Valuation of a

resort project in

Tar-Vabriga

Croatia

Histria Fecunda d.o.o.

January 2015 report # A.15813.01

PKF hotelexperts GmbH I Hegelgasse 8 l 1010 Vienna l Austria

e-mail vienna@pkfhotels.com l www.pkfhotels.com

managing directors Michael Widmann Dr. Andreas Staribacher Christian Walter l commercial register FN 245617 b

PKF hotelexperts GmbH is a member firm of the PKF International Limited network. The network consists of legally independent member firms. PKF

hotelexperts GmbH does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

mailto:vienna@pkfhotels.comhttp://www.pkfhotels.com/

2

Table of contents

chapter heading page

1 Introduction 5 1.1 Project 5 1.2 Assignment 5

2 Location 9 2.1 Croatia 9 2.2 Istria 9 2.3 Project site 10

3 Market 17 3.1 Overview 17 3.2 Hotels 18 3.3 Relevant Hotel Market Segment 21 3.4 Golf Course Market 27 3.5 Residential Villa Market 28

4 Product 29 4.1 Overall project 29 4.2 Hotel 30 4.3 Golf Course 32 4.4 Residental Villas 33

5 Forecast 34 5.1 General 34 5.2 Operated departments 35 5.3 Undistributed operating expenses 37 5.4 Miscellaneous 37 5.5 Key figures development 38

6 Valuation 40 6.1 Methodology 40 6.2 Parameters of the valuation 41 6.3 Value 41 6.4 Statement of assumptions and conditions 43

3

Charts/Illustrations

# title page

Chart 1 Typical brands per segment 8 Chart 2 Location of Istria within Croatia 10 Chart 3 Location of the project site within Istria: 11 Chart 4 Aerial view of the project site and its direct surroundings 12 Chart 5 Visibility of the project site 14 Chart 6 SWOT analysis macro site (project site) 15 Chart 7 Suitability of micro site for demand by different guest segments 16 Chart 8 Suitability of micro site for different hotel types 16 Chart 9 Hitherto development of supply of hotels in Istria 18 Chart 10 Hotel projects 19 Chart 11 Development of demand for accommodation facilities in Istria County 20 Chart 12 Capacity of relevant hotels 21 Chart 13 Pictures of Kempinski Hotel Adriatic 22 Chart 14 Pictures of the Kempinski Hotel Portoroz 23 Chart 15 Pictures of the Lone Hotel 24 Chart 16 Pictures of the Hotel Monte Mulini 25 Chart 17 Pictures of the Valamar Riviera 26 Chart 18 Published rates of examined hotels 27 Chart 19 Golf Larun project master plan 29 Chart 20 Gross operating profit development 38 Chart 21 Key figures and ratios development 39 Chart 22 Discount and capitalisation rates 40 Chart 23 Present value of the hotel component including golf course 42 Chart 24 Present value of the residential villas 42

4

Annexes

# title

1 Forecast 1.1 Stabilised year

1.2 Years 2016-2025

2 Terms and Conditions

5

1 Introduction

1.1 Project

Histria Fecunda d.o.o., based in Porec, is planning the sale of a mixed-use

development in the Tar-Vabriga municiplality. The project site is located

adjacent to the coast between Novigrad and Porec.

The following uses are planned for the project:

lodging facilities with 200 keys (180 rooms and 20 suites)

food & beverage facilities (two restaurants and a bar)

meeting and event facilities (a ballroom, two to three meeting rooms)

spa facilities (an outdoor swimming pool, a fitness room, several sauna and

steam rooms, a beauty centre)

18 hole golf course

golf club house

80 residential villas

other facilities (amongst others two car parks, staff areas, offices, storage and

technical areas)

At the moment of the assignment, the project is being planned.

1.2 Assignment

Histria Fecunda d.o.o, represented by Mr Moroslav Vukusic, awarded the contract

to prepare a valuation of the planned project in Tar-Vabriga municiplality with

writing (e-mail) dated 10 November 2014.

The study is intended to serve as a neutral basis for the sale of the property.

Subject matter of the assignment is the analysis of the following elements:

location

market

product

forecast (operational results)

valuation

6

We conducted the assignment in November and December 2014. The market

research on site was conducted from 17 to 18 November 2014. The study is

based on the site and market conditions at the time of the site and market

research as well as the relevant supply and demand at that time.

The audit of the legal terms, in particular the ownership, building, corporate and

fiscal terms, is not subject of this assignment. We have prepared the valuation

on the basis of the General Terms and Conditions of Doing Business (see Annex 2).

When preparing the study, we have acted in our position as a neutral expert to

the best of our knowledge. However, we cannot guarantee the actual occurrence

of forecasted results and discount rates serving as the basis of the valuation.

The valuation was exclusively prepared for the client’s use. If it is forwarded to

any third party, the above-mentioned General Terms and Conditions of Doing Busi-

ness shall also apply vis-à-vis this third party. The report (or parts of it) may only

be published after the consultant’s prior written approval.

Vienna, 20 January 2015

PKF hotelexperts GmbH

Michael Widmann Milos Pakaski

Managing Partner Consultant

7

Ratios

The following ratios are used throughout the reports:

occupancy

occupied rooms divided by the number of available rooms per period

multiple occupancy factor

number of guests divided by the number of occupied rooms per period

published room rate (= rack rate)

published room rate including VAT and – if applicable – breakfast

net room rate

rooms revenue (after deduction of breakfast, VAT and allowances/discounts) di-

vided by the number of occupied rooms in each period

=x revenue per available room/revpar (= rooms yield)

occupancy multiplied by the average net room rate respectively rooms revenue

(excluding VAT, breakfast and allowances/discounts) divided by the number of

available rooms per period

Classification

The classification of hotels in this study is based on the internal hotel classifica-

tion of PKF hotelexperts, which is orientated towards the strict international pa-

rameters for the classification of hotels (maximum of five stars). Hotels in

Croatia are classified by the Croatian Ministry of Tourism. In cooperation with

the national hotel association and independent foreign consultants, the Ministry

of Tourism passed the regulations, which apply to hotels, motels, holiday vil-

lages, tourist apartments, guesthouses and pensions. According to a study from

the WTO (World Tourism Organisation) and the IH&RA (International

Hotel & Restaurant Association), the Croatian classification seeks compatibility

with classifications of other countries. It is not used to control accommodation

tariffs within established classes. The classification is mandatory for all estab-

lishments, and it is necessary to obtain permission and classification to oper-

ate. The verification of compliance is controlled through unannounced visits of

central government inspectors every two years. In general, the national Croatian

hotel classification applies less strict criteria compared to the internal classifi-

cation of PKF hotelexperts. Typical brands of the various market segments and

their respective positioning as seen by PKF hotelexperts are illustrated in the

following chart:

8

Chart 1 Typical brands per segment

Formule 1 Days Inn aloft Radisson Blu

Ibis Budget Ibis Indigo Marriott

Holiday Inn Express Hilton Four Seasons

Sleep Inn Ramada Encore Sofitel

Super 8 Best Western Crowne Plaza Ritz-Carlton

Courtyard by Marriott Park Hyatt

Hilton Garden Inn Wyndham

Hampton by Hilton Novotel Grand Hyatt

Campanile Mercure InterContinental

Holiday Inn Bvlgari

Park Inn by Radisson Hyatt Regency

Ramada Sheraton

DoubleTree by Hilton Waldorf Astoria

Clarion Renaissance St. Regis

JW Marriott

notes 1) stars according to classification by PKF hotelexperts status: 1 January 2013

2) size of standard room in sq m ©PKF hotelexperts

segm.

stars1)

typical brands per segment (dark grey: core positioning; light grey: range of existing properties)

size2)

10 12 14 16 18 20 22 24 26 28 30 32

- +

- +

34 42 50

+ -

- ++ -

Please note that national or regional classification systems – as well as the hotel

groups themselves – often are more generous in attributing stars to hotels.

9

2 Location

2.1 Croatia

Croatia is located in the south-east of Europe. The highest elevation is the peak

of Dinara with an altitude of about 1,830 m above sea level, forming part of the

so-called Dinaric Alps. The population of Croatia amounts to about 4.3 million

inhabitants and the country covers a total area of about 56,600 sq km (status:

2011, last official census; source: Croatian Bureau of Statistics).

Croatia gained its independence from Yugoslavia in 1991 and joined the Euro-

pean Union (EU) on 1 July 2013. Furthermore, Croatia is a member of – among

others – the North Atlantic Treaty Organisation (NATO), the United Nations

Organisation (UNO), and the World Trade Organisation (WTO).

In 2013, the GDP per capita in Croatia amounted to about € 8,400 which is ap-

proximately 64 % below the average GDP per capita in the EU (about

€ 23,300). Furthermore, in 2013, the unemployment rate in Croatia amounted

to approximately 17.6 %, which was about 6.7 percentage points higher than

the average unemployment rate in the EU (source: Eurostat).

