Emlak Konut REIT
Transcription
Emlak Konut REIT
Initiating Coverage Equity / Large Cap. / Real Estate Investment Trust 03 March 2011 OUTPERFORM Emlak Konut REIT Bloomberg: EKGYO TI Reuters: EKGYO IS Pioneer of the REIC universe Upside Potential* Stock Data TRY US$ Price at 02 03 2011 2.36 1.46 12-Month Target Price 3.33 2.20 3,649 Largest REIC in terms of NAV. With an NAV of TL5.8bn as of end of December 2010, Emlak REIC is by far the largest in the ISE universe, constituting around 42% of sector’s total NAV of TL14bn. Valuable real estate portfolio coupled with the colossal land bank enabled Emlak to complete 21 project since becoming REIC back in 2002 and gain a welldeserved reputable name throughout the years. Mcap (mn) 5,900 Float Mcap (mn) 1,475 Strong synergy with the controlling shareholder Housing Development Administration of Turkey (TOKI). Owning 75% of the company, remaining 25% is listed on the ISE, TOKI is the controlling shareholder. TOKI was formed to meet housing demand of low-middle income group and operates under Prime Ministry. On the other hand, Emlak benefits from TOKI’s authority to plan zoning of land it owns. Customers of Emlak find it reliable to become a house owner via a government affiliate providing the company significant advantage over private developers. Market Data Revenue Sharing Model (RSM) provides a vast advantage. At the current project backlog, revenue sharing type of projects are dominant with almost 75% share and in the long run company management underlined their focus on RSM rather than Public Procurement Model (PPM). What makes RSM model more preferred is that; contractors are willing to pay an agreed minimum amount for the project to Emlak while marketing selling and other costs are shouldered by contractors lowering the risk on Emlak REIC considerably. Advantage in adding new land. Emlak REIT has the right to acquire land from TOKI without participating in a tender. There is a “best effort” protocol between Emlak REIT and TOKI enabling Emlak easy access to an immense amount of vacant land. Unlike other REICs, trading at a 2% premium to its 4Q10 NAV. Despite the 2% premium to its NAV versus sector’s average discount of 18%, we think that the company has room for higher premium given the vast number of ongoing projects, tendered and free lands at the portfolio. Furthermore, as the zoning permits for the tendered lands get completed Emlak REIC will record these lands at project value which will increase the NAV. The stock has substantially outperformed ISE by 42% and REIT index by 14%. The stock’s performance was catchy since the first trading day, December 2nd, that REIC shares significantly outperformed ISE by 42% and REIT index by 14% dragging down the sector’s discount to NAV from 35% levels to 18% levels currently. 41% No. of Shares Outstanding 912 2500 mn Free Float (%) 25.00 Avg.Daily Volume (3M, mn) 180.0 114.1 TRY ISE 100 58,664 US$ Spot Rate 1.617 US$ 12-Month Forw ard 1.6944 Price Performance (%) 1 Mn TRY US$ Relative to ISE-100 -12 -14 -5 3 Mn 12 Mn 12 3 29 n.a n.a n.a Price / Relative Price 3.5 TL Relative 200 3.0 150 2.5 2.0 100 1.5 1.0 50 0.5 EKGYO Relative to ISE 100 0.0 12-10 02-11 04-11 52 Week Range (Close TRY) 0 06-11 1.92 2.93 Burak Berki [email protected] +90 212 350 25 80 Nur Atasoy [email protected] +90 212 350 25 34 We are initiating our coverage for Emlak REIT with a rewarding 41% upside potential to our 12-month target price of TL3.33/share. Our bullish stance for Emlak REIT is backed by robust housing demand which is expected to keep its pace in 2011, Emlak’s unique advantageous position in the residential market and its sizeable land bank at hand ready to be tendered. Please refer to important disclaimer at the end of this report. 1 03/03/2011 Emlak Konut REIT 2 3 Sum m ary of Key Financials (TL m n) Incom e Statem ent (TL m n) 2009A* 2010A* Revenues 865 1,498 EBITDA 468 653 Depreciation & Amortisation 0 0 EBIT 503 714 Other income (expense), net 8 (24) Financial expenses, net (30) (159) Minority Interests 0 0 Income before tax 446 469 Taxation on Income 0 0 Net income 446 469 Balance Sheet (TL m n) Tangible Fixed Assets 5 6 Other Long Term Assets 2,719 3,804 Intangibles 0 0 Goodw ill 0 0 Long-term financial assets 0 0 Inventories 696 647 Trade receivables 682 756 Cash & equivalents 274 1,733 Other current assets 294 167 Total assets 4,671 7,115 Long-term debt 1,234 1,074 Other long-term liabilities 9 9 Short-term debt 95 182 Trade payables 158 637 Total Debt 1,329 1,256 Other short-term liabilities 1,081 1,599 Total liabilities 2,577 3,500 Minority Interest 0 0 Total equity 2,094 3,615 Ratios Net debt/EBITDA (x) 2.25 -0.73 EBITDA Margin 54.1 43.6 Net Margin 51.6 31.3 Valuation Metrics P/E (x) n.a 10.6x Dividend yield (%) 0% 0% *based on average Mcap during the year 4 5 2011E 2012E 1,037 1,112 437 469 0 0 437 469 0 0 (18) (0) 0 0 419 469 0 0 419 469 6 2013E 2,981 1,308 0 1,308 0 74 0 1,382 0 1,382 6 445 0 0 0 5,828 1,054 1,086 542 8,960 1,096 9 160 1,263 1,256 2,515 5,042 0 3,918 6 445 0 0 0 5,959 1,129 1,161 528 9,228 936 9 160 1,352 1,096 2,578 5,035 0 4,193 6 480 0 0 0 3,856 673 2,449 543 8,007 776 9 160 806 936 1,713 3,464 0 4,543 0.39 42.1 40.4 -0.14 42.1 42.1 -1.16 43.9 46.4 15.0x 3% 13.4x 3% 4.5x 3% 2 03/03/2011 Emlak Konut REIT Investment Positives We are initiating our coverage for Emlak REIT with an OUTPERFORM recommendation and a 12-month target price of TL3.33/share, implying 41% return potential, which increases to 44% with the addition of 3% dividend yield. The company was IPOed back in December 2010 and took the first place among the listed REICs in terms of NAV. Being a pure residential developer , the company fits very much with the Turkey’s credit driven growth theme, supported by young population, underpenetrated housing market, fueled with low interest rates and extended loan maturities. Last but not the least, the REIC benefits from being a state entity and having easy access to land owned by the controlling shareholder. TOKI has a portfolio of land totalling almost 100mn sqm. Although the significant out-performance relative to the benchmark index since the IPO and the current premium to NAV may shy away investors, we think the stock deserves even higher premium to its NAV as it will easily grow its NAV by tendering its land portfolio to the contractors based on revenue sharing agreement. In the past the company succeeded to generate 1.5x times higher value on average compared to the appraisal value from the lands tendered via RSM. We have reached our target Mcap of TL8,323mn for the company through SOTP method, in which we have valued ongoing and potential projects via DCF. We have added the land portfolio at hand to derive a target NAV. Robust housing demand to continue in 2011. Considering the main pillars of the real estate demand in Turkey, that could be summarized as population