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EX-32 - EXHIBIT 32 - Belmond Ltd.bel-ex32_20170930x10q.htm
EX-31 - EXHIBIT 31 - Belmond Ltd.bel-ex31_20170930x10q.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 September 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 November 3, 2017, 102,339,398 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)
 
 
September 30,
2017
 
December 31,
2016
 
 
 $’000
 
 $’000
Assets
 
 

 
 

Cash and cash equivalents
 
205,367

 
153,425

Restricted cash
 
6,368

 
1,830

Accounts receivable, net of allowances of $491 and $420
 
43,037

 
25,775

Due from unconsolidated companies
 
14,064

 
12,165

Prepaid expenses and other
 
13,352

 
12,262

Inventories
 
23,890

 
23,931

Assets held for sale
 
3,829

 

Total current assets
 
309,907

 
229,388

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $420,285 and $368,939
 
1,167,515

 
1,074,676

Investments in unconsolidated companies
 
83,074

 
79,327

Goodwill
 
125,088

 
113,343

Other intangible assets
 
20,306

 
13,877

Other assets
 
12,555

 
13,457

Total assets (1)
 
1,718,445

 
1,524,068

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Accounts payable
 
16,274

 
16,366

Accrued liabilities
 
98,774

 
69,046

Deferred revenue
 
38,582

 
31,350

Liabilities held for sale
 
938

 

Current portion of long-term debt and obligations under capital leases
 
6,767

 
5,284

Total current liabilities
 
161,335

 
122,046

 
 
 
 
 
Long-term debt and obligations under capital leases
 
698,275

 
585,768

Liability for pension benefit
 
440

 
1,447

Other liabilities
 
1,040

 
5,366

Deferred income taxes
 
133,246

 
122,291

Liability for uncertain tax positions
 
428

 
318

Total liabilities (1)
 
994,764

 
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 — 102,335,078 (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
 
984,483

 
979,458

Retained earnings
 
43,046

 
58,313

Accumulated other comprehensive loss
 
(305,223
)
 
(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
 
723,327

 
686,450

Non-controlling interests
 
354

 
382

Total equity
 
723,681

 
686,832

 
 
 
 
 
Total liabilities and equity
 
1,718,445

 
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 September 30, 2017 and December 31, 2016 is Charleston Center LLC. The assets and liabilities relating to this VIE at September 30, 2017 and December 31, 2016 are as follows:
 
 
September 30,
2017
 
December 31,
2016
 
 
 $’000
 
 $’000
 
 
 
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
1,508

 
2,233

Accounts receivable, net of allowances of $Nil and $Nil
 
3,696

 
3,066

Prepaid expenses and other
 
1,306

 
365

Inventories
 
1,289

 
1,296

Total current assets
 
7,799

 
6,960

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $41,052 and $35,902
 
198,643

 
201,861

Other assets
 
1,303

 
1,455

Total assets
 
207,745

 
210,276

 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable
 
2,773

 
4,558

Accrued liabilities
 
4,195

 
3,099

Deferred revenue
 
3,017

 
1,714

Current portion of long-term debt and obligations under capital leases
 
252

 
242

Total current liabilities
 
10,237

 
9,613

 
 
 
 
 
Long-term debt and obligations under capital leases
 
112,046

 
111,968

Other liabilities
 

 
40

Total liabilities
 
122,283

 
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
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Revenue (1)
 
182,973

 
183,737

 
443,705

 
435,629

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Cost of services
 
72,010

 
71,987

 
184,775

 
186,459

Selling, general and administrative
 
59,356

 
53,285

 
184,205

 
150,214

Depreciation and amortization
 
17,052

 
13,155

 
45,862

 
39,553

Impairment of property, plant and equipment
 

 
1,007

 
8,216

 
1,007

 
 
 
 
 
 
 
 
 
Total operating costs and expenses
 
148,418

 
139,434

 
423,058

 
377,233

 
 
 
 
 
 
 
 
 
Gain on disposal of property, plant and equipment
 
150

 
488

 
450

 
788

 
 
 
 
 
 
 
 
 
Earnings from operations
 
34,705

 
44,791

 
21,097

 
59,184

 
 
 
 
 
 
 
 
 
Gain on extinguishment of debt
 

 

 

 
1,200

Interest income
 
240

 
289

 
582

 
582

Interest expense
 
(8,993
)
 
(7,840
)
 
(24,536
)
 
(23,026
)
Foreign currency, net
 
(1,486
)
 
1,432

 
(2,727
)
 
9,161

 
 
 
 
 
 
 
 
 
Earnings/(losses) before income taxes and earnings from unconsolidated companies, net of tax
 
24,466

 
38,672

 
(5,584
)
 
47,101

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(20,732
)
 
(20,401
)
 
(17,608
)
 
(25,140
)
 
 
 
 
 
 
 
 
 
Earnings/(losses) before earnings from unconsolidated companies, net of tax
 
3,734

 
18,271

 
(23,192
)
 
21,961

 
 
 
 
 
 
 
 
 
Earnings from unconsolidated companies, net of tax provision of $2,026, $1,712, $4,079 and $3,943
 
3,939

 
4,618

 
7,789

 
7,712

 
 
 
 
 
 
 
 
 
Earnings/(losses) from continuing operations
 
7,673

 
22,889

 
(15,403
)
 
29,673

 
 
 
 
 
 
 
 
 
Net (losses)/earnings from discontinued operations, net of tax provision of $Nil, $Nil, $Nil and $Nil
 
(3
)
 
(4
)
 
125

 
51

 
 
 
 
 
 
 
 
 
Net earnings/(losses)
 
7,670

 
22,885

 
(15,278
)
 
29,724

 
 
 
 
 
 
 
 
 
Net losses/(earnings) attributable to non-controlling interests
 
96

 
(17
)
 
11

 
(57
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
7,766

 
22,868

 
(15,267
)
 
29,667

 
 
 
 
 
 
 
 
 
(1)  Includes revenue from related parties of $4,758,000, $4,563,000, $11,601,000 and $10,869,000 respectively
 



See notes to condensed consolidated financial statements.
3



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

 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$
 
$
 
$
 
$
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 

 
 

 
 
Net earnings/(losses) from continuing operations
 
0.07

 
0.22

 
(0.15
)
 
0.29

Net earnings/(losses) from discontinued operations
 

 

 

 

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

 
0.23

 
(0.15
)
 
0.29

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 

 
 

 
 

Net earnings/(losses) from continuing operations
 
0.07

 
0.22

 
(0.15
)
 
0.29

Net earnings/(losses) from discontinued operations
 

 

 

 

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

 
0.22

 
(0.15
)
 
0.29

 
 
 
 
 
 
 
 
 
 

See notes to condensed consolidated financial statements.
4



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

 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Net earnings/(losses)
 
7,670

 
22,885

 
(15,278
)
 
29,724

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

 
 

 
 

 
 
Foreign currency translation adjustments, net of tax provision/(benefit) of $Nil, $(335), $Nil and $(335)
 
17,950

 
1,769

 
46,927

 
7,668

Change in fair value of derivatives, net of tax provision/(benefit) of $175, $235, $371 and $(313)
 
(1,065
)
 
748

 
(306
)
 
(967
)
Change in pension liability, net of tax provision of $32, $29, $97 and $87
 
162

 
121

 
478

 
386

Total other comprehensive income, net of tax
 
17,047

 
2,638

 
47,099

 
7,087

 
 
 
 
 
 
 
 
 
Total comprehensive income
 
24,717

 
25,523

 
31,821

 
36,811

 
 
 
 
 
 
 
 
 
Comprehensive losses/(income) attributable to non-controlling interests
 
122

 
(36
)
 
28

 
(178
)
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Belmond Ltd.
 
24,839

 
25,487

 
31,849

 
36,633

 
 
 
 
 
 
 
 
 


See notes to condensed consolidated financial statements.
5


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

 
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
 
$'000
 
$'000
 
 
 
 
 
Cash flows from operating activities:
 
 

 
 

Net (losses)/earnings
 
(15,278
)
 
29,724

Less: Net earnings from discontinued operations, net of tax
 
125

 
51

 
 
 
 
 
Net (losses)/earnings from continuing operations
 
(15,403
)
 
29,673

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

 
 

Depreciation and amortization
 
45,862

 
39,553

Impairment of property, plant and equipment
 
8,216

 
1,007

Gain on disposal of property, plant and equipment
 
(450
)
 
(788
)
Gain on extinguishment of debt
 

 
(1,200
)
Earnings from unconsolidated companies, net of tax
 
(7,789
)
 
(7,712
)
Amortization of debt issuance costs and discount on secured term loan
 
2,826

 
2,208

Share-based compensation
 
5,025

 
5,258

Change in provisions for uncertain tax positions
 
67

 
204

Benefit from deferred income tax
 
6,504

 
12,074

Other non-cash movements
 
1,472

 
1,773

Effect of exchange rates on net losses
 
541

 
(11,070
)
Change in assets and liabilities, net of effects from acquisitions:
 
 

 
 

Accounts receivable
 
(7,082
)
 
(4,004
)
Due from unconsolidated companies
 
(724
)
 
(816
)
Prepaid expenses and other
 
(1,113
)
 
701

Inventories
 
1,714

 
(375
)
Escrow and prepaid customer deposits
 
(4,168
)
 
(3,294
)
Accounts payable
 
(1,144
)
 
948

Accrued liabilities
 
29,351

 
11,555

Deferred revenue
 
4,182

 
4,057

Other liabilities
 
(5,622
)
 
(14,383
)
Other, net
 
866

 
(530
)
Other cash movements:
 
 
 
 
Dividends from equity method investees
 
3,180

 
3,018

Payment of swap termination costs
 
(2,145
)
 

 
 
 
 
 
Net cash provided by operating activities from continuing operations
 
64,166

 
67,857

Net cash provided by operating activities from discontinued operations
 
(10
)
 
51

 
 
 
 
 
Net cash provided by operating activities
 
64,156

 
67,908


See notes to condensed consolidated financial statements.
6


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

 
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
 
$'000
 
$'000
 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Capital expenditure to acquire property, plant and equipment
 
(43,012
)
 
(40,556
)
Acquisitions, net of cash acquired
 
(68,632
)
 

Release of restricted cash
 
7

 
43

Proceeds from sale of property, plant and equipment
 

 
2,746

 
 
 
 
 
Net cash used in investing activities from continuing operations
 
(111,637
)
 
(37,767
)
Net cash provided by investing activities from discontinued operations
 

 

 
 
 
 
 
Net cash used in investing activities
 
(111,637
)
 
(37,767
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Repurchase of shares
 

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

 
17

Dividend to non-controlling interest
 

 
(7
)
Proceeds from borrowings
 
649,478

 
26,000

Debt issuance costs
 
(9,703
)
 
(414
)
Principal payments under long-term debt
 
(548,798
)
 
(12,552
)
 
 
 
 
 
Net cash provided by financing activities from continuing operations
 
90,980

 
11,052

Net cash provided by financing activities from discontinued operations
 

 

 
 
 
 
 
Net cash provided by financing activities
 
90,980

 
11,052

 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
8,443

 
1,100

 
 
 
 
 
Net increase in cash and cash equivalents
 
51,942

 
42,293

 
 
 
 
 
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 $2,000 and $Nil of cash presented within assets held for sale)
 
205,367

 
177,892




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
 

 

 

 
5,258

 

 

 

 

 
5,258

Exercised share options and vested share awards
 

 
5

 

 
12

 

 

 

 

 
17

Repurchase of shares
 

 
(2
)
 

 
(2,245
)
 
255

 

 

 

 
(1,992
)
Dividend to non-controlling interest
 

 

 

 

 

 

 

 
(179
)
 
(179
)
Comprehensive income/(losses):
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net earnings attributable to common shares
 

 

 

 

 
29,667

 

 

 
57

 
29,724

Other comprehensive income
 

 

 

 

 

 
6,966

 

 
121

 
7,087

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2016
 

 
1,018

 
181

 
978,444

 
46,094

 
(327,576
)
 
(181
)
 
360

 
698,340

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
 

 
1,018

 
181

 
979,458

 
58,313

 
(352,339
)
 
(181
)
 
382

 
686,832

Share-based compensation
 

 

 

 
5,025

 

 

 

 

 
5,025

Exercised stock options and vested share awards
 

 
3

 

 

 

 

 

 

 
3

Comprehensive income/(losses):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net (losses)/earnings attributable to common shares
 

 

 

 

 
(15,267
)
 

 

 
(11
)
 
(15,278
)
Other comprehensive income
 

 

 

 

 

 
47,116

 

 
(17
)
 
47,099

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
 

 
1,021

 
181

 
984,483

 
43,046

 
(305,223
)
 
(181
)
 
354

 
723,681

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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 September 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. Subsequent to the balance sheet date, the Company sold the shares in Northern Belle Limited, the wholly owned subsidiary that owns the rolling stock, on November 2, 2017 and provided notice of termination to the owner of Belmond Orcaella in respect of its charter agreement in October 2017. See Note 24.

