110
GRUPO POSADAS, S.A.B. de C.V. Paseo de la Reforma 155, PH-B Col. Lomas de Chapultepec Del. Miguel Hidalgo Mexico, D.F. 11000 Series “A” and Serie “L” shares representing the corporate capital of Grupo Posadas, S.A.B. de C.V. quoted on the Mexican Stock Exchange Market, S.A.B. de C.V. Quote codes: Posadas A Posadas L The shares are registered in the National Securities Registry and quoted on the Mexican Stock Exchange Market, S.A.B. de C.V. Registration in the National Securities Registry does not imply certification of the merit of the securities, or of the issuer’s solvency, of the accuracy or truthfulness of the information contained, nor does it validate the acts which, if applicable, were made in violation of the law. ANNUAL REPORT PRESENTED IN KEEPING WITH THE PROVISIONS GENERALLY APPLICABLE TO SECURITIES ISSUERS AND OTHER MARKET PARTICIPANTS FOR THE CORPORATE YEAR ENDING DECEMBER 31 OF 2010

GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

  • Upload
    others

  • View
    8

  • Download
    0

Embed Size (px)

Citation preview

Page 1: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

GRUPO POSADAS, S.A.B. de C.V.

Paseo de la Reforma 155, PH-B Col. Lomas de Chapultepec

Del. Miguel Hidalgo Mexico, D.F. 11000

Series “A” and Serie “L” shares representing the corporate capital of Grupo Posadas, S.A.B. de C.V. quoted on the Mexican Stock Exchange Market,

S.A.B. de C.V.

Quote codes: Posadas A Posadas L

The shares are registered in the National Securities Registry and quoted on the Mexican Stock Exchange Market, S.A.B. de C.V.

Registration in the National Securities Registry does not imply certification of the merit of the securities, or of the issuer’s solvency, of the accuracy or truthfulness of

the information contained, nor does it validate the acts which, if applicable, were made in violation of the law.

ANNUAL REPORT PRESENTED IN KEEPING WITH THE PROVISIONS GENERALLY APPLICABLE TO SECURITIES ISSUERS AND OTHER MARKET

PARTICIPANTS FOR THE CORPORATE YEAR ENDING DECEMBER 31 OF 2010

Page 2: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

1

INDEX

1) GENERAL INFORMATION 3

a) Glossary of Terms and Definitions 3

b) Executive Summary 4

c) Risk Factors 5

d) Other Securities 17

e) Significant Changes in Rights of Securities Registered in the RNV. 20

f) Public Documents 20

2) THE COMPANY 20

a) Company History and Development 20

b) Business Description 22 i) Principal Activity 23 ii) Distribucion Channels 23 iii) Patents, Licenses, Trademarks and Other Contracts 23 iv) Principal Clients 25 v) Applicable Legislaction and Tax Status 25 vi) Human Resources 27 vii) Environmental Performance 28 viii) Market Information 28 ix) Corporate Structure 30 x) Description of Principal Assets 31 xi) Judicial, Administrative or Arbitration Proceedings 35 xii) Representative Shares of Corporate Capital 35 xiii) Dividends 36

3) FINANCIAL INFORMATION 37

a) Selected Financial Information 37

b) Financial Information per Business Line, Geographic Zone and Export Sales 38

c) Relevant Loan Information 39

d) Comments and Analysis of the Management on the Operating Results and Financial Situation of the Company 39

i) Operating Results 39 ii) Financial Situation, Liquidity and Capital Resources 52 iii) Internal Control 57

e) Estimates, Critical Accounting Allowances or Reserves 58

4) ADMINISTRATION 60

a) External Auditors 60

b) Related Party Transactions and Conflicts of Interest 60

c) Administrators and Shareholders 61

d) Corporate By-laws and Other Agreements 67

5) CAPITAL MARKETS 69

a) Stock Structure 69

b) Share Performance on the Securities Market 69

c) Market Maker 70

6) PERSONS RESPONSIBLE FOR THE INFORMATION CONTAINED IN THE ANNUAL REPORT 71

Page 3: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

2

7) ATTACHMENTS 72

Opinion of the independent auditors and consolidated financial statements 2010 and 2009

Page 4: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

3

1) GENERAL INFORMATION

a) Glossary of Terms and Definitions

TERM DEFINITION

“BMV” or “Stock Exchange”

Shall mean Mexican Stock Exchange Market, S.A.B. de C.V.

“CNBV”

Shall mean National Banking and Securities Commission.

“Company” or “Posadas”

Shall mean Grupo Posadas, S.A.B. de C.V. and its subsidiaries.

“Issuer”

Grupo Posadas, S.A.B. de C.V.

“Audited Financial Statments”

The financial statements audited by Galaz, Yamazaki, Ruiz Urquiza, S.C. for the corporate years ending December 31, 2010 and 2009 included in the present Annual Report.

“Report”

The present Annual Report.

“RNV”

National Securities Registry under the National Banking and Securities Commission.

“$” or ”Pesos” or “M.N.”

Currency of legal tender in the United Mexican States.

“US” or “Dollars”

Currency of legal tender in the United States of America.

“M”

Millions.

“NIF”

Mexican financial information norms.

Page 5: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

4

b) Executive Summary

This summary is not intended to contain all of the information which may be relevant to make

investment decisions regarding the securities that are herein mentioned. Therefore, the investing public should read all of the Annual Report, including the audited financial statements and, in the respective case, the corresponding notes before making an investment decision.

Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels in

Mexico based on the number of hotels, rooms, geographic coverage, income and market participation (Source: Market Investigation Department of Grupo Posadas). As of December 31, 2010, the Company operated 112 hotels and resorts, representing a total of 19,849 rooms in 57 destinations in Mexico, the United States, Brazil, Argentina and Chile, serving a broad base of tourist and business travelers. The Company’s businesses are concentrated in Mexico, where it operates 96 hotels for a total of 16,810 rooms in 44 destinations, including the most important urban and coastal destinations. The Company also operated 3 hotels which represented 679 rooms in the state of Texas in the United States of America, 10 hotels in Brazil for a total of 1,971 rooms, two hotels in Argentina with 247 rooms and a hotel in Chile with 142 rooms. As of December 31, 2010, of the 112 hotels operated, the Company had a majority holding in 33 hotels, operated 61 and leased 18.

The Company has expanded through strong positioning and development of its brands, which insure

service consistency and client recognition. The Company operates its hotels in Mexico principally through the brands Fiesta Americana, Fiesta Inn and One Hotels. The Fiesta Americana hotels offer a wide variety of services and luxury rooms appealing to high economic level tourism in coastal destinations and executive business travelers in city destinations. On the other hand, the Fiesta Inn hotels are smaller in size, with more moderate prices, comfortable rooms, a variety of services and located in small to medium sized cities, as well as in the suburbs of large urban areas. One Hotels attract business travelers who are looking for the best price at an excellent location since these hotels have standardized services and are located in urban areas.

In Brazil, Argentina and Chile, the Company operates its luxury hotels under the Caesar Park brand,

and has presence in the four star market in the principal industrial and commercial cities in those countries through its Caesar Business brand.

The Company has achieved a leadership position by maintaining strategies and opportunities that

have allowed it to constantly grow, with a diversified and balanced portfolio: owned, leased and managed hotels, both urban and coastal hotels, serving both tourist as well as business travelers with a geographic coverage that extends across 4 countries in Latin America: Mexico, Brazil, Argentina and Chile, as well as a limited presence in the state of Texas in the United States.

Additionally, the Company operates a business denominated Fiesta Americana Vacation Club

(“FAVC”), through which members purchase, usually in installments, a “40 year right to use” represented by annual FAVC points. The FAVC points may be used for lodging at any of the four FAVC complexes located in Los Cabos, Baja California Sur, Acapulco, Guerrero, Cancun and Kohunlich in Quintana Roo, Mexico, as well as in any of the hotels operated by the Company. Additionally, FAVC members may use their points at Resorts Condominium International (“RCI”) complexes and Hilton Grand Vacation hotels. During 2010, the Company began commercializing a new product denominated “KIVAC” consisting of the sale of points with validity up to 5 years which may be traded for accommodations in any of the hotels of the Company.

Regarding growth through other businesses, the Company has implemented the following service

businesses which are not necessarily linked to the hotel industry: (i) Conectum, the administrative service center, which is in charge of the administrative control of the owned, leased hotels, and which has begun to offer its services to other industries other than the hotel industry; (ii) Ampersand , which manages loyalty programs; (iii) Konexo the contact center (“Call Center“) and (iv) Summas, which offers negotiation and administration services for centralized purchases to the different owned, leased and managed hotels.

Selected Financial Information The following summarizes the Company’s financial information. The information herein presented has

been prepared in accordance with the Mexican Financial Information Norms (“NIF”), issued by the Mexican Council for Financial Information Norm Research and Development, A.C. (“CINIF”), which decided to rename the generally accepted accounting principles previously issued by the Mexican Public Accountants Institute, AC., as NIF.

Page 6: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

5

This consolidated financial information summary is presented for the years 2010, 2009 and 2008, based on the Company’s consolidated financial statements which have been audited by Galaz, Yamazaki, Ruiz Urquiza, S.C., the Company’s external auditors.

The financial information presented should be reviewed jointly with the financial statements indicated

in the previous paragraph and, if applicable, its respective notes. Likewise, the financial information summary should be reviewed with all the explanations provided by the management of Posadas in the “Financial Information” Chapter, specifically in the section “Comments and Analysis of the Management on the Operating Results and Financial Status of the Company”. Some figures may vary due to rounding off.

The shares which represent the corporate capital of the Company are listed on the Mexican Stock

Exchange Market, S.A.B. de C.V., where they have quoted since 1992. The number of shares in circulation (weighted average) to December 31, 2010 amounts to approximately 483 M. Of the number of shares of capital subscribed, approximately 81% are series “A” common shares with full voting rights and 19% are represented by series “L” shares with limited voting rights. Additionally, approximately 20,000 series “A” shares and 48,000 series “L” are quoted on the PORTAL system (Private Offerings, Resales and Trading through Automated Linkages) of the NASD (National Association of Securities Dealers) in the form of ADS (American Depositary Shares). Series “A” shares have shown low negotiability according to the BMV’s rating

while the Series “L” shares have shown low negotiability pursuant to the BMV rating, therefore both series operate according to a BMV bid scheme. Trading in series “A” and series “L” shares has never been suspended by the regulatory authorities.

Independent Auditors Figures

For the years ended on December 31st:

2010 2009 2008

Income Statement Data:

Total revenues Ps. 6,537.5 Ps. 7,082.9 Ps. 6,904.5

Corporate expenses 110.4 89.1 97.6

Depreciation, amortization, and real estate leasing 808.8 814.9 722.3

Operating income 573.1 805.9 1,140.8

Comprehensive financing cost (income) 288.1 332.1 1,509.6

Taxes 8.0 132.2 (111.2)

Net income 35.9 262.4 (701.8)

Majority net income(23) 24.6 266.4 (615.4)

Balance Sheet Data (End of Period):

Current assets Ps. 2,183.6 Ps. 2,021.6 Ps. 2,667.0

Property and equipment, net(34) 8,884.9 9,083.7 9,386.7

Total assets 12,971.4 12,770.7 13,544.8

Current liabilities(45) 1,470.3 1,999.8 2,659.0

Long-term debt ……… 5,617.3 4,031.2 4,193.7

Total liabilities ……… 8,891.0 8,337.7 8,793.2

Stockholders’ equity 4,080.4 4,433.0 4,458.8

Other Financial Data:

Capital expenditures

EBITDA(56)

EBITDA to Interest Expense 8.8% 11.4% 16.5%

Total Debt to EBITDA 0.5% 3.7% n.d.

EBITDA Margin(78) $1,021.4 $1,242.9 $1,529.9

EBITDA / Total revenues 15.6% 17.5% 22.2%

Indebtedness / EBITDA 5.7 X 4.0 X 3.5 X

Current assets / Current liabilities 1.49 X 1.01 X 1.00 X

Total liabilities / Equity 2.18 X 1.88 X 1.97 X

(in million of pesos)

Page 7: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

6

The following table shows the annual behavior of the series “A” and series “L” shares during the last

five years on the Stock Market:

Source: Bloomberg (The daily average volume is based on trading days).

For more information regarding share behavior see section 5 b) “Stock Market– Share Behavior on

the Securities Market”.

c) Risk Factors

The investing public should consider carefully all the information contained in the Annual Report, and specifically the following risk factors which are detailed below. These risks are not the only ones that the Company faces. Additional risks and uncertainty of which the Company is not aware or that are currently thought immaterial may have a material adverse effect on the Company’s, operations, financial situation and operating results.

Risks Relating to the Company

Hotel and Vacation Club Business

The current situation in global credit markets and its effects on the global and Mexico’s economy may adversely affect our businesses

Substantial volatility in the global capital markets, financing resources at reasonable rates are limited in the global capital markets and widely documented commercial credit market disruptions since the fall of 2008 have had a significant negative impact on financial markets, as well as the global and domestic economies. The effects of these disruptions are difficult to quantify, and it is impossible to predict when the global financial markets will improve. There is no general consensus among economists that determines how long the recession will last regarding the economies in which we operate and this has lead to a reduction of the demand for our hotel rooms and villas of our vacation club. Substantial increases in air and ground travel costs, and decreases in airline capacity arising primarily from reduced or consolidated flights have also reduced demand for our hotel rooms and villas of our vacation club. Accordingly, our financial results have been impacted by the economic slowdown and both our financial results as well our growth may be further harmed if current global economic conditions persist or worsen, affecting the general and liquidity conditions of our business. The effects of the current economic situation are extremely difficult to forecast and mitigate.

POSADAS A 2006 2007 2008 2009 2010

Price (High) 12.04 18.25 20.06 16.30 18.26

Price (Low) 10.31 12.14 14.10 10.60 16.50

Price (Closing) 12.04 18.25 14.10 16.30 18.25

Average daily volume 21.7 10.5 3.9 0.6 21.0(thousands of shares)

POSADAS L

Price (High) 12.04 18.25 19.00 14.00 17.25

Price (Low) 9.00 12.04 11.00 9.00 12.93

Price (Closing) 12.04 18.25 11.00 14.00 17.25

Average daily volume 76.8 20.9 18.5 0.4 2.9(thousands of shares)

Page 8: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

7

A high percentage of the hotel we manage are luxury hotels or they are in locations which have been particularly impacted by the current economic slowdown or the guests come from places affected by said contingencies, which has had and continues to have a significant adverse effect on the operating and financial results of our business.

Approximately 34% of the rooms that we manage are in Hotels classified as luxury hotels. Luxury hotels generally command higher room rates. In an economic downturn, these hotels are susceptible to a decrease in revenues, as compared to hotels in more economical categories, since hotels in this segment generally target the business and high-end vacation market. In periods of economic difficulties, such as the current situation, business and leisure travelers reduce their travel costs or limit or reduce the number of trips. If the current economic conditions persist, it may have an adverse effect on our operating and financial results.

Concentration in just one industry

The Company’s operation is principally concentrated in just one industry –hotel and services industry- and the current strategy consists of staying focused in this industry and other related business, such as the vacation club, management of loyalty programs, contact centers and centralized management.

The minority strategic investment that the Company had in Nuevo Grupo Aeronautico, S.A. de C.V. (once Grupo Mexicana de Aviacion, S.A de C.V.) was sold in August of 2010 for a symbolic price. Currently, the Company does not have any shares in Nuevo Grupo Aeronautico, S.A. de C.V. nor in any of its subsidiaries.

Competition.

Competition for guests.

The hotel business is highly competitive. Foreign investors, using Mexican corporations, may directly or indirectly purchase a 100% holding in tourism-related businesses, including construction, sale, lease, or operation of realty in Mexico.

Competition in the hotel sector is represented by a variety of national and international hotel operators, some of these, especially international operators, are substantially bigger than the Company and may have greater marketing and financial resources than the Company. Said operators may operate under recognized international and Mexican brands. In addition to competing for guests with other Mexican resorts, the Company also competes for guests with resorts of other countries.

Competition for operating agreements.

When the Company seeks to grow through increasing new hotel properties, it faces competition from other entities seeking the same opportunities. The Company competes with other entities that have greater financial resources or that have better-recognized international brands so as to enter into operating contracts with hotel owners. In addition to the competition for new opportunities, the Company is also subject to competition from other hotel chains when the Company´s existing operating contracts expire. Therefore, the Company cannot assure that it will continue renewing successfully its operating contracts. Competition may generally reduce the number of growth opportunities in the future, increase the bargaining power of hotel owners and reduce the Company’s operating margins.

Geographical Dependency

The Company’s operation are principally concentrated in Mexico since 92 of the 112 hotels operated, that is 85% of the rooms operated are located in Mexico and these represent 86% of income while 10 hotels, or 10% of rooms and 14% of income correspond to Brazil. In spite of the fact that inventory in Mexico is diversified to serve the city and beach segments as well as vacation and business travelers, the Company is significantly dependent on its Mexican operations. If these Mexican operations do not continue according to the Company’s designed plan and strategies, it could have a material adverse effect on the Company’s operations, financial situation or its overall operating results.

Growth Strategy

The Company has designed a growth strategy for its hotel, vacation club and other service businesses in Mexico and South America. The Company’s ability to expand will depend on a number of global

Page 9: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

8

economy factors including, but not limited to, the conditions of the United States, Mexican, Brazilian, Argentine and Chilean economies, the ability of investors to construct new properties for the Company to operate and/or lease and the selection and availability of new hotels locations, as well as the availability of financing. There can be no assurance that the Company’s expansion plans can be achieved, or that the new hotels or vacation club developments will meet with consumer acceptance or be operated profitably. In this same manner, the Company continues to develop new businesses related to offering third-party services, such as loyalty program management, rendering management services and contact services.

As part of its growth strategy, the Company assumed determined obligations regarding the development of a hotel complex located in the Rivera Maya, and different factors, including financing or climatological events, may impede its timely completion time, which may adversely affect the financial condition of the Company.

Operation Contracts and Brand Licensing

Of the hotels operated by the Company to December 31, 2010, 61 operate under an operating arrangement that the Company carries out by signing hotel operation and brand licensing contracts. The operating and financial conditions of the Company may be adversely affected to the extent that hotel operation and brand licensing contracts which are about to expire are not renewed or are renewed on less favorable terms. Furthermore, under determined operating contracts the owner may not continue the Company’s services if certain hotel performance standards are not met, however this does not mean that the Company breached the operating contract. To date, no hotel operating contract has been anticipatorily terminated due to the previous circumstance.

Furthermore, although under our operating and lease contracts the owner cannot transfer or convey the hotels or assign the rights to a third party, we cannot assure that said transfer or conveyance is not carried out, nor that the third party to whom the property or the rights are conveyed will continue to be bound by said contracts. To date, no sale of rights has adversely affected the Company’s contractual relationship with the owners, but we cannot assure that this situation will continue to be in our favor in the future.

Finally, the economic and financial capacity of the hotel owners may affect conservation of the brand standards under which the hotels operate. The Company may need to notify termination of brand licensing contracts for breach of said standards, and this situation may adversely affect income from the hotels and of the fees which are based on said income.

Leasing contracts

Of the hotels operated by the Company to December 31, 2010, 18 operate under a leasing arrangement, and additionally part of the Company’s growth will come from said arrangements. Operation and financial conditions of the Company may be adversely affected to the extent that our income and operating profits are not sufficient to cover our obligations under the lease agreements. In accounting terms, leases are not capitalized and are registered as expense as they accrue. To December 31, 2010, some of the leased hotels did not generate sufficient revenues to cover our lease payment obligations. To this date, we are fulfilling the lease payments of all our leased hotels.

Our service businesses may not be successful and may affect our hotel business.

We have recently created certain services businesses, including Ampersand, Konexo, Conectum and GloboGO, which, on a consolidated basis, represented 16% and 14 % of the total revenues of the Company to December 31, 2010, and 2009. These businesses have developed from our hotel business but there can be no assurance that said businesses will perform in accordance with our expectations. Furthermore, the implementation and development of these businesses may imply the distraction of our executive officer team and the detouring of resources. If the implementation of these services takes longer than planned or if implementation is unsuccessful, the anticipated benefits may be less or none. However, we depend on these businesses to operate various businesses, such as the Fiesta Rewards program, the contact or call center, accounting processing, payroll payments, and technology services. If any of these companies cease to provide their respective services to us, or if they provide them less effectively, the Company’s operations and financial condition would be adversely affected.

Page 10: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

9

Holding Company Structure

The Issuer is a holding company which principal assets consists of the shares of its subsidiaries. Even though at present almost all the subsidiaries are not contractually limited to pay dividends to the Issuer, any financing or other agreement that in the future restricts the subsidiaries ability to pay dividends or make other payments to the Company may adversely affect the latter’s liquidity, financial situation and operating results.

Generally, Mexican corporations may pay dividends to their shareholders if dividend payments and the financial statements reflecting distributable net profits have been approved by the shareholders, after establishing the legal reserves, and only if all losses have been absorbed or paid.

Since the Company is a holding company, the possibility that the Issuer may satisfy the demands of its creditors ultimately depends on its ability to participate in its subsidiaries asset distribution upon liquidation. The Issuer’s right, and therefore its creditors’ right to participate in said asset distribution, is effectively subordinated to the subsidiaries’ creditors payment claims (including claims having legal preference and the Company’s creditors claims which are guaranteed by said subsidiaries).

Dependence on our key employees.

The Company depends on its Executive Committee members and other key members of our executive management staff, and their loss may have an adverse effect on our business and future operations. See “Administrators and Shareholders”.

We have significant amounts of indebtedness which becomes due in the next several years, and we cannot assure secure refinancing on favorable terms.

Historically, we have addressed our liquidity needs (including funds required to make scheduled principal and interest payments, refinance indebtedness, and fund working capital and planned capital expenditures) with operating cash flow, borrowings under credit facilities, proceeds of debt offerings and proceeds from asset sales. The prevailing situation may negatively impact our ability to access additional short-term and long-term financing which would negatively impact our liquidity and financial condition.

Tax disputes

We are involved in various tax proceedings, including several tax disputes with federal tax authorities regarding certain operations in which the authority alleges underpayments allegedly made by the Company and some of our subsidiaries for an aggregate accumulated amount of approximately Ps.1,121 million. The foregoing amount does not include other amounts such as fines, surcharges and updates that we may be required to pay if these claims are unfavorable to the Company. As a consequence of said claims, different real property and personal guarantees had been granted by the Company and some of its subsidiaries.

If any of these various actions is resolved unfavorably to the Company’s interest, we may ultimately be required to pay the amounts levied together with the corresponding updates, surcharges and fines. In the respective case, these amounts are likely to be significant if so resolved. Generally speaking, rulings in tax proceedings pose a significant amount of unpredictability and, as a result, we cannot forecast the outcome of any of these proceedings, when they may be resolved or the final amounts that may be payable in connection therewith. To this date, the Company’s management has not allocated any reserve in relation to such disputes since based on the opinion of the Company’s tax advisors, and as permitted by NIFs, that an unfavorable outcome is not possible but less than probable, and as such the actions of the Company’s Management are based on the latter opinion. If all or a significant part of these actions were decided adversely to the Company, it could have a material adverse impact on our business, financial situation and operating results.

We are exposed to currency and exchange rate risk on our debt, and we have entered into derivatives contracts.

Historically, the majority of our indebtedness had been denominated in U.S. dollars. As of December 31, 2009, approximately 83% of our indebtedness was denominated in U.S. dollars. Approximately half of our indebtedness bore interest at variable rates. As a result, we were also exposed to risks from fluctuations in interest rates.

Page 11: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

10

To help minimize our exposure to high volatility in peso interest rates, we have sought to maintain a significant percentage of our indebtedness in U.S. dollars. At times when non-U.S. dollar markets are available to issue debt, we enter into derivative financial instruments with financial institutions so as to balance our debt in alignment with our revenues. Specifically, income from certain hotels in Mexico, Brazil and Argentina whose room rates are typically quoted in U.S. dollars, as well as the sale and financing of time-share club memberships which are also typically quoted in U.S. dollars. We do not usually enter into derivative financial instruments for any other purpose than those stated, however although these are limited in amount and frequency, and we may do so in the future. The types of derivative instruments that we have recently executed principally include swaps with crossed currency exchange, in which we generally pay United States dollar amounts based on fixed interest rates and we receive Mexican peso amounts at floating interest rates.

Our use of derivative instruments is primarily intended to provide protection against the exchange rate risk of our indebtedness. Our use of derivative instruments for interest-rates is intended to mitigate risk. We may determine that such risks are acceptable or that the protection available through derivative instruments is insufficient or too costly. These determinations depend on many factors, including market conditions, the specific risks in question and our expectations concerning future market developments. We review our derivatives positions regularly, and our hedging policies change from time to time. Notwithstanding such review, our derivative positions may be insufficient to cover our exposure.

If financial markets experience periods of heightened volatility, as they have recently, our operating results may be substantially affected by variations in exchange rates and, to a lesser degree, interest rates. These effects include foreign exchange gain and loss on assets and liabilities denominated in U.S. dollars, market value gain and loss on derivative instruments, and changes in active and passive interest rates.

Although we attempt to match the cash flows on our derivative transactions with the cash flows on our indebtedness, the net effects on our reported results in any period are difficult to predict and depend on market conditions and our specific derivatives positions. Although we seek to enter into derivatives that are not affected by volatility to a significant extent, in the event of volatile market conditions, our exposure under derivative instruments may increase to a level that impacts our financial condition and operating results. In addition, volatile market conditions may require us to post collateral to counterparties in our derivatives transaction, which would affect our cash flow position, the availability of cash for our operations and may impact our financial condition and operating results.

Our derivative transactions may also be subject to the risk that our counterparties will seek bankruptcy protection. Instability and uncertainty in the financial markets has made it more difficult to assess the risk of counterparties to derivatives contracts. Moreover, in light of the greater volatility in the derivatives and stock exchange markets, there may be fewer financial entities available with which we could continue entering into derivative financial instruments to protect the Company against currency exchange risks and the financial conditions of our counterparties may be adversely affected under stressful conditions.

Costs of compliance with employment laws and regulations which could adversely affect operating results.

