PRO KAPITAL GRUPP Investor Presentation August, 2013
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PRO KAPITAL GRUPP
Investor Presentation
August, 2013
Rendering Plan of
Peterburi Shopping center
Important Notice This Presentation has been prepared by Aktsiaselts Pro Kapital Grupp (the “Company” or “PKG”) for information purposes only and is not to be relied upon in substitution for the exercise of independent judgment. This Presentation does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to subscribe for, underwrite or otherwise acquire, any securities of the Company or any member of its group nor shall it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. Unless otherwise stated, PKG is the source for all data contained in the Presentation. All statements other than statements of historical fact included in this Presentation, including, without limitation, those regarding PKG’s financial position, business strategy, management plans and objectives for future operations are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause PKG’s actual results, performance, achievements or industry results to be materially different from those expressed or implied by these forward-looking statements. Forward-looking statements speak only as of the date of this Presentation and PKG expressly disclaims any obligation or undertaking to release any update of, or revisions to, any forward-looking statements in this Presentation as a result of any change in expectations or any change in events, conditions or circumstances on which these forward-looking statements are based. PKG is under no obligation to update or keep current the information contained herein. This Presentation is not intended for distribution to or use by any person or entity, if the distribution of this Presentation to or its use by such person or entity would conflict with any law or regulation applicable to such person or entity or such distribution or use require any registration, licence or permit thereunder. This Presentation is not intended for publication, release, distribution in or into the United States, Australia, Canada or Japan or to the persons of those countries (as determined in accordance with the laws of such countries). If you have received this Presentation in conflict with any of the foregoing, you are required to disregard the contents hereof. The information contained in this Presentation has not been independently verified and no representation or warranty, express or implied, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained herein. Without prejudice to mandatory laws, none of PKG or any of its respective subsidiaries or affiliates or any of such person’s directors, officers or employees, advisers or other representatives, accepts any liability whatsoever (whether in negligence or otherwise) arising from any use of this Presentation or any part thereof or otherwise arising in connection therewith.
Unique Opportunity in the Growing Baltic Real Estate Market…
Opportunity
to capitalize on
recovering Baltic
real estate
Track record of market Pure exposure on
successful project Baltic macro
development recovery
Conservative Strong project
balance sheet portfolio
…Providing Baltic Macro Exposure
3
Company Overview
Strong Project Development Track Record
PKG is one of the leading real estate development and management companies in the Baltic region
The Company was established in 1994, making it one of the first major players in the Estonian real estate market
In 1997 and 1998 PKG expanded to Latvia and Lithuania, respectively
The Company actively accumulated potential development projects (i.e. land plots, amortized buildings) in the period of 1996-1998
In 1997 the Pro Kapital Business Centre in Tallinn CBD was completed, marking the completion of the first successful development project
The Company still owns some of the attractive projects acquired in late 1990s
Completion of last
Start of Ilmarine project Start of Domina Shopping project phase of Ilmarine
Completion of PK Business Expansion of Kristiine
Centre, a first major project Delisting from TSE
Expansion to Latvia Sale of Domina Shopping Centre Sale of Kristiine to Citycon
Expansion of Kristiine
Listing on TSE
