h1 2014 investor presentation

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




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


Tverskaya Premises

Location: Moscow

GBA, sqm 8,8K

GLA, sqm 7,6K


Berezhkovskaya (Office Class B)

Location: Moscow

GBA, sqm 11,6K

GLA, sqm 10,3K


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 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 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




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)


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)


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

h1 2014 investor presentation

Documents