Company Presentation for J.P. Morgan Credit and Equities Emerging Markets Conference 2017, London. October 2017

Transcription

1 Company Presentation for J.P. Morgan Credit and Equities Emerging Markets Conference 2017, London October 2017

2 Table of content Section 1 Summary 3 Section 2 Market Overview 7 Section 3 Company Business Profile 14 Section 4 Board and Shareholders 20 Section 5 Financial Performance 23 Appendix Financial Statements 29 Appendix Development Projects 33 2

3 Section 1: Summary

4 Business Model 100% Moscow Moscow Market Dynamics Hub for International Tenants Strong market fundamentals Market Rents Valuation Yields 100% Office Internal growth Active asset management Focus on top tenants NOI Occupancy Retention Rate ~ 90/10* Yielding/ Development Acquisitions and Selective Disposals Yielding assets Development assets IRR Target: 15 20% Min 90% of GAV IRR Target: 20 25% Max 10% of GAV 55/45 ~ 60/40 Leverage Leverage Solid Financial Policies Healthy balance sheet Strong coverage metrics Target LTV 60% Target ICR >1.8x *GAV of development projects is approx. 4% of total Investment Properties as of CBRE 1H2017 valuation 4

5 O1 Properties at a Glance White Square Ducat III Legenda Tsvetnogo White Stone Silver City NRA 1 Key Statistics Sept k sqm total 524k sqm yielding 117k sqm development 6 7 Vivaldi 8 9 Lighthouse Market Value 1,2 Occupancy Rate 86% Average Net Rental Rate 3 WAULT to Expiry (years) 4.0 Credit Rating $3,934m total $3,761m yielding $173m development $584 sqm / year S&P B+/B, Moody s B1/B1 Stanislavsky Factory LeFort Key Financials ($m) Krugozor Zarechie Bolshevik Factory Greendale Kutuzov ICube Avrasis $m H2017 Rental Revenue Net Rental Income EBITDA Investment Property Total Assets Net Debt Book Equity ICR 1,62 1,38 1,38 Total LTV (%) 67% 70% 73% Yielding Development Notes: 1 Assuming 100% share in each property belongs to O1 Properties. O1P owns 50.1% share in Bolshevik, which is not consolidated under IFRS. It also holds 85% stake in Greendale, 50.5% in Legenda Tsvetnogo and 50.5% in ICube. 2 As per CBRE valuation as of 30 June Rental rate post discounts and FX caps. 4 Net Debt is calculated as the sum of total borrowings less cash and cash equivalents and finance lease liabilities. 5

6 Achievements over the last year Operational update: 1) Vacancy level stabilized 2) Renegotiated with most tenants to bring their rent levels to market levels. 3) Start of residential projects (Bolshevik and A Residence apartments development) Acquisitions: 1) In December 2016 we bought Avrasis Project (yielding office of 9,200sqm and residential project A Residence Debt portfolio optimization: 1) Eurobonds of $350mln issued in September ) New local bond issues ($335mln in Feb 2017, $150 mln in May 2017) 3) Partial senior debt repayment and extended maturity on most of senior loans 4) Interest rate on debt reduced from ~7% to 6.25% Credit Rating: 1) New rating from Moody s (B1) received in September 2016 with stable outlook 2) S&P confirmed B+ corporate rating in July 2017 and improved outlook from negative to stable. B rating assigned to unsecured bond issues due to changes in S&P methodology. 3) Moody s confirmed B1 rating in Sept.2017 with stable outlook. 6

7 Section 2: Market Overview

8 Stabilization of macro - economy indicators Russia GDP Growth Stabilizing Exchange rate dynamics, USD/RUB Source: RCB, Bloomberg Russia Sovereign Spread to US Treasuries GDP growth indicates a gradual recovery in key sectors of the economy. Estimated GDP growth is 2% in 2017 Russia sovereign spread reduced from 6% to almost 1.5% Low inflation and consumer sector recovery are very positive signs for Real Estate Market. Source: Bloomberg 8