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.

We have substantially completed our assessment and 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 the impact on our unconsolidated companies, management and incentive fees and real estate sales.

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.

In August 2017, the FASB issued new guidance to make improvements to hedge accounting requirements. The guidance is effective for fiscal years beginning after December 15, 2018, 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.

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
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
 
 
 
 
 
 
 
Numerator ($'000)
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
7,673

 
22,889

 
(15,403
)
 
29,673

Net earnings/(losses) from discontinued operations
 
(3
)
 
(4
)
 
125

 
51

Net losses/(earnings) attributable to non-controlling interests
 
96

 
(17
)
 
11

 
(57
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
7,766

 
22,868

 
(15,267
)
 
29,667

 
 
 
 
 
 
 
 
 
Denominator (shares '000)
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
102,327

 
101,752

 
102,114

 
101,534

Effect of dilution
 
1,656

 
1,541

 

 
1,409

 
 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
 
103,983

 
103,293

 
102,114

 
102,943

 
 
 
 
 
 
 
 
 
 
 
$
 
$
 
$
 
$
Basic earnings per share
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
0.075

 
0.225

 
(0.151
)
 
0.292

Net earnings/(losses) from discontinued operations
 

 

 
0.001

 
0.001

Net losses/(earnings) attributable to non-controlling interests
 
0.001

 

 

 
(0.001
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
0.076

 
0.225

 
(0.150
)
 
0.292

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
0.074

 
0.222

 
(0.151
)
 
0.288

Net earnings/(losses) from discontinued operations
 

 

 
0.001

 

Net losses/(earnings) attributable to non-controlling interests
 
0.001

 

 

 
(0.001
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
0.075

 
0.222

 
(0.150
)
 
0.287



11


The total number of share options and share-based awards excluded from computing diluted earnings per share was as follows: 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
 
 
 
 
 
 
 
Share options
 
556,015

 
1,366,722

 
2,385,870

 
1,673,772

Share-based awards
 

 

 
1,333,089

 

 
 
 
 
 
 
 
 
 
Total
 
556,015

 
1,366,722

 
3,718,959

 
1,673,772

 
The number of share options and share-based awards unexercised at September 30, 2017 was 3,718,959 (September 30, 2016 - 4,028,279).

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 $84,791,000, including an aggregate cash purchase price of $68,652,000, acquisition-related costs of $14,032,000 and excluding a working capital credit of $2,107,000. On the same date, the Company assumed management of the resort, which had been 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 Accounting Standards Codification (“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 prior revolving credit facility, which was repaid following the amendment and restatement to the credit agreement on July 3, 2017. See Note 10.

Acquisition-related costs which are included within selling, general and administrative expenses in the statements of condensed consolidated operations for the nine months ended September 30, 2017 were $14,032,000, 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 September 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 September 30, 2017:
 
 
2017
 
 
$'000
 
 
 
Revenue
 
2,395

Losses from continuing operations
 
(14,996
)

Belmond is unable to provide pro forma results of operations for the nine months ended September 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)    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 nine months ended September 30, 2017 and 2016 are as follows:
 
 
Three months ended September 30, 2017
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 

 

 
 
 
 
 
 
 
Losses before tax, gain on sale and impairment
 

 
(3
)
 
(3
)
 
 
 
 
 
 
 
Losses before tax
 

 
(3
)
 
(3
)
 
 
 
 
 
 
 
Net losses from discontinued operations
 

 
(3
)
 
(3
)

14


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

 

 

 
 
 
 
 
 
 
Losses before tax, gain on sale and impairment
 

 
(4
)
 
(4
)
 
 
 
 
 
 
 
Losses before tax
 

 
(4
)
 
(4
)
 
 
 
 
 
 
 
Net losses from discontinued operations
 

 
(4
)
 
(4
)
 
 
Nine months ended September 30, 2017
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 

 

 
 
 
 
 
 
 
Earnings before tax, gain on sale and impairment
 
100

 
25

 
125

 
 
 
 
 
 
 
Earnings before tax
 
100

 
25

 
125

 
 
 
 
 
 
 
Net earnings from discontinued operations
 
100

 
25

 
125

 
 
Nine months ended September 30, 2016
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 

 

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

 
(22
)
 
51

 
 
 
 
 
 
 
Earnings/(losses) before tax
 
73

 
(22
)
 
51

 
 
 
 
 
 
 
Net earnings/(losses) from discontinued operations
 
73

 
(22
)
 
51


The results of discontinued operations for the nine months ended September 30, 2017 included earnings of $100,000 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.


15


(b)    Assets and liabilities held for sale

At September 30, 2017, the assets and liabilities of Belmond Northern Belle, part of Belmond’s Owned trains and cruises segment, were classified as held for sale as Belmond signed a Share Purchase Agreement (“SPA”) to sell the shares in Northern Belle Limited, the wholly owned subsidiary that owns the rolling stock, for a sales price of £2,500,000 (equivalent to $3,350,000 as at September 30, 2017). This sale closed on November 2, 2017. See Note 24.

Assets and liabilities of properties classified as held for sale consist of the following:
 
 
 
 
 
September 30,
2017
 
 
Northern Belle
 
 
$’000
 
 
 
Current assets
 
259

Property, plant and equipment
 
3,570

 
 
 
Total assets held for sale
 
3,829

 
 
 
Current liabilities
 
(553
)
Other liabilities
 
(385
)
 
 
 
Total liabilities held for sale
 
(938
)

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

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 $207,745,000 at September 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 $122,283,000 at September 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.

16


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
 
 
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Investment
 
2,586

 
2,818

 
2,586

 
2,818

Due from unconsolidated company
 
6,681

 
4,771

 
6,681

 
4,771

 
 
 
 
 
 
 
 
 
Total
 
9,267

 
7,589

 
9,267

 
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 September 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.

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 it 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.
 
 
 

17


Summarized financial data for Belmond’s unconsolidated companies are as follows:
 
 
September 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Current assets
 
94,722

 
96,247

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation
 
307,383

 
295,662

Other non-current assets
 
29,153

 
29,442

Non-current assets
 
336,536


325,104

 
 
 
 
 
Total assets
 
431,258

 
421,351

 
 
 
 
 
Current liabilities, including $23,949 and $21,021 current portion of third-party debt
 
98,759

 
89,785

 
 
 
 
 
Long-term debt
 
147,424

 
153,876

Other non-current liabilities
 
28,106

 
27,545

Non-current liabilities
 
175,530

 
181,421

 
 
 
 
 
Total shareholders’ equity
 
156,969

 
150,145

 
 
 
 
 
Total liabilities and shareholders’ equity
 
431,258

 
421,351

 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Revenue
 
59,085

 
54,345

 
153,685

 
140,697

 
 
 
 
 
 
 
 
 
Gross profit1
 
41,163

 
39,670

 
106,134

 
98,435

 
 
 
 
 
 
 
 
 
Net earnings2
 
7,567

 
8,980

 
15,115

 
15,071

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.

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 September 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, $16,334,000 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.


18


7.    Property, plant and equipment
 
The major classes of property, plant and equipment are as follows:
 
 
September 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Land and buildings
 
1,128,068

 
1,010,362

Machinery and equipment
 
182,532

 
179,537

Fixtures, fittings and office equipment
 
263,904

 
235,098

River cruise ship and canal boats
 
13,296

 
18,618

 
 
 
 
 
 
 
1,587,800

 
1,443,615

Less: Accumulated depreciation
 
(420,285
)
 
(368,939
)
 
 
 
 
 
Total property, plant and equipment, net of accumulated depreciation
 
1,167,515

 
1,074,676

 
 
 
 
 
The depreciation charge on property, plant and equipment for the three and nine months ended September 30, 2017 was $16,916,000 (September 30, 2016 - $13,038,000) and $45,458,000 (September 30, 2016 - $39,165,000).

The table above includes property, plant and equipment, net of accumulated depreciation, of Charleston Center LLC, a consolidated VIE, of $198,643,000 at September 30, 2017 (December 31, 2016 - $201,861,000).

In September 2017 the islands of Anguilla and St Martin were hit by Hurricanes Irma and Jose when both Belmond La Samanna on St Martin and Belmond Cap Juluca on Anguilla were closed for the season. While there is still great uncertainty associated with St Martin and the speed of its recovery, based on our preliminary assessment, we anticipate that Belmond La Samanna will re-open in the fourth quarter of 2018. Belmond Cap Juluca is undergoing planned renovations and we also currently expect to re-open the resort in the fourth quarter of 2018.

Both properties are included in Belmond’s global insurance program which provides a combined property damage and twelve month business interruption cover of $30,000,000, subject to a deductible. In addition, Belmond La Samanna has a separate property damage insurance policy of €4,900,000 (equivalent to $5,800,000 as at September 30, 2017) covering the eight villas at the resort.

We have made preliminary assessments regarding the nature and extent of the damage sustained and we are preparing the insurance claim. While these assessments are fluid and will continue to be updated and reassessed, they are subject to a number of uncertainties related to such matters as the speed of the recovery of St Martin and Anguilla and the impact of the hurricane on fuel, transportation and labor prices over the coming year. Based on our preliminary estimate at this time, we anticipate that the property damage elements of the claim alone could absorb the available cover, which therefore would not be sufficient to cover business interruption claims of approximately $8,000,000 to $10,000,000 over the next 12 months.

Based on initial estimates of the level of property damage, the Company recorded a write-off to property, plant and equipment of $5,645,000 and $2,937,000 at Belmond La Samanna and Belmond Cap Juluca, respectively. Belmond expects that the recovery of property damage and site clean-up costs is probable; therefore it has recorded an insurance receivable for the same amount as the property damage that has been recognized in the three and nine months ended September 30, 2017, reduced by the deductible of $1,278,000. No gain contingencies have been recorded to date as those amounts have not yet been realized.

Additionally, Belmond considered whether the significant adverse change in use and physical condition following the hurricanes indicated that the carrying amount of both businesses’ fixed assets may not be recoverable. Belmond concluded that an impairment trigger existed and a recoverability test was required. Under the fixed assets recoverability test, the sum of the undiscounted cash flows expected to result from the operations of Belmond Cap Juluca and Belmond La Samanna were in excess of their carrying value. As at September 30, 2017, Belmond La Samanna and Belmond Cap Juluca had a property, plant and equipment balance of $29,625,000 and $56,448,000, respectively.

Factors that could reasonably be expected to impact Belmond’s estimates of property damage and the sum of undiscounted cash flows of the asset groups include the outcome of negotiations of the Company’s insurance claims with the Company’s insurers,

19


the speed of recovery of island infrastructure, particularly the airport at St Martin, and the attractiveness of the Caribbean islands as a tourist destination.

