Filed with the SEC from Nov 20 to Nov 26:
Orient-Express Hotels (OEH)
A shareholder group wants the company to formally consider entering into a settlement modifying its corporate-governance structure. The group includes CR Intrinsic Investments, Steven A. Cohen, D.E. Shaw Oculus Portfolios and D.E. Shaw Valence Portfolios.
The group said the settlement would include cancellation of the company's Class B shares, and the establishment of a classified board under which only one-third of its members would be required to stand for election at each annual meeting. The group owns 6,053,678 shares (11.9%).
Orient-Express Hotels Ltd. (the âCompanyâ and, together with its subsidiaries, âOEHâ) is incorporated in the Islands of Bermuda and is a âforeign private issuerâ as defined in Rule 3b-4 of the U.S. Securities and Exchange Commission (âSECâ) under the U.S. Securities Exchange Act of 1934 (the â1934 Actâ) and in SEC Rule 405 under the U.S. Securities Act of 1933. As a result, it is eligible to file its annual reports pursuant to Section 13 of the 1934 Act on Form 20-F (in lieu of Form 10-K) and to file its interim reports on Form 6-K (in lieu of Forms 10-Q and 8-K). However, the Company elects to file its annual and interim reports on Forms 10-K, 10-Q and 8-K, including any instructions therein that relate specifically to foreign private issuers.
These reports and amendments to them are available free of charge on the internet website of the Company as soon as reasonably practicable after they are filed electronically with the SEC. The internet website address is http://www.orient-express.com. Unless specifically noted, information on the OEH website is not incorporated by reference into this Form 10-K annual report.
Pursuant to SEC Rule 3a12-3 under the 1934 Act regarding foreign private issuers, the proxy solicitations of the Company are not subject to the disclosure and procedural requirements of SEC Regulation 14A under the 1934 Act, and transactions in the Companyâs equity securities by its officers, directors and significant shareholders are exempt from the reporting and liability provisions of Section 16 of the 1934 Act.
Restatement of prior year financial statements
The Company filed its annual report on Form 10-K for the year ended December 31, 2006 (the â2006 Form 10-Kâ) on March 1, 2007. As more fully discussed in Item 8âFinancial Statements and Supplementary Data under Note 2âRestatement to the consolidated financial statements in the 2006 Form 10-K, the Company restated its consolidated balance sheet, its statement of consolidated operations, its statement of consolidated shareholdersâ equity and its statement of consolidated cash flows as of December 31, 2005 and for the year ended December 31, 2005. In addition, the Company restated selected financial data as of December 31, 2005, 2004 and 2003 and for the years ended December 31, 2005, 2004 and 2003 in Item 6âSelected Financial Data in the 2006 Form 10-K and beginning shareholdersâ equity for the impact of the restatement for periods prior to 2004. The impact of the restated financial results for the first, second and third quarterly periods of 2006 was also presented in the summary of quarterly earnings (unaudited) in Item 8âFinancial Statements and Supplementary Data in the 2006 Form 10-K. The restatement corrected for errors made in the application of U.S. generally accepted accounting principles, including deferred tax and foreign currency accounting.
OEH is a hotel and leisure group focused on the luxury end of the leisure market. Organized in 1995, it currently owns and/or invests in 51 properties (all of which it manages) consisting of 41 highly individual deluxe hotels, two restaurants, six tourist trains and two river/canal cruise businesses. These are located in 25 countries worldwide. OEH acquires or manages only very distinctive properties in areas of outstanding cultural, historic or recreational interest in order to provide luxury lifestyle experiences for the discerning traveller. OEH is also developing two other hotels not yet open.
The locations of OEHâs 51 properties are shown in the map on page 3, where they number 47 because the Hotel Cipriani and Palazzo Vendramin are contiguous in Venice, the Hotel Splendido and Splendido Mare are both in Portofino, and three separate safari lodges operate as a unit in Botswana. These seven properties bring the total to 51.
Hotels and restaurants represent the largest segment of OEHâs business, contributing 83% of revenue in 2007, 84% in 2006 and 85% in 2005. Tourist trains and cruises accounted for 14% of revenue in 2007, 13% in 2006 and 14% in 2005. Property development activities accounted for the remaining revenue in each year. OEHâs worldwide portfolio of hotels currently consists of 3,889 individual guest rooms and multiple-room suites, each known as a âkeyâ. Hotels owned by OEH in 2007 achieved an average daily room rate (âADRâ) of $428 (2006â$382) and a revenue per available room (âRevPARâ) of $263 (2006â$242). Approximately 70% of OEHâs customers are leisure travellers, with approximately 46% of customers in 2007 originating from North America, 40% from Europe and the remaining 14% from elsewhere in the world.
Revenue, earnings and identifiable assets of OEH in 2005, 2006 and 2007 for its business segments and geographic areas are presented in Note 19 to the Financial Statements (Item 8 below).
The Hotel Cipriani and Palazzo Vendramin â98 keysâin Venice were built for the most part in the 1950s and are located on three acres on Giudecca Island across from the Piazza San Marco which is accessed by a free private boat service. Most of the rooms have views over the Venetian lagoon. Features include fine cuisine in three indoor and outdoor restaurants, gardens and terraces encompassing an Olympic-sized swimming pool, a tennis court, and a large banquet and meeting facility situated in an historic refurbished warehouse.
The Hotel Splendido and Splendido Mare â80 keysâoverlook picturesque Portofino harbor on the Italian Riviera. Set on four acres, the main hotel was built in 1901 and is surrounded by gardens and terraces which include a swimming pool and tennis court. There are two open-air and enclosed restaurants as well as banquet/meeting rooms, and a shuttle bus linking the main hotel with Splendido Mare on the harbor below.
The Villa San Michele â46 keysâis located in Fiesole, a short distance from Florence. Originally built as a monastery in the 15th century with a faĂ§ade attributed to Michelangelo, it has stunning views over historic Florence and the Arno River Valley. OEH has remodelled and expanded the guest accommodation to luxury standards, including the addition of a swimming pool. A shuttle bus service is provided into Florence. The property occupies ten acres. The Villa San Michele also operates for hotel guests the five-bedroom main house of the Capannelle wine estate in the Chianti region owned by James Sherwood. See Item 13âCertain Relationships and Related Transactions, and Director Independence below.
The Hotel Caruso Belvedere â50 keysâin Ravello is located on three hill-top acres overlooking the Amalfi coast near Naples and ancient Roman and Greek archaeological sites such as Pompeii and Paestum. Once a noblemanâs palace, parts of the buildings date back to the 11th century. Operated as a hotel for many years, OEH rebuilt the property after acquiring it and reopened in 2005. Amenities include two restaurants, an outdoor swimming pool, spa and extensive gardens.
All of these Italian properties operate seasonally, closing for varying periods during the winter.
Reidâs Palace â163 keysâis the most famous hotel on the island of Madeira, situated on ten acres of semitropical gardens on a cliff top above the sea and the bay of Funchal, the main port city. Opened in 1891, the hotel has four restaurants and banquet/meeting facilities. Leisure and sports amenities include two fresh water swimming pools, a third tide-filled pool, tennis courts, ocean water sports, a spa and access to two championship golf courses. It has year-round appeal to European leisure travellers, serving both winter escapes to the sun and regular summer holidays. OEH is considering development of for-sale residential units on the grounds of the hotel.