Collective bargaining agreements for hotel employees have been signed, and are reviewed and renewed periodically. Although under the terms of the management contracts, the collective bargaining agreement or the individual contracts, as well as rendering of service contracts executed with third parties, as applicable, the employees at our managed hotels or of the third parties, are employed by the hotel owners, or the third parties, nevertheless such employees may file their claims against us. In such circumstances, if we are not successful in defending our position before a labor court, we may be held liable for those employee claims. In addition, we have a significant number of employees working at our owned hotels. Although we have not experienced significant labor stoppages or disruptions, the failure to timely renegotiate the expiring contracts may result in labor strikes or disruptions which could adversely affect our revenues and profitability. Labor costs, including those related to indemnity and payments under labor laws are significant, and may escalate beyond our expectations which could have an adverse effect on our operating margins.

Our insurance coverage may be insufficient to cover potential losses.

We carry insurance coverage for general civil liability, damage to property, business interruption and other risks with respect to our owned, managed and leased hotels and we even make available insurance programs and package to the owners of our managed hotels. These policies offer coverage terms and conditions that we believe are usual and customary for our industry. Generally, our “all-risk” policies provide that coverage is available on a per occurrence basis and that each occurrence has a limit as well as various sub-limits on the amount of insurance proceeds we will receive in excess of applicable deductibles. In addition, there may be overall indemnification limits under the terms of the policies. Sub-limits exist for certain types of

Page 12: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

11

claims such as service interruption, debris removal, immediate costs or landscaping plant replacement, and other landscaping elements, however the amounts covered under these sub-limits are significantly lower than the amounts covered under the overall coverage limit. Our policies also provide that, for the coverage of earthquakes, hurricanes and floods, all claims from any hotel resulting from a covered event must be combined for purposes of the annual aggregate coverage limits and sub-limits. In addition, any such claims will be combined with the claims made by the owners of managed hotels that participate in our insurance program. Therefore, if covered events occur that affect more than one of our owned hotels and/or managed hotels that participate in our insurance program, the claims from each affected hotel will be added together to determine whether, depending on the type of claim, the per occurrence limit, annual aggregate limit or sub-limits have been reached. If the limits or sub-limits are exceeded, then each affected hotel would only receive a proportional share of the amount of insurance proceeds provided for under the policy. In addition, under those circumstances, claims by third-party owners would reduce the coverage available for our owned and leased hotels.

There are also other risks including, but not limited to, armed conflicts or guerillas, certain forms of nuclear, biological or chemical terrorism, certain forms of political risks, some environmental hazards and/or certain events of acts of God that may be deemed outside of the general coverage limits of our policies, uninsurable or for which carrying insurance coverage is cost-prohibitive.

Obtaining payment from insurance providers of a particular claim that we believe to be covered under our policy may also be considered a risk. Should an uninsured loss or a loss in excess of our insured limits occur, we could lose all or a portion of the capital we have invested in a hotel owned, managed or leased by us, as well as the anticipated future income from any such hotels. In that event, we might nevertheless remain bound for any lease payments or any other financial obligations related to the hotel.

The vacation club business is subject to risk of member defaults.

At present, we bear the risk of defaults under purchase contracts for vacation club (time-share) memberships. Vacation club members buy a “40-year-right-to-use” evidenced by an annual allocation of vacation club points. We typically charge an initial payment of between 10% and 30% of the total price of the membership and offer monthly installment payment plans that accrue interest on the unpaid balance of the purchase price. We recognize as income the entire value of a purchase contract at the time 10% of the purchase price is paid, and we create a reserve for future accounts receivables based on our market experience and knowledge. At the time a purchaser enters into a time-share installment purchase agreement the possible default on said sale is covered by the reserve. It may be the case that our reserve would be insufficient to offset breaches which could negatively affect our financial results.

Also, historically, substantially all of our vacation club sales have been denominated in U.S. dollars. Due to the on-going financial crisis, a significant portion of our vacation club revenues have been recalculated, in Mexican pesos, albeit at a higher interest rate, at the request of certain members facing liquidity difficulties. The great majority of Mexican members that wanted to convert their installment payment obligations from U.S. dollars were able to do so. We expect to continue to offer peso-denominated payment plans to Mexican residents challenged by the current economic situation. Recently we have financed our receivables in pesos, generating a better match of our cash flows.

Notwithstanding our redenomination of a significant portion of our vacation club receivables portfolio, many installment vacation club sales remain denominated in U.S. dollars. Accordingly, our results will still be affected by U.S. dollar-peso exchange rate fluctuations.

While membership payments are made in U.S. dollars throughout the payment period in force, and sales revenues are registered in U.S. dollars at the time the contract is signed the value of the memberships may ultimately be discounted in the same currency offering natural currency coverage. We do not completely hedge against our exposure to exchange rate fluctuation risk. Traditionally, we have not executed hedging transactions for this exposure.

Risks Relating to the Hospitality Industry

We are subject to all of the operating risks common to the hotel and vacation club business industries.

These risks include:

Page 13: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

12

Changes in general economic conditions, including the timing and robustness of a recovery from the current economic downturn;

Impact of public insecurity, armed encounters and terrorism on travel desirability;

Domestic and international political and geopolitical conditions, including civil uprisings and unrest, expropriation, nationalization and repatriation;

Travelers’ fears of exposures to contagious diseases;

Decreases in demand or increases in inventory for the sale of vacation properties;

The impact of internet intermediaries on pricing and continuing reliance on technology;

Cyclical over-building of hotel and vacation club properties;

Restrictive changes or interpretations of laws or regulations, as well as any other governmental actions, related to zoning and land use, health, security, the environment, operations, taxation, and immigration;

Changes in travel patterns;

Changes in operating costs including energy, labor, insurance and others related to natural disasters and their consequences;

Disputes with third-party property owners which may result in litigation;

Disputes relating to the right to use patents and brands and other industrial or Intellectual property rights;

The availability of capital to fund construction, renovations and other investments;

Currency exchange fluctuations;

Personal injury that may result in claims brought by our clients;

The financial condition of third-party property owners;

The financial condition of the airline industry and its impact on the hotel industry.

The Hotel Industry is Cyclical

The hotel industry is cyclical by nature. Of the 19,849 hotel rooms that the Company operated to

December 31, 2010, approximately 22% are located in beach destinations where the cyclical nature is more

pronounced in contrast to hotels that cater primarily to business travelers. Generally, our Resort hotel revenues

are greater in the first and third quarters than in the second and fourth quarters, which reflect winter vacations.

This seasonal cycle may generate quarterly fluctuations in the Company’s revenues.

General Real Estate Investment Risks.

The Company is subject to the risks inherent in real property ownership. Profitability on the Company’s hotels may be affected by changes in local economic conditions, competition from other hotels, interest rate variations and financing availability, environmental legislation impact and compliance with environmental laws, continuous need for improvements and remodeling, especially of old structures, tax modifications affecting realty, adverse changes in governmental and fiscal policies, as well as disasters, including earthquakes, hurricanes and other natural disasters, adverse changes in state laws and other factors beyond the Company’s control.

Lack of Real Estate Liquidity.

Real estate is relatively liquid. The Company’s ability to diversify its hotel properties investment in response to economic or other conditions may be limited. There can be no assurance that the market value of any of the Company’s hotels will not decrease in the future. The Company cannot guarantee that it will be able to dispose of a hotel if it deems it advantageous or necessary, nor can the Company assure that the sale price of any of its properties will recoup or exceed the amount of its original investment.

Page 14: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

13

According to NIFs, book value of the Company’s properties to December 31, 2007 was restated using factors derived from the National Consumer Price Index (“INPC”). Beginning on January 1, 2008, the Company suspended recognizing inflationary effects. Moreover, the Company’s practice is to capitalize improvements, remodeling, and replacements. In regards to ownership by foreign subsidiaries, they are valued at historical cost and converted into pesos, as explained in Note 2c in the Audited Financial Statements.

Natural Disasters (Acts of God)

The properties that the Company operates are subject to Acts of God, such as natural disasters, particularly in locations where we own or operate various hotels. Some of these events may be hurricanes, earthquakes, epidemics, terrorism and environmental hazards, which may be either uninsurable or insurance costs are too expensive with significant deductibles to the Company. Notwithstanding, that said properties are insured against All Risks, the damage that said events may cause represent a materially adverse risk factor to the properties managed and to the income derived from these properties, to the Company’s financial situation or to its operating results. The Company operates 25 hotels in beach locations which are subject to hurricanes and which may be affected by loss of business due to business activity reduction caused by a hurricane.

Epidemics

The hotel industry is also susceptible to any sort of a type of sanitary contingency that may directly affect the national and international tourist as well as business traveler flow which may have effects in the occupancy factors and in the consumption in the property operated by the Company.

Environmental and other Regulations

We are subject to laws, ordinances and regulations relating to, among other things, taxes, environmental matters, the preparation and sale of food and beverages, handicap accessibility, construction, occupational, health, sanitation and safety, and general building and zoning requirements in the various jurisdictions in which our hotels are located and protection of personal information to which we have access. Hotel owners and managers are also subject to the execution of laws governing labor and social security. Compliance with and monitoring these laws may be cumbersome. Failure to comply with the preceding laws may substantially affect our operating results.

Environmental laws, ordinances and regulations of the various jurisdictions in which we operate may make us liable for the costs of removing, cleaning up or eliminate hazardous or toxic substances on, under, or in property we currently own, operate or lease or that we previously owned, operated or leased without regard to whether we knew of, or were responsible for, the presence of hazardous or toxic substances. The presence of hazardous or toxic substances or the failure to properly clean up such substances if present could jeopardize our ability to develop, use, sell or rent the affected realty or to borrow money using such property as a guarantee. We are also subject to other laws, ordinances and regulations relating to lead, asbestos-containing materials, operation and closure of storage tanks, and preservation of wetlands, coastal zones or endangered species, which could limit our ability to develop, use, sell or rent our real property or use it as collateral. Future changes in environmental laws or the discovery of currently unknown environmental conditions, including archeological zones, may have a substantial adverse effect on our financial condition and operating results. In addition, Mexican environmental regulations have become increasingly stringent. This trend is likely to continue with the passing of time and may be influenced by the various environmental international agreements. Accordingly, there can be no assurance that more stringent enforcement of existing laws and regulations or the adoption of additional laws and regulations would not have a material effect on our business and financial (or other) condition or prospects.

Concentration in Internet distribution channels may negatively impact our distribution costs.

A significant number of our hotel rooms are booked through internet travel intermediaries that have expanded in the past years. To the extent that internet bookings increase, these internet travel intermediaries may be able to obtain higher commissions or reduced room rates. Moreover, some of these internet travel intermediaries are attempting to convert hotel rooms into commodities, by increasing the price and general quality indicators (such as “three-star downtown hotel”) at the expense of brand identification. These agencies

Page 15: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

14

expect that consumers will eventually develop brand loyalties to their reservations systems rather than to the brands of the hotel suppliers. Although we expect to derive most of our business from our direct distribution channels (call center, our corporate sales booking tools and our websites) and traditional distribution channels, if the amount of sales made through internet intermediaries increases significantly, our business and profitability may be harmed.

The hotel industry is significantly dependent on technology.

The hotel industry continues to demand the use of technology and sophisticated systems including solutions utilized for property management, income management, quality and brand control, procurement, reservation systems, operation of our customer loyalty program, and guest distribution and services. These technologies may be expected to require enhancements and new interfaces, including those to comply with legal requirements such as privacy regulations and specifications established by third parties such as the electronic payment card industry. Further, the development and maintenance of these technologies may require significant capital. There is no assurance that as various systems and technologies becomes outdated, or new technology is required, we will be able to replace or introduce these as quickly as our competition or within budgeted costs and timeframes for such technology. Furthermore, there can be no assurance that we will achieve the benefits that may have been anticipated from any new technology platform or system.

Greater Internet intermediary presence

A greater number of the Company’s room reservations are made through virtual Internet intermediaries such as Travelocity.com©, Expedia.com ©, Priceline.com©, Hotels.com©, and Orbitz.com©. To the extent that the reservations made by this means increase, these intermediaries may obtain higher commissions, reduced room rates and other contractual concessions from the Company. If the sales amount done through Internet intermediaries significantly increases, the business and the Company’s profitabil ity may be adversely impacted. The hotel industry is capital intensive.

For our hotel properties to remain attractive and competitive, the Company or the hotel owner, as applicable, must periodically spend a percentage of their cash flow. This creates an ongoing need for cash, to the extent the if Company or the hotel owners, as the case may be, cannot fund capital expenditures from cash flow generated by operations, then the funds must come from additional financing. In addition, the Company, to continue growing its vacation club business, needs to use cash flow or contract additional indebtedness to develop new units. Accordingly, the Company’s financial results may be affected by the cost and availability of such funds.

Public Security

The potential client’s perception of insecurity in cities and in the country may influence tourist and business traveler flow to the destinations in which the Company operates a hotel which would adversely affect our revenues and operating result due to decreased travel and reduced demand for the destinations affected by such events.

Any failure to protect our brands could have a negative impact on the value of our brand names and adversely affect our business

We believe our brands and trade names are an important component of our business and of the hotel business in general. We rely on laws that protect intellectual and industrial property rights to protect our registered proprietary rights. The success of our business depends in part upon our continued ability to use our industrial property rights to increase brand awareness and further develop our brands on both the Mexican and international markets. Monitoring the unauthorized use of our intellectual property is difficult and burdensome. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of third parties. Litigation of this type could result in substantial costs and diversion of resources to said purpose and which may result in counterclaims or other claims against the Company, divert management attention and could significantly harm our operating results.

Page 16: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

15

From time to time, we apply for registration so as to keep certain trademarks registered. There is no guarantee that such trademark or trade name registrations will be granted. We cannot assure that all of the steps we have taken to protect our trademarks in Mexico and other countries in which we operate our business will be sufficient and the Company’s operation and finances may be adversely affected as the income and the operating profits are insufficient to prevent plagiarism of our trademarks by third parties. The unauthorized reproduction of our trademark may result in diminishing the value of our brand and its acceptance in the market, losing of competitive advantage or brand goodwill, and could adversely affect our business.

Vacation Club Sales

We develop and operate vacation club resorts commercializing time-share memberships in said resorts. Most of the times, we sell the memberships pursuant to interest-accruing monthly installment payments. The applicable provisions in this regard grant the purchaser the right to rescind the purchase contract without justification in a term of five business days counted from the signing of the contract. The sale of time-share memberships is subject to Mexican legal provisions, with which we believe that we are in compliance or in the process of complying, and changes in these legal requirements or a determination by an authority may adversely affect our business and the manner in which we operate our vacation club.

Risks Relating to Mexico

Mexican Economic Conditions and Governmental Policies

The Company and a significant part of its subsidiaries are incorporated under Mexican law, and its corporate offices as well as an important part of its assets are located in Mexico. Thus, the Company’s operating results have been and in the future shall be significantly affected by political, social and political conditions in Mexico.

The Mexican government has exercised significant influence over the Mexican economy. Therefore, the Government’s economic policies may have a significant impact on the private sector in general, and on the Company in particular, as well as on market conditions, on prices and payment of the securities issued by Mexican entities, including those issued by the Company.

In the past Mexico has experienced periods of slow, including negative, economic growth, the peso suffered drastic devaluations and currency exchange systems were implemented. Beginning in 1994, and during 1995, Mexico underwent an economic crisis characterized by devaluation of the peso in regard to other currencies, increased inflation, high interest rates, capital flight, negative economic growth, reduction in consumer purchasing power, and a high unemployment rate.

The Mexican economy suffered another economic slowdown during the second semester of 1998 due to a fall in the price of oil, an important part of the Nation’s income, and from the volatility existing in emerging markets, caused by economic crisis in Asia, Brazil and Russia. From 2001 to 2003, Mexico experienced a period of low economic growth, resulting from a slowdown in the United States economy. In 2001, the Gross Domestic Product (“PIB”) decreased 0.2% and increased in 2002 and 2003 by 0.7% and 1.3%, respectively. In 2004, 2005, 2006, 2007 and 2008 the Mexican economy experienced GDP growth of 4.4%, 3.0%, 4.8%, 3.7% and 1.3%, respectively, principally driven by a low interest rate and controlled inflation environment. However, by 2009 the economy presented a decrease of 6.5% as a consequence of the pronounced global economic slowdown that began in the last quarter of 2008 and of the A (H1N1) influenza epidemic which broke out at the end of April 2009. During the first semester of 2009, the global financial markets became highly volatile causing, in the short term, the bankruptcy and rescue of some financial institutions, mainly in the United States of America. As a consequence of the preceding, local investors became risk adverse and this was reflected in a fall of the securities markets, a tightening of credit and a market liquidity crisis, as well as a depreciation of the peso in relation to the U.S. dollar of about 25%. For 2010, a GDP growth of 5.4% was noticeable which was accompanied by a currency appreciation of the peso in relation to the U.S. dollar and less volatility in the currency exchange market. The crisis and the slowdown in the Mexican economy may generate a material adverse effect on the Company’s operations and financial conditions.

Currency exchange fluctuations

To December 31, 2010, approximately 80% of our total indebtedness is denominated in U.S. dollars. While the majority of the Company’s sales are Peso denominated an important portion of its debt, as well as accounts payable are denominated in Dollars, see Note 11 in the Company’s audited consolidated financial statements included in this Annual Report. The peso has been subjected to significant depreciations in the past and may be depreciated in the future. Peso depreciation would negatively impact the Company’s results and

Page 17: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

16

financial condition due to the implicit increase in financing costs. This would be because the peso cost of the Company’s debts in dollars would increase and would affect the Company’s ability to pay its dollar denominated debt. The closing currency exchange rate to December 2010 was $12.339 Mexican pesos per United States of America dollar which represented a 5.4% appreciation during the corporate year and presented less volatility than during 2009. In regards to the use of derivative instruments, we principally use cross currency swaps for which we, generally, pay a fixed interest rate in U.S. dollars and receive a variable interest rate in pesos. To December 31, 2010, the net market value, including margin calls (Net Mark to Market) derivatives position was $109.5 M. During periods of high volatility, like those recently experienced in the markets, these may represent important variations such as currency exchange losses or gains and, to a lesser extent, interest rate variations that may significantly affect operating results.

Inflation

Even though inflation rates have decreased since 1998, Mexico has suffered in the past high inflation rates. Inflation caused high interest rates, peso devaluations and, during a good part of the 80’s and the beginning of the 90’s, governmental controls on currency exchange rates. Since a significant portion of the Company’s operating costs are denominated in pesos, a significant inflation increase may in turn cause an increase in the Company’s operating costs. Inflation may affect our customer’s purchasing power and so adversely affect demand for hotel rooms and vacation club memberships. Inflationary fluctuations could have an important impact on the Company’s financial condition and operating results. Annual inflation rates, according to the INPC’s measurements published by the Banco de Mexico, have been 6.5%, 3.6% and 4.4% for 2008, 2009, and 2010, respectively.

Interest Rates

Similar to the value of the peso in relation to the dollar and inflation rates, historically interest rates in Mexico have experienced periods of volatility. Adverse situations which have affected the Mexican economy, including increased inflation, have resulted in substantial increases to interest rates in the Mexican market during said periods. Interest rate movements directly affect the Company’s integrated financing results by increasing its financing costs since a part of its bank indebtedness is contracted at variable rates. However, the low interest rates recently experienced by the international markets have reduced the Company’s financial risk. Interest rates on 28-day CETES (Mexican treasury bills) averaged for 2008, 2009 and 2010: 7.7%, 5.5% and 4.5%, respectively.

To date, the Company has promptly complied with all of its due dates, both of interest and capital payments, derived from banking, securities and operating commitments.

Risks Relating to Brazil

According to Brazil’s Central Bank, in 2010 its GDP increased 5.0% and private investment was the principal stimulus. Inflation for 2010 was 6.5% which unfavorably compares with the 3.7% reported for the previous year.

In 2010, the Brazilian Real (R$) appreciated 4.8% in relation to the U.S. dollar, from R$ 1.74 per U.S. Dollar on December 31, 2009 to R$ 1.66 per U.S. Dollar on December 31, 2010. The currency exchange rate appreciation reflected the lesser volatility perceived by the currency exchange market originated by the global financial crisis. To December 31, 2010, we operated 10 hotels in Brazil.

Risks related to Argentina According to Argentina’s Central Bank, in 2010 the GNP increased 9.2% due to private investment

and greater consumption. Inflation increased marginally to 1.2pp to levels of 9.1% for 2010 and the Argentine Peso depreciated by 4.7% in relation to the U.S. Dollar from P$ 3.8 per dollar on December 31, 2009 to P$ 3.9 per dollar to December 31, 2010. To this same date, we operate two hotels in Argentina.

Risks related to Downturn in United States of America Economic Activity

The risk of a downturn in the United States of America may imply changes to the spending patterns of that country’s inhabitants, such as postponing or cancelling travel decisions, which may be reflected in lower occupancy in the Company’s hotels, specifically those beach destinations with greater influx of these types of

Page 18: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

17

tourists, such as Cancun and Los Cabos. To December, 31, 2010, approximately an 82% of the Company’s rooms are located in city destinations, and the remaining 18% in beach hotels. The GNP reported in 2010 was 2.3% and inflation was 1.49%. To December 31, 2010, we operate three hotels in the southern part of the state of Texas.

Risks related to Chile

According to Chile’s Central Bank, in 2010 the GNP increased 5.2%, inflation increased 3.9pp to levels of 3.0%, and the Chilean Peso depreciated by 7.8% in relation to the U.S. Dollar. To December 31, 2010, we operate one hotel in Chile.

External Information Sources and Expert Statements

All of the information contained in the present annual report is responsibility of Grupo Posadas, S.A.B. de C.V. and has been prepared by this Company.

This Annual Report contains, amongst others, information related to the hotel industry. This information has been collected from a series of sources, including the Ministry of Tourism, and the National Institute for Statistics, Geography, and Computing, amongst others. Likewise, the Company has utilized information from a series of public sources, including among others, the Banco de Mexico. The information

which is not based on a source has been prepared in good faith by the Company, based on its knowledge of the industry and the market in which it participates. The terms and methodology used by the different sources are not always congruent among themselves, and for these reasons, comparisons are difficult.

The present Annual Report includes certain statements concerning the future of Posadas. These statements appear in different parts of the Report and make reference to the intention, the opinion, or the present expectations of the Company or its officers regarding future plans and economic and market tendencies that affect the Company’s financial situation and its operating results. These statements should not be interpreted as a future yield guarantee and imply risks and uncertainty; real results may vary due to different factors from those expressed herein. The information contained in this Report including, amongst others, the sections “Risk Factors”, “Comments and Analysis of the Management of the Operating Results and Financial Situation of the Company” and the “Company” identify some important circumstances that may cause said variations. Possible investors are advised to take said expectation statements with the appropriate reservations. The Company is not obligated to publicly reveal the results of the review of the expectations statements so as to reflect events or circumstances subsequent to the date of this Report, including possible business strategy changes or the application of capital investments in expansion plans or to reflect the occurrence of unexpected events.

d) Other Securities

In March 1992, the Issuer registered the shares representing its corporate capital in the National

Securities and Intermediaries Registry, today the National Securities Registry (“RNV”) under the CNBV so as to trade on the BMV. The Issuer has fully and timely delivered, since its registration and trading, its quarterly and annual reports, both to the BMV, as well as to the CNBV, in compliance with the Stock Market Law because its Series “A” and Series “L” shares are registered in the National Securities Registry and trade on the Mexican Securities Exchange, S.A.B. de C.V.

Likewise, the CNBV, through official letter number DGA-042-542 dated January 23, 2001, authorized

the Company’s registration in the then Special Section of the RNV, a program denominated “Commercial Europaper” up to the amount of 100 M U.S. Dollars to be issued abroad for issues with a one year period. The Company renewed this program in 2004. To December 31, 2009 the Company has no balance for commercial paper issues.

In December 2001, based on official letter number DGE-616-14608 dated December 5, 2001, for a

total authorized amount of $1,000 M (One thousand million pesos 00/100 M.N.), the Issuer registered a Stock Exchange Certificate program in the RNV under the CNBV.

On December 6, 2001, the Issuer first issued Stock Exchange Certificates in accordance to the

program authorized in December 2001 in the amount of $200 M (Two hundred million pesos 00/100 M.N.). This issue was completely liquidated in December 2004.

Page 19: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

18

In February 21, 2002, the Issuer made the second issue of Stock Exchange Certificates in accordance to the program authorized in December 2001 in the amount of $300 M (Three hundred million pesos 00/100 M.N.). This issue was completely liquidated in February 2006.

On July 12, 2002, the Issuer made the third issue of Stock Exchange Certificates in accordance to the

program authorized in December 2001 in the amount of $250 M (Two hundred fifty million pesos 00/100 M.N.). This issue was completely liquidated in July 2006.

In September 2002, in keeping with official letter number DGE-521-14821 dated September 17,

2002, for a total authorized amount of $1,500 M (One thousand five hundred million pesos 00/100 M.N.), the Issuer registered a Stock Exchange Certificate program in the National Securities Registry (RNV) under the CNBV. To December 31, 2003, the Issuer had received $ 875 M (eight hundred seventy-eight million pesos 00/100 M.N.) under the provisions of this program. This issue was completely liquidated in February 2005.

On May 15, 2003, the Issuer carried out the fourth issue of Stock Exchange Certificates under the program authorized in December 2001, in the amount of $250 M (Two hundred fifty million pesos 00/100 M.N.), which was liquidated on May 6, 2009.

On May 28, 2004, in accordance with official letter number DGE-362-362, the Issuer registered a Debt

Securities program denominated “Senior Notes” with the then RNV Special Section under the CNBV, for an authorized amount of up to US250 M (Two hundred fifty million U.S. dollars).

In January 14, 2005, the Issuer increased the issue of Debt Securities denominated “Senior Notes”

and updated its registration in the then RNV Special Section under the CNBV, in conformity with official letter number DGE-054-23554 for a total authorized amount of up to an additional US75 M (Seventy-five million U.S. Dollars). On April 11, 84.1% of this issue was repurchased and on March 9, 2010 the US35.8 M balance was prepaid.

