##### 



Exhibit 99.1 (FAIRMONT HOTELS & RESORTS INC. GRAPHIC) We continue to benefit from the ongoing
strength in travel demand, particularly
for luxury properties, and from our
exposure to the leisure segment of the
business. Our Canadian properties have
experienced a solid rebound over last year
and our U.S. and international hotels
continue to produce considerable RevPAR
growth driven by both occupancy and rate
increases in most markets. Third quarter
2004 highlights include the following:  
    
    Operating revenues1 improved 9.9% to $197.1 million.  
    
    EBITDA1 increased 35.4% to $63.5
million. Excluding the $7.4 million
provision taken in 2003 related to
hurricane damage in Bermuda, EBITDA
rose 16.9% in the quarter.  
    
    Entered into an agreement to
manage Londons renowned Savoy
Hotel.  
    
    Sold real estate interests in
two resorts for gross proceeds of
$387.1 million while maintaining
long term-management contracts.  
    
    Revenue per available room
(RevPAR) for the comparable
owned portfolio improved 17.1%.
Occupancy improved 5.6 points
(9.2%) and average daily rate
(ADR) increased 7.1%.  
    
    Net income of $131.8 million and diluted
earnings per share (EPS) of $1.66
include a $75.7 million, or $0.95 per
share, gain from the two hotel sales in
the quarter and a $27.6 million, or $0.35
per share, gain from the sale of Legacy
units. 2003 net income and EPS include a
$7.4 million provision for hurricane
damage. Excluding these items, EPS rose
50% over 2003 levels. During the third
quarter, our Canadian owned properties
performed to expectation however, our
overall results were affected by lower
than anticipated earnings from our
investment in Legacy Hotels Real Estate
Investment Trust (Legacy or the
Trust), whose portfolio was impacted by
weaker than expected U.S. travel to
Canada. In addition, the recent reduction
in our ownership position in the Trust
also reduced the earnings from this
investment. As a result of these factors, we
expect to be at the lower end of its
previous 2004 EBITDA guidance range of
$185  $195 million. This guidance
includes approximately $7 million from
real estate activities. Including the gains from the sale
of the Legacy units and the two resorts
of $103.3 million ($1.30 per share), net
income for the year is now estimated to
be between $160  $166 million and
diluted EPS to be in the range of $2.01
 $2.09. The guidance assumes a
full-year tax rate of approximately 29%,
down slightly from the previous estimate
reflecting the sale of Legacy units. This is an exciting time for our
industry and for our Company. Lodging
fundamentals remain solid, particularly
for the luxury category where there is
minimal new hotel supply expected for
several years. Our recently renovated
portfolio combined with the long-term
strength in the leisure segment of the
business ideally position us for above
average growth. In particular, we
anticipate a substantial improvement in
performance in 2005 at our Lake Louise and
Boston
properties following the completion
of their renovation programs as well as at
The Fairmont Orchid. We remain focused on growing the
Fairmont brand. By leveraging the
strength of our balance sheet and our
growing number of capital partners, we
are poised to further expand our
portfolio. The addition of Londons Savoy
Hotel will provide us with the
opportunity to extend our distinctive
collection of properties in this
critically strategic market, provide the
ideal platform for further expansion in
Europe and position the Fairmont brand
for continued international growth. -s- WILLIAM R. FATT 
 (FAIRMONT HOTELS & RESORTS LOGO)  1
    
    See Non-GAAP Financial Measures on page 11 for
reconciliation to generally accepted accounting
principles.




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##### 



Managements Discussion and Analysis Managements discussion and analysis (the
MD&A) should be read in conjunction with
the unaudited consolidated financial
statements and notes, which begin on page
12. The financial statements of Fairmont
Hotels & Resorts Inc. (FHR or the
Company) are prepared in accordance with
Canadian generally accepted accounting
principles (GAAP). The financial
statements and the MD&A are presented in
United States dollars unless otherwise
indicated. This MD&A is based on the
segmented financial information of our
operations presented in note 10 of the
unaudited consolidated financial
statements on page 18. 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. We
consider income before interest, taxes and
amortization (EBITDA) to be a meaningful
indicator of operations and use it as our
primary measure to assess the operating
performance of our business segments. It
is likely that our calculation of EBITDA
is different than the calculations used by
other entities. EBITDA is represented on
the unaudited consolidated statements of
income as Operating income before
undernoted items. 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 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 starting on
page 41 of the 2003 annual report in the
section 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. Industry Update The solid recovery in the North American
hotel industry experienced through the
first half of the year has continued.
Industry fundamentals continue to improve
in both corporate and leisure travel
segments with most major markets in the
United States generating solid upturn in
operating performance over 2003. Luxury
hotels continue to show the greatest
levels of improvement over 2003. These
hotels have generated sizeable increases
in occupancy and modest increases in
average daily rates (ADR). Financial Highlights Three Months Ended September 30
    
    Nine Months Ended September 30(in millions, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Revenues(1)
    
    $
    207.5
    
    
    $
    188.6
    
    
    $
    603.8
    
    
    $
    545.4EBITDA(2)
    
    
    63.5
    
    
    
    46.9
    
    
    
    160.1
    
    
    
    132.5Net income(3)
    
    
    131.8
    
    
    
    11.6
    
    
    
    160.2
    
    
    
    64.2Earnings per share(3)Basic
    
    
    1.68
    
    
    
    0.15
    
    
    
    2.03
    
    
    
    0.81Diluted
    
    
    1.66
    
    
    
    0.15
    
    
    
    2.01
    
    
    
    0.80Dividends declared
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.04
    
    
    
    0.03
 (1) In July 2004, The Fairmont Kea Lani Maui and The Fairmont Glitter Bay were
sold, which impacted the results for both the quarter-ended and nine months
ended September 30, 2004. (2) In the third quarter 2003, the Company recorded a $7.4 million provision
related to the hurricane damage in Bermuda. (3) 2004 results include after-tax gains on sale of investments and hotel
assets totalling $103.3 million, or $1.32 per share ($1.30 on diluted EPS), and
2003 results for the nine months ended September 30 include a $24.4 million (or
$0.31 per share) income tax recovery related to a favorable settlement. FAIRMONT HOTELS & RESORTS INC.
 2




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##### 



Corporate Developments On September 13, 2004, we sold 12 million
units of Legacy Hotels Real Estate
Investment Trust (Legacy) for $63
million, realizing a non-taxable gain of
$27.6 million. This sale reduced the
Companys equity investment in Legacy to
23.7% from approximately 35%. On August 23, 2004, we completed
the acquisition of the 16.5% minority
interest in Fairmont Hotels Inc.
(Fairmont), our management company,
from Maritz Wolff & Co. for $70
million. On July 15, 2004, we sold The
Fairmont Kea Lani Maui for gross
proceeds of $355 million, realizing an
after-tax gain of $67.8 million. The
resort will continue to be operated as
The Fairmont Kea Lani Maui and will be
managed by Fairmont under the existing
long-term management contract. On July 9, 2004, we sold The
Fairmont Glitter Bay to a group of
investors for $32 million, resulting in a
non-taxable gain of $7.9 million. The
resort continues to be managed by
Fairmont as The Fairmont Glitter Bay. We expect to reinvest a portion of
the remaining proceeds from these sales
in additional hotels over the course of
the next year and continue with our
share repurchases. Results of Operations THREE MONTHS ENDED SEPTEMBER 30, 2004 We continue to benefit from improving
demand from both leisure and business
travelers. Our owned portfolio generated
significant revenue and EBITDA growth and
our management operations have also
realized significant gains, both in base
and incentive management fees, from the
widespread increase in travel. Hotel Ownership Operations Revenues from hotel ownership operations
were $180.3 million in the third quarter,
up $11.7 million, or 6.9% from the prior
year, despite the lost revenues from the
two hotel sales in July. Strengthening
demand was evident throughout the
portfolio, particularly in Canada, as
travel patterns return to more normal
levels after the impact of severe acute
respiratory syndrome (SARS) on 2003
performance. Revenues for the quarter from U.S.
and International hotels were flat, due
to the sale of the two hotels in July
2004. Excluding the results of these two
properties, revenues from U.S. and
International hotels were up almost 25%,
with several hotels generating
double-digit improvements over 2003. We
are particularly pleased with these
results, considering SARS did not have a
significant impact on their results last
year and our Bermuda properties have
demonstrated a solid recovery following
the devastating impact of Hurricane
Fabian in September 2003. Revenues
generated by our Canadian properties
increased 14.6% over 2003 primarily due
to the prolonged impact of SARS in 2003. RevPAR at the Comparable Owned
Hotels1 increased 17.1% to $136.82 in 2004
from $116.85 in 2003. Our aggressive
pricing strategy was evident at the U.S.
and International properties, generating
ADR growth of 9.1%. Our Canadian hotels
enjoyed improved occupancy levels compared
to 2003, as travel returns following the
impact of SARS last year. EBITDA from our hotel ownership
operations of $50.3 million in 2004 was
up $15.3 million, or 43.7%, despite the
lost EBITDA from the two hotel sales in
July. In 2003 EBITDA was $35.0 million,
when the Company recorded a $7.4 million
provision related to the hurricane damage
in Bermuda. EBITDA generated  Ownership Highlights The following five properties generated about 70% of third quarter EBITDA: Banff, Lake Louise & Jasper
    
    BermudaIn the third quarter, these resorts experienced very strong
demand from the tour segment. EBITDA was up 21% from the
third quarter of 2003 and 16.6% over 2002. The Fairmont
Chateau Lake Louise enjoyed considerable revenue growth as a
result of ongoing strength in Asian tour business and the
addition of the resorts new meeting facility and guestrooms.
    
