The Caribbean Market is Heating Up In More Ways Than One

2006 The Caribbean Market is Heating Up In More Ways Than One Parris Jordan HVS INTERNATIONAL NEW YORK 372 Willis Ave. Mineola, NY 11501 +1 516 248 8828 (ph) +1 516 742 3059 (fax) April 2006 New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto London Madrid New Delhi Singapore Hong Kong Sydney São Paulo Buenos Aires Newport, RI

Location and History The Caribbean region consists of 32 countries comprising hundreds of islands in the Caribbean Sea. Spanning an area of almost one million square miles, these islands are situated between Florida to the north and Venezuela to the south. The Caribbean countries vary considerably in size with the smallest country, Saba, measuring roughly five square miles and the largest, Cuba, measuring approximately 42,800 square miles. The Caribbean was discovered in 1492 during the first voyage of Christopher Columbus. Throughout the 16th century, the Caribbean islands grew in importance to the Spanish empire, as Spain claimed the entire Caribbean and created settlements on the larger island colonies. As the Spanish empire declined throughout the 17th and 18th centuries, other European countries established colonies all over the Caribbean region. The Caribbean colonies were very important to the European nations because the plantations that were established there generated great wealth for the mother country. Sugar was the main crop produced throughout the Caribbean region and by the 1800s plantations on the Caribbean islands produced 90% of the sugar that was consumed in Europe. To satisfy the enormous manpower requirements of the plantation system, a vast number of Africans slaves were imported throughout the 18th century. Following the abolition of slavery, the colonies turned to imported indentured labor from India, China, and the East Indies to meet the demands for labor. For the most part, the Caribbean islands tend to share a similar geography, culture, and history despite speaking the different languages of the European nations that colonized the respective Caribbean countries. Overall, the Caribbean nations were colonized by either Spain, France, Holland, Britain, or Denmark during their history. Today, most of the Caribbean nations have gained their independence while some of the smaller nations are still colonies of European powers (the U.S. Virgin Islands were originally colonies of Denmark until 1916, prior to selling sovereignty to the U.S., which still governs them). The following table lists the Caribbean countries by national language.

Table 1 List of Caribbean Countries Categorized by Native Language English Anguilla Antigua and Barbuda Bahamas Barbados Belize Bermuda British Virgin Islands Cayman Islands Dominica Grenada Guyana Jamaica Monsterrat St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines Trinidad and Tobago Turks and Caicos Islands U.S. Virgin Islands Aruba Bonaire Curacao St. Eustatius St. Maarten Suriname Dutch Spanish Cuba Dominican Republic Puerto Rico French Guadeloupe and St. Barts Haiti Martinique St. Martin

Map of the Caribbean The Caribbean islands possess limited natural resources. Only the islands of Jamaica (bauxite and gypsum) and Trinidad (petroleum, pitch, and natural gas) contain notable natural resources. However, the Caribbean region benefits tremendously from the natural beauty of the region s spectacular beaches, exotic wildlife, cultural diversity, warm tropical weather, and numerous festivals. These benefits, which appeal to tourists from all over the world, as well as the history associated with the European nations and proximity to the United States, are the main reasons for the Caribbean s transition from an economy that was historically heavily dependent on agriculture throughout the 18th through 20th centuries, to a region that is currently reliant on the travel and tourism industry. Importance of Tourism to the Caribbean Region Tourism in the Caribbean is not only important, it is also critical for the economic survival of the region. According to the World Travel and Tourism Council, the Caribbean is clearly the most tourism intensive region in the world. Travel and tourism currently account for 15.4% of the total gross domestic product and generate 15.5% of total employment in the Caribbean. The industry s vital role as a generator of wealth and employment across all parts of the region is indisputable as it acts as a catalyst for growth in other areas such as agriculture, construction, and manufacturing. Overall, the tourism industry generates over $20 billion a year for the region and provides more jobs than any other industry. Some islands are more dependent on tourism than others. For example, the British Virgin Islands, Antigua, and Barbuda owe more than 75% of their economies to travel and tourism, while four other Caribbean nations owe between 50-75% of their

