1. The Polish real estate market as an area for developers Prof. Magdalena Zaleczna mzaleczna@uni.lodz.pl Dr. Rafal Wolski rwolski@uni.lodz.pl

2. Agenda The aim of the article Hypothesis Overview Survey Conclusion

3. The aim of the article The Polish real estate market have coped with an economic slowdown quite well. The prices of housing units decreased moderately, the construction sector did not suffer a collapse visible in other countries and the transaction number has been increasing lastly. The main supply-side actors – developers – belong to very diverse group.

4. The aim of the article Some of developers have good financial results and announce new projects, some confront problems with their economic conditions.

5. The aim of the article The authors would like to analyze financial results of developers activity in relation to presented categories of these actors.

6. Hypothesis Large companies listed on the stock market were able to cope with the slowdown, while small, unlisted, had serious problems.

7. Overview The supply of residential or commercial space is a risky business. This production of space should be undertaken on the basis of forecasts of highly uncertain prospects, forecast of market upswing and price behavior - not always rational. Ball M. (2006), Markets and institutions in real estate and construction, Blackwell Publishing, Oxford.

8. Number of construction companies in Poland in years 2004-2013

9. Research The authors conducted an analysis of the economic situation of enterprises taking into consideration performance of indicators such as: profit / lost after tax EBIT ROA EVA

10. Methodology EVA is calculated using the formula: EVA= NOPAT – Invested capital * WACC where: NOPAT – operating profit before interest and after tax, Invested capital – capital invested by shareholders and creditors, WACC – weighted average cost of capital.

11. Methodology After modification it gave the formula: EVA = (Operating profit – Taxation) - (Equity * Cost of equity + Financial costs* Tax shield)

12. Data The study used a database of companies collected as Eurostat NACE Rev. 2 - statistical classification of economic activities in the European Community with codes: 41 - Construction of buildings: 4110 - Development of building projects, 4120 - Construction of residential and non- residential buildings.

13. Data There were three databases created: 1240 of medium and small companies not publically listed, 19 large and very large companies, quoted on the stock exchange, 195 large d very large unlisted companies.

14. Data The idea was to divide companies according to its size, and according to if it is listed, or unlisted on any stock exchange. There was no company, which was medium or small and was listed.

15. Data The research period covered the years from 2004 to 2013. For each database separately were calculated median values further examined when the indicator concerned each individual. Source: Amadeus database, Eurostat database.

16. Median of profitability indicators in thousands PLN, years 2004 – 2013 PLN2004200520062007200820092010201120122013 EVA Small and medium sized, unlisted companies-41257,8-59758 - 50556,2 - 77388,5 - 85759,6 - 69413,6 - 44787,3 - 41295,8 - 36323,9 - 29643,7 Very large and large, publically listed companies - 1833909 - 758534-709286-288126-192329 - 50080,3-185382-142248 - 11113,6 - 56364,3 Very large and large, unlisted companies-182265 - 233758-421088-607507-661427-531017-493449-460021-435825-401562 EBIT Small and medium sized, unlisted companies237316254292365239,516217311086 Very large and large, publically listed companies17466814352041119920233143452087297012157467 Very large and large, unlisted companies1354164123203200,541143448,52701325923132650 Profit/Lost after tax Small and medium sized, unlisted companies262364,5254275339,521416613810476 Very large and large, publically listed companies15919,5866921552958989071465518988104101678425 Very large and large, unlisted companies1276,5147922563295,537623327,52859286021372354

17. Percentage change on previous year of GDP and median of profitability indicators, years 2005-2013. growth rate percentage change on previous year200520062007200820092010201120122013 Real GDPPoland3,50%6,20%7,20%3,90%2,60%3,70%4,80%1,80%1,70% EVA Small and medium sized, unlisted companies2,71%16,12%55,26%11,80%-30,04%-32,31%-26,66%-24,68%-24,03% Very large and large, publically listed companies 226,00 %65,75% 333,82 %-29,42%-10,53% 175,98 %3,45%-48,76%53,67% Very large and large, unlisted companies20,43%43,47%54,84%26,98%-22,13%-15,87%-18,54%-34,93%-10,89% ROA using net income Small and medium sized, unlisted companies5,01%6,46%7,65%7,71%4,46%2,78%2,48%2,01%1,49% Very large and large, publically listed companies9,04%8,68%8,06%5,93%5,05%6,02%4,06%1,55%1,11% Very large and large, unlisted companies5,14%6,53%7,06%8,74%7,17%5,14%3,50%2,93%3,39% EBIT Small and medium sized, unlisted companies-3,35%6,17%29,85%3,73%-38,71%-38,80%-29,87%-38,20%-40,00% Very large and large, publically listed companies 164,35 % 203,79 %29,27%18,47%-5,39%-13,99%-10,32%-40,14%-26,75% Very large and large, unlisted companies9,53%30,54%45,28%16,71%-27,31%-17,08%-11,91%-22,04%-10,96% Profit/Lost after tax Small and medium sized, unlisted companies-1,85%11,59%31,48%4,84%-43,46%-41,63%-36,64%-41,58%-32,36% Very large and large, publically listed companies 237,03 % 223,54 % 49,23%-15,07%-22,49%-4,88%-10,57%-62,99%4,22% Very large and large, unlisted companies2,76%33,82%48,20%20,22%-27,17%-16,92%-19,05%-28,35%-7,56%

18. Median of growth of EVA, 1st year = 100, cumulative linear graph.

19. Results The situation of construction companies reproduces in a certain sense the economic situation of the country. The slowdown in the growth of GDP was reflected in declines in profit.

20. Results With this scheme breaks EVA, which was maintaining the whole time at negative levels. The situation seems to be improving. The construction companies cannot create value for the owners. At least the value understood in terms of Economic Value Added. This observation is a valuable clue for investors, but also a warning to the boards.

21. Conclusion The analysis did not support the research hypothesis. The situation of all surveyed groups of companies was relatively similar. The formation of indicators over the years is taken into consideration, not the absolute values of gain, or EVA. The companies just reacted to impulses coming from the market and the differences in the companies size were not important.

22. Thank you for your attention