3 Operation of each product or service

3.1 Nature of products and services

  Laguna Phuket Hotels

  Banyan Tree Phuket

This award winning resort offers a unique holiday experience, featuring
127 exclusive villas, 44 with jacuzzis and 83 of which have their own
swimming pools. This unique resort is further enhanced by the Banyan
Tree Spa offering massage, body and beauty treatments. The Banyan Tree
Phuket opened in May 1995 and is managed by Banyan Tree Hotels & Resorts
Pte. Ltd. The 14 Spa Pool Villas were completed and became available for
use during December 2001 and January 2002 and the 14 new two bedroom
pool villa’s were completed and became available for sale in the second
half of 2005. Twenty-two Double Pool Villas which will be the most
luxurious product offered by the hotel, are under construction and are
scheduled for completion in the middle of 2006. The resort is positioned
as being one of the premier resort and Spa destinations in the Asia
Pacific.

  Dusit Laguna Resort

The first hotel to open at Laguna Phuket, in November 1987, offering
beachfront accommodation in 225 rooms and suites. The resort is managed
by Dusit Hotels and Resorts Co., Ltd. To add to the resort’s facilities
and services, the Angsana Spa, managed by Banyan Tree Resorts & Spas
(Thailand) Company Limited, opened within the Dusit’s grounds in
December 1999. Dusit targets the independent traveler segment from
Europe in the high season and the local regional market in the low
season.

  Laguna Beach Resort

Laguna Beach Resort offers deluxe accommodation in 252 superior rooms
and suites. The resort opened in November 1991, under the management of
the Pacific Islands Club Group, but has been owner operated since 1994.
In September 2001, the LBR Angsana Spa opened adjacent to Laguna Beach
Resort. The resort targets the high end, family orientated market.

  Sheraton Grande Laguna Phuket

The Sheraton Grande Laguna Phuket is a 70 acre complex. The resort
opened in 1992 and offers 360 rooms, suites, villas and residences.
During 2005 the hotel added 27 Golf Residences to its inventory which it
manages on behalf of the owners of these residences. In addition a
further forty five additional rooms will be completed in the first
quarter of 2006. It is a member of the Starwood Luxury Collection, which
comprises Sheraton’s most prestigious hotels in the world. The Angsana
Spa operates a facility within this hotel. The resort targets families
and independent travelers during its high season and the corporate
meetings customer segment and the regional market during the low season.

  Allamanda Laguna Phuket

An apartment-style resort, offering one and two bedroom suites and
duplexes with lagoon, pool or golf course views. The resort, managed by
Banyan Tree Hotels & Resorts Pte. Ltd. opened in 1993. The units in this
resort have been sold to the public and LRH no longer owns this resort.
The hotel targets the four star family market and tour operators.

  Laguna Phuket Facilities

  Laguna Phuket Golf Club

This resort-style, 18-hole golf course has been open to members, guests
and the public since August 1992. It is managed by Banyan Tree Hotels &
Resorts Pte. Limited.

  Quest Laguna Phuket Adventure

  Quest is a corporate training facility providing management groups
  with programs tailored to suit individual company goals. Common focus
  areas include problem solving, team cohesion, leadership and effective
  communication. Quest also operates recreational programs for resort
  guests and children. It opened in 1994 and is managed by Sheraton
  Overseas Management Corporation.

  Canal Village

  Canal Village is a shopping center with 59 outlets for lease,
  centrally located on 10 Rai of land within Laguna Phuket. Canal
  Village officially opened in 1994 and is owner operated.

  Banyan Tree Gallery

  This chain of retail outlets specialises in indigenous artifacts and
  handicrafts. The chain has over 40 outlets worldwide, fourteen of
  which are located within the Laguna Phuket hotels and golf course and
  Canal Village shopping center.

  Laguna Holiday Club

  The Laguna Holiday Club (formerly known as the Allamanda Vacation
  Club) opened in 1998 selling memberships that entitle participants to
  annual vacations, for at least one week, at the participating member
  resorts of Allamanda Laguna Phuket, Sheraton Grande Laguna Phuket,
  Sheraton Golf Villas and the Angsana Resort & Spa Bintan. Members also
  have access to some 3,600 resorts in 90 countries through a reciprocal
  arrangement with RCI. The Laguna Holiday Club Hotel is under
  construction and will offer 79 suites dedicated to its members. It is
  scheduled for completion in the middle of 2006. In November 2005 the
  Laguna Holiday Club opened its third sales office in the Angsana
  Resort & Spa Bintan in addition to the now well established sales
  offices in Laguna Phuket and Bangkok.

