FHR made a $29 million investment to secure the long-term,
incentive-based management contract of The Fairmont Dubai, which opened in
February 2002. Subsequently, $7 million of this investment was allocated to
another management contract on similar terms for a property that will be built
in Abu Dhabi, United Arab Emirates. In addition, a further $7 million will be
repaid to FHR if a third management contract is not provided by January 2008.

In September 2002, FHR acquired the 16.5% interest in Fairmont held by a
subsidiary of Kingdom Hotels (USA), Ltd. (Kingdom), an affiliate of a trust
created by Prince Alwaleed. In consideration for the shares of Fairmont, FHR
issued 2,875,000 shares to Kingdom equivalent to approximately 3.7% of FHRs
issued and outstanding shares. As a result of this transaction, FHR increased
its controlling interest in Fairmont to 83.5%. The remaining 16.5% of Fairmont
is held by one of the original owners of Fairmont L.P., a fund represented by
Maritz, Wolff & Co. (Maritz Wolff). FHR and Maritz Wolff are parties to a
shareholders agreement in respect of Fairmont which addresses various
governance matters and provides the parties with certain rights including the
right of Maritz Wolff to put its Fairmont shares to Fairmont for U.S. $69
million at any time prior to October 1, 2004. The shareholders agreement also
provides each party with the right to acquire the others shares at fair market
value (as defined in the shareholders agreement) in certain limited
circumstances including in the event the other party becomes insolvent or
commits an act of bankruptcy, or is acquired, whether directly or indirectly,
by a competitor of Fairmont.

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In September 2002, FHR invested $8 million for a 19.9% interest in The
Fairmont Sonoma Mission Inn & Spa in Sonoma County California and secured a
long-term management contract for the property. FHR has committed to advance a
loan of $10 million on arms-length commercial terms to this hotel. In December
2002, FHR acquired The Fairmont Orchid, Hawaii for approximately $140 million.
See Owned Hotels.

Significant Dispositions

In February 2001, FHR sold The Fairmont Empress in Victoria, British
Columbia and Fairmont Le Château Frontenac in Quebec City, Quebec to Legacy for
approximately $200 million, while retaining the long-term management contracts,
each of which had a remaining term of 49 years at the time of sale.

ITEM 3: NARRATIVE DESCRIPTION OF THE BUSINESS

Overview

FHR is one of North Americas leading managers of luxury hotels. FHR
currently has 80 luxury and first-class hotels and resorts in its portfolio,
representing more than 31,000 rooms. The properties are located in Canada, the
United States, Mexico, Bermuda, Barbados and the United Arab Emirates. An
additional two properties are currently under development. FHR has operated
and owned hotels for over 115 years and currently manages properties
principally under the Fairmont and Delta brand names.

Hotel Ownership

FHR has real estate ownership interests ranging from approximately 13% to
100% in 24 properties. This distinctive collection of hotel properties is
located primarily in exclusive resort destinations or key North American
gateway cities. All of FHRs hotel ownership interests are held directly or
indirectly by FHR Real Estate Corporation (FHRREC), with the exception of The
Fairmont Chateau Lake Louise, and the equity interest in The Fairmont Sonoma
Mission Inn & Spa, which are held by other subsidiaries of FHR. Fairmont
manages the 22 luxury properties and Delta manages the two first-class
properties.

The majority of FHRs income before interest, taxes, amortization, other
income and expenses and reorganization and corporate expenses (EBITDA) are
generated by its ownership operations. Approximately 55% of gross revenue from
hotel ownership is generated from room revenue and 30% is generated from food
and beverage services. Other revenue streams such as spa facilities, golf
courses, retail operations, parking and laundry contribute the remainder of
revenues earned by the owned properties.

A significant portion of EBITDA generated by FHRs hotel ownership
interest comes from 11 properties in seven locations. The Fairmont Banff
Springs and The Fairmont Chateau Lake Louise, located in Banff National Park in
the Canadian Rockies, are protected by high barriers to entry since development
in the park is controlled by the Government of Canada. The Fairmont Chateau
Whistler is in Whistler, British Columbia, a year-round resort widely
recognized as one of North Americas best ski destinations. The Whistler hotel
market is nearing full development capacity, which will restrict new supply
growth. The Fairmont Scottsdale Princess is a Five Diamond hotel in the
growing Scottsdale, Arizona market, which has recently experienced significant
new hotel supply. The Fairmont Hamilton Princess and The Fairmont Southampton
are located in Bermuda, where FHR enjoys favorable income tax treatment on its
earnings. The Fairmont Acapulco Princess and The Fairmont Pierre Marques in
Acapulco, Mexico represent an opportunity to create increases in the value of
FHRs portfolio through the continuing development of these resorts. The
Fairmont Kea Lani Maui, an all-suite hotel located in

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Wailea, Maui and The Fairmont Orchid, Hawaii are both located in some of
Hawaiis most sought after locations. The Fairmont Copley Plaza in Boston is
being renovated to restore the hotel to its original grandeur.

Investment in Legacy

FHR also has an approximate 35% equity interest in Legacy, which owns 22
hotels across Canada and one in the United States, all of which are managed by
either Fairmont or Delta. FHR accounts for its ownership interest in Legacy on
an equity basis.

Legacy and FHR are parties to a strategic alliance agreement,
which provides Legacy with the right to participate in any new investments made
by FHR in resorts or city center hotels located in Canada. This agreement
provides FHR with a potential buyer for FHRs stabilized hotels while enabling
FHR to retain long-term management contracts for these properties. In the
event that a hotel is sold to Legacy, FHR has the ability to participate in up
to 54% of the future profitability of the property through management fees and
its ownership interest in Legacy. In addition, FHR could receive a significant
portion of the sale proceeds on a tax-deferred basis. As a capital partner,
Legacy also provides FHR with additional management contract opportunities.

Real Estate Activities

FHR also holds other real estate assets, which consist primarily of the
Southtown lands in Toronto, Ontario and the Coal Harbour lands in Vancouver,
British Columbia. FHR owns 100% of the Toronto lands and a 75% interest in the
Vancouver lands. Currently there are no formal plans to build new hotels at
these locations. FHR expects to sell the remaining land blocks in Vancouver
and Toronto over the next four years.

The Southtown lands are located in the
core of downtown Toronto between the financial district and Lake Ontario and is
in close proximity to the Air Canada Centre. The site is located south of
Union Station and north of the Gardiner Expressway, primarily on either side of
York Street. To date, FHR has disposed of two parcels of the Southtown lands
and is party to ongoing discussions with several prospective parties who have
expressed interest in purchasing the remaining sites for future hotel, office
and residential developments. The remaining lands are zoned for the
development of 4.9 million square feet of commercial and residential space
which is subdivided into six parcels.

The Coal Harbour lands in downtown
Vancouver, stretch over one kilometer along Burrard Inlet west of The Fairmont
Waterfront and are in close proximity to Stanley Park. To date, FHR has sold
all the land except for two remaining residential sites contracted for sale by
2004 and one site zoned for hotel development, which combined allow for the
development of 1.3 million square feet.

Management has launched a vacation ownership product, Fairmont Heritage
Place, which it believes will allow FHR to compete for new development
opportunities and improve its return on owned assets by better leveraging its
existing hotel infrastructure. Construction is underway for the first phase of
FHRs first vacation ownership project, which is located in Acapulco, Mexico.
Management has also identified potential vacation ownership opportunities in
Scottsdale, Bermuda and Barbados.

Management Operations

FHR manages hotels under two subsidiaries, Fairmont and Delta, each with
their own distinct brand identity. Under their respective management
contracts, Fairmont and Delta generally oversee all aspects of the day-to-day
operations of each property on behalf of the owner, including hiring, training
and supervising staff, maintaining sales and marketing efforts, providing
accounting and budgeting functions, providing support for management
information systems and applications and the safekeeping, repair and
maintenance of the physical assets. For these services, Fairmont and Delta
earn a base fee,

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which is typically in the range of 2.5% to 3.5% of a propertys gross revenues
and can earn an incentive fee based on the property achieving certain operating
performance targets.

Fairmont

Fairmont is North Americas largest luxury hotel management company as
measured by rooms under management. Currently, Fairmont manages more than
20,000 rooms at 41 luxury properties in major city centers and resort
destinations throughout Canada, the United States, Mexico, Bermuda, Barbados
and the United Arab Emirates. Fairmont caters to the luxury segment of the
market, which is sometimes referred to as four or five star. Luxury hotels are
full service properties offering an exceptional level of personalized service
and a complete range of amenities and facilities, including food and beverage
outlets, meeting rooms and recreational activities. The hotel staff to guest
ratio tends to be higher at luxury hotels in order to allow for more
personalized service.

Fairmonts incentive-based management contracts have an
average remaining term of more than 40 years, which management believes are
among the longest in the industry. In 2003, FHR expects about a third of
Fairmonts management contracts to earn incentive fees. Within the next two to
three years, the majority of current contracts are expected to earn incentive
fees. Most of these contracts have set thresholds that do not change over the
life of the contract unless significant renovations are made to the managed
hotel. Fairmont participates in up to 30% of earnings above the threshold on
most of its management contracts.

One of Fairmonts strengths is the diversity
of its revenue base, which is relatively balanced between individual and group
travel and between business and leisure travel. The individual or transient
traveler is typically less price sensitive, whereas the group travel business
helps fill rooms in off-peak seasons, providing stability in earnings and
occupancy. Business travel accounts for approximately half of Fairmonts
revenues under management and the balance is derived from leisure travel.
Further diversification is provided to Fairmont as approximately 55% of
revenues are derived from city center locations and the balance from resort
properties. The resorts attract both corporate travelers for offsite retreats
and leisure customers who take advantage of the activities and amenities
offered by these locations.

Fairmont enjoys a considerable competitive advantage in the group business
segment of the industry over other luxury four or five star brands, due to its
large meeting facilities and greater number of guestrooms. Fairmonts average
number of rooms per hotel is approximately 500, whereas Fairmonts major
competitors, including Ritz-Carlton, Four Seasons, Sheraton Luxury Collection
and Preferred Hotels and Resorts, generally range between 200 to 330 rooms per
hotel. See Hotels Under Management.

Fairmont has certain amenities and expertise in diverse areas that
distinguish it in the luxury sector. For example, its Fairmont Gold product
has carved out a niche that competes with other luxury hotels. This hotel
within a hotel, typically one or two floors of a Fairmont property, has its
own check-in desk, lounge area, upgraded amenities in each guestroom and offers
superior personalized service. This product commands a higher rate and
competes with the upper end of the luxury hotel segment from both a service and
room rate perspective.

Fairmont also has resources dedicated to both golf and spa operations.
FHR has operated golf courses since 1911 and its courses, situated in some of
North Americas finest natural settings, are designed by some of the worlds
foremost golf course architects. Fairmont has considerable experience in golf
course management and maintenance and retail golf operations. FHR is Canadas
leading operator of high-end resort golf courses. Over the past six years, FHR
has completed major renovation and modernization to some of its classic golf
courses and is currently renovating a golf course in Acapulco.

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Fairmont introduced its new spa product, Willow Stream The Spas At
Fairmont, with the opening of Willow Stream the spa at The Fairmont Scottsdale
Princess in December 2001. In 2002, Fairmont expanded its spa product to The
Fairmont Empress, The Fairmont Dubai, The Fairmont Southampton, The Fairmont
Acapulco Princess and The Fairmont Banff Springs. Fairmont is planning on
converting the existing spa at The Fairmont Orchid, Hawaii in 2003.

Delta

Delta is Canadas largest first-class hotel management company, with over
11,000 rooms at 38 managed and franchised properties across Canada. Since FHR
acquired Delta in 1998, FHR has upgraded its portfolio of properties and
enhanced the reputation of the Delta brand. Delta strengthens FHRs leadership
position in the Canadian marketplace, adds a complementary brand to its
portfolio and allows FHR to achieve significant economies of scale.

Deltas incentive-based management contracts have an average remaining
term of more than 10 years. In 2003, approximately half of Deltas managed
hotels are expected to earn incentive fees. Delta participates in up to 30% of
earnings above the threshold on some of its management contracts.

Delta has
certain amenities and expertise in diverse areas that distinguish it in the
first-class sector. For example, Deltas Signature Club combines the exclusive
use of a private lounge and upgraded guestrooms and amenities. Signature Club
guestrooms achieve premium rates, enabling Delta to increase revenues. Delta
has a strong regional sales network across Canada and is recognized for its
brand strength and property distribution within its marketplace. Deltas major
brand competitors are Hilton, Radisson and Sheraton.

Competitive Strengths

The hotel industry is highly competitive. FHR believes that it has
several distinguishing competitive strengths, including the following.

Irreplaceable Collection of Distinctive Assets

FHR manages and owns a portfolio of unique, high quality hotels in
exceptional locations that provide it with an unrivaled presence throughout
North America. Fairmonts managed assets principally consist of historic
landmark properties in prime locations in major city centers or resort
destinations. Its properties are typically renowned assets with long-standing
traditions and reputations, such as The Fairmont San Francisco, The Fairmont
Banff Springs in the Canadian Rockies, The Fairmont Royal York in Toronto and
Fairmont Le Château Frontenac in Quebec City. FHRs portfolio of owned assets
are located primarily in exclusive resort locations where their competitive
position is strengthened by high barriers to entry, such as The Fairmont Banff
Springs and The Fairmont Chateau Lake Louise, which are situated on National
Park land owned and controlled by the Government of Canada and The Fairmont Kea
Lani Maui.

Growing Fairmont Brand Position

Management believes that Fairmonts current brand positioning has poised
FHR for above average growth in earnings. Fairmont enjoys a prominent position
in the luxury market segment by virtue of its distinctive collection of 41
properties and a reputation for excellence in people, product and service. The
Fairmont name dates back to 1907 and is well known in the United States. FHR
has leveraged this strong brand recognition by rebranding 30 properties in
Canada, the U.S., Mexico, Bermuda and Barbados as Fairmont properties.
Although Fairmont is the largest North American luxury hotel management
company, management believes that Fairmont is still in the early stages of
building

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consumer awareness of the brand. Many of Fairmonts properties are icons and
landmarks in their own right and, as the connection between the brand and these
assets is solidified, its strength and value should continue to grow. FHR also
believes that there continues to be significant growth potential in the United
States and internationally. Currently, 14 of the top 25 U.S. markets do not
have a Fairmont property.

Strategic Relationships

Strategic relationships are an important source of financing and future
growth opportunities for FHRs hotel management and ownership businesses.
FHRs strategic alliance agreement with and approximate 35% interest in Legacy
provides FHR with a potential buyer for FHRs stabilized real estate assets
while enabling it to retain long-term management contracts for these
properties. In the event of a sale of an owned asset to Legacy, FHR has the
ability to participate, through its ownership interest in Legacy and through
base and incentive management fees, in up to 54% of the future increases in
operating profits of the property, in addition to receiving a significant
portion of its proceeds from the sale on a tax-efficient basis. This allows
FHR to generate significant capital which can be reinvested to fund future
growth and expand the Fairmont brand presence. Since the establishment of the
strategic alliance, Legacy has purchased six properties from FHR for an
aggregate consideration of approximately $250 million. In addition, FHR has
established strong partnerships with institutional and private equity sources,
including Kingdom, controlled by Prince Alwaleed, and Maritz Wolff. These
partners are a potential source of capital to develop luxury and first-class
hotel properties and can also facilitate FHRs entry into new markets.

In early 2001, Fairmont became a founding member of Avendra, LLC, a North
American purchasing consortium that combines the purchasing powers of its
founders, Fairmont, Hyatt, ClubCorp, Six Continents and Marriott, to bring each
member and their hotels anticipated savings in the cost of goods. All founding
members in Avendra, LLC are guaranteed the same purchasing benefits.

Focused Acquisition Strategy

FHR has developed a five-step process for acquiring and repositioning
underperforming real estate assets which has allowed it to maximize the
revenues it receives from its owned properties, while following its strategy of
increasing the management segment of its business. This five-step process
consists of: acquiring an asset and managing it in the short term to increase
its revenues; rebranding the asset as either a Fairmont or a Delta property;
repositioning and enhancing the revenue potential of the asset through capital
investment; aggressively managing the asset to optimize cash flows and
operating margins; and monetizing the appreciated value of the stabilized asset
by selling it to Legacy or a third party, which enables FHR to use the proceeds
to make further acquisitions and equity investments, as well as reinvesting in
existing assets. FHRs intention is to retain long-term management contracts
on the assets it sells.

Conservative Capital Structure

FHR believes it has a conservative capital structure. As at December 31,
2002, the Corporation had approximately $536 million total outstanding debt,
resulting in a debt to total capitalization of approximately 24%, one of the
lowest among major publicly-traded North American lodging companies. This
capital structure provides FHR with a financial advantage relative to many of
its competitors, enabling the Corporation to use its balance sheet to
aggressively grow its business both through the refurbishment and expansion of
existing properties and through selective acquisitions.

16



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##### 



Long-Term, Incentive-Based Management Contracts

Fairmont and Delta both earn management fees for services they provide to
properties owned by FHR, Legacy and third parties. Base fees are typically
calculated as a percentage of a propertys gross revenues and provide earnings
and cash flow stability. Incentive fees are earned as a result of improvements
in financial performance, usually above a pre-determined level, and provide
significant opportunities for cash flow and earnings growth. Generally, the
longer the term of the management contract, the greater the opportunity for
increased incentive fees.

Fairmonts incentive-based management contracts have an average remaining
term of more than 40 years, which management believes are among the longest in
the industry. In 2003, Fairmont expects that about one-third of its management
contracts will earn incentive fees. Within the next two to three years,
Fairmont expects that the majority of its current contracts will be earning
incentive fees. Almost all of these contracts have set thresholds that do not
change over the life of the contract except, in certain cases, for adjustments
corresponding to significant capital expenditures. Fairmont participates in up
to 30% of earnings above the threshold on most of its management contracts.
Deltas incentive-based management contracts have an average remaining term of
more than 10 years. In 2003, approximately half of Deltas managed hotels are
expected to earn incentive fees.

Proven Management Team

FHR has been providing outstanding service in the lodging sector for over
115 years. FHRs senior management team has, since 1997, successfully
completed the initial public offering of Legacy, the acquisitions of Delta and
the Princess hotel portfolio, the creation of Fairmont and the transition from
being privately-held to being a publicly-traded corporation pursuant to the
Arrangement. Also during this period, FHR has reported strong operating and
financial performance. The senior management team is supported by 14 corporate
vice presidents and by 13 regional vice presidents, and oversees a workforce of
over 30,000 employees.

Growth Strategy

In addition to benefiting from the overall growth trends of the luxury
segment of the market, FHR intends to grow revenue and profits through a
comprehensive growth strategy.

Maximize Operating Performance of Existing Assets

FHR continues to grow revenues and earnings by maximizing the operating
performance of its managed and owned hotels through profit-enhancing capital
improvements and more focused marketing programs and sales efforts. FHR also
anticipates that the Fairmont brand will continue to enhance revenue
opportunities through a consistent brand image and increased North American and
international recognition of the properties in the portfolio.

FHR also expects that the rebranding of newly-acquired assets will
leverage the operating performance of its existing properties. Not only will
the rebranding enhance the revenue opportunities of the new assets through
their immediate association with the Fairmont brand but, in addition, it will
raise the profile of the rest of the Fairmont properties by raising the profile
of the Fairmont brand as a whole.

Invest Capital to Expand, Reposition and Refurbish Existing Assets

A number of FHRs owned and managed assets have recently undergone or are
currently undergoing major renovation programs which has affected operating
revenues. Once these renovations

17



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##### 



are completed, FHR expects that it will earn significant returns on the capital
invested. One example of this strategy was the expansion of The Fairmont
Chateau Whistler. With the growing recognition of Whistler as a world-class
destination resort in the early 1990s, FHR determined that increasing demand
warranted an addition of guestrooms and meeting space. In September 1997, the
hotel opened 216 new guestrooms. In 2002, operating and financial results
supported the expansion as EBITDA had more than doubled since 1996 and revenue
per available room (RevPAR) had risen significantly. A further example of
this strategy, was the complete renovation of the two Bermuda properties. As
part of these renovations, guestrooms, lobbies and meeting space were
refurbished and a Willow Stream spa was opened at The Fairmont Southampton.
The completion of these programs have resulted in the hotels average daily
rates (ADR) increasing by 20% since 1999.

Broaden Revenue Streams

Incremental investments in spas, golf courses, residential and retail
enhance the Fairmont brand and are also attractive investment opportunities, as
the hotel infrastructure and land are already in place. There are currently
seven large luxury spas under management and one under development. In
addition, FHR operates nine golf courses and has developed expertise in this
area. FHR is focusing its acquisition strategy to target hotels that already
have spas and golf courses in place or have the space to accommodate these
facilities. FHR also continues to evaluate opportunities to develop
residential accommodations at certain of its resort properties. Several of
FHRs existing properties, such as The Fairmont Royal Pavilion and The Fairmont
Scottsdale Princess could accommodate residential development. Fairmont
currently has a large portfolio of retail shops within its hotels, providing
rental income for FHR. The Fairmont Scottsdale Princess and The Fairmont Banff
Springs currently operate their own retail shops. Fairmont will continue to
pursue opportunities for future growth in retail revenue, through both leased
tenancies and owned and operated stores.

Growth Through New Incentive-Based Management Contracts

FHR intends to further develop and leverage the Fairmont brand by seeking
new single and multiple incentive-based management contract opportunities. The
Corporation believes it has substantial growth potential in the United States
as 14 of the top 25 markets currently do not have a Fairmont property. FHR
also intends to capitalize on opportunities outside North America.

Fairmont is well positioned to attract hotel owners and new partners
through its management expertise, unique portfolio of properties and service
culture. In addition, it has established a scalable technology infrastructure
that supports management information systems which are critical to the
globalization of the brand.

Delta has proven its ability to secure new management contracts within
Canada, with seven new management contracts being entered into since January 1,
2001.

Growth Through Acquisitions

To support and complement the growth of its management business, FHR will
continue to use its financial position and management capabilities to make
selective acquisitions in key North American gateway cities, destination
resorts and strategic international markets. FHR intends to focus on assets
that are consistent in size, quality and customer base with its existing
portfolio, or that are in protected markets or have significant development
potential.

Once an acquired asset has been stabilized, FHR will consider selling the
asset to Legacy or a third party. As part of the sale agreement, FHR would
retain a long-term management contract. The cash

18



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##### 



generated from the sale of stabilized properties would then be redeployed into
new investment opportunities. This strategy was used with the sale of The
Fairmont Empress and Fairmont Le Château Frontenac to Legacy where the proceeds
were used for the subsequent purchase of The Fairmont Kea Lani Maui, thereby
expanding FHRs presence in a key resort market.

Minority Equity Investments

FHR also plans to leverage its financial position by increasing the use of
minority equity investments. This will enable FHR to secure long-term
management contracts with only a modest capital investment. For instance, FHR
acquired an approximate 20% interest in The Fairmont Sonoma Mission Inn & Spa
while securing a long-term management contract at this property.

Although the Corporation is focused on expanding primarily in the United
States, FHR will also consider strategic acquisitions outside of North America.
In 2002, The Fairmont Dubai opened. The joint venture involved a minority
equity investment and a long-term management contract. FHR views this project
as the first step in a strategic alliance between the private office of His
Highness Dr. Sheikh Sultan bin Khalifa Al Nahyan and Fairmont to build and
operate a number of luxury hotels in the region and other international
markets.

Hotels Under Management

The following tables provide certain information relating to each property
managed by Fairmont and Delta as of May 1, 2003.

|                                                                 |  |        |      |              |  |                 |  |       |     |             |  |          |  |          
|---------------------------------------------------------------- |  | ------ | ---- | ------------ |  | --------------- |  | ----- | --- | ----------- |  | -------- |  | ---------
|                                                                 |  |        |      |              |  |                 |  |       |     |             |  | Fairmont |  | Meeting  
|Fairmont                                                         |  | Year   |      |              |  | Total           |  | Gold  |     | Rooms/     
|Property                                                         |  | Opened |      | Ownership(1) |  | Rooms           |  | Rooms |     | Sq. Footage
|                                                                 |  |        |      |              |  |                 |  |       |     |            
|The Fairmont Kea Lani MauiWailea, Maui, Hawaii                   |  |        | 1991 |              |  | FHRREC          |  |       | 450 |             |  |         |  | 4/11,300 
|The Fairmont Orchid, HawaiiKohala Coast, Hawaii                  |  |        | 1991 |              |  | FHRREC(2)       |  |       | 540 |             |  |         |  | 12/29,000
|The Fairmont San FranciscoSan Francisco, California              |  |        | 1907 |              |  |                 |  |       | 591 |             |  |         |  | 21/53,000
|The Fairmont Sonoma Mission Inn & SpaSonoma County, California   |  |        | 1927 |              |  | FHRREC
19.9%(3) |  |       | 228 |             |  |         |  | 11/11,000
|The Fairmont San JoseSan Jose, California                        |  |        | 1987 |              |  |                 |  |       | 805 |             |  |         |  | 23/60,000
|The Fairmont Miramar Hotel, Santa MonicaSanta Monica, California |  |        | 1921 |              |  |                 |  |       | 302 |             |  |         |  | 12/22,500
|The Fairmont Scottsdale PrincessScottsdale, Arizona              |  |        | 1987 |              |  | FHRREC          |  |       | 651 |             |  |         |  | 29/53,000
|The Fairmont DallasDallas, Texas                                 |  |        | 1969 |              |  |                 |  |       | 551 |             |  |         |  | 26/77,000
|The Fairmont Kansas City At The PlazaKansas City, Missouri       |  |        | 1972 |              |  |                 |  |       | 366 |             |  |         |  | 17/29,000
|The Fairmont New OrleansNew Orleans, Louisiana                   |  |        | 1893 |              |  |                 |  |       | 700 |             |  |         |  | 21/70,000
|The Fairmont ChicagoChicago, Illinois                            |  |        | 1987 |              |  |                 |  |       | 692 |             |  |         |  | 14/62,000
|The Plaza(4)New York, New York                                   |  |        | 1907 |              |  |                 |  |       | 805 |             |  |         |  | 13/31,300
|The Fairmont Washington, D.C.Washington, District Columbia       |  |        | 1985 |              |  | Legacy(5)       |  |       | 418 |             |  |         |  | 17/29,000
|The Fairmont Copley Plaza BostonBoston, Massachusetts            |  |        | 1912 |              |  | FHRREC(6)       |  |       | 379 |             |  |          |  | 9/21,000 
|The Fairmont Empress                                             |  |        | 1908 |              |  | Legacy          |  |       | 477 |             |  | 40       |  | 5/10,500 

19



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##### 



|                                                            |  |        |      |              |  |              |  |       |       |             |  |          |     |         |  |          
|----------------------------------------------------------- |  | ------ | ---- | ------------ |  | ------------ |  | ----- | ----- | ----------- |  | -------- | --- | ------- |  | ---------
|                                                            |  |        |      |              |  |              |  |       |       |             |  | Fairmont |     | Meeting
|Fairmont                                                    |  | Year   |      |              |  | Total        |  | Gold  |       | Rooms/     
|Property                                                    |  | Opened |      | Ownership(1) |  | Rooms        |  | Rooms |       | Sq. Footage
|                                                            |  |        |      |              |  |              |  |       |       |            
|Victoria, British
Columbia                                 
|The Fairmont Chateau WhistlerWhistler, British Columbia     |  |        | 1989 |              |  | FHRREC       |  |       | 550   |             |  |          | 57  |         |  | 14/28,000
|The Fairmont Hotel VancouverVancouver, British Columbia     |  |        | 1939 |              |  | Legacy       |  |       | 556   |             |  |          | 39  |         |  | 15/37,000
|The Fairmont WaterfrontVancouver, British Columbia          |  |        | 1991 |              |  | Legacy       |  |       | 489   |             |  |          | 47  |         |  | 11/24,000
|The Fairmont Vancouver AirportRichmond, British Columbia    |  |        | 1999 |              |  | FHRREC       |  |       | 392   |             |  |          | 36  |         |  | 14/7,000 
|The Fairmont Jasper Park LodgeJasper, Alberta               |  |        | 1922 |              |  | FHRREC       |  |       | 446   |             |  |          |    |         |  | 13/26,000
|The Fairmont Chateau Lake LouiseLake Louise, Alberta        |  |        | 1890 |              |  | FHRREC       |  |       | 487   |             |  |          |    |         |  | 14/17,500
|The Fairmont Banff SpringsBanff, Alberta                    |  |        | 1888 |              |  | FHRREC       |  |       | 770   |             |  |          |    |         |  | 36/75,000
|The Fairmont PalliserCalgary, Alberta                       |  |        | 1914 |              |  | Legacy       |  |       | 405   |             |  |          | 48  |         |  | 14/21,700
|The Fairmont Hotel MacdonaldEdmonton, Alberta               |  |        | 1915 |              |  | Legacy       |  |       | 198   |             |  |          |    |         |  | 8/10,600 
|The Fairmont WinnipegWinnipeg, Manitoba                     |  |        | 1970 |              |  | Legacy       |  |       | 340   |             |  |          | 36  |         |  | 9/18,600 
|The Fairmont Royal YorkToronto, Ontario                     |  |        | 1929 |              |  | Legacy       |  |       | 1,365 |             |  |          | 85  |         |  | 41/81,000
|Fairmont Château LaurierOttawa, Ontario                     |  |        | 1912 |              |  | Legacy       |  |       | 429   |             |  |          | 33  |         |  | 16/32,800
|Fairmont Le Château
Montebello and KenaukMontebello, Quebec |  |        | 1930 |              |  | FHRREC       |  |       | 211   |             |  |          |    |         |  | 17/14,200
|Fairmont The Queen ElizabethMontreal, Quebec                |  |        | 1958 |              |  | Legacy       |  |       | 1,039 |             |  |          | 79  |         |  | 32/52,000
|Fairmont TremblantMont Tremblant, Quebec                    |  |        | 1997 |              |  | FHRREC
19.9% |  |       | 314   |             |  |          | 28  |         |  | 19/16,000
|Fairmont Le Château FrontenacQuebec City, Quebec            |  |        | 1893 |              |  | Legacy       |  |       | 617   |             |  |          | 55  |         |  | 14/22,000
|Fairmont Le Manoir RichelieuCharlevoix, Quebec              |  |        | 1899 |              |  | FHRREC
25%   |  |       | 405   |             |  |          | 21  |         |  | 12/22,000
|The Fairmont AlgonquinSt. Andrews By-the-Sea, New Brunswick |  |        | 1889 |              |  |              |  |       | 234   |             |  |          |    |         |  | 11/19,000
|The Fairmont NewfoundlandSt. Johns, Newfoundland           |  |        | 1982 |              |  | FHRREC
25%   |  |       | 301   |             |  |          | 56  |         |  | 17/20,000
|The Fairmont Acapulco PrincessAcapulco, Mexico              |  |        | 1971 |              |  | FHRREC       |  |       | 1,017 |             |  |          |    |         |  | 8/38,100 
|The Fairmont Pierre MarquesAcapulco, Mexico                 |  |        | 1958 |              |  | FHRREC       |  |       | 335   |             |  |          |    |         |  | 5/9,500  
|The Fairmont SouthamptonSouthampton, Bermuda                |  |        | 1972 |              |  | FHRREC       |  |       | 593   |             |  |          | 86  |         |  | 12/35,500
|The Fairmont Hamilton PrincessHamilton, Bermuda             |  |        | 1884 |              |  | FHRREC       |  |       | 410   |             |  |          | 95  |         |  | 6/17,000 
|The Fairmont Royal PavilionSt. James, Barbados              |  |        | 1987 |              |  | FHRREC       |  |       | 76    |             |  |          |    |         |  | 2/1,200  
|The Fairmont Glitter BaySt. James, Barbados                 |  |        | 1981 |              |  | FHRREC (7)   |  |       | 68    |             |  |          |    |         |  | 1/2,500  
|The Fairmont DubaiDubai, UAE                                |  |        | 2002 |              |  |              |  |       | 394   |             |  |          | 66  |         |  | 22/21,700
|Puerto Rico Resort (8)Rio Grande, Puerto Rico               |  |        | 2005 | (est.)       |  | TBA          |  |       | TBA   |             |  |          | TBA |         |  | TBA/TBA  

20



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##### 



|                                   |  |             |  |              |  |        |  |          |  |              
|---------------------------------- |  | ----------- |  | ------------ |  | ------ |  | -------- |  | -------------
|                                   |  |             |  |              |  |        |  | Fairmont |  | Meeting      
|Fairmont                           |  | Year        |  |              |  | Total  |  | Gold     |  | Rooms/       
|Property                           |  | Opened      |  | Ownership(1) |  | Rooms  |  | Rooms    |  | Sq. Footage  
|                                   |  |             |  |              |  |        |  |          |  |              
|Abu Dhabi Resort (8)Abu Dhabi, UAE |  | 2005 (est.) |  | TBA          |  | TBA    |  | TBA      |  | TBA/TBA      
|TOTAL                              |  |             |  |              |  | 20,396 |  | 907      |  | 617/1,239,500



---

|(1) |  | Ownership interest is held by a third party unless otherwise indicated.
|--- |  | -----------------------------------------------------------------------
|   
|(2) |  | Acquired in December 2002.                                             
|   
|(3) |  | Acquired 19.9% equity interest in September 2002.                      
|   
|(4) |  | A Fairmont managed hotel.                                              
|   
|(5) |  | Acquired by Legacy in December 2002.                                   
|   
|(6) |  | Acquired remaining 50% equity interest in February 2003.               
|   
|(7) |  | Some of the units at this resort are privately owned.                  
|   
|(8) |  | Under development.                                                     

21



---



##### 



|                                                                      |  |        |      |               |  |              |  |       |       |             |  |           |  |          
|--------------------------------------------------------------------- |  | ------ | ---- | ------------- |  | ------------ |  | ----- | ----- | ----------- |  | --------- |  | ---------
|                                                                      |  |        |      |               |  |              |  |       |       |             |  | Signature |  | Meeting  
|Delta                                                                 |  | Year   |      |               |  | Total        |  | Club  |       | Rooms/     
|Property                                                              |  | Opened |      | Ownership (1) |  | Rooms        |  | Rooms |       | Sq. Footage
|                                                                      |  |        |      |               |  |              |  |       |       |            
|Delta Sun Peaks ResortsSun Peaks, British Columbia                    |  |        | 2002 |               |  | FHRREC 26%   |  |       | 226   |             |  |          |  | 7/11,000 
|Delta Victoria Ocean Pointe Resort
and Spa,Victoria, British Columbia |  |        | 1992 |               |  |              |  |       | 245   |             |  |          |  | 12/14,100
|Delta Vancouver AirportRichmond, British Columbia                     |  |        | 1973 |               |  | Delta        |  |       | 412   |             |  |          |  | 15/15,400
|Delta Vancouver SuitesVancouver, British Columbia                     |  |        | 1998 |               |  | FHRREC
34.8% |  |       | 225   |             |  | 23        |  | 5/2,700  
|Delta PinnacleVancouver, British Columbia                             |  |        | 2000 |               |  |              |  |       | 434   |             |  | 51        |  | 12/15,700
|Delta Whistler Resort (2)Whistler, British Columbia                   |  |        | 1982 |               |  |              |  |       | 288   |             |  |          |  | 19/10,250
|Delta Whistler Village SuitesWhistler, British Columbia               |  |        | 1997 |               |  |              |  |       | 207   |             |  |          |  | 5/4,000  
|Tantalus Lodge (3)Whistler, British Columbia                          |  |        | 1980 |               |  |              |  |       | 76    |             |  |          |  | 2/1,300  
|Delta St. Eugene Mission ResortCranbrook, British Columbia            |  |        | 2002 |               |  |              |  |       | 125   |             |  |          |  | 6/4,400  
|Delta Bow ValleyCalgary, Alberta                                      |  |        | 1981 |               |  |              |  |       | 398   |             |  |          |  | 10/10,000
|Delta Calgary AirportCalgary, Alberta                                 |  |        | 1979 |               |  | Legacy       |  |       | 296   |             |  |          |  | 15/19,500
|Delta Lodge at KananaskisKananaskis Village, Alberta                  |  |        | 1988 |               |  |              |  |       | 321   |             |  | 70        |  | 14/16,000
|Delta Edmonton Centre Suite HotelEdmonton, Alberta                    |  |        | 1987 |               |  |              |  |       | 169   |             |  |          |  | 12/12,000
|Delta Edmonton South Hotel &
Conference Centre (2)Edmonton, Alberta   |  |        | 1975 |               |  |              |  |       | 237   |             |  |          |  | 28/31,900
|Delta BessboroughSaskatoon, Saskatchewan                              |  |        | 1935 |               |  | Legacy       |  |       | 225   |             |  | 37        |  | 11/18,000
|Delta Regina (2)Regina, Saskatchewan                                  |  |        | 1988 |               |  |              |  |       | 274   |             |  | 34        |  | 23/28,700
|Delta WinnipegWinnipeg, Manitoba                                      |  |        | 1974 |               |  | Legacy       |  |       | 392   |             |  | 49        |  | 13/18,100
|Delta London Armouries (2)London, Ontario                             |  |        | 1987 |               |  |              |  |       | 245   |             |  |          |  | 15/9,500 
|Delta Meadowvale Resort and
Conference Centre (2)Mississauga, Ontario |  |        | 1981 |               |  |              |  |       | 374   |             |  |          |  | 34/30,200
|Delta Toronto Airport WestMississauga, Ontario                        |  |        | 1976 |               |  | Legacy       |  |       | 296   |             |  |          |  | 25/14,100
|Delta ChelseaToronto, Ontario                                         |  |        | 1975 |               |  |              |  |       | 1,590 |             |  | 73        |  | 25/21,500
|Delta Toronto EastToronto, Ontario                                    |  |        | 1982 |               |  | Legacy       |  |       | 368   |             |  | 20        |  | 23/22,000
|Delta Pinestone ResortHaliburton, Ontario                             |  |        | 1976 |               |  |              |  |       | 103   |             |  |          |  | 13/15,000
|Delta Sherwood InnPort Carling, Ontario                               |  |        | 1939 |               |  |              |  |       | 49    |             |  |          |  | 3/3,500  
|Delta Grandview ResortHuntsville, Ontario                             |  |        | 1911 |               |  |              |  |       | 128   |             |  |          |  | 12/8,800 
|Delta Rocky Crest ResortMacTier, Ontario                              |  |        | 1965 |               |  |              |  |       | 65    |             |  |          |  | 3/3,000  
|Delta Ottawa Hotel and SuitesOttawa, Ontario                          |  |        | 1975 |               |  | Legacy       |  |       | 328   |             |  | 23        |  | 13/12,000

22



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##### 



|                                                                        |  |        |      |               |  |        |  |       |        |             |  |           |     |         |  |            
|----------------------------------------------------------------------- |  | ------ | ---- | ------------- |  | ------ |  | ----- | ------ | ----------- |  | --------- | --- | ------- |  | -----------
|                                                                        |  |        |      |               |  |        |  |       |        |             |  | Signature |     | Meeting
|Delta                                                                   |  | Year   |      |               |  | Total  |  | Club  |        | Rooms/     
|Property                                                                |  | Opened |      | Ownership (1) |  | Rooms  |  | Rooms |        | Sq. Footage
|                                                                        |  |        |      |               |  |        |  |       |        |            
|Delta Montreal (2)Montreal, Quebec                                      |  |        | 1986 |               |  |        |  |       | 456    |             |  |           | 42  |         |  | 17/16,000  
|Delta Centre-VilleMontreal, Quebec                                      |  |        | 1977 |               |  | Legacy |  |       | 711    |             |  |           | 128 |         |  | 18/22,600  
|Delta Sherbrooke Hotel and
Conference CentreSherbrooke, Quebec          |  |        | 1989 |               |  |        |  |       | 178    |             |  |           |    |         |  | 17/17,800  
|Delta Trois-Rivières Hotel and
Conference CentreTrois Rivières, Quebec  |  |        | 1991 |               |  |        |  |       | 159    |             |  |           |    |         |  | 13/18,300  
|Delta Brunswick (2)Saint John, New Brunswick                            |  |        | 1981 |               |  |        |  |       | 254    |             |  |           |    |         |  | 15/12,800  
|Delta BeauséjourMoncton, New Brunswick                                  |  |        | 1972 |               |  | Legacy |  |       | 311    |             |  |           |    |         |  | 15/24,000  
|Delta HalifaxHalifax, Nova Scotia                                       |  |        | 1974 |               |  | Legacy |  |       | 296    |             |  |           |    |         |  | 12/9,000   
|Delta BarringtonHalifax, Nova Scotia                                    |  |        | 1980 |               |  | Legacy |  |       | 200    |             |  |           | 31  |         |  | 9/6,700    
|Delta Sydney (2)Sydney, Nova Scotia                                     |  |        | 1987 |               |  |        |  |       | 152    |             |  |           |    |         |  | 8/5,500    
|Delta Prince EdwardCharlottetown, P.E.I                                 |  |        | 1984 |               |  | Legacy |  |       | 211    |             |  |           |    |         |  | 13/25,000  
|Delta St. Johns Hotel and
Conference Centre(2)St. Johns, Newfoundland |  |        | 1987 |               |  |        |  |       | 276    |             |  |           | 30  |         |  | 16/18,000  
|TOTAL                                                                   |  |        |      |               |  |        |  |       | 11,300 |             |  |           | 611 |         |  | 528/548,350



---

|(1) |  | Ownership interest is held by a third party unless otherwise indicated.
|--- |  | -----------------------------------------------------------------------
|   
|(2) |  | A Delta franchised hotel.                                              
|   
|(3) |  | A Delta managed hotel, non branded.                                    

|                                                    |  |        |      |           |  |        |  |        |     |             |  |  |    |  |  |          
|--------------------------------------------------- |  | ------ | ---- | --------- |  | ------ |  | ------ | --- | ----------- |  |  | -- |  |  | ---------
|                                                    |  |        |      |           |  |        |  |        |     |             |  |  |    |  |  | Meeting  
|Other                                               |  | Year   |      |           |  | Total  |  | Club   |     | Rooms/     
|Property                                            |  | Opened |      | Ownership |  | Rooms  |  | Suites |     | Sq. Footage
|                                                    |  |        |      |           |  |        |  |        |     |            
|Sheraton Suites Calgary Eau Claire
Calgary, Alberta |  |        | 1998 |           |  | Legacy |  |        | 323 |             |  |  | 44 |  |  | 12/10,000

Industry Awards

FHR has developed a reputation for quality, service and innovation in the
luxury and first-class markets, respectively. Its reputation has been
acknowledged by the following leading surveys.

