2010 ANNUAL REPORT

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2010 Annual Report

CONTENTS

Oaks Profile

MLR’s a Growth Industry

Chairman’s Report

2010 Highlights

Chief Executive Officer’s Review

Oaks Properties Overview

Financial Report

Corporate Information

2010

2009

Revenue (A$ million)

125.8 127.0

Profit from ordinary activities before tax (A$ million)

8.0 14.0

Earnings before interest & tax (A$ million)

15.6 24.3

Net profit after tax (A$ million)

3.9 9.7

Normalised Earnings per share (cents)

2.5 6.3

Dividend per share (cents)

2.0 6.0

Notice of meeting The 2010 annual general meeting will be held on 23rd November 2010 at 10:00 am at the Brisbane Polo Club, Naldham House, cnr Eagle and Felix Streets, Brisbane.

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OAKS HOTELS & RESORTS

Oaks Hotels & Resorts Limited (Oaks) is one of Australia’s largest hotel and resort operators.

Founded in 1991 and listed on ASX in January 2006, Oaks has consolidated a market-leading

position in the fastest growing segment of the Australian accommodation market, the

Management Letting Rights (MLR) sector. As at 30 June 2010 the company managed 37

properties located throughout Australia, New Zealand and Dubai.

Oaks overriding vision is to become Australia’s leading serviced apartment management

company, while delivering superior returns to our apartment owners and our shareholders, while

providing our guests an unrivalled accommodation and service experience. Our growth strategy

to achieve this vision is to continue:

� leveraging the company’s extensive experience in the MLR sector and our established

track record of generating higher occupancies and returns on behalf of individual

property investors to sustain industry-leading growth rates.

� maintaining and strengthening our historically strong relationships with developers and

management rights brokers to sustain a pipeline of potential new MLR’s for evaluation.

� continuing to convert apartments from Oaks long-term letting pool into our higher yielding

short-term serviced pool.

� increasing the yield (occupancy and rate) returned by each Oaks managed property

through innovative and flexible marketing and sales programs, capitalising on an

increasingly strong internet presence and through investing in the on-going promotion of

the Oaks brand.

� maintaining a clear focus on well-located 4 to 5 star serviced apartment properties in

high growth locations, the traditional backbone of Oaks accommodation portfolio.

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MLR A GROWTH INDUSTRY

The serviced apartment industry in Australia continues to grow strongly, and is currently worth

$2.2 billion, up from $1.5 billion in 2005.

Demand for serviced apartment accommodation from both the corporate and tourism markets

continues to outstrip that for traditional hotels. Reflecting this trend, serviced apartment room

nights grew from 5.2 million in 1998 to 11.6 million in 2008. This represents a compound annual

growth rate of 10.6%, compared to growth of only 3.4% between 1998 and 2006 in traditional

hotel nights.

Since 1997, serviced apartments in Australia have had a compound average annual growth in

room supply of 10.4%. During the same timeframe, hotels added just 2.1% to their room stock.

Demand growth of 12.2% over the same period has been sufficient to absorb the significant

growth in the room supply of serviced apartments.*

New serviced apartment properties continue to be opened throughout Australia due to the fact

that developers find them easier to finance and construct than hotel properties. Additionally, as

most serviced apartments are generally established in prime locations they can be packaged to

offer attractive returns for investors.

With an established track record of delivering proven results and financial returns to apartment

owners, Oaks is increasingly becoming the preferred management choice for

leading developers both in Australia and New Zealand.

*Source: Jones Lang La Salle Hotels, Focus on Hotels & Serviced Apartments: Obstacles to

Convergence. Revpar - Revenue per available room.

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CHAIRMAN’S REPORT

There are no doubts that Oaks finished the 2010 financial year on a far stronger footing, and one which

augers well for our continued growth, than was the position at the close of the prior year.

During the year we deliberately realigned our inventory growth to a more conservative level, undertook

a comprehensive review of our portfolio which resulted in the disposal of two smaller and non-core

properties, and importantly, secured a new cornerstone investor to help underpin our future growth.

Despite constrained trading conditions experienced in some of our traditional markets for a portion of

the year, Oaks sustained our historic strong performance in Australian CBD markets and outperformed

a majority of our competitors in the more subdued markets of New Zealand and regional Australia.

This is reflected in our EBITDA for the year of $25.8 million, which after allowing for the revenue

foregone following the sale of four properties at the close of the prior financial year, resulted in core

operational earnings remaining consistent even after the inclusion of the rental adjustment pertaining to

Dubai.

Significantly, our core business and corporate Australian CBD portfolio, comprising 20 high rise

apartment properties, delivered yet another robust performance.

Average occupancy levels for our CBD properties climbed slightly to finish the year at 84.08%, ahead of

the industry average of 62.9%. The average room rate charged for our CBD properties also increased

by 5.5% to $157.43 by year end.

Oaks core operational focus, for at least the foreseeable future, will remain squarely on expanding our

Australia-wide portfolio. We will do this by both building on our presence in established, proven markets

and identifying localities currently outside our sphere of operations which offer above average growth

potential.

According to research released in August 2010 by leading international hotel researcher STR Global,

Australia’s accommodation sector, and particularly its CBD markets, are currently among the world’s

strongest in terms of occupancy and revenue per room. Reinforcing the board’s confidence in the

immediate forward prospects for Oaks, STR Global has predicted Australia to outperform a majority of

international markets in terms of occupancy and room rate growth over the current financial year.

Our priorities during the current financial year will be to further reduce our borrowings and to selectively

recommence our inventory ramp-up to further strengthen our position in established markets.

The realisation of both these goals was bolstered with the announcement in August 2010 that China

Pacific Pty Ltd (China Pacific), with whom we had been negotiating for some time, had elected to

increase their existing stake in Oaks to a cornerstone investment of 19.9%. The issue of shares to

China Pacific will raise $9.78 million in capital for Oaks.

We have the pleasure of welcoming China Pacific’s David Wu and Douglas Wong to Oaks’ board and to

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working collaboratively with them to capitalise on the undoubted opportunities to grow our scale, reach

and profitability over the coming years.

As an established accommodation group with a highly respected brand, a uniformity of quality

properties across our portfolio, and an increasingly effective on-line marketing and distribution channel,

we are extremely well placed to entrench our position and standing in the Australasian hospitality

sector.

We are also fortunate in having a loyal and diligent staff who remain committed to offering our guests

an unrivalled stay experience and our apartment owners with superior rates of return.

These will remain the fundamental tenets upon which our company’s sustained expansion and

profitability will be based.

I would like to thank, in particular, our Chief Executive Officer, Brett Pointon, for his continued visionary

leadership of the company. His insight of the MLR industry here in Australia is unsurpassed, and his

strategic thinking and leadership combined with a dedicated and intuitive senior management team,

provides Oaks a strong underlying foundation from which we can profitably expand our sphere of

operations.

I also thank my fellow directors for their invaluable input and support during the year.

The board and senior management remain unequivocally committed to a year of growth in FY 2011 and

to increasing Oaks profitability and shareholder returns.

Peter Barrow, FICA, FAICD

CHAIRMAN

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2010 HIGHLIGHTS

Financial Summary

2010 $’000

2009 $’000

2008 $’000

Revenues from ordinary activities

125,794

126,994

116,652

Net Profit after tax before mark to market interest rate swap adjustment 2,821 11,128 14,650

Profit from ordinary activities after tax attributable to members

3,902

9,753

14,650

Net profit attributable to members

3,902

9,753

14,650

EPS basic cents 2.52 6.34 9.62

EPS diluted cents 2.47 6.20 9.49

Dividend (cents) 2.0 6.0 8.0

Operational Revenue 126,380 121,954 111,568

Operational Expenses (100,520) (93,823) (83,175)

EBITDA from Core Operations 25,860 28,131 28,393

Gain/(Loss) on Sale of MLR’s and Subsidiaries (586) 5,040 5,084

EBITDA 25,273 33,171 33,477

Depreciation and Amortisation (9,685) (8,820) (5,373)

EBIT 15,589 24,351 28,104

Interest and Finance Costs (7,579) (10,317) (6,783)

Net Profit before tax 8,010 14,034 21,321

Income Tax Expense (4,108) (4,281) (6,671)

Net Profit after tax 3,902 9,753 14,650

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Financial Overview

• Improved second half trading conditions help push operational revenue 3.6% higher to

$126.4 million despite the sale of four properties at the conclusion of FY2009.

• EBITDA from core operations remained consistent at $25.8 million.

• Operating expenses impacted by increased operating lease rentals and an investment in

refurbishment costs for three properties.

• Group borrowings reduced by $8.8 million during the year, with a further significant

reduction in debt levels planned for the first half of FY 2011.

Operational Highlights

• The strength of Oaks’ underlying portfolio reflected in continued growth in occupancy and

room rates in most CBD locations in the second half of FY 2010.

• Group wide CBD properties (excluding developing properties) increase occupancy rates

from 81.57% at December 2009 to 84.08% at June 2010, and average room rates from

$155.05 to $157.43 over the same period.

• Maintenance of above industry average occupancy rates across group-wide portfolio.

• A continued increase in direct booking for Oaks rooms via the group web site and the

expanded network of Global Distribution Systems for travel agents.

• Continued rollout of an internalised housekeeping function across the balance of Australian

properties strengthens competitive standing of accommodation offer.

• $2.3 million invested in extensive refurbishment of Embassy, Margaret Street and Lexicon

properties to strengthen competitive positions in the Brisbane and Adelaide CBD markets.

• Securing of a new, major cornerstone investor and associated capital raising to accelerate

forward growth strategy, following the post-balance date announcement that China Pacific

will increase its holding in Oaks to 19.9%

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CHIEF EXECUTIVE OFFICER’S REVIEW

FY 2010 proved a year of continuing recovery for Oaks, with trading across most of our key

markets improving as the year progressed.

It was also a period in which we worked conscientiously to strengthen the underlying fundamentals

of our company and to pave the way for the reactivation of our organic growth strategy.

The continued recovery of our core portfolio’s performance over the year resulted in a 3.6%

increase in operational revenue to $126.4 million. This represents a commendable result given the

sale of four properties in our portfolio at the conclusion of the 2009 financial year.

After allowing for the EBITDA contribution of $2.6 million from the four properties sold in June

2009, EBITDA from core operations remained consistent at $25.8 million.

Non-employee operating expenses increased, primarily due to additional operating lease rentals of

$2.6 million as a result of full year impact of leases commenced in FY2009 and CPI increases

across the leased components of our portfolio. These was further impacted by the inclusion of a

$3.4 million rental charge relating to Dubai.

Major refurbishments at Oaks Embassy in Adelaide, and Oaks Margaret Street and Lexicon in

Brisbane were completed. These refurbishments underpinned the continuing competitiveness of

these properties and generated revenue of $2 million from sales of furniture packs to apartment

owners.

Depreciation charges also increased 13% to $5.2 million as a result of the growth in furniture

packages to support the growth of room inventory through the year.

During the year negotiations continued in relation to contractual obligations over the Liwa Heights

property in Dubai. Initially an impairment charge of $10.9 million was reported in the 30 June 2010

Preliminary Financial Report, however as a result of progress made in negotiations and the

execution of deeds of sale and assignment in respect to Dubai, the directors have revised their

conclusion on impairment of assets in relation to the Dubai property and reversed the impairment

charge. Instead an amount of rent expense approximately $3.4 million has been recorded in the

2010 financial year in connection with this matter.

After consideration of the Group’s operation performance, cashflow requirements and banking

covenant requirements the directors considered it prudent to not declare a final dividend. The

interim dividend paid earlier in the year was 2 cents per share fully franked.

Directors expect future dividends to represent a maximum of 60% of net profit after tax.

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Consolidating a base for forward expansion

During the latter half of the year negotiations were initiated with China Pacific Pty Ltd (China

Pacific) with a view to securing a new cornerstone investor in Oaks.

As a result of these negotiations and an intensive due diligence process, China Pacific in August

2010 agreed to increase its stake in Oaks from 5.5% to 19.9%.

As part of this transaction, which was approved by shareholders at the General Shareholder

Meeting on 29 September 2010, China Pacific will be issued with 27,935,679 new shares at 35

cents each, which will raise $9.78 million for Oaks.

This cornerstone investment by China Pacific is a clear endorsement of both our business model

and future prospects, and lays a strong base from which to grow the company and shareholder

value.

In FY 2010 Oaks reduced corporate borrowings by $8.8 million, and the capital raised through the

placement to China Pacific, will be allocated to further reducing company borrowings by an

additional $15 million by 31 October 2010.

Our existing group banking facilities with ANZ Banking Group Limited and National Australia Bank

Limited have been extended to 30 July 2011.

Portfolio Overview

Maintenance of a consistent, underlying quality across our accommodation portfolio remains a key

priority and an investment in the continued strength of our brand.

In line with this policy, during the year Oaks undertook the refurbishment of Oaks Embassy in

Adelaide, and Oaks Lexicon and Margaret Street properties in Brisbane.

The refurbishment entailed the installation of new furniture packs and minor capital works.

As part of our on-going refurbishment policy, Oaks Plaza Pier, Adelaide will be subject to fittings

and fixtures upgrades during the current financial year.

In FY 2010, as part of a strategic review of our portfolio, an additional two properties were

identified as being superfluous to our core operations, and were subsequently divested.

Our smallest property, Oaks Boathouse at Tea Gardens, New South Wales, and Oaks Smartstay

Apartments-on-Hobson, Auckland, were sold for $2.15 million.

Organic growth of our CBD portfolio in Brisbane, to a large degree helped offset the loss of both

properties. As a result, at 30 June 2010, our inventory of serviced rooms totalled 4,373, compared

to 4,241 12 months previously. Oaks’ total inventory of serviced and permanent letting rooms

increased over the same period from 4,855 to 4,915.

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Occupancy and room rates for the year across our Australasian portfolio were impacted by market

conditions which varied from region to region.

Despite these regional variations Oaks achieved above industry average occupancy rates and

maximised the returns across our entire portfolio.

By the second half of FY 2010 more robust demand from the corporate sector had clearly

emerged, along with improved movements in inbound and domestic tourism. As a result

occupancy levels, to a large degree, had returned by year end to pre-GFC levels.

Our key Brisbane CBD market delivered strong occupancy and room rates throughout the second

half. Our trading performance in the Sydney and Adelaide CBD markets also maintained the

momentum of the first half into the last six months of the financial year.

The release of over 1,500 new rooms by competitors in the Melbourne CBD market, impacted on

both room rates and occupancy levels during the final quarter of FY 2010. Despite this new stock,

by year end there were signs that this stock had been largely soaked up, laying the ground for

possible rate rises in the year ahead.

Reflecting prevailing economic conditions and the general slow down in the mid to upper levels of

tourism activity, our Australian regional markets as well as those in New Zealand all experienced a

dampened second half trading performance. Despite the ensuing decrease in occupancy, room

rates to a large degree, were maintained at pre-existing levels.

Significantly, Oaks CBD-wide portfolio increased average occupancy levels from 83.13% at the

end of FY 2009 to 84.08% by 30 June 2010. This occupancy rate more than favourably compares

with the average occupancy for the 12 months to May 2010, published by STR Global, of 78.47%

for the Sydney, Brisbane and Melbourne markets.

Our average CBD room rate also increased during FY 2010, up from $149.15 at 30 June 2009 to

$157.43 one year later.

Despite our regional portfolio’s average occupancy level dropping from 71.36% to 69.35% during

FY 2010, the average room rate we achieved lifted from $140.78 to $145.31 over the same period.

Despite this decrease, our regional occupancy performance remained well above the average rate

across Australia as published by the Australian Bureau of Statistics for the March quarter 2010 of

62.9%.

During the year we also successfully progressed the continued rollout of an internalised

housekeeping function across our Australian properties. By the close of the financial year 85% of

Oaks Australian properties were now being serviced by internal housekeeping resources.

This internal capacity not only brings increased efficiencies and cost savings, but also more

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stringent control over the quality and consistency of our accommodation offered throughout

Australia.

Our continued focus on expanding on-line marketing channels have generated increasing volumes

of direct bookings via the Oaks Hotels & Resorts web site.

While we expect the trend towards direct bookings will continue in FY 2010 our international

marketing reach was also extended via the Global Distribution Systems network of travel agents.

Outlook

The cornerstones around which our growth is centred remain our highly respected and increasingly

recognised brand, our long-standing reputation as an MLR leader and an ever widening on-line

marketing and distribution channel.

While FY2010 can be viewed as a year firstly of recovery, and then of consolidation, our undivided

focus in the current financial year will be on inventory growth.

Under our existing forward inventory pipeline at the time of this report, Oaks Rhapsody on St Kilda

Road, Melbourne, is on track to be launched late in 2011. Oaks has the rights to manage 145 one,

two and three bedroom apartments in this property, which will be our fourth in the Melbourne CBD.

Our second currently contracted property, Oaks Alberta Street, Sydney which includes 79 one and

two bedroom apartments will be added to our existing portfolio, with completion delayed until July

2012.

Representing our sixth Sydney property, Oaks Alberta Street is strategically located in the prime

Hyde Park precinct of the CBD, and will be a prestigious addition to our existing Sydney CBD

portfolio.

Importantly, the underlying fundamentals of the Australian paid accommodation market are

becoming increasingly stronger.

According to the Australian Tourism Forecasting Committee (TFC) demand for paid

accommodation is forecast to increase by 6% in 2010 to 102 million nights, with growth

underpinned by the continued recovery of business travel. TFC projects this growth will be

sustained, with room nights increasing by around 30% to reach 124 million over the next decade.

Inbound tourism is also forecast to rebound, with the TFC projecting international arrivals

increasing by 5.5% to 5.9 million in 2010, and growing by 4.9% and 4.6% in 2011 and 2012

respectively.

With a return to more buoyant economic conditions, and a resurgence in both inbound and

domestic tourism, we will also be focusing on converting apartments currently managed under our

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permanent letting pool to higher yielding serviced rooms.

We are also reviewing opportunities for well priced and strategically located properties, to expand

our Australian portfolio, particularly in selected CBD markets.

We are confident that strengthening demand from higher yielding corporate business will

underwrite growth in room rates for our stable of 21 CBD properties in FY 2011.

The first two months of the current financial year bode well for a stronger trading performance over

the coming 12 months, with forward bookings, occupancy levels and trading results tracking ahead

of budget.

Based on a continuation of the more buoyant trading conditions experienced and our renewed

focus on inventory expansion, we expect to increase core operational earnings to within the range

of $30 million to $32 million, excluding the impact of any additional properties which may be

acquired during the year ahead.

Brett Pointon

CHIEF EXECUTIVE OFFICER

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OAKS PROPERTIES OVERVIEW

QUEENSLAND – Brisbane and Ipswich

OAKS LEXICON*

One of Brisbane’s newest and most contemporary buildings located in the heart of the CBD, Oaks Lexicon combines the service and facilities of a modern luxury hotel and a choice of one and two bedroom apartments with large balconies and full kitchen and laundry facilities.

Cnr Ann & Wharf Streets, Brisbane

OAKS FELIX

The ultra modern 40-level Oaks Felix puts you in the perfect position to enjoy all that’s best in Brisbane’s sophisticated city centre. Located in the Golden Triangle – the prestigious financial and restaurant district, Felix apartments combine great style with comfort. A distinctive curved facade, featuring stunning floor to ceiling glass, provides spectacular views of the city skyline, river, Botanic Gardens and Kangaroo Point. It offers contemporary one and two bedroom apartments with private balconies and luxury bathrooms.

26 Felix Street, Brisbane

OAKS RIVER CITY

The 39 level Oaks River City offers guests another central premium accommodation option, close to all major amenities of Brisbane’s rapidly expanding CBD. A choice of one and two bedroom spacious apartments are available, many with balconies. An on-site pool, sauna and gymnasium complement the standard of accommodation on offer.

79 Albert Street, Brisbane

OAKS 212 MARGARET*

Oaks 212 Margaret is just a stroll away from the financial, commercial and shopping heart of Brisbane. As well as luxury one and two bedroom apartments with private balconies it offers a three bedroom penthouse with a spacious balcony and outstanding views of the Brisbane River.

212 Margaret Street, Brisbane

OAKS FESTIVAL TOWERS

Oaks Festival Towers is one of the Brisbane CBD’s newest and most prestigious high-rise apartment hotels. The 41 level tower commands extensive CBD and river views and is minutes from the city’s major retail and business precincts. The contemporary spacious apartments on offer contain one and two bedrooms or two level Soho style lofts, many with alfresco balconies.

108 Albert Street, Brisbane

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OAKS CHARLOTTE TOWERS

Oaks Charlotte Towers sets new benchmarks for luxury high rise apartment accommodation in the heart of the CBD. The 44 level apartment tower offers panoramic vistas of Brisbane’s commercial heart and the river and a choice of one and two bedroom accommodation. The property boasts state of the art communications and security systems, together with a host of leisure facilities.

128 Charlotte Street, Brisbane

OAKS CASINO TOWERS

Positioned in one of Brisbane City’s key heritage and lifestyle districts, Oaks Casino Towers is located near to the Treasury Casino, and combines parkside peace with central convenience. The property enjoys expansive views and features a glass-walled lap pool and fully equipped gym. It offers one, two and three bedroom apartments, all luxuriously appointed with European-style appliances and finishes, ducted air-conditioning and spacious balconies.

151 George Street, Brisbane

OAKS ASPIRE

Located in the heart of Ipswich, one of Queensland’s fastest growing cities, Oaks Aspire is less than 5 minutes walk from Ipswich CBD and the City Mall. This stylish apartment hotel comprises studio, one and two bedroom accommodation providing immediate access to boutiques, cafes and specialty shops. Facilities include a 25 metre heated lap pool, wading pool, spa, sauna, fully equipped air conditioned gym, theaterette, lounge/library and function room.

Cnr Ellenborough & Darling Streets, Ipswich

OAKS AURORA

Oaks Aurora is one of Brisbane’s premier high rise apartment towers. The 69 storey property is also Brisbane’s highest apartment building, providing unsurpassed skyline views over Brisbane and surrounding environs. All units feature 5-star room fit-outs and facilities include a private cinema, an extensive BBQ entertainment area, conference room facilities and a pool and spa.

420 Queen Street, Brisbane

Coastal Queensland

OAKS LAGOONS

Located in far north Queensland’s renowned Port Douglas, Oaks Lagoons is fully air conditioned and offers a choice of courtyard garden apartments or apartments with their own exclusive “swim out” pontoons to breathtaking lagoon pools. Expansive decks, cabanas with barbeques, lush ferns, tropical landscaping and soothing water features complement the standard of accommodation. All apartments have private balconies with king size beds, European kitchen appliances, laundry, in-house videos and satellite TV.

Cnr Langley & Port Douglas Road, Port Douglas

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OAKS CALYPSO RESORT*

Oaks Calypso Resort directly overlooks one of the Gold Coast’s most spectacular beaches. Studio, one and two bedroom executive apartments offer air-conditioned accommodation. A fabulous location complete with superb resort facilities including a large lagoon style swimming pool, extensive grounds, restaurant and bar make Calypso Resort a memorable holiday destination.

99 Griffith Street, Coolangatta

OAKS SEAFORTH RESORT*

Oaks Seaforth is ideally located opposite the patrolled Alexandra Headlands beach and close to the Mooloolaba Esplanade on the Sunshine Coast. Seaforth offers large comfortable one, two and three bedroom air conditioned apartments with extensive resort facilities including a breathtaking lagoon style swimming pool, large lap pool, spa, sauna, children’s wading pool, poolside barbeques, a fully equipped gymnasium and licensed restaurants.

