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AFI Development — Intro


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AFI Development — Intro

  2. 2. Outline <br /><ul><li>Disclaimer
  3. 3. Overview
  4. 4. Strategy and key competencies
  5. 5. Holding structure update
  6. 6. Market update
  7. 7. Operational update
  8. 8. Financial update
  9. 9. Outlook </li></li></ul><li>Disclaimer <br />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. <br />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. <br />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. <br />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. <br />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. <br />The information contained in this document is provided as at the date of this document and is subject to change without notice.<br />
  10. 10. Overview <br /><ul><li>AFI Development PLC (AFID) is one of the leading real estate developers of unique large-scale commercial and residential projects with focus on Moscow, Russia
  11. 11. Active on the market since 2001, operating as AFI Development since 2006 and admitted to the London Stock Exchange (LSE) in 2007
  12. 12. Strong reputation, track record of value creation and an established position on Moscow’s unsaturated real estate market with high entry barriers
  13. 13. Affiliate company of Africa Israel Group – a major Israeli conglomerate with global focus on real estate, construction and infrastructure
  14. 14. Successful track record of 8 completed projects with total of 193,000 sqm of commercial and residential space
  15. 15. Project pipeline: 5 ongoing projects to be completed within the next 1-3 years, 3 projects in active preparatory stage and 19 additional land plots in the portfolio for future development (land bank)
  16. 16. Strong liquidity position with over US$ 110 mln in cash (September 30, 2010) and secured credit facilities to complete ongoing projects
  17. 17. Total space to be delivered within the next 5-7 years – over 3 mlnsqm</li></li></ul><li>Strategy and key competencies <br />Strategy points: <br /><ul><li>Commitment to value maximization for shareholders through creation of best-in-class, well-balanced property portfolio
  18. 18. Development of new projects only with confirmed demand levels
  19. 19. Retaining only the highest quality / best located properties with certain residential, non-prime commercial projects and selected land bank sold off
  20. 20. Suspension of new acquisitions and staged development of acquired land bank: presently 5 major high-quality projects under development
  21. 21. Professional development company with strong local experience</li></ul>Key competencies: <br /><ul><li>Proven ability to deliver top quality multi-use multiphase real estate
  22. 22. Strong market reputation
  23. 23. Access to debt funding through impeccable credit history
  24. 24. Concentration on the most sustainable segment of Russian real estate – Moscow Central high quality </li></li></ul><li>Holding structure update <br /><ul><li>Issued shares public during IPO in 2007 on LSE
  25. 25. Achieved a Premium Listing on LSE in Summer 2010</li></li></ul><li>MARKET UPDATE<br />
  26. 26. Moscow real estate SWOT <br />
  27. 27. Market during economic crisis <br />Real estate sector affected by the global financial crisis<br /><ul><li>Russia’s real estate sector was significantly affected by the crisis which caused a decline in commercial real estate values of over 50% and in residential by 30-40%
  28. 28. Numerous bankruptcies and change of ownership of development companies
  29. 29. Almost no transactions on the market and highly limited distressed sales
  30. 30. Banks are holding on to pledged assets transferred to their ownership due to insolvencies
  31. 31. Deteriorating demand from tenants and increased vacancies driving uncertainty regarding future take-up levels and feasibly of new construction (up to 20% for Moscow office space according to Jones Lange LaSalle (JLL)) </li></ul>Impact of the crisis on real estate <br /><ul><li>Slow recovery with gradual improvement in demand levels and vacancies