  Laguna Property Sales

Laguna Property Sales currently offers for sale condominiums within the
Allamanda Laguna Phuket, Banyan Tree two-bedroom pool villas, the house
and land packages of Laguna Residences and Laguna Townhomes and the new
Laguna Village villa product. The Group owns significant land both
within and adjacent to Laguna Phuket upon which it plans to construct
future property developments.

The latest development released for sale is phase I of Laguna Village
which will comprise of 100 Laguna Townhomes, 23 Laguna Residences and 36
villas (a new product). In addition further projects scheduled for
release in 2006 are the Double Pool Villas at the Banyan Tree Phuket and
the Pool Villas at the Dusit Laguna Resort.

Investors in the Allamanda Laguna Phuket, Banyan Tree Phuket, Laguna
Residences and Laguna Townhomes have the option to receive a return on
their investment by joining the hotel management scheme and renting
their properties to guests. This will also be the case for investors in
the Dusit Laguna Phuket and an independent rental scheme will be offered
for investors in Laguna Village.

The Wedding Chapel 

  In early 2005 we opened and commenced operating our wedding chapel,
  known as the “Chapel on the Lagoon”. It is managed by South Pacific
  Bridal, a company specialising in Japanese weddings, and it is well
  positioned to capture the lucrative Japanese and European wedding
  markets.

  Laguna Service Company Limited

Laguna Service Company Limited (“LSC”) is a non-profit, joint venture
company established in April 1991, to provide essential services to the
hotels, such as laundry, water supply, inter-resort transportation,
landscaping, common area maintenance, marquee facilities, a gas station
and centralized destination marketing. During 2001 a computer school was
constructed and opened to provide computer training for all Laguna
Phuket employees. In 2002, seven air-conditioned coaches were purchased
and operated by LSC to provide transportation for all Laguna Phuket
employees to and from work.

Laguna Chiang Rai 

  Located in the Mae Chan district of Chiang Rai province, northern
  Thailand, Laguna Chiang Rai is a land bank of 1,090 Rai. This project
  has been suspended.

Bangkok operations 

Banyan Tree Bangkok 

  The Banyan Tree Bangkok is a 216 suite room hotel and is situated in
  the centre of the business and commercial districts of Bangkok. The
  hotel was purchased in March 2005 and is managed by Banyan Tree Hotels
  & Resorts Pte. Ltd. A Banyan Tree spa is operated in the hotel. The
  Banyan Tree Bangkok targets business travelers as well as the
  wholesale business and independent tourist markets.

Office rental 

  Strategically located on South Sathorn Road, Thai Wah Tower I is a
  24-storey granite clad building and is one of the very first office
  condominium buildings in Bangkok. The entire building has about 20,000
  sq.m. of usable area of which 9,205 sq.m. is owned by the Group.
  Through the years the building has maintained its reputation as a
  premium office building with timely refurbishments.

  Opened in late 1995, Thai Wah Tower II, is a 60-storey mixed used
  building situated next to Thai Wah Tower I. Apart from providing
  16,500 sq.m. of office premises on floors 10 to 32, Tower II is also
  home to The Banyan Tree Bangkok which is located on the higher floors
  of the same building.

  The majority of the office premises in Thai Wah Towers I and II are
  leased to third party tenants and a small portion is used by various
  companies in the LRH Group.

Overseas Investment in Hotels and Resorts

LRH invests overseas through Tropical Resorts Limited (“TRL”) and TRL
Investment Limited (“TRLI”) which operates luxury resorts largely
throughout the Pacific Rim area and the investments in hotels and
resorts overseas.

3.2 Marketing and Competition

3.2.1 Laguna Phuket Marketing

Review of Sales and Marketing Plans

All of the Laguna Phuket hotels and business units are required to
provide a Sales and Marketing Plan as part of their budget presentation.
These vary in style and content but all include a summary of their plans
to provide the budgeted levels of income. For the hotels, the plans all
include statistics showing month-by-month comparisons to prior year and
a market segmentation analysis.

For the 2006 Budget, all budgets assume a conversion rate of 41 Baht to
1 US Dollar. Approximately 80% of our rooms revenue is contracted in US
Dollars.