The Lapa Palace â109 keysâis in the embassy district of Lisbon, near the city center and overlooking the Tagus River. The historic part of the hotel was originally built in the 1870s as the palace of a Portuguese noble family. It opened as a luxury hotel in 1992 after extensive conversion and expansion, including the addition of conference facilities and underground car parking. The hotel is set amid gardens with ornamental fountains and both indoor and outdoor swimming pools, occupying a total of three acres. OEH owns an adjoining parcel of land suitable for building guest rooms or for-sale residential apartments.
Elsewhere in Europe
HĂ´tel de la CitĂŠ â61 keysâis located in the central square of the beautiful walled medieval town of Carcassonne, France near Toulouse. Opened in 1909, the hotel incorporates one of the 50 watch towers in Carcassonneâs ancient fortifications and features two restaurants, gardens, a swimming pool and a nearby conference center, altogether occupying two acres. One of the restaurants has been awarded one star for fine dining by the influential Michelin Guide. The hotel also operates a canal barge on the Canal du Midi providing day excursions for guests.
OEH owns La Residencia â64 keysâlocated in the charming village of DeiĂ on the rugged northwest coast of the island of Mallorca, Spain in the Mediterranean. Mallorca is a popular European tourist destination throughout the year. The core of La Residencia was originally created from two adjoining 16th and 17th century country houses set on a hillside site of 30 acres. The hotel features three restaurants including the gourmet El Olivio, one of the foremost on the island, as well as two large outdoor swimming pools, tennis courts and a spa with an indoor pool.
Le Manoir aux QuatâSaisons â32 keysâis located in Oxfordshire, England about an hourâs drive west of London. The main part of the hotel is a 16th century manor house set in 27 acres of gardens. The property was developed by Raymond Blanc, one of Britainâs most famous chef-patrons, and the hotelâs restaurant has two stars in the Michelin Guide. Mr. Blanc has given a long-term commitment to remain the chef at the hotel.
OEH owns a 93.5% interest in the Grand Hotel Europe â301 keysâin St. Petersburg, Russia. Originally built in 1875, the hotel occupies one side of an entire city block on the fashionable Nevsky Prospect in the heart of the city near the Russian Museum, Shostakovich Philharmonia and other tourist and cultural attractions as well as the business center. There are five restaurants on the premises, popular with locals and visitors alike, as well as a grand ballroom, meeting facilities, a health club and spa and several retail shops. OEH is currently finishing a phased refurbishment of the hotel, and plans to acquire the minority interest owned by the City of St. Petersburg.
Owned HotelsâNorth America
The Windsor Court â322 keysâopened in 1984 and is located in the central business district of New Orleans near the French Quarter and the Mississippi riverfront. Harrahâs operates the only land-based casino in Louisiana across the street. Each guest room has panoramic views over the river or the city. Facilities include three restaurants and lounges, a roof-top ballroom, several other banquet and meeting rooms, an outdoor swimming pool and a health club. The hotelâs interior dĂŠcor features a collection of historic European art and antique furniture. The hotel has planning permission to build a conference center on a nearby owned lot. The hotel was closed for three months in 2005 due to hurricane damage, and occupancy and ADR have gradually recovered with the New Orleans market.
Keswick Hall â48 keysâis located in the rolling countryside of central Virginia, near Charlottesville. Originally a private home dating from 1912, it is popular for weekend breaks and business meetings and, with the adjacent Keswick Club, features a spa and fitness center, tennis courts, two swimming pools and an Arnold Palmer-designed championship golf course. The total site occupies 600 acres including vacant land around the golf course being sold by OEH in parcels for private residential development. See âProperty Developmentâ below.
The Inn at Perry Cabin â80 keysâwas built in 1812 as a country inn located in St. Michaels, Maryland on the eastern shore of Chesapeake Bay. Set on 25 waterfront acres that include an outdoor swimming pool as well as boating and fishing on the Bay, it is an attractive conference and vacation destination, particularly for guests from the Washington, D.C. area. OEH has completed a major renovation and expansion of the hotel, including a new conference facility and a spa. Vacant available land may be developed as residences in the future.
OEH owns El Encanto â77 keysâin Santa Barbara, California. The hotel is located in the hills above the restored Santa Barbara Mission, with views out to the Pacific Ocean. Built in 1913 on a seven-acre site, the guest rooms are in cottages and low rise buildings spread throughout mature gardens with a swimming pool and tennis court. OEH closed this hotel in late 2006 for significant renovation, including the addition of 14 keys, and expects to reopen in 2009.
La Samanna â81 keysâis located on the island of St. Martin in the French West Indies. Built in 1973, the hotel consists of several buildings on ten acres of land along a 4,000-foot beach. Amenities include two restaurants, two swimming pools, a spa, tennis courts, fitness and conference centers, boating and ocean water sports, and extensive gardens. The hotel is open most of the year, seasonally closing during the autumn months.
OEH owns about 48 acres of additional land adjoining La Samanna on both the French and Dutch sides of St. Martin, which it is developing as residential villas and apartments. See âProperty Developmentâ below.
OEH owns the Maroma Resort and Spa â65 keysâon Mexicoâs Riviera Maya on the Caribbean coast of the Yucatan Peninsula, about 30 miles south of Cancun. The resort opened in 1995 and has 25 acres of land along a 750-foot beach with the Cozumel barrier reef offshore where guests may fish, snorkel and scuba-dive. Important Mayan archaeological sites are also nearby. Rooms are arranged in low-rise villas and there are three restaurants, tennis courts and extensive spa facilities. The hotel suffered hurricane damage in October 2005 and reopened in February 2006.
In addition, OEH purchased in 2007 a 28-acre tract adjacent to Maroma on which it plans to build and sell private villas. See âProperty Developmentâ below.
OEH owns an 80% interest in Casa de Sierra Nevada â33 keysâa luxury resort in the colonial town of San Miguel de Allende. Opened in 1952, the hotel consists of nine Spanish colonial buildings built in the 16th and 18th centuries. OEH is renovating the existing buildings, including the two restaurants, and building 20 new suites and a new pool, spa and garden area. In addition to the nine owned buildings, the hotel leases two buildings for administrative offices, a total site of approximately two acres. OEH also owns a nearby cooking school and retail shop operated in conjunction with the hotel.
Owned HotelsâRest of the World
Built in the 1920s on a three-acre site facing Copacabana Beach near the central business district of Rio de Janeiro, Brazil, the Copacabana Palace â222 keysâis one of the most famous in South America and features two gourmet restaurants, spacious function and meeting rooms, a 500-seat theater, a large swimming pool, spa and fitness center, and a roof-top tennis court and pool. The old casino rooms were refurbished and reopened in 2007 as additional function and meeting space for up to 1,200 persons.
In June 2007, OEH acquired a 50% interest in a company owning 46 acres of beachfront land in Buzios, Brazil, a popular upmarket resort town about 100 miles east of Rio de Janeiro. If necessary permits are issued, OEH plans to acquire the entire property, most of which is environmentally protected, and build a new hotel of about 40 keys and 17 for-sale villas. Earliest opening is expected in 2010.