  32. 32. Low number of quality assets and projects under construction on the market (excess supply of mid and low quality properties)
  33. 33. Virtually no investor interest in acquisition of new land plots / development sites leading to a dramatic drop in prices compared to pre-crisis levels
  34. 34. Financing remains limited and costs of financing remain high (12-20% in ruble terms)
  35. 35. Decline in competition levels with many projects in construction phases suspended and no new projects being started
  36. 36. Companies with substantial own production capacities and large land banks remain at risk of default </li></li></ul><li>Market landscape after economic crisis <br />Who is at risk? We believe developers with…<br /><ul><li>B class offices in the pipeline: the most significant fall in occupancy (up to 30%) and rent level (down by c. 40-50%)
  37. 37. limited credit history and access to cheap debt financing
  38. 38. own production capacities that make operation less flexible to demand levels
  39. 39. significant level of land bank and speculative projects in the portfolio </li></ul>Who are the survivors? We believe, companies with…<br /><ul><li>established market reputation
  40. 40. high operational expertise and successful track record
  41. 41. diversified portfolio of projects in high-quality class category and A class income generating properties for which demand remains high
  42. 42. absence of own production capacities that can promptly react to changing market conditions
  43. 43. secured debt financing and established credit history with banks
  44. 44. sufficient liquidity levels </li></li></ul><li>Moscow office market <br />Source: AFID, JLL, C&W<br />Source: AFID, JLL, C&W<br />Current market drivers <br /><ul><li>Central Class A rents: US$ 800 – US$ 950 per sqm per annum
  45. 45. Class A office yields: 9.5% – 10.5%
  46. 46. Class A CBD vacancy: 3% - 5%
  47. 47. Investment volume CBD prime: minimum </li></ul>Source: AFID, JLL, C&W<br />
  48. 48. Moscow retail market <br />Source: AFID, JLL, C&W<br />Source: AFID, JLL, C&W<br />Source: AFID, JLL, C&W<br />Current market drivers <br /><ul><li>Quality retail rents: US$ 2,200 – US$ 2,400 per sqm per annum
  49. 49. Yields: 10% – 11%
  50. 50. Vacancy: 2% - 4%</li></ul>Source: AFID, JLL, C&W<br />
  51. 51. Operational update <br /><ul><li>Opening of the Mall of Russia scheduled for January 2011. Contracts signed for 72% of shops. New name for the Mall is selected and registered: AFIMALL CITY.
  52. 52. Construction of Ozerkovskaya III is on schedule to be completed Q3 2011. Negotiations with large tenant for Ozerkovskaya III at advanced stage
  53. 53. Construction of Paveletskayaproject is completed and opening is planned for January 2011
  54. 54. Kalinina project re-geared, planned delivery end 2011
  55. 55. Development to be started on another 3 projects (Brestskaya, Kunzevo, Pochtovaya)
  56. 56. High focus by management on corporate governance and business transparency
  57. 57. Focus on improvements in Investor Relations: During September – November participation in 5 investment bank conferences in New York, London and Moscow; additional investor meetings in Frankfurt, Stockholm, Helsinki and Tel Aviv. Conference call with Q3 results took place on Nov 22, 2010</li></li></ul><li>Portfolio overview <br />AFID Property Portfolio (Current MV in USD)<br /><ul><li>Current MV of portfolio – US$ 2.1 bln
  58. 58. Total space of portfolio – 3 mlnsqm
  59. 59. Current MV of active projects – US$ 1.6 bln
  60. 60. Total space of active projects – over 1 mlnsqm
  61. 61. Active pipeline by current MV:
  62. 62. Retail – 41%
  63. 63. Office – 34%
  64. 64. Residential – 20%
  65. 65. Hotel – 5% </li></ul>*Numbers based on valuation done by JLL, AFID share of projects shown, disposed projects not included , active projects include projects “next for development”<br />
  66. 66. Completed Projects (1)<br />Four Winds <br />residential<br />Aquamarine I,II <br />office<br />Aquamarine II <br />residential<br />Four Winds <br />office<br />
  67. 67. Completed Projects (2)<br />Aquamarine II<br />hotel<br />Plaza SPA <br />hotel in Kislovodsk<br />H2O<br />office<br />Berezhkovskaya<br />office<br />