The Company also believes this situation presents an opportunity to re-examine proposed capital expenditures for Belmond Cap Juluca and Belmond La Samanna, potentially increasing the scope of the projects but also increasing the impact of the ultimate build-outs. This re-examination, which will continue to be updated, is subject to a number of uncertainties, such as the speed of the recovery of St Martin and Anguilla and the impact of the hurricane on fuel, transportation and labor prices over the coming year.

In the nine months ended September 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’ 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.

Also in the nine months ended September 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’ 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 was no capitalized interest in the three and nine months ended September 30, 2017 and 2016.


20


8.    Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 are as follows:
 
 
At January 1, 2017
 
 
 
 
 
 
 
At September 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

 

 

 
5,493

 
69,952

 
(14,202
)
 
55,750

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

 

 

 
107

 
20,688

 
(13,149
)
 
7,539

Owned trains and cruises
 
6,325

 
(662
)
 
5,663

 

 

 
645

 
6,970

 
(662
)
 
6,308

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
157,466

 
(44,123
)
 
113,343

 
5,500

 

 
6,245

 
169,211

 
(44,123
)
 
125,088


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

In the three months ended September 30, 2017, Belmond considered whether the significant adverse change in use and physical condition following the hurricanes, indicated that it was more likely than not that the fair value of Belmond Cap Juluca was less than its carrying value. Under the first step of the goodwill impairment test, the fair value of Belmond Cap Juluca was in excess of its carrying value. Belmond Cap Juluca had a goodwill balance of $5,500,000 at September 30, 2017. The impairment test remains sensitive to changes in assumptions; factors that could result in an impairment and impact the fair value of the reporting unit include the outcome of negotiations of the Company’s insurance claims with the Company’s insurers, changes in the estimated costs of repair to the hotel, the future operating projections of the hotel, the speed of recovery of island infrastructure, particularly the airport at St. Martin, and the attractiveness of the Caribbean islands as a tourist destination. These assumptions involve a high degree of estimation and are based on preliminary information that is currently available. As new information becomes available these assumptions may need to change which may lead to changes in cash inflows or outflows that could result in a future impairment of goodwill.

In the three months ended September 30, 2017, Belmond considered whether the fall in tourist arrivals in Myanmar due to negative perceptions of the country, 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 three months ended September 30, 2017, it is carefully monitoring the situation. Belmond Governor’s Residence had a goodwill balance of $2,195,000 at September 30, 2017. 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.


21


9.    Other intangible assets
 
Other intangible assets consist of the following as of September 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

Disposals
 

 
(232
)
 

 
(232
)
Foreign currency translation adjustment
 
46

 
140

 
665

 
851

 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
 
8,547

 
1,566

 
14,344

 
24,457

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

 
1,225

 
 
 
3,861

Charge for the period
 
279

 
125

 
 
 
404

Disposals
 

 
(232
)
 
 
 
(232
)
Foreign currency translation adjustment
 
16

 
102

 
 
 
118

 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
 
2,931

 
1,220

 
 
 
4,151

 
 
 
 
 
 
 
 
 
Net book value:
 
 
 
 
 
 
 
 
At September 30, 2017
 
5,616

 
346

 
14,344

 
20,306

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

Amortization expense for the three and nine months ended September 30, 2017 was $136,000 (September 30, 2016 - $117,000) and $404,000 (September 30, 2016 - $388,000). Estimated total amortization expense for the remainder of the year ending December 31, 2017 is $134,000 and for each of the years ending December 31, 2018 to December 31, 2021 is $539,000.


22


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:
 
 
September 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 21 months to seven years (2016 - two to five years), with a weighted average interest rate of 3.99% (2016 - 4.27%)
 
722,874

 
602,083

Obligations under capital lease
 
27

 
19

 
 
 
 
 
Total long-term debt and obligations under capital lease
 
722,901

 
602,102

 
 
 
 
 
Less: Current portion
 
6,767

 
5,284

Less: Discount on secured term loan
 
3,267

 
1,515

Less: Debt issuance costs
 
14,592

 
9,535

 
 
 
 
 
Non-current portion of long-term debt and obligations under capital lease
 
698,275

 
585,768

 
On July 3, 2017, Belmond amended and restated its credit agreement which had 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”).

As at September 30, 2017, Belmond is financed with a $609,955,000 Term Loan Facility and a $100,000,000 Revolving Credit Facility.

The Term Loan Facility has two tranches, a U.S. dollar tranche ($399,000,000 currently outstanding) and a euro-denominated tranche (€178,553,000 currently outstanding, equivalent to $210,955,000 as at September 30, 2017). 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% 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 0.4% to be paid on the undrawn amount. The Revolving Credit Facility is undrawn at September 30, 2017.
The Secured Credit Facilities 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.

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 its partners in respect of their income from the discount arising on the cancellation of indebtedness.


23


The following is a summary of the aggregate maturities of consolidated long-term debt, including obligations under capital lease, at September 30, 2017, taking into consideration the execution of the amended and restated credit agreement on July 3, 2017:
 
 
$’000
 
 
 
Remainder of 2017
 
1,691

2018
 
6,761

2019
 
118,783

2020
 
6,783

2021
 
6,548

2022
 
6,499

2023
 
6,499

2024 and thereafter
 
569,337

 
 
 
Total long-term debt and obligations under capital lease
 
722,901

 
The Company had guaranteed $609,955,000 of the long-term debt of its subsidiary companies as at September 30, 2017 (December 31, 2016 - $488,985,000).
 
The tables above include the debt of Charleston Center LLC of $112,919,000 at September 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.

A loss on modification of debt of $575,000 (September 30, 2016 - $Nil) was recognized in the three and nine months ended September 30, 2017. The loss consisted of unamortized debt issuance costs relating to the amended and restated credit agreement.

Debt issuance costs related to the above outstanding long-term debt were $14,592,000 at September 30, 2017 (December 31, 2016 - $9,535,000), including $621,000 at September 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 $100,589,000 of revolving credit and working capital facilities at September 30, 2017 (December 31, 2016 - $105,525,000) of which $100,589,000 was available (December 31, 2016 - $105,525,000).

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

 
1,054

Deferred gain on sale of Inn at Perry Cabin by Belmond
 
900

 
1,350

Deferred lease incentive
 
140

 
162

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

 
2,800

 
 
 
 
 
Total other liabilities
 
1,040

 
5,366


The tax indemnity provision on extinguishment of debt, included within other liabilities at December 31, 2016, is classified within accrued liabilities for an amount totaling $2,644,000 at September 30, 2017


24


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

 

 

 

Interest cost on projected benefit obligation
 
179

 
207

 
527

 
660

Expected return on assets
 
(249
)
 
(270
)
 
(736
)
 
(859
)
Net amortization and deferrals
 
195

 
148

 
576

 
471

 
 
 
 
 
 
 
 
 
Net periodic benefit cost
 
125

 
85

 
367

 
272


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., the plan sponsor and a wholly owned subsidiary of the Company (“Belmond UK”), was previously obligated to pay £1,272,000 (equivalent to $1,704,000 at September 30, 2017) annually to the plan under the U.K. statutorily-mandated triennial negotiation with the plan’s trustees. With a new triennial arrangement that came into effect June 2017, Belmond UK’s funding obligation was reduced from £106,000 to £24,320 (equivalent to $142,000 and $33,000 as at September 30, 2017) per month. Under the prior contribution level, the plan’s funding deficit was projected to be fully funded by the end of 2017. With the current funding level, Belmond UK is obligated to continue funding until the audited financials of the plan for the year ended December 31, 2018 are available. If no unfunded balance remains, Belmond UK shall be able to suspend further payments, but otherwise it will be expected to continue paying its monthly contribution, subject to any subsequent triennial negotiation with the plan’s trustees. However, once the plan is fully funded, Belmond UK will remain obligated to restore the plan to a fully funded balance over the remainder of the period through December 31, 2021 should its position deteriorate. During the three and nine months ended September 30, 2017, contributions of $61,000 (September 30, 2016 - $442,000) and $856,000 (September 30, 2016 - $1,352,000), respectively, were made to the pension plan.

In May 2014, Belmond guaranteed the payment obligations of Belmond UK through 2023, subject to a cap of £8,200,000 (equivalent to $10,988,000 at September 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 has reinstated this guarantee effective July 1, 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 nine months ended September 30, 2017, the income tax provision was $20,732,000 (September 30, 2016 - provision of $20,401,000) and $17,608,000 (September 30, 2016 - provision of $25,140,000), respectively. The movement in the tax provision and effective tax rate for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 is mainly due to the jurisdictional profit mix of earnings from continuing operations, which have decreased compared to the prior year and have also been impacted by the costs associated with the Cap Juluca acquisition in May 2017. See Note 3.


25


14.    Interest expense
 
The balances in interest expense are as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Interest expense on long-term debt and obligations under capital lease
 
7,653

 
6,965

 
21,863

 
20,413

 
 
 
 
 
 
 
 
 
Interest on legal settlements
 
(10
)
 
107

 
(153
)
 
405

 
 
 
 
 
 
 
 
 
Amortization of debt issuance costs and discount on secured term loan
 
1,350

 
768

 
2,826

 
2,208

 
 
 
 
 
 
 
 
 
Total interest expense
 
8,993

 
7,840

 
24,536

 
23,026


15.    Supplemental cash flow information

 
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
22,750

 
34,020

 
 
 
 
 
Income taxes, net of refunds
 
11,037

 
12,862


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 a decrease of $18,000 for the nine months ended September 30, 2017 (September 30, 2016 - increase of $113,000).

During the nine months ended September 30, 2016, cash paid during the period for interest of $34,020,000 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.

16.    Restricted cash

The major balances in restricted cash are as follows:
 
 
September 30,
2017
 
December 31,
2016
 
 
$’000
 
$’000
 
 
 
 
 
Cash deposits required to be held with lending banks as collateral
 
748

 
755

Prepaid customer deposits which will be released to Belmond under its revenue recognition policy
 
6,012

 
1,341

Bonds and guarantees
 
356

 
489

 
 
 
 
 
Total restricted cash
 
7,116

 
2,585



26


Restricted cash classified as long-term and included in other assets on the condensed consolidated balance sheets at September 30, 2017 was $748,000 (December 31, 2016 - $755,000).

17.    Share-based compensation plans
 
At September 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 nine months ended September 30, 2017 was $1,471,000 (September 30, 2016 - $2,109,000) and $5,025,000 (September 30, 2016 - $5,258,000), respectively. The total compensation cost related to unexercised options and unvested share awards at September 30, 2017 to be recognized over the period October 1, 2017 to June 30, 2021 was $7,865,000 and the weighted average period over which it is expected to be recognized is 28 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 nine months ended September 30, 2017.

2009 share award and incentive plan

During the nine months ended September 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 nine months ended September 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
 
56,390

 
June 11, 2017
 
June 11, 2018
 
$0.01
Restricted shares without performance criteria
 
48,872

 
June 11, 2017
 
June 11, 2020
 
$0.01
Restricted shares without performance criteria
 
11,278

 
June 11, 2017
 
On retirement
 
$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


27


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.

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 has sought review for reconsideration by the Supreme Court. In the meantime, Belmond filed with the Central Jakarta District Court in October 2017, as further support for the enforcement of Belmond’s arbitral claim, the decisions of three Indonesian trial courts enforcing the arbitration provision under the lease and ruling that the Indonesian courts had no jurisdiction over the parties’ 2013 dispute, along with three affirming decisions from appellate courts and two from the Indonesian Supreme Court.

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.

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.


28


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 September 30, 2017, and that it was required to 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 ($5,366,000) 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.

