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Stara Planina Mountain Resort 1A Phase Apple Plateau Business Plan Draft

This business plan draft outlines the development of the Stara Planina Mountain Resort, a priority tourism project in Serbia. The project includes all-season facilities and activities aimed at changing the approach to resort development in the country.

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Stara Planina Mountain Resort 1A Phase Apple Plateau Business Plan Draft

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  1. STARA PLANINA MOUNTAIN RESORT 1A PHASE APPLE PLATEAU - BUSINESS PLAN Draft Belgrade, 19th May 2010 Client: Public Company Stara planina, Belgrade

  2. CONTENT • INTRODUCTION........................................................................................................................3 • PROJECT CONTEXT.................................................................................................................5 • 1A PHASE APPLE PLATEAU...................................................................................................9 • FACILITY PROGRAM..............................................................................................................18 • MARKET ANALYSIS................................................................................................................21 • 5.1. Mountain destinations in Serbia - Tourism..........................................................................................................22 • 5.2. Real estate market in Serbia...............................................................................................................................29 • FINANCIAL PROJECTIONS AND EVALUATION....................................................................36 Content 2

  3. 1. INTRODUCTION 1. Introduction 3

  4. INTRODUCTION Mountain resort Stara planina development represents a priority tourism project of the Government of the Republic of Serbia. As such, the project has been developing according to the international planning and development standards in the mountain resort development process. From the very beginning, the subject project is referring to all-season resort, including facilities and activities which would enable business operations of the resort throughout the year. Stara planina resort is a “break-through” project which will change inherited and outdated approach to resort concept development in Serbia, by applying up-to-date planning standards and global “rules of the game” in tourism projects development. Supported by the Decree of the Government of the Republic of Serbia on Stara planina mountain resort tourism development program, Stara planina tourism development Master plan, Stara planina Nature park area spatial plan, Plan of detailed regulation of 1A phase of tourist resort Apple Plateau, the Ministry of Economy and Regional Development and Public company Stara planina have made decision to initiate resort development with 1A Phase of the central village Apple Plateau on Stara planina intended for hotels and tourist apartments development. Accordingly, the 1A Phase Apple Plateau Urban planning project, referring to the parcels 10 and 10A, has been developed by the Institute for Architecture and Urbanism of Serbia and subsequently adopted, representing a foundation for building permit issuance. The assignment of Horwath HTL is to perform a business plan in order to evaluate market potential and financial performance of 1A Phase Apple Plateau. Inputs for business plan are taken from the 1A Phase Apple Plateau Urban planning project referring to 9 hotels/condotels located on parcels 10 and 10A in the ownership of the Government of the Republic of Serbia. The purpose of this business plan is to give comprehension to the Government of the Republic of Serbia regarding expected business performance of its own investment and serve as a framework for negotiations with other potential investors to the 1A Phase Apple Plateau resort. 1. Introduction 4

  5. 2. PROJECT CONTEXT 2. Project context 5

  6. 2. Kontekst projekta 6

  7. MASTER PLAN STARA PLANINA - BUILD OUT • Mountain potential evaluation by Ecosign Mountain Resort Planners indicated total daily skiers capacity of 26.840 skiers/day. • Stara planina Mountain Master plan refers to the ski system with 24 ski lifts and 150 ski slopes and connection slopes with the total length of 160 km and total surface of 602 ha. • Ski infrastructure development in phases is under the authority of Ski Resorts of Serbia. • Apple Plateau is a mountain plateau at 1.450 m elevation on Stara planina, central village of the future mountain resort. It is an area with the highest concentration of accommodation capacity and various choice of sports and recreational facilities and activities. • Total number at build-out is 18 thousand beds, adequately structured on various accommodation types (hotels, condotels, MFU, SFU, B&B, etc), including the offer adjusted to higher/high income guest segment. 2. Project context 7

