Property, plant and equipment

9 Months Ended

Sep. 30, 2011

Property, plant and equipment

Property, plant and equipment

7.             Property, plant and equipment

The major classes of property, plant and equipment are as follows:

	September 30, 2011		December 31, 2010
	$’000		$’000
Land and buildings	1,090,845		1,138,139
Machinery and equipment	197,614		191,664
Fixtures, fittings and office equipment	200,101		197,112
River cruise ship and canal boats	18,137		19,166
	1,506,697		1,546,081
Less: accumulated depreciation	(301,354	)	(277,244	)
	1,205,343		1,268,837

The major classes of assets under capital leases included above are as follows:

	September 30, 2011		December 31, 2010
	$’000		$’000
Freehold and leased land and buildings	4,412		4,614
Machinery and equipment	943		940
Fixtures, fittings and office equipment	430		446
	5,785		6,000
Less: accumulated depreciation	(1,539	)	(1,492	)
	4,246		4,508

The depreciation charge on property, plant and equipment was $11,732,000 for the three months ended September 30, 2011 (2010 - $11,469,000).  The depreciation charge on property, plant and equipment was $34,613,000 for the nine months ended September 30, 2011 (2010 - $33,819,000).

During the three months ended September 30, 2011, OEH identified a non-cash property, plant and equipment impairment charge of $23,934,000 in respect of Keswick Hall, Viriginia, USA.  The carrying value was written down to the hotel’s fair value.

Also during the three months ended September 30, 2011, OEH identified a non-cash property, plant and equipment impairment charge of $2,308,000 in respect of Casa de Sierra Nevada, San Miguel de Allende, Mexico.  The carrying value was written down to the hotel’s fair value.

As part of the overall impairment charge at Porto Cupecoy during the three months ended September 30, 2011, OEH identified a non-cash property, plant and equipment impairment charge of $1,677,000 in respect of this property development. See Note 5

As of September 30, 2011, the property, plant and equipment of Charleston Center LLC, a consolidated VIE, of $186,969,000 (December 31, 2010 - $188,502,000) is separately disclosed on the balance sheet. See Note 3.

For the three and nine months ended September 30, 2011, OEH capitalized interest in the amount of $Nil. For the year ended December 31, 2010, capitalized interest amounted to $3,130,000. All amounts capitalized were recorded in property, plant and equipment.

New York hotel project

On March 18, 2011, OEH agreed to assign its purchase and development agreements previously made with the New York Public Library relating to the site of the Donnell branch of the Library adjacent to OEH’s ‘21’ Club restaurant to an affiliate (the “Assignee”) of Tribeca Associates, LLC and Starwood Capital Group Global LLC.  The Assignee agreed to assume all the terms and obligations of the contracts and to reimburse all previous deposit payments made by OEH and a $2,000,000 contribution toward fees incurred by OEH.  The transaction closed on April 7, 2011, resulting in gross proceeds received by OEH of $25,500,000. This transaction resulted in a gain, net of costs, of $502,000 in the nine months ended September 30, 2011.  Based on terms under negotiation with interested parties in 2010, OEH recorded a non-cash impairment charge of $6,386,000 at December 31, 2010 on land and buildings for the capitalized pre-development expenses incurred in the period.

As part of this assignment, OEH entered into an option agreement which grants the Assignee a “call” option originally expiring July 19, 2011 to acquire 45,000 square feet of the approximately 52,000 square feet of excess development rights held by ‘21’ Club at a price to the Assignee of $13,500,000 and, alternatively, a “put” option expiring the same date to sell to OEH the excess development rights (approximately 65,000 square feet) of the Donnell branch site at a price to OEH of $16,000,000.  The option agreement expiration date has been extended several times, most recently to November 11, 2011.  The extensions include a further call option on approximately 4,800 additional square feet of development rights at a price to the Assignee of $2,850,000.  The closing date of the call options would be not later than December 31, 2011, and the closing date of the put option would be up to one year after its exercise and OEH may elect to defer payment to the Assignee up to 24 months after the closing date.  The parties anticipate that the Assignee will exercise its call options totaling $16,350,000 on the ‘21’ Club rights, but that purchase depends on negotiations with a third party not involving OEH.  If the call options are exercised, a portion of the proceeds would be used to repay in part the existing loan facility secured by ‘21’ Club, and any gain realized by OEH is expected to be taxable in the US.