On October 17, 2017, the Federal Court issued a decision denying the Company’s claim for modification of the lease concession. The Court ruled although the lease is an administration agreement rather than a simple commercial lease, the Company had not overcome its burden of proof to show that a modification was justified. The Court further ordered that the Company must pay the stated rent in the lease rather than the reduced rent set by the original first instance Court in September 2016. The Court also revoked the injunction issued in September 2016 that had been subsequently affirmed on appeal prohibiting the Federal Government from pursuing a claim against the Company to recover the difference between the stated lease rent and the amounts the Company actually paid during the period from 2009 to 2014. As a result, the Federal Government could seek immediately to enforce its claim for allegedly unpaid lease obligations. The Company has reserved against this claim, and this accrual as at September 30, 2017 totaled R$24,368,000 ($7,692,000). The Company does not believe that any loss above the amounts accrued is likely. The Company intends to vigorously contest this ruling on appeal.

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 appeal 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

29


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. Final briefs were filed in October 2017 with the respective courts for each of these two Italian proceedings with the expectation that a decision in each case will be forthcoming in the first quarter of 2018. 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. 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.

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 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 $11,046,000 at September 30, 2017 (December 31, 2016 - $7,772,000).
 

30


Future rental payments and rental expense under operating leases

Future rental payments as at September 30, 2017 under operating leases in respect of equipment rentals and leased premises are payable as follows:
 
 
$’000
 
 
 
Remainder of 2017
 
3,191

2018
 
12,574

2019
 
11,208

2020
 
11,252

2021
 
11,756

2022
 
9,630

2023 and thereafter
 
143,711

 
 
 
Future rental payments under operating leases
 
203,322

 
Rental expense for the three and nine months ended September 30, 2017 amounted to $3,917,000 (September 30, 2016 - $3,491,000) and $11,161,000 (September 30, 2016 - $9,604,000), 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 September 30, 2017 and December 31, 2016:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
September 30, 2017
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Assets at fair value:
 
 

 
 
 
 
 
 
Derivative financial instruments
 

 
154

 

 
154

 
 
 
 
 
 
 
 
 
Total assets
 

 
154

 

 
154

 
 
 
 
 
 
 
 
 
Liabilities at fair value:
 
 

 
 
 
 

 
 
Derivative financial instruments
 

 
(1,593
)
 

 
(1,593
)
 
 
 
 
 
 
 
 
 
Total net liabilities
 

 
(1,439
)
 

 
(1,439
)

 
 
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
)
 

31


During the three and nine months ended September 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 September 30, 2017 and December 31, 2016 were as follows:
 
 
 
September 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 3
 
722,874

 
727,661

 
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 nine months ended September 30, 2017 and 2016 are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value measurement inputs
 
 
 
 
Fair value
 
Level 1
 
Level 2
 
Level 3
 
Total losses in the nine months ended September 30, 2017
 
 
$’000
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
 
5,955

 

 

 
5,955

 
(8,216
)
 
 
 
 
Fair value measurement inputs
 
 
 
 
Fair value
 
Level 1
 
Level 2
 
Level 3
 
Total losses in the nine months ended September 30, 2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
 

 

 

 

 
(1,000
)
    
Property, plant and equipment

In the nine months ended September 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.

In the nine months ended September 30, 2016, property, plant and equipment at Belmond Orcaella with a carrying amount of $1,007,000 was written down to fair value of $Nil, resulting in a non-cash impairment charge of $1,007,000.

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


32


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.

In connection with the Term Loan Facility, the interest rate derivatives associated with the previous term loan facility were terminated. See Note 10. The termination costs incurred were $2,145,000 during the three months ended September 30, 2017. All amounts in other comprehensive income/(loss) relating to these derivatives will be amortized to interest expense over the remaining original life of the interest rate derivative under ASC 815 Derivatives and Hedging. New interest rate derivatives were entered into to fix an element of the floating interest rate on the Term Loan Facility.

Cash flow hedges of interest rate risk
 
As of September 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: 
 
 
September 30,
2017
 
December 31,
2016
 
 
’000
 
’000
 
 
 
 
 
Interest rate swaps
 
89,500

 
72,938

Interest rate swaps
 
$
243,000

 
$
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 September 30, 2017 and December 31, 2016
 
 
 
 
Fair value as of September 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
 
Other assets
 
154

 

Interest rate derivatives
 
Accrued liabilities
 
(1,593
)
 
(2,310
)
Interest rate derivatives
 
Other liabilities
 

 
(1,054
)
 
 
 
 
 
 
 
Total
 
 
 
(1,439
)
 
(3,364
)
 
Offsetting

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

Other comprehensive income/(loss)

Information concerning the movements in other comprehensive income/(loss) for cash flow hedges of interest rate risk is shown in Note 21. At September 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 $2,846,000. Movement in other comprehensive income/(loss) for net investment hedges recorded through foreign currency translation adjustments for the three and nine months ended September 30, 2017 was a loss of $6,822,000 (September 30, 2016 - loss of $1,955,000) and a loss of $19,867,000 (September 30, 2016 - loss of $5,038,000).
 
 
 
 
 
 
 
 
 

33


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.

As of September 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 $1,593,000 (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 $1,400,000 (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 $210,955,000 at September 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
Nine months ended September 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, $(341) and $97
 
46,944

 
(1,664
)
 
478

 
45,758

 
 
 
 
 
 
 
 
 
Amounts reclassified from AOCI, net of tax provision of $Nil, $712 and $Nil
 

 
1,358

 

 
1,358

 
 
 
 
 
 
 
 
 
Net current period other comprehensive income
 
46,944

 
(306
)
 
478

 
47,116

 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
 
(290,109
)
 
(3,530
)
 
(11,584
)
 
(305,223
)

Reclassifications out of AOCI (net of tax) are as follows:
 
 
Amount reclassified from AOCI
 
 
 
 
Three months ended
 
 
 
 
September 30, 2017
 
September 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
 
379

 
707

 
Interest expense
 
 
 
 
 
 
 
Total reclassifications for the period
 
379

 
707

 
 

34


 
 
Amount reclassified from AOCI
 
 
 
 
Nine months ended
 
 
 
 
September 30, 2017
 
September 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
 
1,358

 
2,118

 
Interest expense
 
 
 
 
 
 
 
Total reclassifications for the period
 
1,358

 
2,118

 
 

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.


35


The following tables present information regarding these reportable segments.

Revenue from external customers by segment:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
96,658

 
92,319

 
180,772

 
172,827

North America
 
32,956

 
30,577

 
115,239

 
108,235

Rest of world
 
26,767

 
37,045

 
88,605

 
96,578

Total owned hotels
 
156,381

 
159,941

 
384,616

 
377,640

Owned trains and cruises
 
23,674

 
19,218

 
50,583

 
47,120

 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
(405
)
 
1,382

 
368

 
3,180

Part-owned/managed trains
 
3,323

 
3,196

 
8,138

 
7,689

Total management fees
 
2,918

 
4,578

 
8,506

 
10,869

 
 
 
 
 
 
 
 
 
Revenue
 
182,973

 
183,737

 
443,705

 
435,629



36


Reconciliation of consolidated (losses)/earnings from continuing operations to adjusted EBITDA:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
48,714

 
45,554

 
71,507

 
66,239

North America
 
2,245

 
3,226

 
21,790

 
21,794

Rest of world
 
3,544

 
11,301

 
15,899

 
24,892

Total owned hotels
 
54,503

 
60,081

 
109,196

 
112,925

Owned trains and cruises
 
5,342

 
3,332

 
5,289

 
4,127

 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
2,502

 
2,424

 
5,266

 
4,744

Part-owned/managed trains
 
8,201

 
8,836

 
18,135

 
18,144

Total adjusted share of earnings from unconsolidated companies and management fees
 
10,703

 
11,260

 
23,401

 
22,888

 
 
 
 
 
 
 
 
 
Unallocated corporate:
 
 
 
 
 
 
 
 
Central costs
 
(6,911
)
 
(6,851
)
 
(24,822
)
 
(22,341
)
Share-based compensation
 
(1,471
)
 
(2,109
)
 
(5,025
)
 
(5,885
)
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
62,166

 
65,713

 
108,039

 
111,714

 
 
 
 
 
 
 
 
 
Reconciliation from earnings from continuing operations to adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings/(losses) from continuing operations
 
7,673

 
22,889

 
(15,403
)
 
29,673

Depreciation and amortization
 
17,052

 
13,155

 
45,862

 
39,553

Gain on extinguishment of debt
 

 

 

 
(1,200
)
Interest income
 
(240
)
 
(289
)
 
(582
)
 
(582
)
Interest expense
 
8,993

 
7,840

 
24,536

 
23,026

Foreign currency, net
 
1,486

 
(1,432
)
 
2,727

 
(9,161
)
Provision for income taxes
 
20,732

 
20,401

 
17,608

 
25,140

Share of provision for income taxes of unconsolidated companies
 
2,026

 
1,712

 
4,079

 
3,943

 
 
57,722

 
64,276

 
78,827

 
110,392

Gain on disposal of property, plant and equipment
 
(150
)
 
(488
)
 
(450
)
 
(788
)
Impairment of property, plant and equipment
 

 
1,007

 
8,216

 
1,007

Restructuring and other special items (1)
 
4,315

 
918

 
7,414

 
1,103

Acquisition-related costs (2)
 
279

 

 
14,032

 

 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
62,166

 
65,713

 
108,039

 
111,714

 
 
 
 
 
 
 
 
 
(1) Represents adjustments for insurance deductibles and losses while Belmond Cap Juluca and Belmond La Samanna are closed following the impact of Hurricanes Irma and Jose, 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.
 


37


Earnings from unconsolidated companies, net of tax:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
747

 
794

 
1,213

 
1,022

Part-owned/managed trains
 
3,192

 
3,824

 
6,576

 
6,690

 
 
 
 
 
 
 
 
 
Total earnings from unconsolidated companies, net of tax
 
3,939

 
4,618

 
7,789

 
7,712


Reconciliation of capital expenditure to acquire property, plant and equipment by segment:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
4,269

 
1,646

 
17,043

 
8,850

North America
 
3,404

 
2,051

 
6,351

 
6,442

Rest of world
 
5,510

 
6,832

 
10,316

 
13,529

Total owned hotels
 
13,183

 
10,529

 
33,710

 
28,821

Owned trains and cruises
 
1,055

 
2,493

 
6,542

 
10,656

 
 
 
 
 
 
 
 
 
Unallocated corporate
 
1,359

 
458

 
2,760

 
1,079

 
 
 
 
 
 
 
 
 
Total capital expenditure to acquire property, plant and equipment
 
15,597

 
13,480

 
43,012

 
40,556


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

 

 

 

Italy
 
70,704

 
67,746

 
120,322

 
115,928

United Kingdom
 
19,089

 
16,950

 
43,572

 
44,568

United States
 
24,597

 
25,338

 
82,879

 
79,621

Brazil
 
11,994

 
24,025

 
41,910

 
56,232

All other countries
 
56,589

 
49,678

 
155,022

 
139,280

 
 
 
 
 
 
 
 
 
Total revenue
 
182,973

 
183,737

 
443,705

 
435,629

 
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 nine months ended September 30, 2017, Belmond earned management fees from Eastern and Oriental Express Ltd. of $1,000 (September 30, 2016 - $20,000) and $137,000 (September 30, 2016 - $147,000), respectively,

38


which are recorded in revenue. The amount due to Belmond from Eastern and Oriental Express Ltd. at September 30, 2017 was $6,681,000 (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 del Colca, 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 nine months ended September 30, 2017, Belmond earned management and guarantee fees from its Peruvian joint ventures of $4,757,000 (September 30, 2016 - $4,543,000) and $11,464,000 (September 30, 2016 - $10,722,000), respectively, which are recorded in revenue. The amount due to Belmond from its Peruvian joint ventures at September 30, 2017 was $6,946,000 (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 September 30, 2017 was $437,000 (December 31, 2016 - $372,000).
 