Establishment of PKG Domina Shopping Centre opening Listing on TSE
Expansion to Lithuania
Kristiine opening
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Domina Plaza Rüütli 13 PK Parkhotel Kurhaus
PK BC Ilmarine Residences PK Ilmarine Hotel
Demini Vecpilsētas 8A Kuģu 26
Jegorovi Pulkveža Brieža 11 PK Riga Hotel
Key projects
Ilmarine district World Trade Centre Riga
Residential
Kristiine Shopping Centre
Commercial
Vene Street Stabu 19 Domina City Domina Shopping Centre
Length of the bar = time of project development and ownership by PKG
5
PKG is Managed by Experienced Team
Key Personnel
Paolo Vittorio Michelozzi Allan Remmelkoor Ruta Juzulenaite Ervin Nurmela
CEO COO CFO Head of the Legal Department
With PKG 18 years With PKG 15 years First year with PKG With PKG 5 years
30+ years of real estate Has managed development of Previous experience in VP Group,
Previous experience in law firm
development Kristiine and Domina Shopping the largest pan-Baltic retail company
Centres Legalia
Extensive experience of over 30 Holds BA degree in international
years in various real estate Previous experience in marketing administration from Concordia Holds Bachelor’s degree in Law
development projects in Europe industry International University Estonia from Tartu University Law
General Certificate of Education Holds Bachelor’s degree in Small (Audentes University) and is Institute
(building inspector) from Collegio Business Administration from acquiring MBA (finance) from Tartu
Arcivescovile Tallinn Technical University University
Shareholders of the Company
35% Affiliates of Mr. Ernesto Preatoni
45% Mr. Vladimir Maslov
Mr. Giuseppe Prevosti 45% free float
Free float
12%
8%
6
Share Capital Increase
Share capital increase in 2-3 years range from € 50 to 70 mln
February 8th 2013 Extraordinary Shareholders Meeting approved a Share Capital Increase
Give the right to the Supervisory Board for 3 years to issue new shares to increase the Share Capital
by up to € 5.318.542.2 (nominal value) N. 26,592,711 new shares
Rationale
to strengthen the financial position of the Company
to finalize the launch of the new development projects
April 5th 2013 a New Extraordinary Shareholders Meeting approved:
New Capital Increase trough an issue of new shares for 1.400.000 (nominal value €0.20)
Excluding the preemptive right, as the shares are just 2,63% of the Company’s current share capital
Subscription share price: €1,80
Subscription period: April 26th to May 10th N. of Issued Nominal Share
Up today July 2013 Shares value Capital in €
Share Capital 54,106,575.0 0.20 10,821,315.0
Result of the first Share Capital Increase tranche
Future issue (*) 26,592,711.0 0.20 5,318,542.2
Shares subscribed : 921.153
Proceeds: € 1.658.075 (*) The Supervisory Board can still issue without new EGM
CEO Paolo Michelozzi subscribed 87.500 shares
7
Strong Supervisory Council and Corporate Governance
Supervisory Council
Emanuele Bozzone Giuseppe Prevosti Renato Lorenzo Bullani
Chairman Member Member
In the Supervisory Council since July 2010 In the Supervisory Council since July 2010 In the Supervisory Council since July 2010
Founder and partner in a number of law and Since 1981 CEO and as of 2012 Chairman of Since 1972 acting as a free-lance chartered
business consulting firms the Board of Directors of family-owned Preca fiduciary
Holds Degree in Economics and Commerce Brummel, a leading Italian child wear producer Member of the Board of Directors of several
No ownership in the Company Holds Diploma in Land Surveying companies in Switzerland and abroad
Mr. Prevosti together with family and through Holds a federal qualification in economics,
controlled entities holds 8.36% of the shares in specialized in financing and accounting
the Company Owns 0.3% of the shares of the Company
Pertti Huuskonen Petri Olkinuora Sari Aitokallio
Member Member Member
In the Supervisory Council since April 2012 In the Supervisory Council since April 2012 In the Supervisory Council since April 2012
Chairman of the Board of Directors in Member of the Board of Directors in BPT and A Senior Vice President in the field of finance
Technopolis (during 2008-2011) other Finnish companies and administration in Metso Automation Inc.
