INVESTMENT PROSPECTUSinvestellar.com/wp-content/uploads/2016/09/Bansko... · 2016-09-14 · a...

INVESTMENT PROSPECTUS

*InveStellar IrelandRoseacre, Kilgobbin Rd,Dublin 18, Ireland +353 868 192 380

*InveStellar Bulgariaul. “Nikolay Haytov” 2,1113 Sofia, Bulgaria +359 2 489 0124

www.investellar.com

March, 2016


TABLE OF CONTENTS

CONFIDENTIAL LETTER & IMPORTANT NOTICE............CONTACTS...............................................................................GLOSSARY............................................................................... 1. EXECUTIVE SUMMARY.......................................... 2. PARTICULARS OF THE COMPANY..................... 1.1. Assets Overview..................................... 1.2. Project Overview..................................... 1.3. Location.................................................. 1.4. List of facilities........................................ 1.5. Referent Projects................................... 3. MARKET INFORMATION...................................... 1.1. Economic Concerns................................ 1.2. Overview of the Region........................ 1.3. History of the development in Bansko 1.4. Bulgarian Tourism Sector Overview... 1.5. Price Levels............................................. 4. FINANCIAL OVERVIEW......................................... 1.1. Transaction Overview............................ 1.2. Expenses................................................. 1.3. Other Considerations............................ 5. EXIT STRATEGIES .................................................

March, 2016

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CONFIDENTIAL LETTER & IMPORTANT NOTICE

This Investment Prospectus (“IP”) contains confidential information regarding the invest-ment in Sunset Ski, a resort development in Bansko, Bulgaria (“Sunset Ski”, “the Group”, or “the Company”). The sole purpose of this IP is to assist the recipient with the invest-ment in the Company. This IP does not constitute an offer to subscribe for, or to purchase shares in Sunset Ski, and no contract shall be entered into on the basis of the information contained solely within. The information set forth in this IP is intended exclusively for the evaluation of the investment in the Company by those to whom it has been transmitted. The receipt of the IP is an acknowledgement that the information contained herein will be maintained in confidence and will not be disclosed to any third party, in any form, without the prior written consent of the Company. Neither this IP nor the information contained herein may be reproduced or used for any purpose other than to evaluate the investment potential of Sunset Ski. Sunset Ski, or its representative, Investellar Corp. (“INVESTELLAR”), makes no express orimplied representations or warranties with respect to the accuracy or completeness of theinformation set out in this IP. It does not purport to be all-inclusive or to contain all of theinformation that a prospective investor may need to evaluate an investment in the Com-pany. Nothing contained herein is, or shall be relied upon as a promise or representation regarding historical and future events or performance. Only those representations and warranties made in a definitive written agreement and subject to such limitations and restrictions, as may be specified therein, shall have any legal effect.

March, 2016


CONTACT

March, 2016

Any and all questions or comments regarding the Company and/or the proposed investment

process should be addressed exclusively to the advisors from INVESTELLAR listed below. On no

account should contact be made directly to the management, personnel, customers, partners or

suppliers of the Company without written permission by INVESTELLAR

Joseph SullivanManaging [email protected] Dublin: +353 86 819 2380

Zachary CohenManaging [email protected] Sofia: +359 (2) 489 0124

Joseph SullivanManaging Partner

Zachary Cohen Managing Partner

email: [email protected]

email: [email protected]


GLOSSARY

March, 2016

The Company, the Group,

Sunset Ski, The Project

INVESTELLAR

bln

CAPEX

EUR

EBITDA

est.

LTD, OOD

mln

th, k

USD



Sunset Ski

InveStellar Corp. LLC

Billion

Capital expenditure

Euro

Earnings before interest, taxes, depreciation and amortization

Estimated

Limited Liability Company

Million

Thousand

United States dollar


1. EXECUTIVE SUMMARY

March, 2016

The owner of Sunset Ski is developing a resort property – 4 residential/apart-hotel build-ings with 624 units in Bansko, the largest ski resort in Bulgaria. The construction of the building is still in progress – rough construction of Building A, B and D, while Block C is a greenfield project. However, once finished, the complex shall have a great potential for capitalization on the residential and especially on the commercial area. The complex is designed to operate as an apart-hotel with properties rented-out to out to tourists.



2. PARTICULARS OF THE COMPANY

The site is currently owned by Royal Ski Assets OOD, whereas, the name of the project will be Sunset Ski Apartments. The current owner of Block D, is negotiating to acquire through a new SPV called Sunset Ski Development (Blocks-A, B and C). The purpose of the Company is to develop a residential building in Bansko.

