News for the Hospitality Executive
Orient-Express Hotels Reports Fourth Quarter Net Loss
of $48.0 million
Compared with a Net Loss of $4.9 million in the Fourth Quarter of 2007
Worldwide RevPAR Declined 29% in U.S. dollars
HAMILTON, Bermuda, February 25, 2009 -
Fourth Quarter Earnings Summary
- Local Currency same store RevPAR down 16%
- Won UK High Court action to protect 'Cipriani'
Orient-Express Hotels Ltd. (NYSE: OEH, http://www.orient-express.com), owners or part-owners and managers of 51 luxury hotels, restaurants, tourist trains and river cruise properties operating in 25 countries, today announced its results for the fourth quarter and full year ended December 31, 2008.
For the fourth quarter, the Company reported a net loss of $48.0 million (loss of $1.04 per common share) on revenue of $81.7 million, compared with a net loss of $4.9 million (loss of $0.12 per common share) on revenue of $151.2 million in the fourth quarter of 2007. The net loss from continuing operations for the period was $43.5 million (loss of $0.94 per common share), compared with net earnings of $10.2 million ($0.24 per common share) in the fourth quarter of 2007. The adjusted net earnings from continuing operations for the period was $0.6 million ($0.01 per common share), compared with adjusted net earnings of $8.8 million ($0.21 per common share) in the fourth quarter of 2007.
For the year ended December 31, 2008, the Company reported a net loss of $26.6 million (loss of $0.61 per common share) on revenue of $574.4 million, compared with net earnings of $33.6 million ($0.79 per common share) on revenue of $599.6 million in 2007. The net loss from continuing operations for the year was $6.6 million (loss of $0.15 per common share), compared with net earnings of $50.3 million ($1.19 per common share) in 2007. The adjusted net earnings from continuing operations for the year was $37.3 million ($0.86 per common share), compared with adjusted net earnings of $48.3 million ($1.14 per common share) in 2007.
Paul White, President and Chief Executive Officer, said, "Fourth quarter results clearly reflect the impact of the global economic downturn on our industry and our business. We will therefore continue to take prudent action, focusing on diligent cost control measures to preserve cash while maintaining Orient-Express Hotels' high level of customer service. In the quarter the drop in revenue before Real Estate of $38.4 million was offset by fixed and variable cost savings of $19.6 million, leading to an adjusted operating EBITDA reduction, before Real Estate, of $18.8 million or 49% of the fall in revenue. All but essential capital expenditure and development projects have been deferred or cancelled. Furthermore, we have no significant near term debt maturities and ended 2008 with cash and available funds of $116.4 million. Our global outreach, and ownership of some of the finest travel assets around the world, will allow us to navigate near term challenges while positioning us to benefit when the market recovers."
The results for the fourth quarter include a non-cash impairment charge of $32.7 million. This includes a write-down of $23.0 million relating to the Company's investment in Hotel Ritz, Madrid, which is 50% owned and managed by the Company. There were additional goodwill impairment charges of $9.7 million on five other assets.
Revenue and EBITDA including Real Estate were negatively impacted during the fourth quarter by $26.9 million and $5.2 million, respectively, due to a change in the Company's application of accounting policy relating to the project at Porto Cupecoy.
Excluding Real Estate, revenue was down 26% over the fourth quarter of 2007 reflecting a fall in Owned Hotels same store RevPAR of 16% in local currency (29% in U.S. dollars) and a 36% fall in dollar revenues from Trains and Cruises.
Revenue from Owned Hotels for the fourth quarter was $80.1 million, down 26% over the same period in 2007. Revenue fell by 42% in Europe, 6% in North America, and 19% in Rest of World, reflecting the sudden and dramatic global downturn at the end of the year and the marked depreciation of the Euro. Restaurants revenue was down by 17% year-over-year.
EBITDA before Real Estate and impairment write downs for the fourth quarter was $5.6 million compared to $29.0 million in the prior year. The principal variances from last year included the result from Grand Hotel Europe (down $2.5 million), the Italian hotels (down $3.6 million), Trains and Cruises (down $3.4 million) and a $5.6 million increase in central costs, which included restructuring charges, costs relating to abandoned projects and the special shareholders' meeting.
During the fourth quarter the Company fully implemented its previously announced cost reduction program while maintaining the high level of guest services, which are the hallmark of Orient-Express Hotels. This will result in annual savings of $20 million.
The global financial crisis, including the problems in the credit and real estate markets, have made it impossible to obtain suitable financing and/or partners for the New York hotel project at this time. The Company has therefore advised the New York Public Library that it has determined not to exercise its right to further extend the closing date of the purchase of the land on which its planned hotel would be built and that it would not be in a position to close the transaction as provided in the Purchase and Sale Agreement. Orient-Express Hotels has proposed to enter into discussions with the Library to further defer or restructure the project.
