H1 | 2017

HOTEL MARKET OVERVIEW

TRANSFORMING REAL ESTATE INTO REAL ADVANTAGE

2015

2016

38%

44%

2015

2016

55%

66%

2015

2016

57%

67%

Sofia city Burgas region Varna Region

Annual revenue in the high-end segment

Occupancy

ADR RevPaR

HOTEL HOTEL&

10%

20%

30%

40%

10%

20%

30%

40%

up

19%up

18%up

19%up

37%up

40%up

41%

0% 10% 20%

up 12% y-o-y

up 24% y-o-y

up 26% y-o-y

54mln.

156mln.

113mln.

HOTEL MARKET OVERVIEWH1 | 2017

Source: Na�onal Sta�s�cal Ins�tute

Varna/Busy Season/

Burgas/Busy Season/

Sofia/All-Year/

120

110

100

80

90

130

140

150

20132012 2014 2015 2016

ADR INDEX, 4* & 5* HOTELS (2012=100)

Source: Na�onal Sta�s�cal Ins�tute

Varna/Busy Season/

Burgas/Busy Season/

Sofia/All-Year/120

110100

8090

130140150160170180

20132012 2014 2015 2016

REVPAR INDEX, 4* & 5* HOTELS (2012=100)

Source: Na�onal Sta�s�cal Ins�tute

Varna/Busy Season/

Burgas/Busy Season/

Sofia/All-Year/

40%

35%

30%

45%

50%

55%

60%

65%

70%

20132012 2014 2015 2016

OCCUPANCY RATE, 4* AND 5* HOTELS (%)

CONSTRUCTION ACTIVITY The construction activity in the high-end hotel segment has not been particularly high in last two years. The largest completed project is the 600-room RIU Helios Paradise hotel in Sunny Beach, which opened in May 2015, and where the investor Terra Tour Service invested approximately EUR 50 mln. The company also invests in the largest project under construction at the moment - the Hyatt Regency Hotel in Sofia. The investment in the five-star hotel amounts to EUR 30 mln. for a total of 190 rooms and the investor is said to have concluded a deal with Hyatt for a period of 30 years.A new project to open doors in June 2017 is the four-star Grami Hotel located in Sofia’s Mladost district. It is part of the Grami complex on Aleksandar Malinov Blvd., which comprises residential units and an unfinished office building. Another highlight for the hotel market in Sofia is the ongoing renovation in Radisson Blu, which will be rebranded as InterContinental Hotel in 2017. 40 new rooms are expected to open and thus increase the capacity to 180.Apart from the hotels already under construction, there are some notable proposed projects. In 2016 the currently non-operational Grand Hotel Bulgaria was sold for an indicative price of EUR 10 mln.

MARKET HIGHLIGHTS

Six out of the seven selected major five-star hotels in Sofia recorded an increase in revenue for 2015 with the highest growth observed

for Radisson Blue, which records a 17% increase in sales revenue. Since the average occupancy rate for higher segment hotels in Sofia

between 2014 and 2015 is stable at ca. 40%, the main driver for the revenue growth is the higher accommodation rates.The publicly traded tourism companies related to the major seaside resorts, report different results in terms of revenue. Albena records a double-digit growth in annual sales, while St. Konstantin and Elena is rather stable. Golden Sands, on the other hand, reports a considerable drop in revenue due to non-core income items.The accommodation prices in four and five-star hotels in the city of Sofia and Burgas and Varna regions have grown since last year. Seaside top hotels are priced higher than their counterparts in Sofia on a BB basis. For the city of Sofia, the Average Daily Rate (VAT excl.) is in the range of EUR 75-150 for the four-star and EUR 114-174 for the five-star category. The rate for Burgas Region (for the month of July) is in the range of EUR 68-96 for the four-star and EUR 116-218 for the five-star accommodation establishments. As for Varna Region, the Average Daily Rate varies between EUR 56-93 for the four-star and EUR 127-214 for the five-star hotels.

The number of foreign citizens who visited Bulgaria in 2016 increases with regard to both holiday (20% annual increase) and business travels (19% annual increase). This positive trend could be explained by a couple of factors. The unfavorable events in Turkey, Egypt and Tunisia

HOTEL MARKET OVERVIEWH1 | 2017

* selected sample; Source: booking.com

Four-star

Five-star

100

75

50

125

150

175

200

225

250

Sofia Burgas Varna

ADR, 4* & 5* HOTELS (EUR)

2012 2013 2014 2015 2016Source: Na�onal Sta�s�cal Ins�tute

Vaca�on

Business

Other

3.2

1.0

4.6

3.3

1.0

4.9

3.7

1.2

4.5

3.9

1.2

4.3

4.1

1.4

5.1

FOREIGN CITIZENS VISITED BULGARIA (MLN. ARRIVALS)

The investment plan of the new owner includes a contract with a 5-star brand and a renovation to be made by the end of 2018, including a construction of one additional floor. The total amount of the investment is expected in the range of EUR 10-15 mln.Another announced project is

Markan’s plan for a hotel on Todor Aleksandrov Blvd., separated between the brands Novotel and Ibis and operated by the Polish company Orbis. The four-star Novotel will offer 150 rooms, while the three-star Ibis is planned to have 100 rooms. The project is next to the entrance of Opalchenska

metrostation and the planned investment is EUR 20 mln.Furthermore, a five-star hotel is expected to be launched in 2019, as part of Millennium Center on Vitosha Blvd. The hotel is expected to receive a renowned brand and offer approximately 350 rooms and 20 apartments.