1.1. Assets Overview

The land plot of Blocks A-C is situated in the Assanitsa region, Bansko with area of 40,287sq. m built to rough construction with planned design of a resort complex with three buildings. Some of the features and amenities that are planned to be constructed include:

1.2. Project Overview

• Building A: total built-up area 7,557 sq. m, 145 residential units, parking spots,restaurant, lobby, kindergarten • Building B: total built-up area 11,131 sq. m, 225 residential units, parking spots,SPA center, restaurant, lobby, conference room, storage room • Building C: total built-up area 7,968 sq. m, 154 residential units, 11 parkingspots, SPA center on two levels, lobby, office • Building D: total built-up area 4.974 sq. m, 100 residential units, 9 parking spots,restaurant, sauna.

The investment plans are to build four separate residential buildings, along with adjacentrestaurants, recreational centers, maintenance facilities, situated in a hotel apartment (aparthotel) complex in the southern parts of the town of Bansko, neighboring the natural park Pirin in the Assanitsa region.

1.3. Location

INVESTMENT PROSPECTUSMarch, 2016



The entire complex, named Sunset Ski, is located to the west of Kempinski Hotel, next to the Gondola Lift Station. The height of the location opens view to the neighboring Pirin Mountain, along with its numerous ski runs. The complex is located 300 meters away from the Gondola Lift Station. The orientation of the site is as follows: • North – Rila Mountain / the town of Bansko; • South: Pirin Mountain; • East – Gondola and ski runs; • West – countryside.

1.4. List of facilities • Bar / Restaurant, • Reception, • Storage, • Underground parking, • Pool, Spa and Fitness Center.

1.5. Referent Projects • Sunset Resort Phase 1, 2 and 3: under con-struction, • Bellfield Apartments, Students Town, Sofia, • Whitewood Lodge, Bansko, • Whitewood Peak Bansko. • Selena Residence, Sunny Beach.

1.6. Main Principals • Joseph Sullivan - Sales and Marketing, • Zachary Cohen - Construction Management, • Boyan Bonev - Rental and Management. • Rick Post – main investor and shareholder, ex-Microsoft Operations Director Europe/Asia and Africa




3. MARKET INFORMATION

The Bulgarian real estate market is on the rise again, with property prices increasing since the second quarter of 2015. European Union membership, improving business and eco-nomic conditions, stable fiscal policy (10% fixed corporate tax), high disposable income (12%), pegged currency, proximity to and historical ties with key markets, such as Russia and Turkey, make Bulgaria a safe and lucrative investment destination. Recently the banking sector has been quite vivid and more relaxed financing options wereintroduced in support of the real estate market.

The land is located in the Assanitsa region in Bansko. The town is the administrative cent-er of the municipality of Bansko, which has approximately 9,000 inhabitants. The town is located in the south-west part of Bulgaria, Blagoevgrad county, near the town of Razlog. Pirin National Park is situated to the south of Bansko. This park is included in the United Nations list of national parks as well as in the UNESCO list of cultural and natural sites. The park is famous for its lakes, waterfalls, caves, age-old trees and historical sites.The town offers a variety of opportunities for recreation and relaxation during all seasons of the year. Bansko is popular due to the excellent ski conditions combined with distinc-tive folklore and ancient Bulgarian architecture. Due to the geographical location, snow cover is available from December through April, while the alpine specifications of Pirin Mountain provide excellent conditions for professional and amateur skiers. Additional visitors in the summer months are attracted by the exquisite championship golf develop-ment near Razlog (10km away from Bansko).

Additionally in the summer months, the area is home to a variety of outdoor festivals and musical events such as the Elevation music festival which attracts tourist from all over the region. By Decision № 640/24.02.2006 the City Council has identified five areas for construction inBansko and determined the architectural criteria by which the construction in the resort should be executed. The evaluated land area is located in the Third zone – Hotel area, which covers “Gramadeto”, “St. John”, “Sredoreko”, “Assanitsa”, “Gurovitsa”, “Kosherina-ta”, “Stragite” and “Karantiata”. Some of the features that characterize this area are:

1.2. Overview of the Region

• Functional limitations - apartment buildings - closed type, five star hotels,recreational sports complexes, relatively autonomous functioning;

1.1. Economic Concerns




• Urban parameters - height up to 10 m cornice, intensity 1.5, Pl-30% freeconstruction, separate construction solutions to specific spots, minimumproperty land size of one acre; • Location of the area - separated from the historic center of the town; • Relationship with local architecture - a free interpretation, not literal utteranceswith local architecture; • Purpose of the area - a high level of maintenance.