2002/2003

Five Fairmont hotels received the 2002 Mobil Four-Star Award from Exxon
Mobil Travel Publications. The Fairmont Scottsdale Princess La Hacienda and
The Marquesa each received Mobil Four-Star Restaurants 2002, making La Hacienda
North Americas only Mobil 4-Star and AAA 4-Star restaurant.

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The Fairmont Scottsdale Princess received the AAA Five-Diamond Hotels
Award, as well as The Marquesa, receiving the AAA Five-Diamond Restaurants
award.

Condé Nast Traveler 2003annual readers choice poll, The Gold List,
listed two-thirds of Fairmonts portfolio on this years survey. FHR believes
it epitomizes the gold standard, with 27 of its world-class properties making
the list in 2003, up from 21 last year. Headlining this years list for
Fairmont is The Fairmont Kea Lani Maui, scoring a perfect 100% for service,
making it number one in The Best by Service for the United States. The
Fairmont Orchid, Hawaii, scored high for its luxurious rooms and scenic
location and The Fairmont Banff Springs, for its outstanding picturesque
location, making it the second Best by Location for the Americas. Other
notable mentions include the castle-like Fairmont Château Laurier, The Fairmont
Vancouver Airport and The Fairmont Hotel Macdonald.

Meetings & Conventionsmagazine awarded five Fairmont hotels and resorts
with the magazines annual 2002 Gold Key International Award. In addition, six
Fairmont properties were awarded the Gold Key Award. Celebrating the finest
meeting properties world-wide, the awards are based on the overall quality of
the staff, meeting rooms, food and beverage offerings and the level of service
provided. Other notable mentions include The Fairmont San Francisco and The
Fairmont Scottsdale Princess Gold Platter Award, and The Fairmont Royal Yorks
Gold Platter International Award.

Travel & Leisurehas named 15 Fairmont hotels and resorts to its first
annual T & L 500, The magazines ultimate guide to the best hotels in the
world. Using the 500 properties that received the highest rankings in the
magazines 2002 Worlds Best Awards Survey, the editors then added their own
opinions to complete the guide. Fairmonts Canadian properties made a strong
showing in the guide, with the Fairmont Château Laurier topping the list for
Fairmont, followed by The Fairmont Jasper Park Lodge and The Fairmont Banff
Springs. Fairmonts two Hawaiian resorts lead the way for the United States
and The Fairmont San Francisco was dubbed a destination in and of itself.

Travel & Leisure Magazines 2002 Annual Worlds Best Awardsreaders
poll ranked eight Fairmont properties in their annual evaluation of prestigious
hotels and resorts throughout the world. Headlining the Top 100 list was
Fairmont Château Laurier, The Fairmont Jasper Park Lodge and The Fairmont
Chateau Lake Louise. Delta Victoria Ocean Pointe Resort and Spa was named in
the top 100 for U.S. and Canada.

Travel & Leisure Magazines 2002 Worlds Best Valuessurvey ranked five
Fairmont properties in their annual evaluation of exceptional service, unique
offerings and renowned hospitality at an affordable price. Topping the list
was The Fairmont Southampton, scoring the highest ranking of any hotel in the
Caribbean, Bermuda and the Bahamas.

Travel & Leisure Magazines 2002 Worlds Best Spasnamed The Fairmont
Banff Springs in the top ten for The Best Spas for Treatments and The Best
Spas for Value in the U.S. and Canada.

The Hospitality Sales & Marketing Association International(HSMAI)
recognized FHR with the Golden Click Best of Show Award for the design and
development of www.fairmont.com. The Web site was selected for the honor from
this years Platinum Golden Click Web Award winners.

The Association of Travel Marketing Executives(ATME) recognized FHR with
the 2003 Gold Award for most effective website.

The Discovery Travel Channelselected The Fairmont Chateau Lake Louise as
one of the Worlds Top 10 Honeymoon Hot Spots. The program recognized The
Fairmont Chateau Lake Louise and nine other of the most luxurious resorts
around the world as ultimate travel destinations.

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FHR received the Natural Resources Canada Energy Innovators Awards 2002,
recognized as a company leader in the hospitality industry in reducing
greenhouse gas emissions.

BC Hydro and the Manitoba Round Table for Sustainable Development
recognized FHR British Columbia and The Fairmont Winnipeg for their outstanding
environmental contributions as a part of Fairmonts Green Partnership Program.
The five B.C. properties have made sizeable reductions to their energy
consumption, earning them BC Hydro Power Smart Certified status; and The
Fairmont Winnipegs pioneering efforts to promote environmentally sound
economic development, have been recognized with the Sustainable Development
2002 Award, Business Category.

The Canadian Marketing Association (CMA) recognized Fairmont Hotels &
Resorts with the 2002 GoldAward for their innovative and very auspicious
direct marketing campaign The Plaza Loves Canada. Fairmont accepted the top
honour in the Leisure/Travel Products & Services category.

The TIA (Travel Industry Association of America) presented the Odyssey
Awards 2002  Special Recognition Awardto Fairmont Hotels & Resorts for the
Adopt-a-Shelter program.

Macleansselected FHR for the 2003 Edition of Canadas Top 100 Employers.
This annual guide produced by Mediacorp is a reference to best practices in
recruitment and retention and includes employers that have innovative programs
to attract and keep talented employees.

The American Automobile Association (AAA) and the Canadian Automobile
Association (CAA) recognized 30 Fairmont properties with Four or Five Diamond
Awards.

Successful Meetingsmagazine awarded 20 Fairmont properties the 2002
Pinnacle Award.

2001

The 2001 Zagatstravel survey of top U.S. hotels/resorts/spas ranked
Fairmont fourth among lodging companies in the country. In the international
edition of the acclaimed guidebook, Fairmont also ranked high with travelers
with The Fairmont Empress and The Fairmont Chateau Whistler placing amongst the
best hotels/resorts in Canada.

Nine Fairmont hotels received the 2002 Mobil Four and Five-Star Award from
Exxon Mobil Travel Publications. Highlighting this years list was The
Fairmont Scottsdale Princess, which received a coveted Five-Star ranking.
Additionally, two of the hotels restaurants, La Hacienda and The Marquesa
received this distinction.

The Corporate & Incentive Travelermagazine gave three Fairmont hotels its
Award of Excellence.

Meeting & Conventionsmagazine presented 15 of Fairmonts hotels with its
Gold Key Award.

In the 2001 edition of Forbes, The Fairmont Chateau Whistler and Fairmont
Tremblant were listed as two of the 10 best ski resorts in North America. The
highly respected monthly magazine selected both properties for their upscale
accommodations and for the quality of their nearby ski runs.

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Owned Hotels

The following is a description of the individual hotels in which FHR
currently has an ownership interest. FHRREC or one or more of its subsidiaries
has a 100% interest in these properties, unless otherwise indicated.

The Fairmont Orchid

Situated on 32 beachfront acres along the semi-tropical Kohala Coast, on
the North-western coast of Hawaii, The Fairmont Orchid has 540 guestrooms and
suites and offers a full-service spa and fitness center, 42,000 square feet of
function space, three restaurants, ten tennis courts, and is located close to
two 18-hole golf courses. The Fairmont Orchid was named to Condé Nast
Travelers2002 Gold List and was named one of the best golf resorts by Condé
Nast Travelers2001 Top Golf Resorts readers survey. In October 2002, FHRREC
acquired The Orchid at Mauna Lani on the Island of Hawaii from an affiliate of
Colony Capital LLC.

The Fairmont Kea Lani Maui

Known as the islands only all-suite luxury oceanfront resort, The
Fairmont Kea Lani Maui is situated on Polo Beach in the world-class destination
of Wailea, on the south-western coast of Maui. With 413 one-bedroom suites and
37 private beachfront villas, the 22-acre resort offers a full-service spa and
fitness center and a range of water sports. The resort is located close to
Waileas three 18-hole championship, par 72 golf courses and 14 tennis courts.
The resort appears in Condé Nast Travelers2002 Gold List and scored a perfect
100% for service, making it number one in The Best by Service in the U.S.
FHRREC holds its indirect interest in the resort through a Hawaiian limited
partnership, Kea Lani Limited Partnership.

The Fairmont Sonoma Mission Inn & Spa

Long known as a historic spa destination in the heart of the California
Wine Country, The Fairmont Sonoma Mission Inn & Spa is the recipient of the AAA
Four-Diamond Award and Mobile Four-Star Award. The recently expanded spa
facility boasts its own source of thermal mineral water. The 228-room resort
includes two pools, 11 meeting rooms, and a full-service business center.
Guests have preferred access to Sonoma National, a private 18-hole championship
golf course. In September 2002, in addition to securing the long-term
management contract, FHRREC purchased a 19.9% equity interest in the resort.

The Fairmont Scottsdale Princess

Built in 1987, The Fairmont Scottsdale Princess is located on a 450-acre
property, with the McDowell Mountains as the backdrop. The property has access
to two championship golf courses which are leased by the City of Scottsdale and
operated by the Tournament Players Club of Scottsdale. For several years, one
of these courses has been the site of the PGA Tours Phoenix Open. The hotel
has also been the host of the ATP/Franklin Templeton Mens Tennis Tournament
for a number of years. In 2002, the hotel appeared in Condé Nast Travelers
Gold List. Willow Stream the spa at The Fairmont Scottsdale Princess, a 44,000
square-foot luxury spa, opened at the end of 2001. In 2002, the resort
received a Mobil Five-Star Award from Exxon Mobil Travel Publications as did
two of the hotels restaurants, La Hacienda and The Marquesa. For the eleventh
consecutive year the hotel received two Five-Diamond Awards from AAA, one for
the hotels striking and luxurious facilities and exceptionally high degree of
service and the other for its signature dining room, The Marquesa. The Fairmont
Scottsdale Princess is owned by the Scottsdale Princess Partnership, an Arizona
partnership which is

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indirectly owned by FHRREC. The hotel is located on land leased from the City
of Scottsdale, whose lease expires at the end of 2085.

The Fairmont Copley Plaza Boston

Known as the Grande Dame of Boston, The Fairmont Copley Plaza Boston has
been a landmark of elegance since its opening in 1912. The 379-room hotel was
designed by the same architect as The Plaza in New York and has many similar
features. The hotel is centrally located beside the Hancock Tower, the Boston
Public Library and Trinity Church and is close to Beacon Hill and Newbury
Street. The hotel received the AAA Four-Diamond Award in 2001. In June 2001,
FHRREC acquired a 50% ownership position in the hotel, and Fairmont, which has
been the manager of the hotel since 1996, entered into a new long-term
management contract. In February 2003, FHRREC completed the acquisition of the
remaining 50% equity interest in the property. The hotel is presently
undergoing substantial renovations to its guestrooms. The property is owned by
Copley Plaza 2001 LLC, a Delaware limited partnership, which is an indirect
wholly-owned subsidiary of FHRREC.

The Fairmont Chateau Whistler

Opened in 1989, The Fairmont Chateau Whistler was the first chateau-style
hotel built by FHR since the turn of the century. Tourism in the Whistler area
has generally been increasing and the resort has been expanded over the past
decade to accommodate increased demand. Located at the base of Blackcomb
Mountain, the chateau is within walking distance of Whistler Mountain. The
hotel features an 18-hole championship golf course designed by Robert Trent
Jones, Jr. and offers a full-service spa. The resort appeared in Condé Nast
Travelers2002 Gold List and was voted one of the 50 Best Golf Resorts by the
magazine in 2001. In the November 2001 edition of Forbes, the resort was
listed as one of the 10 best ski resorts in North America. The hotel also
received the Four-Diamond Award from the CAA in 2002. All of the lands
relating to the hotel property and the golf course are owned by Chateau
Whistler Resort Partnership, a British Columbia partnership which is
wholly-owned, directly and indirectly, by FHRREC.

The Fairmont Vancouver Airport

Built in 1999, The Fairmont Vancouver Airport is a state-of-the-art hotel
connected to the Vancouver International Airport. It is the first hotel in the
world to offer an in-room airline check-in service and the first hotel in North
America to introduce a satellite lobby in the airport arrival halls. With a
full-service work center, spa and health club, this hotel combines all the
expected amenities and facilities of a luxury hotel with the conveniences of an
airport property. In 2002, the hotel earned the Four-Diamond Award from CAA.
FHRREC leases the land on which the hotel is located from the Vancouver Airport
Authority. The lease term expires in 2050.

The Fairmont Jasper Park Lodge

The Fairmont Jasper Park Lodge is an alpine-like village of cedar chalets
and authentic log cabins originally designed in 1922. Located near Marmot
Basin Ski Resort in Jasper National Park, the property offers year-round
activities including skiing and golf on its championship golf course designed
by Stanley Thompson. In 2002, the hotel appeared in Condé Nast TravelersGold
List in addition to being ranked as one of the 50 Best Golf Resorts by the
magazine in 2001. In 2001, this golf course received numerous honors including
Best Golf Course, Best Canadian Golf Destination and Best Scenery in Canada by
Score Golfmagazine. Also in 2002, CAA presented its main restaurant, the
Edith Cavell Dining Room, with the Four-Diamond Award. The resort is under a
single lease with the Government of Canada, expiring March 31, 2010, with a
right to an additional term of 10 years.

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The Fairmont Chateau Lake Louise

The Fairmont Chateau Lake Louise sits on the shores of Lake Louise in the
Canadian Rockies and is in close proximity to world class skiing at the Lake
Louise Ski Area in Alberta. Built in 1890, the resort was expanded from a
mountain chalet in 1912 and became an all-season property in 1984. The
addition of a meeting facility is underway and will be completed in 2004 and
Fairmont Gold will open in May 2003. In 2002, the hotel appeared in Condé Nast
TravelersGold List and received the Four-Diamond Award from the CAA. The
Fairmont Chateau Lake Louise was selected as one of the Ultimate 10 Hotels in
the World by The Learning Channel, recognizing the property as one of the top
luxury hotels in the world. The hotel is under perpetually renewable leases
with the Government of Canada, the owner of all the land in Banff National
Park, with the exception of a new lease of a road right-of-way and other lands
including minor portions of the hotel and a staff building which is for a fixed
term of 42 years. The leases for The Fairmont Chateau Lake Louise are held by
Chateau Lake Louise Corporation, a Nova Scotia corporation which is a
wholly-owned subsidiary of FHR.

The Fairmont Banff Springs

Designed and built in 1888, and often referred to as the Castle in the
Rockies, The Fairmont Banff Springs is a year-round resort located in the
Canadian Rocky Mountains in Banff National Park. The hotel is in close
proximity to a number of internationally renowned ski facilities, including
Sunshine Village and Lake Louise Ski Area, and has a 27-hole championship golf
course designed by Stanley Thompson. In 2001, a major three-year renovation
program was completed at the property, returning the resort to its original
splendor including guestrooms, the lobby, public spaces and kitchens. In 2002,
the hotel appeared in Condé Nast TravelersGold List and received the
Four-Diamond Award from the CAA in 2002. In 1995, the hotel opened Solace, a
luxury spa that was ranked second in the category of Worlds Best Spa
Destinations by Condé Nast Travelers2001 Readers Choice Awards. The spa
was rebranded as a Willow Stream in 2002. The main structures of the hotel
containing the reception areas, kitchen, guestrooms and the majority of the
staff accommodations are subject to perpetually renewable leases with the
Government of Canada. The remaining leasehold lands forming the hotel and
containing the conference center, parkade, other staff accommodations, the
tennis courts and the golf course are subject to a number of leases for fixed
terms of up to 42 years.

Fairmont Le Château Montebello and Fairmont Kenauk at Le Château Montebello

Located between Ottawa and Montreal, this historic resorts focal point is
its cedar log chateau built in 1930. Fairmont Le Château Montebello has
approximately 65,000 acres of protected wilderness domain that is one of North
Americas largest and oldest private fish and game reserves, with more than 70
lakes within its borders. The resort has an extensive recreation program and
offers a Stanley Thompson championship golf course, for which it received a
Double Platinum ranking from Canadas
Golf Rankingmagazine.

Fairmont Tremblant

Opened in 1997, this hotel is located at the base of Mont Tremblant in the
Laurentians. In 2002, the hotel appeared in Condé Nast TravelersGold List
and received the CAA Four-Diamond Award. In the November 2001 edition of
Forbes, the resort was listed as one of the 10 best ski resorts in North
America. FHRREC has a 19.9% direct interest in Chateau M.T. Inc., a Quebec
corporation, which owns the property.

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Fairmont Le Manoir Richelieu

First established in 1899, this Castle on the Cliff located in
Charlevoix, Québec, celebrated its centennial shortly after the completion of a
major renovation. The resort offers a spa, casino and whale watching on the
St. Lawrence River. In 2000, Fairmont Le Manoir Richelieu received a Double
Platinum ranking from Canadas Golf Rankingmagazine for its 18-hole
championship golf course, which is presently under construction for the
addition of a further nine holes. The hotel and its restaurant, Le Charlevoix,
each received the Four Diamond Award from CAA in 2002. FHRREC holds a 25%
interest in the property through its direct ownership in Manoir Richelieu
Limited Partnership, a Québec limited partnership.

The Fairmont Newfoundland

Rebuilt in 1982, The Fairmont Newfoundland is located in the heart of St.
Johns, overlooking the harbor. This modern hotel offers a 24-hour business
center and all guestrooms are provided with business amenities. FHRREC holds
its 25% interest directly in this property.

The Fairmont Acapulco Princess

Designed to resemble an Aztec pyramid, The Fairmont Acapulco Princess is
located on 480 tropical acres along the Revolcadero Beach. The grounds offer
five freshwater pools, waterfalls and one salt-water pool, tennis, water sports
and an 18-hole championship golf course. In 2002, the resort appeared in Condé
Nast TravelersGold List and received the Gold Key Award from Meetings &
Conventionsmagazine and the AAA Four-Diamond Award. In 2002, the property
completed a major renovation program that included the refurbishment of all
guestrooms and the addition of a Willow Stream spa. The hotel and golf course
are owned by Organización Ideal, S.A. de C.V. and Impulsora de Revolcadero S.A.
de C.V., both Mexican corporations, which are indirect wholly-owned
subsidiaries of FHRREC.

The Fairmont Pierre Marques

Located minutes from The Fairmont Acapulco Princess on a secluded section
of Revolcadero Beach, the resort was originally built in 1958 as a lavish
personal hideaway for oil magnate J. Paul Getty. Previously open for only
three months of the year, the property has been catering to guests year-round
since it was purchased by FHR in 1998. The hotel has retained the privacy and
intimacy of its original days with villas, bungalows and low-rise pavilions in
a garden setting, offering three freshwater pools and an 18-hole championship
golf course. In 2002, a major renovation program was completed which included
all of the guestrooms, bungalows and villas, as well as the lobby. In 2002,
the hotel appeared in Condé Nast TravelersGold List. The hotel and golf
course are owned by Impulsora de Revolcadero, S.A. de C.V., a Mexican
corporation which is an indirect wholly-owned subsidiary of FHRREC. A small
section of the land is held in trust from Banca Cremi, S.A. by Organización
Ideal, S.A. de C.V., a Mexican corporation which is an indirect wholly-owned
subsidiary of FHRREC.

The Fairmont Southampton

Located on the south shore of Bermudas highest point, The Fairmont
Southampton opened in 1972 overlooking approximately 100 acres of property.
The hotel has a pink sand beach, tennis and an 18-hole par 3 executive golf
course. In 2002, the resort completed a major renovation program including
guestrooms, the lobby, restaurants and bar, as well as the addition of Fairmont
Gold and a full-service Willow Stream spa. In 2002, the resort appeared in
Condé Nast TravelersGold List and was also named the best hotel in the
Caribbean/Bermuda/Bahamas by Travel & Leisuremagazine. In 2002, The Fairmont

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Southampton received the Four-Diamond Award from AAA. Westend Properties
Limited, a Bermuda corporation which is an indirect wholly-owned subsidiary of
FHRREC, owns the hotel.

The Fairmont Hamilton Princess

Built in 1884, The Fairmont Hamilton Princess is located in the heart of
Hamilton, Bermudas capital. In 2001, the hotel received numerous awards for
its meeting facilities and services, including the Gold Key Award from Meetings
& Conventionsmagazine and the Pinnacle Award from Successful Meetings
magazine. The property has recently completed a major renovation program,
including all guestrooms, the addition of Fairmont Gold, the lobby and hotel
entrance. The property is owned by Hamilton Properties Limited, a Bermuda
corporation, which is an indirect wholly-owned subsidiary of FHRREC.

The Fairmont Glitter Bay and The Fairmont Royal Pavilion

These two hotels are located next to each other on a tropical estate that
overlooks the Caribbean Sea, on a half-mile stretch of beach on Barbados west
coast. The Fairmont Glitter Bay opened in 1981 and was followed by the opening
of The Fairmont Royal Pavilion in 1987. The Fairmont Glitter Bay contains one,
two and three-bedroom suites, some of which are privately owned. Resort
amenities include tennis courts, a water sports center and fitness center. In
May 2003, The Fairmont Royal Pavilion will be closed for six months for a
complete renovation to the resorts guestrooms. In 2002, AAA presented the
Four Diamond Award to The Fairmont Royal Pavilion. FHRRECs interest in the
two properties is held through its indirect wholly-owned subsidiary, CP Hotels
(Barbados) Inc., a Barbados corporation.

Delta Vancouver Suites

Delta Vancouver Suites is located in the waterfront district, close to the
Vancouver Trade and Convention Centre. This all-suite hotel offers
state-of-the-art technology in the heart of downtown Vancouver. FHRREC holds
its 34.8% indirect interest in the property through Conference Plaza Hotel
Limited Partnership, a British Columbia limited partnership.

Delta Vancouver Airport

Located on nine acres of land on the banks of the Fraser River, the Delta
Vancouver Airport is in close proximity to the Vancouver International Airport.
FHR, through Delta, leases the land on which the property is situated. This
lease expires in January 2009, and there are no further renewal rights.

Delta Sun Peaks Resort

Opened in October 2002, Delta Sun Peaks Resort is located only 45 minutes
away from the city of Kamloops in British Columbias beautiful Thompson
Okanagan region. Delta Sun Peaks Resort is the largest, full-service hotel and
conference centre in the quaint, European-style village of Sun Peaks at Tod
Mountain. FHRREC holds a 26% interest in the property.

Fees and Services

Under their management contracts, Fairmont and Delta generally oversee all
aspects of the day-to-day operations of each property on behalf of the owner,
including hiring, training, and supervising staff, maintaining sales and
marketing efforts, providing accounting and budgeting functions, providing
support for management information systems and applications and providing for
the safekeeping, repair

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and maintenance of the physical assets. Fairmont and Delta perform these
services within the guidelines contained in the annual operating and capital
plans that are submitted to the owners of the properties during the last
quarter of the preceding year for their review and approval. For these
services, Fairmont and Delta typically earn a base fee calculated as a
percentage of a propertys gross revenues and may earn an incentive fee based
on certain operating results of the property.

Fairmont and Delta provide centralized reservation services, marketing and
sales programs and advertising services to properties under management. All of
these services are provided by Fairmont and Delta on a cost recovery basis.

Owners Responsibilities

Under Fairmont and Deltas management contracts, the hotel owner generally
is responsible for the funding of the hotels working capital requirements and
capital expenditures. Fairmont and Delta annually prepare an operating plan
and capital expenditure budget for the property owner to approve. All
structural changes, major refurbishing programs and major repairs require the
separate approval of a property owner prior to implementation by Fairmont or
Delta. The property owner also employs the hotel staff and pays their
salaries, including all benefits.

Capital Improvements and Investments

FHR maintains the high quality of its properties through an annual
maintenance program, which is funded by the owners of the properties. The
annual maintenance program is based on a percentage of revenues and generally
ranges from 4% to 6% of each propertys gross revenue. Other projects are
undertaken in order to maximize profits. During 2002, approximately $84
million was spent on maintenance and improvements to the owned assets, the
majority of which was spent on profit-enhancing projects.

Marketing and Guest Recognition Programs

FHR has several e-commerce initiatives designed to assist in the
optimization of asset performance, including a direct web-based hotel and
activity booking system, a content management framework, sophisticated hotel
search engines and marketing campaign management and reporting systems.
Fairmont has also re-engineered its core systems to exploit the latest
web-based technologies, which now operate over the Internet to any location in
the world. Fairmont has built a digital infrastructure that interconnects its
guestrooms, the employee base, the Internet and all the traditional travel
distribution channels.

As part of the initiatives outlined above, FHRs existing third party
web-based systems are being replaced with more sophisticated systems that will,
among other things, enable guests to plan their Fairmont experience on-line.
The new system includes a data warehouse which will capture the entire
transaction history of guests, which will be matched with profiles that can be
developed on-line. The resulting data can be leveraged to gain a larger share
of guests spending and enhance loyalty to the brand. Guests will be able to
view Fairmonts facilities and book their rooms on-line, as well as arrange a
variety of other activities both off property and at the destination, including
spa appointments and golf tee times. This information will then become a part
of a guests profile, making it possible to offer tailored packages to that
guest at his or her next on-line session. Members of Presidents Club,
Fairmonts guest recognition program, will have access to their own secure area
of the web site where they can update their personal profiles. These enhanced
profiles will then be communicated to personnel at the hotel who will
customize the guests stay. In addition, this information will greatly
enhance Fairmonts ability to communicate with this very important target
group, ensuring that Fairmont provides the services that

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these customers consider important. Fairmont currently has approximately
150,000 active Presidents Club members. Delta Privilege, a guest recognition
membership program designed for frequent business travelers, has approximately
66,000 active members.

Seasonality of Business

FHRs hotels are affected by normal recurring seasonal patterns. The
Canadian and U.S. city center properties tend to experience a slowdown in
demand during the December through March period. As a result, the majority of
these properties typically incur a loss in the first quarter of each year.
This negative impact on operations at the city center hotels is offset, to some
degree, by increased travel to FHRs warm weather and ski resorts in these
months and may, in the future, be offset to a greater extent as FHRs portfolio
of resort properties increases.

Environmental Protection

Environmental compliance programs are in place at all properties that FHR
manages and owns. No significant issues were identified in any of these
properties as a result of the 2002 environmental questionnaire completed by all
the hotels.

As part of the acquisition process of both the Princess Portfolio and
Fairmont L.P., environmental assessments were reviewed for all hotels involved.
Any removal or containment of hazardous materials in these hotels is being
carried out during planned renovations of these properties. All of the
properties purchased by Legacy are required by its Declaration of Trust to have
environmental assessments.

In addition to compliance with regulations, FHR is a leader in promoting
environmentally friendly activities at its owned and managed hotels. In 1991,
the Green Partnership program was launched which focused mainly on recycling.
This program was extended in 1998 with the goal of including the industrial
composting of organic waste, eco-friendly meeting options for guests, the
donation of left-over food to food banks and used soaps and amenities to
charities, or their return to the manufacturer for recycling. CP Green Tours
were introduced through partnerships with local ecotourism operators.

In March 1997, The Fairmont Château Whistler became FHRs first golf
course to earn the prestigious Audubon accreditation. In August 1999, The
Fairmont Banff Springs also gained Audubon accreditation, being only
the 15th
course in Canada and the 3rd in Alberta to achieve this status. Fairmont Le
Château Montebello and The Fairmont Jasper Park Lodge are the most recent
members of the FHR family to achieve this prestigious title.

In 2003, all FHR managed golf courses, including those in Bermuda and
Mexico, will be working towards accreditation as wildlife sanctuaries through
Audubon International.

Human Resources

FHR currently employs or supervises more than 30,000 full-time and
part-time employees. FHR encourages a strong service-based culture among
employees with the goal of providing consistent, personalized service of an
exceptional standard. Fairmont has developed a series of programs designed to
select, train and motivate employees who will share its objective of ensuring
that the expectations of guests are consistently met and exceeded. Delta has
its own human resources training programs, which are similar to those at
Fairmont.

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Fairmont endeavors to ensure that it hires people that are most suited for
the positions offered by requiring each candidate to undergo a screening
process which has been developed by a well-known management consulting firm.
Macleans magazine selected FHR for the 2003 edition of Canadas Top 100
Employers. Deltas dedication to being an employer of choice was recognized
for the third consecutive year when The Globe and Mails respected Report on
Businessmagazine named Delta one of the Top 50 Companies To Work For in
Canada in 2002.

Approximately 49% of the employees at FHRs managed and owned hotels are
members of collective bargaining units. These employees are represented by 22
unions, with a total of 52 bargaining units. The agreements with the various
bargaining units have staggered expiry dates. In 2002, 15 Fairmont properties
and six Delta hotels successfully negotiated new labor contracts while labor
contracts at eight Fairmont hotels and five Delta properties expired.

Intellectual Property

FHR believes that its brands are very important to its success. FHR has a
significant number of tradenames, trademarks and service marks, including those
relating to Fairmont and those acquired as a result of its purchase of the
Delta and Princess portfolios. In addition, it is the owner of many Internet
domain names related to its brands. FHR vigorously defends its brands and
spends considerable time and resources in surveillance, registration,
protection and prosecution of infringers. The Canadian Pacific trademark and
its derivatives were transferred to Canadian Pacific Railway Company as part of
the Arrangement, however FHR has secured a perpetual, royalty-free license for
its continued use of these trademarks.

Insurance

All hotels managed by FHR are insured against property damage, business
interruption and liability at the expense of the owner of the hotel. Under
these policies, FHR is also insured against loss of fee income in the event of
a temporary business interruption arising from an insured peril at any of the
properties that it manages. In addition, FHR obtains indemnities from the
owners of the properties that it manages in respect of damages caused by acts,
omissions and liabilities of the employees of the property or of FHR, other
than damages resulting from certain actions of FHR and certain senior
management personnel. FHR also maintains directors and officers liability
insurance. FHR believes that its insurance coverage is adequate. However, if
FHR were held liable for amounts exceeding the limits of its insurance coverage
or for claims outside the scope of that coverage, its business, results of
operations and financial conditions could be materially and adversely affected.

FHRs Ownership Interests

As at May 1, 2003, FHR had a beneficial interest in the following
entities, which could be viewed as being material to the Corporation:

|                                                              |  |                           |      |  
|------------------------------------------------------------- |  | ------------------------- | ---- | -
|Entity and Governing Jurisdiction                             |  | FHRs Beneficial Interest
|                                                              |  |                          
|Chateau Lake Louise Corporation (Nova Scotia)                 |  |                           | 100  | %
|Chateau M.T. Inc. (Quebec)                                    |  |                           | 19.9 | %
|Chateau Whistler Resort Partnership (British Columbia)        |  |                           | 100  | %
|Conference Plaza Hotel Limited Partnership (British Columbia) |  |                           | 34.8 | %
|Copley Plaza 2001 LLC (Delaware)                              |  |                           | 100  | %
|CP Hotels (Barbados) Inc. (Barbados)                          |  |                           | 100  | %
|CP Hotels (U.S.) 1998 Inc. (Delaware)                         |  |                           | 100  | %

33



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|                                                       |  |                           |      |  
|------------------------------------------------------ |  | ------------------------- | ---- | -
|Entity and Governing Jurisdiction                      |  | FHRs Beneficial Interest
|                                                       |  |                          
|CPH International Financing Rt. (Hungary)              |  |                           | 100  | %
|Delta Hotels Limited (Ontario)                         |  |                           | 100  | %
|Fairmont Hotels Inc. (Canada)                          |  |                           | 83.5 | %
|Fairmont Hotels & Resorts International Rt. (Hungary)  |  |                           | 83.5 | %
|FHIW Hotel Investments (U.S.) Inc. (Delaware)          |  |                           | 100  | %
|FHR Holdings Inc.                                      |  |                           | 100  | %
|FHR (ML) Hotel Holdings LLC (Delaware)                 |  |                           | 100  | %
|FHR Properties Inc. (Canada)                           |  |                           | 100  | %
|FHR Real Estate Corporation (Canada)                   |  |                           | 100  | %
|Hamilton Properties Limited (Bermuda)                  |  |                           | 100  | %
|Impulsora de Revolcadero S.A. de C.V. (Mexico)         |  |                           | 100  | %
|Kea Lani Limited Partnership (Hawaii)                  |  |                           | 100  | %
|Legacy Hotels Real Estate Investment Trust (Alberta)   |  |                           | 35.6 | %
|Manoir Richelieu Limited Partnership (Quebec)          |  |                           | 25   | %
|Organización Ideal, S.A. de C.V. (Mexico)              |  |                           | 100  | %
|Scottsdale Princess Partnership (Arizona)              |  |                           | 100  | %
|SMI Real Estate LLC (Delaware)                         |  |                           | 19.9 | %
|Sun Peaks Hotel Limited Partnership (British Columbia) |  |                           | 29.9 | %
|Westend Properties Limited (Bermuda)                   |  |                           | 100  | %

34



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ITEM 4: SELECTED CONSOLIDATED FINANCIAL INFORMATION

(Millions of dollars, except per share amounts)

The following financial data should be read in conjunction with the
consolidated financial statements and related notes thereto and Managements
Discussion and Analysis as found in the Corporations Annual Report.

|                                            |  |                        |         |      |  |      |         |   |  |      |          | 
|------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- | - |  | ---- | -------- | 
|                                            |  | Year ended December 31
|                                            |  |                       
|                                            |  | 2002                   |         | 2001 |  | 2000
|                                            |  |                        |         |      |  |     
|INCOME STATEMENT DATA                       |  |                        |         |      |  |      |         |   |  |      |          | 
|Revenues                                    |  | $                      | 618.3   |      |  |      | 566.7   |   |  |      | 541.9    | 
|                                            |  |                        |         |      |  |      |         |   |  |      |          | 
|Income from investments and other           |  |                        | 17.7    |      |  |      | 18.7    |   |  |      | 24.3     | 
|                                            |  |                        |         |      |  |      |         |   |  |      |          | 
|Income (loss) from continuing operations    |  |                        | 92.5    |      |  |      | (28.2   | ) |  |      | 52.4     | 
|Discontinued operations                     |  |                        |        |      |  |      | 923.9   |   |  |      | 1,065.9  | 
|                                            |  |                        |         |      |  |      |         |   |  |      |          | 
|Net
income for the year(1)                  |  | $                      | 92.5    |      |  | $    | 895.7   |   |  | $    | 1,118.3  | 
|                                            |  |                        |         |      |  |      |         |   |  |      |          | 
|Basic earnings (loss) per common share      |  |                        |         |      |  |      |         |   |  |      |          | 
|Income (loss) from continuing operations    |  |                        | 1.18    |      |  |      | (0.43   | ) |  |      | 0.56     | 
|Discontinued operations                     |  |                        |        |      |  |      | 11.71   |   |  |      | 13.40    | 
|Net income available to common shareholders |  |                        | 1.18    |      |  |      | 11.28   |   |  |      | 13.96    | 
|Diluted earnings (loss) per share           |  |                        |         |      |  |      |         |   |  |      |          | 
|Income (loss) from continuing operations    |  |                        | 1.16    |      |  |      | (0.43   | ) |  |      | 0.55     | 
|Discontinued operations                     |  |                        |        |      |  |      | 11.70   |   |  |      | 13.36    | 
|Net income available to common shareholder  |  |                        | 1.16    |      |  |      | 11.27   |   |  |      | 13.91    | 
|Dividends declared                          |  |                        |         |      |  |      |         |   |  |      |          | 
|Per common share                            |  | $                      | 0.05    |      |  | Cdn$ | 1.12    |   |  | Cdn$ | 1.48    
|Per preferred share                         |  |                        |        |      |  | $    | 0.8426  |   |  | $    | 0.9307   | 
|OTHER FINANCIAL DATA                        |  |                        |         |      |  |      |         |   |  |      |          | 
|Revenues
under management(2)                |  | $                      | 1,628.7 |      |  | $    | 1,570.8 |   |  | $    | 1,625.4  | 
|EBITDA(3)                                   |  |                        | 198.3   |      |  |      | 163.1   |   |  |      | 195.1    | 
|Operating cash flow                         |  |                        | 122.6   |      |  |      | 1,829.2 |   |  |      | 2,197.8  | 
|Capital expenditures                        |  |                        | 100.1   |      |  |      | 129.3   |   |  |      | 89.9     | 
|Total assets                                |  |                        | 2,223.0 |      |  |      | 1,921.4 |   |  |      | 15,850.1 | 
|Total debt                                  |  |                        | 535.5   |      |  |      | 339.7   |   |  |      | 3,707.2  | 
|Shareholders equity                        |  |                        | 1,399.3 |      |  |      | 1,305.4 |   |  |      | 6,248.2  | 



---

|(1) |  | Effective January 1, 2002, FHR adopted the new recommendations of the CICA
with respect to goodwill and other intangible assets and as such the net income for
the year does not include amortization of goodwill and brand name for 2002 whereas
the amortization of goodwill and brand name for 2001 and 2000 was $3.6 million and
$3.0 million respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Revenues under management comprise fee-based revenue generated by all FHR
owned and franchised hotels.
|--- |  | ------------------------------------------------------------------------------------------------------

|(3) |  | The Corporation defines EBITDA as income before interest, taxes,
amortization, other income and expenses and reorganization and corporate
expenses. Management considers EBITDA to be a meaningful indicator of hotel
operations. However, readers are cautioned that EBITDA is not
a defined measure of operating performance under Canadian GAAP. FHRs
calculation of EBITDA may be different than the calculations used
by other entities. Supplemental information regarding the most directly
comparable GAAP financial measure and a reconciliation of EBITDA
thereto is presented below.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35



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##### 



|                                      |  |      |       |      |  |      |        |   |  |  |       | 
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  |  | ----- | 
|                                      |  | 2002 |       | 2001 |  | 2000
|                                      |  |      |       |      |  |     
|EBITDA                                |  |      | 198.3 |      |  |      | 163.1  |   |  |  | 195.1 | 
|Amortization                          |  |      | 52.4  |      |  |      | 50.7   |   |  |  | 40.6  | 
|Other (income) expenses, net          |  |      | (4.9  | )    |  |      | 10.1   |   |  |  | 10.7  | 
|Reorganization and corporate expenses |  |      | 2.2   |      |  |      | 156.9  |   |  |  | 65.7  | 
|Interest expense, net                 |  |      | 19.1  |      |  |      | 69.6   |   |  |  | 44.5  | 
|                                      |  |      |       |      |  |      |        |   |  |  |       | 
|Operating Income                      |  |      | 129.5 |      |  |      | (124.2 | ) |  |  | 33.6  | 
|                                      |  |      |       |      |  |      |        |   |  |  |       | 

Quarterly Information

The following table sets out certain financial information for FHR on a
consolidated basis for each of the quarters in 2002 and 2001.

|                                                            |  |                                         |       |         |  |              |       |             |  |  |       |  |  |  |       | 
|----------------------------------------------------------- |  | --------------------------------------- | ----- | ------- |  | ------------ | ----- | ----------- |  |  | ----- |  |  |  | ----- | 
|                                                            |  | 2002For the three months ended         
|                                                            |  |                                        
|                                                            |  | March 31                                |       | June 30 |  | September 30 |       | December 31
|                                                            |  |                                         |       |         |  |              |       |            
|                                                            |  | (in millions, except amounts per share)
|Revenues                                                    |  |                                         | 148.9 |         |  |              | 157.6 |             |  |  | 179.5 |  |  |  | 132.2 | 
|Income (loss) from continuing operations                    |  |                                         | 13.6  |         |  |              | 28.9  |             |  |  | 39.0  |  |  |  | 11.0  | 
|Net income                                                  |  |                                         | 13.6  |         |  |              | 28.9  |             |  |  | 39.0  |  |  |  | 11.0  | 
|Earnings per share (basic) available to common
shareholders
|Income (loss) from continuing operations                    |  |                                         | 0.17  |         |  |              | 0.37  |             |  |  | 0.50  |  |  |  | 0.14  | 
|Net income                                                  |  |                                         | 0.17  |         |  |              | 0.37  |             |  |  | 0.50  |  |  |  | 0.14  | 
|
|Weighted average number of common shares
outstanding        |  |                                         | 78.6  |         |  |              | 78.6  |             |  |  | 77.9  |  |  |  | 78.6  | 

|                                                            |  |                                         |       |         |  |              |       |             |  |  |       |   |  |  |       | 
|----------------------------------------------------------- |  | --------------------------------------- | ----- | ------- |  | ------------ | ----- | ----------- |  |  | ----- | - |  |  | ----- | 
|                                                            |  | 2001For the three months ended         
|                                                            |  |                                        
|                                                            |  | March 31                                |       | June 30 |  | September 30 |       | December 31
|                                                            |  |                                         |       |         |  |              |       |            
|                                                            |  | (in millions, except amounts per share)
|Revenues                                                    |  |                                         | 142.1 |         |  |              | 166.7 |             |  |  | 154.0 |   |  |  | 103.9 | 
|Income (loss) from continuing operations                    |  |                                         | (4.5  | )       |  |              | 26.1  |             |  |  | (99.4 | ) |  |  | 49.6  | 
|Net income                                                  |  |                                         | 311.4 |         |  |              | 417.9 |             |  |  | 116.8 |   |  |  | 49.6  | 
|Earnings per share (basic) available to common
shareholders
|Income (loss) from continuing operations                    |  |                                         | (0.08 | )       |  |              | 0.30  |             |  |  | (1.27 | ) |  |  | 0.63  | 
|Net income                                                  |  |                                         | 3.93  |         |  |              | 5.26  |             |  |  | 1.46  |   |  |  | 0.63  | 
|Weighted average number of common shares
outstanding (1)    |  |                                         | 78.7  |         |  |              | 79.0  |             |  |  | 79.1  |   |  |  | 78.8  | 



---

|(1) |  | The average number of common shares outstanding in each quarter, except for
the three months ended December 31, 2001, is based upon the weighted average
number of common shares of CPL outstanding for the relevant period, multiplied
in each case by 0.25, which was the exchange ratio for FHR under the
Arrangement.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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ITEM 5: MANAGEMENTS DISCUSSION AND ANALYSIS

Reference is made to the section entitled Managements Discussion and
Analysis set out at pages 21 to 45 of FHRs 2002 Annual Report, which is
incorporated by reference in this Annual Information Form.

