UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-16017

ORIENT-EXPRESS HOTELS LTD.

(Exact name of registrant as specified in its charter)

Bermuda		98-0223493
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

22 Victoria Street,

Hamilton HM 12, Bermuda

(Address of principal executive offices)

Registrant’s telephone number, including area code: (441) 295-2244

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class		Name of each exchange on which registered
Class A Common Shares, $0.01 par value each		New York Stock Exchange
Preferred Share Purchase Rights		New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (Not applicable. See third paragraph under Item 1—Business on page 4.)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act. (Check one):

Large Accelerated Filer x		Accelerated Filer o

Non-Accelerated Filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the class A common shares held by non-affiliates of the registrant computed by reference to the closing price on June 30, 2011 (the last business day of the registrant’s second fiscal quarter in 2011) was approximately $1,103,000,000.

As of February 17, 2012, 102,693,039 class A common shares and 18,044,478 class B common shares of the registrant were outstanding. All of the class B shares are owned by a subsidiary of the registrant (see Note 16(d) to the Financial Statements (Item 8)).

DOCUMENTS INCORPORATED BY REFERENCE: None

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PART I

ITEM 1. Business

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 promulgated by 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. The class A common shares of the Company are listed on the New York Stock Exchange (“NYSE”).

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.

Introduction

OEH is a leading luxury hotel company and sophisticated adventure travel operator with exposure to both mature and emerging national economies. The Company’s predecessor began acquiring hotels in 1976 and organized the Company in 1995. OEH currently owns or part-owns 49 properties (all of which it manages), consisting of 40 highly individual deluxe hotels, one stand-alone restaurant, six tourist trains and two river/canal cruise businesses. These are located in 24 countries worldwide. One hotel is currently closed and under contract for sale, and two others are being renovated for scheduled opening in 2012 or early 2013. 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 traveler. OEH has also been active in the past in the development of for-sale residences adjoining some of its hotels, although this activity is currently a small part of its business.

The locations of OEH’s 49 properties are shown in the map on page 3, where they number 45 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 49.

Hotels and restaurants represent the largest segment of OEH’s business, contributing 86% of revenue in 2011, 78% of revenue in 2010 and 86% in 2009. Tourist trains and cruises accounted for 13% of revenue in 2011, 11% of revenue in 2010 and 13% in 2009. Property development activities accounted for the remaining revenue in each year. Approximately 82% of OEH’s customers are leisure travelers, with approximately 33% of customers in 2011 originating from North America, 49% from Europe and the remaining 18% from elsewhere in the world.

OEH’s worldwide portfolio of hotels currently consists of 3,510 individual guest rooms and multiple-room suites, each known as a “key”. Hotels owned by OEH in 2011 achieved an average daily room rate (“ADR”) of $444 (2010 - $406) and a revenue per available room (“RevPAR”) of $263 (2010 - $226).

Revenue, earnings and identifiable assets of OEH in 2011, 2010 and 2009 for its business segments and geographic areas are presented in Note 21 to the Financial Statements (Item 8).

In recent years, OEH has sold to third parties a number of non-core properties not considered key to OEH’s portfolio of unique, high valued properties. These have been Lapa Palace in Lisbon and Windsor Court Hotel in New Orleans during 2009, Lilianfels Blue Mountains Resort in Australia west of Sydney and La Cabana restaurant in Buenos Aires during 2010, Hôtel de la Cité in Carcassonne, France during 2011, and Keswick Hall near Charlottesville, Virginia in January 2012. See Note 2 to the Financial Statements.

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Owned Hotels—Europe

Italy

The Hotel Cipriani and Palazzo Vendramin—95 keys—in Venice were built for the most part in the 1950s and are located on about five acres (part on long-term lease) on Giudecca Island across from the Piazza San Marco which is accessible by a free private boat service. Most of the rooms have views overlooking 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, a spa 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 restaurants each with open-air dining as well as banquet/meeting rooms, and a shuttle service linking the main hotel with the smaller Splendido Mare on the harbor below. During the 2011-2012 winter closure, five suites are being built on the top floor of the main hotel.

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 in recent years including the addition of a swimming pool. A shuttle bus service is provided into Florence. The property occupies ten acres.

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 building 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.

In January 2010, OEH purchased two hotels in Taormina, Sicily. See Note 4 to the Financial Statements. OEH has nearly completed a refurbishment program to upgrade both properties over three consecutive winter closures beginning shortly after the hotels were acquired.

The larger Sicilian property is Grand Hotel Timeo—70 keys. With panoramic views of Mount Etna and the Gulf of Naxos from its main terrace, this hotel is widely considered the most luxurious hotel in Taormina and is situated in the city center next to the second century Greek Theater. Built in 1873 on a total site of about ten acres, the hotel features a restaurant serving regional specialties, a spa and fitness center, outdoor swimming pool, and banqueting and conference facilities, all surrounded by six acres of parkland.

Built in 1830 on Taormina’s Bay of Mazzarò with a private beach, Villa Sant’Andrea—60 keys—has the atmosphere of a private villa set in lush gardens, a total site of about two acres, with many of the guest rooms and the hotel’s seafood restaurant looking onto the Calabrian coast. OEH has built an outdoor swimming pool and, subject to obtaining local planning permission, up to 12 keys may be added to the hotel in the future. Grand Hotel Timeo and Villa Sant’Andrea are linked by a guest shuttle service.

All of these Italian properties operate seasonally, closing for varying periods during the winter.

Spain

OEH owns La Residencia—67 keys—located in the charming village of Deià on the rugged northwest coast of the island of Mallorca, Spain with stunning views of the Tramuntana Mountains, a UNESCO World Heritage site. 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 gastronomic El Olivio, as well as two large outdoor swimming pools, tennis courts and a spa with an indoor pool. It closes about two months each winter.

Portugal

Reid’s Palace—163 keys—is a 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 fresh and sea 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, serving both winter escapes to the sun and regular summer holidays.

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United Kingdom

Le Manoir aux Quat’Saisons—32 keys—is located in a picturesque village 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. Each suite has an entirely individual design. The property was developed by Raymond Blanc, one of Britain’s 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 and advises the restaurants at other OEH hotels.

Russia

OEH owns a 93.5% interest in 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 guests alike, as well as a grand ballroom, meeting facilities, a health club and spa and several retail shops. Luxury historic suites reflect the rich history of the hotel and city, named after famous guests like Pavarotti, Stravinsky and the Romanov tsars. The minority interest is owned by the City of St. Petersburg.

Owned Hotels—North America

United States

Charleston Place—435 keys—is located in the heart of historic Charleston, South Carolina, a popular destination for tourists and business meetings. Opened in 1986, the hotel has two restaurants, extensive banqueting and conference space including a grand ballroom, a fitness center with spa and indoor swimming pool, and a shopping arcade of 20 retail outlets leased to unaffiliated parties. The hotel also owns the adjacent historic Riviera Theater remodeled as additional conference space and retail shops.

While OEH has only a 19.9% equity interest in Charleston Place, OEH manages the property under an exclusive long-term contract and has outstanding a number of loans to the hotel. On evaluating its various interests in the hotel, OEH has concluded that it is the primary beneficiary of this variable interest entity and, accordingly, consolidates the assets and liabilities of the hotel in OEH’s balance sheet and consolidates the hotel’s results in OEH’s statements of operations and cash flows. See Note 3 to the Financial Statements.

The Inn at Perry Cabin—76 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. and Baltimore areas. OEH expanded the hotel, including the addition of guest rooms, a conference facility, and spa, and during the 2011-2012 winter, is refurbishing 39 rooms in the historic part of the main building. Vacant available land may be used in the future to expand the hotel or build private residences. See “Property Development” below.

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. OEH closed this hotel in late 2006 for significant renovation, including the addition of 15 keys, a new Raymond Blanc-inspired restaurant, and a spa, pool and fitness center. During 2011, OEH recommenced the renovation and expansion and currently expects to reopen El Encanto in late 2012 or early 2013.

Caribbean

La Samanna—83 keys—is located on the island of St. Martin in the French West Indies. Built in 1973, the hotel consists of several buildings on 16 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. During the 2011 closure, 46 guest rooms were refurbished, and renovation of the public areas is planned in 2012. As described under “Property Development” below, OEH has developed part of the land adjoining La Samanna on both the French and Dutch sides of St. Martin as for-sale residences. Unsold villas next to La Samanna provide additional room stock for the hotel.

Mexico

OEH owns the Maroma Resort and Spa—64 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 is set in 25 acres of verdant jungle along a 1,000-foot beach. The

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Cozumel barrier reef is offshore where guests may fish, snorkel and scuba-dive. Important Mayan archaeological sites are nearby. Rooms are arranged in low-rise villas and there are two restaurants, three swimming pools, tennis courts and extensive spa facilities. During 2011, eight guest rooms were refurbished as six new suites. OEH owns a 28-acre tract adjacent to Maroma for hotel expansion or construction of private residences in the future. See “Property Development” below.

OEH owns the Casa de Sierra Nevada—37 keys—a luxury resort in the colonial town of San Miguel de Allende, a UNESCO World Heritage site. Opened in 1952, the hotel consists of nine Spanish colonial buildings built in the 16th and 18th centuries. OEH has renovated the hotel, including its two restaurants, and has built new suites as well as a pool, spa and garden area. The total site is approximately two acres. OEH also owns a nearby cooking school and retail shop operated in conjunction with the hotel.

Owned Hotels—Rest of the World

South America

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—239 keys—is a famous hotel in South America and features two fine-dining restaurants, spacious function and banqueting rooms including the hotel’s refurbished former casino rooms with space for up to 1,800 persons, a 500-seat theater, a large swimming pool, spa and fitness center, and a roof-top tennis court and plunge pool. In 2009, OEH refurbished 56 guest rooms and opened the destination Bar do Copa on the premises. In 2011, a further 26 guest rooms and the Cipriani restaurant were refurbished and, during 2012, most of the remaining rooms in the main building and the lobby area will be refurbished, necessitating closure of the main building for a short period. These improvements are expected to be completed in advance of Rio’s hosting the 2014 World Cup soccer tournament and 2016 Summer Olympics.

OEH operates Hotel das Cataratas—193 keys—beside the famous Iguassu Falls in Brazil on the border with Argentina, having been awarded a 20-year lease by the Brazilian government in 2007. It is the only hotel in the national park surrounding the falls, a UNESCO World Heritage site. First opened in 1958 on about four acres, the hotel has two restaurants, conference facilities, a swimming pool, spa and tennis court, and tropical gardens looking onto the falls. OEH has completed a two-year phased renovation of the hotel and applied to the government to amend the lease including extension of the lease term.

Miraflores Park Hotel—82 keys—is located in the fashionable Miraflores residential district of Lima, Peru surrounded by parkland and looking onto the Pacific Ocean, yet near the commercial and cultural center of the city. Opened in 1997, this all-suite hotel has two restaurants, a large ballroom, conference and meeting rooms, a rooftop outdoor pool, health and beauty facilities and a business center for guests, and occupies about one acre of land.

Southern Africa

The Mount Nelson Hotel—209 keys—in 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 two restaurants (including the new concept Planet Restaurant opened in 2010), a ballroom, two swimming pools, tennis courts, and a fitness center and spa, all situated on ten acres of grounds. There is expansion potential through incorporation into the hotel of adjoining residential properties owned by OEH.

The Westcliff Hotel—117 keys—is the only garden hotel in Johannesburg, South Africa, opened in 1998 and situated on six hillside acres with views over the city’s zoo and parkland. Laid out in village style, its resort amenities include two swimming pools, a tennis court and a spa 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.

OEH’s African safari experience consists of three separate game-viewing lodges in Botswana called Khwai River Lodge, Eagle Island Camp and Savute Elephant Camp—39 keys in total. Established in 1971, OEH leases the lodge sites in the Okavango River delta and nearby game reserves, where African wildlife can be observed from open safari vehicles or boats. Each camp has 12 or 15 twin-bedded deluxe tents under thatched roofs, and guests travel between the camps by light aircraft. Boating, fishing, hiking and swimming are offered at the various sites.

Asia Pacific

The Observatory Hotel—96 keys—is in the Rocks section of Sydney, Australia 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.

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In 2006, OEH acquired a group of six deluxe hotels in Southeast Asia described below, each built and decorated in traditional local style.

Napasai—55 keys—is located on its own beach on the north side of Koh Samui island of Thailand in the Gulf of Siam. It originally opened in 2004 and features two restaurants, tennis courts, a swimming pool, a spa and water sports such as diving and snorkeling in the nearby coral reef. The guest rooms are arranged in seaview and garden cottages on a total site of about 40 acres on which 14 private villas have been built. There is vacant land available to expand the hotel or build additional villas. See “Property Development” below. The hotel rents the existing villas to its guests as additional room stock on a revenue-sharing basis with the owners.

On Bali in Indonesia are two long-term leasehold properties, Jimbaran Puri Bali—64 keys—and Ubud Hanging Gardens—38 keys. Jimbaran Puri Bali occupies seven beachfront acres on the south coast of the island. Guest rooms are situated in cottages, and there are two restaurants, a swimming pool and ocean water sports. OEH built and opened in 2009 22 one- and two-bedroom thatched villas, each with a private plunge pool.

Ubud Hanging Gardens is located on terraces on about seven steep hillside acres above the Ayung River gorge in the rain forest interior of Bali. The hotel opened in 2005 and offers two restaurants, a swimming pool and spa, and a free shuttle bus to the nearby town of Ubud, a cultural and arts center. Each key has its own private plunge pool.

La Résidence d’Angkor—62 keys—opened in 2002 and is situated in walled gardens in Siem Reap, Cambodia. The hotel occupies a site of about two acres under long-term lease. The ancient Temples of Angkor Wat, a UNESCO World Heritage site and the principal tourist attraction in the area, are near the hotel which has an indoor/outdoor restaurant and swimming pool. OEH recently added eight suites and a spa to this property.

Built in 1920, The Governor’s Residence—48 keys—in the embassy district of Yangon, Myanmar (Burma) was originally the official home of one of the Burmese state governors. It is a teak two-storey mansion surrounded by verandas overlooking lotus gardens, a long-term leased site of about two acres that opened as a hotel in 1997. It includes a restaurant and swimming pool. OEH originally owned a 66% interest in the property and acquired the minority interest in 2009. See Note 4 to the Financial Statements.

In Luang Prabang, the ancient capital of Laos and a UNESCO World Heritage site, OEH owns a 69% interest in La Résidence Phou Vao—34 keys. The hotel opened in 2001 and occupies about eight hillside acres under long-term lease. Guest rooms are in four two-storey buildings surrounded by lush gardens that include a restaurant, spa and swimming pool.

OEH has contracted to sell Bora Bora Lagoon Resort—76 keys—a Tahitian-style hotel set in bungalows over the lagoon water and additional beach and garden bungalows. The hotel has been closed since February 2010 when it suffered extensive damage due to a cyclone. See Note 2 to the Financial Statements.

Hotel Management Interests

Through a 50%/50% joint venture with a Spanish investment company, OEH owns and manages the famous Hotel Ritz—167 keys—in central Madrid near the financial district, Spanish parliament and many of the city’s well known tourist attractions. Opened in 1910, the hotel has four spacious conference and banqueting suites, an indoor restaurant and the popular Ritz Terrace restaurant outdoors in the gardens. OEH and its 50% partner renovated the public areas of the hotel and are working on plans for future refurbishment of the guest rooms.

OEH has a 50%/50% joint venture with local investors in Peru which operates the following five hotels under OEH’s exclusive management.

The Hotel Monasterio—126 keys—is located in the ancient Inca capital of Cuzco, an important tourist destination in Peru and a UNESCO World Heritage site. The hotel was originally built as a Spanish monastery in the 16th century, converted to hotel use in 1995, and has been upgraded since then. The deluxe guest rooms and two restaurants are arranged around open-air cloisters. Because of Cuzco’s high altitude, specially oxygenated ventilation has been added to some of the refurbished rooms. The site measures approximately three acres under long-term lease.

Next door to Hotel Monasterio on the same site is a former palace and convent which the joint venture, using its own financial resources, is rebuilding as the separate Palacio Nazarenas—55 keys—scheduled to open in 2012. This will be an all-suite hotel arranged around courtyards and featuring oxygenated guest rooms, an outdoor heated swimming pool, spa, and poolside restaurant and bar.

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The Machu Picchu Sanctuary Lodge—31 keys—is the only hotel at the famous mountaintop Inca ruins at Machu Picchu, a UNESCO World Heritage site. All of the rooms have been refurbished to a high standard. The joint venture leases the hotel as well as seven acres for possible future expansion at the foot of the ruins, close to the town on the Urubamba River where tourists arrive by train.

The Peru hotel joint venture of OEH built and opened in April 2008 a small luxury bungalow hotel called Las Casitas del Colca—20 keys—on 57 acres north of Arequipa near the 11,000-foot high rim of Colca Canyon. The hotel features individual casitas with plunge pools, an intimate main dining room and a swimming pool and spa. Much of the produce served in the dining room is grown in the hotel’s gardens. Guests enjoy tours of the scenic canyon, famous for its giant condors.

In December 2009, the Peru hotel joint venture acquired Hotel Rio Sagrado—23 keys—in the Sacred Valley of the Incas between Cuzco and Machu Picchu. Opened in April 2009, this new rustic hotel has a spa with small swimming pool and extensive gardens beside the Urubamba River on a site of about six acres set against an imposing mountain backdrop. The Sacred Valley is a popular part of holiday itineraries in Peru, and a station on OEH’s Peru Rail train service is a short distance from the hotel.

Restaurants

OEH’s only stand-alone restaurant at present is ‘21’ Club, the famous landmark restaurant at 21 West 52nd Street in midtown Manhattan in New York City near the Broadway theater district and many top tourist attractions. Originally a speakeasy during Prohibition in the 1920s, this restaurant is open to the public, occupies three brownstone buildings and features fine American cuisine. It serves à la carte meals in the original bar restaurant and a separate dining room upstairs, and also has ten banqueting rooms used for functions, including the famous secret wine cellar. During 2011, a new Bar ‘21’ was created in the restaurant’s lobby serving refreshments and light meals.

In 2007, OEH entered into purchase and development agreements to acquire a branch of the New York Public Library adjacent to ‘21’ Club, and planned to construct a mixed use hotel, library and residential development. Following the slowdown in the U.S. economy in 2008 and 2009 and difficulty encountered in financing the project, OEH assigned its purchase and development agreements in April 2011 to a development company which reimbursed to OEH all of its previous deposit payments under the agreements and part of the fees and other costs that OEH had incurred in the project. The assignee also acquired from OEH in December 2011 most of the excess development rights owned by ‘21’ Club. See Note 7 to the Financial Statements.

