UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ý                                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

or

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to                         

Commission File Number 1-16017

ORIENT-EXPRESS HOTELS LTD.

(Exact name of registrant as specified in its charter)

22 Victoria Street,
Hamilton HM 12, Bermuda

(Address of principal executive offices)

Registrant’s telephone number, including area code: (441) 295-2244

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.

Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý  No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o  No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (Not applicable. See third paragraph under Item 1–Business on page 4.)

                Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No ý

The aggregate market value of the Class A common shares held by non-affiliates of the registrant computed according to the closing price on June 30, 2005 (the last business day of the registrant’s second fiscal quarter in 2005) was approximately $910,000,000.

As of February 28, 2006, 39,413,250 Class A common shares and 18,044,478 Class B common shares of the registrant were outstanding.  All of the Class B shares are owned by a subsidiary of the registrant (see Note 10(d) to the Financial Statements (Item 8)).

DOCUMENTS INCORPORATED BY REFERENCE:  None

TABLE OF CONTENTS

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Preliminary Note: Forward-looking statements concerning the operations, performance, financial condition, plans and prospects of Orient-Express Hotels Ltd. and its subsidiaries are based on management’s current expectations and are subject to various risks and uncertainties.  Actual results could differ materially from those anticipated in the statements due to a number of factors, including those described in Item 1–Business, Item 1A-Risk Factors, Item 7–Management’s Discussion and Analysis, Item 7A–Quantitative and Qualitative Disclosures about Market Risk, and Item 12–Security Ownership of Certain Beneficial Owners and Management below.  Orient-Express Hotels Ltd. undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

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PART I

ITEM 1.  Business

Orient-Express Hotels Ltd. (the “Company” and, together with its subsidiaries, “OEH”) is incorporated in the Islands of Bermuda and is a “foreign private issuer” as defined in Rule 3b-4 of the U.S. Securities and Exchange Commission (“SEC”) under the U.S. Securities Exchange Act of 1934 (the “1934 Act”) and in SEC Rule 405 under the U.S. Securities Act of 1933.  As a result, it is eligible to file its annual reports pursuant to Section 13 of the 1934 Act on Form 20-F (in lieu of Form 10-K) and to file its interim reports on Form 6-K (in lieu of Forms 10-Q and 8-K).  However, the Company elects to file its annual and interim reports on Forms 10-K, 10-Q and 8-K, including any instructions that relate specifically to foreign private issuers.

These reports and amendments to them are available free of charge on the internet website of the Company as soon as reasonably practicable after they are filed electronically with the SEC.  The internet website address is http://www.orient-express.com.  Unless specifically noted, information on the website is not incorporated by reference into this Form 10-K annual report.

Pursuant to SEC Rule 3a12-3 under the 1934 Act regarding foreign private issuers, the proxy solicitations of the Company are not subject to the disclosure and procedural requirements of SEC Regulation 14A under the 1934 Act, and transactions in the Company’s equity securities by its officers, directors and significant shareholders are exempt from the reporting and liability provisions of Section 16 of the 1934 Act.

Introduction

OEH is a hotel and leisure group focused on the luxury end of the leisure market.  It currently owns and/or invests in 50 properties (42 of which it manages) consisting of 39 highly individual deluxe hotels, three restaurants, six tourist trains and two river cruise businesses.  These are located in 25 countries worldwide.  OEH acquires or manages only very distinctive properties in areas of outstanding cultural, historic or recreational interest in order to provide luxury lifestyle experiences for the elite traveller.

The locations of OEH’s various properties are shown in the map on the preceding page, where they number 46 because the Hotel Cipriani and Palazzo Vendramin are contiguous in Venice, the Hotel Splendido and Splendido Mare are both in

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Portofino, and three separate safari lodges operate as a unit in Botswana.  These seven properties bring the total to 50.

Hotels and restaurants represent the largest segment of OEH’s business, contributing 85% of revenue in 2005, 84% in 2004 and 85% in 2003.  Tourist trains and cruises accounted for the remaining revenue in each year.  OEH’s worldwide portfolio of hotels currently consists of about 3,700 individual guest rooms and multiple-room suites, each known as a “key”.  This total includes Pansea Hotels described below which are not owned or managed by OEH.  Hotels owned by OEH in 2005 achieved an average daily room rate (“ADR”) of $375 ($366 in 2004) and a revenue per available room (“RevPAR”) of $228 ($214 in 2004).  Approximately two-thirds of OEH’s customers are leisure travellers, with approximately 50% of guests in 2005 originating from the United States, 35% from Europe and the remaining 15% from elsewhere in the world.

Revenue, earnings and identifiable assets of OEH in 2003, 2004 and 2005 for its business segments and geographic areas are presented in Note 15 to the Financial Statements (Item 8 below).

Until November 17, 2005, Sea Containers Ltd. (“SCL”), a Bermuda company with shares listed on the New York Stock Exchange, owned approximately 25% of the outstanding Class A and Class B shares of the Company.  See “OEH’s Relationship with Sea Containers Ltd.” below.

Owned Hotels–Europe

Italy

The Hotel Cipriani and Palazzo Vendramin–104 keys–in Venice were built for the most part in the 1950s and are located on three acres on Giudecca Island across from the Piazza San Marco.  Most of the rooms have views over the Venetian lagoon.  Features include fine cuisine in three indoor and outdoor restaurants, gardens and terraces encompassing an Olympic-sized swimming pool, a tennis court and a free private boat service to the Piazza San Marco.  The hotel owns a nearby historic warehouse building where, after refurbishment, large banquets and meetings are held.

The Hotel Splendido and Splendido Mare–81 keys–overlook picturesque Portofino harbor on the Italian Riviera.  Set on four acres, the main hotel was built in 1901 and is surrounded by gardens and terraces which include a swimming pool and tennis court.  There are two open-air and enclosed restaurants as well as banquet/meeting rooms, and a shuttle bus linking the main hotel with Splendido Mare on the harbor below.

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The Villa San Michele–45 keys–is located in Fiesole, a short distance from Florence.  Originally built as a monastery in the 15th century with a façade attributed to Michelangelo, it has stunning views over historic Florence and the Arno River Valley.  OEH has remodelled and expanded the guest accommodation to luxury standards, including a swimming pool. A shuttle bus service is provided into Florence.  The property occupies ten acres.  The Villa San Michele also operates for hotel guests the five-bedroom main house of the Capannelle vineyard in the Chianti region owned by James and Simon Sherwood.  See Item 13–Certain Relationships and Related Transactions below.

OEH rebuilt and in June 2005 reopened the Hotel Caruso–45 keys–in Ravello.  The hotel is located on three hill-top acres overlooking the Amalfi coast near Naples.  Once a nobleman’s palace, parts of the buildings date back to the 11th century. An additional seven keys are currently being built at this hotel.

All of these Italian properties operate seasonally, closing for varying periods during the winter.

Portugal

Reid’s Palace–164 keys–is the most famous hotel on the island of Madeira, situated on ten acres of semitropical gardens on a cliff top above the sea and the bay of Funchal, the main port city.  Opened in 1891, the hotel has four restaurants and meeting facilities.  Leisure and sports amenities include two fresh water swimming pools, a third tide-filled pool, tennis courts, ocean water sports and access to two championship golf courses.  It has year-round appeal to European leisure travellers, serving both winter escapes to the sun and regular summer holidays.  A new spa and conference center are being added in 2006.

The Lapa Palace–109 keys–is in the embassy district of Lisbon, near the city center and overlooking the Tagus River. The historic part of the hotel was originally built in the 1870s as the palace of a Portuguese noble family.  It opened as a luxury hotel in 1992 after extensive conversion and expansion, including the addition of conference facilities and underground car parking.  The hotel is set amid gardens with ornamental fountains and both indoor and outdoor swimming pools, occupying a total of three acres.  OEH owns an adjoining parcel of land suitable for development of up to 46 additional keys.

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Elsewhere in Europe

Hôtel de la Cité–61 keys–is located in the central square of the beautiful walled medieval town of Carcassonne, France near Toulouse.  Opened in 1909, the hotel incorporates one of the 50 watch towers in Carcassonne’s ancient fortifications and features two restaurants, gardens, a swimming pool and a nearby conference center, altogether occupying two acres.  One of the restaurants has been awarded one star for fine dining by the influential Michelin Guide.  The hotel also operates a canal barge on the Canal du Midi providing day excursions for guests.

OEH owns La Residencia–59 keys–located in the charming village of Deià on the rugged northwest coast of the island of Mallorca, Spain in the Mediterranean.  Mallorca is a popular European tourist destination throughout the year.  The core of La Residencia was originally created from two adjoining 16th and 17th century country houses set on a hillside site of 30 acres.  The hotel features three restaurants including the gourmet El Olivio, one of the foremost on the island, as well as two large outdoor swimming pools, tennis courts and a spa with an indoor pool.  OEH is currently adding keys to the hotel and enlarging the spa.

Le Manoir aux Quat’ Saisons–32 keys–is located in Oxfordshire, England about an hour’s drive west of London.  The main part of the hotel is a 16th century manor house set in 27 acres of gardens.  The property was developed by Raymond Blanc, one of Britain’s most famous chefs, and the hotel’s restaurant has two stars in the Michelin Guide, placing it among the best in the British Isles.  Mr. Blanc has given a long-term commitment to remain the chef at the hotel.

In February 2005, OEH acquired a 93.5% interest in, and full management and operational control of, the deluxe Grand Hotel Europe–301 keys–in St. Petersburg, Russia.  Originally built in 1875, the hotel occupies one side of an entire city block on the fashionable Nevsky Prospect in the heart of the city near the Russian Museum, Shostakovich Philharmonia and other tourist and cultural attractions as well as the business center.  There are six restaurants on the premises, popular with locals and visitors alike, as well as a grand ballroom, meeting facilities, a health club and seven retail shops.  OEH has begun a significant refurbishment of the hotel and plans to acquire the minority interest owned by the City of St. Petersburg.

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Owned Hotels–North America

United States

The Windsor Court–324 keys–opened in 1984 and is located in the central business district of New Orleans near the French Quarter and the Mississippi riverfront.  Harrah’s operates the only land-based casino in Louisiana across the street.  Each room has panoramic views over the river or the city.  Facilities include three restaurants and lounges, a roof-top ballroom, several other banquet and meeting rooms, an outdoor swimming pool and a health club.  The hotel’s interior décor features a collection of historic European art and antique furniture.  The hotel has planning permission to build a conference center on a nearby owned lot which would cater to small and medium sized business meetings.  Damaged by hurricanes in August and September 2005, the hotel reopened in November.

