CEE Real Estate Sector Investment Opportunities

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1ERSTE GROUP RESEARCH 1October 2007ERSTE GROUP RESEARCH

CEE Real Estate Sector Investment Opportunities

André Albrecht

Günther Artner, CFA

Gernot Jany

E R S T E G R O U P

2ERSTE GROUP RESEARCH

Overview

1. Recent under-performance

2. Real estate sector indices

3. CEE market environment

4. Financials & valuation

5. Current top picks

6. Summary

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1. Recent under-performance (1)Performance comparison

Source: Bloomberg as of September 25, 2007

European real estate sector (EPRA) markedly under-performed global equities (MSCI global index), as well as global real estate (GPR250) in 2007

Companies with high share of development out-performed EPRA, GPR250 and also MSCI

In the short-term we expect the sector to remain quite volatile, in mid-term we expect stock prices to converge towards NAVs

Performance overview

1M 3M 6M YTD

MSCI World 6.1 0.1 6.5 10.8GPR 250 5.6 -0.2 -5.9 -0.7EPRA Europe 1.5 -9.5 -21.4 -21.8IATX -0.6 -13.7 -26.3 -19.0CERX n.a. n.a. n.a. n.a.

Immoeast 0.8 -16.6 -25.2 -21.9CA Immo Int. -5.4 -11.9 -20.6 -19.8

GTC 25.9 21.1 5.5 35.6Orco 4.0 -4.4 -10.7 16.0

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1. Recent under-performance (2)Main reasons and how to take advantage

Environment of increasing interest rates, sub-prime crises and rising credit spreads -> higher cost of capital and bearish mood on rental yield development

Slow down of the US residential market and arising problems in the Spanish real estate market increased the uncertainty, despite no direct connection

Main reasons

To take advantage of depressed valuation, go for…

…companies with high share of developments,…

…focused on added value through active management and on…

…the fast growing SEE and CIS regions.

Top picks

Austria-based: - Immoeast (Buy, target price: EUR 11.7)- CA Immo Int. (Accumulate, target price: EUR 16.0)

CEE-based: - GTC (Buy, target price: PLN 57.5)- Orco (Buy, target price: EUR 129)

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Overview






6. Summary

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2. Real estate sector indicesDescription and composition

Comprises Austria-based real estate companies listed on the Vienna Stock Exchange (Prime Market)

Free-float capitalization-weighted index

Base value 155.47 points as of January 2, 1996

Current free-float cap.: EUR 6.0bn

Serves as underlying for standardized derivatives and structured products

Recent exclusion of participation certificates positive

Immobilien ATX (IATX) CEE real estate index (CERX)

Comprises the largest CEE-focused real estate companies listed on the stock exchange in Bucharest, Prague, Warsaw or Vienna (strong development-focus)

Capitalization-weighted index

Base value 1,000 points as of January 5, 2003

Current free-float cap.: EUR 6.0bn

Serves as underlying for standardized derivatives and structured products

Immoeast, 20.1%

CA Immo, 20.0%

Immofinanz, 18.9%

conwert, 18.8%

Sparkassen Immo, 9.2%

ECO, 5.7%

CA Immo Int, 4.6%

Warimpex, 2.8%

GTC, 27.6%

Immoeast, 21.4%

Orco, 19.7%

Echo Inv., 9.0%

Impact, 5.0%

CA Immo Int, 4.6%

LC Corp., 4.2%

DOM Dev., 3.9%

Warimpex, 2.8%

ECM, 1.9%

as of Oct. 11, 2007

Source: Vienna Stock Exchange

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Overview






6. Summary

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3. CEE market environment (1)Austrian companies are leading investors in CEE

Investments into the CEE real estate sector were rising significantly, even excl. developments

Austrian (listed) real estate companies are the biggest players in the whole CEE region (!)

Immoeast, CA Immo Int., etc. are the leading Austrian investors in the CEE region

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3. CEE market environment (2)Penetration rates still behind Western Europe

Most CEE countries are still substantially behind Western Europe (WE) in terms of office space density, even the most advanced markets of Prague and Warsaw are still 60% behind

Retail density is far more progressed and the core CEE markets have already approached WE levels

Romania, Russia and Ukraine are the markets with the highest catch-up (i.e. growth) potential

Shopping center density 2006 in Europe Office density 2008e

0.36

0.39

0.77

0.77

1.11

1.14

1.28 1.92

2.05

4.34 5.21 6.

