4F Human Resources

MCC Engineering Ltd. Feasibility study for a resort project in Tivat, Montenegro March 2012 report # DRAFT . PKF hotelexperts GmbH I Hegelgasse 8 l 1010 Vienna l Austria tel +43 (1) 5120707 l fax + 43 (1) 5120607 e-mail [email protected] l www.pkfhotels.com managing directors Michael Widmann Dr. Andreas Staribacher 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. Table of contents chapter heading page 1 Introduction 11 1.1 Project 11 1.2 Assignment 11 2 Location 12 2.1 Montenegro 12 2.2 Tivat 18 2.3 Project site 21 3 Market 32 3.1 Accommodation facilities 32 3.2 Marinas 38 3.3 Residential market 42 3.4 Other facilities 45 3.5 Relevant market segment 48 4 Product 61 4.1 General 61 4.2 Target groups 63 4.3 Product 67 5 Financial forecast 75 5.1 General 75 5.2 Operated departments 78 5.3 Undistributed operating expenses 82 5.4 Management fees 83 5.5 Fixed charges 84 5.6 Replacement reserves 84 5.7 Net operating income 85 5.8 Key figures development 87 6 Investment analysis 89 6.1 Methodology 89 6.2 Development costs 90 6.3 Debt financing assumptions 91 6.4 Sale of residential units 91 Draft . 2 Charts/Illustrations # title page Chart 1 Location of Montenegro within South-East Europe 12 Chart 2 Passenger and aircraft movements at Airport Tivat 14 Chart 3 Direct flight connection frequency of Airport Podgorica and Airport Tivat 15 Chart 4 Location of Tivat in Montenegro 18 Chart 5 SWOT analysis macro site (Tivat) 20 Chart 6 Aerial view of project site 22 Chart 7 Map of project site 23 Chart 8 Project site and its current accessibility 24 Chart 9 Project site and its planned accessibility 25 Chart 10 Pictures of the project site 26 Chart 11 SWOT analysis micro site (project site) 28 Chart 12 Assessment micro site (project site) 29 Chart 13 Suitability of micro site for different guest segments 30 Chart 14 Suitability of micro site for different hotel types 30 Chart 15 Development to date of supply of accommodation facilities in Montenegro 33 Chart 16 Selected hotel and resort projects along the Montenegrin coast 34 Chart 17 Development of demand for accommodation facilities in Montenegro 35 Chart 18 Seasonality of demand in accommodation facilities in Montenegro 36 Chart 19 Originating countries of guests in accommodation facilities in the coastal region in Montenegro 37 Chart 20 Marinas and ports in Montenegro 39 Chart 21 Overview of residential units sizes of selected properties 43 Chart 22 Pictures of f&b facilities in Tivat 45 Chart 23 Pictures of Almara Beach Club 46 Chart 24 Pictures of Lido Mar Pool Club (Porto Montenegro) 48 Chart 25 Overview of selected resorts 49 Chart 26 Pictures of Aman Sveti Stefan 50 Chart 27 Pictures of Hotel Splendid Conference & Spa Resort 51 Chart 28 Pictures of Hotel Iberostar Bellevue 52 Chart 29 Pictures of the Queen of Montenegro Hotel 53 Chart 30 Pictures of the Hunguest Hotel Sun Resort 54 Chart 31 Pictures of the Riviera Club Hotel 55 Chart 32 Rack rates of the analysed hotels 56 Chart 33 Visualisations of the Island View Resort 57 Chart 34 Visualisations of Luštica Bay 58 Chart 35 Visualisations of Porto Montenegro 59 Chart 36 Planned facilities of future competitive set 60 Chart 37 Timeline for the development of the hotel 76 Chart 38 Employees per department 77 Chart 39 Payroll and related expenses 78 Chart 40 Rooms revenue development 79 Chart 41 Food and beverage by outlet 80 Chart 42 Food and beverage elements 81 Chart 43 Other operated departments 81 Chart 44 Total operated expenses 82 Chart 45 Undistributed operating expenses 83 Draft . 3 Chart 46 Management fees 84 Chart 47 Fixed charges 84 Chart 48 Income overview 85 Chart 49 Income elements 86 Chart 50 Gross operating profit development 87 Chart 51 Key figures and ratios development 88 Chart 1 Development costs of the resort 90 Draft . 4 Annexes # title 1 Forecast 1.1 Stabilised year 1.2 Years 2014 to 2023 2 Investment analysis 2.1 Return on investment analysis – most-likely case 2.2 Return on investment analysis – worst case 2.3 Return on investment analysis – best case 3 Terms and Conditions Draft . 5 Abbreviations Abbr. Definition Measures bn billion(s) cm centimetre(s) h hour(s) km kilometre(s) km/h kilometre(s) per hour m metre(s) min minute(s) sq km square kilometre(s) sq m square metre(s) ‘000s thousand(s) Symbols/signs € Euro # number (absolute figure) Σ sum Ø average % percent 0 less than the half of 1 in the last digit, but more than nothing - not available / no data, since there is no reliable information . data not available or to be treated confidentially x cell closed, because information is not useful ( ) limited reliability due to uncertain statistical data Draft . 