    The business climate in Bermuda has been very strong in 2004.
In the third quarter, The Fairmont Hamilton Princess enjoyed
strong growth in both ADR and occupancy, as demand was solid
from the group meeting and leisure travel segments. As planned,
The Fairmont Southampton reopened in April. The speed and
strength of the recovery at this property has greatly exceeded our
expectations.
  1
    
    Comparable Hotels are considered to be properties that were fully open
under FHR management for at least the entire current and prior periods.
Comparable Owned Hotel statistics exclude properties where renovations
have had a significant adverse effect on the properties primary
operations, or were sold during the period. 2004 THIRD QUARTER REPORT
 3




---



##### 



Managements Discussion and Analysis(contd) Comparable Owned Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR(1)
    
    $
    136.82
    
    
    $
    116.85
    
    
    
    17.1
    %ADR(2)
    
    
    205.99
    
    
    
    192.32
    
    
    
    7.1
    %Occupancy
    
    
    66.4
    %
    
    
    60.8
    %
    
    5.6 pointsCanadaRevPAR
    
    $
    173.78
    
    
    $
    152.77
    
    
    
    13.8
    %ADR
    
    
    220.81
    
    
    
    207.67
    
    
    
    6.3
    %Occupancy
    
    
    78.7
    %
    
    
    73.6
    %
    
    5.1 pointsU.S. and InternationalRevPAR
    
    $
    96.07
    
    
    $
    78.23
    
    
    
    22.8
    %ADR
    
    
    181.67
    
    
    
    166.49
    
    
    
    9.1
    %Occupancy
    
    
    52.9
    %
    
    
    47.0
    %
    
    5.9 points
  (1)
    
    RevPAR is calculated as rooms revenues per available room per day.(2)
    
    ADR is calculated as rooms revenues per occupied room per day. Exclusions: The Fairmont Southampton; The Fairmont Copley Plaza Boston; The
Fairmont Kea Lani Maui (Sold July 2004); The Fairmont Glitter Bay (Sold July
2004).  by the Canadian properties was up
considerably over 2003, increasing by
almost 22%. This improvement was
generated both by increased ADR as well
as higher occupancy levels, which have
returned to more normal levels following
the impact of SARS in 2003. Overall, EBITDA margins improved to
27.9%, up from 20.8% in 2003. This
improvement was the result of higher ADR
and occupancy levels across our owned
portfolio this year as well as the
impact of the $7.4 provision for
hurricane damage on 2003 results. Hotel ownership operations also
include $1.5 million in equity income from
minority equity investments in various
managed hotels. This amount is slightly
higher than 2003. Our equity investment in Legacy
generated equity income of $3.7 million
in 2004 compared to $2.6 million in 2003. Real Estate Activities We did not dispose of any land at our
Toronto or Vancouver sites during the
third quarter, and we expect no further
disposals during the remainder of 2004.
The sale of vacation ownership interests
contributed $4.4 million in revenues
during the quarter. EBITDA generated by
real estate activities during the quarter
was a loss of $0.6 million, compared to a
loss of $1.0 million in 2003. Management Operations Fairmont Hotels Inc. (Fairmont) In the third quarter of 2004, revenues
under management were $454 million, up
$60 million or 15.2% from 2003. Improved
operating results at the U.S. and
International hotels, new management
contracts and a return to more normal
occupancy levels in Canada following the
impact of SARS in 2003 all contributed to
this increase. Fairmont earned fee revenues of
$14.1 million in the third quarter, a
12.8% improvement over 2003. This
increase consists primarily of higher
base management fees, which rose
commensurate with the increase in
revenues under management. Fee revenues
included $5.5 million from our owned
properties, up $0.7 million from 2003. For the Fairmont managed portfolio of
Comparable Hotels, RevPAR increased 12.8%
to $133.71. RevPAR at the U.S. and
International properties was up 10.8% from
2003 due to widespread ADR growth across
the city center portfolio as well as
strong occupancy growth at our resort
properties. RevPAR at the Canadian
properties was up 14.6% as ADR improved by
10.7%. When measured in Canadian dollars,
RevPAR increased approximately 9% over
2003. FAIRMONT HOTELS & RESORTS INC.
 4




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##### 



Comparable Fairmont Managed Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR
    
    $
    133.71
    
    
    $
    118.58
    
    
    
    12.8
    %ADR
    
    
    194.17
    
    
    
    177.71
    
    
    
    9.3
    %Occupancy
    
    
    68.9
    %
    
    
    66.7
    %
    
    2.2 pointsCanadaRevPAR
    
    $
    137.64
    
    
    $
    120.15
    
    
    
    14.6
    %ADR
    
    
    184.41
    
    
    
    166.60
    
    
    
    10.7
    %Occupancy
    
    
    74.6
    %
    
    
    72.1
    %
    
    2.5 pointsU.S. and InternationalRevPAR
    
    $
    129.66
    
    
    $
    116.99
    
    
    
    10.8
    %ADR
    
    
    206.08
    
    
    
    190.94
    
    
    
    7.9
    %Occupancy
    
    
    62.9
    %
    
    
    61.3
    %
    
    1.6 points
 Exclusions: The Fairmont Southampton; The Fairmont Olympic Hotel, Seattle; The Fairmont Turnberry Isle Resort & Club, Miami Fairmont generated third quarter
EBITDA of $8.2 million in 2004, down from
$8.6 million in the prior year. EBITDA
margin also decreased to 58.2% from 68.8%
in 2003. The drop in margins is due in
part to the impact of the appreciation of
the Canadian dollar on management
expenses, the majority of which are
incurred in Canadian dollars, and to the
introduction of a key employee long-term
incentive plan beginning in 2004. Delta Hotels Limited (Delta) Revenues under management were $105
million, a 15.5% increase from 2003, while
management fee revenues were $3.5 million
versus $3.0 million in 2003. This increase
in revenues is directly related to Deltas
increase in revenues under management. RevPAR for Deltas Comparable Hotels
increased 18.2% over 2003 due primarily
to the impact of SARS on the prior years
results. When measured in Canadian
dollars, RevPAR was up approximately 12%
over 2003. Comparable Delta Managed Hotels 2004
    
    2003
    
    VarianceRevPAR
    
    $
    76.74
    
    
    $
    64.95
    
    
    
    18.2
    %ADR
    
    
    103.21
    
    
    
    96.83
    
    
    
    6.6
    %Occupancy
    
    
    74.3
    %
    
    
    67.1
    %
    
    7.2 points
 Exclusions: none 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 central
marketing, reservation 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 portion of amounts spent in
excess of recoveries from managed hotels
that are owned by third parties. Amortization Amortization expense was $16.8 million in
2004 compared to $17.5 million in 2003.
This decrease is due to the sale of the
two hotels in July 2004, which offset an
increase in amortization consistent with
higher levels of capital spending and the
appreciation of the Canadian dollar. Interest Expense, Net Net interest expense of $6.7 million was
down from $8.9 million in 2003. This
decrease was due primarily due to the
reduction in long-term debt resulting
from the sale of The Fairmont Kea Lani
Maui and The Fairmont Glitter Bay. 2004 THIRD QUARTER REPORT
 5