The main branches of the Croatian economy are agriculture, fishing industry,

forestry, tourism and trade. Tourism is strategically one of the most important

industries of Croatia due to the country’s location on the Adriatic coast. More-

over, the pharmaceutical industry is comparably strong. Currently, there are

37 pharmaceutical companies operating in Croatia – among others –

GlaxoSmithKline, Hospira, Teva, etc. Furthermore, the country features a well-de-

veloped metal (over 3,000 companies; e.g. Alstom Hrvatska, Metalind, Omial

New, etc) as well as automotive industry supplying parts for international auto-

mobile manufacturers, such as Audi, BMW, Fiat, Renault, etc.

2.2 Istria

Istria is one of the 21 counties in Croatia and is located in the north-west of the

country, covering a total area of about 2,820 sq km. The population of Istria

amounts to about 208,055 inhabitants (status: 2011, last official census;

source: Croatian Bureau of Statistics). Zagreb, the capital of Croatia (about

793,000 inhabitants), is located about 266 km to the east of Istria (non-linear

distances).

Istria County comprises ten cities and 31 municipalities. The largest town in

Istria is Pula (about 57,460 inhabitants) and the smallest town is Novigrad –

Cittanova (about 4,345 inhabitants). This region is renowned for its rich culture

and vivid history, which significantly contributes to the sense of place and its

attraction.

Central to Istria’s culture is its local Mediterranean gastronomy, including wine,

olives and truffles. The vineyards in Istria spread over about 15,200 acres, with

the majority of the viticulture (about 14,430 acres) near Porec, Buje, Pula and

Rovinj. Due to the particular soil and climate, the Istrian region is very suitable

10

for growing olives. Furthermore, Istrian truffles are found in the grey soils in the

central part of the region. The white Istrian truffle is one of the most highly

appraised truffle species in the world.

The following map shows the location of Istria within Croatia:

Chart 2 Location of Istria within Croatia

Istria

© PKF hotelexperts

sources:

google maps; PKF hotelexperts

2.3 Project site

2.3.1 Location and expansion

The project site is located in the municipality of Tar-Vabriga – Torre-Abrega,

which is situated about 63 km to the north-of Pula, the capital of Istria, and

about 148 km to the south-west of Ljubljana, Slovenia’s capital. The site

amounts to about 128.5 ha of mostly undeveloped and some agricultural land

(olive groves). On either side of the plot there is a marina with a quaint

fisherman’s village. The site is located directly south of the village of Vabriga,

and can be reached in about 2.1 km driving distance.

11

The following chart indicates the location of the project site within Istria:

Chart 3 Location of the project site within Istria:

project site

Porec

Rovinj

Koper (Slo)

Pula

Trieste (It)

© PKF hotelexperts

sources:

google maps; PKF hotelexperts

As stated before, the site is an undeveloped (greenfield project). The eastern

boundary of the site is bordered by Route 75, where the main entrance of the

development will be. The western boundary of the site is the Adriatic Sea. To the

south of the project site is further undeveloped land (for which no further plans

exist).

The distances from the project site to selected places of interest can be

summarises as follows (non-linear distances):

Poreč: about 7 km

Rovinj: about 46 km

Koper, Slovenia: about 47 km

Pula: about 63 km

Trieste, Italy: about 66 km

Ljubljana, Slovenia: about 148 km

Venice, Italy: about 228 km

Zagreb, Croatia: about 266 km

12

The following chart shows an aerial view of the project site and its direct

surroundings:

Chart 4 Aerial view of the project site and its direct surroundings

project site

Novigrad

© PKF hotelexperts

sources:

google maps; PKF hotelexperts

2.3.2 Accessibility

The closest international airports to the project site are the Pula Airport (61°km)

and the Airport Friuli Venezia Giulia (108 km). Furthermore, the Aerodrom

Ljubljana is located about 169 km (non-linear distance) to the north-east of Tar-

Vabriga.

Pula Airport is Istria County’s international airport is a seasonal airport

operating flights from the end of March until the end of October. About

30 airlines serve this airport, including international (i.e. Lufthansa, Aeroflat,

Scandinavian, etc.), low-cost (i.e. Ryanair, Germanwings, etc.), and chartered

(i.e. Thomson, etc.) airlines. The airport has potential to land large aircrafts

such as the Boeing 747 and Antonov, demonstrating possibilities for further

expansion.

Aeroporto Friuli Venezia Giulia is located near Trieste (Italy) and operates four

airlines – Alitalia, Lufthansa, Ryanair, and Vueling. There are incoming flights

arriving from nine European cities, including Barcelona, London, Munich and

Rome.

The Aerodrom Ljubljana serves eight airlines with inbound flights to Ljubljana,

inlucuding Adria (Star Alliance member), AirSerbia, AirFrance, Finnair and

Turkish Airlines as well as low-cost airlines (e.g. easyJet). Inbound flights arrive

13

from 21 different airports, with a substantial number of flights arriving from

Belgrade, Frankfurt, London and Zurich.

Novigrad is well-integrated in the national motorway network. The motorway

E751 serves most of the Istrian peninsula and connects Novigrad with Pula in

the south and Koper in the north. The motorway A1 provides a connection

between Novigrad and Lubljana, with continuing connection to Austria. In

addition, E751 continues east towards Rijeka, with connections to Zagreb via

motorway A6.

The nearest railway station to the project site is located in Kanfanar. Due to the

lack of a continued public transportation network, the project site can be

reached via car from Kanfanar (about 42 km). There are two trains daily from

Ljubljana to Pula (about four hours), however, this is not the most ideal means

of transportation to Istria. The train services appear to be out-of-date and

require substantial upgrade.

Between April and October, there are ferry services between Venice and Istria.

Ferries arrive after a three-hour journey in the ports of Porec, Rovinj, Pula, Izola,

Losinj and Umag. The closest ferry terminal is about 7.7 km from the project

site. Depending on the season and the day of the week there are up to several

transfers a day.

Currently, there is no public transportation network in the vicinity of the project

site.

2.3.3 Visibility

The project site benefits from very good visibility from basically all directions.

According to information provided to us, no other projects are currently planned

which could negatively impact the site’s visibility.

14

The following pictures indicate the visibility of the project site as seen from

Rotue 75 (left picture) and the site’s internal road (right picture):

Chart 5 Visibility of the project site

© PKF hotelexperts

source: PKF hotelexperts

2.3.4 Demand generators

The Adriatic Coast of Croatia features beautiful nature and an attractive

coastline with numerous beaches. It is therefore the main demand generator of

the region of Istria and will also be a major demand generator for the client’s

planned hotel. Currently, Istria and Dubrovnik are the main holiday destinations

in Croatia with regard to tourism demand and qualitative gastronomic and

entertainment facilities.

Being a popular leisure destination, the region continues to develop tourism in-

frastructure (e.g. addition of new accommodation facilities, upgrading of the

roads, increase in number of flights at the nearby airports, etc).

Furthermore the vivid history of the region makes the destination attractive for

culture enthusiasts. Among the few sights worth mentioning is the Euphrasian

Basilica in Porec. Considered the most integrally preserved early Christian

cathedral complex in the Istria region. The structure is an example of 5th and

6th century religious architecture and shows significant Byzantine influence. The

basilica of Euphrasius is the only church from the time period that has survived,

and can be found on the north coast of the peninsula in the town of Porec. The

church is located about 5 km from the project site.

On a final note, as described in the introduction, the hotel is part of a mixed-use

development. The 18 hole golf course and the residential villas are key

15

components of the overall project. We deem that golfers and villa residents, as

well as their relatives will make up a significant portion of the demand for the

hotel and its facilities.

