h1 2014 investor presentation
DESCRIPTION
ÂTRANSCRIPT
August 2014
H1 2014 IR Presentation
FINANCIAL & BUSINESS RESULTS
Disclaimer
2
This document does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of AFI Development Plc (the "Company") or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of the Company or any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with the document.
This communication is only being distributed to and is only directed at (1) qualified institutional buyers (within the meaning of Rule 144A of the United States Securities Act of 1933, as amended (the "Securities Act") or (2) accredited investors (as defined in Rule 501(a) of Regulation D adopted pursuant to the Securities Act). Any person who is not a "qualified institutional buyer" or "accredited investor" should not act or rely on this document or any of its contents.
This document contains "forward-looking statements", which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or that include the words "targets", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "would", "could" or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking, including, among others, the achievement of anticipated levels of profitability, growth, cost and synergy of recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or GDRs, financial risk management and the impact of general business and global economic conditions.
Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These forward-looking statements speak only as at the date as of which they are made, and the Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.
Neither the Company, nor any of its agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this document.
The information contained in this document is provided as at the date of this document and is subject to change without notice.
SECTION 1
Company Overview
Company at Glance
4
BUSINESS
&
STRATEGY
HISTORY
PORTFOLIO
• Full cycle real estate developer
• Focus on unique large scale commercial and residential
projects in Moscow and Moscow region
• Maintain a mixed portfolio which holds both yielding and
development projects from different sectors, with varying
durations and phasing
• Strong global brand
• Affiliate of Africa Israel Group (64,88% owner, a major
conglomerate with global focus on real estate,
construction and infrastructure
• 13 years on the market
• Admitted to LSE in 2007 and Premium listing from 2010
• Free float – 35,12%
• 14 completed projects with total c. 0,5 mln sqm of
space (including sold property)
• Major project AFIMALL, located in Moscow-City
• 3 Projects are in active stage of development with c. 0,9
mn sqm
• c. 0,4 mn sqm are in Company pipeline
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
60
70
80
90
100
110
120
130
140
150
160
AFID
AFID(b-shares)
RTS Index
21%
46%
15%
17% 1%
PROJECTS PORTFOLIO
AFIMALL
Yielding
Projects
Land Bank
Active stage of
construction
Pipeline
Market Cap, as of August 19, 2014 US$ 0.67 bn
Price per share, as of August 19, 2014 US$ 0.64
NAV (Equity), as of June 30, 2014 US$ 1.73 bn
NAV per share, as of June 30, 2014 US$ 1.65
Portfolio Value* US$ 2.5 bn
Note: the NOI projections are “forward looking statements” based on C&W valuation assumptions and Company estimations and they can be realized or not realized due to factors beyond the Company's control including, among others, the impact of competitive
pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or GDRs, financial risk management and the
impact of general business and global economic conditions
Key Projects in Moscow
Yielding Assets (retail, offices and hotels)
Ownership:50%
Other
*** Odinburg presented with cost value,
* Outside of Moscow
Value** ( C&W, Jun 2014):
US$ 1.7 bn
GLA (excl. hotels),sqm:
194,4K
NOI stab.,
(excl. hotels):
US$ 202,7mn
5
Projects under Active Stage of Construction
Value*** (afid share, C&W):
US$ 383 mn
GLA,sqm: 107,1K
GSA,sqm: 453,0K
Pipeline Projects
Yielding Assets
Projects under
