ksr - invest memo v116

VERSION 2: 02 June 2016 Version: 116

ASIA PACIFIC LTD VALUE ADDED INVESTMENT SOLUTIONS

SEASIDE SPA RETREAT IN

CAMBODIA INVESTMENT SYNOPSIS

OCTOBER 2016

COMMERCIAL IN CONFIDENCE NOT FOR THIRD PARTY CIRCULATION

THIS DOCUMENT IS FOR THE PERSONAL INFORMATION OF THE INTENDED RECIPIENT

COPYRIGHT RESERVED ©

CONCEPT IMAGE

__________________________________________________________________________________ Kep Spa Resort – Investment Synopsis of 14

INVITATION TO INVEST Compass seeks investment of US$2,500,000 as cash equity to form a single purpose, special purpose vehicle (SPV) company, to initiate and progress the development described in this document.

Initial investment: US$1,600,000

TOTAL CASH EQUITY REQUIRED – based on a simple Debt/Equity structure of 60/40.

2016 Land acquisition, 3 sites 1,600,000 2017 Design Fees and Approvals 600,000 2017-18 Commence site works 300,000 TOTAL CASH EQUITY US$ 2,500,000

Compass Asia Pacific Limited, shall be appointed as development and asset manager and to have a 12.5% carried interest in the SPV company. BUSINESS/DEVELOPMENT PLAN – 4 Star Spa and Wellness Resort

2016 Land acquisition, site amalgamation Retain existing Kep Lodge as an operating business. 2017 Design and approvals. Commence sales marketing campaign. Q4 - Site Preliminaries – services and infrastructure 2018 Build 30 mini Villas – each a private walled compound + Spa Centre. Commence sales of Villas 2019 Complete building works and Villa Sales – Commence Resort Operations

FINANCIAL SUMMARY and KEY PERFORMANCE INDICATORS ITEM TOTALS

US$ mil exc. VAT DEVELOPMENT TOTALS Villa Sales – Net of Costs Capitalized Trading Net Rev. @ 15% Development Valuation - EBITDA LESS Dev’t Costs inc. Finance DEVELOPMENT MARGIN RETURN ON INVESTMENT – ROI

5.466 6.924

12.390 . (8.200)

US$ 4.190 51.10%

DEVELOPMENT CAPEX Land Acquisition + Costs Hard Dollar Costs – inc. contingency CAPEX TOTAL

1.610

. 5.650 US$ 7.260

FINANCIAL STRUCTURE Cash Equity Debt Principal Capex Interest @ 9.0% pa + Costs TOTAL DEVELOPMENT COST

2.500

. 4.760 7.260

. 0.940 US$ 8.200

KPI’s Project IRR – Build and Sell - 4 year CF Investor’s Yield on EBITA pa Investors Yield on Shareholder’s Equity

28.00% 12.82% 24.36%


LAND ACQUISITION Cambodia is implementing a centralized system of boundary record and registration of title. Kep Province is one of the provinces that has completed the recording and registration of land titles with the Ministry of Land Management, Urban Planning and Construction – referred to as Hard Title. The full development site comprises 3 separate titles totaling approximately 13,000 sqm, subject to survey. The largest title of 8,066sqm, is an operating resort called Kep Lodge. The other two land titles are vacant land under separate ownership. OPERATIONAL COMPANY STRUCTURE for FOREIGN INVESTOR

51% 49%

Compass Asia Pacific Development Management

Consultants – Contractors - Suppliers

Debt Funding

Sales Revenue

100% Foreign Owned Project

Company

FOREIGN INVESTOR

Kh Nominee

Kh JV Land Title

Lease

100%

Repatriate Profits offshore @ 14% WHT

COPYRIGHT: Compass Asia Pacific Ltd is the rightful and sole author of this document and the designs and intellectual property contained herein and claims copyright for that data. DISCLAIMER: This document was compiled with best endeavors to verify the data. At this pre-acquisition stage the design and all related information is based on concept designs that are subject to future design development. Investors are advised to make their own investigations to verify and support their investment decisions.


KEP LODGE - LOCATION

The township of Kep is located about 175km south of Cambodia’s capital city, Phnom Penh. Kep is comfortably reached by road along Highway #3, in about 2.5 hours. From June 2016, Cambodia Angkor Air commenced operating flights between HCMC, Vietnam and Sihanoukville, Cambodia. The drive from Sihanoukville to Kep is about two hours.