In October 2007, OEH commenced operation of Hotel das Cataratas â203 keysâdirectly beside the famous Iguacu Falls in Brazil on the border with Argentina, having been awarded a 20-year lease by the Brazilian government. It is the only hotel in the national park surrounding the falls, a World Heritage location. First opened in 1958 on a site of about four acres, the hotel has two restaurants, conference facilities, a swimming pool and tennis court, and tropical gardens looking out at the falls. OEH plans an extensive renovation and upgrade of the property in phases during 2008 and 2009.
The Miraflores Park Hotel â82 keysâis located in an exclusive residential district of Lima, Peru surrounded by parkland and looking out at the Pacific Ocean, yet near the commercial and cultural center of the city. Opened in 1997, the hotel has two restaurants, a large ballroom, rooftop outdoor pool, health and beauty facilities and a business center for guests, and occupies about one acre of land.
The Mount Nelson Hotel â201 keysâin Cape Town, South Africa is a famous historic property opened in 1899. With beautiful gardens and pools, it stands just below Table Mountain and is within walking distance of the main business, civic and cultural center of the city. The hotel has a ballroom, two swimming pools, tennis courts, and a fitness center and spa, all situated on ten acres of grounds. Expansion is planned through incorporation into the hotel of adjoining residential properties owned by OEH.
The Westcliff Hotel â117 keysâis the only garden hotel in Johannesburg, South Africa, opened in 1998 and situated on six hillside acres with views over the cityâs zoo and parkland. Laid out in village style, its resort amenities include two swimming pools, tennis court and health club. The hotel attracts business guests because of its proximity to the city center. A banquet and conference center occupies part of adjacent expansion land.
Orient-Express Safaris â39 keys totalâconsist of three separate game-viewing lodges in Botswana called Khwai River Lodge, Eagle Island Camp and Savute Elephant Camp . Established in 1971, OEH leases the lodge sites in the Okavango River delta and nearby game reserves, where some of the best wildlife in Africa can be observed from open safari vehicles or boats. Each camp has 12 or 15 twin-bedded deluxe tents, and guests travel between the camps by light aircraft. Boating, fishing, hiking and swimming are offered at the various sites.
The Observatory Hotel â96 keysâis in Sydney within walking distance of the central business district. This hotel opened in 1993 and has two restaurant and lounge areas, extensive meeting and banquet rooms, a spa and health club with indoor swimming pool, and a large parking garage on a site of about one acre. There is also access to a nearby tennis court.
The Lilianfels Blue Mountains â85 keysâis in the Blue Mountains National Park west of Sydney. It is named after the original estate house, dating from 1890, where the hotelâs gourmet restaurant is located. The main hotel, built in 1992 and recently refurbished, has a second restaurant and conference facilities. The resortâs four acres of grounds encompass indoor and outdoor swimming pools, health club and spa, tennis court and extensive gardens with views over the Blue Mountains. There is expansion land to add keys in the future.
MANAGEMENT DISCUSSION FROM LATEST 10K
OEH has three business segments: (1) hotels and restaurants, (2) tourist trains and cruises, and (3) real estate and property development. Hotels currently consist of 41 deluxe hotels. Thirty-six of these hotels are wholly or majority owned, and are referred to in this discussion as âowned hotelsâ. The other five hotels, in which OEH has unconsolidated equity interests and operate under management contracts, are referred to in this discussion as âhotel management interestsâ. Of the owned hotels, 12 are located in Europe, seven in North America and 17 in the rest of the world.
In December 2007, Bora Bora Lagoon Resort was designated as held for sale, and, accordingly, the results of the hotel have been reflected as discontinued operations in all periods presented.
Also, OEH currently owns and operates the restaurants â21â Club in New York and La CabaĂąa in Buenos Aires. In June 2006, OEH sold its minority interest in a third restaurant.
OEHâs tourist trains and cruises segment operates six tourist trains â four of which are owned and operated by OEH, one in which OEH has an equity interest and exclusive management contracts, and one in which OEH has an equity investment â and a river cruiseship and five canalboats.
Revenue per available room, or RevPAR, is a performance indicator used widely within the hotel industry as it is a function of the average daily room rate, or ADR, achieved for the rooms sold and average occupancy, being the rooms sold as a proportion of the rooms available to be sold. ADR on its own gives no indication of the relative occupancy of the hotel and could be shown as increasing while the number of rooms sold had fallen, resulting in a reduction in rooms revenue over a prior period.
OEHâs results in 2005 improved over those in 2004, with same store RevPAR increases of 16%, coupled with the acquisition of the Grand Hotel Europe in 2005, driving revenue increases of 21% and net earnings growth of 33% to $41.5 million. In 2006, OEH saw further growth of 10% in RevPAR as performance approached 2000 levels. In 2006 average occupancy was 63% with ADR $380. In 2007, same store RevPAR increased 15% in dollars and 11% in local currency with ADR of $428.
OEH has a strategy to grow its business that includes:
â˘ RevPAR growth: the unique nature of OEHâs individual properties and the avoidance of a chain brand have historically enabled OEH to charge premium rates for rooms;
â˘ Expansion of hotels: the returns on investment by adding new rooms or other facilities to a hotel are high as the incremental operating costs are low;
â˘ Acquisitions: OEH looks to invest in unique properties at reasonable prices with expansion potential and near-term upside potential in earnings through increasing room rates and/or reducing costs; and
â˘ Real estate: OEH owns land near to or surrounding its hotels which it intends to develop over time for residential real estate sales.
In March 2005, by selling 5,050,000 newly-issued class A common shares at $26 each, OEH raised $121.9 million net of underwriters fees and expenses. The proceeds of this sale were used primarily to fund the acquisition of the Grand Hotel Europe. In July 2006, OEH raised an additional $99.2 million by selling 2,500,000 newly-issued class A common shares at $40 each. The proceeds of the sale were used primarily to fund the acquisition of the former Pansea hotels group.
In 2007, 83% of OEHâs revenue was derived from the hotels and restaurants segment and 14% from the tourist trains and cruises segment, with the remainder from real estate and property development. In the hotels and restaurants segment, 93% of revenue was from owned hotels, 5% from restaurants and 2% was from hotel management interests.
OEH derives revenue from owned hotel operations primarily from the sale of rooms and the provision of food and beverages. The main factors for analyzing rooms revenue are the number of room nights sold and the ADR, and RevPAR referred to above which is a measure of both these factors.
Revenue from restaurants is derived from food and beverages sold to customers. Revenue from hotel management interests includes fees received under management contracts, which are based upon a combination of a percentage of the revenue from operations and operating earnings calculated before specified fixed charges.
The revenue from the tourist trains and cruises segment primarily comprises tickets sold for travel and food and beverage sales.
The revenue from real estate and property development is primarily derived from the sale of land and buildings.
Operating costs include labor, repairs and maintenance, energy and the costs of food and beverages sold to customers in respect of owned hotel operations, restaurants, tourist trains and cruises.
Selling, general and administrative expenses include travel agentsâ commissions, the salaries and related costs of the sales teams, advertising and public relations costs, and the salaries and related costs of management.