Previous experience as executive and member Previous experience as CEO of Citycon, Renor Previous experience in Sponda, Valmet , Metso
of the Board in many Finnish companies and Tampereen Kiinteistö Invest Holds a Master of Laws (LLM) degree
Holds M.Sc. (Eng.) and EMBA degrees Holds M.Sc. (construction engineering) and No ownership in the Company
No ownership in the Company MBA degrees Planning to resign from Council at the end of
No ownership in the Company March due to time constraints
In 2001 the Company was delisted in relation to alleged breach of information disclosure requirements, which was performed by the CFO
of the Company at that time
The CFO left the Company immediately after the event
Current management started their managerial duties at the Company after the delisting and are not associated with that in any way
8
Growing Real Estate Company in the Baltics
AS Pro Kapital Grupp (“PKG” or “Company”) develops, manages and sells
real estate in the capitals of Baltic States mainly focusing on development of Projects in PKG’s portfolio
retail and upscale residential properties
Project Appraised value
Real estate development experience in the Baltic States since mid 1990s
Most of the properties acquired in late 1990s and early 2000s for attractive valuations Peterburi Rd Shopping Centre €43.9m
Strong track record (20 projects developed, managed and sold)
Tondi Quarter (all project) €31.1m
Council members include Pertti Huuskonen (ex-CEO and ex-Chairman of Technopolis)
and Petri Olkinuora (ex-CEO of Citycon)
Tallinas St. Residential Complex €5.4m
Domina and Kristiine Shopping Centres – successful start-to-finish retail projects
Kliversala Residential Complex €29.9m
Listed on Tallinn Stock Exchange since November 2012
Kalaranna Residential Complex €26.1m
Appraised portfolio value of €180.0 million as of April 20121
Saltiniu Namai Residential Complex €17.3m
Conservative financing strategy ca. 50% debt and 50% equity
PK Parkhotel Kurhaus €7.5m
PK Ilmarine Hotel €7.2m
Breakdown of the portfolio (€m)
PK Riga Hotel €7.2m
7.5
17.3 21.9
Estonia Zvaigznes Centre €3.4m
Residential
Latvia
45.9 43.9 Retail Ilmarine Quarter €1.1m
109.4 Lithuania
114.3 Hotel
Germany
Total: €180.0m
Source: Newsec Source: Newsec
1 Investment value of PKG’s portfolio as appraised by Newsec using RICS Valuation Standards. Portfolio also includes one hotel asset in Germany, appraised in April / June 2012
9
Actual PKG Portfolio
The current project portfolio is listed in the table below
Project Type GSA/GLA Development Description Means of exit
Peterburi Rd Development of a large commercial project located in Tallinn Lasnamäe Sale of the property after
Shopping Centre Commercial 77,880 m2 2012 – 2017 commercial district near the junction of St. Petersburg and Tartu road (the ownership and stabilization
(whole project) highest passenger traffic in Tallinn) phase
Tallinas St Development of residential and commercial property in Riga next to the
Residential / Sale of apartments and
Residential 18,845 m2 2013 – 2017 border of Riga’s historical City Centre between two major streets (Brivibas
commercial commercial premises
Complex and Valdemara)
Tondi Quarter Residential / Development of primarily residential and secondarily commercial property Sale of apartments and
83,462 m2 2012 – 2023 in Kristiine borough in Tallinn City Centre periphery
(whole project) commercial commercial premises
Saltiniu Namai
Residential Residential 19,040 m2 2012 – 2020 Development of residential property located in Vilnius Old Town Sale of apartments
Complex
Kliversala Development of residential and commercial property in Riga at the at the
Residential / Sale of apartments and
Residential 49,920 m2 2014 – 2020 waterfront of river Daugava and enjoying views to the Old Town on the
commercial commercial premises
Complex opposite bank
Kalaranna Development of residential property in North-Tallinn borough – a
Residential Residential 33,013 m2 2013 – 2019 residential and industrial area very close to Tallinn Old Town, the Sale of apartments
Complex passenger port and City Centre of Tallinn