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##### 



Managements Discussion and Analysis(contd) Gains on Sales of Investments and Hotel Assets On September 13, 2004, the Company sold
12 million units of Legacy, resulting
in a $27.6 million gain. In July 2004, the Company completed
the sale of two of its real estate
interests in hotel properties. The sale of
The Fairmont Kea Lani Maui generated a
pre-tax gain of $108.7 million, and The
Fairmont Glitter Bay sale netted a $7.9
million gain. Income Tax Expense (Recovery) Income tax expense for the quarter was
$52.4 million versus $8.9 million in 2003.
This increase is attributable to the taxes
arising from the gain on sale of The
Fairmont Kea Lani Maui. Our effective tax
rate in the third quarter was 28.4%. For
2004, we expect our effective tax rate to
be approximately 29%. NINE MONTHS ENDED SEPTEMBER 30, 2004 Hotel Ownership Operations Revenues from hotel ownership
operations were $516.3 million in the
first nine months of the year, up
$53.8 million, or 11.6% from the prior
year. Strengthening demand was evident
throughout the portfolio as both the
leisure and business segments
generated increased occupancy levels.
In addition, the impact of SARS has
passed and occupancies have improved
considerably. Revenues from U.S. and International
hotels were up 9.4% despite revenues lost
from the sales of The Fairmont Kea Lani
Maui and The Fairmont Glitter Bay in early
July 2004. Virtually all other U.S. and
International hotels reported double-digit
revenue growth over 2003. Revenues
generated by our Canadian properties
increased 15.3% over 2003 due to the
appreciation in the Canadian dollar
and a strengthening in demand following
the SARS crisis in 2003. When measured in
local currency, revenues from our
Canadian properties increased by about
11%. RevPAR at the Comparable Hotels
increased 18.2% to $123.83 in 2004. Strong
occupancy growth of 8.3 points at our U.S.
and International properties was generated
through significant increases in demand
from the group business and tour group
segments. At our Canadian hotels, foreign
currency fluctuations helped to offset
slightly lower ADR when measured in
Canadian dollars. EBITDA from FHRs hotel ownership
operations of $123.7 million in 2004 was
up $27.4 million, or 28.5%, from $96.3
million in 2003, despite the lost EBITDA
from the two hotel sales in July 2004.
Both our U.S. and International
properties and Canadian properties
generated significant EBITDA improvements
over 2003. EBITDA margins of 24.0% are up 320
basis points over 2003 as the positive
impact of higher occupancies on margins
has been partially offset by increases in
fixed costs such as insurance, property
taxes and energy. In addition, ADR at the
Canadian properties has dropped
approximately 2% when measured in
Canadian dollars, which has further
compressed margins. Changes in ADR
typically produce greater changes in
EBITDA margin since there are no
incremental costs associated with such a
change. Improvements in EBITDA and EBITDA
margins were also partially offset by
increased general and administrative
costs that are allocated to hotel
ownership operations. These costs relate
primarily to increased costs for public
company regulatory requirements such as
the certification requirements under the
Sarbanes-Oxley Act. Comparable Owned Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR
    
    $
    123.83
    
    
    $
    104.73
    
    
    
    18.2
    %ADR
    
    
    192.50
    
    
    
    182.65
    
    
    
    5.4
    %Occupancy
    
    
    64.3
    %
    
    
    57.3
    %
    
    7.0 pointsCanadaRevPAR
    
    $
    125.19
    
    
    $
    108.67
    
    
    
    15.2
    %ADR
    
    
    180.95
    
    
    
    171.20
    
    
    
    5.7
    %Occupancy
    
    
    69.2
    %
    
    
    63.5
    %
    
    5.7 pointsU.S. and InternationalRevPAR
    
    $
    122.35
    
    
    $
    100.50
    
    
    
    21.7
    %ADR
    
    
    207.19
    
    
    
    198.03
    
    
    
    4.6
    %Occupancy
    
    
    59.1
    %
    
    
    50.8
    %
    
    8.3 points
 Exclusions: The Fairmont Southampton; The Fairmont Copley Plaza Boston; The Fairmont Kea Lani Maui; The Fairmont Glitter Bay. FAIRMONT HOTELS & RESORTS INC.
 6




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##### 



Our equity investment in Legacy
generated an equity loss of $0.8 million
in 2004 compared to a loss of $4.2 million
in 2003. Operating results from Legacys
portfolio experienced a sharp rebound in
the second and third quarters, however,
these improvements were partially offset
by first quarter equity losses that were
magnified by the appreciation in the
Canadian dollar. Real Estate Activities In 2004, we disposed of one block of land
from our Coal Harbour site in Vancouver as
well as one small block of land that was
not part of our principal real estate
holdings in Toronto or Vancouver. Total
proceeds received for these lands were
$15.4 million. In 2003, FHR disposed of a
total of three blocks of land for proceeds
of $30.8 million. Sales of vacation
ownership interests generated $9.4 million
in revenues. Real estate activities
generated EBITDA of $8.2 million compared
to $14.9 million in 2003. Management Operations Fairmont Hotels Inc. (Fairmont) In the first nine months of 2004,
revenues under management were $1,273
million, up $204 million or 19.1% from
2003. Improved operating results at the
U.S. and International hotels, new
management contracts, a return to more
normal occupancy levels following the
impact of SARS in 2003 and the
appreciation in the Canadian dollar all
contributed to this increase. Fairmont earned fee revenues of $40.2
million in the first nine months of 2004,
a 20.4% improvement over 2003. This
increase consists primarily of higher base
management fees and is commensurate with
the increase in revenues under management.
Fee revenues included $16.4 million from
our owned properties, up $2.3 million from
2003. Comparable Fairmont Managed Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR
    
    $
    121.50
    
    
    $
    106.30
    
    
    
    14.3
    %ADR
    
    
    183.90
    
    
    
    172.38
    
    
    
    6.7
    %Occupancy
    
    
    66.1
    %
    
    
    61.7
    %
    
    4.4 pointsCanadaRevPAR
    
    $

    105.08
    
    
    $
    90.12
    
    
    
    16.6
    %ADR
    
    
    156.16
    
    
    
    143.81
    
    
    
    8.6
    %Occupancy
    
    
    67.3
    %
    
    
    62.7
    %
    
    4.6 pointsU.S. and InternationalRevPAR
    
    $
    138.10
    
    
    $
    122.55
    
    
    
    12.7
    %ADR
    
    
    212.99
    
    
    
    202.01
    
    
    
    5.4
    %Occupancy
    
    
    64.8
    %
    
    
    60.7
    %
    
    4.1 points
 Exclusions: The Fairmont Southampton; The Fairmont Olympic Hotel, Seattle; The Fairmont Turnberry Isle Resort & Club, Miami. For the Fairmont managed portfolio of
Comparable Hotels, RevPAR increased 14.3%
to $121.50. RevPAR at the U.S. and
International properties was up 12.7%
from 2003 due to strong occupancy growth
from both leisure and business travel. RevPAR at the Canadian properties
was up 16.6% primarily due to the rebound
from the effect of SARS on occupancy
levels in 2003 as well as the impact of
foreign exchange rate fluctuations. When
measured in Canadian dollars, RevPAR at
the Canadian properties was up about 9%
from 2003. Fairmont generated EBITDA of $23.4
million in the first nine months of 2004,
up 17.6% from 2003. EBITDA margin
decreased to 58.2% from 59.6% in 2003. The
improvement from increased fee revenues
was partially offset by increased
administrative costs. The appreciation in
the Canadian dollar also reduced EBITDA
and EBITDA margin as virtually all of
Fairmonts operating expenses are incurred
in Canadian dollars. Delta Hotels Limited (Delta) Revenues under management were $278
million, a 15.8% increase from 2003, while
management fee revenues were $9.6 million
versus $8.7 million in 2003. The increase
in management fees is not consistent with
the increase in revenues under management
due to the receipt of a payout resulting
from the termination of a franchise
agreement in 2004 and a one-time payout in
2003 resulting from a settlement of the
early termination of two management
contacts in 2000 and 2001. Excluding these
amounts, 2004 THIRD QUARTER REPORT 7




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##### 



Managements Discussion and Analysis(contd)  Comparable Delta Managed Hotels 2004
    
    2003
    
    VarianceRevPAR
    
    $
    65.04
    
    
    $
    55.31
    
    
    
    17.6
    %ADR
    
    
    97.67
    
    
    
    91.43
    
    
    