Depreciation and amortization includes depreciation of owned hotels, restaurants, tourist trains and cruise boats.
When OEH discusses results for a period on a âcomparableâ or âsame storeâ basis, OEH is considering only the results of hotels owned and operating throughout the periods mentioned and excluding the effect of any acquisitions, dispositions or major refurbishments.
Year Ended December 31, 2007
compared to Year Ended December 31, 2006
Total revenue increased by $99.0 million, or 20.7%, from $479.4 million in 2006 to $578.4 million in 2007. Hotels and restaurants revenue increased by $76.4 million, or 19.1%, from $399.6 million in 2006 to $476.0 million in 2007, and the revenue from tourist trains and cruises increased by $18.9 million, or 29.7%, from $63.6 million in 2006 to $82.5 million in 2007. Real estate and property development contributed $19.9 million of revenue in 2007, up from $16.1 million in 2006, with revenues from Keswick Hall representing $4.6 million and revenues from the Cupecoy real estate development in St. Maarten representing $15.3 million.
The increase in hotels and restaurants revenue consisted of the following:
â˘ $74.9 million attributable to owned hotels, or 20.4%, from $367.8 million in 2006 to $442.7 million in 2007,
â˘ an increase in revenue from hotel management interests of $1.5 million, or 16.3%, from $9.2 million in 2006 to $10.7 million in 2007, mainly due to improved results of Charleston Place and the Hotel Ritz, Madrid, investments.
The increase in owned hotels revenue of $74.9 million is analyzed by region as follows:
Europe. Revenue increased by $48.1 million from $180.4 million in 2006 to $228.5 million in 2007. $9.6 million of this growth was attributable to the Hotel Cipriani, $7.9 million was attributable to the Grand Hotel Europe and $5.3 million of growth was due to the performance of the Hotel Splendido. All other properties in the region also showed RevPAR growth.
On a same store basis, RevPAR increased by 10% in 2007 over 2006 and when translated to U.S. dollars also increased by 17%. Overall, revenue in Italy was $21.8 million ahead of revenue in 2006, an increase of 29%.
North America. Revenue decreased by $0.1 million, from $85.5 million in 2006 to $85.4 million in 2007. The 2006 revenue includes an amount of $3.9 million in respect of El Encanto which was closed for renovation throughout 2007 and generated no revenue in the year. Excluding El Encanto, North American revenue increased by $3.8 million, or 4.6% from 2006 to 2007. This increase was underpinned by $1.6 million of revenue at Maroma Resort and Spa, along with revenue growth at La Samanna, Keswick Hall, Inn at Perry Cabin and Casa de Sierra Nevada.
On a same store basis, RevPAR in 2007 increased by 4% over 2006.
Rest of the World. Revenue increased by $26.8 million, or 26.3%, from $102.0 million in 2006 to $128.8 million in 2007. Revenue at all properties showed good growth in 2007. Southern African revenue increased by 17% to $40.9 million, South American revenue increased by 8% to $48.5 million, and Australasian revenue increased by 5% to $23.3 million. Revenue from the former Pansea Hotels group, acquired in July 2006, contributed a further $16.1 million for the full year 2007.
RevPAR increased by 14% in local currencies and increased by 15% in U.S. dollars.
Tourist Trains and Cruises. Revenue increased by $18.9 million, or 29.7%, from $63.6 million in 2006 to $82.5 million in 2007. $4.6 million of this growth was due to the performance of the Venice Simplon-Orient-Express. The Royal Scotsman, which was acquired in April 2007, generated revenue of $6.8 million.
Real Estate. Revenue increased by $3.8 million, or 23.6%, from $16.1 million in 2006 to $19.9 million in 2007. The Cupecoy development generated revenues of $15.3 million in 2007 for the first time, which more than made up for lower revenues at Keswick Hall in 2007.
Depreciation and Amortization
Depreciation and amortization increased by $4.4 million, or 12.7%, from $34.5 million in 2006 to $38.9 million in 2007. The increase was due primarily to the continued investment in existing properties.
Operating expenses increased by $52.4 million, or 23.1%, from $226.4 million in 2006 to $278.8 million in 2007. This was primarily due to the improved revenues and volumes in OEHâs businesses in the year. As a percentage of revenue, operating expenses increased by 1% to 48% of revenue in 2007.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $28.4 million, or 20.2%, from $140.6 million in 2006 to $169.0 million in 2007. As a percentage of revenue, Selling, General and Administrative Expenses remained flat at 29% of revenue in 2007.
Segment EBITDA margins (calculated as segment EBITDA as a percentage of revenue) for 2007 were 27%, down from 28% for 2006. The decrease was due to reduced margins in North America and the Rest of the World, notably at the Copacabana Palace in Brazil due to the strengthening of the real against the dollar during 2007.
Earnings from Operations
Earnings from operations increased by $16.2 million, or 21%, from $77.8 million in 2006 to $94.0 million in 2007, due to the factors referred to in the preceding paragraphs.
Net Finance Costs
Net finance costs decreased by $4.5 million, or 10%, from $49.0 million in 2006 to $44.5 million in 2007. This includes foreign currency transaction gains of $1.0 million in 2007 (2006-$4.6 million loss). Excluding foreign currency, net finance costs increased by $1.0 million, or 2%, from $44.4 million in 2006 to $45.4 million in 2007. The increase was attributable to rising U.S. and U.K. interest rates during 2007.
Provision for Income Taxes
The provision for income taxes increased by $4.8 million, from $10.8 million in 2006 to $15.6 million in 2007. The 2006 provision for income taxes included deferred tax credits totalling $5.8 million resulting from the reduction of valuation allowances established in respect of tax losses in Portugal and Australia. There were no comparable deferred tax credits in 2007.
OEH recognized a provision of $28.8 million in respect of its uncertain tax positions upon the adoption of FASB interpretation No. 48 âAccounting for Uncertainty in Income Taxesâ (âFIN 48â) on January 1, 2007. The provision for income taxes of $15.6 million for 2007 includes a tax credit of $7.1 million that reduces the FIN 48 liability recognized at December 31, 2007.
The company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax provision was attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax.
Earnings from Unconsolidated Companies
Earnings from unconsolidated companies, which include OEHâs share of the net earnings of its equity investments as well as interest income related to loans and advances to the equity investees, increased by $4.4 million, or 37%, from $12.0 million to $16.4 million, mainly due to increased earnings from Peruvian joint ventures.
Earnings from discontinued operations
The loss from discontinued operations of Bora Bora Lagoon Resort in 2007 included goodwill and fixed assets impairment loss of $14.0 million and loss from operations of $2.6 million. Earnings from the hotel in 2006 of $3.1 million included $3.0 million deferred tax credits on losses carried forward.
In December 2007, OEH decided to sell Bora Bora Lagoon Resort. Consequently the hotelâs results have been presented as discontinued operations. Due to increased competition and high cost structures in Bora Bora the results of the hotel were lower than expected so that an impairment loss had arisen.
