CEE Real Estate Sector Investment Opportunities

1. CEE Real Estate Sector Investment Opportunities André Albrecht Günther Artner, CFA Gernot Jany ERSTE GROUP RESEARCH ERSTE GROUP RESEARCH October 2007 1

2. Overview Recent under-performance Real estate sector indices CEE market environment Financials & valuation Current top picks Summary ERSTE GROUP RESEARCH

3. Recent under-performance (1)Performance comparison Performance overview Source: Bloomberg as of September 25, 2007 • European real estate sector (EPRA) markedly under-performed global equities (MSCI global index), as well as global real estate (GPR250) in 2007 • Companies with high share of development out-performed EPRA, GPR250 and also MSCI • In the short-term we expect the sector to remain quite volatile, in mid-term we expect stock prices to converge towards NAVs ERSTE GROUP RESEARCH

4. Recent under-performance (2)Main reasons and how to take advantage Main reasons • Environment of increasing interest rates, sub-prime crises and rising credit spreads -> higher cost of capital and bearish mood on rental yield development • Slow down of the US residential market and arising problems in the Spanish real estate market increased the uncertainty, despite no direct connection To take advantage of depressed valuation, go for… • …companies with high share of developments,… • …focused on added value through active management and on… • …the fast growing SEE and CIS regions. Top picks • Austria-based: - Immoeast (Buy, target price: EUR 11.7) - CA Immo Int. (Accumulate, target price: EUR 16.0) • CEE-based: - GTC (Buy, target price: PLN 57.5) - Orco (Buy, target price: EUR 129) ERSTE GROUP RESEARCH

5. Overview Recent under-performance Real estate sector indices CEE market environment Financials & valuation Current top picks Summary ERSTE GROUP RESEARCH

6. Real estate sector indicesDescription and composition Immobilien ATX (IATX) CEE real estate index (CERX) as of Oct. 11, 2007 Source: Vienna Stock Exchange • Comprises Austria-based real estate companies listed on the Vienna Stock Exchange (Prime Market) • Free-float capitalization-weighted index • Base value 155.47 points as of January 2, 1996 • Current free-float cap.: EUR 6.0bn • Serves as underlying for standardized derivatives and structured products • Recent exclusion of participation certificates positive • Comprises the largest CEE-focused real estate companies listed on the stock exchange in Bucharest, Prague, Warsaw or Vienna (strong development-focus) • Capitalization-weighted index • Base value 1,000 points as of January 5, 2003 • Current free-float cap.: EUR 6.0bn • Serves as underlying for standardized derivatives and structured products ERSTE GROUP RESEARCH

7. Overview Recent under-performance Real estate sector indices CEE market environment Financials & valuation Current top picks Summary ERSTE GROUP RESEARCH

8. CEE market environment (1)Austrian companies are leading investors in CEE • Investments into the CEE real estate sector were rising significantly, even excl. developments • Austrian (listed) real estate companies are the biggest players in the whole CEE region (!) • Immoeast, CA Immo Int., etc. are the leading Austrian investors in the CEE region ERSTE GROUP RESEARCH

9. CEE market environment (2)Penetration rates still behind Western Europe Office density 2008e Shopping center density 2006 in Europe Source: CBRE, JLS, Eurostat, Erste Bank estimates, CBRE, DTZ, KS • Most CEE countries are still substantially behind Western Europe (WE) in terms of office space density, even the most advanced markets of Prague and Warsaw are still 60% behind • Retail density is far more progressed and the core CEE markets have already approached WE levels • Romania, Russia and Ukraine are the markets with the highest catch-up (i.e. growth) potential ERSTE GROUP RESEARCH

10. CEE market environment (3)Yields are converging, rents are increasing European Office Property Clock, Q2 2007 Source: Jones Lang LaSalle Source: CB Richard Ellis • There has been a continuous convergence of rental yields in CEE towards Western European levels • Rents are either bottoming out or in an increasing phase in nearly the whole CEE region • There has certainly been a lot of value creation in the CEE real estate sector already, but the macro environment is still OK – listed stocks have anticipated a much worse environment already ERSTE GROUP RESEARCH

