LSR suspends commercial property pipeline in Russia

Moscow-listed LSR Group has postponed the launch of all new commercial property projects due to the world financial crisis, following the example of several other major Russian real estate developers.

CEO Igor Levit has told the media that the company's diversified business model - real estate development, construction and the production of building materials - gives the company an important competitive edge and makes its business sustainable during the crisis. 'It's always easier to stand on two feet instead of one,' Levit added.

Addressing the company's various activities, Levit said LSR will continue the implementation of housing projects already under construction. The projects involve about 1 million m² of net sellable area. 'They are already generating cash flows, and most of them are nearing completion so they will not require any substantial additional investments,' the CEO said.

Referring to new residential projects pencilled in from the end of 2009-2012, Levit said the group had enough time to adjust its plans. 'We will go on with pre-design and design work so we’ll have everything ready for construction but will only start investing in construction when there is solvent demand of adequate size.'

He said he believes residential property prices will rise in the future. 'Many builders have already started freezing new projects, which means that in future the supply will dramatically decrease and will not be able to meet the potentially high demand. As a result the prices will grow.'

However, the company will not launch any new commercial property projects until the financial markets situation improves. LSR Group said it will not start, despite its earlier plans, the construction of nearly 200,000 m² of net sellable area, mostly in the Electric City business centre in St. Petersburg. 'Commercial property requires significant financial investments before revenues are generated unlike housing projects where funds can be attracted still at the construction stage,' Levit said.

LSR's CEO also noted that the company is considering partial conversion of commercial property projects not yet launched into housing construction projects. Levit said the company is facing no liquidity problems and expects to report good results for 2008.

As of 31 October 2008, the cash balance in LSR Group's accounts was US$ 126 mln excluding the irrevocable cash deposit of US$138 mln linked with the long-term loan facility provided by RBS/HSBC. Over the past nine months the revenues of LSR Group reached US$ 1.5 bn, its IFRS-based EBITDA grew by 86% compared to the same period last year, and came to US$ 377 mln.

LSR Group is to repay US$ 17 mln of debt before the end of this year, US$ 115 mln in the first quarter of 2009 and US$ 44 mln in the second quarter of next year.