active stage of
development and
pipeline
Completed Assets
Tverskaya IB Berezhkovskaya AFIMALL
PLAZA SPA Kisl* PLAZA SPA ZHEL* Aquamarine III
Aquamarine Hotel Paveletskaya,1 H2O
* * Hotels presented with cost value
Odinburg**
Paveletskaya II
Plaza IC
Pochtovaya Plaza IIa
Plaza IV
Expolon
Value (afid share, C&W):
US$ 440 mn
GLA, sqm: 129,3K
GSA, sqm: 105,1K
Land Bank
Value (book value):
US$ 17 mn
SECTION 2
Project Update
Yielding Projects
Note: the NOI projections are “forward looking statements” based on C&W valuation assumptions and Company estimations and they can be realized or not realized due to factors beyond the Company's control including, among others, the impact of competitive
pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or GDRs, financial risk management and the
impact of general business and global economic conditions
Company yielding projects
Ownership:50%
Other
7
AFIMALL CITY
Location: Moscow, Moscow-City
Year of construction: 2011
GBA, sqm 283,2K
GLA, sqm 107,2K
MV, US$ (C&W) 1,160
• 10 yielding projects with total c. 0,4 mln sqm of space and NOI(excl. hotels)1-year forward 121 mn US$
AQUAMARINE III OFFICE
Location: Moscow, CBD
Year of construction: 2013
GBA, sqm 61,8K
GLA, sqm 46,2K
MV, US$ (C&W) 323,6
H20 (Office Class B)
Location: Moscow
GBA, sqm 10,7K
GLA, sqm 9,0K
MV, US$ (C&W) 16,9mn
AQUAMARINE HOTEL
Location: Moscow, CBD
GBA, sqm 9,0K
Keys, sqm 159
BV, US$ 29,6mn
PLAZA SPA KISLOVODSK
Location: Russia, Caucus
GBA, sqm 25,0K
Keys, sqm 275
BV, US$ 24,1mn
PLAZA SPA ZHELEZNOVODSK
Location: Russia, Caucus
GBA, sqm 11,7K
Keys, sqm 134
BV, US$ 21,6mn
Paveletskaya (Office Class B)
Location: Moscow
GBA, sqm 16,2K
GLA, sqm 14,1K
MV, US$ (C&W) 29,9mn
Tverskaya Premises
Location: Moscow
GBA, sqm 8,8K
GLA, sqm 7,6K
MV, US$ (C&W) 32,4mn
Berezhkovskaya (Office Class B)
Location: Moscow
GBA, sqm 11,6K
GLA, sqm 10,3K
MV, US$ (C&W) 37,6mn
Yielding Properties
8
* Information after disposal of 1 Bld. Project is not leased yet
** MV based on C&W valuation as for 30.06.2014 for 100% of the property. Hotels presented by cost value and show AFI share
8
****
Yielding Assets
* Building AFIMALL Ozerkovskaya III Berezkovskaya Tverskaya Plaza II Paveletskaya, bld.
1
H2O Tvesrkaya Plaza Ib Aquamarine
Hotel*
Plaza SPA
Kislovodsk
Plaza SPA
Zheleznovodsk TOTAL
Moscow Moscow Moscow Moscow Moscow Moscow Moscow Moscow
Moscow City CBD CBD CBD CBD
Class Retail Office A & Street
Retail Office B
Office & Street
Retail Office B Office B
Office & Street
Retail Hotel Hotel Hotel
GBA, sqm 283,182 61,772 11,612 6,742 16,246 10,698 2,027 8,931 25,000 11,701 438K
GLA, sqm 107,208 46,247 10,250 5,856 14,085 8,990 1,740 159 keys 275 keys 134 keys 194K
Parking lots (total), # 2,075 466 143 - 126 81 - 15 - 15
Ocupancy rate
(30.06.2014), %82% - 86% 83% 96% 78% 86% 72% 74% 74%
750- Office
500 - retail
NOI (12m forward)
(C&W est.), US mn 98.6 10.1 4.3 2.4 3.1 1.7 0.9 - - - 121
NOI stab (C&West.),
US mn147.3 38.5 5.1 3.4 4.5 2.7 1.2 - - - 203
MV,US$ mn** 1,160 324 37.6 24 29.9 16.9 8.4 29.6 24.1 21.6 1,676
Location Kavkaz region Kavkaz region
1,202 Average rent as of
30.06.2014, $/sq m334 563 356 537 505 ADR 206 ADR 301 ADR 203
(as of June 2014)
Total GBA, sqm 283,2K
Total GLA(shops, offices, storage), sqm 107.2K
Occupancy end of June, (as % of GLA total) 82%
Parking lots, numbers 2,075
Stabilized NOI (C&W est.) US$147,3 mn
MV (C&W est.) US$ 1.160 bn
Loan balance as for June, 2014 US$ 618mn
AFIMALL CITY
The occupancy level reached 82% at the end of June 2014 compared to 74% at
the same period 2013
During the second quarter, AFIMALL City welcomed new tenants including
NEXT Kids, KFC, Il Patio, UGG Australia. TSUM Discount also extended its
premises at the centre, leasing additional 950 sq.m. At the same time, the 3290
sq.m. two-level Fizika fitness club opened its doors to the public in June 2014,
attracting additional footfall to the Mall
The average monthly footfall in June 2014 was 25% higher compared to June
2013.
