LSR Group, one of the leading real estate developers and building materials producers in Russia (LSE: LSRG, MICEX, RTS: LSRG), today announces its sales results for the 1st half of 2008. Almost all business segments have shown significant growth compared to the 1st half of 2007.

REAL ESTATE DEVELOPMENT

Elite Residential Property

In the 1st half of 2008 versus 31 December 2007, LSR Group raised elite residential property prices by 11% to 19% depending on the property type. The average price of LSR properties offered for sale in the elite real estate segment by the end of the 1st half of 2008 was US$ 11,200 per sq.m.

There was a significant growth of sales at elevated prices: the new contracts signed in the 1st half of 2008 with buyers for the sale of 14,000 sq.m and 86 parking slots were worth US$ 125 million*, 124% more than in the 1st half of 2007.

In the 1st half of 2008, LSR Group completed Phase 2 of the Dom u Morya (Seaside House) residential compound in St. Petersburg (70 Martynova Embankment) with  a net sellable area of 1,200 sq.m, and Phase 3 of the same compound (62 Martynova Embankment) with an NSA of 9,800 sq.m**.

In the 1st half of 2008, a total of 13,000 sq.m and 159 parking slots were transferred to customers in the projects completed.

* The above cash will be recognised in the sales revenues once the property is delivered with the flats transferred to the buyers. The average weighted US dollar exchange rate used for the calculations was as of the 1st half of 2008.

**Hereinafter all the data presented in square meters refers to net sellable area.

Economy Class Residential Property

In the 1st half of 2008 versus 31 December 2007, LSR Group raised economy class property prices by an average of 38% while the average offer price in the segment by the end of the 1st half of 2008 was US$ 3,588.

The price rise was accompanied by significantly increased sales with new contracts signed in the 1st half of 2008 for the sale of over 85,000 sq.m and 20 parking slots worth a total of US$ 264 million*, nearly 226% more than for the same period last year.

Around 43,000 sq.m of net sellable area were transferred to customers in the projects completed in the economy class residential property segment.

* The above cash will be recognised in the sales revenues once the property is delivered with the flats transferred to the buyers. The average weighted US dollar exchange rate used for the calculations was as of the 1st half of 2008.

Gated Communities

The total value of new contracts signed for gated communities developments in the suburbs of St. Petersburg in the 1st half of 2008 was US$ 8.2 million*, 225% more than in the 1st half of 2007.

Nearly 1,000 sq.m (4 country houses) were transferred to buyers in the projects completed. In addition to signing contracts for the construction of villas, this year LSR started offering land sale contracts without any contractor work, which resulted in increased revenues from the sale of land. In the 1st half of 2008, the total value of land plots purchased under such contracts was US$ 466,000.

* The above cash will be recognised in the sales revenues once the property is delivered with the flats transferred to the buyers. The average weighted US dollar exchange rate used for the calculations was as of the 1st half of 2008.

Real Estate in Moscow

In the 1st half of 2008, in the residential property segment in Moscow the value of new contracts signed totalled US$ 14.8 million*, 133% more than for the same period last year.

2,300 sq.m and 8 parking slots were transferred to the buyers in the projects completed. 

* The above cash will be recognised in the sales revenues once the property is delivered with the flats transferred to the buyers. The average weighted US dollar exchange rate used for the calculations was as of the 1st half of 2008.

COMMERCIAL PROPERTY

In the 1st half of 2008, a total of 10,000 sq.m of office space was available for lease, 5,000 sq.m more than in the 1st half of 2007, as a result of the commissioning of the new Apollo business centre. The occupancy rate of business centres remained unchanged throughout the 1st half of 2008 and stood at 99%. The average lease fee charged for leasable space in LSR’s business centres in operation during the period grew by 6%.

With Phase 1 of office buildings nearing completion at the Paradny Quarter project, the first preliminary lease agreement was signed for leasing 854.6 sq.m of office space there.

