Exhibit C

MANAGEMENT'S DISCUSSION AND ANALYSISFebruary 17, 2006

Management's discussion and analysis (the "MD&A") should be read in conjunction with the consolidated financial statements and notes. The financial statements of
Fairmont Hotels & Resorts Inc. ("FHR" or the "Company") are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). A summary of the differences between Canadian GAAP
and U.S. GAAP is found in note 25 of the consolidated financial statements. The financial statements and the MD&A are presented in United States dollars unless otherwise indicated. This MD&A is based
on the segmented financial information of our operations presented in note 3 of the consolidated financial statements.

|10 |  | Our business                                                                                                                               
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|   |  | A description of the different segments of our business, with an explanation of the industry trends and factors that drive our performance.
|13 |  | Corporate developments                                                                                                                     
|14 |  | Operating review                                                                                                                           
|   |  | For the years ended December 31, 2005 vs. 2004 and 2004 vs. 2003.                                                                          
|23 |  | Quarterly results                                                                                                                          
|23 |  | Liquidity and capital resources                                                                                                            
|28 |  | Transactions with related parties                                                                                                          
|28 |  | Critical accounting policies and estimates                                                                                                 
|30 |  | Changes in accounting policies                                                                                                             
|31 |  | Pending accounting policy changes                                                                                                          
|31 |  | Risks and uncertainties                                                                                                                    
|36 |  | Non-GAAP financial measures                                                                                                                
|37 |  | Forward-looking information                                                                                                                

9

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Our business

FHR has owned and managed hotels and resorts for 118 years. We were originally an owner and operator of hotels in Canada. Today, we are a global luxury and
first-class hotel owner and management company with 87 properties in nine countries. We operate two brands, Fairmont and Delta, with over 33,500 guestrooms under management.

HOTEL OWNERSHIP

FHR holds ownership positions ranging from approximately 15% to 100% in 21 hotels and resorts operating in seven countries. Our owned properties include
well-known hotel destinations such as The Fairmont Banff Springs and The Fairmont Scottsdale Princess. Fairmont Hotels Inc. ("Fairmont") manages 19 luxury hotels and Delta Hotels Limited ("Delta")
manages two first-class properties that we have ownership interests in. EBITDA(1) generated from our owned hotels through room occupancy, food and beverage sales and other amenities such
as spa, golf and retail operations was approximately 2.5 times the EBITDA generated from hotel management operations in 2005 compared to 3.3 times in 2004.

We
also own 23.7% of Legacy Hotels Real Estate Investment Trust ("Legacy"), a publicly traded Canadian hotel real estate investment trust. Legacy owns 24 hotels across Canada and the
United States, 13 of which are managed by Fairmont and 11 that are managed by Delta. We account for our ownership interest in Legacy on an equity basis.

10

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HOTEL MANAGEMENT

We manage or franchise 87 hotels and resorts, through our subsidiaries Fairmont and Delta. Under the terms of our management contracts, we are responsible for
day-to-day operations on behalf of the owner. For these services, we earn a base fee, usually between 2.5% and 3.5% of the property's gross revenues. Incentive fees can be earned by achieving
established operating performance targets. Our incentive fee structures vary, but generally allow us to earn up to 30% of earnings above a threshold amount.

Fairmont:

Fairmont is North America's largest manager of luxury hotels, as measured by rooms under management, with 49 hotels and approximately 22,200 rooms in major city
centers and resort destinations in the United States, Canada, Mexico, Bermuda, Barbados, the United Kingdom, Monaco, Kenya and the United Arab Emirates.

Delta:

Delta is Canada's largest first-class hotel management company with 38 managed and franchised hotels and approximately 11,400 rooms across Canada.

GRAPHIC

REAL ESTATE

FHR owns undeveloped land in Toronto and Vancouver. The Vancouver land is located across from the site of Vancouver's new convention center and is zoned for the
development of approximately 800,000 square feet of hotel and residential space. We have sold or have under contract to sell all of the Vancouver land and we continue to sell our undeveloped property
in downtown Toronto. Our land in Toronto, known as the Southtown lands, is located in the core of downtown Toronto between the financial district and Lake Ontario. These lands are zoned for the
development of commercial, residential and hotel use.

Fairmont
Heritage Place ("FHP") is our private residence club product offering vacation home ownership in some of the world's most sought after locations. Our first residence club,
Fairmont Heritage Place Acapulco, opened in September 2004 and is currently in its third phase of development. FHP also manages the Fairmont Heritage Place Franz Klammer Lodge in Telluride, Colorado
and planning is underway for Fairmont Heritage Place Barbados. Future development is being considered at select Fairmont resort locations including Mayakoba, Mexico and Bermuda. In addition, FHP has
announced a number of joint ventures with third party developers in other locations.

11

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KEY PERFORMANCE DRIVERS

We believe that the following factors are the key performance drivers for our business:

Economic trends:

Performance in the lodging industry is closely related to economic conditions. Economic growth tends to stimulate both leisure and business travel, which drives
both occupancy and average room rates.

Brand strength:

Entrenching our brand in the minds of travelers expands our ability to compete for capital, development opportunities, management contracts and guests.

Operating leverage:

Incremental revenue can drive substantial improvements in margins and income due to the industry's fixed-cost operating leverage. This is particularly true in the
luxury lodging segment.

Breadth of opportunity and a capacity for growth:

We have a strong balance sheet, a growing family of capital partners and an abundance of key global destinations that do not have a Fairmont property.

TRENDS IN THE LODGING INDUSTRY

We believe that the following trends have had and will continue to have an impact on the lodging industry:











Additional information relating to the Company, including our Annual Information Form, can be found on the Canadian Securities Administrators'
System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. We also file Form 40-F in the United States, which can be found on: www.sec.gov/edgar. shtml.

12

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CORPORATE DEVELOPMENTS

On
January 30, 2006, Fairmont announced that it had entered into an Acquisition Agreement with a Canadian company owned by Kingdom Hotels International ("Kingdom") and Colony Capital
("Colony"), which will acquire all of Fairmont's outstanding common shares at a price of $45.00 per share in cash. The total value of this transaction including assumed debt is
$3.9 billion. The transaction was unanimously approved by Fairmont's Board of Directors following receipt of the recommendation of the Special Committee of the Board.

The
transaction is to be carried out by way of a statutory plan of arrangement and, accordingly, will be subject to the approval of 66 2/3% of the votes cast by
Fairmont's shareholders at a meeting of shareholders scheduled for April 18, 2006 as well as court approval. The closing is subject to certain other customary conditions, including obtaining
applicable regulatory approvals and is expected to close in the second quarter of 2006, shortly after receipt of shareholder and court approvals.

Fairmont
has been advised by Kingdom and Colony of their intention to combine the Fairmont and Raffles portfolios following the completion of the transaction, transforming the companies
into a global luxury hotel leader with 120 hotels in 24 countries. Fairmont will continue as a an independent hotel management and ownership company headquartered in Canada and Raffles, based
in Singapore, will also retain its separate brand identity. Raffles owns and manages a portfolio of 33 properties located primarily across Asia and Europe, including its flagship property built in
1887, the Raffles Hotel, Singapore.

Background to the transaction

On December 21, 2005, the Company's Board of Directors recommended that shareholders reject a partial takeover bid by Icahn Partners LP and Icahn Partners Master
Fund LP for approximately 41% of the outstanding common shares of FHR. Earlier in that month, the Board of Directors formed a Special Committee of Directors to assist the Board in its review of
Icahn's proposal and any strategic alternatives. Financial and legal advisors were engaged to assist the Special Committee with its role.

13

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Financial highlights

|Year ended December 31 (in millions, except per share data) |         | 2005 |         | 2004 |   | 2003   
|----------------------------------------------------------- | ------- | ---- | ------- | ---- | - | -------
|Revenues                                                    |         | $    | 857.5   |      | $ | 768.7  
|EBITDA                                                      |         |      | 264.8   |      |   | 324.7  
|Net income                                                  |         |      | 167.5   |      |   | 155.8  
|                                                            |         |      |         |      |   |        
|Earnings per share                                          |         |      |         |      |   |        
|                                                            | Basic   |      | $       | 2.25 |   | $      
|                                                            | Diluted |      |         | 2.16 |   |        
|                                                            |         |      |         |      |   |        
|Dividends declared per share                                |         | $    | 0.12    |      | $ | 0.10   
|                                                            |         |      |         |      |   |        
|Total Assets                                                |         | $    | 2,523.9 |      | $ | 2,402.6
|Total Debt                                                  |         |      | 391.2   |      |   | 402.1  
|Shareholders Equity                                         |         |      | 1,691.0 |      |   | 1,650.4
|                                                            |         |      |         |      |   |        

Operating review

Year ended December 31, 2005 compared with year ended December 31, 2004

In 2005, the operating performance of our hotel portfolio varied by region. In the U.S., the robust economic conditions have led to continuing demand growth for
lodging. This factor, coupled with low supply growth in the luxury and upper-upscale hotel segments, has resulted in a very favorable pricing environment and significant RevPAR and occupancy growth at
our U.S. properties. Despite solid economic growth in Canada in 2005, our Canadian hotel portfolio did not experience the same level of growth. Our hotels in Canada were affected to varying degrees by
a decline in U.S. travel to Canada. However, there has been an increase in European and Asian travelers to Canada and it is expected that the robust lodging demand in the United States will eventually
lead to additional growth in demand and improved pricing at our Canadian properties.

Comparable owned hotels

|Year ended December 31 |  | 2005 |        | 2004 |   | Variance
|---------------------- |  | ---- | ------ | ---- | - | --------
|Worldwide              |  |      |        |      |   |         
|RevPAR                 |  | $    | 123.64 |      | $ | 116.04  
|ADR                    |  |      | 195.77 |      |   | 186.51  
|Occupancy              |  |      | 63.2%  |      |   | 62.2%   
|                       |  |      |        |      |   |         
|Canada                 |  |      |        |      |   |         
|RevPAR                 |  | $    | 122.67 |      | $ | 114.93  
|ADR                    |  |      | 187.40 |      |   | 174.01  
|Occupancy              |  |      | 65.5%  |      |   | 66.0%   
|                       |  |      |        |      |   |         
|U.S.                   |  |      |        |      |   |         
|RevPAR                 |  | $    | 159.00 |      | $ | 146.02  
|ADR                    |  |      | 214.02 |      |   | 220.37  
|Occupancy              |  |      | 74.3%  |      |   | 66.3%   
|                       |  |      |        |      |   |         
|International          |  |      |        |      |   |         
|RevPAR                 |  | $    | 105.50 |      | $ | 101.18  
|ADR                    |  |      | 200.16 |      |   | 190.69  
|Occupancy              |  |      | 52.7%  |      |   | 53.1%   
|                       |  |      |        |      |   |         

---

Comparable Hotels are considered to be properties that were wholly-owned by FHR for at least the entire current and prior
fiscal years. Comparable Hotel statistics exclude properties where renovations have had a significant adverse effect on the property's primary operations.