economies to travel and tourism. Another important indicator of the travel and tourism industry to the region is employment. The World Travel and Tourism Council estimates that of all the jobs generated in the British Virgin Islands, Antigua, and Barbuda, 95% of employment is directly or indirectly produced by the travel and tourism industry, while roughly 80% of jobs created in Anguilla are a direct result of travel and tourism. Overall, in 2005, the Caribbean travel and tourism economy employment is estimated at roundly 2.4 million jobs, 15.5% of employment, or one in every 6.6 jobs. These statistics clearly indicate the islands heavy dependency on the tourism industry, a circumstance that is considered to present both positive and negative aspects to the region. Impact of 2001 Terrorist Attacks on Caribbean Tourism On a positive note, the Caribbean region enhanced its position as a preferred tourist destination to the North American and European markets during the 1990s. In fact, the Caribbean region enjoyed a 5.1% growth rate in tourist arrivals during the decade of the 1990s while the overall global growth rate was 4.8%. However, from July 1999 to July 2001, the Caribbean region s growth rate declined to 4.3%, lower than the overall global growth rate for tourist arrivals. The most obvious and influential negative factor of the Caribbean region s dependence on tourism renders the islands economy extremely susceptible to fluctuations in the level of tourism. As tourism is generally tied to the levels of discretionary income of the population that constitutes the destination s primary market area, the economy of the islands is directly influenced by fluctuations in the U.S. and European economies. By September 2001, tourist arrivals to the Caribbean region were already declining and the 2001 global economic recession and terrorist attacks on the U.S. only exacerbated the situation throughout the Caribbean region. The negative impact of the terrorist attacks led to the loss of jobs, declines in discretionary income levels, and consequent declines in the tourism industry throughout the United States and popular U.S. and European destination locations, including the Caribbean islands. The World Tourism Organization estimates the total number of international arrivals to the Caribbean declined to 16.1 million in 2002, down from its historical peak of 17.2 million in 2000. The 2001 terrorist attacks severely impacted the Caribbean region, as hotel occupancy levels declined, many Caribbean airlines, hotels, and restaurants were forced to reduce employee hours and, in many cases, cut jobs. Although the effects on the Caribbean market were dramatic and immediate, the market recovered quickly and by 2003, total visitor arrivals posted a record high of 17.3 million. Recovery of the Caribbean Market By 2003, the Caribbean recorded healthy gains in tourist arrivals and tourism receipts. This trend continued into 2004 as the Caribbean market rebounded quickly following the two disappointing years of 2001 and 2002. The market s recovery can be attributed to a combination of factors. With the ongoing War on Terrorism, U.S. travelers perceived level of security is reportedly higher in the Caribbean islands than in other offshore destinations. As many parts of the world appear to present real or perceived terrorist threats to the U.S. market, the Caribbean region continues to benefit through its positioning as a region that is safe and secure for vacationers and family. Moreover,

according to the World Travel and Tourism Council, some tourists from the United States still appear reluctant to travel further afield as they are nervous about the hostile reception they feel they may receive from European and Asian nations as result of the U.S. government s stance on Iraq. Another reason for the market s recovery is the relative strength of the Euro versus the U.S. dollar. The strength of the Euro presents opportunities for European tourists to travel to the Caribbean as prices may appear more attractive, thus creating greater value for the European tourists. Additionally, the islands history that is forever linked to various European nations through colonialization continues to be a main driver for visitation to the respective former island colonies by residents from the European mother country. To further illustrate the recovery of the Caribbean market, the following table presents hotel performance in the region as complied by Smith Travel Research (STR), an independent research firm that compiles data on the lodging industry; its published data is routinely used by typical hotel buyers. STR has compiled historical supply and demand data for selected hotels within the Caribbean market. This information is presented in different formats in the following tables, along with the marketwide occupancy, average rate, and rooms revenue per available room (RevPAR) for fifty-six branded luxury, upper upscale, and upscale hotels with a room count of 650 units or less. RevPAR is calculated by multiplying occupancy by average rate, and provides an indication of how well rooms revenue is being maximized.

