Raven Russia Limited

www.ravenrussia.com TICKER: RUS     EXCHANGE: FTSE 250

Raven Russia Limited is a Guernsey registered property investment company specialising in commercial real estate in Russia; concentrated on the acquisition and development of high quality class A warehouse complexes in the country's major cities and their subsequent leasing to Russian and international tenants. Since its formation in 2005 the group has implemented a policy of massive and largely speculative development of warehouse facilities in Russia, principally in the Moscow region. It has emerged from this as the largest owner of Western standard Class A warehouses in Russia. Raven Russia's financial position is strong. At December 2010 the group had cash resources of $107.6m and borrowings of $432.1m, against shareholders' funds of $797.8m (including preference capital). This is a powerful platform on which to base a further substantial expansion of the property portfolio. Raven Russia is a substantial company with a market cap of approx. £350 m on its ordinary shares, with an additional £200 m of preference share capital.

LATEST REPORTS

 
Tenacity winning through
Published: Mar 28 2018

Raven Russia is a Guernsey registered property investment company specialising in Russian commercial real estate. The portfolio focus is investment and development of high quality Class A warehouse complexes in major cities let to Russian and international tenants.
Recent FY17 results and the distribution to ordinary shareholders were both ahead of market expectations, and continuing stabilisation of group finances coincides with increasingly positive economic and property market data. That should shift the investment focus back on the group’s core business and Raven’s competitive positioning as a market leading provider of Russian warehousing and 3rd party logistics.  It has capacity to grow, and the potential to capitalise upon Russia’s determination to modernise its economy, supply chain and infrastructure.
The results featured 10% y-o-y NOI growth, 19% in underlying EPS, and a 50% increase in the final distribution to 3p/share. Diluted NAV/share was also 13% ahead at 80c (57.5p), backed by the first uplift in appraised asset values for five years. 
Raven has capitalised on £211m raised via two convertible preference share issues to build the sustainability of its financial base. The proceeds funded (a) $209m of high-yield acquisitions, which have added c $24m to the rent roll, and (b) debt reduction and renegotiation of facility terms, including reduced annual amortisation rates. 
The shares are underpinned by earnings growth and an attractive yield (paid via a tender offer to buy back shares) and the positive NAV outlook. The group’s financial footing has been assisted by the improved macro and domestic real estate market backdrops. Key economic data (GDP, inflation, interest rates) are stabilising, core lettings and investment markets are operating more conventionally.
Our forecasts are conservative i.e. absorb the impact of the transition to Rouble rents but assume no further acquisitions despite $267m of year-end cash, which could clearly have a material positive impact on NOI and EPS.  
 
Pouncing, delivering promises
Published: Nov 06 2017

Raven Russia is making its second major earnings enhancing acquisition this year, as adumbrated in the Interim Statement in August. The optimism for the Russian market we expressed in our last report  is reinforced by the CEO’s statement that the acquisition is being made ‘at a point which is increasingly feeling like the bottom of the cycle.’
The property being acquired is a logistics park situated north of Moscow 2km from the new Moscow to St Petersburg toll road, comprising 195,132m2 of Grade A warehousing, and adds approximately one-eighth to the existing warehouse portfolio calculated on gross letting area. The consideration is being satisfied out of the company’s substantial cash resources, composed of an initial RUR 5.12bn ($87.78m) with a further payment of a maximum RUR 1.97bn ($33.75m), dependent on letting of vacant space within the next 18 months.
We note that: all leases are rouble denominated with average unexpired terms of four years; the cost of RUR 36,000/m2 ($600/m2) is at or below current cost of new development; yield on full consideration is 11.38%, with a reversionary yield of 12.51% on estimated rental value (‘ERV’), including full letting and indexation etc. and with a clear positive margin over the last reported cost of secured debt of 7.7%. It also compares with the yields used in the last valuation of the Moscow portfolio of 10.7-12.0%, which implies there is room for an upward revaluation on the next review.
A full year’s impact on the Income Statement will be felt in 2018. We have not yet, however, revised our models, other than for movements in forex and issued capital. At present, we maintain our fair value of the ordinary shares at 60p.
 
