Moscow Hotel Real Estate market review

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1 Hotel Real Estate market review October 2013 Prepared by GVA Sawyer

Macroeconomical Review Russia GDP of Russia has increased for 1,5% for the period from January 2013 through August 2013. Based on the results of present year Russian GDP growth might be up to 2,4%.

2 Macroeconomical Review Russia GDP of Russia has increased for 1,5% for the period from January 2013 through August Based on the results of present year Russian GDP growth might be up to 2,4%. In 2014 up to 3%. Retail turnover in Russian Federation in January August 2013 comes to ,4 RUB bln (103,9% from the same period last year). Despite retail turnover positive increase, a growth rate heavy drop regarding index from 7,4% to 3,8% is observed in According to Ministry for Economic Development estimates Russian retail turnover increase shall amount to 4% in 2014, and shall accelerate up to 4,4% and 4,7% in respectively. Consumer price index in September 2013 equals to 100,2%, from the beginning of the year 104,7%. In these later days a satisfactory explosive development of chain retailing in Russia has been observed. According to the data of Rosstat retail trade networks have been creating on average 20,3% of retail trading total turnover in 2013 (August ,5%) in Russian Federation. In food products retail trade turnover, including drinks and tobacco products relative share of retail networks turnover amounts to 23,8% (in August ,7%). Average monthly nominal wage in Russia for the period from January 2013 to August 2013 amounts to RUB. Real available financial incomes (incomes excluding obligatory payments adjusted for consumer price index) in August 2013 in comparison with relevant period of previous year has increased for 2,1%, in January-August 2013 for 4,1% (3,5% for January-August 2012). Consumer confidence index which represents aggregate consumer expectations of residents in the III Q. of 2013 in comparison with II Q. of 2013 declined 1 percentage point and constituted (-7%). In this case aggravation of resident s subjective opinion regarding expected changes in Russian economics had major impact on index decrease. Dynamics of retail turnover in RF, January-August , RUB bln Prepared by GVA Sawyer

Retail turnover for January-August 2013 in amounts to 2 510 RUB bln.

Consumer Price Index in from the beginning of the year amounts to 104,5%.

3 Retail turnover for January-August 2013 in amounts to RUB bln. In the structure of retail turnover relative share of grocery products in January-August 2013 equals to 51,0%, non-grocery products 49,0%. Consumer Price Index in from the beginning of the year amounts to 104,5%. Dynamics of retail turnover in, January-August , RUB bln Unemployment comes in continues to decline. Average nominal wage in accrued for January-July 2013 amounts to RUB. Gross Regional Product (GRP) per capita, Prepared by GVA Sawyer

Average annual number of people involved into economics Number of

2012 amounts to 5,1 MIO persons which is 30% more in comparison with

Number of individuals accommodated in hotels and similar accommodations

4 Average annual number of people involved into economics Number of individuals accommodated in the hotels of and similar accommodations in 2012 amounts to 5,1 MIO persons which is 30% more in comparison with relevant period of 2009 and 7% higher than figures of Number of individuals accommodated in hotels and similar accommodations in , MIO individuals International arrivals to, Prepared by GVA Sawyer

5 Hotel Real Estate Market Hotel Real Estate General Description Total amount of qualitative guest room inventory in was equal to 22,1 thous. rooms by the end of III Q. of Currently availability of rooms in amounts to 1,9 rooms per 1000 residents. This index is approximately 2-3 times below hotel availability average performance in Europe, and several times below figures of financial and touristic centers. Thus, hotel availability in Paris equals to 8 rooms per 1000 residents, in London 12 rooms per 1000 residents. hotel rooms availability below hotel rooms availability of other cities in Russian Federation. For example, in St. Petersburg hotel rooms availability equals to 3 rooms per 1000 residents. Hotel rooms availability ratio City Hotel rooms availability ratio, rooms/thous. residents Tyumen 3 Samara 2,5 Kazan 3 Yaroslavl 5,7 1,9 St. Petersburg 3,1 The market shall exceed for 4000 new hotel rooms within next 3 years. Key figures of hotel real estate market, III Q Key figures Quantity of rooms at the end of III Q. of 2013 Premium Premium Medium quality (5*) quality (4*) (3*) Quantity of rooms placed into service at the end of III Q. of 2013 Average level of 60-66% 66-71% 63-65% occupancy in 2013 Average Daily Rate (ADR), RUB/night Supply guest room inventory has exceeded for 567 hotel rooms in III Q. of 2013 as a result of opening of 2 hotels in Sheremetevo: Sheraton Sheremetyevo Airport Hotel and Sky Point Sheremetyevo. quility 1 ADR Average Daily Rate Index, which is daily income from sold hotel rooms and divided by quantity of sold hotel rooms. Prepared by GVA Sawyer

