Business Plan Delisi Hills

BUSINESS PLAN

DELISI HILLS RESIDENTIAL REAL ESTATE DEVELOPMENT

www.gf-capital.com

www.gf-capital.com Prepared by Luxury By Marcela G Delisi Hills Business Plan I Confidential I Page 1

INDEX Executive summary 1.

2.

3.

4.

5.

6.

Market overview 1.1. Political and economic overview 1.2. Georgia socio-economic overview 1.3. Tbilisi residential market fundamentals 1.4. Tiilisi residential market suply 1.5. Main development project of tbilisi 1.6. Tbilisi resindential market demand 1.7. Tbilisi market analysis summary 1.8. Epic development – Completed & Delivered Projects Project description 2.1. Location 2.2. Project description 2.3. Master plan 2.1.1. Master plan 2.1.2. Surrounding area and father development considerations.

2.4. Apartment plan Marketing plan 3.1. Sales and marketing 3.1.1. Usp 3.1.2. Branding 3.1.3. Sales channels 3.1.4. Marketing communication 3.2. Pricing strategy Project management 4.1. Management 4.2. The project development phases Financial plan 5.1. Assumptions 5.1.1. Construction cost 5.1.2. General and administrative 5.1.3. Sales assumptions 5.1.4. Equity and Debt Financing Assumptions 5.2. Financial statements 5.3. Ratio analysis 5.4. Project profitability 5.5. Sensitivy analysis 5.6. Exit strategy Attachments 6.1. Curriculum Vitae 6.2. Questionnaire

4 4 5 7 9 11 11 14 14 17 17 17 18 18 19 20 22 22 22 22 22 22 23 23 23 24 25 25 25 25 25 26 26 27 27 28 29 29 29 30

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EXECUTIVE SUMMARY Delisi Hills is a modern residential complex in City of Tbilisi Georgia. The Sponsor and developer of this project is Epic Development, an experienced and reputable real estate developer with over 20 years’ experience in real estate development throughout Georgia. The sponsor provides land, detailed designs, project preparation, permitting construction and related costs all together evaluated at USD 2.8 million to date. This business plan describes in detail the development, marketing and sales Delisi Hills residential project.

The sponsor is looking for long-term financing to the Delisi Hills project. The total debt financing need is USD 13,7 Million which would be disbursed in 4 payments during the 5 year of the project construction phase.

Construction is phased in 4 stages which in total lasting 5 years to address project risks, opportunities and sales fluctuations. Commencement of construction is planned in the last quarter of 2015 – first half of 2016 and first sales of finished units will be made in late 2016, beginning 2017.

The project will be supported by Epic Group – real estate development and management group consisting of experienced specialized companies including design, construction and real estate marketing.

Delisi Hills is a residential project comprising of 9 multistory buildings in the central part of Saburtalo district of Tbilisi Georgia, it is located in the middle to upper income residential area with breathtaking views of the city and excellent space. In addition to a 2 level car parking facilities, the complex will have green area sports complex and recreation facilities for kids and adults.

The National Georgian Statistics Office indicates that the construction sector annual growth rate was 35%. This business plan assumes a demand for residential properties growing at a constant 5% rate over the next 5 years.

This assumption is based on a conservative conversion rate of issued construction permits between 2011 2013.

Total turnover achieved in the Georgian construction sector during 1 st and 2nd quarters of 2014, amounts to 1.2 billion GEL, which is 25% higher than turnover in the same period of 20131, which is well above the assumed growth rate. Above mentioned trends create a very attractive precondition for Delisi Hills project targeted at medium segment – the largest and the most dynamic segment of residential real estate market in Tbilisi.

The developer already completed the following activities:    

Purchased the land paid in full, for USD 2.077 million.

Master plan development Details design Construction permitting

The total capital required is USD 16.5 million, out of which USD 13.7 M. is debt financing and USD 2.8 M. equity participation.

The project generates healthy 41% IRR for equity and 12% IRR for assets, with total of USD 3.3 Million net income.

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Calculation is based on the data published by the National Statistics Office of Georgia Prepared by Luxury By Marcela G Delisi Hills Business Plan I Confidential I Page 3

1

MARKET OVERVIEW

1.1 POLITICAL AND ECONOMIC OVERVIEW After the “Rose Revolution” of 2003, the democratic and economic reforms have been introduced that have supported an unsurpassed growth in wealth and living standards for the Georgians.

Georgia today has a population of around 4.4 million people, out of which 1.3 million live in the capital city Tbilisi. It is a democratic semi-presidential republic and is a member of the Council of Europe. The GDP is about US $26.4 billion in 2012 or GDP per capita (PPP) of about US $6000. The per capita GDP (PPP) is considerably lower than that of most of its neighbors: Russia is higher by a factor of 3.0x, Turkey by 2.5x and Azerbaijan by 1.7x (only Armenia is on par with Georgia). Georgia is considered an emerging economy posing strong growth.

Economy Georgia achieved robust economic growth between 2003-2014, averaging 6.3 percent annually, following structural reforms that stimulated capital inflows and investment. The reforms helped to improve the business environment, strengthened public finances, upgraded infrastructure facilities and liberalized trade. Growth was also supported by increased foreign direct investments (FDI) and was driven by capital accumulation and sound use of excess capacity rather than by net job creation, with productivity gains concentrated mainly in the nontradable sectors. GDP per capita increased from $919 in 2003 to $3,763 in 2014 (in current prices, 2014 preliminary data). GDP growth rate amounted to 4.7% in 2014. According to IMF, Georgia has one of the highest forecasted GDP growth rates among Eastern European countries and its neighbors during 2014-2015. Major foreign investors in Georgia include: BP, Socar, Heidelberg Cement, RAKIA Group and MAF. Government Georgia is a democratic, Presidential-Parliamentary republic whereby the President is the Head of State and the Prime Minister is the Head of Government.