Capital expenditure in the Company's hotels has also been minimized and will cover only health, safety and other essential or legally committed expenditure. The Company has made substantial investment in its portfolio over the last several years, and the assets are in excellent condition and can withstand a pause in capital investment.
After a thorough evaluation of the Porto Cupecoy project, the Company
has decided to complete this development and is executing a strategy to
make the project cash neutral in 2009 and cash generative from 2010. An
international project management firm has been hired to oversee completion
of the construction process, further ensuring that Porto Cupecoy stays
on track for completion in 2009.
In carrying out the Company's commitment to protecting its valuable brands, Hotel Cipriani has been successful in an action in the High Court in London for trade mark infringement and passing off in respect of the mark 'Cipriani' for restaurant services, against the operators of the restaurant Cipriani London. As a result, subject to an appeal which the defendants have lodged, Hotel Cipriani is entitled to an injunction preventing the defendants from carrying on a restaurant business in the UK using the names 'Cipriani' and 'Cipriani London' and is seeking damages and costs.
In the quarter overall, worldwide same store RevPAR declined by 16% in local currency (29% in U.S. dollars). Same store RevPAR for the fourth quarter for Europe fell by 31% in local currency (45% in U.S. dollars), in North America it fell 12% and Rest of World increased by 1% in local currency (fell by 21% in U.S. dollars).
For the fourth quarter, revenue was down 42% from $43.7 million in 2007 to $25.1 million in 2008. After a $9.6 million or 25% reduction in operating costs, EBITDA decreased from $4.6 million in the fourth quarter of 2007 to a loss of $4.4 million in 2008. EBITDA from the Italian properties fell by $3.6 million to a loss of $5.3 million and included restructuring charges of $0.8 million. HÃ´tel de la CitÃ© in Carcassonne, France had a $0.9 million fall in EBITDA, but the prior year result included a gain from the sale of assets of $0.9 million. Grand Hotel Europe, St Petersburg, Russia had a fall in EBITDA year-over-year from $3.5 million to $1.0 million reflecting reduced spending in a country that has been particularly hard hit by the economic downturn.
Revenue for the fourth quarter was down 6% from $22.4 million in 2007 to $21.0 million in 2008. EBITDA decreased by $1.8 million year-over-year to $1.1 million in the fourth quarter. The Windsor Court, New Orleans, was particularly impacted by a slowdown in corporate and conference business and contributed EBITDA of $0.6 million, a fall of $0.6 million over the prior year. Keswick Hall and Club was impacted by staff restructuring costs and a 9% fall in revenue, and contributed an EBITDA loss of $0.6 million, a fall of $0.6 million over the prior year.
Revenue in Southern Africa fell by 24% year-over-year, from $13.3 million to $10.1 million. This was all attributable to the depreciation of the South African rand versus the U.S. dollar. EBITDA fell by $0.9 million to $4.1 million.
Revenue at the South American properties fell year-over-year by 15% in the fourth quarter from $17.3 million to $14.7 million. EBITDA fell from $4.3 million to $4.1 million. Hotel das Cataratas is continuing its refurbishment program and recorded an EBITDA loss of $0.6 million, compared to a loss of $0.3 million in the prior year.
Revenue for the fourth quarter was down 20% from $11.3 million in 2007 to $9.1 million in 2008. EBITDA fell by $1.0 million to $1.5 million. The Australian properties were particularly impacted by the economic downturn, with revenue down 10% in local currency, but the depreciation of the Australian dollar against the U.S. dollar resulted in revenue being 36% down in U.S. dollars. The Asian hotels were more insulated and generated a 4% increase in revenue. The fall in EBITDA was wholly attributable to the Australian properties.
Hotel management and part-ownership interests:
To further strengthen its liquidity, in November, 2008, the Company raised $52.5 million, net of fees, through a registered direct offering of 8.5 million class A common shares.
In the fourth quarter the Company changed its application of the accounting policy relating to the Real Estate project at Porto Cupecoy. Previously, the Company has applied the "percentage-of-completion method" whereby it recorded revenues based on the percentage of physical completion applied to sales made, and cost of sales after applying a projected project margin. As a result of the global financial crisis and the increased uncertainty over projected final revenue, the Company is required by U.S. GAAP to record proceeds received as deferred revenue until it can reasonably estimate future sales and profits. As a consequence of this change of application of its accounting policy, the Company has reversed in the fourth quarter cumulative revenue of $26.9 million and cumulative costs of $21.7 million (of which $15.3 million and $10.5 million, respectively, had previously been recorded in 2007). This change of application of accounting policy had no cash effect on the Company although the net charge for the full year was $4.9 million.