  8. 3. 1A PHASE APPLE PLATEAU RESORT 3. 1A Phase Apple Plateau Resort 8

  9. 1A PHASE – APPLE PLATEAU RESORT 1A Phase refers to the initial phase in Apple Plateau resort development, planned in the way to be able to function as independent organic complex, including all the necessary facilities of the resort. Because of that it was needed to harmonize the development of all resort elements: general infrastructure, ski infrastructure and accommodation capacities with accompanying facilities. Because of the central position of the future resort and ski-in/ski/out accessibility, parcels 10 and 10A have been determined as initial development area. Mountain master plan of 1A Phase refers to the ski infrastructure planned to be constructed in the next two years by Ski resorts of Serbia. 3. 1A Phase Apple Plateau Resort 9

  10. URBAN PLANNING PROJECT - 1A PHASE APPLE PLATEAU Urban planning project 1A Phase Apple Plateau refers to the construction of hotel/tourism apartments complex located on parcels 10 and 10A, with the total surface of 4,54 ha. Urban planning project specifies the following building parameters on the parcels 10 and 10A. 3. 1A Phase Apple Plateau Resort 10

  11. LOCATION ANALYSIS LOCATION ACCESSIBILITY 1A Phase of the resort is situated on the Apple Plateau, central village of the future resort Stara planina. Apple Plateau is located 70 km from Niš as well as highway E80 conecting Belgrade and Sofia (through Niš). Distance from Belgrade is 320 km and distance from Sofia is 150 km. Taking into consideration that the subject resort is targeting high quality standards, the significant budget of the Republic of Serbia will be invested into quality upgrading of road network and construction of new section of the road which will significantly reduce the distance from the Apple Plateau to the existing highway. The international airport Konstantin the Great is situated in Niš, with direct flights to Zurich, Istanbul, Podgorica and Forli, with the capacity for more intensive commercialization. Apple Plateau resort master plan provides for a detailed plan of vehicles and parking area. The 1A Phase is located in the pedestrian zone. 3. 1A Phase Apple Plateau Resort 11

  12. EVALUATION OF LOCATION - APPROACH Different interest groups have different approaches and views when it comes to the evaluation of the overall attractiveness and suitability of a location. The three different interest groups have been considered in the evaluation process for the subject location: guest/market, local community/destination and investor/operator. Subsequently, different criteria apply to differentinterest groups and each criteria receive a different weighting rate. Evaluation criteria of different interest groups are explained below: • A 5 points evaluation scale is applied for scoring in terms of attractiveness and suitablity of the site, and as to individual evaluation criteria: 1. Suitability and attractiveness from the guest/market point of view Important criteria for potential guests include general accessibility, tourist infrastructure accessibility, environmental quality, availability of services in the resort, etc. 2. Suitability and attractiveness from the community/destination point of view Important criteria from the community/destination point of view include influence on local development, local population and economy, stumulus to local economy etc. 3. Suitability and attractiveness from the investor/operator point of view Important criteria for investor/operator point of view are potential for hotel/resort business operations, accessibility, available infrastructure of the parcel, compexity of investment procedures, etc. b) By multiplying the weighting factor (1-3) with the evaluation factor (1-5) one may calculate a theoretical minimum of points of 1, and a theoretical maximum of 15 for each individual evaluation criteria. c) In order as to assign equal weight to each of the interest groups, average values are determined within each interest group (Market, Community and Investor). For the final overall assessment, the average values in between these groups are calculated in return. d) The individual location assessment is calculated according to the following percentage scale: For the evaluation of the suitability of the location the following scoring system is used - different ratings for different evaluation criteria: 3. 1A Phase Apple Plateau Resort 12

