Russian Real Estate Investment Market

Russian Real Estate Investment Market

Russian real estate investment volumes Investment volume dynamics, USD mn* 8,000 Q1 Q2 Q3 Q4 7,000F 6,000 5,059 4,799 4,000 4,005 3,917 3,243 2,000 0 757 131 301 2003 2004 2005 2006 2007 2008 2009 2010 2011 Investment into RE is gaining momentum, with the total volume of Q2 2011 investment in Russia up 111% YoY, to USD2.2 bn. Commercial real estate investments increased 133% YoY in Q2 2011, to USD2.1 bn. We expect a further increase in real estate investment volumes in 2011, with the annual volume reaching USD7.0 bn, of which the commercial real estate component will account for about USD6.4 bn. * Investment deals, excluding share acquisitions of less than 30% of assets for own occupation, land acquisitions, JVs, direct residential sales to end-users. 2

Russian real estate investment market snapshot H1 2010 H1 2011 Growth, YoY Real estate (RE) investment volume, USD mn* 1,975 4,009 +103% Commercial RE investment volume, USD mn 1,290 3,898 +202% Moscow share 57% 69% St. Petersburg share 30% 24% Yields, Q2 2011 Moscow St. Petersburg Office 9.0-9.5% 10.0-10.5% Retail 9.0-9.5% 10.0-10.5% Warehouse 11.0-11.5% 13.5-14.0% * Investment deals, excluding share acquisitions of less than 30% of assets for own occupation, land acquisitions, JVs. 3

Prime yield dynamics in Moscow 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% Q1 2007 Q2 2007 Q3 2007 Warehouse Shopping centre Office 9.75% 8.5% 8.0% 12.5% 11.0% Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Due to higher investor interest in shopping centres, sector yields compressed 50 BPS to 9% in Q2. Moscow office and warehouse yields were unchanged, ending the quarter at 9% and 11% respectively. 12.0% 11.5% 14.5% Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 11% 9% 9% Q4 2011F 4

Prime yields, Q2 2011 Office yields Moscow 9.0% St. Petersburg 10.0% Budapest 7.5% Warsaw 6.3% Prague 6.5% Madrid 5.5% Brussels 6.0% Paris 4.8% London 4.0% Berlin 5.0% Moscow St. Petersburg Budapest Warsaw Prague Madrid Brussels Paris London Berlin Shopping centre yields 9.0% 10.0% 7.0% 6.0% 6.5% 6.3% 5.0% 4.8% 5.3% 5.1% 0% 2% 4% 6% 8% 10% 12% Warehouse yields 0% 2% 4% 6% 8% 10% 12% Moscow St. Petersburg Budapest Warsaw Prague Madrid Brussels Paris London Berlin 9.0% 8.0% 8.0% 8.0% 7.0% 7.0% 6.3% 7.4% 11.0% 13.5% Prime assets in Russia still offer significant premium relative to other European markets. 0% 2% 4% 6% 8% 10% 12% 14% 5

Investment volume breakdown by sector Mixed 3.3% Residential 5.3% Hotel 8.5% 2007-2008 Industrial 9.3% Office 40.2% Retail 13.3% Mixed 5.8% 2009 Residential Hotel 2.0% 1.5% Industrial 0.2% Retail 33.4% Office 77.2% 2010 H1 2011 Residential 15.4% Hotel 2.6% Industrial 11.3% Office 47.9% Residential 2.8% Hotel 15.2% Mixed 3.3% Industrial 5.2% Office 30.9% Mix ed 13.6% Retail 9.2% Retail 42.6% 6

Real estate investments by type Investment breakdown 23.0% Investors are still mostly focused on prime standing assets, nevertheless with the increased 80% availability of financing, more investments will be 60% directed to development projects. 40% 77.0% 100% 5.2% 94.8% 57.2% 16.1% 83.9% 21.8% 78.2% 16.0% 20.0% 84.0% 80.0% 20% 42.8% Investment by deal size 0% Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 H1 2011 100% 80% 60% 40% 20% 0% 24% 21% 43% 56% 64% 40% 44% 29% 21% 23% 21% 20% 12% 14% 11% 11% 11% 13% 7% 3% 3% 4% 3% 2% 2007 2008 2009 2010 H1 2011 <20 21-50 51-100 101-300 >300 Standing Under development In H1 2011 deal sizes were larger, with those exceeding USD300 mn accounting for 56% vs. 43% in 2010. 7

Office investment, H1 2011 Office investment volumes, USD mn 4,000 3,000 2,000 1,000 0 2,392 2,503 2,299 1,147 1,215 1,237 97 147 89 2003 2004 2005 2006 2007 2008 2009 2010 H1 2011 Office investment breakdown by city St.Petersburg Regions 3% 5% 100% 80% Office investment breakdown by purpose 10.3% 22.7% 19.2% 30.2% 60% 40% 70.3% 69.8% 63.6% 78.8% Moscow 92% 20% 0% 19.4% 13.7% 2.0% 2008 2009 2010 H1 2011 Development Investment Owner occupied In H1 2011 investor interest was mainly focused on high quality assets in Moscow. 8