growth, renewal of the old buildings based on the earthquake regulations, migration and urban transformation, increasing purchasing power, lower interest rates and extended maturities, it would definitely not be misleading to expect a sustainable growth in the real estate market in 2011 and onwards. Benchmarking to the previous years’ experience, we expect over 10% growth in the construction sector in 2011, over 5.5% GDP growth forecast for the year. Over the long term, the estimated 5% sustainable economic growth and the expected annual population increase of 0.9% between 20092025 would be the major drivers of the real estate market growth. Emlak REIC has a monopolistic position in the market. Being an affiliate of Housing Development Administration of Turkey, TOKI, Emlak REIC gained a good reputation and trust over the past years. The company has tendered TL15bn worth of revenue sharing projects starting from 2003 while the share of the company stood at TL4.5bn, corresponding to an average revenue sharing ratio of 30%. Strong brand recognition of the company is attributable to successfully completed projects and highly satisfied customers. By far the largest REIC of the ISE in terms of NAV. According to the latest disclosed portfolio tables, Emlak REIC has an NAV of TL5.8bn as of end of 4Q10 comprising 42% of the total NAV of all listed REICs in ISE. Shortly after the first trading day, the company clearly showed its dominant presence in terms of trading volume and performance and significantly attracted interest to the REIC sector. Unlike other REICs with low trading volume, Emlak REIC trades at an average volume of around US$130mn, which is as high as some of the major listed banks, placing the stock into the third place in terms of trading volume after Garanti Bank and Is Bank. Deserves to trade at a certain premium to its NAV, given the significant upside potential hidden in the NAV. Although Emlak REIT trades at 2% premium to its NAV versus sector’s average discount of 18% currently and the sector’s historic discount of 16%, we believe it deserves a higher premium given the vast amount of lucrative land in its portfolio, prone to generate value as tendered to the contractors as were the case for past revenue sharing transactions. 3 03/03/2011 Emlak Konut REIT Hidden value in the vast amount of land at hand. Emlak REIC holds TL3.6bn worth of land as of 4Q10, accounting for 62% of the total NAV and 47% of the total portfolio value. As the company continuously tenders the land in its portfolio mostly via revenue sharing model, at least for the lands’ appraisal value, there is a significant upside in company’s assets that can not be overlooked in our view. With a back of the envelope calculation, assuming that the company will tender the land at hand to the contractors at 50% premium, we come up with a portfolio value of around TL9.5bn, i.e. 24% higher than the current value. For instance, the company had very recently tendered a land in Ayazaga, Istanbul, which is one of the most valuable assets in its portfolio, in exchange of TL1.2bn revenues, versus the acquisition price of the land at TL540mn back in June 2010 and the appraisal value at TL881mn, corresponding to premiums of 122% and 36% over the acquisition cost and appraisal value, respectively. ...has room to further grow its land bank. Emlak REIC has the right to acquire land from its controlling shareholder TOKI without participating in a tender as there is a “best effort” protocol between Emlak REIC and TOKI, enabling the former to access an immense amount of vacant state land by just paying the appraisal value. In other words, in case Emlak is interested in a land in TOKI’s portfolio and pays the appraisal value of the said land, TOKI has to provide the land to Emlak without holding a timeconsuming tender. Given the huge land plot under TOKI’s umbrella, we think that the company’s land bank has an almost infinite growth potential. Our view is also verified by the company, which clearly stated its intention to use the IPO proceeds of TL1,062mn for new land purchases. Transfer of construction related risks to third parties paves the way for an almost risk-free business. The company has two different business models, namely revenue sharing model (RSM) and public procurement model (PPM). In RSM, which the company prefers over PPM, Emlak REIC tenders the land to a developer in exchange of a share in project revenues. Thus, risks related to construction, marketing and selling of the units are transferred to the contractor. Emlak collects the cash flow starting the pre-sales period and transfers the share of the contractor in proportion to completion rate, which urges the contractor to complete the project on time. Based on IFRS rules revenue recognition occurs after the delivery of the units, approximately after 2 years of the pre-sale. Revenue Sharing Model is a business model which enables Emlak to minimize its risks, while maximizing the profits. The company makes an average 50% EBITDA margin at this model. Under PPM model, in which Emlak develops the project and bears all the risks, the company makes around 25% margin. Emlak REIC to pay 37% of its distributable income as dividends starting 2011. The company has a policy to pay dividends in accordance with the regulations of the CMB each fiscal year. The company already announced that it will pay 37% of the 2010FY distributable income as cash dividends to its shareholders, which corresponds to a dividend yield of 3% . 4 03/03/2011 Emlak Konut REIT Investment Risks Macroeconomic instability and deterioration in economic growth stand out as the primary threats. As the macroeconomic stability is sustained and customer confidence is ensured appetite for residential market is projected to keep its pace. However sudden downturn in the macro indicators may lead a rise in interest rates and a fall in customer confidence and affect the housing demand negatively. Change in the protocol signed with TOKI regarding the land acquisitions may dampen future growth. Emlak REIC’s access to state land owing to shareholding structure and best effort protocol with TOKI places the company in a unique advantageous position vis a vis other REICs. However, any change in this protocol or ownership will render the sustainability of Emlak’s business model questionable. Indeed, possible change in the Government after the next elections scheduled for June 2011, although seem unlikely based on the recent election polls, may lead to a change in unique positioning of Emlak REIC. Housing supply exceeding the demand. Changes in the supply and demand balance in the housing market may hurt Emlak REICs operation. Although we envisage over 10% growth in the construction sector, driven by Marmara Region in 2011, mainly attributable to the residential segment, there is always a possibility regarding the excess supply to saturate the market and deteriorate the demand for new housing. Delays in the upcoming projects. Up to now Emlak REIC had no trouble in acquiring necessary zoning permits for ongoing projects, yet potential troubles might lead to delays in the upcoming projects decreasing the present value of the project and hurting consumer confidence. Value of the assets at hand might depreciate. In case of an economic downturn, NAV of the company might depreciate. The stock has significantly outperformed ISE by 42% since IPO. Emlak REIC nd shares started trading as of 2 of December 2010. The IPO price was set as TL1.70 per share and since the beginning of the first day stock has outperformed the ISE by 42% and REIC index by 14%, which may shy away new investors. 