CapitaLand plans to take an initial US$100 million stake in a big Russian logistics property developer with big expansion plans in the Commonwealth of Independent States (CIS) involving a total of US$3 billion investment under a Memorandum of Understanding announced yesterday.

The Singapore property giant will also help its Russian partner, Eurasia Logistics, float a Russian logistics real estate investment trust (Reit), possibly in about 1 1/2 years, going by its quick track record in spinning Reits.

CapitaLand Group CEO and president Liew Mun Leong said yesterday it is also exploring the residential and office property markets of affluent Russian cities like Moscow and St Petersburg, as part of its strategy to invest in fast-growing, oil-rich countries.

The group’s service residences arm, The Ascott Group, has tied up with Russia’s Amtel Properties for a US$100 million fund to buy and develop service apartments in Moscow and St Petersburg.

Eurasia Logistics has so far bought six sites worth about US$500-700 million for development into Grade A logistics facilities and plans to buy 10 more. The 16 Grade A logistics facilities in Russia, Kazakhstan and
Ukraine, will have a total space about 5 million square metres when completed by end-2010.

The total development cost of the 16 properties is estimated at US$3 billion, but when completed, they could be worth about US$7-8 billion, ‘depending on market rates in Russia and international market rates’, according to Eurasia Logistics chief executive Alexander Volkov.

Assuming the current average net rental of US$120 per square metre per annum for Grade A logistics space in Russia, the 16 properties will yield about US$600 million annual net rental income. Assuming a capitalisation rate of, say, 12 per cent, the value of the properties would be about US$5 billion.

CapitaLand officials indicated that an initial five or six properties, when completed and their income stabilised, would be sufficient for spinning off a Reit.

Mr Volkov said the partnership with CapitaLand will be the biggest real estate deal involving Singapore and Russian parties ‘and we believe that it’s only the beginning’. ‘Within a year’s time, we will expand our programme,’ he said. Mr Liew said the two sides hit it off after an initial meeting at last month’s Russia-Singapore Business Forum held in Singapore.

CapitaLand is proposing to take an initial 10 per cent equity stake through a new share subscription - possibly costing around US$100 million - in Eurasia Logistics with the possibility of raising this stake to about 25 per cent.

CapitaLand will also be strategic adviser to Eurasia Logistics to optimise its portfolio value. The two will also set up a fund management company.

Eurasia Logistics’ parent company, Moscow-based Eurasia Investment and Industrial Group, was founded in 2003 by a group of private investors from Kazakhstan and Russia. It is developing a huge oceanarium in Moscow, Europe’s biggest underground mall (also in Moscow), and a new master-planned city in a Moscow suburb.

Eurasia Logistics’s five-year plan to build the 16 Grade A logistics facilities began last year. It has a strong global client base that includes consumer giants Nestle Waters and Pepsi, and it plans to create a network of logistics facilities to unite the main hubs in Russia and CIS into a single system of distribution centres. This will enable Eurasia Logistics to become Europe’s largest commercial property developer.

Eurasia officials yesterday said the strong demand in Russia for international-standard-logistics facilities from MNCs, far outstrips supply. And Eurasia, with its pole position, has a first-mover advantage.

Construction is on at some of the six plots Eurasia has bought. Severnoye Domodedovo facility in the Moscow Region will be the first to come on stream. Construction began in July last year, the first phase, with 360,000 sq m of space that will be ready in Q3 2007, is already 90 per cent leased. Phase 2A, with another 180,000 sq m, is 95 per cent pre-let and will be operational in November.

Source: The Business Times, 27 April 2007