Sortis Re Presentation 20090403 En

Corporate Presentation Sofia

April 2009

CONTENTS  Overview  Shareholders  Services    

Real Estate Investment Advisory Real Estate Portfolio Management Property Fund Management Mezzanine Real Estate Financing

 Investment Process  Board of Directors  Key Team Members  Investment Portfolio

 Appendix – Bulgaria Overview Corporate Presentation

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OVERVIEW  SORTIS Real Estate is a joint venture between:  SORTIS Invest  BMF Bulgaria  Mr. Joel Baquiche

 Strong management team with significant real estate and private equity investment experience in Bulgaria and internationally.  Applying best international corporate governance and compliance practices.  Member of FIABCI Bulgaria, the Bulgarian chapter of FIABCI (The International Real Estate Federation)  Real estate investment management company, offering the following services on the territory of Republic of Bulgaria:    

Real estate investment advisory Real estate portfolio management Property fund management Mezzanine real estate financing

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SHAREHOLDERS  SORTIS Invest - investment advisory firm providing services in the fields of private equity, venture capital, corporate finance, mergers & acquisitions. Assisting entrepreneurs in obtaining financing - equity, quasi-equity, mezzanine loans and project financing



Wholly owned by Martin Paev, CFA, an investment banker with significant M&A, private equity, asset management and real estate experience, who structured the first Real Estate Investment Trust in Bulgaria 

 BMF Bulgaria – an investment holding company owned by Mr. Thomas Higgins, an investment banker with 16+ years of asset management and private equity experience in Bulgaria. Selected investments: TFS, the Bulgarian investment advisor for the Balkan Accession Fund, a EUR 110 m private equity and mezzanine finance investment fund for the Balkans. 



Job Tiger, an online and offline Bulgaria focused recruitment company.

 Mr. Joel Baquiche – an experienced investor in private equity and international real estate with numerous investments in start-ups and SMEs, listed and unlisted companies. Corporate Presentation

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SERVICES  SORTIS Real Estate structures individual and collective investment schemes that enable its client-investors to benefit from the real estate opportunities the Company has sourced and secured in Bulgaria.  Our aim is to generate attractive risk-adjusted returns to our investor partners over the pre-agreed investment horizon.  We create robust investment structures in conjunction with assessing, managing and, where possible, mitigating risk.  We are active in all major Real Estate Sectors, including:  Residential  Office  Retail

 Industrial  Hotels

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REAL ESTATE INVESTMENT ADVISORY  SORTIS Real Estate acts as investment advisor to property funds, institutional and individual investors for their real estate related activities in Bulgaria.

 We help our advisory clients determine an appropriate real estate investment strategy and then implement it.  Our extensive network of brokers and partners throughout the country enables us to identify attractive investment opportunities, to structure and secure investment transactions.

 We make investment proposals to our clients based on extensive market analysis, financial modeling and risk assessment. Corporate Presentation

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REAL ESTATE PORTFOLIO MANAGEMENT  SORTIS Real Estate provides real estate portfolio management services to both institutional and individual clients.  Investment strategy is determined based on Client’s investment profile and risk-return objectives taking into consideration global and local market conditions and longterm trends.  Careful analysis of short- to medium-term trends and deal characteristics results in investment/disposal proposals or recommendations.  Ongoing review of changes in market conditions is essential for proper timing of entry and exit in property investments.

 Currently building capabilities for implementation of development projects where we do not act in partnership with a reputed developer. Corporate Presentation

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PROPERTY FUND MANAGEMENT  Our team has substantial experience in structuring and managing regulated and unregulated investment vehicles, both in Bulgaria and internationally.  Mr. Martin Paev, CFA, General Manager of SORTIS Real Estate :  structured and managed TBI-BAC REIT (now Prime Property REIT), the first Real Estate Investment Trust in Bulgaria. During his directorship, the REIT provided a return to its investors of 73%, realized over a period of 18 months (Oct 2003-Mar 2005)  worked on structuring Bulgarian Land Development, a GBP 40 mln property investment fund, listed on the AIM Market of the London Stock Exchange.