6 Abbreviations Abbr. Definition Beds king king-size bed = double bed (size 200 cm x 200 cm) queen queen-size bed = double bed (size 160 cm x 200 cm) double double bed = double bed (size 140 cm x 200 cm) twin twin bed = two single beds (size 100 cm x 200 cm each) Others ca. circa e.g. for example etc et cetera EU European Union FF&E furniture, fittings & equipment GDP gross domestic product i.e. that is MICE meetings, incentives, conferences, events NATO North Atlantic Treaty Organisation NRR net room rate SWOT strengths, weaknesses, opportunities and threats UN United Nations UNESCO United Nations Economic, Scientific and Cultural Organization UNO United Nations Organization USALI Uniform System of Accounts for the Lodging Industry, Tenth Revised Edition USP unique selling proposition VAT value-added tax Draft . 7 WTO World Trade Organization Draft . 8 Classification The classification of hotels in this study is based on the internal hotel classification of PKF hotelexperts which is orientated towards the strict international pa- rameters for the classification of hotels (maximum of five stars). The US-Ameri- can classification compiled by the Automobile Association of America and by Mo- bil served as a guideline for this internal classification. Hotels in Montenegro are classified by the Ministry of Tourism. Currently, the Ministry of Tourism is in the final stage of defining a new regulation with regard to hotel classification standards. In general, the Montenegrin hotel classification applies less strict criteria compared to the internal classification of PKF hotelexperts. outstanding standard; extraordinarily good service, extraordinarily large (average of 42 sq m, minimum of 36 sq m) and luxuriously equipped rooms; excellent f&b facilities; extensive sports, leisure and spa facilities typical brands: Four Seasons, Mandarin Oriental, Ritz-Carlton very high standard; very good service; large (average of 34 sq m, minimum of 30 sq m) and very comfortably equipped rooms; very good f&b facilities; sports, leisure and spa facilities, which are adequate to the type and the site of the hotel typical brands: Hilton, Marriott, Sheraton high standard; good service; spacious (average of 26 sq m, minimum of 24 sq m) and comfortably equipped rooms; good f&b facilities; sports, leisure and spa facilities, which are adequate to the type and the site of the hotel typical brands: Courtyard by Marriott, Four Points by Sheraton, Novotel simple standard; limited service; relatively small (minimum of 18 sq m) and simple rooms; no or only simple f&b facilities; no or only simple sports, leisure and spa facilities typical brands: Campanile, Holiday Inn Express, Ibis very simple standard; no or very limited service; very small (minimum of 12 sq m) and very simply equipped rooms; no f&b facilities; no sports, leisure and spa facilities typical brands: B&B, Etap, Première Classe Draft . 9 Ratios 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) divided 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 Draft . 10 1 Introduction 1.1 Project MCC Engineering Ltd, Podgorica, is planning the development of a resort (including – amongst others – a marina, various residential units, gastronomic and entertainment facilities, and a hotel) in the upscale segment in the Municipality of Tivat, Montenegro. The project site is directly located on the Adriatic Sea waterfront, in close proximity to the international airport in Tivat (Airport Tivat), the Island of Flowers and Sveti Marko Island. At the moment of the assignment, the project is in the planning stage. 1.2 Assignment MCC Engineering Ltd, represented by Mr Predrag Bozovic, awarded the contract to perform consulting services (including amongst others a site and market analysis, a strategy workshop, and a master plan concept) for the planned resort in Tivat with writing from 1 June 2011. As a first step of the overall assignment, a site and market analysis was prepared (October 2011). We conducted the assignment from June to October 2011. The market research on site was conducted from 14 to 17 June 2011, from 4 to 7 July 2011 as well as from 5 to 7 September 2011.

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