Tourist Trains and Cruises

OEH’s principal European tourist trains, called the Venice Simplon-Orient-Express, operate in two parts in a regularly scheduled overnight service between London and Venice and on short excursions in southern England. OEH owns 30 historic railway cars originally used on “Orient-Express” and other famous European trains. All have been refurbished in original 1920s/1930s décor and meet modern safety standards. The services are marketed as a continuation of the Orient-Express trains of pre-World War II years. One train is based in Great Britain and composed entirely of Pullman day coaches with a capacity for up to 230 passengers. The other train is based on the European Continent and made up of Wagons-Lits sleeping cars, three dining cars and a bar car with capacity for up to 180 passengers. They operate once or twice weekly principally between London and Venice from March to November each year via Paris, Zurich and Innsbruck on a scenic route through the Alps. Passengers travel across the English Channel by coach on the Eurotunnel shuttle train. Occasional trips are also made from time to time to Vienna, Prague, Dresden, Krakow, Budapest and Istanbul.

The 11 British Pullman dining cars of Venice Simplon-Orient-Express with capacity up to 230 passengers operate all year, originating out of London on short excursions to places of historic or scenic interest in southern England, including some overnight trips when passengers stay at local hotels. Both the British and Continental trains are available for private charter.

The Northern Belle tourist train offers day trips and charter service principally in the north of England. It builds on the success of OEH’s British Pullman business, which focuses on the south of England around London. This train consists of six dining cars elegantly decorated to be reminiscent of old British “Belle” trains of the 1930s, plus three kitchen and service cars, and can carry up to 250 passengers. Full course meals are served on board and passengers stay in local hotels on overnight itineraries.

OEH owns the Royal Scotsman luxury tourist train composed of nine Edwardian-style cars, including five sleeping cars (each compartment with private bathroom), two dining cars and a lounge car, and accommodating up to 36 passengers. Operating from April to October, the train travels on itineraries of up to seven nights through the Scottish countryside affording passengers the opportunity to visit clan castles, historic battlegrounds, famous Scotch whiskey distilleries and other points of interest.

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Peru Rail is a 50%/50% joint venture between OEH and Peruvian partners formed to operate part of the state-owned railways in Peru under a 30-year franchise awarded in 1999 and extendable every five years, upon the joint venture’s application, up to 25 additional years. The joint venture pays the government a fee related to traffic levels which can be partially offset against investment in track improvements. The 70-mile Cuzco-Machu Picchu line carries mainly tourists visiting the famous Inca ruins, the principal means of access because there is no convenient road, as well as local passenger traffic. In 2009, other carriers began to operate on this line in competition with Peru Rail for the first time. A second rail line runs from Cuzco to Matarani on the Pacific Ocean (via Arequipa) and to Puno on Lake Titicaca, and principally serves freight traffic under contract. The Cuzco-Machu Picchu line connects four of OEH’s Peruvian hotels, allowing inclusive tours served by OEH’s Hiram Bingham luxury tourist train with capacity up to 84 passengers. OEH also operates a deluxe daytime tourist train called the Andean Explorer on the Cuzco-Puno route through the High Andes mountains.

The Eastern & Oriental Express in Southeast Asia travels up to one round trip each week between Singapore, Kuala Lumpur and Bangkok. The journey includes two or three nights on board and side trips to Penang in Malaysia and the River Kwai in Thailand. Some overnight trips are also made from Bangkok to Chiang Mai and elsewhere in Thailand and to Vientiane, Laos. Longer itineraries, up to six nights on board, are offered to places of historic, scenic and cultural interest in the region. Originally built in 1970, the 24 cars were substantially rebuilt to an elegant oriental style of décor and fitted with modern facilities such as air conditioning and private bathrooms. The train is made up of sleeping cars, three restaurant cars, a bar car and an open air observation car and can carry up to 130 passengers. The Eastern & Oriental Express is available for charter by private groups. OEH manages the train exclusively and has a 25% shareholding in the owning company.

OEH owns and operates a deluxe river cruise ship on the Irrawaddy River in central Myanmar called the Road To Mandalay. The ship was a Rhine River cruiser built in 1964 which OEH bought and refurbished. It has 43 air conditioned cabins with private bathrooms, spacious restaurant and lounge areas, and a canopied sun deck with swimming pool. The ship travels between Mandalay and Pagan up to eight times each month and carries up to 82 passengers who may enjoy sightseeing along the river and guided shore excursions to places of cultural interest. Three- to seven-night itineraries are offered, including airfare to and from the ship. The ship does not operate in the hottest summer months and occasionally when the water level of the Irrawaddy River falls too low due to lack of rainfall.

OEH owns five luxury river and canal boats (called péniche-hôtels) operating as Afloat in France in Burgundy, Provence and other rural regions of France. They accommodate between four and 12 passengers each in double berth compartments with private bathrooms, and some have small plunge pools on deck. They operate seasonally between April and October on three- to six-night itineraries with guests dining on board or in nearby restaurants. Shore excursions are organized each day.

Property Development

OEH has pursued opportunities in the past to develop the real estate adjoining its hotels. In addition to expansion by adding guest rooms and other facilities at the hotels, certain of OEH’s properties have vacant land suitable for construction of deluxe for-sale residential homes and condominium units. At present, OEH has no plans to build new residential projects.

OEH’s largest completed development is Porto Cupecoy on the Dutch side of St. Martin, on 12 acres of land on Simpson Bay Lagoon near La Samanna hotel. It consists of 184 condominium units and 35,000 square feet of commercial space around a Mediterranean-style piazza, and a marina with pleasure boat slips. The condominium units range in size from 1,000 to 6,000 square feet. At December 31, 2011, 111 units at Porto Cupecoy have been sold through local on-site sales personnel and listing with third-party real estate agents. In addition, OEH plans to sell the commercial space and remaining marina slips.

On a portion of 37 available acres on the French side of St. Martin, OEH built the Villas at La Samanna consisting of eight large homes in three- or four-bedroom configurations, each with a private swimming pool and access to La Samanna’s amenities and services as well as a hotel-sponsored rental program. In December 2009, OEH entered into a deferred sale agreement covering four of the villas under which a third party has the option to acquire them by the end of 2012. The remaining four villas are currently being leased in the hotel’s rental program.

When OEH acquired Napasai in Thailand in 2006, development of 14 private villas was already underway on the hotel’s 40-acre site. Two villas remain for sale, and land is available to expand the hotel or build more residences in the future.

Other OEH hotels with vacant land for expansion or development include Maroma Resort and Spa in Mexico and Inn at Perry Cabin in Maryland.

OEH’s sale of Keswick Hall in Virginia in January 2012 included the hotel’s Keswick Club golf course and a subdivision of 87 home sites including roads and other infrastructure, about half of which remained unsold. See Note 2 to the Financial Statements.

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Management Strategies

As the foregoing indicates, OEH has a global mix of deluxe hotel and travel products that are geographically diverse and appeal to the high-end leisure market, reflecting an important management strategy. Leisure customers produce about 82% of annual revenue and 66% of the room nights, while corporate/business travelers account for the rest. OEH’s properties are distinctive as well as luxurious and tend to attract guests prepared to pay higher rates for the travel experiences OEH offers compared to its competitors.

OEH benefits from long-term trends and developments favorably impacting the global hotel, travel and leisure markets, including growth trends in the luxury hotel market in many parts of the world, increased travel and leisure spending by consumers, favorable demographic trends in relevant age and income brackets of U.S., European and other populations, and increased online travel bookings. These long-term trends suffered setbacks at various times in recent years due to the global economic downturn, preceded by the shock of terrorist attacks and resulting public concerns about travel safety, regional conflicts in Iraq, Afghanistan and other parts of the world, and the threatened SARS and swine flu epidemics. Management believes, however, that the public’s confidence in international travel and demand for luxury hotel and tourist products will be sustained over the long term.

OEH’s mission is to be recognized as a top luxury hotel company and sophisticated adventure travel operator in its markets, delivering memorable experiences that are the ultimate expression of each destination’s authentic culture, through the individual character and creativity of the OEH team. OEH plans to grow the business in the long term by:

· increasing revenue and earnings at its established properties and recent acquisitions, including by increasing occupancy and operating profit retention from incremental revenue,

· expanding existing hotels where land or space is available and potential investment returns are relatively high,

· increasing the utilization of its tourist trains and cruises by adding departures,

· acquiring additional distinctive luxury properties throughout the world that have attractive potential investment returns,

· entering into contracts to manage hotels owned by others and which meet OEH’s selection criteria,

· disposing of underperforming assets to reduce leverage and redeploy the capital in properties with higher potential returns, and

· increasing awareness of the “Orient-Express” brand in both established and new markets while maintaining the strengths of OEH’s local property brands.

Factors in OEH’s evaluation of a potential acquisition or management opportunity include the uniqueness and deluxe nature of the property, attractions and experiences for guests in the vicinity, acceptability of financial returns, upside potential through pricing, expansion or improved marketing, limitations on nearby competition, and convenient access. Expansion at existing properties by adding rooms and facilities such as spas and conference space can provide attractive investment returns because incremental operating costs are usually low.

OEH plans to continue owning or part-owning and operating most of its properties, which allows OEH to develop the properties’ distinctive local character and to benefit from current cash flow and potential future gains on sale. OEH considers its combined owner/operator role as efficient and consistent with the long-term nature of its assets. Self-management or management with equity interest has enabled OEH to capture the economic benefits otherwise shared with a third-party manager, to control the operations, quality and expansion of the hotels, and to use its experience with market adjustments, price changes, expansions and renovations to improve cash flow and enhance asset values.

OEH also plans to pursue long-term contracts to manage hotels principally on a fee basis where OEH may have only a small or no ownership interest and where the hotels would otherwise meet OEH’s selection criteria. Management contracts are expected to facilitate OEH’s entry into new markets, such as gateway cities in the Americas, Europe and Asia, and would expand awareness of the “Orient-Express” brand and allow OEH to conserve investment capital. As owner of many unique and deluxe properties that OEH operates itself, OEH believes it is well positioned to manage comparable hotels for others.

Management is implementing a strategy to reduce OEH’s long-term debt position. A number of non-core assets not considered key to OEH’s portfolio of unique, high valued properties have been identified, and management is seeking to sell these in a measured timescale with the primary purposes of de-leveraging OEH’s balance sheet and providing capital for refurbishment and growth

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opportunities. In the last three years, OEH has sold Keswick Hall in Virginia, Hôtel de la Cité in Carcassonne, France, La Cabana restaurant in Buenos Aires, Lilianfels Blue Mountains Resort in Australia west of Sydney, Windsor Court Hotel in New Orleans, and Lapa Palace in Lisbon, and has removed the debt related to these properties from its balance sheet. See Note 2 to the Financial Statements. At the same time, OEH has restructured or reduced its remaining long-term debt, although new debt was incurred in January 2010 when Grand Hotel Timeo and Villa Sant’Andrea were purchased and will be incurred for completion of the El Encanto renovation. In addition, OEH’s debt-free developments of residential real estate described under “Property Development” above are being progressively sold over the medium term to generate cash proceeds. See Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Many of OEH’s individual properties, such as the Hotel Cipriani, Copacabana Palace and ‘21’ Club, have distinctive local character and brand identity. Management believes that discerning travelers will choose an individually styled property in preference to a chain brand characterized by uniform standards across the portfolio. OEH promotes its individual properties together through the “Orient-Express” umbrella brand which originated with the legendary luxury European train in the late 19th and early 20th centuries and which is recognizable worldwide and synonymous with sophisticated travel and refined elegance.

OEH is pursuing a strategy to increase recognition of the “Orient-Express” brand globally throughout OEH’s business segments and product offerings. In 2011, for example, OEH conducted an Internet-based awareness campaign called “Orient-Express, a journey like no other” placed on a variety of lifestyle and travel websites in the U.S. and linked to short videos set around selected OEH properties. This strategy is intended to position OEH as a collection of deluxe travel and hospitality experiences, each individually branded and focused on authentic local product and service. Management believes this recognition strategy will provide OEH with public relations and commercial advantages, increase efficiencies and the effectiveness of the OEH portfolio, grow revenue and repeat business from customers, and be attractive to property owners and potential joint venture partners.

Marketing, Sales and Public Relations

OEH’s sales and marketing function is primarily based upon direct sales (prioritizing strategic travel agents and tour operators and electronic channels such as the Internet), cross-selling to customers, and public relations. OEH has a corporate sales force located in 16 cities in the U.S., Brazil, Mexico, seven European countries, Australia and Japan. OEH also has local sales representatives responsible for the properties where they are based.

OEH’s sales staff train preferred travel industry and distribution partners, negotiate with group and corporate account representatives, and conduct marketing initiatives such as direct mailings, e-commerce, trade show participation and event sponsorship. OEH participates in a number of luxury travel partner programs, such as “American Express Centurion” and the “Virtuoso” travel agent consortium. OEH offers its top travel agents and other industry partners’ free participation in OEH’s “Bellini Club” providing training courses, special commissions and sales support for all OEH products worldwide.

Websites and e-marketing are important direct sales and marketing tools for OEH. Through its principal website (www.orient-express.com) and the websites of the individual properties, OEH provides extensive descriptions and images of the properties and guest activities in English and other languages. Direct online booking capability is provided as well as affiliate programs for online partners. OEH operates other Internet travel portals that direct customers to OEH’s properties, and works with other selected electronic distribution channels. Social media such as Facebook and Twitter are important marketing tools.

Because repeat customers appreciate the consistent quality of OEH’s hotels, restaurants, trains and cruises, an important part of OEH’s strategy is to promote OEH properties through various cross-selling efforts. These include the in-house “Orient-Express Traveller” directory, enhanced customer relationship management systems and other customer recognition programs, worldwide preferred travel agent programs, and direct communications with customers. In addition, OEH sells luxury souvenir goods branded with the names of its travel products.

OEH’s marketing strategy also focuses on public relations, which management believes is a highly cost-effective marketing tool for luxury properties. Because of the unique nature of OEH’s properties, guests often hear about OEH’s hotels and other travel products through word-of-mouth or published articles. OEH has an in-house public relations office in London and representatives in 14 countries worldwide, including third-party public relations firms under contract, to promote its properties through targeted newspapers, general interest and travel magazines, and broadcast, online and other media.

Corporate Social Responsibility

OEH is a member of the International Tourism Partnership and pursues responsible business practices furthering the sustainability of tourism by seeking to minimize the negative impact on the environment and to increase contributions to conservation, cultural heritage preservation and local community development. OEH’s activity in this area has included the following examples:

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· In the U.S., Charleston Place created the Charleston Chefs’ “Feed the Need” Program in which local hotels, restaurants and caterers provide weekly meals for up to 500 persons following food shelter closures, helping to alleviate the strain on local emergency food providers. This successful program has been adopted in other U.S. cities.

· In Russia, Grand Hotel Europe has established its own charitable foundation to help underprivileged children and youth, working closely with local orphanages and organizations to identify those in need.

· In Botswana, OEH’s game-viewing lodges support the Endangered Wildlife Trust, a Southern Africa organization. Staff participates in various programs such as protection of the wattled crane, an endangered species, in the Moremi Wildlife Reserve.

· In Mexico, Maroma Resort and Spa acts to preserve the environment. Staff members volunteer to clean Maroma’s surrounding beach areas. The landscaping of the resort and its environs is maintained in a jungle-like state to create a habitat for wildlife. Educational walks are provided for guests to learn about the biodiversity of the hotel’s site.

· In Peru, Machu Picchu Sanctuary Lodge has established an agriculture school on its own land so persons from poor neighboring communities can learn to grow and produce vegetables and herbs. The hotel provides seeds to use on their own land and then buys their produce, both to provide a source of income for local people and to reduce the carbon footprint by avoiding the need to transport from other parts of the country.

· In Italy, Venice Simplon-Orient-Express and Hotel Cipriani have long been supporters of the preservation projects of Save Vanice and Venice in Peril seeking to maintain the city’s threatened heritage, including work to preserve an 18th century screen housed in the Oriental Museum of Venice.

Industry Awards

OEH has gained a worldwide reputation for quality and service in the luxury segment of the leisure and business travel markets. Over the years, OEH’s properties have won numerous national and international awards given by consumer or trade publications such as Condé Nast Traveller, Travel & Leisure and Tatler and by private subscription newsletters such as Andrew Harper’s Hideaway Report, or industry bodies such as the American Automobile Association. The awards are based on opinion polls of the publications’ readers or the professional opinion of journalists or panels of experts. The awards are believed to influence consumer choice and are therefore highly prized.

Competition

Some of OEH’s properties are located in areas with numerous competitors, many of which have greater resources than OEH. Competition for guests in the hospitality industry is based generally on the convenience of location, the quality of the property and services offered, room rates and menu prices, the range and quality of food services and amenities offered, types of cuisine, and reputation and name recognition.

OEH’s strategy is to acquire or manage only hotels which have special locations and distinctive character, offering unique travel experiences. Many are in areas with interesting local history or high entry barriers because of zoning restrictions. OEH builds its competitive advantage by offering high quality service and cuisine, usually with a local flavor. Typically, therefore, OEH competes by providing a special combination of location, character, cuisine, service and experiential activities rather than relying on price competition.

OEH’s luxury tourist trains have no direct competitors. Other passenger trains operate on the same or similar routes, including the Cuzco-Machu Picchu line of Peru Rail, but management believes OEH’s trains and onboard service are unique and of such superior quality that guests consider an OEH train journey more of a luxury experience and an end in itself than merely a means of transport.

Employees

OEH currently employs about 8,100 full-time-equivalent persons, about 1,700 of whom are represented by labor unions. Approximately 6,500 persons are employed in the hotels and restaurants, 1,400 in the trains and cruises business, and 200 in central administration, sales and marketing and other activities. Management believes that OEH’s ongoing labor relations are satisfactory. Through its various training and other human resources programs, OEH seeks to attract, develop and retain top employees providing authentic local experiences to guests and to promote internal candidates for leadership positions.

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Government Regulation

OEH and its properties are subject to numerous laws and government regulations such as those relating to the preparation and sale of food and beverages, liquor service, health and safety of premises and employees, employee relationships, environmental matters, waste and hazardous substance handling and disposal, and planning and zoning rules. Management believes that OEH is in compliance in all material respects with relevant laws and regulations with respect to its business.

ITEM 1A. Risk Factors

OEH’s business is subject to various risks, including those described below. Investors should carefully consider the “Risk Factors” below. These are separated into three general groups:

· risks of OEH’s business,

· risks relating to OEH’s financial condition and results of operations, and

· risks of investing in class A common shares.

The risks described below are only those that management considers to be the most significant. There may be additional risks that management currently regards as less material or that are not presently known.

