Normalized net earnings(1) for the quarter ended Dec. 31, 1998, increased to $26.5 million ($0.79 normalized earnings per share), as compared with $20.3 million ($0.61 normalized earnings per share) for the quarter ended Dec. 31, 1997. For the year ended Dec. 31, 1998, normalized net earnings increased 30.4 percent to $68.8 million ($2.04 normalized earnings per share), as compared with $52.8 million ($1.61 normalized earnings per share) for the year ended Dec. 31, 1997.

"Despite the extremely difficult economic conditions in the Asian markets, Four Seasons was able to exceed its long-term earnings growth target of 20 percent in 1998. This demonstrates the ability of our high-margin management services business to grow even in difficult economic conditions," said Isadore Sharp, chairman and chief executive officer.

Consolidated revenues increased 3.5 percent to $248.8 million for the year ended Dec. 31, 1998, as compared with $240.4 million in 1997. Net earnings were $69.7 million for the year ended Dec. 31, 1998, as compared with net earnings of $40.8 million in 1997. Net earnings were $27.4 million for the quarter ended Dec. 31, 1998, as compared with $20.3 million for the same period in 1997.

REVPAR (room revenue per available room, defined as occupancy multiplied by the achieved room rate), on a U.S. dollar basis, of Four Seasons core hotels under management increased in North American and European hotels by 7.9 percent and 6.9 percent, respectively, for the year ended Dec. 31, 1998, as compared with the year ended Dec. 31, 1997. For the fourth quarter of 1998, as compared with the fourth quarter of 1997, REVPAR for North American and European core hotels under management increased 7.6 percent and 0.6 percent, respectively.

The difficult economic conditions in Asia resulted in a 27.3 percent decline in REVPAR, on a U.S. dollar basis, in the company's core Asian hotels under management for the year ended Dec. 31, 1998, as compared with the same period in 1997. For the fourth quarter of 1998, REVPAR for the Asian core hotels under management declined 14.9 percent, as compared with the same period in 1997.

"The REVPAR decline experienced in Asia was a significant challenge for Four Seasons in 1998. We responded to this challenge by instituting a number of marketing initiatives and cost control measures that helped maximize profit retention in the Asian hotels despite the significant decline in revenues," said John Sharpe, president and chief operating officer.

"Approximately 85 percent of our management fee revenues are generated from our North American and European hotels. In those markets, we continue to achieve both the highest REVPAR and REVPAR growth rate in the lodging industry."

Revenues under management for the year ended Dec. 31, 1998, increased 7.1 percent to $2.3 billion, as compared with $2.1 billion for the year ended Dec. 31, 1997. This increase in revenues under management is due to a combination of growth in existing hotel and resort revenues, and the addition of new properties under management.

Fee revenues increased 19.8 percent to $126.9 million for the year ended Dec. 31, 1998, as compared with $106 million for the same period in 1997. Improvement in gross operating profits of hotels under management positively affected growth in the company's management incentive fees, which are tied to the profitability of certain managed hotels. Incentive fees increased 30.5 percent in 1998, as compared with 1997, and accounted for 25.3 percent of total fees earned for 1998, as compared with 23.2 percent for 1997.

Hotel management earnings before other operating items increased 26.9 percent in the fourth quarter of 1998 to $23.5 million, as compared with $18.5 million in the fourth quarter of 1997. Management earnings increased 25.5 percent for the year ended Dec. 31, 1998, to $79.9 million, as compared with $63.7 million in 1997. The company's hotel management operations contributed approximately 90 percent of total operating earnings for the year ended Dec. 31, 1998.

The company's profit margin on its hotel management business increased for the eighth consecutive year. For the full year, the management operations profit margin was 62.9 percent in 1998, as compared with 60.1 percent in 1997. The improvement in the profit margin is the result of continued growth in management fee revenues while maintaining modest long-term increases to the corporate cost base.

Included in hotel ownership earnings is the consolidated revenues and expenses from the company's 100 percent interest in The Pierre hotel in New York and the Four Seasons Hotel in Vancouver; dividend distributions from the company's 25 percent in The Regent Hong Kong and other minority interests and an accrual for the operating results of the company's 100 percent leasehold interest in the Four Seasons Hotel Berlin which is discussed below.