2.3.5 Assessment

We have submitted the micro site to a SWOT analysis. The results can be

summarised as follows:

Chart 6 SWOT analysis macro site (project site)

location on a peninsula overlooking a bay limited access via public means of transport

attractive views from the project site undeveloped area nearby

generous size of plot of land competition along the coast

good visibility from the sea Istria region currently more recognised for ist

in the catchment area of three international camping sites and low budget tourism

airports

located close to Porec and Rovinj

located in close vicinity to various marinas

good accessibility by car

attractive vegetation on the plot

opportunity to reposition Istria as a luxury enhanced competition due to the

destination, which is supported by the local development of future hotel projects in

ministry the area

development of additional demand generators competition from strong international leisure

(e.g. meeting and wellness facilities) destinations

further development of the beach area general project-related risks

development of entertainment, gastronomic general economic, political and natural risks

and shopping facilities in the surroundings

extending the existing season by attracting

golfers and villa residents

© PKF hotelexperts

Strengths

Opportunities

Weaknesses

Threats source: PKF hotelexperts

16

2.3.6 Suitability for hotel

The following chart illustrates the suitability of the micro site for different guest

segments:

Chart 7 Suitability of micro site for demand by different guest segments

-- - o + ++

business business travellers

fair/congress attendees1)conference/seminar attendees2)

participants of incentivesairline crews

leisure individual touristsgroup tourists

weddings

miscellaneous long-stay guests

notes 1) attendees of events which do not take place in the hotel © PKF hotelexperts2) attendees of events in the hotel

source: PKF hotelexperts

suitability of project siteguest segment

for demand by particular guest segment

travel purpose category

The following chart shows the suitability of the project site for different hotel

types:

Chart 8 Suitability of micro site for different hotel types

-- - o + ++

resort five stars (luxury)

four stars (upscale)three stars (mid segment)

two stars (economy)one star (budget) serviced apartmentsall-suites hotel

note 1) according to PKF, based on international standards © PKF hotelexpertssource: PKF hotelexperts

suitability of project sitehotel type

for particular hotel type

type category1)

17

3 Market

3.1 Overview

According to our assignment, we have analysed supply and demand of the

general hotel accommodation market, golf market and the residential villa

market in Istria region.

Especially hotels of the four and five-star categories (according to

national/international classification; see 3.3 Relevant hotel market segment) are

considered major potential competitors to the client’s project. Still, hotels of

other categories and other types of accommodation facilities may stand in

competition to the planned hotel or may have an impact on the general

accommodation market. In the following, supply and demand of the hotel

market are analysed.

Due to the limited amount of current offers and information available the golf

market was examined by analysing the only product (Golf Adriatic) available in

the region, while on the other hand residential villa market was studied by

consulting a variety of industry specialists.

18

3.2 Hotels

3.2.1 Supply

a) development to-date

According to information provided by the Croatian Bureau of Statistics, the total

supply of hotels in Istria as follows developed in the period from 2007 to 2013:

Chart 9 Hitherto development of supply of hotels in Istria

hotels

rooms ('000s)

rooms per h.

© PKF hotelexperts

sources: Croatian Bureau of Statistics; PKF hotelexperts

x x 153

Ø

84

14 14 14 14

2007

x

88x 87

20132010 2011 20122008 2009

87

156 151160 158 148

2004 2005 2006

x

x

x

x

hotels

#

rooms

per h.

'000s #

60

14

153

hotels/rooms/Ø number of rooms per hotel total

Σ

91

15

x100

x

x

x 13 14

95 97

145

100

80

12

200

18 180

16 160

200

180

160

140

40

140

20

14

8

120

20

40

20

0 0

4

0

2

120

10 100

80

6 60

As can be seen in the chart above, the number of hotels increased from 84 in

2007 to 100 in 2013 (+16/+19.0 %). Over the whole period, a total growth by

approximately 19.0 % can be observed. Furthermore, the number of hotel

rooms rose by 1,683 from 12,847 in 2007 to 14,530 in 2013; this represents

an increase by approximately 13.1%. The average number of rooms per hotel

decreased from 153 in 2007 to 145 in 2013, representing a decrease by

approximately 4.9 %.

b) future development

According to information we received from interviewed experts, several new

hotel projects are currently under construction in the Istria region. Based on

this information, about five hotels (not including the client’s resort project) with

a total of about 747 rooms are currently planned. Although probably not every

project will be implemented, a slight increase in the number of hotel rooms can

be expected in the short to mid-term. The additional supply will likely lead to an

19

increased price competition, in particular in the mid-market/upscale segment,

since most of the projects being under construction or in planning are envisaged

to be positioned in this segment.

The following chart gives an overview of selected hotel projects which are

currently known to us:

Chart 10 Hotel projects

project/location

Golf-Resorts Biska Golf Istra

Valamar Pical Hotel / Porec

Rovinj

Markocija Golf Resort / Buje

Novigrad -

total Σ

Ø

© PKF hotelexperts

sources: tophotelprojects.com; developers and hotel groups; PKF hotelexperts

%

category rooms phase opening chance

stars # name year

18

140

5

4

3-4

3-4 270

84 3-4

235

2016 100

planned

constr.

constr.

planned

2016planned 40

2016 100

2016 60

2105 40

3-4 149 x x x

x 747 x xx

x

assumed key information

brand

name

-

-

Valamar

Maistra

x

The above chart may not be complete. Furthermore, not all projects are subject

to public knowledge, and sometimes details (operator, financing, etc.) are un-

clear.

According to our experience, not all planned hotels will be implemented, and

delays in the development are common. To account for this fact the probability

of an implementation for a certain project is 100 %, a relatively certain 80 %, a

probable 60 %, a project with limited probability 40 %, and an uncertain pro-

ject 20 %.

20

3.2.2 Demand

a) development to-date

The following chart displays the development of demand for accommodation

facilities in Istria County between 2007 and 2013:

Chart 11 Development of demand for accommodation facilities in Istria County

arrivals

overn.stays

length of stay

notes 1) includes camping places © PKF hotelexperts

sources: Istria County Tourist Office; PKF hotelexperts

x

x

x

x

2.9

22.0 x

Ø

2.8

18.7 19.0 20.6 22.0

2008 20092007

7.0x 6.6

x 18.2 18.6

6.7

13

8

7

6

15

2005

10 5

4

35

2.72.8

0 1

3

x x x 3.22.7

2

3.0 3.2

11

9

8

25

20

23 10

18

20122006 2010 20132004

arrivals/

overn. st.

m

Ø length

of stay

nights

x

arrivals/overnight stays/Ø length of stay total

Σ2011

19.9

6.8x6.96.96.9 7.0

The above table shows that Istria County registered a continuous increase in

demand from 2007 to 2013 in terms of arrivals and overnight stays (increase in

arrivals by approximately 16.0 %). With regard to overnight stays, demand in

the region increased from 2007 to 2013 (significant increase by approximately

21.4 %). The average length of stay increased from about 6.6 nights in 2007 to

about 6.9 nights in 2013.

21

b) future development

In general, it is expected that demand will slightly increase in the near future.

According to information we received during our market investigation, arrivals

and overnight stays generated by both, the business and leisure traveller

segment, are expected to grow in the upcoming years due to several reasons:

accessibility to Croatia due to is EU membership

governmental effort to boost tourism investment and arrivals

a decrease in alternative stable and safe summer destinations

3.3 Relevant Hotel Market Segment

To draw conclusions regarding the positioning and financial viability of the cli-

ent’s proposed resort, we carried out a comprehensive analysis of the local ho-

tel market with a focus on the current and likely future competitors (existing

capacities, hardware, quality of services offered, etc). Within the scope of our

market analysis, we compiled a market sample which includes – to our

judgement – some selected competitors to the planned resort. In selecting the

hotels, we focused on hotels in explanation of location criteria (e.g. radius of

70 km with a minimum of 100 guest rooms and wellness capacities, with a

positioning in the four-and five-star segments (according to national standards).

Furthermore, a location in the city centre, the range of facilities available and

the quality level with regard to service, amenities and style were further criteria

in identifying the hotels of the competitive set.

3.3.1 Overview

The following table provides an overview of the room supply of the competitive

set:

Chart 12 Capacity of relevant hotels

hotel

# name

1

2

3

4

5

total Σ 0

Ø

notes 1) according to official classification

sources: hotel brochures & websites; information provided by hotel management & staff

Kempinski Adriatic Hotel

Kempinski Palace Portoroz

Lone Hotel

Hotel Monte Mulini

Valamar Riviera Valamar

categorybrand

name

Kempinski

stars1)

-

833

x 3 152 14 167

x 3

12 248

167

759 70

Kempinski

Maistra

Maistra 13

93

5

4

5 -

3 9

5

5 164 17

#

-

-

#

19

105

113

186

181

236

rooms

© PKF hotelexperts

#

single double suites total

99

#

22

The table above indicates that the Lone Hotel is – with a total of 248 rooms –

the largest hotel while the Valamar Riviera is – with a total of 105 rooms –

the smallest hotel within the competitive set. The average number of rooms

per hotel amounts to about 167.

In the following, the competitive set hotels are described in more detail

(please note that all distances are non-linear):

Kempinski Hotel Adriatic

The Kempinski Adriatic Hotel opened in 2009 and has 186 rooms, including

165 double rooms and 21 suites. It is located in the town of Savudrija,

directly north of the project site (38°km). Each room features a balcony,

bathroom with separate bathtub and shower, large television, Bose Hi-Fi

system and free wireless internet access. There are two restaurants,

including one fine dining restaurant, as well as three bars. In addition, the

hotel features about 711 sq m of conference space and about 3,000 sq m of

wellness facilities, including a fitness centre. There is a secured garage for

120 cars at a cost of € 19 per day. The hotel has not been renovated since it

opened, but remains in very good condition.

