Raven Property Group (Raven) is a Guernsey registered property investor. Its invests and develops high quality Class A warehouse complexes in major Russian cities let to domestic and international tenants.
Today’s interims confirmed the progress of strategic initiatives designed to enhance revenue and earnings quality. Portfolio occupancy was 87% at end June (FY17: 81%), and the outlook is backed by improving local property markets, growing tenant demand and tighter investment yields.
Frustratingly, however, the impact of a c 9% fall in RUB/USD meant that headline USD results don’t reflect underlying progress. The main culprit was a negative unrealised adjustment to the USD portfolio valuation. Despite an increase in its Rouble value, translation into USD generated a $30.8m deficit, net of tax (H117: $7.0m increase). That’s the motivation for a strategy focused on limiting potential for FX volatility to impact underlying cashflows. Raven is progressively reducing the USD weighting of its lease book and debt portfolio.
H1’18 net operating income was 13% ahead at $79.3m, on higher occupancy and contributions from recently acquired high-yield assets. Net earnings, excluding FX losses were 12.3% up y o y at $11.9m. The bottom line absorbed higher overheads associated with the new strategy, finance charges were up in line with convertible prefs. issued last year. The US$41.1m IFRS loss (H117 profit: $9.2m) was principally FX related.
Political risk remains an issue. Recent Rouble weakness followed new US sanctions and contagion from the Turkish Lira crash. Raven’s strategy aims to address concerns over operational sensitivity to external factors and capitalise on c $200m of available liquidity, build portfolio scale and reduce underlying exposure to RUB/USD shifts. Portfolio performance is responding to intensive management and better local property markets.
Our forecasts incorporate one acquisition scheduled to complete in September, no other portfolio growth and assume no RUB/USD recovery. At 23% below FY’18e NAV the shares discount potential volatility, underpinned by a substantial 9.5% prospective yield.
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