98 - 110 Alexandra Parade, Alexandra Headland

OAKS GATEWAY-ON-PALMER

Gateway-on-Palmer is Townsville’s next generation resort style accommodation complex. Located on the picturesque shore of Ross River Creek, the 4.5 star Gateway-on-Palmer offers a choice of spacious, air-conditioned one and two bedroom apartments, many with views over Townsville’s seafront. Guests have immediate access to the Palmer Street promenade, one of Townsville’s most dynamic dining and entertainment precincts.

Cnr Palmer Street & Dibbs Streets, Townsville

OAKS M ON PALMER*

Hotel M offers contemporary 4.5 star self-catering accommodation located in Townsville’s vibrant Palmer Street precinct. Located within walking distance to the CBD, restaurants, city night life and Jupiters Casino, M on Palmer is the perfect choice for both business and leisure travellers. A fully equipped gym and pool are at guests disposal.

81 Palmer Street, Townsville

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NEW SOUTH WALES – Sydney

OAKS GOLDSBROUGH APARTMENTS

Situated in the heritage listed 1883 Goldsbrough Building overlooking Darling Harbour, the Oaks Goldsbrough Apartments feature studio, one and two bedroom apartments with all the features of a modern luxury hotel. It is in close proximity to the Darling Harbour Convention and Exhibition Centre and surrounded by restaurants and shopping with a short stroll to the monorail for access to the CBD.

243 Pyrmont Street, Darling Harbour

OAKS HARMONY

In the heart of the CBD, Oaks Harmony enjoys a cosmopolitan Chinatown location. Superbly appointed one and two bedroom apartments include private balcony, full kitchen and laundry facilities.

107 Quay Street, Sydney

OAKS HYDE PARK PLAZA

Oaks Hyde Park Plaza offers studio, one and two bedroom apartments with hotel facilities and provides a perfect venue for business or pleasure. It is ideally positioned between the city and trendy Oxford Street overlooking beautiful Hyde Park.

38 College Street, Darlinghurst

OAKS TRAFALGAR

Oaks Trafalgar offers the comfort and privacy of studio, one or two bedroom apartments with fully equipped kitchen and laundry, close to Darling Harbour.

361 Kent Street, Sydney

OAKS MAESTRI TOWERS

In the heart of the CBD, Oaks Maestri Towers is one of Sydney’s most contemporary buildings ideally located on the corner of Sussex and Bathurst Streets and close to Darling Harbour, Town Hall and Chinatown. Maestri Towers provides fabulous studio, one and two bedroom apartments with hotel facilities that include a café, heated swimming pool, spa, sauna and professionally equipped gymnasium.

298 – 304 Sussex Street, Sydney

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OAKS ALBERTA STREET (opening July 2012)

This strikingly designed contemporary property is ideally located, offering business and leisure travellers easy access to the full gamut of Sydney CBD business, entertainment and retail facilities. Once opened, the 18 level property will comprise 79 sleekly designed apartments comprising 30 studios, 23 two bedroom apartments with dual keys, and 3 one bedroom units. Guest facilities will include a designer lobby, meeting rooms and gym.

15 Alberta Street, Sydney

Regional NSW

OAKS LURE APARTMENTS

Oaks Lure at Nelson Bay consists of air-conditioned studio, one and two bedroom apartments, with high ceilings and generous living spaces flowing onto recessed balconies.

20 Tomaree Street, Nelson Bay

OAKS PACIFIC BLUE RESORT

Oaks Pacific Blue provides a total resort experience, reminiscent of a lush South Pacific Island, featuring pristine island beach pool with heated spa areas. The resort is positioned in the heart of beautiful Salamander Bay, Port Stephens and comprises new luxurious studio, one and two bedroom apartments, some with swim-outs or two and three bedroom townhouses with private plunge pools. Facilities include a cafe, restaurant, tennis courts and tropically landscaped gardens.

265 Sandy Point Road, Salamander Bay

OAKS WATERFRONT RESORT

Perfectly located on the water’s edge at The Entrance, with superb views of Tuggerah Lakes and the surf beach, Oaks Waterfront Resort is an ideal escape for relaxed family holidays, weekends away or memorable conferences and functions.

89 The Entrance Road, The Entrance

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VICTORIA – Melbourne

OAKS-ON-COLLINS

In the heart of the city opposite the landmark Rialto Towers, Oaks-on-Collins offers superbly appointed, self contained New York style studios and extensive state of the art conference facilities. Each studio showcases contemporary design and state-of-the art kitchen facilities. The city’s vibrant restaurant, entertainment and shopping scene is immediately on hand with Bourke Street, Southgate, the Crown Entertainment Complex and Telstra Dome only a stroll away.

480 Collins Street, Melbourne

OAKS-ON-MARKET

Melbourne’s newest 4.5 star apartment hotel, just off Collins Street in the city’s CBD and financial precinct, is temptingly close to the famed shopping arcades and an easy stroll to the Southbank promenade along the Yarra River. It offers fully appointed one and two bedroom apartments and Executive Floors with Yarra River views and state of the art technology in-room. The property features 2 restaurants, a lounge bar and large conference facilities.

60 Market Street, Melbourne

OAKS-ON-LONSDALE

Situated in the heart of Melbourne, Oaks-on-Lonsdale provides a convenient base for both business and leisure travellers. The property offers easy access to Parliament House, the Government Precinct, Theatre District, the MCG and Rod Laver Arena. The property offers a choice of well outfitted one and two bedroom apartments, some with balconies.

22-33 Lonsdale Street, Melbourne

OAKS RHAPSODY (opening July 2011)

Rhapsody has been designed as an iconic addition to the world famous St Kilda Road, with award winning designers, SJB interior, creating luxurious interiors for each apartment. This 17 level architectural showcase will offer visitors a choice between luxurious one bedroom/one bathroom apartments and two bedroom/two bathroom apartments. An on site restaurant and state of the art gym will be at the disposal of guests.

568 St Kilda Road, Melbourne

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SOUTH AUSTRALIA – Adelaide

OAKS EMBASSY

Conveniently situated on North Terrace in the CBD and opposite the Adelaide Convention Centre, Oaks Embassy offers the luxury of spacious one, two and three bedroom apartments.

96 North Terrace, Adelaide

OAKS HORIZONS

Oaks Horizons is just a short walk to the Adelaide Convention Centre and Rundle Mall and offers spacious one or two bedroom apartments, with amenities including full kitchen and laundry facilities.

104 North Terrace, Adelaide

OAKS PRECINCT

Ideally located in the Adelaide CBD, Oaks Precinct offers guests a choice of one bedroom and two bedroom apartments. All apartments feature balconies along with full kitchen and laundry facilities. Guest facilities include a heated swimming pool, spa, sauna, steam room and business and secretarial services.

185 Morphett Street, Adelaide

Glenelg

OAKS PLAZA PIER

Oaks Plaza Pier offer luxurious one, two and three bedroom apartments with picturesque ocean views from the beachfront at Glenelg.

16 Holdfast Promenade, Glenelg

OAKS LIBERTY TOWERS

Overlooking the beach and marina, Oaks Liberty Towers offers one, two and three bedroom apartments with spectacular views.

25 - 29 Colley Terrace, Glenelg

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WESTERN AUSTRALIA

OAKS BROOME

Oaks Broome is Broome’s newest business and tourist accommodation, offering a full range of resort features. Offering guests a choice of 4.5 star hotel room or apartment style accommodation, the resort captures commanding views over Broome’s Roebuck Bay. Extensive leisure and restaurant facilities and three swimming pools are available for guests.

99 Robinson Street, Broome

NEW ZEALAND – Auckland

OAKS SMARTSTAY APARTMENTS RESIDENCES

In the heart of Auckland, the 37 level Oaks Smartstay Apartments Residences provide panoramic views from most studio, one and two bedroom apartments, and spectacular penthouse apartments.

16 Gore Street, Auckland

Christchurch

OAKS SMARTSTAY APARTMENTS-ON-CASHEL

Oaks Smartstay Apartments-on-Cashel is ideally located, and offers studio, one, two and three bedroom apartments.

187 Cashel Street, Christchurch

Queenstown

OAKS SHORES

Idyllically situated on magnificent Lake Wakatipu, in picturesque Queenstown, Oaks on Shore offers a choice of luxuriously appointed studio, one, two, three and four bedroom apartments and hotel rooms.

327 - 343 Frankton Road, Queenstown

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OAKS CLUB RESORT

Oaks Club Resort is a luxuriously appointed apartment style hotel, conveniently located on Lake Wakitipu in stunning Queenstown, New Zealand. The spacious and beautifully furnished apartments capture sweeping lakeside views from the private balconies, which overlook Cecil Peak and The Remarkables. Accommodation includes hotel rooms (with tea and coffee facilities), two and three bedroom apartments, some with full kitchens and laundry facilities. All rooms feature under floor heating and double-glazed windows. Hotel facilities include sauna, fully equipped gym, secure underground car parking, tour booking desk, drying room, BBQ areas and small meeting facilities.

171 - 179 Frankston Road, Queenstown

UNITED ARAB EMIRATES – Dubai

OAKS LIWA HEIGHTS

Liwa Heights Hotel is primely located in the fashionable Jumeirah Lake Towers precinct, a dynamic mixed-use waterfront precinct surrounded by man-made lakes, landscaped gardens and other water features. The 23 level hotel offers guests convenient access to nearby attractions including Dubai Marina, Dubai Media City, two world-class golf courses and the world famous 5-star hotel beach strip – Jumeirah Beach. Accommodation is a mix of one and two bedroom apartments, supported by an on-site restaurant, leisure facilities and retail areas.

Jumeriah Lake Towers, Dubai.

* Indicates a property under management rather than a property where Oaks owns the management and letting rights

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CONTENTS TO FINANCIAL REPORT Directors’ Report 23 Corporate Governance Statement 40 Income Statement 49 Statement of Comprehensive Income 50 Statement of Financial Position 51 Statement of Cash Flows 52 Statement of Changes in Equity 53 Notes to the Financial Statements 54 Note 1 Summary Of Significant Accounting Policies 54 Note 2 Revenues 66 Note 3 Expenses 67 Note 4 Income Tax 69 Note 5 Earnings Per Share 71 Note 6 Dividends 72 Note 7 Cash And Cash Equivalents (Current Asset) 73 Note 8 Trade & Other Receivables (Current Asset) 74 Note 9 Inventories (Current Asset) 75 Note 10 Other Current Assets 75 Note 11 Receivables (Non-Current) 75 Note 12 Investments In Subsidiaries 76 Note 13 Property, Plant & Equipment 77 Note 14 Investment Properties 78 Note 15 Intangible Assets 79 Note 16 Trade And Other Payables (Current) 81 Note 17 Interest-bearing Loans &Borrowings (Current) 81 Note 18 Provisions (Current) 82 Note 19 Derivative Financial Instruments 82 Note 20 Interest-bearing Loans &

Borrowings (Non-current) 82 Note 21 Provisions (Non-Current) 82 Note 22 Contributed Equity 83 Note 23 Reserves and Retained Earnings 85 Note 24 Parent Entity Financial Information 87 Note 25 Financing Facilities Available

And Used 88 Note 26 Commitments And Contingencies 91 Note 27 Uncertainty of Accountancy for Management Letting Rights 92 Note 28 Share Based Remuneration 93 Note 29 Director And Executive Disclosures 98 Note 30 Related Party Disclosures 106 Note 31 Events After Balance Sheet Date 109 Note 32 Auditors Remuneration 110 Note 33 Financial Risk Management

Policies And Objectives 110 Note 34 Financial Instruments 113 Note 35 Segment Information 116 Note 36 Impact of accounting standards

amended not yet effective 118 Directors’ Declaration 123 Auditors’ Independence Declaration 124 Independent Audit Report to the members of Oaks Hotels & Resorts Limited 125 Additional ASX Information 128

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DIRECTORS’ REPORT Your directors submit their report for the period from 1 July 2009 to 30 June 2010. DIRECTORS The names and details of the company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Peter Barrow, FCA, FAICD Independent Non-executive Chairman (Director since: 2 November 2005)

Mr Barrow is a senior partner of chartered accounting firm, MBT Chartered Accountants, and within this capacity has provided financial, taxation and audit advice to large public and private companies. He has over 25 years experience with retail travel companies, including 18 years auditing and providing tax advice to Flight Centre Limited prior to being publicly listed. Mr Barrow is a fellow of the Australian Institute of Chartered Accountants, the Australian Institute of Directors, the Taxation Institute and a registered company auditor. Mr Barrow is the chairman of the Board of Directors and serves on the Nomination and Remuneration Committee. During the past four years Mr Barrow has also served as a director of the following other listed companies: • Flight Centre Limited (appointed: 9 October 1995)* • Cluff Resources Pacific NL (appointed: 31 March 2003 ceased: 9 December 2008) • Mosaic Oil NL (appointed: 6 December 2006)* * denotes current directorship

Brett Pointon, B. Ed Executive Director and Chief Executive Officer (Director since: 26 April 2005)

Brett Pointon founded Oaks in 1991 having a background in sales and marketing. Since then, Mr Pointon has grown Oaks’ portfolio of properties from just one to 37 under management at 30 June 2010. Mr Pointon has over 18 years’ experience in the negotiation, valuation and purchase of MLRs, liaising with bodies corporate and owners of apartments, and managing buildings. He has extensive knowledge of strata title laws and a comprehensive understanding of the MLR business. With his strong relationship with MLR brokers, property developers and apartment investors, he is recognised as a prominent figure in the MLR industry. Mr Pointon serves on the Nomination and Remuneration Committee.

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Colin Archer, B Ec, CA Non-executive Director (Director since: 26 April 2005)

Colin Archer is the founding partner of Archer Gowland Chartered Accountants who have specialised in advice to the property industry and residential letting businesses for 28 years. He is also the founding chairman of Archers Body Corporate Management, a leading Queensland community title administrator. Mr Archer is the founding president, and current director of the National Community Title Institute and the longest-serving director of the Queensland Community Title Institute. Mr Archer serves on the Audit and Risk Management Committee. During the past three years Mr Archer has also served as a director of the following company: • Retail Food Group Limited (appointed: 12 April 2006)* * denotes current directorship

John Cowley, AM Independent Non-executive Director (Director since: 2 November 2005)

John Cowley’s 40 year plus career in media has seen him responsible for some of the biggest newspapers in the world before retiring from News Limited in 2001. During his career Mr Cowley was Chief Executive Officer of Queensland Newspapers, a founding staff member of The Australian and he established the world’s first daily newspaper for the blind in Hong Kong in 1989. Mr Cowley was Chairman of the Royal Women’s Hospital Children’s Research Foundation. Mr Cowley was also Chairman of the Gold Coast Motor Events Corporation for seven years and in 2003 was awarded the Centenary Medal for his services in motor sports. He is a member of the Order of Australia (General Division). Mr Cowley is chairman of the Nomination and Remuneration Committee and serves on the Audit and Risk Management Committee. During the past three years Mr Cowley has also served as a director of the following listed company: • Retail Food Group Ltd (appointed: 13 October 2004)* * denotes current directorship

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Rob Greenslade, B Ec Independent Non-executive Director (Director since: 26 April 2005)

Robert Greenslade is a founding director of Gryphon Partners, a leading boutique investment bank, with offices in Australia and North America. Prior to 2002, Mr Greenslade was Group Executive Corporate for Normandy Mining Limited heading up the company’s corporate division. Following the takeover of Normandy by Newmont Mining Corporation Inc., he was appointed Vice President of Newmont Capital, responsible for the group’s Australian and Asian Pacific corporate and business development activities. Mr Greenslade is also a Non-executive Director of the resource company Ferr Aus Limited a growing iron ore company. Mr Greenslade holds a Bachelor of Economics and a Post Graduate Diploma of Applied Finance and Investment from the Securities Institute of Australia. During the past three years Mr Greenslade has also served as a director of the following listed company: • FerrAus Limited (appointed: 10 November 2003)* * denotes current directorship

Yuan Lin (David) Wu Non-executive Director (Director since: 9 August 2010)

David Wu is the Chief Executive Officer and the chairman of the board of China Pacific Pty Ltd. He is primarily responsible for the formulation of development strategies, investment and business expansion and the legal affairs of the China Pacific Group. He also plays a key role in supervising project planning, designing and marketing. Mr Wu has over 20 years of experience in real estate development and management. He joined the Oaks board in 2010, and has not held any directorship in any other listed public companies during the past three years.

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Douglas Wong, B Com. Non-executive Director (Director since: 23 August 2010)

Douglas is the Managing Director of China Capital Asset Management Ltd (CCAM), a Hong Kong based private asset management company and the Australian affiliate of Yorkshire Capital Hong Kong (Yorkshire). Yorkshire is a boutique merchant banking company incorporated in Hong Kong with offices located in Hong Kong, Beijing, Chengdu, Shenzhen, Bangkok, New York and Brisbane. Doug has over 30 years of experience in executive management, principle investment, merchant banking and corporate transformation within Australia and the wider Asia-Pacific region. Doug’s former Australian management positions and Directorships include Managing Director of Optima ICM Limited where he also served as Non-Executive Director and advisor, Managing Director of Trysoft Corporation Limited and CEO of Acer Computer Australia Pty Ltd. He has also held a senior executive position in the global consultancy practice, KPMG. Doug joined the Oaks board in 2010, and during the past three years has served as a director in the following listed company: • Raw Capital Partners Limited – delisted 31 August 2009 (appointed: 24 December 2001) *

* denotes current directorship

COMPANY SECRETARY

Graeme Johnson, B.Com, M.App.Fin, FCA Graeme Johnson was appointed Company Secretary on 27 July 2009. Graeme has extensive experience within the banking and financial services sectors, most recently as Chief Financial Officer (CFO) for Macquarie Airports. Prior to joining Macquarie, Graeme worked for over 10 years with Westpac Banking Corporation in Australia and New Zealand in various General Manager and CFO roles, including as CFO of BT Financial Group. Graeme is a Fellow of the Institute of Chartered Accountants in Australia. He holds a Bachelor of Commerce degree from the University of Newcastle and a Masters of Applied Finance from Macquarie University. Graeme resigned as Company Secretary on the 30 September 2010 and the Board has commenced the process for identifying and recruiting a suitable candidate to fill the role.

PRINCIPAL ACTIVITIES The principal activities during the period of the entities within the consolidated entity consisted of the management of strata titled apartment accommodation. There were no significant changes in the nature of the activities of the consolidated entity during the period.

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DIVIDENDS

Dividends paid to members during the financial period were as follows:

Final ordinary dividend for the year ended 30 June 2009 of 3.0 cents per share fully franked, paid on 18 September 2009, totaling $4,626,528.78.

Interim ordinary dividend for the year ended 30 June 2010 of 2.0 cents per share fully franked, paid on 24 March 2010, totaling $3,100,983.50.

Since the end of the financial year the directors have determined that in order to ensure compliance with dividend conditions set out in the Group’s current financing facility and after consideration of the operational performance of the Group and the future cash flow requirements of the business that no final dividend will be paid in respect to the year ended 30 June 2010.

REVIEW OF OPERATIONS A summary of consolidated results is set out below: 2010

$’000 2009 $’000

Profit before income tax expense 8,010 14,034

Income tax expense (4,108) (4,281)

Profit after income tax expense 3,902 9,753

A review of the company and its controlled entities and the results of those operations for the year are contained in earlier sections of this Annual Report. EARNINGS PER SHARE 2010

Cents 2009 Cents

Basic earnings per share (2.29) 6.34

Diluted earnings per share (refer note 6) (2.24) 6.20

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MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Financing Facilities In July 2010 the Group finalised the extension of its financing arrangement with the ANZ and NAB banks. Oaks currently have approximately $90m in debt drawn under these facilities. The combined margin and line fees attributable to these facilities have been set at 325bp above the benchmark bank bill rate (BBSY). The key covenants under the extended facilities are as follows: Interest Cover The ratio of EBITDA to interest expense for the Group on a consolidated basis for the preceding financial quarter calculated on a rolling 12 month basis is:

(i) until 31 March 2011, at least 3.0:1; and (ii) from 1 April 2011, at least 3.50:1.

Gearing The ratio of total external debt to EBITDA (calculated on a rolling 12 month basis) does not exceed:

(iii) until 30 December 2010: 3.40:1; (iv) from 31 December 2010 up to and including 30 March 2011: 3.00:1; (v) from 31 March 2011 up to and including 29 June 2011: 2.75:1; (vi) from 30 June 2011: 2.50:1.

Compliance with the covenants is to be tested quarterly. Letter of Credit Until the dispute with the beneficiary of the Dubai letter of credit (the landlord) is resolved to the satisfaction of the Financiers, Oaks must, not later than 31 October 2010 provide cash cover to ANZ in the amount of $7.1m. If the letter of credit is not called upon, and the dispute is resolved to the satisfaction of the financiers, these funds will be released to Oaks. Debt reduction Oaks must complete a capital raising to raise at least $15m, to be applied towards debt reduction, by 31 October 2010. If on or after 31 October 2010, Oaks gearing ratio is not below 2.5 times, then Oaks must on a quarterly basis apply 75% of excess cash flow towards debt reduction. Dividends Oaks may not, without approval by the financiers, pay a dividend if it does not complete the equity raising referred to above. Post the equity raising, the dividend payout ratio may not exceed 60% of net profits after tax. Equity Issue Oaks announced on 23 August 2010 a placement to the China Pacific Group totalling $9.78m, subject to shareholder approval. It is intended that a further equity issue will be finalised with details to be provided prior to the General Meeting, which will be held in late September. Post the successful completion of these equity raisings Oaks will be able to meet its covenants based on projected earnings. Dividends On the 25 August 2010, the Board of Directors determined that in order to ensure compliance with dividend conditions set out in the Group’s current financing facility and after consideration of the operational performance of the Group and the future cash flow requirements of the business that no final dividend will be paid in respect to the year ended 30 June 2010.

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LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Additional disclosure of information relating to the future developments in the operations of the consolidated entity, which would not, in the opinion of the directors, be prejudicial to the consolidated entity’s interest, is contained in earlier sections of this Annual Report.

ENVIRONMENTAL REGULATION AND PERFORMANCE The company has assessed whether there are any particularly significant environmental regulations which apply to it and has determined that there are none.

DIRECTORS INTERESTS As at the date of this report, the interests of the directors in the shares and options of Oaks Hotels & Resorts Limited were:

Nature of Relevant Interest Number of Ordinary Shares

Number of Options Over Ordinary Shares

Peter Barrow

Director is a beneficiary of the superannuation fund Metrand Pty Ltd which holds the ordinary shares.

59,167

100,000

Brett Pointon Registered holder of ordinary shares and controls Centrepoint Holdings Pty Ltd, The Oaks Apartment Management Pty Ltd and Pointon Holdings Pty Ltd, who are the registered holders of ordinary shares

66,393,819

-

Brett Pointon Has the power to control the exercise of a right to vote attached to the securities held by RA Pointon Investments Pty Ltd, Ronda Pointon and Toni Cunning

8,418,647

-

Brett Pointon Has the power to control Oaks Hotels & Resorts Limited, which has a relevant interest in ordinary shares. 1

2,366,529

-

Colin Archer Has the power to control the exercise of a right to vote attached to the securities held by Archer Management Pty Ltd, Ms C McNamara, Ms T Archer, Mr C.J. Archer and Mr C.L Archer.