    6.8
    %Occupancy
    
    
    66.6
    %
    
    
    60.5
    %
    
    6.1 points
 Exclusions: none  management fees have increased more
than revenues under management due to
higher incentive fee income. RevPAR at Deltas Comparable Hotels
increased 17.6% over 2003 due to
occupancy returning to more normal
levels combined with the appreciation of
the Canadian dollar. When measured in
Canadian dollars, RevPAR was up
approximately 9% over 2003. 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 central
marketing, reservation 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 portion of amounts spent in
excess of recoveries from managed hotels
that are owned by third parties. In the
first nine months of 2004, we recognized a
$0.4 million deficit on these programs. Amortization Amortization expense was $54.3 million
in 2004 compared to $51.0 million in
2003. This increase was consistent with
higher levels of capital spending, the
acquisition of The Fairmont Copley Plaza
Boston in February 2003 and the
appreciation of the Canadian dollar,
offset by the sale of the two hotels in
July 2004. Interest Expense, Net Net interest expense of $25.7 million was
up from $23.1 million in 2003. This
increase was due in part to foreign
currency fluctuations, additional interest
expense from the full period inclusion of
$65 million in debt assumed on the
acquisition of The Fairmont Copley Plaza
Boston in February 2003 as well as higher
borrowings during the first half of 2004.
This was partially offset from the
reduction in debt relating to the sales of
The Fairmont Kea Lani Maui and The
Fairmont Glitter Bay. Gains on Sales of Investments and Hotel Assets On September 13, 2004, the Company sold
12,000,000 units of Legacy, resulting in
a $27.6 million gain. In July 2004, the Company completed
the sale of two of its real estate
interests in hotel properties. The sale of
The Fairmont Kea Lani Maui generated a
pre-tax gain of $108.7 million, and The
Fairmont Glitter Bay sale netted a $7.9
million gain. Income Tax Expense (Recovery) Income tax expense for 2004 was $64.1
million versus a recovery of $5.8 million
in 2003 when a favorable settlement
reduced income tax expense by $24.4
million. The 2004 expense includes
approximately $41 million of taxes
applicable to the gain on sale of The
Fairmont Kea Lani Maui. Our effective tax
rate for the period was 28.6%. Foreign Exchange Three Months
    
    Nine MonthsImpact of Canadian Dollar
    
    Ended
    
    EndedAppreciation in 2004
    
    Sept. 30, 2004
    
    Sept. 30, 2004Operating revenues
    
    $
    5.4
    
    
    $
    14.4EBITDA
    
    $
    1.8
    
    
    $
    2.5Interest
    
    
    
    
    
    
    (0.2
    )Amortization
    
    
    (0.4
    )
    
    
    (1.7
    )Income taxes
    
    
    0.3
    
    
    
    Net income impact
    
    $
    1.7
    
    
    $
    0.6EPS impact
    
    $
    0.02
    
    
    $
    0.01
 Average Canadian dollar exchange
rates in the third quarter and first nine
months of 2004 were approximately 5.5% and
7% higher, respectively, than the same
periods in 2003. As it is not possible to
accurately determine the impact that
foreign exchange fluctuations have on
business levels, if any, such impact has
been excluded from the analysis above. FAIRMONT HOTELS & RESORTS INC. 8




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##### 



Liquidity and Capital Resources Capitalization September 30
    
    December 31(in millions)
    
    2004
    
    2003Cash
    
    $
    167.8
    
    
    $
    31.7Current debt
    
    $
    4.0
    
    
    $
    117.8Long-term debt
    
    
    365.1
    
    
    
    539.8369.1
    
    
    
    657.6Shareholders equityconvertible notes(1)
    
    
    19.2
    
    
    
    19.2common share equity(2)
    
    
    1,644.3
    
    
    
    1,526.71,663.5
    
    
    
    1,545.9Total capitalization
    
    $
    2,032.6
    
    
    $
    2,203.5Debt to total capitalization ratio
    
    
    18.2
    %
    
    
    29.8
    %Debt to total asset ratio
    
    
    15.3
    %
    
    
    26.3
    %Interest coverage(3)
    
    
    10.1
    x
    
    
    5.2
    x
  (1)
    
    Amount of  $270 million convertible notes related to conversion feature.  (2)
    
    Includes contributed surplus, treasury stock, foreign currency translation adjustments and retained earnings.  (3)
    
    Calculated as 12-months trailing EBITDA divided by annual interest payments on debts outstanding at the end of period. Our consolidated net borrowing
position improved to $201.3 million at
September 30, 2004 from $625.9 million at
the beginning of the year. The increase
in cash balances and reduction to
long-term debt at quarter-end was due
primarily to the sale of the two
properties in July 2004 as well as the
sale of the Legacy units in September
2004. The increase in interest coverage
relates primarily to the reduction in
debt. Cash Flows Cash Flows Three Months Ended September 30
    
    Nine Months Ended September 30(millions of dollars)
    
    2004
    
    2003
    
    2004
    
    2003InflowsFunds generated from operations
    
    $
    3.1
    
    
    $
    26.1
    
    
    $
    91.7
    
    
    $
    105.6Change in working capital
    
    
    52.0
    
    
    
    15.1
    
    
    
    15.7
    
    
    
    (19.5
    )Cash generated from operations
    
    
    55.1
    
    
    
    41.2
    
    
    
    107.4
    
    
    
    86.1Sales of investments and hotel assets
    
    
    443.6
    
    
    
    
    
    
    
    443.6
    
    
    
    Other
    
    
    0.1
    
    
    
    
    
    
    
    9.0
    
    
    
    6.0Total inflows
    
    
    498.8
    
    
    
    41.2
    
    
    
    560.0
    
    
    
    92.1OutflowsAdditions to property and equipment
    
    
    (14.2
    )
    
    
    (19.9
    )
    
    
    (58.2
    )
    
    
    (55.5
    )Investments in partnerships and corporations
    
    
    (1.9
    )
    
    
    
    
    
    
    (4.9
    )
    
    
    (0.7
    )(Repurchase) issuance of common shares, net
    
    
    (46.1
    )
    
    
    0.5
    
    
    
    (50.9
    )
    
    
    (16.2
    )Dividends paid
    
    
    (3.2
    )
    
    
    (2.4
    )
    
    
    (6.4
    )
    
    
    (4.8
    )Other
    
    
    
    
    
    
    (26.8
    )
    
    
    (7.0
    )
    
    
    (28.3
    )Total outflows
    
    
    (65.4
    )
    
    
    (48.6
    )
    
    
    (127.4
    )
    
    
    (105.5
    )Net borrowing (repayment) of debt
    
    
    (313.9
    )
    
    
    7.1
    
    
    
    (296.8
    )
    
    
    10.3Effect of exchange rates on cash balances
    
    
    0.5
    
    
    
    
    
    
    
    0.3
    
    
    
    3.5Increase (decrease) in cash
    
    $
    120.0
    
    
    $
    (0.3
    )
    
    $
    136.1
    
    
    $
    0.4
 2004 THIRD QUARTER REPORT 9




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##### 



Managements Discussion and Analysis(contd) Cash generated by operations totaled $55.1
million for the third quarter of 2004 and
$107.4 million for the period ended
September 30, 2004, representing
improvements of $13.9 and $21.3 million,
respectively. These improvements were
achieved despite a large decline in cash
generated by real estate activities. In
the period ended September 30, 2004, real
estate activities generated approximately
$8 million of cash compared to
approximately $22 million in 2003, when
three blocks of land were sold. Major 2004 Capital Projects The Fairmont Chateau Lake Louise
    
    Construction of a 18,000 square foot meeting facility and 81 new guestroomsThe Fairmont Copley Plaza Boston
    
    Creation of a Fairmont Gold loungeGuestroom renovations (remaining one-third of hotel)Upgrades to public areas
 As expected, accounts receivable
balances at September 30, 2004 were up
considerably over year-end due to the
seasonality of our business. Receivable
balances at year-end are typically from
revenues earned in the fourth quarter, our
lowest earnings period. The prepaid
expenses and other account decreased from
year-end due to the repayment by Legacy of
a loan. Otherwise, all other working
capital balances are consistent with
December 31, 2003. Net expenditures on profit-enhancing
and upgrade capital expenditures totaled
$14.2 million in the third quarter, down
$5.7 million from 2003. For the nine-month
period ended September 30, 2004, we have
spent a total of $58.2 million on
profit-enhancing and upgrade capital.
These expenditures were principally
directed to upgrade capital and
profit-enhancing projects at The Fairmont
Chateau Lake Louise and The Fairmont
Copley Plaza Boston. Capital expenditure
amounts do not include costs related to
the repairs in Bermuda as such costs were
covered by insurance. For the remainder of 2004, we expect
spending on upgrade capital and
profit-enhancing projects to be in the
range of $17  $23 million, which will
likely be funded through cash generated
from operating activities. We do not
anticipate any other major
profit-enhancing projects before 2005. In October 2004, we obtained
regulatory approval to purchase for
cancellation up to approximately 10% of
our common shares. Under the previous
issuer bid which ended on October 7, 2004,
we have repurchased in the nine months
ended September 30, 2004 1,946,300 shares
under this program at a total cost of
$51.8 million. All purchases were made in
the second and third quarters of 2004. Liquidity In March, we entered into a $400 million
unsecured credit facility to replace the
Cdn$453 million bank facility that would
have expired in September 2004. The
interest rate on the unsecured credit
facility is floating based on market
interest rates plus a spread. Contractual Obligations Payments Due by Period(in millions)
    
