1/3/2020

TOWN ASSOCIATION

2019 ANNUAL REPORT

LUSTICA BAY TOWN ASSOCIATION, RADOVICI, TIVAT

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Contents

I. Introduction ……………………………………….……………………….…….. 2

II. Overview of Services …………………….………….…………..……………..... 3

III. 2019 Annual Work and Financial Report ……………………….………….…… 5

IV. List of Attachments ……………….………………………………………….….. 5

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I. Introduction

Current Development Status

We’ve ended 2018 with a significant increase in residential and retail space, to include: residential buildings from clusters C, D, F and G, and one Townhome, two Marina villas, retail space in B buildings (promenade), five new buildings in B and E clusters and Chedi condo units. In addition to these, as of February 2019 we have had two additional buildings in cluster B and as of June, two additional building in cluster E residential buildings. During 2019, construction was done on added buildings, but also on one more building in B cluster, townhomes and marina villas. Construction in a new zone of the Town, Centrale, was also on-going during the entire 2019.

Town infrastructure was maintained to total of six sub-stations, a Water Reservoir of 2x500m3 capacity, a Waste-Water Treatment Plant with three pumping stations, two garages and two waste zones. Info desk office space with parking and road infrastructure was used to accommodate homeowners and their visitors.

Town and Condominium Organizations

Lustica Bay Town Association is a non-governmental organization established to protect and advance interests of its members, as freehold and usage right holders in the Town.

Condominium Associations are organizations that are comprised of owners of apartments in each building and its forming is requirement per the Montenegrin Law. Purpose of both of these Associations is to promote safety, health and welfare of all residents and guests of the Town; protecting, preserving and architecturally controlling the property located in the Town; and managing, maintaining and organizing the Utilities and Facilities of the Town Area. All Condominium Associations are an integral part and are represented by the Town Association.

In order to fulfill its purpose, Town Association has a contract with Lustica Development A.D. to provide Town Management and Operation services. Mission and responsibility of Lustica Development A.D. under this contract is to provide Lustica Bay Town community with inviting, safe and sustainable environment, which supports and enhances lifestyle in accordance with Lustica Development slogan “Life as it should be”. That entails provision of a cost-effective and responsive service for maintenance and operation of facilities, grounds, security, utility services, and other related supporting functions.

Definitions

TOWN AREA is the entire area that surrounds the building and it includes, but is not limited to: walkways, roads, paved areas, stairs, squares, open spaces, street lights, landscaping, ramps, rainwater installation, waste water treatment plants (WWTP), generators, etc., as shown in the Attachment 2 to this 2019 Annual Report.

COMMON AREA is the area which serves the buildings as a whole and it includes all parts within the building envelope and those attached to it, which are used or are in service of all occupants. It includes: foundations, building structure, common terraces, hallways and stairs, building façade, roof and gutters, ventilation shafts, hydrants, fire protection systems and fire extinguishers located in common areas, fire access, elevators (in buildings that have elevator) electrical, plumbing and sewer installation in common areas, emergency lights, building interior and exterior lights, central HVAC system, telecommunication installation to central rack, lighting protection, other building parts requiring maintenance and used as common space.

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TOWN ASSETS are all movable or immovable property within the Town Area, as defined herein and showed in Attachment 2 of this Annual Report, which is made available to the Town Association by Lustica Development, with the transferred Right to Use. Town Assets include, but are not limited to: street lights, landscape lights, fire-fighting infrastructure, road and walkway surfaces, retaining walls, landscaping (excluding pools), benches, trash cans, signage, utilities infrastructure, Waste Water Treatment Plant, and all other land or buildings controlled by the Town, whether by freehold ownership, usage right or leasehold right etc.