6,386,313

-

John Cowley Director is a beneficiary of the John Cowley Superannuation Fund which holds the ordinary shares

149,726

150,000

Rob Greensdale

Has the power to control the exercise of a right to vote attached to the securities held by Gryphon Partners Pty Ltd, Mrs J Greenslade, Greenslade Holdings Pty Ltd and Souttar Superannuation Pty Ltd.

986,093

100,000

David Wu Has the power to control the exercise of a right to vote attached to the securities held by ACN 145 582 136 Pty Ltd.

8,520,354 -

1. Oaks Hotels & Resorts Limited also has, for the purposes of the Corporations Act, a relevant interest in the ordinary

shares held under the general employee share plan and the management share loan plan operated by the Company, under the rules of which the Company has a power to control the exercise of the right of the registered holder to dispose of the shares. In accordance with note 22 (a) (II) Oaks Hotels & Resorts Ltd no longer has control over the shares issue in the general employee share plan, as all shares held in this plan were issued more than 3 years ago, on 22 December 2005. At a General Meeting on the 29 September 2010, shareholder approved the issue of 27,935,679 new shares in Oaks Hotel & Resorts Ltd to China Pacific Pty Ltd, a company associated with David Wu and Douglas Wong.

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MEETINGS OF DIRECTORS

The number of meetings of directors (including meetings of committees of directors) held during the period and the number of meetings attended by each director was as follows: Directors Meeting Audit and Risk Nomination &

Remuneration

No of meetings held 14 5 1

No. of meetings attended

Peter Barrow 14 5 1

Brett Pointon 13 * 1

Colin Archer 13 5 *

John Cowley 12 2 1

Rob Greenslade 8 5 * All directors were eligible to attend all meetings held. * Not a member of the relevant committee

SHARE OPTIONS

As at the date of this report and at the reporting date, there were 350,000 unissued shares under options. The options were granted on 22 December 2005, have an expiry date of 24 December 2010 and have an exercise price of $1.00. Option holders do not have any right, by the virtue of the option, to participate in any share issue of the company or any related body corporate.

The value of options granted is shown in the table on page 37. No options were exercised or forfeited during the period.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During the financial year, the company has paid premiums in respect of a contract insuring all the directors of Oaks Hotels & Resorts Limited against certain liabilities.

In accordance with commercial practice, the insurance policy prohibits disclosure of the nature of liabilities insured against and the amount of the premium.

The company has executed a deed of access, insurance and indemnity in favour of each director. Under each deed, the company undertakes to maintain directors’ and officers’ insurance for each director during the period of appointment and for 7 years thereafter as well as to indemnify each director in certain circumstances subject to the Corporations Act 2001 as amended. The company has also undertaken to maintain a complete set of company board papers and to make them available to each director during the period of appointment and for 7 years thereafter.

The company directors’ and officers’ insurance policy also indemnifies certain executives of the company subject to the Corporations Act 2001 as amended. In accordance with commercial practice, the insurance policy prohibits disclosure of the nature of liabilities insured against and the amount of the premium.

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REMUNERATION REPORT (AUDITED)

This Remuneration Report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the Parent and the Group receiving the highest remuneration. For the purposes of this report, the term ‘executive’ encompasses the Chief Executive, senior executives, general managers and secretaries of the Parent and the Group. Remuneration Philosophy The objective of the company is to maintain a remuneration framework that is competitive to attract and retain high calibre executives and motivates executives to create value for our shareholders and apartment owners. A significant portion of executive remuneration is at risk and linked to pre-determined performance targets. The remuneration policies implemented since the Company’s listing are considered to have contributed to the growth in the Company, by aligning remuneration with the performance of the Company. In particular, the policies implemented have assisted in driving revenue from $50.7 million in 2006 (proforma) to $125.8 million in 2010. Inventory in the Group’s serviced letting pool grew from 2,377 to 4,373 rooms in just over 4 years. The Groups’ EBITDA over the same period increased $11.53 million in 2006 (proforma) to $28.7 million in 2010. While the Group’s share price has been variable as shown in the graph below, this fluctuation in share price was largely impacted in the early years by escrow agreements in place with various registered shareholders, which limited the volumes of shares traded. These escrow agreements ceased in December 2007. The Group’s share price has also been impacted by the volatile market conditions experienced in 2009.

10.00

15.00

20.00

25.00

30.00

35.00

2006 proforma 2007 2008 2009 2010

EBITDA

-1,000

1,000

3,000

5,000

7,000

9,000

11,000

2006proforma

2007 2008 2009 2010

Serviced Rooms Total Rooms

Rooms

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

2006 2007 2008 2009 2010

Share Price

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Nomination and Remuneration Committee The Nomination and Remuneration Committee is responsible for:

• Periodically determining the appropriate mix of skills, experience and expertise required on the Board, assessing the extent that the Board comprises those skills, experience and expertise and reviewing the Board succession plans;

• Making recommendations to the Board regarding appointment and removal of the Directors;

• Evaluating the Board’s performance; and

• Ensuring that Directors and management are remunerated fairly, and for overseeing the remuneration and human resource policies and practices of the company.

Remuneration Structure

In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct.

Non-Executive Director Remuneration Non-Executive Directors are remunerated at a level commensurate with their responsibilities and that enables the company to attract high calibre directors. The maximum fees to be paid to non-executive directors are determined from time to time by the Company in general meeting. A general meeting of the Company has approved a maximum amount of $300,000. The Board has determined that an initial annual fee of $65,000 will be paid to the Chairman and fees of $45,000 will be paid to each of the other non-executive directors, being an annual total of $290,000. The non-executive director fees are reviewed annually by the Board. As at the date of this report an annual review of non-executive director’s fees had been undertaken and there was no change to the annual fees to be paid to directors. The Chairman is not present at any discussions to determine his own remuneration. The board considers external advice when reviewing both the quantum of the director’s fees pool and the manner in which it should be apportioned. In addition to cash fees remuneration, non-executive directors may be entitled to participate in certain equity plans in order to more closely align their economic rewards with those of shareholders. Details of these equity plans are in Note 28. Non-executive directors have been encouraged by the Board to hold shares in the company and (with the exception of Colin Archer, David Wu & Douglas Wong) have been issued options in the company as outlined above.

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Senior Management and Executive Director Remunerati on

The objective of the company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework involves a mix of fixed and variable pay as well as a blend of short and long term incentives. This ensures that executives are competitively rewarded but also, like shareholders, they have the opportunity to share the benefits of long term wealth creation by the company.

Executive remuneration consists of the following key elements:

• Fixed remuneration • Short term incentive • Long term incentive

The proportion of fixed and variable remuneration is established for each senior executive by the Nomination and Remuneration Committee. The tables on page 38 detail the fixed and variable components (%) of the 5 most highly remunerated executives and key management personnel of the Group and the Company. Fixed Remuneration

Fixed remuneration is reviewed annually by the Nomination and Remuneration Committee taking into consideration individual performance of the executive and market comparatives. Superannuation is payable in respect to directors and executives at 9% of cash salary or fees. Certain individuals also received non-monetary benefits including motor vehicles. Short Term Incentive Executives become entitled to short term cash bonuses if the Company achieves budgeted net profit after taxation targets and personal key performance indicators (KPI). Targets and key performance indicators are reviewed annually to ensure they remain appropriate to creating shareholder value. The Remuneration Committee considered the STI payments for the 2010 financial year and determined that no STI cash bonus would be paid in respect to the overall performance of the company during 2010 financial year. Accordingly no amount has been accrued in this financial report. During the reporting period several STI cash bonuses were paid to key management personnel in respect to their achievement of agreed KPI targets. Long Term Incentive Shares purchased and issued to management under the Management Loan Share Plan Eligible managers may be invited by the board to participate in a share plan whereby they are entitled to purchase ordinary shares using an interest free, limited recourse loan provided by the company. The price of each share is determined by the board and has been consistent with the market price on the date of issue.

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One-third of the shares involved under the plan are eligible to vest on each 30 September for the three years following the issue subject to a performance condition being meet. All eligible shares vest if the Company’s net profit after tax is above budget for that specific financial year. If the Company’s net profit after tax is between 85 to 99 percent of budget the same percentage of eligible shares vest. Any eligible shares that do not vest will be sold and the proceeds retained by the company or re-issued to other eligible managers. Employees are restricted from selling shares issued to them under this plan until the shares vest and the loan is repaid. Based on advice, the board has treated the shares issued under this plan as though they were options for accounting purposes. In summary, this means that shares issued under this plan are treated as follows:

I. They are not recognised as being issued capital in the accounts until either the underlying loan has been repaid or they are re-sold on-market in settlement of the loan; and

II. The loans made to purchase the shares are not recognised as an asset in the accounts.

However, the dilutive effect of the shares is considered in determining diluted earnings per share. Based upon professional advice, the board has determined that treating the shares as in-substance options is in accordance with AASB2 Share Based Payments. The assessed fair value at issue date was determined using an option pricing model that takes into account the price paid per share and any discount per share received, the impact of dilution, the share price at issue date and expected volatility, the non-tradeable nature of the shares during the restriction period, the expected dividend yield, and the risk-free interest rate for the period between issue and expected holding term of the shares. As part of the terms and conditions of employment, the Company prohibits executives from entering into arrangements to protect the value of unvested long term incentives awards. This includes entering into contracts to hedge their exposure to options or shares granted as part of their remuneration package. Adherence to this policy is monitored on an annual basis and involves a review of each key management person. During the current and prior financial reporting period, the following shares were issued to key executives under this plan:

Issue on 22 December 2005 No of shares issued 345,000 Price paid per share 1.00 Discount to market price at time of issue - No. of key executives who were issued shares under this plan 4 Market price of shares at grant date 1.00 Expected volatility (%) 40.00 Risk free interest rate (%) 5.15 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.00

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Issue on 30 May 2008

No of shares issued 283,407 Price paid per share 1.10 Discount to market price at time of issue - No. of key executives who were issued shares under this plan 6 Market price of shares at grant date 1.10 Expected volatility (%) 41.47 Risk free interest rate (%) 6.59 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.10

141,703 shares were forfeited by key management personal during the year due to the company failing to meet the required performance conditions in the financial year 30 June 2009.

Issue on 1 August 2008

No of shares issued 28,131 Price paid per share 1.10 Discount to market price at time of issue - No. of key executives who were issued shares under this plan 1 Market price of shares at grant date 0.80 Expected volatility (%) 51.20 Risk free interest rate (%) 6.06 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.10

14,065 shares were forfeited by key management personal during the year due to the company failing to meet the required performance conditions in the financial year 30 June 2009.

Issue on 26 January 2009

No of shares issued 87,879 Price paid per share 1.10 Discount to market price at time of issue - No. of key executives who were issued shares under this plan 1 Market price of shares at grant date 0.40 Expected volatility (%) 51.20 Risk free interest rate (%) 3.92 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.10

43,939 shares were forfeited by key management personal during the year due to the company failing to meet the required performance conditions in the financial year 30 June 2009.

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Performance Conditions

The performance condition that determines the shares that vest to employees under the management share loan plan is achievement of budgeted net profit after tax. This is also a key performance condition of the short term incentive cash bonuses. The directors have determined that this is the most appropriate performance condition of incentives during the initial years of the company as it is a transparent and readily understood measure.

Executive Contracts The CEO Mr Pointon is employed under contract. The key terms of the contract are as follows:

• Commencement date of the contract is 22 December 2005;

• The contract may be terminated at any time after two years by either party giving nine months’ notice;

• Remuneration of $330,000 per annum with eligibility for annual reviews;

• Superannuation contributions of 9% of fixed remuneration;

• Eligibility to receive a cash bonus of up to 80% of fixed remuneration subject to meeting the net profit after tax target for the financial year and other performance conditions that may be considered by the board from time to time; and

• Restrictive covenants which operate during the period of employment and for a period of up to one year thereafter.

All other executives are employed under contract which includes the details of the remuneration to be paid to executives but does not prescribe how remuneration levels are to be modified from year to year. They do not provide for a fixed term although these contracts can be terminated on specified notice. For all executives other than the CEO the Company is required to give a minimum of six months’ notice of termination. However, the Company retains the right to terminate any contract immediately in a number of circumstances including fraud, dishonesty, breach of duty or improper conduct. All executives, except for the CEO, are required to provide the Company with a minimum of three months notice of termination. All executives are entitled to receive their statutory leave entitlements and superannuation benefits upon termination. Any interests held in the Company’s Management Share Loan Plan which are not vested are forfeited.

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Details of Remuneration

Details of the remuneration of the directors and key management personnel are detailed in the following tables.

Directors

Short term benefits

Post Employment

Share based

payments

Salary & Fees

ST Incentive

Non Monetary Benefits

Super-annuation

Options Total % Performance

Related

Peter Barrow Chairman

2010

2009

65,000

47,740

-

-

-

-

5,850

5,435

-

1,300

70,850

54,475

-

2.39%

Brett Pointon CEO

2010

2009

330,000

330,000

-

-

27,866

27,866

29,700

30,842

-

-

387,566

388,708

-

-

Colin Archer Non-Executive

2010

2009

45,000

41,923

-

-

-

-

4,050

3,773

-

-

49,050

45,696

-

-

John Cowley Non-Executive

2010

2009

45,000

60,385

-

-

-

-

4,050

5,435

-

1,950

49,050

67,770

-

2.88%

Rob Greenslade Non-Executive

2010

2009

45,000

42,083

-

-

-

-

4,050

3,774

-

1,300

49,050

47,157

-

2.76%

(a) Yuan Lin (David) Wu, was appointed as a Director on 9 August 2010. (b) Douglas Wong, was appointed as a Director on 23 August 2010.

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Details of remuneration (cont)

Executives

Short term benefits Post employment

Share based payments

Salary & Fees

ST Incentive

Non Monetary Benefits

Super -annuation

Management Share

Loan Plan

Termination Payments Total

% Performance

Related

Graeme Johnson Company Sec & CFO (e)

2010

2009

248,557

-

-

-

-

-

22,370

-

-

-

-

-

270,927

-

-

-

Mike Anderson GM Operations (d)

2010

2009

205,000

71,232

-

-

14,815

14,815

14,584

5,047

11,007

27,417

-

-

245,406

118,511

4.49

23.13

Leanne Summers GM Corporate Services

2010

2009

200,000

199,231

-

-

-

10,158

18,000

17,931

2,999

7,723

-

-

220,999

235,043

1.36

3.29

Graham Baskett GM Bodies Corporate

2010

2009

210,026

186,923

-

-

-

6,643

14,584

16,823

5,329

11,492

-

-

229,939

221,881

2,.32

5.18

Chris Jones General Manager Sales & Marketing (g)

2010

2009

180,000

186,224

-

-

-

-

16,200

16,823

7,973

13,428

-

-

204,173

216,475

3.90

6.20

Rene Stern Area Manager - Vic, NZ & Dubai

2010

2009

150,658

144,923

-

20,979

-

5,679

6,577

14,931

-

1,100

-

-

157,235

187,612

0.00

13.25

Todd Spagnolo State Revenue Manager (f)

2010

2009

145,446

145,600

16,630

13,000

-

-

14,002

14,274

2,867

6,454

-

-

178,945

179,328

10.90

10.85

Pauline Coles Group Financial Controller

2010

2009

124,230

125,096

-

-

-

-

11,180

11,259

18,836

11,421

-

-

154,246

147,776

12.21

7.73

Grant Ruddiman Chief Operating Officer (c)

2010

2009

-

74,499

-

-

-

-

-

6,231

-

-

-

62,500

-

143,230

-

-

David Campbell Company Sec & CFO (b)

2010

2009

-

28,972

-

-

-

-

-

2,430

-

-

-

-

-

31,402

-

-

Janelle Campbell Company Sec & CFO (a)

2010

2009

-

41,194

-

-

-

5,829

-

2,908

-

3,130

-

-

-

53,061

-

5.90

(a) Janelle Campbell, Chief Financial Officer resigned from her position 8 August 2008. (b) David Campbell was appointed Chief Financial Officer & Company Secretary on 12 August 2008 and

resigned on the 2 October 2008. (c) Grant Ruddiman was appointed Chief Operating Officer on 21 July 2008 and resigned on 28 October 2008. (d) Mike Anderson was appointed General Manager – Operations on 24 March 2009. (e) Graeme Johnson was appointed Chief Financial Officer and Company Secretary on 27 July 2009 and

resigned on 30 September 2010. (f) Todd Spagnolo was considered a key management person in 2009 but not in 2010. (g) Chris Jones resigned as General Manager – Sales and Marketing on 15 September 2010

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Options granted as part of remuneration There were no options granted as part remuneration during the year. No options granted in the prior year lapsed or were exercised. There were no alterations to the terms and conditions of options granted as remuneration since their grant date in the prior year. See Note 28 for details of this option plan and for the calculation of fair value.

Auditors’ Independence Declaration In accordance with section 307C of the Corporations Act 2001, the directors have obtained a declaration of independence from the auditors, Ernst & Young. The declaration is included in the annual report following the directors’ declaration to members. Rounding The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. Non audit services The following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received the following amounts for the provision of non-audit services: Tax compliance services $ 38,358 Other non-audit services $ 40,635 Auditor Ernst & Young continues in office in accordance with section 327 of the Corporations Act 2001. Signed in accordance with a resolution of the directors,

Peter Barrow Brett Pointon Chairman Director and CEO Brisbane, 30 September 2010

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CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Oaks Hotels & Resorts Limited is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of Oaks Hotels & Resorts Limited on behalf of the shareholders. The Board acknowledges that its primary role is to create and safeguard shareholder value. In formulating its corporate governance policies and procedures the Board has had reference to the Principles of Good Corporate Governance and Best Practice Recommendations developed by the ASX Corporate Governance Council. Oaks Hotels & Resorts Limited Corporate Governance Principles include the following recommendations:

1. Lay solid foundations for management and oversig ht

The Board’s functions and responsibilities include:

• Providing strategic guidance for the Company and oversight of management.

• Appointment of, and where appropriate, removing the Chief Executive Officer.

• Ratifying the appointment, and where appropriate, the removal of the Chief Financial Officer, the Company Secretary and senior management.

• Reviewing the performance, and approving the remuneration including incentives, of

the Chief Executive Officer and senior management.

• Recommending the appointment and reviewing the performance of Directors.

• Input into and the final approval of strategic plans and financial budgets and monitoring the performance against such plans and budgets.

• Establishing and appointing the members of the Nomination and Remuneration

Committee and the Audit and Risk Management Committee.

• Monitoring business risks, overseeing the risk management strategy, ensuring effective internal control systems and monitoring compliance with legal and regulatory requirements and ethical standards.

• Approving annual accounts, reports and other public reporting documents.

To assist in its deliberations, the Board has established an Audit and Risk Management Committee and a Nomination and Remuneration Committee that act primarily in a review or advisory capacity. These committees have written charters that clearly set out their roles and responsibilities, composition, structure and membership requirements.

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The performance of the board and key executives is reviewed regularly against both measurable and qualitative indicators. During the reporting period, the nomination committee conducted performance evaluations that involved an assessment of each board member’s and key executive’s performance against specific and measurable qualitative and quantitative performance criteria. The performance criteria against which directors and executives are assessed are aligned with the financial and non-financial objectives of Oaks Hotels & Resorts Limited.

2. Structure of the Board

The Board currently comprises of three independent Non-Executive Directors (namely John Cowley, Peter Barrow and Rob Greenslade), three Non-Executive Directors (namely Colin Archer, David Wu and Douglas Wong) and the Chief Executive Officer, Brett Pointon. The Board brings together a complementary range of qualifications, skills and industry and public company experience that enables it to add substantial value to the Company. The Board meets monthly and on an ad hoc basis to consider time critical matters. The Board has agreed procedures in place to enable Directors in furtherance of their duties to seek independent professional advice at the company’s expense.

Board Composition In accordance with Listing rule 14.4 and the Company’s Constitution, at every Annual General Meeting one third of the directors must retire from office by rotation and are eligible for reelection. The directors to retire are those who have been in office for three years since their appointment or last re-appointment or those who have been longest in office since their appointment or, if the directors have been in office for an equal length of time, by agreement. These requirements for a director to retire do not apply to the managing director. Each retiring Director’s performance is reviewed by the Nomination and Remuneration Committee and following this review, the Committee makes a recommendation to the Board as to whether the Board should support the recommendation of that Director. The composition of the Board is reviewed annually by the Nomination and Remuneration Committee or the full Board to ensure that it has available an appropriate mix of skills and experience to ensure the interest of shareholders are served. The director’s biographical details are provided in the annual report.

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Nomination and Remuneration Committee The Board has established a Nomination and Remuneration Committee which meets at least annually and is responsible for:

• Periodically determining the appropriate mix of skills, experience and expertise required on the Board, assessing the extent that the Board comprises those skills, experience and expertise and reviewing the Board succession plans;

• Making recommendations to the Board regarding appointment and removal of

Directors;

• Evaluating the Board’s performance; and

• Ensuring that Directors and management are remunerated fairly, and for overseeing the remuneration and human resource policies and practices of the Company.

The Nomination and Remuneration Committee may obtain information from, and consult with, management and external advisers, if it considers it appropriate. The Committee’s charter provides that the committee will comprise at least three Directors. The majority of the committee must be independent Directors. No Director shall be involved in any decisions as to his or her own remuneration. The current members of the committee are:

• Peter Barrow (Chairman);

• John Cowley; and

• Brett Pointon. For details of directors’ attendance at meetings of the Nomination and Remuneration Committee refer to the Directors’ Report. Performance In the reporting period, the Nomination and Remuneration Committee undertook a review of the Board’s performance (including its committees and individual Directors). This review process was facilitated by the Chairman of the Committee and was contributed to by all Committee members. The committee reviewed the mix of experience; skills and qualifications held by the Board and determined that this mix was appropriate for the Board and its committees to discharge their duties.

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Independence and Materiality

The Board assesses each Director against a range of criteria to decide whether they are in a position to exercise independent judgement.

A Director is considered independent if they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement. Materiality is assessed on a case-by-case basis by reference to each Director’s individual circumstances rather than by applying general materiality thresholds.

In assessing independence, the Board considers whether the Director has a business or other relationship with the company, directly or as a partner, shareholder or officer of a company or other entity that has an interest, or a business or other relationship, with the company or another Group member.

Information about any such interests or relationships, including any related financial or other details, is assessed by the Board to determine whether the relationship could, or could reasonably be perceived to, materially interfere with the exercise of a director’s unfettered and independent judgement.

On appointment, each Director is required to provide information for the Board to assess and confirm their independence as part of their consent to act as a Director. Directors re-affirm their independence annually.

The following Directors of Oaks Hotels & Resorts Limited are considered to be independent: Peter Barrow; John Cowley; and Rob Greenslade

3. Promote Ethical and Responsible Decision Making

Code of Conduct Oaks Hotels & Resorts Limited has a Code of Conduct that applies to all Directors and employees. The Code of Conduct embraces the values and standards of Oaks in all aspects of its interactions with its employees, contractors and customers. Oaks’ requires its employees to set and follow high standards of performance and behavior and to assist in ensuring that these standards are complied with by contractors and other visitors to our properties and offices. All employees are encouraged to put their best foot forward each and every day. Directors and employees are expected to use and promote the highest standards of ethical business practice and behavior at all times.