New supply within qualitative hotels segment equals to 567 guest rooms in III Q. of 2013 and was formed by means of placing into operation 4 new hotels of different price tier.

, 11 is expected in November 2013, namely: Mercure - 158 guest rooms (Upscale), Ibis - 190 guest rooms (Midscale), Adagio - 149 apartments (Midscale).

6 New supply within qualitative hotels segment equals to 567 guest rooms in III Q. of 2013 and was formed by means of placing into operation 4 new hotels of different price tier. An opening of new hotels under operation of Accor at the address of Bakhrushina st., 11 is expected in November 2013, namely: Mercure guest rooms (Upscale), Ibis guest rooms (Midscale), Adagio apartments (Midscale). Change of amount of qualitative guest room inventory dynamics for the period of Hotel real estate supply structure according to star-rating, III Q. of 2013 Significant hotel real estate projects opened in and projects planned to be opened. Name Class/ guest Opening room inventory AZIMUT Tulskaya Hotel 3*/ Mercure Arbat 4*/ Radisson Blu Belorusskaya Hotel 5*/ Aminevskaya 3*/ Intercontinental Tverskaya 5*/ Courtyard by Marriot 4*/ Paveletskaya Crowne Plaza 5*/ Ramada Domodedovo 4*/ Radisson Royal Hotel (Ukraine) 5*/ Renaissance Monarch Centre 4*/ Lotte Hotel 5*/ Katerina Park 3*/ SK Royal 4*/ Prepared by GVA Sawyer

7 Name Class/ guest Opening room inventory Aquamarine 4*/ The Mandarin 4*/ Sadovoe koltso 4*/ NOVOTEL City 4*/360 1Q2013 Nikolskaya Kempinsky Moskva 5*/211 2Q2013 Sheraton 4*/342 3Q2013 Sheremetyevo Airport Hotel Sky Point (Sheremetyevo) 3*225 3Q2013 Mercure Paveletskaya 4*/149 4Q2013 Adagio Paveletskaya 4*/94 4Q2013 Ibis Paveletskaya 3*/190 4Q2013 Hilton Garden Inn New Riga 4*/ Moskva 5*/ Marriott Novy Arbat Location Features At the present moment qualitative supply footprint retains non-uniform distribution with a vast majority of guest room inventory in Central Administrative District (CAO) (46% of quantity supplied). Provided that most of them are qualified as 4-5* hotels (38% of all guest room inventory). 17,2% of all hotels of the city are functioning in the North-East Administrative District (NEAD) where the Facility is situated and where most of them are qualified as 3* hotels. Remaining number of hotels uniformly distributed within other districts. Smallest amount of hotels are situated in South-East Administrative District (SEAD) as it is the least popular touristic area of the city 1% of guest room inventory. 5* category hotels are presented in CAO and South Administrative District (SAD). Distribution of hotel room inventory over districts, rooms Prepared by GVA Sawyer