Year Ended December 31, 2006
compared to Year Ended December 31, 2005
Total revenue increased by $58.3 million, or 13.8%, from $421.1 million in 2005 to $479.4 million in 2006. Hotels and restaurants revenue increased by $44.4 million, or 12.5%, from $355.2 million in 2005 to $399.6 million in 2006, and the revenue from tourist trains and cruises increased by $2.4 million, or 3.9%, from $61.2 million in 2005 to $63.6 million in 2006. Real estate and property development contributed $16.1 million of revenue in 2006, up significantly from $4.7 million in 2005, with revenues from Keswick Hall representing $8.4 million.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Results of Operations
OEH has three business segments, namely (1) hotels and restaurants, (2) tourist trains and cruises and (3) real estate and property development. Hotels currently consist of 41 deluxe hotels. Thirty-six of these hotels are wholly or majority owned, and are referred to in this discussion as âowned hotelsâ. The other five hotels, in which OEH has unconsolidated equity interests and operate under management contracts, are referred to in this discussion as âhotel management interestsâ. Of the owned hotels, 12 are located in Europe, seven in North America and 17 in the rest of the world.
In December 2007, Bora Bora Lagoon Resort was designated as held for sale, and, accordingly, the results of the hotel have been reflected as discontinued operations.
Also, OEH currently owns and operates the restaurants â21â Club in New York and La CabaĂąa in Buenos Aires.
OEHâs tourist trains and cruises segment operates six tourist trains â four of which are owned and operated by OEH, one in which OEH has an equity interest and exclusive management contracts, and one in which OEH has an equity investment â and a river cruiseship and five canalboats.
OEHâs operations are subject to adverse factors generally encountered in the hospitality and travel industries, including
â˘ cyclical downturns arising from changes in general and local economic conditions and business activities, which impact levels of travel and demand for travel products,
â˘ less disposable income of consumers and the travelling public,
â˘ dependence on varying levels of tourism, business travel and corporate entertainment,
â˘ changes in popular travel patterns,
â˘ competition from other hotels and leisure time activities,
â˘ periodic local oversupply of guest accommodation, which may adversely affect occupancy and actual room rates achieved,
â˘ increases in operating costs at OEH properties due to inflation and other factors which may not be offset by increased revenues, and changes in costs of materials,
â˘ foreign exchange rate movements impacting OEHâs revenues and costs,
â˘ adverse weather conditions or destructive forces like fire or flooding that sometimes result in closure of OEHâs properties, and
â˘ seasonality, in that many of OEHâs hotels and tourist trains are located in the northern hemisphere where they operate at low revenue or close during the winter months.
The effect of these factors varies among OEHâs hotels and other properties because of their geographic diversity. The currently weakening economies of North America, Europe and other regions and the current disruption of financial markets in various parts of the world have resulted in shorter lead times for reservations at many of OEHâs properties because of customersâ economic uncertainty. As a result, OEHâs ability to forecast operating results and cash flows has been reduced. These factors have also affected OEHâs liquidity outlook as discussed below under the heading âLiquidity and Working Capital - Liquidity.â
Three months Ended September 30, 2008 compared to
Three months Ended September 30, 2007
Management evaluates the operating performance of OEHâs segments on the basis of segment EBITDA and believes that segment EBITDA is a useful measure of operating performance because segment EBITDA is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is a financial measure commonly used in OEHâs industry. OEHâs segment EBITDA, however, may not be comparable in all instances to EBITDA as disclosed by other companies. Segment EBITDA should not be considered as an alternative to earnings from operations or net earnings (as determined in accordance with US generally accepted accounting principles) as a measure of OEHâs operating performance, or as an alternative to net cash provided by operating, investing and financing activities (as determined in accordance with US generally accepted accounting principles) as a measure of OEHâs ability to meet cash needs.
Average daily rate is the average amount achieved for the rooms sold. RevPAR is revenue per available room, that is the rooms revenue divided by the number of available rooms for each night of operation. Occupancy is the number of rooms sold divided by the number of available rooms. Same store RevPAR is a comparison based on the operations of the same units in each period, such as by excluding the effect of any acquisitions or major refurbishments. The same store data excludes the following operations:
Copacabana Palace Bora Bora Lagoon Resort
El Encanto Mount Nelson Hotel
Casa de Sierra Nevada Hotel das Cataratas
The net earnings for the period were $6.4 million ($0.15 per common share) on revenue of $178.4 million, compared with net earnings of $22.6 million ($0.53 per common share) on revenue of $178.9 million in the same period in the prior year.
Total revenues decreased by $0.5 million, from $178.9 million in the three months ended September 30, 2007 to $178.4 million in the three months ended September 30, 2008. Hotels and restaurants revenue increased by $9.0 million, or 6%, from $138.6 million in the three months ended September 30, 2007 to $147.6 million in the three months ended September 30, 2008. Tourist trains and cruises revenue increased by $1.2 million, or 5%, from $26.2 million for the three months ended September 30, 2007 to $27.4 million for the three months ended September 30, 2008. Real estate revenue decreased by $10.6 million from $14.1 million for the three months ended September 30, 2007 to $3.5 million for the three months ended September 30, 2008.
The increase in hotel revenue year on year was due primarily to increased room rates across the group. Of hotel revenue growth, $5.9 million was due to exchange rate fluctuations in Europe.
The revenue from restaurants decreased by $0.1 million, or 3%, from $3.4 million in the three months ended September 30, 2007 to $3.3 million in the three months ended September 30, 2008.
Owned Hotels: For owned hotels overall, same store RevPAR in US dollars increased by 9% in the three months ended September 30, 2008 compared to the three months ended September 30, 2007. Measured in local currency this increase in same store RevPAR was 1%.
Revenue increased by $4.9 million, or 6%, from $86.7 million for the three months ended September 30, 2007 to $91.6 million for the three months ended September 30, 2008. The Grand Hotel Europe revenues grew by $2.5 million, or 18%, from $13.8 million for the three months ended September 30, 2007 to $16.3 million for the three months ended September 30, 2008. Of the increased revenue, $1.8 million was due to average rate improvements despite a small reduction in occupancy compared with the prior year. Exchange rate movements were responsible for the other $0.7 million of revenue growth in the period.
In Italy, revenues at the Hotel Splendido increased by $1.3 million, or 8%, to $17.0 million in the three months ended September 30, 2008, but this was partly offset by a drop in revenues of $0.6 million at the Villa San Michele. Revenues at this hotel were $5.6 million in the three months ended September 30, 2008 compared to $6.2 million in the same period in the prior year. Revenues at the Hotel Cipriani also decreased by $0.8 million, to $16.6 million. Revenues at the Hotel Caruso Belvedere increased by $0.7 million to $7.9 million. Without the positive effect of exchange rate movements in the three months ended September 30, 2008 compared to the three months ended September 30, 2007 of $3.9 million, revenues at the four Italian hotels collectively would have been $3.5 million lower in the current period than in the prior year, reflecting a decline in occupancy of 8% across the four properties.
Revenues at La Residencia increased by $0.9 million, or 13%, from $6.9 million for the three months ended September 30, 2007 to $7.8 million for the three months ended September 30, 2008. Of the increased revenues, $0.6 million was due to exchange rate movements with $0.3 million of the revenue growth due to average rate improvements and improved occupancy. Revenues at Le Manoir aux QuatâSaisons decreased by $0.1 million, or 1%, from $6.7 million for the three months ended September 30, 2007 to $6.6 million for the three months ended September 30, 2008. Revenues fell $0.5 million as a result of exchange rate fluctuations but this fall was offset by $0.4 million of rooms and non-rooms revenue growth.