Table 2 - Historical Supply and Demand Trends (STR) Year Occupied Room Nights Change Available Room Nights Change Change Average Rate Change RevPAR Change 1994 2,932,760 4,400,805 66.6 $163.84 $109.19 1995 3,091,925 5.4 % 4,489,187 2.0 % 68.9 % 3.4 % 163.42 (0.3) % 112.56 3.1 % 1996 3,067,926 (0.8) 4,679,950 4.2 65.6 (4.8) 160.20 (2.0) 105.02 (6.7) 1997 3,297,581 7.5 4,983,371 6.5 66.2 0.9 163.16 1.8 107.97 2.8 1998 3,464,569 5.1 5,068,145 1.7 68.4 3.3 179.52 10.0 122.72 13.7 1999 3,492,559 0.8 5,067,400 (0.0) 68.9 0.8 191.50 6.7 131.98 7.6 2000 3,592,280 2.9 5,341,788 5.4 67.2 (2.4) 193.06 0.8 129.83 (1.6) 2001 3,531,152 (1.7) 5,688,137 6.5 62.1 (7.7) 187.67 (2.8) 116.50 (10.3) 2002 3,648,565 3.3 5,726,513 0.7 63.7 2.6 179.22 (4.5) 114.19 (2.0) 2003 3,783,785 3.7 5,918,865 3.4 63.9 0.3 182.47 1.8 116.65 2.2 2004 4,179,353 10.5 5,900,388 (0.3) 70.8 10.8 193.64 6.1 137.16 17.6 2005 4,175,685 (0.1) 5,839,591 (1.0) 71.5 1.0 209.57 8.2 149.86 9.3 Year-to-Date Through February 2005 701,902 945,121 74.3 % $254.59 $189.08 2006 715,745 2.0 % 948,001 0.3 % 75.5 1.7 % 270.71 6.3 % 204.39 8.1 % Average Annual Compounded Change: 1994-2005 3.3 % 2.6 % 0.6 % 2.3 % 2.9 % Hotels included in Sample Country Number of Rooms Hotels included in Sample Country Number of Rooms Rosewood Jumby Bay Resort Antigua & Barbuda 50 Hilton International Kingston Jamaica 303 Marriott Aruba Resort & Stellaris Casino Aruba 413 Ritz-Carlton Ritz Carlton Golf & Spa Rose Hotel Jamaica 427 Wyndham Hotels Resort Aruba Spa & Casino Aruba 478 Marriott Curacao Bch Resort & Emerald Casino Netherlands Antilles 247 Radisson Aruba Resort & Casino Aruba 357 Hilton International Curacao Resort Netherlands Antilles 197 Hyatt Regency Aruba Aruba 360 Hyatt Dorado Beach Resort & Country Puerto Rico 262 Renaissance Aruba Beach Resort & Casino Aruba 423 Embassy Suites Dorado Del Mar Beach Puerto Rico 174 Four Seasons Resort Great Exuma Bahamas 183 Hilton International Ponce Hotel & Casino Puerto Rico 156 Westin @ Our Lucaya Bahamas 740 Westin Rio Mar Beach Golf Resort & Spa Puerto Rico 600 Sheraton Hotel @ Our Lucaya Beach & Golf Resort Bahamas 477 Westin Ocean Villas @ Rio Mar Beach Puerto Rico 94 Hilton International British Colonial Bahamas 291 Sheraton Hotel Old San Juan Puerto Rico 240 Fairmont Glitter Bay Barbados 68 Hilton International Caribe Hotel & Casino Puerto Rico 645 Fairmont Royal Pavillion Suites Barbados 76 Marriott San Juan Resort & Stellaris Casino Puerto Rico 525 Mandarin Oriental Hotel Group Elbow Beach Bermuda 244 Radisson Ambassador Plaza Hotel & Casino Puerto Rico 233 Fairmont Hamilton Princess Bermuda 410 Inter-Continental San Juan Resort & Casino Puerto Rico 402 Wyndham Hotels Bermuda Resort & Spa Bermuda 252 Ritz-Carlton San Juan Hotel & Casino Puerto Rico 416 Fairmont Southampton Princess Resort Bermuda 593 Embassy Suites San Juan Hotel & Casino Puerto Rico 299 Rosewood Little Dix Bay Hotel British Virgin Islands 100 Courtyard Isla Verde Beach Resort Puerto Rico 260 Hyatt Grand Cayman Resort & Villas Cayman Islands 53 Four Seasons Resort Nevis St. Kitts & Nevis 196 Courtyard Grand Cayman Cayman Islands 230 Marriott St Kitts Rsrt & Royal Beach Casino St. Kitts & Nevis 471 Marriott Grand Cayman Beach Resort Cayman Islands 305 Hilton International Jalousie Resort & Spa St. Lucia 112 Westin Casuarina Resort Cayman Islands 343 Hilton International Trinidad Trinidad & Tobago 394 Hotel Sofitel Sevilla Cuba 181 Crowne Plaza Port Of Spain Trinidad Trinidad & Tobago 233 Renaissance Jaragua Hotel & Casino Dominican Republic 300 Hilton International Tobago Trinidad & Tobago 200 Inter-Continental V Centenario Santo Domingo Dominican Republic 196 Marriott Frenchman's Reef & Morning Sta U.S. Virgin Islands 481 Embassy Suites Santo Domingo Juan Dolio Dominican Republic 126 Ritz-Carlton St Thomas Resort U.S. Virgin Islands 152 Le Meridien L`Habitation Guadeloupe 233 Wyndham Hotels Resort Sugar Bay U.S. Virgin Islands 294 Hotel Sofitel Auberge De La Vielle Tour Cora Guadeloupe 103 Westin St John Resort U.S. Virgin Islands 282 Crowne Plaza Kingston Jamaica 129 Rosewood Caneel Bay Resort U.S. Virgin Islands 166 Source: Smith Travel Research

