Retail Investment Market Russia Krasnodar, June 2008 Jeff Kershaw SCSM, Senior Director, Russia

1. Retail Investment Market Russia Krasnodar, June 2008 Jeff Kershaw SCSM, Senior Director, Russia

2. Investment Market Turnover in Europe *H1 2007 turnover was 17% higher than in H1 2006 € Million Source: CB Richard Ellis

3. Investment Turnover by Country Top Three Countries Account For 66% Of The Market € Million 33% Total Size €119 billion 22% 11% Source: CB Richard Ellis

4. International Investor P&S H1 2007 € Million Purchases Sales Source: CB Richard Ellis, Property Data, VastGoedMarkt, KTI

5. International Investment Cross-border transactions have quadrupled in € terms since 2000 * Proportionate figures for comparison only € Million Cross-border purchasers Local purchasers 48% 41% 34% 57% 37% 43% 36% 38% 84% Source: CB Richard Ellis

6. International Investment By Investor Origin * Proportionate figures for comparison only € Million 41% 42% 47% 31% 24% 38% Source: CB Richard Ellis

7. Investment Turnover by Country 1998 – H1 2007 Aggregate CEE Investment; € Million Total Investment Turnover = €31 billion Source: CB Richard Ellis

8. Russia

9. Russia is a huge market! Million Moscow – 15 million people

10. Russian economy today and tomorrow Source: Economist Intelligence Unit,Deutsche Bank, ING

11. Who are the active International Investors?

12. The Yield Shift in Europe is Clearly Slowing EU-15 Index Rolling 12-month yield shift, bps Source: CB Richard Ellis

13. Russian Yield ‘Compression’ Source: CB Richard Ellis

14. Modern Shopping Centre Stock in Russia’s Largest Cities

15. The Changing Face of Russian Retail Moskva Department Store “Kalinka- Malinka” Rostov-on-Don Evropeysky Moskva SC in Lyublino

16. Krasnodar

17. Krasnodar Territory Population: 5,124,400 (2002 census)Capital: Krasnodar (population 644,800), 1,539 km from MoscowOther major cities: Sochi (328,800), Novorossiisk (231,900), Armavir (193,900)Federal district: Southern Economy: Investment cooperation with more than 60 countries, 773 registered companies with foreign capital. More than €7 bln had been invested in Krasnodar in the past three years, 40% of which went into resort development. On the 5th July 2007 the International Olympic Council awarded the 2014 Winter Olympic games to Sochi, in Krasnodar Krai.

18. Key Trends and Outlook - Strong economicpotential (The region ranks the first in the agricultural sector of Russia.) - Well-Developed Transportation and Logistics Infrastructure(Three international airports, 8 seaports, including the largest one in Russia, and one of the major railway centers in the South of Russia, are located in the region. The best in Russia motor roads are located on the territory of the region) - Favorable Investment Climate(In 2006 the international agency Standard and Poor’s awarded Krasnodar Krai an international credit rating of BB-stable) - Foreign-Economic Activity of the Region(Regional programs of economic and social development of Krasnodar Region have been elaborated and are successfully realized. )

19. Investment Highlights The rate of growth in investment of fixed capital through the Region for 2007 was 126% compared to the 2006 level (for Russia this indicator was 121%), and the amount invested totaled US $9 billion. 13% of this amount, US $715 million, came from foreign investors. Over the last six years approximately $2.8 billion of foreign investment have been made in the Region. Krasnodar Region consistently holds the first place in the Southern Federal District for volume of investment. At the international exhibitions and forums of 2007, the Region concluded 280 investment agreements to a total value of more than $28 billion. These agreements are being realized: in 2007 only, 1795 investment projects in the Region have been carried out, i.e. 341 more projects than in 2006.

20. Retail Development OZ 207,568 –sq m shopping and entertainment center DVI Group 75,200-sq m shopping and entertainment center Mega mall “SBS” 160,00-sq m shopping and entertainment center Krasnodar City approx 150,000-sq m shopping and entertainment center “Kalinka- Malinka” 150,000 –sq m shopping and entertainment center

21. Advantages/Drivers for South Federal District • South Federal Districtis closer to Moscow than Urals and Siberia • International investors have at least HEARD of Krasnodar! • Most cities still offer low competition • Opportunity to learn from Moscow, St. Pete and the Volga Region

22. The Changing Face of Krasnodar Retail “OZ” “Gorbushka” Krasnodar’s “Centralny Rynok” “SBS” mega mall

23. Two Tier Market? • Russians • Off market deals • Personal relationships • Higher risk – higher investment returns • Russian tenants, shorter leases, non-institutional buildings • Small transaction sizes but for higher volumes of deals • International Investors • Institutional or “Western” deals • Good quality buildings • Institutional lease terms • Strong tenant covenants • Larger transaction sizes in fewer deals • Lower yields

24. Key Investment Market Trends • Demand exceeds supply of investment grade properties • Better financing options & costs • Russian vs international investors risk profile & approach • Downward pressure on yields

25. The Outlook for Retail Property Investment • Fundamentals still basically sound • Equity players will dominate • Still equity looking to invest • More conservative attitude to risk- assumptions on exit yield? • Generally won’t be many forced sellers • “Worse than we hoped, better than we feared” • Key is the real economy and rental growth

26. Key Investment Market Trends • Demand exceeds supply of investment grade properties • Improving financing options & costs, or just new lenders? • New international investors entering the market • Downward pressure on yields

27. Conclusions • International Investment still active • Quality over quantity !! • Structure is important • Land Value???

28. Retail Investment Market Russia Krasnodar, June 2008 Jeff Kershaw SCSM, Senior Director, Russia