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Zimmerman Adams International Ltd. Investors’ appetite for real estate companies on AIM. A Practitioner’s View. 18 February 2008. Zimmerman Adams International Limited Registered in England and Wales No. 5136014; Registered Office: One Threadneedle Street, London EC2R 8AW

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Investors’ appetite for real estate companies on AIM

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Investors appetite for real estate companies on aim

Zimmerman Adams International Ltd

Investors’ appetite for real estate companies on AIM

A Practitioner’s View

18 February 2008

Zimmerman Adams International Limited

Registered in England and Wales No. 5136014; Registered Office: One Threadneedle Street, London EC2R 8AW

Authorised and Regulated by the Financial Services Authority

Member of the London stock exchange


Investors appetite for real estate companies on aim

AIM: A Viable Alternative for Real Estate


Investors appetite for real estate companies on aim

AIM: a viable alternative

  • Why do Foreign Companies consider AIM?

  • Lack of credible local alternatives:

    • German market: In 2003 the Neuer Markt shut down—wiping out billions of Euros of investors money

    • French market: very quiet and domestic

    • Italian market: very small

    • Other Europeans: not significant

  • Natural appeal of Quoted Equity to the Small/Mid-cap company & Owner/Manager

  • Advantages of AIM for foreign companies:

  • The London Market represents a “Quality” brand for many continental companies

  • Liquidity, and far more liquidity than a few years ago

  • Availability of Institutional Investors for Small caps

  • Availability of Equity Research support for small caps

  • Availability of market-making facilities (that work)

  • Better pre-money valuations (compared to PE)

  • Higher “public profile” (attracts many Owner/Managers)

  • Quality Exchange, Admission, and Continuing Obligations standards

  • Access to equity capital for current and future growth


Investors appetite for real estate companies on aim

Are Russianproperty companies well represented?

  • Seven London-quoted Russian property companies, but only 3 on AIM

  • Compared to (on AIM):

    • Seven Balkan companies

    • Four Ukrainian companies

    • Total of more than 220 international companies (12.5% of all AIM companies)

  • There is clearly room for more Russian companies!


Investors appetite for real estate companies on aim

Comparison of Property Companies(Central and Eastern Europe)

  • Most Russian property companies are traded at a premium to NAV

  • Consider the success of Mirland Development and R.G.I. International on AIM

  • The shares of high geared Russian property companies appear to attract investors: see the impressive performance of larger companies


Investors appetite for real estate companies on aim

“It’s the economy, Stupid” (Bill Clinton 1992)

-i.e. The basic economic growth of the region, supported by sound fundamentals, outweighs the many risks investors face

Nominal GDP per capita of $14,000in Russia (approximately 45% of Euro area) but well ahead of other BRIC countries

S&P awarded Russia “investment grade” status in 2007

GDP growth forecasted at above 5% for next 3 years in the CIS countries

Robust economy will fuel corporate earnings in the medium term

The first phase of London IPO’s have inevitably been natural resources but...

ZAI forecasts a growth of interest in mid cap property company IPO’s as the property business in Russia matures and the population develops sustainable disposable income to be spent on housing

There is now an emerging private equity market in Russia, which signals the beginning of less risky business models

Why Invest in Russian Property companies: “it’s the economy, stupid” ?


Liquidity aim and comparable exchanges

Liquidity: AIM and “comparable” exchanges


Investors appetite for real estate companies on aim

Availability of Equity Capital for International Companies in London:

(Don’t take my word for it – look at the empirical evidence)


Investors appetite for real estate companies on aim

Quoted Equity: Size of the Investor Base

Source: Thomson Financial


Investors appetite for real estate companies on aim

Institutional Investors on AIM

Source: London Stock Exchange


Quoted equity the london stock exchange j uly 2007

Quoted Equity: The London Stock Exchange (July 2007)

Source: Statistics, the London Stock Exchange and AIM


Liquidity value of share trading of foreign companies in jan july 2007 bln

Liquidity: Value of share trading of foreign companies in Jan-July 2007, $ bln


A record 15 7 bln was raised on aim in 200 6

Money raised on AIM, £m

18,000.0

16,000.0

14,000.0

12,000.0

10,000.0

8,000.0

6,000.0

4,000.0

2,000.0

0.0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007 to Jul

A Record £15.7bln was Raised on AIM in 2006

Source: Statistics, the London Stock Exchange and AIM


Investors appetite for real estate companies on aim

What makes a company suitable ?


Investors appetite for real estate companies on aim

Limited Track record of Company’s performance

Limited market/sector knowledge in the CIS

Don’t understand the legislation/regulation framework

Political undertainty multiplied by recent press articles

Quality of management (No MBA’s)

Reduced investor protection despite listing (City Code not applicable)

Complex tax arrangements may cause future issues (VAT optimisation schemes, Offshore structures etc)

Problems the investors confront


Investors appetite for real estate companies on aim

Red, Amber & Green ...Risk in the CIS


Investors appetite for real estate companies on aim

What are Investors Looking for – in property or any company?

