REEF CASINO TRUST — AGM Information 2011

May 24, 2011

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TRUST CHAIRMAN’S AND REEF HOTEL CASINO CEO’s

ADDRESS TO THE ANNUAL GENERAL MEETING

25 MAY 2011

Chairman’s address

A warm welcome to all unit holders and observers to the Reef Casino Trust’s 2011 annual general meeting. I hope you find both my address and the CEO’s address, informative and that you will take away with you a good understanding about your investment in the Reef Casino Trust.

In my letter of 21[st] March inviting you to attend this annual general meeting, I provided details of the special benefits which are available to all unit holders attending this afternoon’s AGM. I hope many of you have availed yourselves of these special benefits.

We are holding our meeting today in the Coral Lounge rather than our more usual venue on level 2 because our complex is very busy with conference activity at the moment, which is good for our business, but it also gives you an opportunity to experience another function room which is available in our complex.

The Financial Year Just Ended

Cairns’ economy in 2010

Let me start by providing a brief recap of the economic background and conditions prevailing in Cairns last year.

REEF CASINO TRUST ABN 90 324 877

Managed by Reef Corporate Services Limited - ABN 66 057 599 621

Level 1 Mercure Hotel, 85-87 North Quay, Brisbane  QLD  4000, PO Box 12072 George Street, Brisbane QLD 4003
Telephone : 07 3211 3000 Facsimile :  07 3211 4777

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The Trust reported lower profits in 2010 due to a weak Cairns’ economy, but we were pleased with the level of visitations which, due to the economy, fell just 8% when compared to the previous year.

During 2010, Cairns continued to feel the flow on effect of the global financial crisis and the two speed Australian economy. Cairns is very much in the lower speed category.

There was also a hiatus in government stimulus spending which had assisted the local economy during 2009.

The strong Australian dollar continued to provide a dampening effect on inbound tourism with fewer international tourists and negligible growth in domestic tourists into Cairns as Australians took overseas holidays to take advantage of the stronger Australian dollar.

A soft tourism sector together with a subdued construction sector contributed to high unemployment in the region. So overall for the Reef Hotel Casino, the weak Cairns’ economy has resulted in the complex’s casino and hotel operations revenues being lower than the previous year.

In turn, lower complex revenues translated into lower rentals paid to the Trust.

Trust distributable profit

On 15[th] February this year, the Trust announced a net distributable profit to unit holders of $7.7 million for the financial year ended 31 December 2010, 40.3% below 2009. Unitholders’ distributions classified as “finance costs” were $3.83 million, resulting in a net profit of $3.83 million.

If not for the increase in government tax on electronic gaming machine revenue, the Trust’s net distributable profit to unit holders would have been higher at $9.94 million, but still lower than the previous year by 28.8%.

You might recall that the Government increased its tax on our electronic gaming machine revenues from 10% to 20% from 1 July 2009, so 2010 was the first full year impacted by this impost.

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Trust distribution for 2010

Even though Trust distributable profit in 2010 was lower than 2009, we still paid a total distribution of 20 cents per unit for 2010 which included a transfer from out of the undistributed income account of 4.6 cents. The total distribution for 2010 was almost $10 million.

We were able to top up the year’s distribution because of good profits in past years and putting aside some of it into reserve. The balance in the undistributed income account is currently $4.9 million (9.86 cents per unit), which is available for distribution to unitholders in future financial periods.

Other key financial points

The Trust’s cash flows remain positive and the balance sheet remains healthy. The Trust’s interest only loan facility remains unchanged at $16.5 million with the term recently extended to December 2015. In January 2011, half of this facility was fixed over varying terms. The Trust remains well funded and has an unused overdraft facility of $2 million. Trust costs were well controlled in 2010 and remains under control.

I will now call upon Allan Tan, the CEO of the Reef Hotel Casino to deliver his address.

Thank you Chairman. Good afternoon unitholders, ladies and gentlemen

CEO’s address

My address this afternoon is in 2 parts. Firstly, I would like to highlight some of the key factors affecting the performance of the Reef Hotel Casino in 2010.

Secondly, I would like provide you with a brief update on our trading so far this year and an update on our current business outlook for the rest of this year.

