H1 2014 Investor Presentation by AFI Development

H1 2014 IR Presentation FINANCIAL & BUSINESS RESULTS August 2014

Disclaimer 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 Market Cap, as of August 19, 2014 Price per share, as of August 19, 2014 NAV (Equity), as of June 30, 2014 NAV per share, as of June 30, 2014 Portfolio Value*

US$ 0.67 bn US$ 0.64 US$ 1.73 bn US$ 1.65 US$ 2.5 bn

PROJECTS PORTFOLIO 17% Pipeline

Land Bank 1%

• Full cycle real estate developer

BUSINESS & STRATEGY

21% Yielding Projects

• 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

15% Active stage of construction

HISTORY 46% AFIMALL

• 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

160

14,000,000

150

• Free float – 35,12%

12,000,000

140 130

10,000,000

120

8,000,000

• 14 completed projects with total c. 0,5 mln sqm of space (including sold property)

110 100

6,000,000

4,000,000

2,000,000

70 60

• Major project AFIMALL, located in Moscow-City

PORTFOLIO

• 3 Projects are in active stage of development with c. 0,9 mn sqm • c. 0,4 mn sqm are in Company pipeline

AFID AFID(b-shares) RTS Index

Key Projects in Moscow Yielding Assets (retail, offices and hotels) Value**

US$ 1.7 bn

( C&W, Jun 2014):

Tverskaya IB

Berezhkovskaya

AFIMALL

194,4K

GLA (excl. hotels),sqm:

PLAZA SPA Kisl*

PLAZA SPA ZHEL* Aquamarine III

Ownership:50%

NOI stab., (excl. hotels):

US$ 202,7mn

* * Hotels presented with cost value

Aquamarine Hotel

Paveletskaya,1

H2O

* Outside of Moscow

Projects under Active Stage of Construction Value***

US$ 383 mn

(afid share, C&W):

Odinburg**

Expolon

Plaza IC

*** Odinburg presented with cost value,

GLA,sqm:

107,1K

GSA,sqm:

453,0K

Pipeline Projects Value

US$ 440 mn

(afid share, C&W): Paveletskaya II

Yielding Assets Projects under active stage of development and pipeline

Plaza IIa

Pochtovaya

GLA, sqm:

129,3K

GSA, sqm:

105,1K

Plaza IV

Land Bank

Completed Assets

Value

US$ 17 mn

(book value):

Other 5 Note: the NOI projections are â&#x20AC;&#x153;forward looking statementsâ&#x20AC;? 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

SECTION 2 Project Update Yielding Projects

Company yielding projects •

10 yielding projects with total c. 0,4 mln sqm of space and NOI(excl. hotels)1-year forward 121 mn US$ H20 (Office Class B)

AFIMALL CITY

Ownership:50%

Location: GBA, sqm GLA, sqm MV, US$ (C&W)

Location: Moscow, Moscow-City Year of construction: 2011 GBA, sqm 283,2K GLA, sqm 107,2K MV, US$ (C&W) 1,160

Paveletskaya (Office Class B) Location: GBA, sqm GLA, sqm MV, US$ (C&W)

AQUAMARINE III OFFICE Location: Year of construction: GBA, sqm GLA, sqm MV, US$ (C&W)

Moscow 10,7K 9,0K 16,9mn

Moscow, CBD 2013 61,8K 46,2K 323,6

Moscow 16,2K 14,1K 29,9mn

Tverskaya Premises Location: GBA, sqm GLA, sqm MV, US$ (C&W)

Moscow 8,8K 7,6K 32,4mn

Berezhkovskaya (Office Class B) 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

Location: GBA, sqm GLA, sqm MV, US$ (C&W)

PLAZA SPA ZHELEZNOVODSK

Location: GBA, sqm Keys, sqm BV, US$

Russia, Caucus 11,7K 134 21,6mn

Moscow 11,6K 10,3K 37,6mn

Other 7 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

Yielding Properties Yielding Assets

Building

AFIMALL

* Berezkovskaya

Ozerkovskaya III

Moscow

Tverskaya Plaza II Paveletskaya, bld. 1 Moscow

Moscow

H2O

Tvesrkaya Plaza Ib

Moscow

Aquamarine Hotel*

Plaza SPA Kislovodsk

Moscow

CBD

Office B

Office & Street Retail

16,246

10,698

5,856

14,085

143

86%

1,202

750- Office 500 - retail

98.6

Location Class GBA, sqm GLA, sqm Parking lots (total), # Ocupancy rate (30.06.2014), % Average rent as of 30.06.2014, $/sq m NOI (12m forward) (C&W est.), US mn NOI stab (C&West.), US mn MV,US$ mn**

