PEAK (MCX: PIKK) is a leading Russian developer in terms of sales of residential real estate. The company is already on the market 26 years and during this time has built more than 27 million square meters of residential real estate for more than 2 million people. The main regions of presence are Moscow and the Moscow Region.
18 January, the developer published operating results for 2021, where it reflected the growth of all key indicators year-on-year against the backdrop of record prices for residential real estate.
In anticipation of the release of financial statements, I propose to consider PIK's operating report more carefully, to understand, how the business managed to reach record volumes of construction and sales in the face of unprecedentedly high real estate prices in Russia.
Disclaimer: if we write, that something went up or down by X%, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.
Market position
Since the second half of 2020, prices for apartments have been growing in the Russian residential real estate market. At the end of 2020, Russia entered the top five countries in the world in terms of price growth. In 2021, despite the deterioration in the conditions of preferential mortgages and the growth of mortgage lending rates to a maximum since 2015, home prices continue to rise.
Mortgage remained the main driver of growth last year, and most of all earned on this banks and developers. In 2021, the volume of mortgage issuance increased by almost 25% to the level of 2020 and reached a record 5.7 trillion rubles. The capital region became the leader in terms of mortgage transactions: Moscow and the Moscow Region accounted for about 460 billion rubles of the total amount of mortgages issued, another 108 billion rubles were issued in St. Petersburg and the Leningrad Region.
By the end of January 2022, mortgage rates in a number of large Russian banks have already exceeded 11%, and while there is every reason to believe, that growth will continue. This will affect the real estate market, especially in view of that, that the growth in incomes of citizens is clearly not keeping up with the increase in apartment prices.
What about sales
In 2021, PIK sold a total of 1% more real estate, than a year earlier. Total sales were a record, despite the weak momentum, and amounted to 2.107 million square meters.
Since 2019, the company has been selling apartments through the fee-development franchising line and takes these results into account in total sales. In 2021, the segment showed significant growth, adding more 59% — and reached 430 thousand square meters of sold real estate.
Taking into account fee-development projects, the company's total sales increased by 8% – up to 2.537 million square meters.
The amount under contracts increased by almost 33% - up to 451.1 billion rubles - against the backdrop of rising prices for apartments. Of this amount, 354.7 billion rubles came from PIK's own sales, and 96.4 billion rubles - for fee-development.
The share of mortgage transactions remained at the level of the previous year — 76%. This reflects the general trend towards rising mortgage rates., especially from the second half of 2021. I guess, that mortgage as a tool in 2022 will stop driving sales in Russia, and the overall share of mortgage transactions will decrease.
The volume of real estate sales, million m²
| The volume of real estate sales | Fee-development projects | Total | |
|---|---|---|---|
| 2017 | 1,839 | — | 1,839 |
| 2018 | 1,941 | — | 1,941 |
| 2019 | 1,836 | 0,120 | 1,956 |
| 2020 | 2,085 | 0,270 | 2,355 |
| 2021 | 2,107 | 0,430 | 2,537 |
Amount under concluded contracts, billion rubles
| Amount under concluded contracts | Fee-development projects | Total | |
|---|---|---|---|
| 2017 | 191,2 | — | 191,2 |
| 2018 | 216,7 | — | 216,7 |
| 2019 | 223,8 | 16,5 | 240,3 |
| 2020 | 292,2 | 48,4 | 340,5 |
| 2021 | 354,7 | 96,4 | 451,1 |
Share of mortgage transactions in the total volume
| 2017 | 60% |
| 2018 | 65% |
| 2019 | 66% |
| 2020 | 76% |
| 2021 | 76% |
60%
Results by region
Moscow remains a key market for the company. The share of the capital accounted for about 60% of the total volume of real estate sales and about 71% of the total amount under concluded contracts in 2021.
In a regional breakdown, only the Moscow Region showed a drop in sales volumes in 2021 by 16% – up to 687 thousand square meters. In Moscow, sales volumes increased by 22% – up to 1.527 million square meters, in St. Petersburg - on 34%, up to 103 thousand square meters, in other regions - 6%, up to 220 thousand square meters.
The amount under the concluded agreements against the backdrop of a general increase in real estate prices increased in all regions of presence. In Moscow, growth amounted to 45% — up to 320.4 billion rubles, in the Moscow region - less than 1%, up to 97.2 billion rubles, in St. Petersburg - 61%, up to 14.6 billion rubles, in other regions - 39%, up to 18.8 billion rubles.
Implementation structure by region in 2021
| The volume of real estate sales | Amount under concluded contracts | |
|---|---|---|
| Moscow | 60% | 71% |
| Moscow region | 27% | 22% |
| St. Petersburg | 4% | 3% |
| Other regions | 9% | 4% |
Dynamics of real estate commissioning and sales
At the end of 2021, the volume of commissioning of real estate reached a historical maximum and increased by 25% – up to 3.036 million square meters.
Real estate listing volumes increased by 41% and reached a record 2.885 million square meters. Of these, 2.342 million square meters fell on the company's own projects, and 543 thousand square meters - for fee-development. In total, in 2021, the company put on sale 22 construction projects and 152 new buildings.
Dynamics of new construction, million m²
| Commissioning | Conclusion for sale | |
|---|---|---|
| 2017 | 2,059 | 2,143 |
| 2018 | 1,980 | 2,503 |
| 2019 | 2,024 | 2,006 |
| 2020 | 2,425 | 2,042 |
| 2021 | 3,036 | 2,885 |
Cash receipts
In 2021, not only the average price per square meter of real estate increased, but also the cost of construction services. As a result, PIK's cash receipts increased by 39% — up to 515.7 billion rubles. This indicates, that according to the results of all 2021, the company expects record revenue.
Of the total cash receipts, real estate sales brought about 347.2 billion rubles, and another 168.5 billion rubles - construction services and other activities.
I will note, that in recent years, the share of proceeds from the sale of real estate has been gradually decreasing against the backdrop of an increase in other sources of income. If in 2017 the income from the sale of real estate accounted for 93% cash receipts, then in 2021 the share decreased to 67%.
The amount of money received, billion rubles
| Real estate for sale | Construction services and other activities | Total | |
|---|---|---|---|
| 2017 | 189,1 | 14,3 | 203,4 |
| 2018 | 220 | 23,9 | 245 |
| 2019 | 225,3 | 59,3 | 284,6 |
| 2020 | 274,8 | 96,1 | 370,8 |
| 2021 | 347,2 | 168,5 | 515,7 |
What's the bottom line?
PIK took advantage of favorable market conditions in the residential real estate segment in Russia - 2021 was a record year from all points of view. The company not only received record cash income from the sale of real estate, but also updated the historical highs in terms of the volume of built and put into operation real estate.
Based on operational reports, we can confidently talk about record financial results in the upcoming consolidated financial statements.
Worth mentioning, that the real estate market is cyclical and a sharp increase in demand and prices can be replaced by long periods of stagnation. The growth of mortgage lending rates will put pressure on the demand of the solvent population, especially given the low dynamics of real disposable incomes of citizens.
Signs of a slowdown can be seen even in PIK's operational report. So, based on the results of 4 quarter of 2021, real estate sales volumes were lower, than a year earlier, despite the higher cost per square meter. All this implicitly hints at, that it will be difficult for businesses in 2022 to maintain the growth rates of the previous two “golden” years.
