Introduction

OEH has three business segments: (1) hotels and restaurants, (2) tourist trains and cruises and (3) real estate.

Hotels in 2012 consisted of 35 deluxe hotels (excluding Keswick Hall, Bora Bora Lagoon Resort, The Observatory Hotel and The Westcliff, which were sold during the year), 30 of which were wholly or majority owned or, in the case of Charleston Place Hotel, owned by a consolidated variable interest entity. Of the 30 owned hotels, two were purchased in 2010 and another one is scheduled to reopen in early 2013 after renovation. The 30 owned hotels are referred to in this discussion as "owned hotels" of which 11 were located in Europe, six in North America and 13 in the rest of the world.

The other five hotels, in which OEH has unconsolidated equity interests and which it operates under management contracts, are referred to in this discussion as "hotel management interests".

OEH currently owns and operates the stand-alone restaurant '21' Club in New York, New York.

During 2012, OEH sold Keswick Hall in Charlottesville, Virginia, Bora Bora Lagoon Resort in French Polynesia, The Observatory Hotel in Sydney, Australia and The Westcliff in Johannesburg, South Africa. During 2011 OEH sold Hôtel de la Cité in Carcassonne, France. During 2010 OEH sold Lilianfels Blue Mountains in New South Wales, Australia and La Cabana restaurant in Buenos Aires, Argentina. While The Westcliff was sold in December 2012, OEH is continuing to manage the property for for up to 12 months. None of these properties was considered a long-term fit with OEH's portfolio and strategy. Accordingly, the results of Keswick Hall, Bora Bora Lagoon Resort, The Observatory Hotel, The Westcliff, Hôtel de la Cité, Lilianfels Blue Mountains and La Cabana have been reflected as discontinued operations for all periods presented.

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 an exclusive management contract, and one in which OEH has an equity investment
- and two river cruise ships and five canal boats.

OEH's small real estate projects are in St. Martin, French West Indies, and Koh Samui, Thailand. Another project, a residential development adjoining Keswick Hall, was sold with the hotel in January 2012. OEH's real estate project at Porto Cupecoy on the Dutch side of St. Martin was classified as held for sale at December 31, 2012 and has been reflected as discontinued operations for all periods presented. Porto Cupecoy was sold in January 2013.

In 2012, 86% of OEH's revenue was derived from the hotels and restaurants segment and 14% from tourist trains and cruises. In the hotels and restaurants segment, 96% of revenue was from owned hotels, 3% from restaurants and 1% from hotel management interests.

Average daily rate, or ADR, is the average amount achieved for rooms sold. ADR is used by management to gauge the level of pricing achieved by a specific hotel or group of hotels in a given period.

Occupancy represents the total number of rooms sold divided by the total number of rooms available at a hotel or group of hotels. Occupancy measures the utilization of a hotel's available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period.

RevPAR is revenue per available room, which for any hotel in a given period is the total rooms' revenue divided by the number of available rooms. Management uses RevPAR to identify trend information with respect to room revenues and to evaluate hotel performance. RevPAR is a commonly used performance measure in the industry. It is often used in comparison to competitors within a custom defined market or a competitive set.

Same store RevPAR is a comparison of RevPAR based on the operations of the same units in each period, by excluding the effect of any hotel acquisitions in the period or major refurbishments where a property is closed for the whole period. The comparison also excludes the effect of dispositions (including discontinued operations) or closures.

ADR and RevPAR are measures for a point in time (a day, month or year) and are most often compared across like time periods. Current ADR and RevPAR are not necessarily indicators of future performance.

In 2012, OEH saw same store RevPAR decline of 1% in U.S. dollars, but growth of 3% in local currency. Average occupancy was 58% and ADR was $469. In 2011, same store RevPAR increased 17% in both U.S. dollars and local currency. Average occupancy was 59% and ADR was $465.

OEH's long-term strategy to grow its business includes:

• RevPAR growth: the unique nature of OEH's individual properties and the avoidance of a chain brand have historically enabled OEH to charge premium rates for rooms;

• Expansion of hotels: the returns on investment by adding new rooms or other facilities to a hotel are high as the incremental operating costs are low;

• Acquisitions and management contracts: OEH looks to invest in unique properties at reasonable prices with expansion potential and near-term upside potential in earnings through increasing room rates and/or reducing costs, including entering into contracts to manage hotels that meet OEH's selection criteria;

• Trains and cruises: increasing the utilization of its tourist trains and cruises by adding departures; and

• Dispositions: disposing of underperforming assets to reduce leverage and redeploy the capital in properties with higher potential returns.