Zvaigznes Residential / Development of residential and commercial property in Riga next to the
17,949 m2 2013 – 2017 Sale of apartments
Centre commercial border of Riga’s historical city centre facing the major Brivibas street
PK Parkhotel Continued operations until
Hotel 3,383 m2 NA Hotel in the historical centre of Bad Kreuznach
Kurhaus attractive exit possible
PK Ilmarine Continued operations until
Hotel 3,985 m2 NA Hotel in the Ilmarine Quarter at the outskirts of the Tallinn Old Town
Hotel attractive exit possible
Continued operations until
PK Riga Hotel Hotel 2,705 m2 NA Hotel in the quiet centre of Riga
attractive exit possible
10Priority Projects to be Developed by PKG
1 2 3
Parameter
Peterburi Rd Shopping Centre Tondi Quarter Tallinas St. Residential Complex
Location Tallinn, Estonia Tallinn, Estonia Riga, Latvia
Project scope Shopping centre Residential / commercial Residential / commercial
Tondi Quarter is a large premium residential Tallinas is a premium residential project
Peterburi is a large commercial project located in
project consisting of renovated buildings and located in the centre of Riga, right next to the
Tallinn Lasnamäe commercial district near the
Description new apartment houses in Tallinn Kristiine border of the historical centre. The location
junction of St. Petersburg and Tartu road (the
district near one of the main crossroads in has good access by private and public
highest passenger traffic in Tallinn)
Tallinn transport
116,040 m2 (project total)
Gross buildable area above ground 130,400 m2 (including underground parking) 25,307 m2
9,300 m2 (Stage 1 of Phase 2)
Gross leasable area / Net sellable 83,462 m2 (project total) 17,650 m2 residential
55,000 m2 retail
area 6,700 m2 (Stage 1 of Phase 2) 1,195 m2 commercial
Parking 1,600 units 1,450 units (project total) 355 units
Estimated development period 2012-2017 2012-2023 (project total) 2013-2017
Estimated project costs €87m (only shopping centre) €11m for (Stage 1 of Phase 2) €29m
Starting apartment price (excl. VAT) n/a €1,750 per m2 €1,800 per m2
€11.0 per m2/month office
Estimated average rent €15.7 per m2/month retail n/a
€12.0 per m2/month retail
Estimated exit year and yield 2019; 7.0% yield n/a 2017; 8.5% yield
Lease with anchor tenant signed. Building permit Building permit received for Phase 2 of the Architectural project submitted for approval to
Status
obtained, construction to start in 2013 project city council
11Tallinn
Kalaranna
Ilmarine District1
PK Ilmarine Hotel
CBD
Jegorovi
Pro Kapital Business Centre
Old Town
Rüütli 13
Vene 19
Domina City Hotel Demini
Kristiine Shopping Centre
Peterburi Rd Shopping Centre
Tondi Quarter
Map: Google Maps
Completed projects Development projects
1 Ilmarine district includes on-going projects Ilmarine Hotel and Ilmarine Quarter Source: Company
12Riga
Zvaigznes
Tallinas
Domina Shopping Centre
Domina Inn Riga
Pulkveža Brieža 11
Stabu 19
Old Town
Kliversala Vecpilsētas 8A
Kuģu 26
Map: Google Maps
Completed projects Development projects
Source: Company
13Vilnius
Old Town
Domina Plaza
Saltiniu Namai1
Saltiniu Namai 2
Map: Google Maps
Completed projects Development projects
Source: Company
14Balance Sheet
1 Q 2013 vs. 1 Q 2012 & FY 2012 vs. FY 2011
Inventories and investment property, which include finished real
estate and real estate under construction, represent the largest part
of the Company’s balance sheet (69% as of March 31, 2012)
€ thousand FY 2012 FY 2011 1 Q 2013 1 Q 2012
48,166 48,784 47,983 48,166
Non-current assets Leverage is low compared to industry average. The Company uses
Current Assets 52,096 64,688 51,615 52,096 conservative project financing approach, using high proportion of
Total assets 100,262 113,472 99,598 100,262 equity
Equity 66,127 72,058 65,205 66,127
of which minority 1,552 1,597 1,538 1,552 Debt details and split
Non-current liabilities 17,728 23,597 16,673 17,728
Current liabilities 16,407 17,817 16,720 16,407 Debt 1 Q 2013 FY 2012
Total Liabilities & Shareholders € thousand
100,262 113,472 98,598 100,262
Equity Current debt, financial institutions 5,965 4,237