    Total
    
    < 1 Year
    
    13 Years
    
    45 Years
    
    After 5 YearsLong-term debt
    
    $
    369.1
    
    
    $
    4.0
    
    
    $
    69.6
    
    
    $
    7.2
    
    
    $
    288.3Operating leases
    
    
    96.9
    
    
    
    13.5
    
    
    
    32.3
    
    
    
    20.7
    
    
    
    30.4Purchase obligations
    
    
    11.9
    
    
    
    11.9
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    81.4
    
    
    
    9.6
    
    
    
    29.4
    
    
    
    12.0
    
    
    
    30.4Total
    
    $
    559.3
    
    
    $
    39.0
    
    
    $
    131.3
    
    
    $
    39.9
    
    
    $
    349.1
 At September 30, 2004, our primary
sources of contractual obligations
consisted of property-specific mortgages
and $270 million in convertible senior
notes. At September 30, 2004, there were
no outstanding loans on our $400 million
unsecured credit facility. $69.3 million
in letters of credit were issued against
this facility. Additionally, Fairmonts
$100 million operating line was terminated
during the third quarter. FAIRMONT HOTELS & RESORTS INC. 10




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##### 



In July 2004, we repaid the $120.0
million mortgage that had been secured
by The Fairmont Kea Lani Maui using
proceeds received from the sale of this
hotel. A portion of the funds received
from this hotel was also
used for the $70 million acquisition of
the remaining 16.5% minority interest
in Fairmont, as well as for the
repurchase of shares. Contractual Commitments Commitment Expiration per Period(in millions)
    
    Total
    
    < 1 Year
    
    13 Years
    
    45 Years
    
    After 5 YearsStandby letters of credit(1)
    
    $
    74.2
    
    
    $
    74.2
    
    
    
    
    
    
    
    
    
    
    
    Guarantees
    
    
    12.0
    
    
    
    12.0
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    86.2
    
    
    $
    86.2
    
    
    
    
    
    
    
    
    
    
    
    
  (1)
    
    FHR typically issues letters of credit against its lines of credit. Outstanding Common Share Data September 30
    
    December 31Shares Outstanding (in 000s)
    
    2004
    
    2003Common shares
    
    
    77,366.9
    
    
    
    79,106.3Potential issuance
of common shares:Options issued to directors
and employees
    
    
    3,513.4
    
    
    
    3,587.8Conversion of convertible
senior notes (conversion price $37.73)
    
    
    7,156.1
    
    
    
    7,156.1
 Non-GAAP Financial Measures Operating Revenues Operating revenues excludes other revenues
from managed and franchised properties
(consists of direct and indirect costs
relating primarily to marketing and
reservation services that are reimbursed
by hotel owners on a cost recovery basis).
Management considers that the exclusion of
such revenues provides a meaningful
measure of operating performance, however,
it is not a defined measure of operating
performance under Canadian GAAP. It is
likely that FHRs calculation of operating
revenues is different than the calculation
used by other entities. EBITDA EBITDA is defined as earnings before
interest, taxes and amortization. Income
from investments and other is included in
EBITDA. Management considers EBITDA to be
a meaningful indicator of hotel operations
and uses it as the primary measurement of
operating segment profit and loss.
However, it is not a defined measure of
operating performance under Canadian
generally accepted accounting principles
(Canadian GAAP). It is likely that FHRs
calculation of EBITDA is different than
the calculations used by other entities.
EBITDA is represented on the consolidated
statements of income as operating income
before undernoted items. Reconciliation of EBITDA to net income: Three Months Ended September 30
    
    Nine Months Ended September 30(millions of dollars)
    
    2004
    
    2003
    
    2004
    
    2003EBITDA
    
    $
    63.5
    
    
    $
    46.9
    
    
    $
    160.1
    
    
    $
    132.5Deduct:Gain on sales of investments and hotel assets
    
    
    (144.2
    )
    
    
    
    
    
    
    (144.2
    )
    
    
    Amortization
    
    
    16.8
    
    
    
    17.5
    
    
    
    54.3
    
    
    
    51.0Interest expense, net
    
    
    6.7
    
    
    
    8.9
    
    
    
    25.7
    
    
    
    23.1Income tax expense (recovery)
    
    
    52.4
    
    
    
    8.9
    
    
    
    64.1
    
    
    
    (5.8
    )Net income
    
    $
    131.8
    
    
    $
    11.6
    
    
    $
    160.2
    
    
    $
    64.2
 2004 THIRD QUARTER REPORT 11




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##### 



Managements Discussion and Analysis(contd) Changes in Accounting Policies Hedging Relationships Effective January 1, 2004, we implemented
new guidance on accounting for hedging
relationships. The new guidelines specify
the circumstances in which hedge
accounting is appropriate, including the
identification, documentation, designation
and effectiveness of hedges and also the
discontinuance of hedge accounting. The
adoption of this accounting guidance did
not have a material impact on operations
or financial statement presentation. Generally Accepted Accounting
Principles and General Standards of
Financial Statement Presentation Effective January 1, 2004, we are now
following new accounting standards
surrounding GAAP and general standards of
financial statement presentation. These
standards lay out a framework for the
application of GAAP and the fair
presentation of financial standards in
accordance with GAAP. No changes to our
financial statement presentation were
required as we were already in full
compliance with these new standards. 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. Variable Interest Entities New accounting guidelines will require us
to identify Variable Interest Entities
(VIEs) in which we have an interest,
determine whether we are the primary
beneficiary of such entities and, if so,
to consolidate the VIE. A VIE is an entity
in which:  
    
    the equity is not sufficient to
permit that entity to finance its
activities without external support,
or  
    
    equity investors lack either voting
control, an obligation to absorb expected
losses or the right to receive expected
residual returns. A primary beneficiary is an enterprise
that will absorb a majority of a VIEs
expected losses, receive a majority of
its expected residual returns, or both. This guideline could result in the
consolidation of managed hotels or
investments currently accounted for
using the equity method and the
deconsolidation of any subsidiary where
we determine that the Company is not the
primary beneficiary. We originally anticipated
implementing this guideline in the first
quarter of 2004. However, due to the
complexities and continually evolving
guidance surrounding this guideline, we
have delayed the implementation of this
standard under Canadian GAAP until 2005.
We have reduced our ownership interest in
Legacy. As such, consolidation of our interest in
Legacy will not be required under the VIE
guidelines. We do not expect this
guideline to have a material impact on
our financial statement presentation. FAIRMONT HOTELS & RESORTS INC. 12




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##### 



Consolidated Balance Sheets September 30
    
    December 31(Stated in millions of U.S. dollars)
    
    2004
    
    2003(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    167.8
    
    
    $
    31.7Accounts receivable
    
    
    94.2
    
    
    
    64.1Inventory
    
    
    14.8
    
    
    
    14.2Prepaid expenses and other
    
    
    15.5
    
    
    
    24.6292.3
    
    
    
    134.6Investments in partnerships and corporations (note 6)
    
    
    71.9
    
    
    
    53.1Investment in Legacy Hotels Real Estate Investment Trust (note 4)
    
    
    70.8
    
    
    
    105.9Non-hotel real estate
    
    
    97.6
    
    
    
    95.1Property and equipment (note 3)
    
    
    1,409.7
    
    
    
    1,656.2Goodwill
    
    
    160.3
    
    
    
    132.0Intangible assets
    
    
    218.5
    
    
    
    216.7Other assets and deferred charges (note 6)
    
    
    98.9
    
    
    
    109.4$
    2,420.0
    
    
    $
    2,503.0Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    123.1
    
    
    $
    121.3Taxes Payable
    
    
    52.1
    
    
    
    2.7Dividends payable
    
    
    
    
    
    
    3.2Current portion of long-term debt (note 7)
    
    
    4.0
    
    
    
    117.8179.2
    
    
    
    245.0Long-term debt (note 3 and 5)
    
    
    365.1
    
    
    
    539.8Other liabilities
    
    
    91.3
    
    
    
    91.4Future income taxes
    
    
    120.9
    
    
    
    80.9756.5
    
    
    
    957.1Shareholders Equity (note 8)
    
    
    1,663.5
    
    
    
    1,545.9$
    2,420.0
    
    
    $
    2,503.0
 Consolidated Statements of Retained Earnings Three months ended September 30
    
    Nine months ended September 30(Stated in millions of U.S. dollars) (Unaudited)
    
    2004
    
    2003
    
    2004
    
    2003Balance  Beginning of period
    
    $
    101.1
    
    
    $
    83.2
    
    
    $
    78.1
    
    
    $
    38.5Net income
    
    
    131.8
    
    
    
    11.6
    
    
    
    160.2
    
    
    
