Orient-Express Q4 Earnings Call Transcript

123jump.com Staff
10 Mar, 2009
New York City

The hotel and leisure group reported revenue decreased 46% to $81.7 million. Net loss widened 879% to $48 million in the quarter. The company lost $1.04 a share compared to earnings of 12 cents a year-ago quarter. Revenue per room declined 16% in local currency.

Orient-Express Hotels Ltd. ((OEH))
Q4 2008 Earnings Call Transcript
February 26, 2009 10:00 a.m. ET

Executives

Pippa Isbell - Vice President, Corporate Communications
Edwin S. Hetherington – Vice President, General Counsel & Secretary
Paul M. White - President & Chief Executive Officer
Martin O''Grady - Chief Financial Officer & Vice President, Finance

Analysts

Steven Kent - Goldman Sachs & Co.
Joseph Greff – JPMorgan
Chris Woronka - Deutsche Bank
William Truelove - UBS
Nitin Bhalotia - Leo Fund Managers
David Katz - Oppenheimer & Co.
Ross Haberman - Haberman Fund

Presentation

Operator

Welcome to the Orient-Express Hotels fourth quarter results conference call. My name is Sarah and I will be your coordinator for today''s conference. For the duration of the call, you will be on listen-only. However, at the end of the call, you will have the opportunity to ask questions. If at any time you need assistance, please press “*0” on your telephone keypad and you will be connected to an operator.

I''m now handing over to Pippa Isbell to begin today''s conference.

Pippa Isbell

Good morning, ladies and gentlemen. As the operator indicated, this is the fourth quarter earnings conference call for Orient-Express Hotels. We issued our news release last night and it''s available on our website at www.orient-express.com as well as on the SEC website. For anyone who''s not yet seen it, the highlights are as follows.

Local currency same-store RevPAR down 16%. Total revenue before real estate was $107.8 million, down 26% on the prior year. The net loss from continuing operations was $43.5 million or $0.94 per common share. Non-recurring charges were $44.1 million or $0.95 per common share. Adjusted net earnings from continuing operations were $0.6 million or $0.01 per common share and adjusted EBITDA from continuing operations was $11.1 million.

On the call today are Jim Hurlock, Chairman of Orient-Express Hotels; Paul White, President and Chief Executive Officer; Martin O''Grady, Chief Financial Officer, and Ned Hetherington, Company Secretary, to whom I will now hand over for the usual announcement.

Edwin S. Hetherington

Good morning, everyone. Before we get started, I would like to read out our usual cautionary statement under the Private Securities Litigation Reform Act of 1995 in the United States.

In the course of remarks to you today by Orient-Express Hotels'' management and in answering your questions, they may make forward-looking statements concerning Orient-Express Hotels, such as its earnings outlook, future investment plans, and other matters that are not historic facts. We caution that actual results of Orient-Express Hotels may differ materially from these forward-looking statements.

Information about factors that could cause actual results to differ is set out in today''s news release, the company''s latest annual report to shareholders, and the filings of the company with the Securities and Exchange Commission.

That''s all I have; I''ll now turn the call over to Paul White, Chief Executive of Orient-Express Hotels.

Paul M. White

Thanks Ned. Good morning everybody and thanks for joining us today.

On today''s call, I intend to cover the following points. Firstly, I will provide some comments on the macroenvironment and how this is impacting OEH, secondly to update you on the progress we have made with our various cost reduction programs and to provide comments on the fourth quarter including some additional color on the one-off events that we reported in the press release last night. And finally, and probably most importantly to give our thoughts for what lies ahead in 2009.

Some four months have passed since we reported our third quarter earnings, and even then I painted a picture of an extremely challenging economic environment from the point of view of somebody leading a luxury experience base travel company. So what has changed in the world since early November 2008? In many respects not much. Any hint of a positive indication with our industry continues to be offset by negative macroeconomic data both from the traditional strongholds and the recently highly productive developing economy.

Debt markets while supportive of companies like Orient-Express who have traditionally worked at low loan to value ratios are resistant to companies who have taken a more aggressive view of life and are not just -- are just not there for anything with the word development in it.

Trends we are seeing since September 2008 are very similar to those we saw in the early 90s and indeed in 2001/2002. Obviously the recovery post-9/11 was fairly rapid but in the 1990s it was some 18 months before we saw sustainable recovery.

The strategic moves that I refer to you today and those indeed referred to in November, continues to be geared around our view that we are here to survive a long and deep recession. And also I was not personally around in the 1970s and 1980s recessionary period, I know from a lot of publicly disclosed information, these recessions actually officially lasted 17 months.