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Security Trading Policy The board has established a security trading policy governing the purchase or sale of securities in the company by Directors, management and employees who may be in possession of price sensitive information. Directors will be limited to trading in Shares during certain “window periods”, namely following release of the Company’s financial results and following the Company’s annual general meeting and at any other time declared by the Board outside these periods, Directors must receive clearance from the Chairman (or in the case of the Chairman, the chief executive officer or the Board) and management and employees must receive clearance from the Company Secretary. Directors, management and employees are prohibited from entering into contracts to mitigate risks relating to options.

4. Safeguard Integrity of Financial Reporting

Audit Committee The Audit committee functions include:

• Provides assistance to the Board in fulfilling its corporate governance and oversight responsibilities in relation to the Company’s risk management systems, financial reporting, internal control structure and the internal and external audit functions;

• Reviews non-audit services provided by the external auditor to confirm that they are

consistent with maintaining external audit independence; and

• Provides advice to the Board and reports on the status of the business risks to the Company through risk management processes aimed at ensuring risks are identified, assessed and properly managed.

Committee Composition The Audit Committee’s charter provides that the committee will comprise only non-executive directors; have at least three members the majority of which are independent; and be chaired by a person who is not the chairperson of the board. The current members of the committee are:

• Rob Greenslade; • John Cowley; and • Colin Archer.

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Qualifications of Audit Committee Members R Greenslade is a founding director of the boutique investment bank, Gryphon Partners Pty Limited. He also holds a Bachelor of Economics and a Diploma of Applied Finance and Investment. C Archer is a chartered accountant and registered company auditor, specialising in advice to the property industry and residential letting businesses for over 27 years. J Cowley has significant experience in management having been Chief Executive Officer of Queensland Newspapers. He is also a director of a number of companies. Auditor Appointment The Audit Committee reviews the performance of the external auditor annually. The current auditor, Ernst and Young, is obliged to rotate the engagement partner at least every five years. The external auditor provides the Audit Committee with six monthly and annual declarations of independence. Certification of Financial Reports The Chief Executive Officer and the Chief Financial Officer certify that the company’s accounts are a true and fair representation of the company’s financial results and position. In accordance with section 295A of the Corporations Act, the chief executive officer and chief financial officer have provided a written statement to the board that: - Their view provided on the Company’s financial report is founded on a sound system

of risk management and internal compliance and control which implements the financial policies adopted by the board

- The Company’s risk management and internal compliance and control system is operating effectively in all material respects.

The board agrees with the views of the ASX on this matter and notes that due to its nature, internal control assurance from the CEO and CFO can only be reasonable rather than absolute. This is due to such factors as the need for judgment, the use of testing on a sample basis, the inherent limitations in internal control and because much of the evidence available is persuasive rather than conclusive and therefore is not and cannot be designed to detect all weaknesses in control procedures. In response to this, internal control review is required to be completed by the key management personnel of all significant business units in support of these written statements.

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5. Make Timely and Balanced Disclosure Oaks Hotels & Resorts Limited is committed to complying with the continuous disclosure requirements of the Corporations Act and Listing rules and will immediately disclose to the public any information that a reasonable person will expect to have a material effect on the value of its shares.

6. Respect Rights of Shareholders

Communications to Shareholders The Board aims to ensure that Shareholders are informed of all major developments affecting the Company’s state of affairs. Information will be communicated to Shareholders through the annual report, annual general meetings, half yearly results announcements, ASX announcements and through the Company website, www.theoaksgroup.com.au. Auditor Communication The external auditor is requested to attend the annual general meeting of Oaks to answer shareholder questions concerning the audit of the annual report.

7. Recognise and Manage Risk

Risk Management

The Board acknowledges the Revised Supplementary Guidance to Principle 7 issued by the ASX in June 2009 and has continued its proactive approach to risk management. The identification and effective management of risk, including calculated risk taking is viewed as an essential part of the company’s approach to creating long-term shareholder value. In recognition of this, the board has established an Audit and Risk management committee. This committee determines the company’s risk profile and is responsible for overseeing and approving risk management strategies and policies, internal compliance and internal control. As part of its role the committee reviews the effectiveness of the Group’s risk management system annually. The Groups risk management system includes maintaining a documented business continuity and risk management framework that the Group uses to identify, rate, monitor and report on material business risks. Material business risk categories that are addressed by the Group’s risk management system include operations, compliance, information technology, financial, strategic and human resources risks. The Group’s risk management policy and risk management framework will be reviewed at least annually by the executive Management team, the Audit and Risk committee and the Board to review their effectiveness and to ensure their continued application and relevance.

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The executive management team has responsibility for implementing the risk management systems and internal controls within the Group. The management team is also integral to identifying the risks in the Group’s operations and activities. Monitoring of risks, risk management and compliance is undertaken by management and overseen by the Audit and Risk committee. The Group has in place a control environment to manage material risks to its operations, comprising the following elements:

• The Group operates within an annual budget approved by the Board and provides the Board with monthly reporting of performance against budget;

• Written delegations of authority with respect to authority limits for approvals of expenditure;

• Defined management responsibilities and organisational structure; • Offsite hosting of the Group’s information technology systems at a specialised high

level security facility to minimise the risk of intrusion and provide disaster recovery solutions.

Management has reported to the Board that the Group’s management of its material business risks was effective during the reporting period.

8. Remunerate Fairly and Responsibly

Remuneration Committee The Board delegates responsibility for remuneration practices to the Nomination and Remuneration Committee. The main function of the committee is ensuring that Directors and management are remunerated fairly, and for overseeing the remuneration and human resources policies and practices of the Company. Remuneration Policies & Practices

As stated above, the Nomination and Remuneration Committee are charged with ensuring that the Group has appropriate remuneration policies designed to meet the needs of the Group and to enhance corporate and individual performance. The board remuneration policy is to ensure remuneration packages properly reflect the person’s duties, responsibilities and performance, and are competitive in attracting, retaining and motivating people of the highest quality.

Employees, including the Managing Director and specified executives, may receive bonuses based on the achievement of specific goals. More detail on the Group’s remuneration practices can be found on pages 31 to 39.

Non-executive Directors do not receive any retirement benefits other than statutory superannuation.

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The Group has a formal process for reviewing the performance of the Managing Director and each member of the Executive Management Team. During the reporting period the Managing Director’s performance was reviewed by the Nomination and Remuneration Committee against performance measures relating to the Groups performance in the prior reporting period. During the reporting period the performance of each executive and key management person was individually reviewed by the Managing Director against defined performance measures relating to the prior reporting period.

As part of the terms and conditions of employment, the Company prohibits executives from entering into arrangements to protect the value of unvested long term incentives awards. This includes entering into contracts to hedge their exposure to options or shares granted as part of their remuneration package. Adherence to this policy is monitored on an annual basis and involves a review of each key management person.

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Consolidated Income Statement

For the year ended 30 June 2010 Notes 2010 $’000

2009 $’000

Continuing operations

Revenue 2 124,261 120,870

Other income 2 1,533 6,124

Employee benefits expense 3 (30,168) (30,301)

Depreciation and amortisation 3 (9,685) (8,820)

Finance costs 3 (7,579) (10,317)

Other operating expenses 3 (70,352) (63,522)

Total expenses (117,784) (112,960)

Profit from continuing operations before income tax 8,010 14,034

Income tax (expense) / benefit 4(a) (4,108) (4,281)

Profit from continuing operations after income tax 3,902 9,753

Earnings per share for profit from continuing opera tions

attributable to the ordinary equity holders of the company

(cents per share)

5

- basic earnings per share 2.52 6.34

- diluted earnings per share 2.47 6.20

The accompanying notes form part of these financial statements

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Consolidated Statement of Comprehensive Income For the year ended 30 June 2010 Notes 2010

$’000 2009

$’000

Profit/(Loss) for the period 3,902 9,753

Currency translation differences (864) (293)

Other comprehensive income/(loss) for the period, n et of tax (864) (293)

Total comprehensive income/(loss) for the period, n et of tax 3,038 9,460

.

The accompanying notes form part of these financial statements

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Consolidated Statement of Financial Position As at 30 June 2010 Notes 2010

$’000 2009

$’000

Current Assets

Cash and cash equivalents 7(a) 1,431 3,938

Trade and other receivables 8 19,843 24,764

Inventories 9 1,041 1,217

Other current assets 10 2,172 2,898

Total Current Assets 24,487 32,817

Non-Current Assets

Receivables 11 706 1,411

Property, plant and equipment 13 58,277 62,380

Investment properties 14 1,802 1,802

Intangible assets 15 92,747 93,085

Deferred income tax assets 4(c) 2,315 1,557

Total Non-current assets 155,847 160,235

Total Assets 180,334 193,052

Current Liabilities

Trade and other payables 16 13,963 15,588

Income tax payable 3,456 1,390

Interest-bearing loans and borrowings 17 78,876 10,078

Provisions 18 2,728 1,953

Derivative Financial Instruments 19 420 1,965

Total current liabilities 99,443 30,974

Non-Current Liabilities

Interest-bearing loans and borrowings 20 9,460 86,665

Provisions 21 660 506

Total Non-Current Liabilities 10,120 87,171

Total Liabilities 109,563 118,145

Net Assets 70,771 74,907

Equity

Contributed equity 22 65,632 65,009

Reserves 23 (1,523) (737)

Retained earnings 23 6,662 10,635

Total equity 70,771 74,907

The accompanying notes form part of these financial statements

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Consolidated Statement of Cash Flows For the year ended 30 June 2010

Notes 2010 $’000

2009 $’000

Cash flow from Operating Activities

Receipts from customers 121,300 120,385

Payments to suppliers and employees (101,920) (88,582)

Interest received 215 80

Finance/borrowing costs (8,759) (8,450)

Other income receipts 1,874 984

Income tax paid (2,722) (7,367)

Net Cash flows from Operating Activities 7(c) 9,988 17,050

Cash Flows from Investing Activities

Proceeds from sale of property, plant and equipment 4,450 283

Payments for deposits on management letting rights (16) (440)

Payments for property, plant and equipment (8,839) (10,950)

Payments for investment properties - -

Payment for management letting rights (958) (10,946)

Payments for other intangible assets (223) (833)

Proceeds from disposal of subsidiaries 1,157 -

Refund of bonds - 52

Proceeds from vendor – tax pre restructure - 31

Costs incurred to sell management letting rights (321) (472)

Vendor finance – sale of MLR’s 380 (510)

Payment for rescission of sale contract - (500)

(Payments for) refunds of security deposits (47) (530)

Proceeds from sale of management letting rights 7,897 8,531

Net Cash Flows from Investing Activities 3,480 (16,284)

Cash flows from Financing Activities

Dividends paid (7,282) (11,296)

Proceeds from borrowings 7,131 19,002

Repayments of borrowings (16,002) (14,380)

Management share loans repaid 178 87

Share issue transaction costs - (3)

Net Cash Flows from Financing Activities (15,975) (6,590)

Net increase/(decrease) in cash held (2,507) (5,824)

Cash and cash equivalents at the beginning of period 3,938 9,762

Cash and cash equivalents at end of period 1,431 3,938

The accompanying notes form part of these financial statements

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Statement of Changes in Equity For the year ended 30 June 2010

Notes Issued Capital

$’000

Share based

Payment Reserve

$’000

Foreign Currency

Translation Reserve

$’000

Retained Earnings

$’000

Total

$’000

CONSOLIDATED

Balance at 1 July 2009 65,009 1,071 (1,808) 10,635 74,907

Profit/(Loss) for the period - - - 3,902 3,902

Other comprehensive income/(loss) - - (716) (148) (864)

Total comprehensive income/(loss) - - (716) 3,754 3,038

Issue of share capital under dividend reinvestment plan 445 - - - 445

Repayment of employee management share loans 178 - - - 178

Transaction costs on share issue, net of tax - - - - -

Cost of share based payments- management share loan plan - (70) - - (70)

Cost of options issued to directors - - - - -

Equity based dividends - - - (7,727) (7,727)

Balance at 30 June 2010 65,632 1,001 (2,524) 6,662 70,771

For the year ended 30 June 2009

Notes Issued Capital

$’000

Share based

Payment Reserve

$’000

Foreign Currency

Translation Reserve

$’000

Retained Earnings

$’000

Total

$’000

CONSOLIDATED

Balance at 1 July 2008 64,684 864 (1,518) 12,422 76,452

Profit/(Loss) for the period

- - - 9,753 9,753

Other comprehensive income/(loss) - - (290) (3) (293)

Total comprehensive income/(loss) - - (290) 9,750 9,460

Issue of share capital under the dividend reinvestment plan 241 - - - 241

Repayment of Management Share Loans 87 - - - 87

Transaction costs on share issue, net of DTA (3) - - - (3)

Cost of share based payments- management share loan plan - 202 - - 202

Cost of options issued to directors - 5 - - 5

Equity based dividends - - - (11,537) (11,537)

Balance at 30 June 2009 65,009 1,071 (1,808) 10,635 74,907

The Group only has one class of issued capital (refer Note 22)

The accompanying notes form part of these financial statements

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2010

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Oaks Hotels & Resorts Limited (the ‘Company’) is a company limited by shares, incorporated and domiciled in Australia and whose shares are publicly traded on the Australian Securities Exchange. A description of the nature of the Company’s operations and its principal activities is included in the review of operations and in the directors’ report, both of which are not part of this financial report. The consolidated financial report of the Company for the year ended 30 June 2010 comprises the Company and its subsidiaries (together referred to as the ‘consolidated entity’ or ‘Group’). The financial report was authorised for issue in accordance with a resolution of the directors on 30 September 2010. (a) Statement of compliance This financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001, applicable Australian Accounting Standards and other mandatory professional reporting requirements. International Financial Reporting Standards (‘IFRSs’) form the basis of Australian Accounting Standards and for the purpose of the report are called Australian Accounting Standards (‘AASs’) to distinguish from previous Australian GAAP. The financial report of the consolidated entity also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. (b) Current Net Asset Deficiency and Obligations u nder Finance Facilities As described in Note 25 the Group’s debt matures on 30 July 2010 and therefore has been classified as a current liability. As a result, current liabilities exceed current assets as at 30 June 2010 by an amount of $74,955,877. On 29 July 2010 the Directors confirmed the extension of the Group’s banking facility for a further 12 months. As described in Note 31(a), the Group has certain obligations under the extended arrangements. These include the requirement to meet certain covenants, provision of cash cover, and debt reduction through the raising of capital. The directors are confident in being able to meet these obligations or being able to agree some form of accommodation from its bankers. In the event these obligations are not met, the debts would become due and payable and the support of its bankers would be required for the Group to continue as a going concern to pay its debts as and when due. Based on the progress made to date in meeting the obligations to the banks as described in Note 31(a), the directors are confident that the obligations to the banks will be met. Accordingly no adjustments have been made relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern. (c) Basis of preparation The financial report is presented in Australian dollars. All amounts are rounded to the nearest thousand dollars ($’000) under ASIC Class Order 98/0100. The Company is an entity to which the class order applies. The financial report is prepared on a historical cost basis, except for investment properties which are stated at cost less any impairment losses.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (d) Basis of consolidation The consolidated financial statements comprise the financial statements of Oaks Hotels & Resorts Limited and its subsidiaries as at 30 June 2010 (‘the Group’). The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered or the transaction provides evidence of the impairment of the transferred asset. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for that part of the reporting period during which the Company has control. Investments in subsidiaries are recorded at cost less any impairment losses in the parent entity. Business combinations involving entities under common control are accounted for by applying the carry-over method of accounting in the consolidated financial statements. Under the carry-over method, the acquirer accounts for the acquisition from the date of obtaining control. The assets and liabilities of the acquired entity are recognised at their pre-existing carrying amounts (adjusted where appropriate to ensure compliance with AAS). Any adjustments to deferred tax balances as a result of the business combination are recognised as part of the accounting for the business combination. Where net liabilities are acquired, based on the pre-existing carrying amounts of assets acquired (including adjustments to deferred tax balances), the amount of the net liabilities is charged to retained earnings as a distribution to vendors. Business combinations that do not involve entities under common control are accounted for by applying the purchase method. The identifiable assets, liabilities and contingent liabilities acquired are recognised at their fair values at the acquisition date. Acquisition related costs are expensed as incurred. (e) Foreign currency translation The Australian dollar (AUD) is both the functional and presentation currency of the Company and its Australian subsidiaries. Transactions in foreign currencies of entities within the Group are converted to local currency at the rate of exchange ruling at the date of the transaction. Foreign currency monetary items that are outstanding at the reporting date are translated using the spot rate at the balance sheet date. All resulting exchange differences arising on settlement or restatement are recognised as revenues and expenses for the financial year. As at the reporting date, the assets and liabilities of any overseas subsidiaries are translated into the presentation currency of the Company at the rate of exchange prevailing at the balance sheet date. The income statements of overseas subsidiaries are translated at the weighted average exchange rate for the year. The exchange differences arising on the retranslation are taken directly to a separate component of equity.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (e) Foreign currency translation (Cont) On disposal of a foreign operation, the cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss. Tax charges and credits attributable to exchange differences on those disposals are also recognised in equity. (f) Revenue Services & goods Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Specifically, in the accommodation and management rights industry within which the entity operates, income arising from accommodation rentals is not recognised until the rental period is commenced at which time it is brought to account over the rental period on a straight line basis. The fixed portion of management rights revenue is recognised on a pro rata basis over the course of the management rights agreement. The variable portion of income arising from management rights is recognised as it is earned through either the sale of goods as they are supplied or through the provision of services as they are performed. Revenue from the sale of goods is recognised when all significant risks and rewards of ownership have been transferred to the buyer. In most cases this coincides with the transfer of legal title or the passing of possession to the buyer. Dividend revenue Dividend revenue is recognised when the right to receive payment is established. Interest revenue Interest revenue is recognised as the interest accrues using the effective interest method. It includes the amortisation of any discount or premium. (g) Borrowing costs Borrowing costs are recognised as an expense when incurred, except as they relate to the acquisition of qualifying assets as defined under AASB123. (h) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and on hand and short-term deposits with an original maturity of three (3) months or less. For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (i) Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method less any allowance for uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that collection of the full amount is no longer probable. Financial difficulties of the debtor and default payments are considered objective evidence of impairment. Bad debts are written off when assessed to be irrecoverable. (j) Inventories Inventories are valued at the lower of cost and net realisable value. Inventory cost includes purchasing costs and other costs (excluding storage) incurred in bringing the inventories to their location and condition at balance date. Costs have been assigned to inventory quantities at balance date using the first-in first-out (FIFO) basis. Net realisable value is the estimated selling price in the ordinary course of business less estimated selling expenses. (k) Property, plant and equipment Property, plant and equipment, including buildings, are stated at cost less accumulated depreciation and impairment losses. The costs of improvements to property are recognised as separate assets at cost only when it is probable that future economic benefits associated with the item will flow to the Group and also that the cost of the improvement can be reliably measured. All other costs are recognised in the income statement as an expense when incurred. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised. (l) Depreciation Land is not depreciated. Depreciation on buildings is calculated on a straight line basis over forty (40) years which is the expected useful life of buildings over which the Group has management rights as assessed by the directors.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (l) Depreciation (Cont) Depreciation on other items of property, plant and equipment is calculated on a straight line basis over a range of years between 2.5 and 40 years depending on the expected useful life of each item. The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. (m) Investment properties Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance date. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year of retirement of disposal. (n) Impairment The carrying value of the Group’s non-current assets, other than deferred tax assets are assessed at each balance date to determine whether there is any indication of impairment whereby the carrying amount of an asset exceeds its recoverable amount. In the event that an asset does not generate cash inflows that are largely independent of other assets or groups of assets, the asset is tested for impairment as part of the cash generating unit to which it belongs. Cash generating units are groups of assets which work together to support cash flows. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the carrying amount of an individual asset or a cash generating unit is found to be impaired at balance date, the asset or cash generating unit is written down to its recoverable amount and the loss is recognised in the income statement. At each reporting date an assessment is also made as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. A previously recognised impairment loss is only reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised, in which case the carrying amount of the asset is increased. The new increased carrying amount cannot exceed the carrying amount that would have been determined had no impairment loss been previously recognised. The reversal is recognised in the profit and loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (o) Intangible asset – Management letting rights Management letting rights (‘MLRs’) allow the Group to derive its core revenue. MLRs are recognised at cost less any accumulated amortisation and any accumulated impairment losses. The cost of the rights is amortised over the life of the building with which it is associated on the basis that the useful life of the rights will equate to the period over which the building will be used for its current purpose. The directors have assessed that the buildings over which the Group has management letting rights have a finite useful life not less than forty (40) years. The expense is taken to the income statement through the depreciation and amortisation line item. MLRs are not revalued in the accounts as they are not traded in an active market. The amortisation period and amortisation method are reviewed at each balance date. (p) Intangible asset – Goodwill Goodwill on acquisition is initially measured at cost. It represents the excess of the cost of a business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is measured by assessing the recoverable amount of the cash generating unit to which the goodwill relates and where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised. Such losses are not subsequently reversed. Goodwill is not subject to amortisation. (q) Intangible asset – Intellectual property Intellectual property is measured at purchased cost and represents ownership rights of the systems used by the Group to efficiently manage and operate its MLR portfolio. Intellectual property is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is measured by assessing the recoverable amount of the cash generating unit to which the intellectual property relates and where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised. Such losses are not subsequently reversed. Intellectual property is considered to have an indefinite life and is therefore not subject to amortisation. (r) Intangible asset – Purchased software Software is stated at historical cost less accumulated amortisation and any accumulated impairment losses. Software is amortised over 30 months and tested for impairment whenever there is an indication that the software may be impaired.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (s) Leases Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Where the lessor retains substantially all the risks and benefits incidental to ownership of the leased item, the lease is classified as an operating lease. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term or on a systematic basis more representative of the time pattern of the user’s benefit. (t) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability. (u) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to balance date. These benefits include wages and salaries, annual leave, sick leave, long service leave, bonuses, superannuation and equity based benefit schemes. Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee benefits expected to be settled within twelve (12) months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled and these amounts are recognised as an expense in the income statement. Employee benefit liabilities which are payable more than twelve (12) months after balance date are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the balance date. In determining the present value of future cash outflows, the market yield at balance date on national government bonds which have terms to maturity approximating the terms of the related liability are used. Employee bonuses are recognised as a liability (if unpaid at the balance sheet date) and an expense when contractual or constructive obligations to pay such bonuses arise as a result of past events and where the employee has achieved agreed performance criteria.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (u) Employee benefits (Cont) Contributions are made to employees’ superannuation funds in line with statutory requirements in Australia and are expensed in the income statement as incurred. The Group does not have any defined benefit superannuation schemes for employees and/or directors. There are also equity based benefit schemes for employees (including senior executives and directors) whereby employees receive compensation in the form of shares or rights to shares. There are currently four plans in place to provide these benefits; the non-executive directors’ option plan, the management share loan plan, the general employees’ share plan and the non-executive directors’ share plan. The cost of these equity-settled transactions with employees and directors is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a Black Scholes model, further details of which are provided in Note 28. In valuing equity-settled transactions, no account is taken of any performance conditions other than market based conditions, if applicable, linked to the price of the shares of the Company. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period). The cumulative expense recognised at each reporting date until vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest except for awards where vesting is only conditional upon a market condition. If the terms of an equity-settled award are modified, an additional expense is recognised where the modification increases the total fair value of the share based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation and any expense not yet recognised for the award is recognised immediately. In the event that the cancelled award is replaced with a substitute award, it is treated on the same basis as an award modification. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. (v) Trade and other payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the reporting period and which are unpaid. They arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (w) Interest bearing loans and borrowings Interest bearing loans and borrowings are initially recognised at fair value net of directly attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised. Interest bearing loans and borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve (12) months after the balance sheet date. (x) Goods and services tax Revenue, expenses and assets are generally recognised net of the amount of goods and services tax (‘GST’) except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of an asset or as part of an expense. Receivables and payables are stated with the amount of GST included. The net amount of GST owing to or owed from the taxation authority is included as either a current liability or a current asset on the balance sheet. The cash flow statement is prepared on a gross basis with the GST component (recoverable or payable) of investing and financing activities being classified as operating cash flows. (y) Income tax Current income tax expense or revenue for the period is the tax payable on the current period’s taxable income adjusted by changes in deferred tax assets and liabilities and to changes in unused tax losses. Current tax is measured using tax rates enacted for each taxation jurisdiction at balance date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset

or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the taxable temporary difference is associated with investments in subsidiaries and the

timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from

the initial recognition an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (y) Income tax (Cont) • when the deductible taxable temporary difference is associated with investments in subsidiaries,

in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilsed.