The Apollo business centre completed in 2007 won a Federal Award in the ‘Class A Business Centre – St. Petersburg’ category of the Commercial Real Estate Federal Awards.

CONSTRUCTION

In the 1st half of 2008, the volume of installation work done by two prefabricated construction companies of LSR Group (DSK Blok and Gatchinsky DSK) totalled around 216,000 sq.m, 49% more than in the 1st half of 2007.

In the 2nd quarter this year, LSR Group finalized the acquisition of OJSC Betfor, the largest prefabricated construction company in Yekaterinburg manufacturing panel structures with an annual capacity of 200,000 sq.m. In the 2nd quarter of 2008, OJSC Betfor sold 28,000 cub.m of such panel structures which corresponds to 38,000 sq.m.

BUILDING MATERIALS, AGGREGATES AND CONSTRUCTION SERVICES

LSR Group has also shown stable growth in the production and sales of building materials and aggregates and the provision of construction services.

Building Materials

In the 1st half of 2008, LSR Group sold 316,000 cub.m of reinforced concrete products (including 28,000 cub.m supplied by Yekaterinburg’s Betfor while the total annual capacity was 120,000 cub.m), a 22% increase on the 1st half of 2007. For ready-mix concrete the quantity sold was 763,000 cub.m (including 6,000 cub.m produced by Betfor), up by 9% compared to the 1st half of 2007.  For bricks the quantity sold was 147 million units (up by 10% versus the 1st half of 2007). For aerated concrete the increase in the quantity sold was 464,000 cub.m (including 35,000 cub.m supplied by Betfor), up by 49% compared to the 1st half of 2007. Such a significant growth shown by a number of products was due to the increased production capacities both through the acquisition of OJSC Betfor Reinforced Concrete Factory in Yekaterinburg in the 2nd quarter of 2008 as well as dealer contracts signed with third-party producers of building materials.

Aggregates

For aggregates the volumes sold in the 1st half of 2008 were as follows: sand – around 7.3 million cub.m (up by 35%), crushed granite – 2.5 million cub.m, up by 37% compared to the 1st half of 2007.

The growth was achieved due to high demand as well as the new capacities made operational: in sea and quarry sand production – through the upgrading and expansion of the dredging fleet as well as the start of operations at the new deposits of Novo-Toxovo and Kingiseppsky GOK; in crushed granite production – through the introduction of two new crushing and screening plants with a total capacity of 1.2 million cub.m capacity in summer 2007 and spring 2008, as well as the start of new deposits exploitation and the installation of new hydraulic Terex RH-40 excavators to replace the outdated electrically controlled machines.

Construction Services

LSR Group also increased its sales volume in the construction services segment. The volume of lifting equipment services provided in the 1st half of 2008 grew by 23% compared to the same period last year.

* The decrease in volumes of property transferred to customers compared to 2007 is driven by the completion schedule of development projects, which assumes completion of different volumes of net sellable area each year, which is an inherent feature of real estate development business.

We expect that the decrease in volumes of property transferred to customers will not adversely affect the revenues and margins of our real estate development business in 2008 due to the fact that the financial statements for 2008 recognize significant property price rises in the previous years. In particular, in 2006, housing prices in St. Petersburg doubled and it will be recognized in our financial statements for 2008.

** In 2008, LSR Group acquired Betfor, a prefabricated panels and building materials producer in Yekaterinburg, which has sold 28,000 m3 of reinforced concrete, 6,000 m3 of ready-mix concrete and 35,000 m3 of aerated concrete in the 2nd quarter of 2008 since its consolidation by LSR Group. These indicators are shown in the table above. In addition, Betfor has sold prefabricated panels for the construction of 38,000 m2 of mass market panel housing, which is not included in the Construction Segment indicators in the table above, because Betfor only sold prefabricated panels to third-party developers unlike LSR Group prefabricated panel construction plants in St. Petersburg that sell assembled houses rather than panels.