The following pictures provide an impression of the Kempinski Palace

Portoroz:

Chart 13 Pictures of Kempinski Hotel Adriatic

© PKF hotelexperts

source: PKF hotelexperts

Kempinski Palace Portoroz

The Kempinski Palace in Portoroz, Slovenia opened in 2008 and features

181 rooms, of which 17 are suites and 164 are doubles. Rooms are equipped

23

with a bathroom with separate bathtub and shower, a large television, mini

bar and free wireless internet access. In addition, there is an outdoor and

indoor pool, fitness centre and a 1,500 sq m spa. The hotel offers two

restaurants, as well as a lobby bar, aperitif bar and pool bar. The meeting

facilities include seven meeting rooms with a maximum capacity for about

800 people.

The following pictures provide an impression of the Kempinski Palace

Portoroz:

Chart 14 Pictures of the Kempinski Hotel Portoroz

© PKF hotelexperts

sources: www.kempinski.com; PKF hotelexperts

Lone Hotel

The Lone Hotel in the town of Rovinj opened in 2011 and is located about

47°km from the project site. Lone is part of the Maistra Group. The hotel is a

member of the Design Hotels and features 248 rooms, of which twelve are

suites and the rest are double rooms. Each room features a balcony,

bathroom with separate bathtub and shower, large television, and free

wireless internet connection. There are two restaurants and a bar in the

lobby. The property has a large conference hall, with capacity for about

650 people in theatre style, as well as two smaller meeting rooms.

Additionally, there is about 1,700 sq m of wellness space which includes a

fitness centre and an indoor heated swimming pool. There is a garage for 50

vehicles which costs € 14 per day. The hotel has not been renovated since its

opening in 2011 but remains in very good condition.

24

The following pictures provide an impression of the Lone Hotel:

Chart 15 Pictures of the Lone Hotel

© PKF hotelexperts

sources: www.lonehotel.com; PKF hotelexperts

Hotel Monte Mulini

The Monte Mulini Hotel is located adjacent to the Lone Hotel in Rovinj (about

47 km from the project site) and is also part of the Maistra Group. The hotel

opened its doors in 2009 and is a member of the Leading Hotels of the

World. Monte Mulini features 113 rooms, of which 13 are suites and the rest

of double rooms. Each room features a balcony, mini bar, television,

bathroom with a double sink and separate bathtub and shower, hairdryer

and bathrobes, and free wireless internet access. With regard to food and

beverage facilities, the hotel features two restaurants and two bars.

25

The following pictures provide an impression of Hotel Monte Mulini:

Chart 16 Pictures of the Hotel Monte Mulini

© PKF hotelexperts

source: www.montemulinihotel.com; PKF hotelexperts

Valamar Riviera

The Valamar Riviera is located in Porec (7 km from the project site) and

opened its doors in 1971. The property is open from April until the end of

October, as well as over the New Year holidays. The hotel is part of the

Valamar Group. Valamar Riviera features 105 rooms, including three single

rooms, 93 double rooms and nine suites. Each room includes air-

conditioning and a television. The hotel features an all-day dining restaurant

with 150 seats, a fine-dining restaurant with 100 seats and a lobby bar.

There is a meeting room with capacity for 100 people in theatre style. The

hotel was last renovated in 2009 and remains in good condition.

26

The following pictures provide an impression of the Valamar Riviera:

Chart 17 Pictures of the Valamar Riviera

© PKF hotelexperts

source: www.valamar.com; PKF hotelexperts

3.3.2 Demand

Similar to Region’s overall hotel market, the analysed properties also register

low demand periods during the shoulder months of April to May and September

to November, while July and August are peak months (mainly due to the

weather). The guest mix of the selected hotels is split in approximately 25 %

business clientele (of which most are generated by the MICE segment i.e.

conferences and fairs) and approximately 75 % leisure guests. With regard to

the feeder market, more demand is generated by international than by domestic

guests. Major foreign feeder markets are Germany, Austria, UK, and Italy. The

length of stay varies between two and seven days, depending on the season.

According to the interviewees, a slight increase in the number of guest arrivals

and overnight stays is expected for the years to come.

3.3.3 Occupancy

According to information provided to us, the average room occupancy of the

analysed hotels in 2013 was between approximately 50 % and 70 %, while the

weighted average room occupancy was at approximately 60 %.

27

3.3.4 Rates

The following table gives an overview of the published rates of the selected

hotels at a specific date (please note that the reservation requests were made

per telephone and that information about published rates was provided by the

various hotels’ reservation departments; thus, potential variations to internet

requests might occur):

Chart 18 Published rates of examined hotels

hotel

name

Kempinski Hotel Adriatic 1

Kempinski Portoroz 1

Lone Hotel 1 x x

Hotel Monte Mulini 1

Valamar Riviera 1 x x x x

Ø

notes 1) published rates including breakfast

2) date: 12/05/2015

sources: hotel websites; PKF hotelexperts

207 249 189 237 413 2,633

733

64

© PKF hotelexperts

212 186 238 410

270

266 288

€

suites

from

266

178 191

to

€

160

195

€

single

from to

€ €

double

from to

€

112

289 2,000

2,000

230 305 550 5,800

340 401

The table above shows that the published rates of the competitive set hotels are

in the range between € 160 (Kempinski Hotel Adriatic) and € 270 (Kempinski

Palace Pororoz) for a single room and between € 64 (Valamar Riviera) and

€ 340 (Hotel MonteMulini) for a double room. The average published rate of the

analysed hotels is about € 228 for a single room and about € 213 for a double

room/suite.

In the course of the market analysis, it was infeasible to collect data regarding

the average net room rates, since the selected hotels fail to disclose this

performance figure. However a framework was provided, whereby most would

agree that an estimated average net room rate in 2015 may lie between € 200

and € 250, in four-star segment.

3.4 Golf Course Market

Golf has been increasing in popularity which has led to a rise in the number of

golf resorts developed in the past decade across Europe and specifically in the

Mediterranean region. For these regions, with a strong dependency on

seasonality, golf enables the extension of the seasons and provides demand

drivers in the months from March to May and September to November. They are

highly attractive for Western and Northern Europeans where the golfing season

is much shorter. Furthermore, the Adriatic region and in specific Istria, due to

its attractive natural setting, provide golfers with a different environment and

experience.

There are several golf courses in the region, however currently Istria has only

one 18-hole golf course, namely Golf Adriatic. According to our onsite market

28

research (including interviews with the golf course management) the green fees

range between € 50 and € 70 and there is an estimated of 300 playable days a

year. Furthermore, the management claims that on average, through-out the

year, they can sell up to 100 rounds a day.

The golf in the region could demonstrate even a higher demand with the

increase of supply. When golfers travel to play, in most cases they require a

variety of courses in the vicinity of their destinations. Meaning additional

courses will be more then welcomed by the Golf Adriatic management team as

they would be able to reach and attract a wide range of golfers and provide a

more lucrative offer.

3.5 Residential Villa Market

Residential villa market in this instance would refer to secondary homes or

vacation homes. Due to the type of the planned development, we attempted

primarily to examine the market for villas stand alone vacation homes.

Having interviewed several experts in the field, we deem that there is certain

demand for high quality residential villas in this region. We were informed, that

the current prices per sq m for this type of property ranges between € 4,000

and € 5,000. However, one should not only use the sq m price as reference

quoted by estate agents, but the overall price of the property and compare it to

similar destinations (i.e. Greece, Spain, Italy, Slovenia, etc). One advantage

Croatia has over this conventional secondary home markets is its relative

proximity to desired source markets (i.e. Germany, Austria, Switzerland) and a

lower cost of living.

Having investigated this further we would assume that a price for a four to five

bedroom house ranges from € 500,000 to € 600,000 (assuming a minimum

size of 200 sq m) which would approximately relate to € 2,500 and € 3,000 per

sq m. In our opinion this could be a realistic indicative starting price for a

development of such a scale at the foreseen location.

We are aware that this conservative estimate is at the lower end of the prices

currently quoted in the region, nevertheless to attract initial buyers it would be

the optimal strategy. The sq m price could be then gradually increased; with the

success of the project the subsequent phases could reach more optimistic

prices as indicated above (€ 4,000 to € 5,000).

29

4 Product

4.1 Overall project

The mixed-use development consists of three main components and two

complimentary ones. We specifically make this separation on the basis of direct

contribution of each component towards the development cash flow from the

hotel, tourism and leisure perspective, which is the scope of our evaluation.

In light of this we have identified the hotel, golf course and the residential villas

as the primary project components and the olive grove as well as the

archaeological park as the complimentary components. Although, the so called

complimentary components will not be considered to have a direct contribution

to the cash flow (which in reality they might have) their added value to the

overall project should not be neglected. Here we consider the added value in

terms of image and the positioning, such natural and historical elements they

would provide.