ITEM 6: DESCRIPTION OF SHARE CAPITAL, DIVIDEND POLICY AND
MARKETS FOR SECURITIES

Description of Share Capital

FHRs authorized capital consists of an unlimited number of common shares,
an unlimited number of first preferred shares and an unlimited number of second
preferred shares. Only common shares have been issued and are outstanding.

Shareholders are entitled to receive notice of and to attend all annual
and special meetings of the shareholders of the Corporation and one vote in
respect of each share held at all such meetings. The shareholders are
entitled, at the discretion of FHRs board of directors, to receive out of any
or all profits or surplus of FHR properly available for the payment of
dividends, any dividend declared by the board and payable by FHR on the shares.
The shareholders will participate rateably in any distribution of the assets
of FHR upon the liquidation, dissolution or winding-up of FHR or other
distribution of its assets among its shareholders for the purpose of winding up
its affairs. Such participation will be subject to the rights, privileges,
restrictions and conditions attached to any securities of the Corporation
issued and outstanding at such time ranking in priority to the shares upon
liquidation, dissolution or winding-up of FHR.

Dividend Policy

FHRs board has established a policy to pay an annual dividend of $0.06
per share, paid semiannually. The payment of dividends by the Corporation will
be dependent upon the financial requirements of FHR to fund future growth, the
financial condition of the Corporation and other factors the board may consider
appropriate in the circumstances. There can be no assurance that a dividend
will be declared in any given year.

Market for Securities

The shares are listed under the symbol FHR on the Toronto Stock Exchange
and the New York Stock Exchange.

ITEM 7: DIRECTORS AND SENIOR OFFICERS

The following are the names and the municipalities of residence of the
individuals who are FHRs directors and senior officers, their positions and
principal occupations within the past five years. Each of the directors will
serve his or her term in office until FHRs annual meeting in 2004.

Directors

Stephen E. Bachand, Ponte Vedra Beach, Florida

Stephen E. Bachand, 64, is the former President and Chief Executive
Officer of Canadian Tire Corporation, Limited, a hard goods retailer
specializing in automotive, sports, leisure and home products.

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He held that position from March 1993 until August 2000. He is a director of
the Bank of Montreal and Canadian Pacific Railway Company. Mr. Bachand was a
director of CPL from 1997 until October 2001 and has been a director of FHR
since then.

William R. Fatt, Toronto, Ontario

William R. Fatt, 52, was appointed Chief Executive Officer and a director
of FHR on October 1, 2001. In January 1998, he was appointed Chairman and
Chief Executive Officer of FHRHI, positions he still holds. Up to October 1,
2001, he was Executive Vice President of CPL. From 1990 to his appointment to
FHRHI, Mr. Fatt had been Chief Financial Officer of CPL. He is a Trustee and
Vice Chairman of Legacy. He is also a director of EnCana Corporation, Enbridge
Inc., Sun Life Financial Services of Canada Inc. and The Jim Pattison Group.

Michael J. Kowalski, Kinnelon, New Jersey

Michael J. Kowalski, 51, is Chairman and Chief Executive Officer of
Tiffany & Co. Mr. Kowalski was appointed President of Tiffany and Co. in
January 1996 and assumed the role of Chief Executive Officer in February 1999.
He has been a member of Tiffany & Co.s Board of Directors since January 1995.
He was appointed a director of FHR in June 2002.

Angus A. MacNaughton, Danville, California

Angus A. MacNaughton, 71, is President and a director of Genstar
Investment Corporation, a private investment company. He has held these
positions since 1987. He was a director of CPL from 1985 until October 2001
and has been a director of FHR since then. He is also a director of Barrick
Gold Corporation, Varian Semiconductor Equipment Associates, Diversified
Collection Services Inc. and San Ramon Medical Center.

John D. McNeil, Toronto, Ontario

John D. McNeil, 69, is a director and was appointed Chairman of the board
of FHR on October 1, 2001. He was Chairman and Chief Executive Officer of Sun
Life Assurance Company of Canada, a financial services company, from May 1988
until April 1998 and Chairman from April 1998 until April 1999. He was elected
to the board of directors of CPL in 1992 and served until October 2001. He is
also a director of Sun Life Assurance Company of Canada, Sun Life Financial
Services of Canada Inc., Shell Canada Limited, CP Ships Limited, DWL
Incorporated, Hampton Re Holdings Ltd., Hampton Re Limited and The Canadian
Ditchley Foundation.

David P. OBrien, Calgary, Alberta

David P. OBrien, 61, is Chairman and a director of EnCana Corporation, an
oil and gas company, positions he has held since April 2002. From October 2001
to April 2002, Mr. OBrien was Chairman and Chief Executive Officer and a
director of PanCanadian Energy Corporation. Prior to October 1, 2001, Mr.
OBrien was the Chairman, President and Chief Executive Officer of CPL,
positions that he had held from May 1996. Mr. OBrien was first elected as a
director of CPL in 1995 and served until October 2001 and has been a member of
the board of FHR since then. He is also a director of Royal Bank of Canada,
TransCanada PipeLines Limited, Air Canada (which filed for bankruptcy
protection in April 2003), Inco Limited, Molson Inc., the C.D. Howe Institute,
and a member of the board of governors of the University of Calgary.

38



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John L. Sharpe, Scottsdale, Arizona

John L. Sharpe, 60, is the former President and Chief Operating Officer of
Four Seasons Hotels Inc., a hotel management company, which position he held
from 1995 to 1999. He also served on the board of directors of Four Seasons
Hotels Inc. from 1984 to 1999. He serves as a trustee of the Culinary
Institute of America, as a member of the Cornell University Council and as
Chairman of the Industry Advisory Board for the School of Hotel Administration
at Cornell University. He was appointed to the board of FHR in October 2001.

L. Peter Sharpe, Toronto, Ontario

L. Peter Sharpe, 56, was appointed President and Chief Executive Officer
of The Cadillac Fairview Corporation Limited, a real estate company, in April
2000. Prior to this appointment, Mr. Sharpe was Executive Vice President, The
Cadillac Fairview Corporation Limited, a position he held from January 1995.
Mr. Sharpe also serves as a director of The Sunnybrook Foundation and the
Canadian Institute of Public and Private Real Estate Companies. He was
appointed to the board of FHR in October 2001.

Robert S. Singer, Milan, Italy

Robert S. Singer, 51, was appointed Executive Vice President and Chief
Financial Officer of Gucci Group N.V., a luxury goods manufacturer and
retailer, in 1999, and has held the position of Chief Financial Officer since
1995. Previously he was an Audit Partner at Coopers & Lybrand, Audit Firm, in
Milan, Italy, and a member of its executive committee. He was elected to the
board of FHR in April 2003.

Carole S. Taylor, Vancouver, British Columbia

Carole S. Taylor, 57, was appointed Chair of the board of directors of
CBC/Radio-Canada, a public broadcaster, in July 2001. She was the Chair of
Canada Ports Corporation from 1997 until 1999. During that time she also
served as Chair of the Vancouver Port Corporation. Prior to her involvement
with the Ports system, she was elected to the Vancouver City Council for two
terms. She is past Chair of the Vancouver Board of Trade, as well as a
director of HSBC Bank USA, HSBC Bank USA Inc., HSBC Bank North America Inc.,
HSBC Holdings PLC and Canfor Corporation. Ms. Taylor was a director of CPL
from 1999 until October 2001 and has been a director of FHR since then.

Senior Officers

William R. Fatt, Chief Executive Officer, Toronto, Ontario

William R. Fatt, 52, was appointed Chief Executive Officer and a director
of FHR on October 1, 2001. In January 1998, he was appointed Chairman and
Chief Executive Officer of FHRHI, positions he still holds. Up to October 1,
2001, he was Executive Vice President of CPL. From 1990 to his appointment to
FHRHI, Mr. Fatt had been Chief Financial Officer of CPL. He is a Trustee and
Vice Chairman of Legacy. He is also a director of EnCana Corporation, Enbridge
Inc., Sun Life Financial Services of Canada Inc. and The Jim Pattison Group.

Chris J. Cahill, President and Chief Operating Officer, Oakville, Ontario

Chris J. Cahill, 49, was appointed President and Chief Operating Officer
on October 1, 2001. In October 1999, he was appointed a director, President
and Chief Operating Officer of Fairmont, positions

39



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##### 



he still holds. He was appointed President and Chief Operating Officer for
FHRHI in January 1998, positions he still holds. Before his appointment to the
position of President and Chief Operating Officer, Mr. Cahill held the position
of Executive Vice President, FHRHI, from 1995 to 1997.

M. Jerry Patava, Executive Vice President and Chief Financial Officer, Toronto, Ontario

M. Jerry Patava, 49, was appointed Executive Vice President and Chief
Financial Officer on October 1, 2001. In October 1999, he was appointed a
director, Executive Vice President and Chief Financial Officer of Fairmont,
positions he still holds. He was appointed Executive Vice President and Chief
Financial Officer of FHRHI in January 1998, positions he still holds. Mr.
Patava is also Executive Vice President and Chief Financial Officer of Legacy.

Thomas W. Storey, Executive Vice President, Business Development and Strategy, Scottsdale, Arizona

Thomas W. Storey, 45, was appointed Executive Vice President, Business
Development and Strategy on October 1, 2001. He joined the Corporation as
Executive Vice President, Business Development and Strategy in February 2001.
Mr. Storey was with Promus Hotels, a hotel management and ownership company, as
Executive Vice President Strategic Planning & Venture Operations from 1998
until 2000 and Executive Vice President Marketing from 1997 to 1998. Prior to
joining Promus Hotels, he was Executive Vice President Sales and Marketing at
Doubletree Hotels.

John S. Williams, Executive Vice President, Operations, Toronto, Ontario

John S. Williams, 59, was appointed Executive Vice President, Operations
on October 1, 2001. He was appointed Regional Vice President, British Columbia
for FHRHI in May 1995 and held the same position for Fairmonts U.S. and
Mexican hotels from September 1998. Mr. Williams was appointed Executive Vice
President, Operations of Fairmont in August 2000, a position he still holds.

John M. Johnston, Executive Vice President, Toronto, Ontario

John M. Johnston, 55, was appointed Executive Vice President on October 1,
2001. In October 1999, he was appointed a director of Fairmont, a position he
still holds. He was appointed President of Delta in October 1998 following its
acquisition by FHRHI, a position he held until being appointed Chairman in
January, 2003. From 1996 to 1998, Mr. Johnston served as Executive Vice
President Operations for Loews Hotels in New York, a hotel management company.
From 1990 until 1996, Mr. Johnston was Vice-President, Asia for Four Seasons
Hotels Inc., a hotel management company.

Timothy J. Aubrey, Senior Vice President, Finance, Willowdale, Ontario

Timothy J. Aubrey, 37, was appointed Senior Vice President, Finance in
December 2002. He has held various positions of increasing responsibility with
FHRs subsidiaries since joining the organization in 1994 including Vice
President, Technology of Fairmont since June 1999.

Terence P. Badour, Executive Vice President, Law and Administration and Corporate Secretary, Toronto, Ontario

Terence P. Badour, 46, was appointed Senior Vice President, General
Counsel and Secretary on October 1, 2001 and assumed his current title in April
2003. In October 1999, he was appointed director, Senior Vice President,
General Counsel and Secretary of Fairmont, positions he still holds. He is
also Executive Vice President and General Counsel of Legacy. He was appointed
Vice President, General Counsel and Corporate Secretary of FHRHI in 1998, and
became Senior Vice President, General Counsel

40



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##### 



and Corporate Secretary in February 2001, and still holds these positions. Mr.
Badour was appointed Corporate Counsel and Assistant Secretary of CPL in 1996
and served in that capacity until he joined FHRHI.

Neil J. Labatte, Senior Vice President, Real Estate, Toronto, Ontario

Neil J. Labatte, 46, was appointed President and Chief Executive Officer
of Legacy on March 7, 2003. He also continues as Senior Vice President, Real
Estate of FHR, a position he was appointed to on October 1, 2001. In October
1999, he was appointed director and Senior Vice President, Real Estate of
Fairmont, positions he still holds. Mr. Labatte joined FHRHI in 1997 as Vice
President Acquisitions, and was appointed Senior Vice President, Real Estate in
February 2001, a position he still holds. He has been with Legacy since July
1999 as President and Chief Operating Officer. For the four years prior to
joining FHRHI, Mr. Labatte was a founder, principal and board member of A.E.W.
Mexico Company, a real estate investment management company.

Shareholdings of Directors and Senior Officers

As at May 1, 2003 the directors and senior officers, as a group,
beneficially owned, either directly or indirectly, or exercised control or
direction over less than 1% of any class of voting securities of the
Corporation or those of any subsidiaries.

Committees of the Board

Audit Committee: A.A. MacNaughton (Chairman), J.D. McNeil, J.L. Sharpe, L.P. Sharpe and R.S. Singer

Corporate Governance and Nominating Committee: J.D. McNeil (Chairman), S.E. Bachand, M.J. Kowalski and L.P. Sharpe

Management Resources and Compensation Committee: S.E. Bachand (Chairman), M.J. Kowalski and C.S. Taylor

Environmental and Safety Committee: J.L. Sharpe (Chairman), D.P. OBrien and C.S. Taylor

ITEM 8: ADDITIONAL INFORMATION

Copies of the following documents may be obtained upon request from the
Secretary, Fairmont Hotels & Resorts Inc., Canadian Pacific Tower, 100
Wellington Street West, Suite 1600, TD Centre, P.O. Box 40, Toronto, Ontario,
M5K 1B7:



| | (i)   |  | one copy of the Annual Information Form (AIF), together with one
copy of any document, or the pertinent pages of any document, incorporated
by reference in the AIF;                                                                                                                                                                                                                  
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | one copy of the comparative financial statements of FHR for its most
recently completed financial year for which financial statements have been
filed together with the accompanying report of the auditor and one copy of
the most recent interim financial statements of FHR that have been filed,
if any, for any period after the end of its most recently completed
financial year;
|
| | (iii) |  | one copy of the information circular of FHR in respect of its most
recent annual meeting of shareholders that involved the election of
directors or one copy of any annual filing prepared instead of that
information circular, as appropriate; and                                                                                                                                    

41



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##### 





| | (iv) |  | one copy of any other documents that are incorporated by reference
into a preliminary short form prospectus or a short form prospectus and
are not required to be provided under clauses (i), (ii) or (iii).
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With respect to any document referred to in clauses (i), (ii) and (iii),
FHR may require the payment of a reasonable charge if the request is made by a
person or company who is not a security holder of FHR.

Additional information including directors and officers remuneration and indebtedness, principal holders of FHRs securities, options to purchase
securities and interests of insiders in material transactions, if applicable, is contained in the FHR information circular for its most recent annual meeting
of shareholders that involved the election of directors. Additional financial information is provided in FHRs comparative financial statements for the year
ended December 31, 2002.

42



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##### 



















ANNEX A



---



##### 



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Managements discussion and analysis (MD&A) should be read in conjunction
with the consolidated financial statements and notes, which begin on page 48.
The financial statements of Fairmont Hotels & Resorts Inc. (FHR or the
Company) are prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP). The financial statements and the MD&A
are presented in United States dollars unless otherwise indicated. This MD&A is
based on the segmented information of FHRs operations, which can be found in
note 3 of the consolidated financial statements.

For purposes of the MD&A, the historical results reflect FHRs two core
business activities of ownership and management operations. Ownership
operations consist of hotel ownership operations, an equity interest in Legacy
Hotels Real Estate Investment Trust (Legacy) and real estate activities.
Management operations consist of the Companys interest in two management
companies, Fairmont Hotels Inc. (Fairmont) and Delta Hotels Limited
(Delta). The amounts shown as discontinued operations represent the four
operating companies of FHR that were distributed to shareholders pursuant to
the plan of arrangement (the Arrangement) on October 1, 2001.

The MD&A contains forward-looking information based on managements best
estimates and the current operating environment. These forward-looking
statements are related to, but not limited to, FHRs operations, anticipated
financial performance, business prospects and strategies. Forward-looking
information typically contains statements with words such as anticipate,
believe, expect, plan or similar words suggesting future outcomes. Such
forward-looking statements are subject to risks, uncertainties and other
factors, which could cause actual results to differ materially from future
results expressed, projected or implied by such forward-looking statements.
Such factors include, but are not limited to, economic, competitive and lodging
industry conditions. A detailed description of these factors can be found in
the section contained herein entitled Risks and Uncertainties. FHR disclaims
any intention or obligation to update or revise any such forward-looking
statements, whether as a result of new information, future events or otherwise.

OVERVIEW OF OPERATIONS

CORPORATE STRUCTURE

(ORGANIZATION CHART)

Hotel Ownership Operations

FHR has real estate ownership interests ranging from approximately 20% to 100%
in 23 properties. All of FHRs hotel and resort ownership interests are held
directly or indirectly by FHR Real Estate Corporation (FHRREC) except for The
Fairmont Chateau Lake Louise and The Fairmont Sonoma Mission Inn & Spa, which
are held by other subsidiaries. Fairmont manages the 20 luxury hotels and Delta
manages the three first-class properties. The majority of FHRs income before
interest, taxes, amortization, other income and expenses and reorganization and
corporate expenses (EBITDA) are generated by its ownership operations.
Management considers EBITDA to be a meaningful indicator of hotel operations,
however, it is not a defined measure of operating performance under Canadian
GAAP. FHRs calculation of EBITDA may be different than the calculation used by
other entities.

Approximately 55% of gross revenue from hotel ownership is generated from
room revenue and 30% is generated from food and beverage services. Other
revenue streams such as spa facilities, golf courses, retail operations,
parking and laundry contribute the remainder of revenues earned by the owned
properties.

21



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MANAGEMENTS DISCUSSION AND ANALYSIS

The performance of FHRs owned portfolio is ultimately driven by global
lodging demand and competitive supply. Leisure travel and business travel are
the two main contributors of demand for FHRs owned hotels. Leisure travel is
the most important source of demand as it generates approximately 60% of
revenues at FHRs owned hotels, while business travel, which accounts for 65%
to 70% of hotel industry revenues, generates approximately 40% of revenues at
FHRs owned hotels.

2002 HOTEL OWNERSHIP REVENUE BREAKDOWN

(PIE CHART)

|  |  |                                                                                                                                                                                                          
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leisure travel has remained
strong despite U.S. economic weakness. FHR believes its owned
properties are well positioned to benefit from this trend in 2003.                                             
| 
| |  | The vast majority of business
travel to FHRs owned properties is generated by meetings and
conventions. Demand from these segments has proven to be more resilient than from individual business travel.

Although the weak U.S. economy has reduced corporate demand, leisure
travel remains strong, particularly at the Canadian and International
properties. Supply growth also has a major impact on ownership operations. In
the medium term, supply growth is expected to remain low, which will help to
offset the impact of weak economic conditions. FHRs competitive position in
the marketplace is strengthened since its owned assets are primarily located in
exclusive resort locations where, in many cases, the markets are protected with
high barriers to entry.

SUPPLY GROWTH

(DOT GRAPH)

|  |  |                                                                                                                    
|- |  | -------------------------------------------------------------------------------------------------------------------
| |  | Limited medium-term supply growth is expected to further increase operating
results when the U.S. economy recovers.
| 
| |  | Most of FHRs owned assets are in locations with high barriers to entry, protecting
it from supply risks.          
| 
| 
|  |  | Source: PricewaterhouseCoopers LLP, U.S.                                                                           

Investment in Legacy

FHR holds an approximate 35% interest in Legacy, which owns a portfolio of 22
luxury and first-class hotels in Canada and one in the United States,
consisting of over 10,000 rooms. Fairmont manages 12 of Legacys properties and
Delta manages the other 11 hotels. FHR accounts for its ownership interest in
Legacy on an equity basis.

Legacy and FHR are parties to a strategic alliance agreement, which
provides Legacy with the right to participate in any new investments made by
FHR in resort or city center hotels located in Canada. This agreement provides
FHR with a potential buyer for FHRs stabilized hotels while enabling FHR to
retain long-term management contracts for these properties. In the event that a
hotel is sold to Legacy, FHR has the ability to participate in up to 54% of the
future profitability of the property through management fees and its ownership
interest in Legacy. In addition, FHR could receive a significant portion of the
sale proceeds on a tax-deferred basis. As a capital partner, Legacy also
provides FHR with additional management contract opportunities.

22



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##### 



Real Estate Activities

FHR also holds other real estate assets, which consist primarily of the
Southtown lands in Toronto, Ontario and the Coal Harbour lands in Vancouver,
British Columbia. FHR owns 100% of the Toronto lands and a 75% interest in the
Vancouver lands. The Southtown lands are located in the core of downtown
Toronto between the financial district and Lake Ontario and are zoned for the
development of 5.3 million square feet of commercial and residential space. The
Coal Harbour lands stretch along the Burrard Inlet waterfront close to Stanley
Park. The zoning for the remaining Vancouver lands allows for the development
of 2.0 million square feet of commercial and residential space. Within each
landholding, zoning permits a hotel development, however, there are no formal
plans in place to build new hotels at these locations. FHR has contracted to
sell the remaining two Coal Harbour residential sites and has contracted to
sell one of the two remaining commercial sites. In addition, the first block of
the Southtown lands was sold during 2002. FHR expects to sell the remaining
land blocks in Vancouver and Toronto over the next four years.

Management has launched a vacation ownership product, Fairmont Heritage
Place, which will allow FHR to compete for new development opportunities and
improve its return on owned assets by better leveraging its existing hotel
infrastructure. Pre-selling is underway for the first phase of FHRs first
vacation ownership project, which is located in Acapulco, Mexico. Management
has also identified potential vacation ownership opportunities in Scottsdale,
Bermuda and Barbados.

Management Operations

(FAIRMONT HOTEL LOGO)                                         (DELTA HOTEL LOGO)

FHR manages hotels under two subsidiaries, Fairmont and Delta, each with their
own distinct brand identity. Fairmont is North Americas largest luxury hotel
management company as measured by rooms under management. Currently, Fairmont
manages more than 20,000 rooms at 41 luxury properties in major city centers
and resort destinations throughout Canada, the United States, Mexico, Bermuda,
Barbados and the United Arab Emirates. Delta, a wholly owned subsidiary of FHR,
is Canadas largest first-class hotel management company, with over 11,000
rooms at 39 managed and franchised properties across Canada.

Under their respective management contracts, Fairmont and Delta generally
oversee all aspects of the day-to-day operations of each property on behalf of
the owner, including hiring, training and supervising staff, maintaining sales
and marketing efforts, providing accounting and budgeting functions, providing
support for management information systems and applications and the
safekeeping, repair and maintenance of the physical assets. For these services,
Fairmont and Delta earn a base fee, which is typically in the range of 2.5% to
3.5% of a propertys gross revenues and can earn an incentive fee based on the
property achieving certain operating performance targets.

Fairmonts incentive-based management contracts have an average remaining
term of more than 40 years, which are among the longest in the industry. In
2003, FHR expects about a third of Fairmonts management contracts to earn
incentive fees. Within the next two to three years, the majority of current
contracts are expected to earn incentive fees. Most of these contracts have set
thresholds that do not change over the life of the contract unless significant
renovations are made to the managed hotel. Fairmont participates in up to 30%
of earnings above the threshold on most of its management contracts.

Deltas incentive-based management contracts have an average remaining
term of more than 10 years. In 2003, approximately half of Deltas managed
hotels are expected to earn incentive fees. Delta participates in up to 30% of
earnings above the threshold on some of its management contracts.

In the luxury hotel market, brand perception and brand loyalty are
critical to success as they position the owners assets for maximum value and
maximum return. Fairmont believes the key to driving brand awareness and
loyalty is to provide the customer with a truly personalized service level,
which exceeds their expectations. To help achieve this goal, Fairmont has
implemented several initiatives including:



| |  | the Fairmont Presidents Club, which is designed to provide an enhanced
service delivery and recognition system to its most frequent and valued
customers;                                                                                                                                            
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Fairmont Gold, FHRs hotel within a hotelproduct featuring private
check-in, exclusive concierge and other services and amenities. This
product is designed to provide individual leisure and business travelers
with a more intimate service offering for which Fairmont charges premium
rates; and
| 
| |  | a customer relationship database which enables Fairmont to provide highly
personalized services for its guests.                                                                                                                                                                                       

23



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MANAGEMENTS DISCUSSION AND ANALYSIS

Recognition of the Fairmont brand has grown considerably over the past
year. In a recent survey conducted by an independent market research firm,
unaided brand recognition has grown significantly since 1998. This growth is
reflective of Fairmonts expansion from seven to 41 properties in just over
three years. Continued growth in brand recognition and brand loyalty will help
catalyze the growth of hotels under management and enable FHR to further
improve its operating margins as the incremental costs of adding new management
contracts are relatively small.

CORPORATE DEVELOPMENT

FHR has transformed itself over the past five years through the acquisitions of
Fairmont, Delta, the Princess hotel portfolio and other key resorts. Over this
time, FHR has evolved from a Canadian-based hotel operator and owner to become
the largest North American luxury hotel management company as measured by rooms
under management. FHRs goal is to continue to develop and leverage the
Fairmont brand by seeking new management opportunities. As one method of
supporting this goal, FHR intends to use its strong balance sheet and effective
management capabilities to make selective acquisitions, such as the recent
purchase of The Fairmont Orchid, Hawaii. The Company will focus on assets that
are consistent in product offering, quality and customer base with FHRs
existing portfolio, that are in protected markets or have significant
repositioning potential. Once an acquired property has been stabilized, FHR
will consider selling it to Legacy or to a third party while retaining the
long-term management contract.

STRATEGIES FOR GROWTH

Depending on the property-specific attributes of potential additions, FHR will use one of the following three strategies:



| |  |  | Selective acquisitions in key North American gateway cities, exclusive resort destinations and strategic international markets
| | - |  | ------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Minority equity investments in, or long-term loans to, properties with long-term management contracts                         
|
| |  |  | Securing individual long-term management contracts with third party owners                                                    

Hotel Ownership Operations

FHRs primary strategy for hotel ownership operations growth consists of
identifying and pursuing opportunities to make selective acquisitions in key
North American gateway cities, exclusive resort destinations and strategic
international markets. The Company targets properties reflecting Fairmonts
luxury brand requirements of being high quality assets with appropriate meeting
space, located in either primary city center markets or resort destinations
with high barriers to entry. Seeking opportunities to maximize value creation,
FHR acquires and repositions under-performing luxury properties by branding the
hotel, improving management and investing capital in the property. Once
operating performance is stabilized, the hotel is a potential candidate for
sale. Through this process, FHR is able to realize the asset appreciation,
reinvest the capital for future growth and retain long-term management
contracts on the properties sold.

In addition to selective acquisitions, FHR is also pursuing other
opportunities for growth that represent consistent extensions of the Fairmont
brand. These include incremental investments such as spas, golf courses as well
as vacation ownership and retail opportunities.

Real Estate Activities

Management is developing an expertise in the vacation ownership market that
should allow the Company to more effectively compete for potential acquisitions
and development projects as well as further leverage its existing hotel
infrastructure. FHR initially plans on targeting its excess real estate located
close to existing properties where the best use appears to be a vacation
ownership product.

Management Operations

FHR plans to increase the proportion of revenues and EBITDA generated by hotel
and resort management activities, as they are less capital intensive. The
Company intends to grow its management operations through the addition of
single and multiple incentive-based management contract opportunities. To
accomplish this goal, FHR may acquire small equity investments in or make
long-term loans to the underlying hotels. With an emerging brand that is only
in 11 of the top 25 U.S. markets, Fairmonts primary focus for growth is in the
United States where the Company already has an established infrastructure and
growing brand awareness.

24



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The Company intends to accomplish its management growth objectives through
increased brand recognition and loyalty, as well as leveraging off its strong
presence in the luxury resort segment. This will provide increased base
management fees as well as the potential to earn incentive fees at a greater
proportion of the managed properties once the North American economy returns to
a more stable operating environment.

Significant Acquisitions & Dispositions

ACQUISITION HIGHLIGHTS

|     |  |                                                                                                |  | 
|---- |  | ---------------------------------------------------------------------------------------------- |  | 
|2002 |  | The Fairmont Orchid, Hawaii; The Fairmont Washington, D.C. (management contract); The Fairmont
|     |  | Dubai (management contract); The Fairmont Sonoma Mission Inn & Spa (management contract and   
|     |  | minority equity investment)                                                                   
|2001 |  | The Fairmont Kea Lani Maui; The Fairmont Copley Plaza Boston (50%)                            
|2000 |  | The Fairmont Chateau Whistler (remaining 80%)                                                 
|1999 |  | Fairmont Hotel Management LP                                                                  
|1998 |  | Princess Hotels; Delta                                                                        

In December 2002, FHR acquired The Orchid at Mauna Lani in Hawaii for $136
million in cash. This resort, now branded The Fairmont Orchid, Hawaii, further
expands the Companys presence in this high barrier to entry market. FHR
expects that Fairmont will be able to capitalize on its strength in the group
market and strong brand presence on the west coast of the United States to
drive operating performance at this resort. The Company will also benefit from
economies of scale resulting from sharing resources and key personnel with The
Fairmont Kea Lani Maui.

FHR increased its investment in Fairmont to 83.5% in September 2002
through a share exchange with a subsidiary of Kingdom Hotels (USA) Ltd.
(Kingdom). In exchange for Kingdoms 16.5% interest in Fairmont, the Company
issued 2,875,000 common shares at $24.00 per common share. At that time, this
issuance represented approximately 3.7% of FHRs issued and outstanding common
shares. A partnership managed by Maritz, Wolff & Co. continues to hold the
remaining 16.5% interest in Fairmont.

In November 2001, FHR made a $29 million investment to secure the
long-term incentive based management contract of The Fairmont Dubai, which
opened in February 2002. Subsequently, $7 million of this investment was
allocated to another management contract of similar terms for a property that
will be built in Abu Dhabi, UAE. In addition, a further $7 million will be
repaid to FHR if a third management contract is not provided by January 2008.

In June 2001, FHRREC acquired a 50% interest in The Fairmont Copley Plaza
Boston for approximately $21 million. The acquisition of a hotel located in the
downtown core of a key U.S. gateway city enabled FHR to further solidify its
position in the United States. It also enabled Fairmont to extend its
management contract of this hotel to a term of 50 years. In February 2003, the
Company acquired the remaining 50% ownership interest in this property.

In February 2001, FHRREC acquired the Kea Lani Resort on the Wailea coast
in Maui, Hawaii. This resort, now branded The Fairmont Kea Lani Maui, expanded
Fairmonts presence into another key resort market. The $245 million
acquisition was financed primarily through funds received on the sale of The
Fairmont Empress and Fairmont Le Château Frontenac. FHR sold the two resorts to
Legacy for approximately $200 million, enabling FHR to realize the value of
these real estate assets while maintaining the long-term management contracts.

In November 2000, FHRREC purchased the remaining 80% ownership interest in
The Fairmont Chateau Whistler for approximately $94 million in cash.
Discussions between FHR and Legacy regarding the possible sale of this resort
to Legacy have been postponed. Management hopes that a sale agreement can be
finalized once conditions permit an equitable transaction for both entities.

25



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MANAGEMENTS DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Consolidated Results

The past year proved to be a challenging one for the hospitality industry.
While the effects of September 11 slowly dissipated, the realities of a weak
world economy continued to suppress lodging demand throughout 2002. The
recovery originally predicted for the second half of 2002 failed to
materialize, however, FHRs geographical diversity and balanced customer mix
helped it to overcome the effects of a weak U.S. economy better than most of
its competitors. In particular, strength in the leisure segment, which
represents about 60% of FHRs overall revenues, as well as having several of
its owned hotels located in areas that are considered to be safe travel
destinations, minimized the impact of prolonged weakness in corporate demand.
Although weakness persists in the U.S. city center markets, the majority of
these properties are managed and not owned by FHR. As such, they generate a
very small portion of the Companys overall revenues.

FHR reported revenues of $618 million in 2002, up $51 million or 9.1% from
$567 million in 2001. Increased revenues were generated from the strong rebound
in leisure travel in the months after September 2001 and increased real estate
revenues, despite the continued weak economic conditions in the United States.
Overall, base management fee revenues were higher in conjunction with increased
revenues under management, however, a reduction in incentive fees caused the
contribution of management fees to overall revenues to remain unchanged. In
2002, management fee revenues comprised 6.1% of operating revenues, which are
defined as revenue before other revenues from managed and franchised
properties.

Consolidated EBITDA for 2002 increased by $35 million or 21.6% to $198
million as compared to $163 million in 2001. EBITDA margin, defined as EBITDA
as a percentage of operating revenues, increased to 33.6% from 30.4% in 2001. A
sharp rebound in travel demand during the first half of 2002, particularly in
the leisure segment, stringent cost controls and the negative impact of
September 11 on 2001 operations enabled the Company to generate greatly
improved results in 2002. Extensive renovation programs undertaken at many of
the owned hotels over the past few years are also starting to improve revenues
and operating margins.

26



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COMPARABLE OPERATING STATISTICS

|                        |  |                         |        |      |  |  |        |  
|----------------------- |  | ----------------------- | ------ | ---- |  |  | ------ | -
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2002                    |        | 2001
|                        |  |                         |        |     
|OWNED HOTELS            |  |                         |        |      |  |  |        |  
|Worldwide               |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 112.69 |      |  |  | 114.14 |  
|ADR                     |  |                         | 180.93 |      |  |  | 185.11 |  
|Occupancy               |  |                         | 62.3   | %    |  |  | 61.7   | %
|Canada                  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 95.14  |      |  |  | 94.15  |  
|ADR                     |  |                         | 145.16 |      |  |  | 145.77 |  
|Occupancy               |  |                         | 65.5   | %    |  |  | 64.6   | %
|U.S. and International  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 138.02 |      |  |  | 143.07 |  
|ADR                     |  |                         | 239.69 |      |  |  | 249.17 |  
|Occupancy               |  |                         | 57.6   | %    |  |  | 57.4   | %
|                        |  |                         |        |      |  |  |        |  
|FAIRMONT MANAGED HOTELS |  |                         |        |      |  |  |        |  
|Worldwide               |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 105.37 |      |  |  | 107.48 |  
|ADR                     |  |                         | 162.04 |      |  |  | 167.55 |  
|Occupancy               |  |                         | 65.0   | %    |  |  | 64.1   | %
|Canada                  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 86.63  |      |  |  | 84.15  |  
|ADR                     |  |                         | 127.41 |      |  |  | 128.43 |  
|Occupancy               |  |                         | 68.0   | %    |  |  | 65.5   | %
|U.S. and International  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 130.45 |      |  |  | 139.78 |  
|ADR                     |  |                         | 213.64 |      |  |  | 224.57 |  
|Occupancy               |  |                         | 61.1   | %    |  |  | 62.2   | %
|                        |  |                         |        |      |  |  |        |  
|DELTA MANAGED HOTELS    |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 53.84  |      |  |  | 54.49  |  
|ADR                     |  |                         | 85.23  |      |  |  | 84.08  |  
|Occupancy               |  |                         | 63.2   | %    |  |  | 64.8   | %
|                        |  |                         |        |      |  |  |        |  

RevPAR is defined as revenues per available room

ADR is defined as average daily rate

Comparable Hotels are considered to be properties that were fully open under
FHR management for at least the entire current and prior period. Given the
strategic importance of the acquisition of The Fairmont Kea Lani Maui, it has
been included in FHRs operating statistics on a pro forma basis as if owned
since January 1, 2001. Comparable Hotels statistics exclude properties where
renovations have had a significant adverse effect on the properties primary
operations. For the annual periods of 2002 versus 2001, The Fairmont Hamilton
Princess, The Fairmont Southampton and The Fairmont Pierre Marques have been
excluded.

