Article Excerpt:
TWST: The last time we spoke about Orient-Express, you had quite a few good projects around the globe to discuss.Mr. Sherwood: Yes. First, with regard to the broad corporate direction of the company, nothing has changed, and I think that's good news for investors because we've sailed a very steady course in terms of our strategic direction. We continue to search for and acquire properties at the luxury end of the market, properties with strong personality and good potential, and to add a few of those properties each year to our portfolio. Again, the focus is on properties with high personality. That is, in every one of our hotels, the experiences we offer should be unique in some way. We find that gives us a real pricing power and keeps us out of price wars. So broadly speaking, the strategy hasn't changed at all. But the last year has been a very eventful one for Orient- Express Hotels. A number of things have come together for the company so that we have made a big step forward. There are three specific areas that I think are worth covering. The first is the area of new acquisitions. I think I probably mentioned to you at this time last year that we had a number of things we were looking at. Well, we completed in February 2005 a major acquisition, the largest we have done. That was of the Grand Hotel Europe in St. Petersburg. It's a fabulous property on the Nevsky Prospekt, which is the Champs-Elysees of St. Petersburg. St. Petersburg is the fourth largest city in Europe. It's a major destination both for tourism and for business. And yet there are really only a handful of luxury rooms there ' and this property is just in the best location in the city. It's a fabulous piece of real estate and very profitable. We acquired the property at about 6 times EBITDA. Now, we were able to acquire it at that low price because of some complexities in the transaction, which meant it took about nine months to complete. I think that frightened away some other buyers, particularly private equity buyers, simply because they couldn't dedicate the resources and time to working on the transaction. It really was a very complex transaction. But of course, once it is done, after all that work, it is a fantastic addition to our portfolio. I think that's the first area that's been really well received. And while there have been some other investments and moves we've made, Grand Hotel Europe was clearly the principal and most important addition to our portfolio in 2005. The second area where there's really been some good development is our margins. Our EBITDA margins at Orient-Express Hotels fell following 9/11. As revenue declined, that drove through to EBITDA margins. We kept looking to see those EBITDA margins recover as revenue picked up, and 2005 really was a very good year for that. We're seeing EBITDA margins click up by about 3%, well on the way back to recovering. We still think there's a way to go there, and we'll continue to see growth over the next few years, but it is very good to see that extra revenue flowing through to margins. Of course, it should, there is no reason why it wouldn't, but it's always nice to actually see the proof of it happening. So that's a second area I'd highlight, the fundamental business. With respect to the fundamentals of the business, we are also very pleased with the supply/demand outlook. There is very little new supply coming on-stream generally. The third area is the position of our former parent company, Sea Containers. Sea Containers, at the start of 2005 owned, I believe, 42% of Orient-Express' shares. It was certainly over 40%. Now, this presented a challenge for our other investors, both in terms of overhang ' you know, the possibility that Sea Containers would be selling their shares into the market ' and float, i.e., the fact that it meant that our free market float excluding Sea Containers' shares was limited because of the shares they owned. In the course of two offerings in the first quarter and the fourth quarter of 2005, Sea Containers has completely sold down its position. So the whole overhang issue has gone away and, at the same time, our free market float has actually doubled ' and both offerings were very successful. The first one in the first quarter was more than 3 times oversubscribed, and the second, a couple of months ago, was over 2 times oversubscribed. So it's really been a very eventful year for us. So I think those three fundamental things really take us forward structurally for 2005 and give us a good outlook beyond that.
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