The following chart shows an aerial view of the project master plan:

Chart 19 Golf Larun project master plan

hotel

golf course

residental villas

olive grove

© PKF hotelexperts

sources:

Histria Fecunda

archaeological

park

30

4.2 Hotel

4.2.1 Positioning

Taking into consideration the market analysis conducted, the physical location

of the site, the overall master plan (concept) and the demand potential of the

region we deem the positioning of the hotel in the upscale sector as

appropriate. More specifically we envision the property to be positioned in the

four-star superior segment operated by an internationally recognised chain.

The unique selling proposition (USP) should initially focus on the Istrian region,

its culture and natural environment and furthermore extend towards the

immediate environment in the vicinity of the hotel as well as the components of

the overall project (i.e. golf course, archaeological park and olive grove). Our

recommendation would be to integrate the overall development and specifically

the hotel into the local culture, from the design of the building and its facilities

to the f&b and service concept.

4.2.2 Guest mix

In the following, we have assessed the various guest segments which will – in

our judgement – be of relevance for the proposed hotel:

a) leisure travellers

Considering the attractive waterfront location on the Adriatic Sea, leisure trav-

ellers would be the most important target segment for the Istrian Coast and

thus, are also expected to be the prevailing guest segment for the envisioned

hotel. We expect the leisure traveller segment at the proposed hotel to be

young-at-heart, active and lifestyle-oriented. With regard to the income level, we

expect that the planned hotel will first and foremost be able to attract Western

Europeans with middle to upper income and Eastern Europeans disposing of a

high income. However, also markets such as the United States, South America

and Asia could become increasingly important for the proposed hotel (this

strongly depends on the future development of flight connections and the

airports).

A peak of leisure travellers can be expected during the high season (i.e. July and

August). Given the relatively close proximity to main feeder markets (such as

Germany, Austria, Italy, Slovenia), we expect the majority of guests to originate

from Western and or Central Europe; with an average length of stay, up to seven

days. However during shoulder and in off season we expect that the average

length of stay significantly declines, where majority of leisure travellers would

opt for weekend breaks. Nevertheless these could be stimulated by offering

packages that compensate the unattractive seasonality and extend the duration

of the visits (e.g. spa, golf).

31

In order to provide a more precise definition of the distinctive characteristics

and needs of the various target groups, we divided the leisure traveller segment

into the following sub-segments which are expected to be of particular relevance

for the client’s envisioned hotel:

couples and families

spa and wellness guests

sports-aficionados and active holiday-makers

leisure groups

wedding guests

b) golf guests

As indicated before the golf course will be an integral part of the over

development in terms of cash flow contribution and the positioning it sets out

for other so called main project components (hotel and residential villas).

Hence, golfers should be perceived as an essential part of the guest mix

particularly in the shoulder seasons. Furthermore, we perceive this segment as

the one that could significantly extend the season and be the main contributor

to overnight stays during the off-season period. Golf courses generate significant

levels of demand and can appeal to a variety of guest profiles, from retired

individuals or couples to young groups of adults that all dispose of rather high

income.

c) marina guests

Due to the future development and the planned expansions of marinas in the

area, guests generated by the marina can be expected to be a further guest

segment for the planned resort. In this respect, the hotel should try to skim off

as many guests as possible chartering yachts from marinas in the vicinity, who

generally tend to arrive at least one night earlier and leave only one or two days

after returning from their sailing trips. We could also imagine the hotel to enter

into strategic partnerships with charter companies that offer a package to their

clients, including overnight stays at the planned resort. Furthermore, we could

imagine this guest segment to be a significant demand generator for the

potential residential components of the resort, as yacht-owners could be

interested in acquiring real estate in proximity to their vessels.

d) business guests

Given the current absence of large companies in the surrounding area we con-

sider individual business guests to only account for a minor share of the hotel’s

overall guest mix. Furthermore, we could imagine certain demand to derive from

small business groups or management teams holding a board meeting who pre-

fer an attractive setting of the location. Small to medium-sized MICE and busi-

ness groups could furthermore be attracted primarily in the shoulder season to

help counter the strong seasonality. In addition, we deem the proposed hotel

particularly suitable for high-end incentive groups, team-building seminars and

small seminars. Also, the relative proximity to numerous European capitals

32

(Ljubljana, Vienna, Budapest, etc.) and major cities (Trieste, Venice, Milan,

Graz, Munich, etc.) as well as several international airports would make the

proposed hotel an appropriate location for corporate functions.

4.2.3 Layout and facility programme

Although at this stage of the development process, it should not be the goal to

define the envisaged hotel’s layout too closely, we wish to comment on a num-

ber of basic layout questions in order to improve the efficiency and the design of

the proposed hotel.

We deem the planned location of the hotel to be positive, as it is perceived to be

quiet and embedded in nature overlooking the olive grove and golf course,

conveying a certain resort character of the overall development. However, we

would recommend slightly repositioning the hotel building to benefit from

attractive views of the coastline and the sea.

Current plans indicate a development of several independent wings (which

should potentially be connected). Due to the strong seasonality, the hotel should

feature separate utility circuits in order to partially shut off sections of the

building during the low season (one or two floors or building sections). In our

view the property should not exceed 200 keys out of which 20 should be suites.

These separate wings should serve as a separation between family, fun and

sports in one part and relaxation and unwinding in the other. All public areas

such as reception, lobby bar, two restaurants, MICE space, spa, etc should be

located in the centre. The general outdoor areas should be designed and

landscaped in accordance with the proposed overall concept reflecting both, the

relaxation and serenity as well as adventure and families, while retaining the

authenticity of local vegetation.

In terms of the general design of the building and facilities, we would

recommend using materials and colours that reflect and inherit the properties

of the location. Therefore, we would rather abstain from implementing

modernist architecture and recommend using an authentic and original design

type to embrace the destination as such. There is certainly a need for dif-

ferentiation in the local, national and international resort marketplace and we

could therefore well imagine breaking with some of the traditions and creating

contrasts that charge the buildings with energy and provide character to the re-

sort.

4.3 Golf Course

The planned golf course would feature 18 holes. The current design provides an

ideal layout, whereby the hole one, nine and hole 18 are adjacent to the club

house, driving range as well as the putting green. Our understating is the golf

course will be integrated into the environment, reflecting the natural landscape.

Hole 18 will be designed as signature hole and be featured amongst the olive

trees.

33

The success of the golf course will strongly depend on the design and the actual

execution. A highly qualified architect and contractors should be chosen to

implement the preliminary design demonstrated.

Furthermore, it will be crucial to market it appropriately and form synergies

with the existing golf course in terms of operational cost and marketing efforts.

4.4 Residental Villas

The positioning of the residential component within the master plan seems to

be appropriate. A location was chosen which is elevated and close to the main

road. As this would form the most financially lucrative part of the development

is should (as it is) be at the center of it all.

We deem that the number of villas could be reduced and more spacious

planning should be implemented (i.e. larger gardens with a higher level of

privacy). The residential component should include between 60 and

80 freestanding villas, not larger than 200 sq m. Our recommendation would be

to only sell the units once they are built. Furthermore, in our opinion the villas

should only be sold when some of the tourism infrastructure is in place (i.e.

hotel and/or golf course). As indicated earlier, we would see this done in

phases:

phase 1: initially building around 20 units, in conjunction with the construction

of the hotel and the golf course. We would recommend offering them on the

market at a discounted price (around € 3,000 per sq m) to attract interest and

ensure they are sold out

phase 2: depending on the success of the initial phase we envision that the price

per sq m could substantial increase (possibly up to € 4,000)

phase 3: in this final phase the full price potential should be reached (€ 5,000);

based on the experience from the first two phases the product (villas) could be

optimised in terms of size and number of units offered

34

5 Forecast

5.1 General

5.1.1 Systematics

The financial forecast used in this study is based on the standard work Uniform

System of Accounts for the Lodging Industry (USALI, Tenth Revised Edition). Ac-

cording to the therein included requirements, this financial forecast is struc-

tured by operating departments.

All amounts displayed are net amounts excluding value-added tax. All data pro-

vided refer to – unless otherwise noted – a so-called stabilised year, i.e. the first

year after a period of rate and occupancy increases and other adjustments on

the price basis 2014 (that is regardless of inflation).

The financial forecast depends partly upon assumptions. The forecasted income

reflects the, in our opinion, most likely future development from today’s point of

view. External circumstances such as economic crises may have a considerable

impact on the financial performance.

The stated values are partly subject to rounding. In some cases, rounding dif-

ferences may apply since calculations were conducted upon exact figures, but

rounded figures are displayed.

