1 LETTER TO PROSPECTIVE SHAREHOLDERS FROM THE CHAIRMAN
May 8 , 2008
Dear Prospective Shareholders:
The Carlton Savannah Hotel is the first real estate investment in the Trinidad &Tobago market that has the distinction of being a part of the Preferred Hotels group of Luxury Hotels.
Carlton Savannah REIT (Jamaica) Limited (the “Company”) is a vehicle designed to bring the unique benefits of the Carlton Savannah Hotel and Health Club & Spa as an investment property to stock market investors via an offer of Shares for subscription in the company.
This offer seeks to combine two key elements: a real estate investment and a share offer to bring the benefits of greater liquidity, geographic diversification, currency diversification and stable dividend flow to the shareholder Applicants.
The Company has already entered into an agreement which will allow it to utilize the funds raised in the Offer to acquire sixteen (16) of the Apartments of the Carlton Savannah Hotel together with the Hotel’s Health Club & Spa. These assets are income generating and promise to deliver a stream of dividends to the shareholders of the Company.
The Company intends to list on the Jamaica Stock Exchange and in time to also be listed on the Trinidad & Tobago and Barbados Stock Exchanges. When approved, the benefits of listed stock investing will be available to Applicants and these include:
· Tax-free dividends
· Liquidity of a ready market for the shares
· Strong valuation for shares
We invite you to participate in the offer and encourage others to do the same.
Sincerely,
ChairmanCarlton Savannah REIT (Jamaica) Limited
[1] www.preferredhotels.com
Sunday, May 11, 2008
DEFINITIONS
In this Prospectus, the following words and phrases shall, unless the context otherwise requires, be read and construed as having the following meanings ascribed thereto:
“Act”
The Companies Act of Jamaica, 2004
“Additional Rent”
means, in respect of each Apartment, a sum equal to 1/55th of the Owners Share of Rent.
“Agreements for Sale (Apartments)”
the sixteen (16) Purchase and Sale Agreements to be entered into by the Developer and CSRSL whereby the Developer agrees to sell the sixteen (16) Apartments (and all the Fittings and Fixtures applicable thereto) to CSRSL by way of the Deeds Transferring Beneficial Interest (Apartments) and the Sub-Leases (Apartments).
“Agreement for Sale (Spa)”
the Purchase and Sale Agreement to be entered into by the Developer and CSRSL whereby the Developer agrees to sell the Health Club & Spa (and all the Fittings and Fixtures applicable thereto) to CSRSL by way of the Deeds Transferring Beneficial Interest (Spa) and the Sub-Lease (Spa).
“Allotment”
the allocation and issuance of Shares to Applicants
“Apartments”
all those three room luxury apartment units comprised in the Hotel
“Applicant”
the person or organization by whom an Application is made
“Application”
the application on the prescribed form for the subscription of Shares comprised in the Offer, duly completed and delivered to the Lead Broker together with payment in full of the subscription price for the amount subscribed
“Application Form”
the original application form provided at the end of this Prospectus or in the local newspapers when published therein
“Approved Payment Method”
manager’s cheque issued by any commercial bank operating in Jamaica made payable to “KPMG/Carlton Savannah REIT (Jamaica) Limited Share Offer”
“Broker to the Offer”
any of the brokers identified in Section 6 of this Prospectus, including the Lead Broker
“Carlton Savannah Hotel” or “Hotel”
the hotel which is under construction on the Lands (as defined in the Agreements for Sale (Apartments) ) and which is to be known as the “Carlton Savannah Hotel” comprising the Apartments, the Facilities including the Health Club & Spa and the Public Areas
“Carlton Savannah Hotel
Operating Agreement” or the “Hotel Operating Agreement”
“Carlton Savannah Limited”
the agreement to be entered into by each Owner , the Carlton Savannah Owners Association Limited and Carlton Savannah Limited
the Hotel Operating Company, being a company duly incorporated under the Companies Act Chap. 81:01 of the Laws of the Republic of Trinidad & Tobago having its registered office at Eleven Albion Street · PO Box 478 in the City of Port of Spain in the Island of Trinidad
“Carlton Savannah Owners’
Association Limited”
a company duly incorporated under the Companies Act Chap. 81:01 of the Laws of the Republic of Trinidad & Tobago having its registered office at Eleven Albion Street · P.O. Box 478 in the City of Port of Spain in the Island of Trinidad.
“Carlton Savannah REIT (Jamaica) Limited” or the “Company”
a company duly incorporated under the Companies Act of Jamaica, 2004 having its registered office at 7 Stanton Terrace, Kingston 6
“Closing Date”
the time of closing of the Offer, as set forth in Section 5 of this document (subject to such extension as the Directors may determine)
“Company”
Carlton Savannah REIT (Jamaica) Limited
“CSRSL”
Carlton Savannah REIT (St. Lucia) Limited, which is an international business company established under the laws of Saint Lucia and having its registered office situated at 1st Floor, Bourbon House, Bourbon Street, P.O. Box 1695, Castries, St. Lucia
“Deeds Transferring Beneficial Interest (Apartments)”
The sixteen (16) Deeds of Agreement to be entered into by the Developer and CSRSL pursuant to which (i) the beneficial interest in the Apartments are transferred to CSRSL and (ii) the Developer undertakes and agrees to grant the Sub-Leases (Apartments).
“Deed Transferring Beneficial Interest (Spa)”
The Deed of Agreement to be entered into by the Developer and CSRSL pursuant to which (i) the beneficial interest in the Health Club and Spa is transferred to CSRSL and (ii) the Developer undertakes and agrees to grant the Sub-Lease (Spa).
“Developer”
Balton Properties Limited, a company duly incorporated under the Companies Act Chap. 81:01 of the Laws of Trinidad & Tobago with its registered office at Eleven Albion, Corner Albion & Dere Streets, Port of Spain, in the Island of Trinidad.
“Development”
shall mean the Developer’s development known or to be known as Carlton Savannah situated at Cascade in the Ward of St. Anns in the Island of Trinidad comprising the Property and such other lands adjacent to or adjoining the Property as may be acquired by the Developer from time to time and all buildings and installations from time to time constructed or installed or to be constructed or installed thereon including but not limited to the Facilities.
“Directors”
the Directors of the Company
“Dividend Policy”
the policy outlined at Section 9
“Escrow Agent”
M. Hamel Smith & Company
“Facilities”
the restaurant, bar, banqueting, Health Club & Spa, swimming pool and other recreational facilities and driveways, walkways, parking areas, water, sewerage and drainage systems and other facilities and amenities to be used and enjoyed as part of the Carlton Savannah Hotel, inclusive of the furnishings, fittings, equipment and appliances from time to time installed therein by the Developer, at its cost and expense in connection with the operations of the Carlton Savannah Hotel
“Fittings and Fixtures”
the items specified in Part 2 of Schedule 4 of the Share Purchase Agreement which shall form part of and be located in the respective Apartments and Health Club & Spa
“Floor Plan”
the floor plans of the Hotel of which it forms part prepared by the Developer’s Supervising Architect
“FSC”
the Financial Services Commission of Jamaica
“Guest”
individual or group of individuals collectively occupying a Room for which a hotel Rate is paid
“Health Club & Spa”
shall mean the gym and spa constructed or to be constructed on the Development intended to be used and enjoyed with the Apartments for the benefit of the Guests and other visitors to or patrons of the Hotel and shall include the space in the Hotel more particularly described in Schedule 3 of the Sub-Lease (Spa).
“Health Club & Spa Underlease”
means the lease agreement to be entered into between CSRSL, Carlton Savannah Limited and the Developer whereby CSRSL leases the Health Club & Spa to the Developer
“Hotel”
the hotel building or buildings containing the Apartments and Health Club & Spa constructed or to be constructed on the Development
“Hotel Completion Target Date”
June 30, 2008, being the date by which the Developer proposes to complete construction of the Hotel
“Hotel Opening Date ”
the date on which the Hotel, or part thereof, is opened for business
“Hotel Operating Company”
Carlton Savannah Limited
“Hotel Operations”
the rental operation of the Rooms and Suites conducted at the Hotel in accordance with the terms of the Carlton Savannah Hotel Operating Agreement
“Interim Monthly Rent”
means a sum, in respect of the two year period commencing with the Opening, which is equal to 8.5% of the Purchase Price Apartment.
[Note: Inclusive of the Health Club & Spa, after 15% Trinidad & Tobago tax and the expenses of the REIT, the dividend yieldis forecasted to be 6.3% per annum in the first two years.]
“Investment Property Income”
means the combined total of the Rent and the Spa Lease Payments
“J$”
dollars in the currency of Jamaica
“JSE”
The Jamaica Stock Exchange
“Lead Broker”
NCB Capital Markets Limited
The Atrium: 32 Trafalgar Road
Kingston 10, Jamaica
Tel: 876-960-7108: Toll free 1-888-4WEALTH (1-888-493-2584)
“Net Operating Profit”
shall be the aggregate Rates (as that terms is defined in the Hotel Operating Agreement) (including interest income on cash balances), less On Site Expenses and other expenses incurred in the upkeep and maintenance of the Hotel, after a deduction for repair and/or replacement of furnishings and Public Areas, save and except income and costs related to the spa, gym, shop(s), tour desk, and the food & beverage operation in the Hotel, all such Onsite and other expense being at the sole discretion of the Hotel Operating Company but in accordance with the Uniform System of Accounts for the Lodging Industry
“Offer”
the offer of the Shares for subscription
“Offer Price”
J$5.91 per Share
“On Site Expenses”
the direct and indirect expenses paid or incurred by the Hotel Operating Company and attributable to the Hotel Operating Company's performance of its duties hereunder, (including general and administrative, marketing, property operations payroll and payroll expenses, energy costs, property insurance, security, reserve for replacement, finance charges on overdrafts and working capital, depreciation) and in accordance with the Uniform System of Accounts for the Lodging Industry
“Opening Date”
the time of opening of the Offer, as set forth in Section 5 of this Prospectus
“Operating Year”
Shall initially refer to the twelve (12) month period commencing on the Hotel Opening and thereafter to subsequent twelve month periods
“Owners”
the holders of the terms of years created by the sub- leases of the Apartments and Health Club & Spa granted by the Developer and shall be extended as necessary to include any mortgagees or charges of the Owners
“Owner’s Rent
Account”
the account within the internal ledgers of the Hotel Operating Company into which the Owners’ Share of Rent including CSRSL’s share (along with other Owners) of Rent shall be placed
“Owners’ Share of Rent”
65% of Net Operating Profits PROVIDED HOWEVER that should the Owners’ Share of Rent be a negative sum (a loss) in any one or more years Owners shall not be required to make or pay any contribution to such loss, but such loss shall be carried forward and be deducted from any future profits prior to any future distribution of the Owners’ Share of Rent
“Pre-Practical Completion Date”
65% of Net Operating Profits PROVIDED HOWEVER that should the Owners’ Share of Rent be a negative sum (a loss) in any one or more years Owners shall not be required to make or pay any contribution to such loss, but such loss shall be carried forward and be deducted from any future profits prior to any future distribution of the Owners’ Share of Rent
means the date which the Vendor’s architect certifies is the date ten days before practical completion of each Apartment will be achieved
“Property”
the lands, forming part of the Development, more particularly described in Part 1 of Schedule 3 of the Share Purchase Agreement
“Public Areas”
all the public and operation areas of the Hotel (being any area which is not deemed to be an Apartment and excluding any area which is deemed to be or to be appurtenant to the restaurant, Health Club & Spa and shop(s) (if any) inclusive of the furnishings, fittings, equipment and appliances for the Hotel Operations from time to time installed therein by the Developer, at its cost and expense, such areas to be outfitted and finished in keeping with the standard set by similar high quality international properties in the hotel industry
“Purchase Price Apartments”
the Jamaican dollar equivalent of US$12,837,227.00 (which is the price of 16 Apartments) using the forward rate as agreed with the lead broker; or such lesser sum as determined in accordance with this Prospectus and includes fixtures, fittings and furniture for the Apartments in respect of which the amounts will be apportioned at a later date
“Purchase Price Spa”
the Jamaican dollar equivalent of US$4,588,873.00 (which is the price of the Health Club & Spa) using the forward rate as agreed with the lead broker; or such lesser sum as determined in accordance with this Prospectus and includes fixtures, fittings and furniture for the Health Club & Spa in respect of which the amounts will be apportioned at a later date
“Rates”
the monies paid by Guests for occupation of a Room or a Suite
“Registrar”
the Registrar whose name is set out in Section 6 or such other persons as may be appointed by the Company from time to time to provide the services of registrar for the Company
“REIT”
means Carlton Savannah REIT (Jamaica) Limited
“Rent”
means the Interim Monthly Rent and the Additional Rent, or either of them as the context requires
“Room”
a single allocated bedroom space within an Apartment
“Sale Completion Date”
“Share Purchase Agreement”
has the meaning ascribed to it in Clause 4.6.7
the agreement made among: (1) the Developer, CSRSL and the Company for the purchase by the Company from the Developer of 100% of the issued share capital of CSRSL
“Shares”
all or any of the 212,330,270 common shares with no par value in the capital of the Company the subject of this Offer
“Spa Lease Payments”
mean the rental payments derived from the Health Club & Spa Underlease
“Sub-Leases (Apartments)”
the sixteen (16) Deeds of sub-lease to be made between the Developer and CSRSL pursuant to which the Developer will grant sub-leases of the Apartments to CSRSL for a term of 98 years from the 1st day of January 2005
“Sub-Lease (Spa)”
the Deed of sub-lease to be made between the Developer and CSRSL pursuant to which the Developer will grant a sub-lease of the Health Club & Spa to CSRSL for a term of 98 years from the 1st day of January 2005
“Suites”
single allocated bedroom space within an Apartment plus a sitting room
“TT$”
dollars in the currency of Trinidad & Tobago
“Uniform System of
Accounts for The
Lodging Industry”
the standard system of accounting rules, as published by the New York Hotel Association
“USD$”
dollars in the currency of the United States of America
“Act”
The Companies Act of Jamaica, 2004
“Additional Rent”
means, in respect of each Apartment, a sum equal to 1/55th of the Owners Share of Rent.
“Agreements for Sale (Apartments)”
the sixteen (16) Purchase and Sale Agreements to be entered into by the Developer and CSRSL whereby the Developer agrees to sell the sixteen (16) Apartments (and all the Fittings and Fixtures applicable thereto) to CSRSL by way of the Deeds Transferring Beneficial Interest (Apartments) and the Sub-Leases (Apartments).
“Agreement for Sale (Spa)”
the Purchase and Sale Agreement to be entered into by the Developer and CSRSL whereby the Developer agrees to sell the Health Club & Spa (and all the Fittings and Fixtures applicable thereto) to CSRSL by way of the Deeds Transferring Beneficial Interest (Spa) and the Sub-Lease (Spa).
“Allotment”
the allocation and issuance of Shares to Applicants
“Apartments”
all those three room luxury apartment units comprised in the Hotel
“Applicant”
the person or organization by whom an Application is made
“Application”
the application on the prescribed form for the subscription of Shares comprised in the Offer, duly completed and delivered to the Lead Broker together with payment in full of the subscription price for the amount subscribed
“Application Form”
the original application form provided at the end of this Prospectus or in the local newspapers when published therein
“Approved Payment Method”
manager’s cheque issued by any commercial bank operating in Jamaica made payable to “KPMG/Carlton Savannah REIT (Jamaica) Limited Share Offer”
“Broker to the Offer”
any of the brokers identified in Section 6 of this Prospectus, including the Lead Broker
“Carlton Savannah Hotel” or “Hotel”
the hotel which is under construction on the Lands (as defined in the Agreements for Sale (Apartments) ) and which is to be known as the “Carlton Savannah Hotel” comprising the Apartments, the Facilities including the Health Club & Spa and the Public Areas
“Carlton Savannah Hotel
Operating Agreement” or the “Hotel Operating Agreement”
“Carlton Savannah Limited”
the agreement to be entered into by each Owner , the Carlton Savannah Owners Association Limited and Carlton Savannah Limited
the Hotel Operating Company, being a company duly incorporated under the Companies Act Chap. 81:01 of the Laws of the Republic of Trinidad & Tobago having its registered office at Eleven Albion Street · PO Box 478 in the City of Port of Spain in the Island of Trinidad
“Carlton Savannah Owners’
Association Limited”
a company duly incorporated under the Companies Act Chap. 81:01 of the Laws of the Republic of Trinidad & Tobago having its registered office at Eleven Albion Street · P.O. Box 478 in the City of Port of Spain in the Island of Trinidad.
“Carlton Savannah REIT (Jamaica) Limited” or the “Company”
a company duly incorporated under the Companies Act of Jamaica, 2004 having its registered office at 7 Stanton Terrace, Kingston 6
“Closing Date”
the time of closing of the Offer, as set forth in Section 5 of this document (subject to such extension as the Directors may determine)
“Company”
Carlton Savannah REIT (Jamaica) Limited
“CSRSL”
Carlton Savannah REIT (St. Lucia) Limited, which is an international business company established under the laws of Saint Lucia and having its registered office situated at 1st Floor, Bourbon House, Bourbon Street, P.O. Box 1695, Castries, St. Lucia
“Deeds Transferring Beneficial Interest (Apartments)”
The sixteen (16) Deeds of Agreement to be entered into by the Developer and CSRSL pursuant to which (i) the beneficial interest in the Apartments are transferred to CSRSL and (ii) the Developer undertakes and agrees to grant the Sub-Leases (Apartments).
“Deed Transferring Beneficial Interest (Spa)”
The Deed of Agreement to be entered into by the Developer and CSRSL pursuant to which (i) the beneficial interest in the Health Club and Spa is transferred to CSRSL and (ii) the Developer undertakes and agrees to grant the Sub-Lease (Spa).
“Developer”
Balton Properties Limited, a company duly incorporated under the Companies Act Chap. 81:01 of the Laws of Trinidad & Tobago with its registered office at Eleven Albion, Corner Albion & Dere Streets, Port of Spain, in the Island of Trinidad.
“Development”
shall mean the Developer’s development known or to be known as Carlton Savannah situated at Cascade in the Ward of St. Anns in the Island of Trinidad comprising the Property and such other lands adjacent to or adjoining the Property as may be acquired by the Developer from time to time and all buildings and installations from time to time constructed or installed or to be constructed or installed thereon including but not limited to the Facilities.
“Directors”
the Directors of the Company
“Dividend Policy”
the policy outlined at Section 9
“Escrow Agent”
M. Hamel Smith & Company
“Facilities”
the restaurant, bar, banqueting, Health Club & Spa, swimming pool and other recreational facilities and driveways, walkways, parking areas, water, sewerage and drainage systems and other facilities and amenities to be used and enjoyed as part of the Carlton Savannah Hotel, inclusive of the furnishings, fittings, equipment and appliances from time to time installed therein by the Developer, at its cost and expense in connection with the operations of the Carlton Savannah Hotel
“Fittings and Fixtures”
the items specified in Part 2 of Schedule 4 of the Share Purchase Agreement which shall form part of and be located in the respective Apartments and Health Club & Spa
“Floor Plan”
the floor plans of the Hotel of which it forms part prepared by the Developer’s Supervising Architect
“FSC”
the Financial Services Commission of Jamaica
“Guest”
individual or group of individuals collectively occupying a Room for which a hotel Rate is paid
“Health Club & Spa”
shall mean the gym and spa constructed or to be constructed on the Development intended to be used and enjoyed with the Apartments for the benefit of the Guests and other visitors to or patrons of the Hotel and shall include the space in the Hotel more particularly described in Schedule 3 of the Sub-Lease (Spa).
“Health Club & Spa Underlease”
means the lease agreement to be entered into between CSRSL, Carlton Savannah Limited and the Developer whereby CSRSL leases the Health Club & Spa to the Developer
“Hotel”
the hotel building or buildings containing the Apartments and Health Club & Spa constructed or to be constructed on the Development
“Hotel Completion Target Date”
June 30, 2008, being the date by which the Developer proposes to complete construction of the Hotel
“Hotel Opening Date ”
the date on which the Hotel, or part thereof, is opened for business
“Hotel Operating Company”
Carlton Savannah Limited
“Hotel Operations”
the rental operation of the Rooms and Suites conducted at the Hotel in accordance with the terms of the Carlton Savannah Hotel Operating Agreement
“Interim Monthly Rent”
means a sum, in respect of the two year period commencing with the Opening, which is equal to 8.5% of the Purchase Price Apartment.
