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CEO of Kiev-based estate firm talks expansion
21st Century, a Kiev-based real estate developer and property manager, is expanding to Ukraine's regions following its IPO on the London Stock Exchange last December, Chief executive Officer Nikolay Yerzharnovsky has said. Founded in 1995, 21st century is best known for developing the capital's Kvadrat shopping centers, all but one of which has since been sold. 21st Century owner Lev Partskhaladze, who is half Georgian, lost in the Kiev mayoral race earlier this year, and his party Europeyskaya Stolytsya, or European Capital, failed to overcome the 3 percent barrier needed to get into the city council. Yerzharnovsky has played down any connection between the party and the company, denying that Europeyskaya Stolytsya financed Partskhaladze's election campaign. The Post interviewed Yerzharnovsky on July20, following a 21st Century press conference that same day in Kiev.
KP: How long have you been working for 21st Century?
NY: I've been with the company for four years. First, I was head of the legal department, and a year ago I was appointed general director.
KP: What is your background?
NY: I was trained as a lawyer, at Kiev Shevchenko University. I used to work at Alfa Capital [a Russian investment company based in Moscow], and prior to this at Ukraine's Securities Commission.
KP: What are 21st Century's plans for regional expansion?
NY: There is one project in Lvov that we already bought. This is a retail shopping project, a Kvadrat. We also have five projects in Zaporozhje - these are going to be housing and mixed-use projects.
KP: during today's press conference, you said that in order to implement your projects in the regions you will create a joint enterprise with a local development company. Who are your regional partners?
NY: Unfortunately, I cannot disclose this, because we haven't created the company yet, and we are still in the stage of negotiations, arrangements and the signing of primary documents. We are making good process in Kharkov, where most of the documents for establishing a joint enterprise have been signed. The creation of regional companies is a long process.
KP: How long?
NY: We are planning to start implementing some projects by the end of 2006.
KP: Does 21st Century have any problems with land allocation in Kiev? Have you had any such problems in the past?
NY: This year, we have not had any land allocation at all [in Kiev]. We are implementing projects that we already have [land for]. In the past? Well, there were, there are and unfortunately there will be problems with of bureaucracy. No one has changed the process of paperwork: one still needs the signatures of 300 officials, going from one office to another, waiting in different lines. As a result, the implementation of projects is slowed down. This is a significant financial burden. Then longer-term projects become even more expensive for you and the customer. The customer will have to pay more.
CEO separates business and politics
KP: In 2005, we had a lot of protests against construction in green zones, historical places, children's playgrounds and other questionable locations in Kiev. Did you have any problems with protesters?
NY: We didn't have any conflict projects.
KP: This spring, the Europeyskaya Stolytsa did not get into the Kiev City Council. As a result, neither Andrei Myrgorodsky, former first deputy head of the Kiev City Council's commission for construction and architecture, nor Lev Partskhaladze, who has reserved on the council's construction and architecture commission, as well as other positions, have seats in the city government. Is your regional expansion somehow connected to a loss of influence in the Kiev City Council?
NY: 21st Century and Europeyskaya Stolytsa have common features only from the point of view that two of our colleagues are into politics a little. And that's it.
KP: Are you a member of Europeyskaya Stolytsa?
NY: No. None of our people (except the above mentioned leaders) are in this party. We are occupied with business. Politics is not our concern. And the reason for our decision to go to the regions is the existence of new workable opportunities for the company. 21st Century has attracted very strong investors. It has comprehensive facilities to receive loan proceeds. 21st century has received the possibility to implement projects not only in one city, but in many others. And the company is finally able to carry out network kind. If we have a big network, then operationally it would become much more profitable.
KP: You said you were going to merge your portfolio companies?
NY: In the beginning, we worked in one definite segment of the real estate business and had a corresponding team working in that sphere. We had a team working with commercial real estate. Then we formed a team specializing in the area of housing. There was also a team responsible for local, exclusive projects, such as hotels and offices or multipurpose ones. For example, we have 26 hectares for our Vyrlytsa project on Bazhana [Prospect, on Kiev's Left Bank], which combines shopping centers, office, hotel and other kinds of real estate into one project.