Revenues at Reids Palace, Madeira increased by $1.3 million, to $7.4 million for the three months ended September 30, 2008, from $6.1 million in the prior year. Revenues at Lapa Palace, Lisbon and Hotel de la Cite, Carcassonne, both decreased by $0.1 million to $3.5 million and $2.9 million, respectively. At Reids Palace, exchange rate fluctuations accounted for $0.6 million additional revenue in the three months ended September 30, 2008, compared to the same period in 2007. Exchange rate fluctuations also led to $0.3 million additional revenues at Lapa Palace and $0.2 million additional revenues at Hotel de la Cite. Average rate and occupancy improvements at Reids Palace generated additional revenues of $0.7 million in 2008, but a drop in occupancy at Lapa Palace and Hotel de la Cite caused revenue decreases of $0.4 million and $0.3 million, respectively.
Revenues at Maroma Resort and Spa, Mexico decreased by $0.2 million, or 6%, from $2.9 million for the three months ended September 30, 2007 to $2.7 million for the three months ended September 30, 2008. Revenues at Casa de Sierra Nevada, Mexico increased by $0.2 million, to $0.7 million in the three months ended September 30, 2008.
Revenues at La Samanna, St Martin and Keswick Hall, Virginia remained at $2.6 million and $3.3 million, respectively, in both the three months ended September 30, 2007 and the three months ended September 30, 2008.
Across all of the North American properties, on a same store basis RevPAR decreased by 9%. Average occupancy was 54% in the three months ended September 30, 2008, compared to 63% in the same period in 2007.
Excluding Hotel das Cataratas, Brazil, which OEH started to operate on October 1, 2007 and which recorded revenues of $1.7 million in the three months ended September 30, 2008, revenues in the Rest of the World region increased by $3.4 million, or 12%, from $28.3 million for the three months ended September 30, 2007 to $31.7 million for the three months ended September 30, 2008. Revenues at the Copacabana Palace, Brazil increased by $1.2 million, or 16%, to $8.6 million for the three months ended September 30, 2008. All of this increase was due to the effect of exchange rate movements between the Brazilian Real and US dollar.
Revenues at OEHâs two Australian properties were $5.9 million for the three months ended September 30, 2007 and also for the three months ended September 30, 2008.
Southern Africa revenues increased by $1.3 million, or 15%, from $8.7 million for the three months ended September 30, 2007 to $10.0 million for the three months ended September 30, 2008. All of this additional revenue was generated by Orient-Express Safaris, Botswana. Improved trading caused revenues here to increase by $1.5 million, but exchange rate fluctuations reduced this increase by $0.3 million, for net growth of $1.2 million. Exchange rate fluctuations caused revenues at the Mount Nelson, Cape Town, to fall by $0.2 million and caused a fall in revenues of $0.3 million at the Westcliff, Johannesburg. These decreases were offset by trading improvements of $0.1 million and $0.5 million at the two South African hotels, respectively, for the three months ended September 30, 2008.
OEHâs six Asian hotels collectively increased revenues by $0.7 million, or 17%, from $4.3 million in the three months ended September 30, 2007 to $5.0 million in the three months ended September 30, 2008. This includes a decrease in revenues at The Governors Residence, Yangon, which declined by $0.1 million following the cyclone Nargis that struck the country in May 2008, and resulted in the hotel being closed for most of the quarter. Excluding The Governorâs Residence, all of the Asian hotels recorded good revenue growth due to higher average rates without any decline in occupancy. Exchange rate movements had only a minimal effect on the Asian hotel revenues.
The Rest of the World region RevPAR, on a same store basis, increased by 25% in local currencies in the three months ended September 30, 2008 compared to the three months ended September 30, 2007. This translates to a same store RevPAR increase of 25% when expressed in US dollars.
Hotel Management and Part-Ownership Interests: Revenues increased by $0.1 million from $2.3 million in the three months ended September 30, 2007 to $2.4 million in the three months ended September 30, 2008. Revenues earned from the managed hotel in Charleston decreased by $0.1 million, to $0.9 million for the three months ended September 30, 2008. Revenues earned from the managed hotels in Peru increased by $0.2 million, or 22%, to $1.2 million for the three months ended September 30, 2008.
Restaurants : Revenues decreased by $0.1 million, from $3.4 million in the three months ended September 30, 2007 to $3.3 million in the three months ended September 30, 2008. Revenues at â21â Club in New York fell by $0.2 million, or 7%, to $2.9 million in the three months ended September 30, 2008, due to a reduced volume of corporate events. Revenues at La Cabana, Buenos Aires, Argentina, increased by $0.1 million, to $0.4 million for the three months ended September 30, 2008.
Trains and Cruises: Revenues increased by $1.2 million, or 5%, from $26.2 million in the three months ended September 30, 2007 to $27.4 million in the three months ended September 30, 2008. Venice Simplon-Orient-Express revenue increased by $1.6 million, or 21%, from $8.1 million for the three months ended September 30, 2007 to $9.7 million for the three months ended September 30, 2008 due to increased passenger numbers in the current year. Revenues at the Royal Scotsman grew by 9%, or $0.2 million, from $3.2 million in the three months ended September 30, 2007 to $3.4 million in the three months ended September 30, 2008. The strengthening of the US dollar against the British pound led to a negative exchange rate effect in the quarter. Combined, the Venice Simplon-Orient-Express and The Royal Scotsman revenues were $1.0 million lower in the three months ended September 30, 2008 than would have been the case if the exchange rate was the same as in the three months ended September 30, 2007. Revenues from the day train services operated in the United Kingdom decreased by $0.1 million, to $7.3 million for the three months ended September 30, 2008. Trading improvements of $0.4 million were offset by a further $0.5 million negative foreign exchange effect. The Road to Mandalay river cruiseship in Myanmar did not operate in the three months ended September 30, 2008, following the cyclone which struck the country in May 2008. The ship generated revenues of $0.9 million in the three months ended September 30, 2007.
Real Estate : All of the real estate revenues of $3.5 million in the three months ended September 30, 2008 came from the Porto Cupecoy development, where revenue is recorded using the percentage of completion method. No condominiums were sold in the quarter and five condominium purchase agreements were cancelled. Revenue of $10.7 million was recognized in the comparable period in 2007. No revenue was recorded at Keswick Hall, Virginia, in the current period, compared to revenue of $3.4 million in the three months ended September 30, 2007.
Depreciation and amortization
Depreciation and amortization decreased by $0.1 million, or 1%, from $9.9 million in the three months ended September 30, 2007 to $9.8 million in the three months ended September 30, 2008.