24.    Subsequent events

On September 27, 2017, Belmond signed a Share Purchase Agreement (“SPA”) to sell the shares in Northern Belle Limited, the wholly owned subsidiary that owns the rolling stock, for a sales price of £2,500,000 (equivalent to $3,350,000 as at September 30, 2017). The assets and liabilities of Northern Belle Limited have been transferred to held for sale as at September, 30 2017 as a binding agreement has been signed and a non-refundable deposit has been received. This sale closed on November 2, 2017. No gain or loss is expected to be recorded upon completion. See Note 4.

In October 2017, the Company provided notice of termination to the owner of Belmond Orcaella in respect of its charter agreement. The termination of this agreement is to be effective in early November. This business is operating at a loss and in the nine months ended September 30, 2017, it had contributed an adjusted EBITDA loss of $800,000. The Company continues to own its Belmond Road to Mandalay vessel and to operate that cruise business in Myanmar.


39


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 September 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 47 properties (including one scheduled for a 2018 opening, Belmond Cadogan Hotel, in London, England). See Note 24 to the Financial Statements for information relating to Belmond Northern Belle.

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 2017 and 2016, respectively, derived primarily from the Europe, North America and Rest of world segments.

Hotels consists 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. See Note 3.

Belmond's part-owned/managed hotels segment consists 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 Colca, 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 consists of four European tourist trains, one river cruise ship in Myanmar and one French canal cruise business. In August 2016, the Company commenced operations of Belmond Grand Hibernian, the first luxury overnight train traveling throughout the island of Ireland. See Note 24 to the Financial Statements for information relating to Belmond Northern Belle.

Belmond's part-owned/managed trains segment consists 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

40


hotel acquisitions in the period or major refurbishment where a property is closed for a full quarter or longer. The comparison also 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.
 

41


Results of Operations

Operating information for Belmond’s owned hotels for the three and nine months ended September 30, 2017 and 2016 is as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
 
 
 
 
 
 
 
Europe
 
86,817

 
86,112

 
214,135
 
213,056
North America
 
66,872

 
62,986

 
198,270
 
192,752
Rest of world
 
94,392

 
94,944

 
280,818
 
282,008
Worldwide
 
248,081

 
244,042

 
693,223
 
687,816
 
 
 
 
 
 
 
 
 
Rooms sold
 
 
 
 
 
 
 
 
Europe
 
66,974

 
68,102

 
143,262
 
142,965
North America
 
43,210

 
42,246

 
134,914
 
132,518
Rest of world
 
43,767

 
46,985

 
144,944
 
152,872
Worldwide
 
153,951

 
157,333

 
423,120
 
428,355
 
 
 
 
 
 
 
 
 
Occupancy (percentage)
 
 
 
 
 
 
 
 
Europe
 
77

 
79

 
67
 
67
North America
 
65

 
67

 
68
 
69
Rest of world
 
46

 
49

 
52
 
54
Worldwide
 
62

 
64

 
61
 
62
 
 
 
 
 
 
 
 
 
Average daily rate (in U.S. dollars)
 
 

 
 

 
 
 
 
Europe
 
928

 
839

 
791
 
731
North America
 
383

 
359

 
432
 
418
Rest of world
 
376

 
479

 
378
 
390
Worldwide
 
618

 
603

 
535
 
512
 
 
 
 
 
 
 
 
 
RevPAR (in U.S. dollars)
 
 
 
 
 
 
 
 
Europe
 
716

 
664

 
529
 
490
North America
 
248

 
241

 
294
 
287
Rest of world
 
174

 
237

 
195
 
211
Worldwide
 
383

 
389

 
327
 
319
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
 
 
 
 
 
 
 
Same Store RevPAR (in dollars)
 
 

 
 

 
 

 
 

Europe
 
716

 
664

 
529

 
490

North America
 
247

 
241

 
294

 
287

Rest of world
 
181

 
252

 
201

 
219

Worldwide
 
393

 
397

 
332

 
325


Same store RevPAR data for the three months ended September 30, 2017 and September 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.

42


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

 
 

 
 

 
 

Europe
 
8
 %
 
6
 %
 
8
 %
 
7
 %
North America
 
2
 %
 
2
 %
 
2
 %
 
3
 %
Rest of world
 
(28
)%
 
(31
)%
 
(8
)%
 
(16
)%
Worldwide
 
(1
)%
 
(3
)%
 
2
 %
 
 %

Same store RevPAR data for the nine months ended September 30, 2017 and September 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.
 
 
 
 
 
 
 
 
 

43


Revenue
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$ millions
 
$ millions
 
$ millions
 
$ millions
 
 
 

 
 

 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
96.7

 
92.3

 
180.8

 
172.8

North America
 
32.9

 
30.6

 
115.2

 
108.2

Rest of world
 
26.8

 
37.0

 
88.6

 
96.6

Total owned hotels
 
156.4

 
159.9

 
384.6

 
377.6

Owned trains and cruises
 
23.7

 
19.2

 
50.6

 
47.1

Part-owned/managed hotels
 
(0.4
)
 
1.4

 
0.4

 
3.2

Part-owned/managed trains
 
3.3

 
3.2

 
8.1

 
7.7

Total management fees
 
2.9

 
4.6

 
8.5

 
10.9

 
 
 
 
 
 
 
 
 
Revenue
 
183.0

 
183.7

 
443.7

 
435.6

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

Revenue was $183.0 million for the three months ended September 30, 2017, a decrease of $0.7 million, from $183.7 million for the three months ended September 30, 2016. Owned hotels revenue was $156.4 million for the three months ended September 30, 2017, a decrease of $3.5 million or 2%, from $159.9 million for the three months ended September 30, 2016. In constant currency, revenue for owned hotels for the three months ended September 30, 2017 decreased $7.0 million or 4% from the three months ended September 30, 2016, principally as a result of a decline in revenue of $13.5 million or 56% at the Company's two Brazilian properties. This resulted from a combination of the impact in the three months ended September 30, 2017 of the political and economic instability in the country and exceptionally high revenue in the three months ended September 30, 2016 due to the Summer Olympics held in Rio de Janeiro. This was offset by a $1.8 million or 3% revenue increase for the Company's Italian hotels and a $0.9 million or 11% increase at Belmond La Residencia, Mallorca, Spain. Revenue growth for the Company's Italian hotels was largely driven by the performances of Belmond Hotel Cipriani, Venice, Italy, which benefited from the Biennale Arts Festival that takes place every other year in Venice, and Belmond Hotel Splendido, Portofino, Italy, which saw an increase in rates year-over-year following the addition of balconies to twelve of its rooms in March 2017. Growth in revenue at Belmond La Residencia was primarily due to an increase in rates following the addition of six new suites. Additionally, the newly acquired Belmond Cap Juluca, Anguilla contributed $1.5 million in revenue in the three months ended September 30, 2017 and Belmond Charleston Place, Charleston, South Carolina saw revenue growth of $0.7 million or 4% as it continued to benefit from group business and saw an increase in demand for leisure travelers attracted to the solar eclipse in August 2017. Revenue from owned trains and cruises was $23.7 million for the three months ended September 30, 2017, an increase of $4.5 million, or 23%, from $19.2 million for the three months ended September 30, 2016. In constant currency, revenue for owned trains and cruises for the three months ended September 30, 2017 increased $4.9 million or 26% from the three months ended September 30, 2016, 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 $3.2 million of revenue in the three months ended September 30, 2017. Additionally, the Belmond Royal Scotsman train in Scotland grew revenue by $1.1 million or 39% year-over-year as a result of high demand and the addition of a spa car and four new berths.

Nine months ended September 30, September 30, 2017 compared to nine months ended September 30, 2016


44


Revenue was $443.7 million for the nine months ended September 30, 2017, an increase of $8.1 million, or 2%, from $435.6 million for the nine months ended September 30, 2016. Owned hotels revenue was $384.6 million for the nine months ended September 30, 2017, an increase of $7.0 million or 2%, from $377.6 million for the nine months ended September 30, 2016. In constant currency, revenue for owned hotels for the nine months ended September 30, 2017 decreased $2.5 million or 1% from the prior-year period. The decrease in owned hotels revenue was primarily due to a $21.1 million or 37% decrease in revenue for the Company's two Brazilian properties due to a combination of the impact in the nine months ended September 30, 2017 of continuing political and economic instability in the country and exceptionally high revenue in the nine months ended September 30, 2016 due to the Summer Olympics held in Rio de Janeiro. This was offset by a $4.8 million or 4% increase for the Company’s Italian hotels and a $3.9 million or 7% increase at Belmond Charleston Place largely due to an increase in group business. The southern African hotels had strong revenue growth in the nine months ended September 30, 2017 with a combined revenue increase of $3.9 million or 22% following refurbishment in 2016 and 2017. Revenue from owned trains and cruises was $50.6 million for the nine months ended September 30, 2017, an increase of $3.5 million, or 7%, from $47.1 million for the nine months ended September 30, 2016. In constant currency, revenue for owned trains and cruises for the nine months ended September 30, 2017 increased $6.8 million or 15% from the nine months ended September 30, 2016 which was largely due to a revenue increase of $3.9 million for the Belmond Grand Hibernian, as it commenced its first full year of operations. Additionally, the Belmond Royal Scotsman train grew revenue by $1.9 million or 39% year-over-year as a result of high demand and the addition of a spa car and four new berths. This was partially offset by a combined revenue decrease of $1.8 million at Belmond Road to Mandalay and Belmond Orcaella, the Company’s two river cruises in Myanmar, as a result of increased competition and the fall in tourist arrivals in Myanmar due to negative perceptions of the country.


45


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 nine months ended September 30, 2017 and 2016 is analyzed as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
$ millions
 
$ millions
 
$ millions
 
$ millions
 
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 

 
 

 
 

 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
48.7

 
45.6

 
71.5

 
66.2

North America
 
2.3

 
3.2

 
21.8

 
21.8

Rest of world
 
3.5

 
11.3

 
15.9

 
24.9

Total owned hotels
 
54.5

 
60.1

 
109.2

 
112.9

Owned trains and cruises
 
5.4

 
3.3

 
5.3

 
4.1

 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
2.5

 
2.4

 
5.3

 
4.7

Part-owned/managed trains
 
8.2

 
8.7

 
18.1

 
18.1

Total adjusted share of earnings from unconsolidated companies and management fees
 
10.7

 
11.3

 
23.4

 
22.9

 
 
 
 
 
 
 
 
 
Unallocated corporate costs:
 
 
 
 
 
 
 
 
Central costs
 
(6.9
)
 
(6.9
)
 
(24.8
)
 
(22.3
)
Share-based compensation
 
(1.5
)
 
(2.1
)
 
(5.0
)
 
(5.9
)
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
62.2

 
65.5

 
108.1

 
111.6

 
 
 
 
 
 
 
 
 
Reconciliation from earnings from continuing operations to adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings/(losses) from continuing operations
 
7.8

 
22.8

 
(15.4
)
 
29.6

Depreciation and amortization
 
17.1

 
13.2

 
45.9

 
39.6

Gain on extinguishment of debt
 

 

 

 
(1.2
)
Interest income, interest expense and foreign currency, net
 
10.2

 
6.2

 
26.7

 
13.3

Provision for income taxes
 
20.7

 
20.4

 
17.6

 
25.2

Share of provision for income taxes of unconsolidated companies
 
2.0

 
1.7

 
4.1

 
3.9

Gain on disposal of property, plant and equipment
 
(0.2
)
 
(0.5
)
 
(0.5
)
 
(0.8
)
Impairment of goodwill
 

 

 

 

Impairment of property, plant and equipment
 

 
1.0

 
8.2

 
1.0

Restructuring and other special items (1)
 
4.3

 
0.9

 
7.4

 
1.1

Acquisition-related costs (2)
 
0.3

 

 
14.0

 

 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
62.2

 
65.5

 
108.1

 
111.6

 
 
 
 
 
 
 
 
 
(1) Represents adjustments for insurance deductibles and losses while Belmond Cap Juluca and Belmond La Samanna are closed following the impact of Hurricanes Irma and Jose, 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.
 