In November we gave detail on how we intend to navigate these challenges with aggressive cuts in fixed cost and strong focus on variable cost management without impacting Orient-Express'' high level of service standards. We announced reductions in capital expenditure, in development expenditure and all other discretionary forms of expenditure. We also announced the suspension of dividends.

Also in November, we took additional action to further bolster our liquidity and our balance sheet by raising further equity. Indirectly linked to this, 42 of the most senior managers in the company elected to forego cash remuneration of up to 25% to take part in an equity participation scheme which is directly linked to share performance.

During the third and fourth quarters of 2008, we were focused on positioning this company for medium-term survival. Whilst diligence in all these areas will continue, it''s important now that we focus on positioning the company for the long-term and driving RevPAR and shareholder value.

On to our results. Our annual and fourth quarter results were clouded by some non-recurring charges, and two key changes in accounting treatments. These non-recurring charges included some impairment charges, restructuring charges, write-offs of developments announced in the fourth quarter, and changes in accounting for both Charleston Place and the Porto Cupecoy in St. Martin.

First the impairment issue. Due to the unprecedented downward shift in real estate values driven by the global economic downturn, we elected to have fair market evaluations done on all of our key assets both in Europe and in the US, that''s 17 out of our 38 hotels. For many of these assets including our Italian portfolio, this was the first time we''d undertaken this exercise since early 2005. The values have not significantly shifted. I think you will probably conclude that that will be correct, because most values moved up in 2006, ''07 and ‘08; they''ve now shifted back down again. Indeed, the total value of those 17 assets came to over $1 billion. The balance of the portfolio, the remainder of the hotels, the trains and cruises and our other assets were internally revalued. The result was that one key investment not being the Ritz in Madrid was written down by $23 million and of our other assets we wrote down goodwill on five assets to the amount of approximately $10 million, the total impairment charge being $32.7 million.

On the accounting changes, let me first talk about the Porto Cupecoy development. We''ve been accounting for revenues and cost under what is known as the percentage of completion method, which basically allows you to record revenue in line with the physical completion of the project, cost of an allocated line with projected margins for the development. However the projected margin is a function of projected sales and costs. Under the relevant standard, I think it''s FAS 66, you have to meet certain criteria for percentage of completion accounting and one of those is your ability to reasonably project future revenues. I don''t think I need to say anymore on that one. We had to change the application of this policy and instead we''re now accounting to what is known the deposit method. Essentially this means that any sales receipts are booked as differed revenue until the units are actually delivered, i.e., the keys are handed over. To reflect this change, we reversed in the fourth quarter, all of the cumulative revenue and cost from previous pairs giving an overall net charge for the year of $4.9 million. It is important to note that this change of application had no cash effect on the company.

Typically, as soon as we made this decision which you can imagine we were deciding on in toward the end of this November or early December, condos started to sell again and since that time we sold another eight condos.

The second important change is regarding Charleston Place. Previously we had equity accounted for the results of this hotel and we report the results and the hotel management & part ownership interest. We now provide more than 50% of the hotel''s equity and subordinated debt and accordingly under FIN 46R, we are now required to consolidate the assets and liabilities and as from 2009, the income statement of the hotel. This includes bringing on balance sheet $80 million dollars of the hotel’s third party debt, all of which is non-recourse to Orient-Express. To help you adjust your models for next year, if we had taken Charleston Place on the income statement this year, we''d have had $40 million of EBITDA, about 4 million of depreciation and 4 million of interest. My own view is that having Charleston Place on balance sheet will allow for easier understanding of this partnership structure and a much clearer understanding of the debt.

Moving on to operations. Our fourth quarter RevPAR dropped 16% in local currency resulting in same-store RevPAR growth for the year of 3%. The extraordinary movements in the U.S dollar versus most currencies in which OEH trades means that the quarterly movement in RevPAR was nearly double that of the local currency movement.

You will recall that for P&L purposes we account using a weighted average exchange rate on a cumulative basis which due to our seasonality can show volatile movement in our fourth quarter. This was known in November and hence fully factored into the guidance that I gave at that time.

For the year, adjusted EBITDA from continuing operations was $132 million in line with the guidance range that I gave in November of a $130 to $135 million.

For the year, our properties in Russia, Mexico, South America and Asia saw growth both in revenues as well as in EBITDA. That said the biggest declines that we saw were in Italy, France and in North America.

