TriGranit, real estate developer, in which Immoeast holds a stake of 23% signed agreement with St. Petersburg municipality to carry out large-scale projects. This includes revitalization of the premises of the Vitesbsk railway station, new use of centrally located property on which the city’s largest tram depot is located and Budajevszkij Warehouse, urban development project with which the modern centre of St. Petersburg is to emerge. In addition to these projects TriGranit is also planning large-scale development projects for shopping centres, hotels, residential complexes, offices buildings and other multifunctional projects, for which municipality has announced its full support. Details on financial dimension of these project is expected to be announced in fall.
Our view: As Immoeast holds 23% stake in TriGranit, we see this news in general positively based on fact that Immoeast will participate on larger developer’s profit. The size of second biggest Russian city and underdevelopment to Western European standards provides we believe enough space for several developers on the market. In addition to developer’s profit, Immoeast has right of first refusal to acquire developed properties into its portfolio, which gives Immoeast competitive advantage on highly competitive markets as Russia. Market yields of 10-11% on Russian market are substantially higher than 5.5-6.0% in CEE region and we believe this gap to compress with increasing inflow of money into Russian real estate sector. Some 85% of total real estate investments in Russia from 1999 to 2006 occurred last year.