Exclusions: The Fairmont Southampton (renovation); The Fairmont Kea Lani, Maui (sold July 2004); The Fairmont Glitter Bay
(sold July 2004); The Fairmont Orchid, Hawaii (sold December 2005)

14

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HOTEL OWNERSHIP OPERATIONS

Revenues from hotel ownership operations increased 2.5% to $670 million in 2005 from $654 million in 2004. The improvement in performance was driven
by double-digit revenue growth at The Fairmont Chateau Lake Louise, The Fairmont Scottsdale Princess and The Fairmont Orchid, Hawaii. The Fairmont Orchid, which was sold in late December 2005,
generated $64 million of revenues in 2005 and $55 million in 2004. The two hotels sold in July 2004 generated $51 million of revenues in 2004.

EBITDA
from owned hotel operations was down 10.8% to $141 million from $158 million in 2004 while corresponding EBITDA margins declined to 21.0% from 24.2% in 2004. The
sale of The Fairmont Kea Lani and The Fairmont Glitter Bay in July of 2004 was the primary contributing factor to this decrease. These properties contributed a total of $20 million in EBITDA in
2004. Excluding The Fairmont Kea Lani, EBITDA from the U.S. properties was up 27.7% to $38 million. Canadian owned EBITDA remained relatively unchanged at $66 million however, when
adjusted for the foreign exchange impact, EBITDA was down approximately 10%. Our International owned hotels contributed $37 million in EBITDA compared to $42 million in 2004. 2004 EBITDA
from our International hotels included business interruption insurance proceeds of approximately $11 million related to The Fairmont Southampton and The Fairmont Hamilton Princess properties
which were both affected by a hurricane. Because these proceeds did not result in any increase in the operating expenses at these hotels, they improved 2004 EBITDA dollar for dollar.

Most
of our wholly-owned properties are resorts. As a result, leisure travel is our most important source of demand generating approximately 60% of the revenues at our wholly-owned
hotels. Business travel, which we estimate accounts for approximately 60% of hotel industry revenues, generates approximately 40% of the revenues at our wholly-owned hotels. Because many of our
properties are located in high barrier-to-entry markets, there was little new supply in 2005 in the markets in which we operate.

Revenues
from our Canadian properties increased 9.9% to $280 million. This increase was attributable primarily to the appreciation of the Canadian dollar. When adjusted for the
year-over-year strengthening of the Canadian dollar, revenues from our Canadian properties were virtually unchanged. Canada's tourism industry has been adversely affected by the strong Canadian
dollar, high gasoline prices and continued challenges at border crossings. U.S. travel to Canada decreased 14.2% in 2005 compared to 2004, bringing the number of Americans traveling to Canada to a
26-year low. Our Canadian hotels depend heavily on U.S. leisure travel, with approximately 25% of the overall leisure demand at these hotels coming from the United States. As a result, in 2005, our
Canadian properties experienced a 0.5 percentage point decrease in occupancy compared to 2004 and their RevPAR decreased by 1% when measured in Canadian dollars.

Revenues
from our U.S. hotels decreased 11.2% to $195 million. Excluding the revenues of the hotels sold in 2004 and 2005, revenues at our U.S. Comparable hotels increased 12% to
$131 million in 2005 compared to $117 million in 2004. This increase was attributable mainly to robust operating performance at The Fairmont Scottsdale Princess where revenues increased
12% over the prior year as the resort benefited from increased demand from the group meetings and leisure segments. RevPAR at the Comparable U.S. hotels increased 8.9% to $159.00, while ADR decreased
2.9%. Occupancy levels for the Comparable U.S. hotels were eight percentage points higher compared to 2004, benefiting from the strong economic growth in the U.S. On December 23, 2005, we
capitalized on our success at The Fairmont Orchid, Hawaii, by selling it for a pre-tax gain of approximately $106 million. We will continue to manage this property under a long-term management
contract. Looking ahead, we expect our U.S. owned hotels to continue to demonstrate the positive growth trends they experienced in 2005.

Revenues
from our International owned hotels, excluding The Fairmont Glitter Bay, which was sold in 2004, and The Fairmont Southampton, which was closed for renovations until April 2004,
were up 5% compared to 2004. This increase was primarily driven by our resorts in Acapulco, Mexico. Despite lower leisure demand due to adverse publicity regarding the destination and hurricane
activity in the area, our properties in Mexico experienced an 8.5% increase in RevPAR with higher rates from both the leisure and group meetings segments. In the third quarter of 2005, the Bermuda
market experienced a decline in leisure travel largely as a result of concerns regarding hurricane activity in the area and the cost of airfare. These factors resulted in a decline in occupancy and
RevPAR at this destination for the year. These results partially offset the positive performance of the Mexican hotels, resulting in a 4.3% increase in RevPAR and a 0.4 percentage point decrease in
occupancy for the International Comparable hotels. We view many of the issues we faced in these markets to be one time matters, and, as a result, we expect our International owned properties to show
considerable growth in 2006.

15

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INCOME FROM EQUITY INVESTMENTS

Our hotel ownership operations also include equity income from minority investments in certain of our managed hotels as well as our investment in Legacy. Income
from these investments was nil in 2005 compared to a loss of $0.2 million in 2004.

REAL ESTATE ACTIVITIES

Real estate activities generated EBITDA of $33 million compared to $6 million in 2004. In 2005, we completed the sale of three parcels of land. In
the third quarter, we disposed of a parcel of land in Vancouver, British Columbia for net proceeds and after-tax gain of $18 million. In the fourth quarter, we disposed of two parcels in
Toronto's Southtown lands, for proceeds of $43 million and after-tax gain of $17 million. The Company continues to pursue the sale of the remaining parcels of Southtown lands and has
recently entered into separate agreements to do so. We expect these sales to close in the next several quarters. In 2004, total proceeds from sales of land were $15 million.

During
the year, the Company entered into a purchase and sale agreement with Westbank, a Vancouver-based developer, related to a parcel of undeveloped land located in Coal Harbour,
Vancouver. Westbank agreed to purchase the land for $58 million and plans to develop a hotel and residential condominium project on the site. We have entered into a long-term management contract to
manage the hotel. The sale is expected to close during the fourth quarter of 2006 with the hotel opening scheduled for 2009.

FHP
produced $16 million in revenues and a loss of $0.9 million to EBITDA in 2005. In 2004, FHP's vacation ownership activities generated $14 million in revenues and
a $2.4 million loss to EBITDA. In March 2005, FHP opened the second phase (10 homes) of 50 planned residences adjacent to The Fairmont Acapulco Princess. Further construction continues on the
third phase consisting of an additional 14 homes that are scheduled to open during the fourth quarter of 2006.

Comparable Fairmont managed hotels

|Year ended December 31 |  | 2005 |        | 2004 |   | Variance
|---------------------- |  | ---- | ------ | ---- | - | --------
|Worldwide              |  |      |        |      |   |         
|RevPAR                 |  | $    | 128.37 |      | $ | 115.44  
|ADR                    |  |      | 194.94 |      |   | 180.03  
|Occupancy              |  |      | 65.8%  |      |   | 64.1%   
|                       |  |      |        |      |   |         
|Canada                 |  |      |        |      |   |         
|RevPAR                 |  | $    | 108.04 |      | $ | 100.18  
|ADR                    |  |      | 165.63 |      |   | 153.43  
|Occupancy              |  |      | 65.2%  |      |   | 65.3%   
|                       |  |      |        |      |   |         
|U.S.                   |  |      |        |      |   |         
|RevPAR                 |  | $    | 159.13 |      | $ | 139.79  
|ADR                    |  |      | 230.75 |      |   | 220.11  
|Occupancy              |  |      | 69.0%  |      |   | 63.5%   
|                       |  |      |        |      |   |         
|International          |  |      |        |      |   |         
|RevPAR                 |  | $    | 125.71 |      | $ | 109.52  
|ADR                    |  |      | 211.43 |      |   | 179.81  
|Occupancy              |  |      | 59.5%  |      |   | 60.9%   
|                       |  |      |        |      |   |         

Comparable Hotels are those properties that were fully open under Fairmont management for at least the entire current and prior fiscal year. Comparable Hotel
statistics exclude properties where renovations have had a significant adverse affect on the property's primary operations.

Exclusions: The Fairmont Southampton (renovation); Fairmont Monte Carlo (assumed management December 2004); The Savoy, A
Fairmont Hotel (assumed management January 2005); The Plaza (ceased management in April 2005); The Norfolk Hotel, Mount Kenya Safari Club, the Aberdare Country Club, The Ark and the Mara Safari Club
(assumed management May 2005); The Fairmont Glitter Bay (ceased management June 2005); Fairmont Newport Beach (assumed management July 2005); The Fairmont New Orleans (renovation).

16

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MANAGEMENT OPERATIONS

During 2005, Fairmont added seven hotels to its managed portfolio. In January, we assumed management of The Savoy Hotel in London, England, one of the city's
most-recognized luxury hotels. The Savoy, A Fairmont Hotel, is our second European property, and it follows on the heels of the addition of the Fairmont Monte Carlo in December of 2004.

On
May 11, 2005, Fairmont entered the continent of Africa by assuming management of five renowned hotels in Kenya: Nairobi's Norfolk Hotel, the Mount Kenya Safari Club, the Aberdare
Country Club, The Ark and the Mara Safari Club.

In
July 2005, we assumed management of, and rebranded the Fairmont Newport Beach, California, a 444-room hotel. A comprehensive renovation of the hotel's guestrooms, public areas and
facilities is underway, and is expected to be completed in mid-2006.

In
February 2005, FHP assumed management of, and rebranded the Fairmont Heritage Place Franz Klammer Lodge, a 63-unit private residence club located in Telluride Colorado's exclusive
Mountain Village.

During
the year, Fairmont entered into letters of intent to manage seven new properties that are under construction or development. Some of these properties involve hotel management and
vacation ownership and/or private residence club products. A list of these properties is found on page 5 of the annual report.

FAIRMONT

Revenues under management increased to $1.9 billion in 2005 from $1.7 billion in 2004. The addition of The Savoy, the Fairmont Monte Carlo, the
Fairmont Newport Beach and the Kenyan hotels contributed about 65% of this increase. Improved occupancy and room rates, together with the appreciation of the Canadian dollar contributed to the balance
of the increase.

Management
fees increased by 24.9% to $68 million in 2005 from $55 million in 2004, mainly due to the improvement in revenues under management. Total fee revenues in 2005
included $20 million from our owned properties, compared to $21 million in 2004. Base fees from properties under management increased 18% to $53 million from $45 million in 2004.
Incentive fees increased to $8 million from $3 million in 2004. In 2005, incentive fees represented 11.9% of our total management fees compared to 5.7% in 2004. Under most of our existing
contracts, Fairmont receives up to 30% of the property's earnings above an established threshold. This threshold does not change over the life of the contract unless significant renovations are made
to the property. In 2005, we earned incentive fees at 14 of our 50 properties.