On December 19, 2007, under official letter number 153/1850141/2007, the Issuer registered a long-

term Stock Exchange Certificate revolving placement program with the RNV under the CNBV, with registration number 0710-4.15-2007-003 for a total authorized amount of $1,500 M (One thousand five hundred million pesos 00/100 M.N.).

On April 7, 2008, the Issuer obtained an extension for the long-term Stock Exchange Certificate

revolving placement program from the RNV under the CNBV pursuant to official letter number 153/17163/2008 up to a total authorized amount of $3,000 M (Three thousand million pesos 00/100 M.N.).

On April 7, 2008, the Issuer obtained authorization under registration number 0710-4.15-2007-003-1

to carry out on April 8, 2008, the first issue under the Stock Exchange Certificate revolving placement program for a total authorized amount of $1,500 M (One thousand five hundred pesos 00/100 M.N.).

On July 9, 2008, the Issuer obtained authorization to additionally issue on July 10, 2008, under official

letter CNBV 153/17592/2008, $750 M (Seven hundred fifty million pesos 00/100 M.N.), under the Stock Exchange Certificate revolving placement program for a total authorized amount of $2,250 M (Two thousand two hundred fifty million pesos 00/100 M.N.).

On January 15, 2010, the Issuer made a placement abroad of Debt Securities denominated “Senior Notes 2015” for a total authorized amount of up to US200 M (Two hundred million U.S. Dollars 00/100). By means of official letter number 153/3212/2010, the National Banking and Securities Commission made note in the National Securities Registry of the aforestated placement.

Maintenance Requirements

The Company is obligated to provide the CNBV and the BMV with the financial, economic, accounting, administrative and legal information that is described hereinbelow, based on the text of “Generally Applicable Provisions to Securities Issuers and other Securities Market Participants”, published on March 19, 2003 and modified according to resolutions published October 7, 2003, September 6, 2004, September 22, 2006, September 19, 2008 and January 27, 2009. During the last three corporate years, the Company has fully and timely delivered the Information required by the authorities.

I. Annual information:

Page 20: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

19

(a) The third business day immediately following the date on which the ordinary general

shareholders meeting is held which issues a resolution on the results of the corporate year, which meeting should be held within the 4 months following the close of said corporate year: 1. Report and opinion mentioned in article 28, section IV, of the Stock Exchange Law. 2. Annual financial statements or their equivalents in keeping with the nature of the

Issuer accompanied by an external auditor’s opinion, as well as of the Issuer’s associates which contribute more than 10 percent to its consolidated profits or total assets.

3. Communication signed by the secretary of the board of directors reporting the

update status of books containing the records of the minutes of the shareholders’ meetings, sessions of the board of directors, share record book and, if a variable capital corporation, the registry book containing increases and decreases in corporate capital.

4. Document referred to by article 84 of the general provisions, signed by the External

Auditor.

(b) No later than June 30 of each year:

1. Annual Report corresponding to the immediately preceding corporate year. 2. Report corresponding to the immediately preceding corporate year related to

compliance with the Better Corporate Practices Code.

II. Quarterly Information:

Within the twenty business days following the end of each of the first quarters of the corporate year, and within forty business days following the conclusion of the third quarter, the financial statements, as well as the economic, accounting and administrative information described in the corresponding electronic formats, at least comparing the numbers of the quarter in question with the numbers for the same period of the previous corporate year.

III. Legal Information: (a) The day of its publication of the call to the shareholders meeting. (b) The business day immediately following the meeting in question:

1. Summary of the resolutions adopted in the shareholders meeting held in compliance with the provisions of article 181 of the General Law of Business Corporations, which expressly includes the application of profits and, in the respective case, the dividend determined, the number of the coupon or coupons to be paid, as well as the location and date of payment.

(c) Within the five business days following the shareholders meeting:

1. Copy authenticated by the secretary of the board of directors of the Company or by a person empowered to authenticate, of the records of the minutes of the shareholders meetings, accompanied by the attendance list signed by the ballot inspectors designated for said purpose, indicating the number of shares corresponding to each shareholder and, in the respective case, by the shareholder’s representative, as well as the number of shares represented.

Page 21: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

20

2. Copy authenticated by the secretary of the board of directors of the corporate by-laws of the Company, if modifications to the by-laws have been agreed to in the corresponding meeting.

(d) At least five business days before the act referred to in each one of the following

notifications:

1. Notification of delivery or exchange of shares.

2. Notification of payment of dividends, which should state the amount and proportion of the dividends.

3. Any other notification addressed to the shareholders or the investing public.

(e) On June 30 every five years, the formalization of the general shareholders meeting which

approved the verification of the Company’s corporate by-laws with the Company’s registered corporate by-laws information in the Public Registry of Commerce.

IV. Purchase of own shares:

The Company is obligated to inform the BMV, no later than the business day immediately

following the agreement of operations for the purchase of its own shares. V. Relevant Events:

The Company is obligated to inform the BMV of its relevant events, in the manner and on the terms stipulated by the Stock Market Law and the General Provisions.

e) Significant Changes to Security Rights Registered in the RNV.

The Company has not made any changes to the rights of the securities registered in the RNV.

f) Public Documents

The information contained in this Annual Report may be consulted or further developed with the

investor relations area of the Company at telephone 5326-6757, or directly at the domicile of the Company located at Paseo de la Reforma Number 155, PH-B, Colonia Lomas de Chapultepec, C.P. 11000 in Mexico D.F., as well as on the Internet page of the Stock Exchange at www.bmv.com.mx, where also the Better Corporate Practices Code may be consulted.

For more information please consult the Company’s Internet page at: www.posadas.com.

2) THE COMPANY

a) History and Development of the Company

Grupo Posadas, S.A.B. de C.V., was incorporated on April 18, 1967, under the original corporate

name of Promotora Mexicana de Hoteles, S.A. in Mexico, Federal District, with a corporate life of 99 years. The Company is domiciled at Paseo de la Reforma Number 155, PH-B, Colonia Lomas de Chapultepec, Postal Code 11000, Mexico, D.F. and its telephone is 53-26-67-00.

The Company has its roots in 1967, when Gaston Azcarraga Tamayo established Promotora

Mexicana de Hoteles, S.A. for the purpose of participating in the tourism sector by building and operating a hotel in the Federal District, the Fiesta Palace, now known as Fiesta Americana Reforma. In 1969, Promotora Mexicana de Hoteles associated itself with American Hotels, a subsidiary of American Airlines so as to establish Operadora Mexicana de Hoteles, S.A. de C.V., a Mexican Company created to manage hotel

Page 22: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

21

properties. The first Fiesta Americana hotel opened in 1979 in Puerto Vallarta; at present it is operated by the Company.

The Company’s new facet dates back to 1982, when Promotora Mexicana de Hoteles, S.A. and

Gaston Azcarraga Tamayo bought 50% of the corporate capital of Posadas de Mexico S.A. de C.V. Initially, Posadas de Mexico was established in 1969 by Pratt Hotel Corporation, a United States corporation, to operate Holiday Inn franchises in Mexico. In 1990, Promotora Mexicana de Hoteles bought the remaining 50% of shares representing the corporate capital of Posadas de Mexico S.A. de C.V. The latter purchase brought about the largest hotel Company in Mexico, operating 13 hotels at that time. Its principal corporate purpose was the management of the Holiday Inns and the management of the Fiesta Americana hotels (“FA”).

At the end of the 80’s, the Mexican hotel industry was going through a period of saturation and the

Company realized that management of third party hotels reported more reservations than those it obtained. Consequently, the Company decided to focus on developing its own brands (Fiesta Americana (“FA”) and Fiesta Inn (“FI”)), while it continued operating the Holiday Inn franchises in some viable destinations.

In 1992, the Company changed its name from Promotora Mexicana de Hoteles, S.A. de C.V. to Grupo

Posadas, S.A. de C.V. In March of this same year, the Company was listed on the Mexican Stock Exchange. In 1993 it began to attack the business traveler segment by opening the first Fiesta Inn in a city destination. In 1998, the Company began to expand to South America by acquiring the Caesar Park chain, along with brand rights in Latin America. Likewise in 2001, the Company opened its first Caesar Business hotel in Sao Paulo, Brazil.

The Company entered the Vacation Club business in 1999 opening the first resort under the brand

Fiesta Americana Vacation Club in Los Cabos, Mexico. Since then Posadas has added three resorts under this concept in Cancun, in Acapulco and recently another in the archeological zone of Kohunlich.

In 2003, the Company established the management services center Conectum which is responsible

for management control of owned, leased and third party hotels. In December 2005, the Company made a strategic investment in Grupo Mexicana de Aviacion, S.A.

de C.V., which was sold at a symbolic value on August 13, 2010. In the General Extraordinary Shareholders Meeting held in November of 2006, the Company adopted

the form of “Sociedad Anonima Bursatil”, which is translated as “Stock Market Corporation”, and changed its corporate name to Grupo Posadas, S.A.B. de C.V., in order to comply with the provisions of the Stock Market Law.

In December 2006 the first hotel under the brand “One Hotels” opened in the city of Monterrey, Mexico.

In 2008, development of non-hotel businesses continued with the consolidation of Ampersand which

engages in the management of loyalty programs, and the Konexo call center. In 2010, the Company acquired ownership of real property located in the Riviera Maya, with plans to

develop a tourism complex including resorts destined to hotel services, vacation club and other types of vacation properties. Likewise, the Company sold, in a symbolic value, the shares it owned in Nuevo Grupo Aeronautico, S.A. de C.V.

In 2011, the Company entered into an alliance with Santander Bank to issue a credit card under the

shared brand Santander-Fiesta Rewards. The latter is the brand name under which the Company’s client loyalty program operates. In this same year, the Fiesta Inn concept is re-launched.

Principal Investments 2008-2010 During the past years, the Company’s strategy has been to continually grow through hotel

administration contracts, which implies allocating limited capital expenses to determined expansion projects so as to focus on investment in maintenance of already existing properties.

The following explains the principal investments that the Company has made between 2008 and

2010:

Page 23: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

22

In 2008 capital expenses amounted to US39 M (converted to the yearly average exchange rate). Of these, 27% was for hotel maintenance; 36% to projects; 30% for the Vacation Club; and the remaining 7% of capital expenses was used for corporate purposes, mainly in the area of technology.

In 2009 capital expenses totaled US35 M (converted to the yearly average exchange rate). Hotel

maintenance comprised 13%; 25% to projects and corporate, principally to the technology area; and 62% for the Vacation Club.

In 2010, capital expenses amounted to US25 M (converted to the yearly average exchange rate). Of

these, 24% was for hotel maintenance; 51% to projects and corporate; principally to the technology area; and 25% for the Vacation Club. b) Business Description

i) Principal Activity

The principal activities of Grupo Posadas, S.A.B. de C.V. and its Subsidiaries are the construction,

purchase, promotion, operation and management of hotels that principally operate under the commercial brands of: Live Aqua, Fiesta Americana Grand, Fiesta Americana, Fiesta American Villas, Fiesta Inn, One Hotels, Caesar Park y Caesar Business, of these to December 31, 2010, 33 are self-owned, 61 belong to third parties and are managed by Posadas, and 18 are leased.

In 1999, we began to sell time-shares under the trade name of “Vacation Club” and Fiesta Americana

Vacation Club, regarding resorts located in Los Cabos, Baja California Sur, Cancun and Kohunlich, Quintana Roo and in Acapulco, Guerrero; and for its operations alliances have been formed with Hilton Grand Vacation Club and Resort Condominiums International (RCI), which has allowed us to penetrate the foreign market with greater force.

Posadas’ income evidences seasonal behavior throughout the year. For beach hotels, occupancy

tends to be higher during the winter and vacation times (Easter Week, summer), while city hotels have stable occupancies throughout the year. However, with the purchase of Caesar Park this cyclical effect has been reduced since the high seasons in South America are contrary to the cycles that exist in Mexico.

The Company plans to operate in Mexico 35 additional hotels with approximately 5,000 rooms that

should open during the following 36 months. Of these hotels, 13 will operate under the brand Fiesta Inn, 3 under the brand Fiesta Americana, 17 under the three star hotel chain “One Hotels” and one Live Aqua hotel; 10 of the aforementioned hotels are under construction. In line with the Company’s strategy of operating a greater number of hotels with minimum investment, the Company plans to only own 1% of the aforementioned rooms and the remaining rooms through management contracts and leases with third party investors. The Company estimates total investment for the aforecited Mexican development plan at approximately US247 M. In regards to South America, the Company’s development plan contemplates operating two hotels under the Caesar Business brand, one more under the Caesar Park brand and one under the Fiesta Inn brand for a total of approximately 550 rooms. Also in keeping with the Company’s strategy of operating greater number of hotels with minimum investment, the Company will not own any of the mentioned hotels but instead has signed a lease agreement with third party investors. The Company estimates the investment required by the South American development plan at approximately US47 M.

Additionally, there have been established business lines that are not necessarily related to the hotel

industry, by marketing our management skills and technological platforms developed from our experience in hotel services, providing loyalty program management services, client contact services or call center, shared management services and outsourcing, amongst others.

Some of the Company’s principal suppliers are: Accenture, Axxa Seguros, Bachoco, Bonafont,

Comercial Norteamericana, Blancos Sampedro de Acapulco, Oneida, Oracle, Ivonne, Tensa, Fetech, Johnson Controls, Otis, York, Goirand, Grupo Nacional Provincial and Dell Mexico. It should be mentioned that the Issuer is not dependent on any supplier. Due to the fact that the Company sustains its development on hotel management, the price volatility of the principal raw materials related to hotel construction would indirectly affect it through some developer.

Page 24: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

23

The product or similar service categories, or those individual products that represent 10% or more of total consolidated income for each one of the last 3 corporate years, indicating the amount and percentage are found in section: iii) Patents, Licenses, Brands and Other Contracts in this Annual Report and in Section 3, Financial Information, subsection b) Financial Information by Business Line, Geographic Zone and Export Sales in this Annual Report.

For the Company’s financial information according to business line and geographic zone, see section

3 b) “Financial Information by Business Line, Geographic Zone and Export Sales”. ii) Distribution Channels

The Company considers that investment in new systems and technology is critical to its growth.

During the course of its history, the Company has developed new systems and technology which has permitted it to optimize product distribution and manage its operations.

The technology platform which the Company uses to market and sell hotel rooms is a Company

developed system denominated Inventario Central, or Central Inventory. Central Inventory consolidates into one database on room availability for the entire hotel portfolio, updated in real time in line with room availability changes. This database may be simultaneously consulted by all the distribution channels which the Company uses to sell its rooms. Said distribution channels include the Company’s own reservation central located in Morelia, Michoacan, global distribution systems or GDS, travel agencies, Internet intermediaries, and the Company’s own web site.

On the other hand, one of the Company’s most important distribution channels is its loyalty program.

The Fiesta Rewards program has contributed significantly to the Company’s retention of valuable clients and to keeping income stable during various business cycles. Members affiliated to Fiesta Rewards receive various benefits such as preferential rates and may redeem the points obtained at participating hotels for, amongst other things, hotel stays, airplane tickets and car rentals. The Fiesta Rewards program is the loyalty program amongst Mexican hotel chains with the largest number of members. In addition, since 2001, the Company launched the program Caesar Rewards for its hotels in South America.

iii) Patents, Licenses, Brands and Other Contracts

The Company operates under three principal models, owned hotels; third party hotels managed by

Posadas and hotels leased and managed by Posadas. The Company considers that its experience as a hotel operator, that it has its very own reservations

system, technological investments as well as a loyalty reward system are the principal attributes which can add value for independent hotel owners. In recent years the Company’s strategy has concentrated on selling hotel management and operation services thereby increasing yield on capital invested by signing management contracts with local partners to develop new properties and by converting already existing properties to the Company’s brands.

In order to continue with its growth strategy, the Company is continually looking for opportunities to

operate hotels in new locations. The Development division is responsible for identifying locations for new projects. The Company does not apply strict statistical or numerical parameters when deciding to expand its operations to a particular location, instead it takes into consideration the city’s population, the level of economic activity and the willingness of local investors to invest their capital in said location. Once the location’s expansion potential has been identified by the Development area, the Company’s Market area evaluates the feasibility of the proposal by analyzing offer and demand in the locality, competition and rate ranges.

The Company has signed management contracts to operate hotels that do not belong to it but that

give it control over the operation of the property. In addition, the Company has executed contracts regarding the use of its brands from which it receives royalty income. In some cases, the Company has also signed lease agreements on the properties that it operates. As consideration for the technical and operational assistance from the Company and the use of industrial property rights and copyrights in Mexico and South America, the managed hotels pay royalties to Posadas. These royalties are calculated as a percentage of the total sales of each hotel or of other services that are marketed under its brands. Likewise, the Company is the holder of various industrial and intellectual property rights which it has created and developed throughout the years, such as: Live Aqua, Fiesta Americana Grand, Fiesta Americana, Fiesta Inn, One Hotels, Fiesta Americana

Page 25: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

24

Vacation Club, Caesar Park, Caesar Business, Fiesta Rewards, Ampersand, Conectum, and Konexo, amongst others.

At the end of 2010, the average life of the Company’s hotel management contracts (excepting its own

and leased hotels) was 3.2 years for Fiesta Americana, 3.9 years for Fiesta Inn, 6.6 for One Hotels and 4.5 years for Caesar Business. Upon termination, the owner may choose to renew the management contract, normally for periods shorter than the initial period.

The Company basically operates under 8 brands in 5 different countries:

Brands Category (1) Rooms Location Segment

range

Lifestyle 1 200-400

371

Gran Tourism 4 200-600

1,013

5-Stars 14 150-600

4,200

4-Stars 59 90-220

8,701

3 Stars 13 100-130

1,635

5-Stars 4 100-300

677

Gran Tourism 5 150-300

753

4-Stars 8 120-400

1,607

Other 4-5 Stars 4 100-130

892

Total 112

19,849

Source : Posadas

(1) According to the Mexican clasification system

Brand mix of Posadas

Hotels

Rooms

Medium and small size

cities and suburbs of

large cities

Medium and small size

cities and suburbs of

large cities

Large cities and coastal

destinations

Luxury Resorts and

large cities

International and domestic

tourists (high income)

Resorts

Luxury Resorts and

large cities

International and domestic

tourists (high income)

Medium and small size

cities

International and domestic

tourists and business travellers

Luxury Resorts and

large cities

Foreign and domestic tourists

and business travellers

Domestic and foreign business

travellers

International and domestic

tourists and business travellers

International and domestic

tourists

Medium size cities and

industrial zones

Local business travellers

International and domestic

tourists and business travellers

Page 26: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

25

The Company has entered into strategic alliances regarding certain products and services offered to third parties or offered jointly between Posadas and third parties, such as the shared-brand card Santander-Fiesta Rewards.

Furthermore, it has contracted third parties for the rendering of professional services to perform certain activities, such as sales or technical and technological consulting, amongst others.

To finance its operations and growth, to December 31, 2010, the Company had signed six loan agreements with domestic and foreign institutions, a foreign bond issue, and one issue of stock exchange certificates. See “Financial information – Relevant Loan Information”.

Derivative Financial Instruments

The Company uses derivative financial instruments relating hedges to debt incurred, the derivative financial instruments being used involve exchange of principal and interest from one currency to another (“CCS”) and instruments to fix variable debt interest rates (“IRS”); the preceding is for economic hedging purposes.

The derivative financial instruments contracted by the Company have been generated, almost in their totality, from an economic viewpoint, for hedging purposes. However for accounting purposes, they have not been denominated as hedges, since they do not meet all NIF requirements for such purpose, and hence they have been classified in accounting terms as instruments for negotiation purposes. The Company has signed a collateral contract to the ISDA (Credit Support Annex) master contract stipulating conditions binding the Company to guarantee margin calls should the mark to market value exceed the loan limits agreed to by the parties (threshold amount).

The reference or underlying variables for the derivative financial instruments applicable to Cross Currency Swaps (“CCS”) held by the Issuer may be subject to market, loan and operation risks that may result in unexpected and material losses. A serious fall in the valuation of assets, an unanticipated loan event or unforeseen circumstances which may cause a correlation of factors that were previously uncorrelated, may cause losses resulting from risks which were not accounted for when a derivative financial instruments was structured and traded. Some of these factors are the exchange rate (“FX”), change in the Libor rate represented in basis points (“pbs”), the change in Spread or Basis pbs and the change in the TIIE rate represented in pbs. Currently, the hedge for these instruments is maintained, the depreciation corresponding to monthly markets valuations are recorded in the net profit and loss statement of savings corresponding to the monthly flow exchanges for each coupon in pesos and dollars as part of the Comprehensive Financial Result (“RIF”). For greater detail please see section: 3) Financial Information, ii) Financial Situation, Liquidity and Capital Resources, Derivative Financial Instruments.

iv) Principal Clients

Given the nature of the hotel industry, the Company does not depend on any or several clients which if lost would adversely affect the Company’s operating results or financial situation. The Company has a commercial strategy based on targeting business and vacation sectors in the Mexican and South American markets through the Fiesta Americana, Fiesta Inn, One Hotels, Caesar Park and Caesar Business brands; the wholesale sector in the North American market principally in the resorts area, and the groups and conventions segment in the Mexican market for Fiesta Americana and Fiesta Inn.

v) Applicable Legislation and Tax Status

In general, hotel and timeshare activity is governed by various local (municipal, state) and national (federal or central) regulations, in the diverse jurisdictions where it operates. In this manner, modification of said provisions may mean an increase in the costs that the Company must incur to comply with the same, in addition to the limitations which they may represent to its activity.

In this same line of reasoning, the authorizations most relevant to hotel service operation are related to licenses or authorizations concerning operations, food and beverage supply, including alcoholic beverages, swimming pools, civil defense, health, wastewater use and disposal, consumer protection, amongst others. Thus, we depend on the administrative authorities so that said authorizations will be issued and in a timely manner.

We have no knowledge of contingencies that may have as a consequence the assumption of or cause a material adverse damage to the hotels’ operation related to the obtainment or compliance with said

Page 27: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

26

authorizations. However, we are continuously correcting whatever deviations may arise from the applicable rules.

Finally, various subsidiaries of the Company hold concessions for different purposes, which are governed by the applicable laws and specifically by the grant of the concession. This is the case of the Maritime and Territorial Land Federal Zones, and some hotel real properties in South America.

Stock Market Law

On December 28, 2005, the Stock Market Law was published in the Federal Official Bulletin, which became enforceable since last June 28, 2006. In the extraordinary general shareholders’ meeting held on November 30, 2006, the Company modified its bylaws to incorporate the newly established requirements. The Stock Market Law, amongst other things (i) clarifies public tender offer rules classifying them as obligatory or voluntary, (ii) issues information disclosure criteria for the shareholders of issuers, (iii) adds and strengthen the duties of the board of directors, (iv) precisely determines the board of directors’ duties as well as those of its members, the secretary and the director general, introducing new concepts such as duties of due diligence and loyalty, (v) substitutes the concept of statutory auditor and their obligations with an audit committee, the corporate practices committee and external auditors, (vi) defines the director general’s obligations and those of high level officers, (vii) broadens minority shareholders’ rights, and (viii) broadens the penalty definition for breaches of the new Stock Market Law.

The Company deems that it has complied with all relevant aspects of applicable laws and regulations and has obtained all the licenses and permits allowing it to run its business in compliance with the laws.

Tax regulations in Mexico

Mexican enterprises are subject to Income Tax (“ISR”) and to Single Rate Business Tax (“IETU”). The ISR is calculated by considering certain inflationary effects as taxable or deductible, such as depreciation calculated on constant price values.

ISR – The rate is 30% for the years from 2010 to 2012, 29% for 2013 and 28% for 2014. The Company pays consolidated ISR with its subsidiaries since 1990.

Modifications to the ISR Law were published on December 7, 2009, and became applicable in 2010. Said modifications provide that: a) the ISR related to tax consolidation benefits obtained from 1999 to 2004 must be paid in installments from 2010 to 2015, and b) the tax resulting from tax consolidation benefits obtained from 2005 onward must be paid during the sixth to the tenth year following the year in which the benefit was obtained. The tax payments related to tax consolidation benefits obtained from 1990 to 1998 may be formally requested in those cases established by the tax provisions.

IETU – Both incomes and deductions and some tax liabilities are determined based on each tax year’s cash flows. The tax rate is 17.0 % and 16.5% for 2009 and 2008, respectively, and 17.5% beginning in 2010. Likewise, once this law became enforceable, the IMPAC Law was repealed. The preceding allows that, under certain circumstances, the latter tax paid in the ten years prior to the year in which ISR is paid may be refunded on the terms of the tax provisions. Additionally, unlike ISR, the parent holding Company and its subsidiaries will incur IETU on an individual basis.

The income tax paid is the greater amount resulting from either ISR or IETU.

Based on financial projections, the Company has determined that in Mexico it will essentially pay on a consolidated basis ISR, and some subsidiaries will pay IETU, consequently, the Company computed both deferred ISR and deferred IETU. In addition, unlike ISR, the parent holding Company and its subsidiaries will incur IETU on an individual basis.

The cash deposits tax (“IDE”) provides for a 3% rate applicable to the amount exceeding $15 thousand pesos per account per month.

Additionally, state taxes may be levied on the Company’s activities, such as the Accommodations Tax and other taxes regarding certain levied activities that we may occasionally incur, such as contests, games of chance and lotteries, amongst others.

Page 28: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

27

Tax regulations in Brazil

According to current Brazilian law, the subsidiaries operating in that country are subject to federal income and social contribution taxes, which are computed at the rates of 26% and 8%, respectively. Federal income tax may be reduced by certain amounts, when applicable, if companies invest an equivalent amount in government-approved projects and in other Brazilian areas or industries.

Tax regulations in Argentina

According to current Argentinean law, the subsidiary operating in that country is subject to both income and minimum presumed income taxes. The income tax rate in force is 35% on the estimated taxable income of each tax year. The minimum presumed income tax is computed at 1% on the potential income from certain performing assets; thus, the Company’s tax obligation will be the greater of the two taxes.

Tax regulations in the US

According to current United States law, the subsidiaries operating in that country are subject to Income Taxes computed at a 35% rate.