Revenue and Expenses

OEH derives revenue from owned hotel operations primarily from the sale of rooms and the provision of food and beverages. The main factors for analyzing rooms revenue are the number of room nights sold, or occupancy, and the ADR, and RevPAR referred to above which is a measure of both these factors.

Revenue from restaurants is derived from food and beverages sold to customers.

Revenue from hotel management interests includes fees received under management contracts, which are based upon a combination of a percentage of the revenue from operations and operating earnings calculated before specified fixed charges.

The revenue from the tourist trains and cruises segment primarily comprises tickets sold for travel and food and beverage sales.

The revenue from real estate is primarily derived from the sale of land and buildings.

Cost of services includes labor, repairs and maintenance, energy and the costs of food and beverages sold to customers in respect of owned hotel operations, restaurants, tourist trains and cruises.

Selling, general and administrative expenses include travel agents' commissions, the salaries and related costs of the sales teams, advertising and public relations costs, and the salaries and related costs of management.

Depreciation and amortization includes depreciation of owned hotels, restaurants, tourist trains and the owned cruise ship and canal boats.

Impact of Foreign Currency Exchange Rate Movements

As reported below in the comparisons of the 2012, 2011 and 2010 financial years under "Results of Operations", OEH has exposure arising from the impact of translating its global foreign currency earnings and expenses into U.S. dollars. Nine of OEH's owned hotels in 2012 operated in European euros, one operated in South African rand, one in British pounds sterling, three in Botswana pula, one in Mexican pesos, one in Peruvian nuevo soles, six in various Southeast Asian currencies and one in Russian rubles. Revenue of the Venice Simplon-Orient-Express, British Pullman, Northern Belle and Royal Scotsman tourist trains was primarily in British pounds sterling, but the operating costs of the Venice Simplon-Orient-Express were mainly denominated in euros. Revenue of the Copacabana Palace and Hotel das Cataratas in Brazil was earned in U.S. dollars, but substantially all of the hotels' expenses were denominated in Brazilian reals. Revenue derived by Maroma Resort and Spa and La Samanna was recorded in U.S. dollars, but the majority of the hotels' expenses were denominated in Mexican pesos and European euros, respectively.

Except for the specific instances described above, OEH's properties match foreign currency earnings and costs to provide a natural hedge against currency movements. The reporting of OEH's revenue and costs translated into U.S. dollars, however, can be materially affected by foreign exchange rate fluctuations from period to period.

Market Capitalization

The Company's class A common share price increased during 2012 from $7.47 at December 31, 2011 to $11.69 at December 31, 2012, and OEH's market capitalization increased from $767 million at December 31, 2011 to $1.20 billion at December 31, 2012. OEH's fixed assets are carried in the balance sheet on a historical depreciated cost basis, and OEH management performs impairment tests on all long-lived assets. OEH management believes the aggregate market value of these assets exceeds their carrying value, in part because many of OEH's assets were acquired many years ago.

Asset and Investment Impairments

OEH regularly compares the carrying value of its property, plant and equipment and goodwill to its own undiscounted and discounted cash flow projections, in order to determine whether any of these assets are impaired. OEH also periodically obtains third-party valuations of property, plant and equipment to comply with bank loan requirements. The impairments described below had no direct cash effect on OEH.

At December 31, 2012, OEH completed its annual goodwill impairment review and identified and recorded goodwill impairments of $2.1 million within its continuing operations, relating to Reid's Palace (mainly due to the effect of ongoing economic factors in Portugal affecting the tourist market in Madeira).

At December 31, 2011, OEH completed its annual goodwill impairment review and identified and recorded goodwill impairments of $11.9 million within its continuing operations, comprised of $7.9 million at Maroma Resort and Spa (mainly due to security concerns in Mexico depressing occupancy), $2.8 million at La Residencia (mainly due to the effect of ongoing economic factors in Spain affecting the tourist market in Mallorca) and $1.2 million at Mount Nelson Hotel (earning less revenue due to the absence of the World Cup football tournament in 2010 and increased competition in Cape Town). A goodwill impairment of $0.5 million was recorded within discontinued operations, relating to The Westcliff.

