PHU QUOC, VIETNAMMARKET REPORT

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QUO Bangkok Co., Ltd.22nd Floor, Ocean Tower II75/40-42 Sukhumvit 19Bangkok 10110Thailand

PHU QUOC, VIETNAMMARKET REPORT

Lying 62 miles off Vietnam’s southern coast and known for pristine beaches and verdant forests is the island of Phu Quoc. Now seeing a major increase in attention from both tourists and hospitality investors alike, this increasingly attractive destination, however, still faces obstacles as it looks to develop.

PHU QUOC SEES RAPID TOURISM GROWTH

Talked about as an up-and-coming tourist destination for the past decade, very little development had actually materialised until the last couple of years. After significant government investment in local infrastructure, including a new airport, and a strong promotion campaign, tourist numbers have since exploded, and with them, serious private investment in resort facilities has followed.

Over the past 24 months, a safari, theme park, hospital and golf course opened and an international standard

PHU QUOC, VIETNAM’S NEWEST TRAVEL DESTINATION TAKES OFF

casino is under planning”, explains Peter Ryder,CEO of Indochina Capital, a leading Vietnam-based real estate developer and advisor. He adds that, “During the early stages of a resort destination’s development, infrastructure growth is critical and the Phu Quoc authorities are demonstrating an ability to progress rapidly.” He goes on to explain that these early achievements have instilled confidence in developers and international hotel brands to move forward with new projects.

While attracting only 25,000 visitors back in the year 2000, the number of tourists coming to Phu Quoc jumped to over 1.5 million in 2015, with local Vietnamese visitors doubling between 2014 and 2015 to reach 1.35 million. 2016 is expected to be another impressive year for Phu Quoc as Kien Giang Province, where Phu Quoc is located, is the major focus of the Vietnamese government’s Visit Vietnam Year 2016 tourism promotion campaign. By 2020, the government hopes on attracting three million visitors per year.

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ATTRACTING FOREIGN INTEREST

Despite this, foreign tourists currently constitute only a relatively small percentage of overall tourist numbers, with just 164,000 foreign tourists visiting Phu Quoc last year out of a total of 1.5 million. Tourists from Russia, Singapore, Malaysia and Thailand are those currently showing the most interest in travelling to Phu Quoc — although the destination is increasingly welcoming tourists from Europe.

Flights from foreign countries directly to Phu Quoc Airport have been on the increase lately. Recent visa liberalisation for many nationalities has also further encouraged arrivals to Vietnam by foreign tourists. In addition to this, as Phu Quoc is a special economic zone, the government is allowing visa-free travel to Phu Quoc for up to 30 days for all nationalities.

MANAGING FUTURE GROWTH IN PHU QUOC

However, Phu Quoc faces some specific challenges. Labour is foremost amongst them. The recent rapid growth means that the local labour supply with adequate skills and experience in travel and tourism is incredibly limited, and hotel and travel operators need to pay a premium to attract skilled personnel.

While infrastructure on Phu Quoc has greatly improved of late, especially with the new airport and roads, further development is still needed in terms of electricity as well as sewage and water treatment. This is currently under construction or in the planning stages.

A final major challenge for Phu Quoc as a destination is one that has been faced by a number of other tourist destinations in the past — how will it manage its image as it grows and changes?

Earlier tourists came to Phu Quoc mainly due to it being perceived as a new and “off the beaten track” destination – attracted by its natural beauty and lack of development. As Phu Quoc grows, however, these existing tourists could be put off by the continuing development and may venture on to newer, untouched destinations.

Contrasting this, Nguyễn Vĩnh Trân, CEO of MIK Group, a leading Vietnamese real estate advisory with a number of hotel projects in Phu Quoc, including the soon-to-open Movenpick and Crowne Plaza resorts, explains that, “The Vietnamese government has, in fact, been rather proactive in terms of ensuring the preservation of the forest on Phu Quoc, as well as restraining over-development and being strict on wastewater treatment”.

With Phu Quoc currently transitioning into a more mass-market destination, it is important the authorities and private sector take the time right now, before development continues too far, to carefully consider what image Phu Quoc wishes to present to the world and how it can differentiate itself from other mass-market destinations.

…….......................................................................................QUO wishes to express its thanks to Olivier Do Ngoc, Managing Partner, Dynasty Investments, Peter R. Ryder, CEO, Indochina Capital Corporation, Nguyễn Vĩnh Trân, CEO of MIK Group and Marriott International for invaluable support and insights on the development of Phu Quoc.