Table 3 - Historical Supply and Demand Trends (STR) Average Rate and, Monthly Data 1999-2005 1999 2000 2001 2002 2003 2004 2005 Month January 69.1 % $229.16 60.6 % $227.44 61.0 % $235.94 59.9 % $210.77 61.3 % $222.92 71.0 % $228.42 70.0 % $245.91 February 73.1 244.78 71.2 244.28 69.5 251.03 68.8 223.96 68.4 237.52 79.8 244.14 79.0 263.11 March 74.6 223.33 77.0 227.66 74.1 234.34 72.1 220.60 68.5 225.17 79.8 230.07 81.7 258.34 April 78.5 202.41 73.5 214.06 72.2 208.54 72.2 188.69 65.9 202.37 77.3 206.92 80.0 218.61 May 74.5 185.65 73.3 183.06 67.5 177.01 63.9 167.59 61.4 172.28 71.5 178.85 72.3 196.14 June 73.6 176.17 72.1 175.41 65.5 168.52 65.2 164.14 63.0 163.76 71.4 171.91 77.1 189.80 July 72.4 169.53 71.5 170.17 66.9 159.15 69.7 155.61 71.1 157.21 76.2 165.13 77.2 183.74 August 70.2 162.91 69.1 161.03 66.9 152.11 68.4 151.60 72.4 153.37 71.8 165.86 70.4 173.52 September 55.2 155.56 53.8 157.58 42.5 133.34 50.9 135.57 46.7 132.28 53.5 156.69 52.9 160.08 October 64.4 154.19 59.7 160.97 48.7 143.82 54.9 148.10 57.7 142.07 63.9 156.37 62.1 164.14 November 66.3 165.63 65.7 164.35 56.3 145.54 61.9 151.39 66.0 151.20 70.0 166.15 70.9 180.47 December 56.1 222.81 61.0 225.43 54.7 208.38 57.1 221.82 64.8 220.14 65.1 244.77 65.0 259.86 Annual Averages 68.9 % $191.50 67.2 % $193.06 62.1 % $187.67 63.7 % $179.22 63.9 % $182.47 70.8 % $193.64 71.5 % $209.57 Year-to-Date Through February 71.0 % $236.80 65.6 % $236.11 65.0 % $243.59 64.7 % $217.49 64.7 % $230.25 75.2 % $236.34 74.3 % $254.59 1999 2000 2001 2002 2003 2004 2005 Month January -0.9 % 1.1-12.2 % -0.7 0.6 % 3.7-1.8 % -10.7 2.4 % 5.8 15.8 % 2.5-1.4 % 7.7 February -5.3-0.4-2.6-0.2-2.3 2.8-1.0-10.8-0.6 6.1 16.7 2.8-1.0 7.8 March 4.6-1.2 3.2 1.9-3.7 2.9-2.8-5.9-4.9 2.1 16.4 2.2 2.4 12.3 April 7.9 6.3-6.4 5.8-1.8-2.6 0.0-9.5-8.7 7.2 17.4 2.3 3.4 5.6 May 9.1 14.3-1.6-1.4-7.9-3.3-5.4-5.3-3.9 2.8 16.6 3.8 1.1 9.7 June 12.4 16.4-1.9-0.4-9.3-3.9-0.5-2.6-3.3-0.2 13.3 5.0 8.1 10.4 July 10.1 17.3-1.2 0.4-6.5-6.5 4.2-2.2 1.9 1.0 7.2 5.0 1.4 11.3 August 5.0 14.5-1.6-1.2-3.2-5.5 2.3-0.3 5.9 1.2-0.9 8.1-1.9 4.6 September -2.1 15.0-2.6 1.3-21.0-15.4 19.9 1.7-8.3-2.4 14.4 18.5-1.0 2.2 October -6.6 5.2-7.4 4.4-18.4-10.7 12.7 3.0 5.1-4.1 10.9 10.1-2.8 5.0 November -6.6 5.5-0.8-0.8-14.3-11.4 10.0 4.0 6.6-0.1 6.0 9.9 1.3 8.6 December -16.6 7.2 8.8 1.2-10.4-7.6 4.5 6.4 13.4-0.8 0.4 11.2-0.1 6.2 Annual Change 0.8 % 6.7-2.4 % 0.8-7.7 % -2.8 2.6 % -4.5 0.3 % 1.8 10.8 % 6.1 1.0 % 8.2 Source: Smith Travel Research