The property market in Bansko, which has developed dynamically since 2004, slowed down since 2007. Some reasons for the decline were worries following the unclear situa-tion regarding the implementation of “Natura 2000“, as well as the temporary ban on the issuance of building permits for sites located in the area of Bansko in the summer of 2007. Naturally, the ban on construction caused developers to withdraw from the real estate market. Therefore, sales of land and construction sites in Bansko slowed down. In 2007, land and apartment prices remained low, but new sales of apartments declined. At this time most land purchases were intended for development. However, in 2007-2008 this proved impossible and despite lower prices, demand in the region stalled. Sellers in turn took a stand-by position preferring to hold on undeveloped land until prices stabilized.

As previously mentioned, the seasonal construction ban was imposed after the ski resort area began to experience extreme construction activity, which was negatively impacting tourism in the region. Measures to ban new developments came amid intense construc-tion activity in order to solve problems with water and sewage capacity, as well as gas and power supply for the new developments. Forecast then predicted that after the final infrastructure regulation in the southern peripheral areas was completed, property prices would remain stable. This also applied to higher quality construction, which included large lawns and offers facilities for a variety of recreational activities throughout the year.

Among the main reasons for the excessive building were booming demand on behalf offoreigners and a constantly increasing cost of holiday properties abroad. The promised return on investment from holiday apartments, however, was not realized in full. By the end of 2006, the average price per sqm of real estate units was approximately EUR 1,400. In contrast, at the end of 2011 it had descended below the level of EUR 700 to 850 per sqm. Currently, the average offer price is in the range of EUR 400-700. The prices at which the properties were offered often varied in great range depending on their type and loca-tion.

1.3. History of the development in Bansko




During the intensive development period in Bansko analysts concluded that buyers were seeking a higher quality of construction. The resort area was already saturated by small buildings and apartments, which attracted mostly low-income Britons. The best option for investors were villas with low construction density and additional services - spa cent-ers, tennis courts, swimming pools and other add-on amenities. However, after 2009 investment in the area became more conservative. One reason is the exhaustion of the best locations within close proximity to the lift stations. Another issue was difficulty in the marketability of the units for sale. At the time, incentive for new investment was the con-struction of a second gondola lift to the Shiligarnika Peak. The strategy of the municipality was to synchronize the construction in the region with the construction of new ski runs and facilities.

On the other hand, the construction of the second gondola has been recently speculated to initiate and voting on its procedure is expected to happen in the next 24 months.During the period 2008-2015 analysts witnessed a withdrawal of British citizens from the real estate market in Bansko. The process was a consequence of both the mortgage crisis in the US and the UK, the tighter requirements for lending in those countries, as well as the problem of overbuilding. Investors then turned their attention to cheap rural proper-ties.

After the retreat of the British from the holiday market, Russian, Spanish and Greek buyers took their place. There were already several large Russian investments in Bansko - com-plex “Downtown”, holiday village with a hotel-casino on the “St. John“ hill, “Sapphire Resi-dence”, hotel “Gardenia” and others with mixed ownership. The majority of the dwellings in these complexes were purchased by Russians. Growing interest of investors from Spain was also registered, where the increase of the interest rate on Spanish mortgage loans led to a shrinking local real estate market.

Annual tourist flow to Bulgaria is expected to reach 10.6 mln by 2020 as per the World Tourism Organization. One can expect higher promotional budgets in the tourism sector provided by the state, which would boost visitors’ inflow. Domestic tourism popularity has been increased due to the reduced travel budgets of Bulgarian families. Bulgaria is a well-known winter ski destination for Europeans. Over USD 40 mln invested in Bansko’s infrastructure over the past decade. Countrywide occupancy rates in the tour-ism sector for the period 2004-2015 ranged between 41% and 55%. The ADR for the same period was EUR 75.

1.4. Bulgarian Tourism Sector Overview




Due to the active development in Bansko over the past decade and the pre-crisis real estate boom in the region the accommodation capacity in the resort was increased signifi-cantly. The recently developed Pirin Golf & Country Club is a state-of-the art complex near Ban-sko, est. construction cost for the development: EUR 68mln. New projects, however, are not likely to be pursued with high intensity in the short run.

Sofia has been steadily growing in terms of numbers of passengers that are flying in and out of its international airport. 3.8mln passengers were served in 2014, which is a 9% increase year-onyear. Direct flights are available to 95% of Europe’s capital cities and also to major Middle East destinations. Furthermore, in 2015 (expected to continue in 2016) many new low cost destinations were opened from Sofia airport (WizzAir, FlyDubai, Fly Nikki, Easy Jet and Ryan Air) adding Bari, Palermo, Naples, Geneva, Munich, Cologne, and Dublin (exp. 2016).

At the end of 2009 and the beginning of 2010 the list prices of one-bedroom apartments in Bansko varied widely - from EUR 450 to 1,400 per sqm, with an average price of EUR 800 per sqm. A more detailed study shows that in all three segments, offers for properties in good location varied in the range from EUR 750 to 900.