• Phu Quoc is a 589 sq km island district in Kien Giang province, in the Gulf of Thailand

• Phu Quoc district includes Phu Quoc Island – Vietnam’s largest island –and 28 smaller islands

• Part of the UNESCO World Biosphere Reserve

• Also referred to as “Pearl Island”

• Known for production of fish sauce and black pepper

PHU QUOC, VIETNAMMARKET REPORT

48km

28km

At 603mMOUNT CHUAis Phú Quốc highest point

Over 50%of Phú Quốc isNATIONAL PARK

PHU QUOCAIRPORTis Vietnam’s 5th largest international airport

SAOBEACHis one of the most beautiful beach in Asia

There are28 ISLANDS & ISLETSin Phú Quốc District

LONG BEACHis the most popular beach on Phú Quốc

The economic capitals isDUONGDONG

VINMECInternationalstandard hospital

average length of stay

for foreign tourists

TOURISMOVERVIEW

visa exemption for visitors

introduced in March 2014

of region’s economy is tourism

2.4DAYS

30DAYS

66%

1,600,0001,400,0001,200,0001,000,000

800,000600,000400,000200,000

0

TOURISMFOREIGN & DOMESTIC ARRIVALS

2012 2013 2014 2015 (as of 7 Dec)

Total Tourist Arrivals Foreign Tourist Arrivals

Current airport capacity

TOURISMAIRLIFT

2017 airport capacity, after VND 1 trillion

renovation

2.5million

4million

4

0

Ho Chi Minh City 1 hr 5 minHanoi 2 hr 10 minCan Tho 50 min

FLIGHT TIMES

AIRLINES SERVING PHU QUOC

Vietnam cities with direct flights

(HCMC, Hanoi, Cantho, Rachgia)

international cities with direct flights (outside of

high season)

TOURISMARRIVAL BY SEA

CITIES WITH BOAT SERVICEHa Tien Fast ferry 1 hr 20 minSslow ferry 3 hrRach Gia fast ferry 2 hr 20 min

TOURISTS ARRIVALS

Airplanes Boat

37%

67%

DUONG DONG INTERNATIONAL SEAPORT

cruise ships able to dock at new port

expected completion

6,000 2017

PHU QUOC ISLANDHA TIEN

RACH GIA

Slow ferry

Fast ferry

AN THOI

DUONG DONGTOWN

HAM NINH

VONG BEACH

120 KM2H30

45 KM1H30

DA CHONG2H50

6,0004,0002,000

0

TOURISMSUPPLY & OCCUPANCY

2010 2012 2014 2015

Number of room

DANANG NHA TRANGPHU QUOC

$153 $80 $68AVERAGE ROOMRATE

*per night for 3-to 5-star hotels and resorts

AVERAGE OCCUPANCYRATE

2010

2015

72%

64%

HOTEL SUPPLYTHE FUTURE

13

2,800

39.3%

DUONG DONG

of hotels of total supply

67% 48%

Hotel projects in the pipeline as

of Q3 2015

Rooms in the pipeline as of Q3

2015

CAGR of luxury and upscale hotel room

supply between 2012 and 2015

Chez Carole Resort

Trang An ResortHoa Binh Phu Quoc

Sai Gon Phu QuocSasco Blue Lagoon

Thien Hai SonKim Hoa Phu Quoc Resort

Orange Resort

Tropicana Resort

Arcadia Resort

La VerandaPhu Van Resort

Long BeachFamania Resort

SalindaCuu Long Phu Quoc

Eden Resort

Hong Bin Bungalow

Daisy Resort

4-Star Hotel 5-Star Hotel3-Star Hotel

HOTELSIN THE PIPELINE

INTERCONTINENTALBegan construction 2015. Planned five-star with 336 rooms, 115 apartments and 5 villas. 9.2 ha. Formerly envisioned as a Crowne Plaza. Developed by BIM.

JW MARRIOTTDeveloped by Sun Group. Developed by BIM.

CROWNE PLAZACrowne Plaza Starbay Khem Beach. Developed by MIK Land. Developed by BIM.

HOTELSIN THE PIPELINE

MÖVENPICKScheduled to open 2017 with 250 hotel rooms, 100 residences and 50 pool villas, plus retail village, waterpark, 1,000 sqm conference facilities and on-site hotel school. 51.62 hectares.

MELIAPhu Quoc Resort Sol House. Developed by MIK Land.

RITZ-CARLTONDeveloped by MIK Land.

INVESTMENTOVERVIEW

NEW PROPERTY LAWSNew regulations allowing foreigners to buy landed property in Vietnam took effect 1 July 2015. Properties come with a renewable 50-year lease on land.

PHU QUOC’S LARGEST INVESTORS

(VND 8 trillion)

(VND 7 trillion)

(VND 9 trillion)

(VND 8 trillion)

(VND 7 trillion)

INVESTMENT INCENTIVES

15-year waiver on land rent50% reduction in personal income tax0% tax on fixed assets

Master planned in 2004, Phu Quoc Island is set to become a Special Economic Zone by 2020.

INFRASTRUCTUREACCOMPLISHMENTS & CHALLENGES

ACCOMPLISHMENTS & CHALLENGES

AIRPORT Phu Quoc’s current international airport opened in 2012, enabling the island to receive larger aircraft and international flights.

ROADSA 50 km north-south axis road between Bai Thom and An Thoi was completed in 2015. A 99.5 km road encircling the island is approximately 50% finished.

WASTEWATER TREATMENT

ELECTRICITYA 50 km north-south axis road between Bai Thom and An Thoi was completed in 2015. A 99.5 km road encircling the island is approximately 50% finished.

We need around VND2 trillion [$91.87 million] to invest in a wastewater treatment system for the entire island, without which Phu Quoc will be polluted in the coming years.”

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