Real estate development
Sistema is present in real estate development business through its shareholding in Etalon Group. 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 February 2019, in a separate transaction Sistema sold 51% in Leader Invest, its Moscow-based real estate developer, to Etalon for RUB 15.2 bln. In August 2019 Etalon acquired the remaining 49% in Leader Invest from Sistema for RUB 14.6 bln.
Founded in 1987, Etalon Group is today one of Russia’s largest development and construction companies. The company is vertically integrated encompassing the full cycle of value creation: from land plot acquisition and project design to construction and property management. Etalon Group’s shares have been listed on the London Stock Exchange since 2011 under the ticker ETLN. The Company focuses on middle class residential real estate in the Moscow and St Petersburg metropolitan areas. With a more than 30-year history, Etalon Group has one of the longest and most successful track records in the Russian real estate industry. Since its foundation, Etalon Group has commissioned 6.6 million sqm of real estate.
Etalon Group’s total assets, including 100% stake in Leader-Invest and 100% ownership of ZIL-Yug project comprise 53 projects under development, completed residential and commercial properties, as well as a construction and maintenance division, with total unsold NSA of 4.0 million sqm. Knight Frank valued the Company’s total assets at RUB 206,071 million as of 31 December 2018.
Integration of Leader Invest into Etalon was completed in 3Q 2019. Since then companies use joint branding under Etalon’s roof. Consolidating real estate business has been value-accretive for both Etalon and Sistema: the former benefit from synergies stemming from operational efficiency, cost reductions and complimentary asset portfolios, while the latter centralised its investment focus on a single public asset with strong corporate governance discipline.
In 9M 2019 Etalon delivered record performance across all key operational metrics: new contract sales increased by 10% y-o-y in area terms and 26% y-o-y in monetary terms. The company significantly boosted its position on the Moscow market with new contract sales increased by 18% y-o-y in area terms and 52% y-o-y in monetary terms with cash collections up by 77% y-o-y. Consolidated revenue increased by 60% y-o-y to RUB 39,562 million in 1H 2019.
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 its wholly-owned subsidiary JSC Mosdachtrest (lease of cottages/sale of land plots). Mosdachtrest’s total property portfolio amounts to 52.3 ths sq m.
Mosdachtrest's assets comprise residential houses and land plots in Serebryany Bor and the Moscow region, while Business Nedvizhimost's portfolio includes 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 increased by 31.0% year-on-year to RUB 7.9 billion, primarily due to an increase in 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%.