5 03/03/2011 Emlak Konut REIT We have valued Emlak REIT via sum of the parts (SOTP) method, in which we have valued each asset through a separate DCF, including tendered lands, ongoing revenue sharing projects, ongoing public procurement projects, buildings at hand and lands. Accordingly we have come up with a target Mcap of TL8,323mn, implying a rewarding 41% upside potential. Valuation Basic Assumptions of WACC: We have used a TL based risk free rate of 9.5%, an equity risk premium of 5% and beta of 1.0x which yielded a WACC of 13.2%. Being a state entity, we think that the company’s borrowing rate should not be higher than the country’s risk free rate and accordingly we have taken the TL cost of debt of the company as 9.5%. Since the REICs are exempt from corporate tax, no corporate tax is calculated for the company throughout the forecast horizon. Figure 01: WACC Calculation WACC Calculation 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Risk Free Rate 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% Equity Risk Premium 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Beta Cost Of Equity 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% Cost Of Debt 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% Weight of Equity 74% 74% 74% 74% 74% 74% 74% 74% 74% 74% 74% 74% Weight of Debt 26% 26% 26% 26% 26% 26% 26% 26% 26% 26% 26% 26% WACC Discount Factor 13.2% 13.2% 13.2% 13.2% 13.2% 13.2% 13.2% 13.2% 13.2% 13.2% 1.00 0.88 0.78 0.69 0.61 0.54 0.47 0.42 0.37 0.33 0.29 Source: Is Investment We valued the ongoing revenue sharing projects and lands tendered to the contractors under RSM model after the IPO separately. Valuation of the tendered lands When valuing the tendered lands under revenue sharing model , we have assumed that revenues will exceed the set minimum level by either 15% or 20% depending on the location of the project and assumed that contractors will complete the pre-sales of the units within two years of time, benchmarking the previous projects. Figure 02: Free Cash Flow of Lands Tendered Lands - Tendered (TLmn) Ata ehir East Stage 2 Ümraniye Stage 1 Sultangazi Habipler ISTOC RSM Ayaza a Land Bahçe ehir Stage 2 Tuzla Stage 1&2 Phases Halkalı Stage 1 i li Dikilita (Liqeur Factory) Total FCF (TLmn) PV of FCF Sum of FCF ETSR 1,161 164 1,325 3,250 194 992 270 832 8,188 CRSR 43.15% 37.50% 32.00% 35.50% 26.00% 32.00% 30.50% 50.00% CSTR 501 62 424 1,154 50 318 83 416 3,006 Premium 15% 15% 15% 20% 15% 15% 15% 15% FCSTR 576 71 488 1,385 58 365 95 478 3,515 2011E 519 64 439 1,246 52 329 85 430 3,163 3,163 2012E 58 7 49 138 6 37 9 48 351 310 3,474 Source: Is Investment 6 03/03/2011 Emlak Konut REIT Valuation of the Ongoing projects When valuing the ongoing revenue sharing projects, we have assumed that revenues will exceed minimum levels agreed for Emlak REIC by either 15% or 20%, depending on the location of the project and assumed that contractors will complete the pre-sales of the units within two years of time, benchmarking the previous projects. Figure 03: Free Cash Flow of Ongoing Revenue Sharing Projects Ongoing Revenues Sharing Projects (TLmn) My Towerland Üsküdar Burhaniye Ergene Valley Varyap Meridian zmir Mavi ehir Stage 4 My World Europe Ispartakule Stage 3 Izmir Mavi ehir Stage 5 Halkalı Stage 1 ( UA) Halkalı Stage 1 (ARTA ) Halkalı Stage 1 (SOYAK) Kayaba ı Total FCF (TLmn) PV of FCF Sum of FCF ETSR 228 275 124 766 240 748 350 87 160 880 392.0 100 4,350 CRSR 47.00% 50.00% 25.00% 44.15% 25.00% 30.50% 30.00% 31.00% 35.00% 30.00% 26.10% 32.00% CSTR 107 138 31 338 60 228 105 27 56 264 102 32 1,488 Premium 20% 15% 15% 20% 15% 20% 20% 15% 20% 20% 20% 15% FCSTR 128 158 36 406 69 274 126 31 67 317 123 77 1,812 2011E 115.58 142.52 32.09 405.83 62.10 246.26 126.00 27.95 67.20 285.12 110.50 77.00 1,698 1,698 2012E 12.84 15.84 3.57 6.90 27.36 3.11 31.68 12.28 114 100 1,798 Source: Is Investment Valuation of the Public Procurement Projects In Public Procurement Projects (PPP), in-line with the company guidance we have taken 30% EBITDA margin for all projects and envisaged that Emlak REIC will deliver the units within two years as well. Figure 04: Cash Flow of PPP Ongoing Public Procurement Projects (TLmn) Alemda Emlak Konut Körfezkent Emlak Konutları 2 Emlak Konut Mavi ehir Evleri Gebze Güzeller Tuzla Emlak Konutları 1&2 Total FCF (TLmn) PV of FCF Sum of FCF GSA 134,893 84,756 103,376 162,281 244,995 Price/sqm Cost/Sqm 1,600 1,120 1,005 704 2,595 1,817 1,200 840 1,470 882 Margin Target Value 30% 65 30% 26 30% 80 30% 58 40% 144 373 2011E 65 0 40 29 72 206 206 2012E 0 26 40 29 72 167 148 354 Source: Is Investment Use of IPO Proceeds We assumed that the company will utilize all of the cash proceeds raised from the IPO to buy land. We have applied just 6% annual interest rate for the IPO proceeds in terms of TL which amount to around TL1,063mn for the first six months. Then, we assumed the company to buy land with the whole amount and tender them with 50% premium to the contractors under RPM model during the second half of 2011. We assumed 70% pre-sale in 2011, and 15% in the coming two years for the newly acquired land. 7 03/03/2011 Emlak Konut REIT Figure 05: FCF of IPO Cash IPO Proceeds mnTL Cash Premium Land Value PV of FCF Total 2011E 1,094 50% 1,149 1,149 1,559 2012E 2013E 246 217 246 192 Source: Is Investment Operational Expenses We have taken average operational expenses of the company in the previous years as benchmark and increased it with average TL inflation rate annually. Since total operational expenses were boosted by many one-off items such as IPO related advertising expenses and consultancy expenses, we have excluded 2010 when calculating the average annual opex. We have used a terminal growth rate of 4% for operational expenses in TL terms. Figure 06: Operating Expense Projection Opex (TLmn) PV of Opex PV of TV Total 2011E 35 35 178 435 2012E 37 33 2013E 39 30 2014E 41 28 2015E 43 26 2016E 45 24 2017E 47 22 2018E 49 21 2019E 52 19 2020E 55 18 Source: Is Investment Valuation of the Buildings at Hand Buildings at hand are added to our valuation via their appraisal values and we envisaged Emlak REIC