If any of these risks occurs, OEH’s business, prospects, financial condition, results of operations or cash flows could be materially adversely affected. When OEH states below that a risk may have a material adverse effect, this means the risk may have one or more of these effects. In that case, the market price of the class A common shares could decline.

This report also contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” above. OEH’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report.

Risks of OEH’s Business

OEH’s operations are subject to adverse factors generally encountered in the lodging, hospitality and travel industries.

Besides the specific conditions discussed in the risk factors below, these adverse factors include:

· cyclical downturns arising from changes in economic conditions and general business activities, which impact levels of travel and demand for travel products,

· rising travel costs such as increased air travel fares and higher fuel costs, and reduced capacities of airlines and other transport services,

· political instability of the governments of some countries where OEH’s properties are located, resulting in depressed demand,

· less disposable income of consumers and the travelling public,

· dependence on varying levels of tourism, business travel and corporate entertainment,

· changes in popular travel patterns,

· competition from other hotels and leisure time activities,

· periodic local oversupply of guest accommodation, which may adversely affect occupancy and actual rates achieved,

· increases in operating costs at OEH’s properties due to inflation and other factors which may not be offset by increased revenues,

· economic and political conditions affecting market demand for travel products, including recessions, civil disorder, and acts or threats of terrorism,

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· expropriation or nationalization of properties by foreign governments, and limitations on repatriation of local earnings,

· failure to comply with applicable anti-corruption laws or trade sanctions, exposing OEH to claims for damages, financial penalties and reputational harm,

· foreign exchange rate movements causing fluctuations in OEH’s reported revenues and costs and impacting demand for OEH’s properties,

· adverse weather conditions such as severe storms or destructive forces like fire or flooding that sometimes result in closure of properties,

· reduction in domestic or international travel and demand for OEH’s properties due to actual or threatened acts of terrorism or war, or the outbreak of contagious disease, and heightened travel security measures instituted in response to these events,

· interference with customer travel due to accidents or industrial action, increased transportation and fuel costs, and natural disasters, and

· seasonality, in that many of OEH’s hotels and tourist trains are located in the northern hemisphere where they operate at low revenue or close during the winter months.

The effects of many of these factors vary among OEH’s hotels and other properties because of their geographic diversity.

For example, civil unrest in Myanmar in September 2007 resulted in reservation cancellations at The Governor’s Residence and Road To Mandalay at the beginning of the seasonal high demand period for those properties. Bookings were recovering but suffered a new setback when the hotel and ship were damaged by a cyclone hitting Myanmar in May 2008.

Also, as a result of the terrorist attacks in the United States in September 2001 and the subsequent military actions in Afghanistan and Iraq, international, regional and even domestic travel was disrupted and public concerns about travel safety increased significantly. Demand for most of OEH’s properties declined substantially in the latter part of 2001 and in 2002. Future acts of terrorism or a military action, or the threat of either, could again reduce leisure and business travel, thereby adversely affecting OEH’s results.

The weakened economies of North America, Europe and other regions in 2008-2009 and the simultaneous disruption of financial markets resulted in earnings declines at most of OEH’s properties and in shorter lead times for reservations due to customers’ economic uncertainty. As a result, OEH’s ability to forecast operating results and cash flows was reduced. These factors also affected OEH’s liquidity outlook. See “Risks Relating to OEH’s Financial Condition and Results of Operations’ below.

If revenue decreases at OEH’s properties, its expenses may not decrease at the same rate, thereby adversely affecting OEH’s profitability and cash flow.

Ownership and operation of OEH’s properties involve many relatively fixed expenses such as personnel costs, interest, rent, property taxes, insurance and utilities. If revenue declines when demand weakens, OEH may not be able to reduce these expenses to the same degree to preserve profitability.

The hospitality industry is highly competitive, both for customers and for acquisitions of new properties.

Some of OEH’s properties are located in areas where there are numerous competitors seeking to attract customers, particularly in city centers. Competitive factors in the hospitality industry include:

· convenience of location,

· the quality of the property and services offered,

· room rates and menu prices,

· the range and quality of food services and amenities offered,

· types of cuisine, and

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· reputation and name recognition.

Demographic, geographic or other changes in one or more of OEH’s markets could impact the convenience or desirability of its hotels and restaurants, and so could adversely affect their operations.

Also, new or existing competitors could significantly lower rates or offer greater conveniences, services or amenities, or significantly expand, improve or introduce new facilities in the markets in which OEH operates. For example, new passenger rail services have recently started to operate on the Cuzco-Machu Picchu line of Peru Rail in direct competition, which has had some impact on Peru Rail’s profitability. As another example, largely because of increased hotel competition in Bora Bora and high local cost structures, OEH has contracted to sell its Bora Bora Lagoon Resort now closed due to cyclone damage in 2010.

OEH competes for hotel acquisition and management contract opportunities with others who may have greater financial resources. These competitors may be prepared to accept a higher level of financial risk than OEH can prudently manage. This competition may have the effect of reducing the number of suitable acquisition and management contract opportunities offered to OEH and increasing its costs or reducing its operating margins because the bargaining power of property owners seeking to sell or to enter into management agreements is increased.

The hospitality industry is heavily regulated, including with respect to food and beverage sales, employee relations, development and construction, and environmental matters, and compliance with these laws could reduce profitability of properties that OEH owns or manages.

OEH’s various properties are subject to numerous laws and government regulations, including those relating to the preparation and sale of food and beverages, liquor service, and health and safety of premises. The properties are also subject to laws governing OEH’s relationship with employees in such areas as minimum wage and maximum working hours, overtime, working conditions, health and safety, hiring and firing employees and work permits.

The success of expanding existing properties depends upon obtaining necessary building permits, approvals or zoning variances from local authorities. Failure to obtain or delay in obtaining these permits could adversely affect OEH’s strategy of increasing revenues and earnings through expansion of existing properties.

OEH is also subject to U.S. and foreign laws and regulations relating to the environment and the handling of hazardous substances that may impose or create significant potential environmental liabilities, even in situations where the environmental problem or violation occurred on a property before OEH acquired it or without OEH’s knowledge. Environmental laws may also impose liability for improper handling or disposal of hazardous substances or improper management of certain hazardous material which might be present at OEH properties, such as asbestos or lead-based paint. OEH’s trains and cruises must comply with environmental regulation of air emissions, wastewater discharges and fueling.

Existing environmental laws and regulations may be revised or new laws and regulations related to global climate change, air quality, hazardous substances, wastes, or other environmental and health concerns may be adopted or become applicable to OEH.

Although OEH does not currently anticipate that the costs of complying with environmental laws will materially adversely affect its businesses, OEH cannot assure that it will not incur material costs or liabilities in the future, due to the discovery of new facts or conditions, the occurrence of new releases of hazardous materials, or a change in environmental laws.

OEH’s acquisition, expansion and development strategy may be less successful than expected and, therefore, its growth may be limited.

OEH intends to increase its revenues and earnings in the long term by acquiring new properties, managing new properties under contract, and expanding existing properties. The ability to pursue new growth opportunities successfully will depend on management’s ability to:

· identify properties suitable for acquisition, management and expansion,

· negotiate purchases or construction on commercially reasonable terms or successfully negotiate management contracts of properties OEH does not own or in which it has only a non-controlling interest,

· obtain the necessary financing and government permits or approvals,

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· build on schedule and with minimum disruption to guests, and

· integrate new properties into OEH’s operations.

Also, the acquisition of properties in new locations may present operating and marketing challenges that are different from those experienced at OEH’s existing locations. OEH can provide no assurance that management will succeed in this growth strategy.

OEH plans to develop new properties in the future. New project development is subject to such adverse factors as:

· site deterioration after acquisition,

· inability to obtain necessary government permits,

· inclement weather,

· labor or material shortages,

· work stoppages,

· unavailability of equity funding, construction finance and mortgage loans on acceptable terms,

· environmental conditions such as the presence of hazardous substances, protected species, wetlands or other natural conditions,

· weak economic conditions before, during or after development,

· claims and disputes between OEH and other contracting parties,

· untimely opening,

· high start-up costs, and

· weak initial market acceptance of a new property.

For example, El Encanto in Santa Barbara was originally closed for extensive renovations in late 2006, with an expected reopening in 2008. However, because of changes in rebuilding plans, delays in obtaining government permits, a slower pace of construction than initially expected, and difficulty until 2011 in obtaining financing of the renovation, the reopening of the hotel has been delayed and is currently scheduled to occur in late 2012 or early 2013.

OEH may be unable to obtain the necessary additional capital to finance the growth of its business.

The acquisition, expansion and development of leisure properties, as well as the ongoing renovations, refurbishments and improvements required to maintain or upgrade those properties, are capital intensive. The availability of future borrowings and access to equity capital markets to fund these acquisitions, expansions and projects depend on prevailing market conditions and the acceptability of financing terms on offer. OEH can give no assurance that future borrowings or capital raising will be available to OEH, or available on acceptable terms, in an amount sufficient to fund its needs. Future equity financings may be dilutive to the existing holders of common shares. Future debt financings may require restrictive covenants that would limit OEH’s flexibility in operating its business. See also “Risks Relating to OEH’s Financial Condition and Results of Operations” below.

For example, OEH contracted in 2007 to purchase and redevelop a building next to its ‘21’ Club restaurant in New York as a mixed-use hotel, library and residential property. Because of the economic downturn in 2008 and 2009 in the United States and difficulty in financing the project, OEH could not complete the project and instead assigned the purchase and development contracts in 2011 to another developer.

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OEH’s operations may be adversely affected by extreme weather conditions and the impact of natural disasters, and insurance may not fully cover these and other risks.

OEH operates properties in many locations, each of which is subject to local weather patterns affecting the properties and customer travel. As OEH’s revenues are dependent on the revenues of individual properties, extreme weather conditions from time to time can have a major adverse impact upon individual properties or particular regions. For example, hurricanes in August and October 2005 caused damage to Maroma Resort and Spa on Mexico’s Yucatan Peninsula and OEH’s then-owned Windsor Court Hotel in New Orleans, resulting in temporary closure of the hotels for repairs. Similarly, flooding and landslides due to heavy rains in the Machu Picchu region of Peru in January 2010 resulted in closure of parts of the Cuzco-Machu Picchu line of Peru Rail until June 2010 while the damaged track was repaired.

Furthermore, depending on the location and configuration of certain OEH properties, such as along coasts, lagoons or rivers, they may be subject to possible adverse consequences of global climate change, including high water or increased extreme weather patterns.

OEH carries property, loss of earnings, liability and other kinds of insurance in amounts management deems reasonably adequate, but damages may exceed the insurance limits or be outside the scope of coverage. Also, insurance against some risks may be unavailable to OEH on commercially reasonable terms, requiring OEH to self-insure against possible loss.

If the relationships between OEH and its employees were to deteriorate, OEH may be faced with labor shortages or stoppages, which would adversely affect the ability to operate its facilities and could cause reputational harm to OEH.

OEH’s relations with its employees in various countries could deteriorate due to disputes related to, among other things, wage or benefit levels, working conditions or management’s response to changes in government regulation of workers and the workplace. Operations rely heavily on employees’ providing a high level of personal service, and any labor shortage or stoppage caused by poor relations with employees, including unionized labor, could adversely affect the ability to provide those services, which could reduce occupancy and revenue and tarnish OEH’s reputation.

OEH’s plans to expand existing properties, to develop new ones and possibly to build residential units for sale at some properties are subject to project cost, completion and resale risks.

Successful new project development depends on timely completion within budget and satisfactory market conditions. Risks that could affect a project include:

· construction delays or cost overruns that may increase project costs,

· delay or denial of zoning, occupancy and other required government permits and authorizations,

· write-off of development costs incurred for projects that are not pursued to completion,

· natural disasters such as earthquakes, hurricanes, floods or fires that could adversely impact a project,

· defects in design or construction that may result in additional costs to remedy, or that require all or a portion of a property to be closed during the period needed to rectify the situation,

· inability to raise capital to fund a project because of poor economic or financial conditions,

· claims and disputes between OEH and other contracting parties resulting in delay, monetary loss or project termination,

· government restrictions on the nature or size of a project or timing of completion, or on the ownership of completed units such as by foreign nationals,

· changes in market conditions for residences, such as credit availability and pricing terms, or oversupply that may affect OEH’s ability to sell residential units at a profit or at price levels originally anticipated, and

· discovery or identification of environmental conditions could require unanticipated studies, cleanups, approvals, increased costs, time delays or even project termination.

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Occurrence of any of these risks could adversely affect the profitability of planned expansions and new developments. For example, OEH’s Porto Cupecoy residential development in St. Martin encountered certain of these factors such as cost overruns, construction defects, low financing availability, and market conditions for sales of completed units at prices less than originally expected.

OEH’s owned hotels and restaurants are subject to risks generally incidental to the ownership and operation of commercial real estate and often beyond its control.

These include:

· fluctuating values of commercial real estate and potential asset value impairments due to operating performance falling short of expectation or other triggering events,

· changes in national, regional and local economic and political conditions,

· changes in interest rates and the availability, cost and terms of financing,

· the impact of present or future government legislation and regulation (including environmental laws),

· the ongoing need for capital improvements to maintain or upgrade properties,

· potential discovery of environmental conditions associated with prior or present operations on site or nearby, and proper management and disposal of wastes and hazardous substances,

· changes in property taxes and operating expenses,

· the potential for uninsured or underinsured losses, and

· limited ability to reduce the relatively high fixed costs of operating owned commercial real estate if revenue declines.

OEH has undertaken a program to sell owned properties that are non-core to its business, as well as to continue selling its completed for-sale residential real estate. In an unfavorable commercial and residential real estate market, OEH may be unable to sell properties at values it is seeking, particularly during an economic downturn and weakness in credit markets, or sell them at the pace OEH had planned. For example, during 2011, OEH determined that the current fair value of real estate held for sale at the Porto Cupecoy development no longer exceeded the carrying value, and recognized an additional non-cash impairment charge of $36,868,000 (2010 - $24,616,000) on this development.

Loss or infringement of OEH’s brand names could adversely affect its business.

In the competitive hotel and leisure industry in which OEH operates, trademarks and brand names are important in the marketing, promotion and revenue generation of OEH’s properties. OEH has a large number of trademarks and brand names, and expends resources each year on their surveillance, registration and protection. For example, during 2010, OEH settled protracted litigation to defend its “Cipriani” brand in Europe. OEH’s future growth is dependent in part on increasing and developing its brand identities. The loss, dilution or infringement of any of OEH’s brand identities could have an adverse effect on its business, results of operations and financial condition.

Failures in OEH’s information technology systems or in protecting the integrity of data could reduce revenue and earnings and result in reputational harm.

OEH’s business depends on the efficient operation of its IT systems such as for reservations, hotel services and financial reporting. These systems are vulnerable to damage or interruption from natural disasters, power loss, telecommunications failures, computer viruses, security breaches and similar events. These could cause service delays or interruptions in OEH’s business or loss of data and result in lost revenue, added remedial costs and reputational harm.

Also, OEH collects data relating to its customers for various business purposes such as marketing and promotions. The collection and use of this information is governed by various privacy laws which are evolving and may vary between countries. Compliance with these laws may increase OEH’s costs or limit the marketing and promotion of its properties. In addition, non-compliance or a security breach involving systems using customer data may result in claims for damages or fines and in restrictions on the use or transfer of the data.

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Some OEH properties are geographically concentrated in countries where national economic downturns, political events or other changing conditions beyond OEH’s control could disproportionately affect OEH’s business.

While OEH’s geographic diversification in 24 countries lessens the dependence of its results of operations on any particular region, OEH owns eight hotels in Italy and one hotel in Peru and its 50/50 joint ventures in Peru operate a further five hotels (including one scheduled to open in 2012) as well as Peru Rail. Due to this concentration of properties in these two countries, OEH’s business is more exposed to national events or conditions in Italy and Peru than other countries where OEH operates, such as:

· changing local economic and competitive conditions,

· natural and other disasters,

· new government laws and regulations, and

· changes in government administrations.

For example, possible economic recession in Italy due to current euro-zone debt problems may adversely impact demand for OEH’s Italian hotels from the local domestic market or from other euro-zone countries.

OEH may be unable to manage effectively the risks associated with its joint venture investments, which may adversely impact the operations of those joint ventures.

Seven of OEH’s hotels (including one under development) and two of its tourist trains are owned by joint venture companies in which OEH has an investment of 50% or less and shares control of at least some significant aspects of their businesses, such as expenditure for capital improvements. These joint venture investments of OEH involve risks somewhat different from 100% ownership because OEH’s partners

· may be unable to meet their financial obligations to the joint venture,

· may have business interests inconsistent with those of OEH or act contrary to OEH’s objectives and policies,

· may cause properties to incur unplanned liabilities, or

· may take actions binding on the joint venture without OEH’s consent or that otherwise impair OEH’s operation of the business.

If any of these possibilities occurs, OEH’s operations could be adversely affected because it may have limited ability to rectify resulting problems within the joint venture and even to dispose of its joint venture investment. Disputes with joint venture partners may result in litigation costly to OEH.

Risks Relating to OEH’s Financial Condition and Results of Operations

Economic downturns and disruption in the financial markets could adversely affect OEH’s financial condition and results of operations.

Financial markets in the United States, Europe and Asia experienced significant disruption in 2008 and 2009, including volatility in securities prices and diminished liquidity and credit availability. Furthermore, the economic slowdown during this period in the United States and other countries weakened consumer confidence and led to significant reductions in the amounts persons and businesses spent on travel, hotels, dining and entertainment. Largely as a result, OEH experienced pressure on pricing, reduced occupancy at its properties, and fewer customers from traditional markets for OEH’s hotels and other travel products. OEH’s consolidated revenue and earnings from continuing operations declined in 2008 and 2009. Although revenue increased in 2010 and 2011, OEH incurred a loss in the latter two years due mainly to higher costs and impairment charges.

While the global economy improved in 2010 and 2011, if adverse general economic conditions recur, OEH’s future revenue, profitability and cash flow from operations could decrease and its liquidity and financial condition, including OEH’s ability to comply with financial covenants in its loan facilities, could be adversely impacted.

This risk exists in euro-zone countries where OEH has 11 hotels, the Venice-Simplon-Orient-Express tourist train and the Afloat in France cruise business. If current uncertainty regarding sovereign euro-zone debt persists or worsens, financial markets could

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experience disruption and consumer confidence could weaken, possibly resulting in less demand for these properties due to weakening of the local economies where they operate.

Financial uncertainty and economic weakness identified in the previous risk factor could adversely impact OEH’s liquidity and financial condition, in particular OEH’s ability to raise additional funds for its cash requirements for working capital, commitments and debt service.

