Orient-Express Hotels Ltd. 2006 Annual Report Contents Introduction 03 Orient-Express Hotels Ltd. Company profile Orient-Express Hotels owns or part-owns, and manages, 49 leisure properties in 25 countries. Thirty-nine are hotels, ranging across five continents, from the Hotel Cipriani 03 Financial in Venice to the Mount Nelson in Cape Town, the Copacabana Palace in Rio de Janeiro, highlights the Observatory in Sydney and Charleston Place in Charleston, South Carolina. 04 Restaurants include ‘21’ Club in New York and Increases in property values allow the company to Chairman’s La Cabaña in Buenos Aires. Six tourist trains include increase funding against those assets and thus fuel message the legendary Venice Simplon-Orient-Express in Europe expansion. The unique nature of the assets insulates and the Eastern & Oriental Express in Asia. The company against competition and therefore allows greater 06 also part-owns and manages PeruRail, which operates pricing flexibility. President’s the Cuzco-Machu Picchu train service used by nearly overview of every tourist to Peru (there are no roads to the The company avoids the use of a chain brand. Thus, performance famous Inca ruins and otherwise it is a four-day hike). none of its properties are branded “Orient-Express” The m.v. Road To Mandalay provides luxury cruises on (except the train and safari camps). Management believes 12 the Ayeyarwady River in Myanmar. that discriminating travelers will choose an individual Financial property of fame in priority to a chain brand. In the few review Orient-Express Hotels seeks out unique properties locations where the company competes with de luxe that have expansion potential. It owns or part-owns brand chains (Venice, Lisbon and Rio de Janeiro are 39 its properties because it believes that equity returns examples) it achieves up to 40% higher average rates Shareholder are greater than simply management fee income. than the chain brand hotels. and investor information Financial Highlights 2006 2005 $000 $000 Revenue 492,804 433,147 (1) Segment EBITDA 138,095 108,256 Net earnings 39,767 41,539 Venice Simplon-Orient-Express Earnings per common share $0.98 $1.09 In 2007 the legendary Venice Simplon-Orient-Express celebrates 25 years of Front Cover: Reid’s Palace spectacular service. During the last quarter of a century, guests from all over Set high on the cliffs overlooking Number of the world have enjoyed a luxury travel experience unlike any other. Romance, the ocean, Reid’s Palace boasts a shares (million) 40.7 38.2 adventure and pleasure are all intimately bound up in journeys that criss-cross breathtaking setting that reflects Europe between some of the world’s most alluring and exciting cities. the drama of Madeira itself. (1) See page 37 02 Orient-Express Hotels Ltd. Orient-Express Hotels Ltd. 03 Chairman’s message April 2, 2007 Dear Shareholder 2006 saw revenue of $493 million and EBITDA of management agreements but prefer to have an equity We are constantly seeking acquisitions which are unique, painting courses and editing the Orient-Express Magazine. Villa San Michele $138 million, increases of 14% and 28% respectively over stake. We intend to continue to pursue this model. to add to our portfolio. Our spread of activities in 25 Her health does not permit the amount of travel as before This transformed 15th Century 2005. These results were achieved despite closure of We invested $112 million in improvements to our countries gives us insight into opportunities which we so both she and I will play a more limited role in the monastery provides a charming mix two of our properties early in the year for major upgrade. properties in 2006 (excluding real estate development). Our might otherwise not have if our investments were more future, but my experience and effort will be fully available of rooms and has suites scattered In common with other leading hotel companies we experience is that the payback of such investment is rapid, geographically restricted. to the new CEO and the board as they may wish. throughout its delightful terraced are well advanced in generating a new profit stream boosting earnings more quickly than for new builds which After 13 years with the company, my stepson, Simon From my perspective your company is in great shape gardens. The restaurant sits in the in the form of real estate development tied to our require time to settle in. We expect to invest $93 million Sherwood has decided to step down from his positions and has an exciting and rewarding future. loggia of the monastery where hotels. In our case we have linked such development in our existing properties in 2007, excluding acquisitions. of President, CEO and Director. His notice period guests can dine while enjoying to our existing properties