Tax regulations in Chile

According to current Chilean law, the subsidiary operating in that country is subject to business income tax incurred when income is accrued and benefits are distributed among shareholders or partners. If foreign company branches withdraw or send said benefits abroad, this activity is taxable. The rate in force for accrued profits is 15% and for distributed profits is 35%.

vi) Human Resources

To December 31, 2010, the Company had approximately 16,100 employees. In Mexico, around 57% of the employees are unionized. Generally, a union represents the unionized employees of each hotel. The collective bargaining agreements are generally reviewed annually for salary adjustments and every two years for other clauses contained therein. Each of the individual hotel unions is affiliated to any of the larger national labor organization: either the “CTM” (Confederacion de Trabajadores de Mexico) or the “CROC” (Confederacion Revolucionaria de Obreros y Campesinos).

During the past ten years, the Company has not had any relevant labor disputes with any union that represents our employees. The Company believes that we have good employee relations at all of our properties, as well as with the unions to which our employees belong.

The Company has operative staff training programs and has training schools specifically designed for operating the Fiesta Americana, Fiesta Inn and One Hotels brands. The training programs include kitchen and reception employees up to hotel managers. Posadas also supports rotation of hotel executive officers in its different properties for the purpose of enhancing their management skills. Occasionally, Posadas hires temporary employees.

Likewise, the Company has a pension plan, seniority premiums and severance pay for non-unionized personnel thus complementing the legal seniority premium and pensions granted by law. In order to have access to the pension plan, employees must be older than sixty. The annual cost of legal seniority premiums, retirement and pension plans for personnel that meets certain requirements is calculated by an independent actuary based on the projected unit credit method. To respond for these liabilities, the Company keeps investments in pension and retirements reserve funds that to December 31, 2010, amounted approximately to $79 M.

A group of executives and employees has the right to receive an annual bonus based on the Company’s global profits, as well as on individual performance. Some key executives have the right to receive Series “A” shares according to the Company’s Compensation Plan. See “Stock Structure” for a description of said shares’ characteristics hereinbelow.

Page 29: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

28

vii) Environmental Performance

Regarding environmental matters, the Company has an internal environmental and safety compliance program which purpose is ensuring that all its properties and businesses comply with applicable environmental laws and regulations. In Mexico, most hotels have signed agreements with the Federal Environmental Protection Agency (Procuraduria Federal de Proteccion al Ambiente) submitting themselves to Environmental Tourism Certification procedures. The progress in said procedures varies from hotel to hotel.

Since 2000, the Company has a denominated Risk Unit department exclusively engaged in dealing with environmental and civil defense issues that may take place both at the Company’s hotels and corporate offices. The Risk Unit reports to the General Hotel Operations Division through the Engineering and Maintenance Division. At the same time, the person responsible for said division is supported by the hotels’ maintenance managers to comply with the laws established by the competent authorities, as well as with the Company’s environmental and civil defense policies.

The director of this area is certified by the National Fire Protection Association(“NFPA”) as a fire protection specialist, this contemplates fire prevention at all Posadas’ properties, including the use of fire hydrants, sprinklers, fire extinguishers, fire detectors and alarms.

Additionally, all properties have a Corrective Action Plan formulated by the Risk Unit using NFPA policies, which determines the actions needed to obtain the required hotel certifications. In drafting this Corrective Plan, the Unit works jointly with specialized consultants and insurance companies to monitor compliance with the required certification standards.

Furthermore, Mexican construction and hotel industries are subject to federal and state laws as well as environmental protection and care, hotel operations and safety regulations, among others. The Company believes that it is taking the measures within its reach to reasonably comply with laws related to hotel and environmental matters, and it has obtained or is in the process of obtaining the licenses or permits required for the operation of its hotels.

viii) Market information

Industry’s Global Context

The tourism industry is susceptible to an ample variety of risks, from international security and terrorism fears to changes in consumer habits and preferences. At an international level, the industry has suffered several crises during the last few years. These crises have been caused by the convergence of several destabilizing factors such as the September 11, 2001 terrorist attacks in the United States, subsequent attacks in Bali and Madrid, the SARS outbreak, the global economic recession and the bad economic situation of the commercial aviation industry mainly derived from high fuel prices. Also, natural disasters such as the Indian Ocean tsunami and the long and strong hurricane season, and particularly the impact of Hurricane Wilma on the Yucatan peninsula affected our Cancun and Cozumel properties in 2005 and 2006. In 2009, global tourism results were negative due to predicted risks such as terrorism and the United States and world economic slowdown caused by high world market volatility as a consequence of the global financing crisis aggravated by uncertainty regarding the A (H1N1) flu pandemic, all of which caused that 2009 was one of the most difficult years for the tourism industry. In 2010, we experienced the beginning of a gradual recovery in the sector after the influenza outbreak disaster. Last year, growth was common in all regions. The Middle East was particularly strong with 13.9%, America with 7.7%, and Asia and the Pacific 12.6%. This growth was also noted in Europe at a 3.2% rate, which was below the global average, but it remains the largest tourism region. Also by sub-region, North America grew 7.8% and Mexico 4.4%. In 2010, absolutely speaking, worldwide international tourist arrivals increased by approximately 80 million, which represents a volume equal to a new France-size destination, number one according to the World Tourism Organization (“WTO”).

Tourism in Mexico

International. Mexico is the Latin American country which attracts most international tourism, and it is one of the most important worldwide tourist destinations. The following chart shows how Mexico ranked amongst the countries with the 2010 highest international arrivals (numbers estimated by the World Tourism Organization):

Page 30: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

29

Unless otherwise stated, the source of the tourism information herein is the Ministry of Tourism (“SECTUR”), and we have not independently verified the information contained in this section. The terms “tourism” and “tourist” refer to business and group leisure trips.

Mexico received 22.4 M international tourists in 2010, a 4.4% increase compared to the previous year, and -1.1% compared to the historical number noted in 2008. This was mainly due to a greater number of internal tourist arrivals (tourists who visited destinations other than those on the United States of America border) which increased 8.4%, from 11.8 M in 2009 to 12.8 M in 2010. However, there was a 0.6% decrease in the number of border tourist arrivals (tourists who visit destinations close to the border with the United States of America) from 9.7 M in 2009 to 9.6 M in 2010. In the number of total tourists, there was a 5.3% increase in total income from US11.3 billion in 2009 to US11.9 billion in 2010.

Domestic. According to the total traveler number, the domestic tourism industry is the largest tourism sector in Mexico. Approximately, the size of domestic tourism more than doubles (3 times) international tourism. Most of Mexican domestic tourism stays in four-star and lower lodgings, since they are price-sensitive travelers. Domestic tourist arrivals to the hotels were 68.3 million which represent a 4.2% increase compared to 2009.

Hotel occupancy rate. In general, hotel occupancy rate in Mexico was 49.1% average in 2010, a 2.1

pp increase from 2009.

Tourism in South America

South American business and vacation traveler’s markets are well-served in principal cities such as Sao Paulo, Rio de Janeiro, Buenos Aires and Santiago. Tourism statistics in South America show a 6% decrease in 2010 in relation to the previous year for an approximate total of 20 million international tourists, given that the A (H1N1) influenza outbreak aggravated the impact of the economic crisis according to WTO information.

Competition

The hotel industry is highly competitive. The Company’s beach hotels compete against other beach hotels in Mexico and other countries. In general, the Company’s hotels compete against diverse Mexican and International hotel operators, some of which are substantially larger than the Company and operate under well-known international brands. In mid-size cities and large city suburbs, the Company’s hotels primarily compete against Mexican and international chains as well as different independent hotel operators.

Depending upon the hotel’s category, competition is based mainly on price, installation and service quality, as well as physical location in a particular market. Hotel operators must make continuing expenditures for modernization, refurbishment and maintenance to prevent competitive obsolescence of its properties and thereby lose competitiveness. The competitiveness of the Company’s hotels has been enhanced by our frequent guest program (Fiesta and Caesar Rewards) and the Fiesta Americana Vacation Club.

Principal competitors of Fiesta Americana hotels are other international and Mexican chains such as Camino Real, Hyatt, Sheraton and Intercontinental. Competitors of Fiesta Inn hotels are both independent local hotel operators and international and Mexican chains such as Holiday Inn, Hampton Inn, NH Hotels and City Express.

Position CountryMillions of arrivals

of international tourists

1 Francia 79.3

2 Estados Unidos 60.2

3 China 57.4

4 España 53.0

5 Italia 43.0

6 Reino Unido 28.2

7 Alemania 27.0

8 Turquia 26.9

9 Malasya 24.5

10 Mexico 22.4

Page 31: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

30

Caesar Park hotels compete primarily against other five-star brands, such as Sheraton, Hyatt, Hilton, Marriott, Sofitel and Intercontinental. Principal competitors of Caesar Business hotels are other brands focused on business travelers such as Blue Tree, Four Points and some other Accor brands such as Novotel.

The vacation club industry is also highly competitive. Fiesta Americana Vacation Club competes primarily against Palace Resorts, Mayan Palace and Royal Holiday Club in Mexico, and generally with other vacation club Caribbean destinations and other coastal resort areas operating under this concept.

Although the Company considers itself a leader in Mexico as to the number of operated hotels and rooms and geographical coverage, there is no official publication that proves either the market presence of its hotels in relation to existing competitors or its competitive position.

ix) Corporate Structure

The Company is organized as a holding corporation and carries out a very important number of its operations by itself and through more than 140 subsidiaries. The following chart presents the organizational structure of the Company’s main operating subsidiaries, as well as the principal activity of each entity.

The Company’s principal subsidiaries are Inmobiliaria Hotelera Posadas, S.A. de C.V. and Gran Inmobiliaria Posadas S.A. de C.V. which directly or indirectly own several hotels properties owned and operated by the Company. Another relevant subsidiary is Sudamerica en Fiesta S.A. de C.V., direct or indirect owner of the South American properties. Posadas de Latinoamerica S.A. de C.V. concentrates all hotel leasing contracts. Lastly, the Company has 52% of Fondo Inmobiliario Posadas S.A. de C.V., a Capital Investment Corporation (“SINCA”), in which Nacional Financiera, S.N.C., participates with 24% and Constructora Marhnos, S.A. de C.V., with 24%. Constructora Marhnos currently owns eight Fiesta Inn hotels and two hotels under the One Hotel brand.

Page 32: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

31

Source: Posadas

x) Description of Principal Assets

Hereinbelow is a list of the Company’s hotels to December 31, 2010, including number of rooms, age, location and type (owned, operated or leased):

Inmobiliaria Hotelera

Posadas S.A. de C.V.

(100%)

Hotel Condesa del Mar

S.A. de C.V.

(100%)

Posadas de México

S.A. de C.V.

(100%)

Fondo Inmobiliario

Posadas

S.A. de C.V. (52%)

Posadas USA Inc.

(100%)

Bia Acquisition Ltd.

(100%)

Ridgedale Corp.

(100%)

M.L. Investment Co.

(100%)

Posadas de Latinoamérica,

S.A. de C.V.

(100%)

Fiesta Vacation,

S.A. de C.V.

(100%)

Comisiones e Incentivos

Fiesta, S.A. de C.V.

(100%)

Compañía Hotelera los

Cabos, S.A. de C.V.

(100%)

(FAVC - Los Cabos)

Desarrolladora Caribe,

S.A. de C.V.

(100%) (FAVC)

Inversora Inmobiliaria

Club S.A. de C.V.

(100%)

Compañía Desarrolladora

Los Cabos, S.A. de C.V.

(100%)

Proyectos Ecológicos del

Sureste, S.A. de C.V.

(100%)

Gran Operadora Posadas,

S.A. de C.V.

(100%)

Hotelera del Sudeste,

S.A. de C.V. (51%)

(FA Mérida)

Hotelera Inmobiliaria de

Monclova, S.A. de C.V.

(50%) (FI Monclova)

Sudamérica en Fiesta,

S.A.

(88%)Posadas do Brasil Ltd.

(100%)

Caesar Park Argentina,

S.A. (100%)

(CP Buenos Aires)

Grupo Posadas S.A.B. de C.V.

Soluciones de Lealtad

S.A. de C.V.

(100%)

Administradora de

Propiedad Industrial Fiesta

Americana, LLC

S.A. de C.V. (100%)

Administradora de

Propiedad Industrial de

Latino America, LLC

S.A. de C.V. (100%)

Conectum

S.A. de C.V.

(100%)

Inmobiliaria Opus,

S.A. de C.V. (100%)

Promotora Dinatur de

Sonora S.A. de C.V.

(100%)

Arrendadora Posadas

S.A. de C.V.

(100%)

Administradora Porto

Ixtapa

S.A. de C.V. (100%)

Hoteles Fiesta Americana,

S.A. de C.V.

(100%)

Altiuspar, Inc.

(100%)

Hoteles Fiesta Inn,

S.A. de C.V.

(100%)

Servicios Centrales de

Cobranza,

S.A. de C.V. (100%)

Sunwild, Ltd

(100%)

YIPA,

S.A. de C.V.

(100%)

Inmobiliaria y

Administradora Minerva,

S.A. de C.V. (100%)

(FA Guadalajara - Land)

Operadora del Golfo de

México, S.A. de C.V.

(100%)

Tesorería Central Posadas

S.A. de C.V.

(100%)

Operadora FAVC

S.A. de C.V.

(100%)

Fiesta Americana

Vacation Credit,

S.A. de C.V. (100%)

Impulsora de Vacaciones

Fiesta

S.A. de C.V. (100%)

Hotelera Península Maya,

S.A. de C.V. (100%)

(Explorean Costa Maya)

Inmuebles Cozumel Reef,

S.A. de C.V. (100%)

Hoteles La Mansión,

S.A. de C.V. (100%)

Inmobiliaria de la Ciudad

de Loreto, S.A. de C.V.

(100%)

Inmobiliaria Punta Mita,

S.A. de C.V.

(100%)

Kohunlich Adventures,

S.A. de C.V.

(100%)

Promotora Hotelera

Villahermosa,

S.A. de C.V. (100%)

Sian Hotelera

S.A. de C.V. (100%)

Turística Hotelera Cabos

Siglo XXI, S.A. de C.V.

(100%)

Inmobiliaria Insurgentes y

Viaducto, S.A. de C.V.

(100%)

Posadas Venture, B.V.

(100%)

Hotelera Administradora de

Aeropuertos,

S.A. de C.V. (100%)

Posadas Sudamerica

Emprendimientos

Hoteleiros (100%)Porto Ixtapa, S.A. de C.V.

(100%)

Sistema Director de

Proyectos

S.A. de C.V. (100%)

Konexo Centro de

Soluciones, S.A de C.V.

(100%)

Proyectos y

Construcciones OB

S.A. de C.V. (50%)

(FI León)

Inmobiliaria Hotelera de

Toluca,

S.A. de C.V. (79%)

(FI Toluca)

Servicios Administrativos

Los Cabos,

S.A. de C.V. (100%)

Promotora Inmobiliaria

Hotelera, S.A. de C.V.

(100%)

Inmobiliaria Administradora

del Valle, S.A. de C.V.

(100%)

(FI Guadalajara)

Inmobiliaria Hotelera

Napoles, S.A. de C.V.

(100%) (One Patriotismo)

Promotora Hotelera de

Querétaro, S.A. de C.V.

(100%) (FI Querétaro)

Hotelera Administradora de

Monterrey, S.A. de C. V.

(100%)

(FI Monterrey la Fe - Apto)

Promotora Turística de

Saltillo S.A. de C.V. (100%)

(FI Saltillo)

Corporación Hotelera de

Ciudad Juárez, S.A. de

C.V.

(100%) (FI Ciudad Juárez)

Compañía Inm. Hotelera

de Chihuahua, S.A. de C.V.

(100%) (FI Chihuahua)

Inmobiliaria Carretera

Constitución de Queretaro,

S.A. de C.V.

(100%) (One Queretaro)

Administradora Profesional

de Hoteles, S.A. de C.V.

(100%)

Administradora Inmobiliaria

Posadas,S.A. de C.V.

(100%)

Servicios Hoteleros

Posadas

S.A. de C.V. (100%)

Altiuspar Solutions

S.A. de C.V.

(100%)

Operadora Porto

Ixtapa, S.A. de C.V.

(100%)Promotora Turistica de

Mexicali, S.A. de C.V.

(100%) (FI Mexicali)

Gran Inmobiliaria

Posadas, S.A.de C.V.

(100%)

Inmobiliaria Hotelera de

Aguascalientes, S.A. de

C.V. (100%) (FI

Aguascalientes)

Promociones Hoteleras del

Caribe, S.A. de C.V. (99.9%)

(FA Condesa Cancun)

Promotora del Caribe, S.A.

(99.9%)

Axioma Demostrado, S.L.

(100%)

South America Investment

(100%)

Administradora de

Propiedad Industrial

Posadas,

LLC (100%)

Page 33: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

32

(This space was intentionally left in blank)

Page 34: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

33

Hotel Opening CountryTipe of

Contract

Number of

rooms

Live Aqua (Cancún) 2004 México Leased 371

FA Aguascalientes 1993 México Managed 192

FA Centro Monterrey 1994 México Managed 207

FA Condesa Cancún 1989 México Ow ned 502

FA Cozumel Dive Resort 1991 México Ow ned 224

FA Grand Coral Beach 1990 México Managed 602

FA Grand Los Cabos 1999 México Ow ned 249

FA Grand Chapultepec 2001 México Managed 203

FA Grand Guadalajara Country Club 2007 México Managed 208

FA Guadalajara 1982 México Ow ned 391

FA Hacienda Galindo 1977 México Ow ned 168

FA Hermosillo 1982 México Ow ned 221

FA León 1991 México Managed 211

FA Mérida 1995 México Ow ned 350

FA Puerto Vallarta 1979 México Managed 291

FA Queretaro 2003 México Managed 173

FA Reforma 1970 México Ow ned 616

FA Santa Fé 2006 México Leased 172

FA Veracruz 1995 México Managed 233

FAVC Cancún 1981 México Ow ned 179

FAVC Condesa Acapulco 1971 México Ow ned 324

FAVC Los Cabos 2000 México Ow ned 134

FAVC Explorean Kohunlich 1999 México Ow ned 40

FI Acapulco 2000 México Managed 220

FI Aeropuerto Ciudad de México 1970 México Ow ned 327

FI Aguascalientes 1993 México Ow ned 125

FI Celaya 2003 México Managed 124

FI Centro Histórico 2003 México Leased 140

FI Ciudad del Carmen 2003 México Managed 131

FI Ciudad Obregón 2007 México Managed 123

FI Ciudad Juárez 1999 México Ow ned 166

FI Colima 2004 México Managed 104

FI Cuautitlán 2004 México Leased 128

FI Cuernavaca 2008 México Managed 155

FI Culiacán 2003 México Leased 142

FI Chihuahua 1993 México Ow ned 152

FI Coatzacoalcos 2008 México Managed 122

FI Durango 2008 México Managed 138

FI Ecatepec 2005 México Leased 143

FI Guadalajara 1995 México Ow ned 158

FI Hermosillo 2002 México Leased 155

FI Insurgentes Viaducto 2003 México Leased 210

FI León 1995 México Ow ned 160

FI Mazatlán 1994 México Managed 117

FI Mexicali 2004 México Ow ned 150

FI Monclova 1996 México Ow ned 121

FI Monterrey Centro 2000 México Managed 231

FI Monterrey Fundidora 2007 México Managed 155

FI Monterrey La Fe - Aeropuerto 1998 México Ow ned 161

FI Monterrey Norte 1995 México Managed 156

FI Monterrey Tecnologico 2010 México Managed 201

FI Monterrey Valle 1994 México Ow ned 176

FI Morelia 1998 México Leased 253

FI Naucalpan 1997 México Leased 119

FI Nogales 2004 México Managed 107

FI Nuevo Laredo 2001 México Managed 111

FI Oaxaca 1993 México Managed 143

FI Orizaba 2003 México Managed 103

FI Pachuca 1998 México Leased 114

FI Perinorte 1996 México Leased 123

FI Perisur 2001 México Leased 212

FI Poza Rica 2005 México Managed 107

FI Puebla FINSA 2006 México Managed 123

FI Querétaro 2000 México Ow ned 175

FI Reynosa 2006 México Managed 127

FI Saltillo 1997 México Ow ned 149

FI Santa Fé 2006 México Leased 189

FI San Luis Potosí 1996 México Managed 135

Page 35: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

34

Source: Posadas

All these properties have insurance covering property damage, common for this industry (such as fires, explosions, earthquakes and hurricanes). These insurance policies also include coverage for consequential losses. All these policies are contracted with prestigious insurance companies. Some of the assets are encumbered as guarantee for the Company’s and its subsidiaries’ liabilities, which are generally undertaken for financing reasons; therefore, in general terms, the attachment procedure is typical to a mortgage or fiduciary proceeding.

Hotel Opening CountryTipe of

Contract

Number of

rooms

FI Perinorte 1996 México Leased 123

FI Perisur 2001 México Leased 212

FI Poza Rica 2005 México Managed 107

FI Puebla FINSA 2006 México Managed 123

FI Querétaro 2000 México Ow ned 175

FI Reynosa 2006 México Managed 127

FI Saltillo 1997 México Ow ned 149

FI Santa Fé 2006 México Leased 189

FI San Luis Potosí 1996 México Managed 135

FI San Luis Potosí Oriente 2004 México Managed 140

FI Tampico 2002 México Managed 124

FI Tepic 2008 México Managed 139

FI Tijuana Otay 2005 México Leased 142

FI Tlalnepantla 1994 México Ow ned 131

FI Toluca 1998 México Ow ned 144

FI Toluca Centro 2009 México Managed 85

FI Torreón 1999 México Leased 149

FI Torreón Galerías 2005 México Managed 146

FI Tuxtla Gutiérrez 2007 México Managed 120

FI Veracruz 1999 México Managed 144

FI Veracruz Malecón 2001 México Managed 92

FI Villahermosa 2004 México Managed 145

FI Xalapa 1993 México Managed 119

One Acapulco Costera 2008 México Managed 126

One Aguascalientes Ciudad Industrial 2008 México Managed 126

One Aguascalientes San Marcos 2009 México Managed 126

One Ciudad de México Patriotismo 2007 México Ow ned 132

One Coatzacoalcos Forum 2007 México Managed 126

One Monterrey Aeropuerto 2006 México Managed 126

One Playa del Carmen Centro 2010 México Managed 108

One Puebla FINSA 2010 México Managed 126

One Queretaro Plaza Galerias 2008 México Ow ned 126

One Reynosa Valle Alto 2010 México Managed 135

One Saltillo Derramadero 2009 México Managed 126

One San Luis Potosí Glorieta Juárez 2008 México Managed 126

One Toluca Aeropuerto 2007 México Managed 126

Holiday Inn Laredo Civic Center 1988 USA ow ned 202

Holiday Inn Mérida 1980 México Managed 213

Holiday Inn Sunspree Resot South Padre Island 1992 USA Managed 227

Sheraton Fiesta Beach Resort South Padre Island 1992 USA Managed 250

CB Belo Horizonte 2003 Brasil Leased 158

CB Lagoa dos Ingleses 2002 Brasil Managed 123

CB Rio de Janeiro - Botafogo 2003 Brasil Managed 110

CB Manaus 2010 Brasil Managed 229

CB Sao Paulo-Paulista 2004 Brasil Managed 400

CB Sao Paulo Faria Lima 2004 Brasil Managed 213

CB Sao Paulo Int'l Airport 2001 Brasil Ow ned 232

CB Santiago Chile 2006 Chile Leased 142

CP Buenos Aires 1998 Argentina Ow ned 173

CP Río de Janeiro - Ipanema 1998 Brasil Ow ned 222

CP Silver Buenos Aires Obelisco 2008 Argentina Leased 74

CP Sao Paulo Faria Lima 2004 Brasil Leased 131

CP Sao Paulo Int'l Airport 2001 Brasil Ow ned 153

Page 36: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

35

Moreover, the Company is the holder of certain real property destined for their use as offices and in

2010, the Company purchased a lot of land located in the Riviera Maya, in Quintana Roo, which it plans to used for tourism purposes.

xi) Judicial, Administrative or Arbitral proceedings

To December 31, 2009, the Company was a party in several judicial and administrative proceedings derived from the ordinary course of business, both as plaintiff and defendant. Except for tax proceedings, none of the judicial, administrative or arbitral proceedings can be considered “relevant” in terms of the Provisions of General Nature applicable to the Securities Issuers and other Market Participants.

As for tax proceeding, the most relevant refer to proceedings derived from the formal payment requests made by the Tax Administration Service dated November 12, 2004, April 28, 2005, January 23, 2006, September 4, 2007 and April 25, 2008 to the Company or to one of its subsidiaries, which have been challenged through an action to void filed before the Federal Court for Tax and Administrative Justice or TFJFA.

The total accumulated amount claimed by the authority is approximately $1,121.0 M. This amount

excludes the updates, fines and surcharges which may be imposed if these proceedings are decided unfavorably to the Company. The tax liabilities involved are guaranteed according to applicable law. Resolution of the tax proceedings have some level of uncertainty, we cannot risk predicting their resolution. To December 31, 2010, no reserve in relation to such disputes has been made since based on the opinion of the Company’s tax advisors that an unfavorable outcome is less than probable for the Company, and as such the decisions of the Company’s Management are based on the latter opinion. If all or a portion of these actions are decided adversely to the Company’s interest, it could have a material adverse impact on our business, financial situation and operating results (see 1.c) Risk Factors).

It is important to mention that the subsidiaries of Nuevo Grupo Aeronautico S.A. de C.V., which is in bankruptcy, has recognized credits in favor of the Company and of its subsidiaries for a total amount of approximately $85 M Pesos for debts derived from accommodation services rendered at own and leased hotels.

Likewise, the Company cannot certainly assure or affirm regarding the outcome of the open proceedings, the period in which they will be resolved and, in the applicable case, the eventual loss that an adverse resolution would bring to the Company and its operations.

xii) Representative Shares of Corporate Capital

To December 31, 2010, the Company’s corporate capital is made up of shares without expressing par value, as hereunder follows:

Page 37: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

36

The corporate capital is constituted by series “A” shares which may be subscribed by Mexican

individuals or legal entities, and by foreigners through a neutral investment trust established in Nacional Financiera, S.N.C. and by series “L” shares with limited voting and corporate rights which may be freely

subscribed and are restricted to 25% of all corporate capital.