EBITDA
from our Fairmont management operations increased 14.8% to $46 million from $40 million in 2004. The EBITDA margin of our management operations decreased to 67.3%
from 73.3% in 2004, primarily due to an increase in general and administrative expenses of our management operations.

For
the Fairmont portfolio of comparable hotels, RevPAR increased 11.2% to $128.37 from $115.44 in 2004, driven by substantial improvements in room rates and occupancy at our U.S. and
International properties. Adjusting for the foreign exchange impact, RevPAR increased by 7.7%.

Comparable Delta managed hotels

|Year ended December 31 |  | 2005 |        | 2004 |   | Variance
|---------------------- |  | ---- | ------ | ---- | - | --------
|RevPAR                 |  | $    | 73.03  |      | $ | 64.43   
|ADR                    |  |      | 107.98 |      |   | 98.53   
|Occupancy              |  |      | 67.6%  |      |   | 65.4%   

Comparable hotels are considered to be properties that were fully open under Delta management for at least the entire current and prior fiscal year. Comparable
Hotel statistics exclude properties where renovations have had a significant adverse affect on the property's primary operations.

Exclusions: Delta Meadowvale and Delta franchised hotels.

DELTA

Revenues under management increased 12% to $425 million from $379 million. Management fee revenues increased 9.4% to $14 million from
$13 million in 2004. These improvements are the result of better operating performance and the appreciation of the Canadian dollar. In 2005, incentive fees were $1.1 million and
accounted for 7.9% of Delta's total management fee revenue. Consistent with 2004, in 2005, we earned incentive fees at eight Delta managed properties.

17

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For
the Delta portfolio of comparable hotels, RevPAR increased 13.3% to $73.03 from $64.43 in 2004. When measured in Canadian dollars, ADR was up 1.8% and RevPAR was up 5.3% in 2005.
EBITDA from Delta's management operations increased 23.8% to $10 million from $8 million in 2004 and EBITDA margins increased to 71.2% from 62.5%. 2004 EBITDA margins were lower than
usual due to a significant loan receivable write-off and higher operational costs.

OTHER ITEMS

Revenues and expenses from managed and franchised properties

Other revenues and expenses from managed and franchised properties represent the expenditure and recovery of centralized marketing, reservations and other
services that we provide on a cost recovery basis under the terms of our management and franchise agreements. The net difference represents the amount spent in excess of recoveries from managed hotels
that are owned by third parties. In 2005, we recovered all of our costs compared to 2004, when we had a $1 million deficiency.

General and administrative expenses

General and administrative expenses were $37 million compared to $30 million in 2004. This increase was primarily the result of higher compensation
costs that resulted from the appreciation in the value of Fairmont's shares. Also contributing to this increase were higher pension expenses including a portion of the $5.6 million of benefit
payments made in the fourth quarter to three members of senior management in full satisfaction of their past and future pension benefits.

The
appreciation of the Canadian dollar has the effect of increasing our general and administrative expenses, the majority of which are incurred in Canadian dollars. The average exchange
rate for the Canadian dollar relative to the U.S. dollar in 2005 was $1.21 compared to an average of $1.30 in 2004.

Amortization

Amortization expense decreased $3 million to $71 million in 2005. In 2004, we incurred $7 million of depreciation on the assets of hotels and
other assets disposed in the year. The appreciation of the Canadian dollar and an increase in profit improving capital investments during 2005 partially offset this decrease.

Other expenses

Other expenses incurred in 2005 consisted of a number of unusual items totaling $34 million. This amount includes a provision of $11 million
relating to outstanding legal obligations associated with a predecessor company of Fairmont. During the fourth quarter, FHR recognized $11 million of expenses relating to financial and legal
advisory fees for services rendered to assist the Special Committee and Board of Directors and to render fairness opinion letters. We also recorded in the fourth quarter, a provision of
$8 million related to impairment of long-term advances receivable. The balance of these costs consist of $3 million of transaction costs in connection with a portfolio acquisition
opportunity which FHR did not complete as well as $1 million in restructuring costs.

Gain on sale of hotel asset

In December 2005, The Fairmont Orchid was sold for gross proceeds of $250 million, which resulted in a pre-tax gain of $106 million. The Company is
considering a number of alternatives for the sale proceeds, including investment in other hotel assets. The proceeds of The Fairmont Orchid sale were paid to a Qualified Intermediary on closing of the
sale in anticipation of FHR undertaking a like-kind exchange, as defined for U.S. tax purposes. The required Identification Statement was filed on February 6, 2006. Where identified properties are
acquired on a timely basis, the full amount of the cash tax related to the sale will be deferred and will result in a reclassification from income taxes payable to future income taxes. The resort will
continue to be managed by Fairmont under a long-term management contract.

Interest expense, net

Net interest expense decreased to $22 million from $33 million in 2004. This decrease was primarily due to the reduction in long-term debt resulting
from the application of sale proceeds from The Fairmont Kea Lani, The Fairmont Glitter Bay and the Legacy units to repay indebtedness. These repayments were partially offset by borrowings used to fund
the purchase of common shares under the Company's normal course issuer bid and investments in new properties.

Income tax expense (recovery)

We incurred a net income tax expense of $4 million compared to $62 million in 2004. Income tax expense for 2005 includes a tax recovery of
$42 million as a result of favorable tax settlements and $44 million of taxes on the sale of The Fairmont Orchid. Excluding the impact of the tax recoveries, our effective tax rate was
26.8% in 2005. This compares to an effective tax rate of 28.4% in 2004.

18

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Foreign exchange

During the year, the Canadian dollar was, on average, 7.4% higher (versus the U.S. dollar) than it was in 2004. However, at the end of 2005, the Canadian dollar
was approximately 2.4% higher in value relative to the U.S. dollar than it was at the end of 2004. The appreciation of the Canadian dollar has an impact on FHR's results in several ways:



The
impact of these factors can be quantified in the table below:

Impact of Canadian dollar appreciation in 2005

|Year ended December 31 (in millions, except per share data) |  |   |     
|----------------------------------------------------------- |  | - | ----
|Operating revenues                                          |  | $ | 22.9
|                                                            |  |   |     
|EBITDA                                                      |  |   | 7.1 
|Interest                                                    |  |   | (0.3
|Amortization                                                |  |   | (2.3
|Income Taxes                                                |  |   | 2.2 
|                                                            |  |   |     
|Net Income Impact                                           |  |   | 6.7 
|                                                            |  |   |     
|EPS Impact                                                  |  |   | 0.09
|                                                            |  |   |     

The
appreciation in the Canadian dollar also affects our business in ways that are not as easily quantified. Historically, foreign travel to Canada has been inhibited by a strong
Canadian dollar. Correspondingly, it is less expensive for Canadians to travel outside the country. Since many of our owned properties are located in Canada, these trends affect our results from hotel
ownership operations.

Year ended December 31, 2004 compared with year ended December 31, 2003

In 2004, the North American lodging industry experienced a solid recovery. Improved economic conditions in Canada and the United States stimulated demand for
business and leisure travel, creating a strong recovery in the lodging industry. FHR benefited from the improved industry fundamentals and rebounded from the difficult operating environment of 2003.

Coupled
with low supply growth in most of our markets, many of our properties achieved significant growth in RevPAR. This improved RevPAR was driven by increases in both occupancy and
average daily rate.

HOTEL OWNERSHIP OPERATIONS

Revenues from hotel ownership operations increased 11.8% to $654 million in 2004 from $585 million in 2003. The improvement in performance was
driven by double-digit revenue growth at many of our large resorts, notably The Fairmont Orchid, The Fairmont Chateau Lake Louise, The Fairmont Southampton and the two resorts in Mexico. The Fairmont
Southampton reopened as scheduled in April 2004, after being closed for seven months of repairs following the hurricane damage sustained in September 2003. The two hotels sold in July, generated
$51 million of revenues in 2004 and $81 million in 2003.

Revenues
from our U.S. and International hotels increased 9.2% to $400 million. Excluding the two resorts sold in July 2004 and The Fairmont Southampton, revenues at our U.S. and
International hotels were up 21.4% or $51 million. All of our hotels in this portfolio contributed to the improvement, driven primarily by increased revenues at The Fairmont Orchid of 27.8% and the
Mexican properties of 19.6%.

Revenues
from our Canadian properties increased 16.2% to $254 million. This increase was attributable mainly to robust operating performance at The Fairmont Chateau Lake Louise
and the stronger Canadian dollar. Revenues for The Fairmont Chateau Lake Louise increased 32.5% over the prior year as the resort benefited from the strength in Asian tour business and the opening of
the resort's new meeting facility and guestrooms. When adjusted for the year over year strengthening of the Canadian dollar, revenues from our Canadian properties were up 8.2% or approximately
$18 million.

19

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EBITDA
from owned hotel operations was up 34.0% to $160 million from $120 million in 2003. Owned hotel EBITDA margin improved considerably to 24.5% from 20.4% in 2003 with
portfolio-wide increases in both occupancy and ADR. EBITDA from the U.S. and International properties was up 39.7% to $91 million primarily due to higher ADR and occupancy levels across the
portfolio. 2003 EBITDA of $65 million includes uninsured costs of $9 million related to hurricane damage in Bermuda. The two hotels sold in 2004, contributed $20 million and
$28 million to hotel ownership EBITDA in 2004 and 2003, respectively. We will continue to earn management fees from these hotels under the terms of the long-term management agreements. EBITDA
for both years includes business interruption insurance related to lost revenues of The Fairmont Southampton and The Fairmont Hamilton Princess.

Canadian
owned EBITDA increased by 26.3% to $69 million. Higher occupancy levels and the stronger Canadian dollar are the primary reasons for this increase. In 2003, the Canadian
owned portfolio was severely affected by travel concerns regarding severe acute respiratory syndrome ("SARS"). Adjusting for the foreign exchange impact, EBITDA was up approximately 17.6%.

In
2004, our investment in Legacy generated equity losses of $2 million compared to a $9 million equity loss in 2003. This improvement is primarily attributable to Legacy's
portfolio benefiting from a rebound in demand in 2004, after travel concerns relating to SARS eroded demand in 2003.