  13. LOCATION ASSESSMENT 3. 1A Phase Apple Plateau Resort 13

  14. LOCATION ASSESSMENT 3. 1A Phase Apple Plateau Resort 14

  15. LOCATION ASSESSMENT 3. 1A Phase Apple Plateau Resort 15

  16. CONSCLUSION OF THE LOCATION ASSESSMENT Total attractiveness and suitability of the location is between very good and excellent (index 85). Particularly strong characteristics are: Market: ski infrastructure and recreational facilities accessibility, parking availability, environmental quality and views from the location; Destination: positive effects on weakened local economy and regional development; Investors: governmental support, complete urban planning regulation and control of resort development. Note: high location rating is based on the certainty of general and skiing infrastructure plans implementation in the next two years by the Government of the Republic of Serbia • 1A Phase location is characterized by the following functional parameters: • Parcel is part of the central zone of the village designed for high pedestrian frequency • Direct ski-in/ski-out and „snow front”– accessibility and view of the ski slopes • Parcel is part of central pedestrian circulation influencing the growth of value of commercial facilities on the parcel • Parcel is planned as such in order to function independently, with all necessary facilities • The plan for 1A Phase accommodation capacity structure include recreational facilities and conference space, facilities which would enable all-season operations • Taking into consideration the stated above characteristics and future resort development, 1A Phase location is considered highly attractive and functional with the potential for positive business performance. 3. 1A Phase Apple Plateau Resort 16

  17. 4. FACILITY PROGRAM 4. Facility program 17

  18. 1A PHASE APPLE PLATEAU – FACILITY PROGRAM Investment program (facilities and capacities program with surface specification), defined by Horwath HTL, has been the starting point for Urban planning project development regarding the hotels/condotels complex including 9 units, marked as 1I, 1H, 1G, 1F, 1E, 1D, 1C, 1B and 1A. The subject units include accommodation space, commercial space, F&B, indoor and outdoor relaxation and recreational facilities, conference space and service space/back-of-house. Program specification is given in the table below: 4. Facility program 18

  19. LAND USE PLAN Source: 1A Phase Apple Plateau Urban planning project 4. Facility program 19

  20. 5. MARKET ANALYSIS 5. Market analysis 20

  21. 5.1. SERBIAN MOUNTAIN DESTINATIONS - TOURISM 5.1. Serbian mountain destinations - Tourism 21

  22. TOURISM IN SERBIA • 2 mill. arrivals and 6,8 mill. overnights representing the fall rate of 8% (2009/2008) • Foreign tourists realize 22% share in the total number of overnights (2009) • Average length of stay in Serbia is 3,4 days (2009) • Mountain destinations realize 25% share in total number of overnights 5.1. Serbian mountain destinations - Tourism 22

  23. MOUNTAIN DESTINATIONS IN SERBIA – TOURISM VOLUME • Mountain destinations realize 25% share in the total number of overnights in Serbia. • 1.912 thousand overnights realized in 2008. in mountain destinations in Serbia with the predominant share of domestic tourists. The number of foreign tourists is constantly growing. • Average length of stay in Serbian mountain destinations is decreasing, representing 4.26 days in 2008. • The highest number of overnights is realized in hotels, apartments and tourist settlements (96%). 5.1. Serbian mountain destinations - Tourism 23

  24. MOUNTAIN DESTINATIONS IN SERBIA – TOURISM VOLUME • Main tourist destinations (Kopaonik, Zlatibor, Divčibare, Tara) have realized the fall rate of the number of overnights (average fall rate of 12% in 2009/2008): Kopaonik (23% fall rate 2009/2008), Zlatibor (11%), Divčibare (14%), Tara (10% fall rate 2009/2008). • Dominant market segments according to the country of origin are the countries of former YU (Bosnia and Herzegovina, Montenegro), neighboring countries (Bulgaria and Romania), Great Britain and Russia. 5.1. Serbian mountain destinations - Tourism 24

  25. MOUNTAIN DESTINATIONS IN SERBIA – ACCOMMODATION CAPACITY • Total accommodation capacity in Serbian mountain destinations is 21.776 beds with 12.325 beds in hotels and similar establishments and 9.451 beds in complementary establishments (mountain lodges, hostels, workers’ establishments, etc.) • In the structure of hotels and similar establishment predominant share is realized by hotels (62%), apartments settlements (14%) and tourist apartments (7%). • The highest number of accommodation capacity is situated in the main Serbian mountain destinations: Kopaonik, Zlatibor, Divčibare and Tara. 5.1. Serbian mountain destinations - Tourism 25