46



Owned hotels - Europe 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
86,817

 
86,112

 
214,135

 
213,056

Rooms sold
 
66,974

 
68,102

 
143,262

 
142,965

Occupancy (percentage)
 
77

 
79

 
67

 
67

Average daily rate (in U.S. dollars)
 
928

 
839

 
791

 
731

RevPAR (in U.S. dollars)
 
716

 
664

 
529

 
490

Same store RevPAR (in U.S. dollars)
 
716

 
664

 
529

 
490


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

Revenue was $96.7 million for the three months ended September 30, 2017, an increase of $4.4 million, or 5%, from $92.3 million for the three months ended September 30, 2016. In constant currency, revenue for the region for the three months ended September 30, 2017 increased $2.6 million or 3% from the three months ended September 30, 2016 primarily due to a $1.8 million or 3% revenue increase for the Company's Italian hotels and a $0.9 million or 11% increase at Belmond La Residencia. Revenue growth for the Company's Italian hotels was largely driven by the performance of Belmond Hotel Cipriani, which benefited from the Biennale Arts Festival that takes place every other year in Venice, and Belmond Hotel Splendido, which saw an increase in rates year-over-year following the addition of balconies to twelve of its rooms in March 2017. Growth in revenue at Belmond La Residencia was primarily due to an increase in rates following the addition of six new suites. ADR in U.S. dollar terms for the European owned hotels segment increased to $928 in the three months ended September 30, 2017 from $839 in the three months ended September 30, 2016. Occupancy decreased to 77% in the three months ended September 30, 2017 from 79% in the three months ended September 30, 2016. Same store RevPAR increased by 8% in U.S. dollars to $716 in the three months ended September 30, 2017 from $664 in the three months ended September 30, 2016.

Adjusted EBITDA for the region for the three months ended September 30, 2017 of $48.7 million represented an increase of $3.1 million or 7% from $45.6 million for the three months ended September 30, 2016. In constant currency, adjusted EBITDA for the region for the three months ended September 30, 2017 increased $2.8 million or 6% from the prior-year quarter mainly due to a $1.0 million or 13% increase in adjusted EBITDA at Belmond Hotel Cipriani, a $0.9 million or 8% increase in adjusted EBITDA at Belmond Grand Hotel Europe, St. Petersburg, Russia and a $0.6 million or 14% increased in adjusted EBITDA at Belmond La Residencia. As a percentage of European owned hotels revenue, adjusted EBITDA was 50% for the three months ended September 30, 2017 compared to 49% for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenue was $180.8 million for the nine months ended September 30, 2017, an increase of $8.0 million, or 5%, from $172.8 million for the nine months ended September 30, 2016. In constant currency, revenue for the region for the nine months ended September 30, 2017 increased $7.0 million, or 4%, primarily due to a $4.8 million or 4% revenue increase for the Company's Italian hotels and a $2.1 million or 10% increase at Belmond Grand Hotel Europe. Revenue growth for the Company's Italian hotels was largely driven by the performance of Belmond Hotel Cipriani which benefited from the Biennale Arts Festival, which takes place every other year in Venice, and Belmond Hotel Splendido, which saw an increase in rates year-over-year following the addition of balconies to twelve of its rooms in March 2017. 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 $791 in the nine months ended September 30, 2017 from $731 in the nine months ended September 30, 2016. Occupancy remained flat at 67% in the nine months ended September 30, 2017 compared to 67% in the nine months ended September 30, 2016. Same store RevPAR increased by 8% in U.S. dollars, to $529 in the nine months ended September 30, 2017 from $490 in the nine months ended September 30, 2016.

Adjusted EBITDA for the region for the nine months ended September 30, 2017 of $71.5 million represented an increase of $5.3 million, or 8%, from adjusted EBITDA of $66.2 million for the nine months ended September 30, 2016. In constant currency, adjusted EBITDA for the region for the nine months ended September 30, 2017 increased $4.7 million or 7% from the prior-year period mainly due to a $2.0 million or 30% increase in adjusted EBITDA at Belmond Grand Hotel Europe and a $1.9 million or

47


17% increase in adjusted EBITDA at Belmond Hotel Cipriani. As a percentage of European owned hotels revenue, adjusted EBITDA increased slightly to 40% for the nine months ended September 30, 2017 compared to 38% for the nine months ended September 30, 2016.

Owned hotels - North America 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
66,872

 
62,986

 
198,270

 
192,752

Rooms sold
 
43,210

 
42,246

 
134,914

 
132,518

Occupancy (percentage)
 
65

 
67

 
68

 
69

Average daily rate (in U.S. dollars)
 
383

 
359

 
432

 
418

RevPAR (in U.S. dollars)
 
248

 
241

 
294

 
287

Same store RevPAR (in U.S. dollars)
 
247

 
241

 
294

 
287


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

Revenue was $32.9 million for the three months ended September 30, 2017, an increase of $2.3 million, or 8%, from $30.6 million for the three months ended September 30, 2016. In constant currency, revenue for the region for the three months ended September 30, 2017 increased $2.3 million or 8% from the prior year quarter primarily due to revenue growth of $0.7 million or 4% at Belmond Charleston Place, and $1.5 million from the newly acquired Belmond Cap Juluca in May 2017. Belmond Charleston Place continued to benefit from group business and also saw an increase in demand from leisure travelers attracted to the solar eclipse in August 2017. However, stronger year-over-year growth was negatively impacted by cancellations after the South Carolina Governor's declaration of a state of emergency in advance of Hurricane Irma reaching the state, resulting in $1.2 million in lost revenue. ADR for the North American owned hotels segment increased to $383 in the three months ended September 30, 2017 from $359 in the three months ended September 30, 2016. Occupancy decreased slightly to 65% for the three months ended September 30, 2017 from 67% from the three months ended September 30, 2016. Same store RevPAR increased by 2% to $247 for the three months ended September 30, 2017 from $241 in the three months ended September 30, 2016.

Adjusted EBITDA for the region for the three months ended September 30, 2017 of $2.3 million represented a decrease of $0.9 million, or 28%, from $3.2 million for the three months ended September 30, 2016. In constant currency, adjusted EBITDA for the region for the three months ended September 30, 2017 decreased $1.0 million or 31% from the three months ended September 30, 2016, primarily as a result of $0.7 million in anticipated losses at Belmond Cap Juluca in its seasonal quiet period prior to closure for renovation at the end of August 2017. As a percentage of North American owned hotels revenue, adjusted EBITDA decreased to 7% for the three months ended September 30, 2017 from 11% for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenue was $115.2 million for the nine months ended September 30, 2017, an increase of $7.0 million, or 6%, from $108.2 million for the nine months ended September 30, 2016. In constant currency, revenue for the region for the nine months ended September 30, 2017 increased $7.1 million or 7% from the nine months ended September 30, 2016 primarily due to revenue growth of $3.9 million or 7% at Belmond Charleston Place; $1.3 million or 9% at Belmond El Encanto, Santa Barbara, California; and $1.1 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. Additionally, the newly acquired Belmond Cap Juluca contributed $2.4 million in revenue prior to its closure for renovation at the end of August 2017. Growth for these properties was partially offset by a $1.9 million or 11% decrease at Belmond La Samanna, St Martin, French West Indies, which was negatively impacted by a decline in visitation in the first eight months of the year. ADR for the North American owned hotels segment increased to $432 in the nine months ended September 30, 2017 from $418 in the nine months ended September 30, 2016. Occupancy fell to 68% for the nine months ended September 30, 2017 from 69% for the nine months ended September 30, 2016. Same store RevPAR increased by 2% to $294 for the nine months ended September 30, 2017 from $287 in the nine months ended September 30, 2016.

Adjusted EBITDA for the region for the nine months ended September 30, 2017 remained consistent with the nine months ended September 30, 2016 at $21.8 million. In constant currency, adjusted EBITDA for the region for the nine months ended September 30, 2017 was also unchanged from the nine months ended September 30, 2016. A $1.6 million or 9% adjusted EBITDA increase at Belmond Charleston Place and a $0.5 million adjusted EBITDA increase at ‘21 Club’ was offset by a $1.0 million adjusted EBITDA

48


decrease at Belmond La Samanna and $1.0 million loss at Belmond Cap Juluca. As a percentage of North American owned hotels revenue, adjusted EBITDA remained consistent at 19% for the nine months ended September 30, 2017 and 2016.

Owned hotels - Rest of world 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2017
 
September 30,
2016
 
September 30,
2017
 
September 30,
2016
 
 
 
 
 
 
 
 
 
Rooms available
 
94,392

 
94,944

 
280,818

 
282,008

Rooms sold
 
43,767

 
46,985

 
144,944

 
152,872

Occupancy (percentage)
 
46

 
49

 
52

 
54

Average daily rate (in U.S. dollars)
 
376

 
479

 
378

 
390

RevPAR (in U.S. dollars)
 
174

 
237

 
195

 
211

Same store RevPAR (in U.S. dollars)
 
181

 
252

 
201

 
219

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

Revenue was $26.8 million for the three months ended September 30, 2017, a decrease of $10.2 million, or 28%, from $37.0 million for the three months ended September 30, 2016. In constant currency, revenue for the three months ended September 30, 2017 decreased $12.0 million or 31% from the three months ended September 30, 2016, principally as a result of a decline in revenue of $13.5 million or 56% at the Company's two Brazilian properties. This resulted from a combination of the impact in the three months ended September 30, 2017 of the political and economic instability in the country and exceptionally high revenue in the three months ended September 30, 2016 due to the Summer Olympics held in Rio de Janeiro. This was offset by an increase in revenue of $0.4 million or 13% at Belmond Safaris, Botswana which benefited from refurbishment in 2016 and 2017. Additionally, revenue at Belmond La Résidence d'Angkor, Siem Reap, Cambodia, contributed a $0.6 million increase in revenue following a full renovation of the property in 2016. ADR in U.S. dollar terms for the Rest of world owned hotels segment decreased to $376 in the three months ended September 30, 2017 from $479 in the three months ended September 30, 2016. Occupancy decreased to 46% for the three months ended September 30, 2017 from 49% for the three months ended September 30, 2016. Same store RevPAR decreased by 28% in U.S. dollars, to $181 for the three months ended September 30, 2017 from $252 for the three months ended September 30, 2016.

Adjusted EBITDA for the region for the three months ended September 30, 2017 of $3.5 million represented a decrease of $7.8 million, or 69%, from $11.3 million for the three months ended September 30, 2016. In constant currency, adjusted EBITDA for the region decreased $8.5 million or 71% from the three months ended September 30, 2016 largely as a result of a combined $9.1 million adjusted EBITDA decrease for the Company's two Brazilian hotels, offset by a $0.4 million or 31% increase in adjusted EBITDA at Belmond Safaris. As a percentage of Rest of world owned hotels revenue, adjusted EBITDA was 13% for the three months ended September 30, 2017 compared to 31% for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenue was $88.6 million for the nine months ended September 30, 2017, a decrease of $8.0 million, or 8%, from $96.6 million for the nine months ended September 30, 2016. In constant currency, revenue for the nine months ended September 30, 2017 decreased $16.5 million or 16% from the nine months ended September 30, 2016 principally as a result of a combined $21.1 million year-over-year revenue decrease for the Company's two Brazilian hotels which have been impacted by the political and economic instability in the country coupled with a comparison period when both hotels recorded exceptionally high revenue as a result of Rio de Janeiro hosting the Summer Olympics. Partially offsetting this decrease was revenue growth of $2.4 million or 21% at Belmond Mount Nelson Hotel, Cape Town, South Africa; $1.5 million or 24% at Belmond Safaris; and $0.9 million or 12% at Belmond Miraflores Park, Lima, Peru, all of which have 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 decreased to $378 in the nine months ended September 30, 2017 from $390 in the nine months ended September 30, 2016. Occupancy decreased to 52% for the nine months ended September 30, 2017 from 54% for the nine months ended September 30, 2016. Same store RevPAR decreased by 8% in U.S. dollars, to $201 for the nine months ended September 30, 2017 from $219 for the nine months ended September 30, 2016.

