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VK Development Investor Conference in Kyiv May 18, 2006 Presented by Roman Lunin VK Development Investor Conference in Istanbul October 5, 2006 Presented.

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Presentation on theme: "VK Development Investor Conference in Kyiv May 18, 2006 Presented by Roman Lunin VK Development Investor Conference in Istanbul October 5, 2006 Presented."— Presentation transcript:

1 VK Development Investor Conference in Kyiv May 18, 2006 Presented by Roman Lunin VK Development Investor Conference in Istanbul October 5, 2006 Presented by Mr. Roman Lunin

2 Shopping Malls in Ukraine Continued Lack of Space Kyiv substantially lags behind other European capitals in terms of shopping space density Shopping mall space in Kyiv can easily double or quadruple, matching that of Budapest and Warsaw, respectively Lack of space forms a strong window of opportunity for new development Shopping Space (m 2 /1,000 pop.) October 5,

3 Shopping Malls in Ukraine Rates Still Comparatively Low Despite lack of space and practically zero vacancy, rental rates for prime retail space in Kyiv remain modest compared to other European capitals Developers in Kyiv and other cities are able to increase rents for existing and new space Rents for new shopping malls in other cities match that of Kyiv Rental rates are unlikely to shrink in the medium term 3 Rental Rates (USD/m 2 /year)

4 Shopping Malls in Ukraine October 5, The Highest Yield Market Investment yields in Kyiv real estate remain the highest among European capitals While rental rates are expected to remain stable or grow, lower yields in the future will bring substantial capital appreciation High yields are also reflected in the rather high current cost of capital, which limits development of new projects Investment Yield

5 Shopping Malls in Ukraine The Highest Yield Market Investment yields in Kyiv real estate remain the highest among European capitals While rental rates are expected to stay stable or grow, lowering yields in the future will bring substantial capital appreciation High yields are also reflected in rather high current cost of capital, limiting the development of new projects May 18, 2006 Existing Kyiv Shopping Malls MallsTotal space (m 2 ) Selling space (m 2 ) Year Launched Karavan Promenada Center Ukraina Rhythm Metropolis Magellan Alta Center Metrograd October 5,

6 6 MallsTotal space (m 2 ) Selling space (m 2 ) Expected Launch Date Mega (IKEA) Lybid Plaza Troitskiy Plaza Esplanada Petrivka Shopping Mall Kvadrat (Vyrlitsa) Lifestyle Center Mava Kyiv Shopping Malls in Pipeline

7 October 5, Shopping Malls in Other Cities Shopping mall development in Ukraine is mostly limited to Kyiv Demand for shopping space in other cities, as well as rental rates, is often similar to Kyiv With higher shopping mall density in Kyiv, the focus for new shopping mall development is gradually shifting to other cities Opportunities for development in other cities: – Higher traffic can be achieved due to greater scarcity or complete lack of modern shopping space, attracting tenants more quickly and providing opportunities to charge relatively higher rental rates – Acquisition of new land plots in other cities is often less cumbersome in comparison to Kyiv – Construction and exploitation costs of shopping mall in other major cities are slightly lower than in Kyiv

8 8 October 5, 2006 Warehouse Market in Kyiv The citys warehousing market is the least developed of the property sectors… …despite its potential as a regional logistics hub Local warehousing stock is approx. 600,000 m 2 – and only 26% of this is Class A or B Total Warehousing Stock (000s of m2)

9 9 October 5, 2006 Warehouse Market in Kyiv On a per capita basis, Kyiv has only one-tenth the warehousing space of Budapest and just 8% of that in Prague The market could immediately absorb at least 400,000 m 2 Zero vacancy rates Yields and rents exceed the European average 80% of current occupants are not satisfied with their space Warehousing space per 1,000 people

10 October 5, Major Warehousing Projects Warehousing ProjectsGross Leasable Area (m 2 ) Expected Launch Global Center136, Alacor Logistics Park133, Kyiv Ring Road Logistics Complex88, Brovary Logistics Complex80, Komora-S26, Chaika Commercial Warehouse23,000delivered 2006 Ost-West Express20,000delivered 2006

11 October 5, A Developers Market The market is just beginning to emerge in Ukraine: lack of financing and managerial resources means developers are often restricted to one or two projects, and most of these projects are typically delayed as a result Emerging developers: – ХХI Century – Nest-Hanner – IKEA Competitive advantages of VK Development: – Management and project development resources – Access to capital markets – Ability to acquire land for development – Thorough understanding of logistics business – Existing database of potential lessees

