Orient-Express Hotels Acquires the Majority Interest in Russia’s Most Historic and Prominent Hotel, the Grand Hotel Europe in St. Petersburg

HAMILTON, Bermuda, February 10/PRNewswire-FirstCall/ — Orient-Express Hotels Ltd. (NYSE: OEH, www.orient-express.com), owners of 48 deluxe leisure properties in 22 countries (40 of which it manages), today announced a major hotel acquisition, its first in Russia. The company has acquired the majority interest in the Grand Hotel Europe in St. Petersburg, Russia along with full management and operational control. This 301 room property is located on the fashionable Nevsky Prospect in the heart of the city. It occupies an entire city block with the Russian Museum at the end away from Nevsky Prospect and with the city’s leading concert hall, the Shostakovich Philharmonia opposite the front door.

The hotel, the management contract, good will and other assets were acquired from a group of international investors. The City of St Petersburg continues to have the residual 6.5% interest in the property. The City has indicated that it will be able to sell this outstanding stake in the future. Orient-Express Hotels plans to refurbish the hotel, add additional rooms, acquire a building next door connected to the hotel premises, reshape the lobby and acquire the minority interest from the City. The total investment over three years is expected to total approx. $125 million.

Until now the hotel has been managed by the Kempinski group who have sold their management contract as part of the transaction. The pro-forma results of the property in 2004, assuming the hotel had been managed by Orient-Express Hotels, would be an EBITDA of $17 million, the same as in 2003 when St. Petersburg celebrated its 300th anniversary. Orient-Express Hotels believes it will be able to achieve 6x EBITDA on its $125 million investment when the improvements and additions are completed.

Mr. James B. Sherwood, Chairman, said that he felt Russia was a country which should rapidly grow in prosperity and importance on the world stage in the years ahead and he therefore felt the investment was an important strategic move for Orient-Express Hotels. The hotel would prove to be profitable from the beginning.

Simon M.C. Sherwood, President, pointed out that St. Petersburg has a population of more than 5 million people, making it the largest city in the Baltic region. “That is the same size as the entire population of Finland,” he said. “The city was completed by Peter the Great in 1703 using the finest Italian and British architects and designers of the day, principally Rossi and Cameron. Not only is the city a tourist magnet, with its famous Hermitage Museum, grand squares and avenues, palaces and parks, it is the home of the Marinsky Theater, renowned for its ballet and opera. The Grand Hotel Europe is comparable in many ways to our Hotel Ritz in Madrid, where political dignitaries, celebrities and fashionable visitors stay, along with business leaders. The hotel has 6 restaurants which are among the most popular in the city for locals and visitors alike.

“We feel the competitive situation is good with only one other 5 star property in the city. Business activity is increasing in the region as St. Petersburg has always been a major educational center providing skills which are in demand. Thus, there is and will be an increasing demand for luxury hotels by the business community. The balance of strong business demand in winter and strong tourist demand in summer assures high occupancy levels. Indeed, despite the considerable size of the hotel there is already pressure on meeting and banqueting room space which we intend to address in our improvements program”.

Russia is the 22nd country in which Orient-Express Hotels has invested. Financing for the acquisition was provided by the International Finance Corporation and a syndicate of banks.

Management believes that EBITDA (net earnings adjusted for interest, tax, depreciation and amortization) is a useful measure of operating performance, to help determine the ability to incur capital expenditure or service indebtedness, because it is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is also a financial performance measure commonly used in the hotel and leisure industry. However, EBITDA does not represent cash flow from operations as defined by US generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to earnings from operations under US generally accepted accounting principles for purposes of evaluating results of operations.

This news release contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These include statements regarding earnings growth, investment plans and similar matters that are not historical facts. These statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that may cause a difference include, but are not limited to, those mentioned in the news release, varying customer demand and competitive considerations, realization of bookings and reservations as actual revenue, inability to sustain price increases or to reduce costs, fluctuations in interest rates and currency and property values, uncertainty of negotiating and completing proposed capital expenditures and acquisitions, adequate sources of capital and acceptability of finance terms, possible loss or amendment of planning permits and delays in construction schedules for expansion projects, shifting patterns of business travel and tourism and seasonality of demand, adverse local weather conditions, changing global and regional economic conditions, and legislative, regulatory and political developments. Further information regarding these and other factors is included in the filings by the company with the US Securities and Exchange Commission.

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