Plaza SPA Zheleznovodsk

TOTAL

Kavkaz region

Hotel

2,027

8,931

25,000

11,701

438K

8,990

1,740

159 keys

275 keys

134 keys

194K

126

83%

96%

78%

86%

72%

74%

563

505

356

334

537

ADR 206

ADR 301

ADR 203

10.1

4.3

2.4

3.1

1.7

0.9

121

147.3

38.5

5.1

3.4

4.5

2.7

1.2

203

1,160

324

37.6

29.9

16.9

8.4

29.6

24.1

21.6

1,676

Moscow City

CBD

Retail

Office A & Street Retail

Office B

Office & Street Retail

Office B

283,182

61,772

11,612

6,742

107,208

46,247

10,250

2,075

466

82%

* 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

****

AFIMALL City Update

AFIMALL CITY (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) Parking lots, numbers

82% 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

 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. H1 2014 H1 2013 Change, %

US$ 618mn

Revenue, mn USD Operating Expenses, mn USD NOI

+18%

56.6 (17.3) 39.3

48.0 (16.7) 31.3

18% 4% 25%

+25%

H1 2014 Revenue, mn USD

H1 2013 NOI, mn USD

AFIMALL and Moscow-City Development 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.

AFIMALL

 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%) 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

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)

- 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.

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 10

AFIMALL and Moscow-City Development

AFIMALL

11 Based on C&W report

SECTION 3 Project Update Projects under Active stage of construction

Company Projects under Active Stage of Construction â&#x20AC;˘

3 development projects under active stage of construction, where total GBA is c. 940K sqm 1. ODINBURG Location: Moscow, Region, Odintsovo

Ownership:50%

GBA, sqm GSA res, sqm GSA com, sqm GSA res (Phase 1), sqm

767,1K 453,0K 36,4K 145,1K

2. EXPOLON (KOSSINSKAYA) PLAZA IC

Location:

Moscow

GBA, sqm GLA, sqm MV, US$ (C&W)

111,7K 70,0K 107,3mn

ODINBURG EXPOLON

3. PLAZA 1C (Brestskaya, 50/2) Location:

Moscow

GBA, sqm GLA, sqm MV, US$ (C&W)

61,8K 37,0K 136,0mn Other 13

Odinburg Residential GBA, sqm 767,1K GSA, sqm 489,4K STATUS: construction of 14th Floor of Bld. 1

Odinburg Residential 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).

ODINBURG ODINBURG

CONSTRUCTION STATUS and SALES  As of today 269 apartments have been signed

(as of June 2014 ) Type

GBA,sqm GSA, sqm/GSA commercial total: Phase I, sqm: Phase II, sqm:

Residential

 The construction works go as planned (14th floor)

767,1K 453,0/36,4K 145,1K 307,9K

Apartments, total :

9,059

 Phase 1:  Stage 1

2,572 702

Parking units:

3,399

Expolon ( Kossinskaya) GBA, sqm:

111,7K

GLA, sqm:

70,0K

MV (C&W est.) US$:

107,3 mn

Expolon ( Kossinskaya) 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

(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

Plaza IC ( 2 Brestskaya, 50/2) GBA, sqm:

61,8K

GLA, sqm:

37,0K

MV (C&W est.) US$:

136,0mn

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

(as of June 2014 ) Total GBA, sqm

61,8K

Total GLA, sqm

37,0K

Parking lots, numbers

467 The Kremlin

MV (C&W est.)