11. 10 9 8 AUSTRIA BENCHMARK BOND 10 YR 7 6 5 VIBOR 3 MONTH 4 3 2 EURIBOR 3 MONTH 1 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 • CEE market environment (4)Interest rate development and yield spreads Prime office yield spread over 10y bonds 10y government bond vs. 3 month EURIBOR/VIBOR Source: Erste Bank estimates, end September 07 Source: Datastream • Whereas the 3-months EURIBOR has reached a neutral level, the 10-year government bond is still low in a historical context  the interest rate environment is neutral in summary • The current interest rate environment is significantly better than at the beginning of the 90ies, the time of the latest major decline in property values in Europe • Property yield spreads vs. government bonds are most attractive in Romania, Bulgaria and Russia, the worst in Hungary and France ERSTE GROUP RESEARCH

12. Overview Recent under-performance Real estate sector indices CEE market environment Financials & valuation Current top picks Summary ERSTE GROUP RESEARCH

13. Financials & valuation Peer group comparison ERSTE GROUP RESEARCH

14. Overview Recent under-performance Real estate sector indices CEE market environment Financials & valuation Current top picks Summary ERSTE GROUP RESEARCH

15. Current top picks (1)Immoeast (Buy, EUR 11.7 from EUR 13.2) Dominant CEE player Key figures • Dominant player in CEE with clear investment focus • Experienced management team with excellent track record • Well diversified portfolio across regions and sectors • Strategic joint ventures and partnerships with well established developers active in CEE • Additional value creation from development gains • Switch to more active portfolio management • Low interest rate sensitivity, due to hedging strategy Property breakdown 1Q 07/08 Risks • Substantial recent capital increase with dilutive effect and temporary sub-optimal capital structure • Higher business risk, due to stronger focus on developments • Higher country risk especially in SEE and CIS • Potential conflict of interest between Immoeast and Constantia Privatbank, which have same management team ERSTE GROUP RESEARCH

16. Current top picks (2)CA Immo International (Accumulate, EUR 16.0) Early bird in CEE Key figures • Early bird with proven track record in CEE • Experienced in-house management • Additional value creation from development gains • Third-party fee income • Active portfolio management • Low interest rate sensitivity, due to hedging strategy Risks Property breakdown 1H 07 • Sub-optimal current capital structure • Higher business risk, due to focus on developments • Higher country risk, especially in SEE and CIS • Still relatively low liquidity compared to other real estate stock ERSTE GROUP RESEARCH

17. Current top picks (3)GTC (Buy, PLN 57.5) Shark in a local pond Key figures • Clear strategy focused on development in unsaturated SEE and CIS region • Well diversified portfolio in eight countries and three sectors • Large economies of scale • Very low indebtedness • Loans 80% fixed rate or hedged • Experienced and stable management team with strong track record • Good relationship with best tenants in region Risks Property breakdown 1H 07 • Already high efficiency do not allow for above-average growth margins • Slightly higher valued compared to competitors • Slim employment structure could cause delays or slow new project starts • Expansion to SEE and CIS increases exposure to more volatile economies ERSTE GROUP RESEARCH

18. Current top picks (4)Orco Property Group (from Hold to Buy, EUR 129) Opportunistic player with re-development potential Key figures • Above-average yield potential through re-development focus and growth in occupancy • Opportunistic approach with focus on arbitrage gains, rather than segment/region focus • Good access to financing with partners like MSREF, LB, quadruple stock listing • Strong balance sheet with 44% LTV after recent capital increase • Good segment diversification • Regional diversification with operations in CEE and Germany • Stable and experienced management Property breakdown 1H 07 Risks • Low exposure to quickly growing SEE and CIS markets compared to peers • Lower share of developments compared to peers • Still low operating performance • Difficult valuation methodology ERSTE GROUP RESEARCH

19. Overview Recent under-performance Real estate sector indices CEE market environment Financials & valuation Current top picks Summary ERSTE GROUP RESEARCH

20. SummaryMain points and outlook Weak performance in 2007 • No direct impact of US subprime crises • Significant removal of funds from institutional investors triggered a correction of the European real estate sector stocks Market environment deteriorated, but not significantly • Financing costs (credit spreads) have increased and will remain more expensive than before • Real estate companies have less liquidity, which may slightly dampen the market environment also in Europe • Sentiment and stock exchange multiples (NAV discounts) are far worse than the actual market situation, however Outlook • Rental market yields could slightly increase, but room is limited due to arbitrage opportunities through leveraged debt financing • Stock prices should converge towards NAVs in the mid-term, when the next quarterly results continue to show a good operating performance and no major write-downs • We focus on development-oriented firms, which are heavily weighted in the CERX index ERSTE GROUP RESEARCH

21. Disclosures ERSTE GROUP RESEARCH