The carrying amounts of deferred income tax assets is reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted at the balance sheet date. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. The Company and its Australian subsidiaries have formed a tax-consolidated group with effect from 22 December 2005 and therefore will be taxed as a single entity from that date with the Company as the head entity. Any current tax assets or liabilities and deferred tax assets arising from unused tax losses are assumed by the head entity and are recognised as amounts payable/receivable to/from other entities in the tax-consolidated group. Any difference between these amounts is recognised by the Company as an equity contribution or distribution. The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability are recognised by the head entity only. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Members of the tax-consolidated group have entered into a tax funding agreement. The stand alone taxpayer approach has been adopted by the group. (z) Segment reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses whose operating results are regularly reviewed by the entity’s chief operating decision maker, to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (z) Segment reporting (Cont) Operating segments that meet the quantitative criteria as prescribed in AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. (aa) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (ab) Earnings per share Basic earnings per share is calculated as the net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (ac) Significant accounting estimates, assumptions and judgments The preparation of financial statements in conformity with AAS requires the use of assumptions and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and related disclosures at the date of the financial statements. These estimates are based on reasonable knowledge of current events and actions that the Group may undertake in the future. However, actual results could differ from those estimates. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are: • Equity-based payment transactions with employees are measured by reference to the fair value

of the equity instruments at the date at which they are granted. Fair value is determined by an external valuer. The expense reported each period is based on the directors estimate of the number of equity instruments that will ultimately vest with recipients.

• Impairment of assets. In the process of testing for impairment of assets which is carried out at

least annually in accordance with the Group’s impairment policy, management is required to determine value in use calculations which require the use of assumptions and estimations which are forward looking.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 (ac) Significant accounting estimates, assumptions and judgments (Cont) In the process of applying the Group’s accounting policies, management is also required to make judgements which may have a significant effect on amounts recognised in the financial statements. In particular, management has determined that management letting rights should be amortised over forty years when the life of most management rights agreements is significantly less than forty years on the basis of the legal, contractual and other rights associated with the management letting rights. Management has determined that the rights should be amortised over the estimated life of the buildings to which they pertain. The estimated life of these buildings has been determined to be 40 years. Management has also applied significant judgement in accounting for the arrangement with the building owners at Liwa Heights in Dubai. Because of the disputed nature of this arrangement, judgement has been applied in accounting for rent and management letting rights associated with this building. Refer Note 26 for more information. (ad) Derivative financial instruments The group uses derivative financial instruments (particularly forward currency contracts and interest rate swaps) to hedge its risk associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and liabilities when their fair value is negative. Any gains or losses arising from changes in their fair value of derivatives are taken directly to the income statement for the year. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments. During the year an interest rate swap of $20,000,000 expired leaving the Group with only one remaining interest rate swap in place as at 30 June 2010 (refer note 34). The interest rate swaps were entered into to minimise the Group’s exposure to the fluctuations in interest rates. Any gain or loss on the fair value of these instruments has been included in the income statement.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

2. REVENUES

Sales revenue

Consolidated

2010 $’000

2009 $’000

Service charges 50,048 52,445

Letting fees 45,368 42,868

Ancillary guest services 11,147 10,603

Food and beverage sales 4,935 4,795

Caretaking fees 5,483 6,007

Refurbishment revenue 3,671 702

Other property income 3,609 3,450

Total Sales Revenue 124,261 120,870

Other Income

Unrealised gain on investment properties - -

Consultancy and operation support income - 60

Interest Income 216 80

Sale of non-current assets 29 20

Profit/(Loss) on sale of MLR’s and associated non-current assets (515) 5,040

Profit/(Loss) on sale of investment in subsidiaries (71) -

Sundry 1,874 924

Total Other Income 1,533 6,124

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

3. EXPENSES

Consolidated

2010 $’000

2009 $’000

Profit before income tax includes the following spe cific expenses:

Depreciation of non-current assets

Freehold land and buildings (93) (155)

Leasehold improvements (61) (55)

Plant and equipment (5,049) (4,409)

Total depreciation of non-current assets (5,203) (4,619)

Amortisation of non-current assets

Management letting rights (3,799) (3,218)

Deferred software (683) (983)

Total amortisation (4,482) (4,201)

Total depreciation and amortisation (9,685) (8,820)

Finance Costs

Interest and charges on bank loans (6,474) (6,446)

Amortisation of borrowing costs (1,110) (301)

Mark to Market of Interest Rate Swap 1,544 (1,965)

Finance charges on hire purchase (1,539) (1,605)

Total finance costs (historical cost basis) (7,579) (10,317)

Less interest capitalised to qualifying assets - -

Total finance costs expensed (7,579) (10,317)

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

3. EXPENSES (Cont)

Consolidated

2010 $’000

2009 $’000

Employee benefits expense

Wages, salaries and bonuses (25,111) (25,078)

Workers compensation costs (408) (312)

Leave provision increases (2,240) (2,206)

Employer superannuation contributions (2,262) (2,210)

Termination benefits (218) (288)

Share-based payments expense 71 (207)

Total employee benefits expensed (30,168) (30,301)

Other Operating Expenses

Cleaning expense (17,503) (18,369)

Operating lease rentals (19,657) (13,576)

Ancillary guest service expense (6,842) (6,395)

Linen expense (4,629) (4,918)

Refurbishment costs (2,675) (370)

Cost of inventories recognised as an expense (2,952) (3,088)

Marketing expenses (2,511) (3,237)

Repairs and maintenance (859) (951)

Payroll tax (1,486) (1,371)

Body Corporate fees (338) (400)

IT hardware and software maintenance (501) (385)

Bad debt expense (348) (670)

Net foreign currency loss/(gain) (1) (2)

Legal fees (1,882) (854)

Air Conditioning Chilled Water (889) (928)

Other expenses (7,279) (8,008)

Total Other Operating Expenses (70,352) (63,522)

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

4. INCOME TAX

Consolidated 2010

$’000 2009

$’000

(a) Income tax expense

Current tax 3,350 4,374

Deferred tax 758 (93)

Income tax reported in the income statement 4,108 4,281

Consolidated

2010 $’000

2009 $’000

(b) Reconciliation of tax expense with notional tax calculation

Accounting profit before tax 8,010 14,034

Income tax at the applicable statutory rate of 30% 2,403 4,210

Difference in overseas tax rates (92) (1)

Adjustment for non-taxable foreign (income)/losses 1,040 (322)

Prior year tax adjustments recognised 523 241

Tax consolidation inventory adjustment - -

Entertainment and employee benefits (15) 68

Foreign Currency Gain 123 85

Mark to Market Fair Value Movement on Interest Rate Swaps 126 -

Fully franked dividend from controlled entities - -

Income tax expense / (benefit) 4,108 4,281

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

4. INCOME TAX (Cont)

(c) Deferred income tax

Deferred income tax at 30 June 2010 relates to the following:

Balance Sheet Income Statement Equity

Consolidated 2010 $’000

2009 $’000

2010 $’000

2009 $’000

2010 $’000

2009 $’000

Deferred tax liabilities

Receivables not assessable current year 1,497 1,910 413 (281) - -

Accelerated depreciation for tax purposes 370 372 4 123 - -

Investment property revaluations - - - (155) - -

Borrowing costs capitalised (11) 42 53 (18) - -

Prepayments 20 28 8 (13) - -

Gross deferred tax liabilities 1,876 2,352

Deferred tax assets

Accruals 11 7 3 10 - -

Provision for employee entitlements 623 618 5 (120) - -

Amortisation of MLR’s held for use and sale 3,199 2,520 679 (4) - -

Share issue costs 93 357 (264) - - 269

Section 40-880 deductions 7 11 (4) (11) - -

Tax losses 115 262 (147) (1) - -

Provision for doubtful debts 50 29 20 (24) - -

Accelerated depreciation for accounting purposes

93 104 (12) 401 - -

Gross deferred tax assets 4,191 3,908

Deferred tax income/expense 758 (93)

Deferred tax recognised in equity - 269

Net deferred tax assets 2,315 1,557

At 30 June 2010, there is no recognised or unrecognised deferred income tax liability that would be payable on the unremitted earnings of certain of Group’s subsidiaries, as the Group has no liability for additional taxation should such amounts be remitted.

(d) Tax consolidation Effective 22 December 2005, for the purposes of income taxation, the Company and its 100% owned subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement which provides for the allocation of income tax liabilities between the entities should the head entity default on its tax obligations. At balance date, the directors consider this possibility to be remote. The head entity of the tax consolidated group is Oaks Hotels & Resorts Limited. Refer to Note 1(y).

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

4. INCOME TAX (Cont) Consolidated (e) Unrecognised temporary differences 2010

$’000 2009

$’000

Temporary differences relating to investments in subsidiaries for which deferred tax liabilities or assets have not been recognised

Foreign currency translation (2,524) (1,808)

(2,524) (1,808)

5. EARNINGS PER SHARE 2010 earnings per share is based on the weighted average shares on issue from 1 July 2009 to 30 June 2010.

Consolidated

2010 Consolidated

2009 (a) Earnings per share based on weighted average sh ares on issue

Basic earnings per share Profit attributable to ordinary equity holders of the company (cents per share)

2.52 6.34

Diluted earnings per share Profit attributable to ordinary equity holders of the company (cents per share)

2.47 6.20

(b) Earnings used in calculating earnings per share Basic earnings per share $’000 3,902 9,753 Diluted earnings per share $’000

3,902 9,753

(c) Weighted average number of shares used as a den ominator 2010 2009 Weighted average shares on issue Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share

154,891,754 153,951,545

Effect of dilution: Management Share Loans 2,651,287 2,914,953 Non Executive Director Option Plan 350,000 350,000 Weighted average number of ordinary shares and pote ntial ordinary shares used as the denominator in calculating dilut ed earnings per share

157,893,041 157,216,498

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

5. EARNINGS PER SHARE (Cont) (d) Information concerning classes of securities All issued ordinary shares are fully paid.

Ordinary shares and options held by employees and/or directors under any employee, management or director’s share plans are subject to certain restrictions with respect to how the shares can be dealt with over time.

Shares issued under the General Employer Share Plan have been included in calculations of both basic earnings per share and diluted earnings per share.

Options issued under the Non-executive Director Options Plan and shares issued under the Management Loan Share Plan have been included in the calculation of diluted earnings per share but not in the calculation of basic earnings per share.

6. DIVIDENDS Consolidated

2010 $’000

2009 $’000

(a) Dividends Paid A final fully franked dividend for 2009 of 3.0 cents per share was paid on 18 September 2009. (2008: 4.5 cents per share was paid on 19 September 2008) 4,627 6,920 An interim fully franked dividend of 2.0 cents per share was paid on 24 March 2010 (2009: 3.0 cents per share was paid on 3 April 2009) 3,101 4,617 (b) Dividends Proposed No final dividend has been proposed for payment in respect to the year end 30 June 2010. (2009 – 3.0 cents per share was paid on 18 September 2009)

- 4,627

Parent

2010 $’000

2009 $’000

(c) Franking credits The franked portions of the dividends paid and dividends proposed above have been/will be franked out of franking credits arising from the payment of income tax for the period ended 30 June 2010. Franking credits available for subsequent financial years based on a tax rate of 30% are: Franking account balance at the end of the financial period 2,218 2,808 Franking credits that will arise from the payment of income tax payable at the end of the financial period 2,810 1,887 Impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period

- (1,983)

5,028 2,712

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

7. CASH AND CASH EQUIVALENTS (CURRENT ASSET)

Consolidated

2010 $’000

2009 $’000

(a) Cash and cash equivalents

Cash on hand 42 44

Cash at bank 1,389 3,894

1,431 3,938 Cash at bank earns interest at floating rates based on daily deposit rates. At balance date, the group had available $14.4 million of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. Refer to Note 25. (b) Reconciliation to Cash Flow Statement

For the purposes of the Cash Flow Statement, cash and cash equivalents at balance date comprise: Cash on hand 42 44 Cash at bank 1,389 3,894 1,431 3,938 (c) Reconciliation of net profit after income tax t o net cash inflow from operating activities Profit for the year 3,902 9,753 Adjustments for: Depreciation, amortisation and impairment 9,684 8,820 Deferred borrowing costs 461 (97) Costs associated with ceased MLR acquisitions - - Employee share based payments (71) 207 Profit on sale of MLR’s and related assets 586 (6,112) Loss/(Profit) on sale of non-current assets (29) 1,053 Unrealised gain on investment properties - - Dividends received - - Changes in assets and liabilities Increase in Mark to Market adjustment – interest rate swap (1,544) 1,965 Increase in trade and other receivables (2,739) (668) Increase in inventories 177 (200) Increase in prepayments (260) (502) Decrease in Accrued Income 64 166 Increase (Decrease) in provisions 28 549 Increase in trade and other payables (1,611) 5,202 Increase (Decrease) in current tax liability 1,340 (3,086) Net Cash flow from operating activities 9,988 17,050

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

7. CASH AND CASH EQUIVALENTS (Cont) Consolidated

2010 $’000

2009 $’000

d) Non-cash financing and investing activities Issue of shares under General Employee Share Scheme (note 22) - - Dividend re-investment plan (note 22) 445 241 Acquisition of assets by means of hire purchases (note 13) 2,244 4,681

8. TRADE AND OTHER RECEIVABLES (CURRENT ASSET) Consolidated

2010 $’000

2009 $’000

Trade receivables 8,467 9,297 Receivable from property trust accounts 5,070 4,835 Vendor receivable 1,834 1,456 MLR sale proceeds receivable - 7,656 Other current receivables 4,637 1,615 Provision for doubtful debts (165) (95)

19,843 24,764 Terms and conditions relating to the above financial instruments:

I. Trade receivables are non-interest bearing and are generally on 30 to 45 day terms.

II. Other receivables are non-interest bearing and are generally settled in 30 days. III. The vendor receivable amount comprises the current portion of the vendor finance amount as approved by the

Board, in respect to the sale of four of the groups management rights, the total of the vendor finance amount is to be repaid over the next two years. The vendor receivable amount was made on commercial terms and is subject to interest charges.

IV. Loans to subsidiaries are non-interest bearing and represents the amount expected to be received during the next reporting period.

Receivables past due but not considered impaired are: Consolidated $2,212,471 (2009 : $1,651,216). The aging analysis of trade and other receivables past due but not impaired is as follows.

Consolidated Total 61-90 days 91+ days

2010 2,212,471 124,861 2,087,610

2009 1,651,216 200,162 1,451,054

Payment terms on these amounts have not been renegotiated; however action has been taken to ensure outstanding balances will be recovered. Each operating unit has been in contact with the relevant debtor and is satisfied that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of the receivables. Collateral is not held as security except for amounts relating to vendor receivables and MLR sale proceeds receivables.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

9. INVENTORIES (CURRENT ASSET) Consolidated

2010 $’000

2009 $’000

Apartment supplies 232 270 Food and beverage inventories 143 113 Uniforms 342 494 Refurbishment / furniture work in progress 324 340 Inventories at lower of cost and net realisable value 1,041 1,217

10. OTHER CURRENT ASSETS Consolidated

2010 $’000

2009 $’000

Prepayments 1,705 1,646

Bonds and security deposits 340 372

Deposits on MLR acquisitions 32 880

Other current asses 95 -

2,172 2,898

11. RECEIVABLES (NON-CURRENT) Consolidated

2010 $’000

2009 $’000

Vendor Receivables (i) 706 1,411

706 1,411 (i) The vendor receivable amount comprises the current portion of the vendor finance amount as approved by the Board, in respect to the sale of four of the groups management rights during the year ended 30 June 2009, the total of the vendor finance amount is to be paid in full by July 2011.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

12. INVESTMENTS IN SUBSIDARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1(d).

Footnote %Held %Held 2010 2009 The Company

Oaks Hotels & Resorts Limited

Controlled entities - incorporated in Australia

Boathouse Management Pty Ltd a 100 100

Calypso Plaza Management Pty Ltd a 100 100

Concierge Apartments Australia Pty Ltd a 100 100

Goldsborough Management Pty Ltd a 100 100

IMPROPERTY Pty Ltd a 100 100

Oaks Hotels & Resorts (Qld) Pty Ltd a 100 100

Oaks Hotels & Resorts (NSW) Pty Ltd a 100 100

Oaks Hotels & Resorts (NSW) No. 1 Pty Ltd a 100 100

Oaks Hotels & Resorts (NSW) No. 2 Pty Ltd a 100 100

Oaks Hotels & Resorts (SA) Pty Ltd a 100 100

Oaks Hotels & Resorts (VIC) Pty Ltd a 100 100

Queensland Accommodation Corporation Pty Ltd a 100 100

Seaforth Management Pty Ltd a 100 100

183 on Kent Management Pty Ltd a 100 100

187 Kent Pty Ltd a 100 100

361 Kent Pty Ltd a 100 100

Pacific Hotel Market Street Pty Ltd a 100 100

Pacific Blue Management Pty Ltd a 100 100

Queen Street Property Management Pty Ltd a 100 100

The Oaks Resort & Hotel Management Pty Ltd a 100 100

Furniture Services Australia Pty Ltd a 100 100

Brisbane Apartment Management Pty Ltd* a 100 100

Housekeepers Pty Ltd a 100 100

Controlled entities - incorporated in New Zealand

Oaks Hotels & Resorts NZ Limited b 100 100

187 Cashel Apartments Limited b 100 100

Cashel Management Limited b 100 100 Notes in relation to controlled entities above:

a Entities operate solely in Australia

b. Entities operate solely in New Zealand

* This Company was previously known as H&R Project Services Pty Ltd

On the 5 May 2010 Oaks disposed of its interest in 188 Hobson Street Limited, a New Zealand company which owned the management rights and associated assets of Oaks on Hobson, Auckland, New Zealand. A loss on disposal of $70,768 has been recognized in the income statement.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

13. PROPERTY, PLANT AND EQUIPMENT

(a) Reconciliation of carrying amounts at the begi nning and end of the period

Freehold Land and buildings

$’000

Leasehold Improvements

$’000

Plant & Equipment

$’000

Total $’000

Year ended 30 June 2010

At 1 July 2009 Net of accumulated depreciation & impairment

26,648 1,947 33,785 62,380

Additions 3,150 34 5,672 8,856

Reclassification of assets (2,754) - - (2,754)

Disposals (4,460) - (489) (4,949)

Depreciation (169) (61) (4,894) (5,124) Exchange Adjustment 41 - (173) (132)

Balance at 30 June 2010 (net of accumulated depreciation & impairment)

22,456

1,920

33,901

58,277

At 30 June 2010

Cost 22,726 2,356 48,761 73,843 Accumulated depreciation/impairment (270) (436) (14,860) (15,566)

Net carrying amount 22,456 1,920 33,901 58,277

Year ended 30 June 2009

At 1 July 2008 Net of accumulated depreciation & impairment

25,447 1,275 27,307 54,029

Additions 1,014 729 11,513 13,256

Transfers from investment properties - - - -

Reclassification of assets 2,273 - - 2,273

Disposals (1,902) - (1,342) (3,244)

Depreciation (126) (57) (2,851) (3,034) Exchange Adjustment (58) - (842) (900)

Balance at 30 June 2009 (net of accumulated depreciation & impairment)

26,648

1,947

33,785

62,380

At 30 June 2009

Cost 26,897 2,059 41,068 70,024 Accumulated depreciation/impairment (249) (112) (7,283) (7,644)

Net carrying amount 26,648 1,947 33,785 62,380

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

13. PROPERTY, PLANT AND EQUIPMENT (Cont)

Depreciation Rates

The useful life of the property, plant and equipment was estimated as follows for 2010:

Buildings 40 Years (2009 : 40 years) Plant and equipment 2.5 Years to 20 years (2009 : 2.5 to 20 years)

Impairment of Property, Plant and Equipment

The carrying value of buildings is assessed annually against independent valuations of buildings that are conducted on a 3 year cycle by accredited valuers.

Other

The carrying value of plant and equipment held under hire purchase contracts at 30 June 2010 is $18,652,052 (2009: $20,133,118 ). The assets under hire purchase contracts are pledged as security for the related hire purchase liability.

Buildings with a carrying value of $24,258,413 (2009: $26,647,648) are subject to a first charge to secure the Group’s bank loans (refer note 25).

14. INVESTMENT PROPERTIES

Consolidated

2010 $’000

2009 $’000

Apartment freehold, at valuation

Balance at beginning of period 1,802 2,402

Acquisitions - -

Disposals - (600)

Transfers to Property, plant and equipment - -

Revaluations - -

Balance at end of period 1,802 1,802

Apartment freehold represents managers units that were acquired with the associated management letting rights. These units are classified as investment properties where the unit is included in the letting pool and rental income is earned.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010 14. INVESTMENT PROPERTIES (Cont)

The carrying value of investment properties are assessed annually against independent valuations on a 3 year cycle by accredited valuers who specialise in valuing these types of investment properties. No valuations in respect to these investment properties were undertaken in respect to the year ended 30 June 2010. The fair value represents the amount at which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date of valuation, in accordance with Australian Valuation Standards. In determining fair value, a direct comparison approach is taken.

Gross rent received during the 2010 financial year in respect to these investment properties amounted to $252,869 with a net profit of $61,293 being contributed to the Group’s pre tax profit.

The apartment freehold is subject to first charge to secure the Group’s bank loans (refer note 25).

15. INTANGIBLE ASSETS

Consolidated

Notes 2010 $’000

2009 $’000

Management Letting Rights

Balance at beginning of period 96,603 98,092

Acquired during the period 5,943 9,996

Reclassifications (742) (2,054)

Disposed during the period (1,367) (9,431)

Management letting rights (at cost) 100,437 96,603

Accumulated amortisation (9,618) (5,913)

Balance at end of period 90,819 90,690

Intellectual Property

Balance at beginning of period 513 513

Acquired during the period - -

Balance at end of period 513 513

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

15. INTANGIBLE ASSETS (Cont)

Consolidated

Notes 2010 $’000

2009 $’000

Goodwill

Balance at beginning of period 953 953

Acquired during the period - -

Accumulated impairment - -

Balance at end of period 953 953

Deferred Software

Balance at beginning of period 3,338 2,581

Acquired during the period 202 814

Disposed during the period (6) (57)

Deferred Software (at cost) 3,534 3,338

Accumulated amortisation (3,072) (2,409)

Balance at end of period 462 929

92,747 93,085

Management letting rights (MLR’s) allow the Group to derive revenue from letting apartments in hotels and resorts. MLR’s are amortised on a straight line basis over the useful life of the buildings to which they attach, which has been assessed to be not in excess of 40 years. The remaining useful life of the MLR’s is approximately 35.5 years.