The positive outlook of the Bulgarian economy continued in Q1 2017 as GDP increased by 3.4% y-o-y and 0.8% on a quarterly basis. After a period of deflation, expressed by a negative Consumer Price Index (CPI) for 2016, Q1 2017 marks

a three-month period of 1.7% average inflation in Bulgaria. The average unemployment rate for Q1 2017 was 6.9%, which corresponds to 224 thousand unemployed people of working age. On a y-o-y basis, this number decreases by

55 thousand people, which is equivalent to a decrease of 1.7 percentage points. In Q1 2017, Bulgaria had a positive Foreign Direct Investment (FDI) flow of EUR 98.9 million compared to EUR 701.7 million in Q4 2016 and EUR 371.3 million in Q1 2016.

ECONOMIC HIGHLIGHTS

PERFORMANCE ANALYSIS

TRENDS IN TOURISM

HotelRevenues 2015

(EUR '000)Revenues 2014

(EUR '000) Change

Sofia Hotel Balkan 8,886 8,978 -1%

Hilton 7,840 7,411 6%

Marinela VG 7,451 6,765 10%

Radisson Blu 5,685 4,876 17%

Grand Hotel Sofia 5,318 5,166 3%

Sense 3,965 3,460 15%

Holiday Inn 2,934 2,654 11%

source: Commercial register

source: Commercial register

Listed CompanyRevenues 2016

(EUR ‘000)Revenues 2015

(EUR ‘000)Change

Albena JSC 54,783 48,489 13%

Golden Sands JSC 16,203 22,185 -27%

St. Konstantin and Elena JSC 9,307 9,137 2%

HOTEL MARKET OVERVIEWH1 | 2017

Rosen Grigorov, CFA Deputy Manager Advisory Services and Valuations T: +359 2 9888 650 T: +359 2 9888 651 M: +359 888 222419E: rgrigorov@mbl.bg

CONTACT INFORMATION:

MBL1 Kuzman Shapkarev Str.Sofia 1000, BulgariaT: +359 2 9888 650T: +359 2 9888 651E: office@mbl.bgwww.mbl.bg

Georgi Dimitrov MRICS DirectorAdvisory Services and ValuationsT: +359 2 9888 650T: +359 2 9888 651M: +359 886 292 081E: gdimitrov@mbl.bg

This research report has been prepared for general information only. The data herein was obtained from various sources; we do not guarantee its accuracy or completeness.

© 2017 MBL. All rights reserved. Any unauthorized use or disclosure is prohibited.

The Bulgarian real estate investment market continued its positive trend across all market segments throughout 2016. The investment activity was the highest since 2011, with total trading volume reaching well above 100 million euro. During 2016 the main market driver was the retail segment, drawing the interest of larger institutional buyers back to the Bulgarian market. Among the transacted properties were the Mall of Plovdiv and Retail Park Plovdiv. The hotel segment also enjoyed some increased liquidity, with transactions including the Downtown Hotel, Grand Hotel Bulgaria and Katarino SPA Hotel during the third quarter of year.It is expected that the availability of investment-grade assets, the increased buy-side enthusiasm from institutional buyers and the

consistently improving lending terms will have a continued positive effect on the Bulgarian

market and will ensure an increasing number of larger real estate transactions in 2017.

TRANSACTIONS

are a key driver for the increase in the number of tourists choosing Bulgaria as a summer destination, while Sofia benefits from the new flight lines

launched by low-cost carriers such as Wizz Air and Ryanair. The increase in business travels might be assumed as a result of improving business activity

in Sofia and other large regional cities, and might be expected to continue with the Bulgarian Presidency of the Council of the EU in 2018.

Despite the conservative Bulgarian market, Airbnb is gaining popularity, especially among foreign visitors in the country (more particularly in Sofia). As of June, the online platform offers 306 accommodations in Sofia, with

approximately 600 beds available. The average accommodation price amounts to EUR 36, with the lowest offer being EUR 10 and the highest exceeding EUR 500. Even though no specific occupancy data for the service is available, with an

occupancy rate of 44% (the average for four and five-star hotels in Sofia for 2016), Airbnb would generate about 87,600 overnights a year. This would imply a 7.5% market share of the overall market for accommodation in Sofia.

A POTENTIAL COMPETITOR – AIRBNB.COM

Hotel Year Buyer SellerDeal size

(MEUR)Rooms

Price per key (EUR)

Grifid Encanto Beach Obzor 2016 Grigor Fidanov Hermes Tour 15.9 509 31,139

Grand Hotel Bulgaria 2016 Sofstok Invest PFHC Ltd. 10.0 90 111,111

Katarino SPA Resort 2016 Hidroenergiyna

Kompania Cibank 5.1 160 31,956

Downtown Hotel 2016 Perla Tourist

Invest Joli AD 2.0 59 33,898

VG Marinela 2014 Victoria Group (V.Arabadzhiev)

Zografski Family 45.0 442 101,810

Rodina 2014 Duni AD Rodina Tourist 12.8 471 27,138

source: Commercial register