By the end of the construction boom in Bansko, demand for land in the region also dropped significantly. Weak demand for holiday homes in mountain resorts logically led to a decline in land prices and in the last three years average offered prices in the seg-ment fell by approximately 50% according to the data of Bulgarian Properties. Agricul-tural land was traded for EUR 180-220 per sqm, while today prices vary between EUR 70-80 per sqm in this area. In the last three years developers began to rethink their ways of financing construction projects. Saturation of the housing market caused the switch to construction of other types of property (e.g. industrial sites) or their rehabilitation.

The holiday property market was the first segment to feel the impact of the global finan-cial turmoil. The result was realized when the massive holdings of Irish and English inves-tors suddenly becoming available as they fled the market causing yields to plummet. The largest drop in average asking prices over the last three years was reported for one-bed-room apartments; however they are still considered the most marketable as the customer base shifted to lower income buyers.

1.5. Price Levels




Currently, the least expensive properties being offered in Bansko are studios outside the town of the ski resort at a price of EUR 400 per sqm for fully completed units. The low-est offers on the market are for EUR 350 per sqm is the amount requested for a furnished studio of 38 sqm. From its highest levels in 2008 asking prices of holiday properties in Bansko have fallen by 55%. Price is very sensitive on location and quality of construction, as the ranges may vary by 200% in some cases. Luxurious developments appear to be the most marketable and able to charge the highest price per sqm. For example, units at completed premium aparthotels in the area such as St. John, Sapphire Residence, Belvedere, Mountain Residence and Belmont have asking price in the range of EUR 750 – 1000 per sqm. Other completed premium developments in the region like Regnum Hotel & Spa and Pirin Golf & Country Club are offering a variety of apartments from 30 to 120 sq. m at prices ex-ceeding USD 1,200 per sq. m. The number of properties for sale in Bansko is high. Proper-ties are offered by contractors, as well as private investors, mostly British, who previously bought apartments in the resort. To date Russian citizens are the most frequent buyers in the winter resort. Bulgarians are also increasingly active buyers, especially at lower price points. Russian interests are directed mostly towards finished homes with use permit, located close to the gondola lift. A mandatory condition for these buyers is the quality of the infrastructure in the area. Greek investors are also interested in buying properties in winter resorts. There is a return of British buyers due to the strong price if sterling and with an increase of flights from the UK. The resort is in great position to capitalize on the international exposure generated by the World Cup ski races held in Bansko in terms of real estate transactions. Compared to 2010, Bansko realtors report a significant increase in sales activity in the area as a result of the completion of the multiple construction sites and the overall high-quality feel for the tourists compared to other resorts in the Balkans.

4. FINANCIAL OVERVIEW

The Developer is seeking an investor for Blocks A, B, D for a total of €2,600,000, which the investor will receive 234 completed apartments with a balancing mortgage of €2,357,000. The units will be fully furnished and have an annual income of €1,500 per unit guaranteed from the rental contract with Sunset Resort Management (currently manag

1.1. Transaction Overview




ing Sunset Resort Pomorie 5* and renting to both TUI and Neckermann since 2007). The income on the units will cover the mortgage and produce a yearly yield. Investors may uti-lize their annual yield as part of the payment and receive discounted rental prices for both Sunset Ski and Sunset Pomorie. Their investment will be made through a Bulgarian Holding company in which all their units will be transferred to on completion in 2016/2017.

Construction is planned on a phase-by-phase basis with income from sales financing future subsequent phases. Estimated capital expenditure is €6,874,825 in order to finish buildings A, B and D: The mentioned amounts are just related to construction cost.

1.2. Expenses

The investors can expect high ROI due to suppressed market prices. The cost of construc-tion is low: €450/sqm, based on the previous experience of the developers with the con-struction of over 3,000 finished apartments.

Based on the success of Sunset Resort, the largest 5-star hotel on the Black Sea in Bu gar-ia, the developers decided to replicate the model into the top ski resort on the Balkans. Sunset Resort operates full time with occupancy rate of over 90% during the season.

The developers have close relationship with UniCredit and Perius Bank since 2007 and arecurrently using them for their other resort development at an interest rate of 4.5%. There have been preliminary takes with them for financing this project.

1.3. Other Considerations

Sunset Ski anticipates exit strategy no later then 2021, which will include either a lot sale of the entire project or of one of the buildings, or a sale-off of the individual units. The in-vestor envisions a net profit of €3,695,940 for the investor, which would be split between collected monthly rental revenue and sale of the units (est. €1,000+ sale price per sq. m.) after the holding period. The return on equity investment is estimated at 125%+.

5. EXIT STRATEGIES

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