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Article by DailyStocks_admin    (08-11-08 10:15 AM)

Filed with the SEC from July 31 to Aug 6:

Orient-Express Hotels (OEH)
Investment firm D.E. Shaw & Co. intends to deliver "a requisition" to Orient-Express Hotels, and is calling for a special meeting to let shareholders decide if the company's current governance structure needs to be revised. D.E. Shaw is "unaware of any other company whose supervoting shares are held by the company itself and not by a third party with an economic interest in the issuer of such supervoting shares." It also said it has "never seen a more unresponsive corporate-governance structure," and that the board should welcome the opportunity to ascertain the views of shareholders on such a fundamental issue. D.E. Shaw currently holds 3,218,678 shares (7.6% of the total outstanding).

BUSINESS OVERVIEW

Orient-Express Hotels Ltd. (the “Company” and, together with its subsidiaries, “OEH”) is incorporated in the Islands of Bermuda and is a “foreign private issuer” as defined in Rule 3b-4 of the U.S. Securities and Exchange Commission (“SEC”) under the U.S. Securities Exchange Act of 1934 (the “1934 Act”) 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 Company’s 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 “2006 Form 10-K”) on March 1, 2007. As more fully discussed in Item 8–Financial Statements and Supplementary Data under Note 2–Restatement 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 shareholders’ 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 6–Selected Financial Data in the 2006 Form 10-K and beginning shareholders’ 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 8–Financial 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.



Introduction



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 OEH’s 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 OEH’s 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. OEH’s worldwide portfolio of hotels currently consists of 3,889 individual guest rooms and multiple-room suites, each known as a “key”. Hotels owned by OEH in 2007 achieved an average daily room rate (“ADR”) of $428 (2006–$382) and a revenue per available room (“RevPAR”) of $263 (2006–$242). Approximately 70% of OEH’s 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).

Owned Hotels–Europe



Italy



The Hotel Cipriani and Palazzo Vendramin –98 keys–in 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 –80 keys–overlook 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 –46 keys–is located in Fiesole, a short distance from Florence. Originally built as a monastery in the 15th century with a façade 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 13–Certain Relationships and Related Transactions, and Director Independence below.



The Hotel Caruso Belvedere –50 keys–in 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 nobleman’s 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.

Portugal



Reid’s Palace –163 keys–is 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 –109 keys–is 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



Hôtel de la Cité –61 keys–is 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 Carcassonne’s 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 –64 keys–located in the charming village of Deià 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 Quat’Saisons –32 keys–is located in Oxfordshire, England about an hour’s 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 Britain’s most famous chef-patrons, and the hotel’s 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 –301 keys–in 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 Hotels–North America



United States



The Windsor Court –322 keys–opened in 1984 and is located in the central business district of New Orleans near the French Quarter and the Mississippi riverfront. Harrah’s 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 hotel’s interior décor 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 –48 keys–is 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 “Property Development” below.

The Inn at Perry Cabin –80 keys–was 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 –77 keys–in 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.



Caribbean



La Samanna –81 keys–is 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 “Property Development” below.



Mexico



OEH owns the Maroma Resort and Spa –65 keys–on Mexico’s 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.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview



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 “owned hotels”. The other five hotels, in which OEH has unconsolidated equity interests and operate under management contracts, are referred to in this discussion as “hotel management interests”. 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 ‘21’ Club in New York and La Cabaña in Buenos Aires. In June 2006, OEH sold its minority interest in a third restaurant.



OEH’s tourist trains and cruises segment operates six tourist trains – 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 – 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.



OEH’s 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:



• RevPAR growth: the unique nature of OEH’s individual properties and the avoidance of a chain brand have historically enabled OEH to charge premium rates for rooms;



• 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;



• 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



• 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 OEH’s 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 agents’ 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 “comparable” or “same store” 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.

Results of Operations

Management evaluates the operating performance of OEH’s 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 OEH’s industry. OEH’s 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 continuing operations or net earnings (as determined in accordance with U.S. generally accepted accounting principles) as a measure of OEH’s operating performance, or as an alternative to net cash provided by operating, investing and financing activities (as determined in accordance with U.S. generally accepted accounting principles) as a measure of OEH’s 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. Same store RevPAR is a comparison based on the operations of the same units in each period, by excluding the effect of any acquisitions, dispositions or major refurbishments. The same store data excludes the following operations: El Encanto, Maroma Resort and Spa, Casa de Sierra Nevada, La Residencia, Reids Palace, Hotel de la Cité, Le Manoir aux Quat’Saisons, Grand Hotel Europe, Windsor Court and the six Asian hotels for the periods in which they were closed, or where the number of rooms available differed from the previous year due to refurbishment



Year Ended December 31, 2007

compared to Year Ended December 31, 2006



Revenue



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:



• $74.9 million attributable to owned hotels, or 20.4%, from $367.8 million in 2006 to $442.7 million in 2007,



• 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



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 OEH’s 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.