  26. MARKET POTENTIAL EVALUATION In Western European countries with mountain resorts, the number of skier days generated by domestic market is, in average, 0,5 from the total number of inhabitants. In Eastern European countries the proportion is much lower (3 to 5 times) based on ski resorts number and underdeveloped skiing tradition on one hand and lower purchasing power on the other hand. Parallely with economic development and purchasing power growth of the population, and wider mountain resorts offer, the dynamic growth of demand for skiing activity is expected. Based on expected dynamics on development/restructuring of ski resorts in Serbia and domestic tourist volume growth, the following indicators are reached: From the table above it can be concluded that Stara planina, on the border with Bulgaria, and taking into consideration that more than 1 mill. inhabitants live in the radius of 1 hour drive, at the very beginning has a real demand for around 100 thousand skier days. Therefore, in the next 10 years, Kopaonik will further keep the leading position, presumed on the further infrastructure rehabilitation and new accommodation capacities development. Stara planina, based on the plan and dynamics of development, would be on the second place according to the number of overnights generated from skiing activity demand. 5.1. Serbian mountain destinations - Tourism 26

  27. MARKET POTENTIAL EVALUATION (2) • Stara planina resort competitive position in comparison to other mountain destinations in Serbia is based on the following: the first planned green-field resort development project according to the up-to-date global practice, value for money and relatively suitable resort accessibility; • Analysis of Serbian and regional market demand for skiing activity and other winter tourism products has estimated that the future resort can easily rely on 50 to 100 thousand overnights realized during the winter period only from local/regional market; • Stated above demand enables the maximal occupancy rate for 500 keys with 1 to 2 occupancy factor in 100 daysof the winter season; • Resort occupancy during the summer period will be based on vacation product and MICE industry; • Summer vacation product will be based on tourist infrastructure for summer activities planned in the resort, primarily on first medical wellness developed according to the up-to-date global standards in Serbian mountain resorts; • Competitive position for MICE is based on modern conference space, equipment, and quality accommodation capacities compared to other mountain destinations in Serbia; • Based on preconditions stated above and existing demand for summer mountain tourism products, wellness and MICE industry in Serbia and region, it is estimated that each product (MICE and summer vacation/wellness) would generate more than 25.000 overnights which is 55-60% average annual occupancy rate (taking into consideration full occupancy during the winter); • Additionally, renown international management brand gives additional competitive strength on regional market, opening the possibility of gradual commercialization of winter and summer products on international market. 5.1. Serbian mountain destinations - Tourism 27

  28. 5.2. REAL ESTATE MARKET IN SERBIA 5.2. Real estate market in Serbia 28

  29. GENERAL INTRODUCTION Real estate sector of Serbia has 10% of stake in total national GDP. Since year 2000 the most dynamic real estate development took place in Belgrade and other major cities of Serbia (Novi Sad, Niš). The main characteristic of the Belgrade real estate market is an increase in both supply and demand of all real estate segments and an increase in price of all segments of real estates: offices, commercial/retail, residential and mixed use properties. Being a capital city Belgrade has the highest prices of all real estate segments (taking into account a selling price of real estate as well as rental rate). Besides Belgrade, real estate market had a significant growth in Novi Sad and Niš. OFFICE SPACE Office space market is concentrated in Belgrade. Office space supply in Belgrade has almost reached double size of net developed area in time period from 2006 to 2010. In first quarter of 20010, the total office space area amounts to 550.000 m2 of net developed area – out of that is 80% A (B+) category (Property Market Newsletter, NAI Atrium). The office space supply is significantly higher compared to the current demand. At the moment vacancy rate has reached a level of 20% (end of 2009), and out of it 17,5% is related to the class A and23,1% to the class B (Colliers International). The average rental rate for office space in first quarter of 2010 is 14-16 eur/m2 monthly for class A and 11-12 eur/m2 monthly for class B and it is significantly lower compared to the last few years (21 eur/m2 for class A and 18 eur/m2 for class B (Property Market Newsletter, NAI Atrium). It is foreseen that in next two years average rental rates remain at the almost same level. Although there is a constant increase of available office space, the Belgrade office space market lags compared to neighbor countries in relation to the office space area per inhabitant and quality of office space. Office space market in Novi Sad and Niš haven’t had a dynamic development. In Novi Sad there are only few modern office buildings / business centers, and rental rates are 7-12 eur/m2 in more attractive zones, and 6-8 eur/m2 in less attractive zones. 5.2. Real estate market in Serbia 29