At December 31, 2010, OEH did not identify any goodwill impairments during its annual impairment review. However, during 2010, OEH identified goodwill impairments of $5.9 million, comprising $5.4 million at La Samanna and $0.5 million at Napasai. These impairments considered discounted future cash flows prepared as of the balance sheet date or date of a triggering event if earlier.

At December 31, 2012, OEH reclassified real estate assets at Porto Cupecoy for all periods presented as assets held for sale, with results presented within discontinued operations, because the Company anticipated selling to a third party the assets not already encumbered by existing sales contracts. Based on the agreed sales price of $19.0 million, OEH recorded an non-cash impairment charge of $3.2 million for the year ended December 31, 2012. In the year ended December 31, 2011, OEH identified a non-cash real estate asset and property, planet and equipment impairment charge of $38.5 million (2010 - $24.6 million) in respect of its Porto Cupecoy development project. OEH determined that the fair value of assets, less costs to sell, no longer exceeded the carrying value. The charge was computed using Level 3 inputs, namely the estimated selling prices and estimated selling costs based on OEH's recent experience with sales of condominiums already completed. This impairment charge principally resulted from changes in future sales estimates as a result of current economic conditions and in light of recent sales experience after completion of the project.

In the year ended December 31, 2011, OEH identified a non-cash property, plant and equipment impairment charge of $23.9 million in respect of Keswick Hall, Virginia. The carrying value was written down to the hotel's estimated fair value. In 2010, OEH recorded an impairment charge against the carrying value of the two model homes on the residential development adjacent to Keswick Hall. This non-cash impairment charge of $1.6 million resulted from, primarily, a recent offer on one of the two model homes that did not exceed the carrying value of those assets. This is included within losses from discontinued operations. In January 2012, OEH sold Keswick Hall for $22.0 million.

Also in the year ended December 31, 2011, OEH identified a non-cash property, plant and equipment impairment charge of $8.2 million in respect of Casa de Sierra Nevada, San Miguel de Allende, Mexico. The carrying value was written down to the hotel's fair value.

Also in the year ended December 31, 2011, OEH identified a non-cash property, plant and equipment impairment charge of $2.2 million in respect of Bora Bora Lagoon Resort, French Polynesia. The carrying value was written down to the hotel's fair

value. This is included within losses from discontinued operations. In June 2012, OEH sold Bora Bora Lagoon Resort for $3.0 million.

OEH completed the assignment of the purchase and development agreements relating to its proposed New York hotel project in April 2011. However, based on terms under negotiation with interested parties in 2010, OEH recorded a non-cash impairment charge of $6.4 million at December 31, 2010 on land and buildings for the capitalized pre-development expenses incurred in the project.

In the year ended December 31, 2010, OEH identified and recorded a non-cash property, plant and equipment impairment charge of $6.0 million in respect of Hôtel de la Cité. The carrying values of the assets were written down to the fair value to reflect the level of offers received at the time for the purchase of the hotel. This is included within losses from discontinued operations. In August 2011, OEH sold Hôtel de la Cité for $12.9 million.

Liquidity and Financial Condition

As reported below under "Liquidity and Capital Resources", OEH has substantial scheduled debt repayments and capital commitments in 2013 and is working to improve its liquidity and capital position. OEH plans to utilize cash on the balance sheet and from operations, sales of non-core assets, appropriate debt or equity finance or other funding sources or, if necessary, to reschedule loan repayments and capital commitments. As reported, one OEH subsidiary and two unconsolidated joint ventures were out of compliance with financial covenants in their loan agreements at December 31, 2012. It is expected that the non-compliance will be resolved with the relevant lenders. OEH recognizes that in the current economic climate it is exposed to enhanced risk of a covenant breach under loan agreements during 2013 if weak trading conditions in the luxury hospitality business lead to a deterioration of OEH's results. OEH expects to take proactive steps with its bankers to resolve prospectively any likely breach.