As a result of the presidential elections held on October 27, 2013, Giorgi Margvelashvili was elected as the president from the coalition "Georgian Dream". The new cabinet of ministers was established in November, headed by Irakli Gharibashvili.

According to the declared strategy, joining the EU and NATO are among the country's top foreign policy objectives.

Georgia’s regional position: Internationally seen, the safety and political security of a country is depending on Georgia’s strategic geographical position, there are several important oil and gas pipelines that connect the Caspian Sea, the Black Sea and the Mediterranean.

Georgia’s economic politics after the governmental changes have been aimed at strengthening the economic development of the country. As a result, the GDP has been steadily growing by a solid 7-8% per year. The public external debt ratio is at around 26% of GDP 2, while the inflation rate remains low for an emerging economy at 5-8%.3 Recent Developments In June of 2014, the Association Agreement between Georgia and the European Union was signed. This agreement aims to expand political and economic relations between Georgia and the European Union and to gradually integrate Georgia into the European Union’s internal market.

2 3

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Georgia’s international ratings have been revised In 2014 and 2015:

  

Standard & Poor’s: BB- Stable (Affirmed in May 2014) Moody’s: Ba3 Positive (Affirmed in August 2014) Fitch Rating: BB- Stable (Affirmed in April 2015)

Georgia was ranked by the 22 among 178 countries in Economic Freedom Ranking by Heritase Foundation.

As per in the World Bank’s “Ease of Doing Business Index 2014”, Georgia ranks 15 out of the surveyed 189 economies. Georgia is consider the forth safest country in the world by Global Peace Index (GPI) issued by Institute for Economics and Peace (IEP) in 2015.

Business and Investment Environment Georgian government efforts to reduce corruption in public and private sectors have significantly improved. By the latest survey it stands 15th position among 189 countries. Ranks as 1st in property registration, 3rd in dealing with construction permits, 5 in starting a business and 7th in getting the credit.

The Georgian tax system has been simplified, customs duties were reduced and procedures for granting licenses and permits were simplified. According to Forbes, Georgia was ranked as 4 least tax burden country in 2008.

Georgia enjoys free trade agreement with Turkey and nearly all CIS countries. Georgia is eligible for Most Favored Nation (MFN) treatment from all the WTO member states and is the member of WTO since 2000.

Georgia has been granted a Generalized Scheme of Preferences (GSP) treatment by the following countries: the EU, the USA, Japan, Canada, Switzerland and Norway.

The Association Agreement between Georgia and the European Union, signed in June 2014, includes the setting up of a Deep and Comprehensive Free Trade Area (DCFTA). The DCFTA has been enacted since September 2014, therefore products or services produced in Georgia can freely access to the EU market with more than 500 million consumers. DCFTA will contribute to economic growth, integration with world markets and global supply chains, and will open new prospects for Georgia and for entrepreneurs doing business in our country.

In 2015, the Government of Georgia began negotiations on signing the Free trade Agreement with the European Free Trade Association (EFTA) that unities Switzerland, Norway, Island and Lichtenstein. After the signing an agreement with the EFTA, market of high purchasing value will open for the Georgian products and services that unities 4 countries and more that 13 million customers.

1.2 GEORGIA SOCIO-ECONOMIC OVERVIEW Economic growth During the past two years Georgia has experienced a significant increase of GDP and remittances. In 2014, GDP is expected to reach USD 16.9 billion. According to the IMF, Georgia has one of the highest forecasted growth rates of GDP among Eastern European countries and its neighbors during 2014-2015.

The largest proportion of remittances is held by Russia with 50%, after which stands Greece with 14% and Italy with 8%.

Population The Georgian population is approximately 4.49 million. This figure has grown since 2006 by 2%. About 54% of the total population lives in urban rate that has been increasing since 2006.

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83.8% of the Georgian population is Georgians by ethnic origin. The second largest share - 6.5% are Azeri, followed by Armenians - 5.7% and Russians - 1.5%.

GDP and money transfers from foreign countries.

In recent years, Georgia has observed a significant increase of GDP. In 2013 the growth rate of GDP stood at 3.3% and reached USD 16.14 billion.

In 2013 money transfers from foreign countries grew by 11% and amounted to USD 1.48 billion. In the first half of 2014 the growth rate stood at 2% compared with the same figure of 2013. The biggest proportion of money transfers is held by Russia, with 50%, after which comes Greece - 14% and Italy with 8%.

Average household income The average household income in Georgia is characterized by a growing trend, but still remains low. In comparison to 2009, the average household income has increased by 57%. During 2009-2013 the average growth rate was around 10-12% annually.

The current average household monthly income stands at USD 533. Even though a growth trend is observed, Georgia is still classified by the World Bank as a Lower Middle Income country.

Positive trend in mortgage lending.

During 2010 - 2011, the growth rate of mortgage lending amounted 39% and the volume of issued loans reached USD 314 million. In 2012 a 34% decrease was observed in comparison with the previous year. In 2013, due to the marketing campaigns of commercial banks and reduced interest rates, the volume amounted USD 416 million. In 2014 growth rate of issued mortgages amounted 30% comparing with the same figure in 2013, and reached USD 541 million.

High tenure structure and average household size.

Home ownership in Georgia currently stands at 93%. Compared with other European countries it stands second only to Romania, with 96%. This is an indication that the rental market development is very low. Although it cannot be discounted that some of the population has not officially registered lease agreements. In Tbilisi the proportion of home ownership is 86%.

Average household size in Georgia is still very high and has been around 3.6 for the last few years. In the EU, the average household size is around 2.4.