27



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Hotel Ownership Operations

Revenues from hotel ownership operations were $517 million in 2002, up $27
million, or 5.5% from the prior year. Despite a sluggish global economy,
continued demand from the leisure segment boosted results. Revenues from the
leisure segment were up approximately 8% over 2001 on a same store basis,
excluding recent acquisitions. Revenues from U.S. and International hotels were
$308 million in 2002, an increase of $26 million or 8.9% compared to 2001. This
increase was due in large part to improved results at the recently renovated
Bermuda hotels as well as a full years results from The Fairmont Kea Lani
Maui, which was acquired in February 2001. The renovation program in Bermuda
allowed The Fairmont Southampton and The Fairmont Hamilton Princess to increase
ADR from both leisure and business travelers, while also improving occupancy.
Revenues at the Canadian properties were unchanged from 2001 at $209 million as
strong results from The Fairmont Banff Springs and The Fairmont Jasper Park
Lodge offset a decline in revenues following the disposition of The Fairmont
Empress and Fairmont Le Château Frontenac to Legacy in February 2001.

HOTEL OWNERSHIP REVENUE BREAKDOWN

(PIE CHART)



| |  |  | Revenues from ownership operations are diversified across several
countries, protecting FHR from country-specific risks.   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The majority of revenues are generated by resorts located in, what are
generally perceived to be, safe travel destinations.

RevPAR for Comparable Hotels declined 1.3% to $112.69 in 2002 from $114.14
in 2001, primarily from a lower ADR generated by the U.S. and International
hotels. Although demand for leisure travel was strong, demand for corporate
travel remained soft, which led to increased price competition. This impacted
ADR and managements desired business mix at some of its resorts. Hotel
ownership expenses were $385 million in 2002, an increase of $10 million or
2.6% over $375 million in 2001, with approximately $4 million of this increase
relating to recent acquisitions. Significantly higher insurance premiums as
well as higher property tax and energy costs were offset by the impact of
approximately $4 million in cost savings that are not likely to be repeated.
Otherwise, the increase in expenses was commensurate with the increases in
occupancy over 2001.

EBITDA from FHRs hotel ownership operations of $143 million in 2002 was
up $17 million or 13.7% from $126 million in 2001. EBITDA from the U.S. and
International properties was $69 million in 2002, up $6 million or 9.3% from
2001. This increase was due in large part to an almost $9 million increase in
EBITDA generated by the recently renovated Bermuda resorts. EBITDA from the
Canadian hotels and resorts was $63 million during 2002, an increase of $11
million from 2001. This increase was mainly the result of strong performance at
the properties located in Banff and Jasper National Parks as well as one-time
cost reductions that are not likely to repeat.

EBITDA from hotel ownership operations also included $11 million of income
from investments, which was unchanged from 2001. The equity investment in
Legacy contributed $6 million of EBITDA in 2002 versus $7 million in 2001.

28



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##### 



BERMUDA HOTEL PERFORMANCE

(BAR GRAPH)



| |  |  | Over the past three years, FHR has made substantial investments
in its Bermuda hotels. These include extensive guestroom and
common area renovations, as well as the addition of Willow Stream
the spa at The Fairmont Southampton.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | FHR is starting to benefit from these improvements as evidenced
by the significant rise in ADR.                                                                                                                                    

OWNERSHIP HIGHLIGHTS

Banff and Jasper National Parks

The individual leisure and group business segments at the three properties in
the parks produced strong results in 2002. Although ADR was impacted somewhat
by shortened booking lead times and a reduction in tour business, convention
and other corporate group bookings improved operating performance at these
properties. With virtually no new supply in these markets, FHR expects that
these properties will continue to make significant contributions to EBITDA.

Whistler, B.C.

The Fairmont Chateau Whistler has been impacted by the weak U.S. economy as
this property has a large Californian client base. The Fairmont Chateau
Whistler has managed to maintain ADR at a level consistent with 2001 and
management expects that this property will benefit significantly from a U.S.
economic recovery.

Scottsdale, Arizona

Despite the challenges caused by the weak U.S. economy, The Fairmont Scottsdale
Princess generated a 3.8% increase in RevPAR through strong convention and tour
business. With the addition of three new hotels in the Scottsdale market, The
Fairmont Scottsdale Princess is the only owned property located in a market
with significant new supply. Management anticipates this new supply to be fully
absorbed within two years. During this period, the Scottsdale market will be
negatively impacted, however, given the unique attributes of The Fairmont
Scottsdale Princess, management expects the resort to perform better than its
peers.

Hawaii

With the addition of The Fairmont Orchid, Hawaii, FHR now has two properties in
the Hawaiian Islands. During 2002, The Fairmont Kea Lani Maui performed well
despite the difficult operating environment. Reduced booking lead times and air
travel have had a moderate impact on both ADR and occupancy. As these resorts
cater to an affluent clientele base who are not as affected by the economic
downturns, management expects that its Hawaiian properties will continue to
produce strong operating results.

Bermuda

Both The Fairmont Southampton and The Fairmont Hamilton Princess completed
significant renovations over the past two years. FHR started to realize the
benefits of these improvements as RevPAR at these hotels increased by 22.1%
over 2001.

29



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MANAGEMENTS DISCUSSION AND ANALYSIS

Real Estate Activities

During 2002, FHR disposed of a real estate interest in Bermuda, two blocks of
undeveloped land at its Coal Harbour site in Vancouver and completed its first
disposition of the Southtown lands in Toronto. Real estate activities generated
EBITDA of $12 million in 2002, up from a loss of $2 million in 2001. Total cash
proceeds generated by the sale of land in 2002 were $35 million. In 2003, FHR
expects to dispose of two more blocks of the Coal Harbour lands and one block
of the Southtown lands. Management plans to dispose of the majority of these
lands within the next four years.

Management Operations

Fairmont

In 2002, revenues under management of $1.3 billion were up $63 million or 5.1%
from 2001. Revenue improvements at the U.S. and International resort
destinations as well as the addition of several new management contracts
outpaced declines at some of the U.S. city center markets.

Fairmont earned fee revenues of $41 million in 2002 versus $40 million in
2001, representing a 3.5% increase. Fee revenues included $17 million from
FHRs owned properties in 2002 versus $16 million in 2001. Base revenues were
$2 million higher, however, reduced incentive fees offset this improvement.
Incentive fees were $4 million in 2002 and accounted for 9.0% of Fairmonts
total management fee revenues, versus 10.8% in 2001. Lower revenues under
management at many U.S. city center hotels resulted in incentive fee thresholds
not being met in 2002 that had previously been reached. Management expects that
incentive fees as a percentage of management fee revenues will increase over
time as the underlying hotel properties exceed their respective incentive fee
threshold targets.

For the Fairmont portfolio of Comparable Hotels, RevPAR decreased 2.0% to
$105.37 in 2002 from $107.48 in 2001. The greatest component of the decline in
RevPAR occurred at the U.S. and International hotels, where RevPAR was down
6.7%. Although occupancy at these hotels was only slightly lower than 2001, ADR
suffered as a result of rate pressures caused by shorter booking lead times as
well as temporary adjustments to the business mix in order to maximize
operating results. RevPAR at the Canadian properties was up 2.9%. Increased
occupancy levels drove this improvement in large part on the strength of the
leisure segment. ADR was slightly lower than 2001, however, when measured in
Canadian dollars, ADR increased by 0.9%.

Fairmont reported EBITDA of $29 million in 2002, up 19.9% from $24 million
earned in 2001. Although incentive fee revenues declined, marketing
expenditures returned to a more normal level in 2002. As a result, EBITDA
margin increased to 70.0% from 60.4% in 2001.

Delta

Revenues under management decreased to $312 million in 2002, down $6 million or
1.8% from $318 million in 2001, however, management fee revenues of $11 million
in 2002 were up 9.6% from 2001. This improvement relates primarily to increased
incentive management fees and a one-time payout from a managed property.
Incentive fees were $1 million in 2002 and accounted for 11.8% of total
management fee revenues, up from 9.6% of total management fee revenues in 2001.
Deltas Comparable Hotels and Resorts RevPAR of $53.84 was down 1.2% from
$54.49 in 2001. This decline was caused almost exclusively by currency
fluctuations. When measured in Canadian dollars, Deltas RevPAR was up 0.5%
over 2001. EBITDA from Deltas management operations was $8 million in 2002, up
6.6% from 2001. EBITDA margin remained relatively constant at 71.1% versus
73.1% in 2001. The Delta Sun Peaks Resort, which officially opened in October
2002, and the Delta St. Eugene Mission Resort, which opened in January 2003,
will further increase management revenues and Deltas presence in Canada.

Other Items

Revenues and Expenses from Managed and Franchised Properties

Revenues and expenses from managed and franchised properties were $28 million
in 2002 compared to $29 million in 2001. These amounts reflect the expenditure
and recovery of amounts paid for marketing, reservation and other services that
the Company provides on a cost recovery basis under the terms of its management
and franchise agreements.

30



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Amortization

In 2002, amortization was $52 million compared to $51 million in 2001. This
increase was consistent with the growth of management and ownership operations
over the past two years.

Other Income and Expense

Other income in 2002 consists primarily of the favorable settlement of
previously accrued amounts related to the Arrangement.

Reorganization and Corporate Expenses

Reorganization costs relate to the reorganization of Canadian Pacific Limited
(CPL) into five separate public companies that occurred on October 1, 2001.
Corporate expenses were costs associated with the corporate activities
performed by CPL for all subsidiaries, including the hotel operations, prior to
October 1, 2001. The majority of these corporate activities have since been
eliminated.

Interest Expense, Net

Interest expense of $19 million was down from $70 million in 2001. The decrease
in interest charges reflects the repayments of debts as part of the
Arrangement.

Discontinued Operations

Income from discontinued operations consists of profits from the approximate
85% investment in PanCanadian Petroleum Limited, and the wholly owned
subsidiaries, Canadian Pacific Railway Company, CP Ships Limited and Fording
Inc. that were distributed to the shareholders of FHR on October 1, 2001.

Income Tax Expense (Recovery)

Income tax expense was $36 million in 2002, versus an income tax recovery of
$100 million in 2001. In 2002, FHRs marginal tax rate was 27.2%, which is
reflective of its geographic income composition. One-time items related to the
Arrangement significantly impacted the tax recovery realized in 2001.

Net Income

Net income for the year was $92 million, down $798 million or 89.6% from $890
million in 2001. Income from continuing operations was $92 million in 2002, up
$118 million from a $28 million loss from continuing operations in 2001.
Management cautions that year-over-year changes in net income are not
comparable due to the impact of discontinued operations.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Consolidated Results

FHR reported revenues of $567 million in 2001, up $25 million or 4.6% from $542
million in 2000. Increased revenues from the acquisition of The Fairmont Kea
Lani Maui and the remaining 51% interest in The Fairmont Glitter Bay and The
Fairmont Royal Pavilion helped to offset the sale of The Fairmont Empress and
Fairmont Le Château Frontenac to Legacy, the decline in revenues caused by the
events of September 11 and the general deterioration of the North American
economy throughout 2001. Management fee revenues comprised 6.4% of operating
revenues in 2001, down from 8.1% in 2000. This decrease reflects the reduction
in management incentive fees caused by widespread declines in revenues at
virtually all managed hotels after September 11.

Consolidated EBITDA for 2001 decreased by $32 million or 16.4% to $163
million as compared to $195 million in 2000 and EBITDA margin declined to 30.4%
from 37.8%. Dramatic decreases in occupancy in the period following September
11 and weakness in the North American economy were the primary reasons for the
declines. In response to the decline in travel, FHR realigned its cost
structure to reflect the expectation of lower occupancy.

31



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MANAGEMENTS DISCUSSION AND ANALYSIS

COMPARABLE OPERATING STATISTICS

|                        |  |                         |        |      |  |  |        |  
|----------------------- |  | ----------------------- | ------ | ---- |  |  | ------ | -
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2001                    |        | 2000
|                        |  |                         |        |     
|OWNED HOTELS            |  |                         |        |      |  |  |        |  
|Worldwide               |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 114.14 |      |  |  | 117.91 |  
|ADR                     |  |                         | 185.11 |      |  |  | 182.25 |  
|Occupancy               |  |                         | 61.7   | %    |  |  | 64.7   | %
|Canada                  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 94.15  |      |  |  | 97.30  |  
|ADR                     |  |                         | 145.77 |      |  |  | 144.15 |  
|Occupancy               |  |                         | 64.6   | %    |  |  | 67.5   | %
|U.S. and International  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 143.07 |      |  |  | 147.74 |  
|ADR                     |  |                         | 249.17 |      |  |  | 243.77 |  
|Occupancy               |  |                         | 57.4   | %    |  |  | 60.6   | %
|                        |  |                         |        |      |  |  |        |  
|FAIRMONT MANAGED HOTELS |  |                         |        |      |  |  |        |  
|Worldwide               |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 107.48 |      |  |  | 115.29 |  
|ADR                     |  |                         | 167.55 |      |  |  | 168.02 |  
|Occupancy               |  |                         | 64.1   | %    |  |  | 68.6   | %
|Canada                  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 84.15  |      |  |  | 86.75  |  
|ADR                     |  |                         | 128.43 |      |  |  | 126.57 |  
|Occupancy               |  |                         | 65.5   | %    |  |  | 68.5   | %
|U.S. and International  |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 139.78 |      |  |  | 154.81 |  
|ADR                     |  |                         | 224.57 |      |  |  | 225.26 |  
|Occupancy               |  |                         | 62.2   | %    |  |  | 68.7   | %
|                        |  |                         |        |      |  |  |        |  
|DELTA MANAGED HOTELS    |  |                         |        |      |  |  |        |  
|RevPAR                  |  |                         | 55.88  |      |  |  | 57.77  |  
|ADR                     |  |                         | 83.40  |      |  |  | 84.33  |  
|Occupancy               |  |                         | 67.0   | %    |  |  | 68.5   | %
|                        |  |                         |        |      |  |  |        |  

Given the strategic importance of the creation of Fairmont and the acquisition
of The Fairmont Kea Lani Maui, they have been included in FHRs operating
statistics on a pro forma basis as if owned since January 1, 2000. For the
annual periods of 2001 versus 2000, The Fairmont Hamilton Princess, The
Fairmont Southampton and The Fairmont Pierre Marques have been excluded due to
the impact of significant renovations.

Hotel Ownership Operations

Revenues from hotel ownership operations were $490 million in 2001, up $25
million or 5.4% from the prior year. This increase was driven primarily by the
acquisition of The Fairmont Kea Lani Maui in February 2001, which helped to
offset revenues lost from the sale of The Fairmont Empress and Fairmont Le
Château Frontenac to Legacy in February 2001, as well as an overall decline
caused by the weak economy. Revenues from U.S. and International hotels were
$282 million in 2001, an increase of $58 million or 25.7% from 2000, resulting
mostly from the acquisition of The Fairmont Kea Lani Maui. Revenues at the
Canadian properties were down $33 million in 2001, in large part from the sale
of The Fairmont Empress and Fairmont Le Château Frontenac to Legacy, which
contributed $66 million in revenues in 2000, notwithstanding a $30 million
increase in revenues from the November 2000 acquisition of The Fairmont Chateau
Whistler.

32



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RevPAR for Comparable Hotels declined 3.2% to $114.14 in 2001 from $117.91
in 2000, primarily from a 3.0 point decline in occupancy. These declines were
relatively consistent across the Canadian and U.S. and International
properties.

EBITDA from FHRs hotel ownership operations of $126 million in
2001 was down $17 million or 12.1% from $143 million in 2000. EBITDA from the
U.S. and International properties was $63 million in 2001, up $8 million or
13.6% from 2000. This increase was due in large part to the February 2001
acquisition of The Fairmont Kea Lani Maui, which provided $22 million in EBITDA
during 2001. This improvement was offset by a $12 million decrease in EBITDA
generated by The Fairmont Pierre Marques, The Fairmont Southampton and The
Fairmont Hamilton Princess. These properties were all affected by operating
disruptions during significant profit improving renovations throughout 2001.
EBITDA from the Canadian hotels and resorts was $52 million during 2001, a
decline of $20 million from 2000. This drop was due mainly to the sale of The
Fairmont Empress and Fairmont Le Château Frontenac to Legacy in February 2001,
notwithstanding the additional earnings from The Fairmont Chateau Whistler.

Hotel ownership expenses were $375 million in 2001, up $41 million or 12.2%
from $334 million in 2000. Aside from the net increase in expenses due to
recent acquisitions and dispositions, indirect costs such as sales and
marketing, administrative salaries and property taxes were higher.

EBITDA from hotel ownership operations also included $11 million of income
from investments, a $2 million decrease from 2000. This decline was the result
of The Fairmont Royal Pavilion and The Fairmont Glitter Bay no longer being
treated as equity investments after the remaining 51% ownership interest was
purchased in January 2001. The equity investment in Legacy contributed $7
million of EBITDA in 2001 versus $11 million in 2000.

Management Operations

Fairmont

In 2001, revenues under management remained virtually unchanged at $1.3
billion, down $44 million or 3.4% from 2000. Overall declines in revenues under
management in the last four months of 2001 were offset by $59 million in
additional revenues under management from the February 2001 acquisition of The
Fairmont Kea Lani Maui.

Fairmont earned fee revenues of $40 million in 2001 versus $43 million in
2000, representing a 7.9% decrease. Fee revenues from FHRs owned properties
were $16 million in 2001 and $13 million in 2000. The drop in revenues was due
to decreased incentive fees resulting from substantial revenue declines in the
weeks following September 11. Incentive fees were $4 million in 2001 and
accounted for 10.8% of Fairmonts total management fee revenues, versus 16.7%
in 2000. For the Fairmont portfolio of Comparable Hotels, RevPAR decreased 6.8%
to $107.48 in 2001 from $115.29 in 2000. The greatest component of the decline
in RevPAR occurred at the U.S. and International hotels and resorts, where
RevPAR was down 9.7%. In comparison, RevPAR at the Canadian properties was down
by only 3.0% since these hotels were not as negatively affected by the events
of September 11.

Fairmont reported EBITDA of $24 million in 2001, down 24.5% from the $32
million reported in 2000. This decrease was the result of reduced incentive fee
revenues and increased marketing efforts during the fourth quarter of 2001.
EBITDA margin decreased to 60.4% from 73.7% in 2000 reflecting the impact of
the decrease in incentive fee revenues and additional marketing costs with an
otherwise relatively fixed cost of operations.

Delta

Revenues under management decreased to $318 million in 2001, down $10 million
or 3.1% from $328 million in 2000. Management fee revenues were $10 million in
2001, down 12.6% from 2000. The net addition of five management contracts in
2001, and a full years results from the 2000 additions helped to offset
declines caused by the events of September 11 and general economic weakness.
Incentive fees were $1 million in 2001 and accounted for 9.6% of total
management fee revenues, down from 18.8% of total management fee revenues in
2000. Deltas Comparable Hotels RevPAR of $55.88 was down from $57.77 in 2000.
This decline was caused by a 1.5 point reduction in occupancy and a slight
decline in ADR. The Delta managed portfolio was not impacted to the same extent
by the events of September 11 as the Fairmont managed portfolio since Deltas
entire portfolio is in Canada. EBITDA from Deltas management operations was $8
million in 2001, down from $9 million in 2000. New properties under management
and stringent cost controls helped to offset the weakness in the North American
economy that was catalyzed by the events of September 11. EBITDA margin
remained relatively constant at 73.1%.

33



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MANAGEMENTS DISCUSSION AND ANALYSIS

Other Items

Revenues and Expenses from Managed and Franchised Properties

Revenues and expenses from managed and franchised properties were $29 million
in 2001 compared to $25 million in 2000. These amounts reflect the expenditure
and recovery of amounts paid for marketing, reservation and other services that
the Company provides on a cost recovery basis under the terms of its management
and franchise agreements.

Amortization

In 2001, amortization was $51 million compared to $41 million in 2000. This
increase was consistent with the growth of both management and ownership
operations over the past two years. Specifically, profit-improving projects at
owned hotels and the acquisition of The Fairmont Kea Lani Maui were the primary
factors for the increase.

Other Income and Expense

Other income in 2001 consists primarily of a gain resulting from the
disposition of 9.9 million Legacy units through a secondary offering in May
2001. This disposition was consistent with FHRs stated intention of
maintaining an approximate one-third ownership interest in Legacy. In addition,
a gain on the sale of other assets and foreign exchange losses prior to the
Arrangement were realized. FHR also recorded a number of non-recurring expenses
including brand related technology costs, a restructuring charge and other
one-time write-offs.

Reorganization and Corporate Expenses

Reorganization costs relate to the reorganization of CPL into five separate
public companies that occurred on October 1, 2001. Corporate expenses were
costs associated with the corporate activities performed by CPL for all
subsidiaries, including the hotel operations, prior to October 1, 2001.

Interest Expense, Net

Interest expense of $70 million was up from $45 million in 2000. The increase
in interest charges reflect the financing costs associated with borrowings by
CPL in late 2000 to partially fund its share repurchase program and to fund
FHRs profit improving projects.

Discontinued Operations

Income from discontinued operations consists of profits from the approximate
85% investment in PanCanadian Petroleum Limited, and the wholly owned
subsidiaries, Canadian Pacific Railway Company, CP Ships Limited and Fording
Inc. that were distributed to the shareholders of FHR on October 1, 2001.

Income Tax Expense (Recovery)

Income tax recovery was $100 million in 2001, versus $25 million in 2000. The
increase in income tax recovery related to tax benefits realized on expenses
incurred to complete the Arrangement and various favorable tax reassessments.

Net Income

Net income for the year was $896 million, down $223 million or 19.9% from
$1,118 million in 2000. Loss from continuing operations was $28 million in
2001, down $80 million from $52 million in income from continuing operations in
2000.

34



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##### 



QUARTERLY RESULTS

2002

|                                        |                                          |         |       |         |        |         |       |         |        |       |       |      |  |   |       |      |  |   |       |      | 
|--------------------------------------- | ---------------------------------------- | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | ----- | ----- | ---- |  | - | ----- | ---- |  | - | ----- | ---- | 
|                                        |                                          |         | First |         | Second |         | Third |         | Fourth |       |       |      | 
|(in millions, except per share amounts) |                                          | Quarter |       | Quarter |        | Quarter |       | Quarter |        | Total
|                                        |                                          |         |       |         |        |         |       |         |        |      
|Total revenues                          |                                          | $       | 148.9 |         |        | $       | 157.6 |         |        | $     | 179.5 |      |  | $ | 132.3 |      |  | $ | 618.3 |     
|Income from continuing operations       |                                          |         | 13.6  |         |        |         | 28.9  |         |        |       | 39.0  |      |  |   | 11.0  |      |  |   | 92.5  |     
|Net income (loss)                       |                                          |         | 13.6  |         |        |         | 28.9  |         |        |       | 39.0  |      |  |   | 11.0  |      |  |   | 92.5  |     
|Basic earnings (loss) per share         |                                          |         |       |         |        |         |       |         |        |       |       |      |  |   |       |      |  |   |       |     
|                                        | Income (loss) from
continuing operations |         |       | 0.17    |        |         |       | 0.37    |        |       |       | 0.50 |  |   |       | 0.14 |  |   |       | 1.18 | 
|                                        | Net Income                               |         |       | 0.17    |        |         |       | 0.37    |        |       |       | 0.50 |  |   |       | 0.14 |  |   |       | 1.18 | 
|Diluted earnings (loss) per share       |                                          |         |       |         |        |         |       |         |        |       |       |      |  |   |       |      |  |   |       |     
|                                        | Income (loss) from
continuing operations |         |       | 0.17    |        |         |       | 0.36    |        |       |       | 0.49 |  |   |       | 0.14 |  |   |       | 1.16 | 
|                                        | Net income                               |         |       | 0.17    |        |         |       | 0.36    |        |       |       | 0.49 |  |   |       | 0.14 |  |   |       | 1.16 | 

2001

|                                        |                                          |         |       |         |        |         |       |         |        |       |       |       |   |   |       |      |  |   |       |       |  
|--------------------------------------- | ---------------------------------------- | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | ----- | ----- | ----- | - | - | ----- | ---- |  | - | ----- | ----- | -
|                                        |                                          |         | First |         | Second |         | Third |         | Fourth |       |       |       |  
|(in millions, except per share amounts) |                                          | Quarter |       | Quarter |        | Quarter |       | Quarter |        | Total
|                                        |                                          |         |       |         |        |         |       |         |        |      
|Total revenues                          |                                          | $       | 142.1 |         |        | $       | 166.7 |         |        | $     | 154.0 |       |   | $ | 103.9 |      |  | $ | 566.7 |      
|Income from continuing operations       |                                          |         | (4.5  | )       |        |         | 26.1  |         |        |       | (99.4 | )     |   |   | 49.6  |      |  |   | (28.2 | )    
|Net income (loss)                       |                                          |         | 311.4 |         |        |         | 417.9 |         |        |       | 116.8 |       |   |   | 49.6  |      |  |   | 895.7 |      
|Basic earnings (loss) per share         |                                          |         |       |         |        |         |       |         |        |       |       |       |   |   |       |      |  |   |       |      
|                                        | Income (loss) from
continuing operations |         |       | (0.08   | )      |         |       | 0.30    |        |       |       | (1.27 | ) |   |       | 0.63 |  |   |       | (0.43 | )
|                                        | Net Income                               |         |       | 3.93    |        |         |       | 5.26    |        |       |       | 1.46  |   |   |       | 0.63 |  |   |       | 11.28 |  
|Diluted earnings (loss) per share       |                                          |         |       |         |        |         |       |         |        |       |       |       |   |   |       |      |  |   |       |      
|                                        | Income (loss) from
continuing operations |         |       | (0.08   | )      |         |       | 0.30    |        |       |       | (1.27 | ) |   |       | 0.63 |  |   |       | (0.43 | )
|                                        | Net income                               |         |       | 3.92    |        |         |       | 5.24    |        |       |       | 1.45  |   |   |       | 0.63 |  |   |       | 11.27 |  

Due to the seasonal nature of the hotel business, results are not expected to
be consistent throughout the year. Revenues are typically higher in the second
and third quarters versus the first and fourth quarters of the year in contrast
to fixed costs such as amortization and interest, which are not significantly
impacted by seasonal or short-term variations. In addition, FHRs results for
the year ended December 31, 2001, contain substantial non-recurring items
related to the Arrangement, including the operating results of the four
discontinued businesses, reorganization expenses and other corporate expenses
that are no longer required. Given the inclusion of these non-recurring
charges, prior period net income and earnings per share are not considered to
be comparable with the current period. Consequently, the Company believes that
quarter-to-quarter comparisons of its results of past operations are not
necessarily meaningful and should not be relied upon as any indication of
future performance.

LIQUIDITY AND CAPITAL RESOURCES

FHR generally uses cash from operations, debt facilities and equity financing
to make equity investments, obtain long-term management contracts, make
selective acquisitions of individual hotels or portfolios and to fund its share
of hotel capital improvements and operating requirements. Cash and cash
equivalents on hand at December 31, 2002 totaled $49 million, a decrease of $4
million from 2001.

35



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

FHR has several sources of funding available, the primary sources of which are
outlined below.

Cash from operations

FHRs operations typically generate cash flows in excess of cash required to
fund profit-enhancing capital expenditures. These funds are the most common
source of financing used for the expansion of FHRs operations and for paying
dividends to its shareholders. FHR will also consider using cash generated by
operations to repurchase common shares if management believes its shares are
undervalued in relation to EBITDA and earnings.

Lines of credit

Management has secured various lines of credit in order to finance temporary
shortfalls in cash resulting from business seasonality and the timing of large
profit-enhancing projects. Such funds may also be used to provide short-term
bridge financing in the event of an acquisition.

Issuing additional equity securities

FHR is listed on both the Toronto Stock Exchange and the New York Stock
Exchange, which gives the Company the ability to raise additional equity
through the issuance of additional common shares, preferred shares or other
such equity instruments. Subject to market conditions, management has the
ability to raise significant amounts of equity. If additional equity were
raised, it would most likely be used to finance a significant acquisition.

Issuing additional debt

At present, FHR has what it considers to be a conservative debt to total asset
ratio of 24.1%. This low level of debt gives FHR the ability to further
leverage its assets through mortgaging its properties or by issuing other types
of debt instruments. FHR would typically use new debt financing to refinance
existing debt or to finance a significant acquisition. The choice of debt
instrument used would be dependent on current market conditions.

Tax assets

FHR inherited significant tax assets as a result of the Arrangement, including
substantial operating and capital losses. By using these losses, FHR will be
able to significantly reduce its cash taxes payable on income generated by its
hotel operations and real estate activities.

FHR believes that the credit
facilities, cash on hand, expected cash flow from operations and the sale of
certain stabilized assets, when combined with the access to debt and equity
markets, will be adequate to allow it to finance all of its normal operating
needs and commitments to achieve its growth objectives.

CONTRACTUAL OBLIGATIONS

|                            |  |                        |     |         |  |           |     |           |  |               |     |  |  |   |    |  |  |   |    | 
|--------------------------- |  | ---------------------- | --- | ------- |  | --------- | --- | --------- |  | ------------- | --- |  |  | - | -- |  |  | - | -- | 
|                            |  | Payments Due by Period
|                            |  |                       
|                            |  | Total                  |     | <1 Year |  | 1-3 Years |     | 4-5 Years |  | After 5 Years
|                            |  |                        |     |         |  |           |     |           |  |              
|Long-term debt              |  | $                      | 535 |         |  | $         | 72  |           |  | $             | 416 |  |  | $ | 8  |  |  | $ | 39 | 
|Operating leases            |  |                        | 83  |         |  |           | 10  |           |  |               | 27  |  |  |   | 16 |  |  |   | 30 | 
|Other long-term obligations |  |                        | 42  |         |  |           | 36  |           |  |               | 6   |  |  |   |   |  |  |   |   | 
|                            |  |                        |     |         |  |           |     |           |  |               |     |  |  |   |    |  |  |   |    | 
|Total                       |  | $                      | 660 |         |  | $         | 118 |           |  | $             | 449 |  |  | $ | 24 |  |  | $ | 69 | 
|                            |  |                        |     |         |  |           |     |           |  |               |     |  |  |   |    |  |  |   |    | 

At December 31, 2002, FHRs primary sources of contractual obligations
consisted of amounts drawn on its bank facilities as well as mortgages owing.
FHR has bank facilities totaling $506 million (Cdn$800 million) consisting of
an unsecured $380 million (Cdn$600 million) three-year revolving facility and
an unsecured $126 million (Cdn$200 million) 364-day revolving operating loan. A
total of $358 million (Cdn$566 million) was advanced under these facilities as
at December 31, 2002. Letters of credit totaling $44 million were also issued
against FHRs lines of credit as at December 31, 2002. Additionally, one of
FHRs subsidiaries has available to it a $100 million, 364-day operating line,
of which approximately $43 million was outstanding at December 31, 2002. FHR
intends on ultimately paying off these amounts through cash flow generated by
operations and long-term refinancings.

36



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CONTRACTUAL COMMITMENTS

|                  |  |                                  |    |         |  |           |    |           |  |               |   |  |  |   |   |  |  |   |   | 
|----------------- |  | -------------------------------- | -- | ------- |  | --------- | -- | --------- |  | ------------- | - |  |  | - | - |  |  | - | - | 
|                  |  | Commitment Expiration per Period
|                  |  |                                 
|                  |  | Total                            |    | <1 Year |  | 1-3 Years |    | 4-5 Years |  | After 5 Years
|                  |  |                                  |    |         |  |           |    |           |  |              
|Letters of credit |  | $                                | 45 |         |  | $         | 45 |           |  | $             |  |  |  | $ |  |  |  | $ |  | 
|Guarantees        |  |                                  | 10 |         |  |           | 10 |           |  |               |  |  |  |   |  |  |  |   |  | 
|                  |  |                                  |    |         |  |           |    |           |  |               |   |  |  |   |   |  |  |   |   | 
|Total             |  | $                                | 55 |         |  | $         | 55 |           |  | $             |  |  |  | $ |  |  |  | $ |  | 
|                  |  |                                  |    |         |  |           |    |           |  |               |   |  |  |   |   |  |  |   |   | 

Operating Activities

For the year ended December 31, 2002, cash generated by continuing operations
was $123 million, as compared to cash used by continuing operations of $182
million in 2001. The increase in cash flow resulted primarily from the
improvement in EBITDA, $157 million in costs incurred in 2001 related to the
Arrangement and significantly lower interest expenses. Cash from discontinued
operations of $2,011 million in 2001 represents operating cash flows from the
four operating companies that were distributed to shareholders pursuant to the
Arrangement.

An increase in net working capital balances utilized cash of $11 million
in 2002, primarily due to the settlement of accruals related to the
Arrangement. Notwithstanding the impact of recent acquisitions, all other
working capital balances are consistent with 2001.

In 2003, cash flow from operations is expected to exceed 2002 levels. FHR
expects that a combination of cash flow from operations, real estate activities
and the use of debt facilities will be used to obtain additional management
contracts, finance improvements in existing owned properties, further develop
its vacation ownership product and provide equity for selective investments and
acquisitions.

Investing Activities

FHRs net expenditures on property and equipment totaled $84 million in 2002
compared with $122 million in 2001 and $87 million in 2000. These expenditures
were principally for upgrade capital and profit-enhancing projects at its owned
luxury resort properties.

EXPENDITURES ON PROFIT-ENHANCING PROJECTS IN 2002

|                                 |  |                                                                     |  | 
|-------------------------------- |  | ------------------------------------------------------------------- |  | 
|Property                         |  | Project                                                            
|                                 |  |                                                                    
|The Fairmont Chateau Lake Louise |  | Construction of a meeting facility (through 2004)                  
|                                 |  | Conversion of one floor to the Fairmont Gold product (through 2003)
|                                 |  | Guestroom renovations                                              
|The Fairmont Banff Springs       |  | Guestroom renovations                                              
|The Fairmont Chateau Whistler    |  | Expansion of the golf practice facilities                          
|The Fairmont Scottsdale Princess |  | Willow Stream the spa at The Fairmont Scottsdale Princess          
|The Fairmont Southampton         |  | Willow Stream the spa at The Fairmont Southampton                  
|                                 |  | Addition of the Fairmont Gold product                              
|                                 |  | Upgrades to the indoor pool and surrounding area                   
|                                 |  | Guestroom renovations                                              
|The Fairmont Hamilton Princess   |  | Renovations to the lobby and hotel entrance                        
|                                 |  | Addition of the Fairmont Gold product                              
|The Fairmont Acapulco Princess   |  | Willow Stream the spa at The Fairmont Acapulco Princess            
|The Fairmont Pierre Marques      |  | Refurbishment of the lobby                                         
|                                 |  | Guestroom renovations                                              

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MANAGEMENTS DISCUSSION AND ANALYSIS

FHR also incurred net expenditures of $16 million in 2002 relating to its
real estate activities compared to $7 million in 2001. These expenditures are
primarily for infrastructure improvements necessary for the sale of undeveloped
lands.

Expenditures on acquisitions in 2002 totaled $183 million and included the
acquisitions of The Fairmont Orchid, Hawaii, a 20% minority interest in The
Fairmont Sonoma Mission Inn & Spa and the purchase of additional Legacy units.
The 2001 expenditures totaling $264 million consisted mainly of the acquisition
of The Fairmont Kea Lani Maui, a 50% interest in The Fairmont Copley Plaza
Boston and the remaining 51% ownership interest in The Fairmont Royal Pavilion
and The Fairmont Glitter Bay. In 2000, acquisition expenditures were largely
for the remaining 80% interest in The Fairmont Chateau Whistler and Legacy
units.

Based upon current plans, FHR expects spending on upgrade capital and
profit-enhancing projects to be in the range of $110 million to $120 million.
Management expects to spend approximately $60 million on profit-enhancing
projects, $13 million on vacation ownership developments, $7 million on
infrastructure requirements necessary for the sale of undeveloped lands and the
remainder on upgrade capital expenditures.

PROFIT-ENHANCING PROJECTS PLANNED FOR 2003

|                                 |  |                                                       |  | 
|-------------------------------- |  | ----------------------------------------------------- |  | 
|Property                         |  | Project                                              
|                                 |  |                                                      
|The Fairmont Chateau Lake Louise |  | Construction of a meeting facility (through 2004)    
|                                 |  | Conversion of one floor to the Fairmont Gold product 
|The Fairmont Orchid, Hawaii      |  | Willow Stream the spa at The Fairmont Orchid         
|                                 |  | Refurbishments to the restaurants and common areas   
|                                 |  | Conversion of guestrooms to the Fairmont Gold product
|The Fairmont Kea Lani Maui       |  | Guestroom renovations                                
|The Fairmont Copley Plaza Boston |  | Guestroom renovations                                
|The Fairmont Hamilton Princess   |  | Guestroom renovations                                
|The Fairmont Acapulco Princess   |  | Golf course improvements                             
|                                 |  | Guestroom renovations                                
|The Fairmont Pierre Marques      |  | Construction of a meeting facility                   
|                                 |  | Addition of golf practice facilities                 

Other investments may include the acquisition of additional management
contracts and investments in hotel ownership interests. Capital spending in
2003 will be funded from a combination of cash flow from operating activities,
the potential sale of assets to Legacy and through FHRs financing sources as
described above.

Financing Activities

FHRs consolidated net borrowing position increased to $487 million at December
31, 2002, up $200 million from a net borrowing position of $287 million at the
beginning of the year. FHR has drawn on its banking facilities mainly to
refinance debts that matured during the year and to finance the acquisitions of
The Fairmont Orchid, Hawaii, the 20% minority interest in The Fairmont Sonoma
Mission Inn & Spa, and additional Legacy units. At December 31, 2002, FHR had
$72 million of long-term debt maturing within one year. This figure includes a
$69 million liability for the possible exercise of a put option issued to the
minority shareholder of Fairmont by FHR. This put option may be exercised by
the holder at any time prior to October 2004.

In October 2001, FHR obtained regulatory approval to purchase for
cancellation approximately 7.9 million or 10% of its common shares within a
twelve-month period ending October 2, 2002. During 2002, FHR purchased
3,006,800 shares for cancellation at an average price of $24.25. Since October
2001, FHR purchased a total of 3,566,600 shares under this program at an
average price of $23.26. FHR obtained regulatory approval to renew this program
for another 12-month period ending October 2, 2003. During this time, FHR may
purchase for cancellation up to approximately 7.8 million or 10% of its common
shares. As at December 31, 2002, no additional shares were repurchased under
this program.

38



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TRANSACTIONS WITH LEGACY

FHR and its subsidiaries have entered into several agreements with Legacy to
manage its hotels and to provide strategic advice and day-to-day administrative
services to Legacy.

Advisory agreement

Fairmont provides operation and administrative services to Legacy and advises
its trustees regarding major decisions. In return for these services, the
Company is entitled to an advisory fee equal to 0.4% of a defined asset base,
an acquisition fee of 0.65% of the total acquisition price of any additional
property acquired by Legacy and a disposition fee of 0.25% of the aggregate
sale price of any property sold by Legacy. FHR does not receive these
acquisition or disposition fees on any transactions between the two entities.

Management Agreements

FHR has entered into various long-term management contracts with Legacy to
manage all of its hotels. Pursuant to these management agreements, the Company
is entitled to base management fees and incentive management fees. Base
management fees typically range from 2.75% to 3% of total hotel revenues and
incentive fees are calculated based on net operating income from hotel
operations plus depreciation and amortization less capital replacement reserve,
in excess of threshold amounts. In addition, incentive fees for the hotels
transferred to Legacy in 1997 (the Initial Portfolio) are calculated based on
both the profitability of each of the hotels as well as the overall
profitability of the Initial Portfolio.

The Company also provides central reservations, sales and marketing,
central procurement, accounting, management information, employee training and
other services for which they are reimbursed on a cost recovery basis in
accordance with the management agreements.

Strategic Alliance Agreement

FHR and Legacy have entered into a strategic alliance agreement to co-operate
in certain areas related to the purchase and sale of hotels, the development of
new hotels that may be considered for investment by Legacy and other areas
related to the ownership and management of hotels.

The Fairmont Washington, D.C.