Adjusted EBITDA for the region for the nine months ended September 30, 2017 of $15.9 million represented a decrease of $9.0 million, or 36%, from $24.9 million for the nine months ended September 30, 2016. In constant currency, adjusted EBITDA for the region decreased $11.4 million or 42% from the nine months ended September 30, 2016 largely as a result of a combined

49


adjusted EBITDA decrease of $13.4 million for the Company's two Brazilian hotels. Partially offsetting this decrease was an adjusted EBITDA increase at Belmond Mount Nelson Hotel of $1.7 million, and $1.0 million at Belmond Safaris. As a percentage of Rest of world owned hotels revenue, adjusted EBITDA was 18% for the nine months ended September 30, 2017 compared to 26% for the nine months ended September 30, 2016 due to the lower margins earned at the Brazilian hotels.

Owned trains and cruises 

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

Revenue was $23.7 million for the three months ended September 30, 2017, an increase of $4.5 million, or 23%, from $19.2 million for the three months ended September 30, 2016. In constant currency, revenue increased $4.9 million or 26% primarily as a result of the Belmond Grand Hibernian train, which commenced its first full year of operations in April 2017 and recorded $3.2 million of revenue for the three months ended September 30, 2017. Additionally, the Belmond Royal Scotsman train grew revenue by $1.1 million or 39% year-over-year as a result of high demand and the addition of a spa car and four new berths.

Adjusted EBITDA for the three months ended September 30, 2017 was $5.4 million, an increase of $2.1 million, or 64% from $3.3 million for the three months ended September 30, 2016. In constant currency, adjusted EBITDA increased $2.2 million or 72% from the three months ended September 30, 2016 largely due to adjusted EBITDA growth for Belmond Royal Scotsman and Belmond Grand Hibernian of $1.0 million and $0.7 million, respectively.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenue was $50.6 million for the nine months ended September 30, 2017, an increase of $3.5 million, or 7%, from $47.1 million for the nine months ended September 30, 2016. In constant currency, revenue increased $6.8 million or 15% primarily as a result of the Belmond Grand Hibernian train, which commenced its first full year of operations in April 2017 and contributed an increase in revenue of $3.9 million for the nine months ended September 30, 2017. Additionally, the Belmond Royal Scotsman train grew revenue by $1.9 million or 39% year-over-year primarily as a result of generating higher-revenue charter business and the addition of a spa car and four new berths. Partially offsetting these revenue increases was a combined revenue decrease of $1.7 million for the Company’s two river cruises in Myanmar largely due to decreased demand.

Owned trains and cruises reported adjusted EBITDA of $5.3 million for the nine months ended September 30, 2017 compared to $4.1 million for the nine months ended September 30, 2016. In constant currency, adjusted EBITDA increased $1.5 million or 38% from the prior-year period largely due to adjusted EBITDA growth for Belmond Royal Scotsman and Belmond Grand Hibernian of $1.4 million and $0.6 million respectively, offset by a combined decline in adjusted EBITDA of $0.8 million for the Company’s two river cruises in Myanmar.

Part-owned/managed hotels 

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

In the three months ended September 30, 2017, there was a decrease of $1.8 million in part-owned/managed hotels revenue from $1.4 million for the three months ended September 30, 2016, largely due to a 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 September 30, 2017 of $2.5 million represented an increase of $0.1 million, or 4% from earnings of $2.4 million for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenue was $0.4 million for the nine months ended September 30, 2017, a decrease of $2.8 million, or 88%, from $3.2 million for the nine months ended September 30, 2016, largely due to a provision made against management and reservation fees at Inn at Perry Cabin 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 nine months ended September 30, 2017 of $5.3 million represented an increase of $0.6 million, or 13% from earnings of $4.7 million for the nine months ended September 30, 2016, primarily as a result of an increase in occupancy at the two hotels in Cusco.

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Part-owned/managed trains

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

Revenue was $3.3 million in the three months ended September 30, 2017, an increase of $0.1 million, or 3%, from $3.2 million in the three months ended September 30, 2016.

Adjusted EBITDA for Part-owned/managed trains for the three months ended September 30, 2017 of $8.2 million represented a decrease of $0.5 million, or 6%, from $8.7 million for the three months ended September 30, 2016, due to an adjusted EBITDA decrease of $0.6 million or 7% for the Company's PeruRail joint venture, as a result of increases in fuel costs and other operating expenses.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenue was $8.1 million in the nine months ended September 30, 2017, an increase of $0.4 million, or 5%, from $7.7 million in the nine months ended September 30, 2016. The increase in revenue was 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 nine months ended September 30, 2017 was consistent with the nine months ended September 30, 2016 at $18.1 million.

Unallocated corporate costs

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

Adjusted central costs were $8.4 million for the three months ended September 30, 2017 (including $1.5 million of non-cash share-based compensation expense), a decrease of $0.6 million, or 7%, from $9.0 million for the three months ended September 30, 2016 (including $2.1 million of non-cash share-based compensation expense), mainly due to the decline in share-based compensation expense. As a percentage of revenue, adjusted central costs remained consistent at 5% for the three months ended September 30, 2017 and 2016.
    
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Adjusted central costs were $29.8 million for the nine months ended September 30, 2017 (including $5.0 million of non-cash share-based compensation expense), an increase of $1.6 million, or 6%, from $28.2 million for the nine months ended September 30, 2016 (including $5.9 million of non-cash share-based compensation expense), mainly due to increased development and other corporate headcount to support the strategic growth plan and greater information technology expenses. As a percentage of revenue, adjusted central costs were 7% for the nine months ended September 30, 2017 and 6% for the nine months ended September 30, 2016.

Depreciation and amortization

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

Depreciation and amortization was $17.1 million for the three months ended September 30, 2017, an increase of $3.9 million, or 30%, from $13.2 million for the three months ended September 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 was 9% for the three months ended September 30, 2017 compared to 7% for the three months ended September 30, 2016.
    
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Depreciation and amortization was $45.9 million for the nine months ended September 30, 2017, an increase of $6.3 million, or 16%, from $39.6 million for the nine months ended September 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 10% for the nine months ended September 30, 2017 from 9% for the nine months ended September 30, 2016.


51


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

There was no gain on extinguishment of debt in the three months ended September 30, 2017 and September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

There was no gain on extinguishment of debt in the nine months ended September 30, 2017. In the nine months ended September 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 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. 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 nine months ended September 30, 2016 of $1.2 million upon extinguishment of the debt, including the payment of a tax indemnity to its partners in respect of their income from the discount arising on the cancellation of the indebtedness.

Interest income, interest expense and foreign currency, net

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

Interest income, interest expense and foreign currency, net was an expense of $10.2 million for the three months ended September 30, 2017, an increase of $4.0 million from an expense of $6.2 million for the three months ended September 30, 2016. The increase in net expense was primarily due to a foreign exchange loss of $1.5 million that was recognized in the three months ended September 30, 2017, compared to a foreign exchange gain of $1.4 million in the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Interest income, interest expense and foreign currency, net was an expense of $26.7 million for the nine months ended September 30, 2017, an increase of $13.4 million from an expense of $13.3 million for the nine months ended September 30, 2016. The increase in net expense was primarily due to a foreign exchange loss of $2.7 million that was recognized in the nine months ended September 30, 2017, compared to a foreign exchange gain of $9.2 million in the nine months ended September 30, 2016.

Provision for income taxes

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

The provision for income taxes was $20.7 million in the three months ended September 30, 2017, an increase of $0.3 million or 1% from $20.4 million for the three months ended September 30, 2016. The movement in the provision for income tax and the effective tax rate for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 is mainly mainly due to the jurisdictional profit mix of earnings from continuing operations, which have decreased compared to the three months ended September 30, 2016 and have also been impacted by the costs associated with the Cap Juluca acquisition in May 2017. See Note 3.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

The provision for income taxes was $17.6 million in the nine months ended September 30, 2017, a decrease of $7.6 million or 30% from $25.2 million for the nine months ended September 30, 2016. The movement in the provision for income tax and the effective tax rate for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 is mainly mainly due to the jurisdictional profit mix of earnings from continuing operations, which have decreased compared to the nine months ended September 30, 2016 and have also been impacted by the costs associated with the Cap Juluca acquisition in May 2017. See Note 3.

Gain on disposal of property, plant and equipment

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

A gain on disposal of $0.2 million was recorded in the three months ended September 30, 2017 compared to a $0.5 million gain in the three months ended September 30, 2016. The gain in the three months ended September 30, 2017 and 2016 relates to the

52


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. The remainder of the 2016 gain relates to the gain on sale of the spa building at Belmond Casa de Sierra Nevada, Mexico in September 2016.

    
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

A gain on disposal of $0.5 million was recorded in the nine months ended September 30, 2017 compared to a $0.8 million gain in the nine months ended September 30, 2016. The gain in the nine months ended September 30, 2017 and 2016 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. The remainder of the 2016 gain relates to the gain on sale of the spa building at Belmond Casa de Sierra Nevada in September 2016.

Impairment of property, plant and equipment

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

There were no impairments of property, plant and equipment in the three months ended September 30, 2017. A property, plant and equipment impairment charge of $1.0 million was recorded in the three months ended September 30, 2016 which related to Belmond Orcaella.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

A property, plant and equipment impairment charge of $8.2 million was recorded in the nine months ended September 30, 2017. This consisted of $7.1 million at Belmond Road to Mandalay as a result of increased competition and anticipated lower occupancy levels and $1.1 million at Belmond Northern Belle due to forecasted lower demand. There was a $1.0 million impairment of property, plant and equipment in the nine months ended September 30, 2016 which related to Belmond Orcaella.

Earnings from unconsolidated companies

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

Earnings from unconsolidated companies net of tax were $3.9 million for the three months ended September 30, 2017, a decrease of $0.7 million, or 15%, from $4.6 million for the three months ended September 30, 2016. This was largely the result of reduced earnings from the Company’s PeruRail joint venture, as a result of increases in fuel costs and other operating expenses.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Earnings from unconsolidated companies net of tax were $7.8 million for the nine months ended September 30, 2017, an increase of $0.1 million, or 1%, from $7.7 million for the nine months ended September 30, 2016.

Net earnings from discontinued operations

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

The earnings from discontinued operations for the three months ended September 30, 2017 were $Nil, compared with earnings of $Nil for the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

The earnings from discontinued operations for the nine months ended September 30, 2017 were $0.1 million, compared with earnings of $0.1 million for the nine months ended September 30, 2016. Earnings from discontinued operations for the nine months ended September 30, 2017 and 2016 consisted largely of the reimbursement of overpaid legal fees in relation to Ubud Hanging Gardens, as Belmond is pursuing legal remedies following its dispossession by the owner in November 2013. See Note 18 to the Financial Statements.