So what of 2009? Well before I share with you what meaningful data we have, a few comments on what is and what is not having an impact on the top line. Our business model is one that is decentralized and hence we have the flexibility to react on a local and centralized basis. Clearly in line with every other operator, the fight for market share involves exactly that, a fight for business. And our experiences over the last six or seven months are showing similar impacts to what we saw in the early 90s and in the post-9/11 period.

Straight discounting in our segment just doesn''t cut it; nothing new here, we''ve seen it before. What our clients are looking for is creativity and an appreciation of their loyalty. Remember they are spending their own money; they are not spending their company''s money.

Our managers have autonomy to be creative. At one resort recently we took a decision to refund inbound airlines. Of course we refunded that in the local currency and what happened? The client spent that money in the spas, in the bars, in the restaurants. But it creates a great level of loyalty from the clients.

We are also happening to react to the environment that we live in, and we are seeing more localized travel despite -- and despite declining revenues, revenues from electronic medium continued to grow. We have to remember, there''s not just a slight change in the financial climate here. We are seeing a bigger change in the way that the world lives it -- is living both from the environmental and a social aspect.

Our bookings pace on a same-store basis is in line with what we were seeing going into the fourth quarter. The first quarter is currently showing a 19% drop in confirmed bookings versus the same point one year ago, and that''s based on data that was compiled in mid-February. The second quarter is slightly behind that, driven by some very late bookings patterns. Just on that and anecdotally last weekend was Carnival in Rio, a week-and-a-half ago, we were actually tracking bookings slightly behind this time last year. In fact we closed the weekend with bookings ahead. There was a very, very late scurry of bookings, and again, from the local Brazilian market.

And also all areas of the group which are currently tracking ahead, the general trend it has to be said is negative. January saw local currency RevPAR; these actual results declined by around 10% driven almost entirely by occupancy. This however translated in total revenue in US dollars of 21%. The key foreign exchange may have been between the dollar and the Euro. We''re currently expecting this to repeat itself in both February and March.

As in previous downturns due to the fact that the occupancy drop tends to be at the lower end of the rate range, average rate tends to increase. This is a factor of sales mix not us putting prices up. Whilst it''s extremely difficult to provide further guidance it is clear that we would see the primary driver of RevPAR being occupancy rather than rate.

Looking further out, I''m sure you will understand my reluctance to comment at this stage. Bookings patterns are erratic and at this stage in our bookings cycle we are hesitant to draw long-term conclusions based on any significance of good or reasonably good news. What we will do is keep the market updated with meaningful data on a timely basis.

As I said, these are challenging times and navigating the challenge is not easy. Our people in the field remain very focused on what they do best and that is delivering excellent, personalized services and memorable experiences. If we continue to provide world class products as we have done for over 25 years, we will get through this financial crisis and emerge stronger.

Our prudent and flexible approach to management will underpin the RevPAR as we move forward. I will now turn the call over to Martin who would comment on the financials.

Martin O''Grady

Thank you Paul, good morning everyone. Beginning with the balance sheet, at the end of the quarter the company had $66 million of unrestricted cash plus an additional $51 million of funds available under working capital and revolving credit facilities. There was an additional $13 million of restricted cash mostly Porto Cupecoy sales receipts held in escrow.

Taking into account the total debt of $860 million, outstanding working capital facilities of 54 million, and a cash balance of 79 million and net debt at the end of the quarter was $835 million. This increased the Charleston Place debt of $80 million that Paul mentioned earlier.

On a trailing 12-month basis, the ratio of debt to EBITDA previously stated was 6.9 times. The current portion of long-term debt at the end of the quarter was $140 million. This however included 105 million of borrowings under revolver facilities which are technically repayable within 12 months but in reality will be rolled over as they mature. The largest component here is the €60 million European revolver that was rolled last October for six months and will be further rolled in April.

Taking account of this, the debt is scheduled to mature as follows - in 2009, $35 million, in 2010, $48 million, and 2011, 552 million. Investors should note that by far our biggest weighted debt maturity is over two years away in 2011. We are however conscious of the time it will take to restructure or refinance this amount of debt especially so in the arid world of credit we are all experiencing and so have commenced initiatives to tackle this hurdle.

At the end of December, approximately 4% of debt was fixed, and the average cost of debt including margin was 5.1%. Turning to cash flow for the year, cash from operations was 72 million, which compares to 85 million in 2007.

