Raven Property Group Limited

Ticker: RAV Exchange: LSE

The Raven Property Group is a property investment company operating a commercial property investment portfolio generating high rental income yields in the under supplied warehouse logistics market in Russia and principally in the Moscow region.

The Group runs its property investment portfolio with the objective of delivering progressive distributions to shareholders over the long term.

Since 2005, it has built and acquired circa 1.9 million square metres of space in major Russian cities, with the majority situated in the Moscow Region. Where appropriate opportunities arise, the Group will look to expand its investment portfolio through both development and acquisition.

Latest Reports

Robust trading, rent receipt and occupation

Published: 20th July 2020

Raven’s positive trading update was reassuringly robust, despite ongoing uncertainty regarding the long-term impact of Covid-19 on the Russian market.

It has tempered its own leasing expectations for the next 18 months and assumes some sectors will delay planned investment/expansion. But sees potential and indeed some evidence that the crisis will accelerate moves to create e-commerce supply chains.

The Group derives its competitive positioning from a 1.9m sqm portfolio of logistics warehouses. These play a crucial role in Moscow’s logistics networks and supply chains, allowing local supermarkets, their suppliers and e-commerce arms to continue to operate during lockdown.

Rent collection reflects a tenant profile which has largely continued to operate during lockdown restrictions. Raven’s warehouse portfolio is currently 93% leased and it has collected on average over 96% of rent due in each month since March.

Underlying portfolio resilience was confirmed by an independent appraisal carried out by JLL as at 31 May 2020, which recorded no material movement in Rouble values vs 31 December 2019.

We believe that kind of performance deserves more attention, and hope to reinstate detailed forecasts post the General Meeting on 31 July (re a simplified capital structure) and the interim results.


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Key metrics moving ahead

Published: 27th August 2019
Raven is understandably pleased with these strong first half results. The business has responded well to efforts to stabilise the portfolio and de-risk its finances. A 40% increase in NAV/share to 67p during the period was driven by both uplifts in property valuations and Rouble/GDP strength. Another 5p was added in August (post the period end) via the repurchase and cancellation of c 14% of its ordinary shares at around half underlying NAV.

Valuation: 45% NAV discount, risk factors being addressed

The shares are currently 45% below NAV, at odds with an investment case that pivots on (a) steady performance of high-quality mainly Moscow-based warehouses, (b) improving local real estate markets, (c) a proactive approach to insulate operations from politically driven external factors and (d) post the half-year, actions taken to deal head-on with issues weighing on its equity value. 

Key metrics all moved ahead. Underlying earnings were £13.4m before forex effects (H1 2018: £8.6m). That progress was primarily driven by higher portfolio occupancy; 90% at end June 2019 vs 84% a year earlier and initial rents from lettings and acquisitions completed in H2 2018. NOI was £64.3m (H1 2018: £57.6m). 

Outlook: well set for H219 and beyond

Higher portfolio occupancy and acquisitions have built RUB scale and reduced the potential impact of external factors/forex shifts. Over the last two years Raven has strategically shifted its financial base to better match its core, functional currency. A much higher proportion of its leases and debt facilities are now Rouble denominated, and all USD debt is on track to be refinanced by end December. 

Portfolio metrics are moving in the right direction. Occupancy is underpinned by further lettings (2% of vacancy) under negotiation and steady lease renewals. The portfolio valuation was also higher, in line with a stronger local warehouse market.

Market dynamics improved again. Availability of vacant space in Moscow fell during the period and estimated rental values (ERVs) pulled ahead.

Raven has a strong position in a market seeing many of the same factors - online retail driving demand for warehouse and logistics space - as Western markets. 

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Strong FY18, growing operational resilience

Published: 1st April 2019
Raven Property Group is a Guernsey registered property company specialising in investment and development of high-quality Grade A warehouse complexes in major Russian cities.  Its portfolio is let to both Russian and international tenants.

Recent results show a fundamentally strong FY18, although headline comparisons were affected by a weaker Rouble and FY17 figures boosted by land sales. End December portfolio occupancy was 89% (FY17: 81%) and local currency rents, ERVs and asset values were all ahead y-o-y.

Management has improved the resilience of operating financials over the last few years, progressively converting USD leases and debt into mainly RUB/EUR denomination. All USD debt should be exited this year, and legacy USD leases converted over the next 24-36 months. That will reduce group exposure to potential forex mismatches, while interest rate hedges add visibility to medium term debt costs. 

Politics remains a source uncertainty and underlines the value of an ongoing transition to a Rouble-based operating model.  That process is well on track and our forecasts are supported by acquisitions, better occupancy and the move from USD to RUB debt facilities.

The market outlook is positive - in management’s opinion better than at any time since 2014 - as demand for warehouse and logistics space benefits from both overall economic recovery and eCommerce’s growing importance locally.

Raven announced a 1.75p final distribution, paid by way of tender offer (buy back of two shares in every 51 held), a distribution of 3p/share for the year, and a yield above 7%. That process continues to reduce ordinary shares in issue and will progressively underpin EPS and NAV/share. 
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Making headway

Published: 28th August 2018
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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Tenacity winning through

Published: 28th March 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.  

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Pouncing, delivering promises

Published: 6th November 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.

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On the acquisition trail

Published: 29th August 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.

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Girding the loins

Published: 15th June 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.
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De Profundis

Published: 15th March 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. 

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Carpe Diem

Published: 20th January 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)

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Cash is King

Published: 29th August 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.

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Resilient in a tough market - and cash rich

Published: 13th March 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.


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