[Note: Inclusive of the Health Club & Spa, after 15% Trinidad & Tobago tax and the expenses of the REIT, the dividend yieldis forecasted to be 6.3% per annum in the first two years.]
“Investment Property Income”
means the combined total of the Rent and the Spa Lease Payments
“J$”
dollars in the currency of Jamaica
“JSE”
The Jamaica Stock Exchange
“Lead Broker”
NCB Capital Markets Limited
The Atrium: 32 Trafalgar Road
Kingston 10, Jamaica
Tel: 876-960-7108: Toll free 1-888-4WEALTH (1-888-493-2584)
“Net Operating Profit”
shall be the aggregate Rates (as that terms is defined in the Hotel Operating Agreement) (including interest income on cash balances), less On Site Expenses and other expenses incurred in the upkeep and maintenance of the Hotel, after a deduction for repair and/or replacement of furnishings and Public Areas, save and except income and costs related to the spa, gym, shop(s), tour desk, and the food & beverage operation in the Hotel, all such Onsite and other expense being at the sole discretion of the Hotel Operating Company but in accordance with the Uniform System of Accounts for the Lodging Industry
“Offer”
the offer of the Shares for subscription
“Offer Price”
J$5.91 per Share
“On Site Expenses”
the direct and indirect expenses paid or incurred by the Hotel Operating Company and attributable to the Hotel Operating Company's performance of its duties hereunder, (including general and administrative, marketing, property operations payroll and payroll expenses, energy costs, property insurance, security, reserve for replacement, finance charges on overdrafts and working capital, depreciation) and in accordance with the Uniform System of Accounts for the Lodging Industry
“Opening Date”
the time of opening of the Offer, as set forth in Section 5 of this Prospectus
“Operating Year”
Shall initially refer to the twelve (12) month period commencing on the Hotel Opening and thereafter to subsequent twelve month periods
“Owners”
the holders of the terms of years created by the sub- leases of the Apartments and Health Club & Spa granted by the Developer and shall be extended as necessary to include any mortgagees or charges of the Owners
“Owner’s Rent
Account”
the account within the internal ledgers of the Hotel Operating Company into which the Owners’ Share of Rent including CSRSL’s share (along with other Owners) of Rent shall be placed
“Owners’ Share of Rent”
65% of Net Operating Profits PROVIDED HOWEVER that should the Owners’ Share of Rent be a negative sum (a loss) in any one or more years Owners shall not be required to make or pay any contribution to such loss, but such loss shall be carried forward and be deducted from any future profits prior to any future distribution of the Owners’ Share of Rent
“Pre-Practical Completion Date”
65% of Net Operating Profits PROVIDED HOWEVER that should the Owners’ Share of Rent be a negative sum (a loss) in any one or more years Owners shall not be required to make or pay any contribution to such loss, but such loss shall be carried forward and be deducted from any future profits prior to any future distribution of the Owners’ Share of Rent
means the date which the Vendor’s architect certifies is the date ten days before practical completion of each Apartment will be achieved
“Property”
the lands, forming part of the Development, more particularly described in Part 1 of Schedule 3 of the Share Purchase Agreement
“Public Areas”
all the public and operation areas of the Hotel (being any area which is not deemed to be an Apartment and excluding any area which is deemed to be or to be appurtenant to the restaurant, Health Club & Spa and shop(s) (if any) inclusive of the furnishings, fittings, equipment and appliances for the Hotel Operations from time to time installed therein by the Developer, at its cost and expense, such areas to be outfitted and finished in keeping with the standard set by similar high quality international properties in the hotel industry
“Purchase Price Apartments”
the Jamaican dollar equivalent of US$12,837,227.00 (which is the price of 16 Apartments) using the forward rate as agreed with the lead broker; or such lesser sum as determined in accordance with this Prospectus and includes fixtures, fittings and furniture for the Apartments in respect of which the amounts will be apportioned at a later date
“Purchase Price Spa”
the Jamaican dollar equivalent of US$4,588,873.00 (which is the price of the Health Club & Spa) using the forward rate as agreed with the lead broker; or such lesser sum as determined in accordance with this Prospectus and includes fixtures, fittings and furniture for the Health Club & Spa in respect of which the amounts will be apportioned at a later date
“Rates”
the monies paid by Guests for occupation of a Room or a Suite
“Registrar”
the Registrar whose name is set out in Section 6 or such other persons as may be appointed by the Company from time to time to provide the services of registrar for the Company
“REIT”
means Carlton Savannah REIT (Jamaica) Limited
“Rent”
means the Interim Monthly Rent and the Additional Rent, or either of them as the context requires
“Room”
a single allocated bedroom space within an Apartment
“Sale Completion Date”
“Share Purchase Agreement”
has the meaning ascribed to it in Clause 4.6.7
the agreement made among: (1) the Developer, CSRSL and the Company for the purchase by the Company from the Developer of 100% of the issued share capital of CSRSL
“Shares”
all or any of the 212,330,270 common shares with no par value in the capital of the Company the subject of this Offer
“Spa Lease Payments”
mean the rental payments derived from the Health Club & Spa Underlease
“Sub-Leases (Apartments)”
the sixteen (16) Deeds of sub-lease to be made between the Developer and CSRSL pursuant to which the Developer will grant sub-leases of the Apartments to CSRSL for a term of 98 years from the 1st day of January 2005
“Sub-Lease (Spa)”
the Deed of sub-lease to be made between the Developer and CSRSL pursuant to which the Developer will grant a sub-lease of the Health Club & Spa to CSRSL for a term of 98 years from the 1st day of January 2005
“Suites”
single allocated bedroom space within an Apartment plus a sitting room
“TT$”
dollars in the currency of Trinidad & Tobago
“Uniform System of
Accounts for The
Lodging Industry”
the standard system of accounting rules, as published by the New York Hotel Association
“USD$”
dollars in the currency of the United States of America
DISCLAIMERS AND FORWARD LOOKING STATEMENTS
Disclaimers
3.1 This Prospectus has been reviewed and approved by the Directors of the Company and they collectively and individually accept full responsibility for the accuracy of the information given herein and confirm that, after having made all reasonable enquiries, and to the best of their knowledge and belief, (i) the information is true and accurate in all material respects and is not misleading in any material respect, (ii) any opinions, predictions or intentions expressed herein on the part of the Company are honestly held or made and are not misleading in any material respect, (iii) that all proper inquiries have been made to ascertain and to verify the foregoing, and (iv) this Prospectus does not contain any untrue statement of a material fact or fail to state a material fact necessary in order to make the statements herein, in the light of the circumstances under which they are made, not misleading.
3.2 Each person receiving and relying on the Prospectus acknowledges and agrees that: (i) such person has been afforded a meaningful opportunity to review and has received, additional information considered by such person to be necessary to verify the accuracy of the information contained in this Prospectus, (ii) such person has not relied on the Company or any persons affiliated with the Company or any selling agent appointed by the Company in connection with its investigation of the accuracy of such information or its investment decision, and (iii) no person has been authorized to give information or to make any representation concerning the Company or the offer for subscription or the shares issued pursuant thereto or to provide information or to make any representation whatsoever in connection with this Prospectus other than as contained in this Prospectus and information given by duly authorized officers and employees of the Company in connection with the Applicants’ verification of the information contained in this Prospectus and that, if given or made, such other information or representation should not be relied upon as having been authorized by the Company or any affiliate.
3.3 Neither the delivery of this Prospectus nor the offering, sale or allotment of any shares hereunder shall under any circumstances imply that there has been no change in the business, results of operations, financial condition or prospects of the Company since the date of this Prospectus.
3.4 In making an investment decision, Applicants are expected to make their own assessment of the Company and the terms of the offer for subscription herein, including the merits and risks involved.
Neither the FSC nor any Governmental agency or regulatory authority in Jamaica has made any determination on the accuracy or adequacy of this Prospectus.
3.5 No representation or warranty, expressed or implied, is made by any selling agents appointed by the Lead Broker as to the accuracy or completeness of the information set forth herein including, without limitation, information in respect to the Company and nothing contained in this Prospectus is, or shall be relied upon, as a promise or representation, whether as to the past or future. The Lead Broker has not independently verified any such information and assumes no responsibility for its accuracy or completeness.
3.6 This Prospectus contains summaries believed to be accurate with respect to certain terms of certain documents, but reference should be made to the actual documents (copies of which will be available to prospective Applicants upon request made to the Company) for complete information with respect thereto, and all such summaries are qualified in their entirety by such complete information.
3.7 Each Applicant should consult his/her own advisors as to the legal, tax, business, financial and related aspects of subscribing for Shares in this Offer.
3.8 Neither the Company, nor any of its respective representatives is making any representation to any Applicant regarding legal, tax, business, financial and related aspects concerning subscription for Shares in this Offer, and Applicants should not consider this Prospectus as a recommendation by the Company that the Applicant should subscribe for or purchase any Shares. Each Applicant must make its own investigation and evaluation of the Company.
3.9 This Prospectus is intended for use in Jamaica and is not to be construed as an offer of any of the Shares outside of Jamaica. In any event, the distribution of this Prospectus and the offering of the Shares in certain jurisdictions are restricted by law. The Company requires that anyone who receives this Prospectus inform themselves about and observe such restrictions. 3.10 This Prospectus does not constitute, and may not be used for or in connection with, any offer to, or solicitation by, anyone in any jurisdiction other than Jamaica.
3.11 The Shares may not be offered or sold in the United States of America to or for the account or benefit of any U.S. person except pursuant to transactions not subject to the registration requirements of the Securities Act of the United States of America and applicable state securities laws.
Forward Looking Statements
3.12 Except for the historical information concerning the Company contained in this Prospectus, certain matters discussed in this Prospectus, including without limitation the discussions of future plans and financial projections, contain forward‑looking statements. Forward-looking statements are statements that are not about historical facts and speak only as of the date they are made. Although the Company believes that in making any such statements its expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Applicants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Future events or circumstances could cause actual results to differ materially from historical or anticipated results.
3.13 When used in this Prospectus, the words “anticipates”, “believes”, “expects”, “intends” and similar expressions, as they relate to the Company, are intended to identify those forward‑looking statements. These forward‑looking statements are subject to numerous risks and uncertainties. Once this Prospectus has been signed by or on behalf of the Company, the Company undertakes no obligation to update publicly or revise any of the forward-looking statements in light of new information or future events, including changes in the Company’s financial or regulatory position, or to reflect the occurrence of unanticipated events. There are important factors that could cause actual results to differ materially from those in forward‑looking statements, certain of which are beyond the Company’s control. These factors include, without limitation, the following:
· economic, social and other conditions of Jamaica or Trinidad & Tobago, including actual rates of growth of the Jamaican and Trinidad & Tobago economies, instability, high domestic interest rates or exchange rate volatility;
· adverse climatic events and natural disasters;
· changes in regulatory policy adversely affecting the revenues or expenses of the Company;
· any other factor(s) negatively impacting on the realisation of the assumptions on which the Company’s financial projections are based, and
· other factors identified in this Prospectus
3.1 This Prospectus has been reviewed and approved by the Directors of the Company and they collectively and individually accept full responsibility for the accuracy of the information given herein and confirm that, after having made all reasonable enquiries, and to the best of their knowledge and belief, (i) the information is true and accurate in all material respects and is not misleading in any material respect, (ii) any opinions, predictions or intentions expressed herein on the part of the Company are honestly held or made and are not misleading in any material respect, (iii) that all proper inquiries have been made to ascertain and to verify the foregoing, and (iv) this Prospectus does not contain any untrue statement of a material fact or fail to state a material fact necessary in order to make the statements herein, in the light of the circumstances under which they are made, not misleading.
3.2 Each person receiving and relying on the Prospectus acknowledges and agrees that: (i) such person has been afforded a meaningful opportunity to review and has received, additional information considered by such person to be necessary to verify the accuracy of the information contained in this Prospectus, (ii) such person has not relied on the Company or any persons affiliated with the Company or any selling agent appointed by the Company in connection with its investigation of the accuracy of such information or its investment decision, and (iii) no person has been authorized to give information or to make any representation concerning the Company or the offer for subscription or the shares issued pursuant thereto or to provide information or to make any representation whatsoever in connection with this Prospectus other than as contained in this Prospectus and information given by duly authorized officers and employees of the Company in connection with the Applicants’ verification of the information contained in this Prospectus and that, if given or made, such other information or representation should not be relied upon as having been authorized by the Company or any affiliate.
3.3 Neither the delivery of this Prospectus nor the offering, sale or allotment of any shares hereunder shall under any circumstances imply that there has been no change in the business, results of operations, financial condition or prospects of the Company since the date of this Prospectus.
3.4 In making an investment decision, Applicants are expected to make their own assessment of the Company and the terms of the offer for subscription herein, including the merits and risks involved.
Neither the FSC nor any Governmental agency or regulatory authority in Jamaica has made any determination on the accuracy or adequacy of this Prospectus.
3.5 No representation or warranty, expressed or implied, is made by any selling agents appointed by the Lead Broker as to the accuracy or completeness of the information set forth herein including, without limitation, information in respect to the Company and nothing contained in this Prospectus is, or shall be relied upon, as a promise or representation, whether as to the past or future. The Lead Broker has not independently verified any such information and assumes no responsibility for its accuracy or completeness.
3.6 This Prospectus contains summaries believed to be accurate with respect to certain terms of certain documents, but reference should be made to the actual documents (copies of which will be available to prospective Applicants upon request made to the Company) for complete information with respect thereto, and all such summaries are qualified in their entirety by such complete information.
3.7 Each Applicant should consult his/her own advisors as to the legal, tax, business, financial and related aspects of subscribing for Shares in this Offer.
3.8 Neither the Company, nor any of its respective representatives is making any representation to any Applicant regarding legal, tax, business, financial and related aspects concerning subscription for Shares in this Offer, and Applicants should not consider this Prospectus as a recommendation by the Company that the Applicant should subscribe for or purchase any Shares. Each Applicant must make its own investigation and evaluation of the Company.
3.9 This Prospectus is intended for use in Jamaica and is not to be construed as an offer of any of the Shares outside of Jamaica. In any event, the distribution of this Prospectus and the offering of the Shares in certain jurisdictions are restricted by law. The Company requires that anyone who receives this Prospectus inform themselves about and observe such restrictions. 3.10 This Prospectus does not constitute, and may not be used for or in connection with, any offer to, or solicitation by, anyone in any jurisdiction other than Jamaica.
3.11 The Shares may not be offered or sold in the United States of America to or for the account or benefit of any U.S. person except pursuant to transactions not subject to the registration requirements of the Securities Act of the United States of America and applicable state securities laws.
Forward Looking Statements
3.12 Except for the historical information concerning the Company contained in this Prospectus, certain matters discussed in this Prospectus, including without limitation the discussions of future plans and financial projections, contain forward‑looking statements. Forward-looking statements are statements that are not about historical facts and speak only as of the date they are made. Although the Company believes that in making any such statements its expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Applicants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Future events or circumstances could cause actual results to differ materially from historical or anticipated results.
3.13 When used in this Prospectus, the words “anticipates”, “believes”, “expects”, “intends” and similar expressions, as they relate to the Company, are intended to identify those forward‑looking statements. These forward‑looking statements are subject to numerous risks and uncertainties. Once this Prospectus has been signed by or on behalf of the Company, the Company undertakes no obligation to update publicly or revise any of the forward-looking statements in light of new information or future events, including changes in the Company’s financial or regulatory position, or to reflect the occurrence of unanticipated events. There are important factors that could cause actual results to differ materially from those in forward‑looking statements, certain of which are beyond the Company’s control. These factors include, without limitation, the following:
· economic, social and other conditions of Jamaica or Trinidad & Tobago, including actual rates of growth of the Jamaican and Trinidad & Tobago economies, instability, high domestic interest rates or exchange rate volatility;
· adverse climatic events and natural disasters;
· changes in regulatory policy adversely affecting the revenues or expenses of the Company;
· any other factor(s) negatively impacting on the realisation of the assumptions on which the Company’s financial projections are based, and
· other factors identified in this Prospectus
SUMMARY OF KEY INFORMATION
4.1 The following summary information is derived from and should be read in conjunction with, and is qualified in its entirety by, the full text of this Prospectus.
4.2 You are advised to read this entire Prospectus carefully before making an investment decision about this transaction. Your specific attention is drawn to the Risk Factors in Section 10 of the Prospectus.
4.3 If you have any questions arising out of this document or if you require any explanation, you should consult your stockbroker, licensed investment advisor, attorney-at-law, accountant or other professional advisor.
4.4 Offer Structure
ISSUER: Carlton Savannah REIT (Jamaica) Limited
AUTHORISED SHARE CAPITAL 500,000,000 Shares
NO. OF OFFERED SHARES: 212,330,270 Shares, amounting to 100.00% of the Company’s issued share capital after the Offer
OFFER PRICE J$5.91 per Common Share
HOW PAYABLE: In full on application
4.2 You are advised to read this entire Prospectus carefully before making an investment decision about this transaction. Your specific attention is drawn to the Risk Factors in Section 10 of the Prospectus.
4.3 If you have any questions arising out of this document or if you require any explanation, you should consult your stockbroker, licensed investment advisor, attorney-at-law, accountant or other professional advisor.
4.4 Offer Structure
ISSUER: Carlton Savannah REIT (Jamaica) Limited
AUTHORISED SHARE CAPITAL 500,000,000 Shares
NO. OF OFFERED SHARES: 212,330,270 Shares, amounting to 100.00% of the Company’s issued share capital after the Offer
OFFER PRICE J$5.91 per Common Share
HOW PAYABLE: In full on application
THE INVESTMENT OPPORTUNITY
The Carlton Savannah Hotel located in Port of Spain, Trinidad consists of fifty five (55) two-bedroom fully furnished[1] Apartments that are being sold to institutional investors such as the REIT as well as individual investors. Each Apartment is fully configured to be able to be converted into three separate rooms to accommodate up to 165 guest rooms. Upon signing the Purchase Agreement for the Apartments, the REIT also signs an operating agreement to allow the hotel operating company to manage the Apartments in the pool of available hotel rooms. The REIT’s return on investment will come from its proportional share of the profits generated by the hotel rooms, which is been split 65% to investors and 35% to the hotel operating company, and the lease payments from the hotel’s Health Club & Spa.
[1] Furnishings include beds, dining table, writing tables, LCD Flat Screen TVs, artwork, washer/dryer, 4-ring counter top stove, small fridge/freezer, music center and accessories.
[1] Furnishings include beds, dining table, writing tables, LCD Flat Screen TVs, artwork, washer/dryer, 4-ring counter top stove, small fridge/freezer, music center and accessories.
4.6 The Selling Process of Apartments in The Carlton Savannah Hotel
4.6.1 The legal process by which the Company will acquire the 16 Apartments in the Hotel is set out in detail in the legal opinion (herein called the “Legal Opinion”) provided for the Company by M. Hamel-Smith and Co, a firm of Attorneys-at-Law practising in Trinidad & Tobago. M. Hamel-Smith and Co has given, and has not, before delivery of a copy of the Prospectus for registration, withdrawn its written consent to the issuance of this Prospectus with the statements herein referring to the Legal Opinion being included in the form and context in which such statements have been included.
4.6.2 The Legal Opinion is one of the documents available for inspection and should be read in its entirety for a full understanding of the legal process of the acquisition and the risks involved therein. What follows is only a summary of some of the salient issues.
4.6.3 The Legal Opinion states: “It is customary in Trinidad and Tobago that in condominium development schemes, which are akin to the present Development, buyers of units acquire leasehold interests rather than freehold. Where as in the present instance the title to the Lands commence with a 199 year lease from the State commencing in 1904 the only option in fact is a leasehold arrangement.”