Margins



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 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) 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 OEH’s 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 hotel’s 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.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Three months Ended March 31, 2008 Compared to Three months Ended March 31, 2007

Management evaluates the operating performance of OEH’s 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 OEH’s industry. OEH’s 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 U.S. generally accepted accounting principles) as a measure of OEH’s operating performance, or as an alternative to net cash provided by operating, investing and financing activities (as determined in accordance with U.S. generally accepted accounting principles) as a measure of OEH’s 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:

Total revenue increased by $20.5 million, or 22%, from $94.2 million in the three months ended March 31, 2007 to $114.7 million in the three months ended March 31, 2008. Hotels and restaurants revenue increased by $17.1 million, or 20%, from $84.8 million in the three months ended March 31, 2007 to $101.9 million in the three months ended March 31, 2008. Tourist trains and cruises revenue decreased by $0.7 million, or 7%,

from $9.4 million for the three months ended March 31, 2007 to $8.7 million for the three months ended March 31, 2008. Real estate revenues for the three months ended March 31, 2008 were $4.1 million. There were no real estate revenues for the three months ended March 31, 2007.



The increase in hotel revenue was due primarily to increased room rates across the group, and additional occupancy, particularly in March as a result of Easter falling in the month, rather than in April, as in the prior year. The increase in hotel revenue also reflects the impact of foreign currency appreciation in Europe and the Rest of the World region and an increase in non-rooms revenue.



The revenue from restaurants decreased by $0.4 million, or 8%, from $5.3 million in the three months ended March 31, 2007 to $4.9 million for the three months ended March 31, 2008.



For owned hotels overall, same store RevPAR in U.S. dollars increased by 14% in the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Measured in local currencies this increase was 12%.

Revenue increased by $6.0 million, or 28%, from $21.1 million for the three months ended March 31, 2007 to $27.1 million for the three months ended March 31, 2008. The Grand Hotel Europe revenues grew by $3.2 million, or 53%, to $9.5 million, driven by average rate improvements of 13% coupled with an increase in occupancy of 32% compared with the prior year. Revenue at Reids Palace Hotel, Madeira, grew by $1.4 million, or 27%, to $6.5 million, due to an increase in room rates. Revenue at La Residencia, Mallorca, increased by $0.6 million. Revenue at La Manoir aux Quat’ Saisons grew by $0.4 million, or 9%, to $4.9 million. Revenue improvement at the remaining European hotels was due to a combination of average rate and occupancy improvements.

The continued strengthening of the Euro was responsible for 40% of the revenue growth. Had exchange rates in the three months ended March 31, 2008 been the same as in the prior year period, average rate and occupancy improvements would have caused revenue to increase by $3.6 million, to $24.7 million in 2008. Exchange rate movements were responsible for the other $2.4 million of the revenue growth in the three months ended March 31, 2008.

Revenue increased by $3.5 million, or 15%, from $23.2 million in the three months ended March 31, 2007 to $26.7 million in the three months ended March 31, 2008. Revenues at La Samanna, St Martin and Maroma Resort and Spa, Mexico, increased by $1.0 million and $1.3 million, to $9.0 million and $6.2 million, respectively, due to average room rate improvements and additional occupancy at both hotels. Revenue at the Inn at Perry Cabin, Maryland, increased by $0.4 million, or 33%, following the opening of the hotel’s Linden Spa in July 2007 together with additional occupancy. Revenue at Casa de Sierra Nevada, Mexico, increased by $0.4 million, to $0.8 million. Part of the hotel was closed for renovation during the period ended March 31, 2007.



On a same store basis, RevPAR increased by 12% which was driven mostly by rate. Average occupancy across all of the North American properties was 67% compared to 64% in the same period in 2007.
CONF CALL

Pippa Isbell

Good morning ladies and gentlemen. As the operator indicated this is the first quarter earnings conference call for Orient-Express Hotels. Last night in New York we issued our news release and it’s available on our website at www.Orient-Express.com as well as on the website of the SEC. For anyone who hasn’t seen it yet, the highlights are as follows. First quarter total revenues of $119.9 million, up 23%. Same store RevPAR up 14% in US dollars, 12% in local currency. EBTIDA of $16.4 million up 18% over prior year. First quarter net loss from continuing operations of $2.4 million compared with a net loss from continued operations of $2.5 million the prior year. EPS loss from continuing operations of $0.06 per common share, adjusted EPS loss of $0.09 per common share. You will see that we provided more depth on regional performance in the release this quarter including more detailed analysis of revenues, costs and profitability. We’ve also made comments in the press release about certain caption balance sheet items on which we previously commented verbally.

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 matters.