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Key factors in 2010

Gaming machine tax impact

As the Chairman has mentioned, the increased gaming machine tax rate effective from 1 July 2009, meant the 2010 year was the first full reporting year that has been impacted by this tax increase.

The extra gaming machine tax imposed by the Queensland Government was $2.6 million for the year compared to $1.4 million in 2009. So, that is $2.6 million which hits our bottom line immediately.

Earlier our Chairman had pointed to the weakness of the local Cairns’ economy. In the face of one of the worst economic downturns in Cairns, my management and complex team successfully pursued a business strategy designed to keep the complex operations as profitable as possible in 2010.

Complex performance in 2010

Still, despite our best efforts, an 8% decrease in casino visitations was recorded compared to the previous year. This is reflected in lower casino revenues both in table games and gaming machines.

Wherever possible, operating costs were saved but certain costs are of a fixed nature, and are at the core of maintaining a proper functioning international standard casino operation. While achieving cost savings, we did not allow product and service standards and quality to slip.

The arrival of Cafe China as a rent paying tenant mitigated to some extent the overall lower revenues in our food and beverage operations. The lower food and beverage revenues are consistent with the poor local economy.

However, one relatively bright spot was in room revenues which were up 2.2% with the hotel continuing to lead the five star market in Cairns for revenue per available room. In particular, we noted a slight improvement in the second half of the year.

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Another positive development was bringing the complex maintenance function inhouse, which realised savings of around $350,000.

Cost recovery efforts in hotel operations were good but as with the casino, certain fixed costs are at the core of maintaining a proper functioning 5 star hotel operation. Once again, we were conscious of the need to maintain standards and quality.

Capital expenditure

Renovation works were completed to introduce Café China as a major tenant of the complex from July 2010. Both front of house and back of house works (mainly kitchens) and the refurbishment of Tamarind Restaurant to also provide the Pullman hotel breakfast were carried out.

Consistent with management’s overall strategy, capital expenditure was otherwise tightly controlled with a focus on revenue generating areas such as new gaming machines in the casino.

I think if you walk around the complex, you will agree that our complex continues to be maintained in an excellent condition. This was the case throughout the 2010.

Responsible gaming

The Reef Hotel Casino has been and remains committed to ensuring we have programs and practices in place to assist patrons who may be experiencing difficulties with their gaming and customer liaison officers are on site to assist patrons when required.

The Reef Hotel Casino will continue to maintain dialogue and meet with government agencies, gambling help services and the broader community to keep responsible gaming practices balanced and effective.

I am pleased to report that we discharged our responsibilities in this area very satisfactorily.

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Update so far this year

Let me start with a brief outline of the so called “Wilkie agreement”.

- Mandatory pre commitment for gaming machines

A gaming matter that is currently making the headlines is the so called “Wilkie agreement” made with Prime Minister Julia Gillard which as we know put her into government. A key condition of the Wilkie agreement was that the Labour government is to implement a “mandatory pre commitment” system at all gaming machine venues in 2014.

This matter is complex in many aspects and is being played out in the political arena as we speak. We are working closely with the Australian Casino Association on his matter. Our own view which is consistent with the Australian Casino Association’s view is that while we could support a voluntary pre commitment system we are against a mandatory pre commitment system.

We are unable to say how this matter would pan out in the end as it still remains unresolved. We shall have to wait and see.

Trading results so far this year

On a definitely more positive note, I can report that in the first 4 months of this year, the Reef Hotel Casino has recorded strong revenues growth compared to the same period last year. We have recorded strong revenue growth in both casino and hotel operations.

This is pleasing given that it has been a rather difficult start to the year in terms of trading conditions.

Natural disasters

Earlier in the year, there were the big floods in so many parts of Queensland. Cairns itself had a really wet summer season. The rain and flooding had a negative impact on tourism into Cairns.

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Cyclone Yasi was originally forecast to hit Cairns but in the end, it shifted southwards instead. Still it came at the start of the important Chinese New Year period for Cairns and caused the cancellation of a significant number of Chinese tour groups.

Then Japan experienced one of its worst earthquakes and tsunamis at a time when the Japanese market into Cairns was showing growth again.

2011 strategy

Mindful of the challenges ahead, we carried forward key elements of our strategy of last year to this year.

Business strategy for challenging times

Protecting the bottom line of the complex operations remains a priority.

