• Orient Express makes strategic progress

Orient-Express Hotels (OEH) says it is making steady progress with its key strategies to see it through the continuing global financial turbulence.

Speaking last week during the third quarter earnings call, president and CEO Paul White said the group was building ‘solid foundations' by sticking to its plan of reducing fixed-cost space and reducing net debt-to-EBITDA ratio by selling non-core assets and developed real estate.

"Having achieved the fixed-cost reductions now it is important that we maintain them in into 2010 and we expect to do so," he said, adding that non-core assets had already netted around $88m. We expect this figure to rise to well above $100m by the end of the year. Our original target was to raise at least $150m from asset sales by the end of 2011, so we're well on target to achieve that."

The sale of real estate in at St Martin in the Caribbean and the disposal of Windsor Court in New Orleans is part of the plans and White said the combination of sales should see the group's net debt reduced by between $100-$140m. "I think it's safe to say we are now, along with the industry at large able to focus on step three which is looking towards recovery."

OEH is seeing similar early shoots of that recovery as other global hotel groups – albeit on paper the figures still look weak.  Third quarter total revenue, excluding real estate, was $142.5m – down $30.8m on the same period last year. Like-for-like revpar across the group was -20% (-26% in USD) and adjusted EBITDA before real estate and impairments came in at $30.6m for the quarter.

But on a more optimistic note White said October revenues were up 6% and revpar was looking ‘much better'. He cautioned: "Let's not get excited, revenues dropped by 19% in October 2008."

Regional performances still looked fragile: In Europe during the quarter like-for-like revpar was -18% with revenues from owned hotels at $67.5m – down 5%. EBITDA was $25.6m in 2009 compared to $35.9m during the same period last year

And South America is still suffering the effects of Swine Flu with revenue down 10% to $11.3m in the third quarter. EBITDA was $0.9m compared to $1.9m last year – hit by the relaunch of one hotel under the Orient-Express brand

White remains cautious but says OEH is now moving into a position where it can look at growth opportunities while staying true to its main strategy of reducing its debt burden. He said this could be by working as part of a joint venture agreement to reduce exposure – such as at the group's El Encanto development where OEH has already put in $52m and now wants to bring in a partner to complete.

HA Perspective: It looks like the start of a recovery for OEH and therefore the wider luxury hotel market. It is still far from clear how strong and durable the recovery will be

OEH has had to pursue a tough approach to costs while the recession deepened, the first of its three key strategic steps to manage the downturn. It has now signalled that there will be no further cuts although it hopes to keep cost growth at no more than inflation.

Step two was to reach a net-debt to EBITDA ratio of four-to-five times stabilised earnings. Helping to hit this ratio are its disposals.

Step three is looking forward to the recovery. As White points out, numbers from here onwards benefit from easier comparables. Were there not growth following the double digit drops of 12 months ago, the industry would be in serious trouble.

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