AFIMALL City Update
9
H1 2014 H1 2013
Revenue, mn USD NOI, mn USD
+18%
+25%
H1 2014 H1 2013 Change, %
Revenue, mn USD 56.6 48.0 18%
Operating Expenses, mn USD (17.3) (16.7) 4%
NOI 39.3 31.3 25%
AFIMALL and Moscow-City Development
AFIMALL
MOSCOW-CITY DEVELOPMENT
At the moment “Moscow City” is in the process of development. Today Moscow-City
consists of 8 complete building complexes accounting for c. 0.65 million sqm of
rentable area among 1,2 mn sqm upon delivery.
In short-term perspectives Moscow city expects almost doubling of office space (c.
1mn sqmm). Thus, due to high concentration and new massive deliveries of high
quality office stock, the office vacancy will remain relatively high. (for 2014 30,6%)
10
EXISTING OFFICE COMPLEX
4 – Imperia Tower (GLA, sqm – 70K)
9 – Capital City (GLA, sqm – 81K)
19 – Naberezhnaya Tower (GLA, sqm – 155K)
13a – Federation Tower (Zapad)
19 – Northern Tower (GLA, sqm – 60K)
6, 7,8 – Central Core (AFIMALL)
8a – City Point, Novotel (GLA, sqm – 10K)
PLANNED/UNDER CONSTRUCTION
2, 3 – Evolution (GLA, sqm – 70K) – 2015
11 – IQ-quarter (GLA, sqm – 123K) – 2015
12 – Eurasia Tower (GLA, sqm – 86K) – 2014
13b – Federation Tower (Vostok) – 2016
15- MFC (GLA, sqm – 75K) – 2017-2018
16 – OKO (GLA, sqm – 110K) - 2014
17, 18 – Russia Tower (GLA, sqm – 131K) – 2017-2018
TRANSPORT ASSECIBILITY
Now three metro stations are opened. (Vistovochnaya, Mezhdunarodnaya, Devlovoy
Tcentr) Vistovochnaya and Delovoy Tcentr have a direct enter to the Mall.
New metro stations will make it possible to approach Moscow-City from three different
lines: the dark-blue and yellow lines
- 2015 a route from Delovoy Tcents station to Nizhnaya Maslovka
- 2016 a route from Park Pobedi to Ramenki
- 2017-2018 – a prolongation of the yellow line to Solncevo, Kropotkinskaya,
Smolenskaya and Delovoy Tcentr
Also after opening a hub in 2015 it will take 40-50 min from Moscow-city to SVO and
Vnukovo airport.