During the 12 months ending December 31, 2012, OEH will have approximately $78,800,000 of scheduled debt repayments including working capital and capital lease payments. This includes $10,000,000 of debt that was repaid in January 2012 upon the sale of Keswick Hall, and approximately $24,299,000 of debt falling due in 2012 which OEH is in negotiation to refinance. In 2013, OEH will have approximately $133,256,000 of scheduled debt repayments including capital lease payments. Additionally, OEH’s capital commitments at December 31, 2011 amounted to $15,432,000.

OEH expects to fund its working capital requirements, debt service and capital expenditure commitments for the foreseeable future from operating cash flow, available committed borrowing facilities, issuing new debt or equity securities, rescheduling loan repayments or capital commitments, and disposing of non-core assets and developed real estate. During 2010, for example, OEH refinanced bank loans having total principal amounts outstanding of $374,400,000 (at December 31, 2010 exchange rates) and publicly offered and sold in the United States new class A common shares of the Company raising total net proceeds of $248,052,000. See “Liquidity” in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

However, OEH can give no assurance that additional sources of financing for its unfunded commitments will be available on commercially acceptable terms, or available at all, or that OEH will be able to refinance maturing debt or to reschedule loan repayments or capital commitments, or that other cash-saving steps management may take to enhance OEH’s liquidity and capital position will bridge any shortfall. If additional sources of financing are unavailable, including because of possible future breach of loan financial covenants, OEH may be unable to fund its cash requirements for working capital, commitments and debt service.

Covenants in OEH’s financing agreements could be breached or could limit management’s discretion in operating OEH’s businesses, causing OEH to make less advantageous business decisions; OEH’s indebtedness is collateralized by substantially all of its properties.

OEH has 17 loan facilities with commercial banks. There are three facilities which have outstanding principal amounts in excess of $50,000,000 and nine with outstanding principal amounts greater than $10,000,000 but less than $50,000,000, and the remainder has less than $10,000,000 outstanding per facility. Most of these loan facilities relate to specific hotel or other properties and are secured by a mortgage on the particular property. In most cases, the Company is either the borrower or the subsidiary owning the property is the borrower and the loan is guaranteed by the Company.

The loan facilities generally place restrictions on the property-owning company’s ability to incur additional debt and limit liens, and to effect mergers and asset sales, and include financial covenants. Where the property-owning subsidiary is the borrower, the financial covenants relate to the financial performance of the property financed and generally include covenants relating to interest coverage, debt service, and loan-to-value and debt-to-EBITDA ratio tests. Most of the facilities under which the Company is the borrower or the guarantor also contain financial covenants which are based on OEH’s performance on a consolidated basis. The covenants include a quarterly interest coverage test and a quarterly net worth test.

If OEH fails to comply with the restrictions in present or future financing agreements, a default may occur. A default could allow the creditors to accelerate the related debt as well as any other debt which contains cross-default provisions. A default could also allow the creditors to foreclose on the properties collateralizing the debt.

At December 31, 2011, one OEH subsidiary was out of compliance with financial covenants in a $2,900,000 loan facility. This non-compliance is expected to be rectified in early 2012.

In addition, at December 31, 2011, three unconsolidated joint venture companies were out of compliance with financial covenants in their loan facilities as follows (see Note 5 to the Financial Statements):

· the unconsolidated Peru hotels joint venture company, in which OEH has a 50% interest, was out of compliance at December 31, 2011 with the debt-service-coverage ratio in a loan facility of the joint venture amounting to $20,011,000. Subsequent to December 31, 2011, a waiver of this non-compliance was received by the borrower. This loan is non-recourse to and not credit-supported by OEH while it remains a 50% owner of the joint venture;

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· the unconsolidated Peru rail joint venture in which OEH has a 50% interest was out of compliance with a leverage covenant in a loan of $9,052,000 and a debt-service-coverage ratio in a loan of $9,075,000. The loan of $9,052,000 is guaranteed by the Company. Discussions with the banks are ongoing to bring the joint venture back into compliance. The $9,075,000 loan is non-recourse to and not credit supported by OEH while it remains a 50% owner of the joint venture; and

· the Hotel Ritz, Madrid, 50% owned by OEH, was out of compliance with the debt-service-coverage ratio in its first mortgage loan facility amounting to $88,926,000. Although the loan is otherwise non-recourse to and not credit-supported by OEH or its joint venture partner in the hotel, they provided separate partial guarantees of €7,500,000 ($9,736,000) each, as of December 31, 2011. Subsequent to December 31, 2011, a six-month waiver of this non-compliance was received by the borrower.

OEH recognizes the risk that a property-specific or group consolidated loan covenant could be breached. OEH regularly prepares cash flow projections which are used to forecast covenant compliance under all loan facilities. If there is any likelihood of potential non-compliance with a covenant, OEH takes proactive steps to meet with the lending bank to seek an amendment to, or a waiver of, the financial covenant at risk. Obtaining an amendment or waiver may result in an increase in the borrowing costs. If a covenant breach occurred in a material loan facility and OEH was unable to agree with its bankers how the particular financial covenant should be amended or how the breach could be cured or waived, OEH’s liquidity would be materially adversely affected.

In order to assure that OEH has sufficient liquidity in the future, OEH’s cash flow projections and available funds are discussed with the Company’s board of directors and OEH’s advisors to consider the most appropriate way to develop OEH’s capital structure and generate additional sources of liquidity. The options available to OEH will depend on the current economic and financial environment and OEH’s continued compliance with financial covenants. Options currently available to OEH include increasing the leverage on certain under-leveraged assets, issuing equity or debt instruments and disposing of non-core assets and sales of developed real estate.

OEH can give no assurance that its loan facility lenders would agree to modify any affected covenant, which could impact OEH’s ability to fund its cash requirements for working capital, commitments and debt service and could cause an event of default under any affected loan facility.

OEH’s substantial indebtedness could adversely affect its financial health.

OEH has a large amount of debt in its capital structure and may incur additional debt from time to time. As of December 31, 2011, OEH’s consolidated long-term indebtedness was $543,888,000 (including the current portion). Long-term indebtedness of OEH’s consolidated variable interest entities was $90,529,000. This substantial indebtedness could:

· require OEH to dedicate much of its cash flow from operations to debt service payments, and so reduce the availability of cash flow to fund working capital, capital expenditures, product and service development and other general corporate purposes,

· limit OEH’s ability to obtain additional financing for its business,

· increase OEH’s vulnerability to adverse economic and industry conditions, including the seasonality of some of OEH’s activities, or

· limit OEH’s flexibility in planning for, or reacting to, changes in its business and industry as well as the economy generally.

OEH must also repay or refinance its indebtedness in the future. Although OEH may seek to refinance its indebtedness, OEH may be unable to obtain refinancing on satisfactory terms. OEH’s failure to repay indebtedness when due may result in a default under that indebtedness and cause cross-defaults under other OEH indebtedness. See “Liquidity” in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Increases in interest rates may increase OEH’s interest payment obligations under its existing floating rate debt, and refinanced debt may have higher interest rates that the debt refinanced.

After taking into account OEH’s fixed interest rate swaps, approximately 47% of OEH’s consolidated long-term debt at December 31, 2011 bears interest that fluctuates with prevailing interest rates, so that any rate increases may increase OEH’s interest payment obligations. From time to time, OEH enters into hedging transactions in order to manage its floating interest rate exposure, but OEH can give no assurance that those hedges will lessen the impact on OEH of rising interest rates. Also, as OEH refinances its long-term debt with new debt, the interest payable on the new debt may be at a higher rate than the debt refinanced.

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Fluctuations in foreign currency exchange rates may have a material adverse effect on OEH’s financial statements.

Substantial portions of OEH’s revenue and expenses are denominated in non-U.S. currencies such as European euros, British pounds sterling, Russian rubles, South African rand, Australian dollars, Peruvian nuevos soles, Botswana pula, Brazilian reals, Mexican pesos and various Southeast Asian currencies. In addition, OEH buys assets and incurs liabilities in these foreign currencies. Foreign exchange rate fluctuations may have a material adverse effect on OEH’s financial statements.

OEH’s financial statements are presented in U.S. dollars and can be impacted by foreign exchange fluctuations through both:

· translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and

· transaction risk, which is the risk that the currency of costs and liabilities fluctuates in relation to the currency of revenue and assets, which fluctuations may adversely affect OEH’s operating margins.

OEH’s ability to pay dividends on the class A common shares is limited.

OEH paid quarterly cash dividends on the Company’s class A and B common shares in the amount of $0.025 per share in 2004 through 2008 but suspended dividends beginning in 2009. OEH can give no assurance that it will be able to resume dividend payments in the future because of debt repayment requirements, a downturn to OEH’s business or other reasons.

Under the law of Bermuda where the Company is incorporated, it may not pay dividends or make other distributions on the class A and B common shares if there are reasonable grounds for believing that the Company is, or after the payment would be, unable to pay its liabilities as they become due, or if the realizable value of OEH’s assets is less than the aggregate of its liabilities, issued share capital and “share premium accounts” (share premium is defined as the amount of shareholders’ equity over and above the aggregate par value of issued shares). OEH can give no assurance that the Company will not be restricted by Bermuda law from paying dividends.

OEH is subject to accounting regulations and uses certain accounting estimates and judgments that may differ significantly from actual results.

Implementation of existing and future standards and rules of the U.S. Financial Accounting Standards Board (“FASB”) or other regulatory bodies could affect the presentation of OEH’s financial statements and related disclosures. Future regulatory requirements could significantly change OEH’s current accounting practices and disclosures. These changes in the presentation of OEH’s financial statements and related disclosures could change an investor’s interpretation or perception of OEH’s financial position and results of operations.

OEH uses many methods, estimates and judgments in applying its accounting policies. By their nature, these are subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead OEH to change its methods, estimates and judgments which could significantly affect the presentation of OEH’s results of operations.

As an example of these estimates and judgments, OEH evaluates goodwill at least annually, or when triggering events or changes in circumstances, such as adverse changes in the industry or economic trends or an underperformance relative to historical or projected future operating results, indicate the carrying value may not be recoverable. OEH’s impairment analysis incorporates various assumptions and uncertainties that management believes are reasonable and supportable considering all available evidence, such as the future cash flows of the business, future growth rates and the related discount rates. However, these assumptions and uncertainties are, by their very nature, highly judgmental. OEH cannot guarantee that its business will achieve the forecasted results which have been included in its impairment analysis. If OEH is unable to meet these assumptions in future reporting periods, it may be required to record a further charge in a future statement of operations for goodwill impairment losses, in addition to the impairment charges on continuing operations of $12,422,000 in 2011, $5,895,000 in 2010 and $6,287,000 in 2009.

OEH has a material weakness in its internal control over financial reporting related to its tax accounting. If OEH fails to establish and maintain proper and effective internal controls, its ability to produce accurate financial statements could be impaired, which could adversely affect OEH’s operating results, and investor, supplier and customer confidence in its reported financial information.

As described in Item 9A—Controls and Procedures, during the fourth quarter of 2011, management determined that OEH had a material weakness in its system of internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control that results in a reasonable possibility that a material misstatement of OEH’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, OEH did not maintain effective controls over the preparation and review of the calculations and related supporting documentation for certain deferred tax assets and liabilities and its current and deferred tax expense. As a result, there were errors in the tax accounts in the preliminary consolidated financial statements that were corrected prior to issuance of OEH’s consolidated financial statements for the year ended December 31, 2011. While OEH

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has taken steps to remediate this material weakness, it has not yet fully implemented its remediation plan. Until this material weakness is fully remediated, it could lead to errors in OEH’s reported financial results and could have a material adverse effect on OEH’s operations, investor, supplier and customer confidence in its reported financial information and the trading price of OEH’s class A common shares.

Risks of Investing in Class A Common Shares

The Company is not restricted from issuing additional class A or class B common shares, and any sales could negatively affect the trading price and book value of the class A common shares outstanding.

The Company may in its discretion sell newly issued class A or B common shares from time to time in the future. There can be no assurance that the Company will not make significant sales of class A or B common shares in public offerings or private placements to raise capital, for funding future acquisitions, in employee equity compensation programs or for other corporate purposes. Any sales could materially and adversely affect the trading price of the class A shares outstanding or result in dilution of the ownership interests of existing shareholders.

The price of the class A common shares may fluctuate significantly, which may make it difficult for shareholders to sell the class A common shares when they want or at desired prices.

The price of the class A shares on the New York Stock Exchange constantly changes. OEH management expects that the market price of the class A shares will continue to fluctuate. Holders of class A shares will be subject to the risk of volatility and depressed prices.

The price of class A shares can fluctuate as a result of a variety of factors, many of which are beyond OEH’s control. These factors include:

· quarterly variations in operating results,

· operating results that vary from the expectations of management, securities analysts and investors,

· changes in expectations as to future financial performance, including financial estimates by securities analysts and investors,

· developments generally affecting OEH’s business or the hospitality industry,

· market speculation about a potential acquisition of OEH or all or part of its business,

· announcements by OEH or its competitors of significant contracts, acquisitions, joint ventures or capital commitments,

· announcements by third parties of significant claims or proceedings against OEH,

· the dividend policy for the class A and B common shares,

· future sales of equity or equity-linked securities including by holders of large positions in the outstanding class A common shares, and

· general domestic and international economic conditions.

In addition, the stock market in general can experience volatility that is often unrelated to the operating performance of a particular company. This volatility can arise, for example, because of disruption in capital markets and contraction of credit availability, and can be significant. These broad market fluctuations may adversely affect the market price of the class A shares.

Investors in an offering of class A common shares by the Company may pay a much higher price than the book value of the outstanding class A common shares.

If investors purchase class A shares in an offering by the Company, they may incur immediate and substantial dilution representing the difference between OEH’s net book value and the as-adjusted net book value per share after giving effect to the offering price. The Company may also in the future issue additional class A shares in connection with compensation of OEH’s management, future acquisitions, future public offerings or private placements of class A shares for capital raising purposes or for other business purposes, all of which may result in the dilution of the ownership interests of holders of outstanding class A shares. Issuance of additional class A shares may also create downward pressure on the trading price of outstanding class A shares that may in turn require the Company to issue additional shares to raise funds through sales of its securities. This may further dilute the ownership interests of holders of outstanding class A shares.

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OEH may have broad discretion over the use of the net proceeds from any offering of class A common shares.

OEH may have broad discretion as to the use of the proceeds from any offering by the Company of its class A shares. Accordingly, investors would be relying on the judgment of the Company’s board of directors and OEH’s management with regard to the use of these net proceeds, and may not have the opportunity, as part of the investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for OEH.

A subsidiary of the Company, which has two Company directors on its board of directors, may control the outcome of most matters submitted to a vote of the Company’s shareholders.

A wholly-owned subsidiary of the Company, Orient-Express Holdings 1 Ltd. (“Holdings”), currently holds all 18,044,478 outstanding class B common shares in the Company representing about 64% of the combined voting power of class A and B common shares for most matters submitted to a vote of shareholders, and the directors and officers of the Company hold class A shares representing an additional 0.3% of combined voting power. In general, holders of class A common shares and holders of class B common shares vote together as a single class, with holders of class A shares having one-tenth of one vote per share and holders of class B shares having one vote per share. Therefore, as long as the number of outstanding class B shares exceeds one-tenth the number of outstanding class A shares, Holdings could control the outcome of most matters submitted to a vote of the shareholders.

Under Bermuda law, common shares of the Company owned by Holdings are outstanding and may be voted by Holdings. The manner in which Holdings votes its shares is determined by the four directors of Holdings, two of whom, John D. Campbell and Prudence M. Leith, are also directors of the Company, consistently with the exercise by those directors of their fiduciary duties to Holdings. Those directors, should they choose to act together, will be able to control substantially all matters affecting the Company, and to block a number of matters relating to any potential change of control of the Company. See Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Certain institutional shareholders representing two hedge fund groups challenged the Company’s corporate governance structure as it relates to the ownership and voting of class B common shares, including by proposing shareholder resolutions to amend the Company’s bye-laws to treat the class B shares as “treasury shares” with no voting rights and to cancel the class B shares. Those resolutions were rejected at the October 10, 2008 special general meeting of shareholders of the Company by a majority of the votes of the outstanding class A and class B common shares, voting together as a single class. Following the defeat of the resolutions at the special general meeting, these shareholders filed a petition in the Supreme Court of Bermuda on January 12, 2009 against the Company, Holdings and certain of the Company’s directors seeking similar and related relief, including a declaration that the Company holding or voting class B shares, directly or indirectly, was unlawful and an order restraining Holdings from exercising its voting rights attached to the class B shares. After a trial on preliminary issues relating to the legality of the holding of class B shares in the Company by Holdings, the Court ruled on June 1, 2010 that it is lawful for Holdings to hold and exercise voting rights in respect of class B shares in the Company held by Holdings and struck out the petition in its entirety. The Court also awarded the respondents their defense costs incurred in the proceedings. The foregoing description of the Court’s judgment does not purport to be complete and is qualified in its entirety by reference to the judgment, which the Company filed as Exhibit 99.1 to its Current Report on Form 8-K dated June 1, 2010 on the front cover and is incorporated herein by reference.

The corporate governance structure of the Company, with dual class A and B common shares and ownership and voting of the class B shares by Holdings, has been analyzed by legal counsel, and the Company’s board of directors and management believe that the structure is valid under Bermuda law. The judgment of the Bermuda Supreme Court on June 1, 2010 confirms this belief. The structure enables OEH to oppose any proposals that are contrary to the best interests of the Company and its shareholders, including coercive or unfair offers to acquire the Company, and thus preserve the value of OEH for all shareholders. The structure has been in place since the Company’s initial public offering in 2000, and has been fully described in the Company’s public filings and clearly disclosed to investors considering buying the class A common shares.

However, new litigation against the Company involving its corporate governance structure or other future challenges may occur, the outcome of which may be uncertain. Furthermore, new litigation or future challenges may cause the Company to incur additional costs, such as legal expenses, to defend its corporate governance structure and these costs may be substantial in amount.

Provisions in the Company’s charter documents, and the preferred share purchase rights currently attached to the class A and class B common shares, may discourage a potential acquisition of OEH, even one that the holders of a majority of the class A common shares might favor.

The Company’s memorandum of association and bye-laws contain provisions that could make it more difficult for a third party to acquire OEH or to engage in another form of transaction involving a change of control of the Company without the consent of the Company’s board of directors. These provisions include:

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· a supermajority shareholder voting provision for the removal of directors from office with or without cause,

· a supermajority shareholder voting provision for “business combination” transactions with beneficial owners of shares carrying 15% or more of the votes which may be cast at any general meeting of shareholders, and

· limitations on the voting rights of such 15% beneficial owners.

