Black Sea Property AS

Business and Financial Review • Aug 5, 2019

BLACK SEA PROPERTY AS: DECLINE IN BULGARIAN TOURISM MARKED – BLACK SEA PROPERTY TO ASSESS QUALITY INCREASING MEASURES

BLACK SEA PROPERTY AS: DECLINE IN BULGARIAN TOURISM MARKED – BLACK SEA PROPERTY TO ASSESS QUALITY INCREASING MEASURES

During the summer season of 2019, the Bulgarian Black Sea Coast has experienced a material decline in the tourism market and the accommodation offers are currently significantly exceeding the demand. As an example, an association of hotel owners in Sunny Beach (which is less than 10 km from the Sunrise Gardens Resort) has reported around 20% decrease of tourist flow. Further, the Bulgarian Institute for Analysis and Evaluation of Tourism has reported that one fifth of the hotels on the Black Sea Coast are empty. However, the decline in the tourism market has been lower in the high-end segment of four- and five star hotels.

An important reason for the decline is that hotels in Turkey, Egypt and Greece have been offering lower prices, and many tourists therefore have preferred destinations in Turkey, Egypt and Greece over Bulgaria.

Based on this, Black Sea Property AS ("BSP" and the "Company") and our local partner in Bulgaria, Mr. Boyan Bonev, consider that an improved quality of the Sunrise Gardens Resort (the "Resort") compared to other resorts is material for the success of the Resort. As we believe that the market situation described above will also persist in the summer season of 2020, BSP and Mr. Bonev are assessing various quality increasing measures for the Resort to differentiate the Resort in the market and be attractive for tour operators and customers.

Mr. Bonev has presented a number of measures that can be implemented to increase the quality of the Resort, and BSP will assess these in the coming weeks along with professional advisers in Bulgaria. Our assessment will cover both the necessity of the proposed measures and the cost to implement them.

The anticipated cost of the proposed measures to be allocated to BSP (i.e. 75 %) is up to EUR 3.5 million, and does not include the principal and interest downpayment of bank debt of EUR 1.3 million in December 2019. Consequently, the Company may face a funding need of up to EUR 4.8 million in the period up to the summer season of 2020 (i.e. May 2020).

As announced earlier, the Company has engaged Forton (an affiliate of Cushman Wakefield) to look into a possible refinancing of bank debt within the group. Forton will also seek to obtain additional debt financing for the group in light of the abovementioned funding need. Further, Forton will also be engaged to assist in finding high quality and reputable alternatives for the management company for the Resort. There is already an agreement in place with a management company for the first year of operations for the Resort, but this agreement can be terminated if Forton is able to identify a better alternative.

Based on the outcome of the assessments and activities mentioned above, BSP will continuously consider its funding alternatives and will announce any updates in due time.

For further information, please contact:

Egil Melkevik, Chairman

Tel: +47 90 77 09 76

E-mail: em@ms-solutions.no

About Black Sea Property AS:

Black Sea Property AS is a real estate company with holdings in a real estate project on the Black Sea coast called Sunrise Gardens. Sunrise Gardens Resort is a partially-completed project and will upon completion comprise approximately 950 apartments as well as significant commercial space. Black Sea Property AS owns indirectly 75% of the project. Black Sea Property AS will work to finalize Sunrise Gardens Resort, to realize the project's added value through the sale of residential units and hotel operations.