  30. RESIDENTIAL SEGMENT According to the Serbian Statistics Bureau, 200-2008 time period is characterized by growth trend of built apartments on annual basis. In 2009 there was a decrease of almost 20% compared to the previous year. Out of total built apartments supply, 48% is related to the major cities (Beograd, Novi Sad, Niš, Kragujevac), and the greatest part has been made in Belgrade (32%). In 2009 general economic crisis influenced the residential market segment in a negative way – a decrease in real estate prices (sale price, rental rate). In Belgrade, according to the Colliers International source, real estate prices are decreased from 5% to 10%, and even 20% of some overrated residential projects. In 2009 compared to 2008 there was a decrease in issued building permits – 8% per number of residential properties and 46% per sq,m of residential properties. In 2009 there was an increase in time needed to sell an apartment in the market: according to the Colliers International source, an average time to sell residential property of 30 apartments is 17 months. 5.2. Real estate market in Serbia 30

  31. RESIDENTIAL SEGMENT – AVERAGE PRICES According to the Serbian Statistics Bureau, a number of sold new building apartments decrease for 25,2% in 2009 compared to results in 2008. Average price of new building apartments in Republic of Serbia reached 1,373 eur/m2 in 2009 – price structure: 62% construction cost, 24% land cost and 14% other cost. Average price of new building apartments increased for 4,2% in 2009/2008 in Serbia – the highest growth is noted in construction cost (8,7%). The highest apartment prices are reached in major Serbian cities: Beograd (1,872 eur/m2), Novi Sad (1,024 eur/m2), Kragujevac (888 eur/m2), Užice (882 eur/m2) and Niš (806 eur/m2), and it is also related to the land cost. Bigger cities in proximity to Stara planina reached the following prices of new building apartments: Zaječar (637 eur/m2), Pirot (707 eur/m2), Niš (806 eur/m2). Average NDA of new building apartments is 54m2, and the most spacious apartments can be found in Vranje, Negotin, Paraćin and Belgrade. 5.2. Real estate market in Serbia 31

  32. REAL ESTATE MANAGEMENT MODELS IN TOURISM Real estate management models development in Serbia hasn’t followed global trends. Besides hotel accommodation, in major mountain destinations there is a prevalence of individual tourist apartments. Due to the loss of control in tourism development in mountain destinations so called “apartmanization” process occurred. In other words, there was an uncontrolled development of different accommodation units for individual/private use and private rental. Therefore, the Stara planina project is considered as a leader project in implementation of new management model of real estate in tourism. A condotel model is proposed for 1A phase of Jabučko Ravnište Resort in Stara planina. The condotel model is based on principle of use of property by individual buyer in predefined period, and rest of the available time a property is rented out in the market. The property is operated by an international brand management company or independent management company. The condotel model offers a buyer an opportunity to earn some money through rental revenue. The revenue is usually divided 50:50 between buyer (owner) and management company. There are various real estate management models in tourism in the world: • Timeshare • Fractionals • Private Residence Clubs • Destination Clubs • Condotels, etc. The most dominant real estate management model in European tourism is timeshare. It is even more dominant then individual ownership of real estate. 5.2. Real estate market in Serbia 32

  33. BUSINESS POTENTIAL EVALUATION • The first phase of real estate development in Stara planina does not represent a significant real estate stake in relation to the annual real estate production in Serbia that amounts to 15 to 20 thousands keys in last 10 years. • Published prices of already built properties in other mountain centers in Serbia in locations that can hardly be compared to the subject project (in relation to ski infrastructure proximity and equipment quality) are from 1.500 to 1.700 €/m2. • None of the planned mountain resorts does not implement global real estate management models that bring additional benefits to the property owners. There is no opportunity for international brand operators to enter such resorts. • International brands increase a possibility to commercialize properties not only in the regional but also in other markets (price competitiveness as a condition). • According to the current forecasts, planned completion of this project (2011) would take place in the same time with Serbian/regional market recovery, reaching previous growth rate of around 5% and purchasing power increase. • On basis of previously mentioned facts, it is expected that 500 unit – sales (planned in this project), on condotel model basis, could reach a price premium of 20-30% in relation to the current real estate prices in mountain resorts – in other words, sales price of those units could be in range from 1.800 to 2.000 €/m2. 5.2. Real estate market in Serbia 33

