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