In December 2002, Fairmont entered into a long-term, incentive-based management
contract for The Fairmont Washington, D.C. In connection with Fairmont securing
the management contract on this property, Fairmont will pay a fixed amount to
Legacy over a three-year period. Also, in connection with the above
transaction, FHR and Legacy entered into reciprocal loan agreements for $67.6
million. The loans mature in October 2008 and bear interest at normal
commercial rates payable quarterly in arrears. In the event that either FHR or
Legacy does not make its required interest or principal payments, the other
party is not required to make its payment either. The loans meet all the
requirements for a right of setoff and as such are presented on a net basis in
the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity
with Canadian GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses, and
contingencies. Management bases its estimates on historical experience and on
other assumptions that are believed at the time to be reasonable under the
circumstances. Under different assumptions or conditions, the actual results
may differ, potentially materially, from those previously estimated. Many of
the conditions impacting these assumptions and estimates are outside of the
Companys control. FHR evaluates such estimates and assumptions on a periodic
basis. Management believes the following critical accounting policies involve
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.

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MANAGEMENTS DISCUSSION AND ANALYSIS

Property and Equipment

For each hotel, the net amount of property and equipment is reviewed regularly
and compared to its net recoverable amount. Management will record an
impairment in value if the projected undiscounted future cash flows from the
hotel exceed the net book value of the property and equipment. Management feels
it is unlikely that any future impairment will be necessary given the quality
of its assets.

Due to the relatively large proportion of property and equipment relative
to total assets, the selections of the method of amortization and length of
amortization period could have a material impact on the operating results of
the Company. FHR amortizes its property and equipment on a straight-line basis
over its estimated economic lives, except for buildings on leased land, which
are amortized over the lesser of the term of the lease, including options, and
the economic life of the building. Management feels that both the straight-line
method and sinking fund method are both appropriate measures of amortization
given the nature of the underlying assets and the capital replacement reserve
policy, which requires that approximately 4% to 5% of the respective hotels
annual revenues be directed towards its capital maintenance. FHR has selected
the straight-line method of amortization in order to be in compliance with both
Canadian and U.S. generally accepted accounting principles.

Goodwill and Intangible Assets

Goodwill impairment tests are performed on an annual basis and in certain
circumstances between annual tests for each reporting unit, which are the
operating segments as described in note 3 of the consolidated financial
statements. These tests are based on a fair market value analysis of the
various reporting units, which use such methods as undiscounted cash flow
projections and peer comparisons of earnings multipliers. Based on its current
operations, management feels it is unlikely that any future goodwill impairment
will be required. However, in response to unanticipated changes in industry and
market conditions, FHR may be required to consider restructuring, disposing or
otherwise exiting certain operations, which could result in an impairment of
goodwill.

The Company also evaluates the carrying value of all management contracts
on an annual basis to determine whether such costs will be recovered from the
projected future revenue streams on an undiscounted basis. Any impairment loss
would be expensed in the consolidated statements of income. Based on the terms
of its management contracts and the quality of the underlying assets,
management believes that the potential for future impairment is unlikely.

Income Taxes

FHR accounts for income taxes using the liability method and calculates its
provision based on the expected tax treatment of transactions recorded in its
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. In the event that managements
interpretations differed from those of the tax authorities or if the timing of
reversals is not as anticipated, the tax provision could increase or decrease
in future periods.

FHR has approximately $222 million in non-capital tax loss carry forwards
and $187 million in capital tax loss carry forwards. Management has assumed
that the Company will be able to utilize all of its non-capital loss carry
forwards prior to their expiration in 2008 and has therefore recorded a future
tax asset for virtually all such loss carry forward balances. In the event that
future earnings do not meet managements projections, it may be necessary to
write down this amount. Currently, management expects that these losses will be
used over the course of the next five years. A future tax asset has not been
established for the capital loss carry forward amounts due to the significant
uncertainty as to the timing of their utilization. However, management expects
that the majority of these amounts will be used through FHRs real estate
activities or otherwise. Capital losses do not expire.

Employee Future Benefits

FHR has defined benefit pension plans for some of its employees; however, it
does not provide other post retirement benefits. There are several assumptions
required by management for the calculations of defined benefit plan liabilities
or surpluses and the current years expenses. These include the expected return
on plan assets, the discount rate on the projected benefit obligation and the
expected rate of future compensation increases. An expected rate of return on
plan assets of 7.5% is used based on the plans asset mixes and historic
results. Management feels this long-term rate of return is reasonable and will
be achieved over the life of the plan. The discount rate used to calculate the
projected benefit obligation is based on the market interest rate at December
31, 2002 of AA-rated corporate bonds with an effective duration equal to that
of the expected payments to retirees. As of December 31, 2002, management
estimates that its consolidated pension plan deficit is $2 million and it has
total pension obligations of $75 million. FHR does not expect that it will have
significant future net cash outflows to fund its obligations under these plans.

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Contingencies

In the normal course of its operations, FHR becomes involved in various legal
actions, including claims relating to personal injuries, occupational related
claims and environmental matters. Management conducts a thorough analysis of
all potential legal claims on a regular basis and provides for such potential
claims when the expected loss is both probable and can be reasonably estimated.
The possibility exists that additional expenditures that have not been accrued
for may be required to defend against or remedy potential legal action against
the Company.

CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2002, FHR adopted the new recommendations with respect to
accounting for foreign currency gains and losses. Unrealized exchange gains and
losses related to monetary foreign currency assets and liabilities are now
recognized into income immediately. This change was applied retroactively with
restatement of prior periods and did not have an impact on continuing
operations.

Also on January 1, 2002, FHR adopted the new accounting standards with
respect to goodwill and other intangible assets. Under these standards,
goodwill and other intangible assets with indefinite lives are no longer
amortized, but are subject to impairment tests on at least an annual basis. FHR
completed its impairment testing as at January 1, 2002 and concluded that there
was no impairment in these assets.

In 2002, revenues and expenses from managed and franchised properties were
included in the income statement in response to a recent Emerging Issues
Committee abstract released by the Canadian Institute of Chartered Accountants
(CICA). These amounts represent expenditures and the recovery thereof for
amounts that FHR has agreed to make on behalf of its managed properties and
relate primarily to marketing and reservations services. This change in
accounting policy was applied retroactively and had no impact on FHRs EBITDA
or net income.

Guidance on the disclosure of guarantees was issued that will require FHR
to disclose key information about certain types of guarantee contracts that
require payments contingent on specified types of future events starting in
2003. Disclosures include the nature of the guarantee, how it arose, events or
circumstances that would trigger performance under the guarantee, the maximum
potential future payments under the guarantee, the carrying amount of the
related liability and information about recourse or collateral. Management does
not expect additional disclosure on this issue as FHR has only guaranteed third
party debts totaling approximately $10 million.

New guidance on the impairment of long-lived assets establishes standards
for the recognition, measurement and disclosure of impairments and replaces the
current write-down provisions. These changes will be effective for FHR starting
in 2004. Under the new standards, a two-step process will determine the
impairment of long-lived assets held for use, with the first step determining
when impairment is recognized and the second step measuring the amount of the
impairment. An impairment loss is recognized when the carrying amount of a
long-lived asset exceeds the sum of the undiscounted cash flows expected to
result from its use and eventual disposition. An impairment loss is measured as
the amount by which the long-lived assets carrying amount exceeds its fair
value. To test for and measure impairment, long-lived assets are grouped at the
lowest level for which identifiable cash flows are largely independent.

In December 2001, the CICA issued guidance on accounting for hedging
relationships. These guidelines specify the circumstances in which hedge
accounting is appropriate, including the identification, documentation,
designation and effectiveness of hedges and also the discontinuance of hedge
accounting. Early adoption of these guidelines is permissible, however, FHR
will not be implementing them until 2004.

RISKS AND UNCERTAINTIES

This section describes the major risks associated with FHRs operations that
could cause reported financial information to not necessarily be indicative of
future operating results. The order in which these risks are listed does not
necessarily indicate their relative importance. If any event arising from these
risks were to occur, FHRs business, prospects, financial condition, results of
operations or cash flows could be materially adversely affected.

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MANAGEMENTS DISCUSSION AND ANALYSIS

FHRs operations are subject to adverse factors generally encountered in the
lodging industry.

The Company manages and owns hotels and resorts in both the luxury and
first-class segments of the lodging industry. This subjects FHR to the
operating risks inherent in the industry. Besides the specific conditions
discussed in more detail below, these risk factors include:



| |  |  | cyclical downturns arising from changes in general and local economic
conditions;                                                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | varying levels of demand for rooms and related services caused by changes in
popular travel patterns and changes in the cost and availability of
transportation;        
|
| |  |  | periodic local oversupply of guest accommodations, which may adversely affect
occupancy rates and actual room rates achieved;                                           
|
| |  |  | competition from other luxury and first-class hotels and resorts;                                                                                                       
|
| |  |  | the recurring need for the renovation, refurbishment and improvement of hotel
and resort properties;                                                                    
|
| |  |  | changes in wages, prices, construction and maintenance costs that may result
from inflation, government regulations, changes in interest rates or currency
fluctuations;
|
| |  |  | the availability of financing for operating or capital requirements;                                                                                                    
|
| |  |  | seasonal variations in cash flow; and                                                                                                                                   
|
| |  |  | other factors including natural disasters, terrorism, extreme weather
conditions and labor shortages, work stoppages or disputes.                                       

The effect of these factors varies among FHRs hotels based on their geographic
diversity and mix between management and ownership businesses.

The lodging industry is subject to significant regulation.

The Company is subject to numerous laws and regulations in all of the
jurisdictions in which it operates, including those relating to the preparation
and sale of food and beverages, such as health and liquor licensing laws. FHRs
properties are also subject to laws and regulations governing relationships
with employees in such areas as minimum wage and maximum working hours,
overtime, working conditions, hiring and terminating of employees and work
permits. Furthermore, the success of the Companys strategy to expand its
existing properties, acquire new properties or to open newly-constructed
properties is contingent upon, among other things, receipt of all required
licenses, permits and authorizations, including local land use permits,
building and zoning permits, health and safety permits and liquor licenses.
Changes or concessions required by regulatory authorities could also involve
significant additional costs and delay or prevent completion of the
construction or opening of a project. As a result of the geographic diversity
of FHRs businesses, these regulatory matters arise in a number of
jurisdictions, many of which have distinctive regulatory regimes.

Under the United States Americans with Disabilities Act (ADA) and
similar state legislation, all public accommodations are required to meet
various requirements related to access and use by disabled persons. If a U.S.
court or administrative agency determines that any of FHRs hotels are not in
compliance with the ADA, the result could be a judicial or administrative order
requiring compliance, imposition of a fine or an award of damages to private
litigants, including possible class damages. The Company has responsibilities
under the ADA for both its owned and managed hotels in the United States.
However, under the management agreements for FHRs managed hotels in the U.S.,
costs associated with the ADA are generally borne by the owner.

FHRs operations are subject to laws and regulations relating to environmental matters.

As the current or previous owner or operator of certain hotels, FHR could be
liable for the clean up of contamination and other corrective actions under
various laws, ordinances and regulations relating to environmental matters.
These laws, ordinances and regulations often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the condition
requiring the environmental response. The presence of contamination from
hazardous or toxic substances, or the failure to remediate a contaminated
property properly may affect an owners ability to sell or rent the property,
to use the property for its intended purpose, or to borrow using the property
as collateral. In addition, as FHR arranges for the disposal or treatment of
hazardous or toxic substances, it may be liable for the cost of removal or
remediation of substances at the disposal or treatment facility. As the manager
or owner of various hotels, the Company could be held liable for the cost of
remedial action with respect to environmental matters.

Environmental laws require abatement or removal of certain
asbestos-containing material (ACM) in the event of damage, demolition or
renovation. FHR has an asbestos abatement program and continues to manage ACM
in certain hotels. The costs associated with managing this program have not
been, and are not anticipated to become, material.

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Each year, every property, whether managed, franchised or owned, is
required to complete an environmental questionnaire which covers such items as
the training of employees in the handling and disposal of hazardous materials,
whether there have been any environmental incidents and, if so, the remedial
action taken, as well as environmental initiatives introduced by the hotel.
This questionnaire also identifies any new laws or regulations being imposed by
local, state, provincial or federal governments and a propertys proposed
response to such laws or regulations. Laws and regulations change over time and
the Company may become subject to more stringent environmental laws and
regulations and may also face broader environmental liability under common law.
FHR is not aware of any potential material environmental liabilities for which
it will be responsible with respect to any of the properties which it currently
or has previously managed or owned, but such liabilities may exist.

Real estate investments are subject to numerous risks.

As FHR owns and leases hotels, it is subject to the risks that generally relate
to investments in real property. The investment returns available from equity
investments in real estate depend in large part on the amount of income earned
and capital appreciation generated by the related properties, as well as the
expenses incurred. In addition, a variety of other factors affect income from
properties and real estate values, including governmental regulations, zoning,
tax and eminent domain laws, interest rate levels and the availability of
financing. For example, new or existing zoning or tax laws can make it more
expensive and/or time-consuming to develop real property or expand, modify or
renovate properties. When interest rates increase, the cost of acquiring,
developing, expanding or renovating real property increases and real property
values may decrease as the number of potential buyers decreases. Similarly, as
financing becomes less available, it becomes more difficult both to acquire and
to sell real property. Finally, governments can, under eminent domain laws,
expropriate or take real property for less compensation than an owner believes
the property is worth. Any of these factors could have a material adverse
impact on the Companys results of operations or financial condition, as well
as on its ability to make distributions, if any, to its shareholders. In
addition, as FHRs equity real estate investments are in the luxury and
first-class segments and are to some extent located outside of North America,
they may be relatively difficult to sell quickly. Further, any additional
properties the Company acquires may be subject to the same risks. If FHRs
properties do not generate revenue sufficient to meet operating expenses,
including debt service and capital expenditures, its income will be adversely
affected.

World events have had an impact on our industry.

As a result of the terrorist acts that occurred September 11, 2001, there has
been a disruption in domestic and international travel. These terrorist acts
and travel disruptions have resulted in decreased customer visitation to our
properties and may continue to affect the industry. Further terrorist acts or
military action could significantly impact FHRs future operations.

There is a great deal of competition in the lodging industry.

There is intense competition between the operators of both luxury and
first-class hotels for guests, to secure new management contracts and to
acquire hotels. Competition for guests is based primarily on brand name
recognition, convenience of location, quality of the property, room rates and
the range and quality of food, services and amenities offered. Demographic,
political or other changes in one or more of FHRs markets could adversely
affect the convenience or desirability of its properties.

FHR also competes for management contracts and acquisition opportunities
with other luxury and first-class hotel managers and owners who may have
substantially greater financial resources. This competition may have the effect
of reducing the number of suitable investment opportunities available to the
Company and increasing its acquisition costs.

Failure to obtain new or maintain existing management contracts could adversely affect FHRs results of operations.

Management contracts expire or are acquired, terminated or renegotiated in the
normal course of business. FHR manages hotels for various third party hotel
owners subject to the terms of each propertys management contract. These
contracts can generally be terminated by the non-defaulting party upon default
in payment or unremedied failure to comply with the terms of the contract.
Typically, the Companys management contracts are subject to economic
performance tests that, if not met or remedied, could allow a contract to be
terminated by the owner prior to the expiration of its term. Failure to
maintain the standards specified in the contract or to meet the other terms and
conditions of a contract could result in the loss or cancellation of a
management contract. Some management contracts can also be terminated if the
owner sells the property to a new owner that does not want to retain the
existing contract. In certain cases, these contracts provide for a termination
payout upon cancellation of the contract.

In many jurisdictions, in the event of bankruptcy or insolvency
proceedings in respect of a hotel, a management contract may be subject to
termination or may not be enforceable against a trustee in bankruptcy or other
similar representative of the owner. In such circumstances, the management
company would generally have an unsecured claim for breach of contract against
the owner of the property or its estate.

43



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##### 



MANAGEMENTS DISCUSSION AND ANALYSIS

Further, in the event of enforcement proceedings by a secured lender in
respect of a hotel, a management contract may not be enforceable by FHR against
the lender unless, to the extent permitted by applicable bankruptcy or
insolvency laws, the lender has executed a non-disturbance agreement.
Generally, FHR attempts to obtain non-disturbance agreements with lenders to
the owners of hotels that the Company manages. However, in the absence of a
non-disturbance agreement, the risk of loss of a management contract increases
when the propertys owner incurs debt that cannot be adequately serviced.

Both Fairmont and Delta manage properties for third party owners. The
average remaining length of Fairmonts management contracts is more than 40
years while the average remaining length of Deltas management contracts is
more than 10 years. Approximately 65% of Fairmont and Deltas management
revenues are insulated against the potential loss of these management contracts
as 46 of the hotels and resorts presently managed by Fairmont and Delta are
directly or indirectly owned by FHR or Legacy.

FHRs acquisition, expansion and development strategy may be less successful
than expected, and therefore growth may be limited.

FHR intends to increase revenues and net income by increasing the number of
hotels under management through the acquisition of new properties, the
expansion of existing properties, the securing of new management agreements and
strategic partnerships for new development. The Companys ability to
successfully pursue new growth opportunities will depend on its ability to
identify appropriate management opportunities and properties suitable for
acquisition and expansion, to negotiate management or construction contracts or
purchases on satisfactory terms, to obtain the necessary financing and permits
and to integrate new management contracts or properties into its operations.

Operations may be adversely affected by extreme weather conditions and the
impact of natural disasters.

FHR operates properties in a variety of locales, some of which are subject to
extreme weather patterns that may affect the hotels as well as customer travel.
Extreme weather conditions can, from time to time, have a major adverse
financial impact upon individual properties or particular regions. However, the
effect of any particular event is mitigated by the geographic diversity of the
Companys hotel portfolio.

Properties may also be vulnerable to the effects of destructive forces,
such as earthquakes, fire, storms and flooding. Although FHRs properties are
insured against property damage, damages resulting from so-called acts of God
or otherwise, including acts of terrorism, may exceed the limits of the
insurance coverage or be outside the scope of that coverage.

FHRs ability to operate its facilities may be adversely affected if relations
with employees were to deteriorate.

Relations with employees in various countries, including the more than 14,000
employees represented by 22 labor unions, could deteriorate due to disputes
related to, among other things, wage or benefit levels or FHRs response to
changes in government regulation of workers and the workplace. FHRs operations
rely heavily on employees, whether they are employed directly or supervised by
Fairmont or Delta, and these employees ability to provide high-quality
personal service to guests. Any labor shortage or stoppage caused by
disagreements with employees, including those represented by labor unions,
could adversely affect FHRs ability to provide these services and could result
in the temporary closure of a particular hotel, reduce occupancy and room
revenue or potentially damage FHRs reputation. Management of FHR is confident
that FHRs relationships with employees are generally favorable. Various
programs maintained by Fairmont and Delta contribute to these relationships and
mitigate to some extent against potential labor disputes.

Vacation Ownership is subject to extensive regulation.

FHR intends to develop and operate vacation ownership resorts and is therefore
subject to extensive government regulation in the jurisdiction where the
vacation ownership resorts are located and in which vacation ownership
interests (VOIs) are marketed and sold. In addition, the laws of many
jurisdictions in which FHR may sell VOIs grant the purchases of this type of
interest the right to rescind the purchase contract at any time within a
statutory rescission period. Although management believes that FHR is in
material compliance with all applicable laws and regulations to which vacation
ownership marketing, sales and operations are currently subject to, changes in
these requirements or a determination by a regulatory authority that FHR is not
in compliance could adversely affect the Company. Additionally, if the
purchaser of a VOI defaults, FHR may not have recovered its marketing, selling
and general and administrative costs related to the sale of the VOI.

Currency fluctuations may have a material adverse effect on FHRs financial
statements.

FHR has hotel management and ownership operations in Canada, the United States,
Mexico, Bermuda, Barbados and the United Arab Emirates and records sales and
liabilities in the currencies of these jurisdictions, while it reports earnings
in U.S. dollars. As a result, the Companys earnings and financial position
could be affected by foreign exchange rate fluctuations, specifically changes
in the value of the U.S. dollar, through both (i) 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
U.S. dollar; and (ii) 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 adversely affect operating margins.

44



---



##### 



With respect to the translation risk, even though the fluctuations of
currencies against the U.S. dollar can be substantial and therefore
significantly impact comparisons with prior periods, the translation impact is
a reporting consideration and does not affect the underlying results of
operations, as is the case with transaction risk. FHR endeavors to match
foreign currency revenues and costs, and assets and liabilities, to provide a
natural hedge against translation and transaction risks, although this is not a
perfect hedge.

In addition to translation risk and transaction risk, a significant
increase in the value of the Canadian dollar may have an adverse impact on the
level of foreign demand at Canadian hotels. However, given that these hotels
target an affluent clientele, the risk of a significant decline in foreign
demand is reduced.

FHR is subject to a number of risks associated with debt financing.

As a result of incurring debt, FHR is subject to a number of risks associated
with debt financing, including the risk that cash flow from operations will be
insufficient to meet required payments of principal and interest; the risk
that, to the extent that it maintains floating rate indebtedness, interest
rates will fluctuate; and risks resulting from the fact that the agreements
governing loan and credit facilities contain covenants imposing certain
limitations on the Companys ability to acquire and dispose of assets.

Although it anticipates that it will be able to repay or refinance
existing indebtedness and any other indebtedness when it matures, there can be
no assurance that FHR will be able to do so or that the terms of such
refinancings will be favorable. FHRs leverage may have important consequences.
For example, FHRs ability to obtain additional financing for acquisitions,
working capital, capital expenditures or other purposes, if necessary, may be
impaired or financing may not be available on favorable terms. A substantial
decrease in operating cash flow or an increase in expenses could make it
difficult for the Company to meet its debt service requirements and force it to
modify its operations. FHR may have higher levels of debt than some of its
competitors, placing it at a competitive disadvantage to those competitors with
lower amounts of indebtedness and/or higher credit ratings.

There can be no assurance that FHR will be able to obtain the necessary
additional capital to finance the growth of its business.

The acquisition and expansion of hotels, as well as the ongoing renovations,
refurbishment and improvements required to maintain or upgrade existing
properties, are capital intensive. Such costs are funded from operating cash
flow and financings. The availability of future borrowings and access to the
capital markets for financing depends on prevailing market conditions and the
acceptability of financing terms offered. FHR cannot ensure that future debt or
equity financings will be available, or available on acceptable terms, in an
amount sufficient to fund its needs. In addition, an inability to obtain
financing for a project could cause cancellation or short-term interruption of
construction or development of projects.

Covenants in FHRs financing agreements could limit its discretion in operating
its businesses.

FHRs financing agreements contain covenants that include limits on additional
debts secured by mortgaged properties, limits on liens on property, minimum
EBITDA to interest coverage ratios and limits on mergers, asset sales and
capital expenditures. Future financing agreements may contain similar, or even
more restrictive, provisions and covenants. If the Company fails to comply with
the restrictions in present or future financing agreements, a default may
occur. A default could allow creditors to accelerate the related debt as well
as any other debt to which a cross-acceleration or cross-default provision
applies. A default could also allow creditors to foreclose on the properties
securing such debt. Credit facilities typically require the repayment of funds
or cash flow sweeps when certain coverage ratios are not met.

45



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##### 



STATEMENT OF MANAGEMENTS RESPONSIBILITY FOR FINANCIAL INFORMATION

The management of Fairmont Hotels & Resorts Inc. (FHR) is responsible for the
preparation, presentation, integrity and fairness of the consolidated financial
statements, Managements Discussion and Analysis (MD&A) and all other
information in the Annual Report.

The consolidated financial statements of FHR have been prepared in
accordance with Canadian generally accepted accounting principles and the MD&A
has been prepared in accordance with the requirements of securities regulators.
A detailed reconciliation to U.S. GAAP has been included in note 26 to the
consolidated financial statements. The financial information presented
elsewhere in the Annual Report is consistent with that in the consolidated
financial statements.

The consolidated financial statements and information in the MD&A
necessarily include amounts based on informed judgments and estimates of the
expected effects of current events and transactions with appropriate
consideration to materiality. In addition, in preparing the financial
information management must interpret regulatory requirements and make
determinations as to the relevancy of information to be included. The MD&A also
includes information regarding the estimated impact of current transactions and
events, sources of liquidity and capital resources, operating trends, risks and
uncertainties. Actual results in the future may differ materially from our
present assessment of this information since future events and circumstances
may not occur as expected.

In meeting our responsibility for the reliability of financial
information, management maintains and relies on a comprehensive system of
internal controls including organizational, procedural and internal accounting
controls. To augment this internal control system, FHR maintains a program of
internal audits covering significant aspects of the operations. These controls
and audits are designed to provide reasonable assurance that assets are
safeguarded, transactions are executed and recorded in accordance with
managements authorization and relevant and reliable financial information is
produced.

We, as FHRs Chief Executive Officer and Chief Financial Officer, will be
certifying FHRs annual disclosure document filed with the United States
Securities Exchange Commission as required under the Sarbanes-Oxley Act.

The auditors opinion is based upon an independent and objective
examination of FHRs financial results for the year, conducted in accordance
with Canadian generally accepted auditing standards. This examination includes
an understanding and evaluation by the auditors of FHRs accounting and
internal control systems as well as the obtaining of a sound understanding of
its business. The auditors have full and free access to the Board of Directors
and its committees to discuss audit, financial reporting and related matters.

The Board of Directors is responsible for reviewing and approving the
financial information contained in the Annual Report, including the MD&A and
overseeing managements responsibilities for the presentation and preparation
of financial information, maintenance of appropriate internal controls,
management and control of major risk areas and assessment of significant and
related party transactions. The Board carries out this responsibility
principally through the Audit Committee, which consists exclusively of
non-management directors.

|                                         |  |                                         
|---------------------------------------- |  | ----------------------------------------
|signed                                   |  | signed                                  
|                                        
|                                        
|William R. Fatt,
Chief Executive Officer |  | M. Jerry Patava,
Chief Financial Officer
|                                        
|Toronto, Canada
February 13, 2003        |  |                                         

46



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##### 



AUDITORS REPORT

To the Shareholders of Fairmont Hotels & Resorts Inc.

We have audited the consolidated balance sheets of Fairmont Hotels & Resorts
Inc.(the Company) as at December 31, 2002 and 2001 and the consolidated
statements of income, retained earnings (deficit) and cash flows for each of
the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of Fairmont Hotels & Resorts Inc.
as at December 31, 2002 and 2001 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2002 in
accordance with Canadian generally accepted accounting principles.

signed (PricewaterhouseCoopers LLP)

Chartered Accountants
Toronto, Ontario

January 30, 2003

COMMENTS BY AUDITORS ON CANADIAN
- UNITED STATES REPORTING DIFFERENCES

To the Shareholders of Fairmont Hotels & Resorts Inc.

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there are
changes in accounting principles that have a material effect on the
comparability of the Companys financial statements such as the changes
described in note 2 to the consolidated financial statements. Our report to the
shareholders dated January 30, 2003 is expressed in accordance with Canadian
reporting standards which do not require a reference to such changes in
accounting principles in the auditors report when the changes are properly
accounted for and adequately disclosed in the financial statements.

signed (PricewaterhouseCoopers LLP)

Chartered Accountants
Toronto, Ontario

January 30, 2003

47



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##### 



CONSOLIDATED BALANCE SHEETS

As at December 31 (in millions of U.S. dollars, except per share amounts)

|                                                                 |  |      |         |      |  |   |         |  
|---------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                                 |  | 2002 |         | 2001
|                                                                 |  |      |         |     
|Assets                                                           |  |      |         |      |  |   |         |  
|Current assets                                                   |  |      |         |      |  |   |         |  
|Cash and cash equivalents                                        |  | $    | 49.0    |      |  | $ | 52.7    |  
|Accounts receivable                                              |  |      | 47.0    |      |  |   | 48.2    |  
|Inventory                                                        |  |      | 12.5    |      |  |   | 11.6    |  
|Prepaid expenses and other                                       |  |      | 10.9    |      |  |   | 8.8     |  
|                                                                 |  |      |         |      |  |   |         |  
|                                                                 |  |      | 119.4   |      |  |   | 121.3   |  
|Investments in partnerships and corporations(note 5)             |  |      | 68.9    |      |  |   | 58.8    |  
|Investment in Legacy Hotels Real Estate Investment Trust(note 6) |  |      | 96.4    |      |  |   | 56.4    |  
|Investments in land held for sale                                |  |      | 88.8    |      |  |   | 92.1    |  
|Property and equipment(note 7)                                   |  |      | 1,441.1 |      |  |   | 1,261.9 |  
|Goodwill(note 8)                                                 |  |      | 123.0   |      |  |   | 106.0   |  
|Intangible assets(note 8)                                        |  |      | 201.7   |      |  |   | 149.8   |  
|Other assets and deferred charges(note 9)                        |  |      | 83.7    |      |  |   | 75.1    |  
|                                                                 |  |      |         |      |  |   |         |  
|                                                                 |  | $    | 2,223.0 |      |  | $ | 1,921.4 |  
|                                                                 |  |      |         |      |  |   |         |  
|Liabilities                                                      |  |      |         |      |  |   |         |  
|Current liabilities                                              |  |      |         |      |  |   |         |  
|Accounts payable and accrued liabilities                         |  | $    | 105.7   |      |  | $ | 109.1   |  
|Taxes payable                                                    |  |      | 5.3     |      |  |   | 2.1     |  
|Dividends payable                                                |  |      | 2.4     |      |  |   | 1.6     |  
|Current portion of long-term debt (note 10)                      |  |      | 72.3    |      |  |   | 94.5    |  
|                                                                 |  |      |         |      |  |   |         |  
|                                                                 |  |      | 185.7   |      |  |   | 207.3   |  
|Other liabilities                                                |  |      | 78.4    |      |  |   | 74.4    |  
|Long-term debt(note 10)                                          |  |      | 463.2   |      |  |   | 245.2   |  
|Future income taxes(note 11)                                     |  |      | 96.4    |      |  |   | 64.1    |  
|Non-controlling interest                                         |  |      |        |      |  |   | 25.0    |  
|                                                                 |  |      |         |      |  |   |         |  
|                                                                 |  |      | 823.7   |      |  |   | 616.0   |  
|                                                                 |  |      |         |      |  |   |         |  
|Shareholders Equity(note 12)                                    |  |      |         |      |  |   |         |  
|Common shares                                                    |  |      | 1,191.5 |      |  |   | 1,162.4 |  
|Contributed surplus                                              |  |      | 141.9   |      |  |   | 142.4   |  
|Foreign currency translation adjustments                         |  |      | 27.4    |      |  |   | 20.2    |  
|Retained earnings (deficit)                                      |  |      | 38.5    |      |  |   | (19.6   | )
|                                                                 |  |      |         |      |  |   |         |  
|                                                                 |  |      | 1,399.3 |      |  |   | 1,305.4 |  
|                                                                 |  |      |         |      |  |   |         |  
|                                                                 |  | $    | 2,223.0 |      |  | $ | 1,921.4 |  
|                                                                 |  |      |         |      |  |   |         |  

Commitments and contingencies(note 21)

The accompanying notes are an integral part of these financial statements.

Approved by the Board of Directors

|                       |  |                             
|---------------------- |  | ----------------------------
|signed
William R. Fatt |  | signed
Allan R. Taylor, O.C.
|Director               |  | Director                    

48



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##### 



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)

For the years ended December 31 (in millions of U.S. dollars, except per share amounts)

|                                                                       |  |      |       |      |  |      |          |   |  |   |         |  
|---------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                       |  | 2002 |       | 2001 |  | 2000
|                                                                       |  |      |       |      |  |     
|Balance  Beginning of year                                            |  | $    | (19.6 | )    |  | $    | 4,618.0  |   |  | $ | 3,716.0 |  
|Change in accounting for foreign exchange on long-term debt(note 2(a)) |  |      |      |      |  |      |         |   |  |   | (91.2   | )
|                                                                       |  |      |       |      |  |      |          |   |  |   |         |  
|Balance  Beginning of year,as restated (note 2)                       |  |      | (19.6 | )    |  |      | 4,618.0  |   |  |   | 3,624.8 |  
|Net income for the year                                                |  |      | 92.5  |      |  |      | 895.7    |   |  |   | 1,118.3 |  
|                                                                       |  |      |       |      |  |      |          |   |  |   |         |  
|                                                                       |  |      | 72.9  |      |  |      | 5,513.7  |   |  |   | 4,743.1 |  
|Repurchase of common shares(note 12)                                   |  |      | (30.4 | )    |  |      |         |   |  |   |        |  
|Distribution and settlements on reorganization(note 24)                |  |      |      |      |  |      | (5,440.0 | ) |  |   |        |  
|Dividends                                                              |  |      |       |      |  |      |          |   |  |   |         |  
|Common shares (per share 2002  $0.05; 2001  $1.12; 2000  $1.48)     |  |      | (4.0  | )    |  |      | (87.9    | ) |  |   | (116.9  | )
|Preferred shares                                                       |  |      |      |      |  |      | (5.4     | ) |  |   | (8.2    | )
|                                                                       |  |      |       |      |  |      |          |   |  |   |         |  
|Balance  End of year                                                  |  | $    | 38.5  |      |  | $    | (19.6    | ) |  | $ | 4,618.0 |  
|                                                                       |  |      |       |      |  |      |          |   |  |   |         |  

The accompanying notes are an integral part of these financial statements.

49



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##### 



CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31 (in millions of U.S. dollars, except per share amounts)

|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                                                                                |  | 2002 |       | 2001 |  | 2000
|                                                                                                                                |  |      |       |      |  |     
|Revenues                                                                                                                        |  |      |       |      |  |      |        |   |  |   |         |  
|Hotel ownership operations                                                                                                      |  | $    | 516.6 |      |  | $    | 489.6  |   |  | $ | 464.7   |  
|Management operations                                                                                                           |  |      | 36.1  |      |  |      | 34.3   |   |  |   | 41.8    |  
|Real estate                                                                                                                     |  |      | 37.9  |      |  |      | 13.4   |   |  |   | 10.2    |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Operating revenues                                                                                                              |  |      | 590.6 |      |  |      | 537.3  |   |  |   | 516.7   |  
|Other revenues from managed and franchised properties (note 2(c))                                                               |  |      | 27.7  |      |  |      | 29.4   |   |  |   | 25.2    |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|                                                                                                                                |  |      | 618.3 |      |  |      | 566.7  |   |  |   | 541.9   |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Expenses                                                                                                                        |  |      |       |      |  |      |        |   |  |   |         |  
|Hotel ownership operations                                                                                                      |  |      | 367.9 |      |  |      | 358.8  |   |  |   | 320.8   |  
|Management operations                                                                                                           |  |      | 15.7  |      |  |      | 18.6   |   |  |   | 14.6    |  
|Real estate                                                                                                                     |  |      | 26.4  |      |  |      | 15.5   |   |  |   | 10.5    |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Operating expenses                                                                                                              |  |      | 410.0 |      |  |      | 392.9  |   |  |   | 345.9   |  
|Other expenses from managed and franchised properties                                                                           |  |      | 27.7  |      |  |      | 29.4   |   |  |   | 25.2    |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|                                                                                                                                |  |      | 437.7 |      |  |      | 422.3  |   |  |   | 371.1   |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Income from investments and other(note 14)                                                                                      |  |      | 17.7  |      |  |      | 18.7   |   |  |   | 24.3    |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Operating income before undernoted items                                                                                        |  |      | 198.3 |      |  |      | 163.1  |   |  |   | 195.1   |  
|Amortization                                                                                                                    |  |      | 52.4  |      |  |      | 50.7   |   |  |   | 40.6    |  
|Other (income) expenses, net(note 15)                                                                                           |  |      | (4.9  | )    |  |      | 10.1   |   |  |   | 10.7    |  
|Reorganization and corporate expenses(note 16)                                                                                  |  |      | 2.2   |      |  |      | 156.9  |   |  |   | 65.7    |  
|Interest expense, net(note 17)                                                                                                  |  |      | 19.1  |      |  |      | 69.6   |   |  |   | 44.5    |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Income (loss) before income tax expense (recovery), non-controlling interest,
goodwill amortization and discontinued operations |  |      | 129.5 |      |  |      | (124.2 | ) |  |   | 33.6    |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Income tax expense (recovery)(note 11)                                                                                          |  |      |       |      |  |      |        |   |  |   |         |  
|Current                                                                                                                         |  |      | 12.0  |      |  |      | 21.1   |   |  |   | 42.5    |  
|Future                                                                                                                          |  |      | 23.8  |      |  |      | (120.7 | ) |  |   | (67.4   | )
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|                                                                                                                                |  |      | 35.8  |      |  |      | (99.6  | ) |  |   | (24.9   | )
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Non-controlling interest                                                                                                        |  |      | 1.2   |      |  |      | 1.1    |   |  |   | 4.2     |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Income (loss) before goodwill amortization and discontinued operations                                                          |  |      | 92.5  |      |  |      | (25.7  | ) |  |   | 54.3    |  
|Goodwill amortization, net of taxes(note 2(b))                                                                                  |  |      |      |      |  |      | 2.5    |   |  |   | 1.9     |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Income (loss) from continuing operations                                                                                        |  |      | 92.5  |      |  |      | (28.2  | ) |  |   | 52.4    |  
|Discontinued operations(note 24)                                                                                                |  |      |      |      |  |      | 923.9  |   |  |   | 1,065.9 |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Net income for the year                                                                                                         |  |      | 92.5  |      |  |      | 895.7  |   |  |   | 1,118.3 |  
|Preferred share dividends                                                                                                       |  |      |      |      |  |      | (5.4   | ) |  |   | (8.2    | )
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Net income available to common shareholders                                                                                     |  | $    | 92.5  |      |  | $    | 890.3  |   |  | $ | 1,110.1 |  
|                                                                                                                                |  |      |       |      |  |      |        |   |  |   |         |  
|Weighted average number
of common shares outstanding(in millions) (note 18)                                                     |  |      |       |      |  |      |        |   |  |   |         |  
|Basic                                                                                                                           |  |      | 78.4  |      |  |      | 78.9   |   |  |   | 79.5    |  
|Diluted                                                                                                                         |  |      | 79.7  |      |  |      | 79.0   |   |  |   | 79.8    |  
|Basic earnings (loss) per share                                                                                                 |  |      |       |      |  |      |        |   |  |   |         |  
|Income (loss) from continuing operations                                                                                        |  |      | 1.18  |      |  |      | (0.43  | ) |  |   | 0.56    |  
|Discontinued operations                                                                                                         |  |      |      |      |  |      | 11.71  |   |  |   | 13.40   |  
|Net income                                                                                                                      |  |      | 1.18  |      |  |      | 11.28  |   |  |   | 13.96   |  
|Diluted earnings (loss) per share                                                                                               |  |      |       |      |  |      |        |   |  |   |         |  
|Income (loss) from continuing operations                                                                                        |  |      | 1.16  |      |  |      | (0.43  | ) |  |   | 0.55    |  
|Discontinued operations                                                                                                         |  |      |      |      |  |      | 11.70  |   |  |   | 13.36   |  
|Net income                                                                                                                      |  |      | 1.16  |      |  |      | 11.27  |   |  |   | 13.91   |  

The accompanying notes are an integral part of these financial statements.