The long-term forecast is that this figure will decrease as economic prosperity improves.

Tbilisi and Batumi are the main flows of new supply.

Residential real estate development in Georgia is dominated by Tbilisi and Batumi. In the rest of country the future pipeline is very poor and current stock is mainly represented by Soviet Union period buildings.

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Ongoing and pipeline residential project in Tbilisi amounts almost 2.9 million sqm under construction. During next two years supply will rise by 16,000 dwelling units and amount 360,000 dwelling units. In the last two years, strong demand has resulted in stalled projects being resumed.

There are 112 residential real estate projects under construction in Batumi, which amounts 1.2 million square meters construction area and around 12,000 dwelling units. Suspended construction activity in Batumi stands at a significantly lower level than in Tbilisi.

1.3 TBILISI RESIDENTIAL MARKET FUNDAMENTALS Population The total population of Tbilisi is 1,175,200. The mentioned figure has increased by 2% since 2009.

Compared with the other cities in Eastern Europe, it is of a similar size to Prague and Sofia. Over the next ten years Colliers International expects a 10% growth in population of Tbilisi.

Tbilisi Population growth dynamics

1,200.0 1,180.0 1,160.0 1,140.0

y = -0.6043x2 + 18.14x + 1052.5 R² = 0.9658

1,120.0 1,100.0 1,080.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Tbilisi population has grown by 95,000 inhabitants 1,060.0 during the last 10 years. In 2015-2019, the population is expected to reach 1,180,000- 1,190,000, growth of Source: Geostat 5,000-15,000. The main reason for growth will be natural growth of 4,000-4,500 people per year.

Another main reason for the demand growth will be growing marriage and divorce number. In 2015-2018 years total number of marriages and divorce is expected to grow to20-000-25,000 per year from current 12,000 per year level. Such positive trend is caused by significantly increased social programs supporting population growth and improving economic conditions. This dynamic positively will impact residential real estate market.

Target market segments – middle and upper middle segment

Tbilisi Pupulation dynamics 20,000

y = 16239x0.0295 R² = 0.7915

15,000

y = 11744x0.0463 R² = 0.8229

10,000 5,000

y = 170.75x2 - 858.65x + 5305.8 R² = 0.693

Birth

Death

Natural Growth

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2018

2017

2016

2015

2014

2013

2012

0

2011

On average this segment buys 2-3 room apartments with 1-2 bedrooms. This segment is particularly sensitive to apartment total cost value, which includes costs associated with buying, renovating and furnishing apartment. To service the house loan, total net revenues of the family buying 2 room apartment should be more than GEL 2,000 and 2,500 for 3 room apartment, with the following assumptions:

2010

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-

-



House loan is limited up to 70% of the apartment buying cost;2 room apartment area is 57 sq.m. including balconies; 3 room apartment area is 77 sq.m. including balconies; Total cost including buying and renovating apartment (excluding balconies) is USD 950 per sq.m.

Loan term – 12-20 years, interest rate 10%

Marriage and Divoce Synamics 30,000

y = 308.5x2 - 1211.9x + 11512 R² = 0.9762

25,000 20,000 15,000

y = 335x2 - 1626.2x + 9670 R² = 0.9166

10,000 5,000 0

y = 281.8x + 1974.5 R² = 0.9856 2010 2011 2012 2013 2014 2015 2016 2017 2018 Marriage

Upper middle segment typically buys 3-5 room apartment with 2-4 bedrooms. Apartment size for this segment ranges from 100-200 sq.m.

Divorce

Total

Target market segments – not married and young families with GEL 1500-2000 net monthly revenues



Typically this segment buys 1-2 room apartment with 1 bedroom. This segment is particularly sensitive to apartment total cost value, which includes costs associated with buying, renovating and furnishing apartment. To service the house loan, total net revenues of the family buying 1-1,5 room apartment should be more than GEL 1,500 and 2,200 for 2 room apartment, with the following assumptions: House loan is limited up to 70% of the apartment buying cost; 2 room apartment area is 39 sq.m. including balconies; Average nominal salary, GEL 3 room apartment area is 57 sq.m.

1200.0 including balconies; y = 54.753x + 490.94 1000.0 Total cost including buying and R² = 0.9811 800.0 renovating apartment (excluding 600.0 balconies) is USD 950 per sq.m.

400.0 Loan term – 12-20 years, interest rate 10% 200.0



This net monthly revenue segment is the largest and fastest growing compared to other segments;



0.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Average monthly salary dynamics will allow more than third of salary earning population to finance apartment purchase through bank loan:

Target market segments – Georgians living abroad This one of the key segments due to the size and spending capacity.

Georgian immigrants are one of the largest buyers of real estate in Georgia. Big portion of the immigrants’ transferred money is used for apartment purchase.

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State Russia Greece Italy Turkey USA UK Spain

Size of diaspora

FDI, 2012.

Remittances, 2012

Trade International Trade International (export) USD 000, (import) USD 000, 2012 2012

~ 800,000

25,557

747,499

45,816

473,797

159,617

2,182

50,949

102,871

53,330

270,969

87,064

29 979

142 777

1,392,938

33,804

74,038 19,715 27,813

226,171 20,851 15,853

213,157 115,084 80,305.

~ 400,000 (incl. 100,000 713 ethnic Greeks) ~ 7,000 975 ~ 60,000 (historic diaspora up to 2 mln) ~ 100,000 ~ 15,000 ~ 30,000

66,782 4,402

Tenure structure (home ownership) Home ownership in Tbilisi is high, as it is in Georgia. In the current period it stands at 86%. Compared with Eastern European cities the Tbilisi figure is second only to Bucharest. Such a high rate is an indication that development of the rental market is very low. However, it cannot be discounted that part of the population has not officially registered lease agreements.

