Investments in unconsolidated companies

Investments in unconsolidated companies represent equity interests of 50% or less and in which OEH exerts significant influence, but does not have effective control of these unconsolidated companies and, therefore, accounts for these investments using the equity method. These investments include the 50% ownership in rail and hotel joint venture operations in Peru and in Hotel Ritz, Madrid, and the 19.9% ownership in Eastern and Oriental Express Ltd. The Buzios land joint venture is 50% owned and accounted for at cost.

OEH’s Peru hotel joint venture has completed the sale of Las Casitas del Colca for $5,590,000 on April 17, 2012. Additionally, on June 15, 2012, the Peru hotel joint venture opened Palacio Nazarenas, a 55-key hotel in Cuzco, Peru.

In June 2007, OEH acquired 50% of a company holding real estate in Buzios, Brazil for a cash consideration of $5,000,000. OEH planned to build a hotel and villas on the acquired land and to purchase the remaining 50% of the company when the building permits were obtained from the local authorities. In February 2009, the Municipality of Buzios commenced a process for the compulsory purchase of the land by the municipality in exchange for a payment of fair compensation to the owners. In April 2011, the State of Rio de Janeiro declared the land an area of public interest, with the intention that it will become part of a State Environmental Park which is being created in the area. The compulsory purchase of the land will therefore be carried out by the State of Rio de Janeiro. OEH is currently in negotiation to recover its investment in the project based on the State’s decision to purchase the land.

Summarized financial data for OEH’s unconsolidated companies are as follows:



	2012	2011
December 31,	$’000	$’000

Current assets	75,339	70,536

Property, plant and equipment, net	354,640	344,576
Other assets	3,806	5,536
Non-current assets	358,446	350,112

Total assets	433,785	420,648

Current liabilities	165,413	195,529

Long-term debt	45,985	17,346
Other liabilities	115,763	99,643
Non-current liabilities	161,748	116,989

Total shareholders’ equity	106,624	108,130

Total liabilities and shareholders’ equity	433,785	420,648



	2012	2011	2010
Year ended December 31,	$’000	$’000	$’000

Revenue	157,270	145,254	113,953

Earnings from operations before finance costs	27,463	24,868	19,602

Net earnings	4,181	7,694	3,977

Included in unconsolidated companies are OEH’s hotel and rail joint ventures in Peru, under which OEH and the other 50% participant must contribute equally additional equity needed for the businesses. If the other participant does not meet this obligation, OEH has the right to dilute the other participant and obtain a majority equity interest in the affected joint venture company. OEH also has rights to purchase the other participant’s interests, which rights are exercisable in limited circumstances such as the other participant’s bankruptcy.

OEH’s investments in and loans and advances to unconsolidated companies amounted to $58,924,000 at December 31, 2012 (2011 - $60,012,000). OEH’s earnings from unconsolidated companies, net of tax were $2,124,000 in 2012 (2011 - $4,357,000; 2010 - $2,258,000). See Note 23.

There are guarantees and contingent guarantees to unconsolidated companies which are not recognized in the consolidated financial statements. The contingent guarantees for each Peruvian joint venture may only be enforced in the event there is a change in control of the relevant joint venture, which would occur only if OEH’s ownership of the economic and voting interests in the joint venture falls below 50%, an event which has not occurred. As at December 31, 2012, OEH does not expect that it will be required to fund these guarantees relating to these joint venture companies.

The Company has contingently guaranteed, through 2018, $15,500,000 of debt obligations of the joint venture in Peru that operates four hotels and, through 2014, a further $2,706,000 of its debt obligations. See Note 3 for information regarding guarantees and long-term debt of the rail joint venture in Peru.

At December 31, 2012, long-term debt obligations totalling $85,036,000 of the Hotel Ritz, Madrid, in which OEH has a 50% equity investment, have been classified within current liabilities in the joint venture’s stand-alone financial statements as it was out of compliance with the debt service coverage ratio covenant in its first mortgage loan facility. Discussions with the lender to bring the hotel into long-term compliance are continuing. OEH and its joint venture partner have each guaranteed $9,888,000 of the debt obligations, and $1,163,000 of a working capital loan facility.