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EX-32 - EXHIBIT 32 - Belmond Ltd.bel-ex32_20170630x10q.htm
EX-31 - EXHIBIT 31 - Belmond Ltd.bel-ex31_20170630x10q.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
 
 
 
 

 FORM 10-Q
(Mark One)
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2017
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 001-16017
 
 
 
 
 
BELMOND LTD.
(Exact name of registrant as specified in its charter) 
Bermuda
 
98-0223493
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 

22 Victoria Street,
Hamilton HM 12, Bermuda
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code:  (441) 295-2244

 
 
 
 
 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act 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 x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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

Large Accelerated Filer x
 
Accelerated Filer o
Non-Accelerated Filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

 As of August 4, 2017, 102,323,211 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.
 



Table of Contents
 


1


PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements


Belmond Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
 
 
June 30,
2017
 
December 31,
2016
 
 
 $’000
 
 $’000
Assets
 
 

 
 

Cash and cash equivalents
 
113,850

 
153,425

Restricted cash
 
10,353

 
1,830

Accounts receivable, net of allowances of $451 and $420
 
37,388

 
25,775

Due from unconsolidated companies
 
13,642

 
12,165

Prepaid expenses and other
 
13,730

 
12,262

Inventories
 
24,546

 
23,931

Total current assets
 
213,509

 
229,388

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $409,053 and $368,939
 
1,163,975

 
1,074,676

Investments in unconsolidated companies
 
79,152

 
79,327

Goodwill
 
123,023

 
113,343

Other intangible assets
 
19,919

 
13,877

Other assets
 
13,140

 
13,457

Total assets (1)
 
1,612,718

 
1,524,068

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Accounts payable
 
18,633

 
16,366

Accrued liabilities
 
81,858

 
69,046

Deferred revenue
 
45,162

 
31,350

Current portion of long-term debt and obligations under capital leases
 
51,242

 
5,284

Total current liabilities
 
196,895

 
122,046

 
 
 
 
 
Long-term debt and obligations under capital leases
 
596,706

 
585,768

Liability for pension benefit
 
560

 
1,447

Other liabilities
 
4,697

 
5,366

Deferred income taxes
 
115,984

 
122,291

Liability for uncertain tax positions
 
383

 
318

Total liabilities (1)
 
915,225

 
837,236

 
 
 
 
 
Commitments and contingencies (Note 18)
 


 


 
 
 
 
 
Equity:
 
 

 
 

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Preferred shares $0.01 par value (30,000,000 shares authorized, issued Nil)
 

 

Class A common shares $0.01 par value (240,000,000 shares authorized):
 
 

 
 

Issued — 102,245,911 (2016 — 101,793,829)
 
1,021

 
1,018

Class B common shares $0.01 par value (120,000,000 shares authorized):
 
 

 
 

Issued — 18,044,478 (2016 — 18,044,478)
 
181

 
181

 
 
 
 
 
Additional paid-in capital
 
983,012

 
979,458

Retained earnings
 
35,280

 
58,313

Accumulated other comprehensive loss
 
(322,296
)
 
(352,339
)
Less: Reduction due to class B common shares owned by a subsidiary — 18,044,478 (2016 — 18,044,478)
 
(181
)
 
(181
)
Total shareholders’ equity
 
697,017

 
686,450

Non-controlling interests
 
476

 
382

Total equity
 
697,493

 
686,832

 
 
 
 
 
Total liabilities and equity
 
1,612,718

 
1,524,068



Belmond Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) (continued)

(1) Included in Belmond Ltd.’s consolidated assets and liabilities are assets of consolidated variable interest entities (“consolidated VIEs”) that can only be used to settle obligations of the consolidated VIEs and liabilities of consolidated VIEs whose creditors have no recourse to Belmond Ltd. The Company’s only consolidated VIE at June 30, 2017 and December 31, 2016 is Charleston Center LLC. The assets and liabilities relating to this VIE at June 30, 2017 and December 31, 2016 are as follows:
 
 
June 30,
2017
 
December 31,
2016
 
 
 $’000
 
 $’000
 
 
 
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
1,046

 
2,233

Accounts receivable, net of allowances of $Nil and $Nil
 
3,020

 
3,066

Prepaid expenses and other
 
819

 
365

Inventories
 
1,315

 
1,296

Total current assets
 
6,200

 
6,960

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $38,916 and $35,902
 
199,898

 
201,861

Other assets
 
1,614

 
1,455

Total assets
 
207,712

 
210,276

 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable
 
2,434

 
4,558

Accrued liabilities
 
4,001

 
3,099

Deferred revenue
 
1,977

 
1,714

Current portion of long-term debt and obligations under capital leases
 
185

 
242

Total current liabilities
 
8,597

 
9,613

 
 
 
 
 
Long-term debt and obligations under capital leases
 
112,075

 
111,968

Other liabilities
 
23

 
40

Total liabilities
 
120,695

 
121,621


See further description in note 5, Variable interest entities.

See notes to condensed consolidated financial statements.
2




Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Operations (unaudited)

 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Revenue (1)
 
165,865

 
154,490

 
260,732

 
251,892

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Cost of services
 
66,846

 
69,368

 
112,765

 
114,472

Selling, general and administrative
 
73,589

 
50,285

 
124,849

 
96,929

Depreciation and amortization
 
15,082

 
13,331

 
28,810

 
26,398

Impairment of property, plant and equipment
 
8,216

 

 
8,216

 

 
 
 
 
 
 
 
 
 
Total operating costs and expenses
 
163,733

 
132,984

 
274,640

 
237,799

 
 
 
 
 
 
 
 
 
Gain on disposal of property, plant and equipment
 
150

 
150

 
300

 
300

 
 
 
 
 
 
 
 
 
Earnings/(losses) from operations
 
2,282

 
21,656

 
(13,608
)
 
14,393

 
 
 
 
 
 
 
 
 
Gain on extinguishment of debt
 

 
1,200

 

 
1,200

Interest income
 
196

 
177

 
342

 
293

Interest expense
 
(7,867
)
 
(7,676
)
 
(15,543
)
 
(15,186
)
Foreign currency, net
 
(1,007
)
 
4,871

 
(1,241
)
 
7,729

 
 
 
 
 
 
 
 
 
(Losses)/earnings before income taxes and earnings from unconsolidated companies, net of tax
 
(6,396
)
 
20,228

 
(30,050
)
 
8,429

 
 
 
 
 
 
 
 
 
(Provision for)/benefit from income taxes
 
(2,142
)
 
(14,335
)
 
3,124

 
(4,739
)
 
 
 
 
 
 
 
 
 
(Losses)/earnings before earnings from unconsolidated companies, net of tax
 
(8,538
)
 
5,893

 
(26,926
)
 
3,690

 
 
 
 
 
 
 
 
 
Earnings from unconsolidated companies, net of tax provision of $1,807, $1,355, $2,053 and $2,231
 
3,474

 
2,259

 
3,850

 
3,094

 
 
 
 
 
 
 
 
 
(Losses)/earnings from continuing operations
 
(5,064
)
 
8,152

 
(23,076
)
 
6,784

 
 
 
 
 
 
 
 
 
Net earnings from discontinued operations, net of tax provision of $Nil, $Nil, $Nil and $Nil
 
93

 
156

 
128

 
55

 
 
 
 
 
 
 
 
 
Net (losses)/earnings
 
(4,971
)
 
8,308

 
(22,948
)
 
6,839

 
 
 
 
 
 
 
 
 
Net losses/(earnings) attributable to non-controlling interests
 
49

 
59

 
(85
)
 
(40
)
 
 
 
 
 
 
 
 
 
Net (losses)/earnings attributable to Belmond Ltd.
 
(4,922
)
 
8,367

 
(23,033
)
 
6,799

 
 
 
 
 
 
 
 
 
(1)  Includes revenue from related parties of $4,486,000, $3,609,000, $6,483,000 and $6,306,000 respectively
 



See notes to condensed consolidated financial statements.
3



Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Operations (unaudited) (continued)

 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$
 
$
 
$
 
$
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 

 
 

 
 
Net earnings/(losses) from continuing operations
 
(0.05
)
 
0.08

 
(0.23
)
 
0.07

Net earnings/(losses) from discontinued operations
 

 

 

 

Basic net earnings/(losses) per share attributable to Belmond Ltd.
 
(0.05
)
 
0.08

 
(0.23
)
 
0.07

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 

 
 

 
 

Net earnings/(losses) from continuing operations
 
(0.05
)
 
0.08

 
(0.23
)
 
0.07

Net earnings/(losses) from discontinued operations
 

 

 

 

Diluted net earnings/(losses) per share attributable to Belmond Ltd.
 
(0.05
)
 
0.08

 
(0.23
)
 
0.07

 
 
 
 
 
 
 
 
 
 

See notes to condensed consolidated financial statements.
4



Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Comprehensive Income (unaudited)

 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Net earnings
 
(4,971
)
 
8,308

 
(22,948
)
 
6,839

 
 
 
 
 
 
 
 
 
Other comprehensive income/(losses), net of tax:
 
 

 
 

 
 

 
 
Foreign currency translation adjustments, net of tax provision/(benefit) of $Nil,$Nil, $Nil and $Nil
 
15,896

 
(9,175
)
 
28,977

 
5,899

Change in fair value of derivatives, net of tax provision/(benefit) of $21, $(89), $196 and $(548)
 
95

 
(247
)
 
759

 
(1,715
)
Change in pension liability, net of tax provision of $33, $29, $65 and $58
 
160

 
132

 
316

 
265

Total other comprehensive income/(losses), net of tax
 
16,151

 
(9,290
)
 
30,052

 
4,449

 
 
 
 
 
 
 
 
 
Total comprehensive income/(losses)
 
11,180

 
(982
)
 
7,104

 
11,288

 
 
 
 
 
 
 
 
 
Comprehensive losses/(income) attributable to non-controlling interests
 
3

 
4

 
(94
)
 
(142
)
 
 
 
 
 
 
 
 
 
Comprehensive income/(losses) attributable to Belmond Ltd.
 
11,183

 
(978
)
 
7,010

 
11,146

 
 
 
 
 
 
 
 
 


See notes to condensed consolidated financial statements.
5


Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Cash Flows (unaudited)

 
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
 
$'000
 
$'000
 
 
 
 
 
Cash flows from operating activities:
 
 

 
 

Net (losses)/earnings
 
(22,948
)
 
6,839

Less: Net earnings from discontinued operations, net of tax
 
128

 
55

 
 
 
 
 
Net (losses)/earnings from continuing operations
 
(23,076
)
 
6,784

Adjustments to reconcile net (losses)/earnings to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
28,810

 
26,398

Impairment of property, plant and equipment and other assets
 
8,216

 

Gain on disposal of property, plant and equipment
 
(300
)
 
(300
)
Gain on extinguishment of debt
 

 
(1,200
)
Earnings from unconsolidated companies, net of tax
 
(3,850
)
 
(3,094
)
Amortization of debt issuance costs and discount on secured term loan
 
1,477

 
1,440

Share-based compensation
 
3,554

 
3,149

Change in provisions for uncertain tax positions
 
36

 
136

Benefit from deferred income tax
 
(9,514
)
 
(3,526
)
Other non-cash movements
 
632

 
1,302

Effect of exchange rates on net losses
 
965

 
(8,800
)
Change in assets and liabilities, net of effects from acquisitions:
 
 

 
 

Accounts receivable
 
(10,313
)
 
(3,109
)
Due from unconsolidated companies
 
527

 
(1,353
)
Prepaid expenses and other
 
(1,636
)
 
(417
)
Inventories
 
618

 
(1,048
)
Escrow and prepaid customer deposits
 
(8,160
)
 
(2,327
)
Accounts payable
 
(697
)
 
(518
)
Accrued liabilities
 
11,127

 
6,314

Deferred revenue
 
10,980

 
12,993

Other liabilities
 
(14
)
 
(14,367
)
Other, net
 
253

 
(256
)
Other cash movements:
 
 
 
 
Dividends from equity method investees
 
2,070

 
2,062

 
 
 
 
 
Net cash provided by operating activities from continuing operations
 
11,705

 
20,263

Net cash provided by operating activities from discontinued operations
 
(7
)
 
55

 
 
 
 
 
Net cash provided by operating activities
 
11,698

 
20,318


See notes to condensed consolidated financial statements.
6


Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Cash Flows (unaudited) (continued)

 
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
 
$'000
 
$'000
 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Capital expenditure to acquire property, plant and equipment
 
(27,415
)
 
(27,076
)
Acquisitions, net of cash acquired
 
(68,632
)
 

Increase in restricted cash
 
(256
)
 
(129
)
Proceeds from sale of property, plant and equipment
 

 
2,362

 
 
 
 
 
Net cash used in investing activities from continuing operations
 
(96,303
)
 
(24,843
)
Net cash provided by investing activities from discontinued operations
 

 

 
 
 
 
 
Net cash used in investing activities
 
(96,303
)
 
(24,843
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Repurchase of shares
 

 
(1,992
)
Exercised share options and vested share awards
 
3

 
16

Dividend to non-controlling interest
 

 
(7
)
Proceeds from borrowings
 
45,000

 
26,000

Debt issuance costs
 

 
(414
)
Principal payments under long-term debt
 
(2,653
)
 
(11,207
)
 
 
 
 
 
Net cash provided by financing activities from continuing operations
 
42,350

 
12,396

Net cash provided by financing activities from discontinued operations
 

 

 
 
 
 
 
Net cash provided by financing activities
 
42,350

 
12,396

 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
2,680

 
1,062

 
 
 
 
 
Net (decrease)/increase in cash and cash equivalents
 
(39,575
)
 
8,933

 
 
 
 
 
Cash and cash equivalents at beginning of period (includes $Nil and $Nil of cash presented within assets held for sale)
 
153,425

 
135,599

 
 
 
 
 
Cash and cash equivalents at end of period (includes $Nil and $Nil of cash presented within assets held for sale)
 
113,850

 
144,532




See notes to condensed consolidated financial statements.
7


Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Total Equity (unaudited)
 
 
 
Preferred
shares at
par value
$’000
 
Class A
common
shares at
par value
$’000
 
Class B
common
shares at
par value
$’000
 
Additional
paid-in
capital
$’000
 
Retained earnings
$’000
 
Accumulated
other
comprehensive
loss
$’000
 
Class B
common
shares held by
a subsidiary
$’000
 
Non-
controlling
interests
$’000
 
Total
$’000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2016
 

 
1,015

 
181

 
975,419

 
16,172

 
(334,542
)
 
(181
)
 
361

 
658,425

Share-based compensation
 

 

 

 
3,149

 

 

 

 

 
3,149

Exercised share options and vested share awards
 

 
4

 

 
12

 

 

 

 

 
16

Repurchase of shares
 

 
(2
)
 

 
(2,245
)
 
255

 

 

 

 
(1,992
)
Dividend to non-controlling interest
 

 

 

 

 

 

 

 
(171
)
 
(171
)
Comprehensive income/(losses):
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net earnings attributable to common shares
 

 

 

 

 
6,799

 

 

 
40

 
6,839

Other comprehensive income
 

 

 

 

 

 
4,347

 

 
102

 
4,449

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2016
 

 
1,017

 
181

 
976,335

 
23,226

 
(330,195
)
 
(181
)
 
332

 
670,715

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
 

 
1,018

 
181

 
979,458

 
58,313

 
(352,339
)
 
(181
)
 
382

 
686,832

Share-based compensation
 

 

 

 
3,554

 

 

 

 

 
3,554

Exercised stock options and vested share awards
 

 
3

 

 

 

 

 

 

 
3

Comprehensive income/(losses):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net (losses)/earnings attributable to common shares
 

 

 

 

 
(23,033
)
 

 

 
85

 
(22,948
)
Other comprehensive income
 

 

 

 

 

 
30,043

 

 
9

 
30,052

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2017
 

 
1,021

 
181

 
983,012

 
35,280

 
(322,296
)
 
(181
)
 
476

 
697,493

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

See notes to condensed consolidated financial statements.
8


Belmond Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
1.    Basis of financial statement presentation
 
Business
 
The terms “Belmond” and the “Company” are used in this report to refer to Belmond Ltd. and Belmond Ltd. and its subsidiaries, unless otherwise stated.

At June 30, 2017, Belmond owned, partially-owned or managed 36 deluxe hotels and resort properties operating in the United States, Mexico, the Caribbean, Europe, Southern Africa, South America, and Southeast Asia, one stand-alone restaurant in New York, eight tourist trains in Europe, Southeast Asia and Peru, two river cruise businesses in Myanmar (Burma) and one canal boat business in France. In addition, there is one hotel, scheduled for a 2018 opening, Belmond Cadogan Hotel in London, England.

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reporting on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the management of the Company, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, operating results and cash flows for the interim period have been included in these condensed consolidated financial statements.

The interim results presented are not necessarily indicative of results that may be expected for any subsequent interim period or the fiscal year ending December 31, 2017.
 
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. See Note 2 to the consolidated financial statements in the 2016 Annual Report on Form 10-K for additional information regarding significant accounting policies.
 
For interim reporting purposes, Belmond calculates its tax expense by estimating its global annual effective tax rate and applies that rate in providing for income taxes on a year-to-date basis. Belmond has calculated an expected annual effective tax rate, excluding significant or unusual items, and the tax effect of jurisdictions with losses for which a tax benefit cannot be recognized. The income tax expense (or benefit) related to all other items is individually computed and recognized when the items occur.

Reclassifications

In the first quarter of 2017, the Company corrected a prior period misstatement to reclassify an immaterial deferred tax entry related to a change of functional currency at the Company's Brazilian subsidiaries in 2014. As a result, opening Retained earnings increased by $5,562,000 and opening Accumulated other comprehensive income decreased by $5,562,000, with no net change in Total Equity. There is no impact on net earnings, EPS or cash flows in any period presented.

Accounting policies
 
The accounting policies used in preparing these condensed consolidated financial statements are the same as those applied in the prior year.


9


Accounting pronouncements to be adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance which is intended to improve the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The guidance supersedes existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the new guidance. In March 2016, the FASB issued additional guidance which amends the principal-versus-agent implementation guidance and illustrations in the original accounting pronouncement. In May 2016, the FASB issued an update that clarified guidance in certain narrow aspects of the topic. The guidance was originally effective for annual and interim periods beginning after December 15, 2016, however in July 2015 the FASB confirmed that the effective date would be deferred by one year, to annual and interim periods beginning after December 15, 2017. Early adoption is permitted only for periods beginning after December 15, 2016.

The Company intends to adopt the standard in the annual period beginning January 1, 2018 under the modified retrospective approach with a cumulative effect recognized in equity and no prior period restatement. The initial analysis identifying areas that will be impacted by the new guidance is substantially complete and has been conducted predominantly through a review of contracts with customers under the new five step model: (1) identify the contract with a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Based on our preliminary assessment, we do not expect the standard to materially affect the amount or timing of revenue recognition for rooms, food and beverage and other hotel level sales, which form the majority of the Company’s revenue. We are continuing to evaluate other possible impacts to our condensed consolidated financial statements, including management and incentive fees, real estate sales and principal and agent considerations.

