YAK:CN - Leveraged to Mongolia s Growth May 9 New York City

Transcription

1 YAK:CN - Leveraged to Mongolia s Growth 2013 May 9 New York City

2 Legal Disclaimers This is not an offer to sell or a solicitation of an offer to purchase securities by Mongolia Growth Group (the Company ). Any such offer or solicitation will only be made by means of the Company s Offering Documents (e.g., prospectus, offering memorandum, subscription agreement and or similar documents) and only in jurisdictions where permitted by law. Investors should refer to the Offering Documents for more complete information, including investment risks, fees and expenses. The securities are a highly speculative investment and are not intended as a complete investment program. They are designed only for sophisticated persons who can bear the economic risk of the loss of their investment in the Company and who have limited need for liquidity in their investment. There can be no assurance that the Company will achieve its objectives. Target investment goals are not a guarantee of future returns. The attached material is provided for informational purposes only as of the date hereof, is not complete, and may not contain certain material information about the Company, including important disclosures and risk factors associated with an investment in the Company. This information does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it. More complete disclosures and the terms and conditions relating to a particular investment is, or will be, contained in the Offering Documents. Before making any investment, prospective investors should thoroughly and carefully review the Offering Documents with their financial, legal and tax advisors to determine whether an investment is suitable for them. The attached material includes forward-looking statements relating to, among other things, the future financial performance of and objectives of the Company; plans and expectations for the operation of the Company; and estimates or expectations for fees, costs and expenses. These forwardlooking statements are typically identified by terminology such as may, will, should, expect, anticipates, plans, intends, believes, estimates, projects, predicts, seeks, potential, continue or other similar terminology. Forward-looking statements are inherently unreliable, and prospective investors should not rely on them. The forward-looking statements are based on the Company s current expectations, assumptions, estimates and projections about future events. Actual results are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed in a forward-looking statement as a result of various factors which may be further described in the Company s Offering Documents. The Company does not have any obligation to update or otherwise revise any forward-looking statements in the attached material or to reflect the occurrence of unanticipated events. Certain information contained herein have been prepared by third-party sources, and such information has not been independently audited or verified by the Company. The Company has used its best efforts to ensure the accuracy and completeness of the information presented. 2

3 Legal Disclaimers Forward Looking Statements This document, together with any documents incorporated by reference herein, contains statements about expected future events and financial and operating results that are forward-looking. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future-events. You can identify these statements by forward-looking words such as "expects", "does not expect", "plans", "anticipates", "does not anticipate", "believes", "intends", "estimates", "projects", "potential", "scheduled", "forecast", "budget" and similar expressions, or that events or conditions "will", "would", "may", "could", "should" or "might" occur and similar words. In addition, statements that we make in this document including any documents incorporated by reference herein that are not statements of historical fact may also be forward-looking statements. Forward-looking statements are not guarantees of our future performance and involve risks, uncertainties and assumptions that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. For example, some risks, uncertainties and assumptions include: capital requirements; fluctuations in the international currency markets and in the rates of exchange of the currencies of Canada and the United States; price volatility in the spot and forward markets for commodities; impact of any hedging activities, including margin limits and margin calls; discrepancies between actual and estimated production and between actual and estimated reserves and resources; changes in national and local government legislation in Canada, the United States and Mongolia or any other country in which the Company currently or may in the future carry on business; taxation; controls, regulations and political or economic developments in the countries in which the Company does or may carry on business; the speculative nature of oil and natural gas exploration, production and development, including the risks of obtaining necessary licenses and permits; diminishing quantities or grades of reserves; competition; loss of key employees, additional funding requirements; stock market volatility and ability to access sufficient capital from internal and external sources; actual results of current exploration or reclamation activities; changes in project parameters as plans continue to be refined; accidents; labour disputes; and defective title to claims or property or contests over claims to oil and gas properties. In addition, there are risks and hazards associated with the business of oil and natural gas exploration, production and development, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins and flooding (and the risk of inadequate insurance or inability to obtain insurance, to cover these risks). You should not place undue reliance on forward-looking statements. We do not promise to notify you if we learn that our assumptions or projections are wrong for any reason except as required under applicable securities laws. We do not undertake any obligation to update forwardlooking statements, whether as a result of new information, future events or otherwise except as required under applicable securities laws. You should be aware that all the risk factors discussed in this document could cause our actual results to differ from any forward-looking statements. 3