II. Overview of Services

A Service Level Agreement for Town management and operations signed with Lustica Development on August 3, 2017 for the duration of 25 years is on-going. Detailed explanation of all services is provided in the contracted Scope of Services, which is provided in the Attachment 3 of this Report. As the Town Area expands, Annex to the SLA is signed, to define the new Town Area. The Agreement between Lustica Development A.D. (LD) as the owner of Town Assets and Lustica Bay Town Association to transfer right to use of those assets to Town Association, to include, but not to be limited to street lights, landscape lights, fire-fighting infrastructure, road and walkway surfaces, retaining walls, landscaping (excluding pools), benches, trash cans, signage, utility infrastructure, Waste Water Treatment Plant, etc., remains to be in force.

Per the signed Service Level Agreement, Lustica Development AD provided following services:

1. Management and Operations of the Town – basic services, which are comprised of:

1) General Maintenance – Town

Lustica Development A.D. as a Management Company continued to outsource maintenance services with the same company that provided maintenance of the Town Areas and Town Assets until June 1st, 2019, when the outsource company informed us they can no longer provide services to us, due to closing of their business. This situation, combined with our in-depth analysis of the current market availability and pricing of outsourced companies, as announced in the plan last year, led us to a decision of forming an in-house facility management team to provide all technical services. This plan was partially implemented in 2019 and will be completed in 2020. Cleaning services remained outsourced.

Pest management was provided throughout the season, regular fumigation against mosquitos and placement of snake repellents was performed regularly, resulting in reduced presence of insects, rodents and snakes.

All fire fighting equipment has been maintained and tested as per the law requirements and preventive maintenance plan.

All Town Areas were regularly maintained: cleaning of all areas, walkways, streets; regular inspections of all the areas, maintenance and repair of the areas that require it; upkeep of the lights, etc. All Town Assets were regularly monitored and maintained. All malfunctions were corrected in timely manner, taking all the safety measures into account. In the reporting period there were no incidents regarding Town Areas or Town Assets that could cause some additional costs to the owners. For all new buildings, which were handed over during 2019, Lustica Development handled the entire process with Lustica Development Projects department and Main Contractor to ensure smooth transition, result of which was enlarged Town Area and increased number of Town Assets.

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2) Town Security Security services included continuous, 24-hour presence of five security positions on the site, out of which two were permanently located at the two entrance gates, and one at the CCTV monitoring center. Two positions were patrolling the perimeter and making sure all activities in the Town are orderly. From June to November 2019, an additional guard patrol was established to help with an increased number of homeowners, guests and visitors. As of November 2019, gate from the main entrance was re-located for the better positioning in regard to control of the access, given the construction activities in the area.

Implemented CCTV surveillance system is being used as previously implemented, covering Marina and promenade area. CCTV was added to cover the water reservoir, wastewater treatment plan and substations. Further planning of the expansion of the system is on-going.

3) Insurance Insurance of all Town Area and Town Assets continued in 2019 with same insurance broker and all new Town areas and assets were included in new insurance policy. Type of insurance obtained includes coverage against fire, thunder, explosion, fall of aircrafts, storm, hail, fight, vehicle impact, demonstrations, events, glass breakage, burglary, robbery and earthquake, as well as 3rd party liability.

4) Management and administration Lustica Development continues to supervise maintenance activities in the Town under the Agreement in order to ensure the highest quality standards are met. As explained in the section 1.1), it was decided by Lustica Development to provide in-house technical services, as opposed to outsourced. This decision was made with the goal of providing more sustainable services, not subject to market fluctuations and with better quality. Lustica Development continued to provide Management and Operation to the Town with no profit margin. Town Fee was calculated in accordance with the Agreement with Town Association and is comprised of the following:

1) Cost of work per the Town Management Service Level Agreement (SLA) (as explained herein)

2) Reserve – calculated as 5 percent of the above SLA value. 2. Utility Supply Services According to the Lustica Bay Town Association Statute, Town Association must ensure that reliable utility management services are provided in the Town Area. Part of the Town Management SLA is also Town utility management and operations to Lustica Development A.D. As a part of the provision of these services, following services were provided:

• Electricity Supply and Maintenance

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• Water and Sewer Supply & Maintenance • Waste Management

Water reservoir station with two big water tanks (2x500m3) is in function, providing back-up supply in case of need. In 2019, there were no water outages and electricity supply was constant.

