Transcript Source: CB Richard Ellis

Retail Investment Market
Russia
Krasnodar, June 2008
Jeff Kershaw SCSM, Senior Director, Russia
Investment Market Turnover in Europe
*H1 2007 turnover was 17% higher than in H1 2006
250,000
€ Million
200,000
150,000
100,000
50,000
0
2000
Source: CB Richard Ellis
2001
2002
2003
2004
2005
2006
H1 2007*
Investment Turnover by Country
Top Three Countries Account For 66% Of The Market
€ Million
45,000
40,000
H1 2006
H1 2007
33%
35,000
Total Size €119 billion
30,000
22%
25,000
20,000
11%
15,000
10,000
5,000
Source: CB Richard Ellis
Russia
Others
Spain
CEE
Netherlands
Italy
Sweden
France
Germany
UK
0
International Investor P&S H1 2007
€ Million
25,000
20,000
Purchases
15,000
10,000
5,000
0
-5,000
Sales
-10,000
Source: CB Richard Ellis, Property Data, VastGoedMarkt, KTI
Australia
Netherlands
Austria
France
Far East
Spain
Middle East
Ireland
Germany
UK
USA
-15,000
International Investment
250,000
€ Million
Cross-border transactions have quadrupled in € terms since 2000
* Proportionate figures for comparison only
Cross-border purchasers
200,000
48%
Local purchasers
150,000
41%
100,000
34%
37%
50,000
36%
57%
43%
38%
84%
0
2000
Source: CB Richard Ellis
2001
2002
2003
2004
2005
2006
H1 2007 H1 2007
Russia *
International Investment By Investor Origin
* Proportionate figures for comparison only
120,000
€ Million
Non-European Purchasers
European Cross-Border Purchasers
100,000
41%
80,000
42%
60,000
47%
31%
40,000
24%
38%
20,000
0
2004
Source: CB Richard Ellis
2005
2006
H1 2007
* H1 2007
Russia
Investment Turnover by Country 1998 – H1 2007
Aggregate CEE Investment; € Million
14,000
Total Investment Turnover = €31 billion
12,000
10,000
8,000
6,000
4,000
2,000
Source: CB Richard Ellis
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0
Russia
0
Ireland
Norway
Finland
Denmark
Switzerland
Austria
Sweden
Portugal
Hungary
Belgium
Czech Republic
Greece
60
Moscow
Netherlands
Poland
Spain
Italy
France
UK
Germany
Russia
Russia is a huge market!
Million
160
140
120
100
80
Moscow – 15 million people
40
20
Russian economy today and tomorrow
Key Economic Indicators
2001
2002
200
3
2004
2005
2006E
2007F
2008F
GDP growth, real, %
5,1
4,7
7,3
7,2
6,4
6,3
6,4
6,3
Gross fixed investment
growth, real, %
10,2
2,8
12,8
11,3
10,5
10,2
11
10,6
FDI, US$bn
2,7
3,5
8
15,4
14,2
21,5
19,5
20,1
Growth of real disposable
income, %
8,7
9,7
13,5
8,1
10
11,2
10,6
9,5
Exchange rate RUR/US$ yearend
30,1
31,8
29,5
27,7
28,8
27,4
26,0
26,0
CPI, average, %
21,5
15,8
13,7
10,9
12,7
9,8
8,7
7,7
Source: Economist Intelligence Unit, Deutsche Bank, ING
Who are the active International Investors?
Austria
UK
North America
Germany
Russia
The Yield Shift in Europe is Clearly Slowing
EU-15 Index Rolling 12-month yield shift, bps
30
Retail
20
Industrial
Office
10
0
-10
-20
-30
-40
-50
-60
-70
Jun-99
Jun-00
Source: CB Richard Ellis
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Source: CB Richard Ellis
Q2 2007
Q1 2007
Industrial
Q4 2006
Q3 2006
Q2 2006
Q1 2006
Shopping Centres
Q4 2005
Q3 2005
Q2 2005
Q1 2005
Q4 2004
Offices
Q3 2004
Q2 2004
Q1 2004
22%
Q4 2003
Q3 2003
Q2 2003
Q1 2003
Russian Yield ‘Compression’
EU-15 Index
20%
18%
16%
14%
12%
10%
8%
6%
4%
Modern Shopping Centre Stock in Russia’s Largest Cities
The Changing Face of Russian Retail
Moskva Department Store
Moskva SC in Lyublino
“Kalinka- Malinka” Rostov-on-Don
Evropeysky
Krasnodar
Krasnodar Territory
Population: 5,124,400 (2002 census)
Capital: Krasnodar (population 644,800),
1,539 km from Moscow
Other major cities: Sochi (328,800), Novorossiisk
(231,900), Armavir (193,900)
Federal district: Southern
Economy: Investment cooperation with more than
60 countries, 773 registered companies with foreign
capital.
More than €7 bln had been invested in Krasnodar in
the past three years, 40% of which went into resort