8 Demand Domestic Tourism Persistent and stable demand for hotel services in is formed by Russian citizens who visit for business and professional purposes, as well as for recreation, leisure, treatment and other. Russian residents from other cities are in the order of 30-50% of all tourist traffic visiting for a short stay. Highest proportion of Russian residents among hotel guests numbering 2,5 MIO was achieved in 2008 (just only registered by transport services). However, crisis period of 2009 had decreased this index-number on 10%-20%. Most of Russian residents arrive to in business and professional purposes (50%). Almost third of Russian residents visiting the capital note tourism purposes of their trips and this index had been increasing within the period from 2004 to 2009 until a drop in demand occurred because of the crisis. According to calculations of The Committee for Tourism and Hospitality Industry of official number of tourists visiting Russian capital shall exceed to 5 MIO persons in the present year of which 50% are business-tourists. Foreign Nationals Visiting Statistically, almost every 6th foreign national visiting Russian Federation travels to. Speaking in general about foreign nationals visiting Russia, a cyclic nature of such visits is observed. Flow recovery after the crisis of 1998 had been achieved only by Within the following two years tourist flow decreased, however, over next 3 years it reached new upper bound, which was pegged in 2008 when was visited by approximately 25 MIO foreign nationals. Generally speaking, foreign tourists are formed by two basic groups: visitors from CIS countries and visitors from non-cis countries. Among visitors from CIS countries most numerous are Ukrainian nationals, on the second place tourists from Belarus, residents of the Republic of Kazakhstan are on the third place, next nationals of Azerbaijan and Uzbekistan. A total of nationals of CIS countries arrive to yearly. According to data provided by the Border Service of Federal Security Service of the Russian Federation number of international arrivals to in 2011 in comparison with 2010 had increased for 12% and amounted 4,47 MIO individuals. This index was exceed for 8% in 2010 in comparison with For the I Q. of 2012 almost 1,1 MIO of international arrivals had been recorded in airports which is 21% more than for the relevant period in Non-CIS countries residents are of the order of thous. tourists and more than 80% of all foreign nationals visiting for different purposes annually. In the first place among visits for tourism purposes come German nationals (309 thous. individuals), second place goes to Chinese tourists (182 thous. individuals). Third and fourth places are taken by France (135 thous. individuals) and USA (134 thous. individuals). According to the forecast of Committee of Tourism number of tourists shall increase to 7,32 MIO tourists by 2016, of which 3,8 MIO tourists are Non-CIS nationals. In long term prospect number of tourists shall increase up to 20 MIO individuals per year by For the purposes of realization of this objective a State program Development of recreational and tourism industry in was established. Even though, declared volumes of tourist flow shall not be as extensive in real life, the city shall experience a lack of average price hotels in the medium term. Prepared by GVA Sawyer

Purpose and Duration of Stay It is worth noting that due to focused actions of the Government of in respect of strengthening tourism appeal of within last years, an interest in holiday trips to the

9 Purpose and Duration of Stay It is worth noting that due to focused actions of the Government of in respect of strengthening tourism appeal of within last years, an interest in holiday trips to the capital has increased absolutely among all categories of visitors. In the structure of demand for qualitative hotel services business travelers dominate in a total amount of 52% The duration of stay of foreign tourists in is 2,9 days in comparison with 3,5 days in Occupation Level Following the results of first three quarters of 2013, average occupation level of hotels increased slightly in comparison with relevant period of the previous year, and for 3* category hotels was equal to 63%-65%, for 4* category hotels 66%-71%, for 5* category hotels 60%-67%. There has been a trend of increasing demand for hotel services in comparison with crisis period. This is reflected in loading of guest room inventory, as well as in the number of tourists arriving to. Maximum demand is observed within week days during the period of high business activity of the city: in spring months (March May), autumn months (September October) and in the period of high recreational activity: in summer months. During high season occupancy of hotels of all categories might reach level of 95%-100%. It is necessary to take into consideration seasonal drop in demand in the hotels in connection with New Year holidays. According to estimations of GVA Sawyer experts, within the period of in comparison with an increase in tourist flow is expected. Occupation level of the hotels shall increase approximately in about 2%-4% in comparison with parameters of the analyzed period. International operators segment in the structure of guest rooms inventory functioning under international operator s brands Prepared by GVA Sawyer

