Marti REIT. Update. Investment summary: Building the foundations. Group finances: Early stage development volatility

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1 Update 21 March 2012 Marti REIT Year End Rev PBT* EPS* TRY DPS TRY Yield (%) NAV/ share TRY** Disc. to NAV (%) 03/ / Price Market Cap Share price graph TRY0.69 TRY76m 03/12e Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items. **Assumes completion of existing projects Investment summary: Building the foundations We have updated forecasts to reflect the Q3 results. The figures reflect deferral of revenues in both hotel and residential divisions, mainly due to construction delays. The core proposition however remains intact and underlying hotel performance has been solid. The first nine months have seen progress towards medium-term targets ie to build a 4,000 bed capacity, US$20m pa rental income hotel portfolio and to secure the latter phases of the Narin Park housing project in Çerkezköy, an Istanbul suburb, which is the city s planned new corporate and residential hub. Group finances: Early stage development volatility Group finances are a combination of (1) annual rental income (subject to fixed minimums) on its hotel portfolio and (2) revenues generated from sales of residential units at its development at Çerkezköy, a suburb of Istanbul. Both are at early stages relative to medium-term projections, which means quarterly returns are subject to the volatility inherent in land acquisition and planning. We would therefore judge progress against medium-term operational targets, year-on-year sales and revenues. In that respect the group remains on track to achieve its four-year growth plan. Sensitivities: Project and rental income timings Key sensitivities relate to timing of rents from hotels under development. Overall revenue projections remain unchanged, but individual projects are six to 18 months behind schedule for reasons that we discuss in this report. At Narin Park, delivery of units was affected by a change of contractor at end 2010 and we have pushed sales back three months ie all units sold by end June, at prices in line with projections. Valuation: 45% NAV discount to narrow progressively Despite recent recovery the shares trade below end Q3 NAV/share of TRY1.26 ie only including development assets at book value, ignoring the upside for completed schemes. That rating reflects unpredictable timing of early stage developments but as each hotel opens over the next few years, contributions from fixed minimum rents will provide solid, fast growing and visible revenues to help narrow the discount. We have confined forecasts to the current year pending more visibility on Narin Park. Share details Code MRGYO.IST Listing ISE (Turkey) Sector Real Estate Investment Trusts Shares in issue 110m Price 52 week High Low TRY1.23 TRY0.56 Balance Sheet as at 31 December 2011 Debt/Equity (%) 17 Net borrowings () 23.8 Business Marti REIT (GYO) owns an investment and development portfolio of hotels in some of Turkey s most popular tourist destinations, and a residential development scheme in Çerkezköy, a suburb of Istanbul. Valuation e P/E relative 150% 61% 591% P/CF 3.6 N/A N/A EV/Sales ROE 3% 5% 1% Revenues by geography UK Turkey US Other 0% 100% 0% 0% Analysts Roger Leboff +44 (0) rleboff@edisoninvestmentresearch.co.uk Richard Finch +44 (0) rfinch@edisoninvestmentresearch.co.uk Marti REIT is a research client of Edison Investment Research Limited

2 2 Edison Investment Research Update Marti REIT 21 March 2012 Investment summary: Building foundations for growth Underlying gross profit (fixed rents from hotel properties) was broadly stable year-on-year over the first nine months, in line with management expectations. Revenue from residential unit sales at Narin Park was lower than forecast, but management expects the slack to be made up in Q4 and the first quarter of FY13. We have revised our revenue forecasts to reflect Q3 and discussions with management. There is a relatively sharp fall in headline revenues we have cut FY13 and FY14 hotel rent forecasts by 41% and 32% respectively both entirely due to constructions delays, which push back opening dates into subsequent holiday seasons and initial rent contributions into a later financial year. Despite this, the project pipeline remains unchanged. The altered timings reflect the unpredictability inherent in the planning process and, at Narin Park, disruption caused by a change of contractor. This volatility is not especially unusual for a construction programme, but does mean that rents receivable on completed and operational hotels (particularly sensitive to summer holiday seasons) and future residential sales will benefit the P&L 18 months later than originally anticipated. Exhibit 1: Changes to forecasts Note: Figures in except per share data. EPS PBT EBITDA Old New % chg. Old New % chg. Old New % chg N/A N/A N/A 2012e (84) (83) (81) Source: Edison Investment Research The table below sets out a revised outline breakdown of anticipated receipts from the two divisions. We have assumed a 15% increase in rents from existing hotels in FY13, ie a higher contribution from Martı Myra. The financial projections also reflect revised construction timetables and exchange rate volatility this year, lower receipts in 2011 due to sales of fixed assets in 2010 and the income received under the letter of guarantee from the previous Narin Park contractor. Exhibit 2: Revised revenue projections FY09 FY10 FY11 FY12e Income Rent 7,754 7,303 7,466 8,400 Residential sales 2,676 11,609 12,000 Net sales 7,754 9,979 19,076 20,400 Cost of houses built (2,801) (10,445) (9,520) Depreciation (1,064) (1,102) (2,240) (3,000) Service cost (485) (749) (791) 0 Gross profit 6,205 5,327 5,600 7,880 With a number of projects at relatively early stages, investors need to appreciate that a broad range of sensitivities for these forecasts includes prediction of construction timetables and receipt of planning and other consents. We have sought to take a conservative view of project completions and management has built in a contingency. As each project gets underway however, it should be possible to predict deliveries with more accuracy, as well as revenues as these will be derived from annual rents, ie income under management contracts on its hotels. The latter will in each case be subject to fixed minimums, which will provide better revenue predictability and visibility.