Edwin S. Hetherington

Good morning everyone. I’m the general counsel and company secretary as Pippa indicated of Orient-Express Hotels. I’d like to deal with our usual housekeeping matter before we get started and that’s our cautionary statement under the Private Securities Litigation Reform Act of 1995. In the course of our remarks to you today by Orient-Express Hotels’ 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 from 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 & Exchange Commission.

That’s all I have, I’ll now turn the call over to Paul White.

Paul M. White

Good morning everybody. The question I’m being most frequently asked today is how is Orient-Express fairing in the current trading environment followed by an immediate follow up comment, I suppose your clients are immune and hence you are not impacted. Well, back in September, 2007 shortly after taking the helm at Orient-Express Hotels I gathered the senior management team together to formulate our go forward strategy. The first and most important part of this, particularly for any company trading in today’s uncertain environment is to focus on core business. For Orient-Express Hotels this means maximizing the returns from our 50 or so businesses around the world. This is the key role and objectives of our nine regional managing directors around the globe.

For me and for the management team one of our key achievements in the first quarter was to see our total revenue grow by 23%, almost double the rate of growth of same store RevPAR which grew at 14%. Whilst we are only in early May, it is clear that 2008 is evolving pretty much as expected. There are some areas of the world that are seeing unprecedented growth, the Grand Hotel Europe in Saint Petersburg showed revenue growth of 52% in the first quarter and followed this up with 16% in April. The April figure is important because it is same store. In other words the 100 or so refurbished rooms were online by April last year. Our Peruvian properties, our Asian properties and the trains and cruises portfolios are currently forecasting to have record years.

We have however, identified some areas of concern in certain geographic areas. We have been predicting a slowdown in the appetite of the US international traveler to traveling in the shoulder seasons and it is clear that the expected trend is happening. The months of April, May and October are looking at little softer than in previous years. The dual impact of a strong Euro and the lack of consumer confidence appear to have driven this with Italy feeling it the most. It is true to say that this is essentially as expected and has been for a while built in to our guidance. Our commitment to focus on all aspects of revenue, a key objective for the company moving forward, should see any further RevPAR contraction compensated for in overall revenue turns. As in the first quarter, this will impact the ability to grow the margins but, as I have said on many occasions it’s profits we bank not percentages.

Short break business out of the UK is down versus 2007 and this is driven by a weaker UK economy and also strong Euro versus the UK Pound. This will have an impact on the Euro’s own hotels. Currently the more resilient economies of Germany, France and Eastern Europe are showing good growth and filling this hole. We expect this to continue in to 2009 and are redirecting our marketing efforts accordingly. The pleasant surprise is the predicted slowdown in US domestic demand has not impacted Orient-Express. Overall, group bookings are slightly down over previous years but this is being more than compensated by FIT and corporate transient demand. It is clear that the US customers is more inclined to spend their dollars in dollar denominated areas which for Orient-Express means spending at home in the United States, in Asia and in South America.

Let’s look at the bookings outlook. All of the numbers I will give are same store and they are on a rolling 12 month basis. In Europe, on a rooms let basis we are currently tracking 2% points behind the same point in 2007. This data is as of 30th of April. The high season, that’s the third quarter for us is 7% ahead with the fourth quarter 3% ahead. On a revenue basis the second quarter is tracking 16% ahead in US dollars. The US region which includes Central America and the Caribbean, bookings are tracking 5% ahead versus the same period in 2007. The third quarter again dominates with bookings 17% up. Interestingly, the US domestic hotels Inn at Perry Cabin, Keswick Hall, The Windsor Court in New Orleans and Charleston Place are driving this.

In Asia, bookings are well ahead, 10% for the next 12 months with the third quarter up 15%. We are all saddened to hear of the awful events in Burma the results of Cyclone Nargis, our company and more relevantly our employees have lived through Katrina, Wilma, Emily and Rita in the US and Mexico and we are doing what we can in difficult circumstances to support our employees and families in such difficult times.

In the rest of the world overall bookings are tracking 2% ahead of prior year for 12 months with the key driver being the fourth quarter, the start of the southern hemisphere high season where bookings are currently over 20% up. But, I have to say it’s very early days. Trains and cruises bookings on a revenue basis are 11% ahead of prior year with 78% of budgeted revenue for the year confirmed. The main driver here is the Venice Simplon and the Orient-Express.

It is clear that the two markets which drive business in to our hotels, the United States and UK are experiencing downward pressure. Combined, these markets account for over 50% of our international business and are key to the future well being of Orient-Express. Our focus on maintaining market share from these regions if of prime importance. At the same time we continue to explore new opportunities with sales presences recently set up in South Korea, San Paulo and Moscow.