AFIMALL and Moscow-City Development
AFIMALL
Based on C&W report 11
SECTION 3 Project Update
Projects under Active stage of construction
Company Projects under Active Stage of Construction
Ownership:50%
Other
13
1. ODINBURG
Location: Moscow, Region, Odintsovo
GBA, sqm 767,1K
GSA res, sqm 453,0K
GSA com, sqm 36,4K
GSA res (Phase 1), sqm 145,1K
• 3 development projects under active stage of construction, where total GBA is c. 940K sqm
2. EXPOLON
(KOSSINSKAYA)
Location: Moscow
GBA, sqm 111,7K
GLA, sqm 70,0K
MV, US$ (C&W) 107,3mn
3. PLAZA 1C (Brestskaya, 50/2)
Location: Moscow
GBA, sqm 61,8K
GLA, sqm 37,0K
MV, US$ (C&W) 136,0mn
PLAZA IC
ODINBURG
EXPOLON
Odinburg Residential
14
GBA, sqm 767,1K
GSA, sqm 489,4K
STATUS: construction of 14th Floor of Bld. 1
ODINBURG
Odinburg Residential
15
(as of June 2014 )
Type Residential
GBA,sqm 767,1K
GSA, sqm/GSA commercial total:
Phase I, sqm:
Phase II, sqm:
453,0/36,4K
145,1K
307,9K
Apartments, total : 9,059
Phase 1: 2,572
Stage 1 702
Parking units: 3,399
OVERIVEW
The ODINBURG residential district is located in the
town of Odintsovo, a modern area considered to be one
of the best and most environmentally clean towns in
the Moscow region. (11 km from MKAD).
New highway to Moscow is right next to the complex.
The entire residential district takes up an area of 33.14
hectares, which will host eight 8-to-25 story buildings.
The residential element will offer almost 9,000
apartments and a total sellable area of 453K sq.m.
(Company share).
CONSTRUCTION STATUS and SALES
As of today 269 apartments have been signed
The construction works go as planned (14th floor)
ODINBURG
Expolon ( Kossinskaya)
GBA, sqm: 111,7K
GLA, sqm: 70,0K
MV (C&W est.) US$: 107,3 mn
Expolon ( Kossinskaya)
(as of June 2014 )
Total GBA, sqm 111,7K
Total GLA, sqm 70,0K
Parking lots, numbers 1,200
MV (C&W est.) US$ 107,3mn
17
EXPOLON OVERIVEW
EXPOLON will be the international show room centre
in Russia for manufacturers, owners and official
representatives of fashionable European and Russian
brands of shoes, ladies, men’s and kid fashion,
accessories and furs
It is located on the south-east part of Moscow, within
40 min from Moscow city center by car. The nearest
metro station is in 15 mn walk.
CONSTRUCTION STATUS
The company is on active stage of construction. Almost
400 workers are busy at the land plot
Start of operation in H1 2015
Plaza IC ( 2 Brestskaya, 50/2)
GBA, sqm: 61,8K
GLA, sqm: 37,0K
MV (C&W est.) US$: 136,0mn
(as of June 2014 )
Total GBA, sqm 61,8K
Total GLA, sqm 37,0K
Parking lots, numbers 467
MV (C&W est.) US$ 136,0mn
19
Plaza IC ( 2 Brestskaya, 50/2)
PlAZA IC OVERIVEW
The Plaza 1C project is located in Moscow business
district in close proximity to the Garden Ring and
Belorussky railway station and implies A class office
complex construction with retail zones on the ground
floor.