On the acquisition trail
Published: Aug 29 2017

Raven Russia is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality Class A warehouse complexes in the country’s major cities and their subsequent leasing to Russian and international tenants.
Results in H1 2017 (just announced) were in line with our expectation and the Company again emphasises that it is on the acquisition trail and that it has the firepower to do so (net cash today of $237m). Gearing is now down to its lowest level since 2012, thanks to the second issue of convertible preference in July.
The purchase in April 2017 of three unencumbered properties in St Petersburg was earnings and NAV enhancing, and the first two months revenues from it served to cushion the impact of orderly transition to the new market norm of Rouble denominated rents.
Lower forex profits and Conv Pref dividends mean that earnings per share will be lower. Yet the outlook for the Russian economy is encouraging with a return to GDP growth forecast this year, and inflation falling to an all-time low.
We maintain our calculation of Fair Value for the ordinary at 60p per share.
 
Girding the loins
Published: Jun 15 2017

Raven Russia is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality Class A warehouse complexes in the country’s major cities and their subsequent leasing to Russian and international tenants.
The group is strengthening its balance sheet further while eyeing acquisition possibilities and other developments. The placing of a second tranche of the 6.5% convertible preference shares will raise (subject to GM approval next month) a gross £102.3m at an issue price 14% higher than the first tranche last year. Although somewhat dilutive of earnings, it enhances net asset value and supplies firepower.
The placing of the first tranche of convertible preference in June 2016 was used for restructuring debt, but was also followed some months later by the acquisition of three properties in St Petersburg. These properties (87% leased in Roubles) were acquired on a yield of 16%. Not a bad rate of return when borrowing costs are a little over 7%.
In addition to acquisitions of already completed and let properties, what is intriguing is the announcement last month of a Memorandum of Understanding (‘MOU’) with the Central Union of Consumer Cooperatives for the Russian Federation ("the Co-Op") to develop a nationwide network of wholesale distribution centres for agricultural products. Such a MOU demonstrates how far the group has come in establishing itself as a major and accepted force in the property segment in Russia. Target returns to Raven Russia are a minimum 12% unleveraged.
For the moment we maintain our Fair Value of 60p for the Ordinary shares, but may revise this (upwards) on publication of the Interim Report due at the end of August.
 
De Profundis
Published: Mar 15 2017

Raven Russia was founded in 2005 to invest in class A warehouse complexes in Russia and lease to Russian and International tenants. Its Ordinary Shares, Preference Shares and Warrants are listed on the Main Market of the London Stock Exchange. The company has a market capitalisation of approximately £335 million and the capital value of all of its listed instruments is £610 million.
The Group has just released its 2016 Final results. These showed an IFRS profit after tax $7.7 million (2015: Loss of $192.4 million); a year end cash balance of $198.6 million (2015: $202.3 million); and diluted net asset value per share 71 cents (2015: 70 cents). Raven Russia is emerging from the depths of the Russian recession with its business intact, and its balance sheet strengthened and capable of supporting opportunistic acquisitions on favourable terms. The first acquisition (in St Petersburg) should be completed before the end of March, on a yield of 16%. 
Raven Russia has done remarkably well to hold Net Operating Income (‘NOI’) relatively stable for the last three half year periods, following the sharp decline in H2 2015. This has been against a background for which the term ‘challenging’ should be considered inadequate. There are two principal reasons for this: concentration on high quality tenants has protected it more than most from defaults, and the company has defended robustly and successfully its dollar-denominated leases in the Russian courts, while renegotiating extensions to existing leases on favourable terms, giving further protection over the next few years.
The Russian economy appears to be bottoming out, with growth expected from 2017 onwards. Some of the effects of the recession are delayed, but are contained within a business plan which looks increasingly expansionary. NOI should be flat in 2017, but pre-tax should fall without the exceptional $18m forex profit in 2016, but subsequent years should show a slow return to growth in NOI after allowing for further conversion to rouble-based rents, and NAV should rise after a period of write-downs, as valuation yields fall. The ordinary shares stand at a discount to NAV and on a yield of 5.0% rising to 6.0% on our estimates. We raise our fair value to 60p per share. 
 