To December 31, 2010, the reserve is presented in accumulated earnings and amounts to $224.1 M (at face value) and represents 20% of the nominal corporate capital. Said reserve cannot be distributed to shareholders, except as share dividends. In the last three corporate years, a capital issuance has not been made.

The shares in the guarantee trust corresponded to shares subscribed and paid by the trustee institution thus guaranteeing with these shares and, with an irrevocable administration and guarantee trust signed with Bancomext, the surety granted by the latter institution, related to the $875 M stock exchange

certificate issue of 2003 and amortized in advance in February 2005. The Company’s managements will define the treatment given to these shares once the aforementioned trust ends. During 2009, 15,094,340 shares were transferred to the stock brokerage contract executed with a stock brokerage house to satisfy a pledge of securities, released on December 23, 2009. During 2010, the totality of released shares was transferred to the trust for assignment and sale to executives.

The Ordinary General Stockholders’ Meeting held in April, 2011, approved that maximum resource

amount allocated to the purchase of the Company’s own shares, within the Stock Market Law limitations, is the amount of $652 M, which does not exceed the equivalent of retained earnings balance to December 31, 2010.

xiii) Dividends

The periodicity, amount and form of dividend payments are proposed by the Company’s Board of Directors and are put to the consideration of the ordinary annual general shareholders meeting for approval. The dividend amount depends on operating results, financial situation, capital expenses, investment projects and other factors deemed important by the Board of Directors.

The Ordinary Annual General Stockholders’ Meeting held April 14, 2011, did not determine the payment of dividends for the year ending on December 31, 2010, said meeting had approved that the net profits obtained in that corporate year would be allocated to Accumulated Result Account and to the Non- Controlling Participation.

Number of shares 2 0 1 0

Series "A" Series " L" Total

Authorized capital 603,394,827 128,985,074 732,379,901

Less- Unsubscribed capital (135,453,063) (20,038,219) (155,491,282)

Subscribed capital 467,941,764 108,946,855 576,888,619

Less-

Repurchase of shares (11,272,166) (6,978,033) (18,250,199)

Shares in trust (19,322,502) (526,600) (19,849,102)

Shares in guarantee trust (42,306,206) - (42,306,206)

Shares in Chemuyil trust (7,580,000) - (7,580,000)

(80,480,874) (7,504,633) (87,985,507)

387,460,890 101,442,222 488,903,112

Page 38: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

37

The Ordinary Annual General Shareholders’ Meeting held on April 5, 2010, approved a cash dividend payment in two installments for $0.45 (forty-five cents) per share; therefore, the dividend paid on April 15, 2010, in the first amortization, was $126.8 M and the complementary payment of $126.8 M shall be on or from July 15, 2010.

The Ordinary General Shareholders’ Meeting held in April 2009, did not declare dividends.

The Ordinary General Shareholders’ Meeting held on April 30, 2008 approved a cash dividend payment to the shareholders in two installments for $0.31 (thirty-one cents) per share; therefore, the dividend paid was $174.0 M. Said dividend was paid on June 2, 2008. The Ordinary General Shareholders’ Meeting held in April, 2007, approved a cash dividend payment to the shareholders for the amount of $0.27 (twenty-seven cents) per share; therefore, the dividend paid was $152.6 M. Said dividend was paid in June, 2007. 3) FINANCIAL INFORMATION a) Selected Financial Information

Page 39: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

38

b) Financial Information per Business Line, Geographic Zone and Export Sales

Sales behavior during the last three years for each of the Company’s business units is hereinafter explained in detail.

The next chart shows the incomes for the hotels according to geographic zone in the last 3 years:

Independent Auditors Figures

For the years ended on December 31st:

2010 2009 2008

Income Statement Data:

Total revenues Ps. 6,537.5 Ps. 7,082.9 Ps. 6,904.5

Corporate expenses 110.4 89.1 97.6

Depreciation, amortization, and real estate leasing 808.8 814.9 722.3

Operating income 573.1 805.9 1,140.8

Comprehensive financing cost (income) 288.1 332.1 1,509.6

Taxes 8.0 132.2 (111.2)

Net income 35.9 262.4 (701.8)

Majority net income(23) 24.6 266.4 (615.4)

Balance Sheet Data (End of Period):

Current assets Ps. 2,183.6 Ps. 2,021.6 Ps. 2,667.0

Property and equipment, net(34) 8,884.9 9,083.7 9,386.7

Total assets 12,971.4 12,770.7 13,544.8

Current liabilities(45) 1,470.3 1,999.8 2,659.0

Long-term debt ……… 5,617.3 4,031.2 4,193.7

Total liabilities ……… 8,891.0 8,337.7 8,793.2

Stockholders’ equity 4,080.4 4,433.0 4,458.8

Other Financial Data:

Capital expenditures

EBITDA(56)

EBITDA to Interest Expense 8.8% 11.4% 16.5%

Total Debt to EBITDA 0.5% 3.7% n.d.

EBITDA Margin(78) $1,021.4 $1,242.9 $1,529.9

EBITDA / Total revenues 15.6% 17.5% 22.2%

Indebtedness / EBITDA 5.7 X 4.0 X 3.5 X

Current assets / Current liabilities 1.49 X 1.01 X 1.00 X

Total liabilities / Equity 2.18 X 1.88 X 1.97 X

(in million of pesos)

REVENUES PER BUSINESS UNIT

(Figures in millions of pesos as of December 31st, 2010)

2010 2009 2008

Revenues % Revenues % Revenues %

HOTELS 3,306.8 50.6% 3,065.2 43.3% 3,677.6 53.3%

MANAGEMENT 1,798.3 27.5% 1,695.6 23.9% 1,655.4 24.0%

OTHER BUSINESSES 1,432.4 21.9% 2,322.2 32.8% 1,571.5 22.8%

TOTAL 6,537.5 100.0% 7,082.9 100.0% 6,904.5 100.0%

Page 40: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

39

Source: Posadas c) Relevant Loan Information

Section B. Financial Situation, Liquidity and Capital Resources, found later in this Report, contains a detailed discussion of the Company’s total debt structure. To December 31, 2010, the Company was current with all capital and interests payments on loans contracted. In like manner, to the date of this report, the Company is current with capital and interest payments on loans and financing contracted. d) Comments and Analysis of Management on the Operating Results and Financial Situation of the Company.

i) Operating Results

REVENUES BY GEOGRAPHY

(Figures in millions of pesos as of December 31st, 2010)

2010 2009 2008

Revenues % Revenues % Revenues %

Mexico 5,585.0 85.4% 6,286.9 88.8% 6,145.7 89.0%

South America 907.5 13.9% 754.9 10.7% 710.4 10.3%

USA 45.0 0.7% 41.1 0.6% 48.4 0.7%

TOTAL 6,537.5 100.0% 7,082.9 100.0% 6,904.5 100.0%

EXPORT REVENUES

(Figures in millions of pesos as of December 31st, 2010)

2010 2009 2008

Revenues % Revenues % Revenues %

Export 952.5 14.6% 796.0 11.2% 758.8 11.0%

Local 5,585.0 85.4% 6,286.9 88.8% 6,145.7 89.0%

TOTAL 6,537.5 100.0% 7,082.9 100.0% 6,904.5 100.0%

Page 41: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

40

Corporate year ending December 31, 2010 Compared with corporate year ending December 31, 2009

Total Income

The Company’s Total Income went from $7,082.9 M in 2009 to $6,537.7 M in 2010, mainly derived

from the 38.3% decrease in Other businesses which include the Vacation Club. Own & Leased Hotels

Own and Leased hotels includes revenues, costs and expenses derived from the Company’s

operation of own and leased hotels. The income increase of Own and Leased Hotels of 7.9% to $3,307.0 M in 2010 from $3,065.2 M in 2009, which is mainly attributable to the following items: (i) 6.1 pp (percentual points) increase in occupation, (ii) to the result of a better RevPAR (Revenue Per Available Room) of 10.5% which was of $589 in 2009 and $655 in 2010 and (iii) to the decrease of 2.5% in the average number of rooms operated. This recovery in guest number is due to the marketing campaigns implemented and to the change of three hotels which operated under the European plan to an “All Inclusive” format which in turn represented 11% of the owned and leased rooms that the Company operated.

Departmental costs and expenses consist of costs related to food and beverages, room service and

food and beverage personnel and other related to commissions for agencies, reservations, room amenities and laundry. Departmental costs increased 2.8% of $1,326.5 M in 2010. This growth in costs is due to a greater

P&L 2009

(Figures in millions of pesos)

Total revenues 6,537.7 100.0 7,082.9 100.0 (7.7)

Owned and leased hotels

Revenues 3,307.0 100.0 3,065.2 100.0 7.9

Direct cost 2,585.7 78.2 2,480.4 80.9 4.2

Contribution 721.3 21.8 584.8 19.1 23.3

Management

Revenues 1,798.3 100.0 1,695.6 100.0 6.1

Direct cost 1,302.2 72.4 1,103.5 65.1 18.0

Contribution 496.1 27.6 592.1 34.9 (16.2)

Other businesses

Revenues 1,432.4 100.0 2,322.2 100.0 (38.3)

Direct cost 1,157.6 80.8 1,789.1 77.0 (35.3)

Contribution 274.8 19.2 533.1 23.0 (48.4)

Corporate expenses 110.4 1.7 89.1 1.3 23.9

Depreciation/amortization and real estate leases 808.8 12.4 814.9 11.5 (0.7)

EBIT 573.1 8.8 806.0 11.4 (28.9)

EBITDA 1,021.4 15.6 1,243.0 17.5 (17.8)

2010Var%

$ % $ %

Total Urban Coastal

% Var. % Var. % Var.

Accumulative

Average number of rooms 9,335 (2.5) 7,989 (2.9) 1,346 0.0

Available daily rate 1,102 (0.9) 1,063 2.4 1,451 (13.9)

Occupancy 59% 6.1 62% 7.5 42% (1.8)

RevPAR 655 10.5 664 16.4 606 (17.5)

Owned & Leased hotels

Page 42: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

41

guest number lodging in our hotels. The departmental contribution was $1,923.0 M in 2010 representing an increase of 10.8% in comparison to $1,923.0 M in 2009 (for further detail see the Attachment: Audited Financial Statements).

General expenses for own hotels correspond to administration, sales, publicity and promotion,

maintenance and energy. General expenses decreased 6.7% to $1,346.5 M in 2010 from $1,261.6 M in 2009 mainly due to the following area changes; (i) 8.7% decrease in administrative expenses, (ii) 2.3% increase in sales, publicity and promotion costs, and (iii) 8.1% increase in maintenance and energy costs. The general expense increase is due to the greater number of guests received in comparison with the same period in the prior year.

Other related expenses with own hotels refer to: taxes, insurance premiums and other net expenses

(income). Other expenses are composed by computer equipment, television and car leasing. In this category, gains or losses from the sale of shares is also included. The Company did not sell hotels or any other assets during 2010 or 2009.

As a result of the foregoing, the contribution of own and leased hotels improved 23.3% to $721.3 M in 2010 from $584.8 M in the prior year (see the Attachment: Audited Financial Statements). Management

The Management business includes administration of the brand and all the hotels, the loyalty program

(“Ampersand”), the call center (“Konexo”) and administrative services (“Conectum”). Income increased 6.1% to $1,798.3 in 2010 from $1,695.6 M in 2009. This was attained due to a

REVPAR (Revenue Per Available Room) at chain level increased by 6.9% due to a larger occupation of 3.3pp in comparison with the prior year, and this includes five new hotels with 799 rooms which initiated operations in 2010 (even considering that the recently opened hotels operate with lower rates in comparison with the system’s average rates); One Reynosa Alto Verde (135 rooms), One Centro Playa del Carmen (108), One Puebla Finsa (126 rooms), Fiesta Inn Monterrey Tecnologico (201 rooms) and Caesar Business Manaos Amazonas (229 rooms), all under operating contracts. It is important to mention that the contract to operate the Caesar Business Sao Jose dos Campos hotel in Brazil (157 rooms) was not renewed as this was convenient for both parties.

However, the non-hotel businesses such as Ampersand, Konexo and Conectum, which also serve

third parties, contributed relevantly to 2010 sales. Jointly, they represented 57% of the total management business income since they presented a 6.0% increase in comparison with the immediately prior year.

The direct and corporate expenses of the management business include: corporate sales, hotel

operations, human resources for the hotels, marketing, technology and operations divisions, and Ampersand, Konexo and Conectum. The 18% cost increase is partly because the financial situation in Mexico provoked the suspension of certain services which had been being rendered to said subsidiaries, which consequently led to an extraordinary charge corresponding to operational transactions recorded under the heading in the consolidated profit and loss statement of “Direct costs and expenses” negatively impacting and mainly affecting Konexo.

As a result of the foregoing, the contribution of hotel management decreased 16.2% in 2010, from $592.1 M to $496.1 M with a margin of 28%, which in spite of everything, we consider it at a competitive level for these type of businesses.

Total Urban Coastal

% Var. % Var. % Var.

Accumulative

Average number of rooms 18,802 2.3 15,908 2.0 2,894 4.2

Available daily rate 1,073 0.8 1,013 2.9 1,468 (6.6)

Occupancy 58% 3.3 59% 3.9 49% 0.2

RevPAR 618 6.9 599 10.2 719 (6.2)

Management

Page 43: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

42

Other Businesses

The Vacation Club business represented most of the total income of “Other businesses”. The income of Fiesta Americana Vacation Club was 38.3% lower than registered in 2009, partly due to the following: (i) Less inflow of tourists to the resorts where a significant part of the membership sales are closed, (ii) an important base of the current members has not continued acquiring additional points or up-grades for their memberships as they were doing prior to 2010 and (iii) the vacation period corresponding to the end of the year finished in the first week of January of 2011 and a significant number of memberships were sold at the end of this period and they were not registered in December 2010. Expenses were reduced in line with sales in 35.5% to $1,157.6 M in 2010 in relation to $1,789.1 M in 2009.

The contribution of Other Businesses decreased to 48.4% to $274.8 M in 2010, from $533.1 M in 2009, reporting a margin of 19.2%. At the end of the year, the number of members was approximately 29,000, a level similar to the one reported on the same date of the previous year.

Corporate expenses

Corporate expenses are those relating to the Office of the Chairman, and the Office of the Chief Financial Officer, such as wages and salaries, administrative expenses and legal fees. The Company had corporate expenses of $110.4 M in 2010, a 23.9% increase compared to $89.1 M in 2009. The increase is the result of the reinforcement and centralization of the administrative activities and financial areas of the Company that in previous years were registered in each business unit. It is important to mention that even though the number of operating hotels increased, this amount represented in 2010, 1.7% in relation to the consolidated revenues, a slightly lower level than the previous year.

Depreciation, Amortization and Real Property Leasing

Depreciation, amortization, and property leasing was $808.8 M in 2010, a 0.7 % decrease when compared to the 2009 percentage. This variation was mainly due to a lower hotel leasing amount of 4.6% which is the consequence of the peso appreciation against the United States dollar during the year, since most leases are denominated in U.S. in dollars.

Operating Income

As a result of the foregoing, operating income was $573.1 M in 2010, a decrease of 33.8% compared to $806.0 M in 2009.

Comprehensive Financing Result

Net interest expense in 2010 closed at 2.4 times; 1.1 times lower than in 2009.

The currency exchange Profit and other financial products (Derivatives) have been benefitted by the peso appreciation against the United States dollar of 5.4% from December 31, 2009, to December 31, 2010.

In regards to the five contracts to exchange peso denominated debt at a variable interest rate to United States dollars at a fixed interest rate (CCS), two of these concluded during the fourth quarter of 2010.

As of December 31, 2010, the Company still had approximately US 28 M posted for margin calls, US 1.8 M less than on December 31, 2009, resulting from the aforementioned peso appreciation which was set off with the credit line of US 2.5 M granted in one of the contracts that had been eliminated as a consequence of

Interests income (32,304) (33,109)

Interests expense 446,247 375,331

Financial expenses 98,000 62,811

Exchange loss (gain) (70,464) 127,120

Derivatives (153,372) (200,084)

Total CFC 288,107 332,069

Concept 2010 2009

Page 44: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

43

the lower credit rating of Posadas. Furthermore, the Company has at all time satisfied margin calls from swaps counterparts which, as of June 28, 2011 approximately amounted to US 18 M deposited in cash.

Majority Net Result

Net income for the 2010 corporate year is due mainly to: (i) the improvement in hotel operating results; (ii) the recovery observed in derivative financial instruments valuation, given the aforementioned Peso appreciation and (iii) the result of the proceeding derived from the commercial bankruptcy of Mexicana in which the Company reserved the total amount of the accounts receivables that it had with Grupo Mexicana and Subsidiaries for $171.2 M of which $115.2 M correspond to operating transactions and an amount of $56.1 M stated in “Other expenses-net” in the consolidated profit and loss statement. This last amount is the result of a loan that the Company made to Mexicana during 2010 for an amount of US 3.9 M.

Financial Situation

Net debt at the end of the fourth quarter was US 434 M. The ratio of Net Debt to EBITDA was 5.24 times, which is 1.54 times higher than the one observed in the same period of the previous year. The Total Debt mix was as follows: 4% of short-term; 80% in US dollars (Net Debt); and 69% at fixed rate. The average life was 3.2 years and 15% was guaranteed with real property assets.

To the issuing date of the present report, the ratings in force for the “9.25% Senior Notes 2015” and the Certificates Bursatiles POSADAS-08 are the following:

Fitch: global scale Issuer Default Rating (IDR) “B” and local scale (Caval) “BB+”, both with stable

perspective.

Moody’s: global scale “B3” and negative perspective.

S&P: global scale “B” and local scale (Caval) “mxBB-”, both with negative perspective.

Significant Events:

On January 15, 2010, the Company issued debt securities for US200 M under the “Senior Notes” program due on January 15, 2015 (“Senior Notes 2015”). The net proceeds was used to pre-pay a part of the Company’s debt, and which had short and mid-term maturity dates according to Note 11 of the Audited Financial Statements (ATTACHMENT 7). Issuance expenses which totaled $70.5 M were capitalized and are being amortized in relation to the term of the debt. The expenses of the pre-paid debts were registered in the profit and loss statement under the heading of CFC and they total the amount of $16.5 M.

In July 2010, the Company acquired full ownership of land located in the Riviera Maya for tourism purposes. As a consequence, the Company assumed certain obligations which were guaranteed by incorporating a guarantee trust.

In 1999, the Company signed a purchase option with the International Finance Corporation (“IFC”) in which the Company had a preferential right to purchase the total shares that IFC maintend of Sudamerica en Fiesta, S.A. (“SFI”) (subsidiary company), which as of December 31, 2009, represented 12.07% of the total corporate capital of SFI. According to the terms of the purchase option, the period to execute the operation ends on December 31, 2011. To December 31, 2009, the approximate total price of said option was US11 M. On January 14 and June 16, 2010, the Company executed its purchase option for 5.2402% and 6.8298% respectively of the capital of SFI for US 5 M and US 6.5 M, respectively. This operation caused a decrease in the non-controlling ownership in the shareholder’s equity, and which is presented in the statement of variations of shareholder’s equity for an amount of $248.9 M. This at the same time, generated a surplus for share purchase of $126.2 M which is also presented in shareholder’s equity under the heading “accumulated earnings and profits”; given that the purchase price was less than the accounting value of the purchased shares.

On August 13, 2010, the company sold its shares in Mexicana to third parties for a symbolic price. This sale did not have any significant effect in the profit and loss statement of the Company, since the investment in Mexicana was totally reserved by December 31, 2009. Given that the Company did not have control of Mexicana, the latter’s financial statements were not consolidated. Before the sale and to December 31, 2009, the Company had a 30.41% participation in Mexicana. Likewise, and as a result of the proceeding resulting from the commercial bankruptcy of Mexicana subsidiaries, during

Page 45: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

44

2010, the Company reserved the total amount of the accounts receivables that it had with different Grupo Mexicana companies for $171.2 M of which $115.2 M correspond to operating transactions registered under the categories of the consolidated profit and loss statement as “Sale, publicity and promotion” and “Direct costs and expenses”, respectively, and an amount of $56.1 M stated in “Other expenses-net” in the consolidated profit and loss statement. This last amount is the result of a loan that the Company made to Mexicana during 2010 in the amount of US 3.9 M.

For the purpose of reducing management costs and realigning certain activities, in December 2010, the Company formalized a reorganization personnel plan which began in early January 2011. Consequently, a personnel restricting reserve was created; said provision meets the characteristics of an assumed obligation in compliance with Financial Information Norm C-9 “Liabilities, reserves, contingent assets and liabilities and commitments”, for an amount of $62.3 M, which is presented under the heading “Other accounts payable and accumulated liabilities” in the consolidated general balance attached hereto. The expense for this concept is presented under the heading of “Other expenses-net” in the consolidated profit and loss statement.

During April and May, 2009, derived from the epidemic of influenza A(H1N1), the government of Mexico declared a state of health contingency. Said situation obligated the temporary closing of certain public places such as schools, museums and restaurants. At the same time, the fight against organized crime held by the Mexican government, has caused an atmosphere of lack of safety in some places of the country and tourism that has been negatively affected; therefore room occupation percentages and hotel incomes have also been negatively affected.

Subsequent Events:

At the beginning of 2011, a CCS with a nominal value of US 21.3 M and $222.8 M with due date in April 2013 was unwound.

In January 2011 the Company contracted a securedloan with Banco Nacional de Mexico, S.A., member of Grupo Financiero Banamex, for $150 M payable in eighteen months with monthly amortizations at a TIIE 28 days rate plus 4.50 percentage points.

In March 2011, the Company implemented a series of operating strategies and commercial programs aimed at secondary Vacation Club markets such as “Reactivation program” and “Employees and Family program”.

In April 2011, the company signed a contract for third parties to provide certain services related to the management and optimization of its assets and technology platforms.

Page 46: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

45

Corporate Year ending December 31, 2009 Compared to the Corporate Year ending December 31, 2008

Total income

The Company’s total income went from $6,904.5 M in 2008 to $7,082.9 in 2009, mainly derived from the growth of the Vacation Club business which increased by 31.6% in this period.

Own and Leased hotels

Own hotels includes income and costs and expenses derived from the Company’s operation of own and leased hotels. The decrease in Own Hotels income of 16.7% to $3,065.2 M in 2009 from $3,677.6 M in 2008 is mainly attributed to: (i) 1.3% reduction in the average number of rooms operated, (ii) 7.5pp decrease in occupation and (iii) 10.7% reduction in the effective rates. This reduction was mainly due to a lower number of guests visiting our Hotels as a consequence of the financial crisis and the influenza A (H1N1) epidemic’s impact which broke out at the end of 2009. However, operating results improved during the summer in the third quarter as a result of the intense marketing and promotion campaigns implemented.

P&L 2009 2008

(Figures in millions of pesos)

Total revenues 7,082.9 100.0 6,904.5 100.0 2.6

Owned and leased hotels

Revenues 3,065.2 100.0 3,677.6 100.0 (16.7)

Direct cost 2,480.4 80.9 2,791.8 75.9 (11.2)

Contribution 584.8 19.1 885.8 24.1 (34.0)

Management

Revenues 1,695.6 100.0 1,655.4 100.0 2.4

Direct cost 1,103.5 65.1 1,105.5 66.8 (0.2)

Contribution 592.1 34.9 549.9 33.2 7.7

Other businesses

Revenues 2,322.2 100.0 1,571.5 100.0 47.8

Direct cost 1,789.1 77.0 1,046.5 66.6 71.0

Contribution 533.1 23.0 525.0 33.4 1.5

Corporate expenses 89.1 1.3 97.6 1.4 (8.7)

Depreciation/amortization and real estate leases 814.9 11.5 722.3 10.5 12.8

EBIT 806.0 11.4 1,140.8 16.5 (29.3)

EBITDA 1,243.0 17.5 1,529.9 22.2 (18.8)

Var%$ % $ %

Page 47: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

46

Departmental costs and expenses consist of costs related to food and beverages, room service and food and beverage personnel and other related to commissions for agencies, reservations, room amenities and laundry. Departmental costs decreased by 3.5% for $1,330.8 M in 2008 to $1,290.6 M in 2009. All possible flexibility was inserted into labor contracts in order to avoid greater costs and mitigate room occupation reduction. These costs also diminished derived from the lower occupation registered in these hotels during 2009. The departmental contribution was $1,923.0 M in 2009 representing a decrease of 16.9% in comparison to $2,346.8 M in 2008 (for further detail see the Attachment: Audited Financial Statements).

General expenses for own hotels correspond to administration, sales, publicity and promotion, maintenance and energy. General expenses decreased 17.7% to $1,113.2 M in 2009 from $1,352.4 M in 2008 mainly due to the following area changes; (i) 2.5% decrease in administrative expenses, (ii) 0.1% increase in sales, publicity and promotion costs, and (iii) 11.0% decrease in maintenance and energy costs. The general expense decrease is due to the reduced number of guests received in comparison with the same period in the prior year.

Other related expenses with own hotels refer to: taxes, insurance premiums and other expenses-net (income). Other expenses (income) are composed by computer equipment, television and car leasing. In this category, gains or losses from the sale of assets is also included. The Company did not sell hotels or any other assets during 2009 or 2008.

As a result of the foregoing, the contribution of own hotels decreased 34.0% to $584.8 M in 2009 from $885.8 M in the prior year (see the Attachment: Audited Financial Statements).

Management

The management business includes administration of the brand and all the hotels, the loyalty program (“Ampersand”), the contact center (“Konexo”) and the administrative services center (“Conectum”).