Y ear -t o-d at e Thr ough Febr uar y Table 4 - Historical Supply and Demand Trends (STR) Average Rate,, and RevPAR, Monthly Data 2000 - Year-to-Date February 2006 Average Rate RevPAR Month 2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006 January 60.6 % 61.0 % 59.9 % 61.3 % 71.0 % 70.0 % 71.0 % $227.44 $235.94 $210.77 $222.92 $228.42 $245.91 $255.35 $137.90 $143.90 $126.17 $136.66 $162.13 $172.05 $181.18 February 71.2 69.5 68.8 68.4 79.8 79.0 80.5 244.28 251.03 223.96 237.52 244.14 263.11 285.51 173.91 174.54 154.09 162.48 194.84 207.93 229.75 March 77.0 74.1 72.1 68.5 79.8 81.7 ### 227.66 234.34 220.60 225.17 230.07 258.34 N/A 175.27 173.73 158.97 154.30 183.57 211.04 #VALUE! April 73.5 72.2 72.2 65.9 77.3 80.0 ### 214.06 208.54 188.69 202.37 206.92 218.61 N/A 157.35 150.57 136.20 133.31 159.97 174.81 #VALUE! May 73.3 67.5 63.9 61.4 71.5 72.3 ### 183.06 177.01 167.59 172.28 178.85 196.14 N/A 134.12 119.51 107.05 105.72 127.93 141.78 #VALUE! June 72.1 65.5 65.2 63.0 71.4 77.1 ### 175.41 168.52 164.14 163.76 171.91 189.80 N/A 126.55 110.33 106.95 103.18 122.73 146.43 #VALUE! July 71.5 66.9 69.7 71.1 76.2 77.2 ### 170.17 159.15 155.61 157.21 165.13 183.74 N/A 121.73 106.46 108.47 111.70 125.78 141.90 #VALUE! August 69.1 66.9 68.4 72.4 71.8 70.4 161.03 152.11 151.60 153.37 165.86 173.52 111.24 101.73 103.69 111.10 119.05 122.15 #VALUE! September 53.8 42.5 50.9 46.7 53.5 52.9 157.58 133.34 135.57 132.28 156.69 160.08 84.74 56.64 69.05 61.81 83.77 84.69 October 59.7 48.7 54.9 57.7 63.9 62.1 160.97 143.82 148.10 142.07 156.37 164.14 96.02 70.05 81.28 81.95 99.99 101.97 November 65.7 56.3 61.9 66.0 70.0 70.9 164.35 145.54 151.39 151.20 166.15 180.47 108.01 81.93 93.74 99.79 116.24 127.87 December 61.0 54.7 57.1 64.8 65.1 65.0 225.43 208.38 221.82 220.14 244.77 259.86 137.58 113.89 126.74 142.68 159.27 168.90 Annual 67.2 % 62.1 % 63.7 % 63.9 % 70.8 % 71.5 % $193.06 $187.67 $179.22 $182.47 $193.64 $209.57 $129.83 $116.50 $114.19 $116.65 $137.16 $149.86 Change in Change in Average Rate Change in RevPAR Month 2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006 January --- 0.6 (1.8) % 2.4 % 15.8 % (1.4) % 1.4 % --- 3.7 (10.7) % 5.8 % 2.5 % 7.7 % 3.8 % --- 4.4 (12.3) % 8.3 % 18.6 % 6.1 % 5.3 % February --- (2.3) (1.0) (0.6) 16.7 (1.0) 1.8 --- 2.8 (10.8) 6.1 2.8 7.8 8.5 --- 0.4 (11.7) 5.4 19.9 6.7 10.5 March --- (3.7) (2.8) (4.9) 16.4 2.4 ### --- 2.9 (5.9) 2.1 2.2 12.3 #VALUE! --- (0.9) (8.5) (2.9) 19.0 15.0 #VALUE! April --- (1.8) (0.0) (8.7) 17.4 3.4 ### --- (2.6) (9.5) 7.2 2.3 5.6 #VALUE! --- (4.3) (9.5) (2.1) 20.0 9.3 #VALUE! May --- (7.9) (5.4) (3.9) 16.6 1.1 ### --- (3.3) (5.3) 2.8 3.8 9.7 #VALUE! --- (10.9) (10.4) (1.2) 21.0 10.8 #VALUE! June --- (9.3) (0.5) (3.3) 13.3 8.1 ### --- (3.9) (2.6) (0.2) 5.0 10.4 #VALUE! --- (12.8) (3.1) (3.5) 18.9 19.3 #VALUE! July --- (6.5) 4.2 1.9 7.2 1.4 ### --- (6.5) (2.2) 1.0 5.0 11.3 #VALUE! --- (12.5) 1.9 3.0 12.6 12.8 #VALUE! August --- (3.2) 2.3 5.9 (0.9) (1.9) ### --- (5.5) (0.3) 1.2 8.1 4.6 #VALUE! --- (8.5) 1.9 7.1 7.2 2.6 #VALUE! September --- (21.0) 19.9 (8.3) 14.4 (1.0) ### --- (15.4) 1.7 (2.4) 18.5 2.2 #VALUE! --- (33.2) 21.9 (10.5) 35.5 1.1 #VALUE! October --- (18.4) 12.7 5.1 10.9 (2.8) ### --- (10.7) 3.0 (4.1) 10.1 5.0 #VALUE! --- (27.1) 16.0 0.8 22.0 2.0 #VALUE! November --- (14.3) 10.0 6.6 6.0 1.3 ### --- (11.4) 4.0 (0.1) 9.9 8.6 #VALUE! --- (24.1) 14.4 6.5 16.5 10.0 #VALUE! December --- (10.4) 4.5 13.4 0.4 (0.1) --- (7.6) 6.4 (0.8) 11.2 6.2 --- (17.2) 11.3 12.6 11.6 6.0 Annual --- (7.7) 2.6 % 0.3 % 10.8 % 1.0 % --- (2.8) (4.5) % 1.8 % 6.1 % 8.2 % --- (10.3) (2.0) % 2.2 % 17.6 % 9.3 % Year-to-Date Through February #REF! ### ### ### ### ### 270.7 % Source: Smith Travel Research

Graph 1 - Historical Supply and Demand Graph Room Supply Room Demand Room Nights 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 100 90 80 70 60 50 40 30 % Source: Smith Travel Research As illustrated by the preceding table, the average room count of the aggregate Caribbean hotels increased notably between 1994 and 2005. In 2001, the market exhibited a substantial increase of 6.5%. During the period 2002 to 2003, the market s overall room count registered marginal increases, while the total room count was reduced slightly in 2004 and 2005, due to the reduction in room supply of a few hotels following the damages caused by the impact of the 2004 and 2005 hurricane season. Overall, occupied room nights increased from 2,932,760 in 1994 to 4,175,685 in 2005. Lodging demand in the subject market increased at an average annual compounded rate of 3.3% between 1994 and 2005. During the period 1997 through 2000, the market exhibited strong growth in terms of occupied room nights. In 2001, occupied room nights decreased by 1.7%. The decline in occupied room nights was a direct result of the negative impacts of the September 11 terrorist attacks on the travel industry, and was further compounded by the global economic recession. In particular, the Caribbean s tourism industry, which relies heavily on leisure demand, was hampered by the reduction in air travel following these attacks. In subsequent years, the market gradually showed signs of recovery, as marketwide occupied room nights posted increases of 3.3% and 3.7%, in 2002 and 2003, respectively. In 2004, the market continued to improve, however, at a much faster pace as exhibited by a significant increase of 10.5% in accommodated room nights, which is indicative of the gradually improving economic climate and the underlying strength of the Caribbean lodging market and is primarily due to the increase in leisure travel. Occupied room nights remained fairly stable in 2005 and year-to-date figures through February 2006, compared to the same period last year, indicate a further increase in marketwide occupied room nights, by 2.0%. Changes in occupancy levels were reflective of the market s historical supply and demand dynamics. Prior to 2001, occupancy levels were typically in the middle to high

