Introduction

OEH has three business segments, namely (1) hotels and restaurants, (2) tourist trains and cruises and (3) real estate and property development. Hotels currently consist of 41 deluxe hotels. Thirty-seven of these hotels are wholly or majority owned (except Charleston Place Hotel), and are referred to in this discussion as "owned hotels." As explained in Note 3 to the financial statements, OEH holds a 19.9% equity investment in Charleston Center LLC, owner of Charleston Place Hotel, which OEH manages and has consolidated into its financial statements effective December 31, 2008. The other four hotels, in which OEH has unconsolidated equity interests and operate under management contracts, are referred to in this discussion as "hotel management interests." Of the owned hotels, 12 are located in Europe, eight in North America and 17 in the rest of the world.

In December 2007, Bora Bora Lagoon Resort was designated as held for sale, and, accordingly, the results of the hotel have been reflected as discontinued operations.

Also, OEH currently owns and operates the restaurants '21' Club in New York and La Cabana in Buenos Aires.

OEH's tourist trains and cruises segment operates six tourist trains - four of which are owned and operated by OEH, one in which OEH has an equity interest and exclusive management contracts, and one in which OEH has an equity investment - and a river cruiseship and five canalboats.

For a discussion of OEH's liquidity, see under the heading "Liquidity and Capital Resources" below.

For a discussion of the impact of foreign exchange rate movements on OEH's results of operations and financial condition and the change of application of accounting policy for Porto Cupecoy, see Item 7 - Management's Discussion and Analysis in the Company's 2008 Form 10-K annual report

Results of Operations

Three months Ended March 31, 2009 compared to

Three months Ended March 31, 2008

OEH's operating results for the three months ended March 31, 2009 and 2008, expressed as a percentage of revenue, were as follows:

Three months ended March 31,                          2009   2008
                                                       %      %
Revenue
Hotels and restaurants                                  95     89
Tourist trains and cruises                               5      7
Real estate                                              -      4
                                                       100    100
Expenses
Depreciation and amortization                           11      9
Operating                                               51     52
Selling, general and administrative                     42     38
Impairment of goodwill                                   8      -
Net finance costs                                       15      9
Losses before income taxes                             (27 )   (8 )
Benefit from income taxes                               11      3
Earnings from unconsolidated companies                   1      3
Net losses from continuing operations                  (15 )   (2 )
Net losses from discontinued operations, net of tax     (1 )   (2 )
Net losses as a percentage of revenue                  (16 )   (4 )

Segment net earnings before interest, foreign currency, tax (including tax on unconsolidated companies), depreciation and amortization ("segment EBITDA") of OEH's operations for the three months ended March 31, 2009 and 2008 are analyzed as follows (dollars in millions):

Three months ended March 31,    2009     2008

Segment EBITDA:
Owned hotels:
Europe                         $ (6.2 ) $ (3.7 )
North America                     8.9      7.3
Rest of the World                 8.8     12.7
Hotel management interests        0.7      5.2
Restaurants                       0.1      0.6
Tourist trains and cruises        1.4      1.5
Real estate                      (0.3 )   (0.4 )
Impairment of goodwill           (7.0 )      -
Central overheads                (5.1 )   (6.8 )
Total segment EBITDA           $  1.3   $ 16.4

The foregoing segment EBITDA reconciles to net losses as follows (dollars in millions):

Three months ended March 31,                                       2009      2008

Net losses                                                        $ (14.6 ) $ (4.3 )
Add:
Depreciation and amortization                                        10.1     10.3
Net finance costs                                                    13.7     10.9
Benefit from income taxes                                            (9.4 )   (3.6 )
Loss from discontinued operations, net of tax                         1.1      1.9
Share of provision for income taxes of unconsolidated companies       0.4      1.2
Segment EBITDA                                                    $   1.3   $ 16.4

Management evaluates the operating performance of OEH's segments on the basis of segment EBITDA and believes that segment EBITDA is a useful measure of operating performance because segment EBITDA is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is a financial measure commonly used in OEH's industry. OEH's segment EBITDA, however, may not be comparable in all instances to EBITDA as disclosed by other companies. Segment EBITDA should not be considered as an alternative to earnings from operations or net earnings (as determined in accordance with U.S. generally accepted accounting principles) as a measure of OEH's operating performance, or as an alternative to net cash provided by operating, investing and financing activities (as determined in accordance with U.S. generally accepted accounting principles) as a measure of OEH's ability to meet cash needs.