Income increased 2.4% to $1,695.6 in 2009 from $1,655.4 M in 2008. This was achieved despite the fact that the REVPAR decreased by 10.8% due to lower occupation in comparison with the prior year, and includes three hotels with 377 rooms which initiated operations in 2009 (even considering that the recently opened hotels operate with lower rates in comparison with the system’s average rates); One Aguascalientes San Marcos (126 rooms), FI Toluca Centro (85 rooms) and One Saltillo Derramadero (126 rooms), all under operation contracts. However, the non-hotel businesses such as Ampersand, Call Center (“Konexo”) and Conectum, which also serve third parties, contributed relevantly to the 2009 sale increase. Jointly, they represented 57% of total management business income. The direct and corporate expenses of the management business which include: corporate sales, hotel operations, human resources for the hotels, marketing, technology and operations divisions, Ampersand, Konexo and Conectum, kept in line with a marginal decrease of 0.2% in comparison to the prior year.

As a result of the foregoing, earnings from our hotel management business increased by 7.7% in 2009 to a margin of 34.9%, which we consider very industry competitive.

Other Businesses

Fiesta Americana Vacation Club income was 31.6% higher than in 2008. The Vacation Club business represented approximately 97% of the total Other Businesses income. This increase mainly arises from higher memberships sales of the resorts located in Acapulco and Los Cabos, and the recognition of sales carried out in 2008 but registered in 2009 according to the percentage of completion method used for accounting entries in this business. Expenses for this business line mainly include expenses relating to membership sales, financing, management and resort operation. Expenses increased 49.6% to $1,789.1 M in 2009 from

Page 48: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

47

$1,046.5 M in 2008. This cost increase is also associated to the income recognition mentioned above. Cancellation rates doubled for the 2008 comparable period thus, over the course of the year, we have implemented several strategies to control and reduce cancellation numbers. Some of these measures include offering specific solutions to vacation club members’ needs, for example, re-scheduling the payments or converting dollar-denominated payments to peso-denominated payment obligations. At the end of the year, the number of members was approximately 29,000, 2.5% higher than on the same date of the previous year.

Corporate expenses

Corporate expenses are those relating to the Office of the Chairman, and the Office of the Chief Financial Officer, such as wages and salaries, administrative expenses and legal fees. The Company had corporate expenses of $89.1 M in 2009, an 8.7% decrease when compared to $97.6 M in 2008. The decrease is the result of reductions to several discretionary expenses initiatives and donations to different organizations. It is important to mention that even though the number of operating hotels increased, this amount represented 1.3% of total income in 2009, a slightly lower level than the previous year.

Depreciation, Amortization and Real Property Leasing

Depreciation, amortization, and real property leasing was $814.8 M in 2009, a 12.8 % increase compared to the 2008 percentage. This variation was due to higher depreciation and amortization of 12.3%, added to a higher hotel leasing of 13.4% as a consequence of peso depreciation against the United States dollar during the first half of the year since most leases are denominated in U.S. in dollars.

Operating income

As a result of the foregoing, operating income was $806.0 M in 2009, a decrease of 29.4% compared to $1,140.8 M in 2008.

Comprehensive Financing Result

Net interest expense in 2009 closed at 3.6 times, slightly lower than in 2008.

Other expenses and financial products reflect certain recovery after the impact to the USD debt, partially due to Cross Currency Swaps (CCS) resulting from Mexican Peso depreciation against the U.S. Dollar in the fourth quarter of 2008.

Regarding the five contracts to exchange the peso denominated debt at a variable interest rate to United States dollars at a fixed interest rate (CCS), to December 31, 2009 the Company had approximately US30 M deposited for margin calls, US32 M less than at the end of 2008 principally resulting from liquidating US70 M of the nominal value of the Stock Exchange Certificates positions and the 3.7% appreciation of the Mexican peso against the United States dollar in this period.

Furthermore, the Company has at all time satisfied margin calls from swaps counterparts which, as of June 28, 2010 approximately amounted to US27 M deposited in cash.

Interests income (33,109) (6,989)

Interests expense 375,331 420,311

Exchange loss (gain) 127,120 (111,918)

Derivatives (200,084) 1,208,196

Total CFC 269,258 1,509,600

2009 2008Concept

Page 49: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

48

Majority Net Result

Net income for the 2009 corporate year is due mainly to the recovery observed in derivative financial instruments valuation, given the aforementioned Peso appreciation and recognition in 2008, according to NIFs, of the $209.5 M loss corresponding to the Grupo Mexicana investment, which was registered in the participation in earnings of associated companies account. Financial statements to December 31, 2009, include the effects of tax amendments made to consolidation rules with a reclassification in accumulated results of $397 M.

Subsequent Events

The following hotels started operations in 2010: January 4, Hotel One Reynosa Valle Alto with 135 rooms; March 29, Hotel One Playa del Carmen, with 108 rooms, and June 1

st, Fiesta Inn Monterrey

Tecnologico, with 201 rooms, all under a hotel operating contract.

In early January, 2010, the bond issue of “9.25% Senior Notes 2015” for a US200 M principal amount at five years with a 9.25% annual coupon rate.

“We are very satisfied with the results of this placement. Our order book surpassed the offered amount by several times, and more than 60 high-quality American, European, and Asian investors participated”, said Ruben Camiro, the Company’s Vice-President of Finance, stated. The net funds obtained from this issue will be used to make pre-payments of indebtedness with maturity dates in 2010, 2011, and 2012. To the date of this report, approximately 93% of the debt to be amortized in advance has already been paid. After this issue, the debt mix is the following: 1% of short-term debt; 83% in US dollars (net debt); 83% in at fixed rate; 7% of debt guaranteed with real property assets and the Issuer’s perspective has been improved to ”Stable” from “Negative” by Fitch Ratings, Standard and Poor’s and Moodys.

In 1999 the Company signed a sale option with IFC in which the Company had the preemptive right to purchase the total shares that IFC keeps from Sudamerica en Fiesta, S.A. (SFI) (subsidiary company), which to December 31, 2009 represented 12.07% of the total corporate capital of SFI. In accordance with the terms of the purchase option, the execution period started on July 9, 2005 and until December 31, 2011. To December 31, 2009, the approximated price of said option was of US11 M. On January 14, 2010, IFC exercised its convertibility option for 5.2402% of SFI’s capital for US5 M.

On January 8, 2010, the Company made a partial EUR1 M payment, and on March 15, 2010 made the EUR 4 M complementary payment of the EUR5 M convertible debt with DEG for EUR 5 M which is mentioned in Note 11 f to the Audited Financial Statements.

Page 50: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

49

Corporate Year ending December 31, 2008 Compared to the Corporate Year ending December 31, 2007

Total Income

The Company’s total income went from $5,974.2 M in 2007 to $6, 904.5 in 2008, mainly derived from the growth of the management business and the vacation club, which increased by 24.8% and 39.6% respectively in this period.

Own and Leased Hotels

The Own Hotels income increase of 4.4%, to $3, 677.6 M in 2008 from $3, 522.6 M in 2007 is mainly due to the increase of 4.3% in the daily average of available rooms, which went from 9, 212 in 2007 to 9, 606 in 2008, derived from the Aqua Cancun reopening, the openings of CP Silver Buenos Aires Obelisco and two One hotels. After demonstrating stable behavior throughout the year, hotel occupancy decreased in 2.3 pp while the effective rate diminished only 0.4%. Beach hotels showed a 7.6 pp decrease in occupancy, but started a recovery of 3 pp during the last 2008 quarter of the rate, which is mostly denominated in United States dollars.

P&L 2008 2007

(Figures in millions of pesos)

Total revenues 6,904.5 100.0 5,974.2 100.0 15.6

Owned and leased hotels

Revenues 3,677.6 100.0 3,522.6 100.0 4.4

Direct cost 2,791.8 75.9 2,625.5 74.5 6.3

Contribution 885.8 24.1 897.2 25.5 (1.3)

Management

Revenues 1,655.4 100.0 1,289.1 100.0 28.4

Direct cost 1,105.5 66.8 717.1 55.6 54.2

Contribution 549.9 33.2 572.0 44.4 (3.9)

Other businesses

Revenues 1,571.5 100.0 1,162.5 100.0 35.2

Direct cost 1,046.5 66.6 844.6 72.7 23.9

Contribution 525.0 33.4 317.9 27.3 65.2

Corporate expenses 97.6 1.4 90.3 1.5 8.1

Depreciation/amortization and real estate leases 722.3 10.5 664.8 11.1 8.7

EBIT 1,140.8 16.5 1,031.9 17.3 10.5

EBITDA 1,529.9 22.2 1,462.9 24.5 4.6

Var%$ % $ %

Total Urban Coastal

% Var. % Var. % Var.

Accumulative

Average number of rooms 9,606 4.3 8,259 1.0 1,347 30.6

Available daily rate 1,090 3.4 1,020 2.3 1,649 4.8

Occupancy 61% (2.3) 63% (1.2) 49% (7.6)

RevPAR 665 (0.4) 642 0.3 805 (9.3)

Owned & Leased hotels

Page 51: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

50

Departmental costs and expenses increased by 3.5% from $1,284.8 M in 2007 to $1,330.8 M in 2008. These expenses are attributable to food and beverages sales, staff wages and salaries relating to each hotel’s personnel, amenities for rooms and laundry services. The departmental contribution was $2,346.8 M in 2008, representing a 4.9% increase in comparison with $2,237.8 M in 2007. These costs behaved in line with the higher income registered in the period for the hotel business, whether owned or leased, as previously mentioned (for further detail see attachment: Audited Financial Statements).

The general own hotels expenses correspond to administration, sale, promotion and publicity, maintenance, and energy expenses. The general expenses increased by 10.2%, from $1,227.7 M in 2007 to $1,352.4 M in 2008 mainly due to the following increases per area: (i) 4.5% in administrative expenses, (ii) 17.5% in sale, publicity and promotion expenses, and (iii) 11.8% in maintenance and energy costs, which is not only due to the higher hotel operating number but also to higher energy prices during 2008 when compared with the previous year.

Other expenses related to the own hotel business line consist of taxes, insurance premiums and other net expenses (income). Other expenses (income) consist primarily of the leasing of computer equipment, televisions and cars. This item also includes the profits or losses from sale of assets. The Company did not sell any hotels or other assets during 2008.

As a result of the foregoing, contribution from own hotels decreased by 1.3% in 2008 if compared to the previous year (see attachment: Audited Financial Statements).

Management

The hotel management business income grew 28.4% to $1,655.4 M in 2008 from $1,289.1 M in 2007. This was principally due to an increase of 6.7% in the daily available average managed rooms from 16,849 in 2007 to 17,983 in 2008. It is important to note that the REVPAR decreased by 1.7% when compared to the previous year including nine hotels that began operating in 2008 (even though recently-opened hotels operate with lower rates than the system’s average). Non-hotel business lines such as Ampersand which manages third-party loyalty programs and the call center (“Konexo”), which also provides third-parties services, relevantly contributed to the 2008 sales increase. Direct and corporate expenses related to hotel management which includes marketing, technology areas and operations surpassed the income increase. (See attachment Audited Financial Statements). Due to the foregoing, the contribution of hotel management decreased 3.8% in 2008.

Other Businesses

Fiesta Americana Vacation Club income was 39.6% higher in comparison to 2007. The Vacation Club business represented about 90% of total Other Businesses income. At the end of the year, the membership number was 27,822; 11% higher than on the same date last year. At year’s end, a membership sales downturn was registered in comparison to the tendency observed in the first nine months of 2008.

Corporate expenses

Corporate expenses are those relating to the Office of the Chairman, and the Office of the Chief Financial Officer, such as wages and salaries, administrative expenses and legal fees. The Company had corporate expenses of $97.6 M in 2008, an 8.1% increase if compared to $90.3 M in 2007. It is important to mention that added to increased operating hotel number, this amount represented 1.4% of 2008 income in relation to total income, a level similar to the previous year.

Total Urban Coastal

% Var. % Var. % Var.

Accumulative

Average number of rooms 17,983 6.7 14,954 7.3 3,029 3.9

Available daily rate 1,069 0.9 979 2.1 1,587 (0.9)

Occupancy 61% (1.6) 62% (1.5) 53% (2.7)

RevPAR 647 (1.7) 608 (0.3) 841 (5.8)

Management

Page 52: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

51

Depreciation, amortization and real estate leasing

Depreciation, amortization, and real property leasing was $722.3 M in 2008, an increase of 8.7 % if compared to 2007. This variation was due to lower depreciation and an amortization of 9.7% but is set off by a higher hotel leasing amount of 42.5%, which is explained as follows: (i) peso depreciation against the US dollar, since most leases are dollar-denominated, (ii) accounting for the whole year lease payment for Aqua Cancun, and (iii) inclusion of CP Silver Obelisco hotel in Buenos Aires, Argentina, recently opened.

Operating income

As a result of the aforementioned factors, the operating income was of $1,140.8 M in 2008, an increase of 10.5% if compared with $1,031.9 M in 2007.

Comprehensive financing result

Net interest hedging in 2008 closed in 3.9 multiples, slightly lower than in 2007.

The exchange rate income in the period is mainly due to US dollar-denominated notes receivable relating to vacation club clients.

Simultaneously, with the April 2008 issue of peso indebtedness (Stock Exchange Certificates), five contracts were signed (Cross Currency Swaps) to exchange peso-denominated debt at a variable interest rate to United States dollars at a fixed interest rate. To end of 2008, the contracts presented a market depreciation value as a result of greater peso depreciation in relation to the U.S. dollar, and to a lesser extent interest rate market behavior. Market valuations amount to almost 1,200 million pesos, which implied margin calls for US$61.8 M at the end of 2008. The Company’s strategic use of derivative financial instruments is not speculative and it has at all times complied with the margin calls made by its swaps counterparts.

In compliance with the NIFs, as of 2008 the Monetary Position Results account (Repomo) is no longer calculated.

Net Loss

The 2008 corporate year net loss is mainly derived from shortfall caused by the valuation of derivative financial instruments resulting from the aforementioned peso depreciation as well the recognition of depreciation of our $209.5 M investment in Mexicana, according to applicable NIFs.

Significant events

As part of a management liabilities plan to reduce the interest burden and extend loan lifespan, on April 11, 2008, the Company received approval from the holders of its dollar-denominated bonds “Senior Notes” due on October 4, 2011 to purchase 84.1% of these. In order to pay these bonds, the Company issued in Mexico in April 2008 Stock Exchange Certificates worth $1,500 M totally amortizable in April 2013, which pays monthly variable interest at a TIIE 28 days equivalent-rate plus 180 basis points; it increased by more than 20 million dollars, the syndicated loan (Second Amended and Restated Credit Agreement) and contracted a five year bank loan for $312 M.

In July 2008, it reopened the aforementioned Stock Exchange Certificates issuance of $750 M under the same terms and conditions.

Interest income (6,989) (32,093)

Interest expense 420,311 388,397

Exchange loss (gain) (111,918) (15,501)

Derivatives 1,208,196 0

Monetary position 0 (143,925)

Total CFC 1,509,600 196,878

2008 2007Concept

Page 53: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

52

In December 2008, a two-year guaranteed loan, with a one-year grace period, was contracted with a development bank for US $27.2 M. These two transactions were implemented to increase the Company’s liquidity.

Subsequent events

During the period from January to June 2009, $420 M have been amortized corresponding to the following financings: (i) two Syndicated Loan quarterly amortizations, (ii) the $250 M, POSADAS-03 Stock Exchange Certificates issue (iii) two quarterly amortizations of the California Commerce Bank loan, and (iv) $18 M corresponding to a short-term credit line.

ii) Financial Situation, Liquidity and Capital Resources.

The Company operates in a capital intensive industry, thus, it requires significant funds to meet its

capital expense needs. Historically, its capital expense needs have been provided by a combination of funds derived from internal generation, equity and debt.

For some years, the Company’s strategy has consisted of growth through hotel management

contracts, which implies minimal capital expenses and consequently low additional debt. Therefore, the Company’s financial strategy has focused on short-term debt refinancing and extending average debt period, without incurring additional debt.

To December 31, 2010 and 2009, the financial debt was integrated as follows (interest rates in force

on December 31, 2010):

To December 31, 2010, 67% of the Company’s debt was at a fixed rate and the remainder at variable rate. Its nominal weighted interest rate to close of December 2010 was 8.77% in US Dollars and 6.90% in pesos.

The long-term debt maturity dates to December 31, 2010 are as follows:

A detailed discussion of the above debt is presented hereinafter:

US Dollars and Euros (Thousands) 2010 2009

"Senior Notes" at a f ix interest rate of 9.25% to 8.75% 2,467,800 466,743

Loans w ith mortgages at rates that range from 2.37% to 4.52% 451,607 788,635

Syndicated loan at a rate of 2.08% 0 289,302

Other loans at rates of 1.46% and 3.25% 16,108 16,363

Mexican pesos (Thousands) 2010 2009

Certif icates note at a rate of 6.67% 2,250,000 2,250,000

Syndicated loan at a rate of 6.57% 0 200,223

Loans w ith mortgages at rates that range from 6.90% to 8.66% 649,824 962,703

Less- Short-term maturities (218,016) (942,757)

Long-term debt 5,617,323 4,031,212

Payable in:Pesos

US dollars in

thousands

2012 56,526 21,000

2013 2,388,916 14,600

2014 255,456 0

2015 760 200,697

2,701,658 236,297

Equivalent in thousands of pesos $ 2,915,665

Total in thousands of pesos $ 5,617,323

Page 54: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

53

Long-Term Debt Senior Notes On January 15, 2010, the Company issued debt securities for US200 M under the “Senior Notes”

program due on January 15, 2015. Said securities generate a 9.25% annual interest rate with half-yearly coupons. The net capital generated by these securities is being used to pre-pay a part of the Company’s debt in effect to close of 2009, and which has short and mid-term maturity dates.

The securities are guaranteed by the Company’s main subsidiaries and impose obligations and

restrictions customarily used for this type of instruments. A breakdown of the company’s main financial items is presented hereunder, as well as the guarantor subsidiaries separated from the non-guarantor subsidiaries (some numbers may vary due to rounding):

In October 2004, the Company issued debt securities for US 150 M under the “Senior Note” program

with maturity date of October 4, 2011. These securities generate annual interest at 8.75% annually with half-yearly coupons. The net capital obtained with this issue was approximately US144.4 M, which was used to pre-pay the Company’s debt. US106 M of the debt was guaranteed and US38.4 M was not. The pre-paid debt includes a US40 M debt with Banco Nacional de Mexico, S.A., US29.3M with the International Finance Corporation (IFC) and Deutsche Investitions-Und Entwicklungsgesellchaft mbh (DEG), US9.9M with Banco Nacional de Comercio Exterior, S.N.C. (Bancomext), and the remaining US65.2 M with other financial institutions.

On January 21, 2005, an additional US75 M placement was made with the same program

characteristics as originally issued on October 4, 2004. As part of a liability management plan to reduce interest charges and extend loan lifespan, on April

11, 2008, the Company received approval from the holders’ of their dollar denominated bonds (Senior Notes), due on October 4, 2011, to purchase 84.1% of these. In order to pay these bonds, the Company issued in April 2008 in Mexico Stock Exchange Certificates worth one thousand five hundred million pesos amortizable in April 2013, which pays monthly variable interest at a TIIE 28 days equivalent-rate plus 180 basis points. Furthermore, the Company increased by more than twenty million dollars, the syndicated loan (Second Amended & Restated Credit Agreement) and contracted a five year bank loan for $312 M dollars. To December 31, 2009, the Company maintained securities under the Senior Notes program for US37 M for the same term and without financial restrictions. On March 9, 2010, the remaining total of subsisting securities was liquidated with net resources from the program “Senior Notes 2015”.

Currently, the Company has contracted some loans which stipulate certain restrictions.

The main obligations stipulated in the loan contracts are:

- Limitations on the assumption of indebtedness and guarantees, the payment of dividends and control changes. - The company must invest or allow that any of its subsidiaries invest under certain parameters and restrictions.

Financial highlights Grupo Posadas Non Guarantor

(In millions of pesos and Guarantor Subsidiaries Consolidated

as of December 31st, 2010) Subsidiaries

Total revenues 5,454.0 1,083.7 6,537.7

Depreciation & Amortization 279.0 169.3 448.3

Real estate leases 293.0 67.4 360.4

EBIT 546.0 27.1 573.1

Net consolidated result (4.4) 40.3 35.9

Total assets 9,917.7 3,053.7 12,971.4

Total liabilities 7,622.3 1,268.7 8,891.0

Page 55: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

54

- The company must maintain an insurance policy on all its properties, assets and businesses for material losses and damages.

The main financial ratio limitations included in the contracted loans are:

Financial ratios: Restriction

Current Greater than 0.60

Interest coverage Greater than 2.25

Net debt to EBITDA Less than 5.5

To December 31, 2010, these limitations have been fulfilled. Syndicated Loan: During November 2005, the Company concluded structuring a US50 M syndicated five-year loan (with

a two-year grace period). The lead bank was ING Bank (Mexico), S.A.; other participants included Bancomext (Banco de Comercio Exterior), S.N.C.), BBVA Bancomer, S.A., Bayerische HYPO-UND Vereinsbank AG, HVB Group, Banco de Credito e Inversiones, Miami Branch and Banco Industrial, S.A. This transaction insured funds on favorable conditions for timely payment of stock exchange certificates for $300 M and $250 M, respectively due in February and July 2006. Additionally, in November 2006, a US30 million add-on was contracted to the aforementioned syndicated loan for a total US80 million loan. The said add-on terms are the same stipulated in the original contract. The resources from these transactions were allocated to liquidate short-term credit lines. In April 2008, there was a second US21.5 M add-on. During 2009, the Company amortized US37.5 M; as of December 31, 2009, the credit line ascended to US37.5 M total. On January 29, 2010, the Company liquidated the total loan amount with the net resources of the debt instruments issued under the “Senior Notes” program due in 2015 (“Senior Notes 2015”).

IFC/DEG Financings The Company had contracted financing for US10 M and EUR 5 M with the IFC (International Finance

Corporation) and the DEG (Deutsche Investitions-Und Entwicklungsgesellchaft); both were due in December 2009 at an interest rate of Libor plus 1 percentage point and Euro Libor at 6 months plus 3 percentage points, respectively. These loans are convertible into the Company’s Series “L” shares; therefore, the portion identified as equity is presented as contributions for future capital increases in the consolidated statements of variations in stockholder’s equity.

On November 22, 2009, the Company made a US2 M partial payment to the US10 M convertible debt

with IFC. Additionally, an extension was negotiated for the US 8 M remaining balance to be converted or paid on or before September 12, 2012.

In 1999, the Company signed a sale option with IFC in which the Company has the preferential right

to even purchase the total shares held by IFC in South America in Fiesta, S.A. (“SFI”) (subsidiary company) which as of December 31, 2009 represents 12.07% of SFI’s corporate capital. According to the terms of the sale option, the execution period began on July 9, 2005 and ends on December 31, 2011. As of December 31, 2009, the approximate price of said option is US11 M. On January 14, and June 16, 2010, the Company exercised its purchase option for 5.2402% and 6.8298%, respectively, of SFI’s capital for US5 M and US6.2 M, respectively.

On January 8, 2010, the Company made a partial EUR1 M payment and on March 15, 2010, made

the EUR4 M complementary payment of the EUR5 M convertible debt with DEG. On May 17, 2010, IFC and the Company signed a Master Amendment and Settlement Agreement in

which, amongst other things, they agreed to modify certain terms and conditions applicable to section C conversion rights under the loan.

Stock Exchange Certificates

In 2007, Grupo Posadas, S.A.B. de C.V. established an Unsecured Stock Exchange Certificate

Program for an authorized total amount of up to $3,000M. The par value of each certificate is one hundred pesos and the issue expires in up to five years, peso denominated and with interest payable every 28 days at

Page 56: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

55

the rate established for each issue. On April 8, 2008, a $1,500 M certificate issue was made, and on July 14 of the same year, a second $750 M certificate issue was carried out under the same terms and conditions.

In 2001, the Company established an Unsecured Stock Exchange Certificate Program for an

authorized total amount of up to $1,000 M. The par value of each certificate is one hundred pesos and the issue expires in a one to ten year period, peso or Investment Unit (UDIS) denominated and with interest payable every 28 days at the rate established for each issue. On May 14, 2003, a $250 M certificate issue was made and the total amount authorized was covered. On December 2, 2004, full payment of the first disposition under this program was made; said payment amounted to $200 M.

Under the same program, in February and July 2006 due stock exchange certificates were timely paid

for $300 M and $250 M, respectively; one sole $250 M issue remained in effect and matured on May 6, 2009, but it was liquidated in due time and manner.

During 2002, Grupo Posadas established a Stock Exchange Certificate Program with 50% financial

institution surety for an authorized total amount of up to $1,500 M. The par value of each certificate is one hundred pesos. During 2003, certificates were issued for an amount of $875 M, due in January 27, 2009. During February 2005, the Company anticipatorily amortized these certificates.

Vacation Club Financing The Company contracted three revolving credit lines, two with Banco Mercantil del Norte, S.A.

“Banorte” and one with Bancomext for up to an authorized total amount of US29.2 M and US91 M respectively, through various dispositions which were due each one by or before April 28, 2014; June 28, 2013 and July 25, 2014, respectively. Dispositions under these credit lines generate variable interest rates and are guaranteed by collection rights related to financing granted for Vacation Club sales, which have been allocated to different trusts; the flows derived from collection rights which are transferred to said trusts guarantee payment of the Bancomext and Banorte loans. The credit lines establish also mortgage guarantees on the Vacation Club’s real estate.

During 2010 and 2009, the Company made a disposition on its credit line with Bancomext for US3.9

M and US6.1 M. During December 2009 the Company contracted a third credit line with Banorte for an authorized

amount of up to US91 M with the same contractual conditions as the two previous lines, from which it disposed $915.1 Mexican pesos and US9 million. The terms of this new line demanded immediate amortization by the Company, thus, $19.3 M and US438 thousand were paid. The net resources obtained from this new line liquidated the two Banorte lines mentioned in the first paragraph of this subsection; two credit lines remained as of December 31, 2010, one with Banorte and another with Bancomext, whose respective due dates were on or before June 28, 2015 and December 25, 2015, respectively.