Non-current debt, financial institutions 7,630 7,695
Non-current debt, related parties 4,204 4,153
Lenders 1 Q 2013 FY 2012 Interest %
Convertible debt- various shareholders 11,272 11,272
€ thousand
Total Debt 29,071 27,357
Swedbank AS (EE) 1,704 1,731 2% + 6m Euribor
Swedbank AS (EE) 214 605 2,5% + 6m Euribor Cash and Cash equivalent 1,170 707
Swedbank AS (EE) 2,959 565 1,95%+ 6m Euribor
AS Swedbank (LV) 4,214 4,284 3,0% + 3m Euribor NFP 27,901 26,650
“Swedbank” AB (LT) 4,497 4,736 2,4% + 6m Euribor
Volksbank Bad Kreusnach 7 10 5,1% Debt 1 Q 2013 FY 2012
Svalbork Invest, related party 4,204 4,153 5,0% € thousand
Convertible debt- various shareholders 11,272 11,272 7% Due within 1 year 13,430 13,500
Total Debt 29,071 27,357 Due between 2 to 5 years 15,641 13,857
Total Debt 29,071 27,357
15Income Statement
1 Q 2013 vs. 1 Q 2012 & FY 2012 vs. FY 2011
€ thousand FY 2012 FY 2011 1 Q 2013 1 Q 2012 Due to the nature of the development business, revenues and profit
Recurring Revenues 16,078 17,449 3,016 7,108
of the Company fluctuate and will continue to do so over the coming
years
Costs on Revenues (12,750) (16,407) (2,702) (5,739)
In 2011 the Company recorded the sale of Kristiine Shopping Centre
Gross Profit 3,328 1,042 314 1,369
and booked €50.1m of net profit (before minority adjustments)
Reveunes from sales 411 54,280 81 60
EBITDA (3,794) 48,449 314 1,369 As a result of Estonian tax legislation3 the Company has paid out
dividends just once in the past
Operating Result (4,613) 47,858 (324) (1,008)
After the listing and realization of some of the Company’s
Net Result (5,866) 50,102 (636) (911)
developments the dividend payout ratio is expected to increase4
3 Estonian legislation does not impose tax on reinvested profits. However, income tax
at a rate of 21/79 must be paid on the net amount of dividends or other profit
€ thousand FY 2012 FY 2011 1 Q 2013 1 Q 2012
distributions (21% of the gross amount of distribution)
Recurring Revenues
4 The Company has tax break to distribute tax-free dividends in the amount of ca.
Real Estate 7,347 7,795 1,097 5,178
€118m
Rents 1,021 3,751 282 248
Hotels 6,336 3,496 1,141 1,261
Others 1,374 2,407 496 421
Total 16,078 17,449 3,016 7,108
16Real Estate Market Background
Baltic Macro Environment is Improving…
Baltic economies are recovering Sovereign debt levels are under control (2012)
Increasing exports together with internal devaluation and regained
competitiveness have been driving growth 180%
Government’s debt, % of GDP
Foreign investors’ attitude towards Baltic assets has improved 150%
significantly with Baltic CDS level normalizing and Latvia regaining
120%
investment grade
90%
GDP growth is moderate and driven by fundamentals 60%
Growth rate is well below excessive two-digit rates that led to bubble 30%
formation before the crisis
0%
The growth is driven by improved competitiveness and exports EE LV SE LT CZ FI PL HU DE UK FR IE PT IT GR
GDP growth in all three Baltic countries is exceeding the EU average Source: IMF estimate
CDS prices have decreased significantly… …while GDPs are recovering
1,400 135
Estonia Latvia Lithuania Germany Real GDP, 2005 indexed to 100 Estonia Latvia
1,200 130
5-yr. CDS prices, bps Lithuania EU27
125
1,000
120
800 115
600 110
400 105
100
200
95
0 90
2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012
Source: FactSet Source: Eurostat
…as Baltic Economies have Returned to Steady Growth Path
18Baltic Real Estate Market Presents Growth Opportunities…
Activity in the Baltic real estate market is mainly concentrated in the Average apartment price in city centre (€/m2, 2012)1
capitals – Tallinn, Riga and Vilnius
Premium locations for residential projects include city centres of Tallinn, 8,000
Riga, Vilnius, as well as Jurmala (premium resort in Latvia, adjacent to Riga)
6,000
Retail space is mostly developed in capitals due to high concentration of
population and business activity 4,000
2,000
Real estate market in the Baltics is significantly less developed compared
to the Nordic region and EU average 0
Market has started to recover at the end of 2010 but is still fundamentally