4.6.4 Thus, “ownership” of an interest in real property is achieved by way of a “head lease” from the State, or a “sub-lease” from the person holding the head lease.
4.6.5 Balton Properties Limited (herein called “the Developer”) is the owner of the Carlton Savannah Hotel and the land on which it is being constructed by virtue of being the lessee for the unexpired terms of years granted by three (3) Head Lease Agreements (199 years from 6th September 1904). Copies of the Head Lease Agreements are available for inspection.
4.6.6 CSRSL has been created to be the vehicle by which the Company will acquire and hold an interest in the Apartments and the Health Club & Spa. It will initially be owned by the Developer but full ownership of it will be transferred to the Company on the Sale Completion Date pursuant to the Share Purchase Agreement which was executed by the Company, the Developer and CSRSL on the 7th day of May 2008.
4.6.7 The Sale Completion Date shall occur on or before 14 days of the Closing date of the Offer at which time:
4.6.7.1 The Company will have indicated to the Developer the number of Apartments it will purchase as a result of the funds raised by the Offer;
4.6.7.2 All the issued shares in CSRSL will be transferred to the Company in exchange for the payment by the Company to the Developer of 100% of the Purchase Price Spa and 70% of the Purchase Price Apartments. The remaining 30% of the Purchase Price Apartments, with respect to each Apartment, will be paid over to the Escrow Agent who shall have power to transfer same to the Developer on the Pre-Practical Completion Date and subject to the terms of the Escrow Agreement.
4.6.7.3 The Agreements for Sale (Apartments) and the Agreement for Sale (Spa) will be executed and pursuant to which the Developer agrees to sell the sixteen (16) Apartments and the Health Club & Spa (and all the Fittings and Fixtures applicable thereto) to CSRSL. These Agreements provide that the Apartments and Spa will be transferred to CSRSL by way of the execution and delivery of the Deeds Transferring Beneficial Interest (Apartments), the Deed Transferring Beneficial Interest (Spa) the Sub-Leases (Apartments), and the Sub-Lease (Spa).
4.6.7.4 The Agreements for Sale (Apartments) will be in the form of Deeds and will be stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago as soon as practicable after execution.
4.6.7.5 The Deeds Transferring Beneficial Interest (Apartments) will be executed and delivered to the Escrow Agent in undated form, with the Escrow Agent having power to complete and deliver same on the Pre-Practical Completion Date and subject to the terms of the Escrow Agreement. When dated stamped and registered these Deeds will effect the transfer of the beneficial interest of the Developer in the 16 Apartments to CSRSL. and establish the priority of the interest of CSRSL in the 16 Apartments. In these Deeds the developer also covenants to grant, on demand, the Sub-Leases (Apartments)which will pass full legal title to CSRSL and grants CSRSL a Power of Attorney to act in the name of the Developer to so grant these sub-leases.
4.6.7.6 The Deed Transferring Beneficial Interest (Spa) will be executed, stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago as soon as practicable after execution and will effect the transfer of the beneficial interest of the Developer in the Health Club & Spa to CSRSL. The registration of this Deed will establish the priority of the interest of CSRSL in the Health Club & Spa. In this Deed the Developer also covenants to grant, on demand, the Sub-Lease (Spa) which will pass full legal title to CSRSL and grants CSRSL a Power of Attorney to act in the name of the Developer to so grant the said sub-lease.
4.6.7.7 The Sub-Lease (Spa) will also be executed by the Developer and CSRSL but will be held outside of the jurisdiction of Trinidad & Tobago to defer the stamp duty which will become payable within two months of such introduction, currently 7% of the purchase price or value of each Apartment. The sub-lease may be introduced into the jurisdiction at any time thereafter and be stamped and registered thus passing the legal title in the Apartments and Health Club & Spa to CSRSL. Until such stamping and registration the Developer will hold such legal title in trust for CSRSL.
4.6.7.8 If the Hotel or part thereof has opened, The Hotel Operating Agreement will be executed between the Hotel Operator, the Owners Association and CSRSLand will grant the Operator the right to Operate and manage the Hotel and grant CSRSL the right to receive Rent.
4.6.7.9 The Health Club & Spa Underlease will be executed granting the Operator an operating lease of the Health Club & Spa. This underlease will not pass any beneficial or legal interest in the Health Club & Spa to the Operator.
4.6.7.10 One share in the Carlton Savannah Owners’ Association Limited, in respect of the Health Club & Spa, will be transferred to CSRSL. Upon completion of the purchase of the Apartments, CSRSL, like all purchasers of Apartments in the Hotel will receive a beneficial interest in one (1) share in the management operations of the Development per Apartment purchased i.e. one ordinary share in the Carlton Savannah Owners’ Association Limited by virtue of which purchasers will have an interest in the “common areas” of the Development and the right to exercise rights under the Hotel Operating Agreement.
4.6.8 If (a) the period for completion of construction of the sixteen (16) Apartments and the Health Club & Spa is extended for any period expiring two (2) years after the Hotel Completion Target Date, or (b) the Hotel Opening Date is deferred for a period of more than one (1) year after June 30 2008, then and in either such case CSRSL shall have the right to terminate the Agreements for Sale (Apartments) and the Agreement for Sale (Spa) (and consequential documents) whereupon all monies paid by the Company to the Developer under the Share Purchase Agreement shall be repaid to the Company and the Developer and the Company shall be released and discharged from their respective obligations thereunder. It is to be noted that where an Apartment has not reached pre-practical completion stage only 70% of the purchase price will have been paid on it at that stage. The interest of the purchaser will have been noted on the land registry in Trinidad in respect of both complete and incomplete sales and the purchaser (CSRSL) will be entitled to seek to place a lien on the land to assist with the enforcement of its right to recovery of all funds paid.
4.6.9 The remaining term of the sub-lease Apts and the Sub Lease Spa is 95 years in both cases, approximately coinciding with the remaining term of the Head Lease between the Developer and the State of Trinidad and Tobago. It is intended that the leasehold reversion under the Head Leases will be vested in the Owners' Association at the time of expiry of the sub-leases so the association will be in a position to negotiate a renewal with the State at that time. Strictly speaking at expiration of the lease the tenant can be evicted but it is generally expected that the State would be willing to negotiate for the grant of a new term or the sale of the freehold estate. No 199 year lease has ever reached its expiration in Trinidad and therefore it cannot be said with any conclusiveness how the Government of the day will deal with the matter.
At worst, therefore, the investment can be regarded as a 95 year investment with a potential opportunity (but not a legally enforceable right) upon expiration of the Head Leases to negotiate either (a) the acquisition of the freehold reversion, or (b) the grant of a new lease
4.7 The actual number of Apartments that CSRSL may beneficially own may vary to be less than or greater than sixteen (16) depending on the net proceeds raised during the Offer. The Share Purchase Agreement permits the Company to potentially acquire additional capital or real estate assets which form part of the Carlton Savannah Hotel at the sole discretion of the board depending on the subscription levels of the Offer. If however, the net proceeds from the Offer are less than the Purchase Price, the Company will not acquire the sixteen (16) Apartments and Health Club & Spa; instead it will select Apartments from the list of 16 Apartments and possibly the Health Club & Spa and any excess proceeds from the Offer will be refunded to Applicants after deduction of administrative and other expenses.
4.8 The Company will by virtue of 100% ownership of CSRSL receive regular income flows from its proportionate share of the Rent associated with the Hotel and Spa Lease Payments for the Health Club & Spa.
4.9 CSRSL has entered into a Health Club & Spa Underlease agreement with the Hotel Operating Company who will manage the Health Club & Spa. The Spa Lease Payments for the first year in the Health Club & Spa Underlease will be 6% of Purchase Price Health Club & Spa, which will be payable monthly. Thereafter, Spa Lease Payments will increase by 3% annually. Terms and conditions are detailed in the Health Club & Spa Underlease, which is available for inspection.
Withdrawal
4.10 If the Offer fails to raise the Jamaican dollar equivalent of US$2 million, using the Bank of Jamaica weighted average rate on the Closing Date, the Company reserves the right to withdraw the Offer and refund the proceeds raised from the Offer to Applicants.
Balton Properties Limited
4.11 Balton Properties Limited is a Trinidadian Company with its registered office at Eleven Albion Street. PO Box 478 in the City of Port of Spain in the Island of Trinidad, and is the developer of the Carlton Savannah Hotel, the vendor of the Apartments and the lessee for the Health Club & Spa Under-Lease.
Real Estate Investment Trust (REIT)
4.12 In general, a REIT is an entity that:
• combines the capital of many investors to acquire or provide financing for real estate investments;
• allows individual investors to invest in professionally managed, large-scale, real estate assets; and
• pays a significant amount of its annual profits as dividends to shareholders..
Tax Status of Carlton Savannah REIT (Jamaica) Limited
4.13 The Company will receive its proportionate share of the Rent of the Carlton Savannah Hotel plus the monthly Spa Lease Payments from the Hotel Operating Company for the lease of the Health Club & Spa. This is expected to be subject to 15% withholding tax in Trinidad & Tobago with no further corporate or withholding taxes in Jamaica as a result of the CARICOM treaty on double taxation.
4.14 Companies listed on the Jamaica Stock Exchange can distribute dividends tax free to their respective shareholders. The Company will distribute 95% or greater of the Investment Property Income received from the Hotel Operating Company, net of operating expenses of the Company, as dividends to the shareholders of the Company.
4.15 In addition, any capital gains on the sale of shares of the Company, as with all companies listed on the Jamaica Stock Exchange, are free of taxes for persons or entities not in the business of trading.
Dividend Policy for Carlton Savannah REIT (Jamaica) Limited
4.16 The dividend policy on the ordinary shares of the Company established by the Directors of the Company is to distribute 95% or greater of its proportionate share of the investment property income generated by the operations of the Carlton Savannah Hotel, net of expenses of the Company, as dividends to its shareholders. This dividend policy may be subject to review from time to time by the Company’s Board.
4.6.1 The legal process by which the Company will acquire the 16 Apartments in the Hotel is set out in detail in the legal opinion (herein called the “Legal Opinion”) provided for the Company by M. Hamel-Smith and Co, a firm of Attorneys-at-Law practising in Trinidad & Tobago. M. Hamel-Smith and Co has given, and has not, before delivery of a copy of the Prospectus for registration, withdrawn its written consent to the issuance of this Prospectus with the statements herein referring to the Legal Opinion being included in the form and context in which such statements have been included.
4.6.2 The Legal Opinion is one of the documents available for inspection and should be read in its entirety for a full understanding of the legal process of the acquisition and the risks involved therein. What follows is only a summary of some of the salient issues.
4.6.3 The Legal Opinion states: “It is customary in Trinidad and Tobago that in condominium development schemes, which are akin to the present Development, buyers of units acquire leasehold interests rather than freehold. Where as in the present instance the title to the Lands commence with a 199 year lease from the State commencing in 1904 the only option in fact is a leasehold arrangement.”
4.6.4 Thus, “ownership” of an interest in real property is achieved by way of a “head lease” from the State, or a “sub-lease” from the person holding the head lease.
4.6.5 Balton Properties Limited (herein called “the Developer”) is the owner of the Carlton Savannah Hotel and the land on which it is being constructed by virtue of being the lessee for the unexpired terms of years granted by three (3) Head Lease Agreements (199 years from 6th September 1904). Copies of the Head Lease Agreements are available for inspection.
4.6.6 CSRSL has been created to be the vehicle by which the Company will acquire and hold an interest in the Apartments and the Health Club & Spa. It will initially be owned by the Developer but full ownership of it will be transferred to the Company on the Sale Completion Date pursuant to the Share Purchase Agreement which was executed by the Company, the Developer and CSRSL on the 7th day of May 2008.
4.6.7 The Sale Completion Date shall occur on or before 14 days of the Closing date of the Offer at which time:
4.6.7.1 The Company will have indicated to the Developer the number of Apartments it will purchase as a result of the funds raised by the Offer;
4.6.7.2 All the issued shares in CSRSL will be transferred to the Company in exchange for the payment by the Company to the Developer of 100% of the Purchase Price Spa and 70% of the Purchase Price Apartments. The remaining 30% of the Purchase Price Apartments, with respect to each Apartment, will be paid over to the Escrow Agent who shall have power to transfer same to the Developer on the Pre-Practical Completion Date and subject to the terms of the Escrow Agreement.
4.6.7.3 The Agreements for Sale (Apartments) and the Agreement for Sale (Spa) will be executed and pursuant to which the Developer agrees to sell the sixteen (16) Apartments and the Health Club & Spa (and all the Fittings and Fixtures applicable thereto) to CSRSL. These Agreements provide that the Apartments and Spa will be transferred to CSRSL by way of the execution and delivery of the Deeds Transferring Beneficial Interest (Apartments), the Deed Transferring Beneficial Interest (Spa) the Sub-Leases (Apartments), and the Sub-Lease (Spa).
4.6.7.4 The Agreements for Sale (Apartments) will be in the form of Deeds and will be stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago as soon as practicable after execution.
4.6.7.5 The Deeds Transferring Beneficial Interest (Apartments) will be executed and delivered to the Escrow Agent in undated form, with the Escrow Agent having power to complete and deliver same on the Pre-Practical Completion Date and subject to the terms of the Escrow Agreement. When dated stamped and registered these Deeds will effect the transfer of the beneficial interest of the Developer in the 16 Apartments to CSRSL. and establish the priority of the interest of CSRSL in the 16 Apartments. In these Deeds the developer also covenants to grant, on demand, the Sub-Leases (Apartments)which will pass full legal title to CSRSL and grants CSRSL a Power of Attorney to act in the name of the Developer to so grant these sub-leases.
4.6.7.6 The Deed Transferring Beneficial Interest (Spa) will be executed, stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago as soon as practicable after execution and will effect the transfer of the beneficial interest of the Developer in the Health Club & Spa to CSRSL. The registration of this Deed will establish the priority of the interest of CSRSL in the Health Club & Spa. In this Deed the Developer also covenants to grant, on demand, the Sub-Lease (Spa) which will pass full legal title to CSRSL and grants CSRSL a Power of Attorney to act in the name of the Developer to so grant the said sub-lease.
4.6.7.7 The Sub-Lease (Spa) will also be executed by the Developer and CSRSL but will be held outside of the jurisdiction of Trinidad & Tobago to defer the stamp duty which will become payable within two months of such introduction, currently 7% of the purchase price or value of each Apartment. The sub-lease may be introduced into the jurisdiction at any time thereafter and be stamped and registered thus passing the legal title in the Apartments and Health Club & Spa to CSRSL. Until such stamping and registration the Developer will hold such legal title in trust for CSRSL.
4.6.7.8 If the Hotel or part thereof has opened, The Hotel Operating Agreement will be executed between the Hotel Operator, the Owners Association and CSRSLand will grant the Operator the right to Operate and manage the Hotel and grant CSRSL the right to receive Rent.
4.6.7.9 The Health Club & Spa Underlease will be executed granting the Operator an operating lease of the Health Club & Spa. This underlease will not pass any beneficial or legal interest in the Health Club & Spa to the Operator.
4.6.7.10 One share in the Carlton Savannah Owners’ Association Limited, in respect of the Health Club & Spa, will be transferred to CSRSL. Upon completion of the purchase of the Apartments, CSRSL, like all purchasers of Apartments in the Hotel will receive a beneficial interest in one (1) share in the management operations of the Development per Apartment purchased i.e. one ordinary share in the Carlton Savannah Owners’ Association Limited by virtue of which purchasers will have an interest in the “common areas” of the Development and the right to exercise rights under the Hotel Operating Agreement.
4.6.8 If (a) the period for completion of construction of the sixteen (16) Apartments and the Health Club & Spa is extended for any period expiring two (2) years after the Hotel Completion Target Date, or (b) the Hotel Opening Date is deferred for a period of more than one (1) year after June 30 2008, then and in either such case CSRSL shall have the right to terminate the Agreements for Sale (Apartments) and the Agreement for Sale (Spa) (and consequential documents) whereupon all monies paid by the Company to the Developer under the Share Purchase Agreement shall be repaid to the Company and the Developer and the Company shall be released and discharged from their respective obligations thereunder. It is to be noted that where an Apartment has not reached pre-practical completion stage only 70% of the purchase price will have been paid on it at that stage. The interest of the purchaser will have been noted on the land registry in Trinidad in respect of both complete and incomplete sales and the purchaser (CSRSL) will be entitled to seek to place a lien on the land to assist with the enforcement of its right to recovery of all funds paid.
4.6.9 The remaining term of the sub-lease Apts and the Sub Lease Spa is 95 years in both cases, approximately coinciding with the remaining term of the Head Lease between the Developer and the State of Trinidad and Tobago. It is intended that the leasehold reversion under the Head Leases will be vested in the Owners' Association at the time of expiry of the sub-leases so the association will be in a position to negotiate a renewal with the State at that time. Strictly speaking at expiration of the lease the tenant can be evicted but it is generally expected that the State would be willing to negotiate for the grant of a new term or the sale of the freehold estate. No 199 year lease has ever reached its expiration in Trinidad and therefore it cannot be said with any conclusiveness how the Government of the day will deal with the matter.
At worst, therefore, the investment can be regarded as a 95 year investment with a potential opportunity (but not a legally enforceable right) upon expiration of the Head Leases to negotiate either (a) the acquisition of the freehold reversion, or (b) the grant of a new lease
4.7 The actual number of Apartments that CSRSL may beneficially own may vary to be less than or greater than sixteen (16) depending on the net proceeds raised during the Offer. The Share Purchase Agreement permits the Company to potentially acquire additional capital or real estate assets which form part of the Carlton Savannah Hotel at the sole discretion of the board depending on the subscription levels of the Offer. If however, the net proceeds from the Offer are less than the Purchase Price, the Company will not acquire the sixteen (16) Apartments and Health Club & Spa; instead it will select Apartments from the list of 16 Apartments and possibly the Health Club & Spa and any excess proceeds from the Offer will be refunded to Applicants after deduction of administrative and other expenses.
4.8 The Company will by virtue of 100% ownership of CSRSL receive regular income flows from its proportionate share of the Rent associated with the Hotel and Spa Lease Payments for the Health Club & Spa.
4.9 CSRSL has entered into a Health Club & Spa Underlease agreement with the Hotel Operating Company who will manage the Health Club & Spa. The Spa Lease Payments for the first year in the Health Club & Spa Underlease will be 6% of Purchase Price Health Club & Spa, which will be payable monthly. Thereafter, Spa Lease Payments will increase by 3% annually. Terms and conditions are detailed in the Health Club & Spa Underlease, which is available for inspection.
Withdrawal
4.10 If the Offer fails to raise the Jamaican dollar equivalent of US$2 million, using the Bank of Jamaica weighted average rate on the Closing Date, the Company reserves the right to withdraw the Offer and refund the proceeds raised from the Offer to Applicants.
Balton Properties Limited
4.11 Balton Properties Limited is a Trinidadian Company with its registered office at Eleven Albion Street. PO Box 478 in the City of Port of Spain in the Island of Trinidad, and is the developer of the Carlton Savannah Hotel, the vendor of the Apartments and the lessee for the Health Club & Spa Under-Lease.
Real Estate Investment Trust (REIT)
4.12 In general, a REIT is an entity that:
• combines the capital of many investors to acquire or provide financing for real estate investments;
• allows individual investors to invest in professionally managed, large-scale, real estate assets; and
• pays a significant amount of its annual profits as dividends to shareholders..
Tax Status of Carlton Savannah REIT (Jamaica) Limited
4.13 The Company will receive its proportionate share of the Rent of the Carlton Savannah Hotel plus the monthly Spa Lease Payments from the Hotel Operating Company for the lease of the Health Club & Spa. This is expected to be subject to 15% withholding tax in Trinidad & Tobago with no further corporate or withholding taxes in Jamaica as a result of the CARICOM treaty on double taxation.
4.14 Companies listed on the Jamaica Stock Exchange can distribute dividends tax free to their respective shareholders. The Company will distribute 95% or greater of the Investment Property Income received from the Hotel Operating Company, net of operating expenses of the Company, as dividends to the shareholders of the Company.