Operating information for OEH's owned hotels for the three months ended March 31, 2009 and 2008 is as follows:

                                     Three months
                                   ended March 31,
                                   2009       2008

Average Daily Rate (in dollars)
Europe                                360        464
North America                         432        470
Rest of the world                     280        296
Worldwide                             337        372

Rooms Available (in thousands)
Europe                                 61         64
North America                          57         57
Rest of the world                     115        123
Worldwide                             234        244

Rooms Sold (in thousands)
Europe                                 17         27
North America                          35         38
Rest of the world                      66         82
Worldwide                             118        147

Occupancy (percentage)
Europe                                 28         43
North America                          61         67
Rest of the world                      57         67
Worldwide                              50         61

RevPAR (in dollars)
Europe                                100        201
North America                         266        314
Rest of the world                     160        198
Worldwide                             170        226

                                                            Change %
                                                                  Local
                                                       Dollars   Currency
Same Store RevPAR (in dollars)
Europe                                100        192       -48 %      -35 %
North America                         266        314       -15 %      -15 %
Rest of the world                     164        212       -23 %      -12 %
Worldwide                             173        232       -26 %      -18 %

Average daily rate is the average amount achieved for the rooms sold. RevPAR is revenue per available room, that is the rooms revenue divided by the number of available rooms for each night of operation. Occupancy is the number of rooms sold divided by the number of available rooms. Same store RevPAR is a comparison based on the operations of the same units in each period, such as by excluding the effect of any acquisitions or major refurbishments. The same store data excludes the following operations:

Hotel Cipriani Hotel Splendido
Villa San Michele Hotel Caruso Belvedere Hotel das Cataratas Charleston Place Hotel

Overview

The net loss for the three months ended March 31, 2009 was $14.6 million ($0.29 per common share) on revenue of $89.4 million, compared with a net loss of $4.3 million ($0.10 per common share) on revenue of $114.7 million in the prior year first quarter.

The first quarter is a traditional loss-making period because a number of OEH's properties are closed for the winter, the Venice Simplon-Orient-Express train does not operate for most of the quarter and tourist arrivals are low in locations with poor winter weather.

OEH's revenue in the three months ended March 31, 2009 was affected by the global economic downturn. Management's focus during the period has been to control expenditures. Excluding impairment of goodwill in 2009 and discontinued operations, OEH's net earnings in the current quarter were $4.1 million lower than in the prior year - a $6.5 million loss in 2009 compared with a loss of $2.4 million in 2008 - whereas revenue fell by $25.3 million in the three months ended March 31, 2009 compared to the three months ended March 31, 2008.

Revenue



Three months ended March 31,                    2009           2008
                                              (dollars in thousands)
Revenue:
Hotels and restaurants
Owned hotels
Europe                                      $      14,533    $  27,139
North America                                      35,822       26,670
Rest of the world                                  29,889       40,767
Hotel management/part ownership interests           1,019        2,501
Restaurants                                         3,672        4,866
                                                   84,935      101,943
Tourist trains and cruises                          4,477        8,654
Real estate                                             -        4,083
                                            $      89,412    $ 114,680

Total revenue decreased by $25.3 million, or 22%, from $114.7 million in the three months ended March 31, 2008 to $89.4 million in the three months ended March 31, 2009. Revenue in the three months ended March 31, 2009 included $11.5 million at Charleston Place Hotel, which is consolidated for the first time in the current year. Excluding the Charleston Place revenue, hotels and restaurants revenue decreased by $28.4 million, or 28%, from $101.9 million in the three months ended March 31, 2008 to $73.5 million in the three months ended March 31, 2009. Tourist trains and cruises revenue decreased by $4.2 million, or 48%, from $8.7 million for the three months ended March 31, 2008 to $4.5 million for the three months ended March 31, 2009.

The decrease in hotel revenue was due primarily to the combination of lower occupancy, particularly in Europe, and lower average rates across the group. The decrease in hotel revenue was exacerbated by the impact of foreign currency exchange rate movements against the U.S. dollar in Europe and the Rest of the World regions.

The revenue from restaurants decreased by $1.2 million, or 25%, from $4.9 million in the three months ended March 31, 2008 to $3.7 million for the three months ended March 31, 2009.