CONSTRUCTION STATUS
The General Contractor has been chosen
Upon the agreement with GC is approved, the
Company will be ready to choose the most favorable
terms between several banks
End of construction works - 2016
The Kremlin
SECTION 4 Project Update
Pipeline Projects
Note: the NOI projections are “forward looking statements” based on C&W valuation assumptions and Company estimations and they can be realized or not realized due to factors beyond the Company's control including, among others, the impact of competitive
pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or GDRs, financial risk management and the
impact of general business and global economic conditions
Pipeline Projects
Other
21
1. POCHTOVAYA (RESIDENTIAL COMPLEX)
Location: Moscow, CAD
GBA, sqm 170,3K
GSA/GLA, sqm 56,9K/34,2K
Status: Stage P
MV, US$ (C&W) 159,3 mn
• The Company has several projects in pipeline with total GBA c. 440K sqm. Two of them are
business class residential complexes located in central part of Moscow
2. PAVELETSKAYA (RESIDENTIAL COMPLEX)
Location: Moscow, CAD
GBA, sqm 151,4K
GSA/GLA, sqm 48,2K/26,1K
Status: Stage P
MV, US$ (C&W) 104,3 mn
3. PLAZA IV (OFFICE COMPLEX)
Location: Moscow, CAD
GBA, sqm 108,0K
GLA, sqm 61,3K
Status: Securing approval
MV, US$ (C&W) 164,0 mn
Pochtovaya
Paveletskaya
Plaza IV
SECTION 5 Financials
Q1 2014 Q2 2014 H1 2014 H1 2013
Actual Actual Actual Actual
(1) Construction consulting/management services - - - 0.1
(2) Rental income 36.7 38.2 74.8 68.5
(3) Sale of residential and trading property - 1.4 1.4 55.3
(4) TOTAL REVENUE 36.7 39.6 76.2 123.9
(5) Other income 1.7 1.3 3.0 3.7
(6) Operating expenses (21.8) (15.5) (37.3) (39.2)
(7) Administrative expenses (7.4) (3.6) (11.0) (10.9)
(8) Cost of sales of residential and trading property - (1.0) (1.0) (32.0)
(9) Other expenses (2.3) (0.7) (2.9) (2.6)
(10) TOTAL EXPENSES (29.7) (19.6) (49.3) (81.1)
(11) Share of profit of equity-accounted investees (0.6) 1.2 0.6 (0.8)
(12) GROSS PROFIT 6.3 21.2 27.5 42.1
(13) Valuation gains on investment property 73.3 (46.8) 26.5 57.5
(14) Impairement loss for trading property and hotels (0.4) (8.3) (8.7) -
(15) RESULTS FROM OPERATING ACTIVITIES 79.2 (34.0) 45.3 99.6
(16) Profit on sale/disposal of properties/investment 0.1 - 0.1 32.1
(17) Finance income 2.5 2.0 4.5 17.2
(18) Finance expense (14.9) (14.1) (28.9) (34.4)
(19) FX Gain/( Loss) (37.7) 22.8 (15.0) (28.8)
(20) Translation reserve reclassification due to disposal of subsidiary - - - (30.3)
(21) Net finance income/(costs) (50.2) 10.7 (39.4) (76.2)
(22) PROFIT BEFORE INCOME TAX 29.1 (23.3) 5.9 55.5
(23) Current income tax (0.2) (0.3) (0.5) (0.8)
(24) Deferred income tax (4.8) 3.1 (1.7) (11.4)
(25) PROFIT FOR THE PERIOD 24.2 (20.5) 3.7 43.3
# ITEM ('000)
Consolidated P&L
23
23
Comments: (2) Rental and hotel operating
income grew 9% year-on-year to
US$74.8 mn. AFIMALL City
contribution at US$56.6 mn (H1
2013: US$48.0 million), up 18%
year-on-year
(4) Revenue for the H1 2013
includes disposal of parking to
VTB( US$ 24,7 mn in gross profit)
(13)(19) Mainly due to change in
currency rate
(14) Investments to Botanic Garden
project
24
Statement of Financial Position
Strong cash position with US 123,4 mn in cash ,cash
equivalents and marketable securities as at 30 June 2014
Debt to equity ratio ( 47%)
Investment property is significant part of total asset
portfolio
24
(9) Odinburg
(25) Change in 30 June 2014 and 31 March 2014 exchange rate
(31) Advance Payments from customers in Odinburg
30.06.2014 31.03.2014