  • Fundamentally good companies

  • Solid Value propositions

  • Good Management

    This means:

  • Generally larger size Companies than domestic equivalents

  • Top-Line (Revenue) growth of 25-30% p.a.

  • At least EBITDA positive

  • Ideally PAT positive, or at least a clear indication of when profits will be shown.

  • A clear value proposition targeting IRR’s in excess of 30%


  • Elements of a successful flotation a case study dragon ukrainian properties and development plc

    elements of a successful flotation: A CASE STUDY- Dragon Ukrainian Properties and Development PLC

    Country of operation: Ukraine

    Country of registration: Isle of Man

    Sector: property investment and development

    Assets: Commercial and residential property projects

    Investors concerns and expectations: Ukrainian elections in 2008, construction supply side issues due to surge in demand for materials and skills

    IPO and Secondary placing: • Further developments:


    Case study dragon ukrainian properties and development plc

    CASE STUDY- Dragon Ukrainian Properties and Development PLC


    Investors appetite for real estate companies on aim

    Key elements of a successful flotation

    for an Emerging Markets Property Company

    As illustrated by: Dragon Ukrainian Properties & Development (DUPD)

    • Four key success factors:

      • A strong market story, with reliable independent market research available

        • DUPD is focussed on an interesting and to large extent undeveloped market, with significant upside potential

        • The Kiev market, for office, commercial, and residential, is a compelling story

        • There was (and is) quality independent research available on the market, from the leading western property consultants

      • Strong management team – able to communicate with investors

        • good English language skills are essential

        • Experience with investor communications are essential

        • Credible independent Directors

      • Track record of management in the specific asset class in question

        • The management team must have credible experience in the specific asset class in question, and the ability to show track record

      • Pipeline of projects

        • Investors want to understand the opportunities and risks of the types of projects the company will invest in

        • The ability to get the money invested quickly in quality projects is a big factor


    Investors appetite for real estate companies on aim

    ZAI Unique Qualifications


    Investors appetite for real estate companies on aim

    ZAI’s Unique Qualifications

    • ZAI is the only AIM specialist wholly dedicated to International Companies.

    • ZAI has a unique investor base: comprised of Institutions that specifically invest in “foreign”, i.e. non-UK shares, via the UK markets.

    • Global distribution capability (European, Asian, Russian and American investors).

    • In the CIS, the ZAI team acted as NOMAD and lead financial adviser respectively on the floats of Dragon Capital and Rambler Media Group.

    • ZAI have a proactive strategy to promote AIM to small and medium-sized international companies.

    • Russian speaking staff

    • Some of the ZAI Team’s current and former CIS clients, include:


    Awards

    2006/2007: 1st place by price

    performance among Nomads

    2007/2008:

    4th place by price performance among Nomads

    ZAI is among the best performing Nomads and Brokers by capital raised

    Brokers’ performance:Nomads’ performance:

    Awards


    2007 2008 price performance of new issues

    2007/2008 price performance of new issues

    • In 2007 the average stock performance of the by ZAI floated companies was 25.54%

    • Average stock performance of ZAI clients since their IPOs is 73.02%


    Investors appetite for real estate companies on aim

    Conclusions

    • The record shows: Foreign Issuers CAN benefit from AIM.

    • Such deals CAN be done, and money can successfully be raised, if left to specialist firms.

    • Zimmerman Adams International have the expertise to do successful floats


    Investors appetite for real estate companies on aim

    Contact Details

    • Zimmerman Adams International

    • New Broad Street House

    • 35 New Broad Street

    • London EC2M 1NH

    • United Kingdom

    • Ray Zimmerman

    • Aleksej Kotiasvili

    • Ph: +44 20 7060 1760

    • Fax: +44 20 7060 1761

    • E-mail: [email protected]

    • E-mail: [email protected]

    • Irina Lomova

    • Ph: +7 (926) 492 3424

    • E-mail: [email protected]

    • Website: www.zimmint.com


    Appendix

    Appendix

    Recent Articles

    Non-UK listings on Aim increase

    By Robert Orr

    Published: January 30 2008 02:00 | Last updated: January 30 2008 02:00

    The total value of international groups to list on London's junior

    equities market in the past quarter exceeded that of domestic

    companies for the first time.

    The total market capitalisation of the 31 non-UK stocks that floated

    on the alternative investment market (Aim) in the fourthquarter

    of 2007 totalled £1.9bn ($3.8bn) compared with £1.7bn for

    UK listings, according to figures from Deloitte, the professional

    services firm.

    The number of companies joining Aim almost halved to 254 last

    year, while the total value of both UK and non-UK companies

    listing in the past quarter was well down on the same quarter of

    2006. By contrast, the amount raised in the secondary market

    held up.


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