III. 2019 Annual Work and Financial Report

The Annual Town Maintenance Fee for 2019 was estimated at 30,32 €/m2 of residential area.

As shown in the Attachment 1, per all the reported expenditures, the actual Town fee for 2019 was calculated as follows:

• 28,14 €/m2 for building owners that were occupying their residences throughout a year (buildings: C, D, F, G, B1, B2, E1, E2, E7, Chedi Condo units, TH2, TH4, TH6, MV3, MV4);

• 24,71 €/m2 for building owners who joined as of March 1st (B3, B4); • 16,51 €/m2 for building owners who joined as of July 1st (E3, E4).

The difference in the Town Fee amount from cluster to cluster originates from the fact that for some clusters were services for a full 12 months and others handed over during 2019, we had less than year from handover, so the cost have been distributed accordingly, as reflected above and in the Attachment 1 of this Report. Lustica Development A.D. as selected Town Management Company continued to charge only for the actual staff associated costs, without any profit margin.

IV. List of Attachments

Attachment 1 – 2019 Town Fee and Expense Report Attachment 2 – 2019 Town Area Map Attachment 3 – Scope of Services – SLA between Lustica Bay Town Association & Lustica Development A.D.

ATTACHMENT 1 – 2019 Town Fee and Expense Report

ATTACHMENT 2 – 2019 Town Area Map

a) Town Area – Period: January 1 – March 1, 2019

b) Town Area – Period: March 1 – December 31, 2019

ATTACHMENT 3 – Scope of Services – SLA between Town Association & Town Management Company

1/3/2020

SERVICE LEVEL AGREEMENT Town Management Scope of Services

---------------------------- LUSTICA BAY

TOWN ASSOCIATION

LUSTICA BAY TOWN ASSOCIATION, RADOVICI, TIVAT

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Contents

I. Summary …………………………...………………….……………….……….. 2 a. Introduction …………………………………………………………………. 2 b. Current Development Status ……………………………………………...… 2 c. Definitions ………………………………………………………………...… 2

II. Scope of Services …………………….………….……………..……...……….... 3 a. Management and Operations of the Town….……………………………...… 3 b. Utility Services Supply ………………………………………………………..5

III. General Contract Requirements ……………………….…………...…….…... 6

a. Reporting Requirements .…………………………………………………….. 6 b. Invoicing .…………………………………………………………………….. 7 c. Record Keeping ……………………………………………………………... 7

IV. Attachments …………………….…………...…………………………....… 14

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I. Summary

a. Introduction

Lustica Bay Town Association (Client) is a non-governmental organization established to protect and advance interests of its members, as freehold and usage right holders in the Town. The Association has in particular the following purpose:

a) Promoting the safety, health and welfare of the Members, residents and guests of the Town;

b) Protecting, preserving and architecturally controlling the property located in the Town;

c) Managing, maintaining and organizing the Utilities and Facilities of the Town Area.1

In order to fulfill its role and purpose, Town Association is seeking a company to provide Town Management Services. Selected company will ensure that a cost-effective and responsive approach in terms of management and services of maintenance and operation of facilities, grounds, security and safety services, utility services, and other related supporting functions is exercised.

Condominium Associations are organizations that are comprised of owners of apartments in each building and its formation is requirement per the Montenegrin Law. All Condominium Association members are, by default, members of the Town Association.

Full Scope of services (hereafter “Scope”) to be subject of a Service Level Agreement are provided in Section II.

b. Current Development Status

Lustica Development A.D. has completed and handed over apartments in its first ten residential buildings, which are part of the Lustica Bay development project. Additional 8 buildings (F buildings) will be completed and handed over in April 2017 and additional 8 buildings (G Buildings) in late June 2017.

There is currently a total of 70 units. As of April 2017, there will be 113 residential units and once G buildings are completed, total of 158 units in sixteen buildings. There will be additional 4 pools in F buildings and 3 in G buildings, on top of the existing two pools.