A summary of the hotel plans is as follows:-

a)  Hotel occupancies and average room rates, together with the
    resulting revenue per available room, are analyzed during the budget
    reviews on a month-by-month basis. Comparisons are carried out over
    the past five years, and in several cases this has meant substantial
    changes to the originally submitted budgets.

b)  We believe it is important to consider several years to provide a
    normalized comparison in the light of events in recent years such as
    Bird Flu, SARS, the Bali bombing, the Tsunami, etc.

c)  The hotels continue a high level of communication and cohesion in
    their Sales and Marketing approach. This has led to excellent
    flexibility and different reactions to changing market conditions.
    They continue to work together, but at the same time carve out new
    market segments. For example, Laguna Beach Resort has found a
    higher-end Korean group market which provides higher-yielding room
    and food and beverage revenue.

d)  The very successful Laguna Phuket Plus campaign can now be switched
    on and off in reaction to market conditions and provides an
    important delivery from regional markets in the low season.

e)  The Laguna Phuket centralized Destination Marketing meetings
    provides a platform for inter-hotel discussion and the formation of
    resort wide programmes. Clearly, 2005 was an unusual year following
    the Tsunami at the end of 2004. Business levels reached all-time
    lows during the early months of the year, but the hotels responded
    with a co-ordinated approach, and by August we were seeing better
    occupancy levels, although the average rate was still depressed.
    However, the activity which was required by the emergency nature of
    the situation has led us to a new level of co-operative marketing
    with select Tour Operators in the UK and Australia which we intend
    to continue in 2006. This is very much along the lines of our now
    well-established Laguna Phuket Plus campaign, now spread into
    markets other than regional.

f)  The focus in 2006 will be to continue the recovery that started in
    the second half of 2005 and as occupancies return to more nomalised
    levels we believe that the discounting of average room rates will no
    longer be required so that we can move the rates back up. This
    longer term strategy has been adversely affected by the impact of
    the Tsunami on travel to Phuket in 2005, but the underlying dynamics
    of Phuket as a holiday destination will enable us to deliver higher
    room rates in the longer term.

g)  There continue to be three markets which settle in Baht, namely,
    Japan, Australia, and Thailand.

h)  The lagunaphuket.com website is now well established and we plan
    continued enhancements in 2006.

  Property Sales was similarly affected by post-Tsunami market
  sentiment, but we continued to record sales throughout the year, and
  our early decision not to discount prices was vindicated by year end,
  with most of the Banyan Tree Pool Villas being sold. For 2006, we will
  concentrate on Laguna Village, the new Banyan Tree Double Pool Villas,
  and the Dusit Pool Villas. Despite the excellent results in recent
  years, this sector is not without its challenges, and we will stay
  very close to market forces to ensure that we continue our leadership
  position.

Targeted Markets

-   Leisure FITs

-   Leisure Group

-   MICE group (Meeting, Incentive, Convention and Exhibition)

-   Government and Embassies

-   Airline programs

  Sales & Marketing Tactics:

-   Build and manage customer database

-   Develop sales and promotion collateral to the highest standard

-   Develop and upgrade electronic marketing – Website, E-mail, CD ROM,
    etc.

-   Participate in major travel trade shows such as ATF in January, PATA
    travel mart in March, ITB in March, EIBTM in May, IT& CMA in October
    and WTM in November.

-   Develop direct mail campaigns for MICE market

-   Sales Calls to corporate accounts in key markets – Bangkok, Hong
    Kong, Singapore, Taiwan and Japan.

-   Sales visits to major wholesalers in UK, Germany, Russia
    Switzerland, France, Italy and Scandinavia.

-   Create awareness through advertising in the regional leisure and
    consumer magazines.

-   Organize familiarisation trips by inviting clients from Europe, Asia
    and North America, including selected Bangkok based meeting
    organizers.

-   Create an effective advertising campaign to develop the market
    segments targeted.

-   Establishing close relationship with various government
    organizations and bodies.

-   Implement a customized process which involves database analysis,
    behavior segmentation, brand contact and net work.

-   To work closely with the TAT, TG and TICA.

-   Further emphasis on public relations.

-   Participate in various Frequency Marketing Programs, being a member
    of Airlines mileage program, credit card companies, etc.

-   Develop special summer packages for low season.

-   Tie in with the major airlines that fly into Phuket to develop
    promotional packages.

-   Organize Thai Airways Laguna Phuket triathlon and other events to
    gain media coverage and positioning.

Distribution Channels

As more than 80% of our guests are traveling for leisure purposes, the
majority of our clients book through their travel agencies. The hotels
therefore, work very closely with them and offer contracts that are
normally signed on a one year basis so that these travel agencies or
wholesalers will promote the hotels to the consumers. Also, many guests
have started to book directly with the hotel through the hotels
worldwide reservation system of each hotel chain and by direct booking
through the internet.