Results of Operations

OEH's operating results for the years 2012, 2011 and 2010, expressed as a percentage of revenue, are as follows:

Revenue:
Owned hotels - Europe 37 38 36
- North America 20 19 21
- Rest of World 25 25 26 Hotel management/part ownership interests 1 1 1 Restaurants 3 3 3 Hotels and restaurants 86 86 87 Tourist trains and cruises 14 14 13 Real estate - - -
100 100 100 Expenses:
Cost of services 45 45 47 Selling, general and administrative 39 39 38 Depreciation and amortization 8 8 9 Impairment of goodwill - 2 1 Impairment of other intangible assets, other assets and property, plant and equipment 1 1 2 Gain on disposal of property, plant and
equipment and capital lease - (3 ) - Net finance costs 6 8 6 Earnings/(losses) before income taxes 1 - (3 ) Provision for income taxes (4 ) (4 ) (4 ) Earnings from unconsolidated companies - 1 - Net losses from continuing operations (3 ) (3 ) (7 ) Earnings/(losses) from discontinued
operations 1 (12 ) (7 )

Net losses as a percentage of revenue (2 ) (15 ) (14 )

Operating information for OEH's owned hotels for the years ended December 31, 2012, 2011 and 2010 is as follows:

Year ended December 31,             2012       2011       2010

Average Daily Rate (in dollars)
Europe                                699        710        637
North America                         382        355        333
Rest of the world                     369        366        340
Worldwide                             469        465        420

Rooms Available
Europe                            285,842    287,200    280,454
North America                     251,172    251,869    250,423
Rest of the world                 404,680    399,511    384,905
Worldwide                         941,694    938,580    915,782

Rooms Sold
Europe                            158,160    164,380    139,442
North America                     165,750    165,017    160,332
Rest of the world                 220,093    221,724    202,863
Worldwide                         544,003    551,121    502,637

Occupancy (percentage)
Europe                                 55         57         50
North America                          66         66         64
Rest of the world                      54         55         53
Worldwide                              58         59         55

RevPAR (in dollars)
Europe                                387        406        317
North America                         252        232        213
Rest of the world                     200        203        179
Worldwide                             271        273        231



2012 compared to 2011
                                                       Change %
                                                              Local
Year ended December 31,          2012    2011    Dollars    currency

Same Store RevPAR (in dollars)
Europe                            387     406       (5 )%      2 %
North America                     252     232        9  %      9 %
Rest of the world                 200     203       (1 )%      1 %
Worldwide                         271     273       (1 )%      3 %

There were no exclusions from the same store RevPAR data for 2012 and 2011.

2011 compared to 2010
                                                       Change %
                                                              Local
Year ended December 31,          2011    2010    Dollars     currency

Same Store RevPAR (in dollars)
Europe                            403     323        25 %       19 %
North America                     232     213         9 %        9 %
Rest of the world                 203     179        13 %       13 %
Worldwide                         268     230        17 %       14 %

The same store RevPAR data for 2011 and 2010 exclude the operations of Grand Hotel Timeo and Villa Sant'Andrea.

Year Ended December 31, 2012 compared to Year Ended December 31, 2011 and Year Ended December 31, 2011 compared to Year Ended December 31, 2010

Overview

2012 compared to 2011

The net loss attributable to Orient-Express Hotels Ltd. for the year ended December 31, 2012 was $7.1 million ($0.07 per common share) on revenue of $545.4 million, compared with net loss of $87.8 million ($0.86 per common share) on revenue of $554.7 million in the prior year. OEH's decreased revenue reflects the weakening of the euro and other currencies against the U.S. dollar as well as small decreases in occupancy. The net loss in 2012 includes impairment of goodwill, other assets and property, plant and equipment of $5.9 million and earnings from discontinued operations of $3.7 million. Impairment of goodwill and property, plant and equipment was $20.1 million and losses from discontinued operations were $68.8 million in the year ended December 31, 2011.