  34. MARKET ANALYSIS CONCLUSION • An analysis of accommodation supply structure in mountain destinations in Serbia has shown that from the beginning of transition there weren’t any significant changes in accommodation capacity structure that is based on inherited, traditional division to hotels, apartment villages and tourist apartments. Major mountain destinations in Serbia have lost strategically shaped and controlled development direction, and competitiveness level in relation to global mountain destinations. Mountain destinations in Serbia should be well rehabilitated, restructured (supply wise) and improved (accommodation units) in order to meet the global quality standards. Conclusion: The mountain resort of Stara planina, properly planned and developed, does not have any relevant competition in Serbia and in wider region in relation to the planned structure and quality of accommodation units. • Although tourism turnover of Serbian mountain destinations has a negative growth trend in 2008 and 2009 in relation to previous years, the market potential evaluation of mountain destinations in Serbia foreseen a dynamic positive growth trend in medium term. A base for this forecast is related to the expected GDP growth and discretionary income in region, increase in regional ski market volume, and increase in demand for innovative tourist products in mountains in summer season. It is foreseen that Stara planina (following the planned development dynamics) reaches 10% – 15% in total overnights of Serbian mountain destinations in medium term. Conclusion: Regional surrounding of Stara planina as a demand generator will create significant demand in medium term compared to the available supply of such facility selection and facility quality as Stara planina project has. • Stara planina project is a first project in Serbia that implements innovations in structure, types and layout of accommodation units. Accommodation units are concentrated on the main base area called Jabučko ravnište, and the complete area is protected from uncontrolled real estate construction. The compact interactive cluster approach is applied to the “central village” planning – it is related to the area zoning with an adequate structure of accommodation units and other facilities. Stara planina project is a first project in Serbia where global real estate management models are applied (condotel model). Conclusion: Stara planina project incorporates an innovative and intelligent development approach, and year round successful mountain destination development model. In this regard, selling of branded accommodation units (around 500 keys) in two to three years of initial development of project is definitely realistic. 5. Market Analysis Conclusion 34

  35. 6. FINANCIAL PROJECTIONS AND EVALUATION 35

  36. ASSUMPTIONS • INVESTMENTS • Proposed investments are based on facilities program defined by “Urban Planning Project” tand on construction • cost input provided by MACE; • Proposed investment structure includes investments in infrastructure in the site area; • Total investment also includes founding investment received from JP Stara planina; • Investment dynamics and investment cycle is divided in units G,H,I and in other units (A,B,C,D,E,F) • Volume and dynamics of investment is shown in the following tables: 6. Financial Projections and Evaluations 36

  37. ASSUMPTIONS INVESTMENT 6. Financial Projections and Evaluations 37

  38. ASSUMPTION • METODOLOGY • The project's financial projections are created inductively, starting from the assumption of the project market • positioning, professional international management as well as implementation of global sales and marketing • systems, international brand selection and application of condominium model for objects A, B, C, D, E and F. • Business results are shown in accordance with the international reporting system „Uniform System of • Accounts for Lodging Industry“ (USALI), which allocates revenues and expenditures based on their emergence • point, in this way indentifying profitability on the level of sector / department. • Inputs used for revenue and expenditure calculation are on basis of previous experience with similar projects and • benchmarking standards for successful condominium and classical brand management. • All revenues and expenditures in the financial projections are shown in net figures, which do not include VAT. • Financial projections are given for the period of first 10 years of business operation. • Financial projections are shown in Euros in current prices, applying the expected annual inflation rate for Euro of • 1%. • MARKET AND OPERATIONAL ASSUMPTIONS • Management assumptions • Projections take into account that the hotels and condos will be managed by a four star international operator. • Commercial spaces will be leased to a third party. • Professional management and capable employees are a guarantee of the standard of service quality • Efficient marketing and sales system set up by the selected operator, which includes the usage of “revenue • management” system. • Usage of strict operational standards and cost control standards in all the departments / sectors of the project units. • Supervision of the investor and cooperation with the operator on quality standard control of offered services in the • spaces leased to third parties. • Leased spaces will be managed by the company that owns those spaces. 6. Financial Projections and Evaluations 38

