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About the Company / Business strategy OPIN’s strategic objective is to continue to be a leading real estate development, management and investment group in Russia, at the same time maximising shareholder value. To achieve this objective, the Group intends to pursue a business strategy built on the following key elements: Focus on development OPIN intends to continue to focus primarily on real estate development and plans to invest between 50% and 70% of its capital in the development of new projects with the remainder (e.g. between 30% and 50% ) of its capital to be used in existing in income-generating properties in order to provide a stable and predictable cash flow to cover its working capital requirements and its debt payment obligations. Target attractive segments The Group aims to concentrate its strategic focus on real estate market segments that it believes may yield the highest investment returns, affording at the same time adequate risk management, and in which OPIN has management expertise. Among its priority segments, OPIN considers Class A offices, master-plan developments within large-scale residential communities (mini towns and resorts) and middle-class out-of-town residential housing. These segments are characterised by relatively high barriers to entry, such as the significant capital investment required and the often complex government approval process involved, high customer demand, insufficient supply and a scarcity of suitable land plots. Class A offices The Group believes that the international standard Class A office space segment is one of the most attractive segments of the Russian real estate market, and it remains one of the Group’s priority segments. According to the Group’s estimates, the supply of high quality office space in Moscow is likely to continue to lag behind the growing demand at least in the medium term. OPIN plans to continue to develop high quality office space, attractive to quality tenants and potential international investors. The Group intends to invest between 20% and 40% of its capital in the construction of high quality office space. Master-plan developments The Group believes that residential housing in the areas surrounding Moscow as a segment of the real estate market is most attractive on a large-scale when developments combine an attractive location, good transportation access, proximity to a range of amenities and modern low-density living, thus providing customers with a lifestyle not typically found within the Moscow city limits. The Group plans to finance larger portion of its suburban developments with its own capital rather than through pre-sales to customers with discount during early stages of construction. Compared to early pre-sale, this approach gives a substantial increase in margins due to the higher price of completed houses. This approach brings an additional bonus of having more accurate construction schedules and obtaining better rates from general contractors. Within the residential housing segment, the following sub-segments are most attractive to the Group:
OPIN plans to allocate between approximately 40% and 50% of its capital to the residential housing projects of deluxe class as well as affluent middle and mass-middle class. Retail, hotels and other projects Based on the existing high demand on the hotel and retail market segments the Group anticipates that between 10% and 20% of its investment portfolio may be allocated to projects of this kind. OPIN may consider expanding its activity into other real estate market segments such as warehousing and infrastructure projects. In addition the Group keeps track on changes in the market and on legislation. The allocation of resources in a particular segment may be reviewed if it becomes more or less attractive. Grow the land bank OPIN continues to actively build up its land bank in strategic directions of Moscow Region and in other regions of greatest potential by purchasing large undervalued land plots. There is now a unique opportunity to acquire large land holdings, which will be a vital factor in the future success of the Group. The land bank will be used for residential and commercial developments, as well as for capital appreciation purposes. Retain investment grade properties upon completion for capital appreciation Upon completion of construction of its commercial real-estate projects, OPIN plans to keep them in its portfolio for up to 5–7 years in order to receive stable cash flow from leasing and also to take full advantage of the yield compression. An optimum tenant mix and lease portfolio will be created under Group control, which will make it possible to stabilize the rental income flow. As a result the building will have the highest market value and can be sold for the highest price to major international institutional investors among others. In addition, as construction is completed, the Company will seek to re-finance its investments by bringing in debt financing in order to increase the return on its own capital. Focus on large-scale projects The Group is focusing on large projects to make efficient use of its management and financial resources and to achieve economies of scale. In addition this helps to increase the value of assets under management and market capitalization as well as net asset value (the main financial benchmarks for the assessment of real-estate companies). This strategy is applicable in both the offices sector and in house-building. In the residential housing segment, the Group plans to continue to develop large-scale projects that offer its customers modern quality mini towns located in strategy direction with key amenities within the project. This approach to large-scale residential projects aims to create a lifestyle for residents that has value beyond each individual land plot. Secure cost-effective supply of prefabricated housing In order to improve further the profitability of the Group’s current and planned middle class residential housing projects, the Group actively seeks to secure a reliable, cost-effective and high quality supply of prefabricated timber frame houses. The Group has already purchased a number of prefabricated timber frame houses for construction at the Martemianovo Community. The Group believes such houses may allow it to reduce construction times and construction costs as compared with traditional concrete building techniques used in some of its existing projects, such as the Pavlovo-1, Pavlovo-2 and Pestovo Communities. As part of the strategy to secure cost-effective supply, in February 2008 the Group acquired approximately a 61% equity interest in Viceroy Homes Limited, a Canadian manufacturer of prefabricated timber frame houses. Expand selectively outside of areas surrounding Moscow The Group operates primarily in Moscow and Moscow Region where traditionally higher returns may be achieved. OPIN is also focusing on the northern and the western directions in its land bank expansion strategy. The Group believes that South of Russia is an example of fast developing region with a high investment potential. In particular Sochi is regarded as one of the most dynamic cities in Russia due to its hosting of 2014 Winter Olympic Games. However, the Group may also consider projects in other regions of Russia if attractive investment opportunities arise and it has the necessary managerial and other sources available. Optimise capital structure The Group considers a debt-to-equity ratio of at least 50:50 as the optimum. OPIN intends to favour the use of equity capital over debt capital primarily to give it the flexibility to make acquisitions of land to support its future developments. As more projects commence development, OPIN plans to balance the level of equity and debt capital. Maintain a high level of transparency For OPIN to achieve its primary objectives it is vital to maintain a high level of transparency in terms of ownership structure, corporate governance, project preparation and management, financial reporting and investor relations. Transparency in these areas is key to accessing Russian and international capital markets, to obtaining loans and to developing long-term relationships with business partners who have financial resources, expertise and knowledge in the real-estate field. |
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