  Laguna Phuket hotels are also very popular for MICE (Meetings,
  Incentives, Conferences and Exhibitions) where the organizers normally
  deal directly with the hotels.

  Source of Bookings

  Local Travel Agency & Tour Operators 58%

  Domestic Wholesalers 11%

International Wholesalers 9%

  Corporate accounts & governments 1%

  Direct Bookings 21%

Type of Customers

Leisure 85%

Meeting and conference 15%

  Geographic origin:

  Major geographic markets of the hotels in Laguna Phuket in recent
  years have been as follows: -

  North Asia

  Japan 7%

  Hong Kong 10%

  Korea 11%

  Taiwan 6%

  China 3%

  Russia 5%

  Southeast Asia

  Thailand 3%

  Singapore 3%

  Other Asia 2%

Europe

  UK 13%

  Switzerland 4%

  Germany 6%

  Spain 2%

  Europe other 2%

  Australia/New Zealand 4%

  USA/ Canada 4%

  Historical Overview

The following chart shows a statistical record of the hotels in Laguna
Phuket over the past six years.

LRH Laguna Phuket

  --------------- ----------- ----------- ----------- ----------- ----------- -----------
  (* 000’s)       For the     For the     For the     For the     For the     For the
                  year ended  year ended  year ended  year ended  year ended  year ended
                  31 December 31 December 31 December 31 December 31 December 31 December

                  2000        2001        2002        2003        2004        2005

  Occupancy (%)   77%         68%         64%         70%         77%         51%

  Average Room    5,814       6,977       6,831       5,748       6,018       5,126
  Rate                                                                        

  Room Revenue*   1,413,314   1,514,937   1,417,589   1,303,004   1,505,789   834,969

  F&B Revenue*    778,700     729,045     655,805     646,147     755,519     502,009

  Total Revenue*  2,328,373   2,375,774   2,186,328   2,057,718   2,382,227   1,429,102

  GOP*            1,245,841   1,273,500   1,109,644   1,015,911   1,205,584   437,992

  GOP (%)         54%         54%         51%         49%         51%         31%
  --------------- ----------- ----------- ----------- ----------- ----------- -----------

 

The Phuket Situation

  Phuket suffered significantly from a reduction in tourist arrivals
  subsequent to the Tsunami although the second half of 2005 has seen a
  gradual recovery and the recovery is expected to be complete by the
  second half of 2006.

  The improvements at the airport and the infrastructure of the road
  networks in Phuket are nearing completion, but as there are more and
  more cars on the island, there is already a further need for upgrade
  in many areas.

  At the airport, the low cost airlines of Orient Thai, Air Asia, Nok
  Air, and Tiger Air continue to operate although due to the reduction
  in demand for Phuket as a destination nearly all airlines reduced
  their schedule of flights. This is gradually returning to normal and
  is expected to be back in full giving by the second quarter of 2006.
  The airport runway extension has not yet been started, but officials
  confirm that it is budgeted for the near future.

  Jung Ceylon (large shopping centre in Patong) which was delayed in
  2005, is once again under construction, and the owners hope to open it
  during 2006.

  The much vaunted convention centre continues to be delayed and we
  still have no clear direction for that project.

Competition

  There continues to be plenty of development activity on Phuket, with
  several new hotel projects being announced during the year. Still not
  yet finalised, but under discussion are a new Four Seasons Hotel on
  the East Coast near to the Evason, and a possible Hyatt Hotel on
  Bangtao Beach just North of Banyan Tree Phuket. It is likely that both
  of these developments will include property sales.

  In Property, we continue to see a large number of smaller
  developments, the only single development of significant size being
  Gulu Lalvani’s Royal Phuket Marina. This is probably an effect of the
  legislation governing Development Licences and Environmental Impact
  Studies, the applications for which are far less onerous for smaller
  developments. Thus Laguna Property continues to occupy a niche, but we
  are aware that the market is becoming more price-competitive and we
  will constantly review our property prices. Blue Canyon is also likely
  to announce shortly that in partnership with Deutsche Bank, they will
  be aggressively promoting property sales around the Canyon Course.

