Real Estate Financing Zagreb_ 6

Real Estate Financing Zagreb, 6 May 2008 The Fourth Annual International Conference on the Real Estate Market in Croatia Thibault Dutreix, Principal Banker Property and Tourism Team, EBRD Structure of presentation  General state of the loan markets Real estate financing: what is changing? Croatian real estate and hospitality sectors prospects EBRD significant real estate transactions and support in Croatia    General state of the loan market  Global Loan Markets are currently facing difficulties and uncertainties, following the mid 2007 Credit Crunch – Progressive expansion of the Credit Crunch & liquidity compression from the US, to Western Europe to the Emerging Markets, including EBRD region – Global and regional Loan volume for Q1 2008 was sharply lower than last year  Global: 1Q08 volume of USD 790 billion (33% decrease from LY) EBRD Regions: 1Q08 volume of USD 25 billion (40% decrease from LY)  General state of the loan market (cont.) – Key changes at the macro level are:  Re-intermediation of the debt financial market – Little activity for non bank lenders – Bond market has been shut or near-shut in the last 9 months – Borrowers have turned to the banks for support  Greater caution from Banks – Deal size has decreased significantly – Leveraged finance market is almost shut – Rare corporate transaction above EUR 200 million – Pressure on more equity financing  Crisis of Confidence – “Liquidity management”: Banks are more selective and tend to allocate available funds to existing clients  Debt re-pricing Real estate financing: what is changing?  Recent real estate market sector boom in the region and in Croatia – Level of equity raised targeting real estate development and acquisition has boomed over the last years    Strong macroeconomics prospects EU membership process Capitalization rate compression – Professional real estate development companies have increased their operations and equity commitment   International: Trigranit, GTC, Europolis Croatian: Hidrocommerce, Ingra, Tehnika Real estate financing: what is changing? (cont.)  Recent access to financing has been ample, cheap, at increasingly long maturities – Debt considered as a commodity – Numerous banks mostly “volume driven” – Downwards pressure on debt pricing  What is currently changing? – Reduced access to real estate debt financing  Credit Crunch began in collapse of US real estate mortgage, as a result to excessive lending to the subprime sector Banks are more cautious Reduced volumes   Real estate financing: what is changing? (cont.) – Reduced access to real estate debt financing (cont’d)    Almost no more large real estate acquisition Repriceing of debt Banks increasingly selective – Importance of track record, expertise and reputation – Fear of propagation of the Credit Crunch to real estate markets  Cap rates have already slightly increased in some markets (Poland, Czech Republic, Hungary, Romania) Most real estate stocks are trading at discount to NAV  Croatian real estate and hospitality sectors prospects  Positive factors to the real estate and hospitality sectors – Strong economy, good macroeconomics prospects and EU accession process creating long term demand for quality real estate space – Prime real estate yields have dramatically converged from 14% in 2002, to 7.0 – 7.5% today – Landmark real estate developments and developers – Privatization of the Croatian tourism industry – Croatian coast is maintaining its attractiveness and improving competitiveness – Increased opportunities in the regions Croatian real estate and hospitality sectors prospects (cont.)  Real estate financing – Strong development in the recent years through the activity of several large local and international banking groups – Access to competitive debt financing and long maturity for both construction and acquisition real estate financing – In light with current Global loan market trends, it is expected to see:  Greater selectivity and liquidity management Increased pricing and control of risk  EBRD involvement in the property sector Total commitments as of the end of March 2008:  Development of new annual commitments 450 400 350 €1.575 billion to 95 projects (including equity participation in funds) €5.6 billion total project value 2 projects per year refinanced by commercial banks 1 project per year: equity exit to co-shareholders or other investors € millions 300 250 200 150 100 50 0 '99 '00 '01 '02 '03 '04 '05 '06 '07 Mar '08    EBRD significant real estate transactions and support in Croatia  EBRD mission to support transition to market economy via investments in private sector, including Property & Tourism – Debt and Equity instruments  Croatia and the Balkan countries are a key priority to the EBRD – Property & Tourism sector team now based in Zagreb to cover the local market and the Balkan region – Little involvement in Croatian real estate sector to date given strong banking sector & reduced EBRD “additionality” EBRD significant real estate transactions and support in Croatia (cont.) – EBRD recent strong involvement in Tourism sector through 2 large debt & equity transactions in:  Jadranka Hotels: EUR 24.0 million equity investment Adriatic Luxury Hotels: EUR 53.0 million debt + equity investment  – Current real estate financing market trend: opportunity for EBRD to increase its role in the Croatian real estate market Case Study – Jadranka Hotels   P&T / RO joint deal EUR 24 million Equity Investment in Jadranka Hotels for a 30% stake Pre IPO investment Hotel repositioning from 1/2stars to 3/4 stars Jadranka DD (Sponsor) keeps control International Hospitality Asset Manager to ensure smooth implementation     Case Study - Adriatic Luxury Hotels  EUR 25 million Equity investment for a 25% stake in the company EUR 27.5 million debt package Corporate and financial restructuring of the company Bellevue   Palace Contacts Thibault Dutreix Principal Banker Property & Tourism Team Tel: +385 6000 310 dutreixt@ebrd.com Thank you http://www.ebrd.com