Retail Investment MarketRussia

Krasnodar, June 2008

Jeff Kershaw SCSM, Senior Director, Russia

Investment Market Turnover in Europe

0

50,000

100,000

150,000

200,000

250,000

2000 2001 2002 2003 2004 2005 2006 H1 2007*

€ Million

Source: CB Richard Ellis

*H1 2007 turnover was 17% higher than in H1 2006

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

UK

Ge

rma

ny

Fra

nce

Sw

ed

en

Italy

Ne

the

rlan

ds

CE

E

Sp

ain

Oth

ers

Ru

ssia

H1 2006

H1 2007

Investment Turnover by Country

Total Size €119 billion

€ Million

Source: CB Richard Ellis

33%

22%

11%

Top Three Countries Account For 66% Of The Market

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

US

A

UK

Ger

man

y

Irel

and

Mid

dle

Eas

t

Sp

ain

Far

Eas

t

Fra

nce

Au

stri

a

Net

her

lan

ds

Au

stra

lia

International Investor P&S H1 2007

Source: CB Richard Ellis, Property Data, VastGoedMarkt, KTI

Purchases

Sales

€ Million

International Investment

0

50,000

100,000

150,000

200,000

250,000

2000 2001 2002 2003 2004 2005 2006 H1 2007 H1 2007Russia *

€ Million

Source: CB Richard Ellis

38%36%

37% 43%

34%

41%

Cross-border transactions have quadrupled in € terms since 2000* Proportionate figures for comparison only

Cross-border purchasers

Local purchasers 48%

57%

84%

International Investment By Investor Origin

0

20,000

40,000

60,000

80,000

100,000

120,000

2004 2005 2006 H1 2007 * H1 2007 Russia

Non-European Purchasers

European Cross-Border Purchasers

€ Million

Source: CB Richard Ellis

38%

42%

41%

31% 47% 24%

* Proportionate figures for comparison only

Investment Turnover by Country 1998 – H1 2007

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000Aggregate CEE Investment; € Million

Source: CB Richard Ellis

Total Investment Turnover = €31 billion

Russia

Russia is a huge market!

0

20

40

60

80

100

120

140

160R

ussia

Ge

rma

ny

UK

Fra

nce

Ita

ly

Sp

ain

Po

lan

d

Ne

the

rla

nd

s

Mo

sco

w

Gre

ece

Cze

ch

Re

pu

blic

Be

lgiu

m

Hu

ng

ary

Po

rtu

ga

l

Sw

ed

en

Au

str

ia

Sw

itze

rla

nd

De

nm

ark

Fin

lan

d

No

rwa

y

Ire

lan

d

Moscow – 15 million people

Million

Russian economy today and tomorrow

Key Economic Indicators

 

2001 2002200

32004 2005 2006E 2007F 2008F

GDP growth, real, % 5,1 4,7 7,3 7,2 6,4 6,3 6,4 6,3

Gross fixed investment growth, real, %

10,2 2,812,8

11,3 10,5 10,2 11 10,6

FDI, US$bn 2,7 3,5 8 15,4 14,2 21,5 19,5 20,1

Growth of real disposable income, %

8,7 9,713,5

8,1 10 11,2 10,6 9,5

Exchange rate RUR/US$ year-end

30,1 31,829,5

27,7 28,8 27,4 26,0 26,0

CPI, average, % 21,5 15,813,7

10,9 12,7 9,8 8,7 7,7

Source: Economist Intelligence Unit, Deutsche Bank, ING

Who are the active International Investors?

Austria

UK

North America

Germany

Russia

The Yield Shift in Europe is Clearly Slowing

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07

Retail Industrial Office

Source: CB Richard Ellis

EU-15 Index Rolling 12-month yield shift, bps

Russian Yield ‘Compression’

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

Q1

20

03

Q2

20

03

Q3

20

03

Q4

20

03

Q1

20

04

Q2

20

04

Q3

20

04

Q4

20

04

Q1

20

05

Q2

20

05

Q3

20

05

Q4

20

05

Q1

20

06

Q2

20

06

Q3

20

06

Q4

20

06

Q1

20

07

Q2

20

07

Offices Shopping Centres Industrial EU-15 Index

Source: CB Richard Ellis

Modern Shopping Centre Stock in Russia’s Largest Cities

The Changing Face of Russian Retail

Evropeysky

“Kalinka- Malinka” Rostov-on-Don

Moskva Department Store

Moskva SC in Lyublino

Krasnodar

Krasnodar Territory

Population: 5,124,400 (2002 census)

Capital: Krasnodar (population 644,800), 1,539 km from Moscow

Other 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.

Key Trends and Outlook

- Strong economic potential (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. )

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.

Retail Development

DVI Group75,200-sq m shopping and

entertainment center

Krasnodar Cityapprox 150,000-sq m

shopping and entertainment center

OZ207,568 –sq m shopping and

entertainment center

Mega mall “SBS”160,00-sq m shopping and

entertainment center

“Kalinka- Malinka”150,000 –sq m shopping and entertainment center

Advantages/Drivers for South Federal District

South Federal District is 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

The Changing Face of Krasnodar Retail

“SBS” mega mall

“OZ”“Gorbushka”

Krasnodar’s “Centralny Rynok”

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

Demand exceeds supply of investment grade

properties

Better financing options & costs

Russian vs international investors risk profile

& approach

Downward pressure on yields

Key Investment Market Trends

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

The Outlook for Retail Property Investment

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

Key Investment Market Trends

Conclusions

International Investment still active

Quality over quantity !!

Structure is important

Land Value???

Retail Investment MarketRussia

Krasnodar, June 2008Jeff Kershaw SCSM, Senior Director, Russia