 Mr. Thomas Higgins, Board Member and Investor :  ex-Managing Director and Chief Investment Officer of the Bulgarian-American Enterprise Fund  ex-Executive Director in charge of SME and hotel lending at Bulgarian-American Credit Bank  co-founder and Managing Partner of Balkan Accession Fund, a EUR 110 mln private equity and mezzanine investment fund

 Mr. Joel Baquiche, Board Member and Investor :  active real estate investor in Europe and the USA  investor in numerous private equity and venture capital deals  committee member of London Business Angels Network and London Seed Capital Fund.

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MEZZANINE REAL ESTATE FINANCING  SORTIS Real Estate structures mezzanine financing deals to support experienced property developers.  Between 60 and 80% of the equity component required for a development project may be provided in the form of a mezzanine loan.  Investors take a quasi-equity position thus achieving attractive risk-adjusted returns:  transfer large part of project risks to the developer  keep part of the upside exposure.

 Mezzanine financing enables developers to implement large projects with limited own equity exposure.  Overall project management remains with the developer.

 Facilitates bank financing for the project.  Mezzanine financing may be provided for projects in all sectors. Corporate Presentation

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INVESTMENT PROCESS Project

Deal

Due

Deal

Project

Identification

Structure

Diligence

Closing

Development

Exit

 We combine systematic top-down approach with opportunity driven project identification.  Local market understanding enhanced by global perspective.  Determine clear and viable exit strategy prior to investment decision.  Structure deals with focus on managing project risks (e.g. hiring experienced contractors or co-investment with reputable developers)

 Professional advice used in a cost efficient manner.  Hands-on approach to project quality, timeliness and flexibility.

development

to

ensure

 Careful ongoing market analysis to determine the right timing for exit. Corporate Presentation

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BOARD OF DIRECTORS Mr. Martin Paev, CFA (born 1975, Bulgarian) – Chief Executive Officer Mr. Paev structured the first Real Estate Investment Trust in Bulgaria (TBI-BAC REIT) and acted as the REIT’s Executive Director from its establishment until he joined Address Group as Executive Director of ADDRESS Investment & Development in 2005. In 2006 he established SORTIS Invest, an investment advisory firm, providing services in the fields of private equity, venture capital, corporate finance and mergers & acquisitions. Martin Paev has 7+ years of investment banking, M&A and asset management experience at the investment banks ING Barings in Frankfurt/Main (Germany), ETEBA (National Bank of Greece Group) in Sofia, Bulgaria, Balkan Advisory Company (an independent investment banking boutique in South-Eastern Europe) in Sofia, Bulgaria and SORTIS Invest in Sofia, Bulgaria. Educated in Bulgaria, Netherlands & Germany, he has Master’s degree in Banking & Finance and Bachelor’s Degree in Business Administration. Mr. Paev is CFA® Charterholder and served two mandates as Board member of the Bulgarian CFA Society.

Mr. Thomas Higgins (born 1966, US citizen) – Board Member, Investor Mr. Higgins is an investment professional who has been living and working in Bulgaria for the last 15 years. From 1993 to 2005 he worked for the Bulgarian-American Enterprise Fund (BAEF) where he become Managing Director and Chief Investment Officer in 1997. In 2005 Mr. Higgins co-founded and become Co-Managing Partner of the Balkan Accession Fund (BAF), a EUR 110 million private equity & mezzanine finance investment fund primarily focused on helping successful Bulgarian and Romanian companies expand in the region. He has previously worked also with Coopers & Lybrand and Equitable Real Estate in New York. Mr. Higgins has held significant leadership positions in the Bulgarian business community, which currently includes Financial Director and Board Member of the Confederation of Employers & Industrialists in Bulgaria, Board Member of the American Chamber of Commerce in Bulgaria, Member of the University Council of the American University in Bulgaria and Co-Founder and Board Member of the Bulgarian Business Foundation for Education. Mr. Higgins is an MBA graduate from the Kellogg School of Management at Northwestern University and received a B.Sc. degree in Finance and Management Information Systems from the University at Albany – summa cum laude. Mr. Higgins speaks Bulgarian.