Keswick Hall–48 keys–is located in the rolling countryside of central Virginia, near Charlottesville.  Originally a private home dating from 1912, it is popular for weekend breaks and business meetings because of the natural beauty of the area and the adjacent Keswick Club which features a spa and fitness center, tennis courts, swimming pool and an Arnold Palmer-designed golf course.  The total site occupies 600 acres including vacant land around the golf course being sold by OEH in parcels for residential development.

The Inn at Perry Cabin–81 keys–was first built in 1812 as a country inn and is located in St. Michaels, Maryland on the eastern shore of Chesapeake Bay.  Set on 25 waterfront acres that include a fitness center, indoor and outdoor swimming pools, and boating and fishing on the Bay, it is an attractive conference and vacation destination, particularly for guests from the Washington, D.C. area.  OEH has completed a major renovation and expansion of the hotel, including a new conference facility, and is building a spa.

OEH owns El Encanto Hotel and Garden Villas–77 keys–in Santa Barbara, California.  The hotel is located in the hills above the restored Santa Barbara Mission, with views out to the Pacific Ocean.  Built in 1913 on a seven-acre site, the guestrooms are in cottages and low rise buildings spread throughout mature gardens with a swimming pool and tennis court.  OEH plans to close this property in mid-2006 for about ten months for significant renovation and the addition of nine keys.

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Caribbean

La Samanna–81 keys–is located on the island of St. Martin in the French West Indies.  Built in 1973, the hotel comprises several buildings on ten acres of land along a 4,000-foot beach.  Amenities include two restaurants, a freshwater swimming pool, a spa, tennis courts, fitness and conference centers, boating and ocean water sports.  The hotel is open most of the year, seasonally closing during the autumn months.

OEH owns additional land adjoining La Samanna on both the French and Dutch sides of St. Martin.  On the French side, it is constructing ten private villas on six acres which it intends to sell to third parties, and has received planning permission to build and sell 27 more units on about 30 additional acres.  On the Dutch side, OEH has begun construction of a marina and residential village called Cupecoy Yacht Club which OEH would sell and manage.  The village will be comprised of shops, restaurants and about 150 vacation condominiums on a parcel of 12 acres.

Mexico

OEH owns the Maroma Resort and Spa–65 keys–on Mexico’s Caribbean coast on the Yucatan Peninsula 25 miles south of Cancun’s international airport.  OEH originally purchased a 75% interest in the hotel and, in February 2006, purchased the minority interest.  The resort opened in 1995 and has 25 acres of land, including some for future expansion or residential development, along a 750-foot beach with the Cozumel barrier reef offshore where guests may fish, snorkel and scuba-dive. Important Mayan archaeological sites are also nearby.  Rooms are arranged in low-rise villas and there are extensive spa facilities.  The hotel suffered hurricane damage in October 2005 and reopened in February 2006.

In addition, OEH has reached an agreement in principle to purchase a 28.5 acre tract adjacent to Maroma for a total purchase price of $6,400,000, of which $1,000,000 may be deferred until OEH develops the land.  OEH intends to construct and sell up to 20 private villas on the land, although it may also construct additional keys for the hotel.

Also in February 2006, OEH acquired for $8,400,000 a 75% interest Casa de Sierra Nevada–33 keys–a luxury resort in the colonial town of San Miguel de Allende.  Opened in 1952, the hotel is comprised of nine Spanish colonial buildings built in the 16^th and 18^th centuries.  OEH manages the hotel and plans to renovate the existing buildings and two restaurants, as well as to develop 20 new suites, a full service spa, and a new

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pool and garden area.  In addition to the nine owned buildings, the hotel leases two buildings for administrative offices, a total site of approximately two acres.

Owned Hotels–Rest of the World

South America

Built in the 1920s on a three-acre site facing Copacabana Beach near the central business district of Rio de Janeiro, Brazil, the Copacabana Palace–225 keys–is one of the most famous in South America and features two gourmet restaurants, spacious function and meeting rooms, a large swimming pool and fitness center, and a roof-top tennis court and pool.  The old casino rooms and 500-seat theater are currently being refurbished as additional function and meeting space.

The Miraflores Park Hotel–82 keys–is located in an exclusive residential district of Lima, Peru surrounded by parkland and looking out at the Pacific Ocean, yet near the commercial and cultural center of the city.  Opened in 1997, the hotel has a large ballroom, rooftop outdoor pool, health and beauty facilities and a business center for guests, and occupies about one acre of land.

Southern Africa

The Mount Nelson Hotel–226 keys–in Cape Town, South Africa is an historic property opened in 1899 with beautiful gardens and pools and has long enjoyed a reputation as one of the foremost hotels on the African continent.  It stands just below Table Mountain and is within walking distance of the main business, civic and cultural center of the city.  The hotel has a ballroom, two swimming pools, tennis courts, a spa and fitness center, all situated on ten acres of grounds and gardens.  Expansion is planned through incorporation into the hotel of owned adjoining residential properties.

The Westcliff Hotel–117 keys–is the only garden hotel in Johannesburg, South Africa, situated on six hillside acres with views over the city’s zoo and parkland.  Its resort amenities include two swimming pools, a tennis court and health club, and the hotel attracts business guests because of its proximity to the city center.  OEH opened this hotel in 1998.  A banquet and conference center occupies part of the adjacent expansion land.

Orient-Express Safaris–39 keys total–consist of three separate game-viewing lodges in Botswana called Khwai River Lodge, Eagle Island Camp and Savute Elephant Camp.  Established in 1971, OEH leases the lodge sites in the

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Okavango River delta and nearby game reserves, where some of the best wildlife in Africa can be observed from open safari vehicles or boats.  Each camp has 12 or 15 twin-bedded deluxe tents, and guests travel between the camps by light aircraft. Boating, fishing, hiking and swimming are offered at the various sites.

Australia

The Observatory Hotel–96 keys–is in Sydney within walking distance of the central business district of the city.  This hotel opened in 1993 and has two restaurant and lounge areas, extensive meeting and banquet rooms, a spa and health club with indoor swimming pool, a tennis court and a large parking garage on a site of about one acre.

The Lilianfels Hotel–85 keys–is in the Blue Mountains National Park west of Sydney.  It is named after the original estate house, dating from 1890, where the hotel’s gourmet restaurant is located.  The main hotel, built in 1992 and recently refurbished, has a second restaurant and conference facilities.  The resort’s four acres of grounds encompass an indoor swimming pool, health club and spa, tennis court and extensive gardens with views over the Blue Mountains.  There is expansion land to add keys in the future.

French Polynesia

Bora Bora Lagoon Resort–77 keys–opened in 1993 and has bungalows situated over the lagoon water plus additional beach and garden bungalows, all built in traditional Tahitian style on a 12-acre site.  Guests dine in two restaurants and enjoy extensive water sports and tennis.  A recent renovation program included a new swimming pool, spa and conference facility.  There is expansion land, possibly for residential development.

Hotel Management Interests

Through a 50%/50% joint venture with a Spanish investment company, OEH owns and manages the famous Hotel Ritz–167 keys–in central Madrid near the financial district, Spanish parliament and many of the city’s well known tourist attractions.  Opened in 1910, the hotel has four spacious conference and banqueting suites, an indoor restaurant and the famous Ritz Terrace restaurant outdoors in the gardens.  OEH and its 50% partner have embarked on an extensive capital improvement program, including refurbishment of 60 keys in 2006.

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Charleston Place–442 keys–is located in the heart of historic Charleston, South Carolina, a popular destination for tourists and business meetings.  Opened in 1986, the hotel has two restaurants, extensive banqueting and conference space including a grand ballroom, a health club with spa and swimming pool and roof-top tennis court, and a shopping arcade of 25 retail outlets leased to unaffiliated parties.  The hotel also owns the adjacent historic Riviera Theater remodelled as additional conference space and retail shops.  OEH has a 19.9% ownership interest in this hotel, manages the property under an exclusive long-term contract, and receives interest on partnership loans which it assumed at the time of its original investment and on other loans made since then.

OEH has a 50%/50% joint venture with local investors in Peru which, under exclusive management of OEH, operates the following two hotels under 20-year renewable leases which commenced in 1995.

The Hotel Monasterio–126 keys–is located in the ancient Inca capital of Cusco, the most important tourist destination in Peru.  OEH is upgrading and expanding the property which includes a long-term lease of an adjoining convent for future development, a total site of about three acres.  The hotel was originally built as a Spanish monastery in the 16th century and was converted to hotel use in 1995.  The deluxe guest rooms and two restaurants are arranged around open-air cloisters.  Because of Cusco’s high altitude, specially oxygenated ventilation has been added to some of the refurbished rooms.

The Machu Picchu Sanctuary Lodge–31 keys–is the only hotel at the famous mountaintop Inca ruins at Machu Picchu.  All of the rooms have been refurbished to a high standard.  The joint venture also has a lease on seven acres at the foot of the ruins, close to the town where tourists arrive by train, for possible future expansion.

Restaurants

OEH owns ‘21’ Club, the famous landmark restaurant at 21 West 52^nd Street in mid-town Manhattan in New York City.  Originally a speakeasy during Prohibition in the 1920s, this restaurant is open to the public, occupies three brownstone buildings and features gourmet American cuisine.  It serves à la carte meals in the original bar restaurant and a separate dining room upstairs, and also has a number of banqueting rooms used for functions, including the famous secret wine cellar.

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OEH has a 49% interest in Harry’s Bar, a private dining club in the Mayfair area of London.  The majority partner manages the restaurant with assistance from OEH’s Italian hotels. Its menu features gourmet Italian cuisine.  OEH has a right of first refusal to acquire the remaining interest in this property under certain conditions.  OEH and the majority partner are currently discussing the future ownership of this restaurant.

OEH has re-established the famous La Cabaña steak house in Buenos Aires dating from the 1930s.  OEH bought the contents and name of the restaurant some years ago and, after relocating to the Recoleta area of the city, reopened in September 2003.  The main dining room features a traditional open fire for searing meats, and three private dining rooms have regional Argentine themes.

