Russian Real Estate Market Overview December 3, 2007 Budapest David O’Hara General Director DTZ Moscow

Executive summary Russia Today Real Estate Market in Russia Today: Products Yields and rents SWOT analysis Reality vs. Perceptions Conclusions

Russian Federation 17,075,200 sq km total area 142 million population Climate varies from temperate continental to strongly continental. Political regime: Democracy Big country Lots of people Cold and Snowy Define “democracy”

Russia has changed dramatically. Political Instability Socio-economic Crisis Deep National Malaise 1990s Russia Political Stability Economic Growth Recovery of National Pride Russia After 2000 Caveat this with the negative aspects of Putin’s regime. SOURCE: DTZ. Russia has changed dramatically. 3

The Economy Is Growing Faster Than Expected… Economy growth Improving economic and political environment High oil prices support continued growth High oil income to be reinvested (thus many real estate transactions off market) The Economy Is Growing Faster Than Expected…

The Economy Is Growing Faster Than Expected… Economy growth The Economy Is Growing Faster Than Expected… Increase in real income sustains a high consumer demand. Inflation rate keeps on decreasing: 2005: 10.9% 2006: 9.0% 2007F: 8.0% Russia investment grade: Moody’s Baa2; Fitch BBB+; S&P’s BBB+, outlook is “Stable”. Source: GosKomStat RF

SOURCE: DTZ, Rosstat, Central Bank of Russia. The influence of oil decreases, while private consumption gains importance.

Monthly Nominal wages are growing, but … POP Quiz: Statistics Lie! N. Novgorod pop.: 1.24 mln 63.8% of pop. in workforce Avg. salary = $369/month If 1.24 mln * 63.8% * $369 * 12 = $3.5 bn, what is the official retail turnover of the city? $1.5 bn $2.5 bn $3.5 bn $4.5 bn SOURCE: Rosstat. Monthly Nominal wages are growing, but …

BRICs — we call them RBICs Source: Goldman Sachs – Global Economics Paper No: 99 a

Global City – “a city that has a direct and tangible effect on global affairs through socioeconomic, cultural, and/or political means" London Moscow Paris New York Shanghai Tokyo

Today’s Real Estate Market Background Managed Risk, High Reward Fast growing market Large and successful projects Huge consumerism Market indicators Office, Retail and Logistic: significant Yields compression Developers move more and more to the “regions” MEGA

Developers Main players on real estate market in Russia are Developers Russian developer manages: land acquisition getting all kind of permissions dealing with local authorities organizing development These activities are difficult for foreigners and almost impossible in the regions.

Main Trends in Development Significantly increased construction volume — construction boom; “Hot” leasing market; Arrival of new international developer companies; Strong local players; Improving quality; Development companies started to perform IPO to attract cheap financing: Sistema Hals, PIK, AFI, Raven Russia

Moscow office market By the end of 2006, the total office stock in Moscow reached 5.28 mln sq m, out of which: Class A: 1.54 mln sq m Class B: 3.83 mln sq m The annual new supply in 2006 increased by 31% compared to 2005 and amounted to about 920,000 sq m Class A: 24% Class B: 76% By the end of 2008 the total office stock is expected practically to double, compared to 2005, reaching 8.25 mln sq m with annual growth of Class A office new supply exceeding the one of Class B offices.

Moscow office market Source: DTZ research

Moscow office market deals Office space transacted; 2006 historical record since 1998 with about 1,300,000 sq m take-up (both leased/pre-lease and sold/pre- sold). Sale deals accounted for about 40%. Class A office transactions less than 25% of the gross take-up, Lack of available offices results in new deliveries been 95-100% pre-let before the completion date. Within the next two years the gross take-up is forecast to remain at current high level.

Moscow office market deals Source: DTZ research

Moscow vs. other cities

Prime rents and typical lease terms: comparative analysis The base rents at prime new buildings in the city center are in the range of $1200-1500 sq m per year. Leases in prime new buildings in non-central locations are typically signed at $600-1000 sq m per year (base rent). In 2007, prime base rents for Class A and B offices are expected to continue on be an upward trend – the prime rental growth in 2007 was 50%. In 2008, rents stabilization is forecast. DTZ research