Complete infrastructure was built by Lustica Development A.D. to provide good quality and reliable utility services to the Town.

c. Definitions

TOWN AREA is the entire area that surrounds the building and it includes: walkways, roads, paved areas, stairs, squares, open spaces, street lights, landscaping, ramps, rainwater installation, waste water treatment plants (WWTP), generators, etc., as shown in the Attachment 1 of this Scope.

COMMON AREA is the area which serves the buildings as a whole and it includes all parts within the building envelope and those attached to it, which are used or are in service of all occupants. It includes: foundations, building structure, common terraces, hallways and stairs, building façade, roof and gutters, ventilation shafts, hydrants, fire protection systems and fire extinguishers located in common areas, fire access, elevators (in buildings that have elevator) electrical, plumbing and sewer installation in common areas, emergency lights, building interior and exterior lights, central HVAC system, telecommunication installation to central rack, lighting protection, other building parts

1 Statute of Lustica Bay Town Association, Article 5

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requiring maintenance and used as common space. TOWN ASSETS are all movable or immovable property within the Town Area, as defined herein and showed in Attachment 1 of this Scope, which is made available to the Town Association by Lustica Development. Town Assets include, but are not limited to: street lights, landscape lights, fire-fighting infrastructure, road and walkway surfaces, retaining walls, landscaping (excluding pools), benches, trash cans, signage, utilities infrastructure, Waste Water Treatment Plant, Sub-station, and all other land or buildings controlled by the Lustica Development AD, whether by freehold ownership, usage right or leasehold right etc.

II. Scope of Services

Services required by this Scope of Services (hereafter “Scope”) are:

• Management and Operations of the Town • Utility Services to the Town

Detailed explanation of these services is provided below.

1. Management and Operations of the Town Services provided as a part of Management and Operations of the Town include:

1. General Maintenance of the Town 2. Town Security 3. Insurance 4. Management and administration

A delineation should be made in terms of services which are the responsibility of the Town Association versus those that are responsibility of the Condominium Association. Town Association has responsibility over Town Area and Condominium Association over Condominium Area. This is primarily dependent on the area where services are performed: • Town Association associated work includes all the services that are provided in the management

and maintenance of Town Area, the infrastructure and assets that are part of the function of a Town as a whole and can't be directly associated with a particular condominium/building or group of buildings. Examples of these services, related to Town infrastructure and assets are: sidewalks and walkways, retaining walls, road surfaces, manholes, road and landscape lights (if landscape is for the entire Town), street lights, storage and warehouse space in the Town Area or in use for the Town Area, but located elsewhere, etc.

• Town services do not include services that can be particularly attributed to one or more condominiums/buildings and which are the responsibility of the Condominium Association in terms of the Common Area, as defined above. Examples of Condominium areas, i.e. assets to be maintained are: exterior of the buildings, common areas inside the buildings: landings, staircases, technical rooms, heat pumps (if shared between occupants), exterior landscaping – plants and lights (if directly associated to a particular condominium or a specific group of condominiums), pools, signage, fire-protection equipment, warehouse/storage facilities (if just serving the condominium(s)), etc.

Detailed breakdown of services is provided as part of this Scope, sections 1.1 to 1.4 below. 1.1 General Maintenance – Town

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Regular General Maintenance services entail various types of activities required for the overall maintenance and upkeep of the Town Area and Town assets, such as:

- general technical maintenance and repair: electrical, plumbing, sewer, masonry, flooring, metal-mechanic, locksmith, etc.

- specific technical maintenance and repair: fire extinguishers and fire protection switchboard, solar panels, , etc.

- cleaning: façade, streets walkways, staircases, hallways, etc. - pest management: mosquito, rodents, etc. - safety and health activities - fire protection activities: procedures, instructions, trainings and drills - signage and wayfinding management - asset management activities: storage, inventorying, transportation.