US$ mn US$ mn US$ mn %
(1) Investment property 1,600.4 1,609.8 (9.4)
(2) Investment property under development 686.6 633.9 52.7 8%
(3) Investment in Joint Ventures 6.0 4.5 1.6 35%
(4) Property, plant and equipment 66.8 62.3 4.4 7%
(5) Long-term loans receivable 22.5 21.4 1.1 5%
(6) VAT recoverable 0.1 0.1 0.0 7%
(7) Total non-current assets 2,382.3 2,331.9 50.4 2%
(8) Trading property 5.5 5.9 (0.4)
(9) Trading properties under construction 139.6 129.4 10.1 8%
(10) Inventory 0.5 0.5 0.0 9%
(11) Short-term loans receivable 0.7 0.7 0.0 1%
(12) Trade and other receivables 111.2 107.2 4.0 4%
(13) Current tax assets 0.2 0.2 0.0 3%
(14) Cash and cash equivalents 111.9 137.9 (26.0)
(15) Other investments 11.5 10.8 0.7 6%
(16) Total current assets 381.2 392.6 (11.4)
(17) TOTAL ASSETS 2,763.5 2,724.6 38.9 1%
(18) Equity
(19) Share capital 1.0 1.0 0.0 -
(20) Share premium 1763.4 1763.4 0.0 -
(21) Translation reserve (162.5) (191.3) 28.8
(22) Retaining earnings 124.6 142.9 (18.3)
(23) TOTAL EQUITY 1,726.6 1,716.0 10.5 1%
(24) Minority interest (3.0) (2.0) (1.0)
(25) Long-term loans and borrowings 592.4 580.7 11.7 2%
(26) Deferred tax liabilities 127.1 131.0 (3.9)
(27) Deferred income 21.8 20.6 1.2 6%
(28) Total non-current liabilities 741.3 732.3 9.0 1%
(29) Short-term loans and borrowings 232.0 232.0 0.0 0%
(30) Trade and other payables 44.1 44.6 (0.5) (1%)
(31) Advances from customers 22.5 1.6 20.9
(32) Total current liabilities 298.6 278.2 20.4 7%
(33) TOTAL LIABILITIES 1036.9 1008.5 28.4 3%
(34) TOTAL EQUITY AND LIABILITIES 2,763.5 2,724.6 38.9 1%
# NARRATIVE Changing
Loans and cash position as of June 30, 2014
Gross balance of the bank loan portfolio (as of June 30,2014) – US$ 823 mn
Total cash balance and deposits (as of June 30, 2014) – US$ 123,4 mn (including marketable securities)
The Company is in line with all financial covenants
*
25
Project Bank
Balance as of
June, 2014
(US$ mn)
Available
(US$ mn)Nominal Interest rate Currency Maturity
VTB $309 - 9.5% RUB
VTB $309 - 3-m Libor+5.02% USD
TOTAL AFIMALL $618 $0 7.38%
Ozerkovskaya III (100%) VTB $205 $0 3-m Libor+5.7% RUB 26.01.2015
TOTAL/AVERAGE RATE $823 7.02%
AFIMALL 01.04.2018
26
Gross Asset Value
LTV= 33%
LTE = 48%
26
PROJECT Book Value Bank Loan Net Company's Share
30.06.2014 30.06.2014 30.06.2014
AFI Mall 1,160 (618) 542
Berezkovskaya (100%) 38 38
Paveletskaya I (1) 30 30
Plaza H20 17 17
Ozerkovskaya III 324 (205) 118
Plaza Ib 8 8
Plaza II 24 24
TOTAL INVESTMENT PROPERTY: 1,600 (824) 777
Plaza Ic 136 136
Plaza II a 12 12
Plaza IV (100%) 164 164
Kosinskaya 107 107
Bolyshaya Pochtovaya 159 159
Paveletskaya II 104 104
Ruza 4 4
St. Petrsburg 0 0
TOTAL INVESTMENT PROPERTY UNDER DEVELOPMENT: 687 0 687
Ozerkovskaya Phase II (26) 4 4
4Winds residential 1 1
TOTAL TRADING PROPERTY: 6 0 12
Aquamarine/Ozerkovskaya 26 30 30
Plaza SPA Zheleznovodsk 22 22
Pyatigorskaya (Park Plaza Kislovodsk) 7 7
Plaza Spa Kislovodsk (Tirel) (50%) 24 24
Versailles (Kislovodsk) 7 7
TOTAL PROPERTY PLANT AND EQUIPMENT: 89 0 89
Odinburg 140 140
TOTAL TRADING PROPERTY UNDER DEVELOPMENT: 140 0 140
TOTAL PORTFOLIO: 2,521 (824) 1,704
CASH AND CASH EQUIVALENT 123
DEFFERED TAX LIABILITY (127)
TOTAL OTHER ASSETS AND LIABILITIES 27
TOTAL EQUITY: 1,727
SECTION 6
Market Update
Market Overview and Capital Markets
RUSSIAN MACROECONIMIC OVERVIEW
RUSSIAN REAL ESTATE INVESTMENT MARKET
• The first half of 2014 has been a challenging period due to a combination of events
including targeted sanctions, the continuing conflict in Ukraine.
