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
bberki@isyatirim.com.tr
+90 212 350 25 80
Nur Atasoy
natasoy@isyatirim.com.tr
+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
)
$%"
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'%"'
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"
"#
"
%"&
"&
"$
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#"
&"%
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''"#
"%
'("
"(
"&
"# %"#
"
("&
"$
"%
%"#
"#
"$
' "
'#"%
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
$(
$'
$
$%
$
$
''
''
''
'
'
'
''
''
''
''
'
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3 4
/
5
1
6
7 !
Source: TURKSTAT
$
$
$
$
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'"' '"'
'"' '"'
'"( '"(
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* 6
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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.
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s.
23