Living area per capita The average living area in Tbilisi stands at 23 sqm per capita. The largest properties are located in Vake and Saburtalo district. The smallest living area per capita is represented in Chughureti (5.4 sqm) and Nadzaladevi (6.7 sqm).

According to the average living area per capita, Tbilisi stands between Vilnius and Budapest in comparison with the Eastern European cities.

1.4 TBILISI RESIDENTIAL MARKET SUPPLY Stock The total housing stock in Tbilisi equals to 344,000 dwelling units, of which the largest share was built during 1960-1990, so called "Soviet-type" residential buildings, of which significant proportion is deteriorated or damaged. After this period, in 1991-2000 there was a significant decrease in development, but after this decade residential construction picked up significantly. During 2013-2016, 21,000 dwelling units will be delivered.

Main market suppliers The Georgian residential market is dominated by local developers. Participation of foreign investors is limited to a handful of larger schemes such as Dirsi (Azerbaijan), Hualing (China) and Dona Group (Israel). Developers fall into the following categories: large-sized developers, middle-sized developers, small-sized developers and passive developers.

Large-sized developers includes companies that have large scale construction projects (over 50,000 sqm) and also are involved renovation, refurbishment and fit-out.

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The middle-sized developers are actively implementing middle scaled projects (from 10,000-50,000 sqm).

Small-sized developers are represented by developers of condominiums, limited liability companies and houses etc., whose total construction area is under 10,000 sqm.

Passive developers are those companies, who have encountered problems during development and have consequently suspended construction.

Completed Residential houses, sq.m.

1,200,000 1,000,000 800,000

Ongoing and future projects Currently there are 233 residential development projects in Tbilisi, covering 1,013,000 sqm land area and a total of 2,900,000 sqm construction area.

600,000 400,000 200,000 2007 2008 2009 2010 2011 2012 2013

In 2012-2013, the area of completed houses as well as issued construction permits increased substantially: The following is the number of real estate transactions in Tbilisi and Saburtalo district:

Tbilisi Saburtalo Saburtalo share %

2011 18,753 2,763 14.7%

2012 20,729 3,158 15.2%

2013 21,840 3,620 16.6%

2014 (6 month) 11,342 1,917 16.9%

Ongoing projects have been divided into several categories by selling price, such as premium, middle and low segments1. 45% of total supply is the middle and low segments, only 10% is represented by the premium segment.

Currently, from observed development projects around 19 units2 have suspended status, with a total area of 539,478 sqm it holds 19% of the total supply.

Issued construction permits According to the information provided by National Statistics Office of Georgia, during 2003-2013 over 10,000 Construction permits granted, sq. m. construction permits were issued in Tbilisi, which totally 5,000,000 amount 12 million sqm3 construction space. In 4,000,000 accordance to this period only 2,000 units were completed 3,000,000 with 2.3 million sqm. Despite such a negative 2,000,000 interdependence of these indicators, it should be noted that the quantity of completed constructions are 1,000,000 characterized by a growing trend.

1

The segmentation was based on selling prices reported from developers.

Premium segment - USD 1,200 and higher, Middle segment between USD 800-1,200 and Low segment from USD 400 to USD 800.

2009

2010

2011

2012

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2013

2

Suspended constructions include large-sized projects and/or small-sized suspended projects of the development companies, managing more than one project.

3

Permits for I-IV class buildings, new constructions and renewals.

1.5 MAIN DEVELOPMENT PROJECTS OF TBILISI The Largest Projects The following are the largest ongoing residential projects of Tbilisi:

1 2 3 4 5 6 7 8

Developer

Project Location

District

Dirsi AS Georgia Jei 1, Saba Plus Hualing Special Economic Zone Tbilisi Garden Axis MaQro Construction Epic Development Domus Development

Cholokashvili Str. Politkovskaia St. Tbilisi Sea Asatiani St. Palace 1, Saburtalo St. Green Budapest Delisi Hills 13 Tamarashvili St.

Isani vake Varketili Saburtalo Saburtalo Saburtalo Saburtalo Saburtalo

Construction Area, sq.m.

236,603 152,501 144,122 140,000 114,218 48,832 48,606 37,633

Completion Date 2015-2016 2014-2018 2015 2016-2020 2015 2016 2016-2021 2016

Segment Medium-low Medium Low N/A Medium-high Medium-high Medium Medium-high

Note: GDG (70, Abashidze St. 40,708 sq. m.), Metra Park, Lisi Development and M2 (Saburtalo projects) are not listed because of being higher segment players.

1.6 TBILISI RESIDENTIAL MARKET DEMAND The number of transactions in Tbilisi has been growing steadily. Since 2009 the average annual growth rate has been 5%. Only in 2011 was there a slight 2% decrease comparing with the previous year. In 2014 the growth rate amounted 5%.

Transaction volume In 2012, the residential real estate transaction volume was USD 774 million. In 2013 it grew by 7%. In 2014 transaction volume increased by 6% and reached USD 882 million.

Transaction distribution by districts The largest share of transactions is represented is Saburtalo district with 20%. Then comes Samgori, Gldani and Nadzaladevi, even though these parts of the city do not have the largest shares of supply, the high volumes are caused by low prices, as these districts represent city suburbs. Vake and Mtatsminda together, account only 10% of total transactions.

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Transaction distribution by size of dwelling unit4 The largest share of transactions is for small flats (< 50 sqm) in most districts. This difference is more pronounced in suburban parts of the city - Chughureti, Gldani, Nadzaladevi, and Samgori. Vake district holds the biggest portion of 150-250 sqm units in registered transactions. Most of these transactions occurred in newly built residential buildings, of a type with very low numbers in the suburbs, which is why the proportion of large apartment transactions is much lower in suburbs.