• Russian economic growth: According to estimates from the MED, in Q2 2014 Russian
GDP increased by 1.2% compared to Q2 2013. H1 2014 GDP growth amounted to 1.1% .
GDP growth for 2014 is forecasted in the range of 0.4-1%.
• Oil prices did not follow their usual seasonal pattern observed over the last few years,
and remained stable within USD 107–112 per barrel. In June, the average monthly price
was 4.2% higher than that in March. However, by the middle of July, this growth had
disappeared, and oil prices returned back into the USD 107-108 per barrel range.
• Exchange rates: After a sharp 9% depreciation versus the USD in Q1, the Rouble
managed to stabilize in Q2. During the quarter it appreciated by 5.8%, having finished Q2
at 33.63 RUR/USD. All in all, in H1 the Rouble weakened by just 2.7% against the USD.
As for 13th of August the USD/RUB = 36,04.
• Consumer confidence is starting to return. The state statistical agency’s consumer
confidence index jumped to -6 in Q2 from -11 in Q1, returning to levels seen in the first
half of last year. Households appear to have become more optimistic about the climate for
major purchases.
• In H1 2014, total commercial real estate investment volumes reached US$ 2.4 bn. In Q2
2014, the total investment volume was US$ 273 mn. This is more than 4 times lower than
in the same period in 2013. Similar volumes were achieved in H1 2007. However, upon
making YoY comparison, one should take into account that H1 2013 is untypical period
with abnormal volume of investments which were postponed from 2012. Current 2014
forecast by C&W remains unchanged: US$ 3,4-5.0 bn by the end of the year.
• The global macroeconomic situation and political risks continue to affect investment
activities. If political unrest will escalate, the forecast may be downgraded in Q3.
• Despite this negative sentiment, however, construction activity is close to record levels
due to a peak in the development cycle which is remains unaffected by macroeconomic
trends. There are transactions at the negotiation stage, although the timing of their closure
is being lengthened
• The “lion’s share” of investment in the hotel segment in Q2 2014 was provided by one
large deal: the acquisition by VTB Bank of a stake in JSC “Hotel Company” from
Moscow Property Fund for approximately $510 mln. (estimated, as this information has
not been officially disclosed). 28 Source: IMF, MED, C&W, Finam
105.27
20
40
60
80
100
120
140
Oil price (Brent, US$ per
barrel) 1.0
-10
-5
0
5
10GDP growth by country, %
US Europe AreaGermany FranceItaly UKIsrael Russia
0,5
1,7
4,6
5,3 5,8
2,3
4,0
6,5
7,4 7,1
E5,0
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 h12014
Investment Volume, USD mn
Other
Warehouse
Retail
Office
Office and Retail Markets overview OFFICE MARKET OVERVIEW
RETAIL MARKET OVERVIEW
Key indicators Units
Prime rate,
US$ sqmpa
(US$/sqm/year)
900-1,100
Base rent
Class A(CBD)
US$ sqmpa
580-1,100
Overall vacancy,% 14,8%
Vacancy rate,%
(Class A CBD )
18,0%
Key
indicators
Units
Prime rate,
US$ psqma (prime shopping center
retail gallery)
3,000-
4,500
Base rent,
US$ psqma
500-1,800
Vacancy rate,% 3,1-3,5%
• Approximately 323,790 sq m of new office space entered the market in
Q2, bringing the volume of new supply in H1 to 532,836 sq m. About 63%
of all completions in H1 was located outside the Third Transportation Ring
(TTR). However occupier activity for office space turned out to be 28%
lower YoY.