  68. 68. Development: Mall of Russia AFIMALL CITY <br />Project details <br /><ul><li>Located in the heart of Moscow City, the Russian capital’s newest business district, currently one of the largest and most ambitious real estate projects in Europe (15 multi-use complexes with nearly 4 mlnsqm of total space)
  69. 69. Moscow’s largest shopping mall with nearly 400 stores and outstandingleisurefacilitiesincluding abundance of dining, a movie theater, a concert hall, and a skating ring</li></ul>Current status <br /><ul><li>Opening of the Mall scheduled for January 2011
  70. 70. 72% pre-let at an average rate of US$ 1,200 per sqm per year for the first year, another 10% are under negotiation
  71. 71. Construction loan refinanced resulting in extension of maturity by 2 years to Aug 2013 and a decrease in interest rates from 16% to 13.25% in ruble terms </li></ul>*Valuation done by JLL , Dec 31, 2009<br />
  72. 72. Moscow City <br />
  73. 73. Development: Tverskaya Mall<br />Project details<br /><ul><li>Located underground in the centre of Moscow in one of high-end neighborhoods nearthe Belorusskayasubway station
  74. 74. The Mall is part of AFID’s complex redevelopment of TverskayaZastava Square (over 500,000 of total commercial and residential space, part of AFID’s present land bank)
  75. 75. Easy access from subway, rail terminal and specifically built underground pedestrian passes
  76. 76. Nearly 200 stores, 700-800 underground parking slots and various entertainment facilities</li></ul>Current status<br /><ul><li>External wall construction and utility lines relocation is ongoing
  77. 77. The City of Moscow agreed to and started financing a part of the engineering infrastructure </li></ul>Valuation done by JLL, Dec 31, 2009<br />
  78. 78. Development: Ozerkovskaya III<br />Project details<br /><ul><li>Ozerkovskaya Phase III is part of the OzerkovskayaEmbankmentdevelopmentsite comprising fourindividualdevelopmentprojectsreferredtoasPhases I, II, III and IV
  79. 79. Located in Zamoskvorechye, Moscow’s prestigious business and residential area within the Garden Ring
  80. 80. First two phases of office development were completed, rented out and successfully sold in 2005 and 2008 </li></ul>Current status<br /><ul><li>Works on facades, internal engineering systems and fit-out are on-going
  81. 81. Leasing negotiations are on-going
  82. 82. New credit facility for US$ 74 mln at 13.25% was signed with Sberbank. The loan is sufficient to cover all construction costs</li></ul>Valuation done by JLL, Dec 31, 2009<br />
  83. 83. Development: Pavelezkaya I<br />Project details<br /><ul><li>The overall Paveletskaya Embankment development comprises 10 commercial buildings which will be redeveloped into a Class B+ business park located in a dynamically developing business area on the border of Moscow's Central and Southern Administrative Districts
  84. 84. Paveletskaya I is the first phase of the Paveletskaya development and envisages a reconstruction of an ex-printing house facility into an office center</li></ul>Current status <br /><ul><li>Reconstruction is 100% completed
  85. 85. Construction was completed at the end of Q4 2010, commissioning is expected by the end of January 2011
  86. 86. Negotiations with potential tenants are in progress
  87. 87. Possibility to let the building to a single anchor tenant</li></ul>Valuation done by JLL, Dec 31, 2009<br />
  88. 88. Development: Kalinina Hotel <br />Project details<br /><ul><li>The Kalinina project is located in Russia’s south region in the city of Zheleznovodsk, popular resort destination
  89. 89. The project envisions a renovation of an existing building to a 3-star hotel with sanatorium facilities
  90. 90. The hotel is planned to be operated by AFI Hotels
  91. 91. Opening date is expected December 2011</li></ul>Current status <br /><ul><li>Tender for general contractor completed with full development budget approved (c. US$20 mln)
  92. 92. Subsidized loan from municipality at 6.25% in RUR secured for the full development budget</li></ul>Valuation done by JLL, Dec 31, 2009<br />