Market indicators: Offices Moscow: 8% in 2007 Source: DTZ research

Office rents Office centers: base rental rates Moscow: St Petersburg: Prime class A: $1000—1500 Class A: $700—1000 Class B: $450—700 (per sq m per annum, excl. Opex $60— 130 and VAT ) Fixed or indexed at CPI for Class A, average term 5 years, leases of 7—10 years are more often; Class B terms are 11 months to 5 years. Office centers: base rental rates St Petersburg: Class A: $500—850 Class B: $400—500 (per sq m per annum, including operating expenses, VAT extra) Class A average terms are 3 to 5 years Class B terms are 11 months to 3 years Last two years rates were growing at an average of 7-10% per annum

Retail in Russia – Disposable Income Comparison Houston, USA USA % Moscow Russia USD % Typical Mid-Manger Salary $60,000 100% $24 000 Personal Income Tax ($13 800) -23% (3 120) -13% Mortgage/Housing ($12 000) -20% ($480) -2% Car Loan ($6 000) -10% 0% Student Loan ($5 000) -8% Credit Card ($7 200) -12% Home & Medical Insurance ($3,000) -5% ($500) Food ($5,800) -30% Disposable income $7,200 12% $12 700 53% 21

Market indicators: Retail 2007: Moscow 8,5% DTZ research

Moscow still enjoys a hefty yield premium over the rest of Europe. Source: DTZ. Moscow still enjoys a hefty yield premium over the rest of Europe.

Regional cities will continue to enjoy a yield premium. SOURCE: DTZ Estimates. * Estimated Net Initial Yields. Regional cities will continue to enjoy a yield premium.

Russia is not just Moscow City population Citizens, mln Cities >1 mln 25 568 11 0.5—1 mln 14 903 23 0.25—0.5 mln 13 698 40 0.1—0.25 mln 14 300 94 Russian Federation 142 753   The regions hold 93% of Russia’s population. Russia holds more than a third of Europe’s 100 largest cities. St. Petersburg (700 km from Moscow) Moscow Ekaterinburg (1667 km from Moscow) Samara (1040 km from Moscow) Chelyabinsk (1919 km from Moscow) Rostov-on-Don (1226 km from Moscow) Novosibirsk (3191 km from Moscow)

Shopping center developers active across the Russia 1 Project 2 Projects 3 Projects 4 Projects 5 Projects 6 Projects 7 Projects 8 Projects 18 Projects

Moscow Holds Advantage Regions Hold Advantage Regional Scorecard: Moscow Holds Advantage Regions Hold Advantage Investment Yields + Freehold Acquisition Possibility Lack of Competition Lower Land Costs Lower Construction Costs Purchasing Power Pipeline Market Transparency Infrastructure SOURCE: DTZ.

Retail rent rates Retail centers-rental rates Anchor tenants: $200—300 per sq m p.a. in Moscow $150—250 per sq m p.a. in regions Retail gallery: $400—2600 per sq m p.a. excluding operating expenses and VAT Selling price of shopping centers Prime Yields in Moscow and St. Petersburg 8 – 8.5% . Yields for in regional cities are with 2—3% premium compared to Moscow and St. Petersburg.

SWOT analysis

Challenges: Perceptions vs. Reality Russia: Living Conditions 1. Pre-1985 – Communism “No money to spend, but nothing to buy.” 2. Perestroika – Yeltsin Years “We were better off before.” 3. Post-1998 – Putin Years “Availability. Opportunity. Consumerism” Developing Real Estate in the Biggest Country in the World Supply Chain Management Construction Management Health and Safety Environment and Ecology On-time Delivery

Why Does Real Estate Market Work? – oil and consumerism Conclusions Russia is a Big Place! – big population, large projects and opportunities Why Does Real Estate Market Work? – oil and consumerism Strong local players but increasing presence of international companies Macroeconomics – during last 6 years Russia’s Sovereign Risk decreased from 13,6% in 2006 to 1,16% in 2006 (Spread between Russia’s Money Market Spread over US T Bills).

Goldman Sachs is more optimistic than me!! Incomes per Capita, 2050 Goldman Sachs is more optimistic than me!!

Goldman Sachs is more optimistic than me!! Conclusion: Incomes per Capita, 2050 Goldman Sachs is more optimistic than me!! 33

Come to Moscow & see for yourself!! Thanks! Come to Moscow & see for yourself!! DTZ Moscow ul. Gasheka, 7, Suite 360 Moscow, Russia 123056   Tel.  +7 (495) 748 1111 Fax. +7 (495) 787 8887 Ferit Yildirim Managing Director   Mob. +7 (985) 970 3097 ferit.yildirim@dtz.com  David O’Hara General Director   Mob. +7 (985) 999 7872  david.ohara@dtz.com