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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

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Investors’ appetite for real estate companies on AIM

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  1. 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

  2. AIM: A Viable Alternative for Real Estate

  3. 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

  4. 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!

  5. 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

  6. “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” ?

  7. Liquidity: AIM and “comparable” exchanges

  8. Availability of Equity Capital for International Companies in London: (Don’t take my word for it – look at the empirical evidence)

  9. Quoted Equity: Size of the Investor Base Source: Thomson Financial

  10. Institutional Investors on AIM Source: London Stock Exchange

  11. Quoted Equity: The London Stock Exchange (July 2007) Source: Statistics, the London Stock Exchange and AIM

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

  13. 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

  14. What makes a company suitable ?

  15. 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

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

  17. 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%

  18. 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:

  19. CASE STUDY- Dragon Ukrainian Properties and Development PLC

  20. 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

  21. ZAI Unique Qualifications

  22. 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:

  23. 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

  24. 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%

  25. 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

  26. 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: rayz@zimmint.com • E-mail: aleksejk@zimmint.com • Irina Lomova • Ph: +7 (926) 492 3424 • E-mail: Irinal@zimmint.com • Website: www.zimmint.com

  27. 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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