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LSR Group Acquires ZAO Nova-Stroy, a Major Real Estate Developer in Yekaterinburg

16 July 2008

LSR Group, a leading real estate developer and building materials producer in Russia (LSE: LSRG; MICEX, RTS: LSRG) today announces the Board approval of the acquisition of a 100% stake in ZAO Nova-Stroy. This acquisition is in line with the strategy of setting up the company’s regional division in the Urals region based on an integrated business model combining real estate development and building materials production. The deal value is EUR 100 million.

ZAO Nova-Stroy is one of the leading developers in the Yekaterinburg property market occupying 3rd place among the Yekaterinburg developers by its delivery volume with a market share of 4.3%, according to the report of the city’s Construction Committee for 2007. The company’s core businesses are area development and the construction of new neighbourhoods including housing construction combined with office and retail space, parking lots and social infrastructure in the economy and business class segments.

Since its foundation in 2002, the company has constructed and delivered 20 residential properties with a total net selling area in excess of 145,000 sq.m, 30 commercial built-in and annexed premises and buildings with a total NSA of approx. 7,000 sq.m, and also a parking lot for 147 vehicles. The Nova-Stroy brand is well-known in Yekaterinburg: according to independent research conducted by Socium Foundation Co. in March 2008, the aided awareness of ZAO Nova-Stroy is over 67% so by this indicator the company ranks 2nd among the Yekaterinburg developers. The company employs around 200 highly professional specialists.

Today ZAO Nova-Stroy has the ownership rights for:

• Properties under development and land plots to be used for housing construction with a total NSA of more than 530,000 sq.m. The open market value of the above properties, as at 1 February 2008, is around US$ 198 million (or EUR 127 million at the exchange rate of 24 June 2008), according to the DTZ independent appraiser.  With that in mind, today’s increase in the portfolio of LSR’s real estate development projects (taking into account the land acquisitions in Moscow) is at least around 800,000 sq.m resulting in the portfolio’s value increase of US$ 325 million.*

• 25% share in the authorized capital of OOO PKU Nova-StroyProekt design office. The Board of Directors of LSR Group approved the decision to acquire a 75% stake in the above company on 26 June 2008. Consequently, after the transaction is closed, LSR Group will consolidate the entire 100% stake in Nova-StroyProekt.

• 100% share in the authorized capital of OOO SMU Nova-Stroy, Yekaterinburg’s largest construction contractor (with over 500 employees) holding a license to construct buildings and facilities. In 2007 alone, the company completed more than 40,000 sq.m of residential and office space.

Igor Levit, CEO and a member of the Board of Directors of LSR Group said:

“ZAO Nova-Stroy stands for a diversified land bank and a team of top professionals with a long-standing experience in the implementation of real estate development projects in Yekaterinburg and the Sverdlovsk region, one of the strategically important markets for the growth of LSR Group. The new acquisition will enable us to link the chain of our businesses:    production of building materials and prefabricated structures** — real estate development, designing and construction, as well аs to improve our performance in the development and construction of properties on the plots of land previously acquired by LSR in Yekaterinburg.”

*According to DTZ’s report, as at 31 December 2007, the portfolio of LSR’s real estate development projects included 8.24 million sq.m with a total value of US$ 5.7 billion.

**In April 2008, LSR Group acquired an 87% stake in OJSC Betfor Reinforced Concrete Factory, Yekaterinburg’s largest prefabricated construction company and producer of reinforced concrete, ready-mix concrete and aerated concrete. In addition, as of today LSR Group already owns around 60 hectares of land in Yekaterinburg and is planning to use it for launching new neighbourhood development projects of economy class residential property.  

Notes to Editors:

OJSC LSR Group is a diversified construction company founded in 1993 and operating in a number of complementary market segments. Its core business areas are building materials, construction and real estate development. The Group includes enterprises for extraction and processing of aggregates, production and transportation of building materials, and housing construction — from mass market large-panel housing to elite property built after designs made by leading domestic and foreign architects.

LSR Group has operations and offices in a number of cities in the Leningrad Oblast, in St. Petersburg, Moscow, Yekaterinburg, Lithuania, Latvia, Estonia, Ukraine and Germany. LSR Group employs over 15,000 people.

In 2005 and 2006, the revenues of LSR Group (according to IFRS statements) were US$ 463 million and US$ 777 million respectively. In 2007, the revenues amounted to US$ 1,403 million.

LSR Group has a B1 rating  from Moody’s Investors Service (outlook — Stable) assigned in July 2007 and confirmed on 30 May 2008 and a B+ rating by Fitch Ratings (outlook — Stable) assigned on 30 May 2008. The Group’s shares are listed on MICEX and RTS and on the London Stock Exchange in the form of GDRs since its IPO in November 2007. 

In 2007, LSR Group was awarded ‘The Company of the Year’ National Award in the ‘Construction’ category.

Yekaterinburg is the main city of the RF Urals Federal District. It is a major administrative, industrial, transport, trade, research and cultural centre. Yekaterinburg is the centre of the Sverdlovsk Oblast. The population of Yekaterinburg is around 1.3 million people. By its volume of construction the region ranks fourth after Moscow (including the Moscow region), St. Petersburg and Kazan. The construction market in Yekaterinburg has been rapidly growing over recent years: e.g. a total of 900,000 sq.m of housing were completed in 2007, nearly 170,000 sq.m (23% growth rate) more than in 2006 (732,700 sq.m). In 2006, the growth of housing construction compared to the 2005 volume (approx. 640,000 sq.m) was 14%. According to the reports of DTZ, as at end of 2007 the cost per sq.m of economy and business class residential property in the primary market was US$ 2,150 — US$ 2,500 while the average monthly wages were 16,000 roubles (by this indicator Yekaterinburg holds third place in Russia). In 2007, Standard & Poors assigned a BB rating to Yekaterinburg, with a stable outlook.

For more details please contact:

Press Service, LSR Group
+7 (812) 314-1044
press@lsrgroup.ru
www.lsrgroup.ru

«LSR Group» discloses information on the page on the Internet of LLC Interfax-TsRKI — the news agency accredited by the Central Bank of the Russian Federation to disclosure of information.
Information is available here.



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