Tourist Trains and Cruises

OEH’s principal European tourist trains, called the Venice Simplon-Orient-Express, operate in two parts in a regularly scheduled overnight service between London and Venice and on short excursions in southern England.  OEH owns 30 railway cars originally used on historic “Orient-Express” and other famous European trains.  All have been refurbished in original 1920s/1930s décor and meet modern safety standards.  The services are marketed as a continuation of the Orient-Express trains of pre-World War II years.  One train is based in Great Britain composed entirely of Pullman cars with a capacity for up to 250 passengers.  The other on the Continent is made up of Compagnie Internationale des Wagons-Lits et du Tourisme sleeping cars and day coaches with capacity for up to 180 passengers.  They operate once or twice weekly principally between London and Venice from March to November each year via Paris, Zurich and Innsbruck on a scenic route through the Alps.  Passengers travel under the English Channel by bus on the Eurotunnel shuttle train.  Occasional trips are also made from time to time to Rome, Prague and Istanbul and other European destinations.

The British Pullman cars of Venice Simplon-Orient-Express operate all year, originating out of London on short excursions to places of historic or scenic interest in southern England, including some overnight trips when passengers stay at local hotels.  Both the British and Continental trains are available for private charter.

The Northern Belle tourist train offers day trips and charter service principally in the north of Britain.  It builds on the success of OEH’s British Pullman business, which focuses on the south of England around London.  This train

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consists of six dining cars elegantly decorated to be reminiscent of old British “Belle” trains of the 1930s, plus related service cars, and can carry up to 250 passengers.  Full course gourmet meals are served on board and passengers stay in local hotels on overnight itineraries.

In April 2005, OEH acquired a 50% interest in the Royal Scotsman luxury tourist train with rights to acquire the other 50% on an earn-out basis in three years.  Founded in 1985, the Royal Scotsman is composed of nine Edwardian-style cars accommodating up to 36 passengers.  Each compartment in the six sleeping cars has a private bathroom.  Operating from April to November each year, the train travels on itineraries of up to seven nights through the Scottish countryside affording passengers the opportunity to visit clan castles, historic battlegrounds, famous Scotch whiskey distilleries and other points of interest.  The sellers retain management of the Royal Scotsman until the end of the earn-out period, but the train has been fully integrated into OEH’s sales and marketing network.

PeruRail is a 50%/50% joint venture between OEH and Peruvian partners formed to operate part of the state-owned railways in Peru under a 30-year franchise acquired in 1999 and extendable every five years, upon the joint venture’s application, up to 30 additional years.  The joint venture pays the government a fee related to traffic levels which can be offset until 2009 against investment in track improvements. The 70-mile Cusco-Machu Picchu line carries mainly tourists visiting the famous Inca ruins, the principal means of access because there is no convenient road.  A second rail line runs from Cusco to Matarani on the Pacific Ocean via Puno on Lake Titicaca and Arequipa and principally serves freight traffic.  The Cusco-Machu Picchu line connects two of OEH’s Peruvian hotels allowing creation of inclusive tours served by OEH’s Hiram Bingham luxury tourist train.  OEH also operates a deluxe daytime tourist train on the Cusco-Puno route through the High Andes mountains, and a 1920s steamer included in the franchise on day excursions for tourists on Lake Titicaca.

The Eastern & Oriental Express in Southeast Asia travels up to one round trip each week between Singapore, Kuala Lumpur and Bangkok.  The journey lasts about 48 hours each way and includes two nights on board and side trips to Penang in Malaysia and the River Kwai in Thailand.  Some overnight trips are also made from Bangkok to Chiang Mai and elsewhere in Thailand.  Originally built in 1970, the 24 cars were substantially rebuilt to an elegant oriental style of décor and fitted with modern facilities such as air-conditioning and private bathrooms.  The train is made up of sleeping cars, three restaurant cars, a bar car and an open air observation

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car and can carry up to 125 passengers.  The Eastern & Oriental Express is available for charter by private groups.  OEH manages the train exclusively and has a 25% shareholding in the owning company.

OEH owns and operates a deluxe river cruiseship on the Irrawaddy River in central Burma, or Myanmar, called the Road to Mandalay.  The ship was a Rhine River cruiser built in 1964 which OEH bought and refurbished.  It has 66 air-conditioned cabins with private bathrooms, spacious restaurant and lounge areas and a canopied sun deck with swimming pool.  The ship travels between Mandalay and Pagan up to eight times each month and carries 126 passengers who enjoy sightseeing along the river and guided shore excursions to places of historic interest.  Five to eight night itineraries are offered, including airfare to and from the ship and hotel accommodation in Rangoon.  OEH also operates occasional cruises to different destinations, such as to Bhamo in the north of the country close to the China border.  The ship does not operate in the hot summer season and occasionally when the water level of the Irrawaddy River falls too low due to lack of rainfall.

OEH owns a 50% interest in the business of Afloat in France operating luxury river and canal boats in Burgundy, Provence and other rural regions of France.  OEH also owns the five boats of Afloat in France, and has the right to purchase the balance of the operating business in three to five years on an earn-out basis.  The boats each accommodate between six and 12 passengers each in double berth compartments with private bathrooms, and some have small plunge pools on deck.  They operate seasonally between April and October on three to six night itineraries with guests dining on board or in nearby restaurants.  Side trips are organized each day.

Pansea Hotels

OEH has made $8,000,000 of convertible loans to the Pansea Hotel group of six deluxe hotels in Southeast Asia.  The properties are La Residence Phou Vao in Luang Prabang, Laos; Napasai in Koh Samui, Thailand; The Governor’s Residence in Rangoon, Burma; La Residence d’Angkor in Siem Reap, Cambodia; and Jimbaran Puri Bali and Ubud Hanging Gardens in Bali, Indonesia.  They total 272 keys at present but all are capable of expansion.  OEH does not manage these six hotels but markets them along with its other properties, in particular the Eastern & Oriental Express tourist train and the Road to Mandalay cruiseship, under the name “Pansea Orient-Express Hotels”.

The loans are convertible in 2007 into about 25% of the Pansea Hotels holding company’s shares.  At that time OEH has

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an option to acquire all of the shares.  OEH has a further option to acquire all of the shares in 2009, at which time the existing shareholders have the right to sell their shares to OEH at the same price.  The loan conversion price and option exercise prices are based on multiples of the holding company’s net book value or its earnings before interest, tax, depreciation and amortization, less the holding company’s debt.  The loan proceeds have been used primarily to expand the Pansea properties.

Management Strategies

As the foregoing indicates, OEH has a mix of hotel and other deluxe travel products that are geographically diverse and appeal to the high-end leisure market, reflecting an important management strategy.  As a result, about two-thirds of annual revenue derives from leisure customers while corporate/business travel accounts for the rest.

OEH benefits from trends and developments favorably impacting the global hotel, travel and leisure markets, including strong demand growth trends in the luxury hotel market in many parts of the world, increased travel and leisure spending by consumers, favorable demographic trends in relevant age and income brackets of U.S. and European populations, and increased online travel bookings.  These trends suffered a setback beginning in 2001 due to slowing national economies, the shock of terrorist attacks, the build-up and aftermath of the wars in Afghanistan and Iraq and the SARS epidemic.  Management currently believes that the public’s confidence in international travel and demand for luxury hotel and tourist products are returning.

For the future, OEH management plans to grow the business by increasing RevPAR and earnings at its established properties and newer acquisitions, by expanding existing hotel and restaurant properties where land or space is already available, by increasing the utilization of its tourist trains and cruises to add trips, and by acquiring additional distinctive luxury properties throughout the world.  Factors in OEH’s evaluation of a potential acquisition include the uniqueness of the property, attractions for guests in the vicinity, acceptability of initial investment returns, visible upside potential such as by pricing, expansion or improved marketing, limitations on nearby competition, and convenient access.

OEH management plans to continue owning or part owning and managing most OEH properties.  Ownership encourages OEH to develop the distinctive character of its properties and allows it to benefit from all of the current cash flow and future

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capital gains should it sell a property.  Self-management has enabled OEH to capture the economic benefits otherwise shared with a third-party manager, to control the operations, quality and expansion of the hotels, and to use its experience with price changes, expansions and renovations to improve cash flow and enhance asset values.

Many of OEH’s individual properties, such as the Hotel Cipriani and ‘21’ Club, have distinctive local character and brand identity.  Management believes that discerning travellers will choose a famous property in preference to a chain brand.  OEH links its properties together under the umbrella “Orient-Express Hotels, Trains and Cruises” name which originated with the legendary luxury European train in the late 19th and early 20th centuries and which is recognizable worldwide and synonymous with sophisticated travel and refined elegance.

OEH is expanding its property development activities, beginning at Keswick Hall with the sale of land around the golf course for residential development and at La Samanna with high-end vacation villa and apartment developments including Cupecoy Yacht Club.  Other hotels owned by OEH with available vacant land for development include Bora Bora Lagoon Resort, Maroma Resort and Spa, and Inn at Perry Cabin.  Management anticipates future profits both from sales of land and completed units and from ongoing management of the units for the purchasers as integral parts of the adjacent hotels.

Marketing, Sales and Public Relations

OEH’s sales and marketing function is primarily based upon direct sales, cross-selling to existing customers and public relations.  OEH has a global sales force of about 250 persons in 50 locations including regional sales offices in New York, Paris, Cologne, Milan and London and reservations offices, mainly for tourist trains, cruises and tour products, in London, Paris, Cologne, Tokyo, Singapore, Cusco, Charleston, and Providence (Rhode Island).  OEH also has sales representatives with responsibility for the hotels where they are based.  The responsibilities of OEH’s sales staff include working with the travel industry, contacting group and corporate account representatives and planning marketing such as direct mailings.  OEH belongs to a number of international organizations, such as “The Leading Hotels of the World”, to promote its properties.

Internet usage is an important direct sales tool.  Through OEH’s website (www.orient-express.com), with its prize-winning design, OEH offers direct reservations services to customers.  On-line sales have lower transaction costs by

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saving travel agent commissions and tour operator discounts.  The internet also enhances marketing exposure and increases distribution.

Because repeat customers appreciate the consistent quality of OEH’s hotels, trains, cruises and restaurants, an important part of management’s strategy is to promote other OEH properties through various cross-selling efforts.  These include direct mail to existing customers, in-house brochures and promotions, discounted special offers, and OEH’s “Orient-Express Travel Club” website and in-house “Orient-Express Magazine”.  OEH sells luxury souvenir goods branded with the names of its travel products.

OEH’s marketing strategy also focuses on public relations, which management believes is a highly cost-effective marketing tool for luxury properties.  Because of the unique nature of the OEH properties, guests are more likely to hear about OEH’s hotels and tours through word-of-mouth or published articles rather than through direct advertising.  OEH has an in-house public relations offices in London and representatives in ten countries worldwide, including contracts with third-party public relations firms, to promote its properties through travel magazines, newspapers and other media.  During 2005, OEH hosted about 1,300 journalists at its various properties.  As a result, about 7,400 articles and stories were published or broadcast about OEH’s properties, many in publications with large local, regional or international circulations.