rather than new builds, while We differ from most hotel companies in that 13% expires in August, 2007. Simon is 46 and felt he wanted Sincerely, dramatic views over Florence. our competitors tend to concentrate on new builds. of our EBITDA comes from tourist trains and river and a new challenge in the remainder of his business career. Our largest property development, Cupecoy Village canal cruising. We believe we are the industry leader in Of course, I was disappointed at his decision but wish and La Samanna Villas in St. Martin, is now well advanced luxury rail travel and maintain the highest quality vessels him well. He has done a terrific job in managing the and should generate excellent returns in the years in the inland waterway business. There is considerable company. I expect to remain a non-executive director 2007–2009 with management fee income thereafter. scope for expansion in both sectors. with the title Founder & Director from the time of the Our business model calls for us to own or part-own In 2006 we completed the acquisition of the six Pansea next Annual Meeting of Shareholders. My wife, Shirley our properties and thus we are able to participate in the properties in Southeast Asia and five of them have Sherwood has played a major supporting role in the increase in real estate values. We believe our share price considerable scope for expansion. I am hopeful we will company through her development of the gardens at James B. Sherwood is underpinned by those values. We do not exclude pure be adding to our investments in this region before long. many of our hotel properties, organization of botanical Chairman & Founder 04 Orient-Express Hotels Ltd. Orient-Express Hotels Ltd. 05 President’s overview of performance 2006 was another good year for Orient-Express Hotels. In June 2006, we sold to our partner our 49% interest Hotel Splendido Same store RevPAR grew 11% in local currency (10% in in Harry’s Bar restaurant in London. Both the business The beauty of the Cinque Terre region US dollars), EBITDA margin rose by almost 300 basis and our investment have proved very successful and the of Italy provides a magnificent backdrop points, and EBITDA was up 28%. In addition to strong sale of our stake generated $3.3 million after-tax profit. for this hotel. Standing amongst exotic operating results, we acquired seven hotels and undertook gardens and woodlands, the hotel several renovation projects including major works at North America overlooks Portofino and its colorful Reid’s Palace in Madeira. EBITDA for the region increased 25% for the year on harbor below. During the winter of the back of 9% same store RevPAR growth. Maroma 2005/6 extensive refurbishment on Europe Resort and Spa, our hotel on the Mayan Riviera in the third floor saw smaller rooms Same store RevPAR increased 9% at our European Mexico that suffered hurricane damage in 2005 had a enlarged to create suites. The investment hotels so we enjoyed a strong season. Italy performed good year and demand seems stronger than ever for helped lift RevPAR at the hotel by 15%. particularly well with EBITDA well ahead at all of our 2007. While repairing the hurricane damage, we made hotels. This was the first full year for Hotel Caruso extensive improvements to the hotel and added eight Belvedere in Ravello and demand has developed well. new beachfront suites. In 2006 average room rate was over $800 and occupancy We have also made improvements at the Windsor was 87% so we have pushed prices up for 2007. Court Hotel in New Orleans which is gradually recovering Throughout our Italian hotels we have seen a from the impact of the hurricane that hit that city in 2005 resurgence of US demand combined with growth adding several new Club floors with dedicated lounge Grand Hotel Europe Owned Hotels: Europe from some developing markets – particularly Russian and bar facilities. The tourist attractions in New Orleans In 2006 phase 1 was completed of the 2006 2005 guests with their high average spend. The strongest are largely intact and demand is returning but the city planned renovation work at the hotel. RevPAR growth was at Hotel Splendido in Portofino still faces a major challenge as it rebuilds housing and The project included the refurbishment Segment EBITDA (up 15%) helped by the investment we made to infrastructure. of 120 of the guest rooms, creating the ($ millions) 52.7 46.6 enlarge and improve some of the third floor rooms. In February 2006 we acquired a 75% shareholding atmosphere of an aristocratic private The Villa San Michele in Fiesole, Florence and the in Casa de Sierra Nevada located in the historic city Russian residence. French designer Same store RevPAR 357 327 Hotel Cipriani in Venice also did well, both up 7%. of San Miguel Allende, Mexico.