Georgian Hospitality Sector Overview May 2016 — www.kpmg.ge CONTENTS COUNTRY PROFILE 3 SECTOR HIGHLIGHTS 4 PIPELINE AND UPCOMING EVENTS 10 KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity 2 | Georgian Hospitality Sector Overview BASIS OF PREPARATION The material presented in this publication is based on information acquired by KPMG from primary sources (including inquiries of 6 hotels in Georgia) and secondary sources. The purpose of this overview is to obtain principal information about the hospitality industry in Georgia, including the factors driving changes in demand and supply of hotel rooms, customer base, and common services provided by players in the hospitality sector. KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity Georgian Hospitality Sector Overview | 3 Key economics indicators COUNTRY 40 8.0% 31.7 PROFILE 29.2 26.8 30 24.3 26.2 6.0% 20.7 20 4.0% Georgia is located in the Caucasus region, 10 2.0% at the crossroads of Western Asia and GEL billion GEL Eastern Europe. It is bounded to the west 0 0.0% by the Black Sea, to the north by Russia, to 2010 2011 2012 2013 2014 2015 the south by Turkey and Armenia, and to Nominal GDP GDP real growth (right axis) the southeast by Azerbaijan. Source: National Statistics Office of Georgia The country’s unique culture, delicious cuisine, and exceptional hospitality attract visitors from all over the world. You can be HORECA share skiing down the slopes of the Caucasus Mountains one minute and three hours in total GDP (2015) later be sunbathing on the Black Sea coast. 2% RUSSIAN FEDERATION 98% Nominal GDP contribution (HORECA) Nominal GDP (except HORECA) TURKEY Source: National Statistics Office of Georgia AZERBAJAN HORECA – Hotel/Restaurant/Catering ARMENIA Country facts Capital Tbilisi Population, 2014 (beginning of the year) 3,720,395 GEORGIA Currency Georgian Lari (GEL) Source: National Statistics Office of Georgia TBILISI KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity 4 | Georgian Hospitality Sector Overview SECTOR HIGHLIGHTS Tourism is among the fastest-growing Incoming travelers industries in Georgia, and it has substantial potential for further development. In the 7,000 60.0% 5,901 past few years the number of visitors to the 5,392 5,516 6,000 50.0% country has increased significantly, adding 5,000 4,428 40.0% to the growth of other tourism-related 4,000 sectors. The hotel industry, in particular, 2,822 30.0% 3,000 has been growing as foreign investment 2,032 Thousands 20.0% 2,000 has increased and the number of foreign visitors to the country has risen. 1,000 10.0% 0 0.0% 2010 2011 2012 2013 2014 2015 International arrivals Growth rate (right axis) International Arrivals Source: Georgian National Tourism Administration In 2015 the number of international arrivals The graph below shows the comparison of in Georgia was 5.9 million, a 7.0% increase growth rates of international arrivals globally on the previous year. and in Georgia from 2010 to 2015, and indicates the higher growth for Georgia over the past According to a census conducted in 2014 years. In 2014 the growth of international the population of Georgia as at 1 January arrivals in Georgia has reduced down to the 2015 was 3.7 million. The number of global rate but started increasing again in 2015. international arrivals far exceeded the population number as at 1 January 2015. Comparison of A comparison of global growth rates and that of Georgia showed that during the last international arrivals World five years international arrivals in Georgia increased considerably faster than in the vs Georgia rest of the world. The number of tourists traveling internationally throughout the 60% 56.9% world was growing at a steady rate during 50% recent years. 40% 38.9% 30% 35.4% 20% 21.8% 10% 6.5% 4.6% 4.6% 4.2% 7.0% 4.6% 4.4% 0% 2.3% 2010 2011 2012 2013 2014 2015 Georgia The World Source: UNWTO, Georgian National Tourism Administration Note: Number of international arrivals does not necessarily represent tourists due to transit arrivals KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity Georgian Hospitality Sector Overview | 5 SECTOR HIGHLIGHTS International arrivals by According to the Georgian National Tourism Administration (GNTA), 68.1% of countries (2015) foreign visitors to Georgia in 2015 were from the Commonwealth of Independent Others, States (CIS), 28.9% from the European Ukraine, 9.8% Armenia, Region (including Turkey, and excluding 2.4% 24.9% CIS countries), and 3.0% from other countries. Russia, 