Maintenance of the Town Area as defined above includes the following services:

- maintenance and repair of all sidewalks and walkways in the town area - maintenance and repair of the retaining walls - maintenance and repair of the road surface - operation, maintenance and repair of the road - operation, maintenance and repair of the landscape lights - cleaning of the entire area of the town - town landscape maintenance and repair - General town maintenance: electrical, plumbing, sewer, masonry, flooring, metal-

mechanic, locksmith, etc. - pest management of the town area.

Additional services, outside of this Scope of Services, will be charged separately.

1.2 Town Security The aim is to provide homeowners with a professional and welcoming approach to safety and security, while respecting privacy. Town Area needs to be provided with 24/7 physical security at entry points to the Town area, which has been handed over and is in use by the homeowners. This is to restrict the mixing of the construction and utilized areas and to limit the access for privacy purposes. In addition, function of security is to protect and preserve all property belonging to the Town.

Currently, there is no CCTV system installed, but consideration is given to providing coverage at some focal points throughout the Town area. Should CCTV system be installed, services of management: maintenance and control of the system, are considered to be part of this Scope. Actual design and implementation of the system will be an Additional Service, as defined in this Scope.

1.3 Insurance Town Association requires that all the Town Area Assets are insured. Type of insurance to be obtained: - coverage against fire, thunder, explosion, fall of aircrafts, storm, hail, fight, vehicle impact,

demonstrations, events, glass breakage, burglary, robbery and earthquake - 3rd party liability. Solicitation, negotiations, coordination of claim processing, etc. is part of this Scope of Services and is

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reflected in the Management and Administration services. 1.4 Management and administration: Management of the Town requires skillful human resources and sufficient means for proper operation. Services provided must be at the highest, professional level. A team of experienced individuals must be engaged to provide all the services. Key among the functions included in the Town management aspect are: - Contractor management (personnel, tools, equipment, parts and materials) - Coordination with contractors and site visits - Asset management - Financial Management - Quality Control Management, to include inspections - Reporting Requirements to Town Assembly – Annual Financial Statements - Management Policies, Standard Operating Procedures (SOPs), Guidelines, etc. - Customer Services. b. Utility Services

According to the Lustica Bay Town Association Statute, Town Association must ensure that reliable utility management services are provided in the Town. Part of this Scope is the requirement for a Utility Management Company, which will provide utility supplies. Utility Management function includes, but is not limited to negotiating, contracting, inspection and control of the utility supply to the Town. It is responsibility of the Town Management company to ensure review of the existing supply mechanisms and propose improvements in supply. This includes entering contracts for uninterrupted power or water supply, waste management, as appropriate and required. Utility Services to be provided are:

• Electricity • Water • Sewer • Waste management.

Town Management Company, under this Scope, will make reasonable effort to ensure that telecommunication services (internet, TV, land line and mobile services) can be obtained by the homeowners, should they choose to do so. Coordination, negotiations and contracting with telecommunication providers is part of this Scope of Services and is reflected in the Management and Administration services part. Key among the services, to be provided as a part of this Scope include:

• Utility Management and Administration • Electricity Supply and Maintenance • Water and Sewer Supply & Maintenance • Waste Management • Telecommunication Services coordination • Management of maintenance and repair of the infrastructure • Billing and Consumption Management and Control.

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III. General Requirements

Reporting Requirements Reporting on behalf of Town Association is required on an Annual basis in a form of an Annual Report. Annual Report will include: 1) description of all the activities and services performed in the past year 2) expenditures in the reporting year and 3) calculation of the actual Town Fee for the reporting year 4) calculation of the estimated Town Fee for the following year. Annual Report to the Town Association for each financial year (January-December), is due February 15th of the following year. Invoicing Invoicing will be done annually, in advance, per the adopted Decision for the estimated Town Association Fee for that year, no later than March 1st of the current year. Reconciliation of the final Town Association Fee will coincide with the Annual Report for that year, which will be done by March 1 of the following year.

Record Keeping

All the records, financial and other documentation must be kept in an organized manner and available for the review by the Client.