Goldbug100 as a long term investor uses a police of "averaging out" and purchased shares in Raven Russia as low as 13.5p. In the stock market you have to take risks and this company´s shares really are not for "widows and orphans". It initally went in for the yield of 7p a share with a prospective of 9p but that did not materialize the dividend last year being 0.5p., raised to 1p this year. The shares closed on Friday 19th March 2011 5 days after the results at 65.73p Being a long term investor the fund do not subscribe to the buy back offer and when this happens this usually means that the directors know that the share price is going to rise.
Had the fund had a larger capital base it would have had a holding of 333% more in the company, but the fund does not wish to resort to borrowing.
The Board of Raven Russia releases below the results for the year ended 31 December 2010.
Highlights
· Reported NOI for the year up 22% from $50 million to $61 million;
· Profit before tax of $56 million (2009: loss $148 million);
· Adjusted fully diluted NAV per share 105 cents (2009: 99 cents), based on a portfolio ERV yield of 12.8%;
· 220,000 sqm of space let in 2010, generating $23.3 million of annualised NOI;
· Currently, annualised NOI of $96.6 million (including PLAs and LOIs) with a further $17.5 million under active negotiation;
· Positive operating cashflow of $33 million;
· Current cash balance of $132 million;
· Gearing of 35.6% net of cash;
· 1p final dividend proposed.
Richard Jewson, Chairman, said "A good performance in the year and a strong balance sheet means that we are well placed to take advantage of opportunities in our market, whether by existing portfolio management, acquisition or new development."
Glyn Hirsch, Chief Executive, said "Market dynamics are moving in our favour. Vacancy rates in Moscow have dropped significantly, supply of new warehouse space is limited and demand is increasing. We look forward to 2011 with optimism."
Enquiries
Raven Russia Limited Tel: + 44 (0) 1481 712955
Anton Bilton
Glyn Hirsch
Cardew Group Tel: + 44 (0) 207 930 0777
Tim Robertson
Catherine Maitland
Singer Capital Markets Limited (NOMAD) Tel: +44 (0) 203 205 7500
Corporate Finance- James Maxwell
Sales - Alan Geeves / James Waterlow
Matrix Corporate Capital LLP Tel: +44 (0) 203 026 7000 Corporate Finance - Malcolm Le May / Roger Clarke
Sales- Carl Gough
Chairman's Statement
The Board of Raven Russia Limited ("Raven Russia") announces the Group's results for the year ended 31st December 2010.
The key operational focus last year was letting. We have made continued progress in an improving market.
Reported net operating income ("NOI") increased by $11 million in the year to $61 million (2009: $50 million). With a stable overhead base, this gives a straight contribution to operating profit which increased to $25 million (2009: $13 million) and is also reflected in strong operating cash inflows for the year which more than doubled to $33 million (2009: $15 million).
Following the sale of our Baltia project, generating a profit of $12 million after costs, and a revaluation surplus on our property portfolio of $79 million (2009: loss of $108 million), we have recorded a healthy profit before tax of $56 million (2009: loss of $148 million).
Today, of our total finished portfolio of 975,000 sqm, 321,000 sqm (33%) stands vacant, 94,000 sqm (10%) of which is subject to PLAs and LOIs and we are in active discussions on 157,000 sqm (16%) of the remaining space. On average, we suffer a cost of $40 per sqm servicing vacant space whilst continuing with our letting programme.
We have maintained our strong balance sheet with gearing of 35.6% as calculated in note 35 to the financial statements and a cash position today of $132 million.
We completed the sale of our Baltia project at an equivalent yield of 10% in the year, recording a profit on sale of $12 million and generating cash of $21 million after costs.
Adjusted fully diluted NAV per share was 105c at the year end, compared to 99c at 31 December 2009.
We remain bemused by the valuation of our portfolio. Whilst accepting the sparsity of comparable transactions, we are still roughly at replacement cost and on an overall ERV yield of 12.8% (2009: 14.3%).