4.15 In addition, any capital gains on the sale of shares of the Company, as with all companies listed on the Jamaica Stock Exchange, are free of taxes for persons or entities not in the business of trading.
Dividend Policy for Carlton Savannah REIT (Jamaica) Limited
4.16 The dividend policy on the ordinary shares of the Company established by the Directors of the Company is to distribute 95% or greater of its proportionate share of the investment property income generated by the operations of the Carlton Savannah Hotel, net of expenses of the Company, as dividends to its shareholders. This dividend policy may be subject to review from time to time by the Company’s Board.
REASONS FOR THE OFFER
5.1 The Company is seeking to raise the Jamaican equivalent of US$17,426,100.00 using the forward exchange rate as agreed with the lead broker on the Closing Date of the offer of 212,330,270 shares to the investing public in Jamaica. The Shares are being offered by Subscription to the investing public. Each share is being offered at the price of J$5.91 per share.
5.2 The conversion rate of J$ to US$ will be the forward exchange rate as agreed with the lead broker. Shares must be bought in quantities of at least 10,000 per transaction.
5.3 The proceeds of the Offer will be used to fulfil the Company’s contractual obligations to the Developer under the Share Purchase Agreement; the proceeds will be applied to the sixteen (16) Apartments and Health Club & Spa in the table that follows:
5.2 The conversion rate of J$ to US$ will be the forward exchange rate as agreed with the lead broker. Shares must be bought in quantities of at least 10,000 per transaction.
5.3 The proceeds of the Offer will be used to fulfil the Company’s contractual obligations to the Developer under the Share Purchase Agreement; the proceeds will be applied to the sixteen (16) Apartments and Health Club & Spa in the table that follows:
PROFESSIONAL ADVISORS TO THE OFFER
Reporting Accountant
KPMG
The Victoria Mutual Building
5 Duke Street
Kingston, Jamaica
Financial Consultant
Williams & Associates Investments Limited
7 Stanton Terrace
Kingston 5, Jamaica
Legal Advisors
Hylton & Hylton
31 Upper Waterloo Road
Kingston 10
Jamaica
M. Hamel-Smith and Co
Eleven Albion,
Corner Albion & Dere Streets in Port-Of-Spain,
Trinidad &Tobago
Tax Advisor
KPMG
The Victoria Mutual Building
5 Duke Street
Kingston
Jamaica
Auditor
KPMG
The Victoria Mutual Building
5 Duke Street
Kingston
Jamaica
Lead Broker
NCB Capital Markets Limited
The Atrium: 32 Trafalgar Road
Kingston 10, Jamaica
Registrar to the Issue
KPMG Regulatory and Compliance Services
6 Duke Street
Kingston,
Jamaica
Brokers Invited to Participate in the Offer
Barita Investments Limited
15 St. Lucia Way,
Kingston 5, Jamaica
Tel: (876) 926-2681-2
First Global Stockbrokers Limited
72 St. Lucia Crescent
Kingston 5, Jamaica
Tel: (876) 926-1275
Pan Caribbean Financial Services Limited
60 Knutsford Boulevard
Kingston 5, Jamaica
Tel: (876) 929-5583-4
Capital & Credit Securities Limited
18 Trafalgar Road
Kingston 5, Jamaica
Tel: (876) 946-1770
Scotia DBG Investments
7 Holborn Road
Kingston 10, Jamaica
Tel: (876) 960-6699/6833
Victoria Mutual Wealth Management Limited
52-60 Grenada Crescent
Tel: (876) 960-5000-3
JMMB Securities Limited
6 Haughton Terrace
Kingston 10, Jamaica
Tel: (876) 920-5040
Mayberry Investments Limited
1 ½ Oxford Road
Kingston 5, Jamaica
Tel: (876)-929-1908
M/VL Stockbrokers Limited
2-6 Grenada Crescent
Kingston 5, Jamaica
Tel: (876) 926-4319
Stocks & Securities Limited (SSL)
24 -26 Grenada Crescent
Kingston 5, Jamaica
Tel: (876) 929-3400
Please consult with your financial advisor, attorney-at-law or tax consultant if you do not fully understand the contents of this prospectus or if you have any queries concerning the contents of this document.
KPMG
The Victoria Mutual Building
5 Duke Street
Kingston, Jamaica
Financial Consultant
Williams & Associates Investments Limited
7 Stanton Terrace
Kingston 5, Jamaica
Legal Advisors
Hylton & Hylton
31 Upper Waterloo Road
Kingston 10
Jamaica
M. Hamel-Smith and Co
Eleven Albion,
Corner Albion & Dere Streets in Port-Of-Spain,
Trinidad &Tobago
Tax Advisor
KPMG
The Victoria Mutual Building
5 Duke Street
Kingston
Jamaica
Auditor
KPMG
The Victoria Mutual Building
5 Duke Street
Kingston
Jamaica
Lead Broker
NCB Capital Markets Limited
The Atrium: 32 Trafalgar Road
Kingston 10, Jamaica
Registrar to the Issue
KPMG Regulatory and Compliance Services
6 Duke Street
Kingston,
Jamaica
Brokers Invited to Participate in the Offer
Barita Investments Limited
15 St. Lucia Way,
Kingston 5, Jamaica
Tel: (876) 926-2681-2
First Global Stockbrokers Limited
72 St. Lucia Crescent
Kingston 5, Jamaica
Tel: (876) 926-1275
Pan Caribbean Financial Services Limited
60 Knutsford Boulevard
Kingston 5, Jamaica
Tel: (876) 929-5583-4
Capital & Credit Securities Limited
18 Trafalgar Road
Kingston 5, Jamaica
Tel: (876) 946-1770
Scotia DBG Investments
7 Holborn Road
Kingston 10, Jamaica
Tel: (876) 960-6699/6833
Victoria Mutual Wealth Management Limited
52-60 Grenada Crescent
Tel: (876) 960-5000-3
JMMB Securities Limited
6 Haughton Terrace
Kingston 10, Jamaica
Tel: (876) 920-5040
Mayberry Investments Limited
1 ½ Oxford Road
Kingston 5, Jamaica
Tel: (876)-929-1908
M/VL Stockbrokers Limited
2-6 Grenada Crescent
Kingston 5, Jamaica
Tel: (876) 926-4319
Stocks & Securities Limited (SSL)
24 -26 Grenada Crescent
Kingston 5, Jamaica
Tel: (876) 929-3400
Please consult with your financial advisor, attorney-at-law or tax consultant if you do not fully understand the contents of this prospectus or if you have any queries concerning the contents of this document.
THE CARLTON SAVANNAH HOTEL INVESTMENT PROFILE
The Demand for Room Space
7.1 Located between the Caribbean Sea and the North Atlantic Ocean, northeast of Venezuela, the fast developing economy of Trinidad & Tobago is intrinsically linked to the oil and gas reserves which underpin the accumulated wealth and prosperity of the local market. The decades of oil and gas exploration have supported growth in the financial service sector and other industries, serving an ever more sophisticated corporate and private market place.
7.2 Long-term growth looks promising, as Trinidad & Tobago further develops its hydrocarbon, petrochemical and metals sectors with significant increases in exports, and continues its diversification efforts in services, manufacturing and agriculture. Clear macroeconomic policy and a stable government support the tight monetary policy which maintains a close relationship between the Trinidad & Tobago Dollar and the US Dollar, maintaining an exchange rate close to TT$6.3 to US$1.
7.3 The hotel market in Port of Spain is predominantly a business traveller’s market and one in which demand has exceeded supply for many years, meaning the number and stock of hotel rooms have not kept pace with the demand.[1] This is reflected in the strong room rates. For example, hotels, generally considered to be two-star products, are regularly able to charge US$150-250 per night for rooms. In 2008, there will be two additional new hotels in Port of Spain: The Carlton Savannah and the Hyatt.
7.4 The Carlton Savannah will distinguish itself in the hotel market by providing very high levels of customer service, akin to that expected by the international corporate traveller. The Carlton Savannah is dedicated to the business traveller and has been designed and planned to meet the requirements of discerning international executives. It will be both a place to stay, and a virtual office networked to the world 24/7. Based on the operating model and even before opening, the Carlton Savannah has been welcomed into the marketing association which is the Luxury Hotels brand of Preferred Hotels, which include hotels such as the Lanesborough in London, Sandy Lane in Barbados, the Dream hotel in New York and many more.
7.5 “Preferred Hotels & Resorts Worldwide is a service organization designed to provide marketing, sales and reservation services to hotels. Headquartered in Chicago, The Preferred Hotel Group is a privately held shareholder-owned company led by industry veteran John Ueberroth. With over 100 employees in 12 countries and 18 sales offices worldwide, Preferred Hotel Group is the industry leader in providing state-of-the-art technology, innovative business solutions, and strategic sales support and is the contracted provider of marketing, sales and reservation services for the Carlton Savannah Hotel. Other global reservations systems that the Carlton Savannah Hotel accesses through Preferred Hotels include Sabre, Amadeus, Worldspan and Galileo.
7.6 More specifically the Preferred Hotels & Resorts is a global brand of independently owned luxury hotels and resorts and each provides the highest standards of quality and extraordinary service. Founded in 1968 as a referral service for the top guests of six independent hoteliers, the association has grown into its current status as a for-profit stock corporation representing more than 120 hotels worldwide. To qualify as a Preferred hotel or resort, each property must pass Preferred's award-winning Standards of Excellence®. This exhaustive quality assurance program, which includes an annual, unannounced inspection, ensures that only the best hotels are Preferred hotels.
The Preferred Standards of Excellence®
7.7 Each Preferred hotel and resort conforms to Preferred's Standards of Excellence® program - marked by an unmatched 1,600 line item annual inspection process.
7.8 These unannounced inspections are performed every year by a licensed and independent quality assurance organization. Every detail that a guest would encounter during a typical stay is meticulously checked during the inspection: the cleanliness of the guest rooms from corner to corner, the dedication of the concierge to the special requests of the guests, and the commitment and care of the entire staff in anticipating the needs of the guests.
7.9 For a property to remain within Preferred, it must achieve an exemplary rating in all areas. As a result of this unique quality assurance program the guest will consistently receive the most attentive personal service and the most comfortable accommodations at all Preferred hotels and resorts. Cornell University "Best Practices" Award
7.10 Cornell University, the American Express Travel Related Services and the American Hotel Foundation honoured Preferred Hotels & Resorts with the Best Practices Champion Award for its Standards of Excellence quality assurance program. Receipt of the best practices award confirms Preferred's unparalleled commitment to the complete and total fulfillment of Preferred guests' individual tastes, requirements and expectations.
7.11 To private hotel owners and managers, the Preferred Hotel Group’s key strength lies in allowing their hotels to maintain their individuality and distinctive methodology, while still benefiting from the economies of scale that an affiliation with a larger group of like-minded properties can offer”[2]
7.12 The operating model of the Carlton Savannah Hotel caters fully for the international executive who needs a different sort of hotel from leisure guests. The Carlton Savannah experience has been developed to provide the sort of business support resource the business travellers would expect from a global corporate headquarters. The hotel will have an entire team dedicated to meeting business requirements. Whether the business travellers require a secretary to take notes at a meeting; need to 'hot-desk' for a couple of hours; want documents typed, bound and printed; have a PowerPoint presentation created; or have forgotten a power cable for a laptop and need it recharged – and much more – their business team will be there to give the support the business travellers want, including that last minute press of suit for an important meeting.
7.13 Such service is prerequisite for the business traveller; the Carlton Savannah Hotel will be the first hotel to provide it, in Port of Spain.
7.14 To add to that, the Hotel has an enviable location, overlooking Port of Spain's famous Savannah, close to the Prime Minister's residence close to the central business district and ideal for avoiding the early morning traffic. Thus, this backdrop provides the ideal location for investment in an up-market business hotel, aimed primarily at the international business travellers.
7.15 The Trinidad & Tobago hotel market has a high level of repeat business customers, making it a very strong market in which to provide and capitalise on personalised service. Guest records that allow the Hotel Operating Company to anticipate the needs of the guests provide valuable information that can create a strong bond between the guest and the Carlton Savannah Hotel.
[1] http://www.tdc.co.tt/tourism_report.html
[2] Public information from website www.preferredhotels.com/
7.1 Located between the Caribbean Sea and the North Atlantic Ocean, northeast of Venezuela, the fast developing economy of Trinidad & Tobago is intrinsically linked to the oil and gas reserves which underpin the accumulated wealth and prosperity of the local market. The decades of oil and gas exploration have supported growth in the financial service sector and other industries, serving an ever more sophisticated corporate and private market place.
7.2 Long-term growth looks promising, as Trinidad & Tobago further develops its hydrocarbon, petrochemical and metals sectors with significant increases in exports, and continues its diversification efforts in services, manufacturing and agriculture. Clear macroeconomic policy and a stable government support the tight monetary policy which maintains a close relationship between the Trinidad & Tobago Dollar and the US Dollar, maintaining an exchange rate close to TT$6.3 to US$1.
7.3 The hotel market in Port of Spain is predominantly a business traveller’s market and one in which demand has exceeded supply for many years, meaning the number and stock of hotel rooms have not kept pace with the demand.[1] This is reflected in the strong room rates. For example, hotels, generally considered to be two-star products, are regularly able to charge US$150-250 per night for rooms. In 2008, there will be two additional new hotels in Port of Spain: The Carlton Savannah and the Hyatt.
7.4 The Carlton Savannah will distinguish itself in the hotel market by providing very high levels of customer service, akin to that expected by the international corporate traveller. The Carlton Savannah is dedicated to the business traveller and has been designed and planned to meet the requirements of discerning international executives. It will be both a place to stay, and a virtual office networked to the world 24/7. Based on the operating model and even before opening, the Carlton Savannah has been welcomed into the marketing association which is the Luxury Hotels brand of Preferred Hotels, which include hotels such as the Lanesborough in London, Sandy Lane in Barbados, the Dream hotel in New York and many more.
7.5 “Preferred Hotels & Resorts Worldwide is a service organization designed to provide marketing, sales and reservation services to hotels. Headquartered in Chicago, The Preferred Hotel Group is a privately held shareholder-owned company led by industry veteran John Ueberroth. With over 100 employees in 12 countries and 18 sales offices worldwide, Preferred Hotel Group is the industry leader in providing state-of-the-art technology, innovative business solutions, and strategic sales support and is the contracted provider of marketing, sales and reservation services for the Carlton Savannah Hotel. Other global reservations systems that the Carlton Savannah Hotel accesses through Preferred Hotels include Sabre, Amadeus, Worldspan and Galileo.
7.6 More specifically the Preferred Hotels & Resorts is a global brand of independently owned luxury hotels and resorts and each provides the highest standards of quality and extraordinary service. Founded in 1968 as a referral service for the top guests of six independent hoteliers, the association has grown into its current status as a for-profit stock corporation representing more than 120 hotels worldwide. To qualify as a Preferred hotel or resort, each property must pass Preferred's award-winning Standards of Excellence®. This exhaustive quality assurance program, which includes an annual, unannounced inspection, ensures that only the best hotels are Preferred hotels.
The Preferred Standards of Excellence®
7.7 Each Preferred hotel and resort conforms to Preferred's Standards of Excellence® program - marked by an unmatched 1,600 line item annual inspection process.
7.8 These unannounced inspections are performed every year by a licensed and independent quality assurance organization. Every detail that a guest would encounter during a typical stay is meticulously checked during the inspection: the cleanliness of the guest rooms from corner to corner, the dedication of the concierge to the special requests of the guests, and the commitment and care of the entire staff in anticipating the needs of the guests.
7.9 For a property to remain within Preferred, it must achieve an exemplary rating in all areas. As a result of this unique quality assurance program the guest will consistently receive the most attentive personal service and the most comfortable accommodations at all Preferred hotels and resorts. Cornell University "Best Practices" Award
7.10 Cornell University, the American Express Travel Related Services and the American Hotel Foundation honoured Preferred Hotels & Resorts with the Best Practices Champion Award for its Standards of Excellence quality assurance program. Receipt of the best practices award confirms Preferred's unparalleled commitment to the complete and total fulfillment of Preferred guests' individual tastes, requirements and expectations.
7.11 To private hotel owners and managers, the Preferred Hotel Group’s key strength lies in allowing their hotels to maintain their individuality and distinctive methodology, while still benefiting from the economies of scale that an affiliation with a larger group of like-minded properties can offer”[2]
7.12 The operating model of the Carlton Savannah Hotel caters fully for the international executive who needs a different sort of hotel from leisure guests. The Carlton Savannah experience has been developed to provide the sort of business support resource the business travellers would expect from a global corporate headquarters. The hotel will have an entire team dedicated to meeting business requirements. Whether the business travellers require a secretary to take notes at a meeting; need to 'hot-desk' for a couple of hours; want documents typed, bound and printed; have a PowerPoint presentation created; or have forgotten a power cable for a laptop and need it recharged – and much more – their business team will be there to give the support the business travellers want, including that last minute press of suit for an important meeting.
7.13 Such service is prerequisite for the business traveller; the Carlton Savannah Hotel will be the first hotel to provide it, in Port of Spain.
7.14 To add to that, the Hotel has an enviable location, overlooking Port of Spain's famous Savannah, close to the Prime Minister's residence close to the central business district and ideal for avoiding the early morning traffic. Thus, this backdrop provides the ideal location for investment in an up-market business hotel, aimed primarily at the international business travellers.
7.15 The Trinidad & Tobago hotel market has a high level of repeat business customers, making it a very strong market in which to provide and capitalise on personalised service. Guest records that allow the Hotel Operating Company to anticipate the needs of the guests provide valuable information that can create a strong bond between the guest and the Carlton Savannah Hotel.
[1] http://www.tdc.co.tt/tourism_report.html
[2] Public information from website www.preferredhotels.com/
MARKET STUDY
7.16 A 2005 Trinidad & Tobago Tourism & Travel study performed by World Travel & Tourism Council, on behalf of the Tourism Development Company Limited, projected that growth in Trinidad & Tobago's Travel & Tourism Demand should average 6.03 per cent per annum to 2015, comfortably exceeding expected worldwide growth of 4.6 per cent per annum as well as the 3.4 per cent annual average growth forecast for the Caribbean.
7.17 In addition, the study found that the “majority of non-VFR (visits to friend and relatives) arrivals in Trinidad are business travellers. The importance of the energy sector and ever-growing manufacturing and financial services means that international business visitors are on the increase. However, current occupancy rates are high and it is apparent that hotel stock, particularly at the higher end of the market, is vastly inadequate to cope with demand.”
7.17 In addition, the study found that the “majority of non-VFR (visits to friend and relatives) arrivals in Trinidad are business travellers. The importance of the energy sector and ever-growing manufacturing and financial services means that international business visitors are on the increase. However, current occupancy rates are high and it is apparent that hotel stock, particularly at the higher end of the market, is vastly inadequate to cope with demand.”
THE CONCEPT OF A BUSINESS HOTEL SOLUTION - THE FINANCIAL MODEL
7.18 So was born the Carlton Savannah. A business Luxury Hotel ranked by Preferred Hotels, aimed at providing the services that a business person should expect in the capital city – Port of Spain – of a wealthy economy.
7.19 However, rather than a traditional hotel, the Carlton Savannah Hotel is a hotel with individuals and institutions such as the Carlton Savannah REIT owning the Apartments. These Apartments will be managed by the Hotel Operating Company. On a monthly basis, the Owners of the Apartments in the Hotel will receive their proportionate share of the Owners’ Share of Rent earned by the operations of the Hotel, thus creating an investment asset with an income stream.
7.20 Below is a step-by-step explanation of the investment opportunity:
Carlton Savannah Hotel has 55 two-bedroom Apartments that are individually titled and are available for sale to individuals, institutions or REITS.
On buying an Apartment, an Owner must sign a Carlton Savannah Hotel Operating Agreement which places the Apartment in the pool of Apartments managed by the Hotel Operating Company for an agreed percentage of the Owners’ Share of Rent.
1. The Apartments are managed for the Owners as a Preferred Hotel’s Luxury Hotel.
2. Having the Apartments managed by a professional Hotel Operating Company, means that the owner are likely to achieve higher per-square-foot rent than in the normal residential rental market, because the space is being rented at a Preferred Hotel’s Luxury Hotel rate, rather than a monthly residential rental.