3 3 Edison Investment Research Update Marti REIT 21 March 2012 Hotel portfolio: Fixed annual rents and future potential At this stage the hotel portfolio comprises two completed assets, both managed by Martı Otel. These are Martı Myra, a 1,209 bed capacity holiday village in Antalya and Martı Marina in Marmaris Orhaniye region. The management contracts guarantee Martı REIT minimum rent of c US$5m pa and US$1m pa respectively, with the potential for further participation if the hotels operational revenues exceed agreed targets. Planned hotel investments (Exhibit 3) are the 50 room Marti Aphrodisias (due to open in 2012), the first tourism facility in an important archeological region. Martı Sarıgerme (due 2014) is a 1,100 bed capacity hotel investment in the Muğla Ortaca region, which has a projected operational value of c US$70m. Martı Giova (due 2015), is a 35-room capacity boutique hotel. Exhibit 3: Hotel investment and return projections Forecast Total annual Investment period Project Inves tment rent (US$m) (US$m) Sources of funds (US$m) Equity Debt Diamond % 40% 40% % % Afrodisias % 90% % Sarigerme % 50% % % Kuşadas ı % 40% 50% % % Giova % 90% % In February 2011 the group secured an Initial Permission Agreement with the Ministry of Finance for the easement of land adjacent to Martı Resort, for the planned develpment of the Marti Diamond hotel. Contruction recently got underway, with the planned hotel expected to be operational by summer This is is an appoximately 275 room capacity hotel, expected to have an operational portfolio value of US$50m. The group has applied for allocation of land at Kuşadası suitable for a 1,300 bed capacity five-star hotel (due 2016) and 71 shops (due 2015), covering c 198,500sqm. The site easement, valued at US$28m, is expected to be transferred to Marti REIT this year. Residential: Approximate three-month delay due to contractor change The group s residential development project, located in Çerkezköy (40 minutes drive from İstanbul) is still at an early stage, but the group has confirmed that its medium-term projections ie 7,000 units and US$500m total sales value remain intact. The first phase (consisting of 488 units) got underway in 2008; 360 units have been sold to date and the remainder will be completed during Q112. Sales prices are in line with original projections and project profitabilty incorporates building cost inflation of c 10.5% pa in The project has been subject to disruption caused by a change of contractor in December 2010 and our revised forecasts have been pushed back by approximately three months to reflect this. The figures have also been adjusted to reflect payments under a guarantee provided by the previous contractor in 2008 and the uncertainty over c TRY0.7m owing, as a legal case is ongoing.