4

The figures are calculated using 0-250 sqm residential property transactions from the database of the National Agency of Public Registry.

Selling price by type Selling prices by type can be divided into three segments: premium, medium and low. Housing price by type varies from $630 to $1,680 per sqm depending on the location and condition of property.

The premium segment includes premium class projects with additional facilities such as renovation and fit-out. Selling prices starts from USD 1,200. The medium segment includes middle class projects where no additional facilities are provided. Selling price ranges from USD 800 to USD 1,200. This segment represents 45% of the development pipeline stock. Low segment residential units are mostly extended in suburbs of the city.

Selling price by district The most prestigious and expensive flats are represented in Vake, Mtatsminda and some parts of Saburtalo. In these districts the price per sqm is 40%-50% higher than the average price of other districts. Middle class supply occurs mainly in following districts: Ortachala and part of Avlabari. In this class, prices vary from $700 to $1,000 per sqm. Other districts are considered to be less prestigious and prices are comparatively low.

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Selling price of transactions:The average selling price is very stable due to new supply matching increased demand. In 2014 the market average selling price stands at USD 832.

Growing demand in Tbilisi.

Registered purchase transactions are following a positive trend in Tbilisi.

The average growth rate of selling transactions during last three years was 8% in Tbilisi. The volume of registered transactions in 2013 amounted USD 829 million. In 2014 transaction volume increased by 6% in Tbilisi (USD 882 million).

Selling price indices are increasing slightly.

The average residential real estate selling price in Tbilisi grew from USD 826 per sqm in Q1 2012 to USD 830 per sqm in Q4 2014.

Batumi has seen 6% price increase during last three years from USD 646 per sqm in Q1 2012 to USD 686 per sqm in Q4 2014.

The average selling price in Mtskheta is more volatile. Despite that by the end of 2014 the average price has increased by 49% comparing with Q1 2011, equaling to USD 418. Comparing to the same figure of Q3 2014 the average selling price increased by 14%.

Rustavi observed the 64% increase of average selling price during 2011ÂŹ2014. By the end of 2014 the mentioned index amounted to USD 386 per sqm.

The Georgian construction sector is one of the largest and fastest growing industries in the Country. As already mentioned in the executive summary the average growth rate of the construction sector in Georgia over the last decade was around 30% annually and the total turnover of the Georgian construction sector during 1st and 2nd quarters 2014 amounts to 1.2 billion GEL, which is 25% higher than turnover in the same period of 2013 4.

As statistics shows the total number of the completed buildings grew constantly during the last three consecutive years. This trend is very clearly illustrated by the total space of completed buildings reaching 2.2

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million M2 in 2013 which is around 60% higher than the results of the previous year. The charts below are visualizing the number and total space of the completed construction sites.

Supply Forecast Based on completed construction and granted permits analysis, we developed two scenario forecasts of the residential construction in 2015-2018 period for Tbilisi and Saburtalo:

Conservative Tbilisi Saburtalo

2015

2016

2017

2018

1,368,229

1,505,052

1,655,557

1,821,113

232,599

255,859

281,445

309,589

High Growth 2015

2016

2017

2018

Tbilisi

2,052,344

2,257,578

2,483,336

2,731,670

Saburtalo

348,898

383,788

422,167

464,384

1.7 TBILISI RESIDENTIAL MARKET ANALYSIS SUMMARY   

Due to the average unit is one or two bedroom

 

Young families and singles with stable medium to high income are interesting target group

The second largest number of apartments should be studios followed by 3-4 bedroom apartments; Georgian diaspora living in Russia, Greece, Italy, Spain and US should be prioritized; Emigrants living in Russia is the largest and financially the most attractive as potential buyers followed by Greece; Average area per person of 23 sq.m. And average apartment size of 83 sq.m. Were used in apartments planning to address the medium segment needs.

1.8 Epic Development – Completed & Delivered Projects SEVEN RELEASED PROJECTS OF THE DEVELOPMENTS BY EPIC GROUP LTD : HOUSE IN UPPER VAKE COMPLETED 8-STOREY APARTMENT HOUSE PROJECT IN ONE OF THE PRESTIGIOUS , QUIET DISTRICTS OF TBILISI , WITH THE MOST BEAUTIFUL VIEWS OVER THE CITY . TOTAL AREA -4900SQ. M. CONSTRUCTION WAS COMPLETED IN 2014. LIVING AREA IS SOLD OUT

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SHANDOR PETEFI STR, VAZISUBANI COMPLETED PROJECT , APARTMENT HOUSE AT SHANDOR PETEFI VAZISUBANI . TOTAL AREA- 2102 SQ.M. BUILDING IS COMPLETED IN 2013. L IVING AREA IS SOLD OUT .

STREET ,

APARTMENT DELIVERY STANDARD: • METAL-PLASTIC WINDOWS AND DOORS ON THE FACADE , • IRON ENTRANCE DOOR TO APARTMENTS , • POWER, COLD WATER, SEWERAGE AND GAS SYSTEMS INSTALLED IN APARTMENTS , • HAND- RAILS ON THE BALCONIES AND STAIRWAY ENCLOSURES, • SOFT CEILING • FACED HALL, ENTRANCE AND CORRIDORS POLISHED AND PAINTED

APARTMENT HOUSE IN VAZISUBANI COMPLETED PROJECT IN VAZISUBANI . TOTAL AREA -1137,5 SQ. M. BUILDING WAS COMPLETED IN 2012. LIVING AREA IS SOLD OUT HOUSE AT PLEKHANOV COMPLETED PROJECT IN ONE OF THE CENTRAL DISTRICTS OF TBILISI, PLEKHANOV . TOTAL AREA - 2167 SQ.M. BUILDING WAS COMPLETED IN 2013. LIVING AREA IS SOLD OUT\