9 Real estate market has stabilized due to macro-economy recovery Base rental rates for Class A offices stabilizing Key market indicators H2017 Total stock, mln m² Class A Class B Completions, thousand m² Take-up, thousand m² Vacancy rate, % Class A Class B Weighted average rental rates in CBD, $/m²/year Class A Class B Source: CBRE, Colliers 2Q2017 Source: Colliers 2Q2017 The level of rental rates highly depends on quality of the building, its location and vacancy in the building. Oil prices stabilization and ruble appreciation lead to rental rates stabilization in dollar terms. 9

10 thousand sq m Signs of market recovery: vacancy is going down Vacant space distribution by submarkets as of YE2016 Vacancy dynamic by classes % 30% 25% 20% 15% 10% 5% 0% A B- B+ Average vacancy rate, % Vacancy in CBD is the lowest among submarkets, though the highest supply in absolute value terms due to the relative size of this market (CBD is the largest office submarket with about 5 Mln m² of office premises) O1 Properties vacancy in CBD assets is in line with the market and stands at around 8% Vacancy in Class A overall stock is going down replicating market behavior after the previous crisis Overall vacancy remains relatively high mainly driven by properties in poor locations and low quality of construction. Available supply is still characterized by a deficit in the segment of large ready-to-move-in premises. This shortage is noticeable for requests over 5,000 m² in the CBD and over 10,000 m² outside the CBD in high-quality business centers with a good location. Source: Colliers Research 2016 and 2Q

11 New delivery contracted by more than 4x times Take-up, 000 m² New delivery, mln m² Since the beginning of the year, demand for leases and purchase has maintained last year's trend. In Q2 2017, the volume of transactions amounted to 258 ksqm of office space, while the total figure for H reached 402 ksqm, which is comparable to H New office delivery in 2016 is four times lower than in Projected delivery in 2017 represents old projects completion which is more likely to be postponed. In 1H2017 new delivery is only 21 ksqm. Source: Colliers Research 1H

12 Anticipated Cap Rate Compression Moscow CRE cap rates Russian Government Bonds Yields (USD & RUB) Russian USD Bonds 10y Russian RUB Bonds 10y Source: Bloomberg In 2Q2017 inflation kept the lowers levels in the history of modern Russia. The Ministry of Economics downgraded the forecast for 2017 to 3.8%. Mid term inflation forecast is below 4%, which is the target for Central Bank. Central Bank rate has decreased rate from 10% to 8,5% in 9m2017 and further cuts are expected in 4Q2017. Sovereign USD and RUB bonds yields become lower as well. Economy is recovering, country and real estate risks become lower. Therefore we anticipate moderate cap rates compression from current % for prime asset in one year. Low Inflation is a game changer in Russian real estate market. 12

13 Investor sentiment is improving Source: Cushman&Wakefield Total investment volume in Russian CRE Real Estate Investments in Russia have stabilized at around $4bln. Some growth is expected in Office was the leading sector in investment structure with 45% of volume. While the total 1H2017 investments is 30% lower than in 1H2016, investment deals (excluding end-user purchases) rose from $440M to $1.5Bn. $402.6 million, or 23%, was the share of the total investment volume formed by foreign investors in H1 2017, while last year we mainly observed activity from Russian investors. It is worth noting that the share of foreign investors increased for the first time since 2014, when it constituted a quarter of the total annual investment volume in commercial real estate. The main driver for investors now is the potential of asset value recovery on the back of the market correction. Gorbuskin Dvor Retail Alexei Khotin, Yuriy Khotin Victor Kharitonin 13

14 Section 3 Company Business Profile

15 O1 is a Leading Player in Moscow Office Market O1 Properties Investment Portfolio 600 Moscow office stock H2017 NRA, class A/A+ NRA, class B/B+ 9.1 Class А/А+ offices, mln m² Class B/B+ offices, mln m² Class B- offices, mln m² As of 1H2017 O1 has 524 thousands sq. meters of completed and yielding Class A and B Office Space Estimated O1 share in Moscow class A office market is about 12%. Source: Company data 15

