A CONSTANT GARDEN OF RETURNS

Kazakhstan 2018 | CONSTRUCTION & REAL ESTATE | INTERVIEW

TBY talks to Rinat Kassymov, CEO of Mercury Properties, on nearly tripling its assets under management, ensuring the concept is as powerful as the outcome, and maintaining strong internal rates of return.

Rinat Kassymov
BIOGRAPHY
Rinat Kassymov has more than 20 years of experience in corporate finance and the oil and gas industry. Currently CEO of Mercury Properties, Kassymov was previously CEO at Gidromasch Holding and Head of Corporate Finance at KazTransOil. Prior to these assignments, he was Head of Oil and Gas Assets at the sovereign wealth fund Samruk-Kazyna. He holds an MSc in international economics, finance, and strategic management from Brandeis University and ESSEC Business School in Paris.

What was the strategy behind grouping all your companies' real estate assets together to create Mercury Properties?

The main reason for creating Mercury Properties was to start a company that could professionally manage real estate assets. Our shareholders thought our properties were undermanaged, so the decision to create Mercury Properties was made to manage them and establish a strategy and operational model to increase our shareholders' value. In many ways, it was a vision that gave rise to a more professional real estate market in Kazakhstan, which was quite missing from the local industry. When we started the company, our total real estate assets accounted for 270,000sqm, while today the figure reaches more than 600,000sqm. Clearly, while small assets require a lot of resources, the revenue they generate is often low, so we chose to focus on assets of over 10,000sqm. These larger ones can also be of interest to institutional investors. We want to create a company with the kinds of assets and management approach that suit potential investors.

Which segment of the real estate market have you focused on over the past 12-18 months?

Recently, we have been focusing particularly on logistics, which led us to acquire another warehouse in Almaty. We see real potential in logistics, as there are no new assets under construction now. As Kazakhstan's GDP is gradually increasing, so is the interest in logistics. We recently completed the acquisition of ALG Company, a large logistics operator with a warehouse area of over 48,000sqm. We have also considered opportunities in Karaganda and Aktobe, but these cities sometimes offer a big gap between the current owner's price expectation and how we value the asset. In general, we consider any assets that can give us a good rate of return. To illustrate, we recently bought Car City, a C-class property in Almaty, because of the brand. A 27,000-sqm trade center, Car City is well known for being a place that offers anything for cars. Looking at the retail sector, there are too many shopping malls and centers, particularly in Astana, and the sector is too volatile. In the mid to long term it will affect everybody in the market because this is a new concept, a new way of shopping and delivering entertainment. This will negatively affect any shopping centers that have a weak concept, selection of outlets, or building. Comparable to business centers, we acquire and upgrade them to increase the value and attract better tenants. For example, we changed a business center in Almaty from class C+ to B+ by upgrading the exterior, interior, parking, and management. We put in electronic key access for parking and have an app for contacting the management company. We also invited more affluent tenants to move in, such as Tengri Bank and several multinational companies. So, we invested a considerable amount there and we saw our revenue go up as a result. Most importantly, revenue fluctuations were minimized.

What are your expectations and plans at Mercury Properties for 2018?

Our strategic objective is to keep every asset in our portfolio for now; this has been our approach since 2014. Naturally we intend to wait for increased profitability and then sell, but our shareholders want to keep their assets. At some point, we need to think about what to do next and have started to consider Southeast Asia's capital markets to raise financing for future projects. Our whole group is audited by EY according to international financial and accounting standards. We have established a good operating model and have a good track record in acquiring assets and improving them. We also have a strong record in our internal rate of return. Unfortunately, our local banks are limited, and finding local sources of financing for the group is our biggest problem.