The report at hand closes with the adjusted net operating income, which is the

net operating income minus assumed replacement reserves (see 5.6

Replacement reserves). It does not take into account the following positions,

which depend on financing and investment:

interest expense

depreciation and amortization

loss or gain on the disposition of assets

income taxes

5.1.2 Timeline

The financial forecast reflects a so-called stabilised year (see Annex 1.1) as well

as the first ten years of operations (2016 to 2025; see Annex 1.2), whereas the

first four operating years (2016 to 2019) were partly forecasted individually,

and the following years (2020 to 2025) were projected on the basis of the values

of the year 2019 and taking into account an annual inflation rate of 2 %. Please

note that the forecast for a representative year is based on 365 days.

35

5.1.3 Parameters

For the financial forecast we assumed the following parameters:

price basis: year 2014

inflation: 2 % per annum (basis: estimate by PKF hotelexperts)

opening date: 1 July 2016 (basis: estimate by PKF hotelexperts)

number of keys: 200

positioning: four star superior (according to PKF, bases on international

standards)

management: international hotel management company and brand (e.g.

Radisson Blu, Sofitel, Maritim)

ramp-up phase (the period after opening during which rate, occupancy, and re-

newal reserves might change beyond inflation): four years/2016 to 2019 (basis:

estimate by PKF hotelexperts)

stabilised year: 2020 = first full business year at the end of the ramp-up phase

and at the – theoretically-assumed – end of the increases of payroll and related

expenses during the forecasting period; on the price basis of 2014 (without

consideration of inflation)

5.2 Operated departments

5.2.1 Rooms

The calculation of the departmental income of the rooms department is based

on the following assumptions:

room occupancy: 45 % in the first operating year, 49 % in the second operating

year, 51 % in the third operating year and 53 % from the fourth operating year

on

average net room rate: € 180 (on the price basis 2014)

revpar: € 95.40 (on the price basis 2014)

payroll and related expenses: approximately 14 % of departmental revenue in

the first operating year and approximately 12 % of departmental revenue from

the second operating year on

other expenses: approximately 10 % of departmental revenue in the first

operating year and approximately 9 % of departmental revenue from the second

operating year on

36

5.2.2 Food and beverage

According to our forecast and based on our recommendations for the gastro-

nomic concept, food and beverage income is based on the following

assumptions:

revenue: approximately 29 % of total net revenue from the first operating year

on (except for the years 2017 and 2018; approximately 28 %)

cost of sales: approximately 30 % of departmental revenue in the first operating

year, approximately 29 % of departmental revenue in the second operating

year, approximately 28 % of departmental revenue in the third operating year

and approximately 27 % of departmental revenue from the fourth operating year

on

payroll and related expenses: approximately 18 % of departmental revenue in

the first operating year, approximately 17 % of departmental revenue in the

second and third operating year and approximately 16 % of departmental

revenue from the fourth operating year on

other expenses: approximately 10 % of departmental revenue in the first and

second operating year and approximately 9 % of departmental revenue from the

third operating year on

5.2.3 Other operated departments

Among the other operated departments are telecommunication, the wellness

and spa centre, and a 18-hole golf course. The income from the operated

departments is based on the following assumptions:

revenue: approximately 18 % of total net revenue in the first operating year and

approximately 17 % of total net revenue from the second operating year on

cost of sales: approximately 5 % of departmental revenue in the first and

second operating year and approximately 4 % of departmental revenue from the

third operating year on

payroll and related expenses: approximately 30 % of departmental revenue in

the first operating year, approximately 26 % of departmental revenue in the

second operating year, approximately 24 % of departmental revenue in the third

operating year and approximately 21 % of departmental revenue from the fourth

operating year on

other expenses: approximately 28 % of departmental revenue in the first

operating year, approximately 24 % of departmental revenue in the second

operating year, approximately 22 % of departmental revenue in the third

operating year and approximately 20 % of departmental revenue from the fourth

operating year on

37

5.2.4 Rentals and other income

The calculation of rentals and other income for the assumed shop is based on

the following parameters:

income from rentals: € 15 per sq m/month (about 30 sq m)

cost of sales, personnel costs and other costs have not been accounted for

5.3 Undistributed operating expenses

The calculation of undistributed operating expenses is based on the following

assumptions (estimate by PKF hotelexperts):

administrative and general: approximately 10 % of total net revenue in the first

operating year, approximately 9 % of total net revenue in the second operating

year and approximately 8 % of total net revenue from the third operating year

on

sales and marketing: approximately 8 % of total net revenue in the first

operating year, approximately 7 % of total net revenue in the second operating

year and approximately 6 % of total net revenue from the third operating year

on

property operation and maintenance: approximately 5 % of total net revenue in

the first, second and third operating year and approximately 4 % of total net

revenue from the fourth operating year on

utilities: approximately 7 % of total net revenue in the first operating year and

approximately 6 % of total net revenue from the second operating year on

5.4 Miscellaneous

management fees

Since the hotel will be managed by a third party (hotel group), we included a

line item called management fees in our forecast in order to provide for the

remuneration for the operator. We assumed the following management fees:

base fee in the amount of 3 % of total net revenue and incentive fee in the

amount of 10 % of adjusted gross operating profit (i.e. 7 % of total net revenue

from the third year on).

rent, property and other taxes, and insurance

We assumed property taxes and insurances to amount to approximately 2 % of

total net revenue. This amount has to be reviewed once the project is

implemented.

38

replacement reserves

Besides regular repair and maintenance costs, the hotel will require larger

investments for the replacement and renewal of ff&e. We assumed that a

replacement reserve for ff&e will be funded on a yearly basis in the amount of

1 % of total net revenue in the first operating year, 2 % of total net revenue in

the second operating year, 3 % of total net revenue in the third operating year,

4 % of total net revenue in the fourth operating year and 5 % of total net

revenue from the fifth operating year on; for the building, no reserve was

assumed.

5.5 Key figures development

The development of the gross operating profit over the forecasting period (2016

to 2025) is displayed in the following chart:

Chart 20 Gross operating profit development

total Σ

Ø

notes 1) of total revenue © PKF hotelexperts

source: internal calculations

%1) € '000s

undistribut. operating exp. gross operating profit

%1)€ '000s

1,601 30 1,548 29

3,277 26 4,607 37

3,373 25 5,266 40

revenue exp. operated departm.

€ '000s € '000s %1)

2016 1 5,332 2,182 41

2017 2 12,402 4,518 36

2018 3 13,304 4,665 35

2019 4 14,254 4,811 34 3,471 24 5,972 42

2020 5 14,579 4,921 34 3,550 24 6,108 42

2021 6 14,830 5,006 34 3,611 24 6,213 42

2022 7 15,127 5,106 34 3,684 24 6,337 42

2023 8 15,429 5,208 34 3,757 24 6,464 42

2024 9 15,781 5,327 34 3,843 24 6,611 42

2025 10 16,053 5,418 34 3,909 24 6,725 42

137,091 47,163 x 34,077 x 55,851 x

4113,709 4,716 34 3,408 25 5,585

39

Summarising, the following chart gives an overview over the development of the

financial key figures (occupancy, net room rate, revenue, gross operating profit

and adjusted net operating income) over the forecasting period (2016 to 2025):

Chart 21 Key figures and ratios development

total Σ

Ø

notes 1) of total revenue © PKF hotelexperts

source: internal calculations

%1) € '000s

gross operating profit adjusted net operating inc.

%1)€ '000s

1,548 29 927 17

4,607 37 3,289 27

5,266 40 3,701 28

key ratios (per room) revenue

occupancy net rate

% € € '000s

2016 1 45 169 5,332

2017 2 49 191 12,402

2018 3 51 195 13,304

2019 4 53 199 14,254 5,972 42 4,134 29

2020 5 53 203 14,579 6,108 42 4,084 28

2021 6 53 207 14,830 6,213 42 4,153 28

2022 7 53 211 15,127 6,337 42 4,236 28

2023 8 53 215 15,429 6,464 42 4,321 28

2024 9 53 219 15,781 6,611 42 4,420 28

2025 10 53 224 16,053 6,725 42 4,495 28

x x 137,091 55,851 x 37,762 x

2852 205 13,709 5,585 41 3,776

40

6 Valuation

6.1 Methodology

The calculated values are determined based on the internationally accepted dis-

counted cash flow (DCF) method and in compliance with the International and

European Valuation Standards (IVS and EVS).

The valuation of projected cash flows related to commercial real estate with a

useful life of more than 40 years is conducted in two steps. The first ten oper-

ating years following the opening of the hotel (2016 to 2025) are forecasted in-

dividually for each operating year. The cash flows after the tenth operating year

(from 2026 onwards) are reflected through the theoretic accrual of an amount

of capital which would be capable of generating a perpetuity based on a market-

driven capitalisation rate. These assumptions are based on the condition that

the property will be maintained to a reasonable standard and in accordance

with market requirements.

