Tourism Market Overview - EY

1 Tourism Market Overview Turkey & Istanbul 2017, 1st Half Important Notice and Disclaimer Important Notice and Disclaimer Content of this Document This document has been prepared by Ernst Young Kurumsal EY Turkey has not verified any of the information in this Finansman Dan manl k A ( EY Turkey ), it is based on the document. EY Turkey (including its partners, officers, information provided by the other sources referred to in employees and agents) does not owe a duty of care to any the document. It provides Interested People with necessary recipient of this document in relation to the information in this information about the Overview of Tourism Market in Istanbul document. and Turkey. This document (and the information contained Neither EY Turkey nor any of its partners, officers, employees herein) does not constitute an offer to sell of or an invitation and agents make any express or implied representation to invest into any asset or business, nor will it form a part of or warranty and no responsibility or liability is accepted any strategic alliance decision or any decision to enter into by any of them with respect to the adequacy, accuracy, any type of cooperation.

2 Completeness or reasonableness of the facts, opinions, Interested Persons are not to construe the contents of operational, financial or other information set out in this this document as legal, business, tax or other advice. Each document or any further information, written or oral notice, Interested Person should consult its own legal, business, or other document at any time supplied in connection with technical, accounting and tax advisers. it, and nothing contained herein, or therein shall be relied upon as a promise or representation regarding the historic or current position or performance of the Tourism industry or any future events or performance of the Tourism industry. 2 Tourism Market Overview , H1 2017. Contents Turkey Tourism Market 4. Istanbul Tourism Market 12. Turkey Hospitality Sector 18. Istanbul Hospitality Sector 24. Tourism Market Overview , H1 2017 3. Turkey Tourism Market Turkey Tourism Market Istanbul Tourism Market Turkey Hospitality Sector Istanbul Hospitality Sector Turkey Tourism Market : Overview Overview Turkey Tourism (Total Receipts vs.)

3 Total Visitors 10 years trend). Turkey has been considered to be one of the most attractive destinations in recent years because of affordable prices and 14,6. 13,4 variety of options available for tourists. In addition to classic sun & sea vacations, the country attracts tourists for cultural and historical visits as well as for MICE. (Meetings, incentives, conferences and exhibitions). Turkey offers strong cultural Tourism with a wide range of folk and traditional cultural festivals. It also aims to promote other Tourism alternatives such as golf and health Tourism in the long term. Investments in recent years in big cities such as Istanbul and Izmir were in line with the objective of developing the Tourism industry. Rationale of the investments were reflections of positive expectations regarding the number of domestic and foreign visitors in near future. Turkey remains as one of the major global Tourism markets and is recovering slowly from the downfall of Tourism sector in 2016.

4 The Market continues to face a challenging outlook considering the diplomatic and internal political issues, geopolitical tensions and terrorist attacks. Number of tourists visiting Turkey increased 10%, from 13,4 mn in H1 2016 to 14,6 mn in H1 2017. According to Turkstat, Turkey's total Tourism income for H1 2017 was US$ 8,8 bn, reflecting a decrease of 2,7% in comparison to the Tourism income in H1 2016, which was US$ 9,0 bn. Total Tourism income for 2016 was recorded as US$ 22,1bn. Accordingly, per capita average Tourism expenditure of visitors has decreased from US$ 718 to US$ 641, respectively. Source: Turkish Statistical Institute (Turkstat), BMI Turkey Tourism Report Q3 2017. Tourism Market Overview , H1 2017 5. (Contd.). Turkey Tourism Market : Overview Tourism industry Direct contribution to GDP (constant $). Tourism industry's direct contribution to GDP is expected to be at a ratio of 4,1%. with US$ 26,1 billion in 2017 according to WTTC Data Gateway. In 2016, direct contribution of the industry to the GDP was also 4,1%.

5 Has produced US$ 29,1 billion. Capital investment in Tourism industry Capital investment is expected to be at the level of US$ 15,5 billion in 2017 with a decrease of 11,3% from 2016 (US$ 17,5. billion). This capital investment includes spending by all industries directly involved in Tourism and investments by other industries on the specific Tourism assets like accommodation, passenger transport equipment, development of restaurants and leisure facilities. Source: WTTC Data gateway, World Bank and Turkstat 6 Tourism Market Overview , H1 2017. Turkey Tourism Market Istanbul Tourism Market Turkey Hospitality Sector Istanbul Hospitality Sector Turkey Tourism Market : International Tourists According to Turkstat, the number of total foreign visitors to Turkey was Average expenses per capita ($) (H1 2014 H1 2017). mn in H1 2017 as compared to mn in H1 2016. Average expenses per capita foreigners occured as US$ 592 in H1. 2017, showing a decrease of 8% from H1. 2016 ( US$ 647). The number of Turkish citizens residing abroad and visiting Turkey was mn in H1 2017 (H1 2016, 2,6 million).

