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38 I Special focus RE
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Russia’s real estate market is recov- ering nicely and soaring mort- gage lending is driving the sector forward. From nothing in 2003 when they first appeared, mortgages now account for about 60% of all residential sales, and as interest rates fall housing is becoming affordable for more and more people.
Office and commercial were the focus of the boom years, but for investors the best game in town now is the big listed residential real estate developers of which there are several.
President Vladimir Putin added impetus to the sector in the ambitious develop- ment plan he laid out in his state of the
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nation speech on March 1 that included almost doubling the amount of residen- tial accommodation in Russia.
With high volumes and low margins, Russia’s residential developers have to be well run and they are increasingly
bne September 2018
quarter (27%) in the reporting period to RUB52bn ($766mn) and sales in its home market of St Petersburg doubled in the first half of this year. Ebitda mar- gin was flat y/y at 18% but net income almost doubled y/y to RUB 3.8bn in the same period.
Etalon is the third big player in the game and also reported strong numbers in
the second quarter, with sales surging 22% y/y and cash collection up 58% to RUB14.7bn, which is 106% of sales in the quarter – its best result in the last three years.
However, like all Russian stocks, shares in the real estate companies have been hurt by the recent brouhaha: LSR’s share price is down 26% YTD and Etalon’s is down 7%. Moreover, a new law introduced over the summer bans pre-purchase deals that many of the operators used to finance construction. The change will winnow out the smaller players in the sector as companies will need to be big enough to raise serious financing from banks and investors going forward.
The sector is expected to consolidate and the remaining companies will have to become more sophisticated when it comes to raising funds for their projects.
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Special focus I 39
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dependent on the financial markets for the funds to finance their billion dollar- plus projects.
PIK is the biggest real estate developer in Russia and following a merger with Morton last year it has become the
clear market leader. The company’s Ebitda almost quadrupled year-on-year to RUB10.5bn ($160mn), sales in the first half of this year were up 9% y/y to 843,000 sqm, and there was a 2.4x y/y surge in revenues with gross cash collec- tions up 18% to RUB111.1bn ($1.6bn). Mortgages accounted for 65% of sales in the period. And the management are cutting minorities in after the company announced in July a generous increase in dividend payout, hiking the share of
net cashflow to be shared with investors from 30% to 59%.
The number two in the sector is the LSR Group that saw its cash flow rebound in the first half of 2018 and completions double y/y. Revenue was up by over a
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