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Orient-Express Acquires Interest in the Grand

Hotels Ltd. , 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.