Also, the Company’s board of directors has the right under Bermuda law to issue preferred shares without shareholder approval, which could be done to dilute the share ownership of a potential hostile acquirer. Although management believes these provisions provide the shareholders an opportunity to receive a higher price by requiring potential acquirers to negotiate with the Company’s board of directors, these provisions apply even if the offer is favored by shareholders holding a majority of the Company’s equity.

The Company has in place a shareholder rights agreement providing for rights to purchase series A junior participating preferred shares of the Company. The rights are not currently exercisable, and they are attached to and transferable with the class A and B common shares on a one-to-one basis. These rights may have anti-takeover effects on a potential acquirer holding 15% or more of the outstanding class A or B common shares.

These anti-takeover provisions are in addition to the ability of Holdings and directors and officers of the Company to vote shares representing a significant majority of the total voting power of the Company’s common shares. See the risk factor immediately above.

A judgment of a United States court for liabilities under U.S. securities laws might not be enforceable in Bermuda, or an original action might not be brought in Bermuda against the Company for liabilities under U.S. securities laws.

The Company is incorporated in Bermuda, a majority of its directors and officers are residents of Bermuda, Europe and Singapore, and most of its assets and the assets of its directors and officers are located outside the United States. As a result, it may be difficult for shareholders to:

· effect service of process within the United States upon the Company or its directors and officers, or

· enforce judgments obtained in United States courts against the Company or its directors and officers based upon the civil liability provisions of the United States federal securities laws.

OEH has been advised by its Bermuda legal counsel that there is doubt as to:

· whether a judgment of a United States court based solely upon the civil liability provisions of the United States federal securities laws would be enforceable in Bermuda against the Company or its directors and officers, and

· whether an original action could be brought in Bermuda against the Company or its directors and officers to enforce liabilities based solely upon the United States federal securities laws.

ITEM 1B.

Unresolved Staff Comments

None.

ITEM 2.

Properties

OEH owns 33 hotels worldwide (including nine under long-term lease), four European tourist trains, its river cruise ship in Myanmar and five small French canal boats, and one stand-alone restaurant in the United States, and owns interests of 50% or less in seven hotels in Peru, Spain and the U.S. (including four under long-term lease), its Southeast Asian tourist train and Peru Rail, all as described in Item 1—Business above. Of the hotels, one is closed and under contract to be sold in 2012, and two others are under redevelopment and are expected to open in 2012 or early 2013. The small regional sales, marketing and operating offices of the hotels, tourist trains and cruise businesses are occupied under operating leases.

ITEM 3.

Legal Proceedings

There are no material legal proceedings, other than ordinary routine litigation incidental to OEH’s business, to which the Company or any of its subsidiaries is a party or to which any of their property is subject.

ITEM 4.

Mine Safety Disclosure

None.

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PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The class A common shares of the Company are traded on the New York Stock Exchange under the symbol OEH. All of the class B common shares of the Company are owned by a subsidiary of the Company and are not listed. See Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table presents the quarterly high and low sales prices of a class A common share in 2011 and 2010 as reported for New York Stock Exchange composite transactions:

	2011				2010
	High		Low		High		Low

First quarter	$	14.24	$	11.44	$	14.31	$	9.71
Second quarter	12.58		9.66		15.54		7.35
Third quarter	11.42		6.50		11.60		6.80
Fourth quarter	9.05		6.02		13.10		10.56

The Company paid no cash dividends in 2011 and 2010.

The Islands of Bermuda where the Company is incorporated have no applicable government fiscal or monetary laws, decrees or regulations which restrict the export or import of capital or affect the payment of dividends or other distributions to nonresident holders of the class A and B common shares of the Company or which subject United States holders to taxes.

At February 17, 2012, the number of record holders of the class A common shares of the Company was approximately 60.

During 2011, the Company made no offering of its class A common shares that was not registered in the United States. Also, during the fourth quarter of 2011, no purchases of the Company’s common shares were made by or on behalf of the Company or any affiliated person.

Information responding to Item 201(d) and (e) of SEC Regulation S-K is omitted because the Company is a “foreign private issuer” as defined in SEC Rule 3b-4 under the 1934 Act.

ITEM 6.

Selected Financial Data

Orient-Express Hotels Ltd. and Subsidiaries

	2011 $’000		2010 $’000		2009 $’000		2008 $’000		2007 $’000

Revenue	588,559		561,142		440,602		483,177		505,180

Impairments (1)	(59,120	)	(37,967	)	(6,500	)	(28,262	)	—

Gain on disposal of fixed assets (2)	16,544		—		1,385		—		2,312

Earnings from unconsolidated companies, net of tax	4,357		2,258		4,183		16,771		16,425

Net (losses)/earnings from continuing operations	(65,460	)	(60,570	)	(18,959	)	7,680		53,316

Losses from discontinued operations, net of tax (3)	(22,136	)	(2,010	)	(49,778	)	(34,034	)	(19,461	)

Net (losses)/earnings	(87,596	)	(62,580	)	(68,737	)	(26,354	)	33,855

Net losses attributable to non-controlling interests	(184	)	(179	)	(60	)	(197	)	(213	)

Net losses attributable to Orient-Express Hotels Ltd.	(87,780	)	(62,759	)	(68,797	)	(26,551	)	(33,642	)

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	2011 $		2010 $		2009 $		2008 $		2007 $

Basic (losses)/earnings per share:
Net (losses)/earnings from continuing operations	(0.64	)	(0.66	)	(0.28	)	0.17		1.26
Net losses from discontinued operations	(0.22	)	(0.02	)	(0.73	)	(0.78	)	(0.46	)

Net (losses)/ earnings	(0.86	)	(0.68	)	(1.01	)	(0.61	)	0.80

Diluted (losses)/earnings per share:
Net (losses)/earnings from continuing operations	(0.64	)	(0.66	)	(0.28	)	0.17		1.25
Net losses from discontinued operations	(0.22	)	(0.02	)	(0.73	)	(0.78	)	(0.46	)

Net (losses)/earnings	(0.86	)	(0.68	)	(1.01	)	(0.61	)	0.79

Dividends per share	—		—		—		0.10		0.10

	2011 $’000	2010 $’000	2009 $’000	2008 $’000	2007 $’000

Total assets	1,930,869	2,137,714	2,072,690	2,068,796	1,988,437

Long-term obligations	634,417	728,445	809,079	788,867	713,437

Shareholders’ equity	950,330	1,064,973	878,709	782,598	846,777

(1)	The impairments in 2008 consisted of impairment of goodwill at Le Manoir aux Quat’Saisons of $5,270,000, and impairment of the equity investment in Hotel Ritz in Madrid of $22,992,000. The impairments in 2009 consisted of impairment of goodwill and intangible assets at Miraflores Park Hotel, Casa de Sierra Nevada and Observatory Hotel amounting to $6,500,000. The impairments in 2010 consisted of impairment of real estate assets at Porto Cupecoy of $24,616,000, impairment of property, plant and equipment related to the New York hotel project of $6,386,000, impairment of goodwill at La Samanna and Napasai of $5,895,000 and impairment of other intangible assets of O.E. Interactive Ltd. and Luxurytravel.com UK Ltd. of $1,070,000. The impairments in 2011 consisted of impairment of real estate assets at Porto Cupecoy of $36,868,000, impairment of property, plant and equipment at Casa de Sierra Nevada and Porto Cupecoy of $9,830,000, and impairment of goodwill at Maroma Resort and Spa, Mount Nelson Hotel, Westcliff Hotel and La Residencia of $12,422,000.

(2)	The gain in 2007 related to the gain on the settlement of insurance proceeds for hurricane-damaged assets at Maroma Resort and Spa. The 2009 gain is related to settlement of insurance proceeds for cyclone-damaged assets on the Road to Mandalay ship. The 2011 gain is related to the assignment of OEH’s purchase and development agreements for its proposed New York hotel project in April 2011, along with the exercise of a call option by the assignee for excess development rights of the ‘21’ Club restaurant.

(3)	The results of Lapa Palace Hotel, Windsor Court Hotel, Lilianfels Blue Mountains, Bora Bora Lagoon Resort, Hôtel de la Cité, La Cabana and Keswick Hall have been presented as discontinued operations for all periods presented. Included in the loss from discontinued operations are goodwill and fixed asset impairment losses of $26,084,000 in 2011, $6,284,000 in 2010, $53,784,000 in 2009, $15,616,000 in 2008 and $13,992,000 in 2007, gain on sales of Hôtel de la Cité in 2011 of $2,182,000 and Lapa Palace Hotel and Windsor Court Hotel in 2009 of $3,737,000, insurance loss at Windsor Court Hotel in 2009 of $2,883,000 and an insurance gain at Bora Bora Lagoon Resort in 2010 of $5,750,000, partly offset by restructuring costs of $2,187,000.

See notes to consolidated financial statements (Item 8).

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion includes references to non-GAAP financial measures. OEH presents these measures because it believes they are of interest to the investment community by providing additional meaningful methods of evaluating certain aspects of OEH’s operating performance from period to period that may not otherwise be apparent on the basis of U.S. GAAP. These financial measures should be viewed in addition to, and not in lieu of, OEH’s consolidated financial statements for the fiscal years presented in this report.

Introduction

OEH has three business segments: (1) hotels and restaurants, (2) tourist trains and cruises and (3) real estate and property development.

Hotels in 2011 consisted of 41 deluxe hotels (excluding Hôtel de la Cité which was sold on August 1, 2011), 35 of which were wholly or majority owned or, in case of Charleston Place Hotel, owned by a consolidated variable interest entity. Of the 35 owned hotels, two were purchased in 2010 and another one is scheduled to reopen in 2012 or early 2013 after renovation. As noted below, two other hotels were held for sale at December 31, 2011 and were accounted for as discontinued operations. The other 33 owned hotels are referred to in this discussion as “owned hotels” of which 12 were located in Europe, six in North America and 15 in the rest of the world.

The other six hotels, in which OEH has unconsolidated equity interests and which it operates under management contracts, are referred to in this discussion as “hotel management interests”. One of these hotels is scheduled to open in 2012 after redevelopment.

OEH currently owns and operates the stand-alone restaurant ‘21’ Club in New York, New York.

The hotels held for sale at December 31, 2011 were Bora Bora Lagoon Resort in French Polynesia and Keswick Hall in Charlottesville, Virginia. The sale of Keswick Hall was completed on January 23, 2012. During 2011, OEH sold Hôtel de la Cité in Carcassonne, France. In addition, during 2010, OEH sold La Cabana restaurant in Buenos Aires, Argentina and Lilianfels Blue Mountains in New South Wales, Australia and, during 2009, OEH sold Lapa Palace Hotel in Lisbon, Portugal and Windsor Court Hotel in New Orleans, Louisiana. None of these properties was considered a long-term fit with OEH’s portfolio and strategy. Accordingly, the results of Bora Bora Lagoon Resort, Keswick Hall, Hôtel de la Cité, Lapa Palace, Windsor Court Hotel, Lilianfels Blue Mountains, and La Cabana restaurant have been reflected as discontinued operations for all periods presented.

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 an exclusive management contract, and one in which OEH has an equity investment — and a river cruise ship and five canal boats.

OEH’s active real estate projects are in St. Martin, French West Indies and Koh Samui, Thailand. A third project, a residential development adjoining Keswick Hall, was sold with the hotel in January 2012.

In 2011, 86% of OEH’s revenue was derived from the hotels and restaurants segment, 13% from tourist trains and cruises and 1% from real estate. In the hotels and restaurants segment, 96% of revenue was from owned hotels, 3% from restaurants and 1% from hotel management interests.

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 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.

In 2011, OEH saw same store RevPAR growth of 15% in U.S. dollars and 13% in local currency. Average occupancy was 59% and ADR was $444. In 2010, same store RevPAR increased 11% in both U.S. dollars and local currency. Average occupancy was 56% and ADR was $406.

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OEH’s long-term strategy to grow its business 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 and management contracts: 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, including entering into contracts to manage hotels that meet OEH’s selection criteria;

· Trains and cruises: increasing the utilization of its tourist trains and cruises by adding departures;

· Brands: increasing awareness of the “Orient-Express” brand in both established and new markets while maintaining the strengths of OEH’s local property brands; and

· Dispositions: disposing of underperforming assets to reduce leverage and redeploy the capital in properties with higher potential returns.

Revenue and Expenses

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.

Cost of services includes 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 the cruise ship and canal 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 operated throughout the periods mentioned and excluding the effect of any acquisitions, dispositions (including discontinued operations), closed periods or major refurbishments.

Impact of Foreign Currency Exchange Rate Movements

As reported below in the comparisons of the 2011, 2010 and 2009 financial years under “Results of Operations”, OEH has exposure arising from the impact of translating its global foreign currency earnings and expenses into U.S. dollars. Ten of OEH’s owned hotels in 2011 operated in European euros, two operated in South African rand, one in Australian dollars, one in British pounds sterling, three in Botswana pula, one in Mexican pesos, one in Peruvian nuevo soles, six in various Southeast Asian currencies and one in Russian rubles. Revenue of the Venice Simplon-Orient-Express, British Pullman, Northern Belle and Royal Scotsman tourist trains was primarily in British pounds sterling, but the operating costs of the Venice Simplon-Orient-Express were mainly denominated in euros. Revenue of the Copacabana Palace and Hotel das Cataratas in Brazil was earned in U.S. dollars, but substantially all of the hotels’ expenses were denominated in Brazilian reals. Revenue derived by Maroma Resort and Spa and La Samanna was recorded in U.S. dollars, but the majority of the hotels’ expenses were denominated in Mexican pesos and European euros, respectively.

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Except for the specific instances described above, OEH’s properties match foreign currency earnings and costs to provide a natural hedge against currency movements. The reporting of OEH’s revenue and costs translated into U.S. dollars, however, can be materially affected by foreign exchange rate fluctuations from period to period.

Market Capitalization

The Company’s class A common share price decreased during 2011 from $12.99 at December 31, 2010 to $7.47 at December 31, 2011, and OEH’s market capitalization decreased from $1.33 billion at December 31, 2010 to $767 million at December 31, 2011. OEH does not believe that a change in its share price or market capitalization is indicative of any unrecorded impairment in the carrying value of OEH’s assets. OEH’s fixed assets are carried in the balance sheet on a historical depreciated cost basis, and OEH management performs impairment tests on all long-lived assets. OEH management believes the aggregate market value of these assets exceeds their carrying value, in part because many of OEH’s assets were acquired many years ago.

Asset and Investment Impairments

OEH regularly compares the carrying value of its property, plant and equipment and goodwill to its own undiscounted and discounted cash flow projections, in order to determine whether any of these assets are impaired. OEH also periodically obtains third-party valuations of property, plant and equipment to comply with bank loan requirements. The impairments described below had no direct cash effect on OEH.

At December 31, 2011, OEH completed its annual goodwill impairment review and identified and recorded goodwill impairments of $12.4 million within its continuing operations, comprised of $7.9 million at Maroma Resort and Spa (mainly due to security concerns in Mexico causing occupancy not to recover as quickly as other OEH hotels), $2.8 million at La Residencia (mainly due to the effect of ongoing economic factors in Spain affecting the tourist market in Mallorca), $1.2 million at Mount Nelson Hotel and $0.5 million at Westcliff Hotel (with both South African hotels currently earning less revenue due to the absence of the World Cup football tournament in 2010 and increased competition in Cape Town and Johannesburg). At December 31, 2010, OEH did not identify any goodwill impairments during its annual impairment review. However, during 2010, OEH identified goodwill impairments of $5.9 million, comprised of $5.4 million at La Samanna and $0.5 million at Napasai. These impairments considered discounted future cash flows prepared as of the balance sheet date or date of a triggering event if earlier. See Note 8.

In the year ended December 31, 2011, OEH identified a non-cash real estate asset impairment charge of $36.9 million (2010 - $24.6 million) in respect of its Porto Cupecoy development project. OEH determined that the fair value less costs to sell of assets no longer exceeded the carrying value. The charge was computed using Level 3 inputs, namely the estimated selling prices and estimated selling costs based on OEH’s recent experience with sales of condominiums already completed. This impairment charge principally resulted from changes in future sales estimates as a result of current economic conditions and in light of recent sales experience after completion of the project.

In the year ended December 31, 2011, OEH identified a non-cash property, plant and equipment charge of $23.9 million in respect of Keswick Hall, Virginia. The carrying value was written down to the hotel’s estimated fair value. In 2010, OEH recorded an impairment charge against the carrying value of the two model homes on the residential development adjacent to Keswick Hall. This non-cash impairment charge of $1.6 million resulted from, primarily, a recent offer on one of the two model homes that did not exceed the carrying value of those assets. This is included within losses from discontinued operations. In January 2012, OEH sold Keswick Hall for $22.0 million.

Also in the year ended December 31, 2011, OEH identified a non-cash property, plant and equipment charge of $8.2 million in respect of Casa de Sierra Nevada, San Miguel de Allende, Mexico. The carrying value was written down to the hotel’s fair value.

OEH completed the assignment of the purchase and development agreements relating to its proposed New York hotel project in April 2011. However, based on terms under negotiation with interested parties in 2010, OEH recorded a non-cash impairment charge of $6.4 million at December 31, 2010 on land and buildings for the capitalized pre-development expenses incurred in the project.

Liquidity and Financial Condition

As reported below under “Liquidity and Capital Resources—Liquidity”, OEH has substantial scheduled debt repayments and capital commitments in 2012 and is working to improve its liquidity and capital position. OEH plans to utilize cash on the balance sheet and from operations, sales of non-core assets and its real estate developments, appropriate debt or equity finance or other funding sources or, if necessary, to reschedule loan repayments and capital commitments in their loan agreements. As reported, one OEH subsidiary and three unconsolidated joint ventures were out of compliance with financial covenants in their loan agreements at December 31, 2011. It is expected that the non-compliance will be resolved

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with the relevant lenders. OEH recognizes that in the current economic climate it is exposed to enhanced risk of a covenant breach under loan agreements during 2012 if weak trading conditions in the luxury hospitality business lead to a deterioration of OEH’s results. OEH expects to take proactive steps with its bankers to resolve prospectively any likely breach.