6 Average expenses per capita for citizens residing abroad was US$ 862 in H1 2017, showing a decrease of 15% compared to H1 2016. Tourism income from foreigners was US$. 6,8 billion in H1 2017, which composes 77% of the total Tourism income. Russia showed an increase of 820% with Top Ten Arrivals by Country of Origin (H1 2015 H1 2017) 1,7mn visitors and became the leader in the list after the improvement of political relations between Turkey and Russian Federation. Even though the number of visitors from Germany to Turkey decreased by 17,05%. in H1 2017, Germany continued to be the second in the visitors list with 1,25. mn people, followed by Georgia and Iran with 1,07 mn and 1,00 mn visitors, respectively. In contrast to H1 2016, USA and Greece are off while Iraq and Russian Federation make appearance to the top ten list of by country of origin list. Source: Turkish Statistical Institute (Turkstat), Culture and Tourism Ministry Tourism Market Overview , H1 2017 7. Turkey Tourism Market : Current Scenario 2017 Tourism recovery underway; Boost in government International Tourism receipts investment raises hope After a failed coup attempt and terrorist attacks last year, which battered the Tourism Market in Turkey, we are seeing encouraging signs in the sector this year.

7 Tourist arrivals and Tourism revenues have begun growing again. It is expected to see the increase in Tourism receipts by Y-o-Y in 2017, driven by the expected growth of inbound tourists by Lower Turkish lira versus the US dollar is also expected to boost local currency denominated inflows. Heightened security measures taken by the government will support the swift recovery of the Tourism industry in Turkey. Russia is one of the key sources for inbound Tourism in Turkey. Hence, improving relations with Russia, post removal of sanctions and lifting of the travel ban, is also expected to support growth in Tourism numbers during 2017. According to BMI, government's investment boost is Total Arrivals (in Millions) expected to provide a fillip to the economy and the sector. Surge in investment in transport infrastructure, additional domestic flight routes (particularly from Ankara); and major hotel investment are key initiatives for the boost in Tourism sector. Turkey will be home to the world's largest airport by passenger capacity - Istanbul New Airport (first phase) is set to open in 2018.

8 Once complete, the airport will have capacity for 150mn passengers annually. Galataport will be the new cruise terminal in Istanbul which will provide a modern port facility to sea travelers among other facilities like the first ever Peninsula Hotel in Turkey, an upscale shopping center and a fine F&B. destination. While the industry is seeing recovery, a cautious optimism about the near future should remain since changing international perceptions about the safety and security might take longer than changing actual facts. Source: BMI Turkey Tourism Report Q3, 2017. 8 Tourism Market Overview , H1 2017. Turkey Tourism Market Istanbul Tourism Market Turkey Hospitality Sector Istanbul Hospitality Sector Turkey Tourism Market : Opportunities & Challenges Opportunities Challenges A range of markets are catered for, from budget holiday The Tourism Market is susceptible to seasonality, and through high-end and luxury resorts as well as a number more could be done to promote Tourism outside of the of holiday variations can be chosen from sun&sea to summer season.

9 Cultural destinations, ancient ruins and historical sites or natural wonders such as Cappadocia as well as shopping Regional instability including war in Syria, tension opportunities. between the Gulf countries, political friction between EU (particularly German) and Turkey and terrorism in Turkey has became one of the most preferred and general remain as main concerns of the industry. popular destination for visitors from the Middle East and former USSR countries such as Ukraine and Georgia. While relations between Russia and Turkey have stabilized, the sharp fall in particularly Russian visitors in Turkey's popularity with Middle East tourists is on the previous year in addition to general decrease in arrival rise as religion begins to take a prominent place in the numbers has had substantial impact on room rates. The country's culture and politics. hoteliers will need some time for pulling back the rates to Golf Tourism is expected to pick up in the coming years, the previous levels.

10 Challenging established markets in Portugal and Spain. A turndown in key source markets, especially the EU and Medical Tourism is also expected to develop, attracting Russia, would disproportionately hit receipts and industry visitors from Europe and the Middle East. value in general. The government's plans to increase winter travel would decrease seasonality of Turkey's Tourism sector. Government support for the sector should help secure the industry against difficult headwinds. Revitalised diplomatic relations with Russia brings out new opportunities to increase touristic arrivals from this Turkey's once top tourist-providing country. Source: BMI Turkey Tourism Report Q3, 2017. Tourism Market Overview , H1 2017 9. Turkey Tourism Market : M&A. Sectoral Breakdown (2017 H1). Sectoral breakdown of target companies (in terms of transaction value). Key highlights In terms of transaction value and volume, Tourism sector is not located in the M&A list for the first half of 2017. The leading sectors in terms of value are Energy, Financial Services, and Transportation.