In February 2016, the FASB issued its new standard on accounting for leases, which introduces a lessee model that brings most leases on the balance sheet. A distinction between finance leases and operating leases is retained, with the result that the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous lease guidance. The guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Belmond is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.

In August 2016, the FASB issued new guidance which clarifies the classification of certain cash receipts and payments in the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The new guidance will be applied on a retrospective basis where applicable. Belmond is currently evaluating the impact, if any, of the adoption of this guidance on its condensed consolidated financial statements.

In October 2016, the FASB issued new guidance which is intended to simplify the tax consequences of certain types of intra-entity asset transfers. The guidance is effective for annual periods ending after December 15, 2017, and interim periods thereafter, with early adoption permitted. The new guidance will be applied on a modified retrospective basis. Belmond is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.

In November 2016, the FASB issued new guidance which clarifies the classification and presentation of restricted cash in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods therein, with early adoption permitted. Belmond is currently assessing what impact the adoption of this guidance will have on its consolidated financial statements.

In January 2017, the FASB issued new guidance to simplify the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is effective for annual and interim impairment tests for periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. The new guidance will be applied on a prospective basis. Belmond is currently assessing what impact the adoption of this guidance will have on its consolidated financial statements.

In January 2017, the FASB issued new guidance to clarify the definition of a business.The guidance is effective in annual periods beginning after December 15, 2017, including interim periods therein, with early adoption permitted. The new guidance will be

10


applied on a prospective basis. Belmond is currently assessing what impact the adoption of this guidance will have on its consolidated financial statements.

In May 2017, the FASB issued new guidance on service concession arrangements. The guidance is effective on the same date the new revenue guidance is adopted, with early adoption permitted. Belmond is currently assessing what impact the adoption of this guidance will have on its consolidated financial statements.

2.     Earnings per share
 
The calculation of basic and diluted earnings per share including a reconciliation of the numerator and denominator is as follows:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
 
 
 
 
 
 
 
Numerator ($'000)
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
(5,064
)
 
8,152

 
(23,076
)
 
6,784

Net earnings/(losses) from discontinued operations
 
93

 
156

 
128

 
55

Net losses/(earnings) attributable to non-controlling interests
 
49

 
59

 
(85
)
 
(40
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
(4,922
)
 
8,367

 
(23,033
)
 
6,799

 
 
 
 
 
 
 
 
 
Denominator (shares '000)
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
102,145

 
101,534

 
102,005

 
101,424

Effect of dilution
 

 
1,385

 

 
1,361

 
 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
 
102,145

 
102,919

 
102,005

 
102,785

 
 
 
 
 
 
 
 
 
 
 
$
 
$
 
$
 
$
Basic earnings per share
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
(0.050
)
 
0.080

 
(0.226
)
 
0.067

Net earnings/(losses) from discontinued operations
 
0.001

 
0.002

 
0.001

 
0.001

Net losses/(earnings) attributable to non-controlling interests
 

 
0.001

 
(0.001
)
 

 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
(0.049
)
 
0.083

 
(0.226
)
 
0.068

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
(0.050
)
 
0.079

 
(0.226
)
 
0.066

Net earnings/(losses) from discontinued operations
 
0.001

 
0.002

 
0.001

 
0.001

Net losses/(earnings) attributable to non-controlling interests
 

 
0.001

 
(0.001
)
 

 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
(0.049
)
 
0.082

 
(0.226
)
 
0.067



11


The total number of share options and share-based awards excluded from computing diluted earnings per share was as follows: 
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
 
 
 
 
 
 
 
Share options
 
2,468,795

 
1,894,922

 
2,468,795

 
1,894,922

Share-based awards
 
1,426,972

 

 
1,426,972

 

 
 
 
 
 
 
 
 
 
Total
 
3,895,767

 
1,894,922

 
3,895,767

 
1,894,922

 
The number of share options and share-based awards unexercised at June 30, 2017 was 3,895,767 (June 30, 2016 - 4,197,980).

3.    Significant acquisitions

2017 Acquisitions

Cap Juluca

On May 26, 2017, Belmond acquired Cap Juluca, a 96-key luxury resort on the Caribbean island of Anguilla, British West Indies for a total transaction value of $84,512,000, including an aggregate cash purchase price of $68,652,000, acquisition-related costs of $13,753,000 and excluding a working capital credit of $2,107,000. On the same date, the Company assumed management of the resort, which was previously independently managed, and began marketing the property under the name Belmond Cap Juluca. As one of the most recognized resorts in the Caribbean, Cap Juluca is a natural fit for the Belmond portfolio and enhances Belmond’s positioning in the global luxury resort market.


12


The following table summarizes the consideration paid for the hotel and the preliminary allocation of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the acquisition date. The acquisition has been accounted for in accordance with ASC 805, Business Combinations, using the acquisition method of accounting whereby the total purchase price has been allocated to the acquired assets and liabilities as at May 26, 2017. The estimated fair values are preliminary and are subject to adjustment as the fair value analysis is finalized, which will be completed as soon as practicable, but no later than one year from the acquisition date.
 
 
Fair value on May 26, 2017
 
 
$'000
Consideration:
 
 
 
 
 
Agreed cash consideration
 
70,759

Less: Working capital adjustment
 
(2,107
)
Total purchase price
 
68,652

 
 
 
Assets acquired and liabilities assumed:
 
 
 
 
 
Cash and cash equivalents
 
20

Accounts receivable
 
112

Prepaid expenses and other
 
45

Inventories
 
108

Property, plant and equipment
 
59,159

Other intangible assets
 
6,100

Accounts payable
 
(595
)
Accrued liabilities
 
(360
)
Deferred revenue
 
(1,437
)
Goodwill
 
5,500

Net assets acquired
 
68,652


The purchase price of $68,652,000 was funded from existing cash reserves and $45,000,000 of borrowings under the Company’s previously undrawn revolving credit facility. See Note 10.

Acquisition-related costs which are included within selling, general and administrative expenses in the statements of condensed consolidated operations for the six months ended June 30, 2017 were $13,753,000, related to professional fees incurred in preliminary design and planning, structuring, assessment of financing opportunities, legal, tax, accounting and engineering due diligence and the negotiation of the purchase and sale agreements, and other ancillary documents, with the principal owner and leaseholder, together with three owners of villas and separate subleases, as well as a memorandum of understanding and ground lease with the Government of Anguilla.


Other intangible assets of $6,100,000 was assigned to trade names that are not subject to amortization. No other intangible assets were identified and recognized.

Goodwill arising on acquisition of $5,500,000 was assigned to the Owned hotels in North America segment and consists largely of profit growth opportunities the hotel is expected to generate. None of the goodwill recognized is expected to be deductible for income tax purposes.

At the same time, the Company entered into a 125-year ground lease for the property with the Government of Anguilla. The lease has been accounted for as an operating lease in accordance with ASC 840, Leases, with the annual rental expense recognized in selling, general and administrative expenses in the statements of condensed consolidated operations, and future rental payments committed as at June 30, 2017 disclosed in Note 18.

13



The results of operations of the hotel has been included in the consolidated financial results since the date of acquisition. The following table presents information for Belmond Cap Juluca included in the Company’s statements of condensed consolidated operations from the acquisition date to the period ending June 30, 2017:
 
 
2017
 
 
$'000
 
 
 
Revenue
 
918

Losses from continuing operations
 
(13,131
)

Belmond is unable to provide pro forma results of operations for the six months ended June 30, 2017 and 2016 as if the acquisition had occurred on January 1, 2016 due to the lack of reliable historical financial information.
 
4.    Assets held for sale and discontinued operations

(a)    Properties sold: Great South Pacific Express

On the April 19, 2016, Belmond completed the sale of the property, plant and equipment relating to the trains and carriages that were formerly operated as the Great South Pacific Express in Queensland, Australia for consideration of $2,362,000 to the Company’s PeruRail joint venture. The carriages were sold at their carrying value and no gain or loss arose on disposal.
 
 
 
(b)    Results of discontinued operations

Belmond had been operating the hotel Ubud Hanging Gardens under a long-term lease arrangement with a third-party owner. The existing lease arrangement continues to 2030. Following the owner's unannounced dispossession of Belmond from the hotel in November 2013, however, Belmond was unable to continue to operate the hotel. Belmond believed that the owner's actions were unlawful and constituted a wrongful dispossession and has pursued its legal remedies under the lease. See Note 18. As Belmond is unable to operate Ubud Hanging Gardens for the foreseeable future, the hotel has been presented as a discontinued operation for all periods shown. The assets and liabilities of the hotel have not been classified as held for sale, as the hotel has not been disposed of through a sale transaction.

The Porto Cupecoy development was sold in January 2013, with the final unit disposed of in September 2014. Residual costs relating to the sale of Porto Cupecoy are presented within discontinued operations for all periods shown.

Summarized operating results of the properties classified as discontinued operations for the three and six months ended June 30, 2017 and 2016 are as follows:
 
 
Three months ended June 30, 2017
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 

 

 
 
 
 
 
 
 
Earnings/(losses) before tax, gain on sale and impairment
 
100

 
(7
)
 
93

 
 
 
 
 
 
 
Earnings/(losses) before tax
 
100

 
(7
)
 
93

 
 
 
 
 
 
 
Net earnings/(losses) from discontinued operations
 
100

 
(7
)
 
93


14


 
 
Three months ended June 30, 2016
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 

 

 
 
 
 
 
 
 
Earnings/(losses) before tax, gain on sale and impairment
 
170

 
(14
)
 
156

 
 
 
 
 
 
 
Earnings/(losses) before tax
 
170

 
(14
)
 
156

 
 
 
 
 
 
 
Net earnings/(losses) from discontinued operations
 
170

 
(14
)
 
156

 
 
Six months ended June 30, 2017
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 

 

 
 
 
 
 
 
 
Earnings before tax, gain on sale and impairment
 
100

 
28

 
128

 
 
 
 
 
 
 
Earnings before tax
 
100

 
28

 
128

 
 
 
 
 
 
 
Net earnings from discontinued operations
 
100

 
28

 
128

 
 
Six months ended June 30, 2016
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 

 

 
 
 
 
 
 
 
Earnings/(losses) before tax, gain on sale and impairment
 
73

 
(18
)
 
55

 
 
 
 
 
 
 
Earnings/(losses) before tax
 
73

 
(18
)
 
55

 
 
 
 
 
 
 
Net earnings/(losses) from discontinued operations
 
73

 
(18
)
 
55


The results of discontinued operations for the three and six months ended June 30, 2017 included earnings of $100,000 and $100,000, respectively, due to the partial release of legal fee accruals in relation to Ubud Hanging Gardens, where Belmond is pursuing legal remedies following its dispossession by the owner in November 2013. See Note 18.

(c)    Assets and liabilities held for sale

There were no assets or liabilities classified as held for sale at June 30, 2017 and December 31, 2016.
 
 
 

15


5.    Variable interest entities
 
(a)    VIEs of which Belmond is the primary beneficiary
 
Belmond holds a 19.9% equity investment in Charleston Center LLC, owner of Belmond Charleston Place, Charleston, South Carolina. Belmond has also made a number of loans to the hotel. Belmond concluded that Charleston Center LLC is a VIE because the total equity at risk is insufficient for the entity to fund its operations without additional subordinated financial support, the majority of which has been provided by Belmond. Belmond is the primary beneficiary of this VIE because it is expected to absorb a majority of the VIE’s expected losses and residual gains through the subordinated financial support it has provided, and has the power to direct the activities that impact the VIE’s performance, based on the current organizational structure.
 
 
 
 
 
Assets of Charleston Center LLC that can only be used to settle obligations of the consolidated VIEs and liabilities of Charleston Center LLC whose creditors have no recourse to Belmond are presented as a footnote to the consolidated balance sheets. The third-party debt of Charleston Center LLC is secured by its net assets and is non-recourse to its members, including Belmond. The hotel's separate assets are not available to pay the debts of Belmond and the hotel's separate liabilities do not constitute obligations of Belmond. The assets of Charleston Center LLC that can be used only to settle obligations of Charleston Center LLC totaled $207,712,000 at June 30, 2017 (December 31, 2016 - $210,276,000) and exclude goodwill of $40,395,000 (December 31, 2016 - $40,395,000). The liabilities of Charleston Center LLC for which creditors do not have recourse to the general credit of Belmond totaled $120,695,000 at June 30, 2017 (December 31, 2016 - $121,621,000).

All deferred taxes attributable to the Company’s investment in the LLC arise at the investor level and are therefore not included in the footnote to the condensed consolidated balance sheets.

(b)    VIEs of which Belmond is not the primary beneficiary

Belmond holds a 25% equity investment in Eastern and Oriental Express Ltd., which operates the Eastern & Oriental Express luxury tourist train in Southeast Asia. Belmond concluded that the Eastern & Oriental Express joint venture is a variable interest entity because the total equity at risk is insufficient for it to fund its operations without additional subordinated financial support. Belmond is not the primary beneficiary of the joint venture because it does not have the power to direct the activities that most significantly impact the economic performance of the entity. The joint venture is accounted for under the equity method of accounting and included in earnings/(losses) before income taxes and earnings from unconsolidated companies in the statements of condensed consolidated operations.

The carrying amounts and maximum exposure to loss as a result of Belmond's involvement with its Eastern & Oriental Express joint venture are as follows:
 
 
Carrying amounts
 
Maximum exposure
 
 
June 30,
2017
 
December 31,
2016
 
June 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Investment
 
2,740

 
2,818

 
2,740

 
2,818

Due from unconsolidated company
 
5,570

 
4,771

 
5,570

 
4,771

Guarantees
 

 

 

 

Contingent guarantees
 

 

 

 

 
 
 
 
 
 
 
 
 
Total
 
8,310

 
7,589

 
8,310

 
7,589


6.    Investments in unconsolidated companies
 
Investments in unconsolidated companies represent equity interests of 50% or less and in which Belmond exerts significant influence, but does not have effective control of these unconsolidated companies and, therefore, accounts for these investments using the equity method. As at June 30, 2017, these investments include the 50% ownership in rail and hotel joint venture operations in Peru, the 25% ownership in Eastern and Oriental Express Ltd, and the Buzios land joint venture which is 50% owned and is further described below.


16


In June 2007, a joint venture in which Belmond holds a 50% equity interest acquired real estate in Buzios, a beach resort area in Brazil, for a cash consideration of $5,000,000. Belmond planned to build a hotel and villas on the acquired land and to purchase the remaining share of the joint venture company when the building permits were obtained from the local authorities. In February 2009, the Municipality of Buzios commenced a process for the expropriation of the land in exchange for a payment of fair compensation to the joint venture. In April 2011, the State of Rio de Janeiro took over the expropriation process as part of a broader State plan to develop a coastal environmental park. Under applicable law, the State had five years to carry out the expropriation in exchange for fair value, which it failed to do by the April 18, 2016 deadline. As a result, the land returned unencumbered to the joint venture, although is subject to expropriation again. The Company and its joint venture partner are assessing their options, including negotiation with or litigation against the State to seek a permanent resolution of the status of the land, but in any case, the Company expects to recover its investment in the project.
 
 
 
Summarized financial data for Belmond’s unconsolidated companies are as follows:
 
 
June 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Current assets
 
81,041

 
96,247

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation
 
304,493

 
295,662

Other non-current assets
 
29,159

 
29,442

Non-current assets
 
333,652


325,104

 
 
 
 
 
Total assets
 
414,693

 
421,351

 
 
 
 
 
Current liabilities, including $21,476 and $21,021 current portion of third-party debt
 
92,372

 
89,785

 
 
 
 
 
Long-term debt
 
144,607

 
153,876

Other non-current liabilities
 
28,042

 
27,545

Non-current liabilities
 
172,649

 
181,421

 
 
 
 
 
Total shareholders’ equity
 
149,672

 
150,145

 
 
 
 
 
Total liabilities and shareholders’ equity
 
414,693

 
421,351

 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Revenue
 
55,135

 
47,794

 
94,600

 
86,352

 
 
 
 
 
 
 
 
 
Gross profit1
 
39,452

 
32,921

 
64,971

 
58,765

 
 
 
 
 
 
 
 
 
Net earnings2
 
6,721

 
4,287

 
7,548

 
6,091

1 Gross profit is defined as revenues less cost of services of the unconsolidated companies.
2 There were no discontinued operations or cumulative effects of a change in an accounting principle in the unconsolidated companies.

Included in unconsolidated companies are Belmond’s hotel and rail joint ventures in Peru, under which Belmond and the other 50% participant must contribute equally additional equity needed for the businesses. If the other participant does not meet this obligation, Belmond has the right to dilute the other participant and obtain a majority equity interest in the affected joint venture company. Belmond also has rights to purchase the other participant’s interests, which rights are exercisable in limited circumstances such as the other participant’s bankruptcy.

17



There are contingent guarantees to unconsolidated companies which are not recognized in the condensed consolidated financial statements. The contingent guarantees for each Peruvian joint venture may only be enforced in the event there is a change in control of the relevant joint venture, which would occur only if Belmond’s ownership of the economic and voting interests in the joint venture falls below 50%, an event which has not occurred and is not expected to occur. As at June 30, 2017, Belmond does not expect that it will be required to fund these guarantees relating to these joint venture companies.

Belmond has contingently guaranteed, through 2021, $16,801,000 of debt obligations of the joint venture in Peru that operates five hotels and has contingently guaranteed the Peru rail joint venture’s obligations relating to the performance of its governmental rail concessions, currently in the amount of $9,899,000, through May 2018.

7.    Property, plant and equipment
 
The major classes of property, plant and equipment are as follows:
 
 
June 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Land and buildings
 
1,107,759

 
1,010,362

Machinery and equipment
 
194,006

 
179,537

Fixtures, fittings and office equipment
 
258,595

 
235,098

River cruise ship and canal boats
 
12,668

 
18,618

 
 
 
 
 
 
 
1,573,028

 
1,443,615

Less: Accumulated depreciation
 
(409,053
)
 
(368,939
)
 
 
 
 
 
Total property, plant and equipment, net of accumulated depreciation
 
1,163,975

 
1,074,676

 
 
 
 
 
The depreciation charge on property, plant and equipment for the three and six months ended June 30, 2017 was $14,947,000 (June 30, 2016 - $13,183,000) and $28,542,000 (June 30, 2016 - $26,127,000).

The table above includes property, plant and equipment, net of accumulated depreciation, of Charleston Center LLC, a consolidated VIE, of $199,898,000 at June 30, 2017 (December 31, 2016 - $201,861,000).

In the three months ended June 30, 2017, Belmond considered whether the decline in performance of Belmond Road to Mandalay caused by increased competition in Myanmar indicated that the carrying amount of the business’s fixed assets may not be recoverable. Belmond concluded that an impairment trigger existed and an impairment test was required. The carrying value of assets was written down to management’s best estimate of the fair value based on an internally developed discounted cash flow analysis. The impairment charge of $7,124,000 is included within impairment of property, plant and equipment in the statements of consolidated operations.