For owned hotels overall, same store RevPAR in U.S. dollars decreased by 26% in the three months ended March 31, 2009 compared to the three months ended March 31, 2008. Measured in local currencies this decrease was 18%.

The change in revenue at owned hotels is analyzed on a regional basis as follows:

Europe

Revenue decreased by $12.6 million, or 46%, from $27.1 million for the three months ended March 31, 2008 to $14.5 million for the three months ended March 31, 2009. Difficult trading conditions across Europe caused average daily rates to fall by 22% from $464 in the three months ended March 31, 2008 to $360 in the three months ended March 31, 2009, and occupancy to fall from 43% in the three months ended March 31, 2008 to 28% in the three months ended March 31, 2009. On a same store basis, RevPAR in local currency decreased by 35%, and in U.S. dollars this translated into a decrease of 48%.

Exchange rate movements caused revenue to fall by $4.2 million in the three months ended March 31, 2009 compared with the same period in 2008. OEH's four Italian hotels remained closed through the three months ended March 31, 2009. These four hotels had generated revenue of $1.7 million in the three months ended March 31, 2008. Excluding the effect of exchange rate movements, the revenue at the Grand Hotel Europe fell by $2.8 million in the three months ended March 31, 2009.

North America

Revenue increased by $9.1 million, or 34%, from $26.7 million in the three months ended March 31, 2008 to $35.8 million in the three months ended March 31, 2009. The 2009 revenue included $11.5 million at Charleston Place Hotel, which OEH consolidated from January 1, 2009 for the first time. Excluding Charleston Place, revenue in the North America region fell by $2.3 million, or 9%, in the three months ended March 31, 2009 to $24.4 million.

On a same store basis, excluding Charleston Place Hotel, RevPAR decreased by 15%. Average occupancy across the North American properties was 61% compared to 67% in the same period in 2008. Average daily rates fell by 8% from $470 in the three months ended March 31, 2008 to $432 in the three months ended March 31, 2009

Rest of the World

Revenue decreased by $10.9 million, or 27%, from $40.8 million in the three months ended March 31, 2008 to $29.9 million in the three months ended March 31, 2009. Exchange rate movements across the region were responsible for $8.3 million of the revenue fall and a decline in average room rates and occupancy caused overall revenue to drop by an additional $2.6 million.

Revenue at OEH's hotels in South America collectively decreased by $3.7 million, or 21%, from $17.6 million in the three months ended March 31, 2008 to $13.9 million in the three months ended March 31, 2009. Had exchange rates in the first three months of 2009 been the same as in the first three months of 2008, South American revenue would have been $0.5 million higher than in the three months ended March 31, 2008.

Revenue at OEH's six Asian hotels collectively decreased by $1.0 million, or 20%, to $4.3 million in the three months ended March 31, 2009. The political unrest in Thailand was a major factor in revenue at the Napasai falling by $0.7 million, or 43%. Occupancy at this hotel declined from 71% in the three months ended March 31, 2008 to 42% in the same period in 2009.

Southern Africa revenue decreased by $4.2 million, or 36%, of which $2.3 million was due to exchange rate movements on the translation of the South African rand and Botswana pula to U.S. dollar. Revenue at OEH's two Australian properties decreased by $2.0 million, or 32%, to $4.2 million in the three months ended March 31, 2009; 75% of the change in revenue, or $1.5 million, was due to the devaluation of the Australian dollar against the U.S. dollar in the second half of 2008 and the beginning of 2009.

The RevPAR on a same store basis for the Rest of the World region decreased by 12% in local currencies in the three months ended March 31, 2009 compared to the three months ended March 31, 2008. This translates to a 23% decrease when expressed in U.S. dollars.

Hotel Management and Part-Ownership Interests: Revenue decreased by $1.5 million from $2.5 million in the three months ended March 31, 2008 to $1.0 million in the three months ended March 31, 2009. The 2008 revenue included $1.2 million in respect of Charleston Place Hotel, which is included within OEH's consolidated earnings with effect from January 1, 2009. Excluding this hotel from the prior year, revenue from hotel management and part ownership interests decreased by $0.3 million from $1.3 million in the three months ended March 31, 2008 to $1.0 million in the three months ended March 31, 2009.