The relevant discount and capitalisation rates have been determined as follows:

Chart 22 Discount and capitalisation rates

base rate 4.20 4.20

risk premium 5.30 5.30

growth adjustment - -2.00

discount/capitalisation rate 9.50 7.50

multiplier 10.53 13.33

source: PKF hotelexperts

© PKF hotelexperts

discount rate

for cash flows

capitalisation rate

for perpetuity

% %

According to the Guidance Note GN6 of the 8th Edition of the International Valuation

Standards (2007), the discount and capitalisation rates are derived from the mar-

ket and are expressed as a price multiple (derived from data on publicly traded busi-

nesses or transactions) or an interest rate (derived from data on alternative invest-

ments).

Based on this standard, the base rate corresponds to a (quasi) risk-free long-

term financial investment on the capital market. We refer to the average yield of

Croatian governmental bonds with a maturity of ten years which amounted to

approximately 4.2 % in 2014 (source: OENB).

The determination of the risk premium distinguishes between general criteria,

i.e. principal entrepreneurial factors, and property-related criteria. The property-

related risk factors refer to the location, the specific positioning of the property

in the market, object related issues as the standard of the FF&E but also the

operating agreement as well as the quality of the cash flows (cost structure,

etc). Those risk criteria have partially also been reflected in the cash flow pro-

41

jection. The market-driven risk premium accounts for general entrepreneurial

risks related to investments in commercial real estate, considering location,

standard of the building, as well as the property’s image.

The growth adjustment refers to the capitalisation rate applied in the determi-

nation of a virtual amount of capital required for perpetuity in the amount of the

cash flow achieved in the tenth operating year. As it is assumed that the annual

cash flow will continue to grow in the operating period after 2026, it is deemed

adequate to reduce the capitalisation rate applied in the determination of the

present value of the perpetuity compared to the discount rate related to the in-

dividually forecasted cash flows. This growth adjustment ranges between 1.5

and two percentage points.

6.2 Parameters of the valuation

The projected cash flows serve as the basis for this valuation. The underlying

forecasts are based on the standard work Uniform System of Accounts for the

Lodging Industry (USALI, Tenth Revised Edition).

A considerable part of this valuation relies on assumptions. The projected re-

sults and the valuation reflect the most likely future development according to

our opinion only. External circumstances such as economic crises may have a

considerable effect on the result.

Please note that the figures mentioned in this report are partially rounded fig-

ures. In some cases deviations may occur since the calculation is based on ex-

act figures, but only rounded figures are depicted in the report.

The valuation is based on the following underlying assumptions:

valuation date: 1 January 2015

inflation: 2 %

type of contract: management agreement

6.3 Value

The values were calculated on the basis of the projected cash flows for 2016 to

2025. The cash flows and the perpetuity were discounted to 1 January 2015.

Depreciation and amortization, financing costs and income taxes as well as any

other non-relevant operating costs or non-cash items were not taken into con-

sideration. Furthermore, we did not account for any possible transactions costs

(such as commissions, real estate transfer tax, etc). Please note that also the

structure of the deal may influence the value of the valuation (i.e. if financing is

secured by debt or equity).

42

The following chart shows a summary of the calculation of the capitalised earn-

ings value:

Chart 23 Present value of the hotel component including golf course

year cash flows perpetuity total discount rate value as of

cash flows 1 January 2015

€ '000s € '000s € '000s factor € '000s

2016 927 927 0.9556 886

2017 3,289 3,289 0.8727 2,871

2018 3,701 3,701 0.7970 2,950

2019 4,134 4,134 0.7279 3,009

2020 4,084 4,084 0.6647 2,714

2021 4,153 4,153 0.6070 2,521

2022 4,236 4,236 0.5544 2,348

2023 4,321 4,321 0.5063 2,188

2024 4,420 4,420 0.4624 2,044

2025 4,495 4,495 0.4222 1,898

59,940 59,940 0.4222 25,309

capitalised earnings value 48,739

assumed investment 40,930

present value 7,809

capitalised earnings value per room 39

discount rate for cash flows 9.50%

capitalisaton rate for perpetuity 7.50%

© PKF hotelexperts

source: PKF hotelexperts

The following chart shows a summary of the calculation of the capitalised earn-

ings value of the residential villas:

Chart 24 Present value of the residential villas

year cash flows perpetuity total discount rate value as of

cash flows 1 January 2015

€ '000s € '000s € '000s factor € '000s

2016 12,000 12,000 0.9645 11,574

2017 24,000 24,000 0.8972 21,533

2018 20,000 20,000 0.8346 16,692

sum of present values/discounted cash flow value 49,799

assumed investment1) 33,100

present value 16,699

present value per villa 239

discount rate for cash flows 7.50%

notes 1) excluding infrastructural development costs (i.e. water, power, © PKF hotelexperts

drainage, roads, etc)

source: PKF hotelexperts

43

Based on the above-mentioned analysis and our experience in the valuation of

hotel and residential properties, the present value of the development as of

1 January 2015 amounts to about € 24.5 m.

6.4 Statement of assumptions and conditions

The information and results contained in this valuation report are subject to the

following assumptions and conditions:

We have not undertaken any environmental investigation or audit nor have we

investigated the subsoil and structures. We are not aware of the content of any

such environmental investigation or audit or any survey of the subsoil and struc-

tures which might have been carried out in the past. Also, we have not re-

searched previous uses of the property or of any neighbouring properties and

land. Therefore, we are not able to report on whether there is the risk of poten-

tial contamination from these uses or adjacent sites and thus our report is

based on the assumption that there is no contamination on the site. We are not

aware of any and therefore have assumed that there are no archaeological re-

mains on the property, which might adversely affect the value of the property.

We have not investigated if any hazardous materials or potentially hazardous

materials or techniques will be used in the construction, replacement or

maintenance of the building such as asbestos. We are therefore not able to give

assurance that the future property is free from any risk in this respect.

We assume that the future development is of good construction and free from

inherent damages or defects. We have not carried out any surveys or

inspections of foreseen equipment and therefore assume that they will be of

good safety, adequacy and efficiency and that they will comply with the legal

norms and laws.

We do not take any responsibility for legal matters regarding the title of the

future property. We have not examined all deeds, titles, leases or other

documents relating to the property and land. We therefore assume that the title

of the property and land is freely marketable. Also, we have assumed that there

are no court decisions pending regarding the title of the property or land.

We assumed that the buildings will be constructed in accordance with the

necessary planning permissions and that the buildings comply with all statutory

and local authority requirements and all fire and building regulations. We have

assumed that the future building is not subject to any encroachments or

planning and building violations.

We assumed that the property will possess all legally required licences, permits

and certificates and that the property will fully complies with all legally required

laws, regulations, codes and licences.

We have assumed that all information and documents we received from the cli-

ent, representatives and employees of the client, representatives and employees

of the owner, and any other third parties in the course of this assignment is true

and fully reliable. We do not take any liability for any misinformation we have

received.

44

We have not assumed any mortgages, liens or encumbrances on the property.

We assume that the worldwide and local economic conditions and local hotel

market conditions remain or will develop as mentioned in our report. We do not

take any responsibility for any events or circumstances or changes of worldwide

or local economic and market conditions which take place after the date of our

market research and which might have an adverse affect on the value of the

property.

We have relied on the assumption that the property will be managed by a

competent well-known international hotel group with a strong brand name. Any

variance from this assumption may have a significant impact on the forecasted

operating results and the value.

We have not considered the value of any fine art or antiques or similar items in

the future hotel.

Nothing contained in this report is to be construed as a representation or war-

ranty of any kind.

This report may not be reproduced in whole or in part without the prior written

approval of the contractor.

This report may only be used in whole and not in part.

This report is subject to the General Terms and Conditions of Doing Business,

which are attached in the annex 2.

composition of revenue operating days #

rooms #

room occupancy %

net room rate €

revpar/yield €

rooms

food and beverage

other operated departments

rentals and other income

total revenue

calculation of income rooms net revenue

payroll and related expenses

other expenses

rooms departmental income

food and beverage net revenue

cost of sales

payroll and related expenses

other expenses

food and beverage departm. inc.

other operated departm. net rev.

cost of sales

payroll and related expenses

other expenses

other departmental income

rentals and other income

total departmental income

administrative and general

sales and marketing

property operation and mainten.

utilities

undistribut. operating expenses

gross operating profit

management fees

income before fixed charges

rent

property and other taxes

insurance

total fixed charges

net operating income

replacement reserves

adjusted net operating income

© PKF hotelexperts

source: PKF hotelexperts

key r

ati

os

129 1

4,261 33

3,616 28

889 7

258 2

5,409 42

646 5

574 4

129 1

765 6

4,519 35

775 6

3,144 24

0 0

8,553 66

1,030 8

1,227 10 55

5 0

477 21

438 20

2,238 100

96 4

1,784 14 48

592 16

333 9

3,703 100

993 27

627 9

5,536 43 79

6,964 100

802 12

5 0

12,911 100

App.

