The Opportunity We strongly believe that there is a unique window of opportunity in the Central and Latin America market at its early stages of professional tourism development. Land prices are still relatively inexpensive and the concept is proven. With both the Central American (+8.7%) and South American (+8.1%) regions exceeding the global average for tourist arrivals by some distance, the hospitality industry is strong. Panama City’s hotel occupancy rate increased from 60.3% in 2005 to 64.6% in 2006. Investors' confidence levels are also rising. South American nations are enjoying an influx of capital from Western Europe, while Central America is benefiting from its proximity to the USA, often in the form of large high-end projects such as golf resorts and residences. International hotel chains are also setting up home, with cities such as Buenos Aires, Caracas and Santiago seeing the supply of the five and five-star rooms swell. Currently, there is no competition in Panama that is focusing on Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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the provision of a fully integrated business hotel and conference center to meet the demands of international leisure and business tourism. Project Overview Panama Players Inc. is a Real Estate holding and development company based at 6349 Auburn Boulevard, Citrus Height, CA 95621. The company intends to purchase real property at Via Israel y Calle 68E, Apartado 083402659, Panama, Republic of Panama. The project is planned to build a $75 million two-tower Punte Pacifica Hotel & Conference Center that provides a full-service five star hotel and conference center with business center, a majestic casino, a three-meal restaurant with dedicated conference dining, a lounge, luxury condominiums, class A office suites, a fitness center with indoor pool, an upscale restaurant with a panoramic view of Panama City and Panama Bay and an underground garage with 120 parking spaces. The Punte Pacifica Hotel & Conference Center, an upscale boutique property with a European feel, will boast a five star-diamond fine dining restaurant. The Punte Pacifica Hotel & Conference Center will offer a comfortable stay reminiscent of European inns offering corporate and leisure guests a variety of guestrooms featuring business amenities as well as those little extras provided by its international staff. Take a quiet stroll along Panama Bay located in front of the hotel or walk along the streets of Punte Pacifica.

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The 10 story hotel will feature 342 guest rooms offering a selection of either a standard deluxe room with the option of two double beds or one king bed and living area, or a two story carriage suite which offers a spacious living area and an upstairs bedroom. The Punte Pacifica Executive floor will offer a European country atmosphere in decorated suites complete with entertainment center, fax machine, two phone lines, heated towels rack, and a delightful gathering area. Taking Care of Business That is what international business travelers want for their meeting - and that's what they will get when they choose a genuine conference center. Our proposed conference center will be a uniquely designed setting with superior services and support, plus dedicated, professional staff to give our guests maximum results. But it's more than just a concept. The conference center will be a member of the International Association of Conference Centers (IACC). IACC's exacting standards and stringent guidelines ensure the highest quality conference facilities and services around the world. Thousands of Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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meeting planners understand the conference center concept and trust how it delivers the technical sophistication and specialized services today's meetings demand. Focus By specializing in small- to medium-size meetings, the proposed conference center will be free from the mega conventions and events, or the families and vacationing guests that can distract or overshadow your group in large hotels. Flexibility The conference center will provide moment-to-moment changes in meetings meal and recreation times, for example – will be handled efficiently and with a smile. The conference center will be adept at handling a wide variety of meetings: • Training • Strategic Planning/Management • Sales/Marketing • Budget/Audit • New Product Launches • Board of Directors/Committees/Staff Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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• Team Building/Incentive/Motivational • Customer Presentations Setting the Standard Stringent criteria will set the proposed conference center apart from other hospitality venues. The conference center will meet high standards in seven key areas. The result will be a more productive and pleasant meeting experience for business. Priority to Business Conference centers are designed to maximize the productivity of smaller meetings (average size, 25 to 75 people) with dedicated, distraction-free conference space. Conference Room Design Rooms will be specially engineered with such features as ergonomic chairs, tables with non-glare surfaces, tackable walls, appropriate lighting and acoustics.

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Conference & Business Services A designated conference planner will provide a single point of contact for each group. Skilled support staff will assist visitors in realizing their meeting objectives. And a business center will provide access to computers, copying, faxing and other services. Food & Beverage Dining facilities will offer a flexible schedule designed for the convenience of each group. Continuous refreshment service will be available outside each meeting room. Conference Technology The conference center will maintain a full inventory of standard audiovisual equipment included in your meeting package as well as advanced conference technologies. Skilled technicians will be on site to set up and support your company’s presentation. Guest Rooms Business-friendly accommodations will offer desks, telephone lines with simultaneous Internet connectivity and appropriate lighting and seating. Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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The conference center will simplify a company’s planning and budgeting with a convenient, per-person rate for guest room, three meals per day, continuous refreshment breaks, 24-hour meeting rooms, conference services and audiovisual support Punte Pacifica Condominiums Rising above the beautiful waters of Panama Bay is one of the most unique and identifiable skylines in the world. The luxury Condominiums in the exclusive Punte Pacifica Area and those that line Balboa Avenue provide an incomparable life of luxury to their residents. During 2001 alone, almost 1,000 new apartments and Condominium residences have been erected in the Punte Pacifica Area and there are plans that will likely double or triple that number in the next several years. As the area continues to thrive, more and more people that work in Panama City are choosing to live on Punte Pacifica. Why commute when there is such and incredible quality of life just steps from the office. And perhaps the greatest luxury enjoyed by Panama’s diverse population of young professionals, empty nesters, and international business people is the sense of community that is so rare in most urban settings. Punte Pacifica’s Condos residents are secure knowing they can jog, walk their dogs or simply take a nighttime stroll along the streets of the neighborhood they call home.