3. The Apartments have been designed to maximise the rental income by the ease with which they can be reconfigured. Each Apartment:
(a) has fully furnished three rooms – 2 bedrooms and one living room
(b) is designed with three bathrooms to allow reconfiguration into 3 one-bedroom Apartments
(c) has three entrances from the hotel hallway so that each of the one-bedroom Apartments referenced in (b) above can be rented independently
(d) has a living room with very high tech wall-beds, so that the rooms can be used as the living space of a suite, or as a separate bedroom, and be interchangeable on demand
This way, the Hotel Operating Company has total flexibility to rent the space as three separate one-bedroom units or as a one or two-bedroom suite.
4. Based on the flexible design of the Apartments, the monthly Rent is maximized as a result of the following:
(a) the entire building is managed as a Preferred Hotel’s Luxury Hotel
(b) The Owners receive a proportionate share of the Owners’ Share of Rent which represents 65% of the Net Operating Profits. The Hotel Operating Company retains 35% of the Net Operating Profits.
This is an optimal situation as the Hotel Operating Company, and the Owners have similar commercial objectives and so the Hotel Operating Company is motivated to maximize profit.
5. Mr. Lyle Pauls, the General Manager of the Hotel, has the experience of managing hotels in North America and Canada utilizing the shared profit model.
6. Of significance, the Carlton Savannah Hotel, upon opening, will not be encumbered with high levels of debt used in the construction of the hotel. The traditionally financed hotel often has long-term debt over 30-40 years in relation to the construction of the facility, which encumbers the profit & loss account with high financing charges, which along with reducing the overall profitability of the company, also makes the company less agile if at any time markets soften. In stark contrast, the Carlton Savannah Hotel has been structured as a real estate transaction, such that the entire facility, comprising 55 apartments, a Health Club & Spa and the food & beverage operation, is sold to owner-investors, and as such the hotel is able to repay construction finance.
7 The Carlton Savannah hotel in Port of Spain, Trinidad & Tobago was awarded Preferred Standards of Excellence® 2007 by Preferred Hotels & Resorts This is significant as the Preferred Standards of Excellence was awarded before the hotel is opened.
7.19 However, rather than a traditional hotel, the Carlton Savannah Hotel is a hotel with individuals and institutions such as the Carlton Savannah REIT owning the Apartments. These Apartments will be managed by the Hotel Operating Company. On a monthly basis, the Owners of the Apartments in the Hotel will receive their proportionate share of the Owners’ Share of Rent earned by the operations of the Hotel, thus creating an investment asset with an income stream.
7.20 Below is a step-by-step explanation of the investment opportunity:
Carlton Savannah Hotel has 55 two-bedroom Apartments that are individually titled and are available for sale to individuals, institutions or REITS.
On buying an Apartment, an Owner must sign a Carlton Savannah Hotel Operating Agreement which places the Apartment in the pool of Apartments managed by the Hotel Operating Company for an agreed percentage of the Owners’ Share of Rent.
1. The Apartments are managed for the Owners as a Preferred Hotel’s Luxury Hotel.
2. Having the Apartments managed by a professional Hotel Operating Company, means that the owner are likely to achieve higher per-square-foot rent than in the normal residential rental market, because the space is being rented at a Preferred Hotel’s Luxury Hotel rate, rather than a monthly residential rental.
3. The Apartments have been designed to maximise the rental income by the ease with which they can be reconfigured. Each Apartment:
(a) has fully furnished three rooms – 2 bedrooms and one living room
(b) is designed with three bathrooms to allow reconfiguration into 3 one-bedroom Apartments
(c) has three entrances from the hotel hallway so that each of the one-bedroom Apartments referenced in (b) above can be rented independently
(d) has a living room with very high tech wall-beds, so that the rooms can be used as the living space of a suite, or as a separate bedroom, and be interchangeable on demand
This way, the Hotel Operating Company has total flexibility to rent the space as three separate one-bedroom units or as a one or two-bedroom suite.
4. Based on the flexible design of the Apartments, the monthly Rent is maximized as a result of the following:
(a) the entire building is managed as a Preferred Hotel’s Luxury Hotel
(b) The Owners receive a proportionate share of the Owners’ Share of Rent which represents 65% of the Net Operating Profits. The Hotel Operating Company retains 35% of the Net Operating Profits.
This is an optimal situation as the Hotel Operating Company, and the Owners have similar commercial objectives and so the Hotel Operating Company is motivated to maximize profit.
5. Mr. Lyle Pauls, the General Manager of the Hotel, has the experience of managing hotels in North America and Canada utilizing the shared profit model.
6. Of significance, the Carlton Savannah Hotel, upon opening, will not be encumbered with high levels of debt used in the construction of the hotel. The traditionally financed hotel often has long-term debt over 30-40 years in relation to the construction of the facility, which encumbers the profit & loss account with high financing charges, which along with reducing the overall profitability of the company, also makes the company less agile if at any time markets soften. In stark contrast, the Carlton Savannah Hotel has been structured as a real estate transaction, such that the entire facility, comprising 55 apartments, a Health Club & Spa and the food & beverage operation, is sold to owner-investors, and as such the hotel is able to repay construction finance.
7 The Carlton Savannah hotel in Port of Spain, Trinidad & Tobago was awarded Preferred Standards of Excellence® 2007 by Preferred Hotels & Resorts This is significant as the Preferred Standards of Excellence was awarded before the hotel is opened.
CORPORATE GOVERNANCE
8.1 The Carlton Savannah REIT (Jamaica) Limited is managed under the direction of a Board of Directors. One of the principal objectives of the Board is to maximize long-term economic value for the stockholders. The Directors of the Company are committed to the principles of excellence, inclusion and transparency. These principles include regular attendance at board meetings so that the affairs of the Company are properly monitored, oversight of accounting and financial reporting, monitoring of compliance with applicable laws and regulations as well as oversight of internal controls and procedures and audit functions.
8.2 The Board of Directors of the Company has determined that the financial interests of the members of the Board should be closely aligned with the interests of the stockholders. Consequently, all non-employee members of the Board must own by the end of his or her first year as director an amount of the company’s common stock equal to five times the cash annual board retainer that is payable to each non-employee member of the Board.
8.3 No director may assign, alienate, sell, transfer, pledge or encumber his or her shares as would cause that director’s assessed value of the Company’s stock holdings to fall below his or her total stock ownership requirement.
8.4 Stuart White, the Chief Executive Officer of both the Developer and the Hotel Operator, has agreed, at the request of the other directors, to sit on the Company’s board for the first two years of operation of the Hotel, during the period when the Interim Monthly Rent is guaranteed. His presence will allow the other directors, management and shareholders (in general meetings) direct contact with the principal force behind the creation and operation of the hotel, facilitate the seamless communication and clarification, and ensure that the Company is kept constantly up to date with developments at the Hotel. Mr. White will recuse himself from Board deliberations which may be in conflict with his role as Hotel Operator or Developer.
8.5 The Company will hold general meetings in accordance with the requirements of the Companies Act and the Jamaica Stock Exchange. There will be at least one Annual General Meeting each year and such other meetings as may be requisitioned by shareholders or called by the Directors. The quorum for meetings shall be three members.
8.6 The Company will establish an Audit Committee in accordance with the requirements of the Jamaica Stock Exchange.
8.2 The Board of Directors of the Company has determined that the financial interests of the members of the Board should be closely aligned with the interests of the stockholders. Consequently, all non-employee members of the Board must own by the end of his or her first year as director an amount of the company’s common stock equal to five times the cash annual board retainer that is payable to each non-employee member of the Board.
8.3 No director may assign, alienate, sell, transfer, pledge or encumber his or her shares as would cause that director’s assessed value of the Company’s stock holdings to fall below his or her total stock ownership requirement.
8.4 Stuart White, the Chief Executive Officer of both the Developer and the Hotel Operator, has agreed, at the request of the other directors, to sit on the Company’s board for the first two years of operation of the Hotel, during the period when the Interim Monthly Rent is guaranteed. His presence will allow the other directors, management and shareholders (in general meetings) direct contact with the principal force behind the creation and operation of the hotel, facilitate the seamless communication and clarification, and ensure that the Company is kept constantly up to date with developments at the Hotel. Mr. White will recuse himself from Board deliberations which may be in conflict with his role as Hotel Operator or Developer.
8.5 The Company will hold general meetings in accordance with the requirements of the Companies Act and the Jamaica Stock Exchange. There will be at least one Annual General Meeting each year and such other meetings as may be requisitioned by shareholders or called by the Directors. The quorum for meetings shall be three members.
8.6 The Company will establish an Audit Committee in accordance with the requirements of the Jamaica Stock Exchange.
DIVIDEND POLICY AND PROJECTED PAYMENTS
9.1 The Company currently has no contractual obligations that restrict dividend payments.
Dividend Policy
9.2 The dividend policy on the ordinary shares of the Carlton Savannah REIT (Jamaica) Limited is to distribute 95% or greater of its proportionate share of the Investment Property Income generated by the operations of the Carlton Savannah Hotel, net of expenses of the Company, as dividends to its shareholders. This dividend policy may be subject to review from time to time by the Company’s Board.
Projected Dividend Payments
9.3 The Hotel Operating Company shall distribute the Rent from the operation of the Hotel in the following manner:
9.4 The Hotel Operating Company will calculate the amount standing to the credit of the Owners’ Rent Account monthly, with payments being made within thirty (30) days of month’s end. If the payment is not made within the required time period, then the Hotel Operating Company shall pay interest on such sum at the rate of 2% per annum over prime lending rate in Trinidad & Tobago until payment.
9.5 In the first and second year of ownership (that is to say the first year commencing from the Opening, and the year commencing from the anniversary of the Opening) a guaranteed minimum Rent calculated as 8.5% of the original Purchase Price Apartment will be paid monthly, as follows:
9.5.1 In respect of the two year period commencing with the Opening, the Hotel Operating Company will pay a minimum rent equal to the Interim Monthly Rent to the Owner within 30 days of the end of each month.
9.5.2 At the end of each Operating Year the accounts will be audited and the Net Operating Profit will be confirmed and the Additional Rent due to the Owner will be paid in full 30 days after the receipt of the audited accounts.
[Note: Inclusive of the Health Club & Spa, after 15% Trinidad & Tobago tax and the expenses of the REIT, dividend yield is forecasted to be 6.3% per annum in the first two years.]
9.5.3 In respect of the period from and after the second year after the Opening, the Hotel Operating Company shall pay to the Owner monthly in arrears on account of the Additional Rent a sum equal to one-half of the amount which it calculates to be the Additional Rent in respect of the preceding month AND within 30 days after the receipt of the audited accounts for each Operating Year, shall pay to the Owner the balance due in respect of the Additional Rent for such Operating Year.
9.6 All Rent will be paid in Trinidad & Tobago Dollars directly by bank transfer to the owners designated bank account provided to the Hotel Operating Company and all payments made by the Hotel Operating Company to any such account shall be deemed to be payments received by the Owner for the purposes of this Agreement.
9.7 Monthly Rent from the Hotel Operating Company to the Owners’ Rent Account will also consist of monthly Spa Lease Payments for the lease of the Health Club & Spa. Starting in the first year, the Spa Lease Payments is calculated at 6% of the Purchase Price Health Club & Spa. Thereafter, the annual Spa Lease Payments will increase as specified in the Health Club and Spa Underlease. The term of the Health Club & Spa Underlease is twenty years from the Opening and is renewable.
9.8 After the completion of the Offer, the Company has the authority to sell any of its Apartments in accordance with the provisions of the Agreements for Sale (Apartments). The Company also has the authority to issue additional shares to purchase any available Apartments. The costs, including stamp duty, transfer tax or any applicable Government taxes, associated with the purchase by the Company of any such additional Apartments or the sale by the Company of any Apartments shall be incorporated into the sale or purchase prices.
9.9 Should the Company sell an Apartment in accordance with the terms of the applicable Sub-Lease during the course of an Operating Year the Hotel Operating Company will apportion the Rent based on the number of days in the year for which the Company beneficially owned the Apartment between the Company and its successor-in-ownership.
Proceeds from the sale of Apartments owned by the Company may be distributed to its shareholders as dividends.
Defaults and Distributons
9.10 If the Company defaults in the performance of any of its duties responsibilities and obligations of the Hotel Operating Agreement and does not cure the Default within thirty (30) days after receipt of written notification thereof from the Hotel Operating Company, the Hotel Operating Company shall have the right to withhold distribution of that part of the Owner’s Share of Rent due to the Company until such time as the Default is cured. The Hotel Operating Company shall have a right of set-off against the Owner’s Share of Rent for any costs incurred or losses suffered by the Hotel Operating Company. If the Default is such as has the effect of denying the Hotel Operating Company the exclusive use or possession of the Apartment, the Hotel Operating Company shall forfeit the Owner’s Share Rent for the period of the Default.
Dividend Policy
9.2 The dividend policy on the ordinary shares of the Carlton Savannah REIT (Jamaica) Limited is to distribute 95% or greater of its proportionate share of the Investment Property Income generated by the operations of the Carlton Savannah Hotel, net of expenses of the Company, as dividends to its shareholders. This dividend policy may be subject to review from time to time by the Company’s Board.
Projected Dividend Payments
9.3 The Hotel Operating Company shall distribute the Rent from the operation of the Hotel in the following manner:
9.4 The Hotel Operating Company will calculate the amount standing to the credit of the Owners’ Rent Account monthly, with payments being made within thirty (30) days of month’s end. If the payment is not made within the required time period, then the Hotel Operating Company shall pay interest on such sum at the rate of 2% per annum over prime lending rate in Trinidad & Tobago until payment.
9.5 In the first and second year of ownership (that is to say the first year commencing from the Opening, and the year commencing from the anniversary of the Opening) a guaranteed minimum Rent calculated as 8.5% of the original Purchase Price Apartment will be paid monthly, as follows:
9.5.1 In respect of the two year period commencing with the Opening, the Hotel Operating Company will pay a minimum rent equal to the Interim Monthly Rent to the Owner within 30 days of the end of each month.
9.5.2 At the end of each Operating Year the accounts will be audited and the Net Operating Profit will be confirmed and the Additional Rent due to the Owner will be paid in full 30 days after the receipt of the audited accounts.
[Note: Inclusive of the Health Club & Spa, after 15% Trinidad & Tobago tax and the expenses of the REIT, dividend yield is forecasted to be 6.3% per annum in the first two years.]
9.5.3 In respect of the period from and after the second year after the Opening, the Hotel Operating Company shall pay to the Owner monthly in arrears on account of the Additional Rent a sum equal to one-half of the amount which it calculates to be the Additional Rent in respect of the preceding month AND within 30 days after the receipt of the audited accounts for each Operating Year, shall pay to the Owner the balance due in respect of the Additional Rent for such Operating Year.
9.6 All Rent will be paid in Trinidad & Tobago Dollars directly by bank transfer to the owners designated bank account provided to the Hotel Operating Company and all payments made by the Hotel Operating Company to any such account shall be deemed to be payments received by the Owner for the purposes of this Agreement.
9.7 Monthly Rent from the Hotel Operating Company to the Owners’ Rent Account will also consist of monthly Spa Lease Payments for the lease of the Health Club & Spa. Starting in the first year, the Spa Lease Payments is calculated at 6% of the Purchase Price Health Club & Spa. Thereafter, the annual Spa Lease Payments will increase as specified in the Health Club and Spa Underlease. The term of the Health Club & Spa Underlease is twenty years from the Opening and is renewable.
9.8 After the completion of the Offer, the Company has the authority to sell any of its Apartments in accordance with the provisions of the Agreements for Sale (Apartments). The Company also has the authority to issue additional shares to purchase any available Apartments. The costs, including stamp duty, transfer tax or any applicable Government taxes, associated with the purchase by the Company of any such additional Apartments or the sale by the Company of any Apartments shall be incorporated into the sale or purchase prices.
9.9 Should the Company sell an Apartment in accordance with the terms of the applicable Sub-Lease during the course of an Operating Year the Hotel Operating Company will apportion the Rent based on the number of days in the year for which the Company beneficially owned the Apartment between the Company and its successor-in-ownership.
Proceeds from the sale of Apartments owned by the Company may be distributed to its shareholders as dividends.
Defaults and Distributons
9.10 If the Company defaults in the performance of any of its duties responsibilities and obligations of the Hotel Operating Agreement and does not cure the Default within thirty (30) days after receipt of written notification thereof from the Hotel Operating Company, the Hotel Operating Company shall have the right to withhold distribution of that part of the Owner’s Share of Rent due to the Company until such time as the Default is cured. The Hotel Operating Company shall have a right of set-off against the Owner’s Share of Rent for any costs incurred or losses suffered by the Hotel Operating Company. If the Default is such as has the effect of denying the Hotel Operating Company the exclusive use or possession of the Apartment, the Hotel Operating Company shall forfeit the Owner’s Share Rent for the period of the Default.
TERMINATION OF THE HOTEL OPERATING COMPANY'S ENGAGEMENT
9.11 The Hotel Operating Agreement allows the Carlton Savannah Owners’ Association to terminate the Carlton Savannah Hotel Operating Agreement upon any of the following occurrences:
(i) upon the confirmation by the independent auditors of a collective fraudulent act by the directors of the Hotel Operating Company with respect to the proper and legal management and operation of the Hotel.
(ii) if following continuous losses for 6 months, confirmed by the independent auditors, and following a further 6 months during which the directors of the Hotel Operating Company have the opportunity to stop the continuation of losses, but fail to do so.
9.12 A decision of the Carlton Savannah Owners’ Association shall be based on an ordinary resolution supported by persons holding not less than 51% of the shares in the Owners’ Association voting in favour of the resolution. All owners, who have completed their purchase of an Apartment (or the Health Club & Spa) in the Hotel will hold one such share
(i) upon the confirmation by the independent auditors of a collective fraudulent act by the directors of the Hotel Operating Company with respect to the proper and legal management and operation of the Hotel.
(ii) if following continuous losses for 6 months, confirmed by the independent auditors, and following a further 6 months during which the directors of the Hotel Operating Company have the opportunity to stop the continuation of losses, but fail to do so.
9.12 A decision of the Carlton Savannah Owners’ Association shall be based on an ordinary resolution supported by persons holding not less than 51% of the shares in the Owners’ Association voting in favour of the resolution. All owners, who have completed their purchase of an Apartment (or the Health Club & Spa) in the Hotel will hold one such share
FINANCIAL REPORTS & MEETINGS
Financial Reports & Meetings
9.13 The Directors of the Hotel Operating Company will deliver quarterly unaudited and annual audited financial statements to the Directors of the Carlton Savannah REIT (Jamaica) Limited. The quarterly unaudited statement will be delivered no later than 30 days after the end of the quarter. The Hotel Operating Company has the option to deliver the annual audited statements no later than 45 days after the close of its financial year if an unaudited fourth quarter statement was not delivered to the Company or to deliver the annual audited statements no later than 60 days if an unaudited fourth quarter statement was delivered.
9.14 Unaudited quarterly and audited annual financial statements of the Company will be distributed to the respective Stock Exchanges in accordance with the rules of the stock exchanges on which the shares are listed. The unaudited quarterly and audited annual financial statements of the hotel operating company received by the Directors of the Company will be delivered to the Jamaica Stock Exchange and be made available for inspection at the registered office of the Company.
9.15 These financial statements will be reviewed at the monthly meetings of the Board of Directors.
9.13 The Directors of the Hotel Operating Company will deliver quarterly unaudited and annual audited financial statements to the Directors of the Carlton Savannah REIT (Jamaica) Limited. The quarterly unaudited statement will be delivered no later than 30 days after the end of the quarter. The Hotel Operating Company has the option to deliver the annual audited statements no later than 45 days after the close of its financial year if an unaudited fourth quarter statement was not delivered to the Company or to deliver the annual audited statements no later than 60 days if an unaudited fourth quarter statement was delivered.