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24

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06-0

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Stock per capita 08e 06-08 growth

Source: CBRE, JLS, Eurostat, Erste Bank estimates, CBRE, DTZ, KS

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3. CEE market environment (3)Yields are converging, rents are increasing

There has been a continuous convergence of rental yields in CEE towards Western European levels

Rents are either bottoming out or in an increasing phase in nearly the whole CEE region

There has certainly been a lot of value creation in the CEE real estate sector already, but the macro environment is still OK – listed stocks have anticipated a much worse environment already

European Office Property Clock, Q2 2007

Source: Jones Lang LaSalleSource: CB Richard Ellis

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3. CEE market environment (4)Interest rate development and yield spreads

10y government bond vs. 3 month EURIBOR/VIBOR Prime office yield spread over 10y bonds

Whereas the 3-months EURIBOR has reached a neutral level, the 10-year government bond is still low in a historical context the interest rate environment is neutral in summary

The current interest rate environment is significantly better than at the beginning of the 90ies, the time of the latest major decline in property values in Europe

Property yield spreads vs. government bonds are most attractive in Romania, Bulgaria and Russia, the worst in Hungary and France

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

RO BG RU CZ HU PL AT GE SP FR

Source: Datastream

Source: Erste Bank estimates, end September 0787 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

1

2

3

4

5

6

7

8

9

10

AUSTRIA BENCHMARK BOND 10 YR

EURIBOR 3 MONTH

VIBOR 3 MONTH

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Overview






6. Summary

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4. Financials & valuation Peer group comparison

Market EPRA NAV(EURmn, EUR) Cap. Country 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e last rep. CAGR 06-09eAustria-basedImmoeast 7,042 AT 1.02 0.84 1.14 1.29 0.00 0.00 0.00 0.00 10.15 11.31 12.47 14.00 10.50 11.3%Meinl European Land 2,196 AT 1.31 n.a. n.a. n.a. 0.00 n.a. n.a. n.a. 15.56 n.a. n.a. n.a. 15.64 n.a.Immofinanz 3,879 AT 1.03 1.05 1.15 1.73 0.33 0.23 0.24 0.29 10.85 11.97 13.17 14.90 11.30 11.1%CA Immo 1,648 AT 1.16 1.07 1.33 1.67 0.00 0.00 0.00 0.00 21.21 22.28 23.61 25.28 22.23 6.0%conwert 1,122 AT 0.97 0.97 1.02 1.03 0.00 0.00 0.00 0.00 15.30 16.49 17.73 19.23 15.33 7.9%Sparkassen Immo 555 AT 0.62 0.48 0.76 1.43 0.00 0.00 0.00 0.00 8.91 9.72 10.52 11.94 9.40 10.2%CA Immo Int. 549 AT 1.84 1.50 1.71 3.20 0.00 0.28 0.31 0.30 13.71 15.25 17.09 18.54 14.25 10.6%ECO 338 AT 0.99 0.98 1.03 1.32 0.00 0.00 0.00 0.00 12.15 12.56 13.76 14.99 12.22 7.3%

CEE-basedGTC 1)

3,292 PL 0.91 0.58 1.51 1.62 0.00 0.00 0.00 0.00 n.a. 11.7 13.6 14.2 n.a. 10.2%Orco 1,173 CZ 12.74 12.98 12.70 7.84 1.00 1.10 1.21 1.33 99.4 124.4 142.0 155.6 115.7 16.1%ECM 103 CZ 5.02 6.36 2.91 4.26 0.00 0.00 0.00 0.00 52.3 61.1 70.5 65.4 57.7 7.8%

Share EPRA NAVprice Currency 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e 2006 2007e 2008e 2009e last rep. CAGR 06-09e

Austria-basedImmoeast 8.45 EUR 8.3x 10.0x 7.4x 6.6x 0.0% 0.0% 0.0% 0.0% 0.83x 0.75x 0.68x 0.60x 0.80xMeinl European Land 10.40 EUR 7.9x n.a. n.a. n.a. 0.0% n.a. n.a. n.a. 0.67x n.a. n.a. n.a. 0.66xImmofinanz 8.45 EUR 8.2x 8.1x 7.3x 4.9x 3.9% 2.7% 2.8% 3.4% 0.78x 0.71x 0.64x 0.57x 0.75xCA Immo 18.89 EUR 16.3x 17.7x 14.3x 11.3x 0.0% 0.0% 0.0% 0.0% 0.89x 0.85x 0.80x 0.75x 0.85xconwert 13.15 EUR 13.6x 13.6x 12.9x 12.8x 0.0% 0.0% 0.0% 0.0% 0.86x 0.80x 0.74x 0.68x 0.86xSparkassen Immo 8.15 EUR 13.1x 16.8x 10.7x 5.7x 0.0% 0.0% 0.0% 0.0% 0.91x 0.84x 0.77x 0.68x 0.87xCA Immo Int. 12.63 EUR 6.9x 8.4x 7.4x 3.9x 0.0% 2.2% 2.5% 2.4% 0.92x 0.83x 0.74x 0.68x 0.89xECO 9.90 EUR 10.0x 10.1x 9.6x 7.5x 0.0% 0.0% 0.0% 0.0% 0.82x 0.79x 0.72x 0.66x 0.81xAverage 10.5x 12.1x 10.0x 7.5x 0.5% 0.7% 0.8% 0.8% 0.84x 0.79x 0.73x 0.66x 0.81x 9.2%