APARTMENT DELIVERY STANDARD :

• INTERNAL PARTITIONS • POLISHED INNER WALLS • POWER SUPPLIED TO THE APARTMENTS • STRETCHED FLOOR • METAL-PLASTIC WINDOWS AND DOORS ON THE FACADE • IRON ENTRANCE DOOR TO APARTMENT • POWER, COLD WATER, SEWERAGE AND GAS SYSTEMS INSTALLED IN APARTMENTS • HAND- RAILS ON THE BALCONIES AND STAIRWAY ENCLOSURES • SOFT CEILING • FACED HALL, ENTRANCE AND CORRIDORS POLISHED AND PAINTED • FACED FAÇADE

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HOTEL IN METEKHI , HANGINF OVER MTKVARI 3-STOREY HOTEL BUILDING HANGING OVER MTKVARI RIVER FROM METEKHI SIDE AND LOCATED IN TOURISTIC ZONE OF OLD TBILISI (JORBENADZE STREET , OLD TBILISI DISTRICT ) THE HOTEL IS RENOVATED AT THE HIGHEST LEVEL AND MAY BE USED FOR YEAR ROUND RESIDENCY . TOTAL AREA OF THE BUILDING IS

354 SQ.M (BASEMENT , POWER MODULE , RESIDENTIAL FLOORS + TERRACE ).

DWELLING B UILDING IN KRTSANI COMPLETED PROJECT, FOUR BLOCK LIVING APARTMENT HOUSE IN KRTSANISI, near GOVERNMENTAL RESIDENCE . TOTAL AREA -12500 SQ.m. Building was completed in 2011. L IVING AREA IS SOLD OUT .

APARTMENT DELIVERY STANDARD : • METAL-PLASTIC WINDOWS AND DOORS ON THE FACADE • IRON ENTRANCE DOOR TO APARTMENTS • POWER, COLD WATER, SEWERAGE AND GAS SYSTEMS INSTALLED IN APARTMENTS • HAND- RAILS ON THE BALCONIES AND STAIRWAY ENCLOSURES • SOFT CEILING • FACED HALL, ENTRANCE AND CORRIDORS POLISHED AND PAINTED House in the III Miscro Disctrict of Nutsubidze

Completed construction on Nutsubidze Str. Total area- 1944 sq.m.

Delivery 2013 Living area is sold out

ALL PROJECTS IMPLEMENTED BY THE EPIC GROUP ENVISION A UNION OF STRONG FINANCIAL INSTITUTES IN THE FIELD OF DEVELOPMENT IN GEORGIA .

EPIC GROUP AND PARTNERSHIPS SYNERGISTIC COLLABORATION DELIVERS TO CUSTOMERS FINANCIAL SECURITY AND GUARANTEED QUALITY .

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2

PROJECT DESCRIPTION

2.1 LOCATION Delisi Hills offers unprecedented location: 

The

Breathtaking – panoramic city views from each units

EASY ACCESS TO PUBLIC TRANSPORTATION AND IN CLOSE PROXIMITY TO     

Vazha-

Delisi

Shopping facilities; Medical facilities Schools and kindergartens; Quiet and peaceful area City center

2.2 PROJECT DESCRIPTION The project implies development of residential district composed of 9 buildings with the following parameters: Description

Units

Construction Area

Foundation Car Parking apartments excl. balconies Balconies and terraces Elevator shaft Total

m2 m2 m2 m2 m2 m2

Area for Sale

Apartments and commercial m2 Balconies and terraces m2 Total m2 Car Parking Number

Description

1st Stage, Sector 1 Building 1 Building 2 Subtotal 353 394 748 707 1,142 1,849 2,572 2,572 5,145 438 420 858 40 40 79 3,757 4,174 7,931 1,957 386 2,343 18

1,957 368 2,325 30

Units

Construction Area

Foundation Car Parking apartments excl. balconies Balconies and terraces Elevator shaft Total

m2 m2 m2 m2 m2 m2

Area for Sale

Apartments and commercial m2 Balconies and terraces m2 Total m2 Car Parking Number

Building 6 394 789 2,832 454 40 4,114 2,154 397 2,551 22

2nd Stage, Sector #2 Building 4 Building 5 394 394 789 789 3,091 3,351 488 547 40 40 4,408 4,726

Building 3 394 789 2,832 454 40 4,114

3,913 754 4,667 48

2,154 397 2,551 22

3rd Stage, Sector #3 Building 7 Building 8 394 394 789 789 3,091 3,351 488 547 40 40 4,408 4,726 2,352 425 2,777 18

2,549 478 3,027 20

2,352 425 2,777 18

2,549 478 3,027 20

Subtotal 1,183 2,366 9,274 1,489 119 13,248 7,055 1,300 8,354 60

Subtotal 1,183 2,366 9,274 1,489 119 13,248 7,055 1,300 8,354 60

4th Stage, Sector #4 Building 9 630 1,260 11,666 1,174 79 14,179 9,333 1,022 10,355 66

The following provides information for total area of develeopment size:

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Description

Units

Construction Area

Foundation Car Parking apartments excl. balconies Balconies and terraces Elevator shaft Total

m2 m2 m2 m2 m2 m2

Area for Sale

Apartments and commercial m2 Balconies and terraces m2 Total m2 Car Parking Number

Total 3,744 7,840 35,359 5,010 396 48,606 27,356 4,375 31,731 234

2.2 MASTER PLAN 2.1.1 Master plan Several options of the master plan were developed with the following planning approaches: 1.