US$ 136,0mn

SECTION 4 Project Update Pipeline Projects

Pipeline Projects •

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 1. POCHTOVAYA (RESIDENTIAL COMPLEX) Location:

Moscow, CAD

GBA, sqm GSA/GLA, sqm Status:

170,3K 56,9K/34,2K Stage P

MV, US$ (C&W)

159,3 mn

2. PAVELETSKAYA (RESIDENTIAL COMPLEX) Location:

Pochtovaya

Moscow, CAD

GBA, sqm GSA/GLA, sqm Status:

Plaza IV

151,4K 48,2K/26,1K Stage P

MV, US$ (C&W)

Paveletskaya

104,3 mn

3. PLAZA IV (OFFICE COMPLEX) Location:

Moscow, CAD

GBA, sqm GLA, sqm Status:

108,0K 61,3K Securing approval

MV, US$ (C&W)

164,0 mn

Other 21 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

SECTION 5 Financials

Consolidated P&L #

Q1 2014 Q2 2014 H1 2014 Actual Actual Actual

ITEM ('000)

(1)

Construction consulting/management services

(2)

Rental income

(3)

Sale of residential and trading property

(4) TOTAL REVENUE

H1 2013 Actual

0.1

36.7

38.2

74.8

68.5

1.4

55.3

36.7

39.6

76.2

123.9

1.7

1.3

3.0

3.7

(5)

Other income

(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)

(32.0)

(9)

Other expenses

(2.3)

(0.7)

(2.9)

(2.6)

(29.7)

(19.6)

(49.3)

(81.1)

(10) TOTAL EXPENSES (11)

Share of profit of equity-accounted investees

(12) GROSS PROFIT (13)

Valuation gains on investment property

(14)

Impairement loss for trading property and hotels

(15) RESULTS FROM OPERATING ACTIVITIES (16)

Profit on sale/disposal of properties/investment

(0.6)

1.2

0.6

6.3

21.2

27.5

42.1

73.3

(46.8)

26.5

57.5

(0.4)

(8.3)

(8.7)

79.2 0.1

(34.0) -

45.3

99.6

0.1

32.1

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)

(50.2) 29.1

10.7 (23.3)

(39.4) 5.9

(76.2) 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)

3.7

43.3

(25) PROFIT FOR THE PERIOD

24.2

(20.5)

(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)

(0.8)

(17)

(21) Net finance income/(costs) (22) PROFIT BEFORE INCOME TAX

Comments:

(13)(19) Mainly due to change in currency rate (14) Investments to Botanic Garden project

Statement of Financial Position Changing US$ mn

30.06.2014 US$ mn

31.03.2014 US$ mn

1,600.4 686.6 6.0 66.8 22.5 0.1

1,609.8 633.9 4.5 62.3 21.4 0.1

(9.4) 52.7 1.6 4.4 1.1 0.0

8% 35% 7% 5% 7%

2,382.3

2,331.9

50.4

5.5 139.6 0.5 0.7 111.2 0.2 111.9 11.5

5.9 129.4 0.5 0.7 107.2 0.2 137.9 10.8

(0.4) 10.1 0.0 0.0 4.0 0.0 (26.0) 0.7

381.2 2,763.5

392.6 2,724.6

(11.4) 38.9

1.0 1763.4 (162.5) 124.6

1.0 1763.4 (191.3) 142.9

0.0 0.0 28.8 (18.3)

1,726.6 (3.0)

1,716.0 (2.0)

10.5 (1.0)

592.4 127.1 21.8

580.7 131.0 20.6

11.7 (3.9) 1.2

Total non-current liabilities

741.3

732.3

9.0

Short-term loans and borrowings Trade and other payables Advances from customers

232.0 44.1 22.5

232.0 44.6 1.6

0.0 (0.5) 20.9

0% (1%)

Total current liabilities

298.6

278.2

20.4

(33) TOTAL LIABILITIES

1036.9

1008.5

28.4

(34) TOTAL EQUITY AND LIABILITIES

2,763.5

2,724.6

38.9

# (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29) (30) (31) (32)

NARRATIVE Investment property Investment property under development Investment in Joint Ventures Property, plant and equipment Long-term loans receivable VAT recoverable

Total non-current assets Trading property Trading properties under construction Inventory Short-term loans receivable Trade and other receivables Current tax assets Cash and cash equivalents Other investments

Total current assets TOTAL ASSETS Equity Share capital Share premium Translation reserve Retaining earnings TOTAL EQUITY Minority interest Long-term loans and borrowings Deferred tax liabilities Deferred income

8% 9% 1% 4% 3%

 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 (9) Odinburg

(25) Change in 30 June 2014 and 31 March 2014 exchange rate

(31) Advance Payments from customers in Odinburg

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)

Project

Bank

Balance as of June, 2014 (US$ mn)

Available (US$ mn)