16 Solid Tenant Base Well-Diversified Tenants Base by NRA Top-10 Tenants List # Tenant Leased NRA (sqm) % of Total Yielding NRA 1 24, % Sectors Type of Tenant 2 23, % 3 15, % 4 13, % 5 13, % 6 12, % 7 11, % 8 10, % 9 9, % 10 7, % Top-10 Tenants 141, % Other Notable Tenants NRA Concentration O1P has a base of over 250 tenants consisting of leading Russian and international corporations, with exceptionally low credit risks (non-payments at less than 1% of NRI) 16

17 Lease expiration profile and new lease-up Lease expiration profile improved since June ,4% 20,3% 20,6% 21,6% 20,3% 16,0% 13,0% 10,9% 9,1% 7,8% 8,7% 7,8% 8,6% 8,0% 2,7% 2,2% August June 2016 Expiration profile was improved since June 2016 with only about 15% of NRA expiring in the next 2 years In H2017 we singed lease contracts for about 110 thousand m² (including new leases and renewals), 3x times more than in Current WAULT 4.0 years 17

18 O1P Major Lease Transactions in 2H2016-1H2017 Project Tenant Rented Area, m² Krugozor Project Aurora (under management) Tenant Rented Area, m² Project Tenant Rented Area, m² White Square Stanislavsky White Stone Vivaldi 562 Vivaldi 515 White Square Bolshevik ph I 255 Avrasis 526 Vivaldi Bolshevik ph I Ducat Silver City Bolshevik ph I White Stone 981 Ducat White Square 432 Lefort White Square Avrasis Lefort Silver City White Stone Bolshevik Icube Icube Vivaldi Ducat 1297 Silver City

19 Diversified Portfolio of High Quality Properties Property Name Total NRA Signed NRA Parking Spaces CBRE GAV FY2016 CBRE GAV 1H2017 IFRS IFRS Estimated NOI 2015 NOI 2016 cash NOI 2017 Signed Occupancy August 2017 WAULT as of August 2017 Average Rental Rate August 2017 Average FX cap FX capped NRA (August 2017) RUB agmt NRA (RUB+FX cap) / Total Signed ERV by CBRE 1H2017 (sq.m.) (sq.m.) lots $M $M $M $M $M % (in years) Rub/$ (sq.m.) (sq.m.) % $ White Square % 4, % 730 Ducat % 4, % 730 Legend % 4, % 720 Krugozor % 4, % 360 Vivaldi % 3, % 600 Silver City % 3, % 460 White Stone % 3, % 500 Stanislavsky % 3, % 460 Lighthouse % 3, % 625 Icube % 4, % 440 Bolshevik phase I % 6, % 550 Avrasis % 4, % 600 LeFORT % 2, % 280 Zarechye % 7, % 420 Total Yielding % 4, % 538 Bolshevik Phase II Greendale Avrasis development Kutuzov Total Developement Total % of property by GAV located in Moscow Central Business District. Top quality prime A+ assets comprise 41% of yielding GAV; class A prime and Class A 92% of the Portfolio FX capped and ruble lease agreements comprise 60% of total signed NRA at 62 Rub/$ average cap Due to high WAULT ratio (4 years as of August 2017) we expect the average rental rate to match ERV levels by 2018 (Class A CBD ERV 2017 is $565 per sqm according to Colliers 2Q2017 report). *Bolshevik is not consolidated under O1Properties perimeter. 19

20 Section 4: Board and Shareholders

21 Board Independent Non-Executive Directors Timothy Fenwick Richard Gregson Norbert Kickum Andrey Barinsky Former Head of Jones Lang LaSalle, Russia Joined in July 2011 Chairman of Remuneration Committee Former Real Estate Leader of PWC, Russia Appointed to the Board in June 2012 Chairman of Audit Committee Former Head of Real Estate Lending at Aareal Bank. In 2011 was appointed by the German Government to FMS Wertmanagement Joined in Jan 2015 Co-owner of Forum Properties Appointed to the Board in April 2016 Executive Directors ICT representative Dmitriy Mints Alexander Ostrovskiy Tomasz Zamiara Alexander Erdman Konstantin Yanakov Chairman of the Board Corporate Governance The composition of the Board of Directors: Chief Executive Officer 4 out of 9 Board members are independent non-executive directors Chief Financial Officer All INEDs are active industry participants with significant experience in real estate and finance All three committees (audit, nomination and remuneration, strategy and development) are headed by independent directors Chief Investment Officer Strong Alignment of Shareholder Interests Founding shareholder (Boris Mints) remains committed to the ongoing business strategy Vice-President of ICT Group Joined in April