During 2010 and 2009 the Company made a disposition from its Bancomext credit line for $85

Mexican pesos. As of December 31, 2010 and 2009, the debt balance with Bancomext amounted to US21.4 M and

US25.5 M and with Banorte US4.1 M and $759.3 Mexican pesos and US9.0 M and $915.8 M respectively. Regarding the Banorte loan, the majority of notes receivable rights that had been allocated to a trust established outside of Mexico, were re-allocated to a new trust in Mexico. To December 31, 2010 and 2009, the total notes receivable amount allocated to the trust, amounted to US87.1 and US83.7 M, respectively.

Subsidiaries Scotiabank Inverlat Financing. In 2002, the subsidiary Promocion de Inversiones Hoteleras, S.A. de

C.V., (which was merged in 2008 surviving as Promotora Inmobiliaria Hotelera, S.A. de C.V.,) contracted a credit with Scotiabank Inverlat, S.A. for $250 M or its US dollar equivalent amount. This debt was restructured in November 2006 as to amount, period and rate to expire in November 2013 with a Libor plus 200 base point rate for dollar denominated debt and TIIE plus 200 basis points for peso denominated debt, in quarterly payments. The guarantees are mortgages over certain real properties which belong to other Company subsidiaries. This agreement has certain limitations such as not incurring additional debt, payment of dividends, transfer of assets or guaranteeing another transaction. The total debt amount as of December 31, 2010 is $91.3 M and US16.6 M, respectively.

Page 57: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

56

Other Loans

In November 2010, the Company contracted a five-year simple loan with mortgage guarantee for

$123 M with a 12 month grace period at 91 TIIE rate plus 3.00 percentage points with Bancomext. As of December 31, 2010, the loan balance was equivalent to the same amount of the initial disposition.

In October 2010, the Company contracted a four-year $123 M current account loan with mortgage

guarantee at a 28 TIIE rate plus 2.50 percentage points with Bancomext. As of December 2010, the loan balance was equivalent to the same amount of the initial disposition.

During September 2010, the Company concluded structuring an eighteen-month US20 M revolving

loan with ING Bank, N.V., Dublin Branch. The US dollar disposition rate is LIBOR plus 4.0 percentage points. As of December 31, 2010, the loan balance was US 20 M.

During the third quarter of 2010, a disposition of a $180 M of short-term revolving credit line Banco

Santander, S.A., at a TIIE rate plus 3 percentage points was made. This is a mortgage-guarantee loan. As of December 31, 2010, the loan balance was of $180 M.

In July 2009, the Company disposed of another $392 M mortgage-guaranteed loan, payable in four

years with a 12-month grace period at TIIE rate plus 3.75 percentage points with Bancomext. On January 22, 2010 this loan was liquidated with the net capital from the “Senior Notes 2015” program.

In April 2008, the Company contracted a loan with Banco Nacional de Mexico, S.A., Grupo Financiero

Banamex member, for $312 M payable in five years with a two-year grace period with a mortgage loan formalized in 2009. The effective rate as of December 31, 2009 is TIIE plus 4.0 percentage points. On January 25, 2010 this credit was liquidated with the net capital from the “Senior Notes 2015” program.

In December 2005, the Company contracted a loan with California Commerce Bank (Banamex USA)

for US20 M payable in five years with a two-year grace period and a mortgage guarantee at LIBOR rate plus 4.5 percentage points. As of December 31, 2009 and 2008 the loan balance is US17.0 M and US12.3 M, respectively. On January 22, 2010 this loan was liquidated with the net capital derived from the “Senior Notes 2015” program.

In December 2008, a US23.4 M disposition was made under a total US27.3 M mortgage-guaranteed

loan payable in two years with a nine-month grace period with Bancomext, at LIBOR rate plus 4.6 percentage points. In January 2009 an additional US2.7 M disposition under the same credit line, on the same terms and conditions, was made. As of December 21, 2009 and 2008, the loan balance was US25.8 M and US23.4 M, respectively. On March 1, 2010 this loan was liquidated with the net capital from the “Senior Notes 2015” program.

During the fourth quarter of 2008, a $100.0 M disposition under a long-term credit line with Banco del

Bajio, S.A. at a TIIE rate plus 2 percentage points was made. After making payments for $36.0 M and dispositions for $12.0 M in October 2009, this loan was documented for $76.0 M payable in 4.5 years with a 6 month grace period at a TIIE rate plus 3.75 percentage points and a mortgage guarantee.

During the fourth quarter of 2008, a $89.8 disposition under a short-term credit line with Banco

Santander Serfin, S.A. at a TIIE rate plus 4 percentage points was carried out. After making payments for

$22,7 M and dispositions for $17.5 M in October 2009, this loan was documented for $90 M payable in 3 years

with a TIIE rate plus 4.85 percentage points and a mortgage guarantee. As of December 31, 2009 and 2008,

the balance of this loan was $85.0 and $89.8 M, respectively. On February 2, 2010, this credit was liquidated

with the net capital derived from the “Senior Notes 2015” program.

Europapel Comercial Program In March, 2001, and renewed in March 2004, the Company established a promissory note program

named Europapel Comercial, under which the Company may make short-term issues (for up to 1 year) for a total of even up to US100.0 M. These promissory notes are issued at a discount and do not accrue any interest. As of December 31, 2010, the Company had not issued any promissory notes in circulation.

Page 58: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

57

Additional Information regarding Financing

To December 31, 2010, financial indebtedness that includes mortgage loan amounts to $1,101.4 M.

The main guarantees correspond to real properties (hotels) whose net book value amounts to $3,337.5 M as well as the joint and surety obligation of certain subsidiaries.

Derivative Financial Instruments The company monitors and participates in the derivative financial instruments market, using these

instruments as an economic hedge of its peso debt at a variable interest rate, at a fixed dollar rate so as to maintain a debt mix mainly in dollars. As of December 31, 2010, the Company held three swap contracts (Cross Currency Swaps) with a US166.1 M notional amount. Each instrument is explained in detail hereunder:

Treasury. The Company’s treasury is divided into 3 principal areas:

Grupo Posadas’ Treasury (holding): manages the treasury of the 100% Posadas owned hotels.

SINCA Treasury: it manages the surplus, which includes nine hotels (see Corporate Structure), in which Posadas holds a 52% share

Sudamerica en Fiesta Treasury: it manages the treasury of the Company which owns the Caesar Park hotels.

Historically, the Company has sought to keep a balanced currency structure in its investments and

this structure is mainly composed of the Mexican-peso and US-dollar debt mix that each Grupo Posadas, SINCA and Sudamerica en Fiesta company holds. In Grupo Posadas, the bulk of the investments is in government, bank and private paper money market instruments which allow the Company to keep liquidity and availability to face its daily cash flow needs. On the other hand, the majority of SINCA surplus is invested in government paper money market.

Capital Expenses. At close of December 31, 2010, capital expenses amounted to $238. M; 24% was

allocated to hotel maintenance; 51% to projects and corporate, for the most part to technology; and 25% to the Vacation Club. Currently, the Company mostly finances budgeted capital expenses by internal generation. The Company’s dependence on debt to finance capital expenses has decreased as it has expanded through hotel operation or leasing contracts.

iii) Internal Control

Grupo Posadas and its Mexican subsidiaries follow NIF. From 2008, the operations of Mexican

companies which present functional currency other than the registered currency convert their registered currency financial statement into functional currency using the following exchange rates: 1) closing exchange rate for monetary assets and liabilities, 2) historical exchange rate for non-monetary assets and liabilities and shareholders’ equity, and 3) the payment date’s exchange rate for income, costs and expenses, except for those arising from non-monetary items which are converted to the non-monetary item’s historical exchange rate. These conversion effects are recorded in RIF. Subsequently, in order to convert the financial statements for both Mexican and foreign companies from the functional currency to Mexican pesos, the following exchange rates are used: 1) closing exchange rate for assets and liabilities, and 2) historical exchange rate for shareholders’ equity, income, costs and expenses. The effects of this conversion process are recorded in the net stockholders’ equity of its deferred tax. Until 2007, the financial statements of foreign subsidies which were considered independent of the Company first recognized the operating country’s inflationary effects and then

Maturities of *Collateral

Type of Uses: Notional Underlying net cash flows (Margin

derivative in USD ´000 reference: FX in USD ´000 Calls)

2010 2009 2010 2009 2010 2009 2011 2012 2013

Cross Currency Debt match 79,045 79,045 12.34 13.04 16,836 21,083 11,396 -

Cross Currency Debt match 5,329 13.04 1,230 0 -

Cross Currency Debt match 65,773 65,773 12.34 13.04 15,821 19,720 10,837 -

Cross Currency Debt match 5,126 13.04 1,068 0 -

Cross Currency Debt match 21,265 29,771 12.34 13.04 4,096 7,565 1,282 1,282 641 -

Total 166,084 185,044 36,753 50,667 1,282 1,282 22,874 28,229-

* Negative figures are in favour of the Company

Mark To Market

Page 59: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

58

the financial statements were converted using the closing exchange rate, and the conversion effects were recorded in the shareholders’ equity. Since 2002, Galaz, Yamazaki, Ruiz Urquiza, S.C. annually audits the financial statements of the Company and most of its Subsidiaries.

Audit Committee

Between May 2010 and April 2011, the Audit Committee held six sessions in which, amongst other,

the following items were discussed:

1. The main accounting policies followed by the Company were reviewed and analyzed in terms of the information received. It should be noted that during the corporate year, the Company’s accounting policies were not modified, except those regarding the new NIFs applicable to the 2010 corporate year. The Company’s Management, upon applying business judgment considers that the estimates and assumptions used to evaluate some of the financial statements entries and to carry out the disclosures required therein, were circumstantially appropriate, complying with NIFs.

2. As for the Company or the legal entities it controls, no breaches of operating and accounting registration guidelines and policies were detected.

3. The Report of the Chairperson and Chief Executive Officer regarding the activities of the 2010 corporate year was received and approved.

4. The audit dated March 18, 2011, regarding the financial statements to December 31, 2010, was received and discussed with the outside auditors; there was mentioned therein that:

a) The examination was conducted according to Mexican generally-accepted auditing standards. b) The audit was conducted based on selective examinations of the evidence supporting the financial statements’ numbers and disclosures, and included evaluation of the financial information norms used, of the significant estimations made by Management and the presentation of the financial statements taken as a whole.

c) In their opinion, the consolidated financial statements of Grupo Posadas, S.A.B. de C.V. and its subsidiaries, reasonably present in every important aspect, the financial situation of Grupo Posadas, S.A.B. de C.V. and its subsidiaries as of December 31, 2010 and their operating results, variations in shareholder’s equity and cash flows for the year ending on said date, according to the Mexican financial information norms. Based on the opinion of the aforementioned independent auditors and reviewed along with them, as

described above, the Audit Committee shared the opinion expressed by the firm Galaz, Yamazaki, Ruiz Urquiza, S.C. (Member of Deloitte Touche Tohmatsu) on the consolidated financial statements of Grupo Posadas, S.A.B. de C.V., and subsidiaries to December 31, 2010.

e) Estimates, Critical Accounting Allowances or Reserves

Loyalty Program – The Company has a frequent customer program denominated Fiesta Rewards

(see “Distribution Channels”), through which its members enjoy various benefits by accumulating points for staying at the Company’s hotels. Said points may be exchanged (redeemed) during a determined time for hotel stays, airplane tickets, chain-store coupons and car rentals, among others. The redemption or cash in of these points represents a cost for the Company, thus, it is necessary to establish a reserve to bear said costs. The calculation of this reserve established for future reward redemptions is based on an actuarial study and the historical behavior of valid, expired, generated and redeemed points. This trend serves as a basis to establish assumptions of future redemption trends. To December 31, 2010, the probabilistic reserve established for this program amounts to $54 M pesos. The Company deems the probability of 100% point redemption in a single year is very low.

Notes receivable from Vacation Club operation – The collection rights derived from Vacation Club membership sales are allocated to a trust to guarantee credit lines contracted to finance operations. The

Page 60: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

59

amounts received from these credit lines dispositions are presented net on notes receivable in the consolidated balance sheet. The notes receivable generated from Vacation Club time-share sales appear net in the consolidated balance sheet under the estimation for doubtful accounts. To December 31, 2010, the estimation for doubtful notes amounted to $76 M. This estimation is primarily determined based on business experience and certain assumptions related to collection trends.

Conversion of subsidiaries’ foreign currency financial statements – The financial statements of foreign subsidiaries operating independently from the Company apply the Company’s same accounting policies. From 2008, the operations of Mexican companies which present functional currency other than the registered currency convert their registered currency financial statement into functional currency using the following exchange rates: 1) closing exchange rate for monetary assets and liabilities, 2) historical exchange rate for non-monetary assets and liabilities and shareholders’ equity, and 3) the payment date’s exchange rate for income, costs and expenses, except for those arising from non-monetary items which are converted to the non-monetary item’s historical exchange rate. These conversion effects are recorded in the RIF. Subsequently, in order to convert the financial statements for both Mexican and foreign companies from the functional currency to Mexican pesos, the following exchange rates are used: 1) closing exchange rate for assets and liabilities, and 2) historical exchange rate for shareholders’ equity, income, costs and expenses. The effects of this conversion process are recorded in the net stockholders’ equity of its deferred tax. Until 2007, the financial statements of foreign subsidiaries which were considered independent of the Company, first recognized the operating country’s inflationary effects and then the financial statements were converted using the closing exchange rate, and the conversion effects were recorded in the shareholders’ equity.

The registered and functional currencies of the foreign operations are as follows:

Country of origin Registered currency Functional currency Reporting currency

Mexico (FAVC) Mexican peso U.S. dollar Mexican peso

United States of America U.S. dollar U.S. dollar Mexican peso

Brazil Brazilian real Brazilian real Mexican peso

Chile Chilean peso Chilean peso Mexican peso

Argentina Argentine peso Argentine peso Mexican peso

Derivative financial instruments - The Company obtains financing under different conditions and it contracts interest rate and exchange derivatives to manage its exposure to fluctuations in interest rate and foreign currency. The Company formally documents all hedging relationships, describing objectives and risk management strategies for derivative transactions and their accounting recognition. Derivative instrument negotiations are only made with well-known solvent institutions and limits have been established for each institution. The Company’s policy is to avoid executing derivative financial instrument transactions for speculation purposes. However, the Company occasionally enters into speculation agreements, provided that the maximum exposure falls within management’s established non-material limits.

The majority of the derivative financial instruments’ dates and amounts entered into by the Company correspond to asset acquisition dates or the liability maturity date which the Company intends to cover.

The Company recognizes all assets or liabilities arising from transactions with derivative financial instruments in the consolidated general balance sheet at fair value, regardless of the purpose for which they are held. Fair value is determined based on recognized market prices and, when not traded on a market, based on valuation techniques accepted by the financial community.

Derivative instruments designated as hedges recognize value changes according to the type of hedge: (1) for fair value hedges, changes in both the derivative instrument and the hedged item are stated at fair value and recognized in current earnings; (2) for cash flow hedges, changes in the effective portion are temporarily recognized as a component of other comprehensive income in shareholders’ equity and then reclassified to current earnings when affected by the hedged item; the ineffective portion is recognized in current earnings.

Since certain derivative financial instruments, although entered into for economic hedging purposes, do not meet all normative requirements and thus, for accounting purposes, have been considered as negotiation derivatives. Fluctuation in said derivatives’ fair value is recorded under RIF.

Page 61: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

60

Compound financial instruments - Compound financial instruments are contracts that include

both liability and equity components; they are recognized by the Company based on the economic substance of the transaction, rather than their adopted legal form. The components that represent unavoidable payment obligations are recognized as liabilities, but are included in equity, if the contractual provisions establish an ownership relationship with the instrument’s holder. Initial issuing costs incurred for compound financial instrument are proportionately assigned to liabilities and equity according to the amounts recognized in each case. Of the preceding costs, costs assigned to equity reduce the share placement premiums, and those assigned to liabilities are capitalized and amortized in the term stipulated by the contract.

4) ADMINISTRATION

a) External Auditors

During the last nine corporate years (2002-2010) Galaz, Yamazaki, Ruiz Urquiza, S.C., a member firm of Deloitte Touche Tohmatsu, has conducted the independent audit.

During the last eight corporate years, the Company’s financial statements have not been subject to qualification or negative opinion by the auditors of the aforementioned firm, nor have said auditors refrained from issuing an opinion.

The appointment of the independent auditor is made by the Company’s Board of Directors. Since 2003, the Audit Committee’s opinion has been taken into consideration, taking into account the independence, professionalism and experience of the firm appointed as independent auditor.

During 2010, Galaz, Yamazaki, Ruiz Urquiza, S.C. rendered permitted tax consulting services to the Company in addition to the auditing services provided by the selfsame firm. The amount paid by the Company for said services represented approximately 14% of the total professional fee invoicing paid to Galaz, Yamazaki, Ruiz Urquiza, S.C., and so does not imply loss of independence.

b) Related Party Transactions and Conflicts of Interest

To December 31, 2010, the Company had a minority shareholding in the hotels: Holiday Inn Merida (9.2%), Fiesta Inn Xalapa (25%) and Holiday Inn Queretaro (7.3%). Other investments: Rio Tur do Rio de Janeiro S/A (1.91%), and Turis Rio Compañia de Janeiro S/A (0.49%). The company does not control any of the aforementioned companies.

In August 13, 2010, the company sold its share participation in Nuevo Grupo Aeronáutico, S.A. de C.V. (formerly Grupo Mexicana de Aviación, S.A. de C.V.) to third parties at a symbolic price. Before the sale and to December 31, 2009, the Company held a 30.41% participation in Mexicana, thus the Company did not exercise control over Mexicana. Likewise, and as a result of the process which gave rise to the Mexicana subsidiaries’ bankruptcy proceedings, during 2010 the Company reserved the total accounts receivable it held with diverse Grupo Mexicana companies for $171.2 M, of which, $115.2 M corresponds to operative transactions recorded under the consolidated income balance entries of “Sales, publicity and promotion” and “Direct costs and expenses”, respectively and an amount of $56.1 M reflected in “Other expenses, net” in the consolidated income statement. The latter amount as a consequence of a loan that the Company had granted to Mexicana during 2010 for an amount of US3.9M

On the other hand, one of the Directors, Fernando Chico Prado and Emilio Diez Barroso Azcárraga, who are related to the Chairman of the Board of Directors and some of its members, are minority shareholder in the corporation Desarrollo Arcano, S.A. de C.V., and the Company is the majority shareholder of said corporation.

The Chairman of the Board of Directors and Chairman of Grupo Posadas, S.A.B. de C.V., who is also a member of the Board of Directors of Posadas USA, has a shareholding in an entity which controls the hotels previously denominated Holiday Inn and Sheraton Fiesta, located on South Padre Island in Texas, U.S.A. In regards to these hotels, Posadas rendered certain services. Likewise, the previously denominated Fiesta Inn Acapulco hotel belongs to an entity in which an uncle of the Chairman of the Board of Directors and Chairman of the Company has a majority shareholding. To this date, the Company does not render any type of service to these hotels.

Page 62: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

61

The management contracts related to the Padre Island and Acapulco hotels were entered into on terms and conditions substantially similar to contracts entered into with non-related entities. Said contracts are not enforceable any longer.

On occasion personal loans have been made to Executive Committee members with the Board of Directors’ prior approval.

c) Administrators and Shareholders

According to the Company’s corporate by-laws, the Company’s management is the responsibility of a Board of Directors, whose members are annually elected at an Ordinary General Shareholders Meeting. The corporate by-laws provide that the Board of Directors meet at least every three months. The Company’s corporate by-laws establish, amongst others, that the Issuer companies must have a minimum of 5 directors and a maximum of 21, and that at least 25% of the members must be independent. The Board of Directors appointed by the Company’s Special and Ordinary Shareholders Annual Meetings both dated April 14, 2011, are formed by 13 permanent directors as listed below:

Members of the Board of Directors:

* Independent Directors

Gaston Azcarraga Andrade Mr. Azcarraga is an industrial engineer with an MBA degree in Business Administration from Harvard

University. Mr. Azcarraga is the Chairman of the Board of Directors and General Director of Grupo Posadas, S.A.B. de C.V. He is member of the Mexican Businessmen’s Council (CMHM).

Enrique Azcarraga Andrade Mr. Azcarraga is an industrial engineer with an MBA degree in Business Administration from Harvard

University. He has collaborated in several Mexican companies such as Operadora de Bolsa, Grupo Posadas, DESC – Sociedad de Fomento Industrial, GBM – Grupo Bursatil Mexicano, and is currently the General Director of Exio, S.C., an investment consulting company.

Pablo Azcarraga Andrade

Mr. Azcarraga holds an Accounting degree and a Master’s degree in Hotel Management with a specialty in Marketing and Finance from Cornell University in New York. From 1986 to date, he has held various positions within Grupo Posadas, such as General Director of Fiesta Americana Condesa Cancun, General Director of the Fiesta Americana Hotel Division and he is currently the Vice Chairman of the Board of Directors of Grupo Posadas and General Director of Hotelera Posadas.

Fernando Chico Pardo Mr. Chico holds a degree in Business Administration and a Master’s degree in Business

Administration from Northwestern University. Mr. Chico has held several positions in the following companies: Bimbo, Anderson-Clayton, Bank of America, Salomon Brothers, Standard Chartered Bank, Mocatta Metals Corporation, Casa de Bolsa Acciones y Asesoria Bursatil, Inversora Bursatil, Grupo Financiero Inbursa and is currently the Chairman of Promecap, S.C. and ASUR. Mr. Chico is also an active member of the Board of

Page 63: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

62

Directors of: Grupo Financiero Inbursa, Condumex, Grupo Carso, Sanborns, Sears Roebuck de Mexico,

United Pension Fund, Quantum Group of Funds and Papalote Museo del Niño, among others. Joaquin Vargas Guajardo Mr. Vargas is the Chairman of the Board of Directors of Corporacion Mexicana de Restaurantes, and

has been a member of the Board of Directors for over 31 years. He is currently the Chairman and General Director of Grupo MVS and has been Chairman of the Director’s Board of the Camara Nacional de la Industria de Radio y Television, Chairman of the Mexican Association of Restaurants and Chairman of the Directors’ Board of Restaurant Chains. Mr. Vargas currently participates on the board of directors of Grupo Vitro, El Universal, Grupo Costamex, Medica Sur, the Mexican Stock Exchange, and the Mexican Businessmen’s Council.

Antonio Madero Bracho

Mr. Madero is an engineer with a Master’s degree in Business Administration (MBA) from Harvard University. He is the founder and Executive Chairman of the Board of Directors of San Luis Corporation, a member and ex-chairman of the Mexican Businessmen’s Council, and a member of the board of the following institutions: Deere & Company, Goldcorp, Inc., Alfa, Grupo Industrial Saltillo, Grupo Mexico, and Museo Nacional de Arte. Mr. Madero is a former member of the board of J.P. Morgan Chase.

Sergio Mariscal Lozano Mr. Mariscal holds a degree in Business Administration, an Upper Management diploma from IPADE,

and the SERIES 7 from NYSE and NASDAQ. He has held various financial sector positions in the following institutions: Casa de Bolsa Banamex, Operadora de Bolsa, Inverlat, Invermexico, and ING Mexico, where he held the position of Vice-Chairman of Private Banking. From 1998 to date, Mr. Mariscal is the Private Banking Vice-Chairman for the Lehman Brothers branch in Miami.

Jose Carlos Azcarraga Andrade Mr. Azcarraga is an industrial engineer with a Master’s degree in Business Administration from

Kellogg University. He has held various positions in the Company. At present, Mr. Azcarraga is the General Director of Vacation Properties Posadas.

Jorge Soto y Galvez Mr. Soto holds an Accounting degree from the UNAM. He joined the independent audit firm Arthur

Andersen where he was responsible for the firm’s most important clients, until he became part of the Executive Committee for the Mexico division and participated as a member of the Board of Directors of various Arthur Andersen’s clients. At the present time, he has established his own consulting company providing services to, amongst others, HSBC bank.

Silvia Sisset de Guadalupe Harp Calderoni Ms. Harp holds an Accounting degree from the ITAM. She worked at Robert’s and at Filantropia,

Educacion y Cultura, A.C. Ms. Harp was the General Director of Fundacion Alfredo Harp Helu and since 2006 she holds the position of Chairwoman. At the moment, she participates on the Boards of Directors of Grupo Marti and the Fundacion Teleton Trust.

Carlos Levy Covarrubias Mr. Levy holds a Bachelor’s degree in Business Administration from Universidad Anahuac. In 1987,

he joined Casa de Bolsa Accival and held several equity operations positions until he became Operations Director. From 1991 through 2005, Mr. Levy held various positions in Banamex-Accival Financial Group, such as the Group’s Director of Asset Coordination, Deputy General Director of the Treasury, General Director of Casa de Bolsa Accival and Corporate Director for Specialized Banking and Investment Management of Financial Group Banamex. After leaving the Financial Group, Mr. Levy founded an investment management company in which he currently participates. Likewise, he was the Chairman of the Mexican Association of Financial Intermediaries from 2003 through 2005.

Emilio Carrillo Gamboa Mr. Carrillo is an Attorney-at-law, and at present is a founding partner of Bufete Carrillo Gamboa, S.C.

law firm. He is the Chairman of the Board of Directors of Cementos Holcim-Apasco. In addition, Mr. Carrillo participates on the Board of Directors of: Empresas ICA, S.A.B. de C.V., Grupo Modelo, S.A.B. de C.V., Grupo Nacional Provincial, Kimberly Clark de Mexico, S.A.B. de C.V., Medica Integral GNP, S.A. de C.V., Profuturo GNP, S.A. de C.V., Afore, San Luis Corporacion, S.A.B. de C.V., and Grupo Mexico, S.A.B. de C.V., Southern Copper Corporation, and The Mexico Fund, Inc., among others. In 1988, Mr. Carrillo was appointed Ambassador of Mexico to Canada.

Page 64: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

63

Manuel Borja Chico Mr. Borja is an industrial engineer with a Master’s degree in Business Administration (MBA) from The

University of Texas. Mr. Borja has collaborated with Grupo Posadas for more than twelve years holding various positions, and the last position he held was Vice-Chairman of Finance. He is currently the Chairman of the Board of Directors of Grupo Posadas. He is also an independent advisor for Mega.