Nominal Interest rate

Currency

VTB

$309

9.5%

RUB 01.04.2018

AFIMALL VTB TOTAL AFIMALL

Ozerkovskaya III (100%)

Maturity

VTB

TOTAL/AVERAGE RATE *

$309

3-m Libor+5.02%

$618

7.38%

$205

3-m Libor+5.7%

$823

USD

RUB

26.01.2015

7.02%

The Company is in line with all financial covenants

Gross Asset Value PROJECT

Book Value

30.06.2014

AFI Mall Berezkovskaya (100%) Paveletskaya I (1) Plaza H20 Ozerkovskaya III Plaza Ib Plaza II

1,160 38 30 17 324 8 24

(618)

542 38 30 17 118 8 24

TOTAL INVESTMENT PROPERTY:

1,600

(824)

Plaza Ic Plaza II a Plaza IV (100%) Kosinskaya Bolyshaya Pochtovaya Paveletskaya II Ruza St. Petrsburg

136 12 164 107 159 104 4 0

TOTAL INVESTMENT PROPERTY UNDER DEVELOPMENT:

687

Ozerkovskaya Phase II (26) 4Winds residential

4 1

Aquamarine/Ozerkovskaya 26 Plaza SPA Zheleznovodsk Pyatigorskaya (Park Plaza Kislovodsk) Plaza Spa Kislovodsk (Tirel) (50%) Versailles (Kislovodsk)

30 22 7 24 7

TOTAL TRADING PROPERTY:

TOTAL PROPERTY PLANT AND EQUIPMENT:

89 Odinburg

TOTAL TRADING PROPERTY UNDER DEVELOPMENT:

TOTAL PORTFOLIO: CASH AND CASH EQUIVALENT DEFFERED TAX LIABILITY TOTAL OTHER ASSETS AND LIABILITIES

TOTAL EQUITY:

Bank Loan Net Company's Share

30.06.2014

(205)

LTV= 33% LTE = 48%

777 136 12 164 107 159 104 4 0

687 4 1

12 30 22 7 24 7

140

89 140

140

2,521

(824)

1,704 123 (127) 27

1,727

SECTION 6

Market Update

Market Overview and Capital Markets RUSSIAN MACROECONIMIC OVERVIEW •

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.

GDP growth by country, %

1.0

140

Oil price (Brent, US$ per barrel)

120 100

80 -5

105.27

60 40

-10

20 US Germany Italy Israel

Europe Area France UK Russia

RUSSIAN REAL ESTATE INVESTMENT MARKET •

• •

•

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).

Investment Volume, USD mn 8,000

7,4

7,000

7,1

6,5 5,8

6,000

Other

5,3 4,6

5,000

4,0

E5,0

Warehouse

4,000 Retail

3,000

2,3

2,000 1,000

1,7

Office

0,5

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: IMF, MED, C&W, Finam

h1 2014 28

Office and Retail Markets overview OFFICE MARKET OVERVIEW

•

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.

2,200

Key indicators

2,000

Units

2,000

Prime rate, US$ sqmpa

1,800 US$/psqm/pa

•

1,500

1,600

1,000

800

800 930

600 400

1,100 1,200 1,150 1,150 1,100

1,000

800

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

(US$/sqm/year)

1,400 1,200

900-1,100

850

1,090

710

740 790

850 850

850

640 600 200520062007200820092010201120122013 Q1 Q2 2014 2014 average Class A

Base rent Class A(CBD) US$ sqmpa

580-1,100

Overall vacancy,%

14,8%

Vacancy rate,%

18,0%

(Class A CBD )

class A CBD Prime

RETAIL MARKET OVERVIEW

•

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.

5,000

4,5004,800

4,500 4,000 4,000 3,700 4,000

4,500 4,000 USD psqm pa

•

4,500 4,500 4,500

Key indicators

Units

Prime rate, US$ psqma

3,0004,500

3,500

3,500 3,000 3,000

(prime shopping center retail gallery)

2,500

2,000 1,700 2,000 1,500 1,300 1,200 1,500

1,350 1,150 1,150 1,350 1,350 1,150 1,150

Base rent, US$ psqma

500-1,800

Vacancy rate,%

3,1-3,5%

1,000 500 0

Prime rents

Base rents

Source: http://www.peresvet.ru/temptext/1397046862160.pdf

Residential Market Overview 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%.

Residential Construction Volume in Moscow December November October September August July

June May April March February January

• 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