Net earnings/(losses)

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

53



The net earnings attributable to Belmond Ltd. for the three months ended September 30, 2017 were $7.8 million ($0.08 per common share) on revenue of $183.0 million, compared with net earnings of $22.9 million ($0.23 per common share) on revenue of $183.7 million for the three months ended September 30, 2016. The year-over-year decrease was attributable in part to depreciation and amortization which were $3.9 million higher in the three months ended September 30, 2017 compared to the three months ended September 30, 2016 as a result of the recent completion of a number of capital projects and accelerated depreciation expense to write-off assets that are expected to be replaced. The decrease in net earnings was also the result of a foreign exchange loss of $1.5 million recognized in the three months ended September 30, 2017 compared to a foreign exchange gain of $1.4 million that was recognized in the three months ended September 30, 2016. In addition, the earnings of the Company’s two Brazilian hotels were significantly impacted by declining revenue as a result of political and economic instability in the country, coupled with exceptionally high revenue and earnings in the three months ended September 30, 2016 due to the Summer Olympics in Rio de Janeiro.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

The net losses attributable to Belmond Ltd. for the nine months ended September 30, 2017 were $15.3 million ($0.15 per common share) on revenue of $443.7 million, compared with net earnings of $29.7 million ($0.29 per common share) on revenue of $435.6 million for the nine months ended September 30, 2016. The year-over-year decrease was largely attributable to $14.0 million of acquisition-related costs associated with Cap Juluca and an impairment charge of $8.2 million in relation to Belmond Road to Mandalay and Belmond Northern Belle, partially offset by improved operating results. Acquisition-related costs for Cap Juluca represent 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. Additionally, the net loss was a result of a foreign exchange loss of $2.7 million recognized in the nine months ended September 30, 2017 compared to a foreign exchange gain of $9.2 million recognized in the nine months ended September 30, 2016. There was also a gain on extinguishment of debt of $1.2 million in the nine months ended September 30, 2016 in connection with the early repayment of the development loan at Charleston Center LLC, compared with no gain on extinguishment of debt in the nine months ended September 30, 2017.

Other comprehensive income: Foreign currency translation adjustments, net

Foreign currency translation adjustments for the nine months ended September 30, 2017 were a gain of $46.9 million, compared to a gain of $7.5 million for the nine months ended September 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 nine months ended September 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 12%, 9% and 5% appreciation of the euro, British pound and Russian ruble against the U.S. dollar, respectively, positively impacted the carrying value of Belmond’s net investments denominated in those currencies.

The gain in the nine months ended September 30, 2016 was due to the majority of Belmond's operating currencies appreciating against the U.S. dollar from the rate at December 2015. In particular, the 20%, 15% and 3% 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 September 30, 2017, total debt and obligations under capital leases, including debt of consolidated variable interest entities, amounted to $722.9 million (December 31, 2016 - $602.1 million), including a current portion of $6.8 million (December 31, 2016 - $5.3 million). See Note 10 to the Financial Statements. Additionally, Belmond had capital commitments at September 30, 2017 amounting to $11.0 million (December 31, 2016 - $7.8 million).


54


Belmond had cash and cash equivalents of $205.3 million at September 30, 2017, compared to $153.4 million at December 31, 2016. In addition, Belmond had restricted cash balances of $7.1 million, of which $6.4 million is classified as current restricted cash on the consolidated balance sheets and $0.7 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 September 30, 2017, there were undrawn amounts available to Belmond under committed lines of credit of $100.6 million (December 31, 2016 - $105.5 million), bringing total cash availability at September 30, 2017 to $305.9 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.

At September 30, 2017, Belmond had $6.8 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.

Recent Events Affecting Belmond’s Liquidity and Capital Resources
On July 3, 2017, Belmond amended and restated its credit agreement. The amended and restated credit agreement provides the Company with (i) a seven-year $603.4 million Term Loan Facility that matures on July 3, 2024 and (ii) a $100.0 million Revolving Credit Facility that matures on July 3, 2022. The proceeds from the Term Loan Facility were recognized as cash and used to repay all outstanding funded debt including the $45.0 million that had been drawn under the prior revolving credit facility, but not the debt of Charleston Centre LLC, a consolidated VIE, or the debt of Belmond’s unconsolidated joint venture companies. A loss on modification of debt of $0.6 million (September 30, 2016 - $Nil) was recognized in the three and nine months ended September 30, 2017. The loss consisted of unamortized debt issuance costs relating to the amended and restated credit agreement.

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 $84.8 million, including an aggregate cash purchase price of $68.7 million, acquisition-related costs of $14.0 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 prior revolving credit facility, which was repaid following the amendment and restatement of the credit agreement on July 3, 2017. See Notes 3 and 10 to the Financial Statements.

In March 2015, Belmond’s board of directors approved a program authorizing 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 nine months ended September 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

At September 30, 2017, Belmond was financed with a $610.0 million Term Loan Facility and a $100.0 million Revolving Credit Facility. The amended and restated credit agreement limits Belmond’s ability to incur additional debt unless certain covenants are met. These covenants are measured on the performance of the consolidated group. The amended and restated credit agreement removed the minimum interest coverage ratio covenant test and increased the net leverage ratio permitted in the covenant test. The maximum net leverage test is measured quarterly based on Belmond’s trailing 12 months results. In addition, there was debt held by consolidated variable interest entities of $112.9 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 September 30, 2017.
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 credit agreement.

55



Working Capital
  
Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital surplus of $148.6 million at September 30, 2017 (December 31, 2016 - $107.4 million).

Cash Flow - Sources and Uses of Cash

At September 30, 2017 and December 31, 2016, Belmond had cash and cash equivalents of $205.4 million and $153.4 million, respectively. In addition, Belmond had restricted cash of $7.1 million (of which $6.4 million was classified as current restricted cash on the condensed consolidated balance sheets and $0.7 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 September 30, 2017 and December 31, 2016, respectively.

Operating Activities. Net cash provided by operating activities for the nine months ended September 30, 2017 was $64.2 million, compared to $67.9 million for the nine months ended September 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 $15.4 million for the nine months ended September 30, 2017, a decrease of $45.1 million from net earnings of $29.7 million for the nine months ended September 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 nine months ended September 30, 2017 compared to a $1.0 million impairment of property, plant and equipment in the nine months ended September 30, 2016 relating to Belmond Orcaella. In addition, during the nine months ended September 30, 2016 there was a $1.2 million gain on extinguishment of debt and a $14.3 million cash outflow to settle accrued interest on Charleston Center LLC’s 1984 development loan from a municipal agency. Operating cash flows were also affected by the fact that net losses from continuing operations for the nine months ended September 30, 2017 included a non-cash loss from foreign currency translation of $2.7 million, compared to a non-cash gain from foreign currency translation of $9.2 million for the nine months ended September 30, 2016.

Investing Activities. Net cash used in investing activities was $111.6 million for the nine months ended September 30, 2017, compared to net cash used in investing activities of $37.8 million for the nine months ended September 30, 2016.

During the nine months ended September 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 nine months ended September 30, 2016.

Capital expenditure to acquire property, plant and equipment of $43.0 million during the nine months ended September 30, 2017 included $3.8 million at Belmond Copacabana Palace on the full refurbishment of the Pergula Restaurant, $3.7 million for the Venice Simplon-Orient-Express related to statutory maintenance works, $3.0 million at Belmond Grand Hotel Europe for improvements to the hotel's heating and air conditioning system and renovation of its deluxe rooms, $2.9 million on corporate projects, which included the Company's new enterprise resource planning system and website, with the balance being for routine capital expenditures, $2.7 million at Belmond La Residencia for the addition of six new suites and $2.6 million at Belmond Hotel Cipriani for works related to the renovation of two existing junior suites and the addition of a new junior suite.

Capital expenditure to acquire property, plant and equipment of $40.6 million during the nine months ended September 30, 2016 included $5.2 million at Belmond Charleston Place related to the cost of adding a new high-end sports pub which opened in July 2016 as well as for roof replacement works, $4.2 million on the Venice Simplon-Orient-Express related to statutory maintenance works and the phased installation of air-conditioning, $3.8 million at Belmond Mount Nelson Hotel for the renovation of rooms in the hotel's main building, $3.7 million on the Belmond Grand Hibernian train which commenced operations in August 2016, $3.6 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 provided by financing activities for the nine months ended September 30, 2017 was $91.0 million, compared to net cash provided by financing activities of $11.1 million for the nine months ended September 30, 2016.

On July 3, 2017, Belmond amended and restated its credit agreement which had previously consisted of (a) a seven-year $552.0 million term loan facility consisting of a $345.0 million U.S. dollar tranche and a €150.0 million euro-denominated tranche (equivalent to $207.0 million at drawdown), scheduled to mature on March 21, 2021 and (b) a $105 million revolving credit facility scheduled to mature on March 21, 2019.


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The amended and restated credit agreement provides the Company with (i) a seven-year $603.4 million Term Loan Facility that matures on July 3, 2024 and (ii) a $100.0 million Revolving Credit Facility that matures on July 3, 2022. The proceeds from the Term Loan Facility were recognized as cash and used to repay all outstanding funded debt including the $45.0 million that had been drawn during the nine months ended September 30, 2017 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.

During the nine months ended September 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 were used to repay a 1984 development loan from a municipal agency and associated accrued interest.

Principal repayments under long-term debt were therefore $548.8 million for the nine months ended September 30, 2017 compared to $12.6 million for the nine months ended September 30, 2016.

In addition, the nine months ended September 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 nine months ended September 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 $11.0 million of capital commitments outstanding at September 30, 2017 (December 31, 2016 - $7.8 million) relating to project developments and refurbishment for existing properties.
 
Indebtedness
 
As at September 30, 2017, Belmond has $722.9 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 September 30, 2017 is net of the unamortized original issue discount of $3.3 million (December 31, 2016 - $1.5 million) and unamortized debt issuance costs of $14.6 million (December 31, 2016 - $9.5 million), both of which are amortized through interest expense over the term of the loans.

On July 3, 2017, Belmond amended and restated its credit agreement. The amended and restated agreement provides the Company with (i) a seven-year $603.4 million Term Loan Facility that matures on July 3, 2024 and (ii) a $100.0 million Revolving Credit Facility that matures on July 3, 2022.

As at September 30, 2017, Belmond is financed with a $610.0 million Term Loan Facility and a $100.0 million Revolving Credit Facility.

The Term Loan Facility has two tranches, a U.S. dollar tranche ($399.0 million currently outstanding) and a euro-denominated tranche (€178.6 million currently outstanding, equivalent to $211.0 million as at September 30, 2017). 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% 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 bears interest at a rate of LIBOR plus 2.50% per annum, with a commitment fee of 0.4% to be paid on the undrawn amount. As at September 30, 2017 the Revolving Credit Facility is undrawn and including other working capital facilities the Company has $100.6 million available to draw.
The Secured Credit Facilities 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.

The weighted average duration of Belmond’s debt, including debt held by consolidated variable interest entities, as at September 30, 2017 is 6.3 years, and the weighted average interest rate is 3.99% which incorporates the effect of derivatives which are used to mitigate interest rate risk. See Note 10 to the Financial Statements regarding the maturity of long-term debt.


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Debt of consolidated variable interest entities as at September 30, 2017 included above comprises $112.9 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 1984 development loan from a municipal agency and associated accrued interest.

Including debt of consolidated variable entities, approximately 29% of the outstanding principal amount of Belmond’s consolidated debt is in euros and the balance primarily in U.S. dollars, and 52% of borrowings of Belmond are at floating interest rates as at September 30, 2017.

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

 
through May 2018
Peru hotel joint venture:
 
 
 
 
Debt obligations
 
16.3

 
through 2021
 
 
 
 
 
Total
 
26.2

 
 

Belmond has contingently guaranteed, through 2021, $16.3 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 September 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. 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 based on borrowings outstanding at September 30, 2017.
 

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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.

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 September 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 September 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 September 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 third 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:  November 7, 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
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101
 
 
 
Interactive data file



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