60% range, peaking at 68.9% in 1999. Based on our analysis of monthly market data and discussions with Caribbean hotel operators, occupancy levels in the Caribbean lodging market actually began to decline in September 1999. This downward trend continued into 2001 and was further exacerbated by the global economic recession and the 2001 terrorist attacks, as marketwide occupancy posted a historical low of 62.1%. In subsequent years, the market exhibited successive increases in occupancy levels with moderate increases in 2002 and 2003. With no increases in supply in 2004, marketwide occupancy rebounded, posting a significant increase of 10.8%. The 10.8% increase in occupancy levels in 2004 is reflective of the recovery of the Caribbean market. These increases were due to the popularity of the Caribbean market as leisure travelers visited the region following the recovering economies and rebound of the travel industry. This trend continued into 2005, as marketwide occupancy increased by 1.0%; at 71.5%, the resultant occupancy was the highest during the period reviewed. Year-to-date figures through February 2006, compared to the same period last year, show a continuation of the increasing trend, as marketwide occupancy increased 1.7%. Marketwide average rate fluctuated between 1994 and 2005. In absolute terms, average rate increased $45.73 from 1994 to 2005. Notably, marketwide average rate declined in 2001 and 2002, as hotels in the subject market began to use price as a marketing tool, in an effort to limit occupancy losses incurred by the decline in occupancy levels. The economic downturn, the terrorist attacks of September 11, 2001, and the additions to supply intensified competition in the subject market, compelling management teams to implement price discounts in an attempt to sustain occupancy levels. As a result, marketwide average rate decreased by 2.8% in 2001. This downward trend continued into 2002, albeit at an accelerated pace, decreasing by 4.5%. An analysis of the monthly data reveals that this trend began to reverse in late 2002 and by 2003, the market showed signs of recovery, as average rate increased by 1.8%. The recovery continued at an accelerated pace into 2004, as marketwide average rate increased notably, by 6.1%. In 2005, the market continued to exhibit substantial marketwide average rate growth as average rate increased by 8.2%. Year-to-date figures through February 2006, compared to the same period last year, indicate a continuation of this trend, as marketwide average rate increased by 6.3%. An analysis of marketwide monthly average rate data shows that in absolute terms, marketwide average rate increased by $9.38 in January 2006, accelerating to a $22.40 increase in February 2006, compared to the same period last year. According to local hotel operators, these healthy rate increases were driven substantially by strong weekday and weekend demand from the leisure segment. The significant marketwide average rate increases bode well for the Caribbean lodging market. RevPAR reflects the dynamics of occupancy and average rate. The underlying strength of the local lodging market is clearly indicated by the substantial increases in RevPAR growth from 2003 to 2005. RevPAR increased continuously throughout the three-year period, posting significant increases of 17.6% in 2004 and 9.3% in 2005. Year-to-date figures through February 2006, compared to the same period last year, show a continuation of this trend as RevPAR increased substantially by 8.1%. These increases are reflective of the strength of the Caribbean lodging market and one of the main reasons that is encouraging further hotel development, as will be detailed later in this narrative.

Seasonality Despite the fairly stable climate, the Caribbean market shows a significant level of seasonality throughout the year, generally tied to the climate in the northern United States and Europe, the points of origin for most tourists to the region. Seasonality is represented by strong occupancies and average rates throughout the winter season, which are offset by lower occupancies and highly discounted rates in the months of September and October. In addition to the increased risk of hurricanes in September and October, the profound seasonality pattern of the Caribbean islands comes as a result of the region s dependence on leisure travel. Compared to destinations such as Florida or Hawaii, the Caribbean islands have been less successful in attracting group demand, which typically helps to smooth the seasonality of demand. The seasonality patterns of the subject market are shown in the following table. Table 5 - Seasonality 1999 2000 2001 2002 2003 2004 2005 High Season (December - April) 70.1 % 68.5 % 66.2 % 65.9 % 65.7 % 74.4 % 75.0 % Average Rate $223.91 $227.49 $227.87 $212.70 $221.44 $230.31 $248.74 RevPAR 156.88 155.75 150.78 140.18 145.58 171.41 186.62 Shoulder Season (May-August, November) 71.4 % 70.3 % 64.6 % 65.8 % 66.8 % 72.2 % 73.6 % Average Rate $172.22 $170.96 $160.94 $158.00 $159.32 $169.55 $184.86 RevPAR 122.92 120.18 104.04 104.03 106.45 122.41 136.02 Low Season (September, October) 59.9 % 56.8 % 45.6 % 52.9 % 52.2 % 58.7 % 57.6 % Average Rate $154.81 $159.40 $139.02 $142.17 $137.71 $156.51 $162.30 RevPAR 92.73 90.49 63.45 75.27 71.92 91.94 93.47 Source: Smith Travel Research The subject market s high season incorporates a five-month period extending from December through April, when the tourist activity in the area peaks. As exhibited in the preceding table, occupancy levels in the high season increased from the mid-60% range from 2001 to 2003, to a high of 75% in 2005, significantly higher than pre-2001 high of 70.1% in 1999. Discussions with local hotel operators reveal that sell-out nights are often recorded, and a certain amount of patronage has to be turned away. The substantial demand compression also enables hoteliers to achieve high average rates; in 2003, the average rate in the high season amounted to $221.44. However, as the market continued to strengthen, marketwide high season average rates increased substantially in 2004 and 2005 reaching $248.74 in 2005. As previously mentioned, yearto-date figures through February 2006, which represent two of the high season months, show a continuation of average rate growth. The months of May through August, and November constitute the market s shoulder seasons. During the period 2001 through 2003, the market recorded occupancy levels in the middle to high 60% range. In 2004 and 2005, the market exhibited increases in occupancy and average rate above the benchmark year, 1999. During the shoulder