22 Conversion of two share classes into one 5,6% 4,3% 0,6% 5,6% 12,8% 71,0% Boris Mints ICT Holding Andrey Barinsky Vladimir Zubrilin Goldman Sachs Top management In order to simplify the capital structure O1P shareholders decided to combine A and B shares into one share class. O1P shares distribution after proposed transaction presented above. Boris Mints remains control with the total share in equity capital at ~71%. ICT Group and Goldman Sachs share 2.8% and 4.3% respectively. 22

23 Section 5: Financial Performance and Risk Profile

24 Resilient financial performance underpinned by asset quality IFRS Net Rental Income by Property ($m) Changes in Investment Property Value($m) * White Square Ducat III Legenda Tsvetnogo Krugozor Vivaldi Silver City White Stone Stanislavsky Lighthouse LeFort Subtotal ICube Zarechie Avion Olympia Park Avrasis Other Total *Annualized 1H

25 Investment Property Revaluation H2017 GAV, $M H2017 Revaluation H2017 Change, % 1H2017 valuation exit cap rate 1H2017 valuation discount rate Krugozor 371,1 328,9 297,7 259,1 261,7-109,4-29% 9,00% 11,25% Stanislavsky 252,3 234,3 217,6 204,9 206,1-46,2-18% 9,50% 11,75% Lefort 265,8 228,3 183,2 172,4 179,4-86,4-33% 10,25% 12,50% Avion (sold in 2015) 97,7 83,7 White Stone 293,6 272,5 255,9 249,5 257,1-36,5-12% 8,75% 11,00% Lighthouse 259,4 246,1 229,9 235,3 229,4-30,0-12% 8,50% 10,25% Vivaldi 444,5 410,9 377,6 372,8 367,0-77,5-17% 8,75% 11,00% Silver City 354,8 329,2 288,2 262,3 268,5-86,3-24% 8,75% 11,00% Ducat 412,5 397,5 365,6 362,2 342,7-69,8-17% 8,25% 10,00% White square 1000,6 965,8 913,8 876,6 833,2-167,4-17% 8,25% 10,00% Legend 415,5 399, ,9 356,3-59,2-14% 8,75% 11,00% ICube - 123,4 100,3 79,4 81,0-42,4-34% 9,00% 11,50% Zarechie ,7 122,9 128,6 9,9 8% 9,25% 12,00% Kutuzov 18,2 13,9 10,4 11,9 12,5-5,7-31% 20,00% Greendale 33,5 27,1 20,2 24,67 26,4-7,1-21% 20,00% Avrasis 110,88 103,9-6,9-6% 8,75% 11,00% GAV 4219,5 4060,9 3739,1 3701, ,8-821,0-19% 8,73% 10,91% Bolshevik ph I&II 137,9 191,6 254,4 281,4 280,2 9,00% 11,25% Total GAV 4357,4 4252,5 3993,5 3983, ,9-821,0 Negative revaluation due to adverse market conditions in H2017 comprises almost $820M which is 19% of GAV.. 25

26 Diversification and Maturity Extension Debt Repayment Schedule Extension Debt Maturities Before Eurobonds (30 June 2016), $M Debt Maturities (31 August 2017), $M H Debt Maturity H Debt Amortisation Debt Sources Diversification Debt Portfolio Breakdown (30 June 2016) Debt Portfolio Breakdown (31 August 2017) Unicredit 8% Gazprombank 6% PPF Bank 2% VTB 10% Sberbank 33% Aareal Bank 11% Bonds 30% 26

27 Debt breakdown Hedged / floating interest rate debt breakdown PropCo / HoldCo level debt breakdown 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 9% 13% 24% 30% 91% 87% 76% 70% H2017 PropCo debt share HoldCo debt share Currently 72% of debt is fixed interest debt or hedged via interest rate SWAPs. Unsecured holdco debt increased from 9% to 30% during last three years. 27