  39. ASSUMPTIONS • Market assumptions • Units G,H,I will be operated as four star hotels. • Units A,B,C,D,E,F will be operated as condotels. • Sales revenue projections for condo units are given on basis of current real estate market trends, taking in • account the fact of a new real estate management model. • In that regard, here we present revenue projections of condo units sale (A, B, C, D, E, F): • Sale of 346 units is planned in units A, B, C, D, E and F with related garages. • New owners of apartments (buyers) will be able to use their units 30 days in total during the year, and the rest of the • year their units will be comercialized (under operator management) based on the condominium model. 6. Financial Projections and Evaluations 39

  40. ASSUMPTIONS • Sales dynamics in four years: • Sales in objects A,B,C,D,E,F: • Comercial usage of sold apartments yields to their owners annually 60% of the total revenue minus the operational • cost. 6. Financial Projections and Evaluations 40

  41. ASSUMPTIONS • Average realized prices are planned based on the market analysis of the Mid-European projects reduced by 15 to • 20% • Unit occupancy percentage is planned based on the market analysis of the Mid-European surrounding, reduced by • 10%. • Estimate of the relation between accommodation revenues and other revenues is based on usual international • benchmark and standards of proposed project type and category. • Assumptions include the revenue from usage of accommodation units by their owners, which covers the cost of unit • maintenance during their stay. • Financial assumptions • Revenue and expenditure projection data is in accordance with the previously presented facilities and management • concepts. • Projection of operating expenditures is based on expected results that were projected based on the benchmarking • practice, which is defining the typical relation between expenditures and revenues, in accordance with the standards • of comparable projects. • Projections of unallocated expenditures, like administration, maintenance and marketing is made based on • standards of participation in the overall revenues of the objects. • Projection of employment in the stabilized year is 0,6 employees per room in G,H,I and 0,5 employees per room in • A,B,C,D,E,F. • Based on management agreement which the investor has to conclude with an international operator, projects • include standard management fee. • Amortization is calculated based on average amortization rates which are developed in the following tables. • The value deduction for the sold units is calculated as extraordinary expenditure • For units G,H,I - 100% equity financing; for other units 50% equity financing. • Interest rate is 7% • Financial figures are shown in Euros and current prices. 6. Financial Projections and Evaluations 41

  42. PROJECTIONS • These projections present that the total operative revenue of units G,H,I in the stabilized year and current prices is • 4,6 million Euros or 29,7 thousand Euro per key, while for units A,B,C,D,E,F total net revenue in the stabilized year • is 9 million Euro or 26 thousand Euro per key. 6. Financial Projections and Evaluations 42

  43. PROJECTIONS 6. Financial Projections and Evaluations 43

  44. PROJECTIONS • In stabilized period the expected level of gross operating profit (GOP) is 40 % of the total net revenues in hotels • G,H,I and 42% in other units; EBITDA - 28% of the total net revenues. • Detailed annual operating projections in current prices are given in the annex of the document. 6. Financial Projections and Evaluations 44

  45. PROJECTIONS 6. Financial Projections and Evaluations 45

  46. ECONOMIC AND FINANCIAL EVALUATION OF THE PROJECT • METHODOLOGY • Economic-financial evaluation of the project is based on the standard calculating procedure of the following • indicators: • Project liquidity (Net Cash Flow) • Internal rate of return (IRR) • Return on Investment (ROI) • Return on Equity (ROE) 6. Financial Projections and Evaluations 46

  47. CONCLUSION OF ECONOMIC AND FINANCIAL EVALUATION • Carried out market analysis showed that the project can have good market performance, if the implementation • process will follow the proposed market positioning and management assumptions/model. • Investment figures have to be verified in the following processes, and in accordance with hotel standards in order to • Improve the project performance indicators. • Further discussion about the business model of units G,H,I is necessary. • Further verification of the founding investmentallocated in the phase 1A is needed, as well as the financial leverage • of the project. • With the new inputs and further development of project it is needed to update the business plan every two months. 6. Financial Projections and Evaluations 47

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