    64.2232.9
    
    
    
    94.8
    
    
    
    238.3
    
    
    
    102.7Repurchase of common shares (note 8)
    
    
    (18.2
    )
    
    
    
    
    
    
    (20.4
    )
    
    
    (5.5
    )Dividends
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    (2.4
    )Balance  End of period
    
    $
    214.7
    
    
    $
    94.8
    
    
    $
    214.7
    
    
    $
    94.8
 2004 THIRD QUARTER REPORT 13




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##### 



Consolidated Statements of Income Three months ended September 30
    
    Nine months ended September 30(Stated in millions of U.S. dollars, except per share amounts) (Unaudited)
    
    2004
    
    2003
    
    2004
    
    2003RevenuesHotel ownership operations
    
    $
    180.3
    
    
    $
    168.6
    
    
    $
    516.3
    
    
    $
    462.5Management operations
    
    
    12.0
    
    
    
    10.6
    
    
    
    33.1
    
    
    
    27.8Real estate activities
    
    
    4.8
    
    
    
    0.2
    
    
    
    26.2
    
    
    
    31.4Operating revenues
    
    
    197.1
    
    
    
    179.4
    
    
    
    575.6
    
    
    
    521.7Other revenues from managed and franchised properties
    
    
    10.4
    
    
    
    9.2
    
    
    
    28.2
    
    
    
    23.7207.5
    
    
    
    188.6
    
    
    
    603.8
    
    
    
    545.4ExpensesHotel ownership operations
    
    
    125.9
    
    
    
    130.0
    
    
    
    377.9
    
    
    
    353.7Management operations
    
    
    7.5
    
    
    
    4.7
    
    
    
    20.4
    
    
    
    15.7Real estate activities
    
    
    5.4
    
    
    
    1.2
    
    
    
    18.0
    
    
    
    16.5Operating expenses
    
    
    138.8
    
    
    
    135.9
    
    
    
    416.3
    
    
    
    385.9Other expenses from managed and franchised properties
    
    
    10.4
    
    
    
    9.7
    
    
    
    28.6
    
    
    
    24.6149.2
    
    
    
    145.6
    
    
    
    444.9
    
    
    
    410.5Income (loss) from equity investments and other
    
    
    5.2
    
    
    
    3.9
    
    
    
    1.2
    
    
    
    (2.4
    )Operating income before undernoted items
    
    
    63.5
    
    
    
    46.9
    
    
    
    160.1
    
    
    
    132.5Amortization
    
    
    16.8
    
    
    
    17.5
    
    
    
    54.3
    
    
    
    51.0Interest expense, net
    
    
    6.7
    
    
    
    8.9
    
    
    
    25.7
    
    
    
    23.1Gain on sales of investments and hotel assets(notes 3 and 4)
    
    
    (144.2
    )
    
    
    
    
    
    
    (144.2
    )
    
    
    Income before income tax expense
    
    
    184.2
    
    
    
    20.5
    
    
    
    224.3
    
    
    
    58.4Income tax expense (recovery)Current
    
    
    44.5
    
    
    
    2.5
    
    
    
    50.0
    
    
    
    9.0Future
    
    
    7.9
    
    
    
    6.4
    
    
    
    14.1
    
    
    
    (14.8
    )52.4
    
    
    
    8.9
    
    
    
    64.1
    
    
    
    (5.8
    )Net income
    
    $
    131.8
    
    
    $
    11.6
    
    
    $
    160.2
    
    
    $
    64.2Weighted average number of
common shares outstanding
(in millions) (note 8)Basic
    
    
    78.4
    
    
    
    79.1
    
    
    
    78.9
    
    
    
    79.2Diluted
    
    
    79.3
    
    
    
    79.9
    
    
    
    79.7
    
    
    
    80.0Basic earnings per common share
    
    $
    1.68
    
    
    $
    0.15
    
    
    $
    2.03
    
    
    $
    0.81Diluted earnings per common share
    
    $
    1.66
    
    
    $
    0.15
    
    
    $
    2.01
    
    
    $
    0.80
 FAIRMONT HOTELS & RESORTS INC. 14




---



##### 



Consolidated Statements of Cash Flows Three months ended September 30
    
    Nine months ended September 30(Stated in millions of U.S. dollars) (Unaudited)
    
    2004
    
    2003
    
    2004
    
    2003Cash provided by (used in)Operating activitiesNet Income
    
    $
    131.8
    
    
    $
    11.6
    
    
    $
    160.2
    
    
    $
    64.2Items not affecting cashAmortization of property and equipment
    
    
    16.0
    
    
    
    16.9
    
    
    
    52.1
    
    
    
    49.1Amortization of intangible assets
    
    
    0.8
    
    
    
    0.6
    
    
    
    2.2
    
    
    
    1.9(Income) loss from equity investments and other
    
    
    (5.2
    )
    
    
    (3.9
    )
    
    
    (1.2
    )
    
    
    2.4Future income taxes
    
    
    7.9
    
    
    
    6.4
    
    
    
    14.1
    
    
    
    (14.8
    )Unrealized foreign exchange gain
    
    
    (13.3
    )
    
    
    
    
    
    
    (3.1
    )
    
    
    Gain on sales of investments and hotel assets
    
    
    (144.2
    )
    
    
    
    
    
    
    (144.2
    )
    
    
    Distributions from investments
    
    
    4.2
    
    
    
    
    
    
    
    4.2
    
    
    
    4.4Other
    
    
    5.8
    
    
    
    (2.8
    )
    
    
    7.8
    
    
    
    (9.0
    )Changes in non-hotel real estate
    
    
    (0.7
    )
    
    
    (2.7
    )
    
    
    (0.4
    )
    
    
    7.4Changes in non-cash working capital items (note 9)
    
    
    52.0
    
    
    
    15.1
    
    
    
    15.7
    
    
    
    (19.5
    )55.1
    
    
    
    41.2
    
    
    
    107.4
    
    
    
    86.1Investing activitiesAdditions to property and equipment
    
    
    (14.2
    )
    
    
    (19.9
    )
    
    
    (58.2
    )
    
    
    (55.5
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.0Investments in partnerships and corporations
    
    
    (1.9
    )
    
    
    
    
    
    
    (4.9
    )
    
    
    (0.7
    )Sales of investments and hotel assets
    
    
    443.6
    
    
    
    
    
    
    
    443.6
    
    
    
    Collection of loans receivable
    
    
    0.1
    
    
    
    
    
    
    
    9.0
    
    
    
    Issuance of loans receivable
    
    
    
    
    
    
    (26.8
    )
    
    
    (7.0
    )
    
    
    (28.3
    )427.6
    
    
    
    (46.7
    )
    
    
    382.5
    
    
    
    (78.5
    )Financing activitiesIssuance of long-term debt
    
    
    
    
    
    
    14.8
    
    
    
    82.7
    
    
    
    161.5Repayment of long-term debt
    
    
    (313.9
    )
    
    
    (7.7
    )
    
    
    (379.5
    )
    
    
    (151.2
    )Issuance of common shares
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.9
    
    
    
    0.6Repurchase of common shares
    
    
    (46.4
    )
    
    
    
    
    
    
    (51.8
    )
    
    
    (16.8
    )Dividends paid
    
    
    (3.2
    )
    
    
    (2.4
    )
    
    
    (6.4
    )
    
    
    (4.8
    )(363.2
    )
    
    
    5.2
    
    
    
    (354.1
    )
    
    
    (10.7
    )Effect of exchange rate changes on cash
    
    
    0.5
    
    
    
    
    
    
    
    0.3
    
    
    
    3.5Increase (decrease) in cash
    
    
    120.0
    
    
    
    (0.3
    )
    
    
    136.1
    
    
    
    0.4Cash and cash equivalents  beginning of period
    
    
    47.8
    
    
    
    49.7
    
    
    
    31.7
    
    
    