Thus, we had three teams. Apparently, at some point, these teams attained a certain success and needed systematization and expansion. It became obvious that the teams must be merged; a system that would comprise the best parts of the teams had to be created, as they were not unique or perfect. Perfect teams simply do not exist. Each has its strong and weak sides. And we carry out a merger; we will have the possibility to select the best parts and get rid of the worst ones, improving the process for greater effectiveness, while avoiding the situation where several people are working on the same case. Where there are three teams, there are three people working in the same process anyway.
KP: Won't this lead to layoffs?
NY: No, we don't reduce our staff. On the contrary, our personnel have increased by one-third in numbers within the last half year. In terms of quality, it has doubled. We are constantly employing new people. Sometimes it is even specialized teams of people. We can see the ways for development in the country, not only in Kiev. We are completely aware of what and how much we need. And certainly we need many people to implement this. Today, our staff numbers 150 people.
KP: What stage of the merger and restructuring process are you at now?
NY: I would say that we are in the home stretch. I would say that it is in finished, but when it comes to the process of restructuring, it is never-ending. Some changes constantly take place in the company. On the whole, we have finished this phase, and today we are one united company.
KP: You said you were going to merge Kiev's Kvadrat shopping centers into one network. However, last year you withdrew form participation in three underground Kvadrats. And more recently you sold your part in another Kvadrat?
NY: We defined the hypermarket gallery format in which we will be developing our network of Kvadrats in Kiev and the regions. This means trade centers of a unified format with defined prices and ranges of goods, a single group of lessees and customers. The whole network will include trade centers of a single standard, with minor distinctions depending on the regions' needs and specifics. The trade centers we sold are not in the format we ant to build.
KP: What about the Kvadrat on [Kiev's] Lukyanivka, the last functioning trade center that's left under your control? Is it also of the wrong format? Are you to sell it, too?
NY: This one is non-standard also. One day we will sell it.
KP: What is this new format you are talking about?
NY: This is a gallery market of about 40,000 square meters. It would have a shopping mall and entertainment infrastructure.
KP: How about the March 26 parliamentary election campaign? Did it influence the situation for your company? How much did it cost?
NY: It didn't influence our company at all. The election was not an area of investment for us.
KP: On Dec. 16, 2005, 21st Century placed 35.7 percent of its shares on the London Stock Exchange's Alternative Investment Market [AIM]. How successful was your IPO?
A: The demand for our stocks' rate 20 percent higher than their face value. This is the maximal possible premium. We think that we hit the mark.
KP: It is said that 21st Century did the public placement to cover expenses for the election campaign.
NY: We made the placement on December 16, 2005, and the elections were in March. As you know, the main election spending takes place at the end of the election race. Secondly, 21st Century and Europeyskaya Stolytsa have nothing in common. And thirdly, an IPO implies much effort and many operations, which took us three years preparations.
KP: Did the elections influence your stock's price? On the next day after the elections, 21st Century Investments Public Let's stocks on LSE fell 2.48 percent.
NY: I don't think this happened.
KP: What are the dynamics now?
NY: It's at 560 GBX today. It contrast to the general trend, our stocks continue to grow slightly.
KP: 21st Century attracted $139million from its IPO. You said during today's press conference that $47 million of this had already been spent. On what?
NY: A major part of this $47 million was used for the Kvadrat [currently being built] on Perova Boulevard [Kiev]. In addition, we used some of it for regional projects and to expand existing ones.
KP: How are you going to spend the rest?
NY: We have many portfolio projects that require financing. We also have many plans for our regional development and investment in projects in the regional centers of Ukraine.
KP: Which area of real estate development would you call the most profitable?
NY: Each of our areas is a priority. Concerning profits, every project is different, all of them are profitable, but one must work hard to make sure to get the greatest possible profit from every project.
Kiev Post
27th, July 2006
Page 1 and 11
By Elena Plekhanova
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