Industry Awards

OEH has gained a worldwide reputation for quality and service in the luxury segment of the leisure and business travel market.  Over the years, OEH’s properties have won numerous national and international awards given by trade or consumer publications such as Conde Nast Traveller, Gourmet, Travel & Leisure and Tatler, and private subscription newsletters such as Andrew Harper’s Hideaway Report, or industry bodies such as the American Automobile Association. The awards are based on opinion polls of their readers or the professional opinion of journalists or panels of experts.  The awards are believed to influence consumer choice and are therefore highly prized.

Competition

Some of OEH’s properties are located in areas where there are numerous competitors.  Competition for guests in the hospitality industry is based generally on the convenience of location, the quality of the property, room rates and menu

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prices, the range and quality of food services and amenities offered, types of cuisine, and name recognition.

OEH’s strategy is to acquire only hotels which have special locations and distinctive character.  Many are in areas with unique local history or high entry barriers because of zoning restrictions. OEH builds its competitive advantage further by offering high quality service and cuisine, often with a local flavor.  Typically, therefore, OEH competes by providing a special combination of location, character, cuisine and service rather than relying on price competition.

OEH’s luxury tourist trains have no direct competitors. Other trains exist on similar routes, but management believes OEH’s trains and onboard service are so unique and of such superior quality that guests consider an OEH train journey more as a luxury experience and an end in itself rather than as a means of transport.

Employees

OEH currently employs about 6,000 persons, about 2,300 of whom are represented by labor unions.  Approximately 5,300 persons are employed in the hotels and restaurants, 600 are employed in the trains and cruises business, and the balance are engaged in central administration and sales.  Management believes that OEH’s ongoing labor relations are satisfactory.

Government Regulation

OEH and its properties are subject worldwide to numerous laws and government regulations such as those relating to the preparation and sale of food and beverages, liquor service, health and safety of premises, employee relationships, environmental matters, and planning and zoning rules. Management believes that OEH is in compliance in all material respects with relevant laws and regulations with respect to its business.

OEH’s Relationship with Sea Containers Ltd.

Until the initial public offering of the Company’s Class A common shares in August 2000, OEH was a wholly-owned subsidiary of Sea Containers Ltd. (“SCL”), a Bermuda company with shares listed on the New York Stock Exchange.  Since then, SCL has sold its shares in the Company in public secondary offerings registered in the United States, selling its last shares in November 2005.  Of the Company’s directors and officers, only one is a director and officer of SCL, one is a director of SCL, and one is an officer of SCL.  See Item 10–Directors and Executive Officers of the Registrant.

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At the time of the initial public offering in 2000, OEH and SCL entered into agreements providing for the separation of their business operations and various relationships between the companies including services, offices and tax matters.  While the agreement regarding tax matters has an indefinite term, the agreement regarding services and offices will terminate at the end of 2006.  See Item 13–Certain Relationships and Related Transactions below.

ITEM 1A.               Risk Factors

OEH investors should carefully consider the risks described below and the other information contained in or incorporated by reference in this report.  These risks are separated into three general groups:

•                                          risks of OEH’s business;

•                                          risks that relate to OEH’s financial condition and results of operations; and

•                                          risks of owning and selling Class A common shares.

Described below are only the risks OEH management considers to be the most significant.  There may be additional risks that are deemed less material or not presently known to management.

If any of these risks occurs, OEH’s business, prospects, financial condition, results of operations or cash flows could be materially adversely affected.  A risk that might have a material adverse effect means that the risk may have one or more of these effects.  In that case, the market price of the Class A common shares could decline.

Risks of OEH’s Business

OEH’s operations are subject to adverse factors generally encountered in the hospitality industry.

Besides the specific conditions discussed in the risk factors below, these adverse factors include

•                                          cyclical downturns arising from changes in general and local economic conditions,

•                                          political instability of governments of some countries where properties are located,

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•                                          falling disposable income of consumers and the travelling public,

•                                          dependence on varying levels of tourism, business travel and corporate entertainment,

•                                          changes in popular travel patterns,

•                                          competition from other hotels and leisure time activities,

•                                          periodic local oversupply of guest accommodation, which may adversely affect occupancy rates and actual room rates achieved,

•                                          increases in operating costs due to inflation and other factors which may not be offset by increased revenues,

•                                          regional and local economic and political conditions affecting market demand, including recessions, civil disorder and acts of terrorism,

•                                          foreign exchange rate movements,

•                                          adverse weather conditions or destructive forces like fire or flooding, and

•                                          seasonality, in that many of OEH’s hotels and tourist trains are located in the northern hemisphere where they operate at low revenue or close during the winter months.

The effect of these factors varies among the hotels and other properties because of their geographic diversity.  For example, the SARS epidemic in Asia in 2003 caused a reduction in passenger bookings on the tourist train of OEH operating between Bangkok and Singapore and had a negative impact on travel to Australia and Tahiti.  Although the SARS outbreak was contained, it is possible that the disease could re-emerge or another potential epidemic could occur.  The occurrence of this or a similar event may have a negative impact on OEH’s operations.

In particular, as a result of terrorist attacks in the United States on September 11, 2001 and the subsequent military actions in Afghanistan and Iraq, international, regional and even domestic travel was disrupted.  Demand for most of OEH’s properties declined substantially in the latter part of 2001,

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and the effects of the disruption are continuing to be felt.  For example, American leisure travelers seem more reluctant than in the past to go abroad, and the booking lead-times by guests, travel agents and tour operators at OEH’s properties have shortened since September 11th.  Further acts of terrorism or a military action could again reduce leisure and business travel.

The hospitality industry is highly competitive, both for acquisitions of new hotels and restaurants and for customers at OEH’s properties.

OEH competes for hotel and restaurant acquisition opportunities with others who may have substantially greater financial resources.  These competitors may be prepared to accept a higher level of financial risk than OEH can prudently manage.  This competition may have the effect of reducing the number of suitable investment opportunities offered to OEH and increasing OEH’s acquisition costs by enhancing the bargaining power of property owners seeking to sell or to enter into management agreements.

Some of OEH’s properties are located in areas where there are numerous competitors.  For example, in recent years competing deluxe hotels opened near OEH’s properties in New Orleans, Sydney and Rio de Janeiro.  Competitive factors in the hospitality industry include convenience of location, the quality of the property, room rates and menu prices, the range and quality of food services and amenities offered, types of cuisine, and name recognition.  Demographic, geographic or other changes in one or more of OEH’s markets could impact the convenience or desirability of its hotels and restaurants, and so could adversely affect their operations.  Also, new or existing competitors could significantly lower rates or offer greater conveniences, services or amenities, or significantly expand, improve or introduce new facilities in the markets in which OEH’s hotels and restaurants compete.

The hospitality industry is heavily regulated, including with respect to food and beverage sales, employee relations, construction and environmental concerns, and compliance with these laws could reduce revenues and profits of properties owned or managed by OEH.

OEH and its various properties are subject worldwide to numerous laws and government regulations, including those relating to the preparation and sale of food and beverages, liquor service, and health and safety of premises.  The properties are also subject to laws governing OEH’s relationship with employees in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and

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firing employees and work permits.  Also, the success of expanding existing properties depends upon obtaining necessary building permits or zoning variances from local authorities.  Failure to obtain or delay in obtaining these permits could adversely affect OEH’s strategy of increasing revenues and net income through expansion of existing properties.

OEH also is subject to foreign and U.S. laws and regulations relating to the environment and the handling of hazardous substances that may impose or create significant potential environmental liabilities, even in situations where the environmental problem or violation occurred on a property before OEH acquired it.

OEH’s acquisition, expansion and development strategy may be less successful than expected and, therefore, its growth may be limited.

Management intends to increase the revenues and net income of OEH through acquisition of new properties and expansion of existing properties.  The ability to pursue new growth opportunities successfully will depend on OEH management’s ability to identify properties suitable for acquisition and expansion, to negotiate purchases or construction on satisfactory terms, to obtain the necessary financing and permits, to build on schedule and with minimum disruption to guests, and to integrate new properties into OEH’s operations.  Also, the acquisition of properties in new locations may present operating and marketing challenges that are different from those encountered in OEH’s existing locations.  There can be no assurance that management will succeed in OEH’s growth strategy.

OEH management plans to develop new properties in the future.  New project development is subject to such adverse factors as market or site deterioration after acquisition, inclement weather, labor or material shortages, work stoppages and the continued availability of construction and permanent financing.  For example, the opening of the Westcliff Hotel in Johannesburg occurred about six months later than originally planned, as construction took longer than expected.  This delay had a significant adverse impact on the revenues and profitability of OEH’s southern Africa operations.  Similarly, OEH has undertaken a residential development project near La Samanna on St. Martin.  Timing of completion has not been confirmed, and construction delay would likely impact earnings from the project.

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OEH may be unable to obtain the necessary additional capital to finance the growth of its business.

The acquisition and expansion of leisure properties, as well as the ongoing renovations, refurbishments and improvements required to maintain or upgrade our existing properties, are capital intensive.  Although actual amounts of capital expenditures could exceed estimates, current expansion plans call for the expenditure of up to an aggregate of $80,000,000 over the next few years to add new rooms or facilities at existing properties, and current acquisition plans contemplate expenditure of about $50,000,000 per year for new properties which would be financed mainly by a suitable level of mortgage debt.  The availability of future borrowings and access to the capital markets for equity financing to fund these acquisitions and expansions depends on prevailing market conditions and the acceptability of financing terms offered to OEH.  There can be no assurance that future borrowings or equity financing will be available to OEH, or available on acceptable terms, in an amount sufficient to fund its needs.  Future equity financings may be dilutive to the existing holders of common shares.  Future debt financings could involve restrictive covenants that would limit OEH’s flexibility in operating its business.

Currency fluctuations may have a material adverse effect on OEH’s financial statements and/or its operating margins.

Substantial portions of OEH’s revenues and expenses are denominated in non-U.S. currencies such as European euros, British pounds sterling, Russian rubles, South African rand, Australian dollars, Peruvian nuevos soles, Botswana pula, Brazilian reais, Mexican pesos and French Pacific francs.  In addition, OEH buys assets and incurs liabilities in these foreign currencies.  Foreign exchange rate fluctuations may have a material adverse effect on OEH’s financial statements and/or operating margins.

OEH’s financial statements are presented in U.S. dollars and can be impacted by foreign exchange fluctuations through both

•                                          translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S.  dollar, and

•                                          transaction risk, which is the risk that the currency of costs and liabilities fluctuates in relation to the currency of revenue and assets, which

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fluctuations may adversely affect OEH’s operating margins.