Kep is at the eastern edge of a well-established coastal tourist zone that is dominated by Sihanoukville. Phu Quoc Island is about 27km south-west of Kep and is part of Vietnam. Phu Quoc has been earmarked for rapid and intense development which is dominated by Vietnamese investors.

Kep is broadly divided into two zones. The southern and south-eastern zone – centred on the beach - is dominated by budget travel accommodation and local residential development. The western zone has become the resort area. The feature is the natural forest settings with walking and cycling trails. Tourism here has developed along a theme of restful accommodation and good food.

The proposed project (“Kep Spa Resort”) is nestled into the western edge of the hills that form the Kep National Park. Kep Lodge is elevated by 50-60m above sea level and has excellent views west across the bay to the islands.


CURRENT STATUS Compass Asia Pacific has negotiated an

exclusive option to acquire Kep Lodge, as a distressed asset sale. The vendor has developed and operated the resort since 2007. He wishes to sell the resort for a lump sum, payable in 2 installments. The resort occupies an approximately rectangular site, which the vendor informs us is 8,066 sqm.

Accommodation at Kep Lodge comprises; Individual Bungalows 4 3 x 2 storey bldg with 2 rooms 6 Dormitory style building . 3 Number of Sellable Keys 13

Kep Lodge is styled to appeal to western expats and international travelers – providing an affordable resort with more design style than many of the locally designed resorts and hotels. A main attraction of Kep Lodge is the natural beauty of the National Park with the relaxed atmosphere of the forest and long views over the sea to the nearby islands such as Phu Quoc.

MAP BY OWNER


KEP LODGE TRADING FIGURES AS SUPPLIED BY THE VENDOR

ITEM AVERAGE 2016 Annualized

2015 2014

Rooms Rev $ Rooms Occ. F+B Gross Rev. F+B % of Room Rev GROSS OP REV

132,027 68%

84,835 . 64% US$ 216,862

162,711 71%

94,050 . 58% US$ 256,761

124,511 72%

81,304 . 65% US$ 205,815

108,859 62%

79,251 . 73% US$ 188,010

LESS Cost Goods Sold Operating Exp.

(51,764)

. (80,747) (132,511)

(53,313)

. (96,144) (101,457)

(52,051)

. (65,999) (118,050)

(49,928)

. (80,099) (130,027)

NET REV - EBITDA US$ 84,351 US$ 107,301 US$ 87,765 US$ 57,983


COMPASS DEVELOPMENT PROPOSAL

Compass proposes to amalgamate 3 titles and to re-develop Kep Lodge as a Spa/Wellness Resort, managed by a specialist operator. The accommodation will be a number of newly built private bungalows set within richly landscaped grounds. The architectural style will be modern Asian contemporary styled pavilions. The design focus will be on integrated spaces, allowing the indoors to flow seamlessly to outdoor spaces. Interiors will be simple and uncluttered, with carefully selected fittings and natural colour tones. Exterior spaces will be characterized by thematic use of water, and well selected landscaping throughout the resort in public and private spaces. The sloping ground will ensure that a large number of the bungalows will enjoy uninterrupted views out across the bay.


PROPOSED BUSINESS MODEL

CONCEPT The business model is based on selling the individual bungalows which are then made available to the management company for rental holiday accommodation. The revenue from sales will offset the initial development capex and the rental income provides long term income for developer and for the owners of bungalows. There is an increasing appetite among Cambodian investors for a form of real estate investment other than yet another rental apartment in the city – something interesting.

TARGET MARKET – SALES The main target market for sales is Cambodian people. Typically, they are likely to be part of the rapidly growing demographic of well-educated and well-travelled couples in their 30’s + 40’s. They may be educated overseas, and have been attracted back to Cambodia by the economic prosperity of ASEAN and Cambodia’s consistently high GDP growth.

TARGET MARKET - RENTALS The resort spa management company will have an established network of domestic and international customers, derived from their other locations. There is an expanding sector of Cambodian society made up of people with discretionary and disposable incomes. Our target market for resort business is people in the 30 to 40 year-old age group – they usually have 2 to 3 children, therefore the resort must be “pitched” in its design and facilities to welcome families with children.

ASSET MANAGEMENT Compass Asia Pacific will be appointed as the Development and Asset Manager for the development and will have a 15% carried interest in the development company.