months, some of the Caribbean hotel operators pursue the tour group segment more aggressively, which typically generates less lucrative business, but provides a relatively solid base of occupancy. In 2005, marketwide average rate in the shoulder season was positioned at $184.86, roughly $64.00 below that prevailing in the high season with occupancy levels slightly lower than the high season. The low season in the Caribbean comprises the months of September and October, when the risk of hurricanes increases sharply. During 2005, the occupancy level in the low season was 57.6%. The 2005 low season occupancy level was slightly lower than levels recorded in 1999 and 2000, due to the impact of 2005 hurricane season which produced a record number of hurricanes and caused damage to many of the Caribbean islands. The lack of demand compression during this period is also reflected in the marketwide average rate, which, at $162.30 in 2005, was roughly $86.00 less than that prevailing in the high season. In 2005, RevPAR in the low season was only ±50% of that recorded in the high season. The seasonal character of the market greatly impacts the performance of lodging facilities as the healthy annual occupancies of properties illustrate the strength of the market. In strong lodging markets, annual occupancies above 70% indicate that an area is frequently selling out its rooms, and therefore, a portion of demand is most likely turned away. As a new hotel enters a competitive market, the unaccommodated demand is absorbed by this addition to supply. However, in a seasonal market, the unaccommodated demand is turned away only during the peak season. Therefore, the unaccommodated demand will help fill the new property s rooms for only part of the year, while the remainder of the year s low season demand is aggressively pursued by the area s competitors through the upgrading of facilities and aggressive marketing techniques. A common marketing technique employed in seasonal lodging markets is the use of rate discounting during the low season, thereby illustrating the impact market seasonality has on the potential revenue-generating capability of a lodging facility. In the Caribbean market, occupancy levels during the shoulder season are currently above 70% as well, which indicates that demand is also being turned away during the shoulder season. Caribbean Lodging Market - How Hot is it? What does all this mean to potential developers? A market that is highly seasonal, with annual marketwide occupancies over 70%, shoulder season occupancies over 70%, and marketwide average rate and RevPAR continuing to post impressive gains. What it means is the Caribbean market has become a hot market. Markets that demonstrate these characteristics are very desirable to developers. As a result, a number of new projects, primarily from the upscale, upper upscale, and luxury U.S. brands have been approved for development within the Caribbean market. However, the new developments that are planned exhibit a notable decline of stand-alone hotels, rather, the trend seems to be geared toward developing new hotels as part of an overall mixed-use project. The new developments are scheduled to include some or all of a variety of uses such as condominiums, timeshare, fractionals, marinas, golf courses, and spas. Developers are reducing their investment risk through the combination of these components, compared to the development of each component separately. As indicated

by the table below, these mixed-use projects that are scheduled for development are well-known North American hotel brands. These brands are a promise to customers that is delivered through consistent actions and behavior over time. The selection of these strong brands is an attempt by developers to reduce the investment risk because of the brands proven track record and name recognition. The table below shows a number of mixed-use projects that have been approved for development within the Caribbean region by some of these major brands.