In the three months ended June 30, 2017, Belmond considered whether the decline in performance of Belmond Northern Belle caused by a reduction in passenger numbers sourced mainly from regional markets in the U.K. indicated that the carrying amount of the business’s fixed assets may not be recoverable. Belmond concluded that an impairment trigger existed and an impairment test was required. The carrying value of assets was written down to fair value based on assumptions of potential market value. The impairment charge of $1,092,000 is included within impairment of property, plant and equipment in the statements of consolidated operations.

There were no impairments of property, plant and equipment in the three and six months ended June 30, 2016.

There was no capitalized interest in the three and six months ended June 30, 2017 and 2016.


18


8.    Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2017 are as follows:
 
 
At January 1, 2017
 
 
 
 
 
 
 
At June 30, 2017
 
 
Gross goodwill amount
 
Accumulated impairment
 
Net goodwill amount
 
Goodwill on acquisition
 
Impairment
 
Foreign currency translation adjustment
 
Gross goodwill amount
 
Accumulated impairment
 
Net goodwill amount
 
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Europe
 
64,459

 
(14,202
)
 
50,257

 

 

 
3,791

 
68,250

 
(14,202
)
 
54,048

North America
 
66,101

 
(16,110
)
 
49,991

 
5,500

 

 

 
71,601

 
(16,110
)
 
55,491

Rest of world
 
20,581

 
(13,149
)
 
7,432

 

 

 
(52
)
 
20,529

 
(13,149
)
 
7,380

Owned trains and cruises
 
6,325

 
(662
)
 
5,663

 

 

 
441

 
6,766

 
(662
)
 
6,104

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
157,466

 
(44,123
)
 
113,343

 
5,500

 

 
4,180

 
167,146

 
(44,123
)
 
123,023


In the six months ended June 30, 2017, goodwill of $5,500,000 was recognized on the acquisition of Cap Juluca. See Note 3.

In the three months ended June 30, 2017, Belmond considered whether increased competition and the fall in tourist arrivals in Myanmar indicated that it was more likely than not that the fair value of Belmond Governor’s Residence was less than its carrying value. While Belmond concluded that there was no impairment trigger in the current quarter, it is carefully monitoring the situation. The impairment test remains sensitive to changes in assumptions; factors that could reasonably be expected to potentially have an adverse effect on the fair value of the reporting unit include the future operating projections of the hotel, volatility in debt or equity markets that could result in changes to the discount rate, political instability, changes in future travel patterns or local competitive supply. Any failure to meet these assumptions may result in a future impairment of goodwill.


19


9.    Other intangible assets
 
Other intangible assets consist of the following as of June 30, 2017:
 
 
Favorable lease assets
 
Internet sites
 
Trade names
 
Total
 
 
$'000
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
 
 
Carrying amount:
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
8,501

 
1,658

 
7,579

 
17,738

Additions
 

 

 
6,100

 
6,100

Foreign currency translation adjustment
 
94

 
97

 
124

 
315

 
 
 
 
 
 
 
 
 
Balance at June 30, 2017
 
8,595

 
1,755

 
13,803

 
24,153

 
 
 
 
 
 
 
 
 
Accumulated amortization:
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
2,636

 
1,225

 
 
 
3,861

Charge for the period
 
184

 
84

 
 
 
268

Foreign currency translation adjustment
 
33

 
72

 
 
 
105

 
 
 
 
 
 
 
 
 
Balance at June 30, 2017
 
2,853

 
1,381

 
 
 
4,234

 
 
 
 
 
 
 
 
 
Net book value:
 
 
 
 
 
 
 
 
At June 30, 2017
 
5,742

 
374

 
13,803

 
19,919

 
 
 
 
 
 
 
 
 
At December 31, 2016
 
5,865

 
433

 
7,579

 
13,877


Favorable lease intangible assets are amortized over the terms of the leases, which are between 19 and 60 years. Internet sites are amortized over a period of five to ten years. Trade names have an indefinite life and therefore are not amortized, but are assessed for impairment annually or when events indicate that impairment may have occurred.

In the six months ended June 30, 2017, trade name additions of $6,100,000 were recognized on acquisition of Cap Juluca. See Note 3.

Amortization expense for the three and six months ended June 30, 2017 was $135,000 (June 30, 2016 - $148,000) and $268,000 (June 30, 2016 - $271,000). Estimated total amortization expense for the remainder of the year ending December 31, 2017 is $268,000 and for each of the years ending December 31, 2018 to December 31, 2021 is $536,000.


20


10.    Debt and obligations under capital lease
 
(a)    Long-term debt and obligations under capital lease

Long-term debt and obligations under capital lease consist of the following:
 
 
June 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Loans from banks and other parties collateralized by tangible and intangible personal property and real estate with a maturity of two to seven years (2016 - two to five years), with a weighted average interest rate of 4.19% (2016 - 4.27%)
 
657,549

 
602,083

Obligations under capital lease
 
28

 
19

 
 
 
 
 
Total long-term debt and obligations under capital lease
 
657,577

 
602,102

 
 
 
 
 
Less: Current portion
 
51,242

 
5,284

Less: Discount on secured term loan
 
1,372

 
1,515

Less: Debt issuance costs
 
8,257

 
9,535

 
 
 
 
 
Non-current portion of long-term debt and obligations under capital lease
 
596,706

 
585,768

 
As at June 30, 2017, Belmond was financed with a $499,569,000 secured term loan and a $105,000,000 revolving credit facility.

The term loan had two tranches, a U.S. dollar tranche ($333,788,000 currently outstanding) and a euro-denominated tranche (€145,125,000 currently outstanding, equivalent to $165,781,000 as at June 30, 2017). The dollar tranche bore interest at a rate of LIBOR plus 3% per annum, and the euro tranche bore interest at a rate of EURIBOR plus 3% per annum. Both tranches were subject to a 1% interest rate floor. The term loan was scheduled to mature in 2021 and the annual mandatory amortization was 1% of the principal amount.
The revolving credit facility was scheduled to mature in March 2019 and bore interest at a rate of LIBOR plus 2.75% per annum, with a commitment fee of 0.4% to be paid on the undrawn amount. During the three and six months ended June 30, 2017, Belmond made a drawdown of $45,000,000 on its revolving credit facility in connection with the acquisition of Cap Juluca. See Note 3. No amounts were drawn during the three and six months ended June 30, 2016.
The term loan and revolving credit facility were secured by pledges of shares in certain Company subsidiaries and by security interests in tangible and intangible personal property. There were no mortgages over real estate.

In June 2016, Charleston Center LLC amended its secured loan of $86,000,000 increasing the amount of the loan to $112,000,000 but retaining the original 2019 maturity. The interest rate on the new loan is LIBOR plus 2.35% per annum, has no amortization and is non-recourse to Belmond. The additional proceeds were used to repay a 1984 development loan from a municipal agency in the principal amount of $10,000,000 and accrued interest of $16,819,000. In connection with the early repayment of the loan, Belmond negotiated a discount that resulted in a net gain reported in the statement of consolidated operations during the year ended December 31, 2016 of $1,200,000 upon extinguishment of debt, including the payment of a tax indemnity to our partners of $2,800,000 in respect of their income from the discount arising on the cancellation of indebtedness.

On July 3, 2017, Belmond entered into an amended and restated credit agreement for its secured credit facilities. See Note 24 for further information. The amended and restated credit agreement consist of (i) a seven-year $603,434,000 secured term loan that matures on July 3, 2024 and (ii) a $100,000,000 revolving credit facility that matures on July 3, 2022. As a result of executing the amended and restated credit agreement, the outstanding debt balance as at June 30, 2017 has been refinanced on a long-term basis and these extended maturity terms are reflected in the debt maturity profiles below. The $45,000,000 drawdown on the revolving credit facility is presented within current liabilities to reflect the fact that it was repaid on July 3, 2017 as part of this transaction.


21


The following is a summary of the aggregate maturities of consolidated long-term debt, including obligations under capital lease, at June 30, 2017, taking into consideration the execution of the amended and restated credit agreement on July 3, 2017:
 
 
$’000
 
 
 
Remainder of 2017
 
48,153

2018
 
6,307

2019
 
118,326

2020
 
6,329

2021
 
6,094

2022
 
6,045

2023
 
6,045

2024 and thereafter
 
460,278

 
 
 
Total long-term debt and obligations under capital lease
 
657,577

 
The Company had guaranteed $499,569,000 of the long-term debt of its subsidiary companies as at June 30, 2017 (December 31, 2016 - $488,985,000).
 
The tables above include the debt of Charleston Center LLC of $112,980,000 at June 30, 2017 (December 31, 2016 - $113,098,000). The debt is non-recourse to Belmond and includes $112,000,000 which was refinanced in June 2016.

Debt issuance costs related to the above outstanding long-term debt were $8,257,000 at June 30, 2017 (December 31, 2016 - $9,535,000), including $720,000 at June 30, 2017 (December 31, 2016 - $888,000) related to the debt of Charleston Center LLC, a consolidated VIE, and are amortized to interest expense over the term of the corresponding long-term debt.

(b)                              Revolving credit and working capital facilities

Belmond had approximately $105,570,000 of revolving credit and working capital facilities at June 30, 2017 (December 31, 2016 - $105,525,000) of which $60,570,000 was available (December 31, 2016 - $105,525,000).

11.    Other liabilities
 
The major balances in other liabilities are as follows:
 
 
June 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Interest rate swaps (see Note 20)
 
700

 
1,054

Deferred gain on sale of Inn at Perry Cabin by Belmond
 
1,050

 
1,350

Deferred lease incentive
 
147

 
162

Tax indemnity provision on extinguishment of debt (see Note 10)
 
2,800

 
2,800

 
 
 
 
 
Total other liabilities
 
4,697

 
5,366

 

22


12.    Pensions
 
Components of net periodic pension benefit cost are as follows:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Service cost
 

 

 

 

Interest cost on projected benefit obligation
 
177

 
227

 
348

 
453

Expected return on assets
 
(247
)
 
(294
)
 
(487
)
 
(589
)
Net amortization and deferrals
 
193

 
161

 
381

 
323

 
 
 
 
 
 
 
 
 
Net periodic benefit cost
 
123

 
94

 
242

 
187


From January 1, 2003, a number of non-U.S. Belmond employees participated in a funded defined benefit pension plan in the United Kingdom called the Belmond (UK) Ltd. 2003 Pension Scheme. On May 31, 2006, the plan was closed for future benefit accruals.

Belmond (UK) Ltd., a wholly owned subsidiary of the Company (“Belmond UK”), is obligated to the plan’s trust to pay £1,272,000 (equivalent to $1,654,000 at June 30, 2017) annually through June 30, 2017 in accordance with a recently concluded, U.K. statutorily-mandated triennial negotiation with the plan’s trustees and Belmond UK, as the plan sponsor. Thereafter, Belmond UK is obligated to fund any deficits on a monthly basis commencing July 30, 2017 based on a formula that calculates the amount due for such month as the pro rata portion of any funding deficit over the period remaining through December 31, 2020. Based on its December 2015 actuarial assessment (prepared using assumptions which differ in some respects to those used to value the liability for these financial statements), the plan is projected to be fully funded in 2017. During the three and six months ended June 30, 2017, contributions of $401,000 (June 30, 2016 - $455,000) and $795,000 (June 30, 2016 - $910,000), respectively, were made to the pension plan and Belmond anticipates contributing an additional $859,000 to fund the plan in 2017 for a total of $1,654,000.

Once the plan is fully funded, Belmond UK will remain obligated to restore the plan to a fully funded balance over the balance of the period through December 31, 2021 based on the formula described above should its position deteriorate. In May 2014, Belmond guaranteed the payment obligations of Belmond UK through 2023, subject to a cap of £8,200,000 (equivalent to $10,660,000 at June 30, 2017), which reduces commensurately with every payment made to the plan since December 31, 2012. As part of the recent triennial negotiation referred to above, Belmond expects to reinstate this guarantee by August 31, 2017, for the period through 2026 and reset the cap from December 31, 2015 at £8,200,000, which as before will reduce with each payment made to the plan over the period.

13.    Income taxes
 
In the three and six months ended June 30, 2017, the income tax provision was $2,142,000 (June 30, 2016 - provision of $14,335,000) and a benefit of $3,124,000 (June 30, 2016 - provision of $4,739,000), respectively. The decrease in tax charge is mainly as a result of the reduction in earnings from operations, primarily due to costs associated with the acquisition of Cap Juluca in the three and six months ended June 30, 2017. See Note 3.


23


14.    Interest expense
 
The balances in interest expense are as follows:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Interest expense on long-term debt and obligations under capital lease
 
7,302

 
6,788

 
14,209

 
13,448

 
 
 
 
 
 
 
 
 
Interest on legal settlements
 
(192
)
 
156

 
(143
)
 
298

 
 
 
 
 
 
 
 
 
Amortization of debt issuance costs and discount on secured term loan
 
757

 
732

 
1,477

 
1,440

 
 
 
 
 
 
 
 
 
Total interest expense
 
7,867

 
7,676

 
15,543

 
15,186


15.    Supplemental cash flow information

 
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
14,985

 
27,061

 
 
 
 
 
Income taxes, net of refunds
 
6,355

 
8,129


To reflect the actual cash paid for capital expenditure to acquire property, plant and equipment, increases in accounts payable for capital expenditure are non-cash and excluded from capital expenditure, while decreases are cash payments and included. The change in accounts payable was an increase of $1,656,000 for the six months ended June 30, 2017 (June 30, 2016 - decrease of $140,000).

During the six months ended June 30, 2016, cash paid during the period for interest of $27,061,000 included the payment of accrued interest on a 1984 development loan from a municipal agency that was fully repaid by Charleston Center LLC in June 2016. See Note 10.


24


16.    Restricted cash

The major balances in restricted cash are as follows:
 
 
June 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Cash deposits required to be held with lending banks as collateral
 
1,011

 
755

Funds held in escrow
 
367

 

Prepaid customer deposits which will be released to Belmond under its revenue recognition policy
 
9,640

 
1,341

Bonds and guarantees
 
346

 
489

 
 
 
 
 
Total restricted cash
 
11,364

 
2,585


Restricted cash classified as long-term and included in other assets on the condensed consolidated balance sheets at June 30, 2017 was $1,011,000 (December 31, 2016 - $755,000).

17.    Share-based compensation plans
 
At June 30, 2017, Belmond had two share-based compensation plans, the 2004 stock option plan and the 2009 share award and incentive plan. The compensation cost that has been charged to selling, general and administrative expense for these plans for the three and six months ended June 30, 2017 was $2,019,000 (June 30, 2016 - $1,507,000) and $3,554,000 (June 30, 2016 - $3,149,000), respectively. The total compensation cost related to unexercised options and unvested share awards at June 30, 2017 to be recognized over the period July 1, 2017 to June 30, 2021 was $11,176,000 and the weighted average period over which it is expected to be recognized is 30 months. Measured from the grant date, substantially all awards of restricted shares have a maximum term of up to four years, and substantially all awards of share options have a maximum term of ten years. There were no grants under the 2004 stock option plan during the six months ended June 30, 2017.


25


2009 share award and incentive plan

During the six months ended June 30, 2017, the following awards were made under the 2009 share award and incentive plan on the following dates. Estimates of fair values of share options and restricted shares with and without performance criteria were made using the Black-Scholes options pricing model.
2009 share award and incentive plan
 
Class A common shares
 
Date granted
 
Vesting date
 
Exercise price
 
Expected share price volatility
 
Risk-free interest rate
 
Expected dividends per share
 
Expected life of awards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share options
 
40,900

 
June 11, 2017
 
June 11, 2018
 
$13.45
 
29%
 
1.50%
 
$—
 
2.5 years
Share options
 
40,900

 
June 11, 2017
 
June 11, 2019
 
$13.45
 
29%
 
1.50%
 
$—
 
3.5 years
Share options
 
40,900

 
June 11, 2017
 
June 11, 2020
 
$13.45
 
30%
 
1.77%
 
$—
 
4.5 years
Share options
 
40,900

 
June 11, 2017
 
June 11, 2021
 
$13.45
 
34%
 
1.77%
 
$—
 
5.5 years

During the six months ended June 30, 2017, the following restricted share awards were made under the 2009 share award and incentive plan on the following dates:
2009 share award and incentive plan
 
Class A common shares
 
Date granted
 
Vesting date
 
Purchase price
 
 
 
 
 
 
 
 
 
Restricted shares without performance criteria
 
116,540

 
June 11, 2017
 
Directors to elect
 
$0.01
Restricted shares without performance criteria
 
34,450

 
March 17, 2017
 
March 17, 2018
 
$0.01
Restricted shares without performance criteria
 
34,450

 
March 17, 2017
 
March 17, 2019
 
$0.01
Restricted shares without performance criteria
 
117,231

 
March 17, 2017
 
March 17, 2020
 
$0.01
Restricted shares without performance criteria
 
34,450

 
March 17, 2017
 
March 17, 2021
 
$0.01
Restricted shares with performance criteria
 
228,500

 
March 17, 2017
 
March 17, 2020
 
$0.01

18.    Commitments and contingencies
 
Belmond Copacabana Palace
 
In February 2013, the State of Rio de Janeiro Court of Justice affirmed a 2011 decision of a Rio state trial court against Sea Containers Ltd (“SCL”) in lawsuits brought against SCL by minority shareholders in Companhia Hoteis Palace (“CHP”), the company that owns Belmond Copacabana Palace, relating to the recapitalization of CHP in 1995, but the Court reduced the total award against SCL to approximately $27,000,000. SCL further appealed the judgments during the second quarter of 2013 to the Superior Court of Justice in Brasilia. SCL sold its shares in CHP to the Company in 2000. Years later, in 2006, SCL entered insolvency proceedings in the U.S. and Bermuda that are continuing in Bermuda. Possible claims could be asserted against the Company or CHP in connection with this Brazilian litigation that has to date only involved SCL, although no claims have been asserted.
 
As a precautionary measure to defend the hotel, CHP commenced a declaratory lawsuit in the Rio state court in December 2013 seeking judicial declarations that no fraud was committed against the SCL plaintiffs when the shares in CHP were sold to the Company in 2000 and that the sale of the shares did not render SCL insolvent. Pending rulings on those declarations, the court granted CHP an injunction preventing the SCL plaintiffs from provisionally enforcing their 2011 judgments against CHP, which judgment was subsequently reversed on appeal in May 2014. In September 2014, CHP sought reconsideration from the appellate court of this decision, but the court dismissed its request, resulting in the return of the declaratory lawsuit proceedings to the Rio State Court.

Management cannot estimate the range of possible loss if the SCL plaintiffs assert claims against the Company or CHP, and Belmond has made no accruals in respect of this matter. If any such claims were brought, Belmond would continue to defend its interests vigorously.

26



Ubud Hanging Gardens

In November 2013, the third-party owner of Ubud Hanging Gardens in Bali, Indonesia dispossessed Belmond from the hotel under long-term lease without prior notice. As a result, Belmond was unable to continue operating the hotel and, accordingly, to prevent any confusion to its guests, Belmond ceased referring to the property in its sales and marketing materials, including all electronic marketing.