1.1

App. 1.1 Financial forecast for a representative year (Histria Fecunda)

representative year

95.40

365.00

200.00

53.00

180.00

price basis 2014

€ '000s % %

2,238 17

6,964 54

3,703 29

App. 1.2 Financial forecast for the years 2016 to 2025 (Histria Fecunda)

€ '000s % % € '000s % % € '000s % % € '000s % % € '000s % % € '000s % % € '000s % % € '000s % % € '000s % % € '000s % %

operating days #

rooms #

room occupancy %

net room rate €

revpar/yield €

rooms 2,806 53 6,833 55 7,254 55 7,689 54 7,864 54 8,000 54 8,160 54 8,323 54 8,513 54 8,659 54

food and beverage 1,572 29 3,467 28 3,767 28 4,088 29 4,181 29 4,253 29 4,338 29 4,425 29 4,526 29 4,604 29

other operated departments 950 18 2,096 17 2,277 17 2,471 17 2,528 17 2,571 17 2,623 17 2,675 17 2,736 17 2,783 17

rentals and other income 3 0 6 0 6 0 6 0 6 0 6 0 6 0 6 0 7 0 7 0

total revenue 5,332 100 12,402 100 13,304 100 14,254 100 14,579 100 14,830 100 15,127 100 15,429 100 15,781 100 16,053 100

rooms net revenue 2,806 100 6,833 100 7,254 100 7,689 100 7,864 100 8,000 100 8,160 100 8,323 100 8,513 100 8,659 100

payroll and related expenses 391 14 819 12 851 12 885 12 905 12 921 12 939 12 958 12 980 12 997 12

other expenses 286 10 620 9 655 9 692 9 708 9 720 9 734 9 749 9 766 9 779 9

rooms departmental income 2,130 40 76 5,394 43 79 5,747 43 79 6,112 43 79 6,251 43 79 6,359 43 79 6,486 43 79 6,616 43 79 6,767 43 79 6,883 43 79

food and beverage net revenue 1,572 100 3,467 100 3,767 100 4,088 100 4,181 100 4,253 100 4,338 100 4,425 100 4,526 100 4,604 100

cost of sales 468 30 998 29 1,046 28 1,096 27 1,121 27 1,140 27 1,163 27 1,186 27 1,213 27 1,234 27

payroll and related expenses 289 18 605 17 629 17 654 16 669 16 680 16 694 16 708 16 724 16 736 16

other expenses 157 10 335 10 351 9 368 9 376 9 383 9 390 9 398 9 407 9 414 9

food and beverage departm. inc. 658 12 42 1,530 12 44 1,741 13 46 1,970 14 48 2,015 14 48 2,050 14 48 2,091 14 48 2,133 14 48 2,181 14 48 2,219 14 48

other operated departm. net rev. 950 100 2,096 100 2,277 100 2,471 100 2,528 100 2,571 100 2,623 100 2,675 100 2,736 100 2,783 100

cost of sales 45 5 97 5 101 4 106 4 108 4 110 4 112 4 115 4 117 4 119 4

payroll and related expenses 285 30 546 26 538 24 527 21 539 21 548 21 559 21 571 21 584 21 594 21

other expenses 261 28 500 24 493 22 483 20 494 20 503 20 513 20 523 20 535 20 544 20

other departmental income 359 7 38 954 8 46 1,145 9 50 1,355 10 55 1,386 10 55 1,410 10 55 1,438 10 55 1,466 10 55 1,500 10 55 1,526 10 55

rentals and other income 3 0 6 0 6 0 6 0 6 0 6 0 6 0 6 0 7 0 7 0

total departmental income 3,149 59 7,884 64 8,638 65 9,443 66 9,658 66 9,824 66 10,021 66 10,221 66 10,454 66 10,634 66

administrative and general 531 10 1,076 9 1,106 8 1,137 8 1,163 8 1,183 8 1,207 8 1,231 8 1,259 8 1,280 8

sales and marketing 404 8 809 7 827 6 845 6 864 6 879 6 897 6 915 6 935 6 951 6

property operation and mainten. 289 5 600 5 617 5 634 4 649 4 660 4 673 4 686 4 702 4 714 4

utilities 378 7 791 6 823 6 855 6 875 6 890 6 908 6 926 6 947 6 963 6

undistribut. operating expenses 1,601 30 3,277 26 3,373 25 3,471 24 3,550 24 3,611 24 3,684 24 3,757 24 3,843 24 3,909 24

gross operating profit 1,548 29 4,607 37 5,266 40 5,972 42 6,108 42 6,213 42 6,337 42 6,464 42 6,611 42 6,725 42

management fees 299 6 796 6 886 7 982 7 1,004 7 1,022 7 1,042 7 1,063 7 1,087 7 1,106 7

income before fixed charges 1,249 23 3,811 31 4,380 33 4,990 35 5,103 35 5,191 35 5,295 35 5,401 35 5,524 35 5,619 35

rent 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

property and other taxes 67 1 137 1 140 1 143 1 145 1 148 1 151 1 154 1 157 1 161 1

insurance 67 1 137 1 140 1 143 1 145 1 148 1 151 1 154 1 157 1 161 1

total fixed charges 134 3 274 2 279 2 285 2 291 2 297 2 303 2 309 2 315 2 321 2

net operating income 981 18 3,537 29 4,100 31 4,705 33 4,813 33 4,895 33 4,993 33 5,092 33 5,209 33 5,298 33

replacement reserves 53 1 248 2 399 3 570 4 729 5 742 5 756 5 771 5 789 5 803 5

adjusted net operating income 927 17 3,289 27 3,701 28 4,134 29 4,084 28 4,153 28 4,236 28 4,321 28 4,420 28 4,495 28

notes 1) annual inflation: 2 % © PKF hotelexperts

source: PKF hotelexperts

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

7 8 9 101 2 3 4 5 6

111.78 114.01 116.29 118.6275.85 93.60 99.37 105.33 107.44 109.58

185.00 365.00 365.00 365.00 366.00 365.00 365.00 365.00 366.00 365.00

200.00 200.00 200.00 200.00200.00 200.00 200.00 200.00 200.00

45.00 49.00 51.00 53.00 53.00 53.00 53.00 53.00

200.00

53.00 53.00

198.73 202.71 206.76

revenue

incom

e

1.2App.

key r

ati

os

210.90 215.12 219.42 223.81168.54 191.02 194.84

App.

2

General Terms and Conditions for Management Consultants - 2012 Edition

§ 1 General Terms and Conditions/Scope

(1) All legal transactions between the Principal and the

Agent (Management Consultant; MC) shall be subject to

these General Terms and Conditions exclusively. The ver-

sion valid at the time the Contract is concluded shall be

applicable.

(2) These General Terms and Conditions shall also apply to

any future contractual relationships even if these General

Terms and Conditions are not expressly referred to in

collateral contracts.

(3) Any conflicting General Terms and Conditions on the

part of the Principal shall be invalid unless they have been

explicitly accepted in writing by the Agent (MC).

(4) If any provision of these General Terms and Conditions

is or becomes invalid, the other provisions and any con-

tracts concluded pursuant to these provisions shall not be

affected thereby. The invalid provision shall be replaced by

a provision which best corresponds to the intention and

economic purpose of the invalid provision.

§ 2 Scope of Consulting Assign-ments/Representation

(1) The scope of each particular consulting assignment

shall be individually agreed by contract.

(2) The Agent (MC) shall be entitled to subcontract, in

whole or in part, the services for which the Agent is re-

sponsible to third parties. Payment of said third parties

shall be effected exclusively by the Agent (MC). No contrac-

tual relationship of any kind shall exist between the Princi-

pal and said third party.

(3) During the validity of this Contract and for a period of

three years after termination thereof, the Principal shall

agree not to enter into any kind of business transactions

with persons or organisations the Agent (MC) employs to

perform the Agent’s contractual duties. In particular, the

Principal shall not employ said persons or organisations to

render consulting services the same or similar to those

offered by the Agent (MC).

§ 3 Principal’s Obligation to Provide Informa-

tion/Declaration of Completeness

(1) The Principal shall ensure that during the performance

of the consulting assignment, organisational conditions in

the Principal’s place of business allow the consulting

process to proceed in a timely and undisturbed manner.

(2) The Principal shall also inform the Agent (MC) in detail

about previously conducted and/or currently active con-

sulting projects, including those in other areas of compe-

tency.

(3) The Principal sha