to sell these units in two years time. Therefore, acting conservatively we did not assume any price increase until all the stock is depleted. Figure 07: Buildings at hand Buildings (TLmn) Appraisal Values Çorlu 0 Kent Plus Mimarsinan Sitesi 13 Çerkezköy Dream Sitesi 8 Körfezkent Konutları 0 Diamond Blokları 2 Starland Blokları 2 Equinox Blokları 1 Missistanbul 55 Ata ehir 8 Kar ıyaka 7 Keçiören 1 Burgazkent 50 Silivri Selimpa a Emlak Konutları 91 Mavi ehir Pelikan Evleri 55 Soyak Mavi ehir Projesi 0 Aydın Didim 0 Novus Residence 60 Total FCF (TLmn) 353 PV of FCF Sum of FCF 348 2011E 0 13 8 0 2 2 1 55 8 7 1 50 45 55 0 0 60 308 308 2012E 0 0 0 0 0 0 0 0 0 0 0 0 45 0 0 0 0 45 40 2013E 2014E 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Source: Is Investment 8 03/03/2011 Emlak Konut REIT Lands at hand Acting conservatively we added the current land bank at the portfolio to our SOTP valuation at the future value of the appraisal (which we use our cost of equity at 14.5% to reach at the 2011YE value), instead of assuming the company to develop projects on the land with a premium unlike we exercise for the lands that would be bought with IPO proceeds. Figure 08: SOTP Valuation Sum of the Parts (TLmn) Tendered Lands Ongoing Revenue Sharing Projects Ongoing Public Procurement Projects Buildings Revenues from land to be acquired utilizing IPO Proceeds Lands at hand Operational Expenses (-) Net Debt (-) Total # shares Target Share Price Current Share Price Upside Value 3,474 1,798 354 348 1,559 1,959 435 734 8,323 2,500 3.33 2.36 41% Source: Is Investment Figure 09: NAV Table Total Real Estate Portfolio 6,178 Marketable Sec. & Participations 1,471 Total Portfolio Value 7,649 Liquid Assets 11 Receivables 810 Other Assets 1,005 Debt (-) 3,677 Net Asset Value (NAV) 5,799 Number of Shares 2,500 NAV per Share 2.32 TL * Current Share Price 2.36 TL % Premium / (Disc) to NAV 1.7% ** As of March 2, 2011 Source: Company 9 03/03/2011 Emlak Konut REIT Portfolio Location Land Portfolio Value (TL) 3,584 Balı Kuyumcu Ankara 304 Ümraniye Istanbul 180 Çorlu Tekirdag 25 Ba ak ehir Istanbul 232 Kar ıyaka Izmir 23 Umurbey Izmir 11 Çerkezköy Tekirdag 82 Yarımca Kocaeli 51 232 Firüzköy Istanbul Küçükçekmece Istanbul 46 Sultangazi Istanbul 372 Sultanbeyli Istanbul 18 Güzeller Kocaeli 50 Firüzköy Istanbul 84 Eski Likör Fabrikası Araziai ( i li Dikilita Likör Fabrikası) Istanbul 256 Ata ehir Istanbul 436 Ata ehir Istanbul 3 Ayaza a Istanbul 881 Tuzla Aydıntepe Istanbul 102 Istanbul, K.Çekmece Halkalı Istanbul Real Estate 197 353 Çorlu Tekirda 0 Kent Plus Mimarsinan Sitesi Istanbul 13 Çerkezköy Dream Sitesi Tekirda 8 Körfezkent Konutları Kocaeli 0 2 Diamond Blokları Istanbul Starland Blokları Istanbul 2 Equinox Blokları Istanbul 1 Missistanbul Istanbul 55 Ata ehir Istanbul 8 Kar ıyaka Izmir 7 Keçiören Ankara 1 Burgazkent Kırklareli 50 Silivri Selimpa a Emlak Konutları Istanbul 91 Mavi ehir Pelikan Evleri Izmir 55 Soyak Mavi ehir Projesi Aydın Didim Soyak Mavi ehir Aydın Novus Residence Istanbul Real Estate Projects 0 0 60 2,242 Alemda Emlak Konut Projesi Istanbul 114 Üsküdar Burhaniye Projesi Istanbul 162 Tuzla Emlak Konutları Istanbul 35 Tuzla Emlak Konutları Istanbul 18 Towerland A Blok Projesi Istanbul 161 Towerland Skytowers Projesi Istanbul 0 VARYAP Meridian Projesi Istanbul 375 VARYAP Meridian Projesi Istanbul 0 VARYAP Meridian Projesi Istanbul 0 VARYAP Meridian Projesi Istanbul 0 VARYAP Meridian Projesi Istanbul 0 VARYAP Meridian Projesi Istanbul 0 Ispartakule Istanbul 106 A ao lu My Town Projesi Istanbul 26 Bizim Evler 3 Projesi Istanbul 39 Bahçe ehir Ispartakule Projesi Istanbul 23 Körfezkent Emlak Konutları Istanbul 30 Ticaret Merkezi Projesi Kırklareli 1 A ao lu My Shop Ticaret Merkezi Projesi Istanbul 20 Çorlu Ergene Vadisi Projesi Tekirda Kar ıyaka Mavi ehir Evleri Projesi Izmir 139 Kar ıyaka Mavi ehir Evleri Projesi Izmir 11 Kar ıyaka Mavi ehir Evleri Projesi Izmir Kocaeli Gebze Emlak Konutları Kocaeli 20 26 46 9 Kocaeli Gebze Emlak Konutları Kocaeli Istanbul, K.Çekmece Halkalı Istanbul 57 Istanbul, K.Çekmece Halkalı Istanbul 102 Istanbul, K.Çekmece Halkalı Istanbul 264 Ba ak ehir kitelli Ayazma Istanbul 285 zmir Mavi ehir Kuzey Üst Bölgesi Izmir 72 zmir Mavi ehir Kuzey Üst Bölgesi Izmir 28 Ba ak ehir Kayaba ı Istanbul 32 Bahçe ehir Ispartakule Istanbul 17 Bahçe ehir Ispartakule Istanbul Total Real Estate Portfolio 24 6,178 10 03/03/2011 Emlak Konut REIT The Company Largest residential developper of Turkey. Emlak REIC is the largest real estate developper of Turkey with a portfolio value of TL6,178mn and NAV of TL5,799mn, as of 4Q10. Of the total, land bank has the highest share with TL3,584mn value, followed by residential projects worth TL2,242mn and buildings with TL353mn. Figure 10: Portfolio Breakdown ! Source: Company Two business models targeting all types of income groups. Although the company develops mostly residential projects for middle to high income group of Turkey via revenue sharing model, being a state entity it also meets the demand of low-middle income group through public procurement model. While in the former model lands are allocated to contractors to develop projects in return for a consideration, which can not be lower than the appraisal value of the land, in the latter model the company carries out the project itself. At the current project backlog revenue sharing type of projects dominate with almost 75% share. Developped 35 projects until now on a 1.7mn sqm tendered land. After becoming a REIC in August 2002, the company completed 21 projects, i.e. over 23K residential units, which cover an area of 1.4mn sqm. As of September 2010, the company has 20 ongoing projects with over 12K sellable units and 15 projects in the pipeline. The company had 4.5mn sqm vacant land as of September 2010 and 1.2mn sqm tendered land. Of the total 20 ongoing projects, 14 of them are in Istanbul. A state entity, owned by Housing Development Administration of Turkey (TOKI). Owning 75% of the company, remaining 25% is listed on the ISE, TOKI is the controlling shareholder. TOKI was formed to meet housing demand of low-middle income group and operates under Prime Ministry. Emlak Konut, on the other hand, targets middle-high income group, as TOKI runs its mass housing projects by itself. TOKI’s right to prepare and alter land zoning is granted with law and any unused land owned by the Turkish Treasury with no plans to build on can be transferred to TOKI without any payment with the proposal of the Minister of Treasury and the Minister of Settlement and Public Works and the approval of the Prime Minister. Note that almost 100% of the land owned by Emlak REIC were provided by TOKI. Figure 11: Shareholding Structure Shareholding Structure TOKI Free Float Others TOTAL # of shares ow nership 1,874,831 75% 625,000 25% 169 0% 2,500,000 100% Source: Company 11 03/03/2011 Emlak Konut REIT Business Overview