OEH’s operations may be adversely affected by extreme weather conditions and the impact of natural disasters.

OEH operates properties in a variety of locales, each of which is subject to local weather patterns affecting the properties and customer travel.  As OEH’s revenues are dependent on the revenues of individual properties, extreme weather conditions can from time to time have a major adverse impact upon individual properties or particular regions.  For example, La Samanna hotel, which is located on St. Martin, suffered substantial wind and flood damage from a hurricane in November 1999.  Although the hotel was fully insured for the repair costs, it remained closed until February 2000, so that OEH missed much of the high season that year.   As a further example, hurricanes in August and September 2005 caused damage to the Windsor Court Hotel in New Orleans, resulting in a temporary closure of the hotel until November 1, 2005.   Leisure and business travel to New Orleans is expected to be at a reduced level for several months following the hurricanes.  OEH carries property and loss of earnings insurance in amounts management deems reasonably adequate, but damages may exceed the insurance limits or be outside the scope of coverage.

If the relationships between OEH and its employees were to deteriorate, it may be faced with labor shortages or stoppages, which would adversely affect its ability to operate its facilities.

OEH’s relations with its employees in various countries, including the approximately 2,300 employees represented by labor unions, could deteriorate due to disputes related to, among other things, wage or benefit levels, working conditions or management’s response to changes in government regulation of workers and the workplace.  Operations rely heavily on employees’ providing high-quality personal service, and any labor shortage or stoppage caused by poor relations with employees, including labor unions, could adversely affect the ability to provide those services, which could reduce occupancy and room revenue and even tarnish OEH’s reputation.

OEH’s owned hotels and restaurants are subject to risks generally incident to the ownership of commercial real estate and often beyond its control.

These include

•                                          changes in national, regional and local economic and political conditions,

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•                                          changes in interest rates and in the availability, cost and terms of financing,

•                                          the impact of present or future governmental legislation and regulations (including environmental laws),

•                                          the ongoing need for capital improvements to maintain or upgrade properties,

•                                          changes in property taxes and operating expenses, and

•                                          the potential for uninsured or underinsured losses.

Some of the Company’s directors and executive officers may have potential conflicts of interest because they own SCL shares or have positions at SCL, or because of contractual rights relating to one OEH property.

Some of the Company’s directors and executive officers, namely James B. Sherwood, John D. Campbell and Edwin S. Hetherington, hold common shares and options to purchase common shares in SCL.  Also, these persons are executive officers or directors of SCL.  Ownership of common shares in SCL by Company directors and officers, or their positions as executive officers or directors of SCL, could create, or appear to create, potential conflicts of interest when directors and officers are faced with decisions that could have different implications for SCL and the Company.

In addition, OEH has granted to James B. Sherwood, the Chairman of both SCL and the Company, a right of first refusal to purchase the Hotel Cipriani in Venice and related assets if OEH proposes to sell or transfer them.  Also, a subsidiary of the Company has granted to Mr. Sherwood an option to purchase the hotel at its fair market value if a change of control of the Company occurs.

The Company has in place a code of business practices administered by the audit committee of the Board and applicable to the Company’s principal executive, financial and accounting officers to avoid conflicts of interest.  However, there can be no assurance that this will prevent future conflicts.

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Risks Relating to OEH’s Financial Condition and Results of Operations

Covenants in OEH’s financing agreements could limit its discretion in operating its businesses, causing it to make less advantageous business decisions; OEH’s indebtedness is collateralized by substantially all of its properties.

OEH’s financing agreements with about 20 commercial bank lenders contain covenants that include limits on additional debt collateralized by mortgaged properties, limits on liens on property and limits on mergers and asset sales, and financial covenants requiring maintenance of a minimum net worth amount or a minimum interest expense coverage, or establishing a maximum debt to equity ratio.  Indebtedness is also collateralized by substantially all of OEH’s properties.  Future financing agreements may contain similar, or even more restrictive, provisions and covenants.  If OEH fails to comply with the restrictions in its present or future financing agreements, a default may occur.  A default could allow the creditors to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies.  A default could also allow the creditors to foreclose on the properties collateralizing the debt.

Increases in prevailing interest rates may increase OEH’s interest payment obligations.

Substantially all of OEH’s consolidated long-term debt at December 31, 2005 accrued interest at rates that fluctuate with prevailing interest rates, so that any increases in prevailing interest rates may increase OEH’s interest payment obligations.  From time to time, OEH enters into hedging transactions in order to manage its floating interest-rate exposure, but there can be no assurance those transactions will be successful.  At December 31, 2005, OEH had no interest rate swaps in effect.

The Company’s ability to pay dividends on the Class A common shares is limited.

Beginning in January 2004, the Company has been paying quarterly dividends on its Class A and B common shares in the amount of $0.025 per share.  There can be no assurance the Company will be able to make dividend payments in the future because of debt repayment requirements, a downturn to OEH’s business or other reasons.

Under Bermuda law, the Company may pay dividends on, or make other distributions with respect to the Class A and B common shares (1) unless there are reasonable grounds for believing that OEH is, or after the payment or distribution

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would be, unable to pay its liabilities as they become due, or (2) unless the realizable value of OEH’s assets is less than the aggregate of its liabilities, issued share capital and “share premium accounts” (share premium is defined as the amount of shareholders’ equity over and above the aggregate par value of issued shares).  There can be no assurance the Company will not be restricted by Bermuda law from paying dividends.

OEH’s substantial indebtedness could adversely affect its financial health.

OEH has a significant amount of debt and may incur additional debt from time to time.  As of December 31, 2005, its consolidated long-term indebtedness was $­­­568,000,000 (including the current portion).  This substantial indebtedness could

•                                          require OEH to dedicate much of its cash flow from operations to payments on indebtedness, and so reduce the availability of cash flow to fund working capital, capital expenditures, product and service development and other general corporate purposes; for example, in 2005 OEH generated $40,500,000 in cash from operating activities after paying interest of $29,500,000 and before loan principal repayments of $39,600,000.

•                                          limit OEH’s ability to obtain additional financing to fund future working capital, capital expenditures, product and service development and other general corporate purposes,

•                                          increase OEH’s vulnerability to adverse economic and industry conditions, including the seasonality of some of its businesses, or

•                                          limit its flexibility in planning for, or reacting to, changes in its business and industry as well as the economy generally.

OEH’s must also repay or refinance a significant amount of indebtedness in future years.  Although OEH may seek to refinance its indebtedness, it may be unable to obtain refinancing.  Any failure of OEH to repay any indebtedness when due may result in a default under such indebtedness and cause cross-defaults under other indebtedness.

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Risks of Owning and Selling Class A Common Shares

The Company will not be restricted from issuing additional Class A common shares, and any sales could negatively affect the trading price of the Class A common shares outstanding.

The Company may in its discretion sell newly issued Class A common shares.  There can be no assurance that the Company will not make significant sales of Class A common shares.  Any sales could materially and adversely affect the trading price of the Class A common shares outstanding.

The price of the Class A common shares may fluctuate significantly, which may make it difficult for shareholders to sell the Class A common shares when they want or at prices they find attractive.

The price of the Class A common shares on the New York Stock Exchange constantly changes.  OEH expects that the market price of the Class A common shares will continue to fluctuate.  Holders of Class A common shares will be subject to the risk of volatility and depressed prices.

The Company’s share price can fluctuate as a result of a variety of factors, many of which are beyond OEH’s control.  These factors include

•                                          quarterly variations in operating results,

•                                          operating results that vary from the expectations of management, securities analysts and investors,

•                                          changes in expectations as to future financial performance, including financial estimates by securities analysts and investors,

•                                          developments generally affecting OEH’s businesses,

•                                          announcements by OEH or its competitors of significant contracts, acquisitions, joint ventures or capital commitments,

•                                          announcements by third parties of significant claims or proceedings against OEH,

•                                          the dividend policy for the Class A and B common shares,

•                                          future sales of equity or equity-linked equities, and

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•                                          general domestic and international economic conditions.

In addition, the stock market in general has experienced volatility that has often been unrelated to the operating performance of a particular company.  These broad market fluctuations may adversely affect the market price of the Class A common shares.

The Company’s directors and officers may control the outcome of most matters submitted to a vote of shareholders.

A wholly-owned subsidiary of the Company, Orient-Express Holdings 1 Ltd. (“Holdings”), currently holds 18,044,478 Class B common shares in the Company representing about 82% of the voting power for most matters submitted to a vote of shareholders, and Holdings, together with the directors and officers of the Company, holds common shares representing about 83% of the combined voting power for most matters submitted to a vote of shareholders.  In general, holders of Class A common shares and holders of Class B common shares vote together as a single class, with holders of Class A common shares having one-tenth of one vote per share and holders of Class B common shares having one vote per share.  Therefore, as long as the number of outstanding Class B shares exceeds one-tenth the number of outstanding Class A common shares, the holders of Class B common shares could control the outcome of most matters submitted to a vote of the shareholders.  Under Bermuda law, common shares of the Company owned by Holdings are outstanding and may be voted by Holdings.  The manner in which Holdings votes its common shares will be determined by the four directors of Holdings, two of whom, John D. Campbell and James B. Sherwood, are also directors or officers of the Company, consistently with the exercise by those directors of their fiduciary duties to Holdings.  Those directors, should they choose to act together, will be able to control substantially all matters affecting the Company, and to block a number of matters relating to any potential change of control of the Company.  See Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.

Provisions in the Company’s charter documents, and the preferred share purchase rights currently attached to the Class A and B common shares, may discourage potential acquisitions of OEH, even those that the holders of a majority of its Class A common shares might favor.

The Company’s memorandum of association and bye-laws contain provisions that could make it harder for a third party

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to acquire it without the consent of its Board of Directors.  These provisions include

•                                          supermajority shareholder voting provisions for the removal of directors from office with or without cause, and for “business combination” transactions with beneficial owners of shares carrying 15% or more of the votes which may be cast at any general meeting of the Company, and

•                                          limitations on the voting rights of such 15% beneficial owners.

Also, the Company’s Board of Directors has the right under Bermuda law to issue preferred shares without shareholder approval, which could be done to dilute the stock ownership of a potential hostile acquirer.  Although OEH believes these provisions provide an opportunity to receive a higher price by requiring potential acquirers to negotiate with the Company’s Board of Directors, these provisions apply even if the offer is favored by shareholders holding a majority of the Company’s equity.