Investments in real estate which is primarily for Porto Cupecoy was 47 million and capital expenditure of the business unit level was 112 million. This includes 12 million invested in Hotel das Cataratas, $13 million in El Encanto, 11 million in Grand Hotel Europe, 10 million in the villas of La Samanna, and 8 million in Hotel Cipriani. Net cash provided by financing activities in the year was $77 million which includes 53 million from the equity issued last November. Overall there was a net decrease of cash of 25 million.

I''d now like to discuss our banking governance. Not surprisingly, this quarter I have received many questions about this. We track over 40 different key covenants relating to over 15 key facilities for subsidiaries of the group. None of these covenants are linked to the company''s market capitalization and at the end of the year not one of these covenants has been breached. We track them very carefully and indeed there is very little headroom on several of these facilities. Thus, we do remain engaged with out banks and do discuss the prospect of default and having to seek a wave of covenants.

One bank that I met recently said he did not view a hotel I was discussing with him as a problem asset. He said he had many nightmares, and that he expected 90% of his property loans to being breached in 2009. The point is that in this current environment, when so many loans are in breach, the banks are willing to have sensible discussions with companies that have a strong underlying business, a sensible strategy in place to deal with the downturn, experienced management to steer the business through the storm, and importantly, a willingness to engage with banks and provide transparency.

I understand from talking to many of these bankers that there are many companies out there who have simply stuck their heads in the sand and won''t talk to their banks. That most certainly has not been our approach.

For example, last month, we sat down with our entire European banking group and discussed in careful detail our covenant calculations and projections for the downturn. Further, we had our European portfolio valued by a leading international valuation firm. The LTV test on this portfolio is 70%. The valuation performed, as of the end of December, was 61%, which was in fact an improvement over the 64% going into the loan in 2006. So, the banks took great comfort from our strong underlying valuations. They could also see how our projected debt service coverage ratios have improved proved following the dramatic fall in Euribor at the end of last year.

We did discuss with these banks the possibility of extending the loan and reducing debt service coverage ratios. The banks showed a willingness to enter into discussions and indeed remained ready to discuss this with us. However, if the downturn is worse than we have been projecting, and we do end up renegotiating or restructuring, then we must be prepared to accept current market rates of funding, which will be significantly higher than we have been enjoying until now on this facility.

For a loosening of covenant ratios and the one-year loan extension, we received from the banks indications that the arrangement fee will be circa 300 basis points which equates to €7.5 million and the margin would be increased from 90 basis points to over 300 basis points. Because of this cost, we collectively decided in the end to carefully monitor the situation and have another conversation later in the year, if it became necessary to do so.

The key points I would like to stress is that even if it appears likely that we will breach a covenant, which would be far from unusual in today''s environment, we believe that our banks with whom we share excellent relations will work with us to find a mutually acceptable solution.

An example here is with Hotel Ritz Madrid, which we are in 50% off in a joint venture. As many of you know, Spain like other countries that has been stoked in recent years by construction boom, has been particularly hard hit by the global financial crisis. Not surprisingly, Hotel Ritz has felt the impacts of the severe downturn in the Spanish economy, and is no longer in compliance with one of its key debt service covenants. However, the hotel is still able to service its debt, and the bank has engaged with us, and is working with us towards reaching the covenant waiver. I should add that this debt is non-recourse to OEH.

The second area that I know everyone is concerned about is liquidity. At the end of December, the company had $66 million of unrestricted cash and 50 million of available credit under its revolving facilities.

As you know, the company''s liquidity position was enhanced by $55 million equity raise last November. However, as the global crisis continues and as to so many other companies, it''s clear that managing liquidity will be a key priority for us. We''re working very hard to reduce costs, obviously, without impacting our high level of customer service. We are keeping CapEx to a minimum, and we are seeking to raise cash on a number of fronts.

For example, we have found one oasis in this arid crediting climate. And I''m pleased to advise that last week we received the banks credit committee approval, to revise and restructure our construction finance facility for our Porto Cupecoy development.

We expect closing to be before the end of the first quarter, and this will provide an immediate line of $12 million and subject to new sales being made will provide a further $18 million or 30 million in total to help finance the development. This approval was critical to our strategy of making Porto Cupecoy cash neutral in 2009. As many of you know, this development has been a significant cash burden on the company, and its timing can be seen to be with the benefit of hindsight, unfortunate. However, in 2010 this development will be cash generative and we hope to eventually unlock for OEH and its shareholders over 65 million of cash after the project is completed and sold.

As I have mentioned previously, we also have a number of relatively unencumbered assets, most importantly in Mexico, Southeast Asia and Russia. Realistically, raising finance today in Russia is not possible although we remain poised to act fast as the credit markets there loosen up.

