NO PENNIES FROM HEAVEN
Pavel Poselenov tells about the land bank and the progress on government contracts.
PIK Group is one of the few developers who survived the last financial crisis and managed to fit without loses into the new town-planning policy of Moscow. In the last two years developer managed to maintain a partnership with Mayor’s Office and register an ambitious portfolio of projects, which amounted to almost 1 mln square meters.
A GOOD YEAR
- After the crisis, PIK Group was the market leader on the dynamics of sales growth. Is it possible to keep this trend in the next year?
- We have successfully completed the year and exceeded the management expectations: sold 658,000 square meters of residential real estate (the plan was in the range of 600,000-650,000 square meters), total gross cash collections grew 30% to 67 billion rubles, we launched 49 new projects. The Group will continue to operate in 2013 in the same pace.
- What is the situation in the Russian regions?
- We focus on the development in Moscow Metropolitan Area - 69% of total land bank and 31% located in Russian regions respectively.
- How does the cash flow covers construction expenses?
The available cash recourses and Sberbank credit lines are enough to finance all current projects.
- But you still have to pay the loans. Late last year, PIK Group has agreed to restructure debt to Sberbank ...
- This is not our first restructuring with Sberbank, it is already not just a creditor bank, first of all, it’s our partner!
- What is the total debt today?
- The Group’s total debt amounted to 41.8 billion rubles. Net debt as of 31 December 2012 amounted to 37.1 billion rubles, declined by 5.8 billion rubles compared to 2011 year. PIK Group outstanding debt to Sberbank amounted to 27.5 billion rubles. We restructured the principal debt to Sberbank which would pay off in 2012 and 2013 with the transfer of 75% into 2014. All the banks that gives credits to Russian developers provide a significant amount of mortgage to our clients thus they trust us. We have 18 partner banks and VTB-24 recognized us as the best mortgage partner in 2011 and 2012.
- When will PIK issue additional shares, the amount of which was approved last year (363 million par value of 62.5 rubles, total 22.7 billion rubles. - RBC Daily)?
- Now Prospectus is at the registration. Then there will be a meeting of the Board of Directors and define price and date. Such a decision is still pending.
- How are you going to spent attracted funds?
- A part of the sum will go to the credit repayment and the other part to operating activity and purchase of new projects.
- Do shareholders intend to buy additional shares to avoid diluting their share?
- Actually this is a question to our shareholders. I think that it’s possible.
- What about shareholder’s and creditor banks interests?
- Nafta Moscow has 38.3%. Based on the latest register of shareholders as of 29 December 2012 VTB owns 8.839% of our shares.
- Could Kirill Pisarev and Yuri Zhukov, PIK’s founders, to hold over their equity interest?
- There are many legal entities in shareholding structure and we do not know who is behind the GDR. Kirill Pisarev and Yuri Zhukov have its own successful projects.
STATE LAND CADASTRE GIVES THE GREEN LIGHT
- How did the company undertake changes in town-planning policy of Moscow?
- Our technical and economic performance fit into the new norms, because PIK’s principal activity is the development of mass-market residential properties. This has a social impact, as all our projects have fully integrated development. All our projects retain their technical and economic parameters. The exception is a redevelopment of former sugar factory. Originally this project was planned to be an office complex with a total area of 400,000 square meters. But it became evident that the modern business-class residential complex would be more desirable at this area as the new business district - Moscow City is located in the close proximity to it, providing necessary workplaces. We will construct a modern European quarter City Quarters with underground parking and recreational area. Urban Planning and Land Commission agreed with our new vision of the development. On the site of 7 hectares will be constructed 98,000 square meters of apartments, 17,000 square meters of commercial area, a kindergarten for 150 children and parking for 1,880 car lots. We believe that the new concept is the best use for the area.
- How many projects PIK Group agreed with Urban Planning and Land Commission from its foundation?
- We have passed the commission on eight new projects and about five projects are still remaining. Our projects are modern, affordable housing with the necessary social and commercial infrastructure, for example: Mironivsky located to the east of Moscow near the Izmailovo Park, Grand Kuskovo located near the Kuskovo park, Varshavsky Lights located in the south of Moscow, and also residential complex in New Peredelkino area. In addition we had approval on above mentioned residential complex - City Quarters and another business-class project located in Kuntsevo district. This list of projects does not include decisions on new phases of current projects, such as the residential complex in Academician Vinogradov Street.