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Panama Located in the heart of the Americas, the Isthmus of Panama has always served as a natural bridge that unites cultures and continents. Currently, thanks to its exceptional geographical position, projects like the Panama Canal and the Hub of the Americas have opened highways so that locals and foreigners teach others about this land filled with richness. Because of its quality of life and all the goodness it offers, Panama has been recently catalogued as one of the main destinies for those who seek new areas for retirement. • Panama offers a stable economy and political environment, with many incentives for foreign investors. • Low levels of inflation. • Circulating currency: US dollar. The strength of the € against the dollar makes the investments made by the European Community more profitable. Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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• First world banking infrastructure. • A tropical climate, free of climatic catastrophes like earthquakes, tsunamis, and hurricanes. • Flight connections to the world’s main capitals. PANAMA’S 'B' RATING CONFIRMED, OUTLOOK RAISED TO POSITIVE Standard & Poor's Ratings Services raised its outlook on Panama's sovereign credit rating to positive from stable, and confirmed its 'B' rating. S&P said the upgraded outlook was a sign of the likelihood of an upgrade if improvements in fiscal performance endure and if economic diversification continues to boost real gross domestic product (GDP) growth. After years of uninspiring growth, Panama's economy has consolidated and expanded. It is marked by real GDP growth at an annual 7.5 pct, which is expected to continue in 2007 and 2008, the release said. S&P also noted that the growth has gone beyond the traditional sources such as the canal transit, Colon Zona Libre’s exports and banking services and moved to port expansion, transshipping activity, telecommunications and tourism. As well, favorable labor and tax laws have caused a growth in development of reverted lands and the expansion of the Panama canal has increased economic Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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opportunities, the release said. Alongside this positive economic backdrop, S&P expects the Panama government to continue its strategy of fiscal consolidation. Tax Incentives Panama is a leading offshore banking center. The country has been used as an "offshore" jurisdiction since 1916, when it enacted a territorial system of taxation. This means that any income derived from sources outside of Panama may be received in Panama free of any taxes. So interest or dividends you earn from sources outside of Panama are not taxable in Panama. The tourism incentives include a 20-year tax exemption on any property tax or property-transfer tax, a 15-year exemption on any income tax, and a 20-year exemption on any import taxes on all construction materials and equipment used in a tourist project. To qualify for these exemptions, you need only a minimum investment of $300,000 in metropolitan areas and $50,000 in other parts of the country. You can also couple these investments with Panama's Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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citizenship and permanent-residence programs, which would give you a second passport. Strategic Location The proposed Punte Pacifica Hotel and Conference Center will be strategically located in the prestigious Pacific Point – Punta Pacifica district of Panama City. The facility is in close proximity to the banking district, the convention center, a regional medical center and a major shopping mall in the City of Panama. The site is also 15 minutes from Tocumen International Airport via the Corredor Sur highway. Continuing high levels of infrastructure development have been set aside to improve the tourism infrastructure in the region. Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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Pacific Point - Punta Pacífica Offering permanent and spectacular views of the Ocean, Pacific Point rises over a plot of 45,000 square meters in front of the sea in Punta Pacifica, the most exclusive area in Panama. Its privileged location allows you to enjoy the benefits that the proximity of the new Punta Pacifica Hospital and the exclusive Multiplaza Pacific Mall offer. Imposing towers, exclusive villas and residences in front of the sea, combine with an environment surrounded by tropical gardens, in which we have designed picturesque sidewalks, recreation areas for children, courts, and a spectacular clubhouse. Hospital Punta Pacifica, affiliated with Johns Hopkins Medicine International, is located nearby the proposed hotel and convention center. Health tourism, or medical tourism, has become a global economy all to itself. As medical costs in the US, Canada and Europe has soared, people have looked to other countries to provide high quality, affordable medical solutions. Panama has stepped to the forefront of this health tourism trend with American trained, Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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English speaking doctors, professional staffs and world-class facilities such as Hospital Punta Pacifica. Because medical care is more affordable in Latin America, Hospital Punta Pacifica is able to combine first-class and affordable medical care with a truly remarkable vacation experience. Panama City is home to the hemisphere's largest free trade zone, the Colon Free Zone The proposed hotel and conference center is located close to the Multiplaza Pacifica Mall, which is home to designer boutiques and retail shops. Generally Panama is a good place to buy consumer electronics, clothing and cosmetics. ATLAPA CONVENTION CENTER The Atlapa is the most important convention center in Panama and Central America. This fabulous 8-acre complex, borders the Pacific Ocean and offers a maximum events capacity of 10,500 persons. Atlapa Convention Center joins the artistic richness of the Panamanian culture with the modern technology of the 20th century. Among its many facilities, the majestic theater-auditorium is equipped with the most Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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sophisticated light and sound system and is designed with the highest acoustic qualities in order to accommodate from philharmonic orchestras to operas. The Theatre sits comfortably 3000 persons and offers dressing rooms and rehearsal rooms for musicians, dancers and chorus. A second theater sitting 600 people is ideal for artistic events, congresses, conferences and banquets. Regulated Gaming and Casinos Whether it is bricks-and-mortar or online gambling venues, PricewaterhouseCoopers Global Entertainment and Media Outlook: 2006-2010 says that the global revenue for “Casino and Other Regulated Gaming” will increase at a compound annual growth rate (CARG) of 8.8 percent from $82.2 billion in 2005 to $125 billion in 2010. Several factors account for the expansion. The popularity of online poker, coupled with the penetration of high-speed Internet access, give gaming a new ease and excitement. Although online gaming is illegal in the United States, sites around the world attract players from everywhere. On the ground, new casinos in the U.S., Asia Pacific, Europe, Canada and Latin America are drawing customers flush with cash. In Latin America, the casino sector is growing rapidly at 12.1 percent CARG but the size of the market is very small. The region will rise to $159 million in revenue in 2010. The only types of gambling that are legal in Panama are horse racing, pari-mutuel betting, and casinos. The majority of the Panama Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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casinos and gambling facilities are located downtown in Panama City, with 22 of the total 36 in the country. The largest casino in Panama City is the Casino Majestic, with over 53,000 square feet of gambling space. The Majestic, open 24 hours seven days a week, features 39 table games and 978 gaming machines, video poker and slots. Among the other popular casinos located in Panama City are in the Hotel Caesar Park, the Miramar Intercontinental, and the Hotel El Panama. The Crown Casino in the Caesar Park Hotel is in a prime location, central to the business district and the historic attractions of old Panama. The Crown Casino features table games of baccarat, blackjack, Caribbean Stud poker, Draw Poker, roulette, and craps, but no gaming machines. The Fiesta Casino in the El Panama has a great atmosphere, with 320 gaming machines and 16 table games of blackjack, roulette, poker, and baccarat. There are several other smaller casinos in Panama City, with gaming machines and a few table games, such as the Casino International, the Fiesta in the Gran Hotel Soloy, and the casino in the Riande Granada Hotel. A fairly recent addition to the lineup of Panama casinos is the Veneto Hotel and Casino, a Vegas-style gambling facility, also in Panama City. The Veneto is perhaps the largest Panama casino with 40,000 square feet that includes 511 slots and 42 table games such as blackjack, Texas Hold'em and other poker, roulette, mini-baccarat, and craps. Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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The Codere Group is a leading gaming company engaged in the management of slot machines, bingo halls, horse racing tracks, casinos and off-track betting facilities in Spain, Latin America and Italy. As of December 31, 2006, the company managed approximately 45,230 slot machines and electronic bingo terminals, 116 bingo halls with an aggregate of approximately 35,840 seats, 50 off-track betting facilities, two horse racing tracks and five casinos. In the year ended December 31, 2006, the company generated revenue of $760.7 million and EBITDA of $175.6 million. In October 2005 the company purchased a 90 percent interest in the Hipodromo Presidente Remon horse track in Panama City, Panama, which is the only racetrack in Central America. The remaining 10 percent is held by the Motta family. The company is permitted to install up to 500 slot machines and a bingo hall at the racetrack and is required to establish a certain number of horse betting points. In January 2006 the company purchased Alta Cordillera, the owner of Crown Casinos in Panama. Crown Casinos is a leading player in the local casino market and operates five casinos in Panama with a total of 75 tables and more than 700 slot machines. The company plans to open another casino in 2007. In the year ended December 31, 2006, the company’s casinos business in Panama generated revenues of $35.1 million and EBITDA of $7.5 million.

