"The continued strong earnings growth is a reflection of the combination of solid fundamentals in the luxury segment of the lodging industry in North America and Europe, the addition of new Four Seasons management contracts, and the Company's lower financing costs. Partially offsetting these improvements was the expected contraction of earnings from our Asian properties due to the region-wide economic downturn," said Douglas Ludwig, Executive Vice President and Chief Financial Officer. 

STRONG INCREASE IN HOTEL MANAGEMENT EARNINGS 

Total revenues of all hotels managed by Four Seasons increased to $574.9 million for the quarter ended June 30, 1998, an increase of 6 percent, as compared to the second quarter of 1997. Total revenues of all managed hotels increased 6.7 percent to $1.1 billion for the six months ended June 30, 1998, as compared to $1 billion for the comparable period in 1997. 

The North American and European hotels continued their strong operating results in the second quarter of 1998, offsetting the weakness in the Asian hotels. Accordingly, Four Seasons' hotel management earnings before investment income and depreciation and amortization for the second quarter of 1998 increased 29.5 percent to $19.2 million, as compared to $14.8 million in the second quarter of 1997. Hotel management earnings before investment income and depreciation and amortization for the six months ended June 30, 1998 were $36 million, as compared to $29.1 million for the comparable period in 1997. 

The growth in management earnings is attributable to strong increases in management fees in recently opened properties such as the Four Seasons Resorts in Aviara, California and the Maldives and from the Four Seasons Hotels in Atlanta and Lisbon. As a result of transactions earlier this year to enhance the management terms at the Four Seasons Hotel London and The Ritz-Carlton in Chicago, increased management fees from these properties also contributed to strong growth in hotel management earnings. Another component of the improvement was an increase in pre-opening management fees from hotels under development and an increase in management and royalty fees from the Four Seasons vacation ownership project in Aviara, California. 

OPERATING IMPROVEMENTS 

For the first six months of 1998 REVPAR (room revenue per available room, calculated as occupancy multiplied by achieved room rate), on a US dollar basis, for Core Hotels in North America and Europe increased 10.3 percent and 8.4 percent respectively, when compared to the same period in 1997. REVPAR, on a US dollar basis, for the Core Hotels in Asia decreased 31.4 percent when compared to the same period in 1997. 

For the North American and European Core Hotels REVPAR improvements in the first half of 1998, combined with improved cost efficiencies, resulted in an increase of approximately 17.4 percent and 13.5 percent respectively in the average gross operating profit of those hotels, as compared to the same period in 1997. This improvement in the Core Hotels' gross operating profit led to growth in the Company's management incentive fee revenues which are tied to the profitability of certain of the managed hotels. As a result of REVPAR declines in the Asian Core Hotels, gross operating profit of those hotels declined approximately 39.1 percent for the first six months of 1998, as compared to the same period in 1997. 

"Since the start of the Asian economic downturn, we have instituted a wide range of cost control measures and marketing programs to attempt to maintain or enhance our market share," said John Sharpe, President and Chief Operating Officer. "Although the Asian properties have realized a significant decline in business, we have been able to maintain a reasonable level of profitability at even low occupancy levels. We believe that these programs should help these hotels return to higher levels of profitability when demand levels begin to grow." 

HOTEL OWNERSHIP 

Hotel ownership earnings before investment income and depreciation and amortization were $4.2 million in the second quarter of 1998, as compared to $5.5 million in the second quarter of 1997. The decline in hotel ownership earnings is primarily a result of the sale of a 25 percent ownership interest in The Ritz-Carlton Hotel Chicago at the beginning of 1998, and a decrease in the dividend distributions from The Regent Hong Kong. The 25 percent interest in The Ritz-Carlton Hotel Chicago generated earnings before depreciation and amortization of $1.7 million in the second quarter of 1997. Concurrent with the sale of the interest in The Ritz-Carlton Hotel Chicago, the management terms related to that hotel were significantly improved. The dividend distribution from The Regent Hong Kong for the second quarter of 1998 was $272,000, as compared to $1.8 million for the same period in 1997. This decrease was expected and is the result of the general economic decline in Asia and reduced travel levels into Hong Kong. 

Hotel ownership losses were $67,000 before investment income and depreciation and amortization for the first six months of 1998, as compared to earnings of $4.7 million for the comparable period in 1997. 

LOWER NET INTEREST COSTS 

Net interest expenses for the quarter and six months ended June 30, 1998 were, respectively, $1.5 million and $2.1 million, as compared to $2.6 million and $6.2 million for the same period in 1997. These reductions are the result of the application of cash generated from operations and the restructuring of the balance sheet during 1997, which reduced debt levels, and lowered interest costs. The effective interest rate for the second quarter of 1998 was 6.7 percent, as compared to 9.5 percent for the same period in 1997. 

The Company recently achieved one of its key financial objectives when Standard and Poor's raised the Company's credit rating to investment grade status. This upgrade reflects the strength of the Company's balance sheet and liquidity measures and its focus on the hotel management business. Hotel management generates a significant amount of cash and does not require significant capital to grow or maintain existing assets. 

CONCLUSION 

"We are pleased with the recent improvement in our credit rating by Standard Poor's to investment grade, and believe this reflects the Company's balance sheet strength and earning capacity," said Isadore Sharp, Chairman and Chief Executive Officer. "While there is no question that Asia will continue to be a challenge, the vast majority of our business is outside that region and continues to be strong. During 1999, we anticipate the opening of six additional Four Seasons hotels in new and exciting markets. In the following year, another seven Four Seasons properties are currently scheduled to open. We believe that these expected additions, the improvements at our existing properties and a growing contribution from our vacation ownership business should enable Four Seasons to achieve continued growth in earnings and shareholder value." 

Four Seasons Hotels and Resorts is the world's largest operator of luxury hotels. The Company currently manages 42 hotels in 18 countries and has an additional 17 properties under construction or advanced stages of development in an additional eight countries. 

All dollar amounts referred to in this press release are Canadian dollars unless otherwise noted. Certain statements contained in this press release that do not relate to historical information are "forward looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and are thus prospective. 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. These factors are discussed in greater detail in the Company's filings with the Canadian and United States securities regulators. The Company disclaims any responsibility to update any such forward-looking statements.