4 Mission Statement Provide a transparent and liquid way to invest in Mongolia 4

5 Two Massive Projects 1. Oyu Tolgoi Mine (OT)* 2. Tavan Tolgoi Mine (TT) Huge Copper & Gold Mine Commercial production starts in June Total capital expenditure: $8 billion 30% of Mongolia s GDP Thousands of full-time jobs *Turquoise Hill Resources Ltd. Largest undeveloped coking coal mine in world (6 billion+ tons) Close to Chinese border Multi-billion dollar project; started in 2011 Big upside for resources & annual production 5

6 GDP Growth $15.0 $12.0 $9.0 $6.0 $ Mongolia GDP in USD (billion) $ * Source: National Statistical Office of Mongolia, Monthly bulletin *World Bank Mongolia-Highlights of the 2013 Budget and the Fiscal Outlook report 6

7 New Initiatives Increasing Growth New foreign investment law to attract foreign capital Resolving disputes with Oyu Tolgoi (OT) mine Raised $1.5 billion via Chinggis Bond Increased infrastructure spending New securities law to reform local stock market Central bank has lowered interest rates & expanded liquidity Aggressive prosecution of corrupt officials 7

8 Improving Business Conditions Corruption Perceptions Index: Mongolia Transparency International published the Corruption Perceptions Index (CPI) annually, ranking countries by their perceived levels of corruption, as determined by expert assessments and opinion surveys. 176 countries are ranked, 176 th country has the worst corruption environment while 1 st country has the least corruption problem. 8

9 Kazakhstan: Roadmap for Mongolia Kazakhstan & Mongolia are similar Both Resource-based Economies Both Former Soviet Countries Both Culturally Similar Same Soviet-style architecture Same construction methods The Difference? Kazakhstan is 10 years ahead of Mongolia 9

10 Retail in Soviet Buildings Almaty, Kazakhstan 10

11 GDP Per Capita In Kazakhstan $15,000 $12,000 $9,000 $6,000 $3,000 $ Source: ECO Statistical Network, Statistical Yearbook of Kazakhstan

12 GDP Per Capita in Mongolia $10,000 $9000 $8,000 $6, $4,000 $2, $ Source: National Statistical Office of Mongolia, Monthly bulletin, 2013 est- World Bank Mongolia 2015 est- IMF Mongolia 12

13 Why Invest In Property? Leveraged to increases in rental revenues Leveraged to reduced cap rates with the evolution of the banking system 13

14 Current Market Conditions 14

15 Ulaanbaatar City Map Mountains Peace Avenue Is Only Main East-West Road Peace Avenue is ONLY Main East- West Road Downtown City Is Constricted To The North And South By Mountains City is constricted to North & South by mountains Airport Mountains A single 2-lane east-west road a) constricts movement and b) focuses all development into the downtown of approx. 2km North-South by 3km East-West 15

16 View of Downtown UB Ring Road Gandan Ger District New UN Building North Peace Avenue Downtown Core Parliament Central Business District Seoul Street 16

17 Mongolian Banks Reduced loan growth Short loan durations Mortgages cost from 14%-18% in USD and 20%-25% in Mongolian Togrog High rates creating distressed assets & attractive cap rates Mongol Bank: tight monetary policy until recently 17

18 Office Rental Rates Very low vacancy Increasing demand Rents increased 20-35% in USD in

19 Retail Rental Rates Huge increase in demand Very low rental cost as a percentage of revenue International brands showing interest Main street rents increased 20-35% in USD in 2012 Certain streets increased 50% in USD in

20 Residential Rents Strong demand from Mongolian tenants in downtown Increased number of high-quality expat rentals Reduced demand from expats Rental rates increased 5-15% for Mongolians, decreased 10-20% for expats 20

21 Current Market Cap Rates Office 10%-15% Prime retail 10%-13% Residential 5%- 8% Distressed assets have pro-forma cap rates in excess of 20% 21

22 International Brands Increased demand from international brands Multiple brands starting operations in UB Benefits of International brands: ü Pay on time ü Long-term leases ü Pay above market for flagship locations 22

23 Current MGG Portfolio 23

24 MGG Acquisition Growth Chart MNT in Millions 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 Redevelopment Office Space Retail Space Residential 10,000 5,000 0 *All data as of March 31, *Total property purchased is calculated based on property purchase costs in MNT. 24