The Company has in place a shareholder rights agreement providing for rights to purchase series A junior participating preferred shares of the Company.  The rights are not currently exercisable and they are attached to and trade together with the Class A and B common shares on a one-to-one basis.  These rights may have anti-takeover effects.

These anti-takeover provisions are in addition to the ability of Holdings and directors and officers to vote shares representing a significant majority of the total voting power of the Company’s common shares.  See the Risk Factor immediately above.

A judgment of a United States court for liabilities under U.S.  securities laws might not be enforceable in Bermuda, or an original action might not be brought in Bermuda against OEH for liabilities under U.S. securities laws.

The Company is incorporated in Bermuda, a majority of its directors and officers are residents of Bermuda, the United Kingdom and elsewhere outside the United States, and most of its assets and the assets of its directors and officers are located outside the United States.  As a result, it may be difficult for shareholders to

•                                          effect service of process within the United States upon the Company or its directors and officers, or

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•                                          enforce judgments obtained in United States courts against the Company or its directors and officers based upon the civil liability provisions of the United States federal securities laws.

OEH has been advised by Bermuda counsel, Appleby Spurling Hunter, that there is doubt as to

•                                          whether a judgment of a United States court based solely upon the civil liability provisions of the United States federal securities laws would be enforceable in Bermuda against the Company or its directors and officers, and

•                                          whether an original action could be brought in Bermuda against the Company or its directors and officers to enforce liabilities based solely upon the United States federal securities laws.

None.

OEH owns 29 hotels, three European tourist trains, a cruiseship and five small French canalboats and two restaurants, and owns interests of 50% or less in ten hotels, its Scottish and Southeast Asian tourist trains and PeruRail, and a third restaurant, all as described in Item 1—Business above.  The small regional sales, marketing and operating offices of the hotels, tourist trains and cruise business are occupied under operating leases.

There are no material legal proceedings, other than ordinary routine litigation incidental to OEH’s business, to which the Company or any of its subsidiaries is a party or to which any of their property is subject.

The Company submitted no matter to a vote of its security holders during the fourth quarter of 2005.

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PART II

The Class A common shares of the Company are traded on the New York Stock Exchange under the symbol OEH.  All of the Class B common shares of the Company are closely held and not listed.  See Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.  The following table presents the quarterly high and low sales prices of a Class A common share in 2005 and 2004 as reported for New York Stock Exchange composite transactions:

The Company paid quarterly cash dividends at the rate of $0.025 per Class A and B common share in 2005 and 2004.

The Islands of Bermuda where the Company is incorporated have no applicable governmental laws, decrees or regulations which restrict the export or import of capital or affect the payment of dividends or other distributions to non-resident holders of the Class A and B common shares of the Company or which subject United States holders to taxes.

At February 28, 2006, the number of record holders of the Class A common shares of the Company was approximately 30.

During 2005, the Company issued and sold 5,050,000 Class A common shares in a public offering registered in the United States in March 2005.  Also, during the fourth quarter of 2005, no purchases of the Company’s common shares were made by or on behalf of the Company or any affiliated person.

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ITEM 6.  Selected Financial Data

Orient-Express Hotels Ltd. and Subsidiaries

*                                         The gain in 2003 related to the sale of the Hotel Quinta do Lago in Portugal.

See notes to consolidated financial statements (Item 8).

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Overview

OEH has two business segments: (1) hotels and restaurants and (2) tourist trains and cruises.  Hotels currently consist of 33 deluxe hotels, excluding six Pansea Hotels to which OEH has made a convertible loan.  Twenty-nine of these hotels are wholly or majority owned (including Casa de Sierra Nevada, acquired in February 2006), and are referred to in this discussion as “owned hotels”.  The other four hotels, in which OEH has an equity interest and operates under management contracts, are referred to in this discussion as “hotel management interests”.  Of the owned hotels, twelve are located in Europe, seven in North America and ten in the rest of the world.  One of the hotels in Europe, the Hotel Caruso in Ravello, Italy was operational from June to October 2005, when it closed to complete restoration and refurbishment for re-opening in April 2006.  In February 2005, OEH acquired the Grand Hotel Europe, St. Petersburg, Russia.

Also, OEH currently owns and operates the restaurants ‘21’ Club in New York and La Cabaña in Buenos Aires, which opened in September 2003, and has a 49% interest in Harry’s Bar in London (the “restaurants”).

OEH’s tourist trains and cruises segment operates six tourist trains — three of which are owned and operated by OEH, two 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.

Revenue per available room, or RevPAR, is a performance indicator used widely within the hotel industry as it is a function of the average daily room rate, or ADR, achieved for the rooms sold and average occupancy, being the rooms sold as a proportion of the rooms available to be sold.  ADR on its own gives no indication of the relative occupancy of the hotel and could be shown as increasing while the number of rooms sold had fallen, resulting in a reduction in rooms revenue over a prior period.

Following the terrorist attacks in the United States on September 11, 2001, as well as weakening national economies in 2001, OEH experienced a significant adverse impact on its business in common with other companies in the travel and hospitality sector.  During 2002, the business showed some improving trends quarter on quarter.  In the first half of 2003, however, with the prospect and then commencement of the Iraq War and the outbreak of the SARS epidemic, travel was

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further reduced with a consequential reduction in occupancy and OEH’s profitability.  In the second half of 2003, business was generally better than in the first half, but RevPAR remained below pre-September 11 levels, primarily due to 15%-20% lower occupancy at the hotels compared to 2000 and 2001 occupancy (on a “comparable” or “same store” basis — see below).  The improvement in business in the second half of 2003 was not sufficient to reverse the impact of the Iraq War and SARS on the results of the first half, leading to net earnings for 2003 at $23.6 million (including the $4.3 million gain on sale of the Hotel Quinta do Lago) being down from $25.3 million in 2002.  The results for 2004 were much improved over 2003 with net earnings increasing from $19.4 million (excluding the gain on sale of the Hotel Quinta do Lago) to $28.2 million, an increase of 45%.  This was principally driven by a same store RevPAR increase of 16% at OEH’s owned hotels and a much improved performance in the tourist trains and cruises segment.  This improvement continued into 2005, with same store RevPAR increases of 16%, coupled with the acquisition of the Grand Hotel Europe, driving revenue increases of 21% and net earnings growth of 44% to $40.7 million.

OEH has a strategy to grow its business through:

•                  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 to a hotel are high as the incremental operating costs are low; and

•                  Acquisitions:  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.

•                  Real estate:  OEH owns 325 acres of land, of which it intends to develop over time, as residential real estate developments.

In November 2003, OEH sold the Hotel Quinta do Lago in the Algarve, Portugal, for $40 million cash, equivalent to a multiple of 16 times historic EBITDA.  The hotel was not considered a long-term fit with OEH’s portfolio and strategy so OEH took the opportunity to sell the property at an attractive price.

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Also, in November and December 2003, the Company issued and sold through underwriters 3,450,000 newly-issued class A common shares at $16 each, raising $51.9 million net of underwriters’ fees and expenses.  The proceeds from the sales of the hotel and new shares have been used to invest in other hotels and related assets and to fund expansion of some existing hotels as part of OEH’s growth strategy outlined above.  In March 2005, by selling 5,050,000 newly-issued class A common shares at $26 each, OEH raised $121.9 million net of underwriters fees and expenses.  The proceeds of this sale were used primarily to fund the acquisition of the Grand Hotel Europe.

In 2005, 85% of OEH’s revenue was derived from the hotels and restaurants segment and the remainder from the tourist trains and cruises segment.  In the hotels and restaurants segment, 89% of revenue was from owned hotels, 6% from restaurants and 5% was from hotel management interests.

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 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.

Operating costs include 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.  Some of the central general and administrative expenses are provided under agreement with SCL.  See Note 16 to the Financial Statements.

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

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When OEH discusses results for a period on a “comparable” or “same store” basis, OEH is considering only the results of hotels owned and operating throughout the periods mentioned and excluding the effect of any acquisitions, dispositions or major refurbishments.

Results of Operations

OEH’s operating results for years 2005, 2004 and 2003, expressed as a percentage of revenue, are as follows:

Segment net earnings before interest expense (but after interest income from unconsolidated companies), foreign currency, tax (including tax on earnings from unconsolidated companies), depreciation, amortization and gain on hotel asset sale (“segment EBITDA”) for the years ended 2005, 2004 and 2003 are analyzed as follows (dollars in millions):

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

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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 years ended December 31, 2005 and 2004 is as follows:

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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.  Same store RevPAR is a comparison based on the operations of the same units in each period, by excluding the effect of any acquisitions, dispositions or major refurbishments.  The same store data excludes the following operations: Hotel Caruso, El Encanto Hotel & Garden Villas and Grand Hotel Europe, as well as La Residencia, Maroma Resort and Spa, Miraflores Park Hotel and the Windsor Court Hotel for the periods in which they were closed.

Year Ended December 31, 2005

compared to Year Ended December 31, 2004

Revenue

Total revenue increased by $75.8 million, or 21.2%, from $357.3 million in 2004 to $433.1 million in 2005.  Hotels and

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restaurants revenue increased by $73.2 million, or 24.5%, from $298.7 million in 2004 to $371.9 million in 2005, and the revenue from tourist trains and cruises increased by $2.6 million, or 4.5%, from $58.6 million in 2004 to $61.2 million in 2005.

The increase in hotels and restaurants revenue consisted of the following:

•                  $70.1 million attributable to owned hotels, or 26%, from $271.0 million in 2004 to $341.1 million in 2005,

•                  an increase in revenue from hotel management interests of $1.3 million, or 18%, from $7.3 million in 2004 to $8.6 million in 2005, mainly due to improved results of Charleston Place and the Peruvian hotel investments,

•                  an increase in restaurants revenue of $1.8 million, or 9%, from $20.3 million in 2004 to $22.2 million in 2005, mainly due to improved revenue at the ‘21’ Club of $1.1 million and La Cabana of $0.4m.

The increase in owned hotels revenue of $70.1 million is analyzed by region as follows:

Europe.  Revenue increased by $45.1 million from $116.1 million in 2004 to $161.2 million in 2005.  $32 million of this growth was attributable to the Grand Hotel Europe with all other properties showing revenue growth.

On a same store basis in euros, RevPAR increased by 6% in 2005 over 2004 and when translated to U.S. dollars also increased by 6%.  The European portfolio revenue increases in 2005 were stronger within the Italian portfolio which showed significant increases from $54.4 million to $59.5 million in 2005, an increase of 9%.