Results of Operations

OEH’s operating results for the years 2011, 2010 and 2009, expressed as a percentage of revenue, are as follows:

Year ended December 31,	2011 %		2010 %		2009 %
Revenue:
Hotels and restaurants	86		78		86
Tourist trains and cruises	13		11		13
Real estate and property development	1		11		1
	100		100		100
Expenses:
Depreciation and amortization	8		8		9
Cost of services	47		54		48
Selling, general and administrative	39		33		36
Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment	10		7		2
Gain on disposal of property, plant and equipment	(3	)	—		—
Net finance costs	8		5		7
Losses before income taxes	(9	)	(7	)	(2	)
Provision for income taxes	(3	)	(4	)	(3	)
Earnings from unconsolidated companies	1		—		1
Net losses from continuing operations	(11	)	(11	)	(4	)
Losses from discontinued operations	(4	)	—		(11	)
Net losses as a percentage of revenue	(15	)	(11	)	(15	)

Segment net earnings from continuing operations before interest expense, foreign currency, tax (including tax on earnings from unconsolidated companies), depreciation and amortization (“segment EBITDA”) for the years 2011, 2010 and 2009 are analyzed as follows (dollars in millions):

Year ended December 31,	2011 $		2010 $		2009 $
Segment EBITDA:
Owned hotels - Europe	60.3		37.4		38.6
- North America	13.6		15.0		14.5
- Rest of World	35.1		33.4		25.5
Hotel management and part-ownership interests	5.3		2.2		3.0
Restaurants	(0.1	)	2.5		1.7
Tourist trains and cruises	20.9		17.4		20.6
Real estate and property development	(6.4	)	(4.2	)	(2.5	)
Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment	(59.1	)	(38.0	)	(6.5	)
Impairment of property, plant and equipment in unconsolidated company	(0.6	)	—		—
Gain on disposal of property, plant and equipment	16.5		—		1.4
Central overheads	(37.1	)	(26.5	)	(25.9	)
	48.4		39.2		70.4

The foregoing segment EBITDA reconciles to net losses as follows (dollars in millions):

Year ended December 31,	2011 $		2010 $		2009 $
Net losses	(87.6	)	(62.6	)	(68.7	)
Add:
Depreciation and amortization	46.0		44.7		39.0
Interest expense and foreign exchange, net	45.4		28.2		32.1
Losses from discontinued operations, net of tax	22.1		2.0		49.8
Provision for income taxes	20.2		24.7		13.7
Share of provision for income taxes of unconsolidated companies	2.3		2.2		4.5
	48.4		39.2		70.4

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Year Ended December 31, 2011 compared to Year Ended December 31, 2010

Operating information for OEH’s owned hotels for the years ended December 31, 2011 and 2010 is as follows:

Year ended December 31,	2011	2010
Average Daily Rate (in dollars)
Europe	709	637
North America	336	324
Rest of the world	348	331
Worldwide	444	406

Rooms Available (in thousands)
Europe	287	280
North America	249	249
Rest of the world	473	463
Worldwide	1,009	992

Rooms Sold (in thousands)
Europe	164	139
North America	164	160
Rest of the world	269	254
Worldwide	597	553

Occupancy (percentage)
Europe	57	50
North America	66	64
Rest of the world	57	55
Worldwide	59	56

RevPAR (in dollars)
Europe	406	317
North America	222	208
Rest of the world	198	182
Worldwide	263	226

			Change %
			Dollars		Local currency
Same Store RevPAR (in dollars)
Europe	410	319	29	%	22	%
North America	222	208	7	%	7	%
Rest of the world	199	183	9	%	7	%
Worldwide	262	227	15	%	13	%

The ADR is the average amount achieved for the rooms sold. RevPAR is revenue per available room, which is the rooms’ revenue divided by the number of available rooms. 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 (including discontinued operations), closed periods or major refurbishments. The same store data exclude the following operations:

Hotel Caruso Belvedere	Le Manoir aux Quat’Saisons
Grand Hotel Timeo	Napasai
Villa Sant’Andrea
La Residencia

Overview

The net loss for the year ended December 31, 2011 was $87.6 million ($0.86 per common share) on revenue of $588.6 million, compared with net loss of $62.6 million ($0.69 per common share) on revenue of $561.1 million in the prior year.

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OEH’s revenue in the year ended December 31, 2011 experienced growth as business conditions in the global lodging industry continued to improve from 2010, following the global economic downturn in 2008 and 2009. The net loss in 2011 includes impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment of $59.1 million and losses from discontinued operations of $22.1 million. Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment was $38.0 million and losses from discontinued operations were $2.0 million in the year ended December 31, 2010. OEH’s remaining net loss excluding impairments and discontinued operations in the year ended December 31, 2011 was $6.4 million compared with a net loss of $22.6 million in the year ended December 31, 2010.

Revenue

Year ended December 31,	2011 $’000	2010 $’000
Hotels and restaurants
Owned hotels - Europe	213,232	169,772
- North America	102,655	96,724
- Rest of World	166,903	148,778
Hotel management/part ownership interests	5,809	4,300
Restaurants	16,312	15,809
	504,911	435,383
Tourist trains and cruises	75,777	61,740
Real estate	7,871	64,019
	588,559	561,142

Total revenue increased by $27.5 million, or 5%, from $561.1 million in 2010 to $588.6 million in 2011. Hotels and restaurants revenue increased by $69.5 million, or 16%, from $435.4 million in 2010 to $504.9 million in 2011. Revenue from tourist trains and cruises increased by $14.1 million, or 23%, from $61.7 million in 2010 to $75.8 million in 2011. The increase in revenue is generally due to the continued growth from 2010 following the global economic downturn and the negative impact this had on the hotel industry in 2008 and 2009. Real estate revenue decreased by $56.1 million, from $64.0 million in 2010 to $7.9 million in 2011, primarily due to the recognition of cumulative sales of pre-sold units from Porto Cupecoy in the first quarter of 2010 upon substantial completion of the project, which resulted in the recognition of revenue and related costs for units sold and delivered.

Owned Hotels: The change in revenue at owned hotels is analyzed on a regional basis as follows:

Europe

Year ended December 31,	2011	2010
Average daily rate (in dollars)	709	637
Rooms available (in thousands)	287	280
Rooms sold (in thousands)	164	139
Occupancy (percentage)	57	50
RevPAR (in dollars)	406	317
Same store RevPAR (in dollars)	410	319

Revenue increased by $43.4 million, or 26%, from $169.8 million for the year ended December 31, 2010 to $213.2 million for the year ended December 31, 2011. Improved trading conditions across Europe caused the ADR to increase by 11% from $637 in the year ended December 31, 2010 to $709 in the year ended December 31, 2011. Occupancy increased from 50% in the year ended December 31, 2010 to 57% in the year ended December 31, 2011. On a same store basis, RevPAR in local currency increased by 22% for the year ended December 31, 2011, and by 29% when measured in U.S. dollars.

Exchange rate movements caused revenue to increase by $9.6 million in the year ended December 31, 2011 compared with the same period in 2010.

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North America

Year ended December 31,	2011	2010
Average daily rate (in dollars)	336	324
Rooms available (in thousands)	249	249
Rooms sold (in thousands)	164	160
Occupancy (percentage)	66	64
RevPAR (in dollars)	222	208
Same store RevPAR (in dollars)	222	208

Revenue increased by $6.0 million, or 6%, from $96.7 million in the year ended December 31, 2010 to $102.7 million in the year ended December 31, 2011. In the year ended December 31, 2011, Charleston Place hotel had a revenue increase of $4.5 million, or 9%, over the prior year, primarily from increases in ADR and occupancy. North American ADR increased by 4% from $324 in the year ended December 31, 2010 to $336 in the year ended December 31, 2011. Occupancy increased from 64% in the year ended December 31, 2010 to 66% in the year ended December 31, 2011. On a same store basis, RevPAR increased from $208 in the year ended December 31, 2010 to $222 for the year ended December 31, 2011. This translated to an increase of 7% in both local currency and U.S. dollars.

Rest of the World

Year ended December 31,	2011	2010
Average daily rate (in dollars)	348	331
Rooms available (in thousands)	473	463
Rooms sold (in thousands)	269	254
Occupancy (percentage)	57	55
RevPAR (in dollars)	198	182
Same store RevPAR (in dollars)	199	183

Revenue increased by $18.1 million, or 12%, from $148.8 million in the year ended December 31, 2010 to $166.9 million in the year ended December 31, 2011. Exchange rate movements were responsible for $5.6 million of the revenue increase.

Revenue at OEH’s hotels in South America collectively increased by $16.8 million, or 23%, from $74.2 million in the year ended December 31, 2010 to $91.0 million in the year ended December 31, 2011. In 2011, Copacabana Palace Hotel had a revenue increase of $11.0 million, or 21%, primarily from increases in occupancy, ADR and favorable exchange rate movements. Exchange rate movements in South America were responsible for $2.9 million of the revenue increase.

Revenue at OEH’s six Asian hotels collectively increased by $5.7 million, or 25%, from $22.6 million in the year ended December 31, 2010 to $28.3 million in the year ended December 31, 2011. Exchange rate movements across the region were responsible for $0.7 million of the revenue increase. Same store occupancy for the year increased by 5%, from 56% in the year ended December 31, 2010 to 61% for the year ended December 31, 2011. Same store ADR in U.S. dollars increased 16% from $242 in the year ended December 31, 2010 to $280 for the year ended December 31, 2011. This translated into an increase in same store RevPAR in U.S. dollars of $34, or 25%, from $137 in the year ended December 31, 2010 to $171 for the year ended December 31, 2011.

Southern Africa revenue decreased by $6.6 million, or 17%, from $37.8 million in the year ended December 31, 2010 to $31.2 million in the year ended December 31, 2011. This decrease was net of $0.2 million of exchange rate gains on the translation of the South African rand and Botswana pula to U.S. dollars. The revenue decrease was primarily due to the absence of the World Cup football tournament which was hosted by South Africa in 2010 and to increased competition in Cape Town and Johannesburg. Same store RevPAR in U.S. dollars for the year ended December 31, 2011 decreased 19% from $156 to $126 compared to the same period in 2010, and 20% from $157 in the year ended December 31, 2010 to $126 for the year ended December 31, 2011 when measured in local currency.

Revenue at OEH’s Australian hotel increased by $2.1 million, or 15%, to $16.4 million in the year ended December 31, 2011; 82% of this increase, or $1.8 million, was due to the strengthening of the Australian dollar against the U.S. dollar.

The ADR for the Rest of the World region on a same store basis in U.S. dollars increased from $331 in the year ended December 31, 2010 to $348 for the year ended December 31, 2011. Same store occupancy also increased from 55% to 57%, which resulted in an increase in RevPAR on a same store basis in U.S. dollars of 9% from $183 in the year ended December 31, 2010 to $199 for the year ended December 31, 2011, and 7% when measured in local currency.

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Hotel Management and Part-Ownership Interests: Revenue increased by $1.5 million, or 35%, from $4.3 million in the year ended December 31, 2010 to $5.8 million in the year ended December 31, 2011, primarily due to higher management fees from the managed hotels in Peru as they experienced improved results.

Restaurants: Revenue increased by $0.5 million, or 3%, from $15.8 million in the year ended December 31, 2010 to $16.3 million in the year ended December 31, 2011, primarily due to an increase in the number of covers being served at ‘21’ Club.

Trains and Cruises: Revenue increased by $14.1 million, or 23%, from $61.7 million in the year ended December 31, 2010 to $75.8 million in the year ended December 31, 2011. All businesses included within the trains and cruises segment showed increases compared to 2010, mainly from improved customer demand. The largest increase was from Venice Simplon-Orient-Express, which grew by $5.0 million, or 25%, from $19.7 million in the year ended December 31, 2010 to $24.7 million in the year ended December 31, 2011. Exchange rate movements across the segment were responsible for $2.3 million of the revenue increase.

Real Estate: Fourteen condominiums were delivered to customers at Porto Cupecoy generating revenue of $7.3 million for the year ended December 31, 2011. Additionally, $0.6 million of income was earned from Porto Cupecoy rental operations for the year ended December 31, 2011. As at December 31, 2011, 111 units in total were sold, which includes ten new sales contracts signed in the year. There was no real estate revenue at Napasai, Koh Samui, Thailand in the year ended December 31, 2011. In the year ended December 31, 2010, 95 condominiums were delivered to customers at Porto Cupecoy generating revenue of $64.0 million.

Depreciation and amortization

Depreciation and amortization increased by $1.3 million, or 3%, from $44.7 million in the year ended December 31, 2010 to $46.0 million in the year ended December 31, 2011.

Cost of services

Cost of services decreased by $25.0 million, or 8%, from $302.5 million in the year ended December 31, 2010 to $277.5 million in the year ended December 31, 2011. In 2010, cost of services included charges of $64.0 million in respect of Porto Cupecoy, principally due to delivery of units under previously contracted sales. The equivalent expense in 2011 was $7.3 million. Excluding Porto Cupecoy, cost of services increased by $31.7 million. Exchange rate movements were responsible for $8.2 million of the total increase. Cost of services were 54% of revenue in the year ended December 31, 2010 and 47% of revenue in the year ended December 31, 2011. Excluding expenses of Porto Cupecoy, cost of services in 2011 was 47% of revenue, and 48% in 2010.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $40.8 million, or 22%, from $185.9 million in the year ended December 31, 2010 to $226.7 million in the year ended December 31, 2011. In 2010, a net credit of $1.3 million was also recorded following the successful litigation against acts of infringement in Europe of the trademark “Cipriani” by Cipriani (Grosvenor Street) Ltd., representing cash received in excess of costs incurred. In 2011, an expense of $2.5 million was recorded to settle litigation associated with the ‘21’ Club. Exchange rate movements were responsible for $5.4 million of the total increase. Selling, general and administrative expenses were 33% of revenue in the year ended December 31, 2010 and 39% of revenue in the year ended December 31, 2011.

Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment

Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment increased by $21.1 million from $38.0 million in the year ended December 31, 2010 to $59.1 million in the year ended December 31, 2011.

In the year ended December 31, 2011, OEH identified a non-cash real estate asset impairment charge of $36.9 million (2010 - $24.6 million) in respect of its Porto Cupecoy development project. OEH determined that the fair value less costs to sell of assets no longer exceeded the carrying value. The charge was computed using Level 3 inputs, namely the estimated selling prices and estimated selling costs based on OEH’s recent experience with sales of condominiums already completed. This impairment charge resulted from changes in future sales estimates as a result of current economic conditions and in light of recent sales experience after completion of the project. Additionally as part of the overall impairment calculation on Porto Cupecoy, property, plant and equipment at the development with a carrying value of $1.7 million was written down to a fair value of $Nil.

Also, in the year ended December 31, 2011, OEH identified a non-cash property, plant and equipment charge of $8.2 million in respect of Casa de Sierra Nevada, San Miguel de Allende, Mexico. The carrying value was written down to the hotel’s fair value.

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At December 31, 2011, OEH completed its annual goodwill impairment review. OEH identified and recorded goodwill impairments of $12.4 million within its continuing operations, comprising $7.9 million at Maroma Resort and Spa, $2.8 million at La Residencia, $1.2 million at Mount Nelson Hotel and $0.5 million at Westcliff Hotel. At December 31, 2010, OEH had not identified any goodwill impairments during its annual impairment review. However, during 2010, OEH did identify and record goodwill impairments of $5.9 million, comprising $5.4 million at La Samanna and $0.5 million at Napasai. Impairments were based on discounted future cash flows prepared as of the balance sheet date or as of the date of an impairment review when a triggering event existed.

In the year ended December 31, 2010, OEH identified and recorded a non-cash Internet sites impairment charge of $1.1 million in respect of its two Internet-based businesses. The carrying values of the intangible assets were written down to reflect the level of offers being received at the time they were considered held for sale. Subsequent to December 31, 2010, these assets were returned to continuing operations as all the criteria for held for sale treatment was subsequently not met.

Segment EBITDA

Year ended December 31,	2011 $’000		2010 $’000
Hotels and restaurants
Owned hotels - Europe	60,264		37,388
- North America	13,552		14,986
- Rest of World	35,147		33,399
Hotel management/part ownership interests	5,261		2,228
Restaurants	(67	)	2,476
	114,157		90,477
Tourist trains and cruises	20,948		17,407
Real estate	(6,403	)	(4,229	)
Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment	(59,120	)	(37,967	)
Impairment of property, plant and equipment in unconsolidated company	(626	)	—
Gain on disposal of assets	16,544		—
Central overheads	(37,095	)	(26,503	)
	48,405		39,185

The European hotels collectively reported a segment EBITDA of $60.3 million for the year ended December 31, 2011 compared to $37.4 million in the same period in 2010. Improvement was largely due to the Italian hotels. As a percentage of European hotels revenue, the European segment EBITDA margin increased from 22% in 2010 to 28% in 2011.

Segment EBITDA in the North American hotels region decreased by 9% from $15.0 million in the year ended December 31, 2010 to $13.6 million in the year ended December 31, 2011. As a percentage of North American hotels revenue, the North American segment EBITDA margin decreased from 15% in 2010 to 13% in 2011.

Segment EBITDA in the Rest of the World hotels region increased by 5% from $33.4 million in the year ended December 31, 2010 to $35.1 million in the year ended December 31, 2011. The segment EBITDA margin decreased from 22% for 2010 to 21% for 2011.

Segment EBITDA in restaurants decreased by $2.6 million from earnings of $2.5 million in the year ended December 31, 2010 to a loss of $0.1 million in the year ended December 31, 2011. The movement was due to a $2.5 million charge in 2011 related to settlement of employee litigation.

Segment EBITDA in tourist trains and cruises increased by 20% from $17.4 million in the year ended December 31, 2010 to $20.9 million in the year ended December 31, 2011. As a percentage of revenue from tourist trains and cruises, segment EBITDA margin was 28% in both 2011 and 2010.

Central overheads increased by $10.6 million, or 40%, from $26.5 million in the year ended December 31, 2010 to $37.1 million in the year ended December 31, 2011. The significant variances included compensation and performance-related employee incentives of $2.6 million (including bonuses for exceeding OEH’s 2011 budget), management restructuring, CEO search and other professional fees of $2.0 million, stock option expense of $1.2 million and premises and moving costs associated with the relocation of the London office of $0.9 million .In the year ended December 31, 2010, there were litigation and other one-time credits of $2.0 million. As a percentage of revenue,central overheads increased from 5% in 2010 to 6% in 2011.

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Losses from operations before net finance costs

Losses from operations decreased by $5.8 million from a loss of $10.0 million in the year ended December 31, 2010 to a loss of $4.2 million in the year ended December 31, 2011, due to the factors described above.

Net finance costs

Net finance costs increased by $17.3 million, or 61%, from $28.2 million for the year ended December 31, 2010 to $45.5 million for the year ended December 31, 2011. The year ended December 31, 2010 included a foreign exchange gain of $5.7 million compared to a foreign exchange loss of $4.2 million in the year ended December 31, 2011. Excluding these foreign exchange items, net interest expense increased by $7.4 million, or 22%, from $33.8 million in the year ended December 31, 2010 to $41.2 million in the year ended December 31, 2011. This increase in the 2011 period was primarily as a result of higher interest rates on debt refinanced in 2010, the write-off of deferred financing costs of $1.7 million at La Samanna and swap and loan termination costs of $3.5 million related to loan facilities in Brazil and Italy. Also, in the year ended December 31, 2010, interest was capitalized of $3.1 million, while $0.9 million was capitalized in the year ended December 31, 2011.