28 Plans Operational: 1) Vacancy reduction 2) FFO and credit metric improvement Acquisitions and sales: 1) Potential JV with reputable Investor 2) Potential diversification into other classes of CRE Development Pipeline 1) Bolshevik Phase II 2) Avrasis Apartments Debt portfolio optimization: 1) Further refinance of senior loans to get better conditions Credit Rating: 1) Confirmation or improvement of rating levels from S&P and Moody s 28

29 Appendix Financial Statements

30 Profit and Loss Statement Average USD/Rub exchange rate P&L H2017 Rental revenue Operating expenses NOI Net proceeds from apartments sale G&A Net other income and costs EBITDA Cash interest expenses Cash income tax "Cash" profit Results of JV Property revaluation Deffered income tax accrual (non-cash) Currency effects and other non-cash items Comprehensive profit Debt amortisation FFO ("Cash" Profit - Interest - Debt Amortisation) Dividends to O1 shareholders Dividends to projects minority shareholders Adjustments description: Because of the currency of IFRS presentation is USD but the functional currency of O1 Properties is Ruble, USD/Rub exchange rate fluctuations substantially affects the following lines in P&L: Net gain/loss from fair value adjustment on investment property Foreign exchange translation losses less gains this item linked to rub debt revaluation on PropCo level Translations effects 30

31 Balance Sheet: Assets Balance Sheet, USD (thousands) H2017 Derivative financial instruments - 14,043 5,139 2,092 1,369 2,622 Inventories 336 1, Loans issued 504 1, Prepayments and deferred expenses 6,340 33,798 10,745 18,610 5,508 6,510 VAT receivable 17,131 1,314 2,530 1,997 2, Trade and other receivables 37,653 61,810 74,792 49,260 42,111 65,069 Current income tax prepayments ,716 6,678 1, ,115 Cash and cash equivalents 54, , , , , ,258 Non-current assets classified as held for sale 343,285 16, Total current assets 460, , , , , ,989 Property, plant and equipment 23,336 24,630 22,866 21,261 22,091 21,223 Investment property 2,639,912 4,172,500 4,020,665 3,698,590 3,674,942 3,634,481 Investment in associate and joint venture 10,199 11,484 7,099 13,081 10,103 9,698 Loans issued 23,032 16,615 44, , , ,240 Prepayments and deferred expenses 7,157 4,093 3,773 11,883 4,792 8,151 VAT receivable 6,984 9, Deferred income tax assets ,845 76,315 79,587 86,446 Total non- current assets 2,710,620 4,238,791 4,152,748 3,996,001 4,080,620 4,056,239 Total assets 3,171,037 4,681,187 4,439,590 4,281,646 4,241,528 4,238,228 31

32 Balance Sheet: Liabilities and Equity Balance Sheet, USD (thousands) H2017 Borrowings 1,403,507 2,664,705 2,597,615 2,691,930 2,850,177 2,966,884 Tenant deposits 34,315 53,375 56,958 48,712 47,022 38,465 Deferred income tax liability 41,929 94, , ,400 88,171 83,298 Total Non-Current liabilities 1,479,751 2,812,965 2,868,904 2,848,042 2,985,370 3,088,647 Borrowings 281, , , ,374 67,477 59,206 Derivative financial instruments 16,033 8,931 6,680 40,288 7,942 4,188 Tenant deposits 11,234 6,195 6,952 5,266 4,558 4,985 Deferred rental income 71,413 87,781 88,395 75,469 85,979 68,131 Current income tax liability 2,964 1, ,752 1,290 2,462 Trade and other payables and other liabilities 67,935 41,901 59,486 59,048 93,731 47,660 Liabilities classified as held for sale 229, Total current liabilities 679, , , , , ,632 Total liabilities 2,159,543 3,092,796 3,255,753 3,206,239 3,246,347 3,275,279 Class A stock 167, , , , , ,891 Class B stock 471, , , , , ,467 Non-controlling interest 86 86,125 52,126 43,146 44,991 46,265 Property revaluation reserve - 3,619 13,371 18,215 15,898 14,963 Retained earnings 394, , ,835 11, , ,002 Translation reserve -22, , , ,258-60,063-5,636 Total equity 1,011,494 1,588,390 1,183,837 1,075, , ,949 Total equity + net deferred tax 1,053,423 1,683,275 1,344,323 1,106,492 1,003, ,801 Total liabilities and equity 3,171,037 4,681,186 4,439,590 4,281,646 4,241,528 4,238,228 32