9.14 Unaudited quarterly and audited annual financial statements of the Company will be distributed to the respective Stock Exchanges in accordance with the rules of the stock exchanges on which the shares are listed. The unaudited quarterly and audited annual financial statements of the hotel operating company received by the Directors of the Company will be delivered to the Jamaica Stock Exchange and be made available for inspection at the registered office of the Company.
9.15 These financial statements will be reviewed at the monthly meetings of the Board of Directors.
RISK FACTORS
10.1 Prospective Applicants in the Company should be aware of the risks inherent in owning Shares in the Company. The following risk factors as well as others described or referred to elsewhere in the Prospectus, or any of the Documents Available for Inspection should be considered by each prospective Applicant before deciding how to act with respect to their potential investment.
Performance Risk/Timing of Cashflows
10.2 Performance risk/timing of cashflows of the investment involves the potential passage of time between the date of close of offer and the Hotel’s opening date.. Upon the Hotel, or any part thereof, being declared open for business by the Hotel Operating Company, accrual of Owners’ Share of Rent and Spa Lease Payments begin. While the operators and the investors’ interests are aligned regarding the need to open the Hotel at the earliest possible date in order to maximize the returns that both parties will share, there exists a possibility that deferral in the Hotel Opening Date could happen.
Market Risk
10.3 Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market price, whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market.
Growth Risks
10.4 A key component of the Rent to be generated from the Carlton Savannah Hotel is the sustained occupancy levels projected and the average daily room Rates. However, changes in the supply of rooms and in the nightly room Rates can negatively impact the revenue projections for the Hotel and hence the expected Owner’s Share of Rent. As a result, the financial projections detailed in the Documents Available for Inspection represent the Hotel Operating Company’s best estimate based on currently available information.
Trinidad & Tobago Economy
10.5 The economy of Trinidad & Tobago is projected by international rating agency Standard & Poors to grow at an annual rate of 5.5% for 2008 and 2009. A contributing factor to this growth is oil and gas. The price of oil has risen quite consistently since 1999 when it stood at approximately US$10 per barrel. Business travel for the Trinidad & Tobago economy has links to the underlying economy and the oil and gas industry. Changes in the growth projections for the economy or sustained declines in oil prices could have a negative impact on business travel and hence the projections for occupancy and average room rates at the Carlton Savannah hotel.
Nature of Interest in Leased Property Acquired
10.6 Nature of interest in Leased Property Acquired
The stamping and registration of the Sub-Leases for the Apartments and the Health Club & Spa ("Leased Property") being acquired will not be carried out immediately, so as to defer the costs involved in this exercise (currently 7% of the purchase price or value of the Leased Property at the date of execution of the Sub-Leases). Instead the Deeds Transferring Beneficial Interest will be stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago and this will transfer full beneficial interest in the Leased Property to CSRSL (which will be wholly owned by the Company) and confer to it the full right to exercise dominion and control over the Leased Property and the benefits under the contracts in relation thereto. The registration of the Deeds Transferring Beneficial Interest will give notice to all third parties of the interest vested in CSRSL. Note however that until the Sub-Leases are stamped and registered the Developer's name will remain on the register as the owner of the Property and thus it will be recognised as holding the legal interest in the Leased Property. It will, however, be a mere trustee for CSRSL which will have the unfettered right and power to stamp and register the Sub-Leases at any time and thus place its name on the register and be recognised as the holder of the legal title to the Leased Property. Under the laws of Trinidad & Tobago the terms of an unstamped sub-lease cannot be enforced in a court of law unless and until it has been duly stamped and registered, nor can the legal estate in the Leased Property be transferred by CSRSL until such stamping and registration is effected.
Performance Risk/Timing of Cashflows
10.2 Performance risk/timing of cashflows of the investment involves the potential passage of time between the date of close of offer and the Hotel’s opening date.. Upon the Hotel, or any part thereof, being declared open for business by the Hotel Operating Company, accrual of Owners’ Share of Rent and Spa Lease Payments begin. While the operators and the investors’ interests are aligned regarding the need to open the Hotel at the earliest possible date in order to maximize the returns that both parties will share, there exists a possibility that deferral in the Hotel Opening Date could happen.
Market Risk
10.3 Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market price, whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market.
Growth Risks
10.4 A key component of the Rent to be generated from the Carlton Savannah Hotel is the sustained occupancy levels projected and the average daily room Rates. However, changes in the supply of rooms and in the nightly room Rates can negatively impact the revenue projections for the Hotel and hence the expected Owner’s Share of Rent. As a result, the financial projections detailed in the Documents Available for Inspection represent the Hotel Operating Company’s best estimate based on currently available information.
Trinidad & Tobago Economy
10.5 The economy of Trinidad & Tobago is projected by international rating agency Standard & Poors to grow at an annual rate of 5.5% for 2008 and 2009. A contributing factor to this growth is oil and gas. The price of oil has risen quite consistently since 1999 when it stood at approximately US$10 per barrel. Business travel for the Trinidad & Tobago economy has links to the underlying economy and the oil and gas industry. Changes in the growth projections for the economy or sustained declines in oil prices could have a negative impact on business travel and hence the projections for occupancy and average room rates at the Carlton Savannah hotel.
Nature of Interest in Leased Property Acquired
10.6 Nature of interest in Leased Property Acquired
The stamping and registration of the Sub-Leases for the Apartments and the Health Club & Spa ("Leased Property") being acquired will not be carried out immediately, so as to defer the costs involved in this exercise (currently 7% of the purchase price or value of the Leased Property at the date of execution of the Sub-Leases). Instead the Deeds Transferring Beneficial Interest will be stamped and registered in the Land Registry in the offices of the Registrar General of Trinidad & Tobago and this will transfer full beneficial interest in the Leased Property to CSRSL (which will be wholly owned by the Company) and confer to it the full right to exercise dominion and control over the Leased Property and the benefits under the contracts in relation thereto. The registration of the Deeds Transferring Beneficial Interest will give notice to all third parties of the interest vested in CSRSL. Note however that until the Sub-Leases are stamped and registered the Developer's name will remain on the register as the owner of the Property and thus it will be recognised as holding the legal interest in the Leased Property. It will, however, be a mere trustee for CSRSL which will have the unfettered right and power to stamp and register the Sub-Leases at any time and thus place its name on the register and be recognised as the holder of the legal title to the Leased Property. Under the laws of Trinidad & Tobago the terms of an unstamped sub-lease cannot be enforced in a court of law unless and until it has been duly stamped and registered, nor can the legal estate in the Leased Property be transferred by CSRSL until such stamping and registration is effected.
Private and Confidential
The Directors May 8, 2008
Carlton Savannah REIT (Jamaica) Limited
7 Stanton Terrace
Kingston 6
Ladies and Gentlemen,
Accountants report on prospectus to be issued by Carlton Savannah REIT (Jamaica) Limited
KPMG Advisory Services (“KPMG”) has been engaged by the Carlton Savannah REIT (Jamaica) Limited, to prepare this report for inclusion in the Prospectus issued by Carlton Savannah REIT (Jamaica) Limited dated May 8, 2008, in respect of the proposed offer by subscription of the ordinary shares under Section 40(2) of the Companies Act.
Expressions defined in the Prospectus have the same meaning in this report.
Projected financial information
KPMG has been requested to prepare a report covering the prospective financial information described below and disclosed in the Prospectus.
The directors' prospective financial information is set out on pages 52 to 62 of the Prospectus and comprises the projected consolidated balance sheet, projected consolidated income statement, projected statements of changes in consolidated stockholders' equity, projected statement of consolidated cash flows and the accompanying notes of Carlton Savannah REIT (Jamaica) Limited for the years ending May 31, 2009, May 31, 2010 and May 31, 2011.
The directors of Carlton Savannah REIT (Jamaica) Limited are responsible for the preparation and presentation of the directors’ prospective information, including the assumptions on which the directors’ projection is based.
The directors’ prospective information has been prepared by the directors to provide Applicants with a guide to Carlton Savannah REIT (Jamaica) Limited’s potential future financial performance based upon the achievement of certain economic, operating, developmental and trading assumptions about future events and actions that have not yet occurred and may not necessarily occur. The directors’ assumptions underlying the directors’ projections are set out in section 12 of the Prospectus.
There is a considerable degree of judgment involved in the preparation of any prospective information. Consequently, the actual results of Carlton Savannah REIT (Jamaica) Limited during the projected period may vary materially from the directors’ projections, and that variation may be materially positive or negative.
The directors’ projection is sensitive to changes in key assumptions set out in section 12 of the Prospectus and the risks to which the business of Carlton Savannah REIT (Jamaica) Limited is exposed are set out in section 10 of the Prospectus. Applicants should consider the Directors’ projection in conjunction with those sections.
The directors’ projection is presented in an abbreviated form and does not include all of the disclosures required by International Financial Reporting Standards applicable to annual financial reports prepared in accordance with the Companies Act.
Scope of examination of directors’ projection and directors’ hypothetical assumptions
We have been engaged to examine the directors’ prospective financial information under International Standard on Assurance Engagements 3400, The Examination of Prospective Financial Information.
We have examined the prospective financial information to be included in the Prospectus in accordance with International Standard on Assurance Engagements 3400. Our procedures have consisted primarily of enquiry and comparison and such other analytical review procedures as we consider necessary.
Our examination of the directors’ projection and hypothetical assumptions is substantially less in scope than an audit conducted in accordance with International Standards on Auditing. A review of this nature provides less assurance than an audit. We did not perform an audit and we do not express an audit opinion on the directors’ projection, or the directors’ hypothetical assumptions.
The directors are responsible for the preparation and presentation of the prospective financial information, including the assumptions on which the prospective financial information is based. As the Carlton Savannah REIT (Jamaica) Limited is in a start-up phase, the projection has been prepared using a set of assumptions including hypothetical assumptions about future events and management’s actions that are not necessarily expected to occur. Consequently readers are cautioned that this projection may not be appropriate for purposes other than that described.
Examination statement on the directors’ projections and the directors’ hypothetical assumptions
Based on our examination of evidence supporting the assumptions, which is not an audit, nothing has come to our attention which causes us to believe that:
· the directors’ assumptions, set out in section 12 of the Prospectus, when taken as a whole, do not provide a reasonable basis for the preparation of the directors’ projections; and that
· the directors’ projections, set out on pages 52 to 55 of the Prospectus, are not properly prepared on the basis of the directors’ assumptions or presented fairly in accordance with the recognition and measurement principles prescribed in International Financial Reporting Standards.
The underlying assumptions are subject to significant uncertainties and contingencies, often outside the control of Carlton Savannah REIT (Jamaica) Limited. Even if the events anticipated under the hypothetical assumptions described above occur, actual results are still likely to be different from the projections since other anticipated events frequently do not occur as expected and the variation may be material. Accordingly, we do not confirm or guarantee the achievement of the directors’ projections, as future events, by their very nature, are not capable of independent substantiation.
Independence
KPMG does not have any interest in the outcome of this issue, other than in connection with the preparation of this report, and participation in due diligence procedures for which normal professional fees will be received. KPMG also provides the Carlton Savannah REIT (Jamaica) Limited with tax advisory services for which normal professional fees are received.
Responsibility
KPMG has consented to the inclusion of this Accountant’s Report in the Prospectus in the form and context in which it is so included, but has not authorised the issue of the Prospectus. Accordingly, KPMG makes no representation regarding, and takes no responsibility for, any other statements, or material in, or omissions from, the Prospectus.
General advice warning
This report has been prepared, and included in the Prospectus, to provide Applicants with general information only and does not take into account the objectives, financial situation or needs of any specific Applicant. It is not intended to take the place of professional advice and Applicants should not make specific investment decisions in reliance on the information contained in this report. Before acting or relying on any information, an Applicant should consider whether it is appropriate for their circumstances having regard to their objectives, financial situation or needs.
In this report, we provide general financial product advice, not personal financial product advice. It has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on any advice contained in this report.
Credentials of KPMG and Declaration of Relationship
KPMG Advisory Services is a Jamaican partnership which is part of KPMG, a Jamaican partnership and a member firm of KPMG, a global network of professional firms providing Audit, Tax and Advisory services. From time to time KPMG Advisory Services or KPMG’s Jamaican professional practice and/or KPMG related entities may provide professional services, including audit, tax and financial advisory services, to financial product issuers in the ordinary course of its business. KPMG is a network of independent member firms affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International performs no professional services for clients nor, concomitantly, generates any revenue. Our partners may be partners in KPMG’s Jamaican partnership.
We will receive a fee as compensation for our services in providing this report. We are also acting as tax advisor in connection with the Transaction and will receive a fee for our tax advisory services. KPMG has not been involved as a financial advisor to the Carlton Savannah REIT (Jamaica) Limited and has been retained solely with respect to:
(i) the review of the Carlton Savannah REIT (Jamaica) Limited prospective financial information; and
(ii) assistance related to tax advisory services.
KPMG has been appointed as auditors of Carlton Savannah REIT (Jamaica) Limited.
KPMG has performed its examination of the prospective financial information in an independent manner with access to management information and reports.
Except for the fees referred to above, neither KPMG, nor its representative, or any of its employees, involved in the provision of the report, receive any pecuniary or other benefits, directly or indirectly, for or in connection with, the provision of the Accountant's Report.
All our employees receive a salary and our partners or employees may receive partnership distributions from KPMG or bonuses based on overall productivity, but not directly in connection with any engagement for the provision of a report.
We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we provide.
Yours faithfully,
ROC:MR:sd
Carlton Savannah REIT (Jamaica) Limited
Projected Consolidated Balance Sheet
As at May 31, 2009, 2010 and 2011
Notes 2009 2010 2011
($’000) ($’000) ($’000)
ASSETS
Non-current asset:
Investment property -
Carlton Savannah Hotel 4 17,948.9 18,487.4 19,042.0
Current assets:
Receivables - - 492.4
Cash and cash equivalents, 54.7 109.5 109.5
Total current assets 54.7 109.5 601.9
TOTAL ASSETS 18,003.6 18,596.9 19,643.9
STOCKHOLDERS’ EQUITY
Issued share capital 5 17,426.1 17,426.1 17,426.1
Retained earnings 577.5 1,170.8 2,217.8
TOTAL STOCKHOLDERS EQUITY 18,003.6 18,596.9 19,643.9
Carlton Savannah REIT (Jamaica) Limited
Projected Consolidated Income Statement
Years ending May 31, 2009, 2010 and 2011
Notes 2009 2010 2011
($’000) ($’000) ($’000)
INCOME
Investment property income: 6
Share of profits from Carlton
Savannah Hotel Apartments 939.2 939.2 984.9
Lease income from Health Club & Spa 235.0 242.1 249.1
Unrealized gain in fair value of
investment property 3(c) 522.8 538.5 554.6
TOTAL INCOME 1,697.0 1,719.8 1,788.6
EXPENSES
Administration expenses 3.9 4.3 4.6
Directors fees 20.6 22.4 24.4
Audit and accounting fees 16.7 18.2 19.8
Regulatory fees 11.0 12.0 13.1
Marketing, legal and miscellaneous 26.7 28.1 30.6
TOTAL EXPENSES 78.9 85.0 92.5
PROFIT FOR THE YEAR 1,618.1 1,634.8 1,696.1
EARNINGS PER STOCK UNIT 7 $ 0.01 0.01 0.01
Carlton Savannah REIT (Jamaica) Limited
Projected Statement of Changes in Consolidated Stockholders’ Equity
Years ending May 31, 2009, 2010 and 2011
Share Retained
capital earnings Total
($’000) ($’000) ($’000)
(note 5)
Balance at June 1, 2008 17,426.1 - 17,426.1
Profit for the year - 1,618.1 1,618.1
Dividends paid - (1,040.6) ( 1,040.6)
Balance at May 31, 2009 17,426.1 577.5 18,003.6
Profit for the year - 1,634.8 1,634.8
Dividends paid - (1,041.5) ( 1,041.5)
Balance at May 31, 2010 17,426.1 1170.8 18,596.9
Profit for the year - 1696.1 1,696.1
Dividends paid - ( 649.1) ( 649.1)
Balance at May 31, 2011 17,426.1 2,217.8 19,643.9
Carlton Savannah REIT (Jamaica) Limited
Projected Statement of Consolidated Cash Flows
Years ending May 31, 2009, 2010 and 2011
Notes 2009 2010 2011
($’000) ($’000) ($’000)
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit for the year 1,618.1 1,634.8 1,696.1
Adjustment for unrealized gain in fair
value of investment property ( 522.8) ( 538.5) ( 554.6)
1,095.3 1,096.3 1,141.5
Change in current assets:
– receivables - - 492.4
Net cash provided by
operating activities 1095.3 1,096.3 649.1
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of subsidiary, CSRSL, being
net cash used in investing activities (17,426.1) - -
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds of issue of ordinary shares 8 17,426.1 - -
Dividends paid to shareholders 9 ( 1,040.6) (1,041.5) ( 649.1)
Net cash provided by/(used in)
financing activities 16,385.5 (1,041.5) ( 649.1)
Net increase in cash and cash equivalents 54.7 54.8 -
Cash and cash equivalents at
beginning of year - 54.7 109.5
Cash and cash equivalents at end of year 54.7 109.5 109.5
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements
Years ended May 31, 2009 – 2011
1. Identification and principal activity
Carlton Savannah REIT (Jamaica) Limited (“the company”) was incorporated in Jamaica on April 21, 2008. The company is domiciled in Jamaica with its registered office at 7 Stanton Terrace, Kingston 6, Jamaica. It intends to acquire by June 2008 a wholly-owned subsidiary, Carlton Savannah REIT (St. Lucia) Limited (“CSRSL”) , incorporated in St. Lucia, the projected principal activity of which will be the beneficial ownership of 16 Hotel Apartments and Health Club & Spa in the Carlton Savannah Hotel in Trinidad.
2. Basis of preparation
(a) Statement of compliance:
The consolidated projected financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and the relevant provisions of the Jamaican Companies Act (“the Act”).
(b) Basis of measurement:
The consolidated projected financial statements are presented on the historical cost basis except as modified for investment property carried at fair value.
(c) Functional and presentation currency:
The consolidated projected financial statements are presented in United States dollars ($), which is the functional currency of the company, and are stated in thousands, unless otherwise stated. The projected financial statements of other entities included in the consolidated financial statements that have different functional currencies are translated in the manner set out in note 3(d).
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May31, 2009 – 2011
2. Basis of preparation (Cont’d)
(d) Assumptions
The projected financial statements have been prepared on the basis of hypothetical assumptions made by the directors and management about future economic, operating, developmental and trading conditions, events and actions that have not yet occurred and may not occur. The assumptions regarded by management as most critical are set out in section 12 of this Prospectus.
3. Significant accounting policies
(a) Basis of consolidation:
The consolidated projected financial statements combine the financial position, results of operations and cash flows of the company and its subsidiary after eliminating all material intra- group balances and any unrealised gains and losses and income and expenses arising from intra-group transactions.
(b) Financial instruments:
(i) General
A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.
The only financial asset projected to be held by the Group is cash and cash equivalents, and no financial liabilities are projected to be held by the Group at the end of each year of the projection.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
3. Significant accounting policies
(b) Financial instruments (cont’d):
(i) General (cont’d)
Fair values:
Fair value amounts represent estimates of the arm’s length consideration that would be currently agreed between knowledgeable, willing parties who are under no compulsion to act and is best evidenced by a quoted market price, if one exists. Where quoted market prices are not available, the fair values of these instruments have been determined using a generally accepted alternative method. However, considerable judgement is required in interpreting market data to develop estimates of fair value.
(ii) Specific instruments - Cash and cash equivalents
Cash comprises cash in hand and demand and call deposits with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.
(c) Investment property:
Investment property is property held for long-term rental yields and/or capital gains, and is not occupied by the Group. Investment property is carried at fair value, based on open market values determined annually by independent qualified valuers or another generally accepted alternative method. Fair value is based on current prices in an active market for similar properties in the same location and condition. Any gain or loss arising from a change in fair value is recognized in the income statement.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
3. Significant accounting policies
(d) Foreign currency:
Transactions in foreign currencies are translated to the respective functional currencies of the Company and its subsidiary at the exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at balance sheet date are translated to the functional currency at the foreign exchange rates ruling at that date.