10 Investment Transactions List of significant investment transactions at the hotel real estate market, Property name Seller/Owner Buyer Deal value Natsional Hotel, OJSC Government of Hilton Leningradskaya (30% share of / 7,7 thous. sq. m.) Residential Complex Sadovie Kvartali, a project of hotel complex Lux Hotel (managed by Mandarin Oriental Hotel Group), IFS "Sammit" (Hotel InterContinental Tverskaya is considered to be a part of which), territory of RTI "Kautchuk" Government Metropol Government of of Smart Finance Group CJSC Sadko Hotel OJSC (owner of the remain 70% on the basis of shared ownership) $156 MIO $36 MIO (for 30% share) Boris Ivanishvily BIN Group $982 MIO Okhotniy Ryad Delux (affiliated company of Alexander Klyachin, the owner of Azimut Hotels) $296 MIO Rooms Date of inventor the y Deal/new s 201 IV Q I Q III Q IV Q III Q Budapesht Government of Radisson Slavyanskaya Government of Renaissance Olympic, 4 Magnitogorsky metallurgitchesky kombinat, OJSC Six hotels of Alrosa network (Including ones in : Hotel Alrosa na Kazachem, 4 stars, total area sq.m. 16 guest rooms) Diamond company Alrosa ( Alrosa Hotels, CJSC) NovoStroy+ $34,5 166 IV Q. MIO 2012 Hotel-Invest LLC $ IV Q. MIO 2012 Investor Alexander $ II Q Klyachin (the MIO owner of Azimut Hotels) Nord LLC $69 MIO - II Q registered in St. Petersburg General Trends Increase in foreign tourist flow to which according to preliminary surveys as of the end of 2013 shall be equal to 4%. There is a growing average index of revenue per available room (RevPar) which is equal to $117. For luxury segment hotels this index equals to $230, $155 (upscale), $120 (midscale). There is a concernment of international hotel operators in incensement of number of hotels in Average value of room rates almost remains unchanged. Hotels operational activity effectiveness improvement influences revenue increase in respect of providing additional services (food, conference services) etc. Prepared by GVA Sawyer

11 Appendix 1. Russian Classification System A short list of requirements to hotels depending on their classification (according to the new Russian system). Category Description 1* Internal telecommunication (without stepping outside of the hotel) or the call button staff in all rooms; local, long-distance phones in the lobby; all rooms must be at least 9 sq.m; the bathrooms must be not less than in 25% of rooms; the fan in areas with a hot climate; all rooms must be supplied with toiletries - paper, soap and towels; the lobby for TV is required, linen changed has to be made every five days; an iron and a first aid kit must be provided on request; the restaurant is mandatory. 2* Internal telecommunication must be in all rooms; the area of an one-room single room must be at least 9 sq.m, the area one-room double must be at least 12 sq.m., the bathrooms must be not less than in 50% of rooms; the fan must be in areas with a hot climate; restaurant or other types of food availability is mandatory; baggage tray must be provided upon request; personnel uniform; changing of bed linen is 1 time in three days, breakfast free should be included 3* Backup hot water supply; the waiting time elevator is not more than 45 seconds; local telephone connection from the room; bathrooms must be in all rooms; air cooling or air conditioning in areas with a hot climate; reception with sitting area, individual safe or safety deposit boxes at reception; carpet in the opening in the corridors; towels changed daily; decorative gardening, linen change once in three days; dry cleaning during the day; booking and sale of tickets; different dining options. 4* Entrance for guests with a visor on the way from the car; air heat curtain, installation of water treatment; year-round air conditioning in all residential premises, domestic broadcasting; elevator in the building more than two stories; the waiting time elevator is not more than 30 sec.; internal, city, long-distance and international ones-telephone communication of the rooms; suites; all rooms must be at least 12 sq m; the area of the bathroom is not less than the 3.8 sq m; safeguard the health of the alarm system in the corridors; individual safe deposit boxes at reception or individual safes in the rooms; thermostat for the individual adjustment of temperature; recreational area of the reception with the filing of drinks and music broadcasts; business centre; swimming pool or sauna with mini-pool; closet near public areas, business centre, gym, swimming pool, shops and shopping kiosks; several rooms restaurant; changing of bed linen is daily; in the bathroom bathrobes and bathroom slippers; booking and sale of tickets in theatres; tour bookings; room service round the clock. 5* All the same, that in a 4*plus rooms of more than 14 sq m, medical room, conference hall. Appendix 2. International Classification System Class One star * (economy class) Two star ** (middle class) Three star *** (first class) Description Generally, small hotels which are operated by the owner individually. Usually these are two-, three- or four-storey cozy buildings. It is quite often that such hotels are situated near commonly visited attractions, big road junctions and are convenient for the public transport. The furniture and the building are clean, however meet only basic requirements. Most of such hotels do not have a restaurant, however, generally, a budget place to have a meal can be found somewhere nearby. Possibility of visit of guests after specific time can be limited. Typical national chains in this category Econolodge, Motel б. Usually these are representatives of independent and branded hotel businesses with a reputation of qualitative stable service provider. These are the hotels of small or medium size, situated near commonly visited attractions with a reasonable price. Rooms have a phone and a television. Some hotels of this class provide limited restaurant service, however room service and concierge service are not provided. Typical national chains in this category Days Inn, LaQuinta Inna. These hotels usually have spacious premises, convenient rooms and well decorated halls. Generally, concierge service is not provided. Such hotels are situated near major highways and in business districts, not far from leisure and recreational facilities with medium or high prices. Usually such hotels have medium size restaurant. Room service is provided. Commonly, parking service is provided. The hotel has a fitness center and a swimming pool. Typical national chains in this category Holiday Inn, Park Inn, Prepared by GVA Sawyer

