Updated from 10:58 a.m. EDT

Four Seasons Hotels

(FS)

checked in with lower first-quarter profits as a result of foreign exchange losses and a property revaluation. The results also missed Wall Street estimates, thanks to two hotels it leases.

But investors chose to focus on positive trends at the hotels Four Seasons manages and on an improved outlook, and the company's shares gained $1.03 to $65.08 by Thursday afternoon.

The Toronto-based hotelier said net income slid to $5.2 million from $8.7 million a year before. On a per-share basis, earnings fell to 14 cents from 24 cents. With the latest earnings release, the company has changed its reporting currency to U.S. dollars from Canadian dollars.

Results included $2.7 million of losses from foreign exchange transactions and the revaluation of an investment in the Four Seasons Hotel Shanghai following the company's sale of 53% of its stake in the property.

Excluding those items, EPS would have been 21 cents, up from adjusted EPS of 15 cents a share a year earlier, but well short of the 29-cent average analyst estimate from Thomson First Call.

Revenue increased to $63.1 million from $57.1 million. Thanks to the continuing lodging recovery, demand for hotel rooms -- particularly in the luxury sector -- is on the rise. That caused revenue per available room, or revpar, to increase 13.8% at Four Seasons' same-store hotels from the first quarter of 2004. Meanwhile, operating margins at same-store hotels increased by 210 basis points.

Analysts characterize Four Seasons' hotel management business as solid, but say overall results were hurt by the two properties on which the company holds leases: The Pierre in New York and the Four Seasons Hotel in Vancouver, British Columbia.

"Underlying hotel fundamentals were strong, and the management business performed well," Michael Rietbrock of Citigroup Smith Barney wrote in a research note. "The earnings shortfall vs. our estimate primarily related to Four Seasons' two hotel leases, which have historically been volatile and are generally viewed as less important."

Four Seasons is hoping to free itself from both leased properties. In its earnings release, the company said The Pierre's landlord is now in "exclusive" talks with an unidentified party interested in taking over the lease and management of the hotel. In a conference call, Douglas Ludwig, Four Seasons' CFO, said the lease and union agreements at The Pierre have proved costly.

"We are very pleased with the operating results in the first quarter, which reflect continued strong travel demand at the majority of the properties under our management," said Isadore Sharp, the company's CEO. "While we have had six consecutive quarters of revpar growth in our worldwide core hotels, the increase in our incentive fees during this quarter is evidence that the revenue increases are translating into greater profitability, with gross operating margins up 210 basis points in the first quarter."

Given current trends, Four Seasons raised its outlook. It now expects worldwide same-store revpar to increase at least 12% in the second quarter and by more than 11% for all of 2005. The company previously forecast full-year growth of 10%. Four Seasons also sees operating margins increasing more than 220 basis points this year.