Belmond believed that the owner's actions were unlawful and in breach of the lease arrangement and constituted a wrongful dispossession. Belmond pursued its legal remedies through arbitration proceedings required under the lease. In June 2015, a Singapore arbitration panel issued its final award in favor of Belmond, holding that the owner had breached Indonesian law and the lease, and granting monetary damages and costs to the Company in an amount equal to approximately $8,500,000. Since its receipt of the arbitral award, Belmond has been engaged in the process of enforcing this arbitral award in the Indonesian courts. Starting in April 2014, the Indonesian trial courts have dismissed six separate actions filed by the owner for lack of jurisdiction due to the arbitration clause in the parties’ lease. The owner has appealed these decisions, one of which was reversed by the Appellate Court in October 2014. Belmond appealed this case to the Indonesian Supreme Court, which in December 2016 affirmed the Appellate Court's decision. Belmond is considering its position but is likely to seek review for reconsideration by the Supreme Court. As supplemental proceedings to its arbitration claim, Belmond commenced contempt proceedings in the High Court in London, England, where the owner resided, for pursuing the Indonesian proceedings contrary to an earlier High Court injunction, and obtained against the owner in July 2014 a contempt order, which subsequently resulted in the court issuing a committal order of imprisonment for 120 days. The owner left England before the court order was issued and has not yet served the sentence.

Belmond does not believe there is any merit in the owner’s outstanding Indonesian actions and is vigorously defending its rights while it seeks to enforce the Singapore arbitral award. While the Company can give no assurances, it believes that it should ultimately be able to enforce its arbitral award. Given the uncertainty involved in this litigation, Belmond recorded in the year ended December 31, 2013, a non-cash impairment charge in the amount of $7,031,000 relating to long-lived assets and goodwill of Ubud Hanging Gardens and has not booked a receivable in respect of the award.

Belmond Hotel das Cataratas

In September 2014, the Brazilian Ministry of Planning, Budget and Management notified the Company that it was denying the Company's application to extend the term or reduce the rent under the lease for Belmond Hotel das Cataratas, which was entered into in 2007. Belmond had applied for the amendment in 2009 based on its claim that it suffered additional unanticipated and/or unforeseeable costs in performing the refurbishment of the hotel as required by the lease and related tender documentation in order to raise the standard of the property to a five star luxury standard.

Prior to August 2014, with the agreement of the Ministry, the Company had been paying the base annual rent without an annual adjustment for inflation as provided for in the lease, pending resolution of Belmond’s application. Throughout this period, the Company had expensed the full rental amount and has fully accrued the difference between the rental charge and the amount actually paid. Based on the Ministry’s decision denying any relief, the Ministry directed the Company that it would henceforth assess rent at the contractual rate, which has been included in the table of future rental payments as at March 31, 2017, and that it must pay the difference between the contractual rent and the rent that had been actually paid. On March 20, 2015, the Ministry provided notice to the hotel that an aggregate amount of approximately R$17,000,000 ($5,365,000) was due on March 31, 2015 as a result of its rejection of any relief sought by Belmond.

The Company appealed to the Ministry to reconsider its decision on both procedural and substantive grounds. Pending this requested reconsideration and exhaustion of administrative remedies, the Company did not pay to the Ministry the amount claimed. The Company filed a lawsuit in the Federal Court in Paraná State in August 2016 against the Government of Brazil regarding the Ministry’s failure to properly consider and modify the lease concession for Belmond Hotel das Cataratas. The Federal Court granted the Company’s request for an injunction against the Government enforcing its claim and granted the Company’s request for a 25% preliminary reduction in rent, pending a decision on the merits, which the Superior Court upheld on appeal in a decision rendered in September 2016. The Government appealed to a three judge panel of the Superior Court, which upheld the decision of the Federal Court in favor of the Company in a judgment rendered in January 2017. A discovery calendar has been agreed for the litigation on the merits in the Federal Court where the Company intends to continue to pursue its claims vigorously.

In the meantime, the Company is paying rent at the reduced amount but continues to accrue rent at the full contractual amount. Amounts accrued at June 30, 2017 totaled R$23,182,000 ($7,317,000). The Company does not believe that any loss above the amounts accrued is likely.  


27


Belmond Miraflores Park

The Company is contesting a claim against Belmond Miraflores Park Hotel (“BMP”) by the municipality of Miraflores in Lima, Peru, where the BMP is located. The municipality alleges that BMP has generated noise and vibrations in violation of municipal nuisance ordinances resulting in the disturbance of certain apartment owners in an adjoining residential building. The local administrative court ruled in favor of the municipality, and levied a nominal fine and issued an order for injunctive relief that included the potential closure of BMP pending the elimination of the noise and vibrations. In March 2016, after the administrative court’s ruling was affirmed at the trial court and subsequently, the appellate court level, BMP appealed to the Supreme Court of Peru. Enforcement of the ruling of the appellate court has been stayed pending the Supreme Court appeal. On June 29, 2017, the Supreme Court issued a decision accepting BMP’s appear rather than, as BMP had expected, summarily affirming the appellate court decision. Consequently, BMP expects that the Supreme Court will issue its opinion on this matter in the latter half of 2018. Management believes that the risk of closure of BMP is remote because BMP will have completed its remediation by the time the Supreme Court issues its decision and expects to be in compliance with municipal nuisance ordinances at that time. BMP has other alternatives that it could pursue to resolve this matter if BMP is not compliant by the time of the Supreme Court decision. Accordingly, management does not believe that a material loss is probable and no accrual has been made in respect of this matter.
Cipriani” Trademark
In May 2010, after prevailing in litigation at the trial and appellate court levels, Belmond settled litigation in the United Kingdom for infringement of its U.K. and Community (European wide) registrations for the “Cipriani” trademark. Defendants paid the amount of $3,947,000 to Belmond in March 2010 with the balance of $9,833,000 being payable in installments over five years with interest. Belmond received the final payment in the amount of $1,178,000 in June 2015. Subsequent to Belmond’s success before the U.K. courts, there have arisen a number of European trademark opposition and infringement cases relating to Belmond "Cipriani" and "Hotel Cipriani" Community trademarks. These include an ongoing invalidity action filed by Arrigo Cipriani in the European Trade Mark Office against Belmond’s "Cipriani" Community trademark. To date, Belmond has successfully rebutted this challenge at every level of administrative appeal, including before the EU General Court in Luxembourg which issued a decision on June 29, 2017 dismissing the Arrigo Cipriani appeal and ordering that appellant pay the costs of the court and the Company. Belmond has recently been successful in securing the cancellation in Portugal of a trademark application filed by an affiliated company of the Cipriani family for “Cipriani”. Belmond has also been successful in obtaining cancellations of "Cipriani" trademark applications made by the Cipriani family's corporate entity in Russia. In addition, there are a number of ongoing trademark disputes with the Cipriani family in Italy: in January 2015, the Cipriani family and affiliated entities commenced proceedings against Belmond in the Court of Venice, asserting that a 1967 agreement pursuant to which the family sold their interest in the Hotel Cipriani constituted a coexistence agreement allowing both the Company to use “Hotel Cipriani” and the Cipriani family to use “Cipriani” and in August 2015, pursuant to a separate claim filed by the Cipriani family, the Court of Venice ruled in favor of the Cipriani family, determining that their use of their full name (rather than just an initial with their surname), would not constitute infringement of the Company’s registered trademark. The Court’s ruling purports to apply to hotels and restaurants on an EU-wide basis (other than the U.K.) rather than only Italy. The Company has appealed this decision. Separate proceedings brought by Belmond in Spain to defend Belmond's marks against a use by the Cipriani family and its affiliated entities of "Cipriani" to promote a restaurant have been stayed pending the outcome of the Venice appeal. While Belmond believes that it has meritorious cases in all of these Italian proceedings, Belmond cannot estimate the range of possible additional loss to Belmond if it should not prevail in any or all of these cases and Belmond has made no accruals in these matters.

The Company and certain of its subsidiaries are parties to various legal proceedings arising in the normal course of business. These proceedings generally include matters relating to labor disputes, tax claims, personal injury cases, lease negotiations and ownership disputes. The outcome of each of these matters cannot be determined with certainty, and the liability that the relevant parties may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued for with respect to these matters. Where a reasonable estimate can be made, the additional losses or range of loss that may be incurred in excess of the amount recognized from the various legal proceedings arising in the normal course of business are disclosed separately for each claim, including a reference to where it is disclosed. However, for certain of the legal proceedings, management is unable to estimate the loss or range of loss that may result from these claims due to the highly complex nature or early stage of the legal proceedings. 

Belmond has granted to James Sherwood, a former director of the Company, a right of first refusal to purchase the Belmond Hotel Cipriani in Venice, Italy in the event Belmond proposes to sell it. The purchase price would be the offered sale price in the case of a cash sale or the fair market value of the hotel, as determined by an independent valuer, in the case of a non-cash sale. Mr. Sherwood has also been granted an option to purchase the hotel at fair market value if a change in control of the Company occurs. Mr. Sherwood may elect to pay 80% of the purchase price if he exercises his right of first refusal, or 100% of the purchase price if he exercises his purchase option, by a non-recourse promissory note secured by the hotel payable in ten equal annual installments with interest at LIBOR. This right of first refusal and purchase option are not assignable and expire one year after

28


Mr. Sherwood’s death. These agreements relating to Belmond Hotel Cipriani between Mr. Sherwood and Belmond and its predecessor companies have been in place since 1983 and were last amended and restated in 2005.

Capital Commitments

Outstanding contracts to purchase property, plant and equipment were approximately $15,004,000 at June 30, 2017 (December 31, 2016 - $7,772,000).
 
Future rental payments and rental expense under operating leases

Future rental payments as at June 30, 2017 under operating leases in respect of equipment rentals and leased premises are payable as follows:
 
 
$’000
 
 
 
Remainder of 2017
 
6,360

2018
 
12,338

2019
 
10,938

2020
 
11,063

2021
 
11,795

2022
 
9,615

2023 and thereafter
 
141,971

 
 
 
Future rental payments under operating leases
 
204,080

 
Rental expense for the three and six months ended June 30, 2017 amounted to $3,747,000 (June 30, 2016 - $3,493,000) and $7,244,000 (June 30, 2016 - $6,113,000), respectively.
 
19.    Fair value measurements

(a)     Financial instruments recorded at fair value
  
The following tables summarize the valuation of Belmond’s financial instruments recorded at fair value by the fair value hierarchy at June 30, 2017 and December 31, 2016:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
June 30, 2017
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Assets at fair value:
 
 

 
 
 
 
 
 
Derivative financial instruments
 

 

 

 

 
 
 
 
 
 
 
 
 
Total assets
 

 

 

 

 
 
 
 
 
 
 
 
 
Liabilities at fair value:
 
 

 
 
 
 

 
 
Derivative financial instruments
 

 
(2,388
)
 

 
(2,388
)
 
 
 
 
 
 
 
 
 
Total net liabilities
 

 
(2,388
)
 

 
(2,388
)


29


 
 
Level 1
 
Level 2
 
Level 3
 
Total
December 31, 2016
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Assets at fair value:
 
 

 
 
 
 
 
 
Derivative financial instruments
 

 

 

 

 
 
 
 
 
 
 
 
 
Total assets
 

 

 

 

 
 
 
 
 
 
 
 
 
Liabilities at fair value:
 
 

 
 

 
 

 
 
Derivative financial instruments
 

 
(3,364
)
 

 
(3,364
)
 
 
 
 
 
 
 
 
 
Total net liabilities
 

 
(3,364
)
 

 
(3,364
)
 
During the three and six months ended June 30, 2017, there were no transfers between levels of the fair value hierarchy.

(b)    Other financial instruments
 
Certain methods and assumptions are used to estimate the fair value of each class of financial instruments. The carrying amount of current assets and current liabilities as disclosed on the condensed consolidated balance sheets approximate their fair value due to the short-term nature of those instruments.
 
The fair value of Belmond's long-term debt, excluding interest rate swaps and caps, is determined using the contractual cash flows and credit-adjusted discount curves. The fair value of the debt is the present value of those contractual cash flows which are discounted at the current market cost of debt and adjusted for the credit spreads. Credit spreads take into consideration general market conditions, maturity and collateral.

The estimated carrying values, fair values, and levels of the fair value hierarchy of Belmond's long-term debt as of June 30, 2017 and December 31, 2016 were as follows:
 
 
 
June 30, 2017
 
December 31, 2016
 
 
 
Carrying
amounts
$’000
 
Fair value
$’000
 
Carrying
amounts
$’000
 
Fair value
$’000
 
 
 
 
 
 
 
 
 
 
Total long-term debt, before deduction of discount on secured term loan and debt issuance costs, excluding obligations under capital leases
Level 2
 
657,549

 
658,666

 
602,083

 
626,613


(c)    Non-financial assets measured at fair value on a non-recurring basis

The estimated fair values of Belmond’s non-financial assets measured at fair value on a non-recurring basis for the six months ended June 30, 2017.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value measurement inputs
 
 
 
 
Fair value
 
Level 1
 
Level 2
 
Level 3
 
Total losses in the six months ended June 30, 2017
 
 
$’000
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
 
5,955

 

 

 
5,955

 
(8,216
)
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment

In the six months ended June 30, 2017, property, plant and equipment at Belmond Road to Mandalay and Belmond Northern Belle with a combined carrying value of $14,173,000 was written down to fair value of $5,955,000, resulting in a non-cash impairment charge of $8,216,000.

30



These impairments are included in earning from continuing operations in the period incurred. See Note 7.

There were no non-financial assets measured at fair value on a non-recurring basis for the six months ended June 30, 2016.

20.    Derivatives and hedging activities
 
Belmond hedges its interest rate risk, ensuring that an element of its floating rate interest is fixed by using interest rate derivatives. Belmond designates these derivatives as cash flow hedges. Additionally, Belmond designates its foreign currency borrowings and currency derivatives as net investment hedges of overseas operations.

Cash flow hedges of interest rate risk
 
As of June 30, 2017 and December 31, 2016, Belmond had the following outstanding interest rate derivatives stated at their notional amounts in local currency that were designated as cash flow hedges of interest rate risk: 
 
 
June 30,
2017
 
December 31,
2016
 
 
’000
 
’000
 
 
 
 
 
Interest rate swaps
 
72,563

 
72,938

Interest rate swaps
 
$
209,894

 
$
210,756

Interest rate caps
 
$
17,200

 
$
17,200


Fair value

The table below presents the fair value of Belmond’s derivative financial instruments and their classification as of June 30, 2017 and December 31, 2016
 
 
 
 
Fair value as of June 30, 2017
 
Fair value as of
December 31, 2016
 
 
Balance sheet location
 
$’000
 
$’000
Derivatives designated in a cash flow hedging relationship:
 
 
 
 

 
 

Interest rate derivatives
 
Accrued liabilities
 
(1,688
)
 
(2,310
)
Interest rate derivatives
 
Other liabilities
 
(700
)
 
(1,054
)
 
 
 
 
 
 
 
Total
 
 
 
(2,388
)
 
(3,364
)
 
Offsetting

There was no offsetting within derivative assets or derivative liabilities at June 30, 2017 and December 31, 2016. However, these derivatives are subject to master netting arrangements.

Other comprehensive loss

Information concerning the movements in other comprehensive income/(loss) for cash flow hedges of interest rate risk is shown in Note 21. At June 30, 2017, the amount accounted for in other comprehensive income/(loss) which is expected to be reclassified to interest expense in the next 12 months is $1,671,000. Movement in other comprehensive income/(loss) for net investment hedges recorded through foreign currency translation adjustments for the three and six months ended June 30, 2017 was a loss of $10,703,000 (June 30, 2016 - gain of $4,577,000) and a loss of $13,045,000 (June 30, 2016 - loss of $3,100,000).
 
 
 
 
 
 
 
 
 
Credit-risk-related contingent features
 
Belmond has agreements with some of its derivative counterparties that contain provisions under which, if Belmond defaults on the debt associated with the hedging instrument, Belmond could also be declared in default in respect of its derivative obligations.


31


As of June 30, 2017, the fair value of derivatives in a net liability position, which includes accrued interest and an adjustment for non-performance risk, related to these agreements was $2,388,000 (December 31, 2016 - $3,364,000). If Belmond breached any of the provisions, it would be required to settle its obligations under the agreements at their termination value of $2,389,000 (December 31, 2016 - $3,370,000).

Non-derivative financial instruments — net investment hedges
 
Belmond uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. Belmond designates its euro-denominated indebtedness as a net investment hedge of long-term investments in its euro-functional subsidiaries. These contracts are included in non-derivative hedging instruments. The notional value of non-derivative hedging instruments was $165,781,000 at June 30, 2017, being a liability of Belmond (December 31, 2016 - $153,472,000).

21.    Accumulated other comprehensive income/loss
 
Changes in accumulated other comprehensive income/(loss) (“AOCI”) by component (net of tax) are as follows:
 
 
Foreign currency translation adjustments
 
Derivative financial instruments
 
Pension liability
 
Total
Six months ended June 30, 2017
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
(337,053
)
 
(3,224
)
 
(12,062
)
 
(352,339
)
 
 
 
 
 
 
 
 
 
Other comprehensive income before reclassifications, net of tax (benefit)/provision of $Nil, $(56) and $65
 
28,968

 
(220
)
 
316

 
29,064

 
 
 
 
 
 
 
 
 
Amounts reclassified from AOCI, net of tax provision of $Nil, $251 and $Nil
 

 
979

 

 
979

 
 
 
 
 
 
 
 
 
Net current period other comprehensive income
 
28,968

 
759

 
316

 
30,043

 
 
 
 
 
 
 
 
 
Balance at June 30, 2017
 
(308,085
)
 
(2,465
)
 
(11,746
)
 
(322,296
)

Reclassifications out of AOCI (net of tax) are as follows:
 
 
Amount reclassified from AOCI
 
 
 
 
Three months ended
 
 
 
 
June 30, 2017
 
June 30, 2016
 
 
Details about AOCI components
 
$’000
 
$’000
 
Affected line item in the statement of operations
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
Cash flows from derivative financial instruments related to interest payments made for hedged debt instruments
 
462

 
703

 
Interest expense
 
 
 
 
 
 
 
Total reclassifications for the period
 
462

 
703

 
 

32


 
 
Amount reclassified from AOCI
 
 
 
 
Six months ended
 
 
 
 
June 30, 2017
 
June 30, 2016
 
 
Details about AOCI components
 
$’000
 
$’000
 
Affected line item in the statement of operations
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
Cash flows from derivative financial instruments related to interest payments made for the hedged debt instrument
 
979

 
1,412

 
Interest expense
 
 
 
 
 
 
 
Total reclassifications for the period
 
979

 
1,412

 
 

22.    Segment information
 
Segment performance is evaluated by the chief operating decision maker based upon adjusted earnings before interest, tax, depreciation and amortization (“adjusted EBITDA”).