50



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##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31 (in millions of U.S. dollars, except per share amounts)

|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |       |  
|----------------------------------------------------------------- | ---------------------------------------------------------------- | - | ------ | ----- | ---- | - | -------- | ------ | - | - | -------- | ----- | -
|                                                                  |                                                                  |   | 2002   |       | 2001 |   | 2000    
|                                                                  |                                                                  |   |        |       |      |   |         
|Cash provided by (used in)                                        |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Operating activities                                              |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Income (loss) from continuing operations                          |                                                                  | $ | 92.5   |       |      | $ | (28.2    | )      |   | $ | 52.4     |      
|Items not affecting cash                                          |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|                                                                  | Amortization property and equipment                              |   |        | 50.0  |      |   |          | 45.5   |   |   |          | 35.1  |  
|                                                                  | Amortization of goodwill and intangible assets                   |   |        | 2.4   |      |   |          | 8.3    |   |   |          | 7.9   |  
|                                                                  | Income from investments and other                                |   |        | (17.7 | )    |   |          | (18.7  | ) |   |          | (24.3 | )
|                                                                  | Gains on sale of real estate                                     |   |        | (11.9 | )    |   |          | (9.9   | ) |   |          | (6.1  | )
|                                                                  | Future income taxes                                              |   |        | 23.8  |      |   |          | (121.3 | ) |   |          | (67.9 | )
|                                                                  | Non-controlling interest                                         |   |        | 1.2   |      |   |          | 1.1    |   |   |          | 4.2   |  
|                                                                  | Gain on sale of Legacy Hotels Real Estate Investment Trust units |   |        |      |      |   |          | (31.1  | ) |   |          |      |  
|                                                                  | Write-off of property and equipment and other assets             |   |        |      |      |   |          | 40.7   |   |   |          |      |  
|                                                                  | Distributions from investments                                   |   |        | 15.1  |      |   |          | 11.6   |   |   |          | 18.1  |  
|                                                                  | Other                                                            |   |        | (22.3 | )    |   |          | (56.5  | ) |   |          | (36.5 | )
|Changes in non-cash working capital items (note 19)               |                                                                  |   | (10.5  | )     |      |   | (23.7    | )      |   |   | 27.2     |      
|Discontinued operations                                           |                                                                  |   |       |       |      |   | 2,011.4  |        |   |   | 2,187.7  |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|                                                                  |                                                                  |   | 122.6  |       |      |   | 1,829.2  |        |   |   | 2,197.8  |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Investing activities                                              |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Additions to property and equipment                               |                                                                  |   | (84.3  | )     |      |   | (121.8   | )      |   |   | (86.8    | )    
|Additions to land held for sale                                   |                                                                  |   | (15.8  | )     |      |   | (7.5     | )      |   |   | (3.1     | )    
|Acquisitions (note 4)                                             |                                                                  |   | (136.0 | )     |      |   | (234.6   | )      |   |   | (93.8    | )    
|Investment in hotel partnerships and corporations (note 5)        |                                                                  |   | (8.9   | )     |      |   | (26.6    | )      |   |   | (9.2     | )    
|Investment in Legacy Hotels Real Estate Investment Trust (note 6) |                                                                  |   | (37.8  | )     |      |   | (2.8     | )      |   |   | (17.1    | )    
|Sale of investments and properties                                |                                                                  |   | 34.6   |       |      |   | 149.2    |        |   |   | 14.9     |      
|Sale of units in Legacy Hotels Real Estate Investment Trust       |                                                                  |   |       |       |      |   | 53.5     |        |   |   |         |      
|Loan advance                                                      |                                                                  |   |       |       |      |   | (27.2    | )      |   |   |         |      
|Other                                                             |                                                                  |   | (1.0   | )     |      |   | 1.2      |        |   |   |         |      
|Discontinued operations                                           |                                                                  |   |       |       |      |   | (1,407.2 | )      |   |   | (2,252.5 | )    
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|                                                                  |                                                                  |   | (249.2 | )     |      |   | (1,623.8 | )      |   |   | (2,447.6 | )    
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Financing
activities                                              |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Issuance of long-term debt                                        |                                                                  |   | 238.4  |       |      |   | 165.0    |        |   |   | 246.4    |      
|Repayment of long-term debt                                       |                                                                  |   | (43.9  | )     |      |   | (632.1   | )      |   |   | (19.0    | )    
|Issuance of common shares (note 12)                               |                                                                  |   | 4.7    |       |      |   | 53.5     |        |   |   | 11.9     |      
|Repurchase of common shares (note 12)                             |                                                                  |   | (73.2  | )     |      |   | (9.9     | )      |   |   | (288.7   | )    
|Dividends                                                         |                                                                  |   | (3.2   | )     |      |   | (122.8   | )      |   |   | (126.2   | )    
|Redemption of preferred shares (note 12)                          |                                                                  |   |       |       |      |   | (144.8   | )      |   |   |         |      
|Issuance of commercial paper                                      |                                                                  |   |       |       |      |   | 61.5     |        |   |   | 417.3    |      
|Repayment of commercial paper                                     |                                                                  |   |       |       |      |   | (643.9   | )      |   |   | (303.2   | )    
|Other                                                             |                                                                  |   |       |       |      |   | 43.0     |        |   |   |         |      
|Discontinued operations                                           |                                                                  |   |       |       |      |   | 668.6    |        |   |   | 385.5    |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|                                                                  |                                                                  |   | 122.8  |       |      |   | (561.9   | )      |   |   | 324.0    |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Effect of exchange rate changes on cash                           |                                                                  |   | 0.1    |       |      |   | (8.1     | )      |   |   |         |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Increase (decrease) in cash                                       |                                                                  |   | (3.7   | )     |      |   | (364.6   | )      |   |   | 74.2     |      
|Cash  Beginning of year                                          |                                                                  |   | 52.7   |       |      |   | 417.3    |        |   |   | 343.1    |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Cash  End of year                                                |                                                                  | $ | 49.0   |       |      | $ | 52.7     |        |   | $ | 417.3    |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Represented by                                                    |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|Cash and cash equivalents                                         |                                                                  | $ | 49.0   |       |      | $ | 52.7     |        |   | $ | 595.9    |      
|Bank overdraft                                                    |                                                                  |   |       |       |      |   |         |        |   |   | (178.6   | )    
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      
|                                                                  |                                                                  | $ | 49.0   |       |      | $ | 52.7     |        |   | $ | 417.3    |      
|                                                                  |                                                                  |   |        |       |      |   |          |        |   |   |          |      

The accompanying notes are an integral part of these financial statements.

51



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions of U.S. dollars, except per share amounts)



|1. |  | BASIS OF PRESENTATION
|-- |  | ---------------------

Fairmont Hotels and Resorts Inc. (FHR or the Company) has operated and
owned hotels and resorts for 115 years. Until September 2001, the Company
operated under the name of Canadian Pacific Limited (CPL). Effective October
1, 2001, pursuant to the plan of arrangement approved by the shareholders and
by the court, CPL completed a major reorganization (the Arrangement), which
divided CPL into five new public companies  Canadian Pacific Railway Limited,
CP Ships Limited, PanCanadian Energy Corporation and Fording Inc., while
retaining its investment in Canadian Pacific Hotels & Resorts Inc. which has
since been renamed FHR Holdings Inc. (FHRHI) (see note 24).

FHR currently manages properties principally under the Fairmont and Delta
brands. At December 31, 2002, FHR managed 80 luxury and first-class hotels and
resorts. FHR owns 83.5% of Fairmont Hotels Inc. (Fairmont), which at December
31, 2002, managed 41 luxury properties in major city centers and key resort
destinations throughout Canada, the United States, Mexico, Bermuda, Barbados
and the United Arab Emirates. Delta Hotels Limited (Delta), a wholly owned
subsidiary of FHR, managed or franchised 38 Canadian hotels and resorts at
December 31, 2002.

In addition to hotel and resort management, at December 31, 2002, FHR had
hotel ownership interests ranging from approximately 20% to 100% in 23
properties, located in Canada, the United States, Mexico, Bermuda and Barbados.
FHR also has an approximate 35% equity interest in Legacy Hotels Real Estate
Investment Trust (Legacy), which owns 22 hotels and resorts across Canada and
one in the United States. FHR also owns real estate properties that are
suitable for either commercial or residential development.



|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles (Canadian GAAP). The
significant differences between Canadian and United States generally accepted
accounting principles (U.S. GAAP), insofar as they apply to FHR, are
described in note 26.

Principles of consolidation

The Companys consolidated financial statements for the year ended December 31,
2002 include the consolidated accounts of FHR and its wholly owned
subsidiaries, FHRHI, FHR Real Estate Corporation (FHRREC), Delta, FHR
Properties Inc. and Fairmont, in which the Company owns 83.5%.

Foreign currency translation

Foreign currency assets and liabilities of FHRs operations are translated at
the rate of exchange in effect at the balance sheet dates for monetary items
and at the historical exchange rates for non-monetary items. Foreign currency
revenues and expenses are translated at the exchange rate in effect on the
dates of the related transactions. Gains and losses resulting from the
translation of assets and liabilities denominated in foreign currencies are
included in income.

The accounts of FHR and its self-sustaining subsidiaries, where the
functional currency is other than the U.S. dollar, are translated using the
period-end exchange rate for assets and liabilities and the average exchange
rates in effect for the period for revenues and expenses. Exchange gains or
losses arising from translation are deferred and included under shareholders
equity as foreign currency translation adjustments.

Cash and cash equivalents

Cash equivalents consist of short-term investments that are highly liquid and
have initial terms to maturity of three months or less.

Inventory

Inventory is valued at the lower of cost and replacement cost.

Long-term investments

FHR accounts for its investment in Legacy and its investments in partnerships
and corporations, which are not controlled but over which the Company has
significant influence using the equity method. Investments in partnerships or
corporations over which it does not control or have significant influence are
accounted for using the cost method.

52



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##### 



Investments in land held for sale

Investments in land held for sale are valued at the lower of cost and net
realizable value. Expenditures directly related to the land held for sale, such
as real estate taxes and capital improvements, are capitalized.

Property and equipment

Property and equipment are recorded at cost. The Companys policy is to
capitalize major renewals and replacements and interest incurred during the
construction period on new facilities and during the renovation period of major
renovations to existing facilities costing over $1.0. Interest is capitalized,
based on the borrowing rate of debt related to the project or if no specific
financing is obtained, the Companys average cost of borrowing. Maintenance,
repairs and minor renewals and replacements are charged against income when
incurred.

Computer system development costs for internal use software are
capitalized to the extent the project is expected to be of continuing benefit
to the Company.

The cost of the initial complement of circulating operating equipment,
such as linens, china, glassware and silverware, is capitalized and then
amortized over a period of 36 months. Replacements are expensed when placed in
service.

Amortization is provided at rates designed to amortize the assets over
their estimated economic lives, except for buildings on leased land, which are
amortized over the lesser of the term of the lease, including options, and the
economic life of the building.

The unamortized portions of property and equipment are reviewed regularly
and compared with their net recoverable amounts. Based on managements
projected undiscounted future cash flows from the related operations, any
impairment in value is recorded as a charge to income. The annual rates of
amortization are as follows:

| |                          |  |                            
| | ------------------------ |  | ---------------------------
| | Buildings                |  | 40 years straight-line     
| | Building equipment       |  | 1725 years straight-line  
| | Furniture and equipment  |  | 517 years straight-line   
| | Computer system software |  | 27 years straight-line    
| | Vehicles                 |  | 35 years straight-line    
| | Leasehold improvements   |  | over the term of the leases

Goodwill and intangible assets

Goodwill represents the excess of purchase price over the fair value of
identifiable assets acquired in a purchase business combination. Intangible
assets with indefinite useful lives represent costs that have been allocated to
brand names and trademarks. Intangible assets with definite useful lives are
costs that have been allocated to management contracts acquired in the
acquisitions of Delta and Fairmont, as well as amounts paid to acquire
individual management contracts.

Goodwill and intangibles with indefinite useful lives

Effective January 1, 2002, the Company no longer amortizes goodwill and
intangible assets with indefinite useful lives, but they are subject to
impairment tests on at least an annual basis (see changes in accounting
policies). The Company performs such impairment tests on at least an annual
basis and additionally, whenever events and changes in circumstances suggest
that the carrying amount may not be recoverable. Impairment of goodwill is
tested at the reporting unit level by comparing the reporting units carrying
amount, including goodwill, to the fair value of the reporting unit. The fair
values of the reporting units are estimated using a combination of the income
or discounted cash flows approach and the market approach, which utilizes
comparable companies data. If the carrying amount of the reporting unit
exceeds its fair value, then a second step is performed to measure the amount
of impairment loss, if any. Any impairment loss would be expensed in the
consolidated statements of income. The impairment test for intangibles with
indefinite useful lives consists of a comparison of the fair value of the
intangible asset with its carrying amount. When the carrying amount of the
intangible asset exceeds its fair value, an impairment loss would be recognized
for the difference.

Intangibles with definite useful lives

Management contracts acquired in a business combination are recorded at values
that represent the estimated present value of net cash flows that, on
acquisition, were expected to be received over the estimated lives of the
contracts. They are amortized on a straight-line basis, reflecting the weighted
average of the fixed, non-cancellable terms and certain renewal periods of the
underlying contracts. Management contracts acquired in other than business
combinations are recorded at cost and are amortized on a straight-line basis
over the term of the contracts, including renewal terms where applicable.

53



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other assets and deferred charges

FHR reviews the carrying values of other assets when events or circumstances
indicate that the carrying amount of an asset may not be recoverable. Other
assets are written down to the net recoverable amount when declines in value
are considered to be other than temporary, based upon expected cash flows of
the respective asset.

Income taxes

The Company accounts for income taxes under the liability method. Under this
method, future income 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. The
effect of changes in income tax rates on future income tax assets and
liabilities is recognized in the period that the change occurs. Valuation
allowances are recorded when it is more likely than not that a future income
tax asset will not be realized.

Financial instruments

Derivative financial instruments are utilized by FHR from time to time to
manage its exposure to market risks relating to foreign currency exchange rates
and interest rates. Any gain or loss as a result of the hedging is deferred and
amortized as an adjustment to interest expense over the life of the hedged
financing instrument. If at any point in time a hedging transaction no longer
meets the criteria of a hedge, any gain or loss is recognized in current
earnings.

Stock-based compensation

The Company has not recognized compensation expense for stock options granted
to officers and employees in the consolidated statements of income, but has
made pro forma disclosures of net earnings and earnings per share as if the
fair value based accounting method had been used to account for stock-based
compensation for any options granted after January 1, 2002. Any cash paid by
the employee on the exercise of stock options is credited to common shares.
Compensation expense is recognized for share appreciation rights (SARs) on
the excess of the market value of a common share over the related option price.

Revenue recognition

Revenues include hotel operations in respect of owned properties, management
and incentive fees, real estate sales and certain other revenues from
properties managed by FHR. Hotel ownership operations revenues are generated
primarily from room occupancy and food and beverage services. Management fees
comprise a base fee, which is a percentage of the revenues of hotels, and
incentive fees, which are generally based on hotel profitability. Real estate
sales represent the sale of undeveloped lands that the Company is holding for
sale. Other revenues from managed properties include direct and indirect costs
that are reimbursed to the Company by the hotel owners for the properties that
are managed. These expenditures relate primarily to marketing and reservation
services performed by FHR under the terms of its hotel management and franchise
agreements.

Revenues from hotel operations are recognized when services are provided
and ultimate collection is reasonably assured. Management fees, both base and
incentive and other revenues from managed properties are recognized when
performance hurdles have been met, in accordance with the terms specified in
the related management agreements. Real estate revenues are realized once title
has transferred and collection of proceeds is ultimately assured.

Use of estimates

The preparation of financial statements under Canadian GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
dates of the financial statements and revenues and expenses for the periods
reported. Actual results could differ from those estimates.

Reporting currency

The U.S. dollar was adopted as the Companys reporting currency effective July
1, 2001. Comparative financial information has been restated in U.S. dollars
using the translation of convenience method. Under this method, all amounts
recorded prior to July 1, 2001 have been converted from Canadian to U.S.
dollars at the exchange rate in effect as at June 30, 2001 of $0.6589.

Comparative figures

Certain of prior years figures have been reclassified to conform with the
presentation adopted in 2002.

54



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##### 



Changes in accounting policies

a) Foreign currency translation

Effective January 1, 2002, FHR adopted the new recommendations of The Canadian
Institute of Chartered Accountants (CICA) with respect to accounting for
foreign currency gains and losses. This standard requires that unrealized
exchange gains and losses related to monetary foreign currency assets and
liabilities be recognized in income immediately. The requirements of this
statement were applied retroactively with restatement of prior periods and did
not have an impact on continuing operations. This change resulted in decreased
income from discontinued operations of $34.8 for the year ended December 31,
2001 and $36.0 for the year ended December 31, 2000. The cumulative effect on
the opening retained earnings in 2000 was $91.2.

b) Goodwill and intangible assets

On January 1, 2002, FHR adopted the new recommendations of the CICA with
respect to goodwill and other intangible assets. Under the new recommendations,
goodwill and intangible assets with indefinite lives, including amounts
relating to investments accounted for under the equity method, are no longer
amortized, but are subject to impairment tests on at least an annual basis.

FHR
has completed its impairment testing on the balance of goodwill and intangible
assets with indefinite lives as at January 1, 2002 and, as a result of this
testing, has concluded that there was no impairment in these assets.

A reconciliation of reported net income, earnings per share and diluted
earnings per share to the amounts adjusted for the exclusion of goodwill and
brand name amortization is as follows:

|                                    |  |      |      |      |  |      |       |  |  |   |         | 
|----------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- |  |  | - | ------- | 
|                                    |  | 2002 |      | 2001 |  | 2000
|                                    |  |      |      |      |  |     
|Reported net income                 |  | $    | 92.5 |      |  | $    | 895.7 |  |  | $ | 1,118.3 | 
|Goodwill amortization, net of tax   |  |      |     |      |  |      | 2.5   |  |  |   | 1.9     | 
|Brand name amortization, net of tax |  |      |     |      |  |      | 1.1   |  |  |   | 1.1     | 
|                                    |  |      |      |      |  |      |       |  |  |   |         | 
|Adjusted net income                 |  |      | 92.5 |      |  |      | 899.3 |  |  |   | 1,121.3 | 
|                                    |  |      |      |      |  |      |       |  |  |   |         | 
|Basic earnings per share            |  |      |      |      |  |      |       |  |  |   |         | 
|Reported net income                 |  |      | 1.18 |      |  |      | 11.28 |  |  |   | 13.96   | 
|Goodwill amortization               |  |      |     |      |  |      | 0.03  |  |  |   | 0.02    | 
|Brand name amortization             |  |      |     |      |  |      | 0.01  |  |  |   | 0.01    | 
|                                    |  |      |      |      |  |      |       |  |  |   |         | 
|Adjusted net income                 |  |      | 1.18 |      |  |      | 11.32 |  |  |   | 13.99   | 
|                                    |  |      |      |      |  |      |       |  |  |   |         | 
|Diluted earnings per share          |  |      |      |      |  |      |       |  |  |   |         | 
|Reported net income                 |  |      | 1.16 |      |  |      | 11.27 |  |  |   | 13.91   | 
|Goodwill amortization               |  |      |     |      |  |      | 0.03  |  |  |   | 0.02    | 
|Brand name amortization             |  |      |     |      |  |      | 0.01  |  |  |   | 0.01    | 
|                                    |  |      |      |      |  |      |       |  |  |   |         | 
|Adjusted net income                 |  | $    | 1.16 |      |  | $    | 11.31 |  |  | $ | 13.94   | 
|                                    |  |      |      |      |  |      |       |  |  |   |         | 

c) Other revenues and expenses from managed and franchised properties

In 2002, revenues and expenses from managed and franchised properties were
included in the consolidated statements of income in response to a recent CICA
Emerging Issues Committee abstract. The 2001 and 2000 revenues and expenses
have been reclassified to conform with the presentation adopted for 2002. They
were previously recorded on a net basis.

d) Amortization of buildings

During 2001, FHR changed its accounting policy to amortize buildings on a
straight-line basis. Previously, buildings were amortized using the
sinking-fund method. This new accounting policy has been applied retroactively
to the 2000 figures, and it includes applying the policy to its equity
investment in Legacy.

As a result of this change in accounting policy, amortization expense for
the year ended December 31, 2001 increased by $13.3 (2000  $10.3). In
addition, income from investments and other for the year ended December 31,
2001 decreased by $2.8 (2000  $1.5). These changes resulted in a decrease of
future income tax expense of $5.7 (2000  $4.1).

As at December 31, 2001, the
impact on capital assets and investment in Legacy was a reduction of $72.0
(2000  $58.7) and $16.7 (2000  $13.9), respectively, and a reduction of
future income taxes by $30.4 (2000  $24.7).

55



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

e) Pre-opening expenses

During 2001, FHR changed its accounting policy with respect to pre-opening
expenses. Previously, these expenditures were being deferred for an 18-month
period after the facility commenced operations and now they are being expensed
as incurred. This new accounting policy has been applied retroactively to the
2000 figures. As a result of this change in accounting policy, amortization
expense has increased $nil for the year ended December 31, 2001 (2000  $1.5),
interest expense has increased $nil for the year ended December 31, 2001 (2000
 $2.2) and future income tax expense has decreased $nil for the year ended
December 31, 2001 (2000  $1.5).

f) Earnings per share

Effective January 1, 2001, FHR retroactively adopted the new recommendations of
the CICA with respect to earnings per share. Under the new recommendations,
presentation of both basic and diluted earnings per share is required
regardless of the differences between the two amounts. In addition, the
dilutive effect of outstanding stock options is reflected in diluted earnings
per share by application of the treasury stock method. The treasury stock
method assumes proceeds received from the exercise of stock options are used to
purchase common shares at the average market price during the period. The
resulting incremental shares are included in the denominator of the diluted
earnings per share calculation. Previously, fully diluted earnings per share
were not disclosed if the difference between basic and fully diluted earnings
was not significant.

g) Employee future benefits

Effective January 1, 2001, FHR adopted prospectively the new recommendations of
the CICA for accounting for employee future benefits. The effect on earnings
from adopting these changes was immaterial. Under these recommendations, the
costs of pensions and other post-retirement benefits (primarily health care and
life insurance) are actuarially determined using the projected benefit method.



|3. |  | SEGMENTED INFORMATION
|-- |  | ---------------------

The continuing operations of FHR have five reportable operating segments in two
core business activities, ownership and management operations. The segments are
hotel ownership, investment in Legacy, real estate activities, Fairmont and
Delta. Hotel ownership consists of real estate interests ranging from
approximately 20% to 100% in 23 properties. The investment in Legacy consists
of an approximate 35% equity interest in Legacy, which owns 22 hotels and
resorts across Canada and one in the United States. Real estate activities
consist primarily of two large undeveloped land blocks in Toronto and
Vancouver. Fairmont is a luxury hotel management company and Delta is a
Canadian first-class hotel management company. The performance of all segments
is evaluated primarily on earnings before interest, taxes and amortization
(EBITDA), which is defined as income before interest, taxes, amortization,
other income and expenses and reorganization and corporate expenses. It
includes income from investments and other. Amortization, other income and
expenses, reorganization and corporate expenses, interest, income taxes and
goodwill amortization are not allocated to the individual segments. All
transactions among operating segments are conducted at fair market value.

The following tables present revenues, EBITDA, total assets and capital
expenditures for FHRs reportable segments:

|                                                      |  |           |         |            |  |               |      |             |  |       |      |              |  |       |       |  |  |             |      |  |  |   |        |   |  |   |         | 
|----------------------------------------------------- |  | --------- | ------- | ---------- |  | ------------- | ---- | ----------- |  | ----- | ---- | ------------ |  | ----- | ----- |  |  | ----------- | ---- |  |  | - | ------ | - |  | - | ------- | 
|                                                      |  | 2002     
|                                                      |  |          
|                                                      |  | Ownership |         | Management |  |               |      |             |  |      
|                                                      |  |           |         |            |  | Inter-segment |      |             |  |      
|                                                      |  | Hotel     |         |            |  |               |      | Real estate |  |       |      |              |  |       |       |  |  | elimination |      |  |  |  
|                                                      |  | ownership |         | Legacy     |  | activities    |      | Fairmont    |  | Delta |      | and other(a) |  | Total
|                                                      |  |           |         |            |  |               |      |             |  |       |      |              |  |      
|Operating revenues                                    |  | $         | 516.6   |            |  | $             |     |             |  | $     | 37.9 |              |  | $     | 41.3  |  |  | $           | 11.4 |  |  | $ | (16.6  | ) |  | $ | 590.6   | 
|Other revenues from
managed and
franchised
properties |  |           |        |            |  |               |     |             |  |       |     |              |  |       | 19.8  |  |  |             | 7.9  |  |  |   |       |   |  |   | 27.7    | 
|                                                      |  |           |         |            |  |               |      |             |  |       |      |              |  |       |       |  |  |             |      |  |  |   |        |   |  |   |         | 
|                                                      |  |           |         |            |  |               |      |             |  |       |      |              |  |       |       |  |  |             |      |  |  |   |        |   |  |   | 618.3   | 
|Income from
investments
and other                     |  |           | 11.3    |            |  |               | 6.4  |             |  |       |     |              |  |       |      |  |  |             |     |  |  |   |       |   |  |   | 17.7    | 
|EBITDA                                                |  |           | 143.4   |            |  |               | 6.4  |             |  |       | 11.5 |              |  |       | 28.9  |  |  |             | 8.1  |  |  |   |       |   |  |   | 198.3   | 
|Total assets                                          |  |           | 1,879.9 |            |  |               | 96.4 |             |  |       | 95.0 |              |  |       | 285.8 |  |  |             | 66.0 |  |  |   | (200.1 | ) |  |   | 2,223.0 | 
|Capital expenditures                                  |  |           | 80.1    |            |  |               |     |             |  |       | 15.8 |              |  |       | 4.2   |  |  |             |     |  |  |   |       |   |  |   | 100.1   | 

56



---



##### 



|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |       |  |  |   |             |  |  |   |       |   |  |   |         | 
|----------------------------------------------------- |  | - | --------- |  | ---------- | - | ---------- |  | ----------- | - | ----- | - | ------------ | - | ----- |  |  | - | ----------- |  |  | - | ----- | - |  | - | ------- | 
|                                                      |  |   | 2001     
|                                                      |  |   |          
|                                                      |  |   | Ownership |  | Management |   | Inter-     |  |             |   |      
|                                                      |  |   |           |  |            |   | segment    |  |             |   |      
|                                                      |  |   | Hotel     |  |            |   |            |  | Real estate |   |       |   |              |   |       |  |  |   | elimination |  |  |   |      
|                                                      |  |   | ownership |  | Legacy     |   | activities |  | Fairmont    |   | Delta |   | and other(a) |   | Total
|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |      
|Revenues                                              |  | $ | 489.6     |  |            | $ |           |  |             | $ | 13.4  |   |              | $ | 39.9  |  |  | $ | 10.4        |  |  | $ | (16.0 | ) |  | $ | 537.3   | 
|Other revenues from
managed and
franchised
properties |  |   |          |  |            |   |           |  |             |   |      |   |              |   | 20.9  |  |  |   | 8.5         |  |  |   |      |   |  |   | 29.4    | 
|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |       |  |  |   |             |  |  |   |       |   |  |   |         | 
|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |       |  |  |   |             |  |  |   |       |   |  |   | 566.7   | 
|Income from investments
and other                     |  |   | 11.3      |  |            |   | 7.4        |  |             |   |      |   |              |   |      |  |  |   |            |  |  |   |      |   |  |   | 18.7    | 
|EBITDA                                                |  |   | 126.1     |  |            |   | 7.4        |  |             |   | (2.1  | ) |              |   | 24.1  |  |  |   | 7.6         |  |  |   |      |   |  |   | 163.1   | 
|Total assets                                          |  |   | 1,458.9   |  |            |   | 56.4       |  |             |   | 92.1  |   |              |   | 239.3 |  |  |   | 71.0        |  |  |   | 3.7   |   |  |   | 1,921.4 | 
|Capital expenditures                                  |  |   | 115.2     |  |            |   |           |  |             |   | 7.5   |   |              |   | 5.9   |  |  |   | 0.7         |  |  |   |      |   |  |   | 129.3   | 

|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |       |  |  |   |             |  |  |   |       |   |  |   |         | 
|----------------------------------------------------- |  | - | --------- |  | ---------- | - | ---------- |  | ----------- | - | ----- | - | ------------ | - | ----- |  |  | - | ----------- |  |  | - | ----- | - |  | - | ------- | 
|                                                      |  |   | 2000     
|                                                      |  |   |          
|                                                      |  |   | Ownership |  | Management |   | Inter-     |  |             |   |      
|                                                      |  |   |           |  |            |   | segment    |  |             |   |      
|                                                      |  |   | Hotel     |  |            |   |            |  | Real estate |   |       |   |              |   |       |  |  |   | elimination |  |  |   |      
|                                                      |  |   | ownership |  | Legacy     |   | activities |  | Fairmont    |   | Delta |   | and other(a) |   | Total
|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |      
|Revenues                                              |  | $ | 464.7     |  |            | $ |           |  |             | $ | 10.2  |   |              | $ | 43.3  |  |  | $ | 11.9        |  |  | $ | (13.4 | ) |  | $ | 516.7   | 
|Other revenues from
managed and
franchised
properties |  |   |          |  |            |   |           |  |             |   |      |   |              |   | 17.3  |  |  |   | 7.9         |  |  |   |      |   |  |   | 25.2    | 
|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |       |  |  |   |             |  |  |   |       |   |  |   |         | 
|                                                      |  |   |           |  |            |   |            |  |             |   |       |   |              |   |       |  |  |   |             |  |  |   |       |   |  |   | 541.9   | 
|Income from investments
and other                     |  |   | 12.9      |  |            |   | 11.4       |  |             |   |      |   |              |   |      |  |  |   |            |  |  |   |      |   |  |   | 24.3    | 
|EBITDA                                                |  |   | 143.5     |  |            |   | 11.4       |  |             |   | (0.3  | ) |              |   | 31.9  |  |  |   | 8.6         |  |  |   |      |   |  |   | 195.1   | 
|Total assets(b)                                       |  |   | 1,243.3   |  |            |   | 89.9       |  |             |   | 108.1 |   |              |   | 203.9 |  |  |   | 82.1        |  |  |   | 300.5 |   |  |   | 2,027.8 | 
|Capital expenditures                                  |  |   | 74.9      |  |            |   |           |  |             |   | 3.1   |   |              |   | 11.8  |  |  |   | 0.1         |  |  |   |      |   |  |   | 89.9    | 



---

|a) |  | Intersegment eliminations represent management fees that are charged by
Fairmont and Delta to the hotel ownership operations, which are eliminated
on consolidation. Total assets represent the elimination of intersegment
loans net of corporate assets.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b) |  | Total assets above exclude the assets of discontinued operations.                                                                                                                                                                                         

Geographical information

|              |  |          |       |                                        |  |      |       |      |  |      |       |      |  |   |         |  |  |   |         |  |  |   |         | 
|------------- |  | -------- | ----- | -------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|              |  | Revenues |       | Property,
equipment and goodwill  net
|              |  |          |       |                                        | 
|              |  | 2002     |       | 2001                                   |  | 2000 |       | 2002 |  | 2001 |       | 2000
|              |  |          |       |                                        |  |      |       |      |  |      |       |     
|Canada        |  | $        | 289.8 |                                        |  | $    | 274.3 |      |  | $    | 300.6 |      |  | $ | 488.9   |  |  | $ | 452.2   |  |  | $ | 759.7   | 
|United States |  |          | 163.4 |                                        |  |      | 142.5 |      |  |      | 96.3  |      |  |   | 667.0   |  |  |   | 531.6   |  |  |   | 285.4   | 
|Bermuda       |  |          | 91.8  |                                        |  |      | 73.4  |      |  |      | 88.9  |      |  |   | 251.3   |  |  |   | 231.5   |  |  |   | 205.3   | 
|Mexico        |  |          | 58.5  |                                        |  |      | 60.6  |      |  |      | 56.1  |      |  |   | 111.1   |  |  |   | 107.7   |  |  |   | 97.7    | 
|Other         |  |          | 14.8  |                                        |  |      | 15.9  |      |  |      |      |      |  |   | 45.8    |  |  |   | 44.9    |  |  |   |        | 
|              |  |          |       |                                        |  |      |       |      |  |      |       |      |  |   |         |  |  |   |         |  |  |   |         | 
|              |  | $        | 618.3 |                                        |  | $    | 566.7 |      |  | $    | 541.9 |      |  | $ | 1,564.1 |  |  | $ | 1,367.9 |  |  | $ | 1,348.1 | 
|              |  |          |       |                                        |  |      |       |      |  |      |       |      |  |   |         |  |  |   |         |  |  |   |         | 

57



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues and assets are allocated to countries based upon the hotels
geographic locations. There were no other individual international countries
comprising greater than 10% of the revenues or property, equipment and goodwill
of the Company as at December 31, 2002, 2001 or 2000.



|4. |  | ACQUISITIONS
|-- |  | ------------

The cash consideration net of cash acquired on business acquisitions comprise
the following:

|                                                         |  |      |       |      |  |      |       |  |  |   |      | 
|-------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ---- | 
|                                                         |  | 2002 |       | 2001 |  | 2000
|                                                         |  |      |       |      |  |     
|The Fairmont Orchid, Hawaii                              |  | $    | 136.0 |      |  | $    |      |  |  | $ |     | 
|The Fairmont Kea Lani Maui                               |  |      |      |      |  |      | 214.3 |  |  |   |     | 
|The Fairmont Royal Pavilion and The Fairmont Glitter Bay |  |      |      |      |  |      | 20.3  |  |  |   |     | 
|The Fairmont Chateau Whistler                            |  |      |      |      |  |      |      |  |  |   | 93.8 | 
|                                                         |  |      |       |      |  |      |       |  |  |   |      | 
|                                                         |  | $    | 136.0 |      |  | $    | 234.6 |  |  | $ | 93.8 | 
|                                                         |  |      |       |      |  |      |       |  |  |   |      | 

Fairmont Hotels Inc.

On September 23, 2002, FHR increased its investment in Fairmont to 83.5%,
through a share exchange with a subsidiary of Kingdom Hotels (USA), Ltd.
(Kingdom), an affiliate of a trust created by Prince Alwaleed Bin Talal Bin
Abdulaziz Al Saud. Kingdom exchanged its 16.5% interest in Fairmont for shares
of FHR. FHR issued 2,875,000 common shares at $24.00 per share to Kingdom,
equivalent to approximately 3.7% of FHRs issued and outstanding common shares.
The acquisition was accounted for using the step purchase method. The results
of Fairmont will continue to be included in the consolidated statements of
income, and the portion related to non-controlling interest has been reduced to
16.5% from September 23, 2002. The goodwill acquired relates to the Fairmont
management operations segment.

The Fairmont Orchid, Hawaii

On December 17, 2002, the Company acquired the assets of The Orchid at Mauna
Lani in Hawaii. These assets were acquired for a purchase price of $140.0, plus
acquisition costs of approximately $1.5 less the assumption of a $5.5 working
capital deficit. The acquisition was accounted for using the purchase method,
and the results of the hotel have been included in the consolidated statements
of income from the date of acquisition. The final purchase price equation will
be determined in 2003 once all acquisition costs are known.

The purchase prices of the 2002 acquisitions have been allocated to the
tangible assets acquired and liabilities assumed on the basis of their
respective estimated fair values on the acquisition date. The purchase price
allocation is as follows:

|                                  |  |          |       |             |  |       |       |   |  |   |       |  
|--------------------------------- |  | -------- | ----- | ----------- |  | ----- | ----- | - |  | - | ----- | -
|                                  |  | The      |       |             |  |       |       |   |  |  
|                                  |  | Fairmont |       |             |  |       |       |   |  |  
|                                  |  | Orchid,  |       | Fairmont    |  |       |       |  
|                                  |  | Hawaii   |       | Hotels Inc. |  | Total
|                                  |  |          |       |             |  |      
|Land                              |  | $        | 25.3  |             |  | $     |      |   |  | $ | 25.3  |  
|Building                          |  |          | 104.9 |             |  |       |      |   |  |   | 104.9 |  
|Furniture, fixtures and equipment |  |          | 11.3  |             |  |       |      |   |  |   | 11.3  |  
|Goodwill                          |  |          |      |             |  |       | 16.7  |   |  |   | 16.7  |  
|Management contracts              |  |          |      |             |  |       | 4.1   |   |  |   | 4.1   |  
|Brand name                        |  |          |      |             |  |       | 38.9  |   |  |   | 38.9  |  
|Non-controlling interest          |  |          |      |             |  |       | 26.2  |   |  |   | 26.2  |  
|Future income taxes               |  |          |      |             |  |       | (16.7 | ) |  |   | (16.7 | )
|Working capital assumed           |  |          | (5.5  | )           |  |       |      |   |  |   | (5.5  | )
|                                  |  |          |       |             |  |       |       |   |  |   |       |  
|                                  |  | $        | 136.0 |             |  | $     | 69.2  |   |  | $ | 205.2 |  
|                                  |  |          |       |             |  |       |       |   |  |   |       |  

None of the total goodwill acquired is expected to be deductible for income tax
purposes. The management contracts will be amortized over a period of 40 years
and the brand name will not be amortized since it has an indefinite useful
life.

58



---



##### 



The Fairmont Kea Lani Maui

In February 2001, the Company acquired the Kea Lani Resort in Maui for $214.3
in cash. The purchase price included related acquisition costs paid in cash of
approximately $1.5. The acquisition was accounted for using the purchase
method, and the results of the hotel have been included in the consolidated
statements of income from the date of acquisition.

The Fairmont Royal Pavilion and The Fairmont Glitter Bay

In January 2001, the Company acquired the remaining 51% interest in The
Fairmont Royal Pavilion and The Fairmont Glitter Bay in Barbados for $20.3 in
cash. The total cost of the two hotels, including the 49% interest already
owned, was $33.8. The acquisition was accounted for using the step purchase
method and the results of the two hotels have been included in the consolidated
statements of income from the date of acquisition.

The purchase prices of the 2001 acquisitions have been allocated to the
tangible assets acquired and liabilities assumed on the basis of their
respective estimated fair values on the acquisition date. The purchase price
allocation is as follows:

|                                  |  |          |       |             |  |          |      |   |  |   |       |  
|--------------------------------- |  | -------- | ----- | ----------- |  | -------- | ---- | - |  | - | ----- | -
|                                  |  |          |       |             |  | The      |      |   |  |  
|                                  |  |          |       |             |  | Fairmont |      |   |  |  
|                                  |  |          |       |             |  | Royal    |      |   |  |  
|                                  |  | The      |       | Pavilion    |  |          |      |  
|                                  |  | Fairmont |       | and The     |  |          |      |  
|                                  |  | Kea Lani |       | Fairmont    |  |          |      |  
|                                  |  | Maui     |       | Glitter Bay |  | Total   
|                                  |  |          |       |             |  |         
|Land                              |  | $        | 49.7  |             |  | $        | 18.0 |   |  | $ | 67.7  |  
|Building                          |  |          | 192.4 |             |  |          | 24.4 |   |  |   | 216.8 |  
|Furniture, fixtures and equipment |  |          | 7.6   |             |  |          | 1.0  |   |  |   | 8.6   |  
|Working capital, net of cash      |  |          | (5.2  | )           |  |          | (1.1 | ) |  |   | (6.3  | )
|Note payable                      |  |          | (30.2 | )           |  |          |     |   |  |   | (30.2 | )
|Long-term debt assumed            |  |          |      |             |  |          | (8.5 | ) |  |   | (8.5  | )
|                                  |  |          |       |             |  |          |      |   |  |   |       |  
|                                  |  | $        | 214.3 |             |  | $        | 33.8 |   |  | $ | 248.1 |  
|                                  |  |          |       |             |  |          |      |   |  |   |       |  

The Fairmont Chateau Whistler

In November 2000, the Company acquired Yamanouchi Real Estate Canada Ltd.s 80%
interest of the partnership that owns The Fairmont Chateau Whistler for $93.8
cash. The acquisition was accounted for using the step purchase method and the
results of the hotel were included in the consolidated statements of income
from the date of the acquisition. The total cost of the hotel, including the
20% partnership interest already owned and acquisition expenses of $2.0, was
$111.5 and has been allocated as follows:

|                                  |  |   |       |  
|--------------------------------- |  | - | ----- | -
|Land                              |  | $ | 11.6  |  
|Building                          |  |   | 81.2  |  
|Furniture, fixtures and equipment |  |   | 8.7   |  
|Leasehold interest                |  |   | 8.2   |  
|Working capital, net of cash      |  |   | 1.8   |  
|Goodwill                          |  |   | 18.0  |  
|Future income taxes               |  |   | (18.0 | )
|                                  |  |   |       |  
|                                  |  | $ | 111.5 |  
|                                  |  |   |       |  



|5. |  | INVESTMENTS IN PARTNERSHIPS AND CORPORATIONS
|-- |  | --------------------------------------------

|                                      |  |      |      |      |  |   |      | 
|------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | 
|                                      |  | 2002 |      | 2001
|                                      |  |      |      |     
|Accounted for using the equity method |  | $    | 52.8 |      |  | $ | 51.2 | 
|Accounted for using the cost method   |  |      | 16.1 |      |  |   | 7.6  | 
|                                      |  |      |      |      |  |   |      | 
|                                      |  | $    | 68.9 |      |  | $ | 58.8 | 
|                                      |  |      |      |      |  |   |      | 

59



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September 2002, FHR invested $8.0 for a 19.9% interest in The Fairmont
Sonoma Mission Inn & Spa. FHR has committed to advance a loan of $10.0 on
normal commercial terms to this hotel.