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Panama is the “Hub of the Americas” Without a doubt, Panama possesses important differentiators; its strategic geographic location, and being at a nexus of strong international trade flows, namely China, the USA and Latin America During the past decade, Panama has attracted foreign investment that helped to generate a modern and dynamic economy. This process began in the mid 90s, when the Panamanian government initiated a process of privatization of public companies, including utilities and transportation, aiming to generate greater efficiency in their management. The reversion of the Panama Canal and all its land on December 31, 1999, opened the way for new international investment in Ports, Railroad, Telecommunications and real estate. The Panamanian administration Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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of the Canal has demonstrated itself to be very efficient and profitable in running the operation for the benefit of the country and its citizens. Also, the passage of the Banking Law in 1972 which was modified in 1999 has allowed Panama to become a Regional Financial Center mainly catering to the Andrean, Central America and Caribbean nations. As a result of this, a number of major Central American financial companies have set up operations to cater to the regional market. As a result of the increase in foreign investment through liberalization, the industrial sectors that have most benefited have been power generation and distribution; telecommunications, including mobile and fixed lines; seaports on both sides of the Canal; shipyards, call centers, tourism, the construction of shopping centers, and the growth of service operations such as aircraft maintenance and, of course, a regional high quality airline, COPA. In terms of trade, Panama has enjoyed important growth due to the businesses originating in the Colon Free Trade Zone and the expansion of its ports. Today, the country has world class operators, among them Hutchinson Whampoa, under the name of Panama Ports Company, Grupo Evergreen, as well as Stevedoring Services of America, that have turned it into the largest port region in Latin America. In the tourism sector, Panama is growing at a rate of 12% per year and furthermore, this country has been identified as one of the best five places to Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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retire for foreigners, mainly from the United States, Canada and Spain, who are arriving to live in the country and to enjoy the advantages of a dollar based economy with an inflation rate that has remained below 2% annually on average for the past 35 to 40 years. Country of Origin of Visitors to Panama in 2004 Latin America United States Caribbean Canada

35.6% 28.6% 5.2% 3.5%

Central America 10.9% Europe 8.2% Mexico 5.0% Asia 3.0%

In addition, one of the most important events for the development of this country is scheduled to happen, namely the expansion of the Panama Canal. It is estimated that the project will cost $5.2 billion and will take 10 to 12 years to be completed, and will contribute significantly to economic growth in the country in the years to come and build on the success that the Panamanian people have had in managing an asset of such global importance. So far the Canal contributions have improved Panama’s Treasury accounts. Direct contributions during the fiscal year 2005 reached almost 490 million US dollars, representing around 60% of the total budget for public investment. For 2006, Canal contributions are expected to surpass 500 million dollars. With the Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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third set of locks, Canal net income will grow up to 4.3 billion in 2025, equivalent to an average annual growth of over 11.6%. In 2025, the expanded Canal will be able to generate total contributions of up to 4.2 billion in the National Treasury, which will consist of 670 million in net tonnage fees and public service fees, and up to 3.5 billion in surplus after reserves for investments are made. In cumulative terms, during the first 11 years of operation of the third set of locks, the expanded Canal will be able to generate contributions to the National Treasury of $8.5 billion more than it would if it were not expanded, an amount which, by itself, exceeds the amount that will be invested on the third set of locks. The benefits of the Canal expansion will not only come from direct income direct income generated by the waterway, but also from the entire conglomerate’s economic activity level. It is estimated that the Canal economic expansion will allow the Canal economic system exports to be tripled by the year 2025. Additionally, the Canal expansion will stimulate a 40% increase in the rest of the conglomerate’s investments, which will rise to 1.1 billion per year by 2025. The Canal expansion will allow Panama to attain a gross domestic product of 31.7 billion by 2025 in 2005 dollars. This represents almost 2.5 times the Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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gross domestic product of the country in 2005, and equals an average annual growth rate of over 5% for the next 20 years. However, other estimates project that GDP would grow between 1 and 1.2 percentage points faster with the expansion, which means that by 2025 Panama’s GDP would have expanded an additional 22%. Also, exports of services directly and indirectly associated with the Canal and its expansion would triple by 2025. The Canal expansion’s impact on employment will first be observed in the jobs directly generated by the economic boom that will be experienced during the years of the construction. The project would create 44,500 more direct and indirect jobs by 2010, 61,000 by 2015 and 88,700 by 2020. These include 6,500 and 7,000 additional jobs that will be directly related to the works during the construction’s peak years. Finally, the unemployment rate would be 5% by 2025 down from 9.6% in 2005. Attitudes and Priorities of Meeting/Event Planners The Punte Pacifica Hotel & Conference Center will provide Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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all of the facilities and services available at executive conference centers, but place a significant emphasis on recreational activities in the resort setting of Panama. Although small corporate meetings will be the main source of business, recreational activities will be regularly scheduled, integral components of the program. The recreational opportunities and amenities associated with this property will be critical to its success. The subject property will be flexible enough to accommodate both leisure guests and meeting attendees. Many meeting planners welcome the opportunity to provide breaks during intensive meetings by scheduling leisure activities.

Meetings & Conventions conducted a survey to identify meeting planner’s priorities. The answers of national/international and regional/state/local event planners were very similar. The quality of meeting facilities, service, affordability, and hotel room supply are key criteria for both groups. Although Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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affordability was very important to many meeting planners, an even larger portion of meeting planners indicted a high quality of services to be very important. Not surprisingly, the attractiveness and appropriateness of the actual meeting facility is very important to most meeting planners. Sixty-eight percent said they were seeking a new location for their event/meeting in 2004. Commercial Segment The commercial segment consists of individual businesspersons who are visiting various firms in the proposed subject property’s market. This demand is strongest Monday through Thursday nights, declines significantly on Friday and Saturday, and increases somewhat on Sunday. The typical length of stay for commercial guests ranges from one to three days, and the rate of double occupancy is a low 1.2 to 1.3 people per room. Commercial demand is relatively constant throughout the year, although some declines are noticeable in late December and during other holiday periods. Commercial demand in the proposed subject property’s market will be generated by a wide variety of international, regional, and local business travelers and corporations via air travel to Panama. Business Travelers to Panama by Air Year Business Travelers