CEE-basedGTC 15.00 EUR 16.4x 26.0x 9.9x 9.2x 0.0% 0.0% 0.0% 0.0% n.a. 1.29x 1.10x 1.06x n.a.Orco 111.94 EUR 8.8x 8.6x 8.8x 14.3x 0.9% 1.0% 1.1% 1.2% 1.13x 0.90x 0.79x 0.72x 0.97xECM 59.68 EUR 11.9x 9.4x 20.5x 14.0x 0.0% 0.0% 0.0% 0.0% 1.14x 0.98x 0.85x 0.91x 1.03xAverage 12.4x 14.7x 13.1x 12.5x 0.3% 0.3% 0.4% 0.4% 1.13x 1.05x 0.91x 0.90x 1.00x 11.4%Source: JCF, Erste Bank estimates1) EPRA NAV CAGR 07e-09e

EPS DPS EPRA NAV

P/ EPRA NAVP/E Dividend yield

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Overview






6. Summary

E R S T E G R O U P


5. Current top picks (1)Immoeast (Buy, EUR 11.7 from EUR 13.2)

Dominant CEE player Dominant player in CEE with clear investment focus

Experienced management team with excellent track record

Well diversified portfolio across regions and sectors

Strategic joint ventures and partnerships with well established developers active in CEE

Additional value creation from development gains

Switch to more active portfolio management

Low interest rate sensitivity, due to hedging strategy

Risks Substantial recent capital increase with dilutive effect and

temporary sub-optimal capital structure

Higher business risk, due to stronger focus on developments

Higher country risk especially in SEE and CIS

Potential conflict of interest between Immoeast and Constantia Privatbank, which have same management team

Property breakdown 1Q 07/08

Key figures

Office, 34%

Retail, 29%

Residential, 14%

Logistics, 15%

Parking, 6%

Other, 2%

EUR mn* 2005/06 2006/07 2007/08e 2008/09e 2009/10e

Total revenues 79.7 192.1 392.2 681.5 1,170.3EBITDA 71.2 92.0 246.6 367.4 615.0EBIT 156.3 541.3 760.1 1,187.8 1,613.1Net profit 145.3 528.2 683.4 947.9 1,074.3

EPS (EUR) 0.76 1.02 0.84 1.14 1.29

NAV/share (BVPS) (EUR) 7.47 8.83 10.04 11.17 12.46

EPRA NAV/share (EUR) 8.39 10.15 11.31 12.47 14.00

CEPS (EUR) n.a. n.a. 0.38 0.39 0.37Dividend/share (EUR) 0.00 0.00 0.00 0.00 0.00

EV/EBITDA (x) 26.4 51.1 27.0 18.1 10.8P/E (x) n.a. 8.3 9.5 7.0 6.2P/CE (x) n.a. n.a. 21.1 20.6 21.3P/EPRA NAV (x) 1.01 0.83 0.71 0.64 0.57Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0%

* All ratios based on the fair value method.

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5. Current top picks (2)CA Immo International (Accumulate, EUR 16.0)

Early bird in CEE

Early bird with proven track record in CEE

Experienced in-house management

Additional value creation from development gains

Third-party fee income

Active portfolio management

Low interest rate sensitivity, due to hedging strategy

Risks

Sub-optimal current capital structure

Higher business risk, due to focus on developments

Higher country risk, especially in SEE and CIS

Still relatively low liquidity compared to other real estate stock

Property breakdown 1H 07

Key figures

Office60%

Logistics2%

Parking27%

Other7%

Retail4%

EUR mn* 2005 2006 2007e 2008e 2009e

Total revenues 31.3 47.6 56.4 59.2 94.3EBITDA 20.7 32.0 34.4 63.2 125.8EBIT 60.2 63.8 83.6 112.4 242.0Net profit 46.7 47.9 65.4 74.2 139.0

EPS (EUR) n.a. 1.84 1.50 1.71 3.20

NAV/share (BVPS) (EUR) 11.73 13.41 14.89 16.24 17.83

EPRA NAV/share (EUR) 11.77 13.71 15.25 17.09 18.54

CEPS (EUR) n.a. 0.00 0.34 0.25 0.44Dividend/share (EUR) 0.00 0.00 0.28 0.31 0.30

EV/EBITDA (x) 25.6 22.8 24.2 26.6 17.4P/E (x) n.a. 6.9 8.7 7.6 4.1P/CE (x) n.a. n.a. 38.4 52.6 29.6P/NAV (x) 1.08 0.94 0.88 0.80 0.73Dividend yield n.a. 0.0% 2.2% 2.4% 2.3%

* All ratios based on the fair value method.