Mr. Joel Baquiche (born 1951, British) – Board Member, Investor Mr. Baquiche is an experienced investor in private equity and international real estate. He has been doing real estate development in Paris (France) and overseeing family property interests in New York, Atlanta and Florida (USA). Mr. Baquiche is an active investor in real estate projects in the UK since 1987 and in Bulgaria and Romania since 2005. In the period 1974-1980 Mr. Baquiche has represented European companies in the transport, trading and construction sectors in Egypt. In 1982 he became Founder and 50% shareholder of Checkout Computer Systems, an EPOS manufacturer for the hospitality industry. Mr. Baquiche has made numerous investments in start-ups and SMEs, listed and unlisted companies. Mr. Baquiche studied Economics at Manchester University. He has been a Committee member of London Business Angels Network and London Seed Capital Fund for many years.

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KEY TEAM MEMBERS Eng. Ivaylo Angelov, (born 1968, Bulgarian) – Project Manager Ivaylo Angelov has significant project management and technical experience in the construction and real estate business. He has 16+ years of professional experience and has completed numerous developments of office, industrial and residential buildings with aggregate gross built-up area of about 200 000 sq.m. Mr. Angelov has worked as Site Engineer and Project Manager on a number of construction sites, some of which are: Business Park Sofia - Construction of Building B2 (GBA 20,000 sq.m.); Residential complexes at Manastirski Livadi, Sofia (aggregate GBA 30,000 sq.m.) and Malinova Dolina, Sofia (GBA 16,700 sq.m.); Apartment buildings - Borovetz (GBA 24,500 sq.m); Office building – Gorubliane, Sofia (GBA 20,000 sq.m.). Mr. Angelov has a degree in Civil Engineering from the Military Construction Academy in Sofia, Bulgaria.

Ms. Teodora Eftimova, (born 1979, Bulgarian) – Investment Officer Teodora Eftimova has professional experience in the fields of financial planning, investment analysis and business valuation of real estate investment projects. She has been involved in the development of gated community projects with sizes between 15 000 sq.m. and 45 000 sq.m. GBA in the outskirts of Sofia city. Ms. Eftimova has comprehensive experience in various procedures related to the construction and real estate business, such as land acquisition, regulating land, market evaluation and research, investment project financing, tax and accounting and administrative requirements regarding the property investment process. Ms. Eftimova has a Master’s degree in Accounting and Financial Control from the University of National and World Economy in Sofia, Bulgaria.

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INVESTMENT PORTFOLIO AIRPORT BUSINESS PARK PROJECT – SOFIA, BULGARIA  Location: close to the new Terminal 2 of Sofia International Airport

 The Area: Sofia Airport is a fast-developing office district and a wellestablished industrial and logistics area.  Transport: Frontage on current road to Terminal 2 and on the new highway connecting it to Downtown Sofia; existing bus stop.

 Plot size: 5,464 sq.m.  Project Type: development of office and hotel complex with GBA ca. 19,124 sq.m.  Project Duration: 36 months  Project Status: currently in design stage 13

APPENDIX BULGARIA OVERVIEW

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ABOUT BULGARIA - INTRODUCTION   

GENERAL Population: 7.7 mln Area: 111,910 sq. km Coastline: 354 km

    

POLITICS NATO member since April 2004 EU member since January 2007 Stable political situation Decreasing long-term political risk A funding member of OSCE since 1995

        

ECONOMICS Sustainable high real GDP growth rate (6.0% in 2008), inflation (12.5% in 2007) Currency pegged to the EURO via currency board (EUR 1 = BGN 1.95583) since 1997 Investment grade credit rating (Moody’s: Baa3; Fitch: BBB-; S&P: BBB) Developed financial sector – predominantly foreign owned Strengthening economy and rising disposable income Substantial foreign investments (EUR 6.1 bln in 2007, of which 35% in real estate and 12% in construction and approximately EUR 6.0 bln in 2008 ) Sound fiscal policy (budget surplus) Flat corporate and personal income tax rate of 10%, the lowest in EU Booming tourism industry (EUR 1+ bln net revenues in 2007, 10% growth YoY)

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PROPERTY MARKET OVERVIEW 

The Bulgarian property market is an emerging real estate market.



Rapid growth over the past 6 years.



Strong growth of investment activity.



Lack of investment grade products.



Financial crisis resulted in increasing yields and suspension of several large development projects due to lack of financing.



The market offers attractive investment returns (8% to 12%), but saturation is expected in some property segments.



Investment opportunities in distressed properties emerge.



Office segment is most developed, industrial has the highest yields.



IRR of 25+ % is achievable, but projects should be carefully selected.



Thoughtful design, accurate implementation and strong marketing are essential to a successful project.