Retail investment, H1 2011 Retail investment volumes, USD mn 2,000 0 1,503 1,639 1,362 1,706 34 154 117 431 440 2003 2004 2005 2006 2007 2008 2009 2010 H1 2011 Retail investment breakdown by city St. Petersburg 55.3% 100% Retail investment breakdown by type 10.9% 16.7% Irkutsk 2.4% 80% 60% 60.1% 55.8% 39.6% Moscow 36.1% Kaluga 2.9% Volgograd 2.9% Other 0.4% 40% 20% 0% 89.1% 83.3% 60.4% 39.9% 44.2% 2007 2008 2009 2010 H1 2011 Standing Under development Retail investment volumes increased significantly in H1 2011 to USD1,706 mn vs.usd440 mn in 2010. In H1 2011 investors interest to standing retail schemes increased to 83.3%, compared with 60.4% in 2010. 9

Regional real estate investment market, H1 2011 Regional investment volumes*, USD mn 800 0 61 95 109 640 269 336 262 204 2004 2005 2006 2007 2008 2009 2010 H1 2011 Investment breakdown by region, USD mn Regional investment breakdown by sector Irkutsk 1.0% St. Petersburg 24.5% Kaluga 1.3% Volgograd 1.2% Sochi 1.1% Novgorod 0.6% Other 1.3% Office 22.7% Hotel 13.4% Moscow 69.0% Residential 7.8% Retail 56.1% Investor attention still focused on the less risky and more mature Moscow and St. Petersburg markets in H1 2011. * All cities excluding Moscow and St.Petersburg. 10

Real estate investors by origin Finland 2.1% Germany 2.6% Austria 2.8% Singapore 3.2% USA 4.1% Denmark 2.0% 2007* Norway 1.7% Other 3.5% Russia 27.3% Norw ay 4% Austria 3% UAE 4% France 3% Italy 2% 2008 Other 5% Russia 32% UK 8.2% Confidential 9.0% 2009 China 6.0% Other 1.7% Ireland 5.1% Canada 12.8% China 7% Global 2% Global 15.6% 2010 Other 5% Confidential 17.2% Confidential 18% Kazakhstan 14% Global 2% Finland 4% Finland 11% H1 2011 Other 2% UK 14% Germany 2% 2011 Russia 75.1% Confidential 5% Global Russia 57% USA UK Asian Tigers Nordics Russia Russia 81% 21% Confidential * Shares are based on investment volumes. 2% 11

Real estate investors by type Listed Dev elopers/ Prop. Co. 24.1% Priv ate 0.4% 2007* 2008 2009 Unlisted Dev elopers/ Hotel Ow ner/operator Prop. Co. 4.1% Listed Dev elopers/ Prop. 8.2% Co. 30.7% Unknow n Corporate 17.0% Corporate 16.1% 9.8% Priv ate 5.2% Gov ernment 3.1% Unlisted Dev elopers/ Prop. Co. 20.1% Unknow n 0.8% Unlisted 19.2% Private 9.8% Unlisted Developers/ Prop. Co. 7.4% Unknown 3.2% Institution 3.3% Unlisted Unlisted Dev elopers/ 17.5% Institution Prop. Co. 14.3% 19.2% Unknow n Unlisted Institution 2.4% 28.3% 23.2% 2010 H1 2011 Government 19.3% Listed Developers/ Prop. Co. 4.4% Hotel Owner/Operator 0.8% Corporate 7.9% Priv ate 10.9% Gov ernment 0.5% Hotel Owner/Operator 0.6% Corporate 5.3% Unlisted Dev elopers/ Prop. Co. 38.1% Corporate 33.0% Unlisted 5.0% * Shares are based on investment volumes. Institution 42.2% Unknow n 1.6% Unlisted 1.8% Institution 41.2% 12

Major recent transactions Office Sadco, Moscow Alfa Arbat Center, Moscow Stake of White Square, Moscow Stake of White Gardens, Moscow Investment deal Investment deal Investment deal Investment deal Class: B+ Completed: Q1 2011 Vendor: Mosinjstroi Construction Purchaser: Aliv-M Total area: 12,180 sq m Class: A Completed: Q2 2011 Vendor: TNK-BP Purchaser: Promsvyaznedvizhimost Total area: 47,225 sq m Class: A Completed: Q2 2011 Vendor: Coalco Development Total area: 69,218 sq m Class: A Completed: Q2 2011 Vendor: Coalco Development Total area: 88,000 sq m Retail 78.64% M5 Mall, Ryazan Macromir portfolio, St. Petersburg SunMart, Kaluga Kaluzhskiy, Moscow Investment deal Corporate Sale Investment deal Investment deal Completed: Q3 2010 Vendor: ECM Real Estate Investments Purchaser: PSJ New, N.V. Volume: EUR18.7 mn Completed: Q1 2011 Vendor: Private investor Purchaser: Fort Group Total area: 306,749 sq m Completed: Q2 2011 Vendor: London & Regional Properties Purchaser: Torgovy Kvartal Total area: 46,000 sq m Completed: Q2 2011 Vendor: Mos City Group Purchaser: BIN Group Total area: 29,000 sq m 13

Conclusions Investment into real estate is gaining momentum, with H1 2011 investment volumes doubled compared to H1 2010. Investments were much diversified in H1 2011. Retail segment accounted for 43% of H1 2011 investment volume, office 31%, and hotel 15%. The deal sizes were larger, with those exceeding USD300 mn accounting for 56% in H1 2011 vs. 43% in 2010. The emergence of debt and declining costs of financing support investment activity. Investor attention remained focused on the less risky and more mature Moscow and St. Petersburg markets. Investors are still mostly focused on prime standing assets, nevertheless with the increased availability of financing, more investments will be directed to development projects. 14

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