25 MGG Real Estate Breakdown 6% 34% 40% Redevelopment Office Space Retail Space Residential 21% *All data as of March 31, *Percentages are calculated based on property purchase costs in MNT. 25

26 MGG Portfolio 18 Residential units 6,502 meters of Retail space 5,231 meters of Office space 6 Redevelopment Opportunities 26

27 Key Portfolio Assets 27

28 Mandal Building 1) 1578 meters² of Office Space 2) 190 meters² of Commercial Space 28

29 Denver Center 1) 1,010 meters² of office space 2) 75 meters² of commercial space 29

30 New Smart Building 1280 meters² of Office Space 30

31 Anand Center 1094 meters² of Office Space 31

32 46 High Street Retail Units 6,502 meters² 32

33 Creating Value Through Renovations 33

34 Snapshot: Mandal Building BEFORE AFTER *Added 190m of commercial space 34

35 Denver Center Renovation BEFORE E AFTER R Before: 15,555 MNT avg per m 2 After: 42,000 MNT avg per m 2 Added 227 m 2 of office space Added 75 m 2 of retail space Increased rental asking price by 170% 35

36 Anand Center BEFORE AFTER 36

37 Redevelopment Assets 37

38 Peace Tower Redevelopment 38

39 Orange Redevelopment 39

40 Redevelopment Strategy Partner with experienced developers Contribute land & local experience to JV Manage property for high margin revenues Retain high returns on capital with reduced risk Avoid outsized financial commitments Avoid completion risk Avoid budgeting risk 40

41 MGG Property Metrics 41

42 Gross Monthly Rental Revenue MNT 250,000, ,000, ,000, ,000,000 50,000,000 Redevelopment Office Retail Residential 0 *All data as of March 31, 2013 is presented in MNT and includes VAT. *MGG s insurance subsidiary, Mandal Daatgal, has paid 15,357,760 MNT monthly since March 2013 *Mandal paid 10,200,000 MNT in rent to MGG in February 2013 and 4,850,000 in January

43 Occupancy Rates Retail Office Residential Total Occupancy Rate 93.8% 75.0% 96.9% 93.7% *As of March 31, 2013 *Percentages are calculated based on amount of rent collected in relation to the total rentable properties. 43

44 MGG Property Usage Breakdown 2.0% 4.3% 6.3% 3.8% 49.7% Rented Redevelopment Renovation For Sale Vacant 33.8% Corporate Use All data as of March 31, Percentages are calculated based on property values. For the purpose of this chart, MGG s insurance subsidiary, Mandal Daatgal, is considered as a tenant as it pays rent to MGG. The Property value of the space rented by Mandal is not included under corporate use. 44

45 How have we done in the first two years? 45

46 Goals ü Build team to manage the business ü Raise Capital ü Listed on the TSXV X Become consistently cash flow positive 46

47 Building The Team Mandal Property Support Property Management Corporate

48 Achievements ü Raised CDN $51.5 million ü Started trading on TSXV in Jan

49 Why Lack of Profitability? Corporate Expense Property Management Expense Property-specific Expense Insufficient Rental Revenue We have a highly fixed cost base. More assets = operating leverage! 49

50 Steps to Improve Profitability 50

51 Reduced Number of Assets for Ease of Management

52 Improving Portfolio Management Refocus portfolio on larger & more strategic assets Currently have 75 tracking assets with 129 tenants Sold 21 non-core assets Planning the sale of 9 additional assets Grouping assets closer to each other 52

53 Improving Economies of Scale Improved ability to negotiate with suppliers Lower usage of 3 rd party leasing agents Recently hired quality control expert to monitor repairs and renovations 53

54 Assets We Are Targeting For Purchase Distressed assets in downtown Ulaanbaatar Purchase price of $2-$15 million Mostly completed or already leased Pro-Forma 15 yield or higher Continued focus on high street retail when available 54

55 Insurance 55

56 Insurance Reinsurance Partners Corporate Clients 56

57 How We Think Of Valuation 57

58 What is the Franchise Worth? A unique portfolio of assets with exposure to one of the world s fastest growing economies A platform that allows us to reinvest capital at very high rates of return Ability to unlock substantial value in our redevelopment assets via joint ventures and development 58

59 Ideal Way To Invest In Mongolia Clear corporate strategy Liquidity & trading volume Maximum transparency Provide leverage to growth of Mongolian economy 59

60 Contact Us For more information visit our website: us at: 60