2.

3.

The 3-4 stage development of the project to address demand and sales fluctuation risks and opportunities; Most units will offer panoramic views of the city Construction process optimization requirements;

The following are the select master plan renders:

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2.1.2

Surrounding area and farther development considerations

The following map provides information regarding the owned area as well as potential areas of development, currently under negotiation with the land owners:

1 – Current area of Potential Development 3 –Area of Development

2, playground – Potential are of development

4 – Potential Area of Development

Note: Only current area of development is owned by the developer; the remaining areas are under negotiation;

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2.4 APARTMENT PLAN Floor plans were developed to maximize the flexibility of adjusting apartment size and room number to demand and sales requirements.

First 2 buildings’ floor plan:

First 2 buildings typically will have 2 or 3 apartments per floor with following options: 

 

2 two bedroom apartments and 1 single bedroom apartment, or 3 two bedrooms’ apartment 2 three bedroom apartments

These three options technically are flexible to replace each-other, thus allowing floor plan to adjust to actual sales and demand; This is option with two bedrooms and 1 single bedroom per floor.

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Second, third and 4th stage buildingâ&#x20AC;&#x2122;s floor plans will utilize similar flexibility of adjusting floor plan to actual sales and demand

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3

MARKETING PLAN

3.1 SALES AND MARKETING Sales and marketing strategy will be fully focused on tools for direct marketing and direct sales channels. The key strategy component will be the USP (Unique Selling Proposition) based on the project proposal advantages that buyers of Dilisi Hills will receive a fully completed unit in comparison to similar projects. The sales target is to sell developed apartments and commercial properties within in 2-4 years from construction completion.

3.1.1 USP (Unique Selling Proposition) The core of the proposal implies that client will get the best value for his money by:     

Fully finished units turn key Excellent and modern amenities Breathtaking views of the city Thermally insulated building to reduce utility cost Incredible location

Optimized space Most developers offer unfinished units, we offer the opportunity to purchase a fully completed and finished unit. Considering the needs of clients with tide budget.

Quality outdoor environment We will offer incredible amenities, green areas and sport facilities for the enjoyments of kids and adults.

Better thermally insulated houses Delisi Hills is using thermal insulation solutions to reduce energy costs.

3.1.2 Branding The name Delisi Hills was selected for the project to reflect the magnificent location and panoramic views of the city from every unit. The name of Dilisi is associated with medium income client, while Hills indicate income class location. We believe that such combination will attract our target client.

3.1.3 Sales Channels The Sales office will be next to the construction site and a complete sales team will coordinate the sales and marketing of the Dilisi Hills project.

Epic development main sales and marketing office will be involved in sales planning, execution and closing of the units.

Our Partner and real estate agencies in target markets of Russia, Greece, Italy, US and Ukraine will be part of our sales team 3.1.4 Marketing Communication Web marketing – our most effective and efficient communication tool will be the Delisi Hills web marketing campaign.

The website will provide,  

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

complete information of the project

Marketing campaigns for the local Georgia purchaser as well as the specific campaigns for the surroundings countries.

Printed media marketing – printing and distributing of mails outs will be extensively used for the promotion of the project information in Georgia.

The project will be promoted in Georgian Airline magazines targeting the frequent flyers costumers.

Sponsorship –the rugby stadium is located next to Epic Group corporate offices and the sponsor of all games in the stadium. This projects will be promoted in the mayor TV stations.

Events –   

Sales events will be organized to bring potential buyers to the site Rugby and other sports event will be organized to bring traffic and sales Diaspora events in target countries will be organized to promote the project

Partnerships – The following organizations will be considered for cross-marketing partnerships:     

Airlines and tourist agencies; Car dealerships; Furniture manufacturers and retailers; Consumer electronics retailers; Business associations;

Diaspora organizations – Diaspora organizations will be actively contacted to define joint activities and to promote the project

3.2 PRICING STRATEGY Pricing strategy will be oriented towards the medium segment needs.

In the city of Tbilisi the target price range for 1sq. m. apartment will be 5-10% below medium price per sq. m. sold in Tbilisi. Currently this range is USD 747 to USD 789. This strategy aims to address the budget concern needs of the medium segment buyers. We expect that medium prices will gradually increase by from 10 to 30% during 2017-2025 period. Delisi Hills prices will follow the medium price trend, although in the current business plan we assumed fixed sales price-range on current price levels.

4

PROJECT MANAGEMENT

4.1 MANAGEMENT The project will be management by Epic Group, experienced real estate development group with complete range of real estate development, management and sales entities.

The real estate development success will be ensured by the team of experienced real estate development and management executives closely supervised and assisted by the Epic Group top executives and project shareholders The chart below shows the organizational structure of the Delisi Hills project:

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Supervisory Board

The Project CEO

Administrative support

Design Manager/Chief Engineer

Construction Manager

Procurement & Logistics Manager

Marketing and Sales Director

4.2 THE PROJECT DEVELOPMENT PHASES The developer already completed the following activities:    

Land purchase; Master plan development; Detailed design; Construction permitting;

The consequent construction is planned in 4 phases, assuming that project financing procedures are finished during the second half of 2015:

Phase 1: 2015-2016

- General site

Phase 2: 2017-2018

preparation

- Buildings 3-5

Phase 3: 2018-2019

- Utilities connection

- Selling

- Buildings 6-8

- Buildings 1 and 2 construction - Local sales office establishemnet - Starting Selling

Phase 4: 2019-2020

- Selling - Building 9 - Selling - Closing the project

Property sales are planned to start in 2017 and finish 2023 – the 9th year of the project.