In July 2001, the Company acquired a 50% interest in a limited liability
corporation, which owns The Fairmont Copley Plaza Boston for $20.7. This
investment is accounted for using the equity method (note 25).



|6. |  | INVESTMENT IN LEGACY
|-- |  | --------------------

In 2002, the Company acquired 744,823 Legacy units through private placements
for $2.5 and 938,843 Legacy units under its distribution reinvestment plan for
$3.4. In November 2002, the Company participated in a Legacy unit offering and
acquired 6.5 million units for $31.9.

In February 2001, the Company sold The Fairmont Empress and Fairmont Le
Château Frontenac to Legacy for $201.0. The purchase consideration included
14.7 million exchangeable shares of a subsidiary corporation of Legacy at a
price of $5.67 per share and the balance of the selling price was satisfied in
cash. Under an agreement with Legacy, the Company was subsequently required to
make a one-time cash payment of $4.2, as certain performance measures were not
met. The Company realized a net after-tax gain of $87.7 from this transaction.
This gain has been deferred as it represents an intercompany gain on a sale to
an equity investee.

The exchangeable shares are entitled to a per share dividend equal to the
ordinary distribution by Legacy to its unitholders, less taxes payable. Each
exchangeable share is retractable at the fair market value of a Legacy unit
after a minimum holding period of five years. The exchangeable shares are tied
to voting certificates issued by Legacy that are entitled to one vote per
voting certificate at meetings of Legacy unitholders.

In 2001, the Company acquired 284,635 Legacy units through a private
placement for $1.3 and 350,663 Legacy units under its distribution reinvestment
plan for $1.5. The Company also participated in a secondary offering and sold
9,900,000 Legacy units at $5.67 per unit in 2001. The sale triggered
recognition of a net gain of $31.1.

As at December 31, 2002, the Company owned 21,939,143 (2001  13,808,862)
units and all 14.7 million exchangeable shares of a subsidiary corporation of
Legacy, representing a 35.6% ownership interest (2001  34.4%). Based on the
December 31, 2002 closing unit price of Legacy, the market value of this
investment was approximately $159.1. The Company does not guarantee any of
Legacys debt.



|7. |  | PROPERTY AND EQUIPMENT
|-- |  | ----------------------

|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|------------------------------------ |  | ---- | ------- | ------------ |  | ----------- | ------ | - |  | - | ------- | 
|                                     |  | 2002
|                                     |  |     
|                                     |  |      |         |              |  | Accumulated |        |   |  |  
|                                     |  | Cost |         | amortization |  | Net        
|                                     |  |      |         |              |  |            
|Land and land improvements           |  | $    | 205.8   |              |  | $           | (0.4   | ) |  | $ | 205.4   | 
|Buildings and leasehold improvements |  |      | 691.4   |              |  |             | (57.4  | ) |  |   | 634.0   | 
|Buildings on leased land             |  |      | 496.2   |              |  |             | (75.9  | ) |  |   | 420.3   | 
|Furniture, fixtures and equipment    |  |      | 282.5   |              |  |             | (112.7 | ) |  |   | 169.8   | 
|Construction-in-progress             |  |      | 11.6    |              |  |             |       |   |  |   | 11.6    | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|                                     |  | $    | 1,687.5 |              |  | $           | (246.4 | ) |  | $ | 1,441.1 | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 

|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|------------------------------------ |  | ---- | ------- | ------------ |  | ----------- | ------ | - |  | - | ------- | 
|                                     |  | 2001
|                                     |  |     
|                                     |  |      |         |              |  | Accumulated |        |   |  |  
|                                     |  | Cost |         | amortization |  | Net        
|                                     |  |      |         |              |  |            
|Land and land improvements           |  | $    | 180.2   |              |  | $           | (0.4   | ) |  | $ | 179.8   | 
|Buildings and leasehold improvements |  |      | 544.0   |              |  |             | (33.7  | ) |  |   | 510.3   | 
|Buildings on leased land             |  |      | 474.1   |              |  |             | (67.4  | ) |  |   | 406.7   | 
|Furniture, fixtures and equipment    |  |      | 220.2   |              |  |             | (91.3  | ) |  |   | 128.9   | 
|Construction-in-progress             |  |      | 36.2    |              |  |             |       |   |  |   | 36.2    | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|                                     |  | $    | 1,454.7 |              |  | $           | (192.8 | ) |  | $ | 1,261.9 | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 

The amortization expense related to property and equipment used in continuing
operations was $50.0 (2001  $45.5; 2000  $35.1).

60



---



##### 





|8. |  | GOODWILL AND INTANGIBLE ASSETS
|-- |  | ------------------------------

The following table summarizes changes in the carrying amount of goodwill by
operating segment for the year ended December 31, 2002:

|                                    |  |           |      |        |  |            |   |             |  |       |   |       |  |   |      |  |  |   |      |  |  |   |       | 
|----------------------------------- |  | --------- | ---- | ------ |  | ---------- | - | ----------- |  | ----- | - | ----- |  | - | ---- |  |  | - | ---- |  |  | - | ----- | 
|                                    |  | Hotel     |      |        |  |            |   | Real estate |  |       |   |       |  |   |      |  |  |   |      | 
|                                    |  | ownership |      | Legacy |  | activities |   | Fairmont    |  | Delta |   | Total
|                                    |  |           |      |        |  |            |   |             |  |       |   |      
|Balance as at January 1, 2002       |  | $         | 79.1 |        |  | $          |  |             |  | $     |  |       |  | $ | 7.2  |  |  | $ | 19.7 |  |  | $ | 106.0 | 
|Goodwill from business acquisitions |  |           |     |        |  |            |  |             |  |       |  |       |  |   | 16.7 |  |  |   |     |  |  |   | 16.7  | 
|Currency translation                |  |           | 0.2  |        |  |            |  |             |  |       |  |       |  |   |     |  |  |   | 0.1  |  |  |   | 0.3   | 
|                                    |  |           |      |        |  |            |   |             |  |       |   |       |  |   |      |  |  |   |      |  |  |   |       | 
|Balance as at December 31, 2002     |  | $         | 79.3 |        |  | $          |  |             |  | $     |  |       |  | $ | 23.9 |  |  | $ | 19.8 |  |  | $ | 123.0 | 
|                                    |  |           |      |        |  |            |   |             |  |       |   |       |  |   |      |  |  |   |      |  |  |   |       | 

|                                              |  |      |       |      |  |   |       |  
|--------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                              |  | 2002 |       | 2001
|                                              |  |      |       |     
|Intangible assets subject to amortization     |  |      |       |      |  |   |       |  
|Cost                                          |  | $    | 71.8  |      |  | $ | 54.5  |  
|Accumulated amortization                      |  |      | (9.9  | )    |  |   | (7.6  | )
|                                              |  |      |       |      |  |   |       |  
|Net                                           |  |      | 61.9  |      |  |   | 46.9  |  
|Intangible assets not subject to amortization |  |      |       |      |  |   |       |  
|Brand name                                    |  |      | 139.8 |      |  |   | 102.9 |  
|                                              |  |      |       |      |  |   |       |  
|                                              |  | $    | 201.7 |      |  | $ | 149.8 |  
|                                              |  |      |       |      |  |   |       |  

Intangible assets subject to amortization are amortized over their estimated
useful lives, which range from 35 to 50 years. The amortization expense related
to intangible assets subject to amortization was $2.4 (2001  $5.3; 2000 
$6.0).



|9. |  | OTHER ASSETS AND DEFERRED CHARGES
|-- |  | ---------------------------------

|                   |  |      |      |              |  |             |      |     |      |   |      |  |  |   |      | 
|------------------ |  | ---- | ---- | ------------ |  | ----------- | ---- | --- | ---- | - | ---- |  |  | - | ---- | 
|                   |  |      |      |              |  |             |      |     | 2002 |   | 2001
|                   |  |      |      |              |  |             |      |     |      |   |     
|                   |  |      |      |              |  | Accumulated
|                   |  | Cost |      | amortization |  | Net         |      | Net
|                   |  |      |      |              |  |             |      |    
|Long-term advances |  | $    | 57.1 |              |  | $           |     |     |      | $ | 57.1 |  |  | $ | 56.4 | 
|Pension asset      |  |      | 14.2 |              |  |             |     |     |      |   | 14.2 |  |  |   | 2.6  | 
|Deferred charges   |  |      | 6.3  |              |  |             | (2.3 | )   |      |   | 4.0  |  |  |   | 9.0  | 
|Other              |  |      | 8.4  |              |  |             |     |     |      |   | 8.4  |  |  |   | 7.1  | 
|                   |  |      |      |              |  |             |      |     |      |   |      |  |  |   |      | 
|                   |  | $    | 86.0 |              |  | $           | (2.3 | )   |      | $ | 83.7 |  |  | $ | 75.1 | 
|                   |  |      |      |              |  |             |      |     |      |   |      |  |  |   |      | 

A portion of the long-term advances are non-interest bearing, while the
remainder bear interest at rates between three-month LIBOR plus 0.25% and
one-month LIBOR plus 5%. They mature between January 2008 and November 1, 2009.
A portion of the long-term advances will be forgiven if the Company receives
two hotel management contracts from the loan holder prior to January 2008.

61



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|10. |  | LONG-TERM DEBT
|--- |  | --------------

|                                                     |  |      |       |      |  |   |       |  
|---------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                                     |  | 2002 |       | 2001
|                                                     |  |      |       |     
|Revolving credit facility, due September 10, 2004(1) |  | $    | 358.5 |      |  | $ | 122.6 |  
|Revolving credit facility, due July 10, 2004(1)      |  |      | 43.1  |      |  |   | 60.8  |  
|8.84%, notes due, August 1, 2016(2)                  |  |      | 54.9  |      |  |   | 57.2  |  
|7.47% mortgage, due May 21, 2008(3)                  |  |      | 6.7   |      |  |   | 8.3   |  
|Fairmont put option(4)                               |  |      | 69.0  |      |  |   | 69.0  |  
|Other                                                |  |      | 3.3   |      |  |   | 21.8  |  
|                                                     |  |      |       |      |  |   |       |  
|                                                     |  |      | 535.5 |      |  |   | 339.7 |  
|Less: Current portion of long-term debt              |  |      | (72.3 | )    |  |   | (94.5 | )
|                                                     |  |      |       |      |  |   |       |  
|                                                     |  | $    | 463.2 |      |  | $ | 245.2 |  
|                                                     |  |      |       |      |  |   |       |  



---

|(1) |  | The interest rate is floating and is calculated based on bankers
acceptance, LIBOR or prime rates, plus a spread. The weighted average interest
rate at December 31, 2002 was 3.7%. These facilities are unsecured.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The 8.84% notes are secured by substantially all property and equipment and
assignment of rents of The Fairmont Scottsdale Princess.                                                                                
|   
|(3) |  | The 7.47% mortgage is secured by substantially all capital assets and a
floating charge over other assets of The Fairmont Royal Pavilion and The
Fairmont Glitter Bay.                                              
|   
|(4) |  | A minority shareholder holds shares in Fairmont that may be put to FHR for
$69.0 at any time prior to October 1, 2004. In the event the put is not
exercised, this amount will no longer be considered debt.        

As at December 31, 2002, the long-term debt balance included $286.6 of foreign
currency debt. The foreign currency debt is denominated in Canadian dollars.
The credit facilities contain financial covenants with respect to debt levels
and interest coverage.

The principal repayments pursuant to the loan agreements are as follows:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2003       |  | $ | 72.3  | 
|2004       |  |   | 408.4 | 
|2005       |  |   | 3.7   | 
|2006       |  |   | 3.9   | 
|2007       |  |   | 4.1   | 
|Thereafter |  |   | 43.1  | 
|           |  |   |       | 
|           |  | $ | 535.5 | 
|           |  |   |       | 



|11. |  | INCOME TAXES
|--- |  | ------------

The provision for (recovery of) income taxes is as follows:

|                                     |  |      |      |      |  |      |        |   |  |   |       |  
|------------------------------------ |  | ---- | ---- | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                     |  | 2002 |      | 2001 |  | 2000
|                                     |  |      |      |      |  |     
|Current income tax expense           |  |      |      |      |  |      |        |   |  |   |       |  
|Canada                               |  | $    | 7.2  |      |  | $    | 14.1   |   |  | $ | 39.7  |  
|Foreign                              |  |      | 4.8  |      |  |      | 7.0    |   |  |   | 2.8   |  
|                                     |  |      |      |      |  |      |        |   |  |   |       |  
|                                     |  |      | 12.0 |      |  |      | 21.1   |   |  |   | 42.5  |  
|                                     |  |      |      |      |  |      |        |   |  |   |       |  
|Future income tax expense (recovery) |  |      |      |      |  |      |        |   |  |   |       |  
|Canada                               |  |      | 20.3 |      |  |      | (117.5 | ) |  |   | (74.5 | )
|Foreign                              |  |      | 3.5  |      |  |      | (3.2   | ) |  |   | 7.1   |  
|                                     |  |      | 23.8 |      |  |      | (120.7 | ) |  |   | (67.4 | )
|                                     |  |      |      |      |  |      |        |   |  |   |       |  
|                                     |  | $    | 35.8 |      |  | $    | (99.6  | ) |  | $ | (24.9 | )
|                                     |  |      |      |      |  |      |        |   |  |   |       |  

62



---



##### 



The income tax expense and the provision (recovery) obtained by applying the
statutory tax rate is as follows:

|                                                  |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                  |  | 2002 |       | 2001 |  | 2000
|                                                  |  |      |       |      |  |     
|Provision (recovery) at Canadian statutory rates  |  | $    | 53.0  |      |  | $    | (49.6 | ) |  | $ | 10.6  |  
|Foreign tax rate differentials                    |  |      | (4.6  | )    |  |      | (6.3  | ) |  |   | (4.2  | )
|Losses (gains) not tax affected                   |  |      |      |      |  |      |      |   |  |   | (15.6 | )
|Large corporations tax                            |  |      | 1.6   |      |  |      | 1.2   |   |  |   | 1.7   |  
|Reduction in tax rates                            |  |      |      |      |  |      |      |   |  |   | (7.7  | )
|Non-taxable income                                |  |      | (12.2 | )    |  |      | (15.4 | ) |  |   | (3.1  | )
|Other, including tax reassessments and provisions |  |      | (2.0  | )    |  |      | (29.5 | ) |  |   | (6.6  | )
|                                                  |  |      |       |      |  |      |       |   |  |   |       |  
|Income tax expense (recovery)                     |  | $    | 35.8  |      |  | $    | (99.6 | ) |  | $ | (24.9 | )
|                                                  |  |      |       |      |  |      |       |   |  |   |       |  

Temporary differences comprising the future income tax liability in the
consolidated balance sheets are as follows:

|                                          |  |      |       |      |  |   |        |  
|----------------------------------------- |  | ---- | ----- | ---- |  | - | ------ | -
|                                          |  | 2002 |       | 2001
|                                          |  |      |       |     
|Future income tax liabilities             |  |      |       |      |  |   |        |  
|Depreciable property, plant and equipment |  | $    | 109.0 |      |  | $ | 127.2  |  
|Other                                     |  |      | 62.9  |      |  |   | 73.9   |  
|Future income tax assets                  |  |      |       |      |  |   |        |  
|Income tax losses                         |  |      | (75.5 | )    |  |   | (137.0 | )
|                                          |  |      |       |      |  |   |        |  
|Future income tax liability               |  | $    | 96.4  |      |  | $ | 64.1   |  
|                                          |  |      |       |      |  |   |        |  

As at December 31, 2002, the Company had approximately $222.0 of non-capital
losses available to reduce future taxable income through to 2008. In addition,
the Company has capital losses available to reduce future capital gains
indefinitely in the amount of $186.5, the benefit of which has not been
recorded.



|12. |  | SHAREHOLDERS EQUITY
|--- |  | --------------------

The Companys articles of incorporation authorize the issuance of an unlimited
number of common shares and an unlimited number of first preferred shares and
second preferred shares.

Common shares

|                                                                             |  |  |            |   |        |   |            |   |           |  |            |   |        |   |           |   |  |  |      |   |  |   |         |   | 
|---------------------------------------------------------------------------- |  |  | ---------- | - | ------ | - | ---------- | - | --------- |  | ---------- | - | ------ | - | --------- | - |  |  | ---- | - |  | - | ------- | - | 
|                                                                             |  |  | 2002       |   | 2001   |   | 2000      
|                                                                             |  |  |            |   |        |   |           
|                                                                             |  |  | Number     |   |        |   |            |   | Number    |  |            |   |        |   | Number    |   |  |  |     
|                                                                             |  |  | of shares  |   |        |   |            |   | of shares |  |            |   |        |   | of shares |   |  |  |     
|                                                                             |  |  | (millions) |   | Amount |   | (millions) |   | Amount    |  | (millions) |   | Amount
|                                                                             |  |  |            |   |        |   |            |   |           |  |            |   |       
|Balance  January 1                                                          |  |  | 78.6       |   |        | $ | 1,162.4    |   |           |  | 78.5       |   |        | $ | 1,116.8   |   |  |  | 81.6 |   |  | $ | 1,150.6 |  
|Issued under dividend reinvestment
and share purchase
and stock option plans |  |  | 0.3        |   |        |   | 4.7        |   |           |  | 0.7        |   |        |   | 53.5      |   |  |  | 0.2  |   |  |   | 11.9    |  
|Issued
to Kingdom for 16.5% interest in Fairmont (note 4)                    |  |  | 2.9        |   |        |   | 69.0       |   |           |  |           |   |        |   |          |   |  |  |     |   |  |   |        |  
|Share repurchase plans                                                       |  |  | (3.0       | ) |        |   | (44.6      | ) |           |  | (0.6       | ) |        |   | (7.9      | ) |  |  | (3.3 | ) |  |   | (45.7   | )
|                                                                             |  |  |            |   |        |   |            |   |           |  |            |   |        |   |           |   |  |  |      |   |  |   |         |  
|Balance  December 31                                                        |  |  | 78.8       |   |        | $ | 1,191.5    |   |           |  | 78.6       |   |        | $ | 1,162.4   |   |  |  | 78.5 |   |  | $ | 1,116.8 |  
|                                                                             |  |  |            |   |        |   |            |   |           |  |            |   |        |   |           |   |  |  |      |   |  |   |         |  

On October 1, 2001, the issued and outstanding common shares of FHR were
consolidated on a 1:4 basis. All share numbers, including earnings per share
figures, reflect the effect of the share consolidation applied retroactively.

Under a normal course issuer bid, the Company may repurchase for
cancellation up to approximately 7.8 million or 10% of its outstanding common
shares. The amounts and timing of repurchases are at the Companys discretion
and, under the current program, can be made until October 2, 2003 at prevailing
market prices on the Toronto and New York stock exchanges. The share
repurchases have been accounted for as follows:

63



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                         |  |      |      |      |  |      |     |  |  |   |       | 
|---------------------------------------- |  | ---- | ---- | ---- |  | ---- | --- |  |  | - | ----- | 
|                                         |  | 2002 |      | 2001 |  | 2000
|                                         |  |      |      |      |  |     
|Common shares                            |  | $    | 44.6 |      |  | $    | 7.9 |  |  | $ | 45.7  | 
|Contributed surplus                      |  |      | 0.5  |      |  |      | 2.0 |  |  |   | 243.0 | 
|Foreign currency translation adjustments |  |      | (2.3 | )    |  |      |    |  |  |   |      | 
|Retained earnings                        |  |      | 30.4 |      |  |      |    |  |  |   |      | 
|                                         |  |      |      |      |  |      |     |  |  |   |       | 
|                                         |  | $    | 73.2 |      |  | $    | 9.9 |  |  | $ | 288.7 | 
|                                         |  |      |      |      |  |      |     |  |  |   |       | 

The Company had a dividend reinvestment and share purchase plan until October
1, 2001, which permitted participants to acquire additional common shares of
the Company by reinvesting cash dividends paid on common shares held by them
and/or by investing optional cash payments.

Preferred shares

On March 31, 1999, the Company completed the issue of 8.8 million 5.65%,
cumulative, redeemable, first preferred shares, Series A, for $145. The holders
of the preferred shares were entitled to a fixed annual dividend of $0.9307 per
share payable quarterly. An aggregate redemption premium of $5.5 was paid on
redemption in October 2001, and was charged to contributed surplus.

Foreign currency translation adjustments

|                                |  |      |      |      |  |      |       |   |  |   |      | 
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  | - | ---- | 
|                                |  | 2002 |      | 2001 |  | 2000
|                                |  |      |      |      |  |     
|Balance  January 1             |  | $    | 20.2 |      |  | $    | 91.3  |   |  | $ | 38.4 | 
|Effect of exchange rate changes |  |      | 7.2  |      |  |      | 16.1  |   |  |   | 52.9 | 
|Discontinued operations         |  |      |     |      |  |      | (87.2 | ) |  |   |     | 
|                                |  |      |      |      |  |      |       |   |  |   |      | 
|Balance  December 31           |  | $    | 27.4 |      |  | $    | 20.2  |   |  | $ | 91.3 | 
|                                |  |      |      |      |  |      |       |   |  |   |      | 



|13. |  | STOCK-BASED COMPENSATION
|--- |  | ------------------------

In October 2001, FHR adopted a Key Employee Stock Option Plan (KESOP). Under
this plan, key officers, employees and consultants of the Company may be
granted options to purchase common shares of FHR at a price per share not less
than the market value of a common share at the grant date. All options issued
to date vest over a four-year period, with 20% vesting in each of the first
three years and the remaining 40% vesting after four years. Options expire ten
years after the grant date.

Simultaneously with the grant of an option, the Company may also grant
share appreciation rights (SARs) at a rate of one SAR for every two options
issued. A SAR entitles the holder to receive payment of an amount equal to the
excess of the market value of a common share at the exercise date of the SAR
over the related option price. SARs may be exercised no earlier than three
years and no later than ten years after the grant date.

The exercise of a SAR will result in a reduction in the number of shares
covered by an option on a one-for-one basis. The exercise of an option results
in a reduction in the number of SARs on the basis of one SAR for each option
exercised in excess of 50% of the number of options issued with attached SARs.

In the event of a change in control of the Company, all outstanding options
are immediately exercisable.

Options and SARs that were issued by FHR under the previous key employee
stock option plan were replaced with options and accompanying SARs of the
KESOP, pursuant to the Arrangement. These options and SARs vested as of October
1, 2001 since the Arrangement triggered a change of control under the terms of
the previous key employee stock option plan. The exercise price of the
replacement options and SARs was allocated based upon a formula using the
average trading price of FHR, Canadian Pacific Railway Limited, CP Ships
Limited, PanCanadian Energy Corporation and Fording Inc. for their first ten
days of trading.

By agreement between FHR and the companies distributed pursuant to the
Arrangement, the difference between the strike price and the exercise price of
SARs of the discontinued operations held by FHR employees are recognized as an
expense by FHR, while the difference between the strike price and the exercise
price of FHR SARs held by employees of the discontinued operations are
recovered from those companies.

In October 2001, the Company also adopted the Directors Stock Option Plan
(DSOP). Under this plan, non-employee directors of the Company are granted
options to purchase common shares of FHR at a price not less than the market
value of the share at the grant date. Each non-employee director received an
initial grant of 8,000 options and receives an additional 4,000 options on an
annual basis. Options are immediately exercisable and expire ten years after
the grant date.

64



---



##### 



As at December 31, 2002, 2.3 million options were available for future grants
under the KESOP out of the 6.0 million options currently authorized, and
536,000 options were available for future grants under the DSOP out of the
600,000 options currently authorized.

Details of the stock options outstanding were as follows:

|                                 |  |             |       |                |  |           |       | 
|-------------------------------- |  | ----------- | ----- | -------------- |  | --------- | ----- | 
|                                 |  |             |       |                |  | Weighted-
|                                 |  | Number      |       | average       
|                                 |  | of options  |       | exercise price
|                                 |  | (thousands) |       | Cdn $         
|                                 |  |             |       |               
|Outstanding at December 31, 1999 |  |             | 1,435 |                |  | $         | 14.87 | 
|Granted                          |  |             | 215   |                |  |           | 15.63 | 
|Exercised                        |  |             | (119  | )              |  |           | 11.42 | 
|Canceled                         |  |             | (106  | )              |  |           | 13.75 | 
|                                 |  |             |       |                |  |           |       | 
|Outstanding at December 31, 2000 |  |             | 1,425 |                |  |           | 15.36 | 
|Granted                          |  |             | 3,230 |                |  |           | 26.77 | 
|Exercised                        |  |             | (650  | )              |  |           | 15.66 | 
|Canceled                         |  |             | (284  | )              |  |           | 15.65 | 
|                                 |  |             |       |                |  |           |       | 
|Outstanding at December 31, 2001 |  |             | 3,721 |                |  |           | 25.19 | 
|Granted                          |  |             | 264   |                |  |           | 38.63 | 
|Exercised                        |  |             | (295  | )              |  |           | 24.22 | 
|Canceled                         |  |             | (103  | )              |  |           | 24.78 | 
|                                 |  |             |       |                |  |           |       | 
|Outstanding at December 31, 2002 |  |             | 3,587 |                |  | $         | 26.26 | 
|                                 |  |             |       |                |  |           |       | 
|Exercisable at                   |  |             |       |                |  |           |       | 
|December 31, 2000                |  |             | 892   |                |  |           | 14.90 | 
|                                 |  |             |       |                |  |           |       | 
|December 31, 2001                |  |             | 555   |                |  |           | 16.10 | 
|                                 |  |             |       |                |  |           |       | 
|December 31, 2002                |  |             | 907   |                |  |           | 22.24 | 
|                                 |  |             |       |                |  |           |       | 

Details as at December 31, 2002, of the stock options outstanding were as
follows:

|                 |  |             |       |              |  |                |     |             |  |                |       |  |  |           |     |  |  |   |       | 
|---------------- |  | ----------- | ----- | ------------ |  | -------------- | --- | ----------- |  | -------------- | ----- |  |  | --------- | --- |  |  | - | ----- | 
|                 |  |             |       |              |  | Weighted-      |     |             |  |                |       |  |  |           |     |  |  |  
|                 |  |             |       |              |  | average        |     | Weighted-   |  |                |       |  |  | Weighted-
|Range of         |  | Number      |       | remaining    |  | average        |     | Number      |  | average       
|exercise prices  |  | outstanding |       | contractual  |  | exercise price |     | exercisable |  | exercise price
|Cdn $            |  | (thousands) |       | life (years) |  | Cdn $          |     | (thousands) |  | Cdn $         
|                 |  |             |       |              |  |                |     |             |  |               
|$9.85 to $11.96  |  |             | 77    |              |  |                | 1.7 |             |  | $              | 11.13 |  |  |           | 77  |  |  | $ | 11.13 | 
|$14.84 to $20.09 |  |             | 341   |              |  |                | 6.1 |             |  |                | 15.83 |  |  |           | 341 |  |  |   | 15.83 | 
|$26.25 to $49.30 |  |             | 3,169 |              |  |                | 8.9 |             |  |                | 27.75 |  |  |           | 489 |  |  |   | 28.45 | 
|                 |  |             |       |              |  |                |     |             |  |                |       |  |  |           |     |  |  |   |       | 
|                 |  |             | 3,587 |              |  |                | 8.5 |             |  | $              | 26.27 |  |  |           | 907 |  |  | $ | 22.24 | 
|                 |  |             |       |              |  |                |     |             |  |                |       |  |  |           |     |  |  |   |       | 

During the year, $0.9 (2001  $4.8) was expensed for outstanding SARs, and
$4.7 (2001  $49.7) was credited to common shares for options exercised.

Assuming FHR elected to recognize the cost of its stock-based compensation
based on the estimated fair value of stock options granted after January 1,
2002, net income and basic and diluted earnings per share would have been:

|                                       |  |   |      | 
|-------------------------------------- |  | - | ---- | 
|Reported net income                    |  | $ | 92.5 | 
|income assuming fair value method used |  |   | 92.1 | 
|Assuming fair value method used        |  |   |      | 
|Basic earnings per share               |  |   | 1.17 | 
|Diluted earnings per share             |  |   | 1.16 | 

65



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In calculating net income and basic and diluted earnings per share, stock
options issued prior to January 1, 2002, have been excluded from the fair value
based accounting method.

The weighted-average fair value of options granted during 2002 was
Cdn$12.73 per option. The fair value of each option granted was calculated at
the respective grant date of each issuance using the Black-Scholes option
pricing model with the following weighted average assumptions:

|                              |  |  |      |  
|----------------------------- |  |  | ---- | -
|Expected dividend yield       |  |  | 0.2  | %
|Expected volatility           |  |  | 41.3 | %
|Risk-free interest rate       |  |  | 3.9  | %
|Expected option life in years |  |  | 3.4  |  



|14. |  | INCOME FROM INVESTMENTS AND OTHER
|--- |  | ---------------------------------

|                                                                          |                               |   |      |     |      |   |      |     |  |   |      |      | 
|------------------------------------------------------------------------- | ----------------------------- | - | ---- | --- | ---- | - | ---- | --- |  | - | ---- | ---- | 
|                                                                          |                               |   | 2002 |     | 2001 |   | 2000
|                                                                          |                               |   |      |     |      |   |     
|Equity income                                                             |                               |   |      |     |      |   |      |     |  |   |      |     
|                                                                          | Partnerships and corporations |   | $    | 2.8 |      |   | $    | 2.0 |  |   | $    | 5.5  | 
|                                                                          | Legacy                        |   |      | 6.4 |      |   |      | 7.4 |  |   |      | 11.4 | 
|Amortization of deferred gain on sale of property and equipment to Legacy |                               |   | 8.5  |     |      |   | 9.3  |     |  |   | 7.4  |     
|                                                                          |                               |   |      |     |      |   |      |     |  |   |      |     
|                                                                          |                               | $ | 17.7 |     |      | $ | 18.7 |     |  | $ | 24.3 |     
|                                                                          |                               |   |      |     |      |   |      |     |  |   |      |     



|15. |  | OTHER (INCOME) AND EXPENSES, NET
|--- |  | --------------------------------

|                                                                                        |  |      |      |      |  |      |       |   |  |   |      | 
|--------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  | - | ---- | 
|                                                                                        |  | 2002 |      | 2001 |  | 2000
|                                                                                        |  |      |      |      |  |     
|Brand technology development costs                                                      |  | $    |     |      |  | $    | 22.4  |   |  | $ |     | 
|Write-off of deferred development charges,
leasehold improvements and equity investment |  |      |     |      |  |      | 7.2   |   |  |   |     | 
|Restructuring costs                                                                     |  |      |     |      |  |      | 6.4   |   |  |   |     | 
|Write-off of management contracts                                                       |  |      |     |      |  |      | 5.8   |   |  |   |     | 
|Gain on sale of Legacy units                                                            |  |      |     |      |  |      | (31.1 | ) |  |   |     | 
|Other                                                                                   |  |      | (4.9 | )    |  |      | (0.6  | ) |  |   | 10.7 | 
|                                                                                        |  |      |      |      |  |      |       |   |  |   |      | 
|                                                                                        |  | $    | (4.9 | )    |  | $    | 10.1  |   |  | $ | 10.7 | 
|                                                                                        |  |      |      |      |  |      |       |   |  |   |      | 



|16. |  | REORGANIZATION AND CORPORATE EXPENSES
|--- |  | -------------------------------------

|                                             |  |      |     |      |  |      |       |  |  |   |      | 
|-------------------------------------------- |  | ---- | --- | ---- |  | ---- | ----- |  |  | - | ---- | 
|                                             |  | 2002 |     | 2001 |  | 2000
|                                             |  |      |     |      |  |     
|Reorganization expenses                      |  |      |     |      |  |      |       |  |  |   |      | 
|Severance and incentive compensation         |  | $    |    |      |  | $    | 67.7  |  |  | $ |     | 
|Professional advisory fees                   |  |      |    |      |  |      | 36.4  |  |  |   |     | 
|Debt redemption premium on medium-term notes |  |      |    |      |  |      | 32.7  |  |  |   |     | 
|Other                                        |  |      | 0.9 |      |  |      | 1.3   |  |  |   |     | 
|                                             |  |      |     |      |  |      |       |  |  |   |      | 
|                                             |  |      | 0.9 |      |  |      | 138.1 |  |  |   |     | 
|Corporate expenses                           |  |      | 1.3 |      |  |      | 18.8  |  |  |   | 65.7 | 
|                                             |  |      |     |      |  |      |       |  |  |   |      | 
|                                             |  | $    | 2.2 |      |  | $    | 156.9 |  |  | $ | 65.7 | 
|                                             |  |      |     |      |  |      |       |  |  |   |      | 

Reorganization expenses for 2002 include charges relating to SARs for employees
of the former CPL entity that have a continuing impact on operations.

Corporate expenses were costs associated with the corporate activities
performed by CPL for its subsidiaries, including FHRHI, prior to October 1,
2001. The majority of these activities have been eliminated subsequent to
October 1, 2001.

66



---



##### 





|17. |  | INTEREST EXPENSE, NET
|--- |  | ---------------------

|                      |  |      |      |      |  |      |       |   |  |   |       |  
|--------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                      |  | 2002 |      | 2001 |  | 2000
|                      |  |      |      |      |  |     
|Long-term debt        |  | $    | 20.8 |      |  | $    | 44.3  |   |  | $ | 31.6  |  
|Short-term debt       |  |      | 1.2  |      |  |      | 42.2  |   |  |   | 36.9  |  
|                      |  |      |      |      |  |      |       |   |  |   |       |  
|                      |  |      | 22.0 |      |  |      | 86.5  |   |  |   | 68.5  |  
|                      |  |      |      |      |  |      |       |   |  |   |       |  
|Less: Interest income |  |      | (2.9 | )    |  |      | (16.9 | ) |  |   | (24.0 | )
|                      |  |      |      |      |  |      |       |   |  |   |       |  
|                      |  | $    | 19.1 |      |  | $    | 69.6  |   |  | $ | 44.5  |  
|                      |  |      |      |      |  |      |       |   |  |   |       |  



|18. |  | NET INCOME PER COMMON SHARE
|--- |  | ---------------------------

Basic net income per common share is determined by dividing net income
available to common shareholders as reported in the consolidated statements of
income by the weighted average number of common shares outstanding. Diluted net
income per common share reflects the potential dilutive effect of stock options
granted under the Companys option plans, as determined under the treasury
stock method.

|                                                               |  |      |      |      |  |      |      |  |  |  |      | 
|-------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|(millions)                                                     |  | 2002 |      | 2001 |  | 2000
|                                                               |  |      |      |      |  |     
|Weighted average number of common shares outstanding  basic   |  |      | 78.4 |      |  |      | 78.9 |  |  |  | 79.5 | 
|Dilutive effect of stock options                               |  |      | 1.3  |      |  |      | 0.1  |  |  |  | 0.3  | 
|                                                               |  |      |      |      |  |      |      |  |  |  |      | 
|Weighted average number of common shares outstanding  diluted |  |      | 79.7 |      |  |      | 79.0 |  |  |  | 79.8 | 
|                                                               |  |      |      |      |  |      |      |  |  |  |      | 

19. SUPPLEMENTAL CASH FLOW DISCLOSURE

a) Changes in non-cash working capital items

|                                                                                                                                                      |  |      |       |      |  |      |          |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | -------- | - |  | - | ------ | -
|                                                                                                                                                      |  | 2002 |       | 2001 |  | 2000
|                                                                                                                                                      |  |      |       |      |  |     
|Decrease (increase) in current assets                                                                                                                 |  |      |       |      |  |      |          |   |  |   |        |  
|Accounts receivable                                                                                                                                   |  | $    | 1.5   |      |  | $    | 1,586.5  |   |  | $ | (498.9 | )
|Inventory                                                                                                                                             |  |      | (0.6  | )    |  |      | 262.6    |   |  |   | 38.3   |  
|Prepaid expenses and other                                                                                                                            |  |      | (2.0  | )    |  |      | (3.4     | ) |  |   |       |  
|Increase (decrease) in current liabilities                                                                                                            |  |      |       |      |  |      |          |   |  |   |        |  
|Accounts payable and accrued liabilities                                                                                                              |  |      | (12.6 | )    |  |      | (2,000.7 | ) |  |   | 389.9  |  
|Taxes payable                                                                                                                                         |  |      | 3.2   |      |  |      | (126.7   | ) |  |   | 26.7   |  
|                                                                                                                                                      |  |      |       |      |  |      |          |   |  |   |        |  
|                                                                                                                                                      |  |      | (10.5 | )    |  |      | (281.7   | ) |  |   | (44.0  | )
|Decrease in non-cash working capital balances relating
to reduction in restructuring accruals                                                         |  |      |      |      |  |      |         |   |  |   | 97.8   |  
|Increase in non-cash working capital balances from the acquisition
and sale of businesses and joint ventures                                          |  |      |      |      |  |      |         |   |  |   | (52.4  | )
|Other changes in non-cash working capital balances (mainly reclassifications
from/to current assets/liabilities to/from long-term assets/liabilities) |  |      |      |      |  |      |         |   |  |   | (102.0 | )
|                                                                                                                                                      |  |      |       |      |  |      |          |   |  |   |        |  
|Decrease (increase) in non-cash working capital balances
before discontinued operations                                                               |  |      | (10.5 | )    |  |      | (281.7   | ) |  |   | (100.6 | )
|Discontinued operations                                                                                                                               |  |      |      |      |  |      | 258.0    |   |  |   | 127.8  |  
|                                                                                                                                                      |  |      |       |      |  |      |          |   |  |   |        |  
|Decrease (increase) in non-cash working capital balances
after discontinued operations                                                                |  | $    | (10.5 | )    |  | $    | (23.7    | ) |  | $ | 27.2   |  
|                                                                                                                                                      |  |      |       |      |  |      |          |   |  |   |        |  

b) Cash payments made during the
year on account of:

|                  |  |      |      |      |  |      |       |  |  |   |      | 
|----------------- |  | ---- | ---- | ---- |  | ---- | ----- |  |  | - | ---- | 
|                  |  | 2002 |      | 2001 |  | 2000
|                  |  |      |      |      |  |     
|Interest paid     |  | $    | 25.3 |      |  | $    | 106.4 |  |  | $ | 62.5 | 
|Income taxes paid |  |      | 21.8 |      |  |      | 33.6  |  |  |   | 15.0 | 

67



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

c) Non-cash investing and financing activities

|                                                                                 |  |      |      |      |  |      |      |  |  |   |   | 
|-------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | - | 
|                                                                                 |  | 2002 |      | 2001 |  | 2000
|                                                                                 |  |      |      |      |  |     
|Issuance of common stock on acquisition
of additional 16.5% interest of Fairmont |  | $    | 69.0 |      |  | $    |     |  |  | $ |  | 
|Sale of hotels to Legacy in exchange for exchangeable shares                     |  |      |     |      |  |      | 83.3 |  |  |   |  | 



|20. |  | EMPLOYEE FUTURE BENEFITS
|--- |  | ------------------------

The Company has defined benefit plans, which provide for pensions and other
post-retirement and post-employment benefits for certain employees. Pension
benefits are based principally on years of service and compensation rates near
retirement. The costs of pensions are actuarially determined using the
projected benefit method pro-rated on service and managements best estimate of
expected plan investment performance, salary escalation, retirement ages of
employees and expected health care costs. Market-related values are used for
calculating the expected return on plan assets. The projected benefit
obligation is discounted using a market interest rate at the end of the year on
high-quality corporate debt instruments.

For defined benefit plans, pension expense includes the cost of pension
benefits earned during the current year, the interest cost on pension
obligations, the return on pension plan assets, settlement gains, the
amortization of the transitional asset, the amortization of adjustments arising
from pension plan amendments and the amortization of the excess of the net
actuarial gain or loss over 10% of the greater of the benefit obligation and
the market-related value of plan assets. The amortization period covers the
expected average remaining service lives of employees covered by the various
plans. For defined contribution plans, pension costs equal plan contributions
made during the current year. Other post-retirement employment benefits are
insignificant.