12 Class Four star **** (premium class) Five star ***** (Deluxe class) Description Ramada Generally, these are big hotels with spacious registration desk, registration service and concierge service. Hotels of this category usually are situated near hotels of the same class, and commonly near big shopping malls, restaurants and other inviting recreational places. Service level is essentially above the average, rooms are well lightened and decorated. Restaurants provide a variety of choice. Some of them suggest continental breakfast and/or happy hour treats. Room service is provided within most time of the day. Garage, concierge and parking services are provided. The hotel has a fitness center and one or more swimming pools. Typical national chains in this category Hyatt, Marriott. These are the hotels suggesting hospitality and service at the highest level, including individual service. Mostly all places of this class are large, however, sometimes, small local independent hotels suggest elegance and coziness which can not be found in bit hotel chain facilities. Allocation of such hotels can vary: very exclusive countryside places or city centers. Hotel s lobby and halls are spacious, rooms are modernly furnished, bed sheets are of highest quality. Rooms have video recorders, jacuzzi, video library, heated bath and lots of other favorable things. Such hotels might have up to three restaurants with a variety of choice of dishes. 24 hours room service. Garage, concierge and parking services are provided. Possibility of visit of a fitness center. Typical national chains in this category Ritz Carlton, Four Season, Kempinski. Prepared by GVA Sawyer

13 GVA Worldwide hotel real estate market review, October 2013 Australia Austria China Cyprus Denmark Estonia Finland Germany Great Britain Greece Hong Kong (PRC) Hungary Ireland Italy Lithuania Netherlands New Zealand Poland Russia Sweden Switzerland Contacts Head office () Bernikovskaya Embankment House , Russia, Nikoloyamskaya St., 13, str.17 Тel: +7 (495) Fax: +7 (495) Office in St. Petersburg BC Mir, Efimova St., 4a, office St. Petersburg, Russia Тel: +7 (812) Office in Krasnoyarsk Office in Krasnodar Prepared by GVA Sawyer

Brief review of hotel real estate market in Moscow

Brief review of hotel real estate market in Moscow 2012 Prepared by GVA Sawyer 2013 1 Hotel real estate market in Moscow The number of hotel rooms commissioned in Moscow in 2012 was the least as compared