Comparable owned hotels

|Year ended December 31 |  | 2004 |        | 2003 |   | Variance
|---------------------- |  | ---- | ------ | ---- | - | --------
|Worldwide              |  |      |        |      |   |         
|RevPAR                 |  | $    | 117.78 |      | $ | 99.69   
|ADR                    |  |      | 188.83 |      |   | 179.17  
|Occupancy              |  |      | 62.4%  |      |   | 55.6%   
|Canada                 |  |      |        |      |   |         
|RevPAR                 |  | $    | 114.93 |      | $ | 99.67   
|ADR                    |  |      | 174.01 |      |   | 163.44  
|Occupancy              |  |      | 66.0%  |      |   | 61.0%   
|U.S.                   |  |      |        |      |   |         
|RevPAR                 |  | $    | 151.30 |      | $ | 128.94  
|ADR                    |  |      | 227.32 |      |   | 224.64  
|Occupancy              |  |      | 66.6%  |      |   | 57.4%   
|International          |  |      |        |      |   |         
|RevPAR                 |  | $    | 101.18 |      | $ | 80.77   
|ADR                    |  |      | 190.69 |      |   | 179.31  
|Occupancy              |  |      | 53.1%  |      |   | 45.0%   

Exclusions: The Fairmont Southampton (renovation); The Fairmont Copley Plaza, Boston (wholly-owned as of February 2003); The Fairmont Kea Lani (sold July 2004);
The Fairmont Glitter Bay (sold July 2004).

REAL ESTATE ACTIVITIES

Real estate activities generated EBITDA of $6 million compared to $11 million in 2003. In 2004, we disposed of one block of land from our Coal
Harbour site in Vancouver, B.C. as well as several smaller blocks of land that were not part of our principal real estate holdings in Toronto or Vancouver. Total proceeds received for these lands were
$15 million. In 2003, we disposed of one block of our Southtown lands in Toronto, two parcels at our Coal Harbour site and several smaller pieces of non-core real estate located primarily next
to rail lines. Total proceeds received from these sales were $32 million. Land sales and land holding activities generated EBITDA of $8 million and $14 million for 2004 and 2003,
respectively.

FHP,
FHR's vacation ownership business, produced $14 million in revenues and a $3 million loss to EBITDA. Vacation ownership activities for the same period in 2003
generated $2 million in revenues and a $4 million loss to EBITDA. The early phases of our vacation ownership project in Acapulco are absorbing the majority of the initial common
construction costs.

20

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MANAGEMENT OPERATIONS

Fairmont

During 2004, Fairmont assumed management of the Fairmont Monte Carlo. The hotel was acquired by FHR European Ventures LLP and Fairmont took over management late
in the year. FHR invested $20 million for a 25% indirect real estate interest in the hotel and the management contract.

In
addition, in 2004 Fairmont entered into the following two new management contracts on properties under development:



Revenues
under management increased 19.5% to $1.7 billion in 2004 from $1.4 billion in 2003. The addition of The Fairmont Turnberry Isle Resort & Club, Miami on January 1, 2004
contributed 21.3% of this increase. Improved operating results and the appreciation of the Canadian dollar contributed to the balance of the increase. Fairmont Monte Carlo came under Fairmont's
management in mid-December, consequently it did not impact 2004 results.

Comparable Fairmont managed hotels

|Year ended December 31 |  | 2004 |        | 2003 |   | Variance
|---------------------- |  | ---- | ------ | ---- | - | --------
|Worldwide              |  |      |        |      |   |         
|RevPAR                 |  | $    | 119.36 |      | $ | 104.73  
|ADR                    |  |      | 184.66 |      |   | 172.54  
|Occupancy              |  |      | 64.6%  |      |   | 60.7%   
|Canada                 |  |      |        |      |   |         
|RevPAR                 |  | $    | 100.18 |      | $ | 86.39   
|ADR                    |  |      | 153.43 |      |   | 140.38  
|Occupancy              |  |      | 65.3%  |      |   | 61.5%   
|U.S.                   |  |      |        |      |   |         
|RevPAR                 |  | $    | 147.45 |      | $ | 134.69  
|ADR                    |  |      | 226.99 |      |   | 216.34  
|Occupancy              |  |      | 65.0%  |      |   | 62.3%   
|International          |  |      |        |      |   |         
|RevPAR                 |  | $    | 111.36 |      | $ | 87.23   
|ADR                    |  |      | 182.96 |      |   | 166.42  
|Occupancy              |  |      | 60.9%  |      |   | 52.4%   

Exclusions: The Fairmont Southampton (renovations); The Fairmont Olympic Hotel, Seattle (assumed management August 2003); The Fairmont Turnberry Isle Resort &
Club, Miami (assumed management January 2004)

Management fees increased by 23.5% to $55 million in 2004 from $44 million in 2003, due to the improvement in revenues under
management. Total fee revenues included $21 million from our owned properties, up 15.3% from 2003. Base revenues from properties under management increased 24.0% to $45 million from
$37 million in 2003, while incentive fees increased to $3 million from $2 million in 2003. Incentive fees grew to represent 5.7% of our total management fees compared to 3.4% in
2003.

For
the Fairmont portfolio of comparable hotels, RevPAR increased 14.0% to $119.36 from $104.73 in 2003, driven by substantial improvements in occupancy and ADR at our Canadian portfolio
and our U.S. and International properties. Adjusting for the foreign exchange impact, RevPAR increased by 10.6%.

EBITDA
from our Fairmont management operations increased 27.8% to $40 million from $31 million in 2003. EBITDA margin increased to 73.3% from 70.8% in 2003, primarily due
to the increase in incentive fees, which do not generate any corresponding costs.

21

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Delta managed hotels

|Year ended December 31 |  | 2004 |       | 2003 |   | Variance
|---------------------- |  | ---- | ----- | ---- | - | --------
|RevPAR                 |  | $    | 64.43 |      | $ | 55.36   
|ADR                    |  |      | 98.53 |      |   | 91.78   
|Occupancy              |  |      | 65.4% |      |   | 60.3%   

Exclusions: Delta Meadowvale and Delta franchised hotels.

DELTA

Revenues under management increased 17.9% to $380 million from $322 million. Management fee revenues increased 9.4% to $13 million from
$12 million in 2003. These improvements relate primarily to better operating performance and the appreciation of the Canadian dollar. SARS had a substantial impact on Delta's results in 2003,
particularly at the hotels located in Toronto and Montreal. In 2004, incentive fees were $1 million and accounted for 6.3% of Delta's total management fee revenues. In 2004, we earned incentive
fees at eight properties, compared to six in 2003.

For
the Delta portfolio of comparable hotels, RevPAR increased 16.4% to $64.43 from $55.36 in 2003, primarily as a result of an 8.5% increase in occupancy. When measured in Canadian
dollars, ADR was flat and RevPAR was up 8.2% in 2004. EBITDA from Delta's management operations decreased 8.0% to $8 million from $9 million in 2003 and EBITDA margins decreased to 62.5%
from 74.4%. The decrease is mainly attributable to a one time loan receivable write-off and increased operational costs.

OTHER ITEMS

Revenues and expenses from managed and franchised properties

In 2004, we recognized a $1 million deficit on the marketing, booking and other services we provide under the terms of our management and franchise
agreements compared to a $3 million deficit in 2003.

General and administrative expenses

General and administrative expenses were $30 million compared to $17 million in 2003. In 2004, the Company experienced higher corporate overhead
costs relating primarily to increases in incentive and certain other compensation costs of approximately $4 million, expenses due to stock appreciation rights issued by the predecessor company
("Canadian Pacific Limited") of $3 million, and public company regulatory requirements under the Sarbanes-Oxley Act of approximately $1 million. Furthermore, the year over year
appreciation of the Canadian dollar had the impact of increasing expenses by approximately $2 million.

Amortization

Amortization expense increased 9.5% to $74 million in 2004. This increase was largely a result of the additions to property, plant and equipment and the
appreciation of the Canadian dollar.

Other (income) expenses

Other expenses in 2003 consist primarily of amounts related to the repayment of debt that occurred in December following the convertible note issue.

Gain on sales of investments and hotel assets

In July 2004, we sold The Fairmont Kea Lani to Host Marriott Corporation for $355 million, earning a pre-tax gain of $109 million. We also sold The
Fairmont Glitter Bay in Barbados for approximately $32 million. This sale resulted in a non-taxable gain of $8 million. In September 2004, FHR reduced its equity position in Legacy from
35% to 23.7%, by selling 12 million units at Cdn$6.75 each for total proceeds of Cdn$81 million, or approximately $63 million and recognized a gain of $28 million.

Interest expense, net

Net interest expense decreased to $33 million from $34 million in 2003. This decrease is attributable to lower average debt levels in 2004,
countered by higher amortization of financing costs, due primarily to the full year inclusion of the convertible notes.

Income tax expense (recovery)

We experienced a net income tax expense of $62 million compared to a recovery of $12 million in 2003. Income tax expense for 2004 includes
$41 million related to the sale of The Fairmont Kea Lani, while income tax expense for 2003, includes a recovery of $24 million as a result of a favorable tax settlement. Our 2004
effective tax rate was 28.4%. Excluding the impact of the $24 million recovery received in 2003 and $9 million of uninsured costs related to hurricane damage in Bermuda, a non-taxable
jurisdiction, our effective tax rate was 26.8% in 2003.

Foreign exchange

Average Canadian dollar exchange rates appreciated approximately 7.4% over 2003. At the end of 2004, the Canadian dollar was approximately 6.9% higher in value
relative to the U.S. dollar than at the end of 2003.

22

---



Quarterly results

|(in millions, except per share data) |  | 2005
|------------------------------------ |  | ----
|
|Total Revenues                       |  | $   
|EBITDA                               |  |     
|Net income (loss)                    |  |     
|Basic earnings (loss) per share      |  |     
|Diluted earnings (loss) per share(3) |  |     

|
|

|(in millions, except per share data) |  | 2004
|------------------------------------ |  | ----
|
|Total Revenues                       |  | $   
|EBITDA                               |  |     
|Net income (loss)                    |  |     
|Basic earnings (loss) per share      |  |     
|Diluted earnings (loss) per share(3) |  |     

---

Demand for lodging is seasonal. As a result, revenues are typically higher in the second and third quarters while fixed costs, such as
amortization and interest, are stable throughout the year. It is impossible to predict the events that could affect performance quarter-to-quarter. See the "Risks and uncertainties" on page 31.

Liquidity and capital resources

Capitalization

|Year ended December 31                 |                        | 2005 |         | 2004   
|-------------------------------------- | ---------------------- | ---- | ------- | -------
|Cash                                   |                        | $    | 279.2   |        
|                                       |                        |      |         |        
|Current debt                           |                        | $    | 2.8     |        
|Long-term debt                         |                        |      | 388.4   |        
|                                       |                        |      |         |        
|                                       |                        |      | 391.2   |        
|                                       |                        |      |         |        
|Shareholders' equity                   |                        |      |         |        
|                                       | convertible notes(1)   |      |         | 19.2   
|                                       | common share equity(2) |      |         | 1,671.8
|                                       |                        |      |         |        
|                                       |                        |      | 1,691.0 |        
|                                       |                        |      |         |        
|Total capitalization                   |                        | $    | 2,082.2 |        
|                                       |                        |      |         |        
|Net Debt to Total Capitalization ratio |                        |      | 5.4%    |        
|Net Debt to Total Asset ratio          |                        |      | 4.4%    |        
|Interest Coverage(3)                   |                        |      | 7.5x    |        

---

23

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CAPITALIZATION

FHR's consolidated net borrowing position decreased 63% to $112 million at December 31, 2005 from $303 million at December 31, 2004 due primarily to an increase
in cash resulting from the sale of The Fairmont Orchid.