Operating expenses decreased by $3.0 million, or 3%, from $86.2 million in the three months ended September 30, 2007 to $83.2 million in the three months ended September 30, 2008. As a percentage of revenue, operating expenses decreased from 48% of revenue for the three months ended September 30, 2007, to 47% of revenue for the three months ended September 30, 2008.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $8.0 million, or 19%, from $43.2 million in the three months ended September 30, 2007 to $51.2 million in the three months ended September 30, 2008. The selling, general and administrative expenses incurred in the three months ended September 30, 2008 included costs of $2.2 million incurred at the Hotel das Cataratas, Brazil, which OEH began to operate in October 2007. Excluding these costs, as a percentage of revenue, selling, general and administrative expenses increased to 27% in the current period compared to 24% for the three months ended September 30, 2007. Selling, general and administrative expenses in Europe were impacted by inflationary pressures, particularly in respect of wages and movements in the euro-dollar exchange rate.
Although segment EBITDA for the quarter decreased by 15% from $58.6 million in 2007 to $49.8 million in 2008, segment EBITDA margins (calculated as segment EBITDA as a percentage of revenue) decreased by 3% from 31% for the three months ended September 30, 2007 to 28% for the three months ended September 30, 2008. Excluding the gain arising on the disposal of assets in the three months ended September 30, 2007, Segment EBITDA for the quarter decreased by $6.5 million.
The European hotels collectively reported a segment EBITDA of $36.5 million compared to $38.3 million in the same period in 2007. As a percentage of revenues, the European segment EBITDA margin declined from 34% in the three months ended September 30, 2007 to 31% in the three months ended September 30, 2008.
Segment EBITDA in the North American region was a loss of $1.5 million in the three months ended September 30, 2008 compared to earnings of $0.9 million in the same period in the prior year.
Segment EBITDA in the Rest of the World region increased by $0.2 million from $6.5 million in the three months ended September 30, 2007 to $6.7 million in the three months ended September 30, 2008. The 2008 segment margin includes the results of Hotel das Cataratas, Brazil, which OEH has operated since October 1, 2007 and which is undergoing refurbishment. If the results of this hotel are excluded, segment EBITDA for the Rest of the World region increased by $1.5 million, to $8.0 million for the three months ended September 30, 2008. The segment EBITDA margin for the three months ended September 30, 2008, excluding Hotel das Cataratas, was 23% compared to a margin of 18% for the same period in 2007.
Earnings from operations
Earnings from operations decreased by $7.7 million from a profit of $41.8 million in the three months ended September 30, 2007 to a profit of $34.1 million in the three months ended September 30, 2008, due to the factors described above.
Net finance costs
Net finance costs were $14.1 million in both the three months ended September 30, 2007 and the three months ended September 30, 2008. The three months ended September 30, 2007 included a foreign exchange loss of $1.5 million compared to a foreign exchange loss of $2.5 million in the three months ended September 30, 2008. Excluding the foreign exchange items, net finance costs decreased by $1.0 million, or 8%, from $12.6 million for the three months ended September 30, 2007 to $11.6 million for the three months ended September 30, 2008.
Thank you very much. Good morning, ladies and gentlemen. As the operator indicated, this is the Third Quarter Earnings Conference Call for Orient-Express Hotels. We issued our news release last night and it is available on our website at Orient-Express.com as well as on the web site of the SEC.
For anyone who has not yet seen it, the highlights are as follows: Third quarter total revenues excluding real estate grew 5%. Same store RevPAR up 9% in U.S. dollars, 1% in local currency. EBITDA before real estate of $50 million U.S., adjusted EBITDA before real estate of $51.3 million U.S. Third quarter net earnings from continuing operations of $17.6 million U.S.; EPS from continuing operations of $0.41 per common share, adjusted EPS of $0.47 per common share. And the company has taken a number of steps to reduce costs and preserve financial flexibility.
On the call today are Jim Hurlock, Chairman of Orient-Express Hotels; Paul White, President and Chief Executive Officer; Martin O'Grady, Chief Financial Officer, and Ned Hetherington, Company Secretary, to whom I will now hand over for the usual housekeeping note matters. Thank you, Ned.
Good morning, everyone. I am Ned Hetherington, the Company Secretary of Orient-Express Hotels. Before we get started I would like to read out our cautionary statement under the Private Securities Litigation Reform Act of 1995 in the United States.
In the course of remarks to you today by Orient-Express Hotelsâ management and in answering your questions, they may make forward-looking statements concerning Orient-Express Hotels, such as its earnings outlook, future investment plans, and other matters that are not historic facts. We caution that actual results of Orient-Express Hotels may differ materially from these forward-looking statements. Information about factors that could cause actual results to differ is set out in today's news release, the Company's latest annual report to shareholders, and the filings of the Company with the Securities and Exchange Commission.
That is all I have; I will now turn this call over to Paul White, Chief Executive of Orient-Express Hotels.
Thank you, Ned. Good morning, ladies and gentlemen. Today, as well as giving you some further analysis of our third quarter results, I would like to focus on the two key topics at the top of managementâs agenda in the current trading environment. Firstly, how is Orient-Express navigating this consumer-led recession and how do the short-term measures that we are taking impact on Orient-Expressâs long-term strategies; secondly, how do we see 2009, a look at the booking situation, and how we continue to differentiate ourselves from the mainstream sector.
In many ways the third quarter, and particularly the balance of the high season in the northern hemisphere, mirrored that of the second quarter. In July and August, RevPAR continued to show solid growth. September, however, saw an unprecedented downturn with RevPAR dropping by 6% in local currency. We are now beginning to see booking patterns in some regions returning to those experienced a year ago, which I believe is an encouraging sign.
I commented in the second quarter about margin compression, which in the third quarter was very much as expected with margins, and that is pre-real estate, across the portfolio reducing by some 200 basis points from 31% to 29%. In some properties we have seen revenues from food and beverage outlets, spas, and other revenue sources outpace rev as we continue in our strategy to incrementally grow revenue from our in-house guests. This does, however, impact margins.
As in the second quarter the performance of our properties in the rest of the world have been strong, with Asia, Africa, and Latin America leading the way. In Europe, the Grand Hotel Europe in St. Petersburg, La Residencia in Mallorca, and Reid's Palace in Madeira all showed double-digit revenue growth, which converted to similar growth in EBITDA, this in spite of high inflationary pressures in Russia.
This said, our European powerhouses in Italy have had mixed seasons. In Venice, the Cipriani has seen revenues drop back to 2006 levels as a combination of the weak dollar, the U.S. recession, and the decline in U.K. short break business have hit the city. Some reports show Venice over 30% down in 2008 versus 2007. Similar numbers are coming out of Florence. They key thing to focus on, though, is the long-term attractiveness of these destinations. Venice will always be Venice; Florence is Florence. Our properties are phenomenal properties, well-run, and this winter we continue the works planned at the Cipriani, which will see the property with 16 new suites, adding to the 10 which came online in 2008.
Elsewhere in Italy, the Splendido saw revenues for the third quarter grow by 8%, and the Caruso in Ravello recovered from the impact of the Naples garbage crisis in April and closed the quarter with 8% revenue growth.
Returning to the third quarter was revenues in U.S. dollars were up 5%, EBITDA was down 6% on prior year at $50 million, this again before real estate. In the year to September, EBITDA pre-real estate grew by 1% to $119.4 million, which I believe demonstrates the resilience of our business model, in particular in the high season months in times when many other companies in the sector have seen EBITDA decline.