In Mexico, we have been progressing the loan application for $25 million, and we hope for some good news soon. We are also marketing to sell 8 completed unencumbered uber-deluxe villas adjacent to our La Samanna Hotel priced at $5 million each.

We''ve also taken a detailed and hard look at other properties that are non-core and not particularly cash generative after servicing debt. We''re taking actions on a number of fronts, and hope to realize a quantum of cash over the next six months without necessarily realizing cash at fire-sale prices. So this will further enhance liquidity, and help de-lever our balance sheet. I''ll now pass it on back to Paul.

Paul M. White

Okay. Thanks Martin. Yeah, just on that last point, I know that we''ve spoken about this a lot in the past that selling assets in today''s marketplace does continue to be challenging. But we are working with certain investors who do have an appetite for the luxury lodging product, and as Martin said this is a two-pronged issue; one is attempting to de-lever and secondly we are looking to sell properties with management.

In closing, I''d like to reiterate, yes, it''s easy for management teams to be overly distracted by the macro-issues and lose focus on running this business. I believe by taking the deliberate, prudent actions that we''ve taken in the second half of 2008, difficult as they were, it enables our managers to remain focused on running the business, and this means maximizing revenues, maintaining customer loyalty, and ultimately delivering solid long-term returns. Thanks very much. Pippa, you want to go to questions?

Pippa Isbell

Right. I will now hand you back to the operator so we can take your questions. In the interest of time, could I ask you please to limit yourself to three questions each? Thank you, operator.

Question-and-Answer Session

Operator

Thank you. If you would like to ask a question, please press “7” on your telephone keypad. If you change your mind and wish to withdraw your question, please press “7” again. You will be advised when to ask your question. The first question comes from the line of Steve Kent from Goldman Sachs. Please go ahead.

Steven Kent - Goldman Sachs & Co.

Hi. It''s Steve Kent.

Paul M. White

Yes, you are right.

Steven Kent - Goldman Sachs & Co.

Good morning and good afternoon to you. I know that the issue is really on these bank covenants, and you said you had 42 key covenants in 15 different facilities but you have breached a couple. I guess, I just was wondering, are you going to provide a schedule at some point that shows what --

Paul M. White

I think you misunderstood what Martin was saying, we haven''t breached any covenant, and at the end of the year, the covenant that Martin was referred to was at the Ritz Madrid, which is non-recourse to Orient-Express and has -- and did breach, but it''s been resolved. That said, yes, clearly, we are going to give a lot more color in our 10-K filing on the various facilities that we have. But we do not anticipate any serious problems going forward.

Steven Kent - Goldman Sachs & Co.

But Paul, I thought that you also said that you may breach, or you will breach a covenant on one or two of these and that you may have to in fact renegotiate. So, I mean, maybe I missed -- misheard what you said but I thought you did say --

Paul M. White

If we go back to November, what we''ve been doing is we''ve been renegotiating deals with banks before we get into a situation that we would breach covenants. And that is the -- we can -- I have a plethora of sensitivity analyses in front of me, and obviously, you start driving RevPAR down. There is a point -- there is a percentage point where certain debt service coverages come under pressure. And what we''ve been doing in the last sort of six months is exactly what Martin has described is that we look at them on an individual basis, and we try to head them off before it actually happens.

Steven Kent - Goldman Sachs & Co.

Okay. And then one other thing, I don''t know if you mentioned. Could you give a run rate on the expenses, your cost cuts and sort of what to expect over the next 12 to 24 months?

Paul M. White

Yeah, I mean what we have done is, and this is partly central and partly the hotel level is we did a -- the exercise that we started in the middle of last year was geared at reducing fixed cost by -- between $20 and $25 million. And then on a variable cost basis, we are looking for a $0.50 in the dollar recovery. So if our -- very simply, if our revenue was to go down by 10%, which is about $60 million, you''d expect to get 30 back in the variable, and then you got the 20 of cost saving on the fixed, maybe a little bit more than 20 in fact. Obviously beyond that, the next 10%, the next 60 million you''d expect us to pull back about 30. And then really that is what we would -- that''s how you should project it further on than that.

Steven Kent - Goldman Sachs & Co.

Okay, thank you.

Paul M. White

Okay, thanks Steve.

Operator

The next question comes from the line of Joe Greff from JPMorgan. Please go ahead.

Paul M. White

Hi, Joe.

Joseph Greff – JPMorgan

Good morning, everyone.