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5. Current top picks (3)GTC (Buy, PLN 57.5)

Shark in a local pond

Clear strategy focused on development in unsaturated SEE and CIS region

Well diversified portfolio in eight countries and three sectors

Large economies of scale

Very low indebtedness

Loans 80% fixed rate or hedged

Experienced and stable management team with strong track record

Good relationship with best tenants in region

Risks

Already high efficiency do not allow for above-average growth margins

Slightly higher valued compared to competitors

Slim employment structure could cause delays or slow new project starts

Expansion to SEE and CIS increases exposure to more volatile economies


Key figures

EUR mn* 2006 2007e 2008e 2009e

Sales 80.9 88.9 331.7 846.0Revaluation gains 199.1 154.9 416.2 357.8EBIT 232.6 183.8 496.8 537.8Net profit 195.1 126.5 333.1 358.1

EPS (basic, EUR) 0.91 0.58 1.51 1.62EPS (diluted, EUR) 0.88 0.57 1.50 1.61NAV/share (EUR) n.a. 11.68 13.62 14.18BVPS (EUR) 3.35 3.90 5.40 7.02DPS (EUR) 0.00 0.00 0.00 0.00

P/E (basic, x) 16.5 26.0 9.9 9.2P/NAV (x) n.a. 1.29 1.10 1.06P/BV (x) 4.48 3.85 2.78 2.14Dividend yield 0.0% 0.0% 0.0% 0.0%

*All valuation ratios are based on the current stock price.

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5. Current top picks (4)Orco Property Group (from Hold to Buy, EUR 129)

Opportunistic player with re-development potential

Above-average yield potential through re-development focus and growth in occupancy

Opportunistic approach with focus on arbitrage gains, rather than segment/region focus

Good access to financing with partners like MSREF, LB, quadruple stock listing

Strong balance sheet with 44% LTV after recent capital increase

Good segment diversification

Regional diversification with operations in CEE and Germany

Stable and experienced management

Risks Low exposure to quickly growing SEE and CIS markets

compared to peers

Lower share of developments compared to peers

Still low operating performance

Difficult valuation methodology


Key figures

Office, 35%

Retail, 9%

Residential, 46%

Other, 10%

EUR mn* 2006 2007e 2008e 2009e

Sales 172.9 270.4 324.5 489.6Revaluation gains 145.9 198.0 272.6 168.6EBIT 134.2 245.7 299.1 230.3Net profit 96.7 130.7 159.0 108.4

EPS (basic, EUR) 12.7 13.0 12.7 7.8EPS (diluted, EUR) 8.2 8.7 9.9 6.4BVPS (EUR) 54.1 74.2 88.4 98.7NAV/share (EUR) 99.4 124.4 142.0 155.6DPS (EUR) 1.00 1.10 1.21 1.33

P/E (basic, x) 8.8 8.6 8.8 14.3P/BV (x) 2.07 1.51 1.27 1.13P/NAV (x) 1.13 0.90 0.79 0.72Dividend yield 0.9% 1.0% 1.1% 1.2%

*All valuation ratios are based on the current stock price.

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Overview






6. Summary

E R S T E G R O U P


6. SummaryMain points and outlook

No direct impact of US subprime crises

Significant removal of funds from institutional investors triggered a correction of the European real estate sector stocks

Weak performance in 2007

Market environment deteriorated, but not significantly

Financing costs (credit spreads) have increased and will remain more expensive than before

Real estate companies have less liquidity, which may slightly dampen the market environment also in Europe

Sentiment and stock exchange multiples (NAV discounts) are far worse than the actual market situation, however

Outlook

Rental market yields could slightly increase, but room is limited due to arbitrage opportunities through leveraged debt financing

Stock prices should converge towards NAVs in the mid-term, when the next quarterly results continue to show a good operating performance and no major write-downs

We focus on development-oriented firms, which are heavily weighted in the CERX index

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Disclosures

Documents

CEE Real Estate Sector Investment Opportunities