Restaurants: Revenue decreased by $1.2 million, or 25%, from $4.9 million in the three months ended March 31, 2008 to $3.7 million in the three months ended March 31, 2009.

Trains and Cruises: Revenue decreased by $4.2 million, or 48%, from $8.7 million in the three months ended March 31, 2008 to $4.5 million in the three months ended March 31, 2009. Venice Simplon-Orient-Express revenue decreased by $1.1 million from $1.9 million in the three months ended March 31, 2008 to $0.8 million in the three months ended March 31, 2009, as a result of running two fewer services in the current year. Fewer day train services were operated in the United Kingdom in the three months ended March 31, 2009 than in the prior year, resulting in a revenue decrease of $0.4 million compared with the same period in the prior year.

Real Estate: Although 11 condominiums at Porto Cupecoy were sold during the three months ended March 31, 2009, no revenue was recognized following OEH's decision to change the application of its accounting policy in respect of the Porto Cupecoy development in the fourth quarter of 2008. Revenue of $3.7 million was recognized in the three months ended March 31, 2008 at Porto Cupecoy under the percentage completion method of accounting. There was no revenue at Keswick Hall in the three months ended March 31, 2009 compared to revenue of $0.3 million in respect of the one lot sold in the three months ended March 31, 2008.

Depreciation and amortization

Depreciation and amortization decreased by $0.2 million from $10.3 million in the three months ended March 31, 2008 to $10.1 million in the three months ended March 31, 2009. The 2009 depreciation charge includes an expense of $1.0 million in respect of Charleston Place. Excluding this charge, depreciation was $1.2 million lower in 2009 than in the prior period, $0.6 million of which was due to the change in exchange rates for the three months ended March 31, 2009 compared with exchange rates in the same period in 2008.

Operating expenses

Operating expenses decreased by $14.5 million from $59.7 million in the three months ended March 31, 2008 to $45.2 million in the three months ended March 31, 2009. Operating expenses in 2009 include a charge of $5.0 million in respect of Charleston Place. Excluding this expenditure, operating expenses were $19.5 million lower in 2009 than in the prior period, $2.6 million of which was due to the change in exchange rates for the three months ended March 31, 2009 compared with exchange rates in the same period in 2008. Operating expenses were 52% of revenue in the three months ended March 31, 2008 and 51% of revenue in the three months ended March 31, 2009. Excluding Charleston Place Hotel's revenue and expenses, operating expenses in 2009 were unchanged at 52% of revenue.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $6.4 million from $43.8 million in the three months ended March 31, 2008 to $37.4 million in the three months ended March 31, 2009. The 2009 costs include a charge of $3.4 million in respect of Charleston Place Hotel. Excluding these costs, selling, general and administrative expenses were $9.8 million lower in 2009 than in the prior period, $2.8 million of which was due to the change in exchange rates for the three months ended March 31, 2009 compared with exchange rates in the same period in 2008. Selling, general and administrative expenses were 38% of revenue in the three months ended March 31, 2008 and 42% of revenue in the three months ended March 31, 2009. Excluding Charleston Place Hotel's revenue and expenses, selling, general and administrative expenses in 2009 were 44% of revenue in 2009.

Impairment of goodwill

During the three months ended March 31, 2009, OEH completed its 2008 impairment analysis and identified the following non-cash goodwill and tradename impairments within its continuing operations, considering discounted future cash flows prepared as of the December 31, 2008 balance sheet date (dollars in millions):

Miraflores Park            $  3.2
Casa de Sierra Nevada         3.0
Lilianfels Blue Mountain      0.5
Observatory Hotel             0.3
                           $  7.0

These impairments have no cash effect on OEH and arose primarily because of expected reductions in future cash flows.

Segment EBITDA



Three months ended March 31                     2009            2008
                                               (dollars in thousands)
Segment EBITDA:
Hotels and restaurants
Owned hotels
Europe                                      $     (6,213 )  $     (3,744 )
North America                                      8,935           7,300
Rest of the world                                  8,857          12,747
Hotel management/part ownership interests            692           5,218
Restaurants                                           63             649
                                                  12,334          22,170
Tourist trains and cruises                         1,443           1,543
Real estate                                         (319 )          (497 )
Impairment of goodwill                            (7,048 )             -
Central overheads                                 (5,105 )        (6,799 )

                                            $      1,305    $     16,417

Segment EBITDA for the three months ended March 31, 2009 decreased by 92% from $16.4 million in 2008 to $1.3 million in 2009. Segment EBITDA margins (calculated as segment EBITDA as a percentage of revenue) decreased by 13% from 14% for the three months ended March 31, 2008, to 1% for the three months ended March 31, 2009. Excluding impairment of goodwill in the three months ended March 31, 2009, segment EBITDA decreased by 49%, or $8.1 million, to $8.4 million. The segment EBITDA margin in the three months ended March 31, 2009, excluding the impact of the impairment of goodwill, was 9%.