15.7% Visitors from CIS countries were predominantly from Armenia (24.9%), Azerbaijan (23.6%), and Russia (15.7%). Visitors from Turkey made up 23.6% of total international arrivals. The data for the past few years Azerbaijan, Turkey, demonstrate that the most popular season 23.6% 23.6% among international travelers is the summer, with the busiest months being Source: Georgian National Tourism Administration July, August, and September. During this three-month period in 2015 the number of international arrivals stood at 2,159,031 (July: 737,898; August: 852,446; September: 568,687), which was a 10.5% increase on the corresponding period in the previous year. Average receipts per international visitor amounted to USD 335 for the first three quarters of 2015. KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity 6 | Georgian Hospitality Sector Overview SECTOR HIGHLIGHTS Accommodation capacity (Q IV 2015) According to the GNTA, as of the end of Number of 2015 there were 1,475 accommodation Bed accommodat units, with a bed capacity of 51,381. capacity ion units The capital Tbilisi holds the leading Regions position in terms of the number of accommodation units (313) and bed Tbilisi 313 13,168 capacity (13,168). The capital is followed by Adjara 254 11,293 Samtskhe-Javakheti 201 7,850 the Adjara Region, where Georgia’s main Kakheti 156 2,887 sea resorts (Batumi, Anaklia, Kobuleti, etc.) Imereti 141 4,349 are located. There are 254 accommodation Samegrelo-Zemo Svaneti 140 2,750 units and 11,293 beds in the region. Mtskheta-Mtianeti 129 4,181 Guria 56 2,998 There are fourteen internationally branded Racha-Lechkumi 55 1,148 hotels and more in the pipeline. Most of Kvemo Kartli 18 539 such hotels are located in Tbilisi. Shida Kartli 12 218 Total 1,475 51,381 Source: Georgian National Tourism Administration Accommodation - There are fourteen internationally branded hotels operating in Georgia International Visitors During 2015, the most commonly used type Internationally Branded Hotels in Georgia of accommodation for foreigners visiting Hotel Chain Location Georgia was hotels (65%). Around 18% of Citadines Tbilisi City Citadines Tbilisi visitors stayed in a hostel, while 11% rented Centre an apartment. The percentage of other Mercure Tbilisi Old Town Mercure Tbilisi types of accommodation units used Primavera City Partner Tbilisi Best Western Tbilisi Art amounted to 6%. Best Western Tbilisi Hotel Hotels & Preference Hotels & Preference Tbilisi Hualing Tbilisi Holiday Inn Hotels & Holiday Inn Tbilisi Resorts Radisson Blu Iveria Hotel Radisson Blu Tbilisi Courtyard by Marriott Courtyard by Marriott Tbilisi Tbilisi Marriott Hotels & Tbilisi Marriott Hotel Tbilisi Resorts Radisson Blu Hotel Radisson Blu Batumi Batumi Hilton Batumi Hilton Hotels & Resorts Batumi Sheraton Batumi Sheraton Batumi Crowne Plaza Hotels & Crowne Plaza Borjomi Borjomi Resorts Rixos Borjomi Rixos Hotels Borjomi Source: booking.com KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity Georgian Hospitality Sector Overview | 7 SECTOR HIGHLIGHTS Travel Statistics - Georgian Main Purpose of travel - Residential Population Georgian Residential Guria, Mtskheta 2.8% Mtianeti, Population Samtskhe- 2.1% Javakheti, 5.3% Tbilisi, 25.7% The majority (54%) of domestic visits were Kvemo carried out for the purposes of visiting Kartli, 7.4% friends/relatives, followed by 11% for Kakheti, shopping trips, 10% for health and medical 8.5% care, and 8% for holiday, leisure, and Shida recreational purposes. All other types of Kartli, travel made up 17% of domestic travel. 9.0% Imereti, Adjara, 21.7% 8.8% Samegrelo-Zemo Svaneti, 9.0% Source: Georgian National Tourism Administration According to GNTA data, in 2015 residents of the Tbilisi and Imereti regions travelled the most, undertaking around 25.7% and 21.7% of domestic visits, respectively. KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity 8 | Georgian Hospitality Sector Overview SECTOR HIGHLIGHTS Factors affecting demand We identified the factors that influence the guests decisions. Based on the survey for Tbilisi hotels performed, friendliness of the staff, cleanliness of rooms and hotel location are the most important factors when choosing Friendliness of the staff 4.0 a hotel. Availability of fitness and beauty Cleanliness of rooms 4.0 facilities is the least influential factor. Location 4.0 Business friendly 3.8 In addition, we determined the economic Image 3.8 indicators that have an impact on the flow Price 3.6 of visitors to Tbilisi.