2004 2003 2002 2001 2000 1999 147,556 139,482 120,112 121,438 122,993 120,077

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Meeting and Group Segment The meeting and group segment includes meetings, seminars, conventions, trade associations shows and similar gatherings of 10 or more people. Peak meeting and convention demand typically occurs in the spring or fall. Because of vacations, the summer months represent the slowest period for this market segment, while winter demand varies. Although there are numerous classifications within the meeting and group segment, the primary categories considered in this analysis are corporate groups, associations, and SMERF groups. Corporate groups are one of the most profitable components of this segment because they exhibit limited price sensitivity and they often sponsor banquets and other events that generate revenue for the host hotel. In the subject property’s market, most corporate group activity is generated by the same major employers that contribute high-volume corporate accounts. This demand Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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may take the form of training programs, sales meetings, division conferences, and similar events with a business purpose. Corporate groups generally meet during the workweek, thus generating lodging demand on Monday through Thursday nights. The average length of stay is two to five days. Although training groups may stay six nights or more. Double occupancy rates in this category typically range from 1.0 to 1.5. Convention Visitors to Panama by Air Year Convention Visitors

2004 26,179

2003 24,747

2002 21,350

2001 20,133

2000 23,629

1999 21,124

Association demand is generally divided on a geographic basis: the most common categories are national, regional and state associations. Depending on their nature, these associations may be more rate sensitive than commercial groups. This is particularly true when members are not reimbursed by their employers but must pay to attend (for example, guestroom and conference fees). The scheduling pattern of Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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associations also depends upon the nature of the group. Professional associations and/or those supported by members’ employers often meet on weekdays, while other associations prefer to hold events on weekends. The SMERF market consists of groups that are social, military, educational, religious or fraternal in nature. These groups are extremely budget conscious, and have a strong preference for weekends and summer meeting times, when rates are generally lowest. Typically, these groups have a high doubleoccupancy rate of 2.0 to 2.5, and the length of stay is relatively short (one to three nights). Leisure Segment The leisure market segment consists of individuals and families who are spending time in the area or passing through en route to other destinations. Their travel purposes may include sightseeing, recreation, visiting friends and relatives, or numerous other non-business activities. Leisure demand is strongest Friday and Saturday nights and all week during holiday periods and the summer months. These peak periods are negatively correlated with commercial visitation, underscoring the stabilizing effect of capturing weekend and summer tourist travel. The typical length of stay ranges from one to five days, depending on the destination and travel purpose, and the rate of double occupancy typically ranges from 1.8 to 2.5 people per room.

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Year Leisure Visitors

Leisure Visitors to Panama by Air 2004 2003 2002 2001 260,366 246,117 229,633 214,139

2000 200,389

1999 188,630

Future leisure demand is related to the overall economic health of the region and the nation. Trends showing changes in state and regional unemployment and disposable personal income often have a strong correlation to noncommercial visitation. As the proposed subject property enters the market and competes for commercial and meeting and group business with the existing facilities, we forecast that leisure demand that was previously accommodated at some of the poorer quality lodging facilities in the market will migrate to the branded properties. Although generally lower-rated, leisure demand does pay a higher rate than the government per diem or negotiated corporate rates and should not erode market-wide average rate attainment. The purpose of segmenting the lodging market is to define each major type of demand, identify customer characteristics, and estimate future growth trends. We have identified three segments as constituting the subject property’s lodging market. Various types of economic and demographic data were then evaluated to determine their propensity to reflect changes in hotel demand. Latin America & Caribbean (LA&C) Hotel Forecast American Express forecasts that the hotel industry across LA&C continues to feel the effects of a seller’s market globally. There is an upward rate pressure Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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due to increased local and international travel into the region. Rates are expected to increase at an average of 2% to 4% in the mid-range tier and 4% to 7% in the upper-range tier. Results will vary by country, but the upward rate trend will be the common theme. 2007 is going to be the fifth year of sustained growth says United Nations World Tourism Organization but what about Latin America? In the first eight months of 2006 international tourist arrivals totaled 578 million worldwide (+4.5%), up from 553 million in the same period of 2005, a year which saw an all-time record of 806 million people traveling internationally. Growth is expected to continue in 2007 at a pace of around 4% worldwide. The expected 4% growth for 2007, though slightly slower than in previous years, is much in line with the UNWTO long-term forecast growth rate of 4.1% a year through 2020. The short term outlook remains very positive; especially against the background of a strong world economy and as favorable exchange rates Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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continue to encourage European and Asian travelers. International tourism is likely to remain buoyant unless major incidents occur. Latin America is growing fast and 2007 will be a good year as far as international tourist arrivals and tourism expenditures are concerned. In the Americas in general 2006 recorded a 2.5% increase with Central America reaching 8.7% increase and South America an 8.1% increase. The Caribbean had a smaller growth rate reaching +5.1% but it was exceeded the global growth average. North America (+0.4%) fell well below, pulled down by the results of Canada (-4.1%) and Mexico (-3.8%), in spite of the 4.3% growth in the USA. South and Central America benefited both from higher expenditures by US travelers and more arrivals from European tourists. At the same time intraregional travel performed on a high level. On the one hand Latin America depends highly in domestic travel but the international tourists are showing more and more interest in the tourism product of the region. It is a fact that many Europeans are now placing the destination “Latin America” in to their travel schedules. According to the Latin America Travel Association (LATA) the future in the UK Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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specifically looks very positive for 2007 in terms of travel to Latin America. There is also an increase in business travelers who spend more during their stay in a place compared to the leisure traveler. UNWTO forecasts indicate that international arrivals to the region may end 2006 up by 7.2%, therefore high above the expected world growth rate of 4.6%. More and more countries in Latin America and tourism bodies and companies in the hospitality and aviation sector are realizing the potentiality of the tourism industry for their region. There is more professional approach from the tourism bodies to cooperate with local communities in order to proceed in to a common sustainable tourism policy that will benefit their counties in long term. Tourism would be an instrument of development for Latin America as it starts to generate more jobs and more sustainable plots are being implemented by the tourism authorities of the countries in the region. It is worth mentioning that Iberoamerica receives 15% of worldwide tourist arrivals, which in 2005 generated 90 billion US dollars (73 billion euros) in receipts. As the trend is going to continue in higher rates in 2007 more jobs are going to be created helping the poverty to be reduced. Tourism is one of the most dynamic economic activities at the international level. For the 22 Iberoamerican countries, revenues from international tourism Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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and passenger transport account for more than 10% of total exports of goods and services and represent 3% of Gross Domestic Product, according to the UNWTO. Iberoamerica received 122 million international tourist arrivals in 2005 (15% of the world total of 806 million), generating 90 billion US dollars (73 billion euros), equivalent to 13% of worldwide receipts (682 billion dollars). While a large part of this tourism is concentrated in Spain, Portugal, Andorra and Mexico, there has been a notable dynamism in the Latin American region over the past fifteen years, During this period, destinations in Central America (+9%), and South America (+6%) enjoyed growth rates considerably higher than that of world tourism as a whole (+4.1%). The UNWTO forecasts that this growth trend will continue and that arrivals will top 200 million by 2020. Especially fast growth is expected in Iberoamerican destinations in South America, followed by those in North and Central America and the Caribbean. The growth of comparatively emerging destinations will complement the diversification of relatively more established destinations, thus boosting tourism's role as a tool for the economic and social development of the Iberoamerican community. Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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Trends that will drive Latin America tourism in the coming years: • • • • • • • • • • •