under-priced in comparison to Nordic and other European countries
1 Price of a re-sale 120 m2 apartment in the city centre Source: Global Property Guide
The market is recovering from a significant correction
Real estate market was the first to contract amid downturn in the economy, Retail space and rent levels (2012)
and activity was close to zero in 2009
Along with the economic recovery, activity in the real estate market has 1000
GLA per '000 inhabitants, m² (lhs)
200
picked up in the second half of 2010 and 2011-2012 Prime shopping centre rent, €/m²/month (rhs)
800 160
600 120
Household income level in the Baltics decreased substantially during
economic downturn in 2008-2009, stabilizing in 2010-2012 400 80
In 2013 average real wage in Estonia is expected to grow by 2.8%, in Latvia 200 40
– by 2.7% and in Lithuania – by 1.6%
0 0
Source: Colliers, DTZ
…as it Recovers from Deep Correction
19Residential Real Estate in Tallinn, Riga and Vilnius…
Residential real estate market in Tallinn, Riga and Vilnius is recovering, Average apartment price (€/m²)1
with the number of transactions and prices gradually increasing
Average apartment price in Tallinn increased by 9% in 2010, by 16% in 2011 2,500
and by 6% in 2012
2,000
Prices of newly developed apartments in Riga increased by 12% in 2010
and continued to rise in 2011 – by 6% in the city centre and 15% in suburbs; 1,500
in 2012 the prices stayed flat
In Vilnius the average apartment prices bottomed out in 2010 and increased 1,000
by 1% in 2011, while decreasing by 1% in 2012
500
Tallinn Riga Vilnius
0
There is a shortage of modern residential developments across Baltics 2004 2005 2006 2007 2008 2009 2010 2011 2012
Most of the population is still living in the old Soviet era residential block 1Including Soviet era residential block buildings, constituting
Source: Ober-Haus
most of the market
buildings that are deteriorating rapidly
The market for new residential developments picked up in early and mid
2000s as increasing income and availability of mortgage loans fuelled New residential space (thousand m²)
demand 600
Market activity dried out and the number of new–built apartments decreased Tallinn Riga Vilnius
significantly in 2009– 2011 after the financial crisis 450
The supply of upscale projects in premium locations is limited 300
In Riga there is a lack of apartments with area of 70-120 m2 in price range of
€150,000-350,000 150
In Vilnius the supply of upscale projects is practically non-existent as the
majority of new apartments are relatively poor in quality and/or have a bad 0
location, and are sold without final finishing 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Central Statistics Bureau, the Company
…is Fuelled by Fundamental Demand and Undersupply
20Affordability of Residential Real Estate in Baltics…
Increasing affordability of residential real estate 1 in the Baltics implies Housing Affordability Index1
high potential of the residential real estate market in these countries
Households in Tallinn have the highest purchasing power for apartments 200
among the Baltic capitals
160
Average apartment prices have the strongest effect on affordability of real 120
estate
80
Affordability dropped during the peak economic growth years (2006-2008)
following the rising apartment prices 40
As prices adjusted during the crisis in 2009-2010, affordability has increased Tallinn Riga Vilnius
considerably 0
2005 2006 2007 2008 2009 2010 2011 2012
Source: Swedbank
Declining mortgage interest rates have had a considerable impact on
affordability of real estate Average long-term interest rates
8%
6%
4%
2%
Tallinn Riga Vilnius
1
0%
Affordability Index measures the proportion of household disposable income that can be used to service the mortgage
2004 2005 2006 2007 2008 2009 2010 2011 2012
loan. The Index is calculated assuming average apartment price in the market, household income as 1.5 times the
Source: Central Banks of Estonia, Latvia and Lithuania
average income per person in the capital city, loan period of 30 years, 15% down payment and average long-term interest
rate on the loan.