2011 compared to 2010

The net loss attributable to Orient-Express Hotels Ltd. for the year ended December 31, 2011 was $87.8 million ($0.86 per common share) on revenue of $554.7 million, compared with net loss of $62.8 million ($0.69 per common share) on revenue of $469.6 million in the prior year. OEH's revenue in the year ended December 31, 2011 experienced growth as business conditions in the global lodging industry improved from 2010, following the global economic downturn in 2008 and 2009. The net loss in 2011 includes impairment of goodwill and property, plant and equipment of $20.1 million and losses from discontinued operations of $68.8 million. Impairment of goodwill, other intangible assets, and property, plant and equipment was $13.4 million and losses from discontinued operations were $34.3 million in the year ended December 31, 2010.

Revenue
                                               2012          2011          2010
Year ended December 31,                     $ millions    $ millions    $ millions

Owned hotels - Europe                            202.3         213.2         169.8
- North America                                  107.4         102.7          96.7
- Rest of World                                  138.7         141.0         121.3
Hotel management/part ownership interests          5.5           5.8           4.3
Restaurants                                       16.2          16.3          15.8
Hotels and restaurants                           470.0         479.0         407.9
Tourist trains and cruises                        74.7          75.8          61.7
Real estate                                        0.7             -             -
                                                 545.4         554.7         469.6

2012 compared to 2011

Total revenue decreased by $9.3 million, or 2%, from $554.7 million in 2011 to $545.4 million in 2012. Hotels and restaurants revenue decreased by $9.0 million, or 2%, from $479.0 million in 2011 to $470.0 million in 2012. Revenue from tourist trains and cruises decreased by $1.1 million, or 1%, from $75.8 million in 2011 to $74.7 million in 2012. The decrease in revenue is generally due to the weakening of the euro and other currencies against the U.S. dollar and small decreases in occupancy.

2011 compared to 2010

Total revenue increased by $85.1 million, or 18%, from $469.6 million in 2010 to $554.7 million in 2011. Hotels and restaurants revenue increased by $71.1 million, or 17%, from $407.9 million in 2010 to $479.0 million in 2011. Revenue from tourist trains and cruises increased by $14.1 million, or 23%, from $61.7 million in 2010 to $75.8 million in 2011. The increase in revenue is generally due to the continued growth from 2010 following the global economic downturn in 2008 and 2009 and the negative impact this had on the hotel industry.

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

Europe
Year ended December 31,             2012       2011       2010

Average daily rate (in dollars)       699        710        637
Rooms available (in thousands)    285,842    287,200    280,454
Rooms sold (in thousands)         158,160    164,380    139,442
Occupancy (percentage)                 55         57         50
RevPAR (in dollars)                   387        406        317

Europe - 2012 compared to 2011

Revenue decreased by $10.9 million, or 5%, from $213.2 million for the year ended December 31, 2011 to $202.3 million for the year ended December 31, 2012 due to the weakening of the euro and the Russian ruble against the U.S. dollar as well as a small decrease in occupancy at the Italian hotels. Exchange rate movements caused revenue to decrease by $14.0 million in 2012 compared with 2011. ADR in U.S. dollars decreased by 2% from $710 in the year ended December 31, 2011 to $699 in the year ended December 31, 2012. Occupancy decreased from 57% in the year ended December 31, 2011 to 55% in the year ended December 31, 2012. On a same store basis, RevPAR in local currency increased by 2% for the year ended December 31, 2012, but decreased by 5% when measured in U.S. dollars.

Europe - 2011 compared to 2010

Revenue increased by $43.4 million, or 26%, from $169.8 million for the year ended December 31, 2010 to $213.2 million for the year ended December 31, 2011. Improved trading conditions across Europe caused the ADR to increase by 11% from $637 in the year ended December 31, 2010 to $710 in the year ended December 31, 2011. Occupancy increased from 50% in the year ended December 31, 2010 to 57% in the year ended December 31, 2011. On a same store basis, RevPAR in local currency increased by 19% for the year ended December 31, 2011, and by 25% when measured in U.S. dollars. Exchange rate movements caused revenue to increase by $7.9 million in the year ended December 31, 2011 compared with the same period in 2010.

North America
Year ended December 31,             2012       2011       2010

Average daily rate (in dollars)       382        355        333
Rooms available (in thousands)    251,172    251,869    250,423
Rooms sold (in thousands)         165,750    165,017    160,332
Occupancy (percentage)                 66         66         64
RevPAR (in dollars)                   252        232        213

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