Relations with the major shareholder TOKI After liquidation of Emlak Bank back in 2001, Emlak REIC’s ownership had been transferred to TOKI from Emlak Bank and the company became a REIC in August 2002. The government’s focus on residential development increased significantly and continuiously as macroeconomic fundamentals started to improve visibly starting from 2002. While TOKI had started to develop more projects for the low-middle income group, Emlak REIC accelerated its efforts to develop residential projects for middle-high income group. Being a state entity the company is audited and supervised by Prime Ministry High Audit Commision annually. As mentioned earlier any land owned by Treasury, that is not used and also not allocated for any special project can be transferred to TOKI without any consideration subject to approval of certain ministries and the prime minister. Moreover, TOKI can sell land in its portfolio to Emlak without a tender process, which is obligatory when selling land to the third parties. When buying land from TOKI, the company should have an independent appraisal report for the target land that is prepared by the appraisal companies certified by Capital Markets Board. The relationship with TOKI also provides the company with the great information related to TOKI’s landbank and develop suitable projects for a certain land plot. Last but not the least, being an affiliate of TOKI the company has the flexibility in zoning and planning issues, while zoning permits are usually obtained before Emlak buy the land. Legal Framework On the eve of the IPO, the company signed a protocol with sherholder TOKI, in order to make the business relation more formal regarding future land purchases, back in September 2010. According to the agreement, Emlak may approach to TOKI in order to acquire a land that fits the company’s development strategy and TOKI gives the priority to Emlak regarding the purchase of the land at the appraisal value of the land plot. Before the newly signed protocol, TOKI has no obligation to provide Emlak with the precedence to acquire the land. Housing Acquisition Support (HAS) Accounts The HAS program was a savings fund held in Emlak Bank, a state bank that had been liquidated in 2001. The aim of the fund was providing the public officals with affordable housing units with the savings through obligatory cuts from their salaries. The government ended the fund in 1999 and decided to pay the retained amounts to the participants. As Emlak Bank’s operations had also been terminated, HAS repayments had been decided to be carried out by Emlak REIC, in exchange for the transfer of the land bank in Emlak Bank’s portfolio as capital in-kind. In 2008, the company paid its liability of TL1.8bn to the HAS holders. Of the total TL1.3bn was provided by the Turkish Treasury and the remaining amount was met by the company’s own funds. With these payments in 2008, the company paid all of its obligations to the HAS account holders. Land Acquisition and Tender Process Although the company has the right to buy land from the third parties, majority of the land are purchased from TOKI, as the latter has many vacant lands that fit very much with Emlak’s development strategies. Of the total land, in ongoing projects, pipeline projects and land bank as of September 30, 2010 NAV, 73% had been acquired from TOKI, 21% had been put by Emlak Bank as capital and the remaining had been bought from third parties. Based on the aforementioned communique between Emlak and TOKI, the former has the first right to buy a land without any tender, with payning at least the appraisal value that is set by the CMB-licensed real estate appraisal companies. Pursuant to land acquisition from TOKI, the company develops project in the said land either in the form of revenue sharing model or in the form of public procurement model, whose details will be discussed below. The REIC may also consider to sell the land without generating any project, if this seems more feasible. 12 03/03/2011 Emlak Konut REIT Revenue Sharing Model The company uses the revenue sharing model since 2003 and until then 27 projects were tendered, out of which 16 were completed. Based on this model, Emlak carries out a private tender process for which bids are collected from contractors for the development of the projects. In order to be granted with the project the contractor should guarantee at least the appraisal value of the land in terms of project revenues. If the project’s turnover exceeds the initial tender value, the amount that exceeds the minimum is paid to Emlak based on its revenue share ratio. This model is preferred for the more valuable lands that are expected to offer higher margins. This way the contractor is willing to take all the risks of the project. Note that the contractor is responsible to bear all costs of the project, as well as project financing, marketing and sales. Lastly, if the contractor fails to complete the project, Emlak has the right to terminate the agreement and re-tender the project. Public Procurement Model The company uses public procurement model since the year 2004 and since that time 10 projects had been tendered, out of which 5 had been completed. Under this model, Emlak REIC is responsible for the development of the project. The company arranges a tender to select the contractor in compliance with the public procurement law. The model is preferred in developing projects at less attractive locations, that still offer adequate margin for contractors, while targeting low middle income segment. The company should complete the required examinations and permits before entering in the tender process and the specifications of the project can not be changed which is not the case for revenue sharing model. Therefore these type of projects are not flexible. The contractor that gives the lowest bid is choosen as the winning body. Emlak REIC is responsible for the development and design of the project as well as the financing, marketing and sales. Portfolio details As of December 31st, 2010, the company’s total real estate portfolio amounts to TL6,178mn and Net Asset Value stands at TL5,799mn. Of the total real estate portfolio, land bank has the highest share with 58% share, or TL3,584mn. While lands in Istanbul total at TL3,036mn, i.e. 85% of the total land bank, the capital city Ankara ranks as second with TL304mn valued land, or 8% of the total land portfolio. Note that the most valuable land of the company is in Ayazaga Istanbul and valued at TL881mn. This land plot had been awarded to Akdeniz Insaat for a minimum revenue consideration of TL1,154mn. Ongoing real estate projects make 36% of the 2010YE NAV of the company with a value of TL2,242mn. The company has 34 ongoing projects either in the form of revenue sharing model or in the form of public procurement model, the biggest of which is