Our approach to operating costs and capital expenditure will be careful, prudent and conservative. We have cut or deferred non essential expenditure as much as possible in 2010. We will continue to look for additional savings where we can this year.

At the same time last year, we positioned our business for a return to growth particularly in 2011 and 2012. We will intensify our efforts this year. Here are some examples.

• We signed on Cairns’ best Chinese restaurant “Cafe China” who became an important and major tenant in our complex in July 2010. The offer of a full service quality Chinese restaurant in our complex is part of our China strategy. We see tremendous potential in the China market for our operations and we have been preparing ourselves for this market for a number of years already.

• We targeted marketing and promotional initiatives to known local and regional casino patrons via Reef Club, the casino’s loyalty club. This worked well during when in bound tourism was so soft during last year and so far this year.

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• We consolidated our premium player market during difficult times by extra focus on the market closest to us, this being Papua New Guinea.

Looking ahead to the rest of the year, assuming a continuing strong Australian dollar, we expect the year to remain challenging. We think the local economy is still weak and any improvement in the months ahead would be somewhat measured at best.

However, more flights have been put in place, both domestic and international ones. There is solid commitment by Tourism Queensland and also the Federal government to assist our region in terms of tourism marketing. Two of our most important international markets are China and Japan.

With China, I previously mentioned the tremendous market potential for us. There is fair optimism that a direct air link between Cairns and China would become a reality within a year or two. When this happens, I am confident that our business will grow fairly significantly as a result.

With Japan, we hope that the Japanese people will travel in larger numbers soon once they get over the terrible earthquake and Tsunami which the country suffered recently.

Not wanting to leave everything to fate, I have initiated an internal “mini project” to be run over the next 18 months designed to increase the profitability of the Reef Hotel Casino over the next 2 to 3 years. This “mini project” will include various efficiency measures as well as capital works proposals to enhance the attractiveness of our complex as the premier entertainment venue in Cairns.

Ladies and gentlemen, this concludes my address and I would now hand back to the chairman.

Chairman’s address continues

Thank you Allan.

Ladies and gentlemen, let me now continue.

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Trust Outlook

Your board endorses Allan’s and his team’s strategy to improve the profitability of the Reef Hotel Casino over the next 2 years. Their strategy has at its core the achievement of success by ensuring that the Reef Hotel Casino remains the best entertainment venue in Cairns and Far North Queensland.

As the Trust’s revenues are the rentals paid by the Reef Hotel Casino, its results will reflect the performance of the Reef Hotel Casino. Trust costs are under control and are expected to again remain stable this year.

In the first 4 months of this year, rentals paid by the Reef Hotel Casino to the Trust have recorded strong growth compared to the same period last year. Consequently, Trust distributable profits for the first 4 months came in at $3.48 million (compared to $2.41 million for the first 4 months last year) and have already exceeded the distributable profit for the first half of last year which was $3.25 million.

At this stage, we are not making a forecast for May and June 2011 due to the uncertainties of the Cairns’ tourism market and the variability in premium gaming. We will make such a forecast in mid June when we release our unit distribution announcement. At this stage, even though Cairns’ economy is still struggling, we expect to distribute 100% of distributable profits for the first half. Whether we make a top up distribution from the undistributed income account will depend on the actual results for May and June, 2011.

While there is some reason to be optimistic, I share Allan’s view that 2011 will again present as a challenging year. There are some positive signs that Cairns’ and the Far North Queensland region are slowly recovering from the global financial crisis and that tourism is generally improving from a sluggish 2010.

Given the lower Trust profit in 2010 the Trust’s tax losses were not used up in 2010 as anticipated. It is now expected that the Trust’s tax losses (approximately $4 million) will be used up in 2011. This means that future unit distributions would no longer be entirely paid on a “tax deferred” basis. A portion of such distributions could still be “tax deferred” and the balance may be taxable in the hands of the unitholders. This will depend on unit holders’ individual tax circumstances.

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Conclusion

I would like to thank my fellow directors, the partners of the operator, Casinos Austria International and Accor, the management team and the staff of the Trust and the Reef Hotel Casino and last but not least you, our unit holders for your support during this past financial year.

Ladies and gentlemen, that concludes my address to the meeting.

Thank You.

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