Provision for income taxes

The provision for income taxes decreased by $4.5 million, or 18%, from $24.7 million in 2010 to $20.2 million in 2011.

The Company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the income tax provision was attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax and also attributable to the relative amount of earnings or loss in those jurisdictions, the effect of valuation allowances, and uncertain tax positions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. Significant discrete items included a deferred tax benefit of $2.1 million arising in respect of foreign exchange gain/loss on timing differences, following movements in the exchange rate between the U.S. dollar and relevant local currencies compared to a tax charge of $1.3 million in 2010.

The provision for income taxes for 2011 included a deferred tax provision of $4.0 million in respect of valuation allowances due to a change in estimate concerning OEH’s ability to realize loss carryforwards in certain jurisdictions compared to $9.0 million provision in 2010, and included a tax benefit of $3.4 million to decrease OEH’s uncertain tax positions including related interest and penalties compared to a tax charge of $1.0 million in 2010.

Earnings from unconsolidated companies

Earnings from unconsolidated companies net of tax increased by $2.1 million, or 91%, from $2.3 million in the year ended December 31, 2010 to $4.4 million in the year ended December 31, 2011. Earnings from the Peru hotels joint venture increased by $2.1 million, as the hotels recovered from property damage and business interruption caused by floods in the first quarter of 2010. This was offset by a non-cash property, plant and equipment charge of $0.6 million in respect of Las Casitas del Colca, one of the hotels within the Peru hotels joint venture. The carrying value was written down to the hotel’s fair value based on the joint venture’s best estimates. The tax expense associated with earnings from unconsolidated companies was $2.2 million in 2010 and $2.3 million in 2011.

Losses from discontinued operations

The losses from discontinued operations in 2011 were $22.1 million, an increase of $20.1 million from the losses recognized in 2010 of $2.0 million.

Keswick Hall’s net loss for the year ended December 31, 2011 was $20.8 million, compared with a net loss of $3.8 million for the year ended December 31, 2010. In the year ended December 31, 2011, OEH identified and recorded a non-cash property, plant and equipment impairment charge of $23.9 million in respect of Keswick Hall. In the year ended December 31, 2010, OEH recorded a non-cash impairment charge of $1.6 million against the carrying value of the two model homes at Keswick Hall’s adjoining property development. The sale of Keswick Hall was completed in January 2012.

Bora Bora Lagoon Resort’s net loss for the year ended December 31, 2011 was $2.6 million, compared with net earnings of $1.2 million for the year ended December 31, 2010. In the year ended December 31, 2011, OEH identified and recorded a non-cash property, plant and equipment impairment charge of $2.2 million in respect of Bora Bora Lagoon Resort. The profit at Bora Bora Lagoon Resort for the year ended December 31, 2010 was primarily due to the settlement of outstanding insurance claims relating to cyclone damage sustained at the hotel in February 2010, resulting in a gain of $5.8 million in the year, partially offset by restructuring and inventory impairment charges of $2.6 million.

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Year Ended December 31, 2010 compared to Year Ended December 31, 2009

Operating information for OEH’s owned hotels for the years ended December 31, 2010 and 2009 is as follows:

Year ended December 31,	2010	2009
Average Daily Rate (in dollars)
Europe	637	702
North America	324	343
Rest of the world	331	293
Worldwide	406	409

Rooms Available (in thousands)
Europe	280	257
North America	249	253
Rest of the world	463	448
Worldwide	992	958

Rooms Sold (in thousands)
Europe	139	119
North America	160	139
Rest of the world	254	221
Worldwide	553	479

Occupancy (percentage)
Europe	50	46
North America	64	55
Rest of the world	55	49
Worldwide	56	50

RevPAR (in dollars)
Europe	317	325
North America	208	188
Rest of the world	182	145
Worldwide	226	205

			Change %
			Dollars		Local currency
Same Store RevPAR (in dollars)
Europe	317	319	(1	)%	2	%
North America	207	188	10	%	10	%
Rest of the world	188	147	28	%	22	%
Worldwide	227	204	11	%	11	%

The same store data exclude the following operations:

Grand Hotel Timeo		Hotel das Cataratas
Villa Sant’Andrea		Jimbaran Puri Bali
La Residencia		La Residence d’Angkor
Le Manoir aux Quat’Saisons

Overview

The net loss for the year ended December 31, 2010 was $62.6 million ($0.69 per common share) on revenue of $561.1 million, compared with net loss of $68.7 million ($1.01 per common share) on revenue of $440.6 million in the prior year.

OEH’s revenue in the year ended December 31, 2010 experienced growth following the global economic downturn in 2008 and 2009. The net loss in 2010 includes impairment of real estate assets, goodwill, and property, plant and equipment of $38.0 million and losses from discontinued operations of $2.0 million. Impairment of goodwill and losses from discontinued operations were $6.5 million and $49.8 million, respectively, in the year ended December 31, 2009. OEH’s remaining net loss excluding impairments and discontinued

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operations in the year ended December 31, 2010 was $22.6 million compared with a net loss of $12.4 million in the year ended December 31, 2009.

Revenue

Year ended December 31,	2010 $’000	2009 $’000
Hotels and restaurants
Owned hotels - Europe	169,772	155,830
- North America	96,724	89,748
- Rest of World	148,778	116,182
Hotel management/part ownership interests	4,300	4,616
Restaurants	15,809	14,436
	435,383	380,812
Tourist trains and cruises	61,740	58,084
Real estate	64,019	1,706
	561,142	440,602

Total revenue increased by $120.5 million, or 27%, from $440.6 million in 2009 to $561.1 million in 2010. Hotels and restaurants revenue increased by $54.6 million, or 14%, from $380.8 million in 2009 to $435.4 million in 2010. Revenue from tourist trains and cruises increased by $3.6 million, or 6%, from $58.1 million in 2009 to $61.7 million in 2010. The increase in revenue is generally due to the growth following the global economic downturn and the negative impact this had on the hotel industry in 2008 and 2009. Real estate revenue increased by $62.3 million, from $1.7 million in 2009 to $64.0 million in 2010, primarily from the recognition of sales of units from Porto Cupecoy.

Owned Hotels: The change in revenue at owned hotels is analyzed on a regional basis as follows:

Europe

Year ended December 31,	2010	2009
Average daily rate (in dollars)	637	702
Rooms available (in thousands)	280	257
Rooms sold (in thousands)	139	119
Occupancy (percentage)	50	46
RevPAR (in dollars)	317	325
Same store RevPAR (in dollars)	317	319

Revenue increased by $14.0 million, or 9%, from $155.8 million for the year ended December 31, 2009 to $169.8 million for the year ended December 31, 2010. Excluding the recently acquired hotels in Sicily (Grand Hotel Timeo and Villa Sant’Andrea), revenue increased by $3.0 million, or 2%, compared to the same period in the prior year. Excluding the new Sicilian hotels, the ADR fell by 6% from $702 in the year ended December 31, 2009 to $662 in the year ended December 31, 2010. Occupancy, however, increased from 46% in the year ended December 31, 2009 to 50% in the year ended December 31, 2010. On a same store basis, RevPAR in local currency increased by 2% for the year ended December 31, 2010, and decreased by 1% when measured in U.S. dollars.

Exchange rate movements caused revenue to decrease by $4.5 million in the year ended December 31, 2010 compared with the same period in 2009.

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North America

Year ended December 31,	2010	2009
Average daily rate (in dollars)	324	343
Rooms available (in thousands)	249	253
Rooms sold (in thousands)	160	139
Occupancy (percentage)	64	55
RevPAR (in dollars)	208	188
Same store RevPAR (in dollars)	207	188

Revenue increased by $7.0 million, or 8%, from $89.7 million in the year ended December 31, 2009 to $96.7 million in the year ended December 31, 2010. The ADR decreased by 6% from $343 in the year ended December 31, 2009 to $324 in the year ended December 31, 2010. Occupancy, however, increased from 55% in the year ended December 31, 2009 to 64% in the year ended December 31, 2010. On a same store basis, RevPAR increased from $188 in the year ended December 31, 2009 to $207 for the year ended December 31, 2010. This translated to an increase of 10 % in both local currency and U.S. dollars.

Rest of the World

Year ended December 31,	2010	2009
Average daily rate (in dollars)	331	293
Rooms available (in thousands)	463	448
Rooms sold (in thousands)	254	221
Occupancy (percentage)	55	49
RevPAR (in dollars)	182	145
Same store RevPAR (in dollars)	188	147

Revenue increased by $32.6 million, or 28%, from $116.2 million in the year ended December 31, 2009 to $148.8 million in the year ended December 31, 2010. Exchange rate movements across the region were responsible for $16.1 million of the revenue increase.

Revenue at OEH’s hotels in South America collectively increased by $18.3 million, or 33%, from $55.9 million in the year ended December 31, 2009 to $74.2 million in the year ended December 31, 2010. In the year, Copacabana Palace Hotel had revenue increase of $11.8 million, or 28%, primarily from increases in occupancy, ADR and favorable exchange rate movements. Exchange rate movements in South America were responsible for $8.1 million of the revenue increase.

Revenue at OEH’s six Asian hotels collectively increased by $4.2 million, or 23%, from $18.3 million in the year ended December 31, 2009 to $22.5 million in the year ended December 31, 2010. Exchange rate movements across the region were responsible for $1.6 million of the revenue increase. Same store occupancy for the year increased by 9%, from 47% in the year ended December 31, 2009 to 56% for the year ended December 31, 2010. Same store ADR in U.S. dollars increased 3% from $285 in the year ended December 31, 2009 to $294 for the year ended December 31, 2010. This translated into an increase in same store RevPAR in U.S. dollars of $29, or 21%, from $135 in the year ended December 31, 2009 to $164 for the year ended December 31, 2010.

Southern Africa revenue increased by $7.4 million, or 24%, from $30.4 million in the year ended December 31, 2009 to $37.8 million in the year ended December 31, 2010. Of the increase in revenue, $4.3 million was due to exchange rate movements on the translation of the South African rand and Botswana pula to U.S. dollars. The revenue increase was largely due to the World Cup tournament which was hosted by South Africa in 2010 and strong corporate business at the Westcliff Hotel. Same store RevPAR in U.S. dollars for the year ended December 31, 2010 increased 32% from $118 to $156 compared to the same period in 2009, and 17% from $133 in the year ended December 31, 2009 to $156 for the year ended December 31, 2010 when measured in local currency.

Revenue at OEH’s Australian hotel increased by $2.8 million, or 24%, to $14.3 million in the year ended December 31, 2010; 75% of this increase, or $2.1 million, was due to the strengthening of the Australian dollar against the U.S. dollar.

The ADR for the Rest of the World region on a same store basis in U.S. dollars increased from $300 in the year ended December 31, 2009 to $342 for the year ended December 31, 2010. Same store occupancy also increased from 49% to 55%, which resulted in an increase in RevPAR on a same store basis in U.S. dollars of 28% from $147 in the year ended December 31, 2009 to $188 for the year ended December 31, 2010, and 22% when measured in local currency.

Hotel Management and Part-Ownership Interests: Revenue decreased by $0.3 million, or 7%, from $4.6 million in the year ended December 31, 2009 to $4.3 million in the year ended December 31, 2010, primarily due to lower management fees from the managed hotels in Peru.

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Restaurants: Revenue increased by $1.4 million, or 10%, from $14.4 million in the year ended December 31, 2009 to $15.8 million in the year ended December 31, 2010, primarily due to an increase in the number of covers being served at ‘21’ Club.

Trains and Cruises: Revenue increased by $3.6 million, or 6%, from $58.1 million in the year ended December 31, 2009 to $61.7 million in the year ended December 31, 2010. This increase was primarily due to the Road to Mandalay river cruise ship returning to operation following repairs to damage from a cyclone in Myanmar in May 2008 when the ship was taken out of service. Road to Mandalay contributed $5.1 million in the year ended December 31, 2010, compared to $1.8 million for the same period in 2009. Management fee revenue from Peru Rail decreased by $1.0 million, or 32%, from $3.1 million in the year ended December 31, 2009 to $2.1 million in the year ended December 31, 2010. This was primarily as a result of the floods in January 2010, which caused damage to the rail tracks and disrupted rail services from the end of January to July 2010. Revenue generated from operations increased by $4.4 million, which was offset by exchange rate movements across the segment of $0.7 million.

Real Estate: Ninety-five condominiums were delivered to customers at Porto Cupecoy generating revenue of $64.0 million for the year ended December 31, 2010. As at December 31, 2010, 103 units in total were sold, which includes 18 new sales contracts signed in the year, of which three were exchanged for land adjacent to La Samanna. There was no real estate revenue at Keswick Hall, Virginia, or Napasai, Koh Samui, Thailand in the year ended December 31, 2010. In the year ended December 31, 2009, Napasai sold two villas worth $1.7 million.

Depreciation and amortization

Depreciation and amortization increased by $5.7 million, or 15%, from $39.0 million in the year ended December 31, 2009 to $44.7 million in the year ended December 31, 2010. The increase in depreciation included the addition of new hotels in Sicily, the capital improvements at hotels in Brazil and Russia and additional depreciation after capital expenditures on all owned assets over the prior 12 months.

Cost of services

Cost of services increased by $89.1 million, or 42%, from $213.4 million in the year ended December 31, 2009 to $302.5 million in the year ended December 31, 2010. Cost of services included charges of $64.0 million in respect of Porto Cupecoy, principally due to delivery of units under previously contracted sales, and $8.0 million in respect of the recently acquired Sicilian hotels. There were no equivalent charges in 2009. Excluding Porto Cupecoy and the Sicilian hotels, cost of services increased by $17.1 million. Exchange rate movements were responsible for $3.6 million of the total increase. Cost of services were 48% of revenue in the year ended December 31, 2009 and 54% of revenue in the year ended December 31, 2010. Excluding Porto Cupecoy and the Sicilian hotels, cost of services in 2010 was 47% of revenue.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $25.5 million, or 16%, from $160.4 million in the year ended December 31, 2009 to $185.9 million in the year ended December 31, 2010. The 2010 expense included a charge of $5.5 million in respect of the recently acquired Sicilian hotels. There was no equivalent charge in 2009. A net credit of $1.3 million was also recorded following the successful litigation against acts of infringement in Europe of the trademark “Cipriani” by Cipriani (Grosvenor Street) Ltd., representing cash received in excess of costs incurred. Exchange rate movements were responsible for $3.1 million of the total increase. Selling, general and administrative expenses were 36% of revenue in the year ended December 31, 2009 and 33% of revenue in the year ended December 31, 2010. Excluding the two Sicilian hotels, selling, general and administrative expenses in 2010 were 33% of revenue.

Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment

Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment increased by $31.5 million from $6.5 million in the year ended December 31, 2009 to $38.0 million in the year ended December 31, 2010.

In the year ended December 31, 2010, OEH identified a non-cash real estate asset impairment charge of $24.6 million in respect of its Porto Cupecoy development project. OEH determined that the fair value less costs to sell of the assets no longer exceeded the carrying value. The charge was computed using Level 3 inputs, namely the estimated selling prices and estimated selling costs based on OEH’s recent experience with sales of condominiums already completed. This impairment charge resulted from, primarily, changes in future sales estimates as a result of current economic conditions and in light of recent sales experience after completion of the project, a change in the estimate of the project’s estimated costs to complete the entire development, and the reclassification of the marina and commercial property units (as such assets were previously held at cost less depreciation).

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In the year ended December 31, 2010, OEH identified and recorded a non-cash impairment charge of $1.1 million in respect of its two Internet-based subsidiaries. The carrying values of the intangible assets were written down to reflect the level of offers being received at the time they were considered held for sale. Subsequent to December 31, 2010, these assets were returned to continuing operations as all the criteria for held for sale treatment not subsequently met.

In the year ended December 21, 2010, OEH was seeking co-investors in its New York hotel development project or, subject to consent of the New York Public Library, to assign its purchase and development agreements with the Library relating to this project to a third-party developer and be reimbursed for OEH’s remaining investment in the project. Based on terms under negotiation with interested parties in 2010, OEH recorded a non-cash impairment charge of $6.4 million at December 31, 2010 on land and buildings for the capitalized pre-development expenses incurred in the project.

During the year ended December 31, 2010, OEH identified non-cash goodwill impairments of $5.4 million at La Samanna and $0.5 million at Napasai within its continuing operations. OEH determined these impairments were triggered in each case due to expected reductions in future profits at the hotels that required a reassessment.

During the year ended December 31, 2009, OEH had identified non-cash goodwill impairments of $6.3 million at Miraflores Park Hotel, Casa de Sierra Nevada and Observatory Hotel. During the same year, an additional non-cash impairment of $0.2 million was recorded on the trade name of Casa de Sierra Nevada.

Segment EBITDA

Year ended December 31,	2010 $’000		2009 $’000
Hotels and restaurants
Owned hotels - Europe	37,388		38,595
- North America	14,986		14,491
- Rest of World	33,399		25,513
Hotel management/part ownership interests	2,228		2,995
Restaurants	2,476		1,757
	90,477		83,351
Tourist trains and cruises	17,407		20,571
Real estate	(4,229	)	(2,511	)
Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment	(37,967	)	(6,500	)
Gain on disposal of assets	—		1,385
Central overheads	(26,503	)	(25,870	)
	39,185		70,426

The European hotels collectively reported a segment EBITDA of $37.4 million for the year ended December 31, 2010 compared to $38.6 million in the same period in 2009. Excluding the two Sicilian hotels, EBITDA for 2010 was $40.9 million. As a percentage of European hotels revenue, the European segment EBITDA margin fell from 25% in 2009 to 22% in 2010. Excluding the two Sicilian hotels, the 2010 EBITDA margin was 26%.

Segment EBITDA in the North American hotels region increased by 3% from $14.5 million in the year ended December 31, 2009 to $15.0 million in the year ended December 31, 2010. As a percentage of North American hotels revenue, the North American segment EBITDA margin decreased from 16% in 2009 to 15% in 2010.

Segment EBITDA in the Rest of the World hotels region increased by 31% from $25.5 million in the year ended December 31, 2009 to $33.4 million in the year ended December 31, 2010. The segment EBITDA margin remained constant at 22% for both 2009 and 2010.

Segment EBITDA in tourist trains and cruises decreased by 16% from $20.6 million in the year ended December 31, 2009 to $17.4 million in the year ended December 31, 2010. As a percentage of revenue from tourist trains and cruises, segment EBITDA margin was 28% in 2010 and 35% in 2009.