Pricing Strategy

The Laguna Phuket hotels are working together better than ever on price structuring. The discussions inevitably follow the normal course of competitors, and we will need to maintain vigilance as we go forward to ensure maximum average room rates. The following chart shows the average room rate movements over the past 8 years:- 

Laguna Phuket

  ----------------- ------- ------- ------- ------- ------- ------- ------- -------
                    1998    1999    2000    2001    2002    2003    2004    2005

  Average Room Rate 4,294   4,947   5,814   6,977   6,831   5,748   6,036   5,126
  (Baht)                                                                    

  Average Exchange  41.0    38.1    40.6    44.6    43.1    41.6    40.4    40.2
  Rate Baht : US$                                                           

  Average Room Rate 105     130     143     156     159     138     149     127
  (US$)                                                                     
  ----------------- ------- ------- ------- ------- ------- ------- ------- -------

A look at the historical growth of rates across Laguna Phuket by hotel
shows the following:

  ----------------- -------- -------- -------- -------- -------- ---------
                             2001     2002     2003     2004     2005

                                                                 

  Banyan Tree       Occ      73%      68%      67%      70%      53%
  Phuket                                                         

                    ARR      16,279   17,585   17,639   18,368   14,121

                    Revpar   11,960   11,912   11,767   12,941   7,537

  Sheraton Grande   Occ      68%      64%      73%      75%      46%
  Laguna Phuket                                                  

                    ARR      6,394    5,600    4,393    5,164    4,278

                    Revpar   4,368    3,581    3,214    3,877    1,988

  Dusit Laguna      Occ      65%      63%      68%      78%      55%
  Resort                                                         

                    ARR      5,251    4,912    3,755    3,838    3,303

                    Revpar   3,392    3,093    2,561    3,019    1,801

  Laguna Beach      Occ      69%      64%      69%      81%      50%
  Resort                                                         

                    ARR      4,800    4,507    3,653    3,710    3,330

                    Revpar   3,299    2,894    2,534    3,007    1,673
  ----------------- -------- -------- -------- -------- -------- ---------

  Occ = Occupancy

  ARR = Average room rate

  Revpar = Revenue per available room

Three Year Outlook

  After the 1997 economic crisis we have weathered the storms of the
  terrorist attacks on the USA and Bali, the Iraq War, the SARS crisis
  and Bird Flu and we are now largely recovered from the damage, both
  physical and market-related, of the Tsunami which hit Phuket on
  26^(th) December 2004. As we plan for the future, we hope for the
  best, but must also plan for the worst, since it is reasonable to
  assume that there may be some more crises ahead.

  The business levels of the hotels are not yet back to those
  experienced in 2004 and we expect to get back to these levels in the
  second half of 2006 as the air access improves. The business demand
  for Property Sales and the Laguna Holiday Club is showing good signs
  at the beginning of 2006 and appears to now be back at pre-Tsunami
  levels.

  For the hotels, we are seeing a gradual shift back to our traditional
  European season from December to March. During the ‘low’ season, the
  hotels remain busy, but at a lower average rate. This is where the
  opportunity lies in the coming years. As mentioned earlier, one of the
  hotels has discovered a market in Korea which is not so rate
  sensitive. Such markets will be pursued by a growing supply in the
  Phuket market, but we are optimistic that Laguna Phuket’s brand
  awareness in the market will keep us ahead of the competition.

  In Property Sales, this is a market which we view with care, and we
  must be vigilant for signs that demand has gone off the boil. For now,
  however, we can certainly continue through 2006 at similar levels to
  2004, despite the Tsunami, and there is currently no reason to suppose
  that there will be any downturn in the following year, and we believe
  our prediction of a continuation of current levels during the next
  three years is supportable.

3.2.2 Banyan Tree Bangkok

  The budgeting process and sales and marketing tactics for the Banyan
  Tree Bangkok are very similar to those outlined above for Laguna
  Phuket. The targeted markets are more directed at the business
  traveller and meeting and incentive groups although the leisure market
  has become increasingly important in recent years.

  Source of Bookings

  ----------------------------------------------------------- -----------
  Local and international wholesalers                         31%

  Corporate accounts and government                           30%

  Meetings and incentives                                     22%

  Packages                                                    7%

  Other                                                       10%
  ----------------------------------------------------------- -----------

  Geographic origin

  North Asia

  ----------------------------------------------------------- -----------
  Japan                                                       13%

  Hong Kong                                                   12%

  China                                                       3%

  Taiwan                                                      3%

  South East Asia                                             

  Singapore                                                   12%

  Malaysia                                                    3%

  Other Asia                                                  3%

  Europe                                                      

  UK                                                          8%

  Australia/New Zealand                                       7%

  USA/Canada                                                  9%

  Others                                                      27%
  ----------------------------------------------------------- -----------

3.2.3 Rights and constraints in Business

BOI Priviledges – None

Other Priviledges – None

Constraints in Business – None