the Varyap Meridien with a value of TL375mn. Buildings make up 6% of the gross asset value of the REIC, with TL353mn. 13 03/03/2011 Emlak Konut REIT Financial Highlights Revenues Land sale is the locomotive revenue generator either in terms of vacant land sale or in the form of revenue sharing. Being a pure residential developper the company’s major revenue generator is residential sales. Based on IFRS the company can record revenues in its profit and loss statement right after it delivers the units to the clients, therefore revenue recognition occurs almost two years after pre-sales start or when the construction is completed, although cash flow starts to be generated at the time of presales. Revenues were on rise in 2010, thanks to sizable vacant land sale. The company generates revenues from the sale of units under revenue sharing model and public procurement model, vancant land sales and sale of the completed units at hand. In 2010FY Emlak generated TL1,498mn revenues, up 73% YoY from TL865mn in 2009FY. Of the total vacant land sales revenues had the lion’s share with TL723mn, or 48% of the total turnover, up 258% YoY. Revenues recorded under revenue sharing agreements dropped by 14% YoY to TL504mn, from TL586mn in 2009FY. Lastly the company generated TL285mn revenues from the sale of completed units, which is three times higher YoY. Figure 12: Revenue Berakdown Gross Revenues, TLm n 2010 Land Sales through RS model 504 Vacant Land Sale 723 Residential Sale Reveneues 285 Rental Revenues 1 TOTAL 1,513 2009 586 202 76 2 866 2008 587 447 8 3 1,045 2007 445 664 2 3 1,113 Source: Company Costs Land costs of the projects and vacant land sales are the major costs. Costs are shown in the income statement after the delivery of the units as well. Main cost items of the company are land cost of the projects under revenue sharing model, land cost of the vacant land sales and cost of the completed unit sales. In the same trend with the top-line, not surprisingly. The company’s major cost item was land costs of the vacant land sales at TL315mn in 2010FY, up from TL59mn in 2009FY. Costs of the completed unit sales were the second big-ticket item in the total cost of sales at TL239mn, which was just TL63mn in 2009FY. Lastly, the company books land cost of the projects run based on revenue sharing model which totalled at TL205mn in 2010FY, 8% lower YoY, in-line with the lower revenues recorded under this scheme. Advertising expenses prompted to one-off spike in operational expenses in 2010FY, due to IPO related expenses. Although salaries are the major source of general administrative expenses (SG&A) normally, taxation expenses and consultancy expenses together outpaced the personnel expenses totalling TL22mn in 2010FY up from TL10mn in 2009FY. Personnel expenses increased 26% YoY at the same period to reach at TL11mn. In total SG&A expenses came at TL59mn in 2010FY up dramatically by 114% YoY. The other pillar of operational expenses are the marketing and selling expenses (M&S), which were very slim in 2009 at TL6mn, yet skyrocketed to TL28mn in 2010, mainly due to IPO advertising costs at TL25mn versus TL3mn in 2009. Figure 13: Operational Expenses Operational Expenses, TLm n SG&A Expenses M&S Expenses TOTAL 2010 59 28 87 2009 28 6 34 2008 51 5 56 2007 46 4 50 Source: Company 14 03/03/2011 Emlak Konut REIT Figure 14: EBIT and Net Profit TLm n EBIT EBIT Margin Net Profit Net Margin 2010 233 15% 469 31% 2009 468 54% 446 51% 2008 636 61% 527 50% 2007 745 67% 368 33% Source: Company Financial Income and Expenses The company recorded TL159mn net financial expenses in 2010FY comparing unfavorably with the TL30mn in 2009FY. The main reason behind the increase in financial expenses is the rise in interest expenses on the loans from the Turkish Treasury at TL105mn in 2010 versus TL63mn in 2009. Another major financial expense is the reversal of the unearned interest income at TL83mn up from just TL9mn in 2009. On the financial income side, the company recorded TL22mn interest income from the time deposits, up 33% YoY and TL14mn income from credit sales, which is up 142% YoY. Figure 15: Financial Income and Expenses TLm n Financial Income Financial Expenses Net 2010 38 -197 -159 2009 44 -74 -30 2008 97 -133 -36 2007 135 0 135 Source: Company Capital Structure Emlak’s cash position improved significantly with IPO proceeds of TL1,063mn. The company had TL1,733mn cash at hand, as of end of December 2010, boosted by the cash injection of TL1,063mn from the IPO, compared to TL274mn as of end of the year 2009. Almost all of the company’s cash is TL denominated and invested in TL time deposits, with an annual interest rate of 5.35%. Emlak’s financial investments stood at TL80mn at the end of 2010, all of which is composed of government bonds, down from TL240mn at the end of 2009. Bulk of the financial loans are long-term with a maturiy of six years. The company had raised TL1,314mn financial loan from the Turkish Treasury with flexible rates (weighted average annual interest rate of the Treasury bonds set each year) in 2008, in order to close down the payments balance to the HAS holders. The maturity of the loan is October 2017. As of end of 2010, the company had TL1,255mn financial loans all of which is composed of the Treasury loan with an average annual interest rate 7.79%. Of the total TL1,074mn is long term, i.e. 86% of the total loan book. Based on the payment schedule the company will pay TL160mn to the Treasury each year until 2014 and will pay TL754mn from 2014 and onwards. As a result the company has a net cash position of TL558mn as of December 31st 2010, imprving from TL815mn net debt position at 2009YE, thanks to IPO proceeds. Figure 16: Capital Structure and Loan Repayment Schedule TLm n Cash at hand Financial Investments Financial Loans ST Loans LT Loans Net Cash /(Debt) Loans Repaym ent Schedule 2011 2012 2013 2014 and onw ards 2010 2009 1,733 274 80 240 1,256 1,329 182 95 1,074 1,234 558 -815 TL,m n 160 160 160 754 Source: 2008 102 438 1,422 118 1,304 -882 2007 773 0 0 0 0 773 Company 15 03/03/2011 Emlak Konut REIT Inventories The company has both short and long term inventories composing of completed units, tendered land and land bank. Emlak’s short term inventories were TL647mn as of the end of 2010, of which TL362mn was completed units at hand and TL269mn was units under ongoing revenue sharing projects. Long term inventories, on the other hand, were TL3,360mn at the same period. While TL1,170mn is composed of the land at hand, TL2,025mn is land developped based on ongoing revenue sharing projects and TL164mn is land allocated for the public procurement projects. Figure 17: ST and LT Inventories Inventories, TLm n ST Inventories Lands in RS Model Completed Units Lands in PP Model Other LT Inventories Vacant Land Lands in RS Model Lands in PP Model TOTAL 2010YE 647 249 362 35 2 3,360 1,170 