12 October 5, VK Supermarket Will Act as Anchor Sales CAGR of 115% for sales grew 110% y-o-y to USD 232 million 2006 sales expected to grow 90% y-o-y to USD 440 million Sales projected to grow at a CAGR of 54% in and reach USD 2 billion by 2010 VK Net Sales ( , USD m) VK Net Sales ( , USD m)

13 October 5, Velyka Kyshenya on Capital Markets In December 2005 VK accessed international capital markets with a private placement through Dragon Capital of 10% for USD 27.5 million (MC of USD 275 million) In March 2006 VK placed an additional 2% for USD 7.75 million (MC of USD million) Current market capitalization: USD 406 million, implying a 48% increase since December 2005 VK is planning an IPO in London in the second half of 2007 VK Market Capitalization (December 2005 – October 2006, USD m)

14 October 5, VK Development Background Like other retailers, Velyka Kyshenya requires more space To boost VKs expansion options and capitalize on the booming domestic shopping mall market, the owner of VK has created a spin-off company to handle the chains construction and project development, VK Development Focus will be on the development of modern shopping malls in other cities and Kyiv, as well as other attractive development opportunities, namely in warehousing VK Development will independently manage development of the malls at all stages: site selection; financing; acquisition of planning and construction permits; project development and construction; letting and day-to-day operations

15 October 5, Project Description VK Development has a massive land bank of 34 hectares in Kyiv, Poltava and several other cities. Sites were selected for their potential as locations for new shopping malls and entertainment facilities Modeled after VKs successful existing malls, VKD plans to build more than 250,000 m 2 of modern shopping and entertainment space in six locations from VK supermarkets and hypermarkets are expected to anchor the new malls at competitive prices Also, VKD has 48 hectares of land suitable for a major warehousing project of 195,000 m 2 close to Kyiv-Boryspil International Airport (KBP)

16 VK Shopping Mall Concept October 5, VK Development is focusing on the development of: – Mega-malls with total space of more than 50,000 m 2 – Malls with space of up to 50,000 m 2 – Convenience malls with space of 12,000-16,000 m 2 Each mall concept has been carefully developed with a thorough assessment of the locations current and future competitive environment and target audience preferences Based on marketing research results, the space split and rental rates for the following groups of tenants will be selected: – Anchor tenants: grocery, white goods, DIY super/hypermarkets – Other retail galleries: branded stores and boutiques – Entertainment facilities: fast food, bowling, cinemas, nightclubs, etc.

17 October 5, Mega-Malls Concept Space: Min. of 50,000 m 2 Locations: Promising areas of development Availability of sufficient transport infrastructure Current projects: Kyiv Kollektorna Construction term: months

18 Malls October 5, Concept Space: 20,000-50,000 m 2 Location: High-traffic crossroads Close to large/dense residential districts Current projects: Kyiv Bilychi, Poltava, Rivne, Ivano-Frankisvk Construction term: months

19 October 5, Convenience Malls Concept Space: 12,000-16,000 m 2 Location: Immediately adjacent to large residential areas Current projects: Chernivtsi Construction term: 6-12 months

20 20 October 5, 2006 Concept Space: 195,000 m 2 (4 stages of 15,000/60,000/ 60,000/60,000 m 2 ) Location of Current Project: Close to Kyiv-Boryspil International Airport (KBP) Construction term: 36 months Warehouse/Logistics Center

21 21 October 5, 2006 Project Overview Shopping MallsWarehouse Land Plots (hectares) Planned Projects61 (4 stages) Expected Construction Area (m 2 )255,800195,300 Expected Construction Costs (USD m) Expected Annual Normalized Net Operating Income (USD m) Avg. Net Rental Yield (%)

22 October 5, Financing VK Development will be seeking to attract about USD 83 m in equity to launch construction at the selected locations and expand its land bank Subscription to the first tranche of equity financing of USD 37 m is expected in November 2006 New equity will be raised through the placement of shares in a Ukrainian-registered OJSC (open joint-stock company), with a subsequent listing on the PFTS, Ukraines premier stock exchange, providing investors with liquidity Debt financing of about USD 155 m will be raised through financing from local banks


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