Orient-Express Hotels Ltd. , owner and
operator of 39 luxury hotel, tourist train, cruise and restaurant
properties in 17 countries today announced it has invested in Hosia
Company Ltd., the Hong Kong holding company which owns or part owns and
operates 5 unique hotels in southeast Asia under the brand name Pansea.
Mr. James B. Sherwood, Chairman, said that Orient-Express Hotels has been
under-represented in hotels in Asia, only maintaining investments in the
Eastern & Oriental Express tourist train which operates between Singapore
and Bangkok and the Road to Mandalay cruise ship which operates on the
Irrawaddy River between Mandalay and Pagan in Burma. Despite a number of
attempts to acquire hotels in the region over the years either asking
prices did not correspond with earnings potential or the competitive
environment was poor as a result of excess capacity. On a trip to the
region in early 2003 he noted that the Pansea properties had been
developed with remarkable style by the company`s owners, Stanislas Rollin
and Robert Molinari, and were the market leaders in each location.
Although the five Pansea hotels only have a total of 234 rooms they are
all capable of expansion in step with demand.
The properties are located in Luang Prabang, the ancient royal capital of
Laos; Koh Samui on the Gulf of Siam in Thailand; Rangoon, Burma, in the
former palace of the Shan Province governor; Siem Reap, Cambodia close to
the famous temples of Angkor Wat; and Bali, Indonesia where the property
occupies a beach location superior to all other hotels on the island.
Mr. Sherwood said the transaction has been structured in a way to permit
the original owners to develop a number of additional unique properties in
the region during a period of five years after which Orient-Express Hotels
has the right to acquire 100% of the equity of Hosia. A project is well
advanced to build a second hotel in Bali in the Ubud Gorge and hotels in
Vietnam and Pagan, Burma are under consideration. Orient-Express Hotels
has been separately working on a hotel project in Thailand and expects to
make an announcement concerning it in the coming weeks. It is envisioned
that this property would be marketed together with the Pansea Asia hotels.
Until such time as Orient-Express Hotels owns 100% of Hosia the properties
will be branded both as Pansea and with individual names. Orient-Express
Hotels will market the hotels under the individual names as it is not the
company`s policy to promote brand names, believing that individual names
allow higher room rates to be achieved than brand names. Hosia will
continue to market under the Pansea brand name in this period.
Simon Sherwood, President of Orient-Express Hotels, explained that the
company in the first phase was injecting US$8 million of capital into
Hosia by way of a 5% interest p.a. convertible loan. Orient-Express Hotels
has the right to convert this loan into approximately 25% of Hosia`s
equity in three years time at a 50% premium per share on today`s paid in
capital. On the fifth anniversary a put/call arrangement will be
exercisable for the balance of the shares based on 8x average EBITDA of
Hosia in 2007 and 2008 less debt. The convertible loan is intended to be
used primarily to fund additional properties and expansion of existing
“Although this structure provides only a low rate of return through
interest on the convertible loan in the early years, it should allow
Orient-Express Hotels in due course to bring onto its balance sheet a
thriving group of hotels at an 8x EBITDA valuation. The investment will
also serve as an important platform for growth in a region where the
company has been under-represented until now. Southeast Asia is an exotic,
romantic region for tourists to visit. Operating costs are low which
enabled Pansea`s Jimbaran Beach property in Bali to operate profitably
even in the aftermath of the Bali bombing incident in 2002,” he said.