For reporting periods prior to the quarter ended March 31, 2017, the Company disclosed certain disaggregated segment profitability information in its periodic reports in accordance with applicable U.S. GAAP accounting principles, ASC 280 Segment Reporting, in the form of earnings before gains/(losses) on disposal, impairments, central costs, interest income, interest expense, foreign currency, tax (including tax on earnings from unconsolidated companies), depreciation and amortization, share-based compensation and gains/(losses) on extinguishment of debt (“segment profit/(loss)”). This is a measure of unadjusted EBITDA and, consistent with ASC 280, has represented the way management traditionally have evaluated the operating performance of each of the Company’s reportable segments. The format of the segment performance information provided to the chief operating decision maker for these purposes has evolved over time to focus primarily on adjusted EBITDA as the key measure of segment profitability. Adjusted EBITDA excludes gains/(losses) on disposal, impairments, restructuring and other special items, interest income, interest expense, foreign currency, tax (including tax on earnings from unconsolidated companies), depreciation and amortization and gains/(losses) on extinguishment of debt. In order to better reflect management’s internal evaluation of segment performance under ASC 280, as of the quarterly reporting period ended March 31, 2017, Belmond has disclosed adjusted EBITDA in place of segment profit/(loss) as the primary metric used by the chief operating decision maker to evaluate segment performance. In management’s view, adjusted EBITDA allows the Company’s segment performance to be evaluated more effectively and on a consistent basis by removing the impact of certain items that management believes do not reflect the underlying operations. Belmond notes that adjusted EBITDA is not a term defined under GAAP. As a result, Belmond provides reconciliations to the GAAP number immediately following tables using this non-GAAP term.

Belmond's operating segments are aggregated into six reportable segments primarily around the type of service being provided—hotels, trains and cruises, and management business/part ownership interests—and are secondarily organized by geography for the hotels, as follows:

Owned hotels in each of Europe, North America and Rest of world which derive earnings from the hotels that Belmond owns including its one stand-alone restaurant;
Owned trains and cruises which derive earnings from the train and cruise businesses that Belmond owns;
Part-owned/managed hotels which derive earnings from hotels that Belmond jointly owns or manages; and
Part-owned/managed trains which derive earnings from the train businesses that Belmond jointly owns or manages.


33


The following tables present information regarding these reportable segments.

Revenue from external customers by segment:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
72,099

 
67,083

 
84,114

 
80,508

North America
 
42,397

 
38,056

 
82,283

 
77,658

Rest of world
 
25,875

 
24,265

 
61,838

 
59,533

Total owned hotels
 
140,371

 
129,404

 
228,235

 
217,699

Owned trains and cruises
 
21,769

 
21,463

 
26,909

 
27,902

Part-owned/managed hotels
 
733

 
1,124

 
773

 
1,798

Part-owned/managed trains
 
2,992

 
2,499

 
4,815

 
4,493

Total management fees
 
3,725

 
3,623

 
5,588

 
6,291

 
 
 
 
 
 
 
 
 
Revenue
 
165,865

 
154,490

 
260,732

 
251,892



34


Reconciliation of consolidated (losses)/earnings from continuing operations to adjusted EBITDA:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
30,913

 
26,302

 
22,793

 
20,685

North America
 
9,650

 
8,505

 
19,545

 
18,568

Rest of world
 
2,409

 
2,080

 
12,355

 
13,591

Total owned hotels
 
42,972

 
36,887

 
54,693

 
52,844

Owned trains and cruises
 
4,180

 
3,614

 
(53
)
 
795

 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
2,505

 
1,652

 
2,764

 
2,320

Part-owned/managed trains
 
7,205

 
5,588

 
9,934

 
9,308

Total adjusted share of earnings from unconsolidated companies and management fees
 
9,710

 
7,240

 
12,698

 
11,628

 
 
 
 
 
 
 
 
 
Unallocated corporate:
 
 
 
 
 
 
 
 
Central costs
 
(8,511
)
 
(7,600
)
 
(17,911
)
 
(15,490
)
Share-based compensation
 
(2,019
)
 
(2,034
)
 
(3,554
)
 
(3,776
)
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
46,332

 
38,107

 
45,873

 
46,001

 
 
 
 
 
 
 
 
 
Reconciliation from (losses)/earnings from continuing operations to adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Losses)/earnings from continuing operations
 
(5,064
)
 
8,152

 
(23,076
)
 
6,784

Depreciation and amortization
 
15,082

 
13,331

 
28,810

 
26,398

Gain on extinguishment of debt
 

 
(1,200
)
 

 
(1,200
)
Interest income
 
(196
)
 
(177
)
 
(342
)
 
(293
)
Interest expense
 
7,867

 
7,676

 
15,543

 
15,186

Foreign currency, net
 
1,007

 
(4,871
)
 
1,241

 
(7,729
)
Provision for income taxes
 
2,142

 
14,335

 
(3,124
)
 
4,739

Share of provision for income taxes of unconsolidated companies
 
1,807

 
1,355

 
2,053

 
2,231

 
 
22,645

 
38,601

 
21,105

 
46,116

Gain on disposal of property, plant and equipment
 
(150
)
 
(150
)
 
(300
)
 
(300
)
Impairment of property, plant and equipment
 
8,216

 

 
8,216

 

Restructuring and other special items (1)
 
2,410

 
(344
)
 
3,099

 
185

Acquisition-related costs (2)
 
13,211

 

 
13,753

 

 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
46,332

 
38,107

 
45,873

 
46,001

 
 
 
 
 
 
 
 
 
(1) Represents adjustments for restructuring, severance and redundancy costs, pre-opening costs and other items, net.
(2) Represents professional fees incurred in preliminary design and planning, structuring, assessment of financing opportunities, legal, tax, accounting and engineering due diligence and the negotiation of the purchase and sale agreements, and other ancillary documents, with the principal owner and leaseholder, together with three owners of villas and separate subleases, as well as a memorandum of understanding and ground lease with the Government of Anguilla.
 


35


Earnings from unconsolidated companies, net of tax:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
683

 
315

 
466

 
228

Part-owned/managed trains
 
2,791

 
1,944

 
3,384

 
2,866

 
 
 
 
 
 
 
 
 
Total earnings from unconsolidated companies, net of tax
 
3,474

 
2,259

 
3,850

 
3,094


Reconciliation of capital expenditure to acquire property, plant and equipment by segment:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
6,544

 
4,126

 
12,774

 
7,204

North America
 
1,850

 
2,222

 
2,947

 
4,391

Rest of world
 
3,105

 
4,812

 
4,806

 
6,697

Total owned hotels
 
11,499

 
11,160

 
20,527

 
18,292

Owned trains and cruises
 
2,950

 
4,814

 
5,487

 
8,163

 
 
 
 
 
 
 
 
 
Unallocated corporate
 
971

 
89

 
1,401

 
621

 
 
 
 
 
 
 
 
 
Total capital expenditure to acquire property, plant and equipment
 
15,420

 
16,063

 
27,415

 
27,076


Revenue from external customers in Belmond’s country of domicile and significant countries (based on the location of the property):
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Bermuda
 

 

 

 

Italy
 
48,251

 
45,939

 
49,618

 
48,182

United Kingdom
 
18,396

 
20,820

 
24,483

 
27,618

United States
 
32,219

 
30,188

 
58,282

 
54,283

Brazil
 
11,753

 
13,764

 
29,916

 
32,207

All other countries
 
55,246

 
43,779

 
98,433

 
89,602

 
 
 
 
 
 
 
 
 
Total revenue
 
165,865

 
154,490

 
260,732

 
251,892

 
23.    Related party transactions
 
Belmond manages, under long-term contract, the tourist train owned by Eastern and Oriental Express Ltd., in which Belmond has a 25% ownership interest. In the three and six months ended June 30, 2017, Belmond earned management fees from Eastern and Oriental Express Ltd. of $22,000 (June 30, 2016 - $5,000) and $136,000 (June 30, 2016 - $127,000), respectively, which are

36


recorded in revenue. The amount due to Belmond from Eastern and Oriental Express Ltd. at June 30, 2017 was $5,570,000 (December 31, 2016 - $4,886,000).
 
Belmond manages, under long-term contracts in Peru, Belmond Hotel Monasterio, Belmond Palacio Nazarenas, Belmond Sanctuary Lodge, Belmond Hotel Rio Sagrado, Belmond Las Casitas, PeruRail and Ferrocarril Transandino, in all of which Belmond has a 50% ownership interest. Belmond provides loans, guarantees and other credit accommodation to these joint ventures. In the three and six months ended June 30, 2017, Belmond earned management and guarantee fees from its Peruvian joint ventures of $4,464,000 (June 30, 2016 - $3,604,000) and $6,707,000 (June 30, 2016 - $6,179,000), respectively which are recorded in revenue. The amount due to Belmond from its Peruvian joint ventures at June 30, 2017 was $7,664,000 (December 31, 2016 - $6,907,000).

Belmond owns 50% of a company holding real estate in Buzios, Brazil. The amount due to Belmond from the joint venture at June 30, 2017 was $408,000 (December 31, 2016 - $372,000).
 
24.    Subsequent events

Amended and Restated Credit Agreement

On July 3, 2017, Belmond entered into an amended and restated credit agreement which previously consisted of (a) a seven-year $551,955,000 term loan facility consisting of a $345,000,000 U.S. dollar tranche and a €150,000,000 euro-denominated tranche (equivalent to $206,955,000 at drawdown), scheduled to mature on March 21, 2021; and (b) a $105,000,000 revolving credit facility scheduled to mature on March 21, 2019.

The amended and restated credit agreement provides the Company with (i) a seven-year $603,434,000 secured term loan (the “Term Loan Facility”) that matures on July 3, 2024; and (ii) a $100,000,000 revolving credit facility (the “ Revolving Credit Facility”) that matures on July 3, 2022 (together, the “Secured Credit Facilities”).

The proceeds from the Term Loan Facility were recognized as cash and used to repay all outstanding funded debt including the $45,000,000 that had previously been drawn under the prior revolving credit facility, but not the debt of Charleston Center LLC, a consolidated VIE, or the debt of Belmond’s unconsolidated joint venture companies.

The Term Loan Facility consists of two tranches, a $400,000,000 U.S. dollar tranche and a €179,000,000 euro-denominated tranche (equivalent to $203,434,000 at drawdown). The dollar tranche bears interest at a rate of LIBOR plus 2.75% per annum, and the euro tranche bears interest at a rate of EURIBOR plus 3.00% per annum. Both tranches are subject to a 0% interest rate floor. The annual mandatory amortization is 1% of the principal amount.

The Revolving Credit Facility has a maturity of five years and bears interest at a rate of LIBOR plus 2.50% per annum, with a commitment fee of 0.40% paid on the undrawn amount. The Revolving Credit Facility is undrawn as of August 8, 2017.

The term loan and revolving credit facility are secured by pledges of shares in certain Company subsidiaries and by security interests in tangible and intangible personal property. There are no mortgages over real estate.


37


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking statements
 
Forward-looking statements concerning the operations, performance, financial condition, plans and prospects of the Company and its subsidiaries are based on the current expectations, assessments and assumptions of management, are not historical facts, and are subject to various risks and uncertainties.
 
Forward-looking statements can be identified by the fact that they do not relate only to historical or current facts, and often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meaning.
 
Actual results could differ materially from those anticipated in the forward-looking statements due to a number of factors, including those described in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and in Item 1—Business, Item 1A—Risk Factors, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures about Market Risk, and Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
 
Investors are cautioned not to place undue reliance on these forward-looking statements which are based on currently available operational, financial, and competitive information and as such, are not guarantees of future performance.  Except as otherwise required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

Introduction

Belmond currently owns, partially-owns or manages 49 properties (including one scheduled for a 2018 opening, Belmond Cadogan Hotel, in London, England).

Belmond has six reportable segments: owned hotels in (1) Europe, (2) North America (including one stand-alone restaurant) and (3) Rest of world, (4) Owned trains and cruises, (5) Part-owned/managed hotels and (6) Part-owned/managed trains.

Hotels represent the largest part of Belmond’s business with the vast majority of the Company's revenues in 2016 and 2015, respectively, derived primarily from the Europe, North America and Rest of world segments.

At June 30, 2017, hotels consisted of 30 deluxe hotels which were wholly or majority owned by Belmond or, in the case of Belmond Charleston Place, owned by a consolidated variable interest entity. Eleven of the owned hotels are located in Europe, six in North America and thirteen in the rest of the world. In addition, Belmond owns and operates the stand-alone restaurant ‘21’ Club in New York which is included within the North America owned hotels segment. In May 2017, the Company acquired Cap Juluca, now rebranded as Belmond Cap Juluca, a 96-key resort on the Caribbean island of Anguilla, British West Indies.

Belmond's part-owned/managed hotels segment consisted of six hotels which Belmond operates under management contracts in Peru and the United States. Belmond has unconsolidated equity interests in five of the managed hotels. In April 2017, the Company acquired Las Casitas del Colco, a 20-key hotel in Colca Canyon, Peru, through the Company’s existing Peru hotels joint venture.

In recent years, Belmond has sold to third parties a number of properties not considered key to Belmond’s portfolio of unique, high-valued properties as part of management's long-term strategy to reduce leverage and redeploy the capital in properties with higher potential returns.

Belmond's owned trains and cruises segment consisted of five European tourist trains, two river cruise ships in Myanmar and one French canal cruise business. In August 2016, the Company commenced operations of Belmond Grand Hibernian, the first luxury overnight train travelling throughout the island of Ireland.

Belmond's part-owned/managed trains segment consisted of three train businesses in Southeast Asia and Peru which Belmond operates under management contracts. Belmond has unconsolidated equity interests in each of these train businesses. In May 2017, the Company launched the Belmond Andean Explorer luxury sleeper train, located in Peru. 

Revenue per available room (“RevPAR”) is calculated by dividing room revenue by room nights available for the period. Same store RevPAR is a comparison of RevPAR based on the operations of the same units in each period, by excluding the effect of any hotel acquisitions in the period or major refurbishment where a property is closed for a full quarter or longer. The comparison also

38


excludes the effect of dispositions (including discontinued operations) or closures. Management uses RevPAR and same store RevPAR to identify trend information with respect to room revenue and to evaluate the performance of a specific hotel or group of hotels in a given period.  

Average daily rate ("ADR") is calculated by dividing room revenue by total rooms sold for the period. Management uses ADR to measure the level of pricing achieved by a specific hotel or group of hotels in a given period.

Occupancy is calculated by dividing total rooms sold by total rooms available for the period. Occupancy measures the utilization of a hotel’s available capacity. Management uses occupancy to measure demand at a specific hotel or group of hotels in a given period.

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

Constant currency

Belmond analyzes certain key financial measures on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements. Measurement on a constant currency basis means the results exclude the effect of foreign currency translation and are calculated by translating prior period results at current period exchange rates.
 

39


Results of Operations

Operating information for Belmond’s owned hotels for the three and six months ended June 30, 2017 and 2016 is as follows:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
 
 
 
 
 
 
 
Europe
 
84,278

 
83,159

 
127,318
 
126,944
North America
 
67,228

 
64,883

 
131,398
 
129,766
Rest of world
 
93,546

 
93,607

 
186,426
 
187,064
Worldwide
 
245,052

 
241,649

 
445,142
 
443,774
 
 
 
 
 
 
 
 
 
Rooms sold
 
 
 
 
 
 
 
 
Europe
 
57,811

 
55,791

 
76,288
 
74,863
North America
 
47,721

 
45,519

 
91,704
 
90,272
Rest of world
 
44,523

 
42,863

 
101,177
 
105,887
Worldwide
 
150,055

 
144,173

 
269,169
 
271,022
 
 
 
 
 
 
 
 
 
Occupancy (percentage)
 
 
 
 
 
 
 
 
Europe
 
69

 
67

 
60
 
59
North America
 
71

 
70

 
70
 
70
Rest of world
 
48

 
46

 
54
 
57
Worldwide
 
61

 
60

 
60
 
61
 
 
 
 
 
 
 
 
 
Average daily rate (in U.S. dollars)
 
 

 
 

 
 
 
 
Europe
 
784

 
727

 
671
 
632
North America
 
443

 
422

 
454
 
445
Rest of world
 
341

 
327

 
379
 
350
Worldwide
 
544

 
512

 
488
 
460
 
 
 
 
 
 
 
 
 
RevPAR (in U.S. dollars)
 
 
 
 
 
 
 
 
Europe
 
537

 
488

 
402
 
373
North America
 
315

 
296

 
317
 
310
Rest of world
 
162

 
150

 
206
 
198
Worldwide
 
333

 
305

 
295
 
281
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
 
 
 
 
 
 
 
Same Store RevPAR (in dollars)
 
 

 
 

 
 

 
 

Europe
 
537

 
488

 
402

 
373

North America
 
316

 
296

 
318

 
310

Rest of world
 
168

 
157

 
211

 
203

Worldwide
 
340

 
312

 
299

 
285


Same store RevPAR data for the three months ended June 30, 2017 and June 30, 2016 excludes the operations of Belmond Cap Juluca, which was acquired in May 2017, and Belmond La Résidence d’Angkor, which closed for refurbishment in May 2016 and re-opened in November 2016.

40


 
 
 
 
 
 
 
U.S. Dollars
 
Local
currency
 
U.S. Dollars
 
Local
currency
 
 
 
 
 
 
 
 
 
Same Store RevPAR (% change)
 
 

 
 

 
 

 
 

Europe
 
10
%
 
11
%
 
8
%
 
8
 %
North America
 
7
%
 
7
%
 
3
%
 
3
 %
Rest of world
 
7
%
 
3
%
 
4
%
 
(7
)%
Worldwide
 
9
%
 
8
%
 
5
%
 
2
 %

Same store RevPAR data for the six months ended June 30, 2017 and June 30, 2016 excludes the operations of Belmond Cap Juluca, which was acquired in May 2017, and Belmond La Résidence d’Angkor, which closed for refurbishment in May 2016 and re-opened in November 2016.
 