The European hotels collectively reported a segment EBITDA loss of $6.2 million in 2009 compared to a loss of $3.7 million in the same period in 2008. As a percentage of European hotels revenue, the European segment EBITDA margin fell from negative 14% in 2008 to negative 43% in 2009.

With the inclusion of Charleston Place Hotel from January 1, 2009, segment EBITDA in the North American hotel region increased by 22% from $7.3 million in the three months ended March 31, 2008, to $8.9 million in the three months ended March 31, 2009. Excluding Charleston Place Hotel, segment EBITDA in the North American region decreased by $1.2 million, or 16%.

Segment EBITDA in the Rest of the World hotel region decreased by 30% from $12.7 million in the three months ended March 31, 2008 to $8.9 million in the three months ended March 31, 2009. The segment EBITDA margin for the three months ended March 31, 2009 was 30%, compared to a margin of 31% for the same period in 2008.

Earnings from operations before net finance costs

Earnings from operations decreased by $11.3 million from a profit of $0.9 million in the three months ended March 31, 2008 to a loss of $10.4 million in the three months ended March 31, 2009, due to the factors described above.

Net finance costs

Net finance costs increased by $2.8 million, or 26%, from $10.9 million for the three months ended March 31, 2008 to $13.7 million for the three months ended March 31, 2009. The three months ended March 31, 2008 included a foreign exchange gain of $2.0 million compared to a foreign exchange loss of $3.8 million in the three months ended March 31, 2009. Excluding these foreign exchange items, net interest expense decreased by $3.0 million, or 24%, from $12.9 million in the three months ended March 31, 2008 to $9.9 million in the three months ended March 31, 2009. The benefit derived from the lower interest rates in the three months ended March 31, 2009 compared to the same period in the prior year was partially offset by the additional interest expense arising on OEH's additional bank liabilities in the current year.

Benefit from income taxes

The benefit from income taxes increased by $5.8 million, from a benefit of $3.6 million in the three months ended March 31, 2008 to a benefit of $9.4million in the three months ended March 31, 2009.

The benefit from income taxes for the three months ended March 31, 2009 included a tax provision of $0.1 million in respect of the FIN 48 liability, compared to a provision of $0.3 million in respect of the FIN 48 liability in the three months ended March 31, 2008.

Earnings from unconsolidated companies

Earnings from unconsolidated companies net of tax decreased by $3.0 million, from $4.1 million in the three months ended March 31, 2008 to $1.1 million in the three months ended March 31, 2009. The 2008 earnings included $1.9 million in respect of Charleston Place Hotel, which is included within OEH's consolidated earnings with effect from January 1, 2009. Excluding this hotel from the prior year, earnings from unconsolidated companies net of tax decreased by $1.1 million from $2.2 million in the three months ended March 31, 2008 to $1.1 million in the three months ended March 31, 2009. The tax cost associated with earnings from unconsolidated companies, excluding Charleston Place Hotel, was $0.5 million in 2008 and $0.4 million in 2009.

Loss from discontinued operations

The loss from discontinued operations consisted of the loss from Bora Bora Lagoon Resort which is being held for sale. The hotel's net loss decreased from $2.0 million for the three months ended March 31, 2008 to $1.1 million for the three months ended March 31, 2009.

Liquidity and Capital Resources

Working Capital

OEH had cash and cash equivalents of $41.6 million at March 31, 2009, $24.2 million less than the $65.8 million at December 31, 2008. In addition, OEH had restricted cash of $13.3 million (December 31, 2008 - $13.2 million) mainly related to the Porto Cupecoy project in St Martin, which will be released when the next 12.5% phase of construction is completed. At March 31, 2009, there were undrawn amounts available to OEH under committed short-term lines of credit of $8.0 million and undrawn amounts available to OEH under secured revolving . . .