On February 13, 2001, CP announced a major reorganization, which is intended to divide CP into five separate public companies. Under the proposed plan, CP will distribute its interests, other than Canadian Pacific Hotels & Resorts Inc. ("CPH&R"), to its common shareholders. CPH&R would be the remaining business and the company name will be changed to Fairmont Hotels & Resorts Inc. ("FHR").

In mid-August 2001, CP will be releasing an Information Circular setting out material facts about its operating businesses. FHR's portion of the circular will contain results for the six months ended 2001 as well as information for 1998 through to 2000.

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The North American lodging industry is experiencing a significant reduction in demand. In the United States the market weakness was evident in the first quarter. In the second quarter, both Canada and the United States were affected, negatively impacting both revenues and EBITDA.

In the current year, FHR has made changes relating to accounting policies and methods of their application that have had an impact on the results for the second quarter. These changes are intended to make FHR's results more comparable to others in the hotel industry and to minimize the differences between the applicable accounting principles generally accepted in Canada and accounting principles generally accepted in the United States.

FHR also has recorded a number of non-recurring items that affected second quarter earnings. The accounting changes and non-recurring items are summarized below and are more fully described in the notes to the consolidated financial statements.

FHR's consolidated financial statements have historically been expressed in Canadian dollars. The U.S. dollar has been adopted as FHR's reporting currency effective June 30, 2001. The change reflects the increasing importance of international operations for FHR. Comparative financial information has been restated in U.S. dollars.

During 2001, FHR changed its accounting policy to amortize buildings on a straight-line basis. Previously, buildings were amortized using the sinking fund method. This change also makes FHR's results more comparable to others in the hotel industry. The new accounting policy has been applied retroactively to the comparative figures.

FHR sold 9.9 million units of Legacy Hotels Real Estate Investment Trust ("Legacy" - TSE symbol: LGY.UN) for gross proceeds of $56.1 million, to reduce its holding to 34%. FHR reported a gain of $31.0 million with a minimal tax impact related to this transaction. FHR also recorded a number of non-recurring expenses. Brand related technology costs of $22.4 million were incurred and other one-time write-offs aggregated $16.4 million.

For the quarter, gross operating revenues increased by 3.5% to $152.5 million. Earnings before interest, taxes and amortization or EBITDA, of $55.0 million was down 6.0% from $58.5 million for the same quarter last year.  Net income for the period was $28.7 million compared to $32.2 million in the same quarter last year.

For the six months ended June 30, 2001, revenues under management were up 4.4% to $813.4 million and gross operating revenues increased by 14.7% to $287.0 million compared to this period last year. FHR's EBITDA improved 11.4% to $94.2 million and net income for the period of $37.3 million increased 3.5% compared to this period in 2000.

The increase in gross operating revenues in the second quarter resulted largely from significant acquisitions including The Fairmont Kea Lani Maui and the remaining 51% of both The Fairmont Glitter Bay and The Fairmont Royal Pavilion, which were all acquired earlier this year. Additional revenue was generated through the late 2000 acquisition of the remaining interest in The Fairmont Chateau Whistler. The increases in revenues were offset by the loss of revenues from disposition of The Fairmont Empress and Fairmont Le Chateau Frontenac, which were sold to Legacy.

In the three and six months ended June 30, 2001, FHR invested $29.4 million and $53.3 million, respectively in its properties. It is anticipated that capital expenditures for 2001 will be approximately $140.0 million. FHR's capital expenditures include ongoing maintenance capital expenditures as well as a number of major enhancements to some of its most important properties.  For the six months ended June 30, 2001, maintenance capital expenditures totalled approximately $16.0 million. As a result of the disruption associated with these capital expenditures, operating performance has been negatively affected. Most of the major enhancement projects currently ongoing will be completed within the next several months.

On February 1, 2001, FHR sold The Fairmont Empress and Fairmont Le Chateau Frontenac to Legacy for $201 million in cash and equity. FHR received a total of $171.4 million as a result of the cash received on the sale and the proceeds realized from the disposition of a portion of its equity in Legacy.  FHR retained long-term management contracts on these properties. Also on February 1, 2001, FHR acquired the Kea Lani Resort for $250 million and rebranded the property on June 15, 2001 to The Fairmont Kea Lani Maui. FHR announced on July 18, 2001 that it has initiated discussions with Legacy to sell The Fairmont Chateau Whistler. Any transaction resulting from these discussions is likely to occur by the end of the year.

FHR's balance sheet at June 30, 2001 does not reflect the expected financial position of the company. As previously announced, FHR expects to have net debt at the time of the spin-off of approximately $330 million as compared to net debt of $796 million at June 30, 2001. The lower debt level would significantly strengthen the financial position of FHR. As a result, interest expense would be reduced beginning in the fourth quarter of this year.

In the uncertain economic environment it is difficult to provide forecasts, however FHR's management expects year-end 2001 EBITDA to exceed the 2000 level by approximately 5%, assuming no further deterioration in industry conditions.

Shown below are the operating statistics for FHR's two management companies, Fairmont and Delta, and its owned portfolio.
 

Comparable hotels and resorts are considered to be properties that were fully open under FHR management for at least the entire current and prior period. Given the strategic importance of the creation of Fairmont and the acquisitions of Delta, the Princess hotel portfolio and The Fairmont Kea Lani Maui, they have been included in FHR's operating statistics in the following chart on a pro forma basis as if owned since the beginning of the prior period. Comparable hotels and resorts statistics exclude properties under significant renovation that would have a significant adverse effect on the properties' primary operations. For both the three-month and six-month periods ending June 30, 2001 and June 30, 2000, The Fairmont Southampton Princess, The Fairmont Hamilton Princess, The Fairmont Pierre Marques have been excluded from the comparable hotels and resorts data.

FHR is one of North America's leading owner and operator of luxury hotels and resorts. FHR's portfolio consists of 77 luxury and first class properties with more than 30,000 rooms in Canada, the United States, Mexico, Bermuda and Barbados. It holds a 67 percent controlling interest in Fairmont Hotels & Resorts ("Fairmont"), North America's largest luxury hotel management company.  Fairmont manages 37 distinct city centre and resort hotels such as The Fairmont San Francisco, The Fairmont Banff Springs, Fairmont Le Chateau Frontenac, The Fairmont Scottsdale Princess and The Plaza in New York City.  FHR also holds a 100 percent interest in Delta Hotels, Canada's largest first class hotel management company, which manages and franchises a portfolio of 40 city centre and resort properties, primarily in Canada. In addition to hotel management, FHR holds real estate interests in 19 properties and a 34 percent investment interest in Legacy, which owns 21 properties.

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.