In
March 2004, we entered into a $400 million unsecured credit facility due March 2007. The interest rate is floating based on benchmark interest rates plus a spread. This spread varies
on the basis of our leverage. At December 31, 2005, our unused committed line of credit for short-term and long-term financing was $308 million. Approximately 78% of our total debt is at fixed rates
of interest, the majority of which relates to our 3.75% convertible senior notes. The average interest rate on our borrowings for 2005 was approximately 5.20%. At a Net Debt to Asset ratio of 4.4%, we
believe that FHR has a conservative capital structure relative to our industry.

CASH FLOWS

Cash provided by operating activities increased to $237 million from $70 million in 2004 as a result of several factors, including higher net income, increased
cash from real estate activities, and a change in non-cash working capital of $55 million.

Real
estate activities contributed $50 million in cash primarily as a result of the sale of three blocks of land in the year. In 2004, real estate activities generated cash of $7
million. We anticipate this segment to continue to generate cash flows in 2006 as a result of the land sale agreements entered into in 2005 that are expected to close in the next several quarters.

In
2005, our changes in non-cash working capital of $55 million over 2004 was primarily a result of higher accrued liabilities and taxes payable at year end. We had current income taxes
payable at year-end of $58 million primarily due to the taxes payable on the gain on the sale of the Fairmont Orchid. Accrued liabilities include unpaid amounts of $10 million in connection with
outstanding legal obligations of a predecessor company of Fairmont as well as $10 million in costs incurred in the fourth quarter relating to investment banking and legal advisory fees for services
rendered in response to the Icahn takeover bid.

We
continue to aggressively manage our accounts receivable balances and believe that our current levels of working capital are adequate. We intend to use our cash flows from operations
to finance capital expenditures at our owned hotels, vacation ownership projects and in combination with available debt capacity, to obtain additional management contracts, provide equity for
investments and acquisitions.

Proceeds
received from the sale of investments and hotel assets totaled $249 million in 2005. Included in this amount are net proceeds of $241 million received from the sale of The
Fairmont Orchid.

In
2005, FHR's expenditures on profit-enhancing and upgrade projects decreased 4% to $72 million from $74 million in 2004. These expenditures were principally directed to upgrade capital
and profit-enhancing projects at our owned hotels. In 2005, FHR made investments in partnerships and corporations of $11.2 million, primarily for our interests in hotels in Mayakoba and the hotels in
Kenya. We subsequently disposed of the investment in the hotels in Kenya in November 2005. There was no gain or loss on the sale. Other investments in the year included $54 million for a management
contract and loan receivable in relation to the long-term management contract on The Savoy.

In
2005, under the current and previous normal course issuer bid, the Company purchased an aggregate of 4,376,000 shares for total consideration of $141.2 million.

24

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Cash flows

|Year ended December 31(millions of dollars)  |  | 2005 |        | 2004 |  
|-------------------------------------------- |  | ---- | ------ | ---- | -
|Inflows                                      |  |      |        |      |  
|Funds from operations                        |  | $    | 182.2  |      | $
|Changes in non-cash working capital          |  |      | 54.6   |      |  
|                                             |  |      |        |      |  
|Cash provided by operating activities        |  |      | 236.8  |      |  
|Proceeds from sale of property and equipment |  |      | 8.8    |      |  
|Sales of investments and hotel assets        |  |      | 248.6  |      |  
|Other                                        |  |      | 6.6    |      |  
|                                             |  |      |        |      |  
|Total inflows                                |  | $    | 500.8  |      | $
|                                             |  |      |        |      |  
|Outflows                                     |  |      |        |      |  
|Additions to property and equipment          |  | $    | (71.5  | )    | $
|Acquisitions and investments                 |  |      | (43.5  | )    |  
|Repurchase of common shares, net             |  |      | (141.2 | )    |  
|Dividends paid                               |  |      | (9.1   | )    |  
|Issuance of loans receivable                 |  |      | (33.5  | )    |  
|                                             |  |      |        |      |  
|Total outflows                               |  | $    | (298.8 | )    | $
|                                             |  |      |        |      |  
|Net borrowing (repayment) of debt            |  |      | (21.4  | )    |  
|                                             |  |      |        |      |  
|Effect of exchange rates on cash balances    |  |      | (0.5   | )    |  
|                                             |  |      |        |      |  
|Increase in cash                             |  | $    | 180.1  |      | $
|                                             |  |      |        |      |  

LIQUIDITY

We use cash from operations, debt facilities and equity financing to make minority equity investments, obtain or maintain long-term management contracts, make
selective acquisitions of individual hotels or portfolios of hotels, repurchase shares, pay dividends, fund capital improvements and operating requirements at our owned hotels. In the event of a
temporary shortfall in cash, we will draw on our credit facilities.

As
part of our growth initiatives, we may acquire additional management contracts and hotel ownership interests. Depending on their size, these expenditures would be funded through cash
from operations, our credit facilities or by issuing common shares.

We
believe that cash on hand, available credit facilities, expected cash flow from operations and the sale of certain assets, combined with our access to the debt and equity markets,
will be adequate to finance our normal operating requirements and to provide additional funds required to achieve our growth objectives.

At
December 31, 2005, our primary contractual obligations consisted of $270 million of convertible senior notes and $122.5 million of mortgage indebtedness. A total of $10 million of
loans and $82 million of letters of credit were advanced under our $400 million line of credit at December 31, 2005.

In
2006, we expect spending on upgrade capital and profit-enhancing projects to be $75-$80 million. We expect to spend approximately $60 million in upgrade capital, $15 million on
profit-enhancing projects and the remainder on corporate and information technology requirements. We expect to spend an additional $17 million on construction of our vacation ownership residences in
Acapulco and Bermuda. Capital spending in the coming year will be funded primarily from cash generated from operating activities.

25

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Contractual obligations

|Payments due by Period(in millions) |  | Total |         | < 1 year |   | 1-3 Years |  | 4-5 Years |      | After 5 Years
|----------------------------------- |  | ----- | ------- | -------- | - | --------- |  | --------- | ---- | -------------
|Long-term debt                      |  | $     | 391.2   |          | $ | 2.8       |  | $         | 16.5 |              
|Operating leases                    |  |       | 531.5   |          |   | 15.4      |  |           | 30.2 |              
|Purchase Obligations                |  |       | 10.6    |          |   | 10.6      |  |           |     |              
|Other long-term obligations         |  |       | 111.4   |          |   | 7.6       |  |           | 33.5 |              
|                                    |  |       |         |          |   |           |  |           |      |              
|Total                               |  | $     | 1,044.7 |          | $ | 36.4      |  | $         | 80.2 |              
|                                    |  |       |         |          |   |           |  |           |      |              

Contractual commitments

|Comittment expiration per period(in millions) |  | Total |       | < 1 year |   | 1-3 Years |  | 4-5 Years |   | After 5 Years
|--------------------------------------------- |  | ----- | ----- | -------- | - | --------- |  | --------- | - | -------------
|Standby letters of credit*                    |  | $     | 85.5  |          | $ | 85.5      |  | $         |  |              
|Guarantees                                    |  |       | 7.5   |          |   | 7.5       |  |           |  |              
|Other                                         |  |       | 8.7   |          |   | 8.7       |  |           |  |              
|                                              |  |       |       |          |   |           |  |           |   |              
|Total                                         |  | $     | 101.7 |          | $ | 101.7     |  | $         |  |              
|                                              |  |       |       |          |   |           |  |           |   |              

CAPITAL RESOURCES

Cash from operations

Our operations typically generate free cash flow exceeding cash required to fund capital expenditures. In general, these funds are used to expand our operations,
for the payment of dividends to our shareholders and for the purchase of our common shares for cancellation.

Lines of credit

We have a line of credit which is available to finance temporary shortfalls in cash caused by the natural fluctuation in demand from season to season and for any
large profit-enhancing projects. Our line of credit can also be used to provide short-term bridge financing for our investments.

Common shares outstanding

FHR
is listed on both the Toronto Stock Exchange and the New York Stock Exchange. In October 2004, we obtained regulatory approval to purchase for cancellation up to 10% of our common
shares. We purchased 5,053,900 shares for cancellation at an average price of $31.68 under this plan in 2004 and 2005. On October 26, 2005, FHR announced a new normal course issuer bid effective
October 31, 2005, authorizing the Company to purchase up to 10% of its public float in the twelve-month period following the bid's effective date. As of December 31, 2005, under this plan we purchased
250,400 shares at an average price of $33.75. We have not purchased any shares under the normal course issuer bid since November 2005. Since October 2001, we have purchased a total of
11,639,300 shares under various buyback programs at an average price of $26.68.

Issuing additional debt

We typically use new debt financing to refinance existing debt or to finance significant acquisitions. We feel that our conservative Net Debt to total Asset ratio
of 4.4% gives us the ability to further leverage our assets at reasonable interest rates. This would be accomplished by mortgaging properties or issuing other types of debt instruments, such as
convertible senior notes. The ability to secure debt financing at reasonable terms is ultimately dependent on market conditions and the lender's determination of our creditworthiness.

Tax assets

We
retained significant tax assets as a result of the reorganization in 2001, including substantial operating and capital losses. At December 31, 2005, we had approximately $255 million
in operating losses and $347 million in capital losses available to us. By using these losses, current taxes payable on income generated by our hotel and management operations and real estate
activities is lowered significantly.

Off-balance sheet arrangements and contractual liabilities

We have made certain guarantees of affiliates and third parties, as well as commitments under letters of credit. The amounts of these off-balance sheet
arrangements are detailed in the table below. The nature of these items is more fully discussed in note 21 to the consolidated financial statements.

26

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FINANCIAL INSTRUMENTS

FHR uses various financial instruments to reduce or eliminate exposure to interest rate and currency risks. The Company is exposed to interest rate risk arising
from fluctuations in interest rates on certain of its long-term debt. The Company has entered into an interest rate cap contract to partially manage interest rate risk on the $75 million floating-rate
mortgage at The Fairmont Scottsdale Princess. The fair value of the interest rate cap is nominal.

FHR
enters into forward foreign exchange contracts to partially offset the potential volatility of foreign exchange rates on certain foreign currency denominated assets and liabilities.
As at December 31, 2005, the aggregate fair value of the outstanding forward contracts was an asset of $3 million.

The
Company is exposed to credit risk with respect to cash, cash equivalents, accounts receivable balances, long-term advances and derivative instruments. This risk is minimized since
FHR deals with banks having an appropriate credit rating, performs ongoing credit evaluations of customers and counter-parties and maintains allowances for potential credit losses. FHR periodically
extends credit in certain circumstances to the owners of managed hotels when new management contracts are signed.