development.
On the 5th July 2007 the International Olympic Council awarded
the 2014 Winter Olympic games to Sochi, in Krasnodar Krai.
Key Trends and Outlook
- Strong economic potential (The region ranks the first in the
agricultural sector of Russia.)
- Well-Developed Transportation and Logistics
Infrastructure (Three international airports, 8 seaports,
including the largest one in Russia, and one of the major
railway centers in the South of Russia, are located in the
region. The best in Russia motor roads are located on the
territory of the region)
- Favorable Investment Climate (In 2006 the international
agency Standard and Poor’s awarded Krasnodar Krai an
international credit rating of BB-stable)
- Foreign-Economic Activity of the Region (Regional
programs of economic and social development of Krasnodar
Region have been elaborated and are successfully realized. )
Investment Highlights
The rate of growth in investment of fixed capital through the Region for
2007 was 126% compared to the 2006 level (for Russia this indicator was
121%), and the amount invested totaled US $9 billion.
13% of this amount, US $715 million, came from foreign investors. Over
the last six years approximately $2.8 billion of foreign investment have
been made in the Region. Krasnodar Region consistently holds the first
place in the Southern Federal District for volume of investment.
At the international exhibitions and forums of 2007, the Region concluded 280
investment agreements to a total value of more than $28 billion. These
agreements are being realized: in 2007 only, 1795 investment projects in the
Region have been carried out, i.e. 341 more projects than in 2006.
Retail Development
OZ
207,568 –sq m shopping and
entertainment center
DVI Group
75,200-sq m shopping and
entertainment center
Mega mall “SBS”
160,00-sq m shopping and
entertainment center
Krasnodar City
approx 150,000-sq m shopping
and entertainment center
“Kalinka- Malinka”
150,000 –sq m shopping and
entertainment center
Advantages/Drivers for South Federal District
 South Federal District is closer to Moscow than Urals
and Siberia
 International investors have at least HEARD of
Krasnodar!
 Most cities still offer low competition
 Opportunity to learn from Moscow, St. Pete and the
Volga Region
The Changing Face of Krasnodar Retail
“OZ”
“Gorbushka”
Krasnodar’s “Centralny Rynok”
“SBS” mega mall
Two Tier Market?
 Russians





Off market deals
Personal relationships
Higher risk – higher investment returns
Russian tenants, shorter leases, non-institutional buildings
Small transaction sizes but for higher volumes of deals
 International Investors






Institutional or “Western” deals
Good quality buildings
Institutional lease terms
Strong tenant covenants
Larger transaction sizes in fewer deals
Lower yields
Key Investment Market Trends
 Demand exceeds supply of investment grade
properties
 Better financing options & costs
 Russian vs international investors risk profile &
approach
 Downward pressure on yields
The Outlook for Retail Property Investment
 Fundamentals still basically sound
 Equity players will dominate
 Still equity looking to invest
 More conservative attitude to risk
- assumptions on exit yield?
 Generally won’t be many forced sellers
 “Worse than we hoped, better than we feared”
 Key is the real economy and rental growth
Key Investment Market Trends
 Demand exceeds supply of investment grade
properties
 Improving financing options & costs, or just new
lenders?
 New international investors entering the market
 Downward pressure on yields
Conclusions
 International Investment still active
 Quality over quantity !!
 Structure is important
 Land Value???
Retail Investment Market
Russia
Krasnodar, June 2008
Jeff Kershaw SCSM, Senior Director, Russia