33 Appendix: Development Pipeline

34 Bolshevik Apartments Development: Phase I Description Bolshevik apartments phase 1 is beautiful and exquisite facility located next door to Bolshevik Factory business center, in the heart of Moscow's historic quarters, consisting of three buildings and housing 187 apartments. The Project includes comprehensive renovation of the mansion with due regard to time and history. Apartments in building 9, 35 will be delivered with fit-out. Mortgage program from CEB approved. Key Data bld. #9 bld. #28 bld. #35 GBA sqm GBA (total) sqm NSA sqm Number of apartments apt Number of apartments apt (total) 187 Average Sale Price Krub/m² 375 Sales Revenue Bn Rub 4.65 Development Budget Bn Rub 1.25 NSA (total) sqm Land Plot sqm Land Lease agrmt. year Project completion year 4Q

35 Bolshevik Phase I Apartments Visualization 35

36 Bolshevik Office, Building 10 Key Data GBA sqm NRA around sqm: - Office sqm; - Canteen, Fitness sqm; - Parking 160 Lots. Average Rental Rates (Shell & Core): - Office $ 450 / sqm / year; - Parking $ 150 / lot / month; - Canteen, Fitness $ 230 / sqm / year. Description Flagship building of Phase 2 is Building 10 with total GBA around sqm; Currently we see an increasing demand for quality office spaces in Moscow. Tenants are interested in large office areas of square meters. Typical floor area of Building 10 is around sqm and can be effectively divided for 2 3 tenants; The building can be quickly delivered to tenants when there is interest from their side. Development Budget - $ 22 mln. 36

37 Avrasis Apartments Development: A Residence Description A Residence project is part of Avrora Business Park 3 rd construction stage; A Residence is located in walking distance from Paveletskaya metro station in a distinguished district of Moscow in close proximity to the Garden Ring; The project consists of five separate buildings with total of 210 apartments and underground parking for around 250 places; Retail zone will be located on the 1 st floor of the building faced to Sadovnicheskaya str.; Landscaped courtyard. Key Data GBA (total) sqm GBA (ground area) sqm GBA (underground area) sqm NSA sqm Number of apartments apt (total) 210 NSA (total) sqm Development Budget RUB bln. 4,6 Land Plot sqm Construction completion year 1Q 2019 Project completion year 3Q

38 A Residence Renders 38

39 Contacts & Disclaimer Moscow, Russia, Valovaya Str. Bld 26 tel: , Disclaimer This presentation has been prepared for information purposes only, and no representation or warranty, express or implied, is given by or on behalf of the company or any of its shareholders, directors, officers, employees, advisers, agents or any other person in connection herewith. This presentation should not be considered as an offer or solicitation of an offer to sell, buy or subscribe to any securities or any other rights pertaining thereto. Certain statements in this presentation are not historical facts and may include prospects, statements of future expectations and other forward-looking statements that are based on management s current views and assumptions and involve known and unknown risks and uncertainties. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance, and the actual results of the company s operations, financial position and liquidity, and the development of the markets and the industries in which the company operates, may differ materially from those described in, or suggested by, the forward-looking statements contained in this presentation. A number of risks, uncertainties and other factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, (i) changes in political, social, legal or economic conditions in Russia or globally, (ii) changes in the company s competitive situation, (iii) inflation, fluctuations in foreign exchange rates and the availability of foreign currencies, (iv) decreased rental rates for the company s properties, (v) changes in real property or other tax rates, (vi) changes in accounting standards or practices, and (vii) changes in laws and regulations, including tax regulations. No duty to update The company disclaims any obligation or undertaking to update any information or forward-looking statement contained in this presentation, whether as a result of new information, future events or otherwise, except as may be required by law. 39