Table 6 - Proposed Hotel Projects Proposed Property Brand Chain Location Number of Rooms Opening Date Development Status Commentary Westin Westin Starwood St.Lucia 232 Aug-06 Site Work Ongoing Mixed-use development that is scheduled to include a 232-unit Westin Hotel, 18-hole Greg Norman Golf Course, 26-room international spa, 40-ship marina and a marina village, and a retail and commercial center. Four Seasons Four Seasons Four Seasons Barbados 115 2009 Approved Mixed-use development scheduled to include a 115-unit hotel, 45 residential villas on 32 acres prime beachfront, restaurants, bars, a spa, a fitness center, recreational facilities, and meeting space. Various Hotels W, St.Regis, Westin, Sheraton, Wyndham Starwood (joint venture with Harrah's and Baha Mar Resorts Ltd.) Bahamas 3550 2010 Approved Anticipated to be the largest Single-Phase, mixed-use development including a hotel component in the Caribbean. Mixed-use development is schedule to include 6 hotels (300- room W, including 100 condos; 300-room St.Regis, including 100 condos; 700-room Westin; 700-room Sheraton; 500-room Wyndham; 1000-room Ceasars Resort Hotel), two luxury spas, 175,000 sq. ft. of meeting space, 20-acre beach, 3,000-foot beachfront, 50,000 sq. ft. village with upscale retail, chef-branded restaurants and entertainment venues, and a 950-square feet casino. Future development plans include an 18-hole Jack Nicklaus Signature Golf Course. Project costs of $1.6 billion will be financed by Baha Mar Resorts Ltd., Harrrah's, and Starwood. Westin Westin Starwood St.Maarten 310 Fall 2006 Approved Mixed-use development scheduled to include 310 guestrooms and suites, restaurants, a fullservice European-style hibiscus Spa, a casino, 20,000 sq. ft. of meeting space and event venues, various retail shops with duty-free shopping, 18-hole golf course at Mullet Bay, Westin-branded fitness facilities, and 99-unit Westin St.Maarten Dawn Beach Residences. Ritz Carlton Ritz Carlton Marriott Bahamas 400 2009 Approved Mixed-use development scheduled to include a 400-unit Ritz-Carlton hotel on a 230-acre site, with a marina, estate homes, condos, townhouses, a spa, gourmet restaurants, and meeting space. Hyatt Hyatt Hyatt Curacao 350 2008 Approved Mixed-use development scheduled to include 350 guestrooms, restaurants, a full-service spa, casino, 28,000 sq. ft. of meeting space, an 18-hole golf course, residences, tennis courts, timeshares, and condos. Westin Westin Starwood Curacao 350 2008 Approved Mixed-use development scheduled to include a 350-room hotel, a 15,000-square-foot spa, timeshare, retail, and restaurants. The hotel expected to be operated by Starwood. Renaissance Renaissance Marriott Curacao 240 2007 Site Work Ongoing The proposed 240-unit Rennaisance will be part of a mixed-use project that is also expected to include a multi-level outdoor pool, retail, cinema, office space, a garage, restaurants, and a boardwalk. Renaissance Renaissance Marriott International Puerto Rico Dec-06 Site Work Ongoing The 474-unit Rennaisance hotel and casino is scheduled to open in December 2006. The property is expected to include 15,000 square feet of meeting space, a 15,000-square-foot casino, and three restaurants. Westin Westin Starwood Dominican Republic 315 Oct-07 Site Work Ongoing Mixed-use development scheduled to include 315 hotel condo units, residencial, restaurants, bars, tennis courts, an 18,000-square-foot spa, and a Nick Faldo Golf Course. Fairmont Fairmont Fairmont Turks & Caicos 2009 Approved Mixed-use development scheduled to include a 150-unit resort, a 150-unit condo hotel, a residencial component, an 18-hole championship golf course, tennis courts, marina, and a Mandarin Oriental Mandarin Oriental Mandarin Oriental Grand Cayman Mixed-use development scheduled to include a 110-unit resort, a 37-unit residencial component, and a spa. Recently Opened Ritz Carlton Ritz Carlton Marriott Grand Cayman 365 2005 Recently Opened The 365-unit Ritz-Carlton was recently opened in December 2005. In addition to the guestrooms, the resort includes a nine-hole Greg Norman golf-course, tennis courts, 13,000 square feet of meeting space, and seven restaurants and lounges.

Why is the Caribbean Region Spurring this Development? A combination of factors is responsible for the current boom that is spurring further investment and development in the Caribbean region. As previously mentioned, the local lodging market continues to exhibit substantial increases in RevPAR with marketwide annual occupancies above 70%. With the influx of foreign investment, particularly from the United States seeking development opportunities with higher yields, the Caribbean region, due to its political stability and proximity to the United States seems to be a logical choice for developers. Moreover, many of the retiring baby boomer generation are seeking vacation homes or a second residence in a tropical destination other than a coastal U.S. destination such as Florida or California. The Caribbean s natural beauty, proximity to the U.S., and improved airlift are seen by the baby boomers as attractive, yet still less expensive than many other locations. Conclusion The Caribbean lodging market has rebounded from the difficult years of 2001 and 2002 and continues to post impressive gains that are attracting major foreign investment into the region. According to management representatives of Marriott International, the Caribbean exceeded expectations, as leisure travel continues to boom. Marriott International anticipates significant additional expansion opportunities in the region. In the past, the local Caribbean countries infrastructure has improved tremendously, and as a result, has facilitated the growth in tourism. Despite the profound seasonality pattern of Caribbean visitation, the market continues to attain overall annual occupancies in excess of 70%. The new mixed-use projects that are approved for development include several components that will help smooth out the impact of seasonality by increasing occupancy during the low season. The introduction of low cost carriers to the region will reduce the cost of travel to the region, increase the awareness of some of the lesser-known destinations, and continue to improve airlift to the region. As the Caribbean lodging market continues to expand, the dynamics of hotel development in the region are slowly changing as mixed-use projects that typically include a residential component with a notable upscale or luxury brand are becoming the norm.