Intellectual property rights were purchased from Pointon Holdings Pty Ltd as part of the restructure of the Group. The intellectual property rights include all the know-how, formulae, processes, trade secrets, and quality assurance procedures embodied in computer data bases and software technology, technical information, safety information, research records, marketing information, and customer and supplier lists related to managing Oaks MLR business.

Goodwill is the excess of the cost of the acquisition of the Queensland Accommodation Corporation telemarketing business over the value of the assets acquired.

Software is amortised over 30 months on a straight line basis.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

15. INTANGIBLE ASSETS (Cont)

The accounting treatment for the Group’s intangible assets is set out in Note 1.

(a) Impairment testing of goodwill and intellectual property rights

The recoverable amount of goodwill has been determined based on a “value in use” calculation using cashflow projections and financial budgets for the telemarketing business operated by Queensland Accommodation Corporation. The cashflow projections and budgets are approved by senior management and cover a five year period. The pre tax discount rate applied to the cashflow projections is 13.48% (2009:13.54%).

The recoverable amount of the intellectual property rights is assessed based on a value in use calculation using cashflow projections and financial budgets for the company and considered in conjunction with the carrying value of all non-current assets. The cashflow projections and budgets are approved by senior management and cover a five year period The pre tax discount rate applied to the cashflow projections is 13.48% (2009:13.54%).

16. TRADE AND OTHER PAYABLES (CURRENT)

Consolidated

2010 $’000

2009 $’000

Trade payables 7,695 7,504

Trade accruals 3,645 3,792

Amounts payable on behalf of employees 1,065 824

Non-trade payables 291 260

Non-trade accruals 1,267 3,208

13,963 15,588

Terms and conditions relating to the above financial instruments:

(i) Trade and other payables are non-interest bearing and are normally settled up to 60 days

17. INTEREST-BEARING LOANS AND BORROWINGS (CURRENT) Consolidated

2010 $’000

2009 $’000

Bank loans (secured) 74,349 5,843

Borrowing Costs (685) -

Hire purchase (secured) (Note 26(c)) 5,212 4,235

78,876 10,078

The interest-bearing loans above constitute a portion of the financing facilities for the group. Details of these facilities are set out in Note 25.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

18. PROVISIONS (CURRENT)

Consolidated

2010 $’000

2009 $’000

Employee benefits 1,839 1,953

Rental guarantee payments 889 -

2,728 1,953 For movements and timing of provision refer Note 21.

19. DERIVATIVE FINANCIAL INSTRUMENTS

Consolidated

2010 $’000

2009 $’000

Interest Rate Swap 420 1,965

420 1,965

20. INTEREST-BEARING LOANS AND BORROWINGS (NON-CURR ENT)

Consolidated

2010 $’000

2009 $’000

Bank loans (secured) - 74,958 Borrowing Costs - (1,116) Hire purchase (secured) 9,460 12,823

9,460 86,665 The interest-bearing loans above constitute a portion of the finance facilities for the group. Details of these facilities are set out in Note 25.

21. PROVISIONS (NON-CURRENT)

Consolidated

2010 $’000

2009 $’000

Employee benefits 247 201

Furniture, fittings and equipment replacement reserve fund 413 305

660 506

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

21. PROVISIONS (NON-CURRENT) (Cont) Movements in each class of provision during the financial year, other than provisions relating to employee benefits are set out below. Consolidated

Provision for Rental Guarantee payments

Furniture, fittings and equipment replacement

reserve fund

2010 $’000

2009 $’000

2010 $’000

2009 $’000

Opening balance - - 305 194

Arising during the year 889 - 108 111

less: utilised - - - -

Closing balance 889 - 413 305

Furniture, fittings and equipment replacement reserve This provision forms part of the owner agreements in respect to several New Zealand properties and requires that 1.5% to up to 3% of Gross Accommodation Revenue be held in trust by Oaks and be applied towards the repair, maintenance and replacement of the owners fixtures, fittings and equipment and refurbishment of the premises, when in Oaks opinion refurbishment is required for the optimal operation of a Business. Provision for Rental Guarantee payments This provision is in respect to the acquisition of management letting rights for Altitude; this is the second tower of Oaks Precinct. This provision represents the developer guarantees to owners and the estimated losses resulting from the difference in expected revenue streams and guaranteed payments to owners. As a result of these initially anticipated losses the Developer agreed to sell Oaks the management letting rights and associated freehold for a purchase price of $Nil.

22. CONTRIBUTED EQUITY Consolidated

2010 ’000

2009 ’000

Ordinary shares issued and fully paid $ 65,632 65,009

Ordinary shares issued and fully paid, number 155,260 154,217

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

22. CONTRIBUTED EQUITY (Cont) Consolidated

Thousands $’000

Movement in ordinary shares on issue

Balance at 1 July 2008 153,782 64,684

Issued 19 September 2008 under the Dividend Reinvestment Plan 119 124

Repayment of management share loans - 87

Transaction costs on share issue net of DTA - (3)

Issued 3 April 2009 under the Dividend Reinvestment Plan 316 117

Balance at 30 June 2009 154,217 65,009

Issued 2 October 2009 under the Dividend Reinvestment Plan 832 353

Repayment of management share loans - 178

Issued 24 March 2010 under the Dividend Reinvestment Plan 211 92

Balance at 30 June 2010 155,260 65,632

(a) Ordinary Shares

There is only one class of ordinary shares offered by the parent entity but certain shares have been issued with restrictions as follows:

I. Shares issued and vested under the Management Loan Share Plan may be sold or transferred

only after the balance of the loan provided by the company to purchase the shares has been repaid as a result of the earlier of either the manager terminating employment with the group or the board approving an application to lift this restriction or the board determining that the restrictions will cease to apply. For accounting purposes, these shares are treated as options. (See Note 28).

II. Shares issued under the General Employee Share Plan may be sold or transferred only after 3

years has elapsed from date of issue or when the employee’s service is terminated, whichever is the earlier.

III. Shares acquired under the Non-executive Director Share Plan and acquired on-market are only

able to be sold or transferred as a result of the earlier of either the director ceasing to be a director or the ten year anniversary of the acquisition date or the board determining that the restrictions will cease to apply. There were 32,681 shares issued under this plan as at 30 June 2010.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

22. CONTRIBUTED EQUITY (Cont)

b) Options The company has a share based payment scheme under which options can be granted to certain non-executive directors. Each option is to subscribe for one Share and the exercise price of each option is $1.00. Options become exercisable in equal instalments over 3 years from date of issue. The options automatically lapse if they have not been exercised by the five year anniversary of the issue date. The board may determine to accelerate the vesting period in certain circumstances such as illness, death or change of effective control of the company. The options do not carry any dividend or voting rights. The options cannot be assigned or transferred without board consent. Shares issued on exercise of options rank equally with other ordinary shares but they can only be sold or transferred no earlier than 12 months from their issue date unless otherwise approved by the board and thereafter the earlier of the director ceasing to be a director of the company or the ten year anniversary of the date of issue or the board otherwise determining that the restrictions will cease to apply. Options issued under this plan are as follows: Date of Issue No. of Options 22 December 2005 350,000

c) Capital Management When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.

Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

During 2010, management paid dividends of $7,727,512 (2009: $11,537,233). The Groups dividend policy is to assess the payment of dividends based upon performance and return on investment to shareholders.

The group is not subject to any externally imposed capital requirements.

23. RESERVES AND RETAINED EARNINGS Consolidated

2010 $’000

2009 $’000

a. Balances at 30 June 2010

Share based payments reserve 1,001 1,071

Foreign currency translation reserve (2,524) (1,808)

Total reserves (1,523) (737)

Retained earnings 6,662 10,635

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

23. RESERVES AND RETAINED EARNINGS (Cont)

Consolidated

2010 $’000

2009 $’000

b. Movements during the reporting period Share based payments reserve

Balance beginning of period 1,071 864

Director option expense - 5

Management share loan plan expenses (70) 202

Balance at end of period 1,001 1,071

Foreign currency translation reserve

Balance beginning of period (1,808) (1,518)

Currency translation differences arising during the period (716) (290)

Balance at end of period (2,524) (1,808)

Retained earnings

Balance at beginning of period 10,635 12,422

Currency translation difference (148) (3)

Profit for the period 3,902 9,753

Equity based dividends (7,727) (11,537)

Distribution to vendor shareholders - -

Balance at end of period 6,662 10,635

c. Nature and purpose of reserves

(i) Share based payments reserve

The share based payments reserve is used to recognise the fair value of director options issued but not exercised and shares issued under the management share loan plan.

(ii) Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in note 1(e). The reserve is recognised in profit and loss when the net investment is disposed of.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

24. PARENT ENTITY FINANCIAL INFORMATION

The parent entity for the Group is Oaks Hotels & Resorts Limited. The individual financial statement for the parent entity shows the following aggregate amounts:

Parent Entity

2010 $’000

2009 $’000

Assets

Current Assets 2,937 43,943

Total Assets 244,421 272,299

Liabilities

Current liabilities 78,250 15,828

Total liabilities 87,904 101,922

Shareholders’ equity

Contributed Equity 163,115 162,491

Reserves 1,001 1,071

Retained Earnings (7,599) 6,815

Total Shareholders Equity 156,517 170,377

Profit/(Loss) for the year (6,684) 12,319

Total comprehensive income (6,684) 12,319

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

25. FINANCING FACILITIES AVAILABLE AND USED

Pursuant to Letters of Offer dated 20 January 2009 and 24th May 2010 provided by ANZ Banking Group, Sydney and National Australia Bank, Brisbane which were duly accepted and authorised by the economic entity, the following financing facilities are available to and used by the group at 30 June 2010:

a. Indemnity/Guarantee Facility

Amount $ 7,000,000 Termination Date Not before the Review Date Review Date 1 December 2010 Fees 2.00% of guaranteed amounts Amount of facility used 30/6/10 $586,951 Amount of facility unused 30/6/10 $6,413,049 b. Asset Finance Facility

Amount $ 17,950,000 Termination Date Not before the Review Date Review Date 1 December 2010 Interest rate Standard commercial rates Amount of facility used 30/6/10 $ 13,749,911 Amount of facility unused 30/6/10 $ 4,200,089

c. Intra Group Guarantee

Amount $ 2,200,000 Termination Date Not before the Review Date Review Date 1 December 2010 Fees 0.50% of guaranteed amounts Amount of facility used 30/6/10 $654,174 Amount of facility unused 30/6/10 $ 1,545,826

d. Standby Letter of Credit Facility

Amount $ 7,100,000 Termination Date Not before the Review Date Review Date 1 December 2010 Fees 2.00% of committed amounts Amount of facility used 30/6/10 $ 6,736,527 Amount of facility unused 30/6/10 $ 363,473

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

25. FINANCING FACILITIES AVAILABLE AND USED (Cont )

e. Progress Draw Facility - ANZ

Amount $ 38,188,125 Termination Date 30 July 2010 Review Date 1 December 2010 Interest rate Bank Bill Swap Reference Rate + 0.9% Fee 1.1% of facility limit Amount of facility used 30/6/10 $ 38,188,125 Amount of facility unused 30/6/10 - f. Variable Rate Fully Drawn Advance Facility - ANZ

Amount $ 5,892,983 Termination Date Not before the Review Date Review Date 1 December 2010 Interest rate Bank Bill Swap Reference Rate + 0.9% Fee 1.1% of facility limit Amount of facility used 30/6/10 $ 5,227,591 Amount of facility unused 30/6/10 $ 665,392

g. Progress Draw Facility - NAB

Amount $ 25,924,000 Termination Date 30 July 2010 Review Date 1 December 2010 Interest rate Bank Bill Swap Reference Rate + 0.9% Fee 1.1% of facility limit Amount of facility used 30/6/10 $ 25,690,000 Amount of facility unused 30/6/10 $ 234,000 h. Variable Rate Fully Drawn Advance Facility - NAB

Amount $ 10,000,000 Termination Date Not before the Review Date Review Date 1 December 2010 Interest rate Bank Bill Swap Reference Rate + 0.9% Fee 1.1% of facility limit Amount of facility used 30/6/10 $ 5,279,019 Amount of facility unused 30/6/10 $ 4,720,981

i. Overdraft Facility

Amount $ 1,500,000 Termination Date Not before the Review Date Review Date 1 December 2010 Interest rate Bank Bill Swap Reference Rate + 1.70% Fee 1.1% of facility limit recorded Amount of facility used 30/6/10 - Amount of facility unused 30/6/10 $ 1,500,000 Facilities expiring on 30 July 2010 have been classified as current liabilities.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

25. FINANCING FACILITIES AVAILABLE AND USED (Cont)

Total Facilities for the group as listed above: 2010 2009

Used 96,112,298 110,786,301

Unused 19,642,810 17,703,699

Available 115,755,108 128,490,000

As at 30 June 2010 the facilities are subject to the following financial covenants:

I. Consolidated interest cover must be equal to or better than 3.00:1 as at 30 June 2010.

II. Consolidated debt to EBITDA cover must be equal to or better than 3.60:1 at 30 June 2010.

The economic entity has given the following securities to the ANZ Banking Group and National Australia Bank:

I. company charges over all companies in the Oaks group;

II. mortgages over all real property owned by all companies in the Oaks group (refer Notes 13 & 14); and

III. cross guarantees and indemnity from all companies in the Oaks group.

The carrying amount of financial assets pledged as collateral for liabilities is $21.3 million (2009: $28.7 million).

Subsequent to balance date the Group finalised an extension to the Group’s financing facilities with Australia and New Zealand Bank (ANZ) and the National Australia Bank (NAB). Refer Note 31 for the details on the extension of these facilities.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

26. COMMITMENTS AND CONTINGENCIES Consolidated

2010 $’000

2009 $’000

(a) Capital commitments Estimated capital expenditure contracted for at reporting date, but not provided for, payable:

Property, plant and equipment

- within one year - -

- later than one year and not later than five years - -

- later than five years - -

- -

Management letting rights

- within one year 1,622 4,376

- later than one year and not later than five years - 1,622

- later than five years - -

1,622 5,998 (b) Operating lease commitments Aggregate amount of minimum lease payments contracted for at reporting date, but not provided for, and payable:

- within one year 13,365 15,420

- later than one year and not later than five years 45,677 46,127

- later than five years 22,997 34,688

82,039 96,235

(c) Hire purchase commitments The Group has hire purchase contracts for various items of furniture and equipment with a carrying value of $18,652,052 (2009 : $20,133,118). These hire purchase contracts have an average life of 4 to 5 years.

Aggregate future lease and hire purchase payments under finance leases together with the present value of the net minimum payments are as follows:

- within one year 6,323 5,765

- later than one year and not later than five years 10,416 14,447

- later than five years - -

Total finance lease/hire purchase commitments 16,739 20,212

Deduct future finance charges (2,098) (3,147)

Total lease liability 14,641 17,065

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

26. COMMITMENTS AND CONTINGENCIES (Cont)

Consolidated

2010 $’000

2009 $’000

(d) Commitments for the payment of salaries and other remuneration under long-term employment contracts in existence at the reporting date but not recognised as liabilities, payable:

- within one year 330 330

- later than one year and not later than five years - -

- later than five years - -

330 330

Contract in Dispute The company entered into an arrangement in the 2009 financial year to operate a property at Liwa Heights in Dubai, United Arab Emirates. This arrangement is the subject of a dispute and has been referred to an arbitration committee in Dubai, however the matter remains unresolved. As disclosed in Note 31, the property owner holds a letter of credit in the amount of 22,500,000 AED ($6,736,526). As a result, Oaks could be forced to fund this letter should it be called by the property owner. The directors are confident of a favourable outcome on the basis that the building has yet to be completed and progress to date in negotiations with the building owner. However, the matter is yet to be resolved and as such there is uncertainty surrounding the amount of rent to be expensed, if any, for the 2009 and 2010 financial years, and the carrying value and related amortisation of management rights that may be required under the arrangement. In the period since 30 June 2010, an agreement has been entered into for the sale of the rights to profits earned from the property and sale of furniture, fixtures and equipment at the property, refer Note 31 Events after Balance Date

27. UNCERTAINTY OF ACCOUNTANCY FOR MANAGEMENT LETTI NG RIGHTS INTANGIBLE ASSETS

The company has been notified by the Australian Securities & Investments Commission that it believes the company should amortise management letting rights intangible assets over a shorter period of time than is currently done. As described in Note 1(ac) Judgments and Estimates, the accounting for management rights intangible assets and related amortisation is judgmental. The matter has been referred to, and heard by, the Financial Reporting Panel (the “Panel”); however as at the date of this financial report, a finding has yet to be rendered. It is expected that the Panel will either confirm that the accounting treatment adopted by the company is appropriate or conclude they believe it is not appropriate and prescribe that it be changed. Due to the current status of Panel proceedings, the company is unable to conclude whether a change will be prescribed by the Panel, and whether, on receipt of an adverse finding, the company will accept the finding or pursue the matter through the courts. Accordingly, there is uncertainty as to what effect, if any, this matter might have on the company’s reported results and financial position.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

28. SHARE BASED REMUNERATION The company has a number of share based remuneration plans which apply to employees, management and non-executive directors. Some details relating to these plans are set out in Note 22 Contributed Equity. Details of share based remuneration as it specifically applies to directors and executives is set out in Note 29 Director and Executive Disclosures.

The plans current at balance date are as follows:

a. Options provided to non-executive directors

The company operates an option plan for non-executive directors under which the following options have been granted on 22 December 2005:

J Cowley 150,000 options P Barrow 100,000 options R Greenslade 100,000 options At 30 June 2010 all options had vested but none had been exercised. The exercise price of each option is $1.00. The options vest in equal instalments over 3 years and will lapse if not exercised by the five year anniversary of their issue date. The assessed fair value of $0.51 per option at grant date was determined using the Black Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected share price volatility, the expected dividend yield and the risk-free interest rate for the term of the option. The following table lists the inputs to the model used to value the options at the grant date: Market price of shares at grant date ($) 1.00 Expected volatility (%) 40.00 Risk free interest rate (%) 5.15 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.00 The expected volatility was determined by an independent valuer using the historical volatility of the company’s share price over the preceding 12 month period. The resulting expected volatility therefore reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

28. SHARE BASED REMUNERATION (Cont)

b. Options issued to non-executive directors

The following tables illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share options issued to non-executive directors during the year.

2010 No.

2010 WAEP

2009 No.

2009 WAEP

Outstanding at the beginning of the year 350,000 1.00 350,000 1.00

Granted during the year - - - -

Forfeited during the year - - - -

Exercised during the year - - - -

Expired during the year - - - -

Outstanding at the end of the year 350,000 1.00 350,000 1.00

Exercisable at the end of the year 350,000 1.0 350,000 1.00

c. Shares purchased and issued to employees under t he General Employees Share Plan Eligible employees may be invited by the board to participate in a share plan whereby they are entitled to purchase ordinary shares in the company at a discount to market or issue price. The shares rank equally with other ordinary shares as to voting rights and dividends but there are restrictions placed on the ability of the employee holding the shares to sell or transfer the shares for a certain period of time (see Note 22). Key executives are eligible to participate.

The following shares were issued to employees under this plan in prior financial periods:

Date of issue 22-Dec-05 No. of shares issued 181,400 Price paid per share 0.90 Weighted average price per share 1.00 Discount received per share 0.10 No. of employees who purchased shares under the plan. 36 The assessed fair value at issue date of $1.00 per share was determined as the issue price for shares under the Company’s prospectus dated 15 November 2005.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

28. SHARE BASED REMUNERATION (Cont)

d. Shares purchased and issued to management under the Management Loan Share Plan Eligible managers may be invited by the board to participate in a share plan whereby they are entitled to purchase ordinary shares using an interest free, limited recourse loan provided by the company. The price of each share is determined by the board and has been consistent with the market price on the date of issue. One-third of the shares involved under the plan are eligible to vest on each 30 September for the three years following the issue subject to a performance condition being meet. All eligible shares vest if the Company’s net profit after tax is above budget. If the Company’s net profit after tax is between 85 to 99 percent of budget the same percentage of eligible shares vest. Any eligible shares that do not vest will be sold and the proceeds retained by the company or re-issued to other eligible managers. Employees are restricted from selling shares issued to them under this plan until the shares vest and the loan is repaid. Based on advice, the board has treated the shares issued under this plan as though they were options for accounting purposes and this is the policy adopted by the board at 30 June 2010.

In summary, this means that shares issued under this plan are treated as follows:

(i) They are not recognised as being issued capital in the accounts until either the underlying loan has been repaid or they are re-sold on-market in settlement of the loan; and

(ii) The loans made to purchase the shares are not recognised as an asset in the accounts.

However, the dilutive effect of the shares is considered in determining diluted earnings per share. The advice received by the board is that treating the shares as in-substance options is in accordance with AASB2 Share Based Payments.

The assessed fair value at issue date is determined using an option pricing model that takes into account the price paid per share and any discount per share received, the impact of dilution, the share price at issue date and expected volatility, the non-tradeable nature of the shares during the restriction period, the expected dividend yield, and the risk-free interest rate for the period between issue and expected holding term of the shares. The expected volatility was determined by an independent valuer using the historical volatility of the company’s share price over the past 12 month period. The resulting expected volatility therefore reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

During the current and prior financial reporting period, the following shares were issued under this plan:

Issue on 22 December 2005 No of shares issued 642,500 Price paid per share 1.00 Discount to market price at time of issue - Market price of shares at grant date 1.00 Expected volatility (%) 40.00 Risk free interest rate (%) 5.15 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.00

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

28. SHARE BASED REMUNERATION (Cont)

Issue on 19 September 2006 No of shares issued 89,747 Price paid per share 1.00 Discount to market price at time of issue 0.78 Market price of shares at grant date 1.00 Expected volatility (%) 40.00 Risk free interest rate (%) 5.15 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.00

Issue on 11 March 2008 No of shares issued 0 Price paid per share 1.20 Discount to market price at time of issue - Market price of shares at grant date 1.07 Expected volatility (%) 41.53 Risk free interest rate (%) 6.13 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.20

Due to the cessation of employees under this issue, all of these shares have been forfeited.

Issue on 30 May 2008 No of shares issued 814,148 Price paid per share 1.10 Discount to market price at time of issue - Market price of shares at grant date 1.10 Expected volatility (%) 41.47 Risk free interest rate (%) 6.59 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.10

Issue on 1 August 2008 No of shares issued 28,131 Price paid per share 1.10 Discount to market price at time of issue - Market price of shares at grant date 1.10 Expected volatility (%) 41.47 Risk free interest rate (%) 6.59 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.10

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2010 Annual Report

NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

28. SHARE BASED REMUNERATION (Cont) Issue on 26 January 2009

No of shares issued 87,879 Price paid per share 1.10 Discount to market price at time of issue - Market price of shares at grant date 1.10 Expected volatility (%) 41.47 Risk free interest rate (%) 6.59 Dividend yield (%) 0.00 Expected life of options (years) 7.00 Option exercise price ($) 1.10

e. Summary of shares issued under Management Share Loan Plan

The following tables illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, shares issued under the Management Share Loan Plan during the year.