In the fourth quarter of 1998, hotel ownership earnings before other operating items increased 6.5 percent to $8.3 million ($7.8 million in the fourth quarter of 1997), primarily as a result of strong operating earnings improvements at The Pierre hotel in New York, a moderate increase in the distribution from The Regent Hong Kong. These earnings increases were partially offset by lower earnings from the Four Seasons Hotel Vancouver hotel caused by weakening economic conditions in that market. In addition, the fourth quarter of 1997 included hotel ownership earnings from The Ritz-Carlton Hotel Chicago which was sold effective Jan. 1, 1998.

Hotel ownership earnings before other operating items decreased 39.4 percent to $9.3 million for the year ended Dec. 31, 1998, ($15.4 million for the year ended Dec. 31, 1997). This decrease, which we expected, reflects the disposal of the company's interest in The Ritz- Carlton Hotel Chicago effective Jan. 1, 1998, the inclusion of start-up operating losses from the Four Seasons Hotel Berlin and a reduced dividend from The Regent Hong Kong, and was partially offset by operating improvements at The Pierre.

Four Seasons has a 100 percent leasehold interest in the Four Seasons Hotel Berlin. The terms of the lease require Four Seasons to assume the lease when construction and all issues relating to the construction of the hotel are finalized. The company is in a dispute with the landlord of the Four Seasons Hotel Berlin regarding certain construction deficiencies. Four Seasons believes that until these deficiencies are corrected it is not required to assume the lease of that hotel. Pending the outcome of the dispute, the company is accruing the start up losses for the Four Seasons Hotel Berlin.

For the full year ended Dec. 31, 1998, dividend distributions from The Regent Hong Kong decreased 66 percent to $2.0 million for the year ended Dec. 31, 1998, from $6.0 million for the year ended Dec. 31, 1997. The Hong Kong hotel's revenues and profitability declined as a result of the lower demand levels caused by the economic downturn experienced in the Asian markets.

As a result of the repatriation of funds from its Asian operations during the fourth quarter of 1998, the company recognized a non-cash foreign exchange gain for accounting purposes of $7.8 million. During the third quarter of 1998, the company realized a one time unrealized foreign exchange gain primarily relating to the company's investment and loan relating to the Four Seasons Hotel London, both of which are denominated in pounds sterling. With sterling appreciating to an 18-year high to the Canadian dollar, the company has entered into a series of currency hedges to preserve these favorable exchange rates for the expected cash flow and net asset position over the next two-year period.

With the continuing difficult operating conditions in the Asian markets, the company recently reviewed the carrying values of its Asian assets. Although the company anticipates a recovery of these markets, it is not expected to occur to any material extent over the next 12 to 24 months. Of the 42 hotels worldwide that are currently under management, only three have management contracts that are due to expire within the next 10 years. All three expiring management contracts are in Asia, and were acquired through the acquisition of Regent in 1992. Although the company is in discussions with each of the owners of those properties regarding potential extensions or other changes to the existing management arrangements, there can be no certainty regarding the outcome of those discussions. In light of the continuing economic difficulties being experienced in the Asian markets, and the relatively short-term nature of these three contracts, the company has established an asset provision of $12.7 million during 1998.

The company's effective tax rate in 1998 was approximately 2 percent, as compared with 3.8 percent in 1997. The lower effective tax rate is due primarily to the utilization of the benefits of the unrecorded tax losses created by the write-down in hotel investment values in 1993 and 1995. The company will continue to benefit from the utilization of these unrecorded tax losses in 1999. The company is expected to realize a more normalized tax cost in the mid-20 percent range of taxable income in the year 2000.

The capital structure of Four Seasons was strengthened significantly through the reduction of debt as a result of the asset disposition program which was carried out between 1993 and 1997, and the 1997 equity offering in connection with the company's listing on the New York Stock Exchange. Included in Four Seasons' capital structure is approximately $165 million of debt, which represents a debt to capitalization structure of 33 percent.

This capital structure is further supported by the free cash flow generated by the hotel management business. Earnings before interest, taxes and depreciation and amortization in 1998 was sufficient to cover net interest expense by more than 23.5 times. The company's weighted average cost of debt was 6.5 percent in 1998, as compared with 8.4 percent in 1997.