    49.0Cash and cash equivalents  end of period
    
    $
    167.8
    
    
    $
    49.4
    
    
    $
    167.8
    
    
    $
    49.4
 2004 THIRD QUARTER REPORT 15




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##### 



Notes to Consolidated Financial Statements  Note 1. Fairmont Hotels & Resorts Inc. (FHR) has
operated and owned hotels and resorts for
over 116 years and currently manages
properties principally under the Fairmont
and Delta brands. At September 30, 2004,
FHR managed or franchised 82 luxury and
first-class hotels. FHR owns Fairmont
Hotels Inc. (Fairmont), which at
September 30, 2004, managed 44 properties
in major city centers and key resort
destinations throughout Canada, the United
States, Mexico, Bermuda, Barbados and the
United Arab Emirates. Delta Hotels Limited
(Delta), a wholly owned subsidiary of
FHR, managed or franchised 38 Canadian
hotels and resorts at September 30, 2004. In addition to hotel and resort
management, as at September 30, 2004, FHR
had hotel ownership interests ranging
from approximately 15% to 100% in 22
properties, located in Canada, the United
States, Mexico, Bermuda, Barbados and the
United Arab Emirates. FHR also has an
approximate 24% equity interest in Legacy
Hotels Real Estate Investment Trust
(Legacy), which owns 24 hotels and
resorts across Canada and the United
States. FHR also owns real estate
properties that are suitable for either
commercial or residential development,
and has a vacation ownership product. Results for the three and nine months
ended September 30, 2004 are not
necessarily indicative of the results that
may be expected for the full year due to
seasonal and short-term variations.
Revenues are typically higher in the
second and third quarters versus the first
and fourth quarters of the year. Note 2. These interim consolidated financial
statements do not include all disclosures
as required by Canadian generally
accepted accounting principles (GAAP)
for annual consolidated financial
statements and should be read in
conjunction with the audited consolidated
financial statements for the year ended
December 31, 2003 presented in the annual
report. The accounting policies used in
the preparation of these interim
consolidated financial statements are
consistent with the accounting policies
used in the December 31, 2003 audited
consolidated financial statements, except
as discussed below. Hedging Relationships Effective January 1, 2004, FHR
implemented new guidance on accounting
for hedging relationships. The new
guidelines specify the circumstances in
which hedge accounting is appropriate,
including the identification,
documentation, designation and
effectiveness of hedges and also the
discontinuance of hedge accounting. The
adoption of this accounting guidance did
not have an impact on the Companys
financial statements. Generally Accepted Accounting Principles and General Standards of Financial Statement Presentation The Canadian Institute of Chartered
Accountants has issued new accounting
standards surrounding GAAP and financial
statement presentation. These standards
lay out a framework for the application
of GAAP and the fair presentation of
financial standards in accordance with
GAAP and are effective for years
beginning January 1, 2004. No changes to
accounting principles or financial
statement presentation were required. Assets Held for Sale Long-lived assets are classified as held
for sale when specific GAAP criteria are
met. Assets held for sale are measured at
the lower of their carrying amounts and
fair values less costs to dispose and are
no longer amortized. Assets classified as
held for sale and liabilities related to
these assets are reported separately on
the balance sheet. A component of FHR that
is held for sale is reported as a
discontinued operation if the operations
and cash flows of the component will be
eliminated from ongoing operations as a
result of the sale and FHR will not have a
significant continuing involvement in the
operations of the component after the
sale. Note 3. On July 15, 2004, FHR finalized the sale
of The Fairmont Kea Lani Maui for cash
proceeds of $355.4. The mortgage of $120.0
on this property was repaid. FHR
recognized a gain on the sale of $67.8,
net of income taxes of $41.0. The resort
will continue to be managed by Fairmont
under a long-term management contract. On July 9, 2004, FHR finalized the
sale of The Fairmont Glitter Bay for cash
proceeds of approximately $31.7. The
mortgage of $5.2 on this property was
repaid. FHR recognized a non-taxable gain
on the sale of $7.9. The resort will
continue to be managed by Fairmont under a
long-term management contract. FAIRMONT HOTELS & RESORTS INC. 16




---



##### 



Note 4. On September 13, 2004, FHR sold
12,000,000 units of Legacy for
approximately $63.0 in cash and
recognized a gain of $27.6. The sale
decreases FHRs investment in Legacy to
23.7% from approximately 35%. As at
September 30, 2004, FHR owned 24,639,143
units of Legacy. Note 5. In March 2004, FHR entered into a new
$400.0 unsecured credit facility due March
2007. The interest rate is floating and is
calculated based on the borrowers choice
of prime rate, bankers acceptance or LIBOR
plus a spread. Note 6. In April 2004, FHR finalized an agreement
to invest $15.6 for a 14.5% interest in
The Fairmont Dubai. This investment is
accounted for using the equity method due
to significant influence and through
contractual arrangements. In the second
quarter, $15.6 was reclassified from
Other assets and deferred charges to
Investments in partnerships and
corporations. Note 7. On August 23, 2004, FHR purchased the
remaining 16.5% of outstanding shares of
Fairmont from Maritz, Wolff & Co. for
approximately $70.0 in cash. FHR now owns
100% of Fairmont. The company had already
been consolidating 100% of Fairmont, by
previously having recorded an obligation
of $69.0 representing the minimum amount a
minority shareholder was entitled to
receive under a put option. During the
third quarter, FHR increased its
previously reported goodwill and future
income tax balances by $16.7. As a result
of this transaction, current portion of
long-term debt decreased by $69.0. Note 8. Shareholders equity September 30
    
    December 312004
    
    2003Common shares
    
    $
    1,175.9
    
    
    $
    1,202.2Other equity
    
    
    19.2
    
    
    
    19.2Treasury stock
    
    
    (4.2
    )
    
    
    Contributed surplus
    
    
    142.3
    
    
    
    142.3Foreign currency
translation adjustments
    
    
    115.6
    
    
    
    104.1Retained earnings
    
    
    214.7
    
    
    
    78.1$
    1,663.5
    
    
    $
    1,545.9
 The diluted weighted-average number of common shares outstanding is calculated as follows: Three months ended September 30
    
    Nine months ended September 30(in millions)
    
    
    2004
    
    2003
    
    2004
    
    2003Weighted-average number
of common shares outstanding  basic
    
    
    
    78.4
    
    
    
    79.1
    
    
    
    78.9
    
    
    
    79.2Stock options
    
    
    
    0.9
    
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.8Weighted-average number
of common shares outstanding  diluted
    
    
    
    79.3
    
    
    
    79.9
    
    
    
    79.7
    
    
    
    80.0
 Effective October 2004, FHR may repurchase
for cancellation up to 10% of its
outstanding common shares. The amounts and
timing of repurchases are at FHRs
discretion. Under the previous issuer bid
which ended on October 7, 2004, during the
nine months ended September 30, 2004, FHR
repurchased 1,946,300 shares (1,737,900 during the third quarter). Total
consideration relating to the repurchase
amounted to $51.8 ($46.4 for the third
quarter), of which $27.2 was charged to
common shares, $20.4 was charged to
retained earnings, and $4.2 to treasury
stock. Of the 1,946,300 shares,
150,000 shares were classified as
treasury stock as they were repurchased
prior to September 30, 2004 and cancelled
on October 1, 2004. During the nine
months ended September 30, 2004, FHR
issued 48,939 shares (10,371 shares for
the third quarter) pursuant to the Key
Employee Stock Option Plan of which $0.9
was credited to common shares ($0.3 for
the third quarter) for proceeds from
options exercised. At September 30, 2004,
77,366,916 common shares were outstanding
(2003 79,080,159). 2004 THIRD QUARTER REPORT 17




---



##### 



Notes to Consolidated Financial Statements(contd) During the nine months ended
September 30, 2004, 10,000 stock options
were granted (nil in the third quarter).
Assuming FHR elected to recognize the
cost of its stock-based compensation
based on the estimated fair
value of stock options granted after
January 1, 2002 but before January 1,
2003, net income and basic and diluted
earnings per share would have been: Three months ended September 30
    
    Nine months ended September 302004
    
    2003
    
    2004
    
    2003Reported net income
    
    $
    131.8
    
    
    $
    11.6
    
    
    $
    160.2
    
    
    $
    64.2Net income assuming fair value method used
    
    $
    131.7
    
    
    $
    11.4
    
    
    $
    159.9
    
    
    $
    63.3Basic earnings per share
    
    $
    1.68
    
    
    $
    0.14
    
    
    $
    2.03
    
    
    $
    0.80Diluted earnings per share
    
    $
    1.66
    
    
    $
    0.14
    
    
    $
    2.01
    
    
    $
    0.79
 Note 9. Changes in non-cash working capital Three months ended September 30
    
    Nine months ended September 302004
    
    2003
    
    2004
    
    2003Decrease (increase) in current assetsAccounts receivable
    
    $
    (5.9
    )
    
    $
    10.8
    
    
    $
    (31.1
    )
    
    $
    0.9Inventory
    
    
    0.1
    
    
    
    0.8
    
    
    
    (1.2
    )
    
    
    0.3Prepaid expenses and other
    
    
    6.6
    
    
    
    9.1
    
    
    
    (1.3
    )
    
    
    (0.9
    )Increase (decrease) in current liabilitiesAccounts payable and accrued liabilities
    
    
    2.9
    
    
    
    (6.1
    )
    
    
    
    
    
    
    (17.3
    )Taxes payable
    
    
    48.3
    
    
    
    0.5
    
    
    