2010 No.

2010 WAEP

2009 No.

2009 WAEP

Outstanding at the beginning of the year 2,695,622 1.07 2,970,774 1.06

Granted during the year - - 683,106 1.10

Forfeited during the year (329,093) 1.07 (958,258) 1.06

Modified during the year - - -

Exercised during the year - - -

Expired during the year - - -

Outstanding at the end of the year 2,366,529 1.07 2,695,622 1.07

Exercisable at the end of the year 732,247 1.00 861,843 1.00

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

28. SHARE BASED REMUNERATION (Cont)

The outstanding balance as at 30 June 2010 is represented by:

• 642,500 options over ordinary shares with an exercise price of $1.00, exercisable upon meeting the conditions outlined in Note 28d

• 89,747 options over ordinary shares with an exercise price of $1.00, exercisable upon meeting the conditions outlined in Note 28d

• 814,148 options over ordinary shares with an exercise price of $1.10, exercisable upon meeting the conditions outlined in Note 28d

• 28,131 options over ordinary shares with an exercise price of $1.10, exercisable upon meeting the conditions outlined in Note 28d

• 87,879 options over ordinary shares with an exercise price of $1.10, exercisable upon meeting the conditions outlined in Note 28d

f. Shares purchased and issued to non-executive dir ectors under the Non-executive Director Share Plan

Non-executive directors may be invited by the board to participate in this plan and the board has the discretion to determine the specific terms and conditions relating to each offer. Generally, non-executive directors who are invited to join can sacrifice up to 80% of their director’s fees each quarter in lieu of which the company will either purchase shares on-market on behalf of the director or will issue shares directly to the director. There are restrictions on dealing with the shares. Refer Note 22. During the current financial reporting period there were shares issued to directors under this plan.

29. DIRECTOR AND EXECUTIVE DISCLOSURES

a. Directors

The following persons were directors of Oaks Hotels & Resorts Limited during the financial year ended 30 June 2010:

(i) Chairman (non-executive) P Barrow

(ii) Non-executive directors C Archer

J Cowley (AM)

R Greenslade

(iii) Executive Director and Chief Executive Officer B Pointon

Yuan Lin (David) Wu and Douglas Wong were appointed non-executive directors in August 2010.

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29. DIRECTOR AND EXECUTIVE DISCLOSURES (Cont)

b. Key management personnel

The following persons were the executives with the greatest authority for the strategic direction and management of the consolidated entity during the financial period. All key management personnel were employed for the full reporting period unless noted.

Name Position Employer Graeme Johnson (appointed 27 July 2009, resigned 30 September 2010)

Chief Financial officer and Company Secretary

Oaks Hotels & Resorts Limited

Pauline Coles

Group Financial Controller Oaks Hotels & Resorts Limited

Mike Anderson (appointed 24 March 2009)

General Manager – Operations Oaks Hotels & Resorts Limited

Leanne Summers General Manager – Legal & Commercial Relationships

Oaks Hotels & Resorts Limited

Graham Baskett General Manager – Bodies Corporate

Oaks Hotels & Resorts Limited

Christopher Jones (resigned 15 September 2010)

General Manager – Sales and Marketing

Oaks Hotels & Resorts Limited

David Campbell (appointed 12 August 2008, resigned 2 October 2009)

Chief Financial officer and Company Secretary

Oaks Hotels & Resorts Limited

Grant Ruddiman (appointed 21 July 2008; resigned 28 October 2008)

Chief Operating Officer Oaks Hotels & Resorts Limited

J Campbell (resigned 8 August 2008)

Chief Financial officer and Company Secretary

Oaks Hotels & Resorts Limited

c. Compensation for Key Management Personnel

Consolidated

2010 $’000

2009 $’000

Short-term employee benefits 2,053 1,844

Post-employment benefits 165 158

Other long-term benefits - -

Termination benefits - 62

Share-based payment 49 87

Total compensation 2,267 2,151

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29. DIRECTOR AND EXECUTIVE DISCLOSURES (Cont)

d. Service agreements and deeds of access, insuranc e and indemnity

I. The company has entered an employment agreement with the Chief Executive Officer which may be terminated after 2 years from 22 December 2005 at any time by either party giving 9 months notice. The agreement also sets out the remuneration package of the CEO, including his salary, company superannuation contributions, any non-monetary compensation and his eligibility for a performance related cash bonus of up to 80% of his salary. The agreement contains appropriate provisions to protect the integrity of confidential information and intellectual property rights of the company in addition to restrictive covenants in the event of his termination and during his period of employment.

II. Remuneration and other terms of employment for the key executives are formalised in service agreements. Each of these agreements provide for the provision of a cash salary, superannuation contributions by the company, performance related bonuses, non-monetary benefits and participation, where eligible, in the Management Loan Share Plan. The usual period of notice to be given by an executive or the company is 6 months.

III. The company has executed a deed of access, insurance and indemnity in favour of each director. Under each deed, the company undertakes to maintain directors’ and officers’ insurance for each director during the period of appointment and for 7 years thereafter as well as to indemnify each director in certain circumstances subject to the Corporations Act 2001 as amended. The company has also undertaken to maintain a complete set of company board papers and to make them available to each director during the period of appointment and for 7 years thereafter.

IV. The company directors’ and officers’ insurance policy also indemnifies certain executives of the company subject to the Corporations Act 2001 as amended. In accordance with commercial practice, the insurance policy prohibits disclosure of the nature of liabilities insured against and the amount of the premium.

e. Share-based compensation - options provided to n on-executive directors

See Note 28 for details of this plan and for calculation of fair value for options issued under the plan.

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29. DIRECTOR AND EXECUTIVE DISCLOSURES (Cont)

f. Share-based compensation - general employee shar e plan

See Note 28 for details of the plan.

The fair value for shares issued under the plan to key executives has been calculated as follows:

Date of issue of shares 22-Dec-05

No. of shares issued 10,000

Price paid per share 0.90

Discount to market price at time of issue 0.10

No. of key executives who purchased shares under this plan 1

The assessed fair value at issue date of $1.00 was determined as the issue price for shares under the company’s prospectus dated 15 November 2005.

g. Share-based compensation - management loan share plan

See Note 28 for details of the plan.

The fair value for shares issued under the plan to key executives has been calculated as follows:

Date of issue 22-Dec-05

No. of shares issued 345,000

Price paid per share 1.00

Discount to market price at time of issue -

No. of key executives who were issued shares under this plan 4

Date of issue 30-May-08

No. of shares issued 283,407

Price paid per share 1.10

Discount to market price at time of issue -

No. of key executives who were issued shares under this plan 6

Date of issue 1-August-08

No. of shares issued 28,131

Price paid per share 1.10

Discount to market price at time of issue -

No. of key executives who were issued shares under this plan 1

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29. DIRECTOR AND EXECUTIVE DISCLOSURES (Cont)

Date of issue 26-January -09

No. of shares issued 87,879

Price paid per share 1.10

Discount to market price at time of issue -

No. of key executives who were issued shares under this plan 1

The assessed fair value at issue date was determined using an option pricing model that takes into account the price paid per share and the relevant discount per share received, the impact of dilution, the share price at issue date and expected volatility, the non-tradeable nature of the shares during the restriction period, the expected dividend yield, and the risk-free interest rate for the period between issue and expected holding term of the shares.

h. Share-based compensation - non-executive directo r share plan

See Note 28(f) for details of this plan and for calculation of fair value for shares issued under the plan.

There were 32,681 shares issued under this plan as at 30 June 2010.

i. Transactions between directors and companies wit hin the group (related parties)

Details of the transactions which took place during the reporting period are shown in Note 30.

j. Shareholdings of directors and key management pe rsonnel

Ordinary shares held in Oaks Hotels & Resorts Limited (number)

30 June 2010 Balance at

30 June 2009 On Market acquisition

Disposals Issued under non executive director

share plan

Net change other (i)

Balance

30 June 2010

Directors

P Barrow 29,167 30,000 - - - 59,167

B Pointon 74,914,173 - - - - 74,914,173

C Archer 6,383,226 - - - 3,087 6,386,313

J Cowley 138,486 - - 11,240 - 149,726

R Greenslade 485,443 500,000 - - 650 986,093

81,950,495 530,000 - 11,240 3,737 82,495,472

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29. DIRECTOR AND EXECUTIVE DISCLOSURES (Cont)

30 June 2010 Balance at

30 June 2009

Issued under management share loan plan

Issued under non executive director share plan

Forfeiture of shares under management share loan plan

Net change other (i)

Balance

30 June 2010

Key Management Personnel

G Johnson - - - - - -

P Coles 150,000 - - (50,000) - 100,000

M Anderson 163,638 - - (54,547) - 109,091

L Summers 195,834 - - (16,666) - 179,168

G Baskett 135,000 - - (17,460) - 117,540

C Jones 133,106 - - (44,369) - 88,737

R Stern 120,000 - - - - 120,000

T Spagnolo 101,515 - - (16,667) - 84,848

Total 999,093 - - (199,709) - 799,384

I. All other equity transactions with directors and key management personnel have been entered into under terms and conditions

no more favourable than those the Group would have adopted if dealing at arm’s length.

II. B Pointon also has an indirect interest in 2,940,766 ordinary shares held by T Cunning, for the purposes of Aus 25.7.4. Refer to ASX additional information in this report for details of ordinary shares that B Pointon is deemed to have a relevant interest in for the purpose of the substantial holding provisions of the Corporations Act.

III. Mike Anderson, General Manager – Product Development, did not previously meet the definition of a key management person under AASB124 for the 2007 financial year but did meet the definition of a key management person for the 2009 financial year. Mr Anderson resigned from his position on 30 June 2008. Mr Anderson was appointed General Manager – Operations on 24 March 2009 and accordingly met the definition of a key management person.

IV. Pauline Coles was appointed Chief Financial Officer & Company Secretary on 1 December 2009 and resigned on 27 July 2010. Ms Coles currently holds the position of Group Financial Controller.

V. Graeme Johnson was appointed Chief Financial Officer & Company Secretary on 27 July 2009 and resigned on 30 September 2010.

VI. Chris Jones resigned from the position of General Manager – Sales and Marketing on the 15 September 2010.

30 June 2009 Balance at

30 June 2008

Issued under management share loan plan

Issued under non executive director share plan

Forfeiture of shares under management share loan plan

Net change other (i)

Balance

30 June 2009

Directors

P Barrow 29,167 - - - - 29,167

B Pointon 74,914,173 - - - - 74,914,173

C Archer 6,360,126 - - - 23,100 6,383,226

J Cowley 127,547 - 10,939 - - 138,486

R Greenslade 477,253 - - - 8,190 485,443

81,908,266 - 10,939 - 31,290 81,950,495

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

29. DIRECTOR AND EXECUTIVE DISCLOSURES (Cont)

30 June 2009 Balance at

30 June 2008

Issued under management share loan plan

Issued under non executive director share plan

Forfeiture of shares under management share loan plan

Net change other (i)

Balance

30 June 2009

Key Management Personnel

P Coles 18,182 131,818 - - - 150,000

M Anderson 163,638 - - - - 163,638

L Summers 158,655 - - - 37,179 195,834

G Baskett 135,000 - - - - 135,000

C Jones 90,910 42,196 - - - 133,106

R Stern 120,000 - - - - 120,000

T Spagnolo 101,515 - - - - 101,515

D Campbell - 136,364 - (136,364) - -

G Ruddiman - 136,364 - (136,364) - -

J Campbell 372,821 - - (372,821) - -

Total 1,160,721 446,742 - (645,549) 37,179 999,093

I. All other equity transactions with directors and key management personnel have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm’s length.

II. B Pointon also has an indirect interest in 3,108,462 ordinary shares held by T Cunning, for the purposes of Aus 25.7.4. Refer to ASX additional information in this report for details of ordinary shares that B Pointon is deemed to have a relevant interest in for the purpose of the substantial holding provisions of the Corporations Act.

III. Janelle Campbell, Chief Financial Officer resigned from her position 8 August 2008.

IV. David Campbell was appointed Chief Financial Officer & Company Secretary on 12 August 2008 and resigned on the 2 October 2008.

V. Grant Ruddiman was appointed Chief Operating Officer on 21 July 2008 and resigned on 28 October 2008.

VI. Todd Spagnolo was not considered a key management person in 2008 but is included in 2009.

VII. Chris Jones was not considered a key management person in 2008 but is included in 2009.

VIII. Mike Anderson, General Manager – Product Development, did not previously meet the definition of a key management person under AASB124 for the 2007 financial year but did meet the definition of a key management person for the 2008 financial year. Mr Anderson resigned from his position on 30 June 2008. Mr Anderson was appointed General Manager – Operations on 24 March 2009 and accordingly met the definition of a key management person.

IX. Pauline Coles was appointed Chief Financial Officer & Company Secretary on 1 December 2008 and resigned on 27 July 2009. Ms Coles was not considered a key management person in 2008.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

29. DIRECTOR AND EXECUTIVE DISCLOSURES (Cont)

k. Option holdings of directors and key management personnel

Vested at 30 June 2010

30 June 2010 Balance at

30 June 2009

Issued under Directors

Option Plan

Options Exercised

Net change other (i)

Balance at 30 June

2010 Total Exercisable

Not Exercisable

Directors

J Cowley 150,000 - - - 150,000 150,000 150,000 -

P Barrow 100,000 - - - 100,000 100,000 100,000 -

R Greenslade 100,000 - - - 100,000 100,000 100,000 -

Total 350,000 - - - 350,000 350,000 350,000 -

(i) Includes forfeitures.

Vested at 30 June 2009

30 June 2009 Balance at

30 June 2007

Issued under Directors

Option Plan

Options Exercised

Net change other (i)

Balance at 30 June

2009 Total Exercisable

Not Exercisable

Directors

J Cowley 150,000 - - - 150,000 150,000 150,000 -

P Barrow 100,000 - - - 100,000 100,000 100,000 -

R Greenslade 100,000 - - - 100,000 100,000 100,000 -

Total 350,000 - - - 350,000 350,000 350,000 -

(i) Includes forfeitures.

As at the date of this report and at the reporting date, there were 350,000 unissued shares under options. The options were granted on 22 December 2005, have an expiry date of 24 December 2010 and have an exercise price of $1.00. The options vest in equal instalments over 3 years and will lapse if not exercised by the five year anniversary of their issue date. No options were exercised or forfeited during the period.

No options have been issued to key management personnel during the period.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

30. RELATED PARTY DISCLOSURES Consolidated

2010 $’000

2009 $’000

(a) Transactions between directors and the parent e ntity and its subsidiaries

(i) A director, P Barrow is partner of MBT Chartered Accountants. MBT Chartered Accountants provided consultancy services in respect to the Archer Capital proposal during the year ended 30 June 2009. The amount recognised as an expense (consultancy fees) was - 12 (ii) A director, R Greenslade is a director of investment bank, Gryphon Partners. Gryphon Partners provided consultancy services in respect to the Archer Capital proposal during the year ended 30 June 2009. The amount recognised as an expense (consultancy fees) was - 9 (b) Transactions between other related parties and the parent entity and its subsidiaries

(i) Tammi Pointon, a person related to B Pointon and deemed to be a related party for the purpose of this report, is a director and controlling shareholder of TMP Holdings Pty Ltd. During the reporting period, T Pointon and/or TMP Holdings Pty Ltd had the following transactions with the economic entity:

- the Company is party to a lease with TMP Holdings Pty Ltd for premises from which it operates its Queensland Accommodation Corporation business

- the Company has engaged T Pointon as a consultant Aggregate amounts of each of the above types of transactions: Amounts recognised as expense (rental expense) 37 42 Amounts recognised as expense (consulting fees) - 90

37 132 - on 22 December 2005, the Company acquired the business of Queensland Accommodation Corporation as part of the restructure of the group. TMP Holdings Pty Ltd was also one of vendors of the MLR businesses which were restructured.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

30. RELATED PARTY DISCLOSURES (Cont)

Consolidated

2010 $’000

2009 $’000

The acquisition agreements for the restructure contained terms and conditions of a customary commercial nature, including vendor warranties, non-competitive clauses, restrictions on dealing with shares acquired by the vendor as a result of the acquisition and continuation of employment for employees.

(ii) Suite Design Pty Ltd was deemed for the purposes of this report to be a related party as Oaks owner a third share in the business. During the year ended 30 June 2009 Suite Design Pty Ltd had the following transactions with the economic entity. - The Company engaged Suite Design Pty Ltd to supply furniture and unit supplies to its hotel operations.

Aggregate amounts of each of the above types of transactions: Amounts recognised as capital (furniture) - 3,171 Amounts recognised as expense (refurbishment costs) - 428 - 3,599

(iii) The AM & ML Julius Family Trust is deemed for the purposes of this report to be a related party. The trustee and beneficiary of this trust is the sister of the spouse of Brett Pointon. During the year ended 30 June 2009 The AM & ML Julius Family Trust had the following transactions with the economic entity.

- The contract between the Company and the AM & ML Julius Family Trust for the sale of the Management rights at Boathouse, Tea Gardens was rescinded and the sale proceeds refunded.

Amounts previously recognised as revenue - -

Sale proceeds refunded - 500 - 500

(iv) Oaks Apartment Management Pty Ltd a company which CEO, Brett Pointon is a director of, owns a serviced apartment building in Townsville, M on Palmer. Oaks currently has a licence to operate the management and letting business of M on Palmer in return for a licence fee. In addition Oaks undertakes various sales and marketing activities on behalf of M on Palmer and recovers these expenses from Oaks Apartment Management Pty Ltd. Oaks also provide information technology support to various Pointon Group operations and charges a commercial fee for these services. Amounts recognised as receivables (balance sheet) 33 4 Amounts recognised as revenue 17 8 50 12

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

30. RELATED PARTY DISCLOSURES (Cont) Consolidated

2010 $’000

2009 $’000

(iv) In 2009, as part of the sale of four MLR’s to Tidal Swell Pty Ltd, a syndicate of investors, the Company granted vendor finance to a party of that syndicate, Deep Blue Resorts Pty Ltd, a company owned by Brett Pointon’s brother. The vendor finance arrangement was approved by the Board and funds have been loaned on commercial terms and are to be repaid within two years. Amounts recognised as revenue 158 - Amounts recognised as receivables in the balance sheet 2,539 2,823 2,697 2,823

Consolidated

Parent (c) Transactions between the parent entity and its subsidiaries

2010 $’000

2009 $’000

2010 $’000

2009 $’000

Loans advanced to subsidiaries - - 170,572 188,352

Dividends paid to parent entity - - - -

Marketing charge to subsidiaries - - 1,812 3,210

Intercompany interest charge - - 6,116 7,571

Administration fee to subsidiaries - - - 62,302

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

31. EVENTS AFTER BALANCE SHEET DATE

a) Financing Facilities In July 2010 the Group finalised the extension of its financing arrangement with the ANZ and NAB banks. Oaks currently have approximately $90m in debt drawn under these facilities. The combined margin and line fees attributable to these facilities have been set at 325bp above the benchmark bank bill rate (BBSY). The key covenants under the extended facilities are as follows: Interest Cover The ratio of EBITDA to interest expense for the Group on a consolidated basis for the preceding financial quarter calculated on a rolling 12 month basis is:

(i) until 31 March 2011, at least 3.0:1; and (ii) from 1 April 2011, at least 3.50:1.

Gearing The ratio of total external debt to EBITDA (calculated on a rolling 12 month basis) does not exceed:

(i) until 30 December 2010: 3.40:1; (ii) from 31 December 2010 up to and including 30 March 2011: 3.00:1; (iii) from 31 March 2011 up to and including 29 June 2011: 2.75:1; (iv) from 30 June 2011: 2.50:1.

Compliance with the covenants is to be tested quarterly. Letter of Credit Until the dispute with the beneficiary of the Dubai letter of credit (the landlord) is resolved to the satisfaction of the Financiers, Oaks must, not later than 31 October 2010 provide cash cover to ANZ in the amount of $7.1m. If the letter of credit is not called upon, and the dispute is resolved to the satisfaction of the financiers, these funds will be released to Oaks. Debt reduction Oaks must complete a capital raising to raise at least $15m, to be applied towards debt reduction, by 31 October 2010. If on or after 31 October 2010, Oaks gearing ratio is not below 2.5 times, then Oaks must on a quarterly basis apply 75% of excess cash flow towards debt reduction. Dividends Oaks may not, without approval by the financiers, pay a dividend if it does not complete the equity raising referred to above. Post the equity raising, the dividend payout ratio may not exceed 60% of net profits after tax. b) Equity Issue Oaks announced on 23 August 2010 a placement to the China Pacific Group totalling $9.78m, which was approved at a General Shareholders Meeting held on 29 September 2010. c) Dividends On 25 August 2010 the directors of Oaks Hotels & Resorts Limited resolved that there would be no final dividend on ordinary shares.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

31. EVENTS AFTER BALANCE SHEET DATE (Cont)

d) Deeds of Sale and Assignment On 17 June 2010 the directors indicated that an impairment charge of between $8 and $11 million was forecast and disclosed to the market and reported an impairment charge of $10.9 million in its 30 June 2010 Appendix 4E Preliminary Financial Report in relation to this matter. Since that time agreements have been entered into with interests associated with Mr David Wu, director of Oaks, for the sale of profits associated with that property and furniture and fixtures at the property owned by Oaks. This agreement provides support for the recoverable amount of the management letting rights and furniture, fixture and equipment assets relating to the property at 30 June 2010. Specifically, the agreement has the following terms:

- Sale of profits earned at the property, Oaks retains risk of losses, for an initial term ending 17 June 2012, renewable thereafter for a 10 year period in exchange for $4.5 million, with $1.125 million payable on completion, the remainder bearing interest at the Bank Bill Swap Rate (BBSY) + 2% and repayable monthly over the initial term.

- Sale of furniture, fixtures and equipment at the property for consideration of $3.4 million, payable annually over a 5 year period beginning 17 June 2012.

On this basis the Directors have revised their conclusions on impairment of assets in relation to the Dubai property and reversed the impairment charge of $10.9 million recorded in the 30 June 2010 Appendix 4E Preliminary Financial Report. Instead an amount of rent expense of approximately $3.4 million has been recorded in the 2010 financial year in connection with this matter. The directors believe this accounting is more appropriate based on the agreement reached for the sale of assets as described above, and progress made in negotiations with the owner of the property in Dubai.

32. AUDITORS’ REMUNERATION Consolidated 2010 2009

Amounts received or due and receivable by Ernst & Young (Australia) for:

Audit or review of the financial report 289,000 285,700

Taxation services 38,358 47,664

Other non-audit services 40,635 -

33. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIV ES (a) Audit and risk management committee As part of its charter, this committee provides assistance to the board in fulfilling its governance and commercial obligations in relation to the company’s financial risk management policies and systems. It provides advice to the board and reports on the status of financial risks to the company through its risk management processes which are aimed at ensuring financial risks are properly identified, assessed and managed.

The committee is comprised only of non-executive directors and must be chaired by a director who is not chairperson of the board.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

33. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIV ES (Cont)

(b) Objectives of holding financial instruments The Group’s principal financial instruments comprise bank loans, an overdraft facility, interest rate swaps and hire purchase contracts. The main purpose of these financial instruments is to raise finance to expand the group operations through acquisition of MLRs and other assets. The group has various other financial assets and liabilities such as cash and cash equivalents, trade and other receivables and trade and other payables which arise directly from its operations. Over the course of the current reporting period, the policy of the group has been that no trading will take place in financial instruments. This policy will be regularly reviewed. The main risks arising from the group’s financial instruments are cash flow interest rate risk, liquidity risk and credit risk. Since the purchase of MLRs in New Zealand and Dubai, the group also has foreign currency risks.