The
carrying value of short-term financial assets and liabilities approximates their fair values due to the immediate or short-term maturity of these financial instruments. Financial
instruments are more fully discussed in note 22 to the consolidated financial statements.

IMPLICATIONS OF A CHANGE IN CONTROL

The proposed acquisition of the Company by an affiliate of Kingdom Hotels International and Colony Capital, if successful, will result in certain implications for
FHR. These implications are listed below:

|  |  | Stock option plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | As described in note 14 of the consolidated financial statements, the Company has a Key Employee Stock Option Plan ("KESOP") whereby key officers, employees and consultants of the Company may be granted options to
purchase common shares of FHR. These option grants vest over a four-year period. In the event of a change in control of the Company, all outstanding options are immediately exercisable. As at December 31, 2005, there were approximately 3.4 million
options outstanding at a weighted average exercise price of Cdn $28.07, of which 2.9 million are currently exercisable.                                                                                                                                                                                                                                                                     
|  |  | Long-term incentive plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |  | The Company has established long-term incentive plans for its executive officers and senior management that provide for annual grants that vest and pay out after a three-year performance period. A change in control would
cause grants made under these plans in 2003 and 2004 to accelerate and be paid within 30 days of the date of the change in control based on performance for the period from the date of the grant to the change of control and without proration for the
early termination. 2005 grants will not accelerate as a result of a change in control of FHR and thus no amounts will be payable in respect of such grants solely as a result of a change in control. As at December 31, 2005, in accordance with the
vesting provisions, the Company has accrued approximately half of the estimated total obligation for the 2003 and 2004 grants.
|  |  | Change in control agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |  | The Company has entered into change in control agreements with its executive officers and certain other senior officers. Under these agreements, each of these officers is entitled to receive severance benefits if a change
in control occurs and, within the three-year period following the change in control, the individual's employment is terminated by Fairmont other than for cause, disability, retirement or death, or by the individual for certain defined reasons.
Pursuant to these agreements, the Company maintains letter of credit arrangements held in trust for the benefit of the officers for the purpose of ensuring the payment of the amounts under these agreements.                                                                                                                                                                          
|  |  | Other implications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|a) |  | Under the terms of the 3.75% Convertible Senior Notes ("Notes"), the acquisition, if successful, will constitute a "Reorganization" and a "Designated Event" as defined in the trust indenture for the Notes. As a result,
holders of these Notes would be entitled to elect to convert from and after the 15th day prior to the occurrence of the change in control. After the change in control, the Company will be entitled to satisfy any conversion of the Notes by way of a
cash payment. In addition, FHR will be required to make an offer to purchase the outstanding Notes within 30 days after the change of control at par plus accrued interest. As at December 31, 2005, an aggregate of up to 7,156,107 Fairmont Shares were
issuable upon the conversion of the Notes.                                                                                   
|b) |  | Under the terms of FHR's revolving credit facility, the acquisition by any person or group of persons of beneficial ownership of more than 50% of the outstanding common shares constitutes an event of default. The Company intends to arrange a new line
of credit or amend the existing line of credit prior to a change in control in order to avoid such event of default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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Transactions with related parties

Transactions with Legacy

We manage all of Legacy's hotels and we provide day-to-day corporate and administrative services to Legacy. All agreements with Legacy must be approved by a
majority of the independent Trustees of Legacy. A list of significant transactions with Legacy is found in note 23 of the consolidated financial statements.

Advisory agreement

Fairmont provides operating and administrative services to Legacy and provides advice to its Trustees on major decisions. In return for these services, we are
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. The acquisition and disposition fees are waived on any transactions between Fairmont and Legacy. Legacy may terminate the Advisory
Agreement at any time after December 31, 2004, upon the approval of two-thirds of the votes cast by the independent Trustees and the approval of two-thirds of the votes cast by the unitholders, and
upon twelve months notice. Fairmont may terminate the agreement at any time after December 31, 2004 upon not less than 120 days notice. The Advisory Agreement expires in February 2009.

Management agreements

We have entered into various long-term management contracts with Legacy to manage its hotels. Under these management agreements, we are entitled to a base
management fee and an incentive management fee. Base management fees range from 2.0% to 3.0% of hotel revenues. The incentive fee is based on net operating income from hotel operations plus
depreciation and amortization less a capital replacement reserve in excess of a threshold. We earn incentive fees on the 11 hotels transferred to Legacy in 1997, based on the profitability of each of
the hotels as well as the overall profitability of this portfolio.

We
also provide centralized reservations, sales and marketing, procurement, accounting, management information, employee training and other services to Legacy for which we are reimbursed
on a cost recovery basis as established in the management agreements.

Strategic alliance agreement

We have entered into a strategic alliance agreement with Legacy to cooperate 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. This agreement expires in February 2009.

Recent transactions with Legacy

In August 2003, we entered into a long-term management agreement for The Fairmont Olympic Hotel, Seattle. Under the terms of this agreement and a similar
arrangement relating to The Fairmont Washington, D.C., we agreed to pay Legacy $18 million over a three-year period. These transactions were recorded at the exchange value and as at December 31, 2005,
FHR has paid the full amount. In connection with these transactions, we have entered into reciprocal loan agreements with Legacy totaling $87 million. The Seattle loan matures in October 2008 and the
Washington loan matures in October 2013. The loans bear interest at normal commercial rates and are payable quarterly in arrears. In the event that either Legacy or Fairmont does not make the 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 for accounting purposes and, as such are presented
on a net basis in the consolidated financial statements.

Transactions with other related parties

We have entered into management agreements with other related parties, primarily managed hotels and hotels under development in which we own a minority interest.
These hotels include Fairmont Le Manoir Richelieu, The Fairmont Newfoundland, The Fairmont Sonoma Mission Inn & Spa, Fairmont Tremblant, Fairmont Monte Carlo, Fairmont Cairo, Nile City, The Fairmont
Dubai, Fairmont Mayakoba, Riviera Maya, Fairmont Palm Hotel and Resort and Delta Sun Peaks Resort. All of these management agreements are on normal commercial terms. Transactions with these related
parties are recorded at the exchange amount, which reflects fair market value. These items are more fully discussed in note 23 of the consolidated financial statements.

Critical accounting policies and estimates

Our
significant accounting policies are found in note 2 of the consolidated financial statements. 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. We base our 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 our control. These estimates and assumptions are evaluated on a
periodic basis. We believe the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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Property and equipment

Due to the relatively large proportion of property and equipment relative to our total assets, the selection of the method of amortization and length of
amortization period could have a material impact on the amortization expense recorded and the net book value of property and equipment. We amortize property and equipment on a straight-line basis over
its estimated economic life, except for buildings on leased land, which are amortized over the lesser of the term of the lease, including options to extend the lease, and the economic life of the
building. If the estimated economic lives of all property and equipment were to be decreased by one year, amortization expense recorded in 2005 would have increased by approximately $5 million. Such a
change in estimate would have very little impact on FHR's financial condition since key financial stakeholders such as lenders do not typically rely on the historical cost of property and equipment.
Each hotel is reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment in value will be recorded if the projected
undiscounted future cash flows from the hotel are less than the net book value of the property and equipment. Future cash flows are forecasted on a property specific basis based on historical results
and recent trends or events that may impact a property's future performance including new hotel supply, changes in travel patterns and general economic conditions. We feel that it is unlikely that any
future impairment will be necessary given the quality and carrying value of our assets.

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 in our case, are equal
to 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 discounted cash flow projections and peer comparisons of earnings multipliers. Based on our current operations, we feel that it is unlikely that any future goodwill impairment will be required. At
the most recent testing date, no impairment would have been required based on the low end of our valuations. However, in response to unanticipated changes in industry and market conditions, we may be
required to consider restructuring, disposing or otherwise exiting certain operations, which could result in an impairment of goodwill. In the event that such an impairment was required, we would
record the impairment in other expenses. We also evaluate the carrying value of brand names on an annual or more frequent basis if necessary. Management contracts, which are amortized, are tested when
circumstances indicate impairment may have occurred. This impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. Any impairment loss, representing
the excess of the carrying amount over the fair value, would be expensed in the consolidated statement of income. Based on the terms of our management contracts, their carrying values and the quality
of the underlying assets, we believe that the potential for future impairment is unlikely.

Income taxes

We account for income taxes using the liability method and calculate our income tax provision based on the expected tax treatment of transactions recorded in the
consolidated financial statements. Under this method, future tax assets and liabilities are recognized based on differences between the bases of assets and liabilities used for financial statement and
income tax purposes, using substantively enacted tax rates. In determining the current and future components of the tax provision, management interprets tax legislation in a variety of jurisdictions
and makes assumptions about the expected timing of the reversal of future tax assets and liabilities. If our interpretations differ from those of the tax authorities, substantively enacted tax rates
change or the timing of reversals is not as anticipated, the tax provision could increase or decrease in future periods. Over the past several years, there have been numerous changes to income
taxation rates in jurisdictions in which we operate. These changes have reduced our effective tax rate and the resulting income tax expense and future income tax liabilities. A 1% increase in our
overall effective tax rate would increase income tax expense by approximately $3 million, which relates primarily to the revaluation of future income tax assets and liabilities. FHR has approximately
$255 million of non-capital tax loss carry forwards and $347 million of capital tax loss carry forwards available. We expect the Company will be able to utilize the vast majority of its non-capital
loss carry forwards prior to their expiration and have recorded a future tax asset for most of such loss carry forward balances. In the event that future earnings do not meet our projections, it may
be necessary to write down the amount of non-capital losses. Currently, we expect that these losses will be used over the course of the next four to five years. A future tax asset has not been
established for most of the capital loss carry forward amounts due to the significant uncertainty as to the timing of their utilization. We expect that the majority of these amounts will be used
through our real estate activities or otherwise. Capital losses do not expire. Although the estimates used to derive our future tax liabilities under Canadian GAAP can have a significant impact on net
income and earnings per share, they do not impact our operations, as the net income tax expense reported on the consolidated statement of income does not reflect the actual income tax amounts that we
are required to pay due to the utilization of tax loss carry forward balances and timing differences in the recognition of revenues and expenses for tax purposes.

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Employee future benefits

We have defined benefit pension plans for certain employees and also provide relatively insignificant other post retirement benefits. There are several
assumptions required for the calculation of defined benefit pension plan liabilities or surpluses and the current year's pension expense. 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 6.5% is used based on the plans' asset allocations and
historic results. We feel this long-term rate of return is reasonable based on our current investment policies and that it 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, 2005 of AA corporate bonds with an effective duration equal to that of the expected payments to
retirees. Over the past four years, our weighted-average discount rate has dropped from 5.7% to 5.0%. It is difficult to accurately quantify the impact of changes in the discount rate as it impacts
the valuations of pension liabilities and pension plan assets. A change in our estimates of these amounts affects our hotel ownership, hotel management and general and administrative expenses as the
pension liability and related expense are allocated to these segments. As of December 31, 2005, we estimate that our consolidated pension plan deficit is $51 million and that we have total pension
obligations of $214 million. We do not expect to have significant future cash outflows related to mandatory funding requirements for our obligations under these plans or that this deficit will have
any impact on our operations or financial condition.