Paul M. White

Hi.

Joseph Greff – JPMorgan

Could you say what capital spending would be for 2009?

Paul M. White

I actually announced that back in November, but it''s unchanged. I think we are looking at 12 million of regular FF&E and then we got another 12 million which is linked to the completion of the Cataratas project, and that is obviously fully funded.

Joseph Greff – JPMorgan

Okay great, that''s all I have. Thanks guys.

Paul M. White

Okay, thanks Jeff.

Operator

Next question comes from the line of Chris Woronka from Deutsche Bank. Please go ahead.

Chris Woronka - Deutsche Bank

Hey Paul, hey Martin.

Paul M. White

Good morning Chris.

Chris Woronka - Deutsche Bank

Just maybe if you could give us a little bit more color on what you''re doing with the Cupecoy development in terms of your plans to make that cash positive by next year, maybe some of the details on the marketing firm, and then some of the plans there.

Paul M. White

Yeah absolutely, the first thing that we didn''t really talk about and we don''t talk about regularly on the call, but obviously the dynamic down in the Caribbean in terms of how payments are released is different than it is in the US and particularly in New York. And what happens is that the 70 or 80 people now that have full condominiums every now going forward, every three or four months, we receive another 12% to 12.5% payment. So 12.5% goes into escrow and then 12.5% comes out of escrow. So, as we progress the project, this money that is coming out of escrow is covering the cost per se to complete the project. We''re now reaching the point where visibly the project looks like it''s almost complete, so when people go down there they can see a finished -- almost finished project, in actual fact as Martin said; the scheduled completion now is in the fourth quarter of this year. So we engaged about 6 months ago, with a -- an American base or Canadian base firm called S&T Real Estate who have a sales team on-site and have outreach into North America and into Canada who have been really pushing sales down, down there on the island. And hence, they really started getting traction in mid-December and over that Christmas period, they sold another eight condominiums. We have overlaid an international proxy manager -- development firm to ensure completion. It just gives me more -- I think we''ve done a good job of managing the project through to the point where we''ve got it, but I needed a -- effectively what I would call a closer to sort of somebody that can really stand up and say yes, I will guarantee completion on a certain date. And this backdrop with the local finance packages that we''ve been able to get in place and what Martin described with WestLB, I think will see us get through this year, minimum cash breakeven. What we should end up with based on fairly low projections that we''re making for the rest of this year is about a 100 units left to sell when the project is absolutely complete and we will either look at a block sale or a series of block sales to ship those last 100 units.

Chris Woronka - Deutsche Bank

Great. And just if you could clarify that how much of the deposits do you actually have, have in because it’s 12.5%?

Paul M. White

50.

Chris Woronka - Deutsche Bank

60?

Paul M. White

Five zero.

Chris Woronka - Deutsche Bank

Five zero.

Paul M. White

So I''ve got four lots at 12.5 and then the next will be as soon as the project goes through the next stage, then there''s another 12.5 coming in.

Chris Woronka - Deutsche Bank

Okay great. One final one on the -- on the New York project. Is there any -- you talked about kind of working with them to differ that, is there any hard timeframe for that or are there deadlines, and is there any -- I guess recourse if you decide not to go forward with what you''ve already committed.

Paul M. White

Yeah, I mean Chris, we are -- clearly, I''m not going to -- I''m not going to put another $43 million into a project in this environment. I think the -- that the big positive here is that the members of the New York Public Library Board that we deal with are actually big names in New York real estate development, so they fully understand what is going on.

The outcome will be, I think, one is -- from one extreme that we may well get a very soft deferral for a couple of years. On the other hand, the library may decide to return to their premises and we might have to forego our deposit. At the moment, it''s very much under discussion and the tone of the discussions is such that I feel that this is going to -- this will have a positive outcome both for us and for the library.

Chris Woronka - Deutsche Bank

Okay, great thanks.

Paul M. White

Thanks Chris.

Operator

The next question comes from the line of William Truelove from UBS. Please go ahead.

William Truelove – UBS

Good morning.

Paul M. White

Good morning Bill.

William Truelove – UBS

My first question is about covenant breaches obviously. If there is a covenant breach at the property level of one of your -- of all the properties you are talking about, does that trigger a covenant breach at a corporate level?

Paul M. White

No, not real -- we don''t have -- I mean, that there is -- I think there''s one or two very, very small pieces of debt that have crossed before. One is with the -- is our little property in Lima, which is a $10 million issue. But, no, there is nothing that''s -- there''s nothing material that would cost a full backup to the company level.