Investment timing and location are key factors to success.

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PROPERTY MARKET TRENDS  Sales prices stabilized after several years of high growth  Strong growth in demand expected in industrial properties:  Industrial zones  Modern logistics centers  In-town warehousing

 Demand for more retail space throughout the country:  Shopping malls  Hypermarkets

 Strip malls in the largest Bulgarian cities  Power Centers

 Insufficient quality office space in cities:  Sofia office market – undersupply, saturation expected over the next 2-3 years  Opportunities exist for quality office space in broader center locations in Sofia  Demand for Class B office space in Sofia and in other large cities

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BULGARIAN OFFICE MARKET 

Sofia is the main office space market, Varna, Plovdiv and Bourgas follow



Total office stock in Sofia – over 883 507 sq.m., 173 000 sq.m. completed in 2008



Office space of 990 000 sq.m. under construction, 700 000 sq.m. in design phase



Undersupply of investment-grade product. Yields increased to 10+ % (Q4 2008).



Lease terms – 3-5 years, max. 10 years



Vacancy rates in Sofia – 9.4% (2008), lowest in broad center – 2.5%



Office developments in Sofia shift towards the development of Ring Road and Sofia Airport areas

main

boulevards,

dynamic

Prime office rental rates & Yields (EUR/sq.m./month) 20 18 16 14 12 EUR 10 8 6 4 2 0

16 14 12 10

8

%

6 4 2 0 2000

2001

2002

2003

2004

2005

2006

Prime Office Rental rates

Corporate Presentation

2007

Q3,2008

Q4,2008

Prime Office Yields Source: Forton International

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BULGARIAN RETAIL MARKET 

Undersupply of investment-grade products



Yields for prime retail space are increasing from their pre-crisis levels of 6-7% in primary cities, 8-10% in secondary cities



Construction of several shopping malls started in 2008 – Plovdiv, Pazardzhik, Bourgas, etc.



New players continue their expansion on the market (e.g. Carrefour, Baumax, Lidl)



New retail formats will be developed in the major cities – outlet centers, retail parks



Expansion of the big-box/retail warehouse segment, penetration in new areas of the country



International brands shift from high streets towards shopping centers



Penetration level of supermarkets and hypermarkets is still low



Untapped potential for development of Power Centers

Sofia High Street Rents & Yields (€/sq.m./yr)

1600

EUR

16%

1400

14%

1200

12%

1000

10%

800

8%

600

6%

400

4%

200

2%

0

0%

2000

2001

2002 2003 Sofia High Street Rents

2004

2005

2006 2007 Sofia High Street Yields

Corporate Presentation

Q3, 2008 Q4,2008

Source: Forton International

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BULGARIAN INDUSTRIAL MARKET 

The most underdeveloped segment of the Bulgarian property market



Several well developed industrial zones exist



Existing stock – predominantly built-to-suit and owner-occupied premises



New industrial zones currently being designed or developed



Government initiatives for formation of 100 industrial zones by the end of 2013



Tax incentives for investments in regions with high unemployment



Growing demand and attractive yields (currently 11,5-12%)



Potential for further investments in the sector Prime Industrial/Logistics Rents & Yields (€/sq.m./yr) 90 80 70 60 50 EUR 40 30 20 10 0

18 16 14 12 10 % 8 6 4 2 0 2000

2001

2002

2003

2004

Prime Industrial/Logistics Rents

2005

2006

2007

Q3,2008

Q4,2008

Prime Industrial/Logistics Yields

Corporate Presentation

Source: Forton International

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CONTACTS

SORTIS REAL ESTATE Mr. Martin Paev, CFA CEO SORTIS Real Estate

Tel: +359 2 946-39-15 Fax: +359 2 946-39-16 Mobile: +359 88 50-50-200 e-mail:

[email protected]

Mr. Joel Baquiche

Mr. Thomas Higgins

Board Member, Investor SORTIS Real Estate

Board Member, Investor SORTIS Real Estate

Tel/Fax: +44 (207) 368-65-66 Mobile: +44 (7930) 39-82-80

Tel: +359 2 946-39-15 Fax: +359 2 946-39-16 Mobile: +359 888 45-20-51

e-mail: [email protected] [email protected]

e-mail:

[email protected]

www.sortis.bg Corporate Presentation

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