(Losses)/earnings from operations before net finance costs

Earnings from operations decreased by $32.7 million from a profit of $22.7 million in the year ended December 31, 2009 to a loss of $10.0 million in the year ended December 31, 2010, due to the factors described above.

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Net finance costs

Net finance costs decreased by $3.9 million, or 12%, from $32.1 million for the year ended December 31, 2009 to $28.2 million for the year ended December 31, 2010. The year ended December 31, 2009 included a foreign exchange loss of $1.1 million compared to a foreign exchange gain of $5.7 million in the year ended December 31, 2010. Excluding these foreign exchange items, net interest expense increased by $2.7 million, or 9%, from $31.1 million in the year ended December 31, 2009 to $33.8 million in the year ended December 31, 2010, primarily as a result of expensing previously deferred financing costs which was triggered by the debt refinancing and the settlement of derivative instruments in connection with refinancing of long-term debt in the year ended December 31, 2010 compared to the prior year.

Provision for income taxes

The provision for income taxes increased by $11.0 million, or 80%, from $13.7 million in 2009 to $24.7 million in 2010.

The Company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the income tax provision was attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax and also attributable to the relative amount of earnings or loss in those jurisdictions, the effect of valuation allowances, and uncertain tax positions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. Significant discrete items included a deferred tax charge of $1.3 million arising in respect of foreign exchange gain/loss on timing differences, following movements in the exchange rate between the U.S. dollar and relevant local currencies.

The provision for income taxes for 2010 included a deferred tax provision of $9.0 million in respect of valuation allowances due to a change in estimate concerning OEH’s ability to realize loss carryforwards in certain jurisdictions compared to $3.1 million provision in 2009, and included a tax charge of $1.0 million to increase OEH’s uncertain tax positions including related interest and penalties.

The provision for income taxes of $13.1 million for 2009 included a tax credit of $4.3 million to reduce OEH’s uncertain tax provisions including related interest and penalties.

Earnings from unconsolidated companies

Earnings from unconsolidated companies net of tax decreased by $1.9 million, or 45%, from $4.2 million in the year ended December 31, 2009 to $2.3 million in the year ended December 31, 2010. This includes insurance income of $0.8 million from the Peru hotels joint venture, which was impacted by property damage and business interruption caused by floods during the first quarter of 2010. The tax expense associated with earnings from unconsolidated companies was $4.5 million in 2009 and $2.2 million in 2010.

Losses from discontinued operations

Losses from discontinued operations in 2010 were $2.0 million, a decrease of $47.8 million from the loss recognized in 2009 of $49.8 million.

During 2010, net gains of $6.7 million were realized on discontinued operations sold by OEH. In 2009, net gains of $3.7 million were realized on the sale of discontinued operations.

Included in the earnings for 2010 was an impairment charge of $6.0 million recognized against the fixed assets of Hôtel de la Cité to reflect the fair value of offers received for the purchase of the hotel. In November 2010, OEH decided to sell the hotel as an asset non-core to its future business. This was offset by the $7.2 million gain on sale of Lilianfels Blue Mountains recorded in the year.

In addition in 2010, OEH recorded an impairment charge against the carrying value of the two model homes on the residential home sites next to Keswick Hall. This non-cash impairment charge of $1.6 million resulted from, primarily, a recent offer on one of the two model homes that did not exceed the carrying value of those assets

Included in the loss for 2009 were impairment charges recognized against the goodwill and fixed assets of Bora Bora Lagoon Resort, Windsor Court Hotel, La Cabana restaurant and Lilianfels Blue Mountains.

In May 2010, OEH completed the sale of La Cabana restaurant for $2.7 million, which OEH decided to sell principally due to the restaurant’s underperformance and the small size of this activity.

In January 2010, OEH completed the sale of Lilianfels Blue Mountains for $18.7 million, as OEH considered this hotel to be in a non-core market.

In October 2009, OEH sold the Windsor Court Hotel for $44.3 million. Management did not believe that New Orleans was a prime leisure destination for OEH’s customers. The hotel’s performance had been impacted by new local competition and significant capital investment in the hotel was needed.

In June 2009, OEH sold Lapa Palace as management had concluded that the Lisbon market was not a prime leisure destination and lacked sufficient appeal for OEH’s leisure audience. In addition, management did not see further opportunities to develop and grow business in Lisbon. This sale was completed for $26.3 million.

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Liquidity and Capital Resources

Working Capital

OEH had cash and cash equivalents of $90.1 million at December 31, 2011, $60.0 million less than the $150.1 million at December 31, 2010. In addition, OEH had restricted cash of $13.2 million (2010 - $8.4 million). At December 31, 2011, there were undrawn amounts available to OEH under committed short-term lines of credit of $4.4 million (2010 - $12.1 million) and undrawn amounts available to OEH under secured revolving credit facilities of $Nil (2010 - $12.0 million), bringing total cash availability at December 31, 2011 to $94.5 million, excluding the restricted cash of $13.2 million.

Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital surplus of $65.9 million at December 31, 2011, a decrease of $100.3 million from a working capital balance of $166.2 million at December 31, 2010. The decrease in the working capital surplus in 2011 resulted from an increase in December 31, 2010 asset balances due to the presentation of discontinued operations in the year. In addition, cash and cash equivalents have decreased to $90.1 million at December 31, 2011 from $150.1 million at December 31, 2010 which included proceeds from two equity offerings in 2010. See the discussion under “Liquidity” below.

OEH believes that its present access to credit and capital markets, together with cash OEH expects to generate from operations and other sources, remains adequate to meet its liquidity requirements, finance its growth plans, meet debt service and fulfill other cash requirements.

Cash Flow

Operating Activities. Net cash provided by operating activities increased by $6.8 million to a net surplus of $45.7 million for the year ended December 31, 2011, from a net surplus from operating activities of $38.9 million for the year ended December 31, 2010. The increase in operating cash flows was a result of strengthening operational performance across the OEH businesses through 2011, as well as the proceeds of $16.4 million from the sale of excess development rights of the ‘21’ Club restaurant. Net cash provided by discontinued operations increased by $9.3 million to $0.8 million in 2011 from $8.5 million net cash used in discontinued operations in 2010. This was as a result of assets transferred into discontinued operations in the year, as OEH continues to dispose of non-core assets.

Cash flow from operating activities is generated primarily from operating hotels, restaurants, tourist trains and cruises, sales of condominium units and distributions from joint ventures. These are the principal sources of operating cash which fund OEH’s operating expenses, interest and principal payments, capital expenditures, and taxes. OEH believes that cash from operations, additional borrowings and other sources will be adequate to meet all cash requirements from operating expenses, principal and interest payments on debt and capital expenditure.

Investing Activities. Cash used in investing activities was $12.8 million for the year ended December 31, 2011, compared to net cash used of $77.7 million for the year ended December 31, 2010, a decrease of $48.4 million. In 2010, $64.9 million, net of cash acquired, was used for the acquisition of the Grand Hotel Timeo and Villa Sant’Andrea. There were no acquisitions in 2011. Capital expenditure of $60.6 million in 2011 included $2.0 million for the rebuilding of Hotel das Cataratas, $9.8 million for El Encanto construction, $1.4 million at Le Manoir aux Quat’Saisons, $1.9 million at Mount Nelson Hotel, $5.0 million at the Copacabana Palace, $2.2 million at the Grand Hotel Europe and $4.1 million at the Sicilian properties. In addition, $2.5 million was spent investing in the Venice Simplon-Orient-Express. Disposals of non-core assets, Hôtel de la Cité, resulted in net proceeds of $12.1 million being realized within net cash provided by investing activities from discontinued operations. A number of non-core assets not considered key to OEH’s portfolio of unique, high valued properties have been identified, and management is seeking to sell these in a measured timescale with the primary purposes of de-leveraging OEH’s balance sheet and providing capital for refurbishment and growth opportunities. Net increase in restricted cash was $4.8 million for 2011 (2010 - net decrease of $11.0 million). At December 31, 2011, the Porto Cupecoy escrow account balance was $2.9 million (2010 - $2.0 million).

Financing Activities. Net cash used by financing activities for the year ended December 31, 2011 was $92.6 million compared to cash provided by financing activities of $116.8 million for the year ended December 31, 2010, a decrease of $209.4 million. Proceeds from issuances of common shares, net of issuance costs, in 2010 resulted in net proceeds of $248.1 million. The proceeds of these share issuances are being used primarily for general corporate purposes, including working capital, debt service and capital investment. As a result of the refinancing program undertaken by OEH, there was a net repayment of debt of $91.4 million in 2011.

During the year ended December 31, 2011, two loan facilities were refinanced and accounted for as an extinguishment of debt. One loan totaling $100.0 million (of which $88.0 million was drawn) was refinanced with a new loan of $115.0 million. The new loan has two tranches, one of $100.0 million which was used to repay the previous debt, and the second tranche of $15.0 million which will be used to fund the renovations planned for 2012 at the Copacabana Palace Hotel. The loan matures in three years and has an interest rate of LIBOR plus 3.15% per annum. Approximately 70% of the drawn loan has been swapped from LIBOR to a fixed interest rate of 0.81%. The second loan of €18.0 million ($26.1 million) refinanced a maturing loan of €30.0 million ($43.5 million) secured on La Residencia. The new loan, which matures in three years, has an interest rate of EURIBOR plus 2.75% per annum. Approximately 50% of the loan has been swapped from EURIBOR to a fixed interest rate of 2.29%.

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Capital Commitments

There were $15.4 million of capital commitments outstanding at December 31, 2011 related to investments in owned hotels. Outstanding contracts for project-related costs on the Porto Cupecoy development amounted to $0.5 million at December 31, 2011.

At the time of purchase, OEH agreed to pay the vendor of the two Sicilian hotels up to a further €5,000,000 (equivalent to $7,064,000 at January 22, 2010) if, by 2015, additional rooms are constructed at Grand Hotel Timeo and certain required permits are granted to expand and add a swimming pool to Villa Sant’Andrea. The fair value of the contingent additional consideration at January 22, 2010 was €4,000,000 ($5,651,000) (determined using an income approach) based on an analysis of the likelihood of the conditions for payment being met. In February 2011, OEH paid the vendor €1,500,000 of the contingent liability as the appropriate permits to add a swimming pool to Villa Sant’Andrea were granted.

Indebtedness

At December 31, 2011, OEH had $543.9 million of consolidated debt, including the current portion and excluding debt held by consolidated variable interest entities, which is largely collateralized by OEH assets with a number of commercial bank lenders and which is payable over periods of one to 21 years with a weighted average interest rate of 4.32%. See Note 11 to the Financial Statements regarding the maturity of long-term debt.

Debt of consolidated variable interest entities at December 31, 2011 comprised $90.5 million, including the current portion, of debt obligations of Charleston Center LLC, owner of the Charleston Place Hotel in which OEH has a 19.9% equity investment. Since December 31, 2008, OEH considered itself the primary beneficiary of this variable interest entity. OEH was therefore required to consolidate the hotel’s assets and liabilities effective December 31, 2008. This debt is non-recourse to the members of Charleston Center LLC, including OEH, and therefore the hotel’s liabilities do not constitute obligations of OEH.

As noted under “Liquidity” below, many OEH financing agreements contain covenants that include limits on the property-owning subsidiary’s ability to raise additional debt collateralized by these properties, limits on liens on the properties and limits on mergers and asset sales and, in some cases, financial covenants such as a minimum interest coverage ratio and debt service coverage ratio and a maximum loan-to-value ratio. The Company guarantees some of these facilities which contain financial covenants measured on a consolidated basis including a minimum consolidated net worth and a minimum consolidated interest coverage ratio. OEH was in full compliance with all financial covenants that applied to the Company and its consolidated subsidiaries at December 31, 2011, except as noted below under “Liquidity”.

Including debt of consolidated variable entities, approximately 50% of the outstanding principal was drawn in European euros at December 31, 2011, and the balance primarily drawn in U.S. dollars. At December 31, 2011, 47% of borrowings of OEH were in floating interest rates after hedges are taken into account.

Liquidity

During the 12 months ending December 31, 2012, OEH will have approximately $78.8 million of scheduled debt repayments including capital lease payments. OEH is in negotiation to refinance approximately $24.3 million of debt falling due in 2012.

Additionally, OEH’s capital commitments at December 31, 2011 amounted to $15.4 million. OEH expects to incur costs of a further $0.8 million to complete its Porto Cupecoy development, funded by sales proceeds as units are transferred to purchasers.

OEH expects to fund its working capital requirements, debt service and capital expenditure commitments for the foreseeable future from cash resources, operating cash flow, available committed borrowing facilities, issuing new debt or equity securities, rescheduling loan repayments or capital commitments, and disposing of non-core assets and developed real estate. During 2010, for example, OEH refinanced bank loans having total principal amounts outstanding of $374.4 million (at December 31, 2010 exchange rates) and publicly offered and sold in the United States new class A common shares of the Company raising total net proceeds of $248.1 million.

During 2011, two loans totaling $131.5 million were refinanced with two new loans totaling $126.1 million, both of which mature in three years. The $5.4 million repayment was funded out of cash resources. In addition, OEH signed a new $45.0 million loan facility providing partial funding for the completion of El Encanto, scheduled to reopen in 2012 or early 2013. The loan has a term of three years, with two one-year extensions. Also in 2011, a cumulative gain of $16.5 million was recorded on the assignment of purchase and development agreements relating to OEH’s proposed New York hotel project in April 2011, along with the exercise of a call option in December 2011 by the assignee for excess development rights over the ‘21’ Club restaurant. Also in 2011, OEH completed the sale of the property and operations of Hôtel de la Cité in Carcassonne, France for a cash consideration of €9.0 million ($12.9 million). On January 23, 2012, OEH completed the cash sale of Keswick Hall, Virginia, for $22.0 million.

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In the current financing environment, OEH may be unable to refinance the full amount of its maturing loan facilities and the pricing of new debt may be higher than the refinanced facilities. Similarly in the current economic environment, OEH may be unable to dispose of non-core assets and its developed real estate at prices or within the time frame OEH currently expects. Occurrence of any of these events would impact adversely OEH’s forecast liquidity.

OEH has 17 loan facilities with commercial banks. There are three facilities which have outstanding principal amounts in excess of $50.0 million and nine with outstanding principal amounts greater than $10.0 million but less than $50.0 million, and the remainder has less than $10.0 million outstanding per facility. Most of these loan facilities relate to specific hotel or other properties and are secured by a mortgage on the particular property. In most cases, the Company is either the borrower or the subsidiary owning the property is the borrower and the loan is guaranteed by the Company.

At December 31, 2011, one of OEH’s subsidiaries had not complied with certain financial covenants in a $2.9 million loan facility. This non-compliance is expected to be rectified in the first half of 2012. In addition, three unconsolidated joint venture companies were out of compliance as follows:

· the unconsolidated Peru hotels joint venture company, in which OEH has a 50% interest, was out of compliance at December 31, 2011 with the debt-service-coverage ratio in a loan facility of the joint venture amounting to $20.0 million. Subsequent to December 31, 2011, waivers of this non-compliance were received from the lenders. This loan is non-recourse to and not credit-supported by OEH while it remains a 50% owner of the joint venture;

· the unconsolidated Peru rail joint venture in which OEH has a 50% interest was out of compliance with a leverage covenant in a loan of $9.1 million and a debt-service-coverage ratio in a second loan of $9.1 million. One loan of $9.1 million is guaranteed by the Company. The other $9.1 million loan is non-recourse to and not credit-supported by OEH while it remains a 50% owner of the joint venture. Discussions with the banks are ongoing to bring the joint venture back into compliance; and

· the Hotel Ritz, Madrid, 50% owned by OEH, was out of compliance with the debt-service-coverage ratio in its first mortgage loan facility amounting to $88.9 million. Subsequent to December 31, 2011, a six-month waiver of the non-compliance was received from the lender. Although the loan is otherwise non-recourse to and not credit-supported by OEH or its joint venture partner in the hotel, they provided separate partial guarantees of €7.5 million ($9.7 million) each, as of December 31, 2011, while discussions continue with the lender as to how to bring the hotel permanently into compliance.

OEH recognizes that in the current economic environment there is a risk that a property-specific loan covenant could be breached. The amount of OEH’s forecast covenant headroom varies among its loan facilities. OEH regularly prepares cash flow projections which are used to forecast covenant compliance under all loan facilities. If there is any likelihood of potential non-compliance with a covenant, OEH takes proactive steps to meet with the lending bank to seek an amendment to, or a waiver of, the financial covenant at risk. Often obtaining such an amendment or waiver results in an increase in the borrowing costs. If a covenant breach occurred in a material loan facility and OEH was unable to agree with its bankers how the particular covenant should be amended or how the breach could be cured, OEH’s liquidity would be adversely affected.

Many of OEH’s bank loan facilities include cross-default provisions under which a failure to pay principal or interest by the borrower or guarantor under other indebtedness in excess of a specified threshold amount would cause a default under the facilities. If a covenant breach occurred in a material loan facility and OEH was unable to agree with its bankers how the particular financial covenant should be amended or how the breach could be cured, OEH’s liquidity would be adversely affected. Under OEH’s largest loan facility, the specified cross-default threshold amount is $25.0 million.

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Contractual Obligations Summary

The following table summarizes OEH’s material known contractual obligations in 2012 and later years as of December 31, 2011, excluding accounts payable and accrued liabilities:

Year ended December 31,	2012 $’000	2013-2014 $’000	2015-2016 $’000	Thereafter $’000	Total $’000

Debt	76,963	259,485	179,109	23,173	538,730
Capital leases	415	697	648	24,023	25,783
Debt of consolidated variable interest entities	1,784	3,600	74,047	11,098	90,529
Operating leases	8,857	17,693	16,987	88,088	131,625
Capital commitments	15,432	—	—	—	15,432
Interest payments	27,067	38,463	21,178	6,154	92,862
Pension obligations	418	912	1,050	3,250	5,630
Porto Cupecoy project	499	—	—	—	499

	131,435

			Page

PART I	Item 1	Business	4
	Item 1A	Risk Factors	14
	Item 1B	Unresolved Staff Comments	26
	Item 2	Properties	26
	Item 3	Legal Proceedings	26
	Item 4	Mine Safety Disclosures	26

PART II	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
	Item 6	Selected Financial Data	27
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	52
	Item 8	Financial Statements and Supplementary Data	53
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	111
	Item 9A	Controls and Procedures	111
	Item 9B	Other Information	113

PART III	Item 10	Directors, Executive Officers and Corporate Governance	114
	Item 11	Executive Compensation	118
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120
	Item 13	Certain Relationships and Related Transactions, and Director Independence	124
	Item 14	Principal Accountant Fees and Services	125

PART IV	Item 15	Exhibits and Financial Statement Schedules	126
		Signatures	127
		Exhibit Index	128