William Truelove – UBS

Great, thanks. That''s all my questions.

Paul M. White

All right. Thanks Bill.

Operator

The next question comes from the line of Nitin Bhalotia from Leo Fund Managers. Please go ahead.

Nitin Bhalotia - Leo Fund Managers

Yeah, hi guys.

Paul M. White

Hi, good morning.

Nitin Bhalotia - Leo Fund Managers

Good morning and good afternoon. I have a couple of questions. First is with regards to the cost cutting that you have declared on 19.6 million. Could we have a bit of breakup between fixed and variable cost that''s implied in 19.6 million? And then I have one or two small things also.

Paul M. White

Yeah, it''s all -- that is all fixed cost.

Nitin Bhalotia - Leo Fund Managers

That''s all fixed cost.

Paul M. White

All fixed cost, yeah, because variable cost at the end of the day will vary as the revenue varies. So, that was based on absolute fixed cost, i.e., absolute savings.

Nitin Bhalotia - Leo Fund Managers

And can we get a bit more color about how you go about cutting this cost, because at the same time you are stating that you can''t compromise on the level of service offerings. So how does --

Paul M. White

Right. Yeah, I mean it is very much geared to cutting costs where the client doesn''t see it and a lot of this is down to the skills of the General Managers on their units, negotiating cost cuts, whether it''d be with their marketing budgets, with their admin budgets, every single cost being gone through on the administration side, changes in travel budgets. It then comes down to on the -- on energy management and maintenance. Those are the classic sort of areas where you can pull back. Admittedly, there are a few of those areas that you might get a hold for two years. But, you have to release them after a while. But that is what we''ve done, I think, no different to any other travel or lodging company.

Nitin Bhalotia - Leo Fund Managers

And just a bit further on the CapEx sector was discussed just now. 2009 CapEx plan guidance includes the 12 you have mentioned but it also -- that''s apart from 12 million of maintenance CapEx if I am -- I understand correctly of the --
Paul M. White

No. The first 12 is actually the maintenance CapEx or the FF&E CapEx.

Nitin Bhalotia - Leo Fund Managers

Okay. So, the total is 24 million.

Paul M. White

The total is 24; I think is said 25 in November.

Nitin Bhalotia - Leo Fund Managers

And is it too early to get an idea of what happens in 2010, please?

Paul M. White

Well, my gut feel at the moment is that the properties will be able to continue at the -- this is effectively a 2% FF&E reserve rather than a 4% FF&E reserve. So, I think you could model the same number for 2010 at the moment. I wouldn''t like to go much further than that, but --

Nitin Bhalotia - Leo Fund Managers

Fully appreciate that. And one very last point, how much deposit do you have on New York hotel library?

Paul M. White

7 -- 7 million US.

Nitin Bhalotia - Leo Fund Managers

Okay. Thank you very much.

Paul M. White

Okay, thanks.

Operator

Thank you. We currently have no questions in the queue. So to remind you if anyone would like to ask a question, please press “7” on your telephone keypad now. We have a question from the line of David Katz from Oppenheimer & Co. Please go ahead.

David Katz - Oppenheimer & Co.

Hi. Good day, all.

Paul M. White

Hi David.

David Katz - Oppenheimer & Co.

We were trying to go through and calculate the impact of FX on --

Paul M. White

I knew you''re going to ask that, so I prepared it.

David Katz - Oppenheimer & Co.

-- your revenues and profits?

Paul M. White

Yeah. I think that the -- it''s very difficult to precisely calculate it. But, I did do an -- we did do an exercise on this. But we -- obviously, we didn''t want to sort of put that to print in the press release. The simple thing to do is just to look at the RevPAR shift between local currency and US dollar. And I think I calculated the impact in Europe in the fourth quarter as about 13 million on top-line and about 5 million on EBITDA. And then on the rest of the world, which is the other area, you could see that the impact is actually -- is actually greater, because we went from positive 1 to negative 21 on the RevPAR. So I came up with, I''m just looking, about 8 million impact on the top-line, and probably about a 3 to 4 million impact on the EBITDA level. Obviously the balance of the portfolio is essentially US dollar price. So that, that''s -- that gives you a guide now. Because we work on this cumulative average, you take the sort of -- at the end of the fourth quarter, you work out what the cumulative average is and then you deduct your absolute number for the third quarter but I think those numbers are plus or minus sort of 10% accurate.

David Katz - Oppenheimer & Co.

We were getting relatively close to that.

Paul M. White

Okay.

