Sistema's strategy in real estate is focused on increasing portfolio value with a view to its subsequent monetisation through rental income, real estate development and sales.
Sistema’s two key real estate development assets are Etalon Group and Leader Invest. Sistema acquired a 25% stake in Etalon Group in February 2019 from the family of its founder and largest shareholder Viacheslav Zarenkov for USD 226.6 million. In a separate transaction, Sistema sold a 51% stake in Leader Invest to Etalon Group for RUB 15.2 billion.
Etalon Group is one of Russia’s largest and longest-established residential developers. The company is a solid leader in St Petersburg and has a growing presence in the Moscow metropolitan area. Etalon Group’s shares have been listed on the London Stock Exchange since 2011 under the ticker ETLN. Etalon Group is a vertically integrated company that encompasses the full cycle of value creation: from land plot acquisition and project design to construction and property management. Since it was founded, the Company has commissioned more than 220 residential buildings with a total area of 6.3 million sq. m which are now home to more than 250,000 people.
Etalon Group’s portfolio comprises a number of cornerstone large-scale development projects, such as ZIL-Yug in Moscow (1,240 ths sq. m), Galactica in St Petersburg (805 ths sq. m) and Emerald Hills (855 ths sq. m) in the Moscow region, as well as medium-sized residential complexes and infill construction projects.
As of 31 December 2018, Etalon Group's asset portfolio comprised 53 projects at the design and construction stages, as well as finished and available for sale apartments with a total net sellable area of 3.4 million sqm, and a construction and maintenance unit engaged in construction, fitting-out and property management.
In 2018, Etalon Group’s new contract sales totalled 628 ths sq. m, or RUB 68,731 million, increases of 23% and 37% year-on-year, respectively. The Company recorded revenue of RUB 72.3 billion and an EBITDA of RUB 5.7 billion for the year ended 31 December 2018.
Upon deal completion two Sistema’s representatives joined Etalon’s Board of Directors to participate in strategic decision-making, while day-to-day operations will still be performed by Etalon’s Management.
Leader invest, Sistema’s first real estate development business, is engaged in residential and commercial development in Moscow. The company focuses on residential development, including both small projects in well-developed neighbourhoods and modern comprehensive development projects. Leader Invest’s total portfolio includes around 40 projects with a total net sellable area of roughly 1.9 million sq. m, including 176 ths sq. m in small complexes, as well as 1.76 mln sq. m in three comprehensive development projects: ZIL Yug, Nagatino i-Land and Wings.
The combination of Leader Invest and Etalon Group will ensure the Company’s leading positions in Moscow and St Petersburg and will allow to achieve operational efficiency and cost reduction through eliminating duplicate functions, creating a single management team and centralising reporting, control and management functions. Synergies may also be achieved through exchange of knowledge and the launch of partnerships with other Sistema portfolio companies.
Business Nedvizhimost leases out its own real estate assets and real estate assets under management. The company’s main assets are JSC Business Nedvizhimost (lease and sale of commercial real estate) and JSC Mosdachtrest (lease of cottages/sale of land plots). MOSDACHTREST’s total property portfolio amounts to 52.3 ths sq m. Business Nedvizhimost’s assets are divided into three key groups: leasing, development and monetisation as part of the M&A programme.
Mosdachtrest's assets are residential houses and land plots in Serebryany Bor and the Moscow region, while Business Nedvizhimost's assets are class C offices, including former ATS buildings. The companies also own assets intended for sale (a number of ATSs and land plots for construction of summer cottages in the Moscow region). The beneficial location of the properties and geographical diversification are key advantages of Business Nedvizhimost's assets, which are within walking distance from metro stations in established residential and administrative districts far from industrial sites.
In 2018 revenue from Sistema’s rental assets (Business Nedvizhimost and its Mosdachtrest subsidiary) increased by 31.0% year-on-year to RUB 7.9 billion, primarily due to sales of real estate.
The development strategy of Business Nedvizhimost includes three key areas: maximising the value of assets through renovation, rotation of tenants to maintain rental income growth at a minimum of 10% per annum, replacement of assets at their peak value with assets from the market with potential for improvements and value growth of at least 30%.