 
 
 
 
 
 
 
 

41


Revenue
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$ millions
 
$ millions
 
$ millions
 
$ millions
 
 
 

 
 

 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
72.1

 
67.1

 
84.1

 
80.5

North America
 
42.4

 
38.0

 
82.3

 
77.7

Rest of world
 
25.9

 
24.3

 
61.8

 
59.5

Total owned hotels
 
140.4

 
129.4

 
228.2

 
217.7

Owned trains and cruises
 
21.8

 
21.5

 
26.9

 
27.9

Part-owned/managed hotels
 
0.7

 
1.1

 
0.8

 
1.8

Part-owned/managed trains
 
3.0

 
2.5

 
4.8

 
4.5

Total management fees
 
3.7

 
3.6

 
5.6

 
6.3

 
 
 
 
 
 
 
 
 
Revenue
 
165.9

 
154.5

 
260.7

 
251.9

    
Three months ended June 30, 2017 compared to three months ended June 30, 2016

Total revenue was $165.9 million for the three months ended June 30, 2017, an increase of $11.4 million, or 7%, over $154.5 million for the three months ended June 30, 2016. Owned hotels revenue was $140.4 million for the three months ended June 30, 2017, an increase of $11.0 million or 9%, over $129.4 million for the prior-year quarter. In constant currency, revenue for owned hotels for the second quarter of 2017 increased $10.3 million or 8% over the prior-year quarter. The increase in owned hotels revenue was primarily due to a $3.6 million or 9% revenue increase for the Company's Italian hotels and a $1.7 million or 18% increase at Belmond Grand Hotel Europe, St. Petersburg, Russia. Additionally, Belmond Charleston Place, South Carolina had a revenue increase of $2.2 million largely due to an increase in group business. The Southern African hotels had strong revenue growth in the second quarter of 2017 with a combined revenue increase of $2.5 million following reinvestment in their properties over the past few years. These revenue increases were partially offset by a combined revenue decrease of $3.0 million at the Brazilian hotels largely due to the country's challenging economic situation. Revenue from owned total trains and cruises was $21.8 million for the three months ended June 30, 2017, an increase of $0.3 million, or 1%, over $21.5 million for the three months ended June 30, 2016. In constant currency, revenue for owned trains and cruises for the second quarter of 2017 increased $2.7 million or 14% over the prior-year quarter, which was largely due to a revenue increase of $2.0 million for the Belmond Grand Hibernian, the Company's new Irish train, as it commenced its first full year of operations in April 2017. This was partially offset by a revenue decrease of $0.4 million, or 4% for the Venice Simplon-Orient-Express as a result of a decrease in the number of trips operating by four compared to the prior-year quarter.



















42


Six months ended June 30, June 30, 2017 compared to six months ended June 30, 2016

Total revenue was $260.7 million for the six months ended June 30, 2017, an increase of $8.8 million, or 3%, over $251.9 million for the six months ended June 30, 2016. Owned hotels revenue was $228.2 million for the six months ended June 30, 2017, an increase of $10.5 million or 5%, over $217.7 million for the six months ended June 30, 2016. In constant currency, revenue for owned hotels for the six months ended June 30, 2017 increased $4.5 million or 2% over the prior-year period. The increase in owned hotels revenue was primarily due to a $3.0 million or 7% revenue increase for the Company's Italian hotels and a $1.8 million or 14% increase at Belmond Grand Hotel Europe. In addition, Belmond Charleston Place had a revenue increase of $3.1 million largely due to an increase in group business. The Southern African hotels had strong revenue growth in the six months ended June 30, 2017 with a combined revenue increase of $3.5 million following reinvestment in their properties over the past few years. These revenue increases were partially offset by a combined revenue decrease of $7.6 million at the Brazilian hotels largely due to the country's challenging economic situation. Revenue from owned total trains and cruises was $26.9 million for the six months ended June 30, 2017, a decrease of $1.0 million, or 4%, from $27.9 million for the six months ended June 30, 2016. In constant currency, revenue for owned trains and cruises for the six months ended June 30, 2017 increased $1.8 million or 7% over the prior-year period which was largely due to a revenue increase of $2.0 million for the Belmond Grand Hibernian, the Company's new Irish train, as it commenced its first full year of operations. This was partially offset by a combined revenue decrease of $1.1 million at Belmond Road to Mandalay and Belmond Orcaella, the Company’s two river cruises in Myanmar due to increased competition.


43


Segment performance

Segment performance is evaluated by the chief operating decision maker based upon adjusted EBITDA, which excludes gains/(losses) on disposal, impairments, restructuring and other special items, interest income, interest expense, foreign currency, tax (including tax on earnings from unconsolidated companies), depreciation and amortization and gains/(losses) on extinguishment of debt.

Segment performance for the three and six months ended June 30, 2017 and 2016 is analyzed as follows:
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
$ millions
 
$ millions
 
$ millions
 
$ millions
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 

 
 

 
 

 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
30.9

 
26.3

 
22.8

 
20.7

North America
 
9.7

 
8.5

 
19.6

 
18.6

Rest of world
 
2.4

 
2.1

 
12.4

 
13.6

Total owned hotels
 
43.0

 
36.9

 
54.8

 
52.9

Owned trains and cruises
 
4.2

 
3.6

 
(0.1
)
 
0.8

 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
2.5

 
1.7

 
2.8

 
2.3

Part-owned/managed trains
 
7.2

 
5.5

 
9.9

 
9.3

Total adjusted share of earnings from unconsolidated companies and management fees
 
9.7

 
7.2

 
12.7

 
11.6

 
 
 
 
 
 
 
 
 
Unallocated corporate costs:
 
 
 
 
 
 
 
 
Central costs
 
(8.6
)
 
(7.6
)
 
(17.9
)
 
(15.5
)
Share-based compensation
 
(2.0
)
 
(2.0
)
 
(3.6
)
 
(3.8
)
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
46.3

 
38.1

 
45.9

 
46.0

 
 
 
 
 
 
 
 
 
Reconciliation from (losses)/earnings from continuing operations to adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Losses)/earnings from continuing operations
 
(5.0
)
 
8.1

 
(23.1
)
 
6.7

Depreciation and amortization
 
15.1

 
13.3

 
28.8

 
26.4

Gain on extinguishment of debt
 

 
(1.2
)
 

 
(1.2
)
Interest income, interest expense and foreign currency, net
 
8.7

 
2.7

 
16.4

 
7.2

Provision for income taxes
 
2.1

 
14.3

 
(3.1
)
 
4.8

Share of provision for income taxes of unconsolidated companies
 
1.8

 
1.4

 
2.1

 
2.2

Gain on disposal of property, plant and equipment
 
(0.2
)
 
(0.2
)
 
(0.3
)
 
(0.3
)
Impairment of property, plant and equipment
 
8.2

 

 
8.2

 

Restructuring and other special items (1)
 
2.4

 
(0.3
)
 
3.1

 
0.2

Acquisition-related costs (2)
 
13.2

 

 
13.8

 

 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
46.3

 
38.1

 
45.9

 
46.0

 
 
 
 
 
 
 
 
 
(1) Represents adjustments for restructuring, severance and redundancy costs, pre-opening costs and other items, net.
(2) Represents professional fees incurred in preliminary design and planning, structuring, assessment of financing opportunities, legal, tax, accounting and engineering due diligence and the negotiation of the purchase and sale agreements, and other ancillary documents, with the principal owner and leaseholder, together with three owners of villas and separate subleases, as well as a memorandum of understanding and ground lease with the Government of Anguilla.
 


44


Owned hotels - Europe 
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
84,278

 
83,159

 
127,318

 
126,944

Rooms sold
 
57,811

 
55,791

 
76,288

 
74,863

Occupancy (percentage)
 
69

 
67

 
60

 
59

Average daily rate (in U.S. dollars)
 
784

 
727

 
671

 
632

RevPAR (in U.S. dollars)
 
537

 
488

 
402

 
373

Same store RevPAR (in U.S. dollars)
 
537

 
488

 
402

 
373


Three months ended June 30, 2017 compared to three months ended June 30, 2016

Revenue was $72.1 million for the three months ended June 30, 2017, an increase of $5.0 million, or 7%, over $67.1 million for the three months ended June 30, 2016. In constant currency, revenue for the region for the second quarter of 2017 increased $5.7 million or 9% over the prior-year quarter primarily due to a $3.6 million or 9% revenue increase for the Company's Italian hotels and a $1.7 million or 18% increase at Belmond Grand Hotel Europe. Revenue growth for the Company's Italian hotels was largely driven by the performances of Belmond Hotel Cipriani, Venice, which benefited from the Biennale Arts Festival, which takes place every other year in Venice, and Belmond Villa San Michele, Florence, which grew occupancy by 13 percentage points year-over-year due in large part to driving increased group business. Belmond Grand Hotel Europe's year-over-year growth was primarily due to increased revenue during the annual St. Petersburg International Economic Forum coupled with the benefit of the 2017 FIFA Confederations Cup, which took place from mid-June 2017 through early-July 2017. ADR in U.S. dollar terms for the European owned hotels segment increased to $784 in the three months ended June 30, 2017 from $727 in the three months ended June 30, 2016. Occupancy increased to 69% in the three months ended June 30, 2017 from 67% in the three months ended June 30, 2016. Same store RevPAR increased by 10% in U.S. dollars to $537 in the three months ended June 30, 2017 from $488 in the three months ended June 30, 2016.

Adjusted EBITDA for the region for the three months ended June 30, 2017 of $30.9 million represented an increase of $4.6 million or 17% over $26.3 million for the three months ended June 30, 2016. In constant currency, adjusted EBITDA for the region for the second quarter of 2017 increased $4.7 million or 18% over the prior-year quarter mainly due to a $1.9 million or 39% increase in adjusted EBITDA at Belmond Hotel Cipriani and a $1.6 million or 35% increase in adjusted EBITDA at Belmond Grand Hotel Europe. As a percentage of European owned hotels revenue, the adjusted EBITDA was 43% for the three months ended June 30, 2017 compared to 39% for the three months ended June 30, 2016 partly as a result of the shift in timing of the Easter holiday.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Revenue was $84.1 million for the six months ended June 30, 2017, an increase of $3.6 million, or 4%, over $80.5 million for the six months ended June 30, 2016. In constant currency, revenue for the region for the six months ended June 30, 2017 increased $4.3 million, or 5%, primarily due to a $3.0 million or 7% revenue increase for the Company's Italian hotels and a $1.8 million or 14% increase at Belmond Grand Hotel Europe. Revenue growth for the Company's Italian hotels was largely driven by the performances of Belmond Hotel Cipriani which benefited from the Biennale Arts Festival, which takes place every other year in Venice, and Belmond Villa San Michele which grew occupancy by 13 percentage points year-over-year due in large part to driving increased group business. Belmond Grand Hotel Europe's year-over-year growth was primarily due to increased revenue during the annual St. Petersburg International Economic Forum coupled with the benefit of the 2017 FIFA Confederations Cup. ADR in U.S. dollar terms for the European owned hotels segment increased to $671 in the six months ended June 30, 2017 from $632 in the six months ended June 30, 2016. Occupancy increased to 60% in the six months ended June 30, 2017 from 59% in the six months ended June 30, 2016. Same store RevPAR increased by 8% in U.S. dollars, to $402 in the six months ended June 30, 2017 from $373 in the six months ended June 30, 2016.

Adjusted EBITDA for the region for the six months ended June 30, 2017 of $22.8 million represented an increase of $2.1 million, or 10%, over adjusted EBITDA of $20.7 million for the six months ended June 30, 2016. In constant currency, adjusted EBITDA for the region for the six months ended June 30, 2017 increased $2.1 million or 10% over the prior-year period mainly due to a $1.6 million or 38% increase in adjusted EBITDA at Belmond Grand Hotel Europe and a $1.1 million or 31% increase in adjusted EBITDA at Belmond Hotel Cipriani. As a percentage of European owned hotels revenue, adjusted EBITDA increased slightly to 27% for the six months ended June 30, 2017 compared to 26% for the six months ended June 30, 2016.

45


Owned hotels - North America 
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
67,228

 
64,883

 
131,398

 
129,766

Rooms sold
 
47,721

 
45,519

 
91,704

 
90,272

Occupancy (percentage)
 
71

 
70

 
70

 
70

Average daily rate (in U.S. dollars)
 
443

 
422

 
454

 
445

RevPAR (in U.S. dollars)
 
315

 
296

 
317

 
310

Same store RevPAR (in U.S. dollars)
 
316

 
296

 
318

 
310


Three months ended June 30, 2017 compared to three months ended June 30, 2016

Revenue was $42.4 million for the three months ended June 30, 2017, an increase of $4.4 million, or 12%, over $38.0 million for the three months ended June 30, 2016. In constant currency, revenue for the region for the second quarter of 2017 increased $4.4 million or 11% over the prior-year quarter primarily due to revenue growth of $2.2 million or 10% at Belmond Charleston Place and $0.5 million or 23% at Belmond Maroma Resort & Spa, Riviera Maya, Mexico. Both properties benefited from increased group business, which resulted in solid year-over-year RevPAR and food and beverage revenue growth. ADR for the North American owned hotels segment increased to $443 in the three months ended June 30, 2017 from $422 in the three months ended June 30, 2016. Occupancy increased slightly to 71% for the three months ended June 30, 2017 from 70% from the three months ended June 30, 2016. Same store RevPAR increased by 7% to $316 for the three months ended June 30, 2017 from $296 in the three months ended June 30, 2016.

Adjusted EBITDA for the region for three months ended June 30, 2017 of $9.7 million represented an increase of $1.2 million, or 14%, over $8.5 million for the three months ended June 30, 2016. In constant currency, adjusted EBITDA for the region for the second quarter of 2017 increased $1.1 million or 13% over the prior-year quarter as a result of a $0.9 million or 10% adjusted EBITDA increase at Belmond Charleston Place and a $0.4 million adjusted EBITDA increase at Belmond Maroma Resort & Spa. As a percentage of North American owned hotels revenue, adjusted EBITDA increased slightly to 23% for the three months ended June 30, 2017 from 22% for the three months ended June 30, 2016.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Revenue was $82.3 million for the six months ended June 30, 2017, an increase of $4.6 million, or 6%, over $77.7 million for the six months ended June 30, 2016. In constant currency, revenue for the region for the six months ended June 30, 2017 increased $4.7 million or 6% over the six months ended June 30, 2016 primarily due to revenue growth of $3.1 million or 8% at Belmond Charleston Place; $1.2 million or 14% at Belmond El Encanto, Santa Barbara, California; and $0.8 million or 11% at ‘21 Club’ in New York City. Year-over-year revenue growth at Belmond Charleston Place and Belmond El Encanto was largely the result of increased group business, and revenue growth at ‘21 Club’ was primarily due to increased demand for the main restaurant and banqueting venues. Growth for these properties was partially offset by a $1.8 million or 12% decrease at Belmond La Samanna, St Martin, French West Indies, which was negatively impacted by a decline in visitation. ADR for the North American owned hotels segment increased to $454 in the six months ended June 30, 2017 from $445 in the six months ended June 30, 2016. Occupancy remained consistent at 70% for the six months ended June 30, 2017 and June 30, 2016. Same store RevPAR increased by 2% to $318 for the six months ended June 30, 2017 from $310 in the six months ended June 30, 2016.

Adjusted EBITDA for the region for the six months ended June 30, 2017 of $19.6 million, represented an increase of $1.0 million, or 5%, over $18.6 million for the six months ended June 30, 2016. In constant currency, adjusted EBITDA for the region for the six months ended June 30, 2017 increased $1.0 million or 5% over the six months ended June 30, 2016 as a result of a $1.3 million or 9% adjusted EBITDA increase at Belmond Charleston Place and a $0.4 million adjusted EBITDA increase at ‘21 Club’. Offsetting these increases, there was a $0.9 million, or 41% adjusted EBITDA decrease at Belmond La Samanna. As a percentage of North American owned hotels revenue, adjusted EBITDA remained consistent at 24% for the six months ended June 30, 2017 and 2016.


46


Owned hotels - Rest of world 
 
 
Three months ended
 
Six months ended
 
 
June 30,
2017
 
June 30,
2016
 
June 30,
2017
 
June 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
93,546

 
93,607

 
186,426

 
187,064

Rooms sold
 
44,523

 
42,863

 
101,177

 
105,887

Occupancy (percentage)
 
48

 
46

 
54

 
57

Average daily rate (in U.S. dollars)
 
341

 
327

 
379

 
350

RevPAR (in U.S. dollars)
 
162

 
150

 
206

 
198

Same store RevPAR (in U.S. dollars)
 
168

 
157

 
211

 
203

    
Three months ended June 30, 2017 compared to three months ended June 30, 2016

Revenue was $25.9 million for the three months ended June 30, 2017, an increase of $1.6 million, or 7%, over $24.3 million for the three months ended June 30, 2016. In constant currency, revenue for the second quarter of 2017 increased $0.2 million or 1% over the prior-year quarter principally as a result of revenue growth of $1.4 million or 55% at Belmond Mount Nelson Hotel, Cape Town, South Africa; $1.1 million or 53% at Belmond Safaris, Botswana; and $0.4 million or 17% at Belmond Miraflores Park, Lima, Peru. All three properties benefited from the Company's project capital expenditure investments over the past few years. Additionally, revenue at Belmond La Résidence d'Angkor, Siem Reap, Cambodia, increased $0.2 million or 66% over the prior-year quarter following a full renovation of the property in 2016. Partially offsetting this growth was a combined $3.0 million or 20% year-over-year revenue decrease for the Company's two Brazilian hotels largely as a result of the country's political and economic issues. ADR in U.S. dollar terms for the Rest of world owned hotels segment increased to $341 in the three months ended June 30, 2017 from $327 in the three months ended June 30, 2016. Occupancy increased to 48% for the three months ended June 30, 2017 from 46% for the three months ended June 30, 2016. Same store RevPAR increased by 7% in U.S. dollars, to $168 for the three months ended June 30, 2017 from $157 for the three months ended June 30, 2016.

Adjusted EBITDA for the region for three months ended June 30, 2017 of $2.4 million, represented an increase of $0.3 million, or 14%, over $2.1 million for the three months ended June 30, 2016. In constant currency, adjusted EBITDA for the region increased $0.5 million or 24% over the prior-year quarter largely as a result of adjusted EBITDA increases of $1.0 million at Belmond Mount Nelson Hotel, $0.6 million at Belmond Safaris, and $0.2 million or 34% at Belmond Miraflores Park. These increases were partially offset by a combined $1.4 million adjusted EBITDA decrease for the Company's two Brazilian hotels. As a percentage of Rest of world owned hotels revenue, adjusted EBITDA remained consistent at 9% for the three months ended June 30, 2017 and 2016.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Revenue was $61.8 million for the six months ended June 30, 2017, an increase of $2.3 million, or 4%, over $59.5 million for the six months ended June 30, 2016. In constant currency, revenue for the six months ended June 30, 2017 decreased $4.5 million or 7% over the prior-year quarter principally as a result of a combined $7.6 million year-over-year revenue decrease for the Company's two Brazilian hotels largely as a result of the country's political and economic issues. Partially offsetting this decrease was revenue growth of $2.4 million or 26% at Belmond Mount Nelson Hotel; $1.0 million or 37% at Belmond Safaris; and $0.4 million or 8% at Belmond Miraflores. All three properties benefited from the Company's project capital expenditure investments over the past few years. ADR in U.S. dollar terms for the Rest of world owned hotels segment increased to $379 in the six months ended June 30, 2017 from $350 in the six months ended June 30, 2016. Occupancy decreased to 54% for the six months ended June 30, 2017 from 57% for the six months ended June 30, 2016. Same store RevPAR increased by 4% in U.S. dollars, to $211 for the six months ended June 30, 2017 from $203 for the six months ended June 30, 2016, a decrease of 7% on a constant currency basis.