Carpe Diem
Published: Jan 20 2017

Raven Russia Limited is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality class A warehouse complexes in the country's major cities and their leasing to Russian and international tenants.
The group is using its financial muscle to seize the opportunity to acquire prime assets in St Petersburg on a yield of 16%. We have referred repeatedly to the group’s defensive qualities in what has been a difficult market and also to its capacity to deal with advantage in such a market.
Raven Russia is buying three properties (one completed warehouse and two office buildings) in St Petersburg. The assets are being acquired at a cost of 4.9 billion roubles (US dollar equivalent $82m). They are 98% let, the bulk of which is in roubles rather than US$, at today’s market rents, so the ‘transition effect’ does not apply. 
On our preliminary estimates, the acquisition targets will add a minimum of $10m pa to the bottom line (in comparison with the latest published figures), without any dilution to equity. We expect to have the basis to upgrade our forecasts when results are released in March, but in the meantime we maintain our share valuations previously published (Ordinaries 50p, Preference 160p)
 
Cash is King
Published: Aug 29 2016

Raven Russia's Interim results, for the 6 months to end June, released this morning, show IFRS earnings after tax $8.8 million (30 June 2015: loss of $20.6 million), and basic underlying earnings per share 4.8 cents (30 June 2015: 5.0 cents). These results were better than anticipated. Given the trying Russian market background over the last couple of years, Raven Russia's performance has been very resilient. As is always the case, management of the completed portfolio has been very tight.
At the start of H2, Raven Russia raised £109 million through the placing of new 6.5% convertible redeemable preference shares: as a result of this, and continuing astute cash management, the group's cash balance today stands at $331 million. 
There are signs that the Russia economy is stabilising, with the IMF expecting 1% GDP growth next year. We have raised our full year 2016 estimates, and, bearing in mind that Raven Russia is financially much more robust than when we last reviewed the company, with the NAV of 53.8p per share (pro forma), the upside outweighs the downside.  We raise our price target from 40p per share to 50p.

ARCHIVE

2016
Resilient in a tough market - and cash rich
Published: Mar 13 2016

Raven Russia's statement is predictably downbeat, given the background of a troubled Russian economy (on the latest numbers, for calendar 2015 Russian GDP fell by 3.7%, and is forecast by the IMF to contract by a further 1.0% in 2016) and a weak rouble, but the company has displayed its strengths in the 2015 Final results published today.

Property net operating income is only 6.8% down, partly because of timing impacts from rouble devaluation. The non-cash revaluation of the property portfolio pushes NAV to a fully diluted 49p per share. This leaves the Raven Russia ordinary shares standing at a discount of 31% to NAV. The group is well placed in the Moscow market, and has cash balances of $202m (21p per share), a significant strength.

The group has announced a final dividend* of 1p per share (*equivalent on buy-back tender offer), giving the ordinary shares a yield of 5.9%, 1.5x covered on our estimate for the current financial year. The preference shares yield 9.8%, 2.8x covered in 2016.

The Moscow market remains turbulent. Our 2016 estimates suggest further reduction in revenues in US dollar terms, but the effects should be mitigated to some extent by good covenants and the company's emphasis on quality lessees. Valuation in these circumstances is difficult: we have to balance the risks in Russia and the possibility of changing fortunes against the strong market position Raven Russia holds in the key Moscow market. Our last published price target was 55p per share, above the latest NAV of 49p. We have decided to reduce our target price (for the ordinary shares) to 40p. We leave our preference target unchanged at 160p.

