Pouncing, delivering promises
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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