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Panama Players Inc. Business Plan Narrative


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									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                                                          1
Gulf Coast Financial Services
May 14, 2007
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 0834-
02659, 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.

Prepared by Paul Bather                                                               2
Gulf Coast Financial Services
May 14, 2007
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

                           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                                                              3
Gulf Coast Financial Services
May 14, 2007
meeting planners understand the conference center concept and trust how it
delivers the technical sophistication and specialized services today's meetings
                                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.

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                                                           4
Gulf Coast Financial Services
May 14, 2007
  • 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
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
                              Rooms will be
specially engineered with such features as
ergonomic chairs, tables with non-glare surfaces,
tackable walls, appropriate lighting and acoustics.

Prepared by Paul Bather                                                              5
Gulf Coast Financial Services
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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                                                            6
Gulf Coast Financial Services
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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.

Prepared by Paul Bather                                                         7
Gulf Coast Financial Services
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                                     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

                                           • 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
Prepared by Paul Bather                                                        8
Gulf Coast Financial Services
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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.

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                                                        9
Gulf Coast Financial Services
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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                                                         10
Gulf Coast Financial Services
May 14, 2007
citizenship and permanent-residence programs, which would give you a second
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
Prepared by Paul Bather                                                     11
Gulf Coast Financial Services
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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                                                         12
Gulf Coast Financial Services
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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.
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                                                            13
Gulf Coast Financial Services
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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                                                       14
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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                                                        15
Gulf Coast Financial Services
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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.

Prepared by Paul Bather                                                          16
Gulf Coast Financial Services
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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
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                                                          17
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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                                                           18
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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   35.6%   Central America 10.9%
                     United States   28.6%   Europe           8.2%
                     Caribbean        5.2%   Mexico           5.0%
                     Canada           3.5%   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                                                           19
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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
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                                                             20
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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                                                         21
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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                                                            22
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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            2004    2003    2002    2001    2000    1999
        Business       147,556 139,482 120,112 121,438 122,993 120,077
Prepared by Paul Bather                                                       23
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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

                                               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                                                      24
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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               2004      2003      2002     2001         2000     1999
  Convention           26,179    24,747    21,350   20,133       23,629   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                                                         25
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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 double-
occupancy 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.

Prepared by Paul Bather                                                            26
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                         Leisure Visitors to Panama by Air
   Year           2004       2003        2002      2001        2000       1999
  Leisure        260,366    246,117    229,633    214,139     200,389    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 non-
commercial 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                                                            27
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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

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                                                       28
Gulf Coast Financial Services
May 14, 2007
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 intra-
regional 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                                                         29
Gulf Coast Financial Services
May 14, 2007
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                                                           30
Gulf Coast Financial Services
May 14, 2007
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

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                                                            31
Gulf Coast Financial Services
May 14, 2007
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.

Prepared by Paul Bather                                                            32
Gulf Coast Financial Services
May 14, 2007
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).

Prepared by Paul Bather                                                          33
Gulf Coast Financial Services
May 14, 2007
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                                                       34
Gulf Coast Financial Services
May 14, 2007
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               2014
Commercial                  24%      23%     21%      21%                 21%
Meeting and Group           59%      55%     53%      54%                 54%
Leisure                     17%      22%     26%      25%                 25%
Total                      100%      100%    100%     100%               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.

Prepared by Paul Bather                                                         35
Gulf Coast Financial Services
May 14, 2007
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
                Base Demand Growth for Subject Property
Market Segment                  2010    2011    2012     2013    2014    2015
Commercial                      3.0%    3.0%    3.0%     2.5%    2.0%    1.0%
Meeting and Group               3.0%    3.0%    3.0%     2.0%    1.0%    1.0%
Leisure                         2.5%    3.5%    6.0%     4.0%    2.0%    1.0%
Base Demand Growth              2.7%    3.3%    4.6%     3.1%    1.7%    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                                                          36
Gulf Coast Financial Services
May 14, 2007
                                 2010    2011    2012    2013    2014    2015
Total Room Nights               109,610 112,569 116,284 121,633 125,403 127,535
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                                                            37
Gulf Coast Financial Services
May 14, 2007
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                                                         38
Gulf Coast Financial Services
May 14, 2007
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                         Average Rates         % of Total
CMP Rooms                          $151 – 179            58 – 62%
CMP Food & Beverage                   64 – 78            25 – 27
CMP Conference Services               24 – 25             8 – 10
Total CMP Average Rate             $249 – 291              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                                                        39
Gulf Coast Financial Services
May 14, 2007
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.

Prepared by Paul Bather                                                        40
Gulf Coast Financial Services
May 14, 2007
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
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                                                            41
Gulf Coast Financial Services
May 14, 2007
operation, which we have estimated at 10.0% in year one and 5.0% in year
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
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.

Prepared by Paul Bather                                                          42
Gulf Coast Financial Services
May 14, 2007
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                                                       43
Gulf Coast Financial Services
May 14, 2007
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                                                               44
Gulf Coast Financial Services
May 14, 2007
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 long-
distance 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                                                           45
Gulf Coast Financial Services
May 14, 2007
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                                                          46
Gulf Coast Financial Services
May 14, 2007
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
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.

Prepared by Paul Bather                                                         47
Gulf Coast Financial Services
May 14, 2007
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
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

Prepared by Paul Bather                                                         48
Gulf Coast Financial Services
May 14, 2007
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                                                      49
Gulf Coast Financial Services
May 14, 2007
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

Prepared by Paul Bather                                                          50
Gulf Coast Financial Services
May 14, 2007
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
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                                                           51
Gulf Coast Financial Services
May 14, 2007
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.

Prepared by Paul Bather                                                           52
Gulf Coast Financial Services
May 14, 2007
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.

Prepared by Paul Bather                                                              53
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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                                                             54
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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.

Prepared by Paul Bather                                                         55
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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
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                                                              56
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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.

Prepared by Paul Bather                                                            57
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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.

Prepared by Paul Bather                                                        58
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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.

Prepared by Paul Bather                                                             70
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Tourism in Panama

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