Purchase price allocations

Execution of the Company's strategy to secure long-term hotel management agreements, may involve the acquisition of equity investments or the advancement of
loans. The total consideration paid by the Company is allocated to each asset at inception of the transaction based on their fair values. Where the value of an asset is not determinable from a market
reference transaction, estimates are required to be made to determine fair value. Similarly, acquisition of hotel properties requires allocation of the total consideration paid between land, buildings
and furniture, fixtures and equipment.

Contingencies

In the normal course of its operations, the Company becomes involved in various legal actions, including claims relating to personal injuries, occupational
related claims and environmental matters. We conduct a thorough analysis of all potential legal claims on a regular basis and provide 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

Variable interest entities

Accounting Guideline 15 ("AcG-15") requires the consolidation of Variable Interest Entities ("VIEs") by the primary beneficiary. A VIE is an entity where:



VIEs
are subject to consolidation by a company if that company is deemed to be the primary beneficiary. The primary beneficiary is the enterprise that will absorb or receive the majority
of the VIE's expected losses, expected residual returns, or both. The Company implemented AcG-15 retroactively without restatement of prior periods. Adoption of this new standard did not have an
impact on the Company's financial statements.

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Liabilities and equity

On January 1, 2005 FHR adopted the Canadian Institute of Chartered Accountant's ("CICA") new accounting requirements on the classification of financial
instruments as liabilities or equity. The CICA amended its disclosure requirements surrounding the presentation of financial instruments that may be settled in cash or by an issuer's own equity
instruments, at the issuer's discretion, as liabilities. Adoption of this new standard did not have an impact on our financial statements.

Determining whether an arrangement contains a lease

In 2004, the Emerging Issues Committee issued Abstract 150, "Determining Whether an Arrangement Contains a Lease" ("EIC 150"). An entity may enter into certain
arrangements comprising a transaction or a series of related transactions that does not take the legal form of a lease but conveys a right to use a tangible asset (e.g. an item of property, plant or
equipment) in return for payment or a series of payments. FHR is required to adopt the recommendations of EIC 150 for affected transactions commencing or modified after December 9, 2004. Adoption of
this new standard did not have an impact on our financial statements.

Diluted earnings per share

On September 8, 2005, the Emerging Issues Committee issued Abstract 155, "The Effect of Contingently Convertible Instruments on the Computation of Diluted
Earnings Per Share" ("EIC-155"). This guidance requires inclusion of contingently convertible debt securities with a market price trigger to be included in the computation of diluted earnings per
common share, as determined under the "if-converted" method. The guidance is effective for interim and annual periods beginning on or after October 1, 2005 with retroactive statement of previously
reported earnings per share. FHR has adopted this guidance for December 31, 2005 resulting in a decrease to diluted earnings per share of $0.05 for 2004 and no effect for 2003.

Pending accounting policy changes

The following are upcoming changes to Canadian GAAP that may have an impact on our financial statement presentation. Details on these and any other recent
accounting changes can be found on the website of the Accounting Standards Board of Canada at www.acsbcanada.org.

Financial instruments  recognition and measurement, hedges, comprehensive income and equity

In January 2005, the CICA released a new interrelated set of financial standards relating to recognition and measurement of financial instruments, hedging
relationships and presentation of equity and comprehensive income. These standards are an attempt to harmonize Canadian and U.S. GAAP with respect to financial instruments and financial statement
presentation. The Company will be required to apply these standards no later than the fiscal year ending December 31, 2007. The Company has not yet fully studied the effect that adoption of these
standards will have on the consolidated financial statements. However, adoption may eliminate certain reconciling items between Canadian and U.S. GAAP described in note 25 to the consolidated
financial statements.

Risks and uncertainties

FHR's operations are subject to risks that could cause future operating results to differ significantly from our performance in the past. An event arising from
these risks could materially affect our business, prospects, financial condition, results of operations or cash flows.

Risks relating to the proposed transaction with an affiliate of Kingdom Hotels International and Colony Capital

The proposed acquisition by 3128012 Nova Scotia Limited (the "Purchaser"), an affiliate of Kingdom Hotels International and Colony Capital, LLC, of all of the
outstanding common shares of FHR at a price of $45 per share, is to be effected by way of a statutory plan of arrangement under the Canada Business Corporations Act. In order for the arrangement to be
effective, it must be approved by at least two-thirds of the votes cast at a special meeting of FHR shareholders, currently scheduled to be held on April 18, 2006. The arrangement is also subject to
certain usual and customary conditions and the approval of the Ontario Superior Court of Justice. The failure to satisfy the conditions to complete the arrangement (including the receipt of the
required shareholder, court and regulatory approvals), the occurrence of any event, change or other circumstances that could give rise to the termination of the Acquisition Agreement or the failure of
the transaction to close for any other reason could have an adverse effect on the ongoing business of FHR. If the arrangement is not completed, the price of FHR common stock may decline, to the extent
that the current market price of the FHR common stock reflects a market assumption that the arrangement will be completed.

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FHR
has incurred significant costs relating to the arrangement, such as legal, accounting, consulting and financial advisor fees, that will be required to be paid whether or not the
arrangement is completed. In addition, in the event that the Purchaser terminates the acquisition agreement in certain circumstances, FHR may be required to reimburse the Purchaser for up to $10
million of expenses. The Acquisition Agreement also provides for the payment of a termination fee by FHR to the Purchaser in the amount of $115 million (less any amounts paid on account of expenses)
after a termination of the acquisition agreement in certain circumstances. If the arrangement is not completed and a change of control transaction does not occur prior to June 30, 2006, fees up to a
maximum of $12 million will be payable to FHR's financial advisors, depending on the value of the average closing price of FHR common stock on the New York Stock Exchange for the 30 calendar day
period ending on July 31, 2006.

Our operations and asset values are subject to adverse factors generally encountered in the lodging industry.

We manage and own hotels in both the luxury and first-class segments of the lodging industry which subjects us to the operating risks inherent in the industry.
Besides the specific conditions discussed in more detail below, these risk factors include:



Global events have had an impact on our industry.

Our business is highly dependent on global travel and anything that affects travel generally or travel to a specific region or location that we operate in (or
derive business from) will affect our business. Various global events including war, international conflicts, terrorism and contagious illness outbreaks, or the perceived threat of these events, may
cause disruption in domestic and international travel. Recent global events have affected the lodging industry and FHR's results of operations and financial condition. Any recurrence of these events
would be damaging to our performance.

Real estate investments are subject to numerous risks.

We own and lease hotels and are subject to the risks that generally relate to investments in real property. The investment returns available from equity
investments in real estate depend on the income earned and capital appreciation. We also have advanced loans or guaranteed the obligations of third parties, in connection with entering into management
contracts for certain hotels. Weak operating income performance at these hotels could give rise to losses under these loans and guarantees.

There
are a variety of factors that affect income from properties and real estate values, including government regulations, zoning, tax and eminent domain laws, interest rates and the
availability of financing. For example, new or existing zoning or tax laws can make it more expensive and 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. Under eminent domain laws, governments can expropriate or take real property for
less than an owner believes the property is worth. Any of these factors could have a material adverse impact on the results of operations or financial condition, as well as on our ability to make
distributions to shareholders. In addition, as our hotel real estate investments are in the luxury and first-class segments and include some properties located outside of North America, they may be
relatively difficult to sell in a timely manner.

Our
income would also be adversely affected if our properties do not generate revenue sufficient to meet operating expenses, including debt service and capital expenditures.

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

Management contracts expire or are acquired, terminated or renegotiated in the normal course of business. We manage hotels for various third party hotel owners
under the terms of each property's management contract. These contracts can generally be terminated by the non-defaulting party upon default in payment or failure to comply with the terms of the
contract. Typically, our management contracts are subject to economic performance tests. Failure to meet these tests, maintain standards established in the contract or to meet other terms and
conditions of a contract could result in the loss or cancellation of a management contract prior to the expiration of the term. 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 some cases we have made a financial investment in connection with securing a management contract and that investment
could be impaired if the contract were to be cancelled or terminated.

In
many jurisdictions, in the event of bankruptcy or insolvency proceedings, a hotel management contract may be subject to termination or may not be enforceable against a trustee in
bankruptcy or other 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 the
estate. Further, in the event of enforcement proceedings by a secured lender to a hotel, a management contract may not be enforceable by us against the lender unless, to the extent permitted by
applicable bankruptcy or insolvency laws, the lender has executed a non-disturbance agreement.

Our acquisition, expansion and development strategy may be unsuccessful.

We intend to increase revenues and net income by securing new management contracts, establishing strategic partnerships for new hotel development, acquiring more
properties and expanding existing properties. It is not possible to ensure that future management or acquisition opportunities will exist on acceptable terms, that any newly managed or acquired
properties will be successfully integrated into our operations or that we will fully realize the intended results of our strategy. We cannot give assurance that we will be able to secure the necessary
financing with acceptable terms.

There can be no assurance that we will be able to obtain the necessary additional capital to finance the growth of our 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. There can be no assurance that future debt or equity financings will be available, or available on acceptable terms, in an amount
sufficient to fund our needs. In addition, an inability to obtain financing for a project could cause cancellation or short-term interruption of construction or development of projects.

We are subject to a number of risks associated with debt financing.

We are 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 or to support repayment at maturity. To the extent that we maintain floating rate indebtedness, we are exposed to the risk that interest rates will increase. In
addition, the covenants contained in our loan and credit facilities impose limitations on our ability to acquire and dispose of assets among other things.

Moreover,
there can be no assurance that we will be able to repay or refinance existing indebtedness when it matures or that the terms of refinancing will be favorable. Our leverage may
have important consequences. For example, our ability to obtain additional financing for acquisitions, working capital, capital expenditures or other purposes 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 us to meet our debt service requirements and force us to modify our
operations. If we incur higher levels of debt than some of our competitors, we will be placed at a competitive disadvantage.

Covenants in our financing agreements could limit our discretion in operating our businesses and could limit our ability to pay dividends.

Our financing agreements contain covenants that include limits on the occurrence of additional secured debt, limits on liens on property, minimum EBITDA to
interest coverage ratios, maximum debt to EBITDA ratios and limits on mergers, asset sales and capital expenditures. Future financing agreements may contain similar or more restrictive provisions and
covenants. A default may occur if we fail to comply with the restrictions in our financing agreements. 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 or restrict the payment of dividends. Credit facilities
typically require the provision of cash deposits, repayment of funds or cash flow sweeps when financial covenants are not met.

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We are subject to potential liabilities arising from future claims against Canadian Pacific Limited.