 

2015
Battening down the hatches
Published: Aug 31 2015

Raven Russia's defensive moves over the past 18 months have prepared the company for the storm now hitting the Russian economy and left it well placed to benefit once economic conditions normalise. Contracted revenue is a strong defence against pressure on rental levels in the Moscow area, while the company has existing cash resources of $247m, equivalent to 22.6p per ordinary share.
The interim results, announced last Thursday, showed a drop in revenues in US dollar terms of 10%, feeding straight through to the bottom line, which is relatively modest against a background of economic strain. Our estimates show property revenues almost holding steady in the current year, but dropping by 7% in 2016, with pre-tax falling by 6% this year and by 13% in 2016.
The company's financial position is currently robust, and it is a reasonable bet that it will emerge from the current period of uncertainty in a strong position. We have, however, conservatively reduced our target price for the ordinary shares to 55p per share, still materially above the present price of 43p. Our fair value for the prefs remains at 160p per share.
Weathering the storm
Published: Mar 09 2015

Raven Russia Limited is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality class A warehouse complexes in the country's major cities and their leasing to Russian and international tenants.
The group produced a good performance in 2014, given the turbulence which characterised the Russian economy and the Rouble as their year end approached. The dividend on the ordinary shares, (equivalent pay out through their buy-back tender offer), has been increased by 20% from 5p to 6p. 
The company is naturally cautious on the outlook for the current year and the significant uncertainties regarding Ukraine, the oil price and the currency. It remains strong financially, and is well-placed to benefit from any economic recovery. Free cash is currently $247m, equivalent to 21p per share.
The market's reaction to the geopolitical events and resulting depreciation of the Rouble is wholly understandable. We have lowered our fair value estimate for the ordinary shares to 60p per share, but maintain our fair value estimate for the preference shares at 160p. At the current level of 122p, the Prefs yield 9.8%.
2014
Solid base in a troubled market
Published: Dec 08 2014

Raven Russia's positive response to the run on the Rouble provides reassurance as to the group's financial and operational strengths, emphasised by us in our more recent reports. Vacancy remains at just 3% of the completed portfolio, a significant majority of the Group's space is let to large organisations and lease breaks and expiries in 2015 are not significant.
Clearly there remains considerable uncertainty; a prolonged period when the Rouble remains in excess of 50 Roubles to the US$ would put pressure on rental levels of both local logistics firms and also larger organisations. 
Raven Russia has said, this morning; "We will be in a better position to gauge the real impact of the current economic situation on demand and market rents as we enter into detailed negotiations on lease renewals in 2015". 
Reflecting this cautious outlook, we have lowered our estimates for the next two years and reduce our Fair Value for the ordinary shares to 70p. At the current market price of 57.25p, the shares stand at a discount of 19% to our fair value and a 33% discount to the last stated asset value.
A solid base
Published: Aug 26 2014

Raven Russia Limited is a property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality class A warehouse complexes in the country's major cities and their subsequent leasing to Russian and international tenants.
Strong interim results showed: net operating income up by 14% to $89m, NAV up 5%, and cash balances are $188m (equivalent to 14.5p per share).
The capital restructuring at the end of 2013 shows through in a 38% jump at the net attributable level, and in fully diluted earnings 6% ahead.In a sign of confidence, the interim dividend (on buy-back) was increased by more than we expected, up from 2.0p to 2.5p per share.
Raven Russia is well positioned to ride through effects on the Russian economy caused by the Ukraine in operating as well as financial terms: the portfolio is 97% let, with construction to be completed by the year end already 50% pre-let. If there is a market downturn, there may be opportunities for corporate deals on advantageous terms.
We maintain our fair value estimates of 88p for the ordinary shares and 160p for the preference shares.
Interim management statement
Published: May 13 2014

Raven Russia is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality class A warehouse complexes in the country's major cities. 
Their update reports that despite the Ukraine crisis there has been no '... tangible effect on the operation of our business', although it cautions that this could change should matters escalate.
In addition, cash holdings stand at $202m (before the $22m cost of the tender offer buy-back in lieu of final dividend).
Reorganisation of debt during 2013 and the balance sheet restructuring towards the end of the year have paid off, with '... no significant near term bank facility maturities'. 
NOI is currently annualising at $192.7m, rising to $202m on completion of the 39,000m2 pre-let development at Noginsk, which should occur by the end of the year. 
Market reaction to events in the Ukraine has seen the ordinary shares falling from a high this year of 87p to 73p currently. We maintain our fair value estimates of 88p for the ordinary and 160p for the preference shares.
Delivering ahead of expectations
Published: Mar 09 2014