    49.3
    
    
    
    (2.5
    )$
    52.0
    
    
    $
    15.1
    
    
    $
    15.7
    
    
    $
    (19.5
    )
 Note 10. Segmented Information FHR has five reportable operating segments
in two core business activities, ownership
and management operations. The segments
are hotel ownership, investment in Legacy,
real estate activities, Fairmont and
Delta. Hotel ownership consists of real
estate interests ranging from
approximately 15% to 100% in 22
properties. The investment in Legacy
consists of an approximate 24% equity
interest in Legacy, which owns 24 hotels
and resorts across Canada and the United
States. Real estate activities consists
primarily of two large undeveloped land
blocks in Toronto and Vancouver and a
vacation ownership product. Fairmont is a
North American luxury hotel and resort
management company and Delta is a Canadian
first-class hotel and resort management
company. The performance of all segments is
evaluated primarily on earnings before
interest, taxes and amortization
(EBITDA), which is defined as income
before interest, income taxes and
amortization. EBITDA includes income from
investments and other. Amortization,
interest and income taxes are not
allocated to the individual segments.
All transactions among operating
segments are conducted at fair market
value. FAIRMONT HOTELS & RESORTS INC. 18




---



##### 



The following tables present revenues, EBITDA, total assets and capital
expenditures for FHRs reportable segments: Three months ended September 30, 2004 Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    180.3
    
    
    $
    
    
    
    $
    4.8
    
    
    $
    14.1
    
    
    $
    3.5
    
    
    $
    (5.6
    )
    
    $
    197.1Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.2
    
    
    
    2.2
    
    
    
    
    
    
    
    10.4207.5Income (loss) from equity
investments and other
    
    
    1.5
    
    
    
    3.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.2EBITDA(b)
    
    
    50.3
    
    
    
    3.7
    
    
    
    (0.6
    )
    
    
    8.2
    
    
    
    1.9
    
    
    
    
    
    
    
    63.5Total assets(c)
    
    
    2,028.1
    
    
    
    70.8
    
    
    
    99.1
    
    
    
    340.0
    
    
    
    77.1
    
    
    
    (195.1
    )
    
    
    2,420.0Capital expenditures
    
    
    12.0
    
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    14.2
 Three months ended September 30, 2003 Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    168.6
    
    
    $
    
    
    
    $
    0.2
    
    
    $
    12.5
    
    
    $
    3.0
    
    
    $
    (4.9
    )
    
    $
    179.4Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.0
    
    
    
    2.2
    
    
    
    
    
    
    
    9.2188.6Income (loss) from equity
investments and other
    
    
    1.3
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.9EBITDA(b)
    
    
    35.0
    
    
    
    2.6
    
    
    
    (1.0
    )
    
    
    8.6
    
    
    
    2.2
    
    
    
    (0.5
    )
    
    
    46.9Total assets(c)
    
    
    2,121.6
    
    
    
    105.5
    
    
    
    100.2
    
    
    
    351.5
    
    
    
    73.1
    
    
    
    (269.2
    )
    
    
    2,482.7Capital expenditures
    
    
    19.3
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    19.9
 2004 THIRD QUARTER REPORT 19




---



##### 



Notes to Consolidated Financial Statements(contd) Nine months ended September 30, 2004 Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    516.3
    
    
    $
    
    
    
    $
    26.2
    
    
    $
    40.2
    
    
    $
    9.6
    
    
    $
    (16.7
    )
    
    $
    575.6Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.9
    
    
    
    7.3
    
    
    
    
    
    
    
    28.2603.8Income (loss) from equity
investments and other
    
    
    2.0
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2EBITDA(b)
    
    
    123.7
    
    
    
    (0.8
    )
    
    
    8.2
    
    
    
    23.4
    
    
    
    6.0
    
    
    
    (0.4
    )
    
    
    160.1Total assets(c)
    
    
    2,028.1
    
    
    
    70.8
    
    
    
    99.1
    
    
    
    340.0
    
    
    
    77.1
    
    
    
    (195.1
    )
    
    
    2,420.0Capital expenditures
    
    
    55.5
    
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    58.2
 Nine months ended September 30, 2003 Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    462.5
    
    
    $
    
    
    
    $
    31.4
    
    
    $
    33.4
    
    
    $
    8.7
    
    
    $
    (14.3
    )
    
    $
    521.7Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.6
    
    
    
    6.1
    
    
    
    
    
    
    
    23.7545.4Income (loss) from equity
investments and other
    
    
    1.8
    
    
    
    (4.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )EBITDA(b)
    
    
    96.3
    
    
    
    (4.2
    )
    
    
    14.9
    
    
    
    19.9
    
    
    
    6.5
    
    
    
    (0.9
    )
    
    
    132.5Total assets(c)
    
    
    2,121.6
    
    
    
    105.5
    
    
    
    100.2
    
    
    
    351.5
    
    
    
    73.1
    
    
    
    (269.2
    )
    
    
    2,482.7Capital expenditures
    
    
    54.3
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    55.5
 (a) Revenues represent management fees that are charged by Fairmont of $5.5
(2003  $4.8) and $16.4(2003-$14.1) for the three and nine months ended
September 30, 2004 respectively, and Delta of $0.1 (2003  $0.1) and $0.3
(2003-$0.2) for the three and nine months ended September 30, 2004
respectively, to the hotel ownership operations, which are eliminated on
consolidation. EBITDA represents expenses not reimbursed relating to marketing
and reservation services performed by FHR under the terms of its hotel
management and franchise agreements. Total assets represent the elimination of
inter-segment loans net of corporate assets. (b) The following costs are not allocated to the individual segments in
evaluating net income: Three months ended September 30
    
    
    Nine months ended September 302004
    
    2003
    
    
    2004
    
    2003Amortization
    
    $
    16.8
    
    
    $
    17.5
    
    
    
    $
    54.3
    
    
    $
    51.0Interest expense, net
    
    
    6.7
    
    
    
    8.9
    
    
    
    
    25.7
    
    
    
    23.1Income tax expense (recovery)
    
    
    52.4
    
    
    
    8.9
    
    
    
    
    64.1
    
    
    
    (5.8
    )Gain on sales of investments and hotel assets
    
    
    (144.2
    )
    
    
    
    
    
    
    
    (144.2
    )
    
    
    
 (c) Hotel ownership assets include $69.6 (2003  $51.2) of investments
accounted for using the equity method. FAIRMONT HOTELS & RESORTS INC. 20




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Note 11. As required under the terms and
conditions of the 3.75% convertible
senior notes due 2023, the debt and the
common shares issuable upon conversion of
the shares were registered on Form F-10
with the United States Securities and
Exchange Commission on April 6, 2004. Note 12. At September 30, 2004, FHR has a payable
to Legacy of $5.0 in connection with
various management contracts, and
reciprocal loan agreements with Legacy
for $86.6. A subsidiary of FHR has a 25%
participation amounting to $10.6 in the
first mortgage on The Fairmont Olympic
Hotel, Seattle. Note 13. FHR recorded pension and other post
employment benefit expenses as follows: Three months ended September 30
    
    Nine months ended September 30(in millions)
    
    2004
    
    2003
    
    2004
    
    2003Pension
    
    $
    (0.1
    )
    
    $
    1.1
    
    
    $
    0.9
    
    
    $
    1.3Other post-employment benefits
    
    
    0.1
    
    
    
    
    
    
    
    0.2
    
    
    
    $
    
    
    
    $
    1.1
    
    
    $
    1.1
    
    
    $
    1.3
 2004 THIRD QUARTER REPORT 21




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Shareholder Information Executive Office
Canadian Pacific Tower
100 Wellington Street West
Suite 1600
TD Centre, P.O. Box 40
Toronto, Ontario M5K 1B7
Telephone: 416.874.2600
Fax: 416.874.2601 Investor Relations
Emma Thompson
Executive Director Investor Relations
Toll-free: 866.627.0642
Fax: 416.874.2761
Email: investor@fairmont.com
Website: www.fairmont.com Stock Exchange Listings
Toronto Stock Exchange
New York Stock Exchange
Trading symbol: FHR Hotel Reservations
Fairmont Hotels & Resorts
Toll-free: 800.441.1414
Website: www.fairmont.com
Delta Hotels
Toll-free: 800.268.1133
Website: www.deltahotels.com Transfer Agent and Registrar
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario
M5J 2Y1
Toll-free: 800.340.5017
Telephone: 514.982.7800
Email: caregistryinfo@computershare.com For further information on
Legacy Hotels Real Estate Investment Trust
Toronto Stock Exchange symbol: LGY.UN
Toll-free: 866.627.0641
Website: www.legacyhotels.com FAIRMONT HOTELS & RESORTS INC. 22




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