2,025 164 4,007 2009YE 697 329 190 174 3 2,625 1,927 698 0 3,321 2008YE 638 500 138 0 1 2,707 1,921 655 131 3,345 2007YE 518 503 15 0 0 2,019 1,574 382 62 2,537 Source: Company Other Liabilities Pre-sale collections are booked under advances received until the delivery of the units. Based on the revenue sharing model Emlak records its share from the project under other liabilities as deferred revenues. The company collects certain amount of its share based on the revenue sharing model from the contractor at the beginning of the project and books it under advances received. As of end of 2010, Emlak’s total deffered revenues were TL288mn, up from TL148mn at the end of 2009 and advances received were TL545mn up from TL293mn at 2009YE. Figure 18: Other Liabilities Other Liabilities, TLm n Advances Received RS Model PP Model Advances Received from Contractors Deferred Revenues TOTAL 2010YE 641 545 59 37 288 929 2009YE 379 294 15 71 148 527 2008YE 263 250 13 0 263 525 2007YE 84 75 9 0 501 585 Source: Company 16 Emlak Konut REIT 03/03/2011 There is a positive correlation between the construction sector and the GDP... Construction sector typically moves in the same direction with the economic activity and grows/contracts in times of economic growth/contraction. The sector’s growth rate usually exceeds GDP growth in both directions. In 3Q10 the sector’s growth was 24.6% versus the economic growth of 5.5% at the same period. Real Estate Sector Figure 19: Construction sector growth vs GDP growth ) $%" *+ $'"& ' " '%"' ' "& " "# " %"& "& "$ " #" &"% &" " ''"# "% '(" "( "& "# %"# " ("& "$ "% %"# "# "$ ' " '#"% Source: TURKSTAT Annual building permits started to recover slightly after a tough year. Based on the data announced by the Turkish Statistical Institute (TURKSTAT), annual construction permits recovered slightly by 1% YoY to 510K in 2009, which is still much lower than the record years of 2006 and 2007, when the economic growth was also very supportive. In 9M10 increase in the building permits was more eye-catching at 34% YoY. Majority of the building permits were still granted to the residential construction with 76%, which is not a surprise given the estimated 6mn new housing need between the years 2007 and 2015 according to the Association of Real Estate Investment Companies. Figure 20: Building permits ,-(((. Source: TURKSTAT 17 03/03/2011 Emlak Konut REIT Figure 21: Breakdown of building permits 2 0 11 % 0 $ # ! / / # Source: TURKSTAT Housing demand is mainly driven by demographic factors and urbanization. Main pillars of the new real estate demand in Turkey can be summarized as population increase, renewal of the current buildings, migration and urban transformation. Expected annual population increase of 0.9% between 2009 and 2025 would be the basic driver for the new housing demand in Turkey, 52% of which will come from new population. Migration from rural regions to urban areas will be another important driver of residential demand. Figure 22: Housing demand formation and Annual Population Growth $( $' $ $% $ $ '' '' '' ' ' ' '' '' '' '' ' & 3 4 / 5 1 6 7 ! Source: TURKSTAT $ $ $ $ $ $ '"' '"' '"' '"' '"( '"( '"( '"( * 6 ("& ("& ("& ("& ("& (" (" (" ("# 8 , . Source: TURKSTAT 18 03/03/2011 Emlak Konut REIT Housing loans boosted by lower interest rates. On the back of successful fiscal and monetary policies, inflation decreased sharply in Turkey, leading to lower interest rates. The mortgage law that fully came into effect in 2007, together with extended maturities gave a boost to housing loans which grew from TL22bn as of 3Q06 to TL52bn as of 2Q10. Accordingly, housing loans’ share in total loans increased from 11% in 3Q06 to 13% as of 2Q10, while their share in total consumer loans decreased from 50% to 48% at the same period. Despite the eye-catching growth, ratio of household debt, excluding housing loans, to GDP was still very low at 8.8% in 2008 (2007: 7.9% and 2006: 6.6%) compared to EU-27 average of 14.6% (2007: 15% and 2006: 15.3%). Ratio of total household loans, including housing loans, to GDP is no exception with 13.6% in 2008 (2007: 12.3% and 2006: 10.1%) versus EU-27 average of 52.7% in 2008 (2007:55.4% and 2006: 56.1%). Figure 23: Household Liabilities/GDP in selected countries Household Liabilities/GDP (excl. Housing loans) Country Austria Belgium Bulgaria Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latonia Lithuania Luxemburg Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sw eden UK EU 27 Turkey 2006 20.9 8.7 11.4 5.3 18.0 7.0 13.6 12.3 20.0 13.0 9.2 16.1 12.6 9.4 6.6 40.8 9.6 10.7 15.1 9.7 6.0 11.0 20.7 22.4 14.1 15.3 6.6 2007 20.7 8.5 14.5 6.2 20.6 8.6 13.6 12.3 18.7 13.3 10.9 16.6 12.9 8.8 8.5 36.8 8.4 12.9 16.4 12.8 6.1 12.0 21.2 22.5 12.7 15.0 7.9 2008 20.1 8.3 15.5 6.6 20.5 9.1 14.0 12.0 18.1 12.9 13.6 17.7 13.0 8.2 8.3 33.9 8.1 12.3 17.0 14.2 6.3 11.9 21.1 20.9 10.9 14.6 8.8 Total Household Liabilities/GDP 2006 44.6 42.4 18.3 17.3 116.9 39.4 46.7 43.8 61.9 37.5 21.1 78.9 29.0 38.6 19.2 76.2 78.0 18.2 74.2 11.9 17.7 17.4 76.4 62.5 73.4 56.1 10.1 2007 44.7 42.4 24.4 21.5 126.2 45.2 48.2 46.2 58.5 41.1 23.1 81.7 30.1 40.9 25.5 77.1 75.3 23.5 78.4 16.0 18.4 19.8 80.3 62.9 66.5 55.4 12.3 2008 45.5 33.4 27.2 22.1 129.4 48.3 50.6 47.5 56.6 39.8 27.5 79.6 29.8 39.2 27.1 77.3 71.3 25.2 80.3 18.0 19.4 21.1 80.7 60.1 54.2 52.7 13.6 Source: ECB, CBT, TURKSTAT Figure 24: Housing loans vs interest rates Source: Central Bank of Turkish Republic 19 Emlak Konut REIT Figure 25: Total housing loans in Turkey Date Housing Loans 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 22,180 23,388 24,531 26,974 29,743 32,441 35,445 37,919 39,831 39,278 39,011 40,417 41,649 44,641 47,663 51,777 Housing/Total Housing/Consumer Loans Loans 11% 11% 11% 12% 12% 12% 12% 12% 12% 11% 11% 12% 12% 12% 13% 13% 50% 49% 49% 49% 49% 48% 48% 48% 47% 47% 47% 47% 48% 48% 48% 48% Source: CBRT As of now there are nineteen REICs listed on the Istanbul Stock Exchange (ISE). Among the listed REITs, latest participant Emlak REIC has the highest NAV of TL5.8bn by far, as of 4Q10. Emlak, a state company, is a pure residential developer. Torunlar REIC is ranked second with its NAV of TL2.5bn as of the same period. Torunlar has exposure mostly to shopping centers, residential projects and office buildings. IS REIC, an Is Bank affiliate and mostly a rental play, is the third largest REIC among the listed ones with an NAV of TL1.4bn as of 4Q10. The REIC has six lands (on which the company plans mixed-use projects) and sixteen real estates rented to third parties. Sinpas REIC, a pure residential developer is the fourth one with an NAV of TL1.2bn as of end-4Q10. Currently the company has four ongoing residential projects, 10 lands (on which the company plans residential projects) and five real estate (unsold portion of the residential projects) under its NAV. As of end 4Q10, total NAV of the REIT