Raven Russia's 2013 results show continuing very strong progress: Property net operating income ('NOI') rose by 28%, translating into a leap of 59% at the pre-tax level. EPS rose 106% to 10.9 cents, and the final distribution of 3 pence per share takes the total for the year to 5 pence, a 33% increase on 2012. As usual Raven Russia is distributing to its Ordinary shareholders by way of a tender offer, this time of 1 in 28 ordinary shares at 85 pence.
71% of the Group's warehouse portfolio is in the Moscow area, which remains chronically undersupplied with Class A warehousing facilities. As a result Raven Russia's substantial portfolio in Moscow is, in effect, fully let.
It has a number of new developments in the early stages of construction which, over the next 2-3 years, could add a further 25% to the completed property portfolio, with the group having the ability to time delivery to align with market conditions.
On a P/E ratio of just 12x, and with the yield (on the ordinary) approaching 7%, (and on the preference shares of nearly 8%), we continue to see considerable upside in both classes of shares from current levels.
2013
Strengthening the balance sheet
Published: Nov 29 2013

Raven Russia has announced a Preference Share Conversion Offer to convert up to 50 per cent. of Raven Russia Preference Shares into New Ordinary Shares at a ratio of 2 New Ordinary Shares for every 1 Preference Share.
Full take-up will result in the replacement of a large proportion of fixed cost sterling capital with variable cost capital, resulting in a significant lowering of the Company's risk profile, greater liquidity in the Ordinary Shares and potential eligibility for FTSE 250 index.
Both classes of shares  offer very attractive yields: the ordinary shares (through an equivalent distribution on buy-back tender offer) offer a prospective yield of over 6%:  the preference shares yield  nearly 8%.
Cash rich, more development
Published: Nov 20 2013

Raven Russia's recent Q3 IMS confirmed that the market for Grade A warehousing in Moscow remains strong, with the vacancy rate now below 1% and demand continuing to outstrip supply. Prime yields in Moscow are now around 11 per cent.
To meet the expanding demand, Raven Russia continues to build out its estate. Foundation work on the first phase of its Padikovo project has now commenced. 
With a prospective yield of over 6% on the ordinary shares (equivalent distribution on buy-back tender offer), and over 8% on the prefs, we still see considerable upside to our fair value targets of 88p for the ords, and 160p for the preference shares.
Yield+assets+growth+earnings
Published: Aug 28 2013

Raven Russia's 2013 interim results confirm its transition from a development company to a property investment company with strong growth prospects. It now offers a compelling combination of: 
Yield: on the ordinary shares (via buy back tender) this is 6.9% for 2013, and 7.5% for 2014. The yield on the Preference shares is an even more impressive 8.5%. 
Earnings: the prospective December 2014 P/E ratio drops to 10x on our forecasts.
Assets: Raven Russia is trading at a discount of 16% to our estimate of year end NAV.
And Growth: the company still has considerable potential to develop further capacity in several locations in the next 3 years.
As a result of these better than expected results, we raise our Fair Value to 88p for the ordinary shares, and maintain 160p for the preference shares.
Moscow surrounded !
Published: Mar 28 2013

Raven Russia recently produced strong 2012 results, which showed Property Net Operating Income up 62% to $138m, with fully diluted NAV increasing to 83  pence per share.
They are benefiting from a severe shortage of warehousing in and around Moscow, following years of underdevelopment. 2012 was a very active year for the company, with the acquisitions of Pushkino and Sholokovo adding more than 40% to its completed properties in the Moscow area.
We believe that Raven Russia should not be viewed as a property speculation, but as a company with solid income producing assets, low prospective P/E ratios and high dividend yields. On our forecasts both the Ordinary shares, on a prospective yield of 6%, and the Preference shares, which yield 8%, remain very attractive. 
2012
Growing Moscow
Published: Nov 15 2012

Raven Russia has built its business by acquiring and developing high quality Class A warehouse complexes around the country's major cities, principally near Moscow.
The very recent IMS confirmed further strong progress: It now expects its assets in Moscow, St Petersburg and Rostov to be virtually fully let by 31 December this year.
We now estimate that Group net operating income ('NOI') will grow from $94m in 2011 to $144m this year, and will show further growth to $178m in 2013.
The Ordinary shares yield a prospective 5.2% to December 2012 and we place a fair value of 81p versus current 67p. For those looking for even greater income, the Preference shares yield approx. 8% and our fair value is 160p against 151p now.