…Has Increased Substantially
21Retail Real Estate Market in Tallinn…
Retail sales have picked up in Estonia Rent levels in shopping centres in 2012 (€/m2/month)
In 2012 retail trade increased in real terms by 7%
50
The total retail space in Tallinn has seen marginal increases lately 42
40
The total supply of retail space in Tallinn increased by 44,000
m2in the period
of 2010 - 2012, reaching almost 500,000 m2 (Kristiine Shopping Centre was 29
30
expanded by 12,200 m2 in 2010)
In spring 2011, Kristiine Shopping Centre (PKG indirectly owned 52%) was 20
20 15
bought by Citycon for €105m 15
10
8
Most of the retail trade in Tallinn is concentrated in shopping centres as the 0
high street is virtually non-existent Up to 100 m² 150-350 m² Over 350 m²
Source: Colliers, The Company
Rent levels remained fairly stable throughout the crisis, decreasing only by
5-8% yoy in 2010 and stabilizing in 2011 and 2012 Retail space dynamics in Tallinn (thousand m2)
Demand for retail space in major shopping centres in Tallinn still exceeds
supply, resulting in vacancy rates close to zero in prime locations 600
Existing stock New developments
500
400
300
200
100
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Colliers
…Provides Room for Quality Developments
22Main Shopping Center in Tallinn
Viru Keskus
Opened in 2004
GLA of 23,000 m2
Owned by a group of investors
CBD
Rocca Al Mare Old Town Panorama
Opened in 1999; expanded in 2009 Planned shopping centre with GLA of
GLA of 53,000 m2 55,000 m2
Owned by Citycon Status: Start of construction in 2013
Kristiine Shopping Centre
Opened in 1999; expanded in 2002 & 2010 Peterburi Rd Shopping Centre
GLA of 42,000 m2
Planned shopping centre with GLA
Owned by Citycon
of 55,000 m2
Status: Start of construction in
2013
Ülemiste Keskus
Opened in 2004, extension planned in 2014
GLA of 37,000 m2
Järve Keskus Owned and managed by Linstow
Opened in 1998; expanded in 2000 & 2002
GLA of 32,000 m2
Owned by a private individual
Map: Google Maps
Existing shopping centres Planned shopping centres
Source: Porta Finance, based on public information
23Appendices
Basics of Real Estate Accounting
Real estate is classified in the following way according to IFRS
Inventories include buildings completed and construction in progress (residential developments)
Tangible assets include land and buildings used in a company’s operations (offices, hotels)
Investment property includes commercial properties under development
Real estate held for sale include the real estate that has been acquired and developed to be sold in the short term
Applying IFRS the real estate properties in the books of the Company are accounted in the following way
Inventories are recognized at a lower of the cost value or net realizable value (net realizable value – the selling price less all estimated costs of
making the sale)
Tangible assets are recognized at fair value (fair value is determined using either 1) DCF method or 2) comparative transaction price method)
Investment property is initially recognized at cost and subsequently to initial recognition measured using the fair value method
Real estate held for sale is recognized at the lower of cost value or net realizable value
Therefore, the book value of the Company’s portfolio
significantly differs from appraised value because of
differences in valuation methodologies applied
Appraisal of the Company’s property portfolio by Newsec is based on investment value (calculated using DCF method), which represents each
project’s value to the developer
Book value is calculated based on IFRS as described above using the cost value for a significant portion of the Company’s properties
In the case of PKG the cost value of properties is significantly lower than the value as appraised by Newsec as the Company has acquired most of
its properties in the late 1990s and early 2000s for comparatively low costs
The larger properties in the portfolio are recorded under inventories
25Book Value and Appraised Value of PKG Property
The figure below represents a reconciliation of Company’s portfolio appraised value by illustrating the difference between net book and net
appraised values of the portfolio
Bridge From Book to Appraised Value of Property1
200,000
180,000
160,000 3,135
140,000 17,890
120,000 21,031
100,000 20,894
80,000 21,173 153,876
60,000
40,000
69,753
20,000
0
Net book value of Kalaranna Residential Tondi Quarter Kliversala Residential Peterburi Shopping Other Net appraised value of
portfolio Complex Complex Centre property
1Net book value of portfolio includes balance sheet value of tangible assets, investment property and inventories less net debt (€26.2m) as of September 30, 2012.