At the end of the fourth quarter, the Company has consolidated the assets and liabilities of its Charleston Place hotel, effective December 31, 2008 and from this date will consolidate its results. Following receipt of a third-party valuation at the year end, the Company has determined that its investment in the hotel falls within the scope of FASB Interpretation No. 46 (Revised), "Consolidation of Variable Interest Entities", because at that date the Company provided more than half of the hotel's total equity, subordinated debt and other forms of subordinated financial support. The Company has determined that it is the primary beneficiary of the residual economic interest in the hotel and accordingly has consolidated the property, valued at $197 million, and its related liabilities, including third-party debt of $80 million that is non-recourse to the Company and a deferred tax liability of $64 million.
"While continued economic uncertainty creates significant challenges
in predicting booking patterns, our short term strategies are built on
mitigating the impact of lower revenue on EBITDA, and preserving cash,"
stated White. "Our General Managers have a tight control on costs and proven
experience in yield management, honed in previous downturns. I am confident
that we can move quickly and appropriately as market conditions develop.
In the meantime, the clear focus of the entire Company continues to be
on delivering excellence, personalized service and memorable experiences
to our guests; while management monitors the credit markets and the economic
landscape with the objective of continuing to drive shareholder value.
This focus positions the Company exactly where it needs to be for the long
Management evaluates the operating performance of the Company's segments on the basis of segment net earnings before interest, foreign currency, tax (including tax on unconsolidated companies), depreciation and amortization (EBITDA), and believes that EBITDA is a useful measure of operating performance, for example to help determine the ability to incur capital expenditure or service indebtedness, because it is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is also a financial performance measure commonly used in the hotel and leisure industry, although the Company's EBITDA may not be comparable in all instances to that disclosed by other companies. EBITDA does not represent net cash provided by operating, investing and financing activities under U.S. generally accepted accounting principles (U.S. GAAP), is not necessarily indicative of cash available to fund all cash flow needs, and should not be considered as an alternative to earnings from operations or net earnings under U.S. GAAP for purposes of evaluating operating performance.
Adjusted net earnings, adjusted net earnings from continuing operations,
and adjusted E.P.S. are non-GAAP financial measures and do not have any
standardized meanings prescribed by U.S. GAAP. They are, therefore, unlikely
to be comparable to similar measures presented by other companies, which
may be calculated differently, and should not be considered as an alternative
to net earnings, cash flow from operating activities or any other measure
of performance prescribed by U.S. GAAP. Management considers adjusted net
earnings, adjusted net earnings from continuing operations, and adjusted
E.P.S. to be meaningful indicators of operations and uses them as measures
to assess operating performance because, when comparing current period
performance with prior periods and with budgets, management does so after
having adjusted for non-recurring items, foreign exchange (a non-cash item)
and significant disposals of assets or investments, which could otherwise
have a material effect on the comparability of the Company's core operations.
Adjusted net earnings, adjusted net earnings from continuing operations,
and adjusted E.P.S. are also used by investors, analysts and lenders as
measures of financial performance because, as adjusted in the foregoing
manner, the measures provide a consistent basis on which the performance
of the Company can be assessed.
This news release and related oral presentations by management contain, in addition to historical information, forward-looking statements that involve risks and uncertainties. These include statements regarding earnings outlook, investment plans and similar matters that are not historical facts. These statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that may cause a difference include, but are not limited to, those mentioned in the news release, possible claims against the Company by the New York Public Library if the agreement between the parties cannot be satisfactorily amended, unknown effects on the travel and leisure markets of terrorist activity and any police or military response, varying customer demand and competitive considerations, failure to realize hotel bookings and reservations and planned property development sales as actual revenue, inability to sustain price increases or to reduce costs, fluctuations in interest rates and currency values, uncertainty of negotiating and completing proposed capital expenditures and acquisitions, adequate sources of capital and acceptability of finance terms, possible loss or amendment of planning permits and delays in construction schedules for expansion or development projects, delays in reopening properties closed for repair or refurbishment and possible cost overruns, shifting patterns of tourism and business travel and seasonality of demand, adverse local weather conditions, changing global and regional economic conditions, and legislative, regulatory and political developments. Further information regarding these and other factors is included in the filings by the company with the U.S. Securities and Exchange Commission.
Orient-Express Hotels will conduct a conference call on
Thursday, 26 February, 2009 at 10.00 hrs ET (15.00 GMT) which is accessible
at +1-866-966-5335 (US toll free) or +44(0)20-3037-9120 (Standard International
access). The conference ID is 'Orient-Express'. A re-play of the conference
call will be available until 5.00pm (ET) Thursday, 5 March, 2009 and can
be accessed by calling +1-866-583-1035 (US toll free) or +44(0)20-8196-1998
(Standard International) and entering replay access number 3917290#. A
re-play will also be available on the company's website: http://www.orient-expressinvestorinfo.com.
|Also See:||Orient-Express Hotels Reports Third Quarter 2008 Net Earnings of $6.4 million Compared with Net Earnings of $22.6 million in the Third Quarter of 2007; Plans to Build $46 million New York Hotel Delayed, Suspend Quarterly Dividend Payments / November 2008|