Leisure segment is going to be strong in 2007 More events in the Latin America are going to take place Higher average expenditures Confidence for the good performance of Latin America will continue Intra-regional tourism to continue to be strong Arrivals to destinations in Latin America are forecast to grow above the world average Biggest growth is expected to originate from Europe and from Asia and the Pacific Niche destinations New and sustainable products and boutique properties Community tourism projects. Finally, it is very important the fact that many counties in the region are making joint cooperation for mutual benefiting by the tourism industry as the decision of the leaders of El Salvador, Guatemala, Honduras and Nicaragua to move towards a single aviation market and plans for common promotion strategy in the long haul destinations.

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Financial Assumptions Along with average rate results, the occupancy levels achieved by a hotel are the foundation of the property’s financial performance and market value. Most of a lodging facility’s other revenue sources (such as food, beverages, and telephone income) are driven by the number of guests, and many expense levels also vary with occupancy. Consequently, a well-documented forecast of occupancy is critical to the valuation process. To a certain degree, occupancy attainment can be manipulated by management. For example, hotel operators may choose to lower rates in an effort to maximize occupancy. Our forecasts reflect an operating strategy that we believe would be implemented by a typical, professional hotel management team to achieve an optimal mix of occupancy and average rate. The proposed subject property’s forecasted market share and occupancy levels are based upon its anticipated competitive position within the market, as quantified by its penetration rate. The penetration rate is the ratio of a property’s market share to its fair share. In this equation, market share represents that portion of total market demand accommodated by a property and fair share represents the subject hotel’s portion of the total supply (calculated as the subject’s room count divided by the total supply of the market at large).

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Forecast of Subject Property’s Penetration Because the supply and demand balance for the competitive market in Panama is dynamic, particularly in relation to proposed new hotel supply entering the competitive market, there is a circular relationship between the penetration factors of each hotel in the market. The performance of individual new hotels has a direct effect upon the aggregate performance of the market, and consequently upon the calculated penetration factor for each hotel in each market segment. If a property with a fair share of 5% is capturing 5% of the market demand in a given year, then its occupancy will equal the market-wide occupancy, and its penetration rate will equal 100% (5% divided by 5% = 100%). If the same property achieves a market share in excess of its fair share, then its occupancy will be greater than the marketplace occupancy, and its penetration rate will be greater than 100%. Conversely, if the property captures less than its fair share, then its occupancy will be below the market-wide average, and its penetration rate will be less than 100%. Our projections of penetration, demand capture, and occupancy performance for the subject property account for these types of adjustment to market share within the defined competitive market. Consequently, the actual penetration factors applicable to the subject property and its competitors for each market segment in each projection year may vary somewhat from the penetration delineated in the previous tables. Based upon the preceding analyses, the Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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subject property occupancy forecast is set forth with the adjusted projected penetration rates used as a basis for calculating captured market demand. Overall, the proposed subject property is forecast to increase its total penetration level from 68% in the first year of operation to 90% in the stabilized year. This performance will be largely dependent upon property management’s ability to induce meeting and group demand into the market, as the subject property is forecast to garner a 152% meeting and group occupancy penetration in the stabilized year. Subject Property’s Market Segmentation 2010 2011 2012 2013 Commercial 24% 23% 21% 21% Meeting and Group 59% 55% 53% 54% Leisure 17% 22% 26% 25% Total 100% 100% 100% 100%

2014 21% 54% 25% 100%

The proposed subject property is forecast to capture a percentage of commercial demand greater than its fair share, as the proposed facilities plan is designed to fill an upscale niche currently underserved by the existing lodging supply in Panama City. However, the relatively high room rates of the subject property are forecast to hinder the effective capture of more price-sensitive demand in the leisure market segment.

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Upon the proposed subject property’s forecasted opening in 2010, meeting and group demand is expected to comprise 59% of the subject property’s total accommodated demand. Much of this demand is forecast to be induced to the market by the construction of the subject property’s premium conference facilities. Base Demand Growth for Subject Property Market Segment Commercial Meeting and Group Leisure Base Demand Growth

2010 3.0% 3.0% 2.5% 2.7%

2011 3.0% 3.0% 3.5% 3.3%

2012 3.0% 3.0% 6.0% 4.6%

2013 2.5% 2.0% 4.0% 3.1%

2014 2.0% 1.0% 2.0% 1.7%

2015 1.0% 1.0% 1.0% 1.0%

As the proposed subject property ramps up to full operation, leisure transient demand is forecast to comprise a greater proportion of total accommodated demand as effective distribution channels are established and greater awareness of the proposed subject property is achieved through sales and marketing efforts and customer referrals. While commercial demand is forecast to comprise a decreasing percentage of total accommodated demand, the gross number of commercial accommodated room nights is forecast to grow, but at a lesser rate than the other segments. Based on the preceding analysis, the following forecast of occupancy results. Subject Property’s Occupancy Forecast Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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2010 2011 2012 2013 2014 2015 109,610 112,569 116,284 121,633 125,403 127,535

Total Room Nights Captured Available Room Nights 156,585 156,585 156,585 156,585 156,585 156,585 Subject Occupancy 70.0% 71.89% 74.26% 77.68% 80.09% 81.45% Rounded 70% 72% 74% 78% 80% 81% We have chosen to use a stabilized occupancy of 80%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies above this stabilized rate, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability. One of the most important considerations in estimating the value of a lodging facility is a supportable forecast of its attainable average rate, which is more formally defined as the average rate per occupied room. Average rate can be calculated by dividing the total rooms revenue achieved during a specified period by the number of rooms sold during the same period. The projected average rate and the anticipated occupancy rate are used to forecast rooms Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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revenue, which in turn provides the basis for estimating most other income and expense categories. Although the average rate analysis presented here follows the occupancy projection, these two statistics are highly correlated; in reality, one cannot project occupancy without making specific assumptions regarding average rate. This relationship is best illustrated by revenue per available room (RevPAR), which reflects a property’s ability to maximize room revenue. As mentioned, one of the distinguishing characteristics of conference center facilities is their offering of Complete Meeting Packages. The CMP rate includes guestroom accommodations, three meals per day, refreshments, conference services, and basic A/V equipment. The offering of a CMP rate benefits the conference center and conference center attendees alike. Unlike a-la-carte pricing at traditional hotels, the CMP rate often represents significant savings for conference attendees, while entitling the subject property to all of their patrons’ food and beverage sales. This bundling of services enables conference centers to capture high revenues per guest while offering a discount on the cost of services to the entity using the facilities. An integral component of an evaluation of the operation of a conference center lodging facility is to determine the assessment of what percentage of the complete meeting package rate should be allocated to room revenue. A study released in 2003 prepared by PKF Consulting and the IACC entitled “Trends in Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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the Conference Center Industry” provides a range of percentages upon which to base these allocations. For this report, the following chart presents the allocation of complete meeting package rates for resort- and executive-oriented facilities. Allocation of CMP Rates – Resorts and Executive Facilities Allocation CMP Rooms CMP Food & Beverage CMP Conference Services Total CMP Average Rate