4 4 Edison Investment Research Update Marti REIT 21 March 2012 Valuation: Attractive relative to NAV growth prospects The shares are currently 45% below end December 2011 NAV/share, including operational assets at externally appraised market values and all developments at cost. Exhibit 4 sets out current projections of full market values of completed developments, last assessed at end September 2011 and illustrates the considerable potential for material further NAV growth as the group completes construction of new hotels over the next two to three years. We regard the shares as an attractive medium-term play on growth in Turkey s economy. The hotel development programme is designed to create a substantial portfolio of leisure assets in some of the country s leading resorts, capable of generating a steady US$20m pa rental stream, underpinned by contracted guaranteed minimum payments. The Çerkezköy residential development has potential to provide the group with a stream of development revenues and profits as the group scales later stages of a project located in a highgrowth suburb of Istanbul. Exhibit 4: Portfolio investments and projected projects timings and valuations Note: *Martı REIT has signed an Initial Permission Agreement with the Ministry of Finance in February As the company gets the construction permit, it will sign the easement agreement. According to CMB regulations in Turkey, a land or project can be included in the NAV table after the easement agreement has been signed. Type Asset Description Status Balance sheet value 31 Dec 2011 Full Market Value 31 Dec 2011 Hotel Myra Hotel, Antalya Hotel (552 rooms) Fully operational Marina Marti Marina - Marmaris, Muğla Marina (300 afloat & 70 ashore) Fully operational Hotel Sarigerme, Muğla Hotel project (450 rooms & 35 villas) Due to open Hotel Giova, Ayın Bay, Marmaris Hotel project (35 rooms) Due to open Hotel Marti Diamond Hotel project (275 rooms) Due to open Hotel Martı Aphrodisias Hotel project (50 rooms) Due to open Land Other Application Mart ı Ku şadas ı Retail/hotel Due to open in 2015/ Residential Narin Park, Çerkezköy - Phase units Complete by June Residential Narin Park, Çerkezköy - Phase 2 Land Commence Q Residential Narin Park, Çerkezköy - Phase 3 Land Commence Q Residential Narin Park, Çerkezköy Land Forecasts & dividends: adjusted for delayed project delivery We have adjusted our previous revenue forecasts to reflect revised project timings and pushed some of the previously anticipated residential sales and initial receipts from hotel rents into subsequent years. Such deferrals are not that uncommon for a development-heavy portfolio. We expect visibility to improve progressively as schemes reach maturity. We have also reduced prospective dividends for the forecast period, as earnings are pushed back by months. At this stage we have assumed modest distributions, but the previous indication was that the group aims to distribute c 40% of net profit. Turkish REIT legislation does not oblige such entities to distribute a fixed minimum percentage of recurring revenues. The structure is tax effective for mixed investor/ developer. The group s profile hotel investment and residential development is distinct from other ISE-listed REITs, mainly focused on commercial property.

5 5 Edison Investment Research Update Marti REIT 21 March 2012 Exhibit 5: Financial summary TRY '000s e Year end 31 March IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 7,754 9,979 19,076 20,400 Cost of Sales (1,549) (4,652) (13,476) (12,520) Gross Profit 6,205 5,327 5,600 7,880 EBITDA 3,105 2,08 1 7,149 1,38 0 Operating Profit (before amort. and except.) 3,105 2,08 1 7,149 1,38 0 Intangible Amortisation Exceptionals Other Operating Profit 3,105 2,08 1 7,149 1,38 0 Net Interest 237 (235) 377 (300) Profit Before Tax (norm) 3,342 1,8 45 7,526 1,08 0 Profit Before Tax (FRS 3) 3,342 1,8 45 7,526 1,08 0 Tax Profit After Tax (norm) 3,342 1,8 45 7,526 1,08 0 Profit After Tax (FRS 3) 3,342 1,8 45 7,526 1,08 0 Average Number of Shares Outstanding (m) EPS - normalised (TRY k) EPS - normalised and fully diluted (TRY k) EPS - (IFRS) (TRY k) Dividend per share (TRY) Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%) BALANCE SHEET Fixed Assets 107, ,255 94, ,290 Intangible Assets 15,412 15,405 14,275 14,290 Investment properties 68,714 66,874 70, ,000 Other 23,296 23,977 9,093 25,000 Current Assets 26,199 34,221 67,957 68,300 Property under development 12,540 14,227 39,280 45,000 Debtors 4,636 6,093 6,298 12,100 Cash ,150 1,200 Other 8,541 13, ,229 10,000 Current Liabilities (24,8 02) (47,8 78 ) (18,193) (34,150) Creditors (10,634) (26,927) (16,348 ) (29,150) Short term borrowings (14,168 ) (20,952) (1,8 45) (5,000) Long Term Liabilities (47,319) (29,253) (461) (20,100) Long term borrowings (47,295) (29,215) (365) (20,000) Other long term liabilities (24) (38 ) (96) (100) Net Assets 61,500 63, , ,340 CASH FLOW Operating Cash Flow (3,671) 10,609 (20,209) (10,38 7) Net Interest 0 0 (691) (300) Tax 0 0 (21) 0 Capex (13,78 0) Acquisitions/disposals (4,369) (2,349) (1,928 ) 0 Financing , Dividends (5,500) Net Cash Flow (8,041) 8,260 49,8 78 (29,939) Opening net debt/(cash) 52,939 60,980 50,130 (5,940) HP finance leases initiated Other (0) 2,590 6,192 0 Closing net debt/(cash) 60,980 50,130 (5,940) 24,000 Source: Company accounts/edison Investment Research EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is a leading investment research company. 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