(e) Taxation:
Income tax on the profit or loss for the year comprises current and deferred tax. Under current provisions of the CARICOM Tax Treaty, CSRSL will only pay tax, at 1%, on its non-CARICOM income.
Projected withholding tax of 15% of the income due to CSRSL is paid to the tax authorities in Trinidad & Tobago prior to receipt of the income by CSRSL. This income suffers no further tax.
(f) Revenue:
(i) Share of rent
The Group’s share of the owners’ share of rent earned from rental of the apartments is recognised when due from the hotel operating company (note 4).
(ii) Lease rental income
Lease rental earned from the rental of the Health Club & Spa is recognised when due from the hotel operating company in monthly amounts in accordance with the annual rates set out in the lease agreement.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
4. Investment property
Investment property consists of 16 Hotel Apartments and the Health Club & Spa, part of the Carlton Savannah Hotel. The proportionate share of Owner’s Share of Rent generated annually by Carlton Savannah Limited, the hotel management company, is received by CSRSL, which will be a 100% owned subsidiary of the company.
5. Share capital
Year Ending May 31, 2009 2010 2011
Number of authorized shares 500,000,000 500,000,000 500,000,000
Number of Issued
and fully paid shares 212,330,270 212,330,270 212,330,270
Stated capital (US$000) 17,426.1 17,426.1 17,426.1
6. Investment income
Investment income is subject to various risks:
(a) Performance risk is the risk that the hotel operating company will not live up to its contractual obligations. CSRSL is dependent on the contractual performance of Carlton Savannah Limited in its management of the Carlton Savannah Hotel and Health Club & Spa.
(b) Market risk is the risk that the value of an investment fluctuates as a result of changes in market prices, whether those changes are caused by factors specific to the individual investment or general business sector or macro-economic factors.
(c) Foreign currency risk
The company is exposed to foreign currency risk on transactions that it undertakes in foreign currencies that give rise to the net currency gains and losses recognized during the year. Such exposures comprise the assets and liabilities of the Company that are not denominated in its functional currency.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
7. Earnings per stock unit
Earnings per stock unit (“EPS”) is computed by dividing profit attributable to equity holders of the parent by the weighted average number of stock units in issue during the period.
8. Proceeds of Issue of ordinary shares
The company will use the net proceeds from this offering to acquire all of the issued shares of CSRSL, which, in turn, will acquire the beneficial interest in 16 of the Apartments and the Health Club & Spa of the Carlton Savannah Hotel. The Hotel is targeted to be opened in June 2008 and will be managed by the Carlton Savannah Limited.
9. Dividends
The dividends projected to be paid represent substantially all of the amounts projected to be received by the Company from the hotel operating company for the rental of the apartments and the lease of the Health Club & Spa.
In relation to the rental of the apartments, in Year 3 and thereafter, the portion representing the owner's share of rent to be received from the hotel operating company for each operating year will be paid to the Company as follows:
· one-half of the amount which the operating company calculates to be the owner's share of rent in respect of the preceding month will be monthly in arrears; and
· the balance within 30 days after the receipt of the audited financial statements for each operating year.
In relation to the lease income for the Health Club & Spa, the amounts are received as set out in note 3(f)(ii).
The Directors May 8, 2008
Carlton Savannah REIT (Jamaica) Limited
7 Stanton Terrace
Kingston 6
Ladies and Gentlemen,
Accountants report on prospectus to be issued by Carlton Savannah REIT (Jamaica) Limited
KPMG Advisory Services (“KPMG”) has been engaged by the Carlton Savannah REIT (Jamaica) Limited, to prepare this report for inclusion in the Prospectus issued by Carlton Savannah REIT (Jamaica) Limited dated May 8, 2008, in respect of the proposed offer by subscription of the ordinary shares under Section 40(2) of the Companies Act.
Expressions defined in the Prospectus have the same meaning in this report.
Projected financial information
KPMG has been requested to prepare a report covering the prospective financial information described below and disclosed in the Prospectus.
The directors' prospective financial information is set out on pages 52 to 62 of the Prospectus and comprises the projected consolidated balance sheet, projected consolidated income statement, projected statements of changes in consolidated stockholders' equity, projected statement of consolidated cash flows and the accompanying notes of Carlton Savannah REIT (Jamaica) Limited for the years ending May 31, 2009, May 31, 2010 and May 31, 2011.
The directors of Carlton Savannah REIT (Jamaica) Limited are responsible for the preparation and presentation of the directors’ prospective information, including the assumptions on which the directors’ projection is based.
The directors’ prospective information has been prepared by the directors to provide Applicants with a guide to Carlton Savannah REIT (Jamaica) Limited’s potential future financial performance based upon the achievement of certain economic, operating, developmental and trading assumptions about future events and actions that have not yet occurred and may not necessarily occur. The directors’ assumptions underlying the directors’ projections are set out in section 12 of the Prospectus.
There is a considerable degree of judgment involved in the preparation of any prospective information. Consequently, the actual results of Carlton Savannah REIT (Jamaica) Limited during the projected period may vary materially from the directors’ projections, and that variation may be materially positive or negative.
The directors’ projection is sensitive to changes in key assumptions set out in section 12 of the Prospectus and the risks to which the business of Carlton Savannah REIT (Jamaica) Limited is exposed are set out in section 10 of the Prospectus. Applicants should consider the Directors’ projection in conjunction with those sections.
The directors’ projection is presented in an abbreviated form and does not include all of the disclosures required by International Financial Reporting Standards applicable to annual financial reports prepared in accordance with the Companies Act.
Scope of examination of directors’ projection and directors’ hypothetical assumptions
We have been engaged to examine the directors’ prospective financial information under International Standard on Assurance Engagements 3400, The Examination of Prospective Financial Information.
We have examined the prospective financial information to be included in the Prospectus in accordance with International Standard on Assurance Engagements 3400. Our procedures have consisted primarily of enquiry and comparison and such other analytical review procedures as we consider necessary.
Our examination of the directors’ projection and hypothetical assumptions is substantially less in scope than an audit conducted in accordance with International Standards on Auditing. A review of this nature provides less assurance than an audit. We did not perform an audit and we do not express an audit opinion on the directors’ projection, or the directors’ hypothetical assumptions.
The directors are responsible for the preparation and presentation of the prospective financial information, including the assumptions on which the prospective financial information is based. As the Carlton Savannah REIT (Jamaica) Limited is in a start-up phase, the projection has been prepared using a set of assumptions including hypothetical assumptions about future events and management’s actions that are not necessarily expected to occur. Consequently readers are cautioned that this projection may not be appropriate for purposes other than that described.
Examination statement on the directors’ projections and the directors’ hypothetical assumptions
Based on our examination of evidence supporting the assumptions, which is not an audit, nothing has come to our attention which causes us to believe that:
· the directors’ assumptions, set out in section 12 of the Prospectus, when taken as a whole, do not provide a reasonable basis for the preparation of the directors’ projections; and that
· the directors’ projections, set out on pages 52 to 55 of the Prospectus, are not properly prepared on the basis of the directors’ assumptions or presented fairly in accordance with the recognition and measurement principles prescribed in International Financial Reporting Standards.
The underlying assumptions are subject to significant uncertainties and contingencies, often outside the control of Carlton Savannah REIT (Jamaica) Limited. Even if the events anticipated under the hypothetical assumptions described above occur, actual results are still likely to be different from the projections since other anticipated events frequently do not occur as expected and the variation may be material. Accordingly, we do not confirm or guarantee the achievement of the directors’ projections, as future events, by their very nature, are not capable of independent substantiation.
Independence
KPMG does not have any interest in the outcome of this issue, other than in connection with the preparation of this report, and participation in due diligence procedures for which normal professional fees will be received. KPMG also provides the Carlton Savannah REIT (Jamaica) Limited with tax advisory services for which normal professional fees are received.
Responsibility
KPMG has consented to the inclusion of this Accountant’s Report in the Prospectus in the form and context in which it is so included, but has not authorised the issue of the Prospectus. Accordingly, KPMG makes no representation regarding, and takes no responsibility for, any other statements, or material in, or omissions from, the Prospectus.
General advice warning
This report has been prepared, and included in the Prospectus, to provide Applicants with general information only and does not take into account the objectives, financial situation or needs of any specific Applicant. It is not intended to take the place of professional advice and Applicants should not make specific investment decisions in reliance on the information contained in this report. Before acting or relying on any information, an Applicant should consider whether it is appropriate for their circumstances having regard to their objectives, financial situation or needs.
In this report, we provide general financial product advice, not personal financial product advice. It has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on any advice contained in this report.
Credentials of KPMG and Declaration of Relationship
KPMG Advisory Services is a Jamaican partnership which is part of KPMG, a Jamaican partnership and a member firm of KPMG, a global network of professional firms providing Audit, Tax and Advisory services. From time to time KPMG Advisory Services or KPMG’s Jamaican professional practice and/or KPMG related entities may provide professional services, including audit, tax and financial advisory services, to financial product issuers in the ordinary course of its business. KPMG is a network of independent member firms affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International performs no professional services for clients nor, concomitantly, generates any revenue. Our partners may be partners in KPMG’s Jamaican partnership.
We will receive a fee as compensation for our services in providing this report. We are also acting as tax advisor in connection with the Transaction and will receive a fee for our tax advisory services. KPMG has not been involved as a financial advisor to the Carlton Savannah REIT (Jamaica) Limited and has been retained solely with respect to:
(i) the review of the Carlton Savannah REIT (Jamaica) Limited prospective financial information; and
(ii) assistance related to tax advisory services.
KPMG has been appointed as auditors of Carlton Savannah REIT (Jamaica) Limited.
KPMG has performed its examination of the prospective financial information in an independent manner with access to management information and reports.
Except for the fees referred to above, neither KPMG, nor its representative, or any of its employees, involved in the provision of the report, receive any pecuniary or other benefits, directly or indirectly, for or in connection with, the provision of the Accountant's Report.
All our employees receive a salary and our partners or employees may receive partnership distributions from KPMG or bonuses based on overall productivity, but not directly in connection with any engagement for the provision of a report.
We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we provide.
Yours faithfully,
ROC:MR:sd
Carlton Savannah REIT (Jamaica) Limited
Projected Consolidated Balance Sheet
As at May 31, 2009, 2010 and 2011
Notes 2009 2010 2011
($’000) ($’000) ($’000)
ASSETS
Non-current asset:
Investment property -
Carlton Savannah Hotel 4 17,948.9 18,487.4 19,042.0
Current assets:
Receivables - - 492.4
Cash and cash equivalents, 54.7 109.5 109.5
Total current assets 54.7 109.5 601.9
TOTAL ASSETS 18,003.6 18,596.9 19,643.9
STOCKHOLDERS’ EQUITY
Issued share capital 5 17,426.1 17,426.1 17,426.1
Retained earnings 577.5 1,170.8 2,217.8
TOTAL STOCKHOLDERS EQUITY 18,003.6 18,596.9 19,643.9
Carlton Savannah REIT (Jamaica) Limited
Projected Consolidated Income Statement
Years ending May 31, 2009, 2010 and 2011
Notes 2009 2010 2011
($’000) ($’000) ($’000)
INCOME
Investment property income: 6
Share of profits from Carlton
Savannah Hotel Apartments 939.2 939.2 984.9
Lease income from Health Club & Spa 235.0 242.1 249.1
Unrealized gain in fair value of
investment property 3(c) 522.8 538.5 554.6
TOTAL INCOME 1,697.0 1,719.8 1,788.6
EXPENSES
Administration expenses 3.9 4.3 4.6
Directors fees 20.6 22.4 24.4
Audit and accounting fees 16.7 18.2 19.8
Regulatory fees 11.0 12.0 13.1
Marketing, legal and miscellaneous 26.7 28.1 30.6
TOTAL EXPENSES 78.9 85.0 92.5
PROFIT FOR THE YEAR 1,618.1 1,634.8 1,696.1
EARNINGS PER STOCK UNIT 7 $ 0.01 0.01 0.01
Carlton Savannah REIT (Jamaica) Limited
Projected Statement of Changes in Consolidated Stockholders’ Equity
Years ending May 31, 2009, 2010 and 2011
Share Retained
capital earnings Total
($’000) ($’000) ($’000)
(note 5)
Balance at June 1, 2008 17,426.1 - 17,426.1
Profit for the year - 1,618.1 1,618.1
Dividends paid - (1,040.6) ( 1,040.6)
Balance at May 31, 2009 17,426.1 577.5 18,003.6
Profit for the year - 1,634.8 1,634.8
Dividends paid - (1,041.5) ( 1,041.5)
Balance at May 31, 2010 17,426.1 1170.8 18,596.9
Profit for the year - 1696.1 1,696.1
Dividends paid - ( 649.1) ( 649.1)
Balance at May 31, 2011 17,426.1 2,217.8 19,643.9
Carlton Savannah REIT (Jamaica) Limited
Projected Statement of Consolidated Cash Flows
Years ending May 31, 2009, 2010 and 2011
Notes 2009 2010 2011
($’000) ($’000) ($’000)
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit for the year 1,618.1 1,634.8 1,696.1
Adjustment for unrealized gain in fair
value of investment property ( 522.8) ( 538.5) ( 554.6)
1,095.3 1,096.3 1,141.5
Change in current assets:
– receivables - - 492.4
Net cash provided by
operating activities 1095.3 1,096.3 649.1
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of subsidiary, CSRSL, being
net cash used in investing activities (17,426.1) - -
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds of issue of ordinary shares 8 17,426.1 - -
Dividends paid to shareholders 9 ( 1,040.6) (1,041.5) ( 649.1)
Net cash provided by/(used in)
financing activities 16,385.5 (1,041.5) ( 649.1)
Net increase in cash and cash equivalents 54.7 54.8 -
Cash and cash equivalents at
beginning of year - 54.7 109.5
Cash and cash equivalents at end of year 54.7 109.5 109.5
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements
Years ended May 31, 2009 – 2011
1. Identification and principal activity
Carlton Savannah REIT (Jamaica) Limited (“the company”) was incorporated in Jamaica on April 21, 2008. The company is domiciled in Jamaica with its registered office at 7 Stanton Terrace, Kingston 6, Jamaica. It intends to acquire by June 2008 a wholly-owned subsidiary, Carlton Savannah REIT (St. Lucia) Limited (“CSRSL”) , incorporated in St. Lucia, the projected principal activity of which will be the beneficial ownership of 16 Hotel Apartments and Health Club & Spa in the Carlton Savannah Hotel in Trinidad.
2. Basis of preparation
(a) Statement of compliance:
The consolidated projected financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and the relevant provisions of the Jamaican Companies Act (“the Act”).
(b) Basis of measurement:
The consolidated projected financial statements are presented on the historical cost basis except as modified for investment property carried at fair value.
(c) Functional and presentation currency:
The consolidated projected financial statements are presented in United States dollars ($), which is the functional currency of the company, and are stated in thousands, unless otherwise stated. The projected financial statements of other entities included in the consolidated financial statements that have different functional currencies are translated in the manner set out in note 3(d).
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May31, 2009 – 2011
2. Basis of preparation (Cont’d)
(d) Assumptions
The projected financial statements have been prepared on the basis of hypothetical assumptions made by the directors and management about future economic, operating, developmental and trading conditions, events and actions that have not yet occurred and may not occur. The assumptions regarded by management as most critical are set out in section 12 of this Prospectus.
3. Significant accounting policies
(a) Basis of consolidation:
The consolidated projected financial statements combine the financial position, results of operations and cash flows of the company and its subsidiary after eliminating all material intra- group balances and any unrealised gains and losses and income and expenses arising from intra-group transactions.
(b) Financial instruments:
(i) General
A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.
The only financial asset projected to be held by the Group is cash and cash equivalents, and no financial liabilities are projected to be held by the Group at the end of each year of the projection.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
3. Significant accounting policies
(b) Financial instruments (cont’d):
(i) General (cont’d)
Fair values:
Fair value amounts represent estimates of the arm’s length consideration that would be currently agreed between knowledgeable, willing parties who are under no compulsion to act and is best evidenced by a quoted market price, if one exists. Where quoted market prices are not available, the fair values of these instruments have been determined using a generally accepted alternative method. However, considerable judgement is required in interpreting market data to develop estimates of fair value.
(ii) Specific instruments - Cash and cash equivalents
Cash comprises cash in hand and demand and call deposits with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.
(c) Investment property:
Investment property is property held for long-term rental yields and/or capital gains, and is not occupied by the Group. Investment property is carried at fair value, based on open market values determined annually by independent qualified valuers or another generally accepted alternative method. Fair value is based on current prices in an active market for similar properties in the same location and condition. Any gain or loss arising from a change in fair value is recognized in the income statement.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
3. Significant accounting policies
(d) Foreign currency:
Transactions in foreign currencies are translated to the respective functional currencies of the Company and its subsidiary at the exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at balance sheet date are translated to the functional currency at the foreign exchange rates ruling at that date.
(e) Taxation:
Income tax on the profit or loss for the year comprises current and deferred tax. Under current provisions of the CARICOM Tax Treaty, CSRSL will only pay tax, at 1%, on its non-CARICOM income.
Projected withholding tax of 15% of the income due to CSRSL is paid to the tax authorities in Trinidad & Tobago prior to receipt of the income by CSRSL. This income suffers no further tax.
(f) Revenue:
(i) Share of rent
The Group’s share of the owners’ share of rent earned from rental of the apartments is recognised when due from the hotel operating company (note 4).
(ii) Lease rental income
Lease rental earned from the rental of the Health Club & Spa is recognised when due from the hotel operating company in monthly amounts in accordance with the annual rates set out in the lease agreement.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
4. Investment property
Investment property consists of 16 Hotel Apartments and the Health Club & Spa, part of the Carlton Savannah Hotel. The proportionate share of Owner’s Share of Rent generated annually by Carlton Savannah Limited, the hotel management company, is received by CSRSL, which will be a 100% owned subsidiary of the company.
5. Share capital
Year Ending May 31, 2009 2010 2011
Number of authorized shares 500,000,000 500,000,000 500,000,000
Number of Issued
and fully paid shares 212,330,270 212,330,270 212,330,270
Stated capital (US$000) 17,426.1 17,426.1 17,426.1
6. Investment income
Investment income is subject to various risks:
(a) Performance risk is the risk that the hotel operating company will not live up to its contractual obligations. CSRSL is dependent on the contractual performance of Carlton Savannah Limited in its management of the Carlton Savannah Hotel and Health Club & Spa.
(b) Market risk is the risk that the value of an investment fluctuates as a result of changes in market prices, whether those changes are caused by factors specific to the individual investment or general business sector or macro-economic factors.
(c) Foreign currency risk
The company is exposed to foreign currency risk on transactions that it undertakes in foreign currencies that give rise to the net currency gains and losses recognized during the year. Such exposures comprise the assets and liabilities of the Company that are not denominated in its functional currency.
Carlton Savannah REIT (Jamaica) Limited
Notes to the projected consolidated financial statements (cont’d)
Years ended May 31, 2009 – 2011
7. Earnings per stock unit
Earnings per stock unit (“EPS”) is computed by dividing profit attributable to equity holders of the parent by the weighted average number of stock units in issue during the period.
8. Proceeds of Issue of ordinary shares
The company will use the net proceeds from this offering to acquire all of the issued shares of CSRSL, which, in turn, will acquire the beneficial interest in 16 of the Apartments and the Health Club & Spa of the Carlton Savannah Hotel. The Hotel is targeted to be opened in June 2008 and will be managed by the Carlton Savannah Limited.
9. Dividends
The dividends projected to be paid represent substantially all of the amounts projected to be received by the Company from the hotel operating company for the rental of the apartments and the lease of the Health Club & Spa.
In relation to the rental of the apartments, in Year 3 and thereafter, the portion representing the owner's share of rent to be received from the hotel operating company for each operating year will be paid to the Company as follows:
· one-half of the amount which the operating company calculates to be the owner's share of rent in respect of the preceding month will be monthly in arrears; and
· the balance within 30 days after the receipt of the audited financial statements for each operating year.