Our predecessor corporation was Canadian Pacific Limited ("CPL"). When CPL reorganized in 2001, each of the entities which resulted from that reorganization
indemnified us against any claims which arose prior to the reorganization in their respective businesses. As the successor to CPL we may become subject to potential liabilities arising from future
claims against our predecessor corporation, some of which may be subject to these indemnities and others of which may arise out of our business. To the extent that material liabilities in respect of
these obligations arise and the scope of existing indemnities in favor of CPL is insufficient, these liabilities could have an adverse effect on our business.

We are subject to certain potential liquidity limitations as a result of our unfunded pension liabilities being backed by letters of credit.

We are subject to certain potential liquidity limitations as a result of our unfunded pension liabilities being backed by letters of credit. We have issued
letters of credit in respect of our unfunded pension liabilities. These letters of credit have been issued pursuant to the terms of our revolving credit facilities, with the result that our available
liquidity under such facilities has been reduced by the amount of these letters of credit. As a result of this reduced liquidity, there is a risk that should we need more liquidity than the amount
available under these facilities, we may not be able to access that liquidity quickly or on favorable terms or at all. If this resulted in our being unable to fund our ongoing obligations as they
become due, this could have an adverse effect on our business. In addition, the terms of our revolving credit facilities contain financial covenants and other covenants that, if violated, could
require immediate repayment of amounts outstanding under the letters of credit in respect of our unfunded pension liabilities.

Currency fluctuations may have a material adverse effect on our financial statements.

We currently have hotel management and ownership operations in nine countries: Canada, the United States, Mexico, Bermuda, Barbados, the United Arab Emirates, the
United Kingdom, Monaco and Kenya. We record financial results for the operations in each country in the local currencies while reporting consolidated financial results in U.S. dollars. As a result,
our earnings and financial position are affected by foreign exchange rate fluctuations, specifically changes in the value of the U.S. dollar, through translation risk and transaction risk. Translation
risk is the risk that financial statements for a particular period, or at a certain date, depend on the prevailing exchange rate of the local currencies against the U.S. dollar. Transaction risk is
the risk that the exchange rate at which a transaction is initially recorded will be different from the rate at which it is settled. We endeavor to match foreign currency revenues, costs, assets and
liabilities to provide a natural hedge against translation and transaction risks. However, there can be no assurance that these measures will be effective in the management of these risks.

Currency fluctuations may have a material adverse effect on our operations.

A significant increase in the value of a currency in the countries where we operate can have an adverse effect on demand for lodging at our hotels in those
countries. For example, the increase in the Canadian dollar compared to the U.S. dollar in 2005 had a significant effect on U.S. travel to Canada while encouraging Canadians to travel abroad.

The lodging industry is subject to significant regulation.

We are subject to numerous laws and regulations in every jurisdiction in which we operate, including those related to the preparation and sale of food and
beverages, such as health and liquor licensing laws. Our properties are also subject to laws and regulations governing relationships with employees such as those covering minimum wages, maximum
working hours, overtime, working conditions, hiring and terminating employees and work permits. Furthermore, the success of our strategies to expand existing properties, acquire new properties or to
open newly-constructed properties is contingent upon, among other things, receipt of the 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 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 our businesses, these regulatory matters arise in a number of jurisdictions, many of which have distinctive
regulatory regimes.

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Under
the United States' Americans with Disabilities Act, or 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 our U.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. We have responsibilities under the ADA for both our owned and managed hotels in the United States. Under the management agreements for our managed hotels
in the U.S., costs associated with the ADA are generally borne by the owner. However, any adverse rulings could have an adverse effect on the fees we earn on such management contracts.

Operations are subject to laws and regulations relating to environmental matters.

As the current or previous owner or manager of a hotel, we could be liable for the clean up of contamination and other remedial 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 remedy 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 use the property as collateral when borrowing. In addition, as we arrange for the disposal or treatment of hazardous or toxic substances, we 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 us. Environmental laws require
abatement or removal of certain asbestos-containing material in the event of damage, demolition or renovation. We have an asbestos abatement program and continue to manage these materials in many of
our hotels.

Laws
and regulations change over time and we may become subject to more stringent environmental laws and regulations and face broader environmental liability under common law. We are not
aware of any potential material environmental liabilities for which we will be responsible with respect to any of the properties which we currently or previously managed or owned, but such liabilities
may exist and may be material.

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

We operate properties in a variety of locations. Some of these properties experience extreme weather conditions that can affect the hotels as well as customer
travel. From time to time, this can have a significant adverse financial impact on our properties or the regions in which they are located. Properties are also vulnerable to the effects of destructive
forces, such as earthquakes, hurricanes, fire, storms and flooding. Although our properties are insured against property damage, damages resulting from acts of God or terrorism may exceed the limits
of the insurance coverage or be outside the scope of the coverage.

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

There is intense competition between the operators of luxury and first-class hotels to attract guests. Competition for guests is based primarily on brand name
recognition, convenience of location, quality of the property, room rates and the diversity and quality of food, services and amenities offered. Demographic, political or other changes in one or more
of our markets could adversely affect the convenience or desirability of our properties. We also compete for employees. We also compete 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 investment opportunities
available to us and increasing our cost to acquire management contracts or properties.

Our ability to operate our properties may be adversely affected if our relationship with employees were to deteriorate.

Relations with employees in various countries, including approximately 13,000 employees represented by 18 labor unions, could deteriorate due to disputes related
to such issues as wage or benefit levels or our response to changes in government regulation of workers and the workplace. Our operations rely heavily on employees, whether they are employed directly
or supervised by Fairmont or Delta, and the employees' ability to provide high-quality personal service to guests. Any labor shortage due to competitive pressures or stoppage caused by disagreements
with employees, including those represented by labor unions, could adversely affect our ability to provide these services and could result in the temporary closure of a particular hotel, reduce
occupancy and room revenue or potentially damage our reputation.

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Our internal control over financial reporting may not be considered effective, which could result in possible regulatory sanctions and a decline in our share price.

We
will be required to furnish a report on our internal control over financial reporting with our Annual Report on Form 40-F for the fiscal year ending December 31, 2006. This internal
control report will contain an assessment by our management of the effectiveness of our internal control over financial reporting (including the disclosure of any material weakness) and a statement
that our independent auditors have attested to and reported on management's evaluation of such internal controls. We are required to, among other things, maintain effective disclosure controls and
procedures and internal control over financial reporting.

Ultimately,
our internal control over financial reporting may not be considered effective if, among others things:



Due
to the number of controls to be examined, the complexity of the project, and the subjectivity involved in determining the effectiveness of controls, we cannot be certain that all of
our controls will be considered effective by management or, if considered effective by our management, that our auditors will agree with such assessment.

In
addition, we are required by law to certify each quarter as to the absence of any material deficiency in our internal controls. If we are unable to assert that our internal control
over financial reporting is effective, or if our auditors are unable to attest that our management's report is fairly stated or they are unable to express an opinion on our management's evaluation, we
could be subject to regulatory sanctions and investors could lose confidence in the accuracy
and completeness of our financial reports, either of which could have an adverse effect on the market price for our securities.

Vacation ownership is subject to extensive regulation.

We currently operate two vacation ownership resorts and are developing other vacation ownership resorts. We are typically subject to extensive government
regulation in the jurisdictions where they are located. In addition, the laws of many jurisdictions in which we may sell vacation property grant the purchaser the right to rescind the purchase
contract at any time within a statutory period. Although we believe that we are in compliance with all the relevant laws and regulations related to vacation ownership marketing, sales and operations,
changes in those laws and regulations or the determination by a regulatory authority that we are not in compliance could adversely affect our results. If the purchaser of a property defaults, we may
not be able to recover all of the marketing, selling and general and administrative costs related to the sale.

We 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.

We
are a Canadian corporation. A majority of our Directors and Officers are residents of Canada and most of our assets and the assets of our 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 us or our Directors and Officers or enforce judgments obtained in U.S. courts
against FHR or our Directors and Officers based upon the civil liability provision of U.S. federal or state securities laws. We have been advised by counsel that there is doubt as to whether a
judgment of a U.S. court based solely upon the civil liability provision of U.S. federal or state securities laws would be enforceable in Canada against FHR or our Directors and Officers. There is
also doubt as to whether an original action could be brought in Canada against FHR or our Directors and Officers to enforce liabilities based solely upon U.S. federal or state securities laws.

Non-GAAP financial measures

We use non-GAAP measures to assess our operating performance. Securities regulators require that companies caution readers that earnings and other measures
adjusted to a basis other than GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies.

Revenue per available room ("RevPAR")

RevPAR is calculated as rooms revenue divided by the number of rooms available in the period. Management considers RevPAR to be a meaningful indicator of hotel
operations because it measures the period-over-period change in room revenues. It is also used by investors and analysts as a measure of the Company's financial performance. However, it is not a
defined measure of operating performance under Canadian GAAP. It is likely that FHR's calculation of RevPAR is different than the calculations used by other entities.

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EBITDA

EBITDA is defined as earnings before interest, taxes and amortization. Management considers EBITDA to be a meaningful indicator of operations and uses it as the
primary measure to assess the operating performance of the Company's business segments. EBITDA provides us with an understanding of the Company's operating results before the impact of investing and
financing transactions and income taxes. It also facilitates comparisons between the Company and its competitors. Investors, analysts and our lenders also use it as a measure of the Company's
financial performance. However it is not a defined measure of operating performance under Canadian GAAP. It is likely that FHR's calculations of EBITDA vary from those used by others. In 2004, EBITDA
was defined as income before interest, taxes, amortization, gain on sales of investments and hotel assets and other (income) expenses. In the third quarter of 2005, FHR adopted the current definition
of EBITDA. The table below provides a reconciliation of EBITDA to net income with years 2003 and 2004 restated to reflect the change in the definition of EBITDA:

Reconciliation of EBITDA to net income

|Year ended December 31 (millions of dollars) |                               | 2005 |       | 2004 |   | 2003  |     
|-------------------------------------------- | ----------------------------- | ---- | ----- | ---- | - | ----- | ----
|EBITDA                                       |                               | $    | 264.8 |      | $ | 324.7 |     
|Deduct:                                      |                               |      |       |      |   |       |     
|                                             | Amortization                  |      |       | 70.5 |   |       | 73.9
|                                             | Income tax expense (recovery) |      |       | 4.4  |   |       | 61.9
|                                             | Interest expense, net         |      |       | 22.4 |   |       | 33.1
|                                             |                               |      |       |      |   |       |     
|Net Income                                   |                               | $    | 167.5 |      | $ | 155.8 |     
|                                             |                               |      |       |      |   |       |     

Forward-looking information

This document contains forward-looking information based on our best estimates of the current operating environment. These forward-looking statements are related
to, but not limited to, our operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as "anticipate,"
"believe," "expect," "plan," "guidance" 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." There is significant risk that our predictions and other
forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results
to differ materially from our expectations. We disclaim any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or
otherwise.

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