Adjusted EBITDA for the region for the six months ended June 30, 2017 of $12.4 million represented a decrease of $1.2 million, or 9%, from $13.6 million for the six months ended June 30, 2016. In constant currency, adjusted EBITDA for the region decreased $2.9 million or 19% over the prior-year period largely as a result of a combined adjusted EBITDA decrease of $4.3 million for the Company's two Brazilian hotels. Partially offsetting this decrease was an adjusted EBITDA increase at Belmond Mount Nelson Hotel of $1.9 million, and $0.5 million at Belmond Safaris. As a percentage of Rest of world owned hotels revenue, adjusted EBITDA was 20% for the six months ended June 30, 2017 compared to 23% for the six months ended June 30, 2016 due to the lower margins earned at the Brazilian hotels.


47


Owned trains and cruises 

Three months ended June 30, 2017 compared to three months ended June 30, 2016

Revenue was $21.8 million for the three months ended June 30, 2017, an increase of $0.3 million, or 1%, over $21.5 million for the three months ended June 30, 2016. In constant currency, revenue increased $2.7 million or 14% primarily as a result of the Belmond Grand Hibernian train in Ireland, which commenced its first full year of operations in April 2017 and recorded $2.0 million of revenue for the second quarter. Additionally, the Belmond Royal Scotsman train in Scotland grew revenue by $0.8 million or 39% year-over-year primarily as a result of generating higher-revenue charter business and operating one additional trip in the current-year quarter.

Adjusted EBITDA for the three months ended June 30, 2017 was $4.2 million, an increase of $0.6 million, or 17% over $3.6 million for the three months ended June 30, 2016. In constant currency, adjusted EBITDA increased $1.1 million or 35% over the prior-year quarter largely due to adjusted EBITDA growth for Belmond Royal Scotsman and Belmond Grand Hibernian of $0.6 million and $0.3 million, respectively.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Revenue was $26.9 million for the six months ended June 30, 2017, a decrease of $1.0 million, or 4%, from $27.9 million for the six months ended June 30, 2016. In constant currency, revenue increased $1.8 million or 7% primarily as a result of the Belmond Grand Hibernian train, which commenced its first full year of operations in April 2017 and recorded $2.0 million of revenue for the second quarter. Additionally, the Belmond Royal Scotsman train in Scotland grew revenue by $0.8 million or 39% year-over-year primarily as a result of generating higher-revenue charter business and operating one additional trip in the current-year period. Partially offsetting these revenue increases, there was a combined revenue decrease of $1.1 million for the Company’s two river cruises in Myanmar largely due to decreased demand.

Owned trains and cruises reported an adjusted EBITDA loss of $0.1 million for the six months ended June 30, 2017 compared to an adjusted EBITDA gain of $0.8 million for the six months ended June 30, 2016. In constant currency, adjusted EBITDA decreased $0.8 million from the prior-year period partially due to an adjusted EBITDA decline of $0.8 million for the Venice Simplon-Orient-Express train partially due to a decrease in the number of trips operating by four compared to the prior-year period. Additionally, Belmond Grand Hibernian, the Company’s new Irish train, recorded an adjusted EBITDA loss of $0.2 million in the six months ended June 30, 2017, largely as a result of seasonality, as the train concluded its 2016 operating season in mid-October for its annual Winter closure period and and commenced its operating season in April 2017. Belmond Orcaella and Belmond Road to Mandalay recorded a combined adjusted EBITDA decrease of $0.5 million from the prior-year period due to decreased demand.

Part-owned/managed hotels 

Three months ended June 30, 2017 compared to three months ended June 30, 2016

Revenue was $0.7 million for the three months ended June 30, 2017, a decrease of $0.4 million, or 36%, from $1.1 million for the three months ended June 30, 2016 largely due to provision made against management and reservation fees at Inn at Perry Cabin by Belmond, Saint Michaels, Maryland, in respect of an agreement entered into on April 7, 2017 pursuant to which Belmond agreed to guarantee specified budgeted EBITDA levels earned by the owner for each of the 2017 and 2018 fiscal years.

Adjusted EBITDA for Part-owned/managed hotels for the three months ended June 30, 2017 of $2.5 million represented an increase of $0.8 million, or 47% from earnings of $1.7 million for the three months ended June 30, 2016, primarily as a result of an increase in management fee income from the Peru hotels joint venture due to increased occupancy at the two hotels in Cusco.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Revenue was $0.8 million for the six months ended June 30, 2017, a decrease of $1.0 million, or 56%, from $1.8 million for the six months ended June 30, 2016, largely due to provision made against management and reservation fees at Inn at Perry Cabin, Saint Michaels by Belmond, in respect of an agreement entered into on April 7, 2017 pursuant to which Belmond agreed to guarantee specified budgeted EBITDA levels earned by the owner for each of the 2017 and 2018 fiscal years.

Adjusted EBITDA for Part-owned/managed hotels for the six months ended of $2.8 million represented an increase of $0.5 million, or 22% from earnings of $2.3 million for the six months ended June 30, 2016 primarily as a result of an increase in occupancy at the two hotels in Cusco.

48


Part-owned/managed trains

Three months ended June 30, 2017 compared to three months ended June 30, 2016

Revenue was $3.0 million in the three months ended June 30, 2017, an increase of $0.5 million, or 20%, over $2.5 million in the three months ended June 30, 2016 primarily as a result of a $0.5 million, or 19% increase in management fee income from the Company’s PeruRail joint venture. The growth in management fee income from PeruRail was largely the result of increased revenue from both the joint venture's passenger and freight operations.

Adjusted EBITDA for Part-owned/managed trains for the three months ended June 30, 2017 of $7.2 million represented an increase of $1.7 million, or 31%, over $5.5 million for the three months ended June 30, 2016, due to an increase in management fee income and share of earnings from the Company's PeruRail joint venture largely as a result of increased revenue from both the passenger and freight operations.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Revenue was $4.8 million in the six months ended June 30, 2017, an increase of $0.3 million, or 7%, from $4.5 million in the six months ended June 30, 2016. The increase in revenue is primarily due to higher passenger sales for the Company’s PeruRail joint venture and higher tonnage transported from the Las Bambas mine.

Adjusted EBITDA for Part-owned/managed trains for the six months ended June 30, 2017 of $9.9 million represented an increase of $0.6 million, or 6%, from $9.3 million for the six months ended June 30, 2016, due to higher passenger sales for the Company’s PeruRail joint venture and higher tonnage transported from the Las Bambas mine.

Unallocated corporate costs

Three months ended June 30, 2017 compared to three months ended June 30, 2016

Adjusted central costs were $10.6 million for the three months ended June 30, 2017 (including $2.0 million of non-cash share-based compensation expense), an increase of $1.0 million, or 10%, over $9.6 million for the three months ended June 30, 2016 (including $2.0 million of non-cash share-based compensation expense), mainly due to increased development and other corporate headcount to support the 2020 strategic growth plan. As a percentage of revenue, adjusted central costs remained consistent at 6% for the three months ended June 30, 2017 and 2016.
    
Six months ended June 30, 2017 compared to six months ended June 30, 2016

Adjusted central costs were $21.5 million for the six months ended June 30, 2017 (including $3.6 million of non-cash share-based compensation expense), an increase of $2.2 million, or 11%, over $19.3 million for the six months ended June 30, 2016 (including $3.8 million of non-cash share-based compensation expense), mainly due to increased development and other corporate headcount to support the 2020 strategic growth plan and greater information technology expenses. As a percentage of revenue, adjusted central costs remained consistent at 8% for the six months ended June 30, 2017 and 2016.

Depreciation and amortization

Three months ended June 30, 2017 compared to three months ended June 30, 2016

Depreciation and amortization was $15.1 million for the three months ended June 30, 2017, an increase of $1.8 million, or 14%, over $13.3 million for the three months ended June 30, 2016, primarily as a result of the recent completion of several capital projects and accelerated depreciation expense to write-off assets that are expected to be replaced. Depreciation and amortization as a percentage of revenue remained consistent at 9% for the three months ended June 30, 2017 and for the three months ended June 30, 2016.
    
Six months ended June 30, 2017 compared to six months ended June 30, 2016

Depreciation and amortization was $28.8 million for the six months ended June 30, 2017, an increase of $2.4 million, or 9%, over $26.4 million for the six months ended June 30, 2016, primarily as a result of the recent completion of several capital projects and accelerated depreciation expense to write-off assets that are expected to be replaced. Depreciation and amortization as a percentage of revenue increased slightly to 11% for the six months ended June 30, 2017 from 10% for the six months ended June 30, 2016.

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Gain on extinguishment of debt
    
Three months ended June 30, 2017 compared to three months ended June 30, 2016

There was no gain on extinguishment of debt in the three months ended June 30, 2017. In the three months ended June 30, 2016, there was a gain on extinguishment of debt of $1.2 million. In June 2016, Charleston Center LLC refinanced its $86.0 million loan secured on its real and personal property with an amended $112.0 million loan. The additional proceeds of $26.0 million were largely used to repay a 1984 development loan from a municipal agency in the principal amount of $10.0 million and accrued interest of $16.8 million. There was a cash outflow of $22.8 million to repay this loan and accrued interest, reflecting a discount of $4.0 million which was negotiated due to the early settlement of this borrowing. The net gain on extinguishment of debt reported in the statements of condensed consolidated operations is $1.2 million after accounting for a tax indemnity of $2.8 million to our partners in respect of their income from the discount arising on the cancellation of indebtedness.

Six months ended June 30, 2017 compared to six months ended June 30, 2015

There was no gain on extinguishment of debt in the six months ended June 30, 2017. In the six months ended June 30, 2016, there was a gain on extinguishment of debt of $1.2 million. Charleston Center LLC refinanced its $86.0 million loan secured on its real and personal property with an amended $112.0 million loan. The additional proceeds of $26.0 million were largely used to repay a 1984 development loan from a municipal agency in the principal amount of $10.0 million and accrued interest of $16.8 million. There was a cash outflow of $22.8 million to repay this loan and accrued interest, reflecting a discount of $4.0 million which was negotiated due to the early settlement of this borrowing. The net gain on extinguishment of debt reported in the statements of condensed consolidated operations is $1.2 million after accounting for a tax indemnity of $2.8 million to our partners in respect of their income from the discount arising on the cancellation of indebtedness.

Interest income, interest expense and foreign currency, net

Three months ended June 30, 2017 compared to three months ended June 30, 2016

Interest income, interest expense and foreign currency, net was an expense of $8.7 million for the three months ended June 30, 2017, an increase of $6.0 million from an expense of $2.7 million for the three months ended June 30, 2016. The increase in net expense was primarily due to a foreign exchange loss of $1.0 million that was recognized in the three months ended June 30, 2017, compared to a foreign exchange gain of $4.9 million in the three months ended June 30, 2016.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Interest income, interest expense and foreign currency, net was an expense of $16.4 million for the six months ended June 30, 2017, an increase of $9.2 million, from an expense of $7.2 million for the six months ended June 30, 2016. The increase in net expense was primarily due to a foreign exchange loss of $1.2 million that was recognized in the six months ended June 30, 2017, compared to a foreign exchange gain of $7.7 million in the six months ended June 30, 2016.

Provision for income taxes

Three months ended June 30, 2017 compared to three months ended June 30, 2016

In the three months ended June 30, 2017, provision for income taxes was $2.1 million (June 30, 2016 - $14.3 million). The year-over-decrease in income tax expense was largely attributable to a reduction in pre-tax earnings, mainly as a result of the acquisition-related costs associated with Cap Juluca in the three months ended June 30, 2017.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

In the six months ended June 30, 2017, the income tax benefit was $3.1 million (June 30, 2016 - provision of $4.8 million). The year-over-decrease in income tax expense was largely attributable to a reduction in pre-tax earnings, mainly as a result of the acquisition-related costs associated with Cap Juluca in the six months ended June 30, 2017.

Gain on disposal of property, plant and equipment

Three months ended June 30, 2017 compared to three months ended June 30, 2016

A gain on disposal of $0.2 million was recorded in the three months ended June 30, 2017 and 2016. The gain in both periods

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relates to the recognition of the deferred gain following the March 2014 sale of Inn at Perry Cabin by Belmond, which Belmond has continued to manage under a management contract.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

A gain on disposal of $0.3 million was recorded in the six months ended June 30, 2017 and 2016. The gain in both periods relates to the recognition of the deferred gain following the March 2014 sale of Inn at Perry Cabin by Belmond, which Belmond has continued to manage under a management contract.

Impairment of property, plant and equipment

Three months ended June 30, 2017 compared to three months ended June 30, 2016

A property, plant and equipment impairment charge of $8.2 million was recorded in the three months ended June 30, 2017. This consisted of $7.1 million for the Belmond Road to Mandalay river cruise boat in Myanmar as a result of increased competition and anticipated lower occupancy levels and $1.1 million at the Belmond Northern Belle train in England due to forecasted lower demand. There were no impairments of property, plant and equipment in the three months ended June 30, 2016.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

A property, plant and equipment impairment charge of $8.2 million was recorded in the six months ended June 30, 2017. This consisted of $7.1 million at Belmond Road to Mandalay river cruise boat in Myanmar as a result of increased competition and anticipated lower occupancy levels and $1.1 million at the Belmond Northern Belle train in England due to forecasted lower demand. There were no impairments of property, plant and equipment in the six months ended June 30, 2016.

Earnings from unconsolidated companies

Three months ended June 30, 2017 compared to three months ended June 30, 2016

Earnings from unconsolidated companies net of tax were $3.5 million for the three months ended June 30, 2017, an increase of $1.2 million, or 52%, from $2.3 million for the three months ended June 30, 2016, largely the result of increased earnings from both the Company’s joint venture's passenger and freight operations, and increased revenue from the Peru hotels joint venture primarily due to increased occupancy at the joint venture's two hotels in Cusco.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

Earnings from unconsolidated companies net of tax were $3.9 million for the six months ended June 30, 2017, an increase of $0.8 million, or 26%, from $3.1 million for the six months ended June 30, 2016. This was largely the result of increased earnings from both the Company’s joint venture's passenger and freight operations, and increased revenue from the Peru hotels joint venture primarily due to increased occupancy at the joint venture's two hotels in Cusco.

Net earnings from discontinued operations

Three months ended June 30, 2017 compared to three months ended June 30, 2016

The earnings from discontinued operations for the three months ended June 30, 2017 were $0.1 million, compared with earnings of $0.2 million for the three months ended June 30, 2016. Earnings from discontinued operations for the three months ended June 30, 2016 include the partial release of legal fee accruals in relation to Ubud Hanging Gardens, where Belmond is pursuing legal remedies following its dispossession by the owner in November 2013. See Note 18 to the Financial Statements.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

The earnings from discontinued operations for the six months ended June 30, 2017 were $0.1 million, compared with earnings of $0.1 million for the six months ended June 30, 2016. Earnings from discontinued operations for the six months ended June 30, 2016 included the partial release of legal fee accruals in relation to Ubud Hanging Gardens, where Belmond is pursuing legal remedies following its dispossession by the owner in November 2013. See Note 18 to the Financial Statements. Additionally, earnings from discontinued operations for the six months ended June 30, 2017 included earnings of $28,000 due to the release of remaining accruals that Belmond is discharged from for Porto Cupecoy.


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Net (losses)/earnings

Three months ended June 30, 2017 compared to three months ended June 30, 2016

The net losses attributable to Belmond Ltd. for the three months ended June 30, 2017 were $4.9 million ($0.05 per common share) on revenue of $165.9 million, compared with net earnings of $8.4 million ($0.08 per common share) on revenue of $154.5 million for the three months ended June 30, 2016. The year-over-year decrease was largely attributable to $13.2 million of acquisition-related costs associated with Cap Juluca and a $8.2 million impairment charge, partially offset by improved operating results. Acquisition-related costs for Cap Juluca represents professional fees incurred in preliminary design and planning, structuring, assessment of financing opportunities, legal, tax, accounting and engineering due diligence and the negotiation of the purchase and sale agreements, and other ancillary documents, with the principal owner and leaseholder, together with three owners of villas and separate subleases, as well as a memorandum of understanding and ground lease with the Government of Anguilla.

Six months ended June 30, 2017 compared to six months ended June 30, 2016

The net losses attributable to Belmond Ltd. for the six months ended June 30, 2017 were $23.0 million ($0.23 per common share) on revenue of $260.7 million, compared with net earnings of $6.8 million ($0.07 per common share) on revenue of $251.9 million for the six months ended June 30, 2016. The year-over-year decrease was largely attributable to $13.8 million of acquisition-related costs associated with Cap Juluca and a $8.2 million impairment charge. Additionally, the increase in net loss was as a result of a foreign exchange loss of $1.2 million recognized in the six months ended June 30, 2017 compared to a foreign exchange gain of $7.7 million recognized six months ended June 30, 2016.

Other comprehensive income: Foreign currency translation adjustments, net

Foreign currency translation adjustments for the six months ended June 30, 2017 were a gain of $29.0 million, compared to a gain of $5.8 million for the six months ended June 30, 2016, arising from the retranslation of the Company’s net investment in subsidiary accounts denominated in foreign currencies into the Company’s reporting currency of U.S. dollars.

The gain in the six months ended June 30, 2017 was due to the majority of Belmond's operating currencies appreciating against the U.S. dollar from the rate at December 31, 2016. In particular, the 9%, 6% and 5% appreciation of the euro, British pound and South African rand against the U.S. dollar, respectively, positively impacted the carrying value of Belmond’s net investments denominated in those currencies.

The gain in the six months ended June 30, 2016 was due to the majority of Belmond's operating currencies appreciating against the U.S. dollar from the rate at December 31, 2015. In particular, the 22%, 13% and 2% appreciation of the Brazilian real, Russian ruble and euro against the U.S. dollar, respectively, positively impacted the carrying value of Belmond’s net investments denominated in those currencies.
 
 
 
 
 
 
 
 
 
Liquidity and Capital Resources
 
Overview

Belmond’s primary short-term cash needs include payment of compensation, general business expenses, capital commitments and contractual payment obligations, which include principal and interest payments on its debt facilities. Long-term liquidity needs may include existing and ongoing property refurbishments, potential investment in strategic acquisitions, and the repayment of long-term debt. At June 30, 2017, total debt and obligations under capital leases, including debt of consolidated variable interest entities, amounted to $657.5 million (December 31, 2016 - $602.1 million), including a current portion of $51.2 million (December 31, 2016 - $5.3 million). See Note 10 to the Financial Statements. Additionally, Belmond had capital commitments at June 30, 2017 amounting to $15.0 million (December 31, 2016 - $7.8 million).

Belmond had cash and cash equivalents of $113.8 million at June 30, 2017, compared to $153.4 million at December 31, 2016. In addition, Belmond had restricted cash balances of $11.4 million, of which $10.4 million is classified as current restricted cash on the consolidated balance sheets and $1.0 million is classified in other assets (December 31, 2016 - $2.6 million, of which $1.8 million was classified in restricted cash and $0.8 million was classified in other assets). At June 30, 2017, there were undrawn amounts available to Belmond under committed lines of credit of $60.6 million (December 31, 2016 - $105.5 million), bringing total cash availability at June 30, 2017 to $174.4 million (December 31, 2016 - $258.9 million), excluding restricted cash. When assessing cash and cash equivalents within Belmond, management considers the availability of those cash resources held within local business units to meet the strategic needs of Belmond.