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5

FINANCIAL PLAN

5.1 ASSUMPTIONS The following are the main assumptions for the financial plan: 5.1.1 Construction costs The following are the main assumptions of the property development costs: Total Capital Expenditure

USD 16.417.000s

Land

USD 2.077.000s

Roads, Utilities connection and site preparation

USD 550.000.s

Construction

USD 12.713.000s

Landscaping & playgrounds

USD 260.000s

FFE

USD 30.000s

Design The project preparation and goodwill costs

USD 319.000s USD 468.000s

The following table provides assumptions for building components construction: Building Components Foundation Car Parking apartments excl. balconies Balconies and terraces Elevator shaft

Units Sq. m.

Sq. m.

Sq. m.

Sq. m. piece

Unit Rate 160 190 270 210 63,000

5.1.2 General and Administrative The following are the main assumptions for annual G & A costs, mainly costing of project management personnel salaries and office costs:

5.1.3 Sales Assumptions

ď&#x201A;§ ď&#x201A;§

Sales price of 1 sq. m. of apartment is assumed at USD 789; Sales and marketing costs are assumed at sales 3% level;

Sales dynamics for the property is assumed in the following way (in USD):

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5.1.4 Equity and Debt Financing Assumptions

The loan is planned to be disbursed in three tranches during the first 3 years of construction:

DEBT TERM:

10 years

GRACE PERIOD:

12 months after disbursement

DEBT INTEREST RATE:

5%

COST OF EQUITY:

16%

WACC:

6.5%

Epic Group will be the project sponsor and 100% equity shareholder responsible for the loan repayment.

5.2 FINANCIAL STATEMENTS

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5.3 RATIO ANALYSIS The following are key ratios:

5.4 PROJECT PROFITABILITY The project has impressive profitability parameters: Project IRR, Assets:

12%

Equity IRR:

41%

Gross Profit Margin:

35%

Net Profit Margin:

11-22%

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5.5 SENSITIVITY ANALYSIS The sensitivity analysis reveals that the 1 sq. m. construction cost has the highest impact of the project equity IRR, followed by slab 1 sq. m. apartment sales price having impact on the same profitability parameter:

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5.6 EXIT STRATEGY The market in the area of Tbilisi Georgia is very strong with growing rates of 8% a year. The average selling price have increased by 49% compared to Q1 2011.

Comparing the same figure of Q3 2014 the average selling price increased by 14% the Georgian construction sector is one of the largest and fastest growing industries in the area. The rapid growing need for housing in this area makes this project the perfect easy to market and sale, prices are below the average in the area and with the best location and a 5 star project that will be sold in the construction stages, making this projects a very profitable development.

6. ATTACHMENTS 6.1 CURRICULUM VITAE MR. IOSEB KIRTSKHALIA Honored builder of Georgia, The member correspondent of Georgiaâ&#x20AC;&#x2122;s and the International Engineering Academy, Member of the Golden Star Award International Committee in Construction

MR. IRAKLI SABULUA Prevents the coalition "Georgian Dream" candidate for majority. Born on 1 April 1982 of Sabulua Prevents. In 2003, he graduated from the faculty of construction tekniukuri University undergraduate. In 2005, the same Faculty. 2002-2003 in the UK company "Boyed Farm" assistant. 2003-2005 he was the Baku-Tbilisi-Ceyhan oil pipeline construction project manager. In 2005 he founded the construction company of Sabulua "geokonstrakshens" headed until 2009. Irakli Alasania's political team joined Sabulua 2012. He speaks English and Russian

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6.2

QUESTIONNAIRE

BORROWING ENTITY: Epic Nutsubidze LLC is the company which will own and develop the property - the company was formed as a special investment vehicle for the project implementation. Epic Nutsubidze LLC was formed in May 27, 2014. Last available investment entity balance sheet and income statement will be provided after the first review.

OWNERSHIP OF THE BORROWING ENTITY: Names: Mr. Ioseb Kirtskhalia and Mr. Irakli Sabulua.

Credit Score: Georgia does not offer a Credit score system.

Estimated net worth of all principals having a percentage of investment entity ownership, will provided that after initial submission THE PROJECT â&#x20AC;&#x201C;DELISI HILLS-: Complete address: Area between Nutsubidze St. and Intensification road (This is how it is stated in the land purchase document - auction was held June 2, 2014), Tbilisi, Georgia Completed value of the project: USD 26.440,000 (market value of the developed property) Brief description of property location surrounding area: Delisi Hills is a residential district comprising of 9 multistory buildings in the central part of Saburtalo district of Tbilisi, middle to upper-middle income residential area with great views of the city and convenient internal space. In addition to 2 level car parking facilities, the complex will have green area and sports and recreation facilities for kids and adults.

PROJECTIONS Estimated five year (2015-2019)

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FUNDS: The sponsor provides land, detailed designs, project preparation, permitting construction and related costs all together evaluated at USD 26.440,000 to date. This business plan describes in detail the development, marketing and sales Delisi Hills residential project.

The sponsor is looking for long-term financing to the Delisi Hills project.

The total debt

financing need is USD 16,5 Million which would be disbursed in 3 payments during the first 4 year of the project construction phase.

Construction is phased in 4 stages which in total lasting 5 years to address project risks, opportunities and sales fluctuations. Commencement of construction is planned in the last quarter of 2015 – first half of 2016 and first sales of finished units will be made in late 2016, beginning 2017.

THE LAND: The land was purchased June 2, 2014 Purchase price was $2.077.000 If applicable existing liens or debt on property: No liens or debt on the property THE BUYERS: The list of potential buyers and customers cannot be supplied until the period of presales begin OTHERS: 

The guarantee will be the land itself and the equity provided by the borrower to date



There is no environmental issues with the land permit will showed and it will be issued shortly



The capital source does not create any liens on the property

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