Russian Real Estate Market Overview

1. Russian Real Estate Market Overview David O’Hara General DirectorDTZ Moscow December 3, 2007 Budapest

2. Executive summary • Russia Today • Real Estate Market in Russia Today: • Products • Yields and rents • SWOT analysis • Reality vs. Perceptions • Conclusions

3. 17,075,200 sq km total area 142 million population Climate varies from temperatecontinental to strongly continental. Political regime: Democracy Russian Federation • Big country • Lots of people • Cold and Snowy • Define “democracy”

4. Russia has changed dramatically. SOURCE: DTZ.

5. Improving economic and political environment High oil prices support continued growth High oil income to be reinvested (thus many real estate transactions off market) Economy growth The Economy Is Growing Faster Than Expected…

6. Increase in real income sustains a high consumer demand. Inflation rate keeps on decreasing: 2005: 10.9% 2006: 9.0% 2007F: 8.0% Russia investment grade: Moody’s Baa2; Fitch BBB+; S&P’s BBB+, outlook is “Stable”. Economy growth The Economy Is Growing Faster Than Expected… Source: GosKomStat RF

7. The influence of oil decreases, while private consumption gains importance. SOURCE: DTZ, Rosstat, Central Bank of Russia.

8. Monthly Nominal wages are growing, but … • POP Quiz: Statistics Lie! • N. Novgorod pop.: 1.24 mln • 63.8% of pop. in workforce • Avg. salary = $369/month • If 1.24 mln * 63.8% * $369 * 12= $3.5 bn, what is the official retail turnover of the city? • $1.5 bn • $2.5 bn • $3.5 bn • $4.5 bn SOURCE: Rosstat.

9. BRICs — we call them RBICs • Source: Goldman Sachs – Global Economics Paper No: 99 a

10. London Moscow Shanghai New York Tokyo Global City – “a city that has a direct and tangible effect on global affairs through socioeconomic, cultural, and/or political means" Paris

11. Background Managed Risk, High Reward Fast growing market Large and successful projects Huge consumerism Market indicators Office, Retail and Logistic: significant Yields compression Developers move more and more to the “regions” Today’s Real Estate Market MEGA

12. Main players on real estate market in Russia are Developers Russian developer manages: land acquisition getting all kind of permissions dealing with local authorities organizing development These activities are difficult for foreigners and almost impossible in the regions. Developers

13. Significantly increased construction volume — construction boom; “Hot” leasing market; Arrival of new international developer companies; Strong local players; Improving quality; Development companies started to perform IPO to attract cheap financing: Sistema Hals, PIK, AFI, Raven Russia Main Trends in Development

14. By the end of 2006, the total office stock in Moscow reached 5.28 mln sq m, out of which: Class A: 1.54 mln sq m Class B: 3.83 mln sq m The annual new supply in 2006 increased by 31% compared to 2005 and amounted to about 920,000 sq m Class A: 24%Class B: 76% By the end of 2008 the total office stock is expected practically to double, compared to 2005, reaching 8.25 mln sq m with annual growth of Class A office new supply exceeding the one of Class B offices. Moscow office market

15. Source: DTZ research Moscow office market

16. Office space transacted; 2006 historical record since 1998 with about 1,300,000 sq m take-up (both leased/pre-lease and sold/pre-sold). Sale deals accounted for about 40%. Class A office transactions less than 25% of the gross take-up, Lack of available offices results in new deliveries been 95-100% pre-let before the completion date. Within the next two years the gross take-up is forecast to remain at current high level. Moscow office market deals

17. Source: DTZ research Moscow office market deals

18. Moscow vs. other cities

19. Prime rents and typical lease terms: comparative analysis • The base rents at prime new buildings in the city center are in the range of $1200-1500 sq m per year. • Leases in prime new buildings in non-central locations are typically signed at $600-1000 sq m per year (base rent). In 2007, prime base rents for Class A and B offices are expected to continue on be an upward trend – the prime rental growth in 2007 was 50%. In 2008, rents stabilization is forecast. DTZ research

20. Market indicators: Offices Moscow: 8% in 2007 Source: DTZ research

21. Office centers: base rental rates St Petersburg: Class A: $500—850Class B: $400—500 (per sq m per annum, including operating expenses, VAT extra) Class A average terms are 3 to 5 years Class B terms are 11 months to 3 years Office rents • Moscow: • Prime class A: $1000—1500Class A: $700—1000Class B: $450—700(per sq m per annum, excl. Opex $60—130 and VAT ) • Fixed or indexed at CPI for Class A, • average term 5 years, • leases of 7—10 years are more often; • Class B terms are 11 months to 5 years. Last two years rates were growing at an average of 7-10% per annum

22. Retail in Russia – Disposable Income Comparison

23. Market indicators: Retail 2007: Moscow 8,5% DTZ research

24. Moscow still enjoys a hefty yield premium over the rest of Europe. Source: DTZ.

25. Regional cities will continue to enjoy a yield premium. SOURCE: DTZ Estimates. * Estimated Net Initial Yields.

26. Russia is not just Moscow St. Petersburg (700 km from Moscow) • The regions hold 93% of Russia’s population. • Russia holds more than a third of Europe’s 100 largest cities. Moscow Ekaterinburg (1667 km from Moscow) Samara(1040 km from Moscow) Chelyabinsk (1919 km from Moscow) Rostov-on-Don(1226 km from Moscow) Novosibirsk (3191 km from Moscow)

27. 1 Project 2 Projects 3 Projects 4 Projects 5 Projects 6 Projects 7 Projects 8 Projects 18 Projects Shopping center developers active across the Russia

28. Regional Scorecard: SOURCE: DTZ.

29. Retail centers-rental rates Anchor tenants: $200—300 per sq m p.a. in Moscow $150—250 per sq m p.a. in regions Retail gallery: $400—2600 per sq m p.a. excluding operating expenses and VAT Selling price of shopping centers Prime Yields in Moscow and St. Petersburg 8 – 8.5% . Yields for in regional cities are with 2—3% premium compared to Moscow and St. Petersburg. Retail rent rates

30. SWOT analysis

31. Challenges: Perceptions vs. Reality Russia: Living Conditions 1. Pre-1985 – Communism “No money to spend, but nothing to buy.” 2. Perestroika – Yeltsin Years “We were better off before.” 3. Post-1998 – Putin Years “Availability. Opportunity. Consumerism” • Developing Real Estate in the Biggest Country in the World • Supply Chain Management • Construction Management • Health and Safety • Environment and Ecology • On-time Delivery

32. Conclusions Russia is a Big Place! – big population, large projects and opportunities Why Does Real Estate Market Work? – oil and consumerism Strong local players but increasing presence of international companies • Macroeconomics – during last 6 years Russia’s Sovereign Risk decreased from 13,6% in • 2006 to 1,16% in 2006 (Spread between Russia’s Money Market Spread over US T Bills).

33. Incomes per Capita, 2050 Goldman Sachs is more optimistic than me!!

34. Conclusion: Incomes per Capita, 2050 Goldman Sachs is more optimistic than me!!

35. Thanks! Come to Moscow & see for yourself!! DTZ Moscow ul. Gasheka, 7, Suite 360 Moscow, Russia 123056 Tel.  +7 (495) 748 1111 Fax. +7 (495) 787 8887 • David O’Hara • General Director • Mob. +7 (985) 999 7872  • david.ohara@dtz.com  • Ferit Yildirim • Managing Director • Mob. +7 (985) 970 3097 • ferit.yildirim@dtz.com