Net appraised value is Newsec’s appraisal of the portfolio (€180.0m) less net debt as at September 30, 2012 Source: Newsec, Porta calculations
26History and Track Record
The completed (e.g. exited) projects are listed in the table below
Project Type GSA/GLA Development Description Means of exit
Domina Domina Shopping was one of the largest shopping centres in Riga when Sold to German investors in
Commercial 48,500 m2 2001-2007
Shopping Centre opened in 2003 2007 for €147m
Kristiine Kristiine Keskus was the largest shopping centre in Tallinn when opened Sold to Citycon in 2011 for
Commercial 42,000 m2 1997-2011
Shopping Centre in 1999. The centre was expanded in 2002 and in 2010 €105m
Ilmarine involved the development of a residential complex and a hotel in Sale of apartments in 3 stages;
Ilmarine district Residential 19,000 m2 1998-2008
three stages in North Tallinn Ilmarise Residence not sold
Pro Kapital converted an old office building situated on the banks of river
Kuģu street 26 Residential 11,400 m2 2001 - 2006 Sale of apartments
Daugava in Riga into apartments
Pro Kapital Pro Kapital Business Centre was one of the first modern office space
Office 11,400 m2 1997-1999 Sale of office spaces
Business Centre developments in the CBD of Tallinn
Residential / Pro Kapital renovated a historic Art Nouveau building in Riga into
Stabu street 19 5,500 m2 1999 Sale of apartments
Office apartments and office spaces
Pro Kapital renovated a historic building with 23 apartments situated next
Jegorovi Residential 4,700 m2 1997 - 2001 Sale of apartments
to Town Hall square in Tallinn
Commercial / Pro Kapital renovated a historic building in Tallinn Old Town into a
Demini 4,100 m2 1997 - 1998 Sale of developed property
Residential shopping gallery and apartments
Pulkveža Brieža Pulkveža Brieža street 11 is an apartment building developed in the same
Residential 3,980 m2 2002 - 2004 Sale of apartments
street 11 complex with Domina Hotel Riga
Domina City Pro Kapital acted as a project manager in the renovation of a hotel in
Hotel 2,200 m2 2000 - 2001
Hotel Tallinn Old Town
Vene street 19 Residential 2,170 m2 1997 - 1998 Pro Kapital renovated a historic building situated in Tallinn Old Town Sale of apartments
Domina Plaza Residential 1,900 m2 1999 - 2000 Pro Kapital renovated a historic building situated in Vilnius Sale of apartments
Rüütli street 13 Residential 1,560 m2 2001 - 2002 Pro Kapital renovated a historic building situated in Tallinn Old Town Sale of apartments
Vecpilsētas 8A Residential 940 m2 1999 - 2001 Pro Kapital renovated a historic building situated in Riga Old Town Sale of apartments
27Selected Completed Development Projects (1)
Domina Shopping Centre Kristiine Shopping Centre
Domina Shopping Centre is one of the first and largest shopping Kristiine Shopping Centre is the one of the first and largest
centres in Riga, located on one of Riga’s main streets shopping centres in Tallinn, located in the proximity of the
CBD
The centre fully opened in 2004
After acquisition of industrial land plot in 1998, PKG rebuilt the old The shopping centre was opened in 1999
VEF factory, developing it into a shopping mall Total construction costs amounted to €57m
Total construction costs amounted to €60m
Kristiine Shopping Centre offers 42,000 m 2 of retail space
Domina offers 42,500 m2 retail and 5,800 m2 office space There are around 170 shops and catering points in the centre
There are more than 160 shops and catering points, as well as a
bowling area and fitness club in the centre PKG exited Kristiine Shopping Centre in 2011 with IRR of 18%
The shopping centre was sold to shopping centre operator
PKG exited Domina Shopping Centre in 2007 with IRR of 21%1 Citycon (Finland) in 2011 for €105m
The shopping centre was sold to real estate investment fund PKG indirectly owned 52% of Kristiine Shopping Centre
KanAm Grundinvest (Germany) in 2007 for €147m
PKG indirectly owned 67% of Domina Shopping
1 IRR – internal rate of return of the project, calculating blending all the equity and debt related incoming and outgoing cash flows
28Selected Completed Development Projects (2)
Kuģu street 26 Pulkveža Brieža street 11
Kuģu street 26 is a residential building situated next to the Pulkveža Brieža street 11 is an apartment building developed
river Daugava with an exceptional view of the classical Riga in the same complex with Domina Hotel Riga, situated in the
Old Town skyline premium embassy district of Riga
PKG converted an old office building situated on the banks of PKG reconstructed two old residential buildings
river Daugava in Riga into apartments Development of the project took place between 2002 and 2006
Development of the project took place between 2001 and 2006
Pulkveža Brieža street 11 has 3,980 m2 of GSA in 44
Kuģu street 26 has 11,400 m2 of GSA1 in 99 apartments apartments and commercial premises
The Company achieved IRR of 20% on the project The Company achieved IRR of 27% on the project
Almost all of the premises were sold by the end of 2011 All premises were sold by the end of 2005
1 GSA – gross sellable area
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