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Orient-Express Hotels to Acquire Royal Scotsman

Hotels Ltd. , owner of 47 deluxe leisure properties in 21 countries (39 of
which it manages), today announced that it had entered into an agreement
to acquire the Royal Scotsman luxury tourist train from the L&R Group.
This acquisition brings to 6 railway tourist train operations within the
company. The others are the Venice Simplon-Orient-Express in Europe, the
British Pullman and Northern Belle in the U.K., the Eastern & Oriental
Express in southeast Asia and the Hiram Bingham in Peru. The company’s
train operations had an EBITDA of $4.6 million for the nine months ended
September 30, 2004. Orient-Express Hotels will take over 50% ownership of the Royal Scotsman
from April, 2005 in time for the high season and the balance will be
acquired on an earn-out basis at a multiple of 5.5 times EBITDA in three
years. Management will remain with L&R Group during the earn-out period,
however, the product will be fully integrated into the Orient-Express
Hotels sales and marketing network immediately. The initial 50% is being
acquired for approx. $2.75 million (including assumption of 50% of debt)
and the balance will depend on earnings.

The Royal Scotsman is the third acquisition made recently by
Orient-Express Hotels on an earn-out basis. Pansea Hotels in southeast
Asia was the first, concluded in February, 2004 where the earn-out is
based on 8 times EBITDA, followed by Afloat in France in May, 2004 where
the earn-out is based on 7 times EBITDA and now the Royal Scotsman with an
earn-out based on 5.5 times EBITDA. All three of these businesses have
excellent management in place and the delayed buy-out enables the
properties to be fully integrated within Orient-Express Hotels and the
shareholders to be highly motivated to improve profits before the buy-outs
are consummated. The buy-out multiples are quite reasonable for leisure
properties so both Orient-Express Hotels and the sellers are well rewarded.

Although the Royal Scotsman currently only operates a seasonal service
largely within Scotland, Orient-Express Hotels expects to be able to add
itineraries which will generate additional profits.

The Royal Scotsman is composed of 9 Edwardian style coaches which
accommodate 36 passengers. Each compartment has a private bathroom. The
train spends each night stationary at a remote siding in the beautiful
countryside of Scotland. When not underway in daytime, a luxury bus which
accompanies the train takes guests to visit castles, clan chieftains,
Scotch whiskey distilleries, historic battlegrounds and other points of
interest in the Lowlands and Highlands. Guests enjoy excellent cuisine and
wines, accompanied as customary with a dram of whiskey. They visit the
great estates of Scotland and meet the owners. A closer understanding of
the unique Scottish culture through its people, along with seeing the
spectacular scenery are among the benefits of the journey. The train
currently operates from April through October.

The Royal Scotsman will be Orient-Express Hotels’ third tourist train in
the United Kingdom. The British Pullman, consisting of
beautifully-restored parlor cars of the 1920s and 1930s, operates in the
south of England in association with the Venice Simplon-Orient-Express
continental train. The Northern Belle composed of post World War II first
class parlor cars in the theme of the great estates of the north of
England, operates north of London. The Royal Scotsman is an obvious
complement to these two other trains.


The Royal Scotsman has been in operation since 1985 and was the creation
of Michael Ryan and Fergus Hobbs who are the sellers.

Simon Sherwood, President, said “Our tourist train and river cruise
business has carved out a profitable market where we are among the few
operators worldwide of truly luxury rail and inland waterway travel
experiences. The Royal Scotsman is another jewel in that crown. It will be
managed by our Tourist Train and Cruise Division headed by Nicholas
Varian, Vice President - Trains and Cruises.”