• The overall vacancy rate increased to 14.8% in Q2 compared to 13.9%
in Q1 2014 due to the ongoing growth in supply on the back of moderate
dynamics of demand.
• The average rental rates for Class A and B are on a downward trend, but
consensus estimation has not been changed for H1 2014. The base rent in
prime areas stood at the level US$/sq m/year 900-1,100
• Despite the economic slow-down consumer spending in Russia remains
resilient. In Q2 2014, 2 large shopping centers were opened in Moscow –
Vegas Crocus City (GLA 112,500 sq m) with an oceanarium and a concert
hall (which will open soon), and the shopping mall Vesna (GLA 56,000 sq
m).
• In Q2 2014 vacancy rate went up from 2.5% to 3.1%. By the end of the
year vacancy rate is likely to keep increasing due to several reasons: high
level of completions; large average area of new shopping centres;
macroeconomic slowdown (retail sales growth and real wage growth are to
moderate). Vacancy in successful malls is very low
• Moscow retail gallery rental rates are in the range of US$ 500-5,000
(per sq m per year before VAT and other expenses) depending on the
size of the retail unit and the type of retailer. Moscow’s prime retail
indicator is US$ 4,000 per sq m per annum, as a base rate.
• Retailers are looking to expand and experiment with new format types. New
retailers in Russia include Prenatal, Derimod, Shake&Shack, Max Brenner,
and others.
• In total, since the beginning of the year, 16 new brands have entered the
Moscow market; 8 of these opened their first stores in Q2.
29
Source: http://www.peresvet.ru/temptext/1397046862160.pdf
600 710
930 1,090
710 640
740 790
850 850 850
800
1,000
1,500
2,000
800 850
1,200 1,150 1,150
1,100
1,100
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
200520062007200820092010201120122013 Q1
2014
Q2
2014
US
$/p
sqm
/pa
average Class A class A CBD Prime
3,000
3,500
4,500 4,800
3,700 4,000 4,000
4,000
4,500 4,500 4,500 4,500
1,300 1,500
1,700
2,000
1,200 1,350
1,350
1,350 1,150
1,150
1,150 1,150
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
US
D p
sqm
pa
Prime rents Base rents
Residential Market Overview
30
RESIDENTIAL MARKET MOSCOW AND MOSCOW REGION
• Based on H1 2014 results Moscow and Moscow region are the
leaders in residential construction delivery bringing 1,106K
sqm and 2,111 ksqm accordingly.
• The weighted average dollar price in the primary market of
business residential segment reached US$ 7,240 psqm. The
average price in Moscow region reached 2,205 US$ per
sqm
• The number of registrations of residential units under
construction in Moscow during Q2 2014 was 5,137, which is
8% higher comparing to Q2 2013.However, the pace in Q2 is
presenting a slowdown comparing to Q1 2014, in which the
increase was at the level of 24%.
• Mortgage dynamic is one of the main drivers for residential
demand.
• During Jan-May 2014, number of mortgage transactions
increased by approx. 51% comparing to the same period in
2013.The averaged mortgage rate decreased from 12.5% in
Dec-13 to 12.3% in May-14.
Source: http://www.peresvet.ru/temptext/1397046862160.pdf
Residential Construction Volume in Moscow
December
November
October
September
August
July
June
May
April
March
February
January