David Katz - Oppenheimer & Co.

When we looked at the trains and cruises, right, which is --

Paul M. White

Correct.

David Katz - Oppenheimer & Co.

-- small in the quarter but on a relative basis overall probably worth spending a minute on.

Paul M. White

Yeah. Trains and cruises you''re right is a completely opposite dynamic, because the trains and cruises cost structure is almost entirely in Euros. Some of this is in Sterling but the bulk of it is in Euros. And the trains and cruises business is a Sterling based business. So the huge movement in the Euro versus the pound pushed the cost structure up. It''s sort of similar to what happened last year towards the other way around in La Samanna. In La Samanna when the Euro went to 1.60 to the dollar and all the revenues coming in, in dollars, the revenues stayed the same but it pushed the cost structure up. So this has an approximate 2 to $2.5 million impact on the annualized cost structure of the train, the -- i.e., the dollar-Euro moving from that 150 to 125.

David Katz - Oppenheimer & Co.

Okay, perfect. That''s all I had, thanks.

Paul M. White

All right David, thank you.

Operator

The next question comes from the line of Ross Haberman from Haberman Fund. go ahead.

Ross Haberman - Haberman Fund

Good morning gentlemen, how are you.

Paul M. White

Good morning Ross.

Ross Haberman - Haberman Fund

I would just start a little lost, could you repeat on the New Orleans property, you said the 80 million of debt was on the balance sheet of year -- as of yearend, but the 14 million of cash flow was not in your $132 million, was that correct?

Paul M. White

Yeah, we took the -- just before -- it’s Charleston Place not New Orleans, but I''ll let Martin answer.

Martin O''Grady

At Charleston Place it was -- we did the test after we had an evaluation done on the property at the end of the year, and for the first time the Orient-Express provided more than 50% of the subordinated debt in equity. So at that point in time, we had to consolidate the balance sheet and from the 1st of January we will, going forward, consolidate the income statement. But going back in time, it’s equity accounted. So what Paul said was that had to give -- obviously help people out to model for next year had it been on the balance sheet since the 1st of January ''08 if you like then we would have had an EBITDA of 14 million and there would have been additional depreciation of 4 million and additional interest, I think, you said, of 4 million.

Paul M. White

Yes that''s right.

Ross Haberman - Haberman Fund

So the cash flow would have been 146 you''re saying?

Martin O''Grady

Well the --

Ross Haberman - Haberman Fund

EBITDA --

Paul M. White

EBITDA is 14 not 40.

Ross Haberman - Haberman Fund

So the -- though the total start -- the total for the company -- I''m just adding the 14 to your 132, your adjusted number.

Paul M. White

It''s essentially neutral because obviously you''ve got management fees and interest going into that line as well. So the two are a wash really.

Ross Haberman - Haberman Fund

I doubt completely.

Paul M. White

But what you are going to see next year, I know I -- I haven''t sort of thought of -- we will certainly make notations in the press release so you can understand. It is just that the earnings from Charleston will shift up from management of another interest into the US section.

Ross Haberman - Haberman Fund

So the 132 stays the same?

Paul M. White

That''s right, yeah.

Ross Haberman - Haberman Fund

Okay fine I thought you were adding --

Paul M. White

Sorry I should have -- we should have been -- yeah now you say it, I realize it''s a bit misleading but yeah no, it''s actually is a bit of a wash.

Ross Haberman - Haberman Fund

And just one other question. The 45 million you have in assets held for sale, what is that, exactly?

Paul M. White

That''s the villas in -- oh, in assets held for sale, that is Bora Bora.

Ross Haberman - Haberman Fund

And any movement there?

Paul M. White

I don''t like to sort of comment until things are signed, but we do have -- we are in sort of very detailed sort of negotiation due diligence at the moment. So -- but I am reluctant to comment until the signature is on the piece of paper and the money is in the bank.

Ross Haberman - Haberman Fund

And none of their cash flow, if there was any, was in the 132 million?

Paul M. White

That''s correct.

Ross Haberman - Haberman Fund

Okay thank you guys, best of luck.

Paul M. White

Okay, thanks Ross.

Operator

Thank you. Ladies and gentlemen, we have -- currently have no questions in the line. So, as a final reminder, if you would like to ask a question, please press “7” on your telephone keypad now.

Paul M. White

Okay.

Pippa Isbell

Great. Thank you very much everyone, and have a good day.

Martin O''Grady

Thank you.

Operator

Thank you for attending today''s conference. You may now replace your handset.