The board reviews and agrees policies for managing each of these risks and these are summarised below. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1.

(c) Interest rate risk The group’s exposure to interest risk relates primarily to the group’s reliance on bank debt and bank overdraft facilities which have floating interest rates to fund asset acquisitions. The group’s policy is to manage its interest cost using multi-option facilities for its bank loans and by entering into interest rate swaps. These facilities allow for the group to draw down funds available under the facility as either fixed or variable interest loans. All of the groups borrowings at 30 June 2010 were on a variable rate.

(d) Liquidity risk The group’s objective is to maintain a balance between continuity of funding and flexibility in the financial instruments it uses in its operations. It uses a mix of bank overdraft, bank loans and hire purchase contracts. The group’s policy is that repayment of borrowings should be staged prudently so that revenue streams flowing from an underlying asset are matched with repayment requirements from that asset’s allied debt.

The table below reflects all contractually fixed pay-offs for settlement, repayments and interest resulting from recognised financial liabilities, including derivative financial instruments as of 30 June 2010. For derivative financial instruments the market value is presented, where as for the other obligations the respective discounted cash flows for the respective upcoming fiscal year are presented. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2010.

The remaining contractual maturities of the Group’s non-derivative financial liabilities are:

Consolidated 2010 2009 $000 $000 6 months or less 39,022 28,395 6-12 months 6,671 5,972 1-5 years 64,367 99,446 Over 5 years - - 110,060 133,813

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

33. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIV ES (Cont)

The remaining contractual maturities of the Group’s derivative financial liabilities are: Consolidated 2010 2009 $000 $000 6 months or less - - 6-12 months 420 628 1-5 years - 1,337 Over 5 years - - 420 1,965

(e) Credit risk The group trades only with recognised, credit worthy third parties. It is the group’s policy that all customers who wish to trade on credit terms for significant amounts are subject to trade verification. In addition, receivables balances are monitored on an ongoing basis with the result that the group’s exposure to bad debts is not significant. At 30 June 2010, bad debts represented less than 0.3% of sales revenue. Refer to Note 8 for details of receivables considered past due but not impaired. With respect to any possible credit risk arising from financial instruments other than trade receivables such as cash and cash equivalents and deposits on MLR’s the group’s risk arises from the potential default of the other contracting party. The maximum exposure in any such event will be equal to the carrying value of the instruments. As the group only trades with recognised third parties, there is no requirement for collateral.

(f) Foreign currency risk

The group operates MLR’s in both New Zealand and Dubai, and accordingly is exposed to foreign currency risk in relation to both the carrying value of the overseas investment and the ongoing operations in that country. The board made a determination not to hedge the foreign currency exposure arising from these operations. This decision will be regularly reviewed by the audit and risk management committee and the board advised accordingly. The board will review specific foreign currency exposures as they arise and may or may not choose to hedge that exposure.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

34. FINANCIAL INSTRUMENTS

(a) Interest rate risk

The Group’s exposure to market interest rates relates primarily to the Group’s long term debt obligations. The level of debt is disclosed in Note 17 & 20. At Balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk. Consolidated

2010 2009 $000 $000 Financial Assets Cash and cash equivalents 1,431 3,938 Vendor Finance 2,540 2,822 3,971 6,760 Financial Liabilities Bank Loans (73,664) (79,685) (73,664) (79,685) (69,693) (72,925) Less: Financial assets and liabilities subject interest rate swaps 20,000 40,000 Net exposure (49,693) (32,925) An Interest rate swap with a face value of $20,000,000 was in place at 30 June 2010 to minimise the Group’s exposure to fair value movements should interest rates change. At 30 June 2010, 28.69% of the Group’s financial assets and liabilities exposed to interest rate risk had been hedged. Details of the Group’s interest rate swaps current at 30 June 2010 are as follows:

Face Value Start Date End Date Rate

$20,000,000 21 February 2008 21 February 2011 8.040% The following sensitivity analysis is based on the average values of financial assets and financial liabilities for the year ended 30 June 2010. If interest rates had moved, with all variables held constant, post tax profit and equity would have been affected as follows:

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

34. FINANCIAL INSTRUMENTS (Cont)

Judgments of reasonably possible movements Post Tax Profit Equity Higher/(Lower) Higher/(Lower) 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Consolidated +2% (137) (101) (137) (101) -0.5% 34 25 34 25

Significant assumptions used in the interest rate sensitivity analysis include:

• Reasonably possible movements in interest rates were determined based on the Group’s current credit rating and mix of debt in Australia and foreign countries, relationships with finance institutions, the level of debt that is expected to be renewed as well as a review of the last two year’s historical movements and economic forecaster’s expectations.

• The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months from balance date.

(b) Fair values Set out below is a comparison by category of carrying amounts and fair values of all of the group’s financial instruments recognised in the financial statements.

CONSOLIDATED Financial Assets & Liabilities 30 June 2010

Carrying Amount

$’000

Fair Value $’000

Cash and cash equivalents 1,431 1,431

Trade and other receivables 19,843 19,843

Bonds and deposits 340 340

Hire purchase contracts 14,672 14,672

Secured bank loans 74,349 74,349

The fair value of interest bearing assets and liabilities is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles. None of the interest bearing liabilities are actively traded in organised markets.

The Group uses the Level 2 method in estimating the fair value of derivative financial instruments. The Level 2 method estimates the fair value by using inputs other than quoted prices in active markets that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

34. FINANCIAL INSTRUMENTS (Cont) The fair value of the financial instruments as well as the methods used to estimate the fair value are summarised in the table below.

Valuation technique – market observable inputs (Level 2)

CONSOLIDATED 30 June 2010

2010 $’000

2009 $’000

Financial liabilities

Interest Rate Swaps 420 1,965

420 1,965 Transfer between categories

There were no transfers between categories during the year.

(c) Financing arrangements The group’s financing facilities and the extent to which they are used and unused are set out in Note 25. These facilities are subject to review annually by the ANZ Banking Group and National Australia Bank but at the date of this report, the directors have no reason to believe that either company will not meet the covenants required by the lender or that the lender will withdraw the existing facilities for any other reason at the time of the review. Refer to Note 31 for events subsequent to balance date pertaining to financing arrangements.

(d) Foreign currency risk

The Group has operations in the United Arab Emirates and New Zealand, which management does not consider significant enough to warrant the implementation of foreign currency hedges. It is the Group’s policy not to enter into forward contracts until a firm commitment is in place and to negotiate the terms of the hedge derivatives to exactly match the terms of the hedged item to maximising hedge effectiveness. For the year ended 30 June 2010 there were no foreign currency hedges in place.

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

35. SEGMENT INFORMATION The Group has identified its operating segments based on internal reports that are reviewed and used by the executive management team in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the nature of the geographical area of operation, the identity of the service line manager and the services provided. The reportable segments are based on aggregated operating segments determined by the similarity of the geographical location, as these are the sources of the Group's major risks and have the most effect on rates of return. The Group has determined that its reportable operating segments are the Oceania and Middle East regions. Where applicable, transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment results include transfers between operating segments. Those transfers are eliminated on consolidation. The following table presents revenue, expenditure and certain asset information regarding operating segments for the years ended 30 June 2010 and 30 June 2009. Year ended 30 June 2010 Oceania Middle East Unallocated Total

$’000 $’000 $’000 $’000

Sales to external customers 118,806 5,455 - 124,261

Other revenues from external customers 1,233 84 - 1,317 Inter-segment sales - Finance income - - 216 216

Total segment revenue 120,039 5,539 216 125,794

Employee benefits expense (29,830) (338) - (30,168) Depreciation and amortisation (7,954) (1,731) - (9,685) Finance costs - - (7,579) (7,579) Other operating expenses (63,713) (6,639) - (70,352)

Total expenses (101,497) (8,708) (7,579) (117,784)

Segment net operating profit before tax 18,542 (3,169) (7,363) 8,010

Income tax (expense) / benefit (4,108) - - (4,108)

Segment net operating profit after tax

14,434 (3,169) (7,363) 3,902

Segment Assets 171,838 8,496 - 180,334 Segment Liabilities 98,724 10,838 - 109,562 Capital expenditure 9,934 86 - 10,020

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NOTES TO THE FINANCIAL STATEMENTS CONT For the year ended 30 June 2010

35. SEGMENT INFORMATION (Cont)

Year ended 30 June 2009 Oceania Middle East Unallocated Total

$’000 $’000 $’000 $’000

Sales to external customers 114,694 6,176 - 120,870

Other revenues from external customers 6,036 12 - 6,048 Inter-segment sales - - - - Finance income - - 75 75

Total segment revenue 120,730 6,188 75 126,993

Employee benefits expense (29,928) (373) - (30,301) Depreciation and amortisation (7,611) (1,209) - (8,820) Finance costs - - (10,317) (10,317)

Other operating expenses (60,782) (2,739) - (63,521)

Total expenses (98,321) (4,321) (10,317) (112,959)

Segment net operating profit before tax 22,409 1,867 (10,242) 14,034

Income tax (expense) / benefit (4,281) - - (4,281)

Segment net operating profit after tax 18,128 1,867 (10,242) 9,753

Segment Assets 191,275 11,743 (9,966) 193,052 Segment Liabilities 117,162 10,949 (9,966) 118,145 Capital expenditure 13,534 10,532 - 24,066

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36. IMPACT OF ACCOUNTING STANDARDS AMENDED NOT YET EFFECTIVE

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 30 June 2010. Those standards that may effect the group are outlined in the table below.

Reference Title Summary Application

date of standard*

Application date for Group*

AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

[AASB 5, 8, 101, 107, 117, 118, 136 & 139]

The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting except for the following:

The amendment to AASB 117 removes the specific guidance on classifying land as a lease so that only the general guidance remains. Assessing land leases based on the general criteria may result in more land leases being classified as finance leases and if so, the type of asset which is to be recorded (intangible vs. property, plant and equipment) needs to be determined.

The amendment to AASB 101 stipulates that the terms of a liability that could result, at anytime, in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification.

The amendment to AASB 107 explicitly states that only expenditure that results in a recognised asset can be classified as a cash flow from investing activities.

The amendment to AASB 118 provides additional guidance to determine whether an entity is acting as a principal or as an agent. The features indicating an entity is acting as a principal are whether the entity:

► has primary responsibility for providing the goods or service;

► has inventory risk;

► has discretion in establishing prices;

► bears the credit risk.

1 January 2010

1 July 2010

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Reference Title Summary Application

date of standard*

Application date for Group*

AASB 2009-5 (con’t)

Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

[AASB 5, 8, 101, 107, 117, 118, 136 & 139]

The amendment to AASB 136 clarifies that the largest unit permitted for allocating goodwill acquired in a business combination is the operating segment, as defined in IFRS 8 before aggregation for reporting purposes.

The main change to AASB 139 clarifies that a prepayment option is considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract.

The other changes clarify the scope exemption for business combination contracts and provide clarification in relation to accounting for cash flow hedges.

AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions [AASB 2]

This Standard makes amendments to Australian Accounting Standard AASB 2 Share-based Payment and supersedes Interpretation 8 Scope of AASB 2 and Interpretation 11 AASB 2 – Group and Treasury Share Transactions.

The amendments clarify the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when the entity has no obligation to settle the share-based payment transaction.

The amendments clarify the scope of AASB 2 by requiring an entity that receives goods or services in a share-based payment arrangement to account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash.

1 January 2010

1 July 2010

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Reference Title Summary Application

date of standard*

Application date for Group*

AASB 9 Financial Instruments AASB 9 includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement (AASB 139 Financial Instruments: Recognition and Measurement).

These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes from AASB 139 are described below.

(a) Financial assets are classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. This replaces the numerous categories of financial assets in AASB 139, each of which had its own classification criteria.

(b) AASB 9 allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument.

(c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

1 January 2013

1 July 2013

AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12]

The revised Standard introduces a number of changes to the accounting for financial assets, the most significant of which includes:

► two categories for financial assets being amortised cost or fair value

► removal of the requirement to separate embedded derivatives in financial assets

► strict requirements to determine which financial assets can be classified as amortised cost or fair value, Financial assets can only be classified as amortised cost if (a) the contractual cash flows from the instrument represent principal and interest and (b) the entity’s purpose for holding the instrument is to collect the contractual cash flows

► an option for investments in equity instruments which are not held for trading to recognise fair value changes through other comprehensive income with no impairment testing and no recycling through profit or loss on derecognition

► reclassifications between amortised cost and fair value no longer permitted unless the entity’s business model for holding the asset changes

► changes to the accounting and additional disclosures for equity instruments classified as fair value through other comprehensive income

1 January 2013

1 July 2013

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date of standard*

Application date for Group*

AASB 124 (Revised)

Related Party Disclosures (December 2009)

The revised AASB 124 simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition, including:

(a) the definition now identifies a subsidiary and an associate with the same investor as related parties of each other;

(b) entities significantly influenced by one person and entities significantly influenced by a close member of the family of that person are no longer related parties of each other; and

(c) the definition now identifies that, whenever a person or entity has both joint control over a second entity and joint control or significant influence over a third party, the second and third entities are related to each other.

A partial exemption is also provided from the disclosure requirements for government-related entities. Entities that are related by virtue of being controlled by the same government can provide reduced related party disclosures.

1 January 2011

1 July 2011

AASB 2009-12 Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052]

This amendment makes numerous editorial changes to a range of Australian Accounting Standards and Interpretations.

In particular, it amends AASB 8 Operating Segments to require an entity to exercise judgement in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. It also makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB.

1 January 2011

1 July 2011

AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

[AASB 3, AASB 7, AASB 121, AASB 128, AASB 131, AASB 132 & AASB 139]

Limits the scope of the measurement choices of non-controlling interest at proportionate share of net assets in the event of liquidation. Other components of NCI are measured at fair value.

Requires an entity (in a business combination) to account for the replacement of the acquiree’s share-based payment transactions (whether obliged or voluntarily), i.e., split between consideration and post combination expenses. Clarifies that contingent consideration from a business combination that occurred before the effective date of AASB 3 Revised is not restated.

Eliminates the requirement to restate financial statements for a reporting period when significant influence or joint control is lost and the reporting entity accounts for the remaining investment under AASB 139. This includes the effect on accumulated foreign exchange differences on such investments.

1 July 2010 1 July 2010

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date of standard*

Application date for Group*

AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]

Emphasises the interaction between quantitative and qualitative AASB 7 disclosures and the nature and extent of risks associated with financial instruments.

Clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements.

Provides guidance to illustrate how to apply

disclosure principles in AASB 134 for significant events and transactions

Clarify that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account.

1 January 2011

1 July 2011

The effect of these changes on the Group has not yet been assessed.

* designates the beginning of the applicable annual reporting period unless otherwise stated

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DIRECTORS’ DECLARATION

In accordance with a resolution of the directors of Oak Hotels & Resorts Limited, I state that:

(1) In the opinion of the directors:

(a) the financial statements, notes and the additional disclosures included in the

directors’ report designated as audited, of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Company’s and consolidated entity’s financial

position as at the 30 June 2010 and of their performance for the year ended on that date; and

(ii) complying with Accounting Standards and Corporations Regulations 2001;

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

(c) the financial statements and notes also comply with International Financial

Reporting Standards as disclosed in Note 1(a).

(2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ending 30 June 2010.

On behalf of the Board

Brett Pointon Director

Brisbane, 30 September 2010

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Liability limited by a scheme approved under Professional Standards Legislation

Auditor’s Independence Declaration to the Directors of Oaks Hotels & Resorts Limited In relation to our audit of the financial report of Oaks Hotels & Resorts Limited for the financial year ended 30 June 2010, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Mike Reid Partner 30 September 2010

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Liability limited by a scheme approved under Professional Standards Legislation

Independent auditor’s report to the members of Oaks Hotels & Resorts Limited

Report on the Financial Report We have audited the accompanying financial report of Oaks Hotels & Resorts Limited, which comprises the statement of financial position as at 30 June 2010, and the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1(a), the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.

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Auditor’s Opinion In our opinion: 1. the financial report of Oaks Hotels & Resorts Limited is in accordance with the Corporations Act

2001, including:

i giving a true and fair view of the consolidated entity’s financial position at 30 June 2010 and of its performance for the year ended on that date; and

ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.

2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Matters of Emphasis Without qualification to the opinion expressed above, we draw attention to the following matters: 1. Uncertainty of Accounting for Management Letting Rights Intangible Assets Note 27 indicates that the company has been notified by the Australian Securities & Investments Commission that it does not agree with the company’s accounting for management letting rights intangible assets. The matter has been referred to the Financial Reporting Panel, however a finding has yet to be rendered on the matter and the effect, if any, of the outcome of this matter is unable to be determined. As a result, there is uncertainty in relation to the company’s accounting for management letting rights intangible assets. 2. Going Concern Note 1(b) in the financial report indicates that the consolidated entity’s current liabilities exceeded their current assets by $74,955,877 as at 30 June 2010. As described in Note 31, in extending financing arrangement with its financiers, the entity must comply with certain obligations and covenants. As a result of these matters there is uncertainty whether the consolidated entity will be able to meet these obligations and therefore whether it will be able, on a going concern basis, realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 31 to 39 of the directors’ report for the year ended 3O June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

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Auditor’s Opinion In our opinion the Remuneration Report of Oaks Hotels & Resorts Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001. Ernst & Young Mike Reid Partner Brisbane 30 September 2010

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ASX INFORMATION Additional information required by the Australian Stock Exchange and not shown elsewhere in this report is as follows. The information is current as at 31 August 2010.

(a) Distribution of equity securities

(i) Ordinary share capital

155,260,469 fully paid ordinary shares are held by 1,361 individual shareholders. All issued ordinary shares carry one vote per share and carry the rights to dividends.

(ii) Options

350,000 options are held by 3 individual option holders. Options do not carry a right to vote.

The number of shareholders, by size of holding, in each class are:

Fully paid ordinary shares Options

1-1000 142

1001-5000 380

5001-10,000 278

10,001-100,000 486

100,001 and over 75 3

1,361 3

Holding less than a marketable parcel 201 -

(b) Substantial shareholders

Ordinary Shareholders Note Fully Paid Number %

Oaks Hotels & Resorts Limited i 77,178,995

B.M Pointon ii 77,178,995

The Oaks Apartment Management Pty Ltd ii 77,178,995

Centrepoint Holdings Pty Ltd ii 77,178,995

Pointon Holdings Pty Ltd ii 77,178,995

RA Pointon Investments Pty Ltd ii 77,178,995

T Cunning ii 77,178,995

R.M Pointon ii 77,178,995

49.71%

Challenger Financial Services Group iii 9,547,163 6.15%

ACN 145 582 136 Pty Ltd iii 8,520,354 5.49%

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ASX INFORMATION CONT

I. Details of the 20 largest holders of Oaks’ quoted equity securities are set out in the table in paragraph (c) below. The above table contains details of the substantial shareholders in Oaks, as disclosed in substantial shareholding notices given to Oaks. The test for determining substantial shareholdings under the Corporations Act is wider than the direct shareholdings set out in paragraph (c), and includes shares in which the shareholder and its associates have a relevant interest for the purposes of the Act. Readers of this report should refer to the substantial shareholding notices for details of how the substantial shareholdings have arisen, which are available on the Australian Stock Exchange website. A summary of how the substantial shareholdings have arisen is set out in the notes below.

II. Oaks has, for the purposes of the substantial shareholding provisions of the Corporations Act, a relevant interest in its ordinary shares that are subject to escrow agreements between the Company and various registered holders of the shares. The Company’s relevant interest arises because the escrow agreements contain restrictions on disposal of the shares. Oaks also has, for the purposes of the substantial shareholding provisions, a relevant interest in its ordinary shares held under the general employee share plan and management loan share plan operated by the Company, under the rules of which the Company has power to control the exercise of the right of the registered holder to dispose of the shares. Oaks is not, however, the holder of any shares in itself. Refer to note 22 for control conditions for the general employee share plan and the management loan share plan.

III. Apart from Oaks, the shareholders listed in the above table all hold shares in Oaks as listed in the table in paragraph (c). In addition to those direct shareholdings, they are also required by the substantial shareholdings provisions of the Corporations Act to include in their substantial shareholding notices any shares in which their associates have a relevant interest. In summary, because of the association that arises between each of those shareholders and Brett Pointon (as disclosed in detail in the substantial shareholding notices), their substantial shareholdings include the shares in which each of those other shareholders has a relevant interest.

(c) Twenty largest holders of quoted equity securit ies

Ordinary shareholders Fully paid number Percentage

Oaks Apartment Management Pty Ltd 40,581,094 26.14

Centrepoint Holdings Pty Ltd 22,689,451 14.61

JP Morgans Nominees 14,245,055 9.17

ACN 145 582 136 Pty Ltd 8,520,354 5.49

Archer Management Pty Ltd 6,363,165 4.10

TMP Holdings Pty Ltd 4,965,623 3.20

Genesis Pty Ltd 4,424,144 2.85

RA Pointon Investments Pty Ltd 3,902,304 2.51

Citicorp Nominees Pty Ltd 3,219,487 2.07

B.M Pointon 3,123,274 2.01

T Cunning 2,940,766 1.89

Mr JCJ & Mrs AJ Morcus 1,601,779 1.03

HJ & A Pty Ltd 1,600,000 1.03

R M Pointon 1,575,577 1.01

AWJ Family Pty Ltd 1,490,513 0.96

Allingham Holdings Pty Ltd 1,407,083 0.91

Pierre Properties Pty Ltd 1,189,240 0.77

National Nominees Limited 1,037,699 0.67

HSBC Custody Nominees (Australia) Limited 862,020 0.56

RBC Dexia Investor Services Australia 642,901 0.41

126,381,529 81.40

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CORPORATE INFORMATION ABN 70 113 972 366

This annual report covers both Oaks Hotels & Resort s Limited as an individual entity & the consolidate d entity comprising Oaks Hotels & Resorts Limited and its subsidiaries.

A description of the Group’s operations and of its principal activities is included in the review of operations and activities in the directors’ report on pages 25 to 39.

Directors

Peter Barrow Independent Non-executive Chairman Brett Pointon Executive Director and Chief Executive Officer Colin Archer Non-executive Director Douglas Wong Non-executive Director John Cowley Independent Non-executive Director Rob Greenslade Independent Non-executive Director Yuan lin (David) Wu Non-executive Director

Company Secretary

Graeme Johnson (resigned 30 September 2010)

Registered Office and Principal Place of Business

Level 5, 26 Duporth Avenue MAROOCHYDORE QLD 4558 Phone: (07) 5479 6922 Fax: (07) 5479 6933 Email: headoffice@theoaksgroup.com.au

Share Registry

Computershare Investors Services Pty Limited Level 19, 307 Queen Street BRISBANE QLD 4000 Phone: (07) 3237 2137 Fax: (07) 3237 2152

Solicitors

Carter Newell Level 13 215 Adelaide Street Brisbane QLD 4000

Bankers

Australia and New Zealand Banking Group Limited Queen Street, Brisbane National Australia Bank Creek Street, Brisbane

Auditors

Ernst & Young Level 5 1 Eagle Street Brisbane QLD 4000

ASX Code OAK

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