Cost control is always been an important tool in managing such a diverse portfolio and yes, like many other companies we are cutting staffing levels in some operations particularly in the low season on property and where possible in central functions. But, it is prime importance that we keep to our marketing plans. Our commitment to providing the highest level of product and service means that maintenance cap ex also remain unchanged. I will repeat, maximizing all revenue opportunities will see our company and indeed our industry ride the storm. It is vitally important that hotel guests see restaurants, spas and other hotel facilities as places they want to experience and that we keep them on property. All this leads to our guidance remaining unchanged with EBITDA pre-real estate remaining in the $160 to $170 million range. For clarity, we expect this figure to be in the $50 to $53 million range for the second quarter assuming exchange rates stay at current levels.

Turning to real estate; those of you who have read the earnings release will have seen a prudent approach to the release of earnings that has been adopted for the Cupecoy Marine project. There are good reasons for this, I must point out that the overall projections for revenues, costs and hence profits for this project essentially remain unchanged. The key events in the last few weeks include the removal of the local brokers who basically did not perform to expectation and we are delighted that S&P Real Estate have agreed to join with us and they have already mapped out a clear vision on sales which should see 60 units sold during the 2008/2009 selling season. The project remains on target for final completion in mid 2009. On S&P’s advice we’ve had the opportunity to reconfigure approximately 10 units to create a better final product top end focused and this will involve us repurchasing three or four of the units.

In St. Martin on the French side we have taken the decision to put the four villas that are scheduled for 2008 completion in to hotel inventory to ensure that we get an immediate return on these villas. We will continue to market the villas for sale but should market conditions work against us, the hotel will benefit from the incremental revenue and profit. S&P are currently working with our real estate teams on evaluating our potential projects in Mexico, Lisbon, San Michele, Madeira and Asia. This process will be complete by early June and only at that point will we give updated guidance. We are not currently forecasting any significant release of earnings in the second quarter.

Moving on to acquisitions and new opportunities. As expected, we are seeing the beginnings of movement in this area. In the past two months we have been approached regarding a number of very interesting opportunities in all parts of the world. In Europe, as well as the announced possibility in Puglia in Southern Italy. We are in discussions on possible acquisitions in Greece, Australia and Russia; early stages but interesting possibilities. In Central America we have recently completed due diligence on a couple of interesting opportunities. We are also pursuing properties in Ecuador, Cambodia and the United States.

On our existing properties under refurbishment, I’ve recently just returned from Brazil where the refurbishment of Hotel Cataratas will commence in two weeks time. The project will be split in to three phases with the first 77 of the 200 hundred rooms coming on stream in January, 2009. Phase I will also include a new Churrascaria, that’s a Brazilian barbeque restaurant, a new spa and pool. Phase II which includes the suites and the main building will come on line in May, 2009 with a total $30 million refurbishment complete in late 2009. I also recently visited the Royal Chundu Lodge in Zambia, a phenomenal destination and a perfect fit with our Botswana accounts. The Lodge due for completion in early 2009 will comprise 13 luxury over water lodges with views across the Zambezi River and a private island where we can build four luxury suites. And, the bonus, it’s only half an hour from the Victoria Falls.

I would now like to hand it over to our Chief Financial Officer Martin O’Grady.

Martin O’Grady

Good morning everyone. As Pippa mentioned at the start of the call, we have given more information in the press release this quarter so I would like to direct you there for the detailed results. I would however like to address the important issue of liquidity. At the end of the quarter we had cash of $102 million plus an additional $35 million of funds available under working capital on revolving credit services. Additionally, we have arranged but not yet drawn $120 million of construction finance for our projects at El-Encanto, Cupecoy, Cataratas and [inaudible]. With respect to our financial commitment and our 21 Hotel in New York City, I have started to presenting to banks mostly in the non-US based in order to arrange construction financing. Early feedback has been positive.

Including our cash balance, our net debt at the end of the quarter was $746 million and on a trailing 12 month basis our EBTIDA ratio was 4.8 times. The weighted average maturity of this debt was nearly four years. Our current portion of long term debt was $132 million. This included $90 million of borrowings under revolver facilities which are technically repayable in 12 months but in reality will be rolled over as they mature. The current portion of our long term debt also includes $47 million relating to a loan secured on Windsor Court in New Orleans in what has been a difficult local market and now even more in challenging financial climates, I’m pleased to report that this loan was successfully renewed in April for a further five year term and within an increasing margin of only 25 basis points. I believe this largely reflects the excellent relationships that Orient-Express enjoys with its banks and the confidence that our banks have in the Orient-Express, both of which are critical in these times of reduced liquidity.

At the end of March approximately 81% of our debt was floating. In April we decided to take advantage of the low level of US LIBOR and fixed our interest costs on an additional $150 million of US dollar borrowings. Our floating rate debt is now approximately 63% of total debt.

I’ll now pass you back to Pippa.

Pippa Isbell

I will hand you back to the operator so we can take your questions. In the interest of time could I ask you please to limit yourself to three questions each. Thank you operator.

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