North America.  Revenue increased by $9.0 million, or 13%, from $75.4 million in 2004 to $84.4 million in 2005.  Included in 2005 revenues are $4.7 million relating to real estate sales at Keswick Hall Hotel (2004-$4.2 million).  The increase was underpinned by $6 million of revenue at El Encanto Hotel & Garden Villas, but offset by drops in revenue at the Windsor Court Hotel and Maroma Resort and Spa ($4.4 million) due to hurricane related closures.

On a same store basis, RevPAR in 2005 increased by 9% over 2004.

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Rest of the World.  Revenue increased by $15.9 million, or 20%, from $79.6 million in 2004 to $95.5 million in 2005.  Revenues at all properties showed good growth in 2005.  Southern Africa revenues increased by 19% to $31.6 million, South American revenues increased by 20% to $33.1 million, and Australia and Asia increased by 21% to $30.8 million.

RevPAR increased by 10% in local currencies but increased by 11% in U.S. dollars.

Depreciation and Amortization

Depreciation and amortization increased by $5.8 million, or 20%, from $28.3 million in 2004 to $34.1 million in 2005.  The increase was due primarily to the impact of the Grand Hotel Europe, St. Petersburg.

Operating Expenses

Operating expenses increased by $29.7 million, or 17%, from $175.6 million in 2004 to $205.3 million in 2005.  This was primarily due to the improved revenues and volumes in OEH’s businesses in the year and the impact of the Grand Hotel Europe acquisition and the Hotel Caruso opening. As a percentage of revenue, operating expenses reduced from 49% in 2004 to 47% in 2005.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $19.6 million, or 17%, from $114.5 million in 2004 to $134.1 million in 2005.  This was primarily due to the acquisition of the Grand Hotel Europe.

Earnings from Operations before Net Finance Costs

Earnings from operations increased by $20.8 million, or 53%, from $38.9 million in 2004 to $59.7 million in 2005.

Net Finance Costs

Net finance costs increased by $7.9 million, or 46%, from $17.2 million in 2004 to $25.1 million in 2005.  This includes foreign currency transaction gains of $5.1 million in 2005 (2004-$2.7 million) on financing transactions.  The increase is attributable to the impact of the financing of the Grand Hotel Europe, the Hotel Caruso and funding of capital expenditure in 2005.  There were also increases in both U.S. and U.K. interest rates in 2005.

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Taxes on Income

The provision for income taxes increased by $2.4 million, or 92%, from $2.6 million in 2004 to $5.0 million in 2005.  The Company is incorporated in Bermuda, which does not impose an income tax.  Accordingly, the entire income tax provision was attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax.  The increase of $2.4 million was due to increased profitability of these subsidiaries and the impact of the Grand Hotel Europe.

Earnings from Unconsolidated Companies

Earnings from unconsolidated companies, which include OEH’s share of the net earnings of its equity investments as well as interest income related to loans and advances to the equity investees, increased by $2.0 million, or 22%, from $9.1 million to $11.2 million, mainly due to increased earnings from Peruvian joint ventures.

Year Ended December 31, 2004

compared to Year Ended December 31, 2003

Revenue

Total revenue increased by $41.4 million, or 13%, from $315.9 million in 2003 to $357.3 million in 2004.  Hotels and restaurants revenue increased by $29.3 million, or 11%, from $269.4 million in 2003 to $298.7 million in 2004, and the revenue from tourist trains and cruises increased by $12.2 million, or 26%, from $46.4 million in 2003 to $58.6 million in 2004.

The increase in hotels and restaurants revenue consisted of the following:

•                  $25.6 million attributable to owned hotels, or 10%, from $245.4 million in 2003 to $271.0 million in 2004,

•                  an increase in revenue from hotel management interests of $0.8 million, or 12%, from $6.5 million in 2003 to $7.3 million in 2004, mainly due to improved results of the Peruvian hotels,

•                  an increase in restaurants revenue of $2.8 million, or 16%, from $17.5 million in 2003 to $20.3 million in 2004, mainly due to an increase in revenue at the ‘21’ Club of $2.1 million including additional corporate functions held at the restaurant.

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The increase in owned hotels revenue of $25.6 million is analyzed by region as follows:

Europe.  Revenue increased by $0.2 million from $115.9 million in 2003 to $116.1 million in 2004.  In the fourth quarter of 2003 OEH sold the Hotel Quinta do Lago.  Revenue from the Hotel Quinta do Lago was $11.2 million in 2003 prior to its sale.

On a same store basis in euros, RevPAR increased by 2% in 2004 over 2003 but when translated to U.S. dollars increased by 13%, as the euro was stronger against the dollar in 2004 compared to 2003.  In local currency terms the Italian and French hotels performed much better in 2004 but the Portuguese hotels performed worse than in 2003.

North America.  Revenue increased by $8.8 million, or 13%, from $66.6 million in 2003 to $75.4 million in 2004.

On a same store basis, RevPAR in 2004 increased by 8% over 2003.  This was largely due to an increase at the Maroma Resort and Spa following improvements made to the property including the opening of a new spa.

Rest of the World.  Revenue increased by $16.6 million, or 26%, from $63.0 million in 2003 to $79.6 million in 2004.

RevPAR increased by 18% in local currencies but increased by 29% in U.S. dollars.  This strong performance was mainly due to the Copacabana Palace Hotel in Brazil and the Westcliff in Johannesburg as well as Bora Bora Lagoon Resort following its refurbishment.

Depreciation and Amortization

Depreciation and amortization increased by $3.0 million, or 12%, from $25.3 million in 2003 to $28.3 million in 2004 primarily due to the effect of the relative weakness of the dollar in 2004 which led to the translation of depreciation on assets denominated in other currencies into higher dollar amounts and due to capital expenditure in 2003 and 2004.

Operating Expenses

Operating expenses increased by $17.0 million, or 11%, from $158.6 million in 2003 to $175.6 million in 2004.  This was primarily due to the improved occupancy in OEH’s businesses in the year and translation of operating costs incurred in hotel currencies which were stronger against the U.S. dollar in 2004 compared to 2003.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $12.7 million, or 12%, from $101.8 million in 2003 to $114.5 million in 2004.  The primary reason for this was the translation of selling, general and administrative costs incurred in local currencies.

Earnings from Operations before Net Finance Costs

Earnings from operations increased by $4.4 million, or 13%, from $34.5 million in 2003 to $38.9 million in 2004.  The earnings from operations in 2003 include a gain of $4.3 million on the sale of the Hotel Quinta do Lago during the year.

Net Finance Costs

Net finance costs remained the same in 2004 as in 2003 at $17.2 million.  As in 2003, OEH benefited from foreign exchange gains on euro cash balances.

Taxes on Income

The provision for income taxes increased by $1.6 million, or 16%, from $1.0 million in 2003 to $2.6 million in 2004.  The Company is incorporated in Bermuda, which does not impose an income tax.  Accordingly, the entire income tax provision was attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax.  The increase of $1.6 million was due to increased profitability of these subsidiaries.

Earnings from Unconsolidated Companies

Earnings from unconsolidated companies, which include OEH’s share of the net earnings of its equity investments as well as interest income related to loans and advances to the equity investees, increased by $1.8 million, or 25%, from $7.3 million to $9.1 million, mainly due to increased earnings from Peruvian joint ventures.

Liquidity and Capital Resources

Working Capital

OEH had cash and cash equivalents of $38.4 million at December 31, 2005, $47.2 million less than the $85.6 million at December 31, 2004.  At December 31, 2005, there were undrawn amounts available to OEH under committed short-term lines of credit of $7.1 million ($12 million at December 31, 2004), bringing total cash availability at December 31, 2005 to $45.5 million.

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Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital deficit balance of $54.5 million, a working capital decrease of $54.5 million from a zero balance at December 31, 2004.

OEH’s business does not require the maintenance of significant inventories or receivables and, therefore, management believes working capital is not the most appropriate measure of liquidity.

Cash Flow

Operating Activities.  Net cash provided by operating activities decreased by $12.1 million to $40.5 million for the year ended December 31, 2005, from cash provided by operating activities of $52.6 million for the year ended December 31, 2004.  The decrease was partly attributable to an increase in accounts receivable during 2005 that was higher than the increase in accounts receivable during 2004 by $19.8 million.  The effect of the increase in accounts receivable was partly offset by the increase in net earnings of $12.5 million and dividends received from unconsolidated companies.

Investing Activities.  Cash used in investing activities was $222.0 million for the year ended December 31, 2005, compared to $100.6 million for the year ended December 31, 2004, an increase of $121.4 million of which $44.9 million was due to increased capital expenditure, $13.2 million was due to expenditure on real estate activities, and $65.0 million was due to increased acquisitions and investments offset against $1.7 million higher proceeds from the sale of assets.

Financing Activities.  Cash provided from financing activities for the year ended December 31, 2005 was $135.6 million as compared to cash provided from financing activities of $51.1 million for the year ended December 31, 2004, an increase of $84.5 million.

Capital Commitments

There were $24.3 million of capital commitments outstanding as of December 31, 2005 mainly on investments in owned hotels.

Indebtedness

At December 31, 2005, OEH had $568.3 million of consolidated long-term debt, including the current portion, collateralized by OEH assets with a number of commercial bank lenders which is payable over periods of one to 11 years with

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a weighted average interest rate of 5.51%.  These financing agreements contain covenants that include limits on the property owning company’s ability to raise additional debt collateralized by these properties, limits on liens on the properties and limits on mergers and asset sales and, in some cases, financial covenants such as a minimum interest coverage ratio and debt service coverage ratio and a maximum debt to equity ratio.  Some of the Company guarantees of these facilities contain financial covenants on OEH covering a minimum consolidated tangible net worth and a minimum consolidated interest coverage ratio.  OEH is in full compliance with these covenants, and management believes they will not substantially limit OEH’s ability to finance future acquisitions or capital expenditure plans.  See Note 6 to the Financial Statements regarding the maturity of long-term debt.

Approximately 36% of the outstanding principal was drawn in euros at December 31, 2005, and the balance primarily drawn in U.S. dollars.  At December 31, 2005, 98% of borrowings of OEH were in floating interest rates.

Liquidity

Management plans to invest over the next few years in the expansion of existing hotel properties consistent with its growth strategy, subject to market conditions.  In addition, OEH aims to acquire more properties which it expects to finance with an appropriate level of debt collateralized on the properties, and the balance through available cash resources.

Management expects to have available cash from operations and appropriate debt and other sources of financing sufficient to fund its working capital requirements, capital expenditures, acquisitions and debt service for 2006 and later years.