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At June 30, 2017, Belmond had $51.2 million of scheduled debt repayments due within one year. Belmond expects to meet these repayments and fund working capital and capital expenditure commitments for the foreseeable future from cash resources, operating cash flow and available committed borrowing.

In order to ensure that Belmond has sufficient liquidity for the future, Belmond’s cash flow projections and available funds are reviewed with the Company’s board of directors on a regular basis. On April 26, 2017, Belmond made a drawdown of $45.0 million from its then-existing $105.0 million revolving credit facility.

Recent Events Affecting Belmond’s Liquidity and Capital Resources
On July 3, 2017, Belmond entered into an amended and restated credit agreement for its secured credit facilities. The secured credit facilities consist of (i) a seven-year $603.4 million secured term loan that matures on July 3, 2024 and (ii) a $100.0 million revolving credit facility that matures on July 3, 2022. As a result of executing the amendment and restatement of the secured credit facilities, the outstanding debt balance as of June 30, 2017 has been refinanced, including the $45.0 million previously drawn down on the Company’s revolving credit facility, on a long-term basis and accordingly, is presented as a non-current liability in the June 30, 2017 condensed consolidated balance sheets. See Notes 10 and 24 to the Financial Statements.

On May 26, 2017, Belmond acquired Cap Juluca, a 96-key luxury resort on the Caribbean island of Anguilla, British West Indies for a total transaction value of $84.5 million, including an aggregate cash purchase price of $68.7 million, acquisition-related costs of $13.8 million and excluding a working capital credit of $2.1 million. The acquisition was funded from existing cash reserves and $45.0 million of borrowings under the Company’s previously undrawn revolving credit facility. See Notes 3 and 10 to the Financial Statements.

In March 2015, Belmond’s board of directors approved a program enabling the Company to repurchase its shares of class A common stock up to the value of $75.0 million. No shares were repurchased during the six months ended June 30, 2017. To date the Company has acquired 3,574,667 shares of class A common stock for consideration of $40.0 million.

Covenant Compliance

As at June 30, 2017, Belmond was financed with a $499.6 million secured term loan and a $105.0 million revolving credit facility. The then-existing credit agreement limited Belmond’s ability to incur additional debt unless certain covenants were met. These covenants were measured on the performance of the consolidated group. The revolving credit facility in the credit agreement contained two financial covenants, a maximum net leverage test and a minimum interest cover test, which were both measured quarterly based on Belmond’s trailing 12 months results. In addition, there was debt held by consolidated variable interest entities of $113.0 million relating to Charleston Center LLC. One of the loans ($112.0 million) contained two financial covenants, a minimum interest cover test and minimum debt service ratio, both measured quarterly based on the trailing 12 months results of Charleston Center LLC. Belmond was in compliance with its covenants as at June 30, 2017.
See Notes 10 and 24 to the Financial Statements for a discussion of the amended and restated credit agreement. The amended and restated credit agreement removes the the minimum interest coverage ratio covenant test and increases the net leverage ratio permitted in the covenant test along with improvements in certain other terms. 

Belmond continues to closely monitor projected covenant compliance under its amended and restated credit agreement, and if there was a possibility of non-compliance with a covenant, Belmond would proactively meet with the agent or lending bank or banks of the relevant facility to seek an amendment or waiver. Obtaining a waiver may result in additional bank fees or an increase in the interest cost.

If Belmond does not comply with its financial covenants and the banks that provide the revolving credit facility declare a default and accelerate the repayment of their debt, this will cause an event of default under the amended and restated credit agreement. The cross default threshold in the amended and restated credit agreement to other debt that is recourse to Belmond is $25.0 million.
Based on its current financial forecasts, Belmond believes it will comply with all of the financial covenants in its amended and restated loan facilities.

Working Capital
  
Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital surplus of $16.6 million at June 30, 2017 (December 31, 2016 - $107.4 million).

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Cash Flow - Sources and Uses of Cash

At June 30, 2017 and December 31, 2016, Belmond had cash and cash equivalents of $113.9 million and $153.4 million, respectively. In addition, Belmond had restricted cash of $11.4 million (of which $10.4 million was classified as current restricted cash on the condensed consolidated balance sheets and $1.0 million was classified in other assets) and $2.6 million (of which $1.8 million was classified in restricted cash on the condensed consolidated balance sheets and $0.8 million was classified in other assets) as of June 30, 2017 and December 31, 2016, respectively.

Operating Activities. Net cash provided by operating activities for the six months ended June 30, 2017 was $11.7 million, compared to $20.3 million for the six months ended June 30, 2016.
 
The primary driver of operating cash flows is the result for the period, adjusted for any non-cash components. Net losses from continuing operations were $23.1 million for the six months ended June 30, 2017, a decrease of $29.9 million from net earnings of $6.8 million for the six months ended June 30, 2016. Non-cash items affecting the calculation of net cash provided by operating activities included an impairment of property, plant & equipment of $8.2 million relating to Belmond Road to Mandalay and Belmond Northern Belle recorded during the six months ended June 30, 2017, and a $1.2 million gain on extinguishment of debt recorded during the six months ended June 30, 2016. Operating cash flows were also affected by the fact that net losses from continuing operations for the six months ended June 30, 2017 included a non-cash loss from foreign currency translation of $1.2 million, compared to a non-cash gain from foreign currency translation of $7.7 million for the six months ended June 30, 2016.

Investing Activities. Net cash used in investing activities was $96.3 million for the six months ended June 30, 2017, compared to net cash used in investing activities of $24.8 million for the six months ended June 30, 2016.

During the six months ended June 30, 2017, $68.6 million, net of cash acquired, was used for the acquisition of Cap Juluca. See Note 3 to the Financial Statements. There were no acquisitions during the six months ended June 30, 2016.

Capital expenditure to acquire property, plant and equipment of $27.4 million during the six months ended June 30, 2017 included $3.2 million on the Venice Simplon-Orient-Express related to statutory maintenance works, $2.5 million at Belmond Grand Hotel Europe for improvements to the hotel's heating and air conditioning system and renovation of its deluxe rooms, $2.2 million at Belmond Hotel Cipriani for works related to the renovation of two existing junior suites and the addition of a new junior suite, $1.8 million at Belmond La Residencia for the addition of six new suites, $1.6 million at Belmond Hotel Splendido for the addition of balconies to twelve rooms, $1.5 million on corporate projects, which included the Company's new enterprise resource planning system and website, with the balance being for routine capital expenditures.

Capital expenditure to acquire property, plant and equipment of $27.1 million during the six months ended June 30, 2016 included included, $3.9 million at Belmond Charleston Place largely for adding a new high-end sports pub as well as for final payments related to the hotel’s rooms renovation project, $3.2 million on the Venice Simplon-Orient-Express related to statutory maintenance works and the phased installation of air-conditioning, $2.9 million on the Belmond Grand Hibernian luxury sleeper train, $1.4 million at Belmond La Residence d’Angkor primarily for a rooms renovation project, with the balance being for routine capital expenditures.

Financing Activities. Net cash used in financing activities for the six months ended June 30, 2017 was $42.4 million, compared to net cash used in financing activities of $12.4 million for the six months ended June 30, 2016.

During the six months ended June 30, 2017, Belmond made a drawdown of $45.0 million on its revolving credit facility in connection with the acquisition of Cap Juluca. See Note 3 to the Financial Statements. No drawdowns on the facility were made during the six months ended June 30, 2016.

Principal repayments under long-term debt were $2.7 million for the six months ended June 30, 2017 compared to $11.2 million for the six months ended June 30, 2016.

During the six months ended June 30, 2016, Charleston Center LLC refinanced its $86.0 million loan secured on its real and personal property with an amended $112.0 million loan. The additional proceeds of $26.0 million was largely used to repay a 1984
development loan from a municipal agency. There was a cash outflow of $22.8 million to repay this loan and accrued interest, reflecting a discount of $4.0 million which was negotiated due to the early repayment of this loan. The net gain on extinguishment of debt reported in the statements of consolidated operations was $1.2 million after accounting for a tax indemnity of $2.8 million to our partners. Including this refinancing, principal repayments under long-term debt were therefore higher for the six months ended June 30, 2016 compared to the six months ended June 30, 2017.

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In addition, the six months ended June 30, 2016 included a cash outflow of $2.0 million in relation to repurchases of Belmond’s class A common stock. There were no share repurchases in the six months ended June 30, 2017.

Cash Flows from Discontinued Operations. The results of Ubud Hanging Gardens and Porto Cupecoy have been presented as discontinued operations for all periods presented.

Capital Commitments

Belmond routinely makes capital expenditures to enhance its business. These capital expenditures relate to maintenance, improvements to existing properties and investment in new properties. These capital commitments are expected to be funded through current cash balances, cash flows from operations and existing debt facilities.
 
There were $15.0 million of capital commitments outstanding at June 30, 2017 (December 31, 2016 - $7.8 million) relating to project developments and refurbishment for existing properties.
 
Indebtedness
 
As at June 30, 2017, Belmond had $657.5 million (December 31, 2016 - $602.1 million) of consolidated debt and obligations under capital leases, including the current portion and including debt held by consolidated variable interest entities. Total debt on the consolidated balance sheets at June 30, 2017 is net of the unamortized original issue discount of $1.4 million (December 31, 2016 - $1.5 million) and unamortized debt issuance costs of $8.3 million (December 31, 2016 - $9.5 million), both of which will be amortized through interest expense over the term of the loans.

As at June 30, 2017, Belmond was financed with a $499.6 million secured term loan and a $105.0 million revolving credit facility.

The term loan had two tranches, a U.S. dollar tranche ($333.8 million currently outstanding) and a euro-denominated tranche (€145.1 million currently outstanding, equivalent to $165.8 million as at June 30, 2017). The dollar tranche bore interest at a rate of LIBOR plus 3% per annum, and the euro tranche bore interest at a rate of EURIBOR plus 3% per annum. Both tranches were subject to a 1% interest rate floor. The term loan was scheduled to mature in 2021 and the annual mandatory amortization is 1% of the principal amount.
The revolving credit facility was scheduled to mature in March 2019 and bore interest at a rate of LIBOR plus 2.75% per annum, with a commitment fee of 0.4% to be paid on the undrawn amount. As at June 30, 2017 the facility had been drawn down in connection with the Cap Juluca transaction in an amount of $45.0 million and including other working capital facilities, the Company has $60.6 million available to draw.
The term loan and revolving credit facility were secured by pledges of shares in certain Company subsidiaries and by security interests in tangible and intangible personal property. There were no mortgages over real estate.

The weighted average duration of Belmond’s debt, including debt held by consolidated variable interest entities, as at June 30, 2017 was 3.5 years, and the weighted average interest rate was 4.19% which incorporates the effect of derivatives which were used to mitigate interest rate risk. See Note 10 to the Financial Statements regarding the maturity of long-term debt.

Debt of consolidated variable interest entities as at June 30, 2017 included above comprised $113.0 million (December 31, 2016 - $113.1 million), including the current portion but before deduction of unamortized debt issuance costs, of debt obligations of Charleston Center LLC, owner of Belmond Charleston Place in which Belmond has a 19.9% equity investment.

In June 2016, Charleston Center LLC amended its secured loan of $86.0 million increasing the amount of the loan to $112.0 million but keeping the original 2019 maturity. The interest rate on the new loan is LIBOR plus 2.35% per annum and has no amortization and is non-recourse to Belmond. The additional proceeds were used to repay a development loan from a municipal agency and associated accrued interest.

Including debt of consolidated variable entities, approximately 25% of the outstanding principal amount of Belmond’s consolidated debt was in euros and the balance primarily in U.S. dollars, and 57% of borrowings of Belmond were at floating interest rates as at June 30, 2017.

On July 3, 2017, Belmond entered into an amended and restated credit agreement for its secured credit facilities. The amended and restated secured credit facilities consist of (i) a seven-year $603.4 million secured term loan that matures on July 3, 2024 and

55


(ii) a $100.0 million revolving credit facility that matures on July 3, 2022. As a result of executing the amendment and restatement of the secured credit facilities, the outstanding debt balance as of June 30, 2017 has been refinanced on a long-term basis and accordingly, is presented as a non-current liability in the June 30, 2017 condensed consolidated balance sheets. See Notes 10 and 24 to the Financial Statements.

Belmond has contingently guaranteed debt obligations of certain of its joint ventures. The following table summarizes these commitments at June 30, 2017:
 
 
Contingent guarantee
 
Duration
June 30, 2017
 
$ millions
 
 
 
 
 
 
 
PeruRail joint venture:
 
 
 
 
Concession performance
 
9.9

 
through May 2018
Peru hotel joint venture:
 
 
 
 
Debt obligations
 
16.8

 
through 2021
 
 
 
 
 
Total
 
26.7

 
 

Belmond has contingently guaranteed, through 2021, $16.8 million of debt obligations of the joint venture in Peru that operates five hotels and has also contingently guaranteed the PeruRail joint venture’s obligations relating to the performance of its governmental rail concessions, currently in the amount of $9.9 million, through May 2018. The contingent guarantees for each Peruvian joint venture may only be enforced in the event there is a change in control of the relevant joint venture, which would occur only if Belmond’s ownership of the economic and voting interests in the joint venture falls below 50%, an event which has not occurred and is not expected to occur.

Recent Accounting Pronouncements

As at June 30, 2017, Belmond had adopted all relevant accounting guidance, as reported in Note 1 to the condensed consolidated financial statements. Accounting pronouncements to be adopted are also reported in Note 1.

Critical Accounting Policies and Estimates

For a discussion of these, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates in the Company’s 2016 Annual Report on Form 10-K.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 
Belmond 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. Belmond 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 Belmond. Earnings are affected by changes in interest rates on floating rate borrowings, principally based on U.S. dollar LIBOR and EURIBOR. Belmond management assesses market risk based on changes in interest rates using a sensitivity analysis. After taking into account the amended and restated credit agreement as described in Notes 10 and 24 to the Financial Statements, we note that if the rate to be paid by Belmond increased by 100 basis points with all other variables held constant and after taking into account the 0% floor on the corporate term loan, annual net finance costs of Belmond would increase by approximately $3.7 million.
 
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 euro, British pound, South African rand, Russian ruble and Brazilian real. Some non-U.S. subsidiaries of the Company borrow in local currencies, and Belmond may in the future enter into forward exchange contracts relating to purchases denominated in foreign currencies.

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Twelve of Belmond’s owned properties in 2017 operated in European euro territories, two in Brazilian real, one in South African rand, five in British pounds, three in Botswana pula, two in Mexican peso, one in Peruvian nuevo sol, one in Russian ruble and eight in various Southeast Asian currencies. Revenue derived by Venice Simplon-Orient-Express was recorded primarily in British pounds, but its operating costs were mainly denominated in euros. Revenue derived by Belmond Maroma Resort and Spa, Belmond La Samanna and Belmond Miraflores Park was recorded in U.S. dollars, but the majority of the hotels’ expenses were denominated in Mexican pesos, European euros and Peruvian nuevo soles, respectively. Both revenue and the majority of expenses for Belmond Governor's Residence, Belmond La Résidence D'Angkor, Belmond Road to Mandalay and Belmond Orcaella were recorded in U.S. dollars.
 
Except for the specific instances described above, Belmond’s properties seek to match foreign currency earnings and costs as far as possible to provide a natural hedge against currency movements. The extent to which such a match is possible depends on the property, its guest base and the currency of the majority of its costs. Belmond hedges the U.S. dollar value of its euro denominated net assets by drawing part of its debt in euros and designating that debt as a net investment hedge. In addition, a significant proportion of the guests at Belmond hotels located outside of the United States originate from the United States. When a foreign currency in which Belmond operates depreciates against the U.S. dollar, Belmond has some flexibility to increase prices in local currency, or vice versa. Management believes that when these factors are combined, Belmond does not face a material exposure to its net earnings from currency movements, although the reporting of Belmond’s revenue and costs translated into U.S. dollars can, from period to period, be materially affected.

Belmond 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. However, because Belmond does not have at June 30, 2017 any significant financial instruments in a currency other than the functional currency of the operation concerned, apart from the euro-denominated indebtedness designated as a net investment hedge discussed in Note 20, there is no material potential impact on net earnings at June 30, 2017 as a result of hypothetical changes in the foreign currency exchange rates.

ITEM 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of Belmond’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) to ensure that the information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to Belmond management to allow timely decisions regarding required disclosure and to provide reasonable assurance that the information is recorded, processed, summarized and reported within the appropriate time periods. Based on that evaluation, Belmond management has concluded that these disclosure controls and procedures were effective as of June 30, 2017.

Changes in Internal Control over Financial Reporting
 
There have been no changes in Belmond’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the second quarter of 2017 that have materially affected, or are reasonably likely to materially affect, Belmond’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1.    Legal Proceedings

The information set forth under Note 18 to the accompanying consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 1A.    Risk Factors

There have been no material changes in the Company’s risk factors as previously disclosed in Part I, Item IA of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 6.    Exhibits

The exhibit index appears on the page immediately following the signature page to this report.


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated:  August 8, 2017
 
 
BELMOND LTD.
 
 
 
 
 
By:
/s/ Martin O’Grady
 
 
Martin O’Grady
 
 
Executive Vice President, Chief Financial Officer
(Principal Accounting Officer)


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EXHIBIT INDEX
Exhibit No.
 
Incorporated by Reference to
 
Description
 
 
 
 
 
3.1
 
Exhibit 3.1 to July 2, 2014 Form 8-K Current Report
 
Memorandum of Association and Certificate of Incorporation of Belmond Ltd.

3.2
 
Exhibit 3.2 to June 15, 2007 Form 8-K Current Report
 
Bye-Laws of Belmond Ltd.
3.3
 
Exhibit 1 to April 23, 2007 Amendment No. 1 to Form 8-A Registration Statement
 
Rights Agreement dated June 1, 2000, and amended and restated April 12, 2007, between Orient-Express Hotels Ltd. and Computershare Trust Company N.A., as Rights Agent
3.4
 
Exhibit 4.2 to December 10, 2007 Form 8-K Current Report
 
Amendment No. 1 dated December 10, 2007 to Amended and Restated Rights Agreement (Exhibit 3.3)
3.5
 
Exhibit 4.3 to May 27, 2010 Form 8-K Current Report
 
Amendment No. 2 dated May 27, 2010 to Amended and Restated Rights Agreement (Exhibit 3.3)
10.1
 
Exhibit 10.1 to July 6, 2017 Form 8-K Current Report
 
Amended and Restated Credit Agreement dated July 3, 2017, among Belmond Ltd., Belmond Interfin Ltd., Barclays Bank PLC, and Credit Agricole Corporate and Investment Bank, HSBC Bank USA, National Association, Fifth Third Bank and JPMorgan Chase Bank, N.A.
31
 
 
 
Rule 13a-14(a)/15d-14(a) Certifications
32
 
 
 
Section 1350 Certification
101
 
 
 
Interactive data file



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