Harvest time in Russian property
Published: Aug 09 2012

Raven Russia has built its business by acquiring and developing high quality Class A warehouse complexes around the country's major cities, principally near Moscow.
In recent months it has announced further additions to its warehouse portfolio, with acquisitions at Sholokhovo (45,237 square metres Grade A warehouse), and Pushkino Logistics Park (announced back in April),  adding more than 40% to completed properties in the Moscow area, as well as the Padikovo acquisition, which added 38 hectares of zoned development land to their Moscow land portfolio.
As a result of these deals we estimate that property net operating income ('NOI') will grow from $81m in 2011 to $132m in 2012 and $162m in 2013.
The Ordinary shares yield a prospective 5.5% to December 2012. For those looking for even greater income, the Preference shares currently yield 9.3%.
Financial muscle
Published: Apr 30 2012

Raven Russia Limited is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality Class A warehouse complexes in the country's major cities and their subsequent leasing to Russian and international tenants.
Raven Russia has used its financial muscle to enter into a conditional agreement to make a significant acquisition of Grade A warehousing on the north-eastern outskirts of Moscow.
The property is 99% let to high quality international companies, including Auchan, DHL, Leroy Merlin and NLC. Raven Russia's existing portfolio was 92% let at the year-end (including PLAs and LOAs).
The proposed acquisition will be immediately earnings enhancing. The passing yield is 11.5%, compared with a preference dividend cost of 9% and debt costs of about 7%.
Pending further details and completion, we maintain our fair value estimate for the equity at 75p per share, and for the preference at 160p. However, we expect our next revision will be upward.
Breakthrough
Published: Apr 04 2012

Raven Russia has built its business by acquiring and developing high quality Class A warehouse complexes around the country's major cities.

It's 2011 full year results showed a very strong performance: Net Operating Income rose by over 50% to $94 million.

The Group's portfolio of Grade A warehouses are now 92% let, with Moscow rents firm. Class A space now attracts up to $135 per square metre.

It is the leading Russian logistics operator.

The Preference shares offer a secure 9.2% yield. The ordinary shares now offer a prospective yield of 6.1% for 2012.

2011
Active in a receptive Moscow market
Published: Nov 28 2011

Raven Russia Limited is a property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality class A warehouse complexes in the country's major cities and their subsequent leasing to Russian and international tenants
Undersupply of Class A warehousing stock is making itself felt in higher rental rates. The group has been concentrating on filling its available space, with new lettings of 205,000 square m so far in the current calendar year 21% of the completed portfolio. The completed portfolio is now 87% let.
Market rents are rising, and yields are also falling three transactions with initial yields of between 11% and 11.5% so far this year.
The 9% running yield on the Preference Shares is substantially out of line with other preference issues, and is very attractive to income funds as an alternative to bonds
Positive Trading Update
Published: Jul 18 2011

In conjunction with its preference shares moving from AiM to the Official List of the LSE, the company intends to issue a Prospectus this week, with trading commencing shortly thereafter, which contains an encouraging update of their activities.

We maintain our target share prices of 75p for the ordinaries, and 160p for the high-yielding preference shares.

A preference for yield
Published: Jun 08 2011

Raven Russia Limited is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality class A warehouse complexes in the country's major cities and their subsequent leasing to Russian and international tenants.

We highlight the attractions of the 12% cumulative preference shares:

The preference capital is planned shortly to move from AIM to a full main market listing, where it will be one of the largest non-bank issues.

The 9% running yield is substantially out of line with other preference issues, and is very attractive to income funds as an alternative to bonds. The preference shares pay a 3p dividend quarterly.

Our estimates suggest that cover for the preference dividend will rise to 2.2x by 2013, backed by a solid investment property portfolio.

The preference shares, yielding 9%, present a neglected anomaly. We set a target for them of 160p, against the current price of 134p.