Average Rates $151 – 179 64 – 78 24 – 25 $249 – 291

% of Total 58 – 62% 25 – 27 8 – 10 100%

The allocation of CMP revenues differs between operators. Generally, one or more allocated components of the CMP rate are fixed and the remaining components vary depending upon the specific CMP rates negotiated by the sales and marketing team. By keeping the CMP allocation to certain departments fixed throughout the year, property management is able to more effectively monitor income and expenses across all operating departments. In the market segmentation method, average room rate is projected by individual market segment. This is the preferred method for forecasting average rate, based on the operational and marketing practices of hotel operators. Consistent with hotel management’s tracking of historical average rates by market segment and their own budgeting methods, segmentation of Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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demand and the average rate allows for yield management resulting in the maximization of room revenue. Based upon the segmented average room rates achieved by the competitive hotels, we have estimated the average room rate that the subject property would have achieved in 2010, by segment, had the hotel been operational and stabilized at that time. Each market segment’s average rate is projected through the stabilized year based upon the annual rate of change anticipated for that market segment’s rate. For each forecast year, the segmented average rate is multiplied by the number of occupied rooms previously projected to be captured in that segment; this results in a forecast of total room revenue by market segment. The segmented room revenue is summed, resulting in the total room revenue. Dividing the total room revenue by the total number of occupied rooms results in the overall weighted average room rate. The proposed subject property is forecast to achieve a strong average daily rate as it will be built in Panama City and will feature the most modern guestrooms and most extensive meeting and group facilities in the market. This expected base of commercial demand is forecast to enable the proposed subject property to increase its commercial rate by 5.0% in 2011, 4.0% in 2012, and 3.0% in 2013 through stabilization in 2014.

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The addition of high-quality meeting and banquet space in Panama City is forecast to induce a substantial amount of new demand. Some groups that outgrew existing facilities in Panama City are expected to return, and other groups that were previously underserved by inferior facilities will have the opportunity to trade up to superior-quality facilities. These events will enable the proposed subject property to increase the average rate in the meeting and group segment by 4.5% in 2011, 4.0% in 2012, and 3.0% in 2013 through stabilization in 2014. Average daily rates in the leisure market segment are forecast to grow by 3.0% in 2011 through stabilization in 2014 as leisure demand fills in the gaps left by commercial and meeting and group demand. Leisure rates will grow at a slightly lower rate than average rates in the meeting and group market segment because leisure travelers tend to be more rate sensitive, and because the high-quality meeting and banqueting space is of little utility to such travelers. The report identifies the growth rates that have been applied to each segmented average rate through the stabilized year. As a context for the average growth rate factors, note that we have applied a base underlying inflation rate of 2.0% in 2010 and 2011 and 3.0% throughout the remainder of our projection. We anticipate that the subject property will be required to build up to its stabilized average rate by providing discounts in the first two years of Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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operation, which we have estimated at 10.0% in year one and 5.0% in year two. The forecast of income and expense is expressed in current dollars for each year. The stabilized year is intended to reflect the anticipated operating results of the property over its remaining economic life, given any or all applicable stages of build-up, plateau, and decline in the life cycle of the hotel. Thus, income and expense estimates from the stabilized year forward exclude from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusual revenues or expenses. The 10-year period reflects the typical holding period of large real estate assets such as hotels. In addition, the 10-year time frame provides for the stabilization of income streams and comparison of yields with alternate types of real estate. The forecast income streams reflect the future benefits of owning specific rights in income-producing real estate. In order to project future income and expense for the proposed subject property, we have reviewed composite income statements from the Smith Travel Research HOST Report.