Changes in the Companys defined benefit plans and the amounts recognized in
the consolidated balance sheets are as follows:

|                                                       |  |      |       |      |  |   |       |  
|------------------------------------------------------ |  | ---- | ----- | ---- |  | - | ----- | -
|                                                       |  | 2002 |       | 2001
|                                                       |  |      |       |     
|Change in benefit obligation                           |  |      |       |      |  |   |       |  
|Benefit obligation  January 1                         |  | $    | 71.1  |      |  | $ | 78.3  |  
|Service cost                                           |  |      | 0.9   |      |  |   | 1.9   |  
|Interest cost                                          |  |      | 4.1   |      |  |   | 4.6   |  
|Plan participants contributions                       |  |      | 0.2   |      |  |   | 0.2   |  
|Amendments                                             |  |      |      |      |  |   | (0.8  | )
|Actuarial loss                                         |  |      | 7.4   |      |  |   | 7.0   |  
|Benefits paid                                          |  |      | (11.3 | )    |  |   | (20.1 | )
|Other                                                  |  |      | 2.1   |      |  |   |      |  
|                                                       |  |      |       |      |  |   |       |  
|Benefit obligation  December 31                       |  |      | 74.5  |      |  |   | 71.1  |  
|                                                       |  |      |       |      |  |   |       |  
|Change in plan assets                                  |  |      |       |      |  |   |       |  
|Fair value of assets  January 1                       |  |      | 86.9  |      |  |   | 94.0  |  
|Return on plan assets                                  |  |      | (4.1  | )    |  |   | (2.5  | )
|Employers contributions                               |  |      | 2.6   |      |  |   | 0.2   |  
|Plan participants contributions                       |  |      | 0.2   |      |  |   | 16.1  |  
|Benefits paid                                          |  |      | (11.3 | )    |  |   | (20.1 | )
|Transfer to defined contribution plan                  |  |      | (2.2  | )    |  |   |      |  
|Other                                                  |  |      | 0.7   |      |  |   | (0.8  | )
|                                                       |  |      |       |      |  |   |       |  
|Fair value of plan assets  December 31                |  |      | 72.8  |      |  |   | 86.9  |  
|                                                       |  |      |       |      |  |   |       |  
|Funded (underfunded) status                            |  |      | (1.7  | )    |  |   | 15.8  |  
|Unamortized
net actuarial loss(1)                      |  |      | 19.8  |      |  |   | 7.4   |  
|Unamortized prior service cost(1)                      |  |      | 2.3   |      |  |   |      |  
|Unamortized net transitional asset(1)                  |  |      | (25.5 | )    |  |   | (28.1 | )
|Valuation allowance                                    |  |      | (2.2  | )    |  |   | (10.8 | )
|                                                       |  |      |       |      |  |   |       |  
|Accrued benefit cost in consolidated balance sheets(2) |  | $    | (7.3  | )    |  | $ | (15.7 | )
|                                                       |  |      |       |      |  |   |       |  



---

|1) |  | Amortized over the expected average remaining service lives of employees
covered by the plans, generally 11 years.
|-- |  | ------------------------------------------------------------------------------------------------------------------
|  
|2) |  | The net accrued benefit cost on the consolidated balance sheets is
included in other liabilities and other assets.

68



---



##### 



Weighted average assumptions as
at December 31

|                                              |  |      |     |      |  |  |     |  
|--------------------------------------------- |  | ---- | --- | ---- |  |  | --- | -
|                                              |  | 2002 |     | 2001
|                                              |  |      |     |     
|Discount rate on projected benefit obligation |  |      | 6.5 | %    |  |  | 6.5 | %
|Expected return on plan assets                |  |      | 7.5 | %    |  |  | 7.5 | %
|Rate of compensation increase                 |  |      | 3.5 | %    |  |  | 3.5 | %

FHRs net benefit plan (income) expense from continuing operations is as follows:

|                               |  |      |      |      |  |      |      |   |  |   |      |  
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                               |  | 2002 |      | 2001 |  | 2000
|                               |  |      |      |      |  |     
|Service cost                   |  | $    | 0.9  |      |  | $    | 1.9  |   |  | $ | 2.0  |  
|Interest cost                  |  |      | 4.1  |      |  |      | 4.6  |   |  |   | 5.3  |  
|Return on plan assets          |  |      | (6.3 | )    |  |      | (6.9 | ) |  |   | (9.2 | )
|Settlement loss                |  |      |     |      |  |      | 12.8 |   |  |   |     |  
|Net amortization and deferrals |  |      | (8.6 | )    |  |      | 3.1  |   |  |   | 2.0  |  
|                               |  |      |      |      |  |      |      |   |  |   |      |  
|                               |  | $    | (9.9 | )    |  | $    | 15.5 |   |  | $ | 0.1  |  
|                               |  |      |      |      |  |      |      |   |  |   |      |  

Included in the above accrued benefit obligation and fair value of plan assets
as at December 31 are the following amounts in respect of plans that are not
fully funded:

|                           |  |      |      |      |  |   |      | 
|-------------------------- |  | ---- | ---- | ---- |  | - | ---- | 
|                           |  | 2002 |      | 2001
|                           |  |      |      |     
|Accrued benefit obligation |  | $    | 21.5 |      |  | $ | 17.0 | 
|Fair value of plan assets  |  |      |     |      |  |   |     | 
|                           |  |      |      |      |  |   |      | 
|Underfunded balance        |  | $    | 21.5 |      |  | $ | 17.0 | 
|                           |  |      |      |      |  |   |      | 

As at December 31, 2002, the Company had committed and undrawn guarantees of
$28.3 (2001  $28.1), respectively representing financial guarantees on the
above unfunded pension liabilities.

During 2002, certain pension plans were amalgamated. As a result of this
amalgamation, the valuation allowance associated with these plans was released
into the consolidated statements of income.

The Company also has a defined benefit plan for certain retirees of
Canadian Pacific Express & Transport Ltd. that is not included above. The
estimated market value of plan assets and the projected benefit obligation
related to the Companys portion of this plan are approximately $150 and $140,
respectively as at December 31, 2002 and 2001. The Company has not recorded any
prepaid or accrued benefit cost from this plan. For the years ended December
31, 2002, 2001 and 2000, the service costs of the Companys portion of this
plan were $nil and the expected return on plan assets was greater than the
interest cost on the projected benefit obligation. This plan is in the process
of being divided into separate defined benefit plans for three separate
employers. Once this division occurs, it is the Companys intention to settle
any remaining accrued benefit obligations through the purchase of a
non-participating insurance contract.

FHR also has defined contribution plans. The net expense for such plans
for continuing operations, which generally equals the employers required
contribution, was $1.3, $1.2 and $1.6 in 2002, 2001 and 2000, respectively.



|21. |  | COMMITMENTS AND CONTINGENCIES
|--- |  | -----------------------------

As at December 31, 2002, contractual commitments in respect to capital
expenditures for existing wholly owned or leased hotels totaled approximately
$30.0.

Leases

The Company leases certain land and equipment under operating leases. Land
leases represent ground leases for certain owned hotels and, in addition to
minimum rental payments, may require the payment of additional rents based on
varying percentages of revenue.

69



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Minimum rentals for hotel and equipment leases which expire on various dates
are as follows:

|           |  |   |      | 
|---------- |  | - | ---- | 
|2003       |  | $ | 10.2 | 
|2004       |  |   | 9.7  | 
|2005       |  |   | 9.0  | 
|2006       |  |   | 8.3  | 
|2007       |  |   | 8.1  | 
|Thereafter |  |   | 37.5 | 
|           |  |   |      | 
|           |  | $ | 82.8 | 
|           |  |   |      | 

As at December 31, 2002, unused committed lines of credit for short-term and
long-term financing, subject to periodic review, and at various maturities,
amounted to approximately $160.6, on which interest rates vary with bank prime
or money market rates.

FHR is subject to various claims and legal proceedings with respect to
matters such as governmental regulations, income taxes and other actions
arising out of the normal course of business. The Company has provided for
certain claims and based on information presently available, management
believes that the existing accruals are sufficient. Any additional liability
that may result from these matters and any additional liabilities that may
result in connection with other claims are not expected to have a material
adverse effect on FHRs financial position or results from operations.

As at December 31, 2002, the company had committed and undrawn guarantees of
$22.1.



|22. |  | FINANCIAL INSTRUMENTS
|--- |  | ---------------------

FHRs exposure to interest-rate risk along with the total carrying amounts and
fair values of its financial instruments are summarized in the following table:

|                                           |  |          |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|------------------------------------------ |  | -------- | ----- | ----- |  | -------- | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                                           |  | 2002     |       | 2001 
|                                           |  |          |       |      
|                                           |  | Carrying |       | Fair  |  | Carrying |       | Fair 
|                                           |  | amount   |       | value |  | amount   |       | value
|                                           |  |          |       |       |  |          |       |      
|Fairmont put option                        |  | $        |      |       |  | $        |      |       |  | $ |      |  |  | $ |      | 
|Amount payable on settlement of put option |  |          | 69.0  |       |  |          | 69.0  |       |  |   | 69.0  |  |  |   | 69.0  | 
|Long-term debt                             |  |          | 466.5 |       |  |          | 477.4 |       |  |   | 270.7 |  |  |   | 275.2 | 
|Long-term advances                         |  |          | 57.1  |       |  |          | 57.1  |       |  |   | 56.4  |  |  |   | 56.4  | 

The Company has determined the estimated fair value of its financial
instruments based on appropriate valuation methodologies. However, considerable
judgment is necessary to develop these estimates. Accordingly, the estimates
presented herein are not necessarily indicative of what FHR could realize in a
current market exchange. The use of different assumptions or methodologies may
have a material effect on the estimated fair value amounts.

The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:



| |  | Based on a recent transaction, the fair value of a 16.5% interest in
Fairmont was $69.0 (note 4). On this basis, the carrying value of the
Fairmont put option is equal to its fair value as at December 31, 2002.                                  
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Short-term financial assets and liabilities are valued at their carrying
amounts as presented in the consolidated balance sheets, which are
reasonable estimates of fair values due to the relatively short period to
maturity of these instruments.
| 
| |  | The fair value of other long-term debt is estimated based on rates
currently available to the Company for long-term borrowing with similar
terms and conditions to those borrowings in place at the consolidated
balance sheet dates.               
| 
| |  | Book value is a reasonable estimate of fair value for long-term advances
as these advances bear interest at variable rates.                                                                                                                         

The Company has agreed to support a retraction right associated with the common
shares of the minority shareholder of Fairmont, at a price of $69.0. The
retraction right is exercisable until October 1, 2004.

Interest rate risk management

With the exception of the revolving credit facilities, all of the Companys
long-term debts is at a fixed rate of interest. There are no interest rate
hedging transactions outstanding as at December 31, 2002.

70



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##### 



Credit risk management

Credit risk relates to account receivable balances and results from the
possibility that a counterparty defaults on its contractual obligation to the
Company. This risk is minimized since FHR deals with banks having an
appropriate credit rating, performs ongoing credit evaluations of customers and
maintains allowances for potential credit losses. FHR also extends credit in
certain circumstances to the owners of managed hotels when new management
contracts are signed.



|23. |  | RELATED PARTY TRANSACTIONS
|--- |  | --------------------------

In December 2002, FHR entered into a long-term incentive based management
contract for The Fairmont Washington D.C. with Legacy. In connection with
Fairmonts securing the management contract on this property, Fairmont will pay
a fixed amount over a three-year period. This amount has been accounted for as
an intangible asset and will be amortized over the life of the management
contract. The amortization expense will be applied to reduce revenues from
management operations.

In connection with the above transaction, FHR and Legacy entered into
reciprocal loan agreements for US$67.6. The loans mature in October 2008 and
bear interest at normal commercial rates payable quarterly in arrears. In the
event that either FHR or Legacy does not make its required interest or
principal payments, the other party is not required to make its payment either.
The loans meet all the requirements for a right of setoff and as such are
presented on a net basis in the consolidated financial statements.

All transactions were recorded at the exchange amount.

Included in accounts receivable is $3.5 (2001  $2.7) owing from Legacy.



|24. |  | DISCONTINUED OPERATIONS
|--- |  | -----------------------

Effective October 1, 2001, CPL completed a major reorganization, which divided
CPL into five new public companies. Pursuant to the Arrangement, CPL
distributed its approximately 85% interest in PanCanadian Petroleum Limited
(PanCanadian) and its wholly owned subsidiaries, Canadian Pacific Railway
Company (Canadian Pacific Railway), CP Ships Limited (CP Ships) and Fording
Inc. (Fording) to its common shareholders. This distribution was recorded at
the carrying value of the net investment in each subsidiary. CPL retained its
wholly owned subsidiary, FHRHI.

Prior to the distribution of the four operating businesses, PanCanadian
paid a special dividend to CPL of approximately $645, and Canadian Pacific
Railway returned approximately $450 of capital to CPL. The proceeds were used,
in part, to settle CPLs commercial paper, medium-term notes and preferred
shares.

Results from the four operating businesses that were distributed have been
included in discontinued operations in the consolidated statements of income
and consolidated statements of cash flows up to September 30, 2001. As at the
distribution date of October 1, 2001, cash, total assets and total liabilities
of $383.6, $15,108.4 and $9,668.4, respectively, were distributed as
discontinued operations.

The results of discontinued operations are summarized below:

|                   |  |                                      |         |          |  |             |         |         |  |       |         |  |  |   |       |  |  |   |         | 
|------------------ |  | ------------------------------------ | ------- | -------- |  | ----------- | ------- | ------- |  | ----- | ------- |  |  | - | ----- |  |  | - | ------- | 
|                   |  | Nine months ended September 30, 2001
|                   |  |                                     
|                   |  | Canadian                             |         |          |  |             |         |         |  |       |         |  |  |   |       |  |  |  
|                   |  | Pacific                              |         |          |  |             |         |         |  |       |         |  |  |   |       |  |  |  
|                   |  | Railway                              |         | CP Ships |  | PanCanadian |         | Fording |  | Total
|                   |  |                                      |         |          |  |             |         |         |  |      
|Revenues           |  | $                                    | 1,799.9 |          |  | $           | 1,990.9 |         |  | $     | 5,487.3 |  |  | $ | 501.5 |  |  | $ | 9,779.6 | 
|Operating income   |  |                                      | 364.2   |          |  |             | 105.1   |         |  |       | 1,180.7 |  |  |   | 85.7  |  |  |   | 1,735.7 | 
|Income tax expense |  |                                      | 52.1    |          |  |             | 8.5     |         |  |       | 384.9   |  |  |   | 37.1  |  |  |   | 482.6   | 
|Net income         |  |                                      | 167.4   |          |  |             | 49.0    |         |  |       | 664.7   |  |  |   | 42.8  |  |  |   | 923.9   | 

|                   |  |                   |         |          |  |             |         |         |  |       |         |  |  |   |       |  |  |   |          | 
|------------------ |  | ----------------- | ------- | -------- |  | ----------- | ------- | ------- |  | ----- | ------- |  |  | - | ----- |  |  | - | -------- | 
|                   |  | December 31, 2000
|                   |  |                  
|                   |  | Canadian          |         |          |  |             |         |         |  |       |         |  |  |   |       |  |  |  
|                   |  | Pacific           |         |          |  |             |         |         |  |       |         |  |  |   |       |  |  |  
|                   |  | Railway           |         | CP Ships |  | PanCanadian |         | Fording |  | Total
|                   |  |                   |         |          |  |             |         |         |  |      
|Revenues           |  | $                 | 2,408.3 |          |  | $           | 2,582.2 |         |  | $     | 4,754.5 |  |  | $ | 590.4 |  |  | $ | 10,335.4 | 
|Operating income   |  |                   | 556.9   |          |  |             | 166.2   |         |  |       | 1,171.2 |  |  |   | 54.8  |  |  |   | 1,949.1  | 
|Income tax expense |  |                   | 80.9    |          |  |             | 10.7    |         |  |       | 441.6   |  |  |   | 22.9  |  |  |   | 556.1    | 
|Net income         |  |                   | 321.6   |          |  |             | 136.1   |         |  |       | 586.2   |  |  |   | 22.0  |  |  |   | 1,065.9  | 

71



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The discontinued operations had certain specific accounting policies related to
revenue recognition and property and equipment for the transportation and
energy businesses that were disclosed in note 1 of the December 31, 2000
consolidated financial statements of FHR.



|25. |  | SUBSEQUENT EVENTS
|--- |  | -----------------

On January 30, 2003, FHR announced that it has agreed to acquire the remaining
50% equity interest in The Fairmont Copley Plaza Boston from entities
controlled by Prince Alwaleed bin Talal bin Abdulaziz Al Saud of Saudi Arabia
(Prince Alwaleed). The purchase price for the equity interest is
approximately $23 and will be satisfied by the issuance of one million common
shares. In addition, FHR will acquire net working capital of about $9 for cash.
Existing secured debt of approximately $66.5 on the property will be assumed.
The transaction is expected to close in the first quarter of 2003, subject to
regulatory approvals. Following this transaction, Prince Alwaleed will hold
approximately 4.9% of FHRs issued and outstanding shares.



|26. |  | UNITED STATES ACCOUNTING POLICIES AND REPORTING
|--- |  | -----------------------------------------------

Canadian and United States accounting principles

The consolidated financial statements of FHR have been prepared in accordance
with Canadian GAAP. The material differences between Canadian GAAP and U.S.
GAAP relating to measurement and recognition are explained below, along with
their effect on the Companys consolidated balance sheets and consolidated
statements of income. There are no material differences on the consolidated
statements of cash flows. Certain additional disclosures as required under U.S.
GAAP have not been provided as permitted by the U.S. Securities and Exchange
Commission (SEC).

Change in reporting currency

The Companys consolidated financial statements have historically been
expressed in Canadian dollars. The U.S. dollar was adopted as the Companys
reporting currency effective July 1, 2001. Under Canadian GAAP, the comparative
financial statements have been restated in U.S. dollars using the June 30, 2001
rate under the translation of convenience method. U.S. GAAP requires the
restatement of comparative financial statements using the average and closing
rates in effect during the period.

Accounting for gains on sale of properties to Legacy

Under Canadian GAAP, recognition of gains on the sale of assets to related
parties are not permitted to be recorded in income. U.S. GAAP allows either the
deferral or recognition of the gains to the extent of third party interests.
The Company has not recognized gains under U.S. GAAP.

Stock-based compensation

Under Financial Accounting Standards Board Interpretation No. 44, Accounting
for Certain Transactions Involving Stock Compensation, compensation expense
using variable accounting must be recorded if the intrinsic value of stock
options is not exactly the same immediately before and after an equity
restructuring. As a result of the Arrangement, FHR underwent an equity
restructuring, which resulted in replacement options in new FHR stock having a
different intrinsic value after the restructuring than prior to the
restructuring. Canadian GAAP does not require revaluation of these options.

Internal use software

Under Canadian GAAP, computer system development costs for internal use
software are capitalized when the project is expected to be of continuing
benefit to FHR and otherwise expensed. U.S. GAAP standards require that certain
costs of computer software developed for internal use be capitalized and
amortized.

Acquisition costs

Under Canadian GAAP, certain integration costs may be reflected in the purchase
price equation. These costs must be expensed under U.S. GAAP when incurred.

Derivative instruments and hedging

Effective January 1, 2001, FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, and FASB Statement No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging Activities, became
effective for U.S. GAAP. FASB Statements No. 133 and No. 138 permit hedging of
cash flows when specific documentation is in place from inception and the hedge
meets effectiveness testing on an ongoing basis. Going forward, differences
will flow through comprehensive income.

72



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##### 



Prior to January 1, 2001, under FASB Statement No. 52, for U.S. reporting
purposes, forward foreign exchange contracts associated with anticipated future
transactions that do not constitute firm commitments, are recognized in the
consolidated financial statements at fair value, with any resulting gains or
losses immediately reflected in income. Under Canadian GAAP, certain of these
forward foreign exchange contracts qualify as hedges for accounting purposes.
Consequently, the fair value of these unsettled contracts is not reflected in
the consolidated financial statements and any realized gains or losses are only
recognized at the time of completion of the hedged transactions.

Employee future benefits

In January 2000, under Canadian GAAP, the Company prospectively changed its
accounting policy relating to employee future benefits. As a result of this
change, all unamortized gains and losses, including prior service costs, were
accumulated into a net transitional asset which is being amortized into income
over 11 years, the expected average remaining service lives of the employees
covered by the plan. Under U.S. GAAP, there has been no change in accounting
policy and hence there is no net transitional asset to be amortized. As a
result, the amount of unamortized actuarial gains and losses is different for
U.S. and Canadian GAAP.

In addition, under Canadian GAAP, a valuation allowance has been provided
for on certain pension assets whereas under U.S. GAAP, a valuation allowance
has not been provided.

Long-term advances and long-term debt

During 2002, FHR and Legacy entered into reciprocal loan agreements, which,
under Canadian GAAP, met all the requirements for a right of offset. Under
Canadian GAAP, these loans were presented on a net basis in the consolidated
balance sheet. Under U.S. GAAP, these loans are presented separately on the
consolidated balance sheet.

Gain on sale of real estate investment

In 2002, FHR realized a gain on the sale of its investment in certain real
estate property. Under Canadian GAAP, the proceeds and costs related to this
sale have been recorded respectively, as real estate revenue and real estate
expense on the consolidated statements of income. Under U.S. GAAP, this gain is
considered to be a non-operating gain and has not been included in operating
income.

Comprehensive income

U.S. GAAP requires the disclosure, as other comprehensive income, of changes in
equity during the period from transactions and other events from non-owner
sources. Canadian GAAP does not require similar disclosure. Other comprehensive
income arose from foreign currency translation adjustments and minimum pension
liability adjustments.

Recently issued accounting standards

In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (SFAS 145). This statement
eliminates classification of gains and losses from extinguishment of debt as
extraordinary items, this is in line with Canadian GAAP requirements. In 2001,
the company had a loss from the extinguishment of debt of $19.8, net of income
tax. This loss has been reclassified as part of operating income in 2001.

In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Exit or Disposal Activities (SFAS 146). SFAS 146
will be effective for disposal activities the Company initiates after December
31, 2002. The Company is in the process of evaluating the effect that adopting
SFAS 146 will have on its consolidated financial statements.

The accounting policies that follow apply to only the discontinued operations.

Post-employment benefits

Post-employment benefits are covered by the CICA recommendations for accounting
for employee future benefits. Consistent with accounting for post-retirement
benefits, the new policy requires amortization of actuarial gains and losses
only if they fall outside of the corridor. Under FASB Statement No. 112
Employers Accounting for Post-employment Benefits, such gains and losses are
included immediately in income.

Termination benefits

The rules requested to accrue termination benefits under U.S. GAAP are more
restrictive than those in Canada. In particular, these rules require that the
plans be implemented within one year, which is not the case under Canadian
GAAP.

73



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Oil and gas

The full cost methods of accounting for oil and gas operations promulgated
under Canadian and U.S. GAAP differ in the following respect. Ceiling test
calculations are performed by comparing the net book value of petroleum and
natural gas properties with the future net revenues expected to be generated
from proven developed reserves, discounted at 10% for U.S. reporting purposes
and undiscounted for Canadian reporting. Any excess of net book value over
future net revenues is recognized as an additional depletion expense in both
reporting jurisdictions.

The following is a reconciliation of net income under Canadian GAAP to net
income under U.S. GAAP:

|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |        |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------- | - | ---- | ---- | ---- | - | ------- | ----- | - | - | ------- | ------ | -
|                                                         |                                                                                           |   | 2002 |      | 2001 |   | 2000   
|                                                         |                                                                                           |   |      |      |      |   |        
|Income (loss) from continuing operations  Canadian GAAP |                                                                                           | $ | 92.5 |      |      | $ | (28.2   | )     |   | $ | 52.4    |       
|Increased (decreased) by                                 |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|                                                         | Derivative instruments                                                                    |   |      |     |      |   |         |      |   |   |         | (2.2   | )
|                                                         | Employee future benefits                                                                  |   |      | (1.4 | )    |   |         | 0.3   |   |   |         | (0.5   | )
|                                                         | Acquisition costs                                                                         |   |      |     |      |   |         | 0.4   |   |   |         |       |  
|                                                         | Stock-based compensation plan                                                             |   |      | 0.6  |      |   |         | (3.9  | ) |   |         |       |  
|                                                         | Computer software costs, net                                                              |   |      | (7.4 | )    |   |         | 7.4   |   |   |         |       |  
|                                                         | Translation rates                                                                         |   |      |     |      |   |         | 0.2   |   |   |         | 1.1    |  
|                                                         | Other                                                                                     |   |      |     |      |   |         |      |   |   |         |       |  
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|Adjusted net income (loss) before taxes                  |                                                                                           |   | 84.3 |      |      |   | (23.8   | )     |   |   | 50.8    |       
|Future income taxes on above items                       |                                                                                           |   | 3.6  |      |      |   | (3.2    | )     |   |   | (0.4    | )     
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|Net income (loss) from continuing operations  U.S. GAAP |                                                                                           |   | 87.9 |      |      |   | (27.0   | )     |   |   | 50.4    |       
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|Net income from discontinued operations  Canadian GAAP  |                                                                                           |   |     |      |      |   | 923.9   |       |   |   | 1,065.9 |       
|Increased (decreased) by                                 |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|                                                         | Oil and gas                                                                               |   |      |     |      |   |         | 2.8   |   |   |         | 5.5    |  
|                                                         | Derivative instruments                                                                    |   |      |     |      |   |         | 67.6  |   |   |         | (119.3 | )
|                                                         | Employee future benefits                                                                  |   |      |     |      |   |         | (20.0 | ) |   |         | (28.1  | )
|                                                         | Post-retirement benefits                                                                  |   |      |     |      |   |         | 3.7   |   |   |         | 9.9    |  
|                                                         | Termination benefits                                                                      |   |      |     |      |   |         | (2.9  | ) |   |         | 3.6    |  
|                                                         | Internal use software                                                                     |   |      |     |      |   |         | (5.7  | ) |   |         | (13.5  | )
|                                                         | Translation rates                                                                         |   |      |     |      |   |         | (14.1 | ) |   |         | 16.5   |  
|                                                         | Other                                                                                     |   |      |     |      |   |         | (15.4 | ) |   |         | (19.9  | )
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|                                                         | Adjusted net income before taxes                                                          |   |      |     |      |   |         | 939.9 |   |   |         | 920.6  |  
|                                                         | Future income taxes on above items                                                        |   |      |     |      |   |         | 6.9   |   |   |         | (59.0  | )
|                                                         | Future income taxes due to rate differences                                               |   |      |     |      |   |         | 86.8  |   |   |         | (86.1  | )
|                                                         | Cumulative catch-up adjustment on adoption
of FASB Statement No. 133  net of tax of $5.2 |   |      |     |      |   |         | 2.3   |   |   |         |       |  
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|Income from discontinued operations  U.S. GAAP          |                                                                                           |   |     |      |      |   | 1,035.9 |       |   |   | 775.5   |       
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|Income (loss) from continuing operations  U.S. GAAP     |                                                                                           |   | 87.9 |      |      |   | (27.0   | )     |   |   | 50.4    |       
|Income from discontinued operations  U.S. GAAP          |                                                                                           |   |     |      |      |   | 1,035.9 |       |   |   | 775.5   |       
|Other comprehensive income (loss)                       
|                                                         | Foreign currency translation adjustments                                                  |   |      | 7.2  |      |   |         | (69.2 | ) |   |         | 53.0   |  
|                                                         | Cumulative catch-up adjustment on adoption of FASB Statement No. 133                      |   |      |     |      |   |         | (76.8 | ) |   |         |       |  
|                                                         | Change in fair value of cash hedging instruments                                          |   |      |     |      |   |         | 71.6  |   |   |         |       |  
|                                                         | Minimum pension liability adjustment                                                      |   |      |     |      |   |         |      |   |   |         | (4.7   | )
|                                                         | Future income taxes                                                                       |   |      |     |      |   |         | 1.6   |   |   |         | (15.4  | )
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       
|Comprehensive income                                     |                                                                                           | $ | 95.1 |      |      | $ | 936.1   |       |   | $ | 858.8   |       
|                                                         |                                                                                           |   |      |      |      |   |         |       |   |   |         |       

74



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Consolidated balance sheets

The following shows the differences, higher (lower), had the consolidated
balance sheets been prepared under U.S. GAAP:

|                                         |  |      |       |      |  |   |       |  
|---------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                         |  | 2002 |       | 2001
|                                         |  |      |       |     
|Assets                                   |  |      |       |      |  |   |       |  
|Property and equipment                   |  | $    |      |      |  | $ | 7.5   |  
|Intangible assets                        |  |      | (5.8  | )    |  |   | (5.9  | )
|Other assets and deferred charges        |  |      | 65.6  |      |  |   |      |  
|                                         |  |      |       |      |  |   |       |  
|                                         |  | $    | 59.8  |      |  | $ | 1.6   |  
|                                         |  |      |       |      |  |   |       |  
|Liabilities and shareholders equity     |  |      |       |      |  |   |       |  
|Current portion of long-term debt        |  | $    | (69.0 | )    |  | $ | (69.0 | )
|Deferred liabilities                     |  |      |      |      |  |   | (0.3  | )
|Long-term debt                           |  |      | 67.6  |      |  |   |      |  
|Future income taxes                      |  |      | (4.2  | )    |  |   | 10.5  |  
|Mandatorily redeemable common shares     |  |      | 69.0  |      |  |   | 69.0  |  
|                                         |  |      |       |      |  |   |       |  
|Shareholders equity                     |  |      |       |      |  |   |       |  
|Contributed surplus                      |  |      | 3.3   |      |  |   | 3.8   |  
|Foreign currency translation adjustments |  |      | (27.4 | )    |  |   | (22.1 | )
|Retained earnings                        |  |      | (3.9  | )    |  |   | (3.6  | )
|Accumulated other comprehensive income   |  |      | 24.4  |      |  |   | 13.3  |  
|                                         |  |      |       |      |  |   |       |  
|                                         |  | $    | 59.8  |      |  | $ | 1.6   |  
|                                         |  |      |       |      |  |   |       |  

75



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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed consolidated statements of income

|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|-------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------- | - |  | - | ----- | -
|                                                               |  | 2002 |       | 2001 |  | 2000
|                                                               |  |      |       |      |  |     
|Revenues                                                       |  |      |       |      |  |      |         |   |  |   |       |  
|Hotel ownership operations                                     |  | $    | 516.6 |      |  | $    | 486.4   |   |  | $ | 474.8 |  
|Management operations                                          |  |      | 36.1  |      |  |      | 34.2    |   |  |   | 42.7  |  
|Real estate                                                    |  |      | 31.9  |      |  |      | 13.2    |   |  |   | 10.4  |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|                                                               |  |      | 584.6 |      |  |      | 533.8   |   |  |   | 527.9 |  
|Other revenues from managed and franchised properties          |  |      | 27.7  |      |  |      | 29.1    |   |  |   | 19.8  |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|                                                               |  |      | 612.3 |      |  |      | 562.9   |   |  |   | 547.7 |  
|Expenses                                                       |  |      |       |      |  |      |         |   |  |   |       |  
|Hotel ownership operations                                     |  |      | 369.3 |      |  |      | 360.9   |   |  |   | 328.3 |  
|Management operations                                          |  |      | 15.7  |      |  |      | 18.7    |   |  |   | 14.9  |  
|Real estate                                                    |  |      | 26.2  |      |  |      | 15.3    |   |  |   | 10.7  |  
|Amortization                                                   |  |      | 59.8  |      |  |      | 68.4    |   |  |   | 43.9  |  
|Reorganization and corporate expenses                          |  |      | 1.6   |      |  |      | 173.2   |   |  |   | 80.4  |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|                                                               |  |      | 472.6 |      |  |      | 636.5   |   |  |   | 478.2 |  
|Other expenses from managed and franchised properties          |  |      | 27.7  |      |  |      | 29.1    |   |  |   | 19.8  |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|                                                               |  |      | 500.3 |      |  |      | 665.6   |   |  |   | 498.0 |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|Income from investments and other                              |  |      | 17.7  |      |  |      | 18.5    |   |  |   | 24.9  |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|Operating income (loss)                                        |  |      | 129.7 |      |  |      | (84.2   | ) |  |   | 74.6  |  
|Other (income) expense                                         |  |      | (10.7 | )    |  |      | (31.1   | ) |  |   |      |  
|Interest expense, net                                          |  |      | 19.1  |      |  |      | 68.8    |   |  |   | 45.5  |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|Income (loss) before income taxes and non-controlling interest |  |      | 121.3 |      |  |      | (121.9  | ) |  |   | 29.1  |  
|Income tax expense (recovery)                                  |  |      | 32.2  |      |  |      | (96.0   | ) |  |   | (25.6 | )
|Non-controlling interest                                       |  |      | 1.2   |      |  |      | 1.1     |   |  |   | 4.3   |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|Income (loss) from continuing operations                       |  |      | 87.9  |      |  |      | (27.0   | ) |  |   | 50.4  |  
|Discontinued operations                                        |  |      |      |      |  |      | 1,035.9 |   |  |   | 775.5 |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|Net income                                                     |  |      | 87.9  |      |  |      | 1,008.9 |   |  |   | 825.9 |  
|Preferred share dividends                                      |  |      |      |      |  |      | (5.3    | ) |  |   | (8.4  | )
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|Net income available to common shareholders                    |  | $    | 87.9  |      |  | $    | 1,003.6 |   |  | $ | 817.5 |  
|                                                               |  |      |       |      |  |      |         |   |  |   |       |  
|Basic earnings per share                                       |  |      |       |      |  |      |         |   |  |   |       |  
|Income (loss) from continuing operations                       |  |      | 1.12  |      |  |      | (0.41   | ) |  |   | 0.53  |  
|Discontinued operations                                        |  |      |      |      |  |      | 13.13   |   |  |   | 9.75  |  
|Net income                                                     |  |      | 1.12  |      |  |      | 12.72   |   |  |   | 10.28 |  
|Diluted earnings per share                                     |  |      |       |      |  |      |         |   |  |   |       |  
|Income (loss) from continuing operations                       |  |      | 1.10  |      |  |      | (0.41   | ) |  |   | 0.52  |  
|Discontinued operations                                        |  |      |      |      |  |      | 13.11   |   |  |   | 9.72  |  
|Net income                                                     |  |      | 1.10  |      |  |      | 12.70   |   |  |   | 10.24 |  

76



---



##### 



Condensed consolidated statements of cash flows

|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |       |  
|----------------------------------------------------------------- | ----------------------------------------------------------- | - | ------ | ----- | ---- | - | -------- | ------ | - | - | -------- | ----- | -
|                                                                  |                                                             |   | 2002   |       | 2001 |   | 2000    
|                                                                  |                                                             |   |        |       |      |   |         
|Cash provided by (used in)                                        |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Operating activities                                              |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Net income                                                        |                                                             | $ | 87.9   |       |      | $ | 1,008.9  |        |   | $ | 825.9    |      
|Exclude                                                           |                                                             |   |        |       |      |   |          |        |   |   |          |      
|                                                                  | Discontinued operations                                     |   |       |       |      |   | 1,035.9  |        |   |   | 775.5    |      
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Income (loss) from continuing operations                          |                                                             |   | 87.9   |       |      |   | (27.0    | )      |   |   | 50.4     |      
|Items not affecting cash                                          |                                                             |   |        |       |      |   |          |        |   |   |          |      
|                                                                  | Amortization property and equipment                         |   | 57.4   |       |      |   | 60.2     |        |   |   | 35.8     |      
|                                                                  | Amortization of goodwill and intangible assets              |   |        | 2.4   |      |   |          | 8.2    |   |   |          | 8.1   |  
|                                                                  | Income from investments and other                           |   |        | (17.7 | )    |   |          | (18.5  | ) |   |          | (24.9 | )
|                                                                  | Gains on sale of real estate                                |   |        | (11.9 | )    |   |          | (9.9   | ) |   |          | (6.1  | )
|                                                                  | Future income taxes                                         |   |        | 20.2  |      |   |          | (116.8 | ) |   |          | (68.5 | )
|                                                                  | Non-controlling interest                                    |   |        | 1.2   |      |   |          | 1.1    |   |   |          | 4.3   |  
|                                                                  | Gains on sale of Legacy Real Estate Investments Trust units |   |        |      |      |   |          | (31.5  | ) |   |          |      |  
|Write-off of capital and other assets                             |                                                             |   |       |       |      |   | 18.3     |        |   |   |         |      
|Distributions from investments                                    |                                                             |   | 15.1   |       |      |   | 11.5     |        |   |   | 18.5     |      
|Other                                                             |                                                             |   | (21.5  | )     |      |   | (52.1    | )      |   |   | (35.2    | )    
|Changes in non-cash working capital items                         |                                                             |   | (10.5  | )     |      |   | (23.4    | )      |   |   | 31.6     |      
|Discontinued operations                                           |                                                             |   |       |       |      |   | 1,994.4  |        |   |   | 2,235.4  |      
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|                                                                  |                                                             |   | 122.6  |       |      |   | 1,814.5  |        |   |   | 2,249.4  |      
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Investing activities                                              |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Investment in partnerships and corporations                       |                                                             |   | (46.7  | )     |      |   | (28.7    | )      |   |   | (26.9    | )    
|Additions to property and equipment                               |                                                             |   | (84.3  | )     |      |   | (120.2   | )      |   |   | (88.8    | )    
|Additions to land held for sale                                   |                                                             |   | (15.8  | )     |      |   | (7.5     | )      |   |   | (3.1     | )    
|Acquisitions                                                      |                                                             |   | (136.0 | )     |      |   | (234.6   | )      |   |   | (95.8    | )    
|Sales of investments and properties                               |                                                             |   | 34.6   |       |      |   | 147.4    |        |   |   | 15.2     |      
|Proceeds from sale of Legacy Hotels Estate Investment Trust units |                                                             |   |       |       |      |   | 52.8     |        |   |   |         |      
|Loan advances                                                     |                                                             |   | (67.6  | )     |      |   | (27.2    | )      |   |   |         |      
|Other                                                             |                                                             |   | (1.0   | )     |      |   | 1.2      |        |   |   |         |      
|Discontinued operations                                           |                                                             |   |       |       |      |   | (1,395.3 | )      |   |   | (2,301.7 | )    
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|                                                                  |                                                             |   | (316.8 | )     |      |   | (1,612.1 | )      |   |   | (2,501.1 | )    
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Financing activities                                              |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Issuance of long-term debt                                        |                                                             |   | 306.0  |       |      |   | 163.6    |        |   |   | 251.8    |      
|Repayment of long-term debt                                       |                                                             |   | (43.9  | )     |      |   | (626.8   | )      |   |   | (19.4    | )    
|Issuance of common shares                                         |                                                             |   | 4.7    |       |      |   | 53.0     |        |   |   | 12.2     |      
|Repurchase of common shares                                       |                                                             |   | (73.2  | )     |      |   | (9.8     | )      |   |   | (295.0   | )    
|Dividends                                                         |                                                             |   | (3.2   | )     |      |   | (121.3   | )      |   |   | (129.0   | )    
|Redemption of preferred shares                                    |                                                             |   |       |       |      |   | (144.8   | )      |   |   |         |      
|Issuance of commercial paper                                      |                                                             |   |       |       |      |   | 61.0     |        |   |   | 426.4    |      
|Repayment of commercial paper                                     |                                                             |   |       |       |      |   | (638.5   | )      |   |   | (309.8   | )    
|Other                                                             |                                                             |   |       |       |      |   | 43.0     |        |   |   |         |      
|Discontinued operations                                           |                                                             |   |       |       |      |   | 663.0    |        |   |   | 393.9    |      
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|                                                                  |                                                             |   | 190.4  |       |      |   | (557.6   | )      |   |   | 331.1    |      
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Effect of exchange rate on cash                                   |                                                             |   | 0.1    |       |      |   | (14.6    | )      |   |   | (15.3    | )    
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Cash position                                                     |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Increase (decrease) in cash                                       |                                                             |   | (3.7   | )     |      |   | (369.8   | )      |   |   | 64.1     |      
|Cash  Beginning of year                                          |                                                             |   | 52.7   |       |      |   | 422.5    |        |   |   | 358.4    |      
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      
|Cash  End of year                                                |                                                             | $ | 49.0   |       |      | $ | 52.7     |        |   | $ | 422.5    |      
|                                                                  |                                                             |   |        |       |      |   |          |        |   |   |          |      

77