- It turns out that PIK accumulate an impressive portfolio...
- Yes, 2012 was very successful by volume of agreed projects. No pennies from heaven, we have been working hard on it. In this context, there is no comparison to other developers. Of course, some companies might have more problems because of the central location of their projects. If a developer has a project within the Garden Ring Road, it may raise some questions. We don’t have such projects.
- Does the new regulation inspire you for the construction of transport infrastructure?
- PIK Group always constructs all necessary transport and engineering infrastructure including access roads and parking spaces.
- It's hard to come to an agreement with a new team in the City administration?
- No, it is not difficult. The new government analyzed all projects and organized a clear system of relations with all major developers. We construct houses that could significantly improve the quality of life for the average Russian.
- What is your current portfolio in Moscow?
- 820 000 sq.m.
- What is the current land bank for future development?
- our land bank is 6.6 million square meters, located in Moscow Metropolitan Area – about 4.6 million square meters or 69% of total portfolio. Moscow share is 12.4% of total land bank and much more if take into account the territory of New Moscow where we realizing our large scale project - Buninsky. New residential micro district Buninsky includes construction of 1 million sq. m housing. Four buildings of the first phase is under construction now.
EFFECTIVE STRATEGY
- What is the time period for developing the 6.6 million square meters?
- Approximately for five years, it depends on different issues such as difficulty of the projects and sales dynamics.
- Will PIK increase the construction volume?
- We intend to maintain our land bank at this level and fulfill it as the work advances. This volume should be compensated during a year or a year and a half. Our goal is to ensure the effective ratio of the land bank, the volume of construction and sales dynamics. But it depends on the real estate market conditions.
- What are these projects?
- There will be small apartment complexes: one project is located on the Presnensky Val, the other - on the Varshavskoye highway near the sport stadium "Trud". All apartments will be sold with finishing fitting, the price range - between economy and business class. By the way, the amount of turn-key apartments of affordable housing will increase.
- What is your strategy for the new projects?
- We join the new projects as a partner who can organize development process, has production facilities and can build at its own expense. Then we divide the profit with the owner of land. It is much more efficient then entering with purchasing the land.
- Do you use this strategy with Morton Group?
- Yes, Morton Group is interested to build up its site in Drozhzhino by our residential industrial series buildings. We also have another partnership project in the Zheleznodorogny. In 2011 we agreed with the owner of a site to build about 460,000 square meters of housing.
- In other words the your strategy is the integrated development with residential dominant?
- Yes. The residential districts with entire infrastructure for the quality life of our clients.
- In what segment?
- Comfortable and affordable housing
- Do you mean the economy class?
- We call it affordable and comfortable housing – not expensive but high quality and comfortable.
- Will it still be industrial housing or you may switch to monolithic construction?
- In 2012 we completed 1.3 mln sq. m of housing. About two thirds of this volume takes industrial housing, the rest is monolithic housing construction. We build monolithic construction housing preferably in the regions. And this balance is quite comfortable for us for the moment.
PANEL HOUSING - FASTER, EASIER AND CHEAPER
- So you do not plan to reduce the volume of industrial housing?
- I do not see any sense in industrial housing reduction. Industrial housing is the flagship of the comfortable and affordable housing. The experience in different countries with the same volumes and climate proved the efficiency of the industrial method for the economy class segment. It is easier, cheaper and faster. And what is even more important – it is easier to control the quality of construction.
- What is the production capacity of your industrial housing plants?
- The production capacity of our two major plants DSK-2 and DSK-3 located in Moscow is approximately 800,000 – 900,000 square meters of housing per year. The maximum capacity is about 1 million square meters of ready housing.
- Before the crisis the city authorities demanded to upgrade production technologies. Marat Khusnullin, the new head of the Moscow construction sector, set a task to complete the modernization of the housing plants in 2013. How does industrial housing changed?
- The problem is not in modernization itself but in offering a new product. We have understood that we need to diversify the housing series in our portfolio. For example the market needs smaller apartments. Following this trend, we launched the new building series modifications with small apartments, with new interior finishing and balconies. These new small 1-2-room apartments cost 3 - 4 million rubles and are sold well in Moscow Metropolitan Area and small apartments are also needed under government contracts. So we develop in one direction with the Moscow Government.