  93. 93. Next for development <br />Brestskaya <br />Kunzevo <br />BolshayaPochtovaya<br />All financials are AFID’s preliminary estimates <br />
  94. 94. Map of active projects in Moscow<br />Tverskaya Mall<br />Mall of Russia<br />Brestskaya<br />Kuntsevo<br />Pochtovaya<br />Paveletskaya<br />Ozerkovskaya<br />
  95. 95. Land bank<br />Extensive land bank<br /><ul><li>Over 650 Ha of land
  96. 96. Total future area – c. 3mlnsqm (commercial/residential % 60/40)
  97. 97. MV when completed – over US$ 6.6 bln*</li></ul>Land bank strategy<br /><ul><li>Development upon securing necessary financing and gaining full confidence in levels of demand from tenants/buyers</li></ul>Planned for development next<br /><ul><li>Brestskaya 50/2
  98. 98. Kuntzevo
  99. 99. BolshayaPochtovaya</li></ul>*valuation done by JLL, Dec 31, 2010, includes only project ownership of AFID<br />
  100. 100. FINANCIAL UPDATE<br />
  101. 101. Debt & liquidity <br /><ul><li>With over 110 mln in cash and cash equivalents as of September 30, 2010 the liquidity position remains strong
  102. 102. Sufficient debt financing secured to complete current pipeline </li></ul>In $USD <br />
  103. 103. Balance sheet <br />31/03/2010<br /><ul><li>Non-current assets remained stable throughout Q3 2010. The increased value of assets is due to progressed development on several projects. The Company did not conduct a full revaluation of its development and core-income assets portfolio having adjusted its value for costs incurred only
  104. 104. Current liabilities continue gradual reduction as the Company decreases its short-term loans and borrowings
  105. 105. In Q3 2010 long term liabilities increased by US$26 mlnfollowing drawdowns made to complete Mall of Russia and Aquamarine III projects
  106. 106. Retained earnings remain low as no significant profit was booked in Q3 2010</li></li></ul><li>Income statement <br /><ul><li>The Company recorded US$ 54 mln loss in for 9m 2010 compared to US$ 217 mln profit for 9m 2009 . The loss in 2010 is due to the Company’s conservative approach to valuation in Q2 2010 which resulted in impairment of assets
  107. 107. Revenues for nine months to 30 September 2010 including net proceeds from the sale of trading properties increased by 15% year-on-year to US$53.9 million driven by higher rental income and residential sales.
  108. 108. Loss before tax driven by reevaluation for the period was US$49.8 million compared to profit of US$285 million for nine months to 30 September 2009.
  109. 109. Net loss for nine months to 30 September 2010 was US$53.9 million compared to profit of US$217.1 million for nine months to 30 September 2009. Of this, US$9.1 million was achieved in the third quarter which was not affected by fluctuations in the valuation of our investment properties and investment properties under development, against US$1.9 million in the third quarter of 2009.</li></li></ul><li>Cash flow <br /><ul><li>Cash inflow from operating activities for 9m 2010 reached US$ 34 mlncompared to US$ 6 mlnoutflow in 9m 2009
  110. 110. Following active development of several projects cash outflow from investment activities reached US$ 101 mlnfor 9m 2010 compared to cash outflow of US$ 45 mlnin 9m 2009
  111. 111. Cash flow from financing activities was negative for the period and constituted US$ 33 mln outflow
  112. 112. Cash balance as of 9m 2010 remains high at the level of US$ 110 mln</li></li></ul><li>Outlook <br /><ul><li>Focus on continued improvements in corporate governance standards and transparency levels
  113. 113. Geographical focus on Moscow as it provides the strongest real estate fundamentals; concentration on high quality centrally located commercial and residential properties
  114. 114. Currently 5 projects under construction and several others at concept design stage with plan to start construction within 18 months
  115. 115. Significant focus on liquidity
  116. 116. Provided levels of available financing, liquidity and market demand are sufficient continue capitalization of extensive land bank
  117. 117. Work-in-progress to dispose several non-strategic assets
  118. 118. Effective measures of cost control and operational efficiency in place </li>