sector was TL14bn, the first four largest making 79% of it. REIC index outperformed the benchmark index by 2.2% in 2010 and 16% year to date thanks to Emlak’s brilliant performance since its IPO. Since the beginning of the year the index gained 3% outperforming the ISE-100 largely by 16%, thanks to Emlak’s superior outperformance of 15% over REIC index and 34% over the benchmark equity index. Figure 26: REIC index vs ISE-100 :* 7 ;0 :3 '(( <* ;0 ( ((( " #( ((( ( ((( $" ( ((( $ %( ((( '" ( ((( $( ((( $ 9($9$('' '9('9$('' '9'$9$('( (9''9$('( '9'(9$('( (9(&9$('( '9( 9$('( '9(#9$('( (9( 9$('( '9( 9$('( (9(%9$('( '9( 9$('( $ 9($9$('( '9('9$('( Source: ISE ' '9'$9$((& 03/03/2011 20 03/03/2011 Emlak Konut REIT REIC sector’s average discount to NAV stands at 18%. Based on 4Q10 NAVs (which is the latest data at hand) listed REICs trade at an average 18% discount to the total REIC sector NAV higher than the historic discount of 16%. While Emlak REIC, the biggest REIC in terms of NAV, trades at 2% premium versus the young-age historic premium of 11%, Torunlar REIC, the second biggest one, trades at 49% discount to its NAV, worse than the historic discount of 37%. Sinpas REIC, the other residential developer, also trades at 30% discount to its 4Q10 NAV. Figure 27: Summary figures of Turkish REICs Company Share Price (TL) NAV per share (TL) Premium/(Discount) to NAV **MCap (TL mn) 3M. Avg. Daily NAV (TL mn) Relative to ISEVolume (US$ 31/12/10 100 (YtD %) mn) 795 -12% 1.34 Current *Historical Akmerkez REIT 64.50 58.04 11% -36% 884 Alarko REIT 16.10 24.74 -35% -29% 171 264 9% Atakule REIT 1.15 2.50 -54% -45% 97 210 -4% 0.29 Dogus-GE REIT 2.06 1.89 9% -40% 193 177 35% 0.94 1.93 Emlak REIT 2.36 2.32 2% 11% 5,900 5,799 34% 114.89 Idealist REIT 2.04 1.20 70% 131% 20 12 -15% 0.36 Is REIT 1.73 3.12 -45% -51% 779 1,403 11% 3.40 Nurol REIT 3.75 6.00 -37% -49% 38 60 4% 0.39 Marti REIT 0.98 2.11 -53% -54% 108 232 5% 2.27 Ozderici REIT 1.08 1.01 7% 11% 108 101 6% 2.68 Pera REIT 0.97 1.06 -9% -28% 86 102 -3% 4.09 Reysas REIT 1.07 1.73 -38% -31% 182 293 25% 2.02 Saglam REIT 0.77 1.31 -41% -38% 43 73 -3% 1.31 Sinpas REIT 1.72 2.47 -30% -33% 860 1,227 -7% 9.00 TSKB REIT 0.83 1.47 -44% -38% 125 221 -1% 2.05 Torunlar REIT 5.68 11.19 -49% -37% 1,272 2,506 1% 3.60 Vakif REIT 2.89 5.26 -45% -44% 60 109 -4% 0.93 Y&Y REIT 1.25 0.79 57% 19% 294 187 -36% 5.23 Yapi Kredi REIT 1.97 2.26 -13% -20% 79 90 13% 1.28 -18% -16% *** Sector Avg. (TL) * Weighted Average of last three years or the Company's IPO ** As of March 2, 2011 *** Sector average is calculated based on Total Mcap/Total NAV of the listed REICs Source: ISE 21 03/03/2011 Emlak Konut REIT Regulatory Environment Real Estate Investment Companies (REICs) are subject to REIC’s communiqué issued by Capital Markets Board (CMB) of Turkey. REICs were started to be established in 1995 in Turkey and have begun trading on the stock market by 1997. There are currently fifteen REICs listed on the ISE and traded actively. CMB has a communiqué that regulates the market. Based on this communiqué there are certain regulations that all REICs should obey. List of the rules enforced by this communiqué are as follows: • A REIC can be established with a minimum capital of TL20mn. • REICs have to invest at least 50% of their portfolio value into real estate, real estate projects and rights backed by real estate. • The remainder of REICs’ portfolio may be invested into money and capital market instruments such as; mortgage backed securities and other similar securities, treasury bills, government bonds, reverse repo, bank deposits, equities and mutual funds • While foreign real estate or property related securities can make at most 49%, land, on which no real estate project has been developed within five years can make at most 10% of the. • REICs can not engage in construction work on their properties. • REICs properties must be valued by an independent appraisal company authorized by the CMB. • REICs are obliged to hold diversified portfolios. • REICs are exempt from corporate taxes and income taxes. • A third of the Board of Directors must be independent, in other words cannot be selected from the strategic investor and other stakeholders, consultant companies, operating companies and subsidiaries of the REIC. • Short-term loans can make at most 3 times of the NAV. • REICs can not commercially operate any hotel, hospital, shopping mall...etc. Public offering procedures were recently changed. Previously REICs were urged to be listed at most three years after their foundation via offering at least 49% of the shares to the public. The regulation on the free float rate have been softened and the time requirement to go public after becoming a REIC was shortened. Accordingly based on the new rules: for the REICs that were founded prior to December 31 2009, at least 25% of the shares should be offered to the public within: i) 1 year, if the REIC has a paid-in-capital less than TL50mn ii) 3 years, if the REIC has a paid-in-capital between TL50mn and TL100mn iii) 5 years, if the REIC has a paid-in-capital more than TL100mn. For the REICs that are/will be founded after December 31st 2009, at least 25% of the shares should be listed on the stock exchange within three months. 22 03/03/2011 Emlak Konut REIT This report has been prepared by “ Yatırım Menkul De erler A. .” ( Investment) solely for the information of clients of Investment. Opinions and estimates contained in this material are not under the scope of investment advisory services. Investment advisory services are given according to the investment advisory contract, signed between the intermediary institutions, portfolio management companies, investment banks and the clients. Opinions and recommendations contained in this report reflect the personal views of the analysts who supplied them. The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be suitable for all investors. Investors must make their decisions based on their specific investment objectives and financial positions and with the assistance of independent advisors, as they believe necessary. The information presented in this report has been obtained from public institutions, such as Istanbul Stock Exchange (ISE), Capital Market Board of Turkey (CMB), Republic of Turkey, Prime Ministry State Institute of Statistics (SIS), Central Bank of the Republic of Turkey (CBT); various media institutions, and other sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. All information in these pages remains the property of Investment and as such may not be disseminated, copied, altered or changed in any way, nor may this information be printed for distribution purposes or forwarded as electronic attachments without the prior written permission of Investment. (www.isinvestment.com) This research report can also be accessed by subscribers of Capital IQ, a division of Standard & Poor' s. 23