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The forecast of income and expense is intended to reflect the consultants’ subjective estimate of how a typical buyer would project the subject property’s future operating results. Our fixed and variable projection model is based upon variables that we input for each revenue and expense item for a “base year,” which in this case in 2010. The base-year forecast sets forth the ratios to revenue, amounts per available room, or amounts per occupied room that we believe can be achieved at the stated base-year average rate and occupancy. Our input variables are derived from the operating performance of comparable hotels. The model then calculates a base-year forecast of income and expense. The actual forecast is derived by adjusting each year’s revenue and expense by the amount fixed (the fixed expense multiplied by the inflated base-year amount) plus the variable amount multiplied by the ratio of the projection Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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year’s occupancy to the base-year occupancy or the ratio of the projection year’s revenue to the base year’s revenue. Fixed expenses remain fixed, increasing only with inflation. Each category of revenue and expense is estimated separately and combined at the end in the final statement of income and expense. The following description sets forth the basis for the forecast of income and expense. We anticipate that it will take five years for the subject property to reach a stabilized level of operation. Each revenue and expense item has been forecast based upon our industry knowledge. The following forecast is based upon calendar years beginning January 1. The forecast is expressed in inflated dollars for each year. Room revenue is determined by two variables: occupancy and average rate. Both were projected earlier in this report. The subject property is expected to stabilize with an occupancy level of 80.0% at an average rate of $ in the stabilized year. Following the stabilized year, the subject property’s average rate is projected to increase at a level equal to the underlying rate of inflation. In the case of the subject property, food revenue is expected to be generated by a typical three-meal restaurant and room service operations. A significant component of the subject property’s food revenue will result from its complete banqueting services, operating out of a centralized kitchen, to serve 25,000 square feet of meeting space. It is assumed that the management company will manage the food and beverage operations as well. The comparable Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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conference center operating ratios indicate that, on average, food revenue accounts for 52.2 of room revenue, in year one, stabilizing at 45.9% of room revenue in the fifth year. Beverage revenue is generated by the sale of alcoholic beverages in a hotel’s restaurants and banquet rooms and the sale of alcoholic and nonalcoholic beverages in the property’s bars and lounges. Alcoholic beverages included in room service operations are also classified as beverage revenue. The comparable operating statements indicate that beverage revenue ranged from 9.7% to 30.8% as a percentage of food revenue. We forecast beverage revenue at 20.0% of food revenue throughout the projection period. Telephone revenue is generated by hotel guests who charge local and longdistance calls to their rooms, and by individuals who use the property’s public telephones. Due to the use of cell phones by the traveling public, telephone revenues have been declining in recent years at lodging properties worldwide. In response to this trend, many hotels are attempting to replace this lost revenue with fee-based Internet access. This action is expected to stabilize telephone revenues. We have forecast telephone revenue at 2.0% of room revenue, in year one, stabilizing at 1.7% of room revenue. Conference services revenue refer to items relating to the operation of the conference center. Audiovisual equipment, meeting room rental, day-guest charges, and business center services are all sources of conference service Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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revenue. The vast majority of conference services revenue is generated by the sale of combined meeting packages (CMP). The CMP plan provides a marketing advantage to conference centers because most of the meeting costs can be determined in advance, allowing for efficient purchasing of materials and scheduling of staff, which enables operators to control costs. Because executive conference centers are actually in the communications and education business, the availability of CMP plans, audiovisual equipment and meeting facilities is an integral component of a particular property’s differentiation and segmentation strategy. We estimate that 65% of all room nights sold in the meeting and group segment will be sold as part of a combined meeting package. Of these we estimate that $75 per occupied room will be allocated to the conference services department. Over the past three years, meeting planners have been price sensitive due to budgetary constraints imposed by their clients. We anticipate that this trend may persist even as the economy improves thus limiting growth in conference service fees to inflationary levels. However, as meetings and groups are forecast to constitute an increasingly large portion of total accommodated demand, conference service revenue is forecast to increase in relation to room revenues. Specifically, we have forecast conference services revenue at 11.7% Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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of room revenue in the first projection year, stabilizing at 13.2% of room revenue in the fifth projection year. Other income is primarily derived from health club/spa revenues, parking revenues, and cancellation and attrition fees paid by groups. The remainder of the other revenue is composed of commissions from in-room movies, valet and laundry services, and vending machine commissions. We have projected other income at 6.7% of room revenue in year one, stabilizing at 5.0% of room revenue. Room expense consists of items related to the sale and upkeep of guestrooms and public spaces. Salaries, wages, and employee benefits account for a substantial portion of this category. Although payroll varies somewhat with occupancy (because managers can schedule housekeepers and house cleaners to work when demand requires), much of a hotel’s payroll is fixed. Front desk personnel, public area cleaners, and the executive housekeeper and other supervisors are maintained at all times. As a result, salaries, wages, and employee benefits are only moderately sensitive to changes in occupancy. Commissions and reservations are usually based on room sales, and thus are highly sensitive to changes in occupancy and average rate. While guest supplies vary 100% with occupancy, linen and other operating expenses are only slightly affected by volume.

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The conference center operating ratios indicated a range of between 24.0% and 25.1% of departmental revenues. We have projected a room expense ratio of 31.9% of room revenue in year one, stabilizing at 24.9% of room revenue in the fifth year of operation. Food expense consists of those items necessary for the operation of a hotel’s food and banquet facilities. Beverage expense consists of items necessary for the operation of a hotel’s lounge and bar areas. The costs associated with beverage sales and payroll correlate highly with beverage revenues. Items such as china, linen, and uniforms are less dependent on volume. Although the other expense items are basically fixed, they represent a relatively insignificant factor. As mentioned, the advantage of offering combined meeting packages is that conference centers are able to capture food and beverage revenue that a traditional hotel might not capture. On the expense side, this also benefits the conference center, as the resulting economies of scale potentially reduce food and beverage expenses. The conference center comparables ranged from 70.1% to 75.5% of departmental income. We have projected a food and beverage expense ratio of 81.6% of departmental revenue in year one, stabilizing at 69.5% in the fifth year.

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Telephone expense consists of all costs associated with this department. In the case of small hotels with automated systems, the operation of telephones may be an additional responsibility of front desk personnel; however, most large properties employ full-time operators. The bulk of telephone expense is related to the cost of local and long-distance calls billed by the telephone companies that provide these services. Because most calls are made by in-house guests, these costs are moderately correlated to occupancy. We have projected a telephone expense ratio of 83.0% of departmental revenue in year one, stabilizing at 70.0% in year five. Conference services expense includes the payroll and benefit costs for the conference director and assistants, audiovisual technicians, and set-up housepersons. Based on conference center comparable ratios, we have forecast the subject property’s conference services expense at 70.0% of departmental revenue in year one, stabilizing at 58.3% in year five. Other income expense consists of costs associated with generating other income revenue, and is dependent on the nature of the revenue sources. We have projected other income expense at 46.5% of departmental revenue in year one, stabilizing at 43.1% of departmental revenue in year five. Administrative and general expense includes the salaries and wages of all administrative personnel who are not directly associated with a particular Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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department. Expense items to the management and operation of the property are also allocated to this category. Most administrative and general expenses are relatively fixed. The exceptions are cash overages and shortages; commissions on credit card charges; provisions for doubtful accounts; and salaries, wages, and benefits, which are very slightly influenced by volume. For the proposed subject property, administrative and general expense has been forecast at 11.5% of total revenue in 2010, stabilizing at 8.7% of total revenue in year five. Marketing expense consists of all costs associated with advertising, sales, and promotion. These activities are intended to attract and retain customers. Marketing can be used to create an image, develop customer awareness, and stimulate patronage of a property’s various facilities. The marketing category is unique in that all expense items, with the exception of fees and commissions are totally controlled by management. Most hotel operators establish an annual marketing budget that sets forth all planned expenditures. If a budget is followed, total marketing expense can be projected accurately. Marketing expenditures are unusual because although there is a lag period before results are realized, the benefits are often extended over a long period. Depending on the type and scope of the advertising and promotion program implemented, the lag time can be as short as a few weeks or as long as several years. Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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Marketing for conference centers is driven by relationships developed over time with meeting planners and other key decision-makers for large groups. As such, marketing a conference center is highly labor intensive. However, the favorable results of an effective marketing campaign tend to linger, and a property often enjoys the benefits of concentrated sales efforts for many months. The conference center comparables state a more narrow marketing expense range from 6.8% to 7.7% of total revenue. Marketing expense has been forecast at 10.2% of total revenue in the first forecast year, stabilizing at 7.1% of total revenue in the fifth year. Property operations and maintenance expense is another expense category that is largely controlled by management. Except for repairs that are necessary to keep the facility open and prevent damage (e.g., plumbing, heating, and electrical items), most maintenance can be deferred for varying lengths of time. Maintenance is an accumulating expense. If management elects to postpone performing a required repair, they have not eliminated or saved the expenditure; they have only deferred payment until a later date. A lodging facility that operates with a lower-than-normal maintenance budget is likely to accumulate a considerable amount of deferred maintenance. The age of a lodging facility has a strong influence on the required level of maintenance. A new or thoroughly renovated property is protected for several Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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years by modern equipment and manufacturers’ warranties. A well-organized preventive maintenance system often helps delay deterioration, but most facilities face higher property operations and maintenance costs each year, regardless of the occupancy trend. The quality of initial construction can also have a direct impact on future maintenance requirements. The use of high-quality building materials and construction methods generally reduces the need for maintenance expenditures over the long term. As the subject property will be newly constructed in its first year of operation, it is expected that property will be newly constructed in its first year of operation, it is expected that property operations and maintenance expense will be moderate in the initial years of operation. The conference center comparables states an expense range from 4.5% to 6.1% of total revenue. Property operations and maintenance expense has been forecast at 3.8% of total revenue in the first year of operation, stabilizing at 3.6% of total revenue in the fifth year. The energy consumption of a lodging facility takes several forms including water and space heating, air conditioning, lighting, cooking fuel, and other miscellaneous power requirements. Total energy costs depend on the source and quantity of fuel used. Electricity tends to be the most expensive source, followed by oil and gas. This category also includes the cost of water service.