There must come a time when valuers don't simply discount Polish/Czech Republic/Hungarian yields by 2% points to UK/French/German yields; and then discount by a further 3% points for Russia! Someone will wake up to the growth and dynamism of the Russian economy when compared to the declining nature of those Western European economies and value well let Grade A Russian buildings accordingly. The old paradigm must shift and we must all begin to accept the "new normal".
As promised, we moved our ordinary shares and warrants onto the Official List in August 2010. All of our listed instruments have performed well in the year, ordinary shares with a year end price of 62.5p (2009:45p), warrants at 37.5p (2009:24p) and preference shares at 129.25p (2009:93p).
Due to the continuing progress in NOI and our strong balance sheet we intend to declare a final dividend of 1p per share. This is in addition to the tender offer made during the year, where we purchased and cancelled ordinary shares, with a cost equivalent to 1p per share.
We are continuing our progress with letting and financing and maintaining a strong liquid balance sheet. Both ordinary and preference shareholders have received good returns and we are well placed for this to continue.
I would like to take this opportunity to thank our shareholders, employees and advisors for their support during the year.
Richard Jewson
Chairman
Chief Executive's Report
Letting space has remained our key focus and the progress of the first half has been maintained. We let 220,000 sqm of space to third parties during the year on top of the 189,124 sqm let in 2009. (That's 4,400,000 square feet in 24 months for our British audience).
At 31 December 2010, annualised NOI was running at $83.8million and additional PLAs and LOIs totalled $4.2 million. At today's date the $83.8 million has increased to $85.7 million and additional PLAs and LOIs have increased to $10.9 million. On top of this we have a further 157,000 sqm under active negotiation which could add $17.5 million to LOIs.
So if all of this converts we could reach the big figure of $114 million of annualised NOI. This would leave us 93% let and heading towards $121 million of annualised NOI.
The high level of space under negotiation gives some indication of how strong the occupier market is today. Although this category has the possibility to disappoint, with some good luck we are well on the way to making significant inroads into our vacant space.
The market is continuing to improve generally and particularly in Moscow, Jones Lang LaSalle ("JLL") now reports that there is a 3.9% vacancy in Grade A Moscow warehouses. There is virtually no new development and vacant space is leasing fast. Rents have started to rise.
Quite why a portfolio of finished buildings that can produce income of over $120 million is valued at only $943 million is hard to fathom. There have been few investment transactions to demonstrate yield compression for valuation purposes. Despite our best efforts and cash we have found it difficult to find anything to buy.
However, we did announce on 28 February, the conditional acquisition of the Southgate warehouse project, near Domodedova airport, South of Moscow. The project comprises a completed warehouse of 76,550 sqm, mainly let to John Deere and 88 hectares of permitted land, allowing the potential development of a further 440,000 sqm of warehouse space. Existing minority shareholders have 30 business days from date of announcement to match our offer. So we will wait to see if we get it.
As our portfolio matures and we can demonstrate the high quality of our rental income, I do believe that our valuations will continue to improve. High quality, growing income from world class assets is becoming increasingly hard to find, we are certainly in the right place, with healthy tenant demand and a dynamic and growing macro-economic environment.
The simple income statement I ran through last year has now changed a bit, but is not fundamentally different. As a result of new financings, annual interest cost now runs at $34 million (but we have more cash) and at today's exchange rate, our preference share coupon runs at $27 million. We have broken down our overheads to show the split between running the portfolio and our central overheads ($13 million and $6 million per annum respectively). The central overheads which support our listing requirements also support our Guernsey and Cyprus offices which more than pay for themselves in the associated reduced tax burden, both now and in the future.
Roslogistics and Raven Mount each have an overhead base of $3 million but the former should now generate sufficient profits to support its rental obligations of $10 million and we expect Raven Mount to at least break even in the income statement as we liquidate its stock.