KEP SPA RESORT – CONCEPT MASTERPLAN Amalgamation of 3 sites This design by GSA Group, HCMC

VILLAS - CONCEPT DESIGNS


PRELIMINARY COST/REVENUE SCHEDULE Available upon request

DRAFT REDEVELOPMENT PROGRAM


PHNOM PENH POST – 17 JUNE 2016


APPENDIX Over the past 10 years, the Cambodian economy has consistently higher than average GDP growth (+7% pa), boosted by consistently high rates of tourism and stable Government. Tourism in Cambodia is dominated by Siem Reap, which is the town next to Angkor Wat – that takes the vast majority of international visitors. The next biggest tourist centre is Sihanoukville, which is about 80km east of Kep. The market here is dominated by mass Chinese and local travelers. TOURISM Statistics by Cambodian Ministry or Tourism

YEAR INT’L TOURISTS ARRIVALS STAY DAYS HTL OCC. RECEIPTS US$ millions Numbers millions Change %

2011 2.88 14.9 % 6.50 66.2 1,912 2012 3.58 24.4 % 6.30 68.5 2,210 2013 4.21 17.5 % 6.75 69.5 2,547 2014 4.50 7.0 % 6.50 67.6 2,736 2015 4.78 6.1 % 6.80 70.2 3,012

FOREIGN VISITOR DESTINATION IN CAMBODIA DESTINATION ARRIVALS million SHARE % of Total

2014 2015 2014 2015 Q1 2016 Phnom Penh + Locale 2.151 2.650 41.7 48.6 40.9 Siem Reap / Angkor 2.350 2.125 45.5 39.0 44.9 Coastal Areas 0.600 0.610 11.6 11.2 13.0 Eco-Tourism Areas (Mountains) 0.060 0.063 1.2 1.2 1.3 TOTALS 5.163 5.449 100.0 100.0 100.0 NOTE: total figures are larger than tourist arrivals because people visit more than one place.

COUNTRY OF ORIGIN BY % OF TOTAL YEAR VN RPC LAO ROK THAI USA JPN UK MY FR GER AUS 2014 20.1 12.4 10.2 9.4 6.2 4.2 4.8 3.2 3.1 3.0 2015 20.7 14.5 8.5 8.3 7.3 4.6 4.0 3.2 3.1 3.1 Q1‘16 16.2 16.2 4.4 9.8 6.4 5.6 4.2 3.8 3.6 3.5


CAMBODIA 101 Name Kingdom of Cambodia Total Area 181,035 sq.km DEMOGRAPHICS Population 15.71 million (2015 est.) Capital City Phnom Penh Population 2.00 million Median Age 24.5 years Ethnicity Khmer 90%, Vietnamese 5%, Chinese 1% Religion Buddhist 96.4%, Islam 2.1%, Christianity 1.3% GOVERNMENT Form of Government Multi Party, Parliamentary Constitutional Monarchy Chief of State King Norodom Sihamoni (from 29 Nov. 2004) Head of Government Prime Minister Hun Sen (from 14 Jan 1985) Election Period 5 years, next 2018. ECONOMIC Currency KHR: Cambodian Riel Exchange rate 4,080 KHR : US$1.00 as at June 2016 GDP US$18.16 billion 2015 GDP Growth 2011/7.1%, 2012/7.3%, 2013/7.4%, 2014/7.1%, 2015/7.0%,

2016/7.1% Inflation 2.1% as at 2015 Corporate Tax 20% Personal tax 20% VAT 10% Gasoline Price US$0.83/litre as at June 2016 Minimum Wage US$ 140/month

LEGAL AND INVESTMENT COMMENT (1) DFDL, “Legal, Tax and Investment Guide” 8th Edition, 2014 “Investment in Cambodia is, in most cases, a straightforward, direct and open process.” (1)

QIP Qualified Investment Project – subject to qualification rules, it is the precedent qualification for a range of taxation and trading financial incentive.

Currency + Foreign Exchange “Parties are free to denominate their transactions in foreign currencies……The 2003 Investment Law guarantees that investors may freely remit foreign currencies abroad for the purposes of: Payment of imports and repayment of principal and interest on

international loans. Payment of royalties and management fees. Remittance of profits, and Repatriation of invested capital upon dissolution of an

investment project.” (1)


FOR MORE INFORMATION PLEASE CONTACT

Stephen Evans

Director of Development Phnom Penh

M: +855 (0) 77 355 333 E: [email protected]

Timothy Hyde Director Finance and Investment

Hanoi M: +84 (0) 904 915 758

E: [email protected]

ksr - invest memo v116

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