As a result of these balance sheet and cash flow improvements, the company has now achieved investment grade debt ratings with all of the major credit rating agencies in the United States and Canada. The company's debt has the following credit ratings: Moody's (Baa3); Standard Poor's (triple 'B' -minus); Dominion Bond Rating Service (BBB with a stable trend); and Canadian Bond Rating Service (B++).

"The accomplishment of achieving these investment grade debt ratings is the result of the successful execution of the company's strategic plan to significantly improve the strength of its balance sheet, to dynamically grow its high-margin management services business and to diversify its global operations," commented Douglas L. Ludwig, executive vice president, chief financial officer and treasurer.

"We are particularly pleased to have recently received an investment grade debt rating from Moody's which acknowledges that Four Seasons has continued to deliver solid earnings performance even though some of the markets in which we operate are experiencing economic difficulty. It is our long-term strategic objective to maintain and improve our investment grade debt rating."

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 18 properties under construction or advanced stages of development. Nine of these projects are in countries where Four Seasons does not currently manage a hotel. Four Seasons is expanding its international presence with several new projects. A number of important city-centre hotels are scheduled to open during 1999, including new Four Seasons hotels in Las Vegas, Cairo, Canary Wharf (London) and Paris. New Four Seasons resorts will open in Punta Mita and Scottsdale. During the year 2000, new Four Seasons hotels and resorts are scheduled to open in Caracas, Doha, Dublin, San Francisco, Shanghai and Sharm el Sheikh.

As part of its program to capitalize upon its brand name, service and marketing expertise, Four Seasons has been pursuing opportunities in luxury vacation ownership. Both the Four Seasons resorts in Punta Mita and Scottsdale, which are scheduled to open in 1999, will include Four Seasons' vacation ownership developments.

These new Four Seasons Resort Clubs will complement the existing Four Seasons Resort Club Aviara, Four Seasons' first vacation ownership development which is in Southern California adjacent to the Four Seasons Resort Aviara. Other new Four Seasons resorts and certain city-centre hotels will also include a vacation ownership component.

The company will also participate in the growth of The Regent brand name through its alliance with Carlson Hospitality Group of Minneapolis ("Carlson"). Carlson is franchising The Regent brand and has recently announced nine new Regent projects, including new hotels and resorts in Las Vegas, Vancouver, Mumbai and Mexico. There are nine existing Regent hotels which the company continues to manage.

"In 1998, approximately 75 percent of the company's growth in its management business was attributable to fees from new projects, including recently opened Four Seasons hotels and resorts and our first vacation ownership project at Aviara in Southern California. In 1999, we expect to continue to see the majority of our expected growth in earnings coming from new unit growth. Over the next 36 months we expect to increase the number of rooms under management by 40 percent. The international development pipeline remains very strong for high- quality projects that are seeking the Four Seasons brand and our management expertise," said Isadore Sharp.

"Additionally, we are planning to see a further diversification of our growth program with new vacation ownership properties and new Regent hotels over the next few years."
 
 

(a) The term "Core Hotels" means hotels and resorts under management or anticipated to be under management for the full year of both 1998 and 1997. Changes from the 1997/1996 Core Hotels are the additions of Four Seasons Hualalai (Kona), the Four Seasons Istanbul and The Regent Jakarta.

(b) Occupancy percentage is defined as the total number of rooms occupied divided by the total number of rooms available.

(c) ADR is defined as average daily room rate per room occupied.

(d) REVPAR is defined as average room revenue per available room. REVPAR is a commonly used indicator of market performance for hotels and represents the combination of the average daily room rate and the average occupancy rate achieved during the period. REVPAR does not include food and beverage or other ancillary revenues generated by a hotel.

(e) Gross operating margin represents gross operating profit as a percent of gross operating revenue.
 

All dollar amounts referred to above are Canadian dollars unless otherwise noted.

Certain statements contained in this news 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. These factors are described in the company's security filings. Such factors include, but are not limited to, economic, competitive and lodging industry conditions. The company disclaims any responsibility to update any such forward-looking statements.