Contractual Obligations Summary

The following table summarizes OEH’s material known contractual obligations, excluding accounts payable and accrued liabilities, in 2006 and later years as of December 31, 2005 (dollars in millions).

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Off-Balance Sheet Arrangements

OEH had no material off-balance sheet arrangements at December 31, 2005 other than those involving its equity investees reported in Notes 1(g), 2(b), 6(a) and 16 to the Financial Statements, and commitments and contingencies and derivative financial instruments reported in Notes 12 and 13.

All deposits received for residential purchases at La Samanna are held in escrow, and as at December 31, 2005, this amounted to $2.6 million.

Critical Accounting Policies and Estimates

The preceding discussion and analysis of OEH’s financial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires OEH management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  On an ongoing basis, OEH management evaluates these estimates.  Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the result of which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions.  OEH management believes the following are OEH’s most critical accounting policies and estimates.

Carrying values of long-lived assets and goodwill

OEH management periodically evaluates the recoverability of long-lived assets whenever events or changes in

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circumstances indicate that the carrying amount may not be recoverable.  These evaluations include analyses based on the cash flows generated by the underlying assets, profitability information including estimated future operating results, trends or other determinants of fair value.  If the value of the asset determined by these evaluations is less than its carrying amount, a loss, if any, is recognized for the difference between the fair value and the carrying value of the asset.  Future adverse changes in market conditions or poor operating results of the related business may indicate an inability to recover the carrying value of the asset, thereby possibly requiring an impairment charge in the future.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, goodwill must be evaluated annually for impairment.  The impairment testing under SFAS No. 142 is performed in two steps, first, the determination of impairment based upon the fair value of a reporting unit as compared with its carrying value and, second, if there is an impairment, the measurement of the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill.  As of December 31, 2005 and 2004, OEH determined the carrying values of all its reporting units were less than their estimated fair values, indicating that there was no impairment of the recorded goodwill.  To determine fair value, OEH relied on common industry valuation models, including multiples of earnings.

Other intangible assets with indefinite useful lives are also reviewed for impairment in accordance with SFAS No. 142.

Depreciation

Real estate and other fixed assets are recorded at cost and are depreciated over their estimated useful lives by the straight-line method.  The depreciation rates on freehold buildings are 60 years with a 10% residual value, and on machinery and other remaining assets range from 5 to 25 years.  Leasehold improvements are depreciated over the shorter of the estimated useful life or the respective lease terms including lease extensions that are reasonably assured.

Pensions

OEH’s primary pension plan is accounted for using actuarial valuations required by SFAS No. 87, “Employers’ Accounting for Pensions”.  Management considers accounting for pensions critical to all of OEH’s operating segments because management is required to make significant subjective judgments about a number of actuarial assumptions, which

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include discount rates, salary growth, long-term return on plan assets and mortality rates.

Management believes that a 7.0% long-term return on plan assets in 2005 is reasonable despite the recent market volatility.  In determining the expected long-term rate of return on assets, management has evaluated input from OEH’s actuaries and financial advisors, including their review of anticipated future long-term performance of individual asset classes and the consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested.  The projected returns are based on broad equity and bond indices, including fixed interest rate gilts (U.K. Government issued long-term securities) of long-term duration since the plan is in the U.K.  OEH’s expected long-term rate of return is based on a planned transition towards 100% equity investment which is due to be completed at the end of March, 2006.

Management regularly reviews OEH’s actual asset allocation and periodically rebalances investments to targeted allocations when considered appropriate.  While the analysis considers recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate.  Management will continue to evaluate the expected rate of return at least annually, and will adjust as necessary.

Depending on the assumptions and estimates used, pension expense could vary within a range of outcomes and have a material effect on OEH’s consolidated financial statements.  Management is currently monitoring and evaluating the level of pension contributions based on various factors that include investment performance, actuarial valuation and tax deductibility.  Management will evaluate the need for additional contributions in 2006 based on these factors.  Management believes that the cash flows from OEH’s operations will be sufficient to fund additional contributions, if any, to the plan.

Tax assets

OEH maintains a valuation allowance to reduce its gross deferred tax assets to reflect the amount, based upon OEH’s estimates of income that would likely be realized.  If OEH’s future operations differed from those in the estimates, OEH may need to increase or decrease the valuation allowance, which could affect its reported operations.

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Recent Accounting Pronouncements

The Company adopted SFAS No. 123R with effect from January 1, 2005 (see Note 1(e)).

In October 2005, the Financial Accounting Standards Board (“FASB”) issued Staff Position FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period”, which requires rental costs associated with ground or building operating leases that are incurred during a construction period to be recognized as rental expense.  This Staff Position is effective for reporting periods beginning after December 15, 2005, and retrospective application is permitted but not required.  OEH has historically expensed rent costs incurred during the construction period.  Accordingly, Staff Position FAS 13-1 is not expected to have any impact on OEH’s consolidated financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”.  FIN 47 clarifies the term “conditional” as used in SFAS No.143, “Accounting for Asset Retirement Obligations”.  This interpretation refers to a legal obligation to perform an asset retirement activity even if the timing and/or settlement is conditional on a future event that may or may not be within the control of an entity.  Accordingly, the entity must record a liability for the conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated.  FIN 47 is effective for fiscal years ending after December 15, 2005.  The adoption of FIN 47 did not have a material impact on OEH’s consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154,”Accounting Changes and Error Corrections”.  SFAS No. 154 replaces Accounting Principle Board Opinion No 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”.  SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles.  It requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  The statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The adoption of SFAS No. 154 did not have a material effect on OEH’s financial position or results of operations.

In July 2005, the FASB issued an exposure draft, “Accounting for Uncertain Tax Positions, an Interpretation of FASB Statement No. 109”.  As drafted, the interpretation would

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require companies to recognize the best estimate of the impact of a tax position only if that position is probable of being sustained during a tax audit.  However, in November 2005, the FASB voted to replace the probable threshold with a more-likely-than-not criterion when determining if the impact of a tax position should be recorded.  The FASB expects to issue a final interpretation in the first quarter of 2006.  When it is available, OEH will review the final interpretation to determine the impact it may have on OEH’s consolidated financial statements.

In December 2005, the FASB deliberated issues relating to the limited-scope, first phase of its project to reconsider the accounting for post-retirement benefits, including pensions.  The FASB decided that the objectives and scope of this phase include, among other items, recognizing the over-funded or under-funded status of defined benefit post-retirement plans as an asset or a liability in the statement of financial position.  The FASB expects to issue an exposure draft for the initial phase in the first quarter of 2006.  In the second multi-year phase of the project, the FASB expects to consider comprehensively a variety of issues related to the accounting for post-retirement benefits, including expense recognition, obligation measurement, and whether post-retirement benefit trusts should be consolidated by the plan sponsor.  OEH will review the proposed standards when they are available to determine the impact they may have on OEH’s consolidated financial statements.

OEH is exposed to market risk from changes in interest rates and foreign currency exchange rates.  These exposures are monitored and managed as part of its overall risk management program, which recognizes the unpredictability of financial markets and seeks to mitigate material adverse effects on consolidated earnings and cash flow.  OEH does not hold market rate sensitive financial instruments for trading purposes.

The market risk relating to interest rates arises mainly from the financing activities of OEH.  Earnings are affected by changes in interest rates on floating rate borrowings, principally based on U.S. dollar LIBOR and EURIBOR, and on short-term cash investments.  OEH management assesses market risk based on changes in interest rates using a sensitivity analysis.  If interest rates increased by 10% with all other variables held constant, annual net finance costs of OEH would have increased by approximately $3,000,000 based on borrowings

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outstanding at December 31, 2005.  The interest rates on substantially all of OEH’s long-term debt are adjusted regularly to reflect current market rates.  Accordingly, the carrying amounts approximate fair value.

The market risk relating to foreign currencies arises from holding assets, buying, selling and financing in currencies other than the U.S. dollar, principally the European euro, British pound, South African rand, Brazilian real and Australian dollar.  Some non-U.S. subsidiaries of the Company borrow in local currencies, and OEH may in the future enter into forward exchange contracts relating to purchases denominated in foreign currencies.  There are no foreign currency derivative financial instruments currently in effect relating to OEH.

Nine of OEH’s owned hotels in 2005 operated with currencies linked to the euro, two operated in South African rand, two in Australian dollars, one in British pounds sterling, one in Botswanan pula, and one in Peruvian nuevo soles.  The Venice Simplon-Orient-Express, British Pullman and Northern Belle tourist trains operate primarily in British pounds sterling and currencies linked to the euro.  OEH faces exposure arising from the impact of translating its global foreign currency earnings into U.S. dollars, and anticipates this foreign exchange rate risk will remain a market exposure for the foreseeable future.

OEH’s properties match foreign currency earnings and costs to provide a natural economic hedge against currency movements.  In addition, a significant proportion of the guests at OEH hotels located outside of the United States originate from the United States. When a foreign currency in which OEH operates devalues against the U.S. dollar, OEH has considerable flexibility to increase prices in local currency, or vice versa.  Management believes that when these factors are combined, OEH does not face a material economic exposure to its net earnings from currency movements, although the reporting of OEH’s revenues and costs translated into U.S. dollars can, from period to period, be materially affected.

OEH management uses a sensitivity analysis to assess the potential impact on net earnings of changes in foreign currency financial instruments from hypothetical changes in the foreign currency exchange rates.  The primary assumption used in this model is a hypothetical 10% weakening or strengthening of the foreign currencies against the U.S. dollar.  At December 31, 2005, as a result of this analysis, OEH management determined that the impact on foreign currency financial instruments of a 10% change in foreign currency exchange rates in relation to the U.S. dollar would be approximately $3,000,000 on OEH's net earnings.

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ITEM 8.  Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Orient-Express Hotels Ltd.

Hamilton, Bermuda

We have audited the accompanying consolidated balance sheets of Orient-Express Hotels Ltd. and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005.  Our audits also included the financial statement schedule listed in Item 15.  These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Orient-Express Hotels Ltd. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the

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criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

London, England.

March 3, 2006

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Orient-Express Hotels Ltd.

Hamilton, Bermuda

We have audited management’s assessment, in the accompanying Report on Internal Control over Financial Reporting included in Item 9A–Controls and Procedures of this Form 10-K Annual Report, that Orient-Express Hotels Ltd. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial

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statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2005 of the Company and our report dated March 3, 2006 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

London, England

March 3, 2006

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Orient-Express Hotels Ltd. and Subsidiaries

Consolidated Balance Sheets

See notes to consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries

Statements of Consolidated Operations