So what of our current action plans that we have? We have outlined the key items in our press release issued last night. I have implemented significant SG&A reductions, which we currently have quantified in constant dollars at between $20 million and $22 million. This is in the main driven by headcount reductions and involves leveraging off the regional structure introduced by Filip Boyen, Vice President of Operations, some nine months ago. Cost reductions include savings in back office areas like finance, in reservations, on property sales, as well as senior management in the regions.
As I have repeatedly stated in the past, our portfolio is in great physical shape and this will enable us to reduce maintenance CapEx to $12 million in 2009 from the $25 million that we expect to spend this year and overall property-related CapEx to $24 million in 2009, from the estimated $69 million in 2008. This is expected to more than offset any reduction in cash from operations in 2009. The Company today is benefiting from the investment decisions taken by management and the Board over the past five years in assuring that our assets are in great shape and that this pause in expenditure will not impact the quality of our products.
I have also taken the decision to suspend development capital expenditure for the foreseeable future, as we maintain our focus on our key priorities. Why? The important thing here is to refocus development on when we want product to hit the market, not how quickly we can develop. Opening Santa Barbaraâs newest property in the low season in 2009 will be the right decision in an up cycle, as the property would have time to bed in before the high season. Economics now dictate that it is preferable to suspend this, with opening put back to either the high season in 2010 or even later. The cash impact of this and other developments suspended or deferred in the Caribbean, Brazil, Peru, and Central America will be over $60 million.
These decisions, along with the suspension of dividends, which demonstrate that the Company has left no stone unturned in ensuring maximum cash is available for investment, along with good operational management philosophies which have served Orient-Express Hotels well during previous downturns, and that I and my management team have indeed lived through, will free up cash for important acquisition opportunities which we have traditionally seen emerge in periods of stress in the industry. This has been a key element of our growth in previous years and will continue to do so in the future. The strength of our balance sheet and debt profile which sees significant repayments of debt only due in 2011 will underpin this. Martin will talk about this a little more later in the call.
Finally, moving on to 2009 and indeed the balance of 2008. The impact of the September revenues coupled with revising our expectation for the fourth quarter sees us keep RevPAR guidance in the 6-8% range. However, we are reducing EBITDA guidance pre-real estate and special license to $130 million to $135 million. I would note that the swing in the dollar versus the euro could further impact EBITDA in the fourth quarter; however, this will be partly offset by reductions in interest and depreciation.
Special items in quarter four will include the cost of the redundancy programs around the portfolio. In the circumstances, when we have just gone through a period of unprecedented volatility, we believe this is a very strong performance relative to the industry as a whole.
As I have said, in many areas bookings for 2009 as of the 30th of September are showing signs of stabilizing, with overall bookings for the portfolio already sitting at the same levels as this time last year, despite everything we have seen in the world.
In Italy, we have reduced operating days at all properties next year, thereby compressing demand and reducing variable costs and bookings that are actually stronger by 17%, but I will stress that this is very early days. The strong dollar will undoubtedly help the European properties; this said, we are still encountering weekly variations in booking patterns which are indicative of the volatile market conditions we find ourselves in.
On trains and cruises, on a revenue basis, our 2009 bookings are 5% behind the same time last year; however, we have actually reduced capacity in 2009, i.e. we will be running fewer trips on the Venice Simplon-Orient-Express by approximately 10%, which will have a positive impact on the profitability of the trainsâ portfolio. Bookings for the U.K. day trains, the Eastern and Oriental Express which runs in Asia, and Afloat in France, our barge business on a revenue basis, are ahead of the same time last year.
I will now hand over to Martin.
Thank you, Paul.
Good morning, everyone. Turning to balance sheet items, at the end of the quarter the Company has $69 million of cash plus an additional $78 million of funds available under working capital and revolving credit facilities. Taking into account of the total debt of $791 million, outstanding working capital facilities of $49 million and a cash balance of $69 million, the net debt at the end of the quarter was $770 million.
On a trailing 12-month basis, the EBITDA ratio was 5.3 times, which is unchanged from the last quarter. However, this is above the four to five timesâ range where we feel more comfortable. The weighted average maturity of the Companyâs debt was nearly four years. The current portion of long-term debt at the end of the quarter was $122 million. This however includes $89 million of borrowings under revolver facilities, which are technically repayable within 12 months but in reality will be rolled over as they mature. At the end of September, approximately 42% of debt was fixed and the average cost of debt, including margin, was 5.5%.
Turning to cash flows for the nine months, cash from operations was $80 million, which compared to $64 million the first nine months of last year. Investment in real estate, which is primarily Porto Cupecoy, was â
Why donât you stop, Martin. Operator, we seem to have rogue phone ringing in the line.
Yes, I have just located the line and muted it for you now.
Thank you. Sorry, Martin.
Back to cash flows for the nine months, cash from operations was $80 million, which compares to $64 million for the first nine months of last year. Investment in real estate, which is primarily Porto Cupecoy, was $26 million, and capital expenditure at the business unit level was $69 million. We have also invested a further $6 million in Cataratas and El Encanto during the course of the year. Net cash provided by financing activities over the nine-month period was $7 million and net decrease in cash was $32 million.
Central costs in the third quarter were $6.2 million compared to $7.7 million in the third quarter of 2007. The 2007 number included an exceptional $2 million of management restructuring-related costs. The full-year amount of central costs before any restructuring charges will be around $28 million.
The effective tax rate for the first nine months was 32%. For the full year we expect it will come out around 31% to 32%, but this may be affected by any FIN 48 adjustments in the last quarter.
I have taken a number of questions on debt maturity recently. For those not familiar with our filings, the debt due over the next three years is scheduled as follows: The last quarter of 2008 will be $12 million. 2009 will be $31 million. 2010 will be $51 million. The key year is going to be 2011, when $477 million, including the $89 million revolver, is scheduled. We will be working on these refinancings in 2010 and by then we anticipate the debt market will have improved. Clearly it is good news for our shareholders that we do not have to refinance our portfolio in this current market.
That said, we do have unencumbered assets in Mexico, in South America, southern Africa, and in Asia. Another interesting asset is the Grand Hotel Europe. That asset will make $25 million of EBITDA this year, and the outstanding debt is just over $40 million. Today it is very hard to raise finance in Russia, but we are monitoring the situation carefully and we may decide to take advantage of any improvement in market conditions as and when that happens.
Now, I will pass you back to Paul.
Just to summarize, I think my key message today, the key message from the Company is that, you know, despite going through what was a strong high season, our focus already during the tail-end of the high season was navigating the low season month that we are going into and indeed 2009. And our focus has been very much and will be very much on preserving cash to enable this company to capitalize on what we believe are investment opportunities that will come its way.
If ever there was a time for companies to have strong long-term strategic focus coupled with the ability to be flexible in the short term, I believe now is the time. The quality of our asset base, which has durability and predictability, will underpin the value of this company over and above any short-term movements in profitability. The management team and I have been preparing for this downturn of flex short-term strategies and continue to be nimble in our approach to navigating the near-term future events.
Thanks very much.
Thank you, Paul. I will now hand back to the operator so we can take your questions.