Mr. Gaston Azcarraga Andrade, Mr. Pablo Azcarraga Andrade, Mr. Enrique Azcarraga Andrade and

Mr. Jose Carlos Azcarraga Andrade are brothers. Mr. Fernando Chico Pardo is uncle to Mr. Manuel Borja Chico.

Furthermore, the Ordinary General Shareholders Meeting also appointed the following four alternate

members of the Board of Directors: Javier Barrera Segura, Jorge Carvallo Couttolenc, Alfredo Loera Fernandez, and Charbel Christian Francisco Harp Calderoni.

Remunerations of Directors and Executive Committee

Grupo Posadas’ Ordinary General Shareholders Meeting held in April 2014 approved an amount equal to two Centenario gold coins, prior withholding of the corresponding tax, as remuneration for the permanent directors and the secretary for corporate year 2011, until the following Annual Ordinary General Shareholders Meeting, for their attendance at Board’s meetings. Alternate directors shall earn the same fees only when they attend Board meetings in substitution of the corresponding permanent directors.

Executive Committee

In keeping with the Company’s corporate by-laws, an Executive Committee exists, composed of a minimum of 3 and a maximum of 8 permanent members, who may have alternates and who may or may not be directors. The Executive Committee is elected by the Board of Directors and, to this date, is made up of the following executives whose current positions and years of service in the Company are specified hereinbelow:

Members of the Executive Committee:

A brief curriculum summary of the Company’s Executive Committee members and principal officers is herein included as follows:

Javier Barrera Segura Mr. Barrera holds a degree in Economics and a Master’s degree in Business Administration from

Tulane University. For more than 20 years, he has held important positions in the Company. Before becoming Chairman of Posadas Ventures, Mr. Barrera was responsible for designing and launching Fiesta Americana Vacation Club and he was also Marketing Director. In 1986, he was granted the National Award in Economics.

Ruben Camiro Vazquez Mr. Camiro holds a bachelor’s degree in Actuarial Sciences, and holds a Master’s degree in Business

Administration from Duke University. He joined the Company after holding the position of General Director of WFI de Mexico and previously the position of Vice Chairman of Finance and Management of various companies such as Pegaso Telecomunicaciones, Bestel and Casa Autrey. At the moment he is the General Corporate Finance Director of Posadas.

Jorge Carvallo Couttolenc Mr. Carvallo holds a Chemical Engineering degree and a Master’s degree in Business Administration

from the ITAM. In the Company, he has held various positions in the Finance and Development areas. As General Director, he has been responsible for developing the Mexican and South American expansion plan and he is currently in charge of Inmobiliaria Posadas.

Page 65: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

64

Remunerations of Executive Committee members

For the year ending on December 31, 2010, the cash remunerations paid to Executive Committee members as a whole represented approximately 1.5% of the Company’s total income. In addition, said executive group, along with another group of Company officers considered a key group by the Board of Directors, have the right to benefit from the Company’s Series A share plan on the terms described in section 5 Stock Market of the present report. Likewise, the Company has established a retirement plan for its executives.

Characteristics and powers of the Board of Directors.

The Board of Directors is responsible for managing the Company. The Company’s current corporate by-laws establish that the Board of Directors shall be constituted by up to 21 permanent directors, of which at least 25% shall be qualified as “independent directors” in compliance with the Stock Market Law and the corporate by-laws, and each one of these shall have a corresponding alternate director in the understanding that whatever the number of directors, Series “L” shareholders, convened in a Special Meeting, shall appoint two (2) permanent directors and their respective alternates per permanent director and their corresponding alternate for each ten percent (10%) of the corporate capital represented by Series “L” shares.

The majority of the Board of Directors members must be Mexican and shall be appointed by Mexican shareholders. Minority shareholders holding 10% of the corporate capital are also entitled to appoint a director and their corresponding alternate. The directors shall continue in their positions, although their appointed term has concluded or if they have resigned from the position, for up to a term of thirty calendar days in the absence of their substitute’s appointment or if the latter does not take possession of their position, without applying the Article 154 provisions of the General Law of Business Corporations. Should this be the case, the Board may appoint temporary directors without shareholders meeting approval. All the current permanent and alternate members of the Board of Directors were appointed by the ordinary general shareholders meeting held in April 2010.

So that a Board of Directors meeting is legally convened, in general, majority attendance of the permanent members or their respective alternates shall be required, and the resolutions of the Board of Directors shall be valid if taken by a majority vote of those present at the meeting. Should a tie exist, the Board of Directors’ chairman shall have the deciding vote. However, should the Board convene in order to discuss any proposal to purchase Company shares, the presence of at least 75% of the permanent directors or their respective alternates shall be required.

The Company’s corporate by-laws provide that the Board of Directors shall convene at least once each three months, and that the Chairman of the Board, 25% of the directors, the Secretary or the Vice-Secretary, the Chairman of the Audit Committee or the Chairman of the Corporate Practices Committee may call for a Board meeting.

In compliance with the Stock Market Law, the Company’s Board of Directors shall approve all the operations different from the Company’s ordinary business, and which, amongst others, include: (i) the Company’s general strategy, (ii) operations with related parties, except if these are immaterial to the Company due to their amount, (iii) the purchase or sale of assets with a value equal to or greater than 5% of the Company’s consolidated assets, and (iv) granting guarantees or undertaking liabilities in an amount equal to or greater than 5% of the Company’s consolidated assets.

The Board of Directors is the Company’s legal representative. The Board of Directors is responsible, amongst others, for:

approving the Company’s general business strategy;

approving, by hearing the Audit Committee or the Corporate Practices Committee’s opinion, in the applicable case: (i) operations with related persons, subject to determined exceptions, (ii) the appointment of the General Director or the Chairman, their remunerations and removal, for justifiable cause, (iii) the Company and its subsidiaries’ financial statements, (iv) unusual operations and any operation or series of operations with related persons in the same corporate year which involve (a) the purchase or sale of assets in an amount equal to or greater than 5% of the Company’s consolidated assets, or (b) the granting of guarantees or undertaking of liabilities in an amount equal to or greater than 5% of the Company’s consolidated assets, (v) the agreements executed with independent auditors, and (vi) accounting policies.

Page 66: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

65

establishing special committees and determining their powers and authority, in the understanding that the Board of Directors may not delegate to any said committee the powers expressly reserved to the Company’s shareholders or Board in accordance with the law;

determining matters related to the change in control clause provided for in the corporate by-laws; and

exercising all its general powers of attorney to fulfill the Company’s corporate purpose.

Duties of due diligence and loyalty

The LMV (Stock Market Law) imposes duties of due diligence and loyalty on the directors. The duty of due diligence implies that the Company’s directors must act in good faith and in the Company’s best interest. To said purpose, the Company’s directors are obligated to request from the General Director, the relevant officers and the external auditors the information which is reasonably necessary to make decisions. Directors who fail to comply with their due diligence duty shall be jointly responsible for actual and consequential damages caused to the Company or its subsidiaries.

The duty of loyalty implies that the Company’s directors must maintain as confidential all information they obtain due to their positions, and shall refrain from participating in the deliberation and voting on any issue in which they have any conflict of interest. The directors are disloyal to the Company if they obtain economic benefits for themselves, if they knowingly favor a determined shareholder or group of shareholders, or if they take advantage of business opportunities without an exemption granted by the Board of Directors. The duty of loyalty also implies that the directors shall (i) inform the Audit Committee and/or the Corporate Practices Committee and the external auditors of all irregularities of which they know during the performance of their duties, and/or (ii) refrain from disclosing false information and from ordering or causing the omission of recording transactions which are carried out by the Company affecting any financial statement concept.

Directors who breach their duty of loyalty are considered responsible for actual and consequential damages caused to the Company or its subsidiaries resulting from the aforementioned acts or omissions. This responsibility applies also to the actual and consequential damages caused to the Company resulting from the economic benefits obtained by the directors or third parties due to the breach of loyalty.

Directors may be subject to criminal penalties of up to 12 years imprisonment should they act in bad faith affecting the Company, including the alteration of its financial statements and reports.

A liability action for breach may be exercised by shareholders representing at least 5% of corporate capital, and criminal proceedings may only be exercised by the Ministry of Finance and Public Credit after the CNBV’s prior opinion. Directors will not incur in the aforementioned responsibilities (including criminal responsibilities) if acting in good faith: (i) they fulfill the legal approval requirements for those matters which should be presided over by the Board of Directors or its committee, (ii) they make decisions pursuant to the information provided by relevant officers or third parties whose capacity and credibility are not subject to a reasonable doubt, (iii) they choose the most appropriate alternative to the best of their knowledge, or the negative patrimonial consequences were unforeseeable, and (iv) they comply with shareholders’ resolutions, provided that said resolutions do not contravene the applicable laws.

In compliance with the LMV, for the exercise of its supervisory powers, the Board of Directors may be supported by an Audit Committee and a Corporate Practices Committee, and the Company’s external auditor. The Audit Committee and the Corporate Practices Committee, jointly with the Board of Director, exercise the duties previously exercised by the Statutory Auditor in keeping with the LGSM (General Law of Business Corporations).

Audit Committee and Corporate Practices Committee

At the present time, the Audit Committee is composed of three members: Jorge Soto y Galvez, as Chairman, Emilio Carrillo Gamboa and Joaquin Vargas Guajardo, who were appointed by the Board of Directors and by the Ordinary General Shareholders Meeting held on April 26, 2007. The Chairman of the Audit Committee is appointed by the Company’s shareholders meeting and the other members by the Board of Directors.

Page 67: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

66

At present, the Corporate Practices Committee is composed of three members: Enrique Azcarraga Andrade, as Chairman, Jorge Soto y Galvez and Emilio Carrillo Gamboa, who were appointed by the Board of Directors and by the Ordinary General Shareholders Meeting held on April 26, 2007. The Chairman of the Corporate Practices Committee is appointed by the Company’s shareholders meeting, and the remaining members by the Board of Directors. Each committee has at least one financial expert.

The Audit Committee and the Corporate Practices Committee are responsible for, amongst other matters and under their jurisdiction per the terms of the Stock Market Law, (i) supervising the duties of the external auditors and analyzing their reports, (ii) discussing and supervising the preparation of the financial statements, (iii) presenting a report on the effectiveness of the internal control systems before the board of directors, (iv) requesting reports from the members and relevant directors whenever they deem it necessary, (v) informing the board of directors of all irregularities of which they receive knowledge, (vi) receiving and analyzing the comments and observations formulated by the shareholders, members of the board, relevant directors, third parties or external auditors, and carrying out the pertinent corresponding actions related to said comments, (vii) calling shareholders meetings, (viii) evaluating the performance of the Chief Executive Officer or Chairman, (ix) preparing and presenting its annual activity report to the Board of Directors, (x) providing counsel to the Board of Directors, (xi) requesting and obtaining opinions from independent experts, and (xii) attending Board of Directors sessions when preparing annual reports and fulfilling all other information presentation obligations. The Chairman of the Audit Committee shall prepare an annual activity report for said committee and present it to the board of directors. Such annual report shall include, at least: (i) the status of the internal control and internal audit system and, if applicable, the descriptions of its deficiencies and deviations, as well as the aspects requiring improvements, taking into consideration the opinions, reports, communiqués and the external audit report, as well as the reports issued by independent experts; (ii) report and monitoring of prevention and correction measures implemented based on research results related to the breaches of the Company’s operating and accounting registration guidelines and policies; (iii) a performance assessment of the legal entity rendering external audit services; (iv) the relevant results of the review of the financial statements of the Company’s and its subsidiaries, (v) the description and effects of accounting policies modifications; (vi) the measures adopted due to relevant observations formulated by the shareholders, members, relevant directors, employees and, in general, by any third party, regarding accounting, internal controls, and matters related to external or internal audits; and (vii) the follow-up of the resolutions resulting from the shareholders’ and Board of Directors’ meetings. The Chairman of the Corporate Practices Committee shall prepare an annual activity report for said body and present it to the board of directors. Said annual report shall comprise, at least: (i) performance of the relevant directors; (ii) transactions executed with related parties; and (iii) remunerations of the members of the board and relevant directors. Principal Shareholders

To April 14, 2011, the following shareholders held the positions stated hereinbelow: (i) Shareholders or group of shareholders who are beneficiaries of more than 10% of the corporate capital of the Company: to the extent of the Company’s knowledge, the Azcarraga Andrade Family, taking into consideration Gaston Azcarraga Andrade as the principal beneficiary shareholder in compliance with numbered paragraph II, section C), numbered paragraph 4, subsection c) fifth paragraph of Attachment N of the Sole Issuers Bulletin, and Acaivalmex Patrimonial S.A.de C.V. Sociedad de Inversion de Renta Variable. (ii) Shareholders or group of shareholders with significant influence in the Company and shareholders or group of shareholders with control or power to command in the Company: the Azcarraga Andrade Family, taking into consideration Gaston Azcarraga Andrade principal beneficiary shareholder in compliance with numbered paragraph II, section C), numbered paragraph 4, subsection c) fifth paragraph of Attachment N of the Sole Issuers Bulletin; furthermore he is the Chairman of the Board of Directors and General Director of the Company. The following people are directors and/or relevant executives of the Company, who hold more than 1% and less than 10% of the shares representing the corporate capital of the Company, and who jointly have 22.8% of the corporate capital of the Issuer: Gaston, Pablo, Jose Carlos, Beatriz and Enrique Azcarraga Andrade and Fernando Chico Pardo.

Page 68: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

67

d) Corporate By-laws and Other Agreements

In accordance with the Company’s By-laws, series “A” shares may be subscribed by individuals or legal entities of Mexican nationality and by institutions and corporations described in the seventh clause of the corporate by-laws. Series “L” shares have limited voting rights and other corporate rights, may be freely subscribed and represent up to 25% of all corporate capital. These shares have the right to attend and cast one vote per one share, only and exclusively in the special shareholders’ meetings called to discuss the following (i) cancellation of the Series “L” shares in the National Securities Registry and on the national or foreign stock exchange or exchanges in which they are registered, excepting the trading system and other markets not organized as stock exchanges, (ii) transformation of the company, and (iii) merger with another company or companies. In accordance with the corporate by-laws in effect for the Company, the quorum requirements for convening and validity of the resolutions adopted in the Ordinary and Extraordinary Shareholders’ Meeting are the following: To consider legally convened a general ordinary shareholder’s meeting at first call at least 50% of the ordinary Series “A” shares should be represented. Through second or subsequent call, the General Ordinary Shareholders’ Meeting shall be considered validly convened by any number of Series “A” shares represented. To consider legally convened a General Extraordinary Shareholder’s Meeting to discuss matters for which the shareholders of Series “L” do not have the right to vote, and held at first call, at least 75% of the ordinary Series “A” shares should be represented. At second or subsequent call, the aforementioned general extraordinary shareholders’ meeting shall be considered validly convened with at least 50% of the Series “A” shares represented. To consider legally convened a general extraordinary shareholder’s meeting to discuss matters in which the shareholders of Series “L” have the right to vote, and held at first call, at least 75% of the corporate capital should be represented. At second or subsequent call, the referred general extraordinary shareholders’ meeting shall be considered validly convened with at least 50% of the corporate capital represented. Special Shareholders’ Meetings shall be subject to the same attendance quorum and voting as the General Extraordinary Shareholders’ Meetings. In accordance with the Company’s by-laws, the Board of Directors has, amongst others, the following powers: 1) general power of attorney for collections and lawsuits with all the general and special powers that require special clause in accordance with the Law; 2) general power of attorney to manage business and corporate assets on the broadest terms in compliance with the provisions of the respective law; 3) general power of attorney for acts of ownership, pursuant to the provisions of the respective law; 4) the Board of Directors shall have general legal representative powers by delegation of the legal representation of the corporate principal to represent it in trials or labor procedures under the terms of the Federal Labor Law in force; 5) general power of attorney to draw, accept, endorse, negotiate, issue, guarantee, certify and in any other manner subscribe negotiable instruments on behalf and representation of the company, on the terms established in General Law of Negotiable Instruments and Credit Operations; 6) powers to open and cancel bank, investment or other accounts as well as to make deposits and draw on said accounts through the person or persons designated by the Board of Directors; 7) powers to appoint and remove the chief executive officer of the company and the lower-ranking officers, as well to determine their attributions, powers, performance bonds, employment conditions and remunerations; 8) powers to grant general or special powers of attorney, as well as to substitute or delegate the powers granted to it, always reserving the right to exercise the same, and to revoke any of the powers granted, substituted or delegated. 9) The Board of Directors, through its chairperson, secretary or vice-secretary, may call General Ordinary or Extraordinary Shareholders’ Meetings, as well as Special Shareholders’ Meetings in all the cases set forth in these By-laws or when deemed convenient, and to set the date, time and agenda for said Meetings; 10) to execute the resolutions adopted by any Company’s Shareholders’ Meeting which shall be done through its chairperson, except if that power is delegated to another board member; 11) to establish and modify the Company’s or its subsidiaries employee share sales or purchase options or share subscription plans; 12) to appoint and remove Executive Committee members, as well as members of other intermediate administration or operation bodies, establishing their composition, duties and functions subject to the provisions of the applicable law; and 13) to establish the Audit and Corporate Practices Committee or Committees referred to in the Stock Market Law and to appoint and remove their members, with the exception of the Chairperson, who shall be appointed by the Shareholders’ Meeting in compliance with the Stock Market Law provisions; 14) to present to the General Shareholders’

Page 69: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

68

Meeting held at the close of the corporate year the following reports: the annual Audit Committee report, the annual Corporate Practices Committee report and the report of the Chief Executive Officer referred to in the Stock Market Law; as well as those other reports, opinions and documents which are required to comply with and under the terms of the Stock Market Law, the General Law of Business Corporations and other applicable laws; and 15) to preside over, discuss, and resolve on the matters referred to in the Second Section of the Twelfth clause of the Company’s corporate by-laws in strictly adherence to the terms therein stipulated. The members of the Board of Directors of the Issuer are elected by the favorable majority vote of the holders of Series “A” shares in circulation present at a general ordinary shareholders’ meeting. In like manner, the holders of the Series “L” shares, by resolution adopted in special meeting called for that specific reason, are entitled to appoint two permanent directors and their respective alternates. The directors appointed by holders of Series “L” shares shall be independent directors in compliance with Stock Market Law provisions. The Issuer’s by-laws establish measures preventing the purchase of shares granting control of the Issuer. In accordance with these measures, certain purchases of Series “A” shares or Series “L” representing the Issuer’s corporate capital must be previously approved by the Issuer’s Board of Directors or the General Extraordinary Shareholders’ Meeting when, amongst other things, the consequence of such acquisitions is that the shareholding of the acquiring party in question, either individually or jointly with determined persons, represents a holding equal or above ten percent of all Series “A” or Series “L” shares. For a description of the referred measures, the procedure to request authorization from the Issuer’s Board of Directors and/or the General Extraordinary Shareholders’ Meeting, the quorum for convening and resolution, and the consequences of acquiring the shares, consultation of the complete text of the Second Section of the Twelfth clause of the Issuer’s corporate by-laws is suggested. Minority Shareholder Rights

In line with the Stock Market Law, the Company’s corporate by-laws stipulate the following minority shareholder rights:

The right of holders of at least 10% of the shares representing the Company’s corporate capital to request that the chairperson of the Board of Directors or of the Audit Committee and of the Corporate Practices Committee call a shareholders’ meeting in which they have the right to vote.

The right of holders of at least 5% of the shares representing the Company’s corporate capital to exercise a liability action against any of the directors, subject to compliance of certain legal requirements.

The right of holders of at least 10% of the shares with the right to vote and represented in the respective shareholders’ meeting to request postponement of the vote on any matter on which they believe they lack sufficient information.

The right of holders of at least 20% of the shares representing the Company’s corporate capital to judicially challenge any resolution of the general meetings in which they have the right to vote, subject to compliance with certain legal requirements.

The right of holders, either individually or jointly representing at least 10% of the corporate capital, to appoint at least one director and the respective alternate director in the corresponding meetings. Also, in accordance with the Stock Market Law, the Company is subject to certain corporate

governance requirements, including an Audit Committee and a Corporate Practices Committee, and independent members on its Board of Directors.

Page 70: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

69

5) CAPITAL MARKETS a) Stock Structure

The shares which represent the corporate capital of the Company are listed on the Mexican Stock Exchange Market, S.A.B. de C.V., where they have quoted since 1992. The number of shares in circulation (weighted average) amounts to approximately 483 M. Of the number of shares of capital subscribed, approximately 81% are series “A” common shares with full voting rights and 19% are represented by series “L” shares with limited voting rights. Additionally, approximately 20,000 series “A” shares and 48,000 series “L” are quoted on the PORTAL system (Private Offerings, Resales and Trading through Automated Linkages) of the NASD (National Association of Securities Dealers) in the form of ADS (American Depositary Shares). Series “A” shares have shown low negotiability according to the selfsame BMV’s rating while the Series “L” shares have shown low negotiability according to the BMV’s rating, Therefore, both series operate according to a BMV bid arrangement. Trading in series “A” and series “L” shares has never been suspended by the regulatory authorities. As of December 31, 2010, approximately 9% of Series “A” shares are the patrimony of a trust originally established to guarantee with those shares determined obligations assumed by Bancomext, since it had acted as surety for the issuance of stock exchange certificates for an amount of $875 M in May 2003, which were amortized in advance in February 2005. The Company’s management will determine the treatment given to these shares once said trust is extinguished. In like manner, approximately 4% of the Series “A” shares is allocated to the trust established to document and implement the Company’s executive and employees share plan. Approximately 2% is allocated to a trust for Chemuyil (a Vacation Club business project to be developed on Riviera Maya) and the remainder is distributed amongst the investing public. Regarding the shareholding of groups and persons that exercise control over the Company, see Relevant Shareholders above. Shares in trust. The Company has in trust the following shares: 19,256,902 and 474,000 of Series “A” and “L” shares respectively, in the name of Grupo Posadas, S.A.B. de C.V. to be assigned and sold to executives. There is a committee responsible for granting purchase rights and assigning the number of shares to each eligible executive based on performance criteria, and the executive reserves the right to buy at the end of the term. The sale price is fixed in U.S. dollars taking into consideration the shares’ market value and the exchange rate in effect on the date the executive is assigned the shares. Because the term to make the purchase effective is three years with a two-year grace period, the financing period interest is applied. b) Share performance in the stock market Source: Bloomberg (The daily average volume is based on trading days)

Yearly behavior in the last 5 years

POSADAS A 2006 2007 2008 2009 2010

Price (High) 12.04 18.25 20.06 16.30 18.26

Price (Low) 10.31 12.14 14.10 10.60 16.50

Price (Closing) 12.04 18.25 14.10 16.30 18.25

Average daily volume 21.7 10.5 3.9 0.6 21.0(thousands of shares)

POSADAS L

Price (High) 12.04 18.25 19.00 14.00 17.25

Price (Low) 9.00 12.04 11.00 9.00 12.93

Price (Closing) 12.04 18.25 11.00 14.00 17.25

Average daily volume 76.8 20.9 18.5 0.4 2.9(thousands of shares)

Page 71: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

70

Quarterly performance in the last 2 years

Monthly performance in the last 6 months

c) Market Maker

The Company does not have a market maker model.

POSADAS A 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

Price (High) 14.10 12.81 15.21 16.30 17.25 17.50 17.20 18.26

Price (Low) 14.10 10.60 10.60 15.22 16.50 17.10 17.20 16.51

Price (Closing) 14.10 10.61 15.21 16.30 17.50 17.20 17.20 18.25

Average daily volume 0 1.7 0.7 2.8 0.3 0.6 74.5 66.8(thousands of shares)

POSADAS L 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

Price (High) 11.00 11.00 13.90 14.00 14.99 15.70 15.10 17.25

Price (Low) 11.00 9.00 10.50 12.40 12.93 14.95 15.10 16.00

Price (Closing) 11.00 10.20 13.90 14.00 14.99 15.10 15.10 17.25

Average daily volume 11.2 0.9 0.5 0.9 0.3 0.7 65.6 1.3(thousands of shares)

POSADAS A Dec´10 Jan´11 Feb ´11 Mar ´11 Apr ´11 May´11

Price (High) 18.26 16.62 13.80 15.90

Price (Low) 17.30 14.35 13.80 14.00

Price (Closing) 18.25 14.35 13.80 15.90

Average daily volume 174.1 0.5 0.1 0.1(thousands of shares)

POSADAS L Dec´10 Jan´11 Feb ´11 Mar ´11 Apr ´11 May´11

Price (High) 17.25 15.60 13.50 15.70

Price (Low) 16.50 14.18 13.50 13.70

Price (Closing) 17.25 14.18 13.50 15.70

Average daily volume 0.23 1.4 3.4 0.2(thousands of shares)

Page 72: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

71

6) PERSONS RESPONSIBLE FOR THE INFORMATION CONTAINED IN THE ANNUAL REPORT

The persons indicated below presented liability letters to the CNBV and to the Stock Exchange as part of the filing of this Annual Report wherein they state that they do not have knowledge that any material information has been omitted, distorted, or mistaken in this Report:

Name Position Institution

Gaston Azcarraga Andrade

Chairman of the Board of Directors and Chief Executive Officer

Grupo Posadas, S.A.B. de C.V.

Ruben Camiro Vazquez

Chief Financial Officer

Grupo Posadas, S.A.B. de C.V.

Olga Gutierrez Nevarez

Director of Legal Affairs

Grupo Posadas, S.A.B. de C.V.

Carlos Pantoja Flores

External Auditor

Galaz, Yamazaki, Ruiz Urquiza, S.C.

Page 73: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels

72

7) ATTACHMENTS

Page 74: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 75: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 76: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 77: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 78: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 79: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 80: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 81: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 82: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 83: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 84: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 85: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 86: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 87: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 88: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 89: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 90: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 91: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 92: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 93: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 94: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 95: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 96: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 97: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 98: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 99: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 100: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 101: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 102: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 103: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 104: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 105: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 106: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 107: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 108: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 109: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels
Page 110: GRUPO POSADAS, S.A.B. de C.V.reservations.posadas.com/posadas/Brands/Posadas/... · Grupo Posadas, S.A.B. de C.V. and Subsidiaries (“the Company”) is the leading operator of hotels