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Management expense consists of the fees to the management company contracted to operate the property. Some companies provide management services and brand-name affiliation (first-tier management company), while others provide management services alone (second tier management company). Some management contracts specify only a base fee and an incentive fee (usually a percentage of a defined profit). Basic hotel management fees are almost always based on a percentage of total revenue, which means that they have no fixed component. While base fees typically range from 2% to 4% of total revenue, incentive fees are deal specific and often are calculated as a percentage of income available after debt service and, in some cases, after a preferred return on equity. Management fees for the subject property have been forecast at 3.0% of total revenue, assuming that a first-tier conference center management company operates the property. The insurance expense category consists of the cost of insuring the hotel and its contents against damage or destruction by fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, and so forth. General insurance costs also include premiums relating to liability, fidelity, and theft coverage. It does not include liability coverage, which is a component of administrative and general expense.

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The HOST Report notes an insurance expense range from $389 to $571 per available room. We have projected an insurance expense of $378 per available room in the first year and $413 per available room in the stabilized year. Furniture, fixtures, and equipment are essential to the operation of a lodging facility. This category includes all non-real estate items that are capitalized, rather than expensed. The furniture, fixtures, and equipment of a hotel are exposed to heavy use and must be replaced at regular intervals. The useful life of these items is determined by their quality, durability, and the amount of guest traffic and use. Periodic replacement of furniture, fixtures, and equipment is essential to maintain the quality, image, and income-producing potential of a lodging facility. Because capitalized expenditures are not included in the operating statement but nevertheless affect an owner’s cash flow, analysis should reflect these expenses in the form of an appropriate reserve for replacement. Based on the subject property’s age and condition, we estimate that a reserve for replacement of 1.0% in the first year, increasing annually to 5.0% in the fifth forecast year, is sufficient to provide for the timely and periodic replacement of the subject property’s furniture, fixtures, and equipment. Based on the preceding analysis, we have formulated a forecast of income and expense. The following table presents a detailed forecast through the stabilized year, including amounts per available room and per occupied room. The Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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second table illustrates our 10-year forecast of income and expense, presented with a lesser degree of detail. The forecast is expressed in inflated dollars for each year. The forecast of income and expense for the proposed subject property indicates that net income will improve from 13.0% of total revenue in the first forecast year to stabilize at 26.7% of total revenue, allowing for a 5.0% reserve for replacement. This increase in profitability is forecast to be partly achieved through a decrease in total departmental expenses, from 52.5% of departmental revenues in the first forecast year to 42.0% of departmental revenues in the stabilized year. Additionally, undistributed operating expenses are forecast to decrease from 29.7% of total revenue in the first forecast year to 22.7% of total revenue in the stabilized year.

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Panama’s Strategic Role in International Trade and Economic Growth According to the Economic Commission for Latin America and the Caribbean (ECLAC), Asia is the most dynamic area of the world economy in terms of growth, international trade, foreign direct investment, technical innovation and its role as a source of financial resources that help maintain international balances. Asian counties are displaying an unprecedented interest in forming strategic relationships with Latin American and the Caribbean. The very high growth rates projected for China ought to secure its position at the very center of world growth in the coming years. As a result, China can offer the countries of Latin America and the Caribbean a huge potential market for their exports of both goods and services. Latin American and Caribbean trade continues to be spurred by strong international demand, especially from China, and the greater strength of the European and Japanese economies. The region continues to have relatively easy access to international financial markets, as interest rates are still fairly low. In real terms, Latin America and the Caribbean posted the second largest increase in exports, after China, in 2005. South America posted a sharper upswing in exports than Mexico and Central America did because it specializes more heavily in commodities, whose prices have been steadily climbing. ECLAC projections for 2006-2007 indicate that Latin America export volumes will grow Prepared by Paul Bather Gulf Coast Financial Services May 14, 2007

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as much the same rate as they did in 2005 (around 7%-8%), thereby once again coming in second with China remaining in the lead. China has already become a major export market for a number of countries in the region. Trade relations between South America and China tend to be complimentary, taking the form of inter-industry trade in which the region exports primarily commodities and imports manufacturers, whereas Mexico’s and Central America’s trade with China is more asymmetrical. In fact, China buys less than 1% of Mexico’s total exports but is its second-largest supplier of imports. As a result, Mexico and Central America have been building up a growing trade deficit with China. Mexico and Central America export many of the same types of products to the United States market as China does. In fact, China has actually superceded Mexico as the United States’ top trading partner. This shift is evident not only in textiles and clothing but also in such sectors as electrical equipment and electronics, including computer hardware. In order to promote Mexico’s and Central America’s strategic relations with China, continued effort needs to be made to ensure a place for this Latin American sub-region within Asia’s market-led productive integration process. Increased intra-industry trade between China and Mexico/Central America would provide this sub-region with new routes to the Chinese market.

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This, in turn, would help Mexico and Central America find opportunities for incorporating new technologies rather than having to compete face-to-face in third markets. The logistical advantage of their proximity to the North American market is a key variable that should be factored into the relevant commercial and technological partnerships.

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Progress has been made in establishing integration policies and institutions, perhaps most notably in the Andrean Community’s creation of social development programs, the structural convergence funds established by MERCOSUR and the efforts made to agree upon uniform customs codes and extend the application of the common external tariff to all tariff items. Similar inroads are being made in Central America and the Caribbean. In the first half of the 1990s, intraregional trade was liberalized with the help of agreements signed under the aegis of the Latin America Integration Association (LAIA). In the second half of that decade, particular importance began to be placed on signing agreements with trading partners outside the region, such as Canada, the European Union, Japan, the United States and, more recently China and other Asian countries.

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Tourism in Panama

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