In relation to the lease income for the Health Club & Spa, the amounts are received as set out in note 3(f)(ii).
KEY ASSUMPTIONS
Key Assumptions Underlying the Projections for the Years Ending May 31, 2009, 2010, 2011
12.1 The consolidated financial projections of the Carlton Savannah REIT (Jamaica) Limited should be read in conjunction with the financial projections of the hotel operating company, Carlton Savannah Limited. These are presented in the Documents Available for Inspection. The financial projections of the Carlton Savannah REIT (Jamaica) Limited reflect the expected Investment Property Income from CSRSL which in turn derives its income from the Owner’s Share of Rent and Spa Lease Payments from Carlton Savannah Limited. The projected expenses of CSRSL/Carlton Savannah REIT (Jamaica) Limited are specific to the ongoing operations of the CSRSL/Carlton Savannah REIT (Jamaica) Limited.
12.2
The financial projections contained in this section represent the Hotel Operating Company's best estimate of future financial performance of the Carlton Savannah Hotel. This estimate is related to information currently available and is based upon reasonable assumptions concerning the Carlton Savannah hotel, its industry and the macro-economic environment. The future may not materialize as expected.
12.3 The financial projections of the Carlton Savannah Hotel are presented in accordance with the Uniform System of Accounts for the Lodging Industry.
PERFORMANCE MEASURES
12.4 Occupancy Percentage, Average Room Rate and RevPar are three important indicators used by the hotel industry in general to measure the performance of a hotel and compare performance to other hotel operations.
12.5 Occupancy Percentage measures the level of hotel room utilization and is calculated by dividing the number of rooms rented for a given period by the number of rooms available for the period.
PERFORMANCE MEASURES (cont’d)
12.6 Average Room Rate measures the average room price for all Guest rooms by dividing total room revenues by the number of rooms rented.
12.7 RevPar (Revenue per available room) is calculated by multiplying the Occupancy Percentage by the Average Room Rate and is a measure of efficiency based on all available rooms regardless of whether they are occupied or not.
12.8 The key performance assumptions for the Carlton Savannah Hotel are as follows:
2009 2010 2011
Average occupancy rate 57.0% 68.0% 74.0%
Average room rate (US$)
1 bedroom units $223.00 253.08 273.49
% growth 13% 8%
1 bedroom suite $334.50 379.61 410.23
% growth 13% 8%
Weighted Ave Daily Rate $234.15 265.73 287.16
% growth 13% 8%
RevPar (US$)
1 bedroom units $127.11 172.09 202.38
1 bedroom suite $190.67 258.14 303.57
No 1 bedroom units occupied 77 92 100
No 1 bedroom suites occupied 9 10 11
12.9 The average net occupancy rate in Port of Spain, Trinidad in 2006 was 77.8%.
The most recent report on hotel occupancy by the Tourism Development Company Limited of Trinidad & Tobago for the period January to August, 2006 and 2007 show that the average hotel net occupancy in Port of Spain remained high at 78.6% and 74.2% respectively. Average room rate over that same period increased by approximately 27%.
12.10 The goal of the Hotel Operating Company is to achieve an occupancy level of 74% by its third year of operations.
12.11 The weighted average daily rate of US$234 expected to be achieved by the Hotel Operating Company compares favourably with the marketplace. Given Carlton Savannah’s position as Preferred Hotel’s Luxury Hotel, it has a distinct advantage over its competitors.
12.12 Average Daily Rates
Hotel Rooms Avg. Rate Rating
Carlton Savannah Hotel 165 $234
Crowne Plaza Hotel Port of Spain 245 $223
Hilton Trinidad Hotel 394 $240
Marriott Courtyard, Port of Spain 119 $215
Hyatt Regency Trinidad 428 $199
Kapok Hotel 94 $182
Cascadia Hotel & Conference Ctr 68 $175
Additional key assumptions:
Currency depreciation
12.13 The primary currency sources are USD and TT dollar. The primary uncertainty is the performance of the TT dollar versus the US dollar. Projections for the TT dollar are that it remains in a stable pattern at approximately TT$6.30 per US$1.
Depreciation for the Jamaican dollar versus the US dollar is projected to be 3% annually.
Inflation
12.14 The primary source of increase in the average daily hotel rate projections by the Hotel Operating Company is driven by the increase in occupancy and inflation assumptions of Trinidad. It has been shown that average daily rates for hotels track inflation. However, to be conservative, the Hotel Operating Company projected the average daily rates to grow by 3.5%, which is less than the inflation rate currently experienced in Trinidad & Tobago.
For the expenses of the Company, the primary source of inflation projection is driven by the underlying inflation of Jamaica.
Year Ending May 31, 2010 2011
Increase in Average daily hotel rate 3.5% 3.5%
JA Inflation projections 11.0% 12.0%
Taxation
12.15 Rates of taxation over the period of the projection for CSRSL/Carlton Savannah REIT (Jamaica) Limited are assumed to be 15% payable to the authorities in Trinidad & Tobago. It is expected that there will be no additional income tax payable by Carlton Savannah REIT (Jamaica) Limited in Jamaica on income from this source.
Unrealised gain in fair value of investment property
12.16 Profit for the years is comprised of profits from the operations of rental of the hotel apartments, lease payments from the health club & spa and changes in the fair value of the investment property, which is assumed to be 3% annually. The assumption of a 3% annual change in fair value was made against the background of the trend in real estate prices in Trinidad & Tobago in recent years, which has been estimated by the Central Bank of Trinidad & Tobago to be in the range of 12 – 15%, viz:
Year Increase
2003 15%
2004 15%
2005 15%
2006 12%
Source: Central Bank of T&T, Monetary Report, April 2007.
The rationale for assuming the very conservative 3% annual increase for the projection period despite real estate prices having risen as strongly as the table above indicates, is that there tends to be periodic correction of such prices.
12.17 The table below presents an analysis of the sensitivity of projected profit for each of the years to gains in the fair value of real investment property at annual rates other than the 3% assumed:
Assumed %
change in FV of
investment Net profit Net profit Net profit
property for year 1 for year 2 for year 3
0% 1,095 1,096 1,141
3% 1,618 1,635 1,696
9% 2,664 2,806 3,005
14%* 3,579 3,933 4,383
* The 14% is the average increase in real estate prices in Trinidad & Tobago for the years 2003 – 2006
Travel and Tourism Industry Growth in Trinidad & Tobago
12.18 The Carlton Savannah Limited has targeted the business travellers to achieve the projected occupancy growth. With expected increases in the level of economic activity especially as it relates to expansion in the energy sector, the Hotel Operating Company believes that the projected growth is achievable. Corroborating data for these projections can be found in a study commissioned by the Tourism and Development Company Limited of Trinidad & Tobago. This study projected that the travel and tourism industry should grow at an annual rate of 6.03% to the year 2015. The study was done by World Travel & Tourism Council.[4]
Administration and Other Expenses
These include accounting, audit, stock exchange, marketing, directors and legal and professional fees.
Key Assumptions Underlying the Revenue And Expense Projections For The Health Club & Spa
12.19 The key assumptions driving the revenues of the Health Club & Spa are also occupancy rate of the Hotel as per above, the number of hotel and non-hotel Guests that utilize the spa treatments, have membership and/or drive product sales.
12.20 Distinct from beach resorts, Carlton Savannah is operating in a cosmopolitan business city, with a large and wealthy middle class, professional demographic. The increasing sophistication of this market provides an increasing demand for international standard Health Club & Spa product, and one in which exclusivity supported by club memberships panders to the same increasingly sophisticated demands of the local population.
12.21 Such local demand from non-hotel Guests supports a healthy business model for the Health Club & Spa, where local demand and club memberships play a very important part in driving the revenues, and which makes the HC & Spa for the Carlton Savannah a very different but very attractive opportunity.
12.22 A recent study entitled Trends in the Hotel Spa Industry published by PKF Hospitality Research found that hotels have added spa operations to meet escalating consumer expectations and to increase revenues and profits. The study said this was a result of a growing number of people leading healthier lifestyles and demanding spa services when they travel. Further, the study found “…by offering and promoting spas to their guests, hotels have generated increased interest in pampering and luxurious spa experiences.” From a profit perspective, the study also found that with “… a stronger focus on staffing and a better understanding of the local community, both urban and resort spas have an incredible opportunity to increase their profit margins. A properly operated and marketed spa facility can enhance the overall hotel’s performance in terms of rate potential, occupancy, and guest demand diversity.” In 2006, PKF Hospitality Research found that the average hotel spa department achieved a profit margin of 31.1 percent.
Projected Income Statement for Carlton Savannah Limited - Health Club & Spa
2008/9 2009/10 2010/11
US$000 US$000 US$000
REVENUE
Treatments 729.1 894.4 960.0
Classes 164.9 200.8 210.8
Memberships 315.7 403.8 424.0
Product sales 94.8 116.3 124.9
Total revenue 1,304.5 1,615.3 1,719.7
EXPENSES
Payroll:
Total Labour incl Benefits & Commissions 199.6 209.6 220.0
Direct Cost of Sales
Treatments (10% of treatment revenue) 72.9 76.6 80.4
Product sales (40% of Product sales revenue) 37.9 39.8 41.8
Spa Direct Expenses is 6% of Revenue 78.3 82.2 86.3
Undistributed Payroll:
A&G }
S&M }
Property } 39.1 41.1 43.1
Undistributed Expenses:
A&G is 4% of total revenue 52.2 54.8 57.5
S&M is 4.5% of total revenue 58.7 61.6 64.7
Prop Operations is 2% of total revenue 26.1 27.4 28.8
Property insurance 1% 13.0 13.7 14.4
Energy expense 2% 26.1 27.4 28.8
Replacement reserve 2% 26.1 27.4 28.8
Total Expense 630.0 661.5 694.6
Net operating profit before lease payment 674.5 953.8 1,025.2
Lease payment to CSRSL (276.5) (284.8) ( 293.1)
Net operating profit after Spa lease payment and
before tax 398.0 669.0 732.1
Summary Prospective Financials
[1] Performance of Tourist Accommodation 2006 (Trinidad), Prepared by: Research and Planning, Tourism Development Company Ltd.
[2] Companies reservation websites, January 15, 2008.
[3] As ranked by TripAdvisor
[4] http://www.tdc.co.tt/tourism_report.html
12.1 The consolidated financial projections of the Carlton Savannah REIT (Jamaica) Limited should be read in conjunction with the financial projections of the hotel operating company, Carlton Savannah Limited. These are presented in the Documents Available for Inspection. The financial projections of the Carlton Savannah REIT (Jamaica) Limited reflect the expected Investment Property Income from CSRSL which in turn derives its income from the Owner’s Share of Rent and Spa Lease Payments from Carlton Savannah Limited. The projected expenses of CSRSL/Carlton Savannah REIT (Jamaica) Limited are specific to the ongoing operations of the CSRSL/Carlton Savannah REIT (Jamaica) Limited.
12.2
The financial projections contained in this section represent the Hotel Operating Company's best estimate of future financial performance of the Carlton Savannah Hotel. This estimate is related to information currently available and is based upon reasonable assumptions concerning the Carlton Savannah hotel, its industry and the macro-economic environment. The future may not materialize as expected.
12.3 The financial projections of the Carlton Savannah Hotel are presented in accordance with the Uniform System of Accounts for the Lodging Industry.
PERFORMANCE MEASURES
12.4 Occupancy Percentage, Average Room Rate and RevPar are three important indicators used by the hotel industry in general to measure the performance of a hotel and compare performance to other hotel operations.
12.5 Occupancy Percentage measures the level of hotel room utilization and is calculated by dividing the number of rooms rented for a given period by the number of rooms available for the period.
PERFORMANCE MEASURES (cont’d)
12.6 Average Room Rate measures the average room price for all Guest rooms by dividing total room revenues by the number of rooms rented.
12.7 RevPar (Revenue per available room) is calculated by multiplying the Occupancy Percentage by the Average Room Rate and is a measure of efficiency based on all available rooms regardless of whether they are occupied or not.
12.8 The key performance assumptions for the Carlton Savannah Hotel are as follows:
2009 2010 2011
Average occupancy rate 57.0% 68.0% 74.0%
Average room rate (US$)
1 bedroom units $223.00 253.08 273.49
% growth 13% 8%
1 bedroom suite $334.50 379.61 410.23
% growth 13% 8%
Weighted Ave Daily Rate $234.15 265.73 287.16
% growth 13% 8%
RevPar (US$)
1 bedroom units $127.11 172.09 202.38
1 bedroom suite $190.67 258.14 303.57
No 1 bedroom units occupied 77 92 100
No 1 bedroom suites occupied 9 10 11
12.9 The average net occupancy rate in Port of Spain, Trinidad in 2006 was 77.8%.
The most recent report on hotel occupancy by the Tourism Development Company Limited of Trinidad & Tobago for the period January to August, 2006 and 2007 show that the average hotel net occupancy in Port of Spain remained high at 78.6% and 74.2% respectively. Average room rate over that same period increased by approximately 27%.
12.10 The goal of the Hotel Operating Company is to achieve an occupancy level of 74% by its third year of operations.
12.11 The weighted average daily rate of US$234 expected to be achieved by the Hotel Operating Company compares favourably with the marketplace. Given Carlton Savannah’s position as Preferred Hotel’s Luxury Hotel, it has a distinct advantage over its competitors.
12.12 Average Daily Rates
Hotel Rooms Avg. Rate Rating
Carlton Savannah Hotel 165 $234
Crowne Plaza Hotel Port of Spain 245 $223
Hilton Trinidad Hotel 394 $240
Marriott Courtyard, Port of Spain 119 $215
Hyatt Regency Trinidad 428 $199
Kapok Hotel 94 $182
Cascadia Hotel & Conference Ctr 68 $175
Additional key assumptions:
Currency depreciation
12.13 The primary currency sources are USD and TT dollar. The primary uncertainty is the performance of the TT dollar versus the US dollar. Projections for the TT dollar are that it remains in a stable pattern at approximately TT$6.30 per US$1.
Depreciation for the Jamaican dollar versus the US dollar is projected to be 3% annually.
Inflation
12.14 The primary source of increase in the average daily hotel rate projections by the Hotel Operating Company is driven by the increase in occupancy and inflation assumptions of Trinidad. It has been shown that average daily rates for hotels track inflation. However, to be conservative, the Hotel Operating Company projected the average daily rates to grow by 3.5%, which is less than the inflation rate currently experienced in Trinidad & Tobago.
For the expenses of the Company, the primary source of inflation projection is driven by the underlying inflation of Jamaica.
Year Ending May 31, 2010 2011
Increase in Average daily hotel rate 3.5% 3.5%
JA Inflation projections 11.0% 12.0%
Taxation
12.15 Rates of taxation over the period of the projection for CSRSL/Carlton Savannah REIT (Jamaica) Limited are assumed to be 15% payable to the authorities in Trinidad & Tobago. It is expected that there will be no additional income tax payable by Carlton Savannah REIT (Jamaica) Limited in Jamaica on income from this source.
Unrealised gain in fair value of investment property
12.16 Profit for the years is comprised of profits from the operations of rental of the hotel apartments, lease payments from the health club & spa and changes in the fair value of the investment property, which is assumed to be 3% annually. The assumption of a 3% annual change in fair value was made against the background of the trend in real estate prices in Trinidad & Tobago in recent years, which has been estimated by the Central Bank of Trinidad & Tobago to be in the range of 12 – 15%, viz:
Year Increase
2003 15%
2004 15%
2005 15%
2006 12%
Source: Central Bank of T&T, Monetary Report, April 2007.
The rationale for assuming the very conservative 3% annual increase for the projection period despite real estate prices having risen as strongly as the table above indicates, is that there tends to be periodic correction of such prices.
12.17 The table below presents an analysis of the sensitivity of projected profit for each of the years to gains in the fair value of real investment property at annual rates other than the 3% assumed:
Assumed %
change in FV of
investment Net profit Net profit Net profit
property for year 1 for year 2 for year 3
0% 1,095 1,096 1,141
3% 1,618 1,635 1,696
9% 2,664 2,806 3,005
14%* 3,579 3,933 4,383
* The 14% is the average increase in real estate prices in Trinidad & Tobago for the years 2003 – 2006
Travel and Tourism Industry Growth in Trinidad & Tobago
12.18 The Carlton Savannah Limited has targeted the business travellers to achieve the projected occupancy growth. With expected increases in the level of economic activity especially as it relates to expansion in the energy sector, the Hotel Operating Company believes that the projected growth is achievable. Corroborating data for these projections can be found in a study commissioned by the Tourism and Development Company Limited of Trinidad & Tobago. This study projected that the travel and tourism industry should grow at an annual rate of 6.03% to the year 2015. The study was done by World Travel & Tourism Council.[4]
Administration and Other Expenses
These include accounting, audit, stock exchange, marketing, directors and legal and professional fees.
Key Assumptions Underlying the Revenue And Expense Projections For The Health Club & Spa
12.19 The key assumptions driving the revenues of the Health Club & Spa are also occupancy rate of the Hotel as per above, the number of hotel and non-hotel Guests that utilize the spa treatments, have membership and/or drive product sales.
12.20 Distinct from beach resorts, Carlton Savannah is operating in a cosmopolitan business city, with a large and wealthy middle class, professional demographic. The increasing sophistication of this market provides an increasing demand for international standard Health Club & Spa product, and one in which exclusivity supported by club memberships panders to the same increasingly sophisticated demands of the local population.
12.21 Such local demand from non-hotel Guests supports a healthy business model for the Health Club & Spa, where local demand and club memberships play a very important part in driving the revenues, and which makes the HC & Spa for the Carlton Savannah a very different but very attractive opportunity.
12.22 A recent study entitled Trends in the Hotel Spa Industry published by PKF Hospitality Research found that hotels have added spa operations to meet escalating consumer expectations and to increase revenues and profits. The study said this was a result of a growing number of people leading healthier lifestyles and demanding spa services when they travel. Further, the study found “…by offering and promoting spas to their guests, hotels have generated increased interest in pampering and luxurious spa experiences.” From a profit perspective, the study also found that with “… a stronger focus on staffing and a better understanding of the local community, both urban and resort spas have an incredible opportunity to increase their profit margins. A properly operated and marketed spa facility can enhance the overall hotel’s performance in terms of rate potential, occupancy, and guest demand diversity.” In 2006, PKF Hospitality Research found that the average hotel spa department achieved a profit margin of 31.1 percent.
Projected Income Statement for Carlton Savannah Limited - Health Club & Spa
2008/9 2009/10 2010/11
US$000 US$000 US$000
REVENUE
Treatments 729.1 894.4 960.0
Classes 164.9 200.8 210.8
Memberships 315.7 403.8 424.0
Product sales 94.8 116.3 124.9
Total revenue 1,304.5 1,615.3 1,719.7
EXPENSES
Payroll:
Total Labour incl Benefits & Commissions 199.6 209.6 220.0
Direct Cost of Sales
Treatments (10% of treatment revenue) 72.9 76.6 80.4
Product sales (40% of Product sales revenue) 37.9 39.8 41.8
Spa Direct Expenses is 6% of Revenue 78.3 82.2 86.3
Undistributed Payroll:
A&G }
S&M }
Property } 39.1 41.1 43.1
Undistributed Expenses:
A&G is 4% of total revenue 52.2 54.8 57.5
S&M is 4.5% of total revenue 58.7 61.6 64.7
Prop Operations is 2% of total revenue 26.1 27.4 28.8
Property insurance 1% 13.0 13.7 14.4
Energy expense 2% 26.1 27.4 28.8
Replacement reserve 2% 26.1 27.4 28.8
Total Expense 630.0 661.5 694.6
Net operating profit before lease payment 674.5 953.8 1,025.2
Lease payment to CSRSL (276.5) (284.8) ( 293.1)
Net operating profit after Spa lease payment and
before tax 398.0 669.0 732.1
Summary Prospective Financials
[1] Performance of Tourist Accommodation 2006 (Trinidad), Prepared by: Research and Planning, Tourism Development Company Ltd.
[2] Companies reservation websites, January 15, 2008.
[3] As ranked by TripAdvisor
[4] http://www.tdc.co.tt/tourism_report.html
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