In terms of growth we are working hard on new leasing and managing existing tenants' leases to benefit from increasing rental levels.
We have started building 55,000 sqm at Klimovsk. As all infrastructure is in place we estimate a further investment of $34 million to complete. If we achieve rents of $120 per sqm then this will give an excellent return.
All the components are falling into place for us to commence further new development. With a focus on Moscow, this will happen this year. Klimovsk is underway and if we complete Southgate we will start there too. We also have some other good potential land acquisitions. This will also answer the "what are you doing with all that cash?" question, as well as improving overall returns by putting this cash to work.
In summary, we have a strong balance sheet with plenty of cash ($132 million at today's date) for earnings enhancing acquisitions or profitable development. We will soon have a clearly visible and growing dividend and there is still lots of potential for NAV growth from revaluations.
The oil price is well over $100 a barrel and the Russian consumer is spending money. Russia will host the winter Olympics in 2014 in Sochi, a new Russian Grand Prix is planned and the World Cup arrives in 2018, and the government has committed to major infrastructure upgrades to facilitate events like this. At the macro level, all of these facts are beneficial to the country we operate in. At the property level there is virtually no new supply becoming available in Moscow and the vacancy rate is falling in all of our other markets. Demand is strong and rents should grow during the course of the year.
Our main objective remains to lease the remaining space on the best terms possible to the strongest tenants and to take advantage of market opportunities, either by building new space or acquisition.
The achievements of 2010 have been overshadowed by the death of our colleague and friend Oleg Tomin in the bombing of Domodedovo, Moscow airport on 24th January 2011. This tragedy puts a new perspective on our efforts and has saddened us all greatly.
Glyn Hirsch
Chief Executive Officer
Property Review
2010 was a year of significant progress for the Company. Most importantly, we completed 220,000sqm (2.4 million square feet) of new lettings to third parties across the portfolio, generating an additional $23.3 million of annual rental income plus full operating cost recovery on the space. We are now firmly the market leader in our sector and are very well placed to continue our growth through new leasing on our vacant space and also selective development.
Property has always been a cyclical business particularly because of the long lead time from any project's conception to its realisation. The market in Russia has been down over the past couple of years as a result of the global financial crisis, over supply and a lack of tenant demand. That all seems to be changing now and very quickly.
The investment properties were valued by JLL at the period end, in accordance with the RICS Valuation and Appraisal guidelines, at an aggregate gross value of $943 million. This resulted in an increase of $62 million in portfolio value, on a like for like basis, compared to 31 December 2009, reflecting our progress in leasing and the improvement in the market.
Investment Portfolio
In Moscow we have six completed projects totalling 561,000 sqm and producing an annualised income of $53.2 million at year end. These properties were 76% let at year end with the largest element of vacancy (95,000 sqm) being at Noginsk. During the year we let 112,000 sqm in Moscow, and have seen a steady increase in rents. Prime Moscow rents are now around $105-$115 per sqm and we expect this level to continue to rise during 2011.
At the project level we have completed the buyout of our development partner at Klimovsk. Phase 1 of this project only has 8,000 sqm vacant and we have a signed LOI in place. We have therefore taken the decision to start work on Phase 2 which will deliver 55,000 sqm of Grade A space in the first half of 2012. The improvement in the leasing market and increased levels of tenant demand coupled with a competitive build cost of around $650 per sqm, due to the infrastructure investment we have already made in Phase 1, should make this a highly profitable investment.
At Istra, only 13,000 sqm remains vacant and we are in discussion with a number of potential occupiers. Phase 5 of the project was completed at the end of December and has been let to Rusklimat, as DSV failed to fulfil their obligations under the pre lease agreement.
Tenant demand has been the slowest in the east of Moscow and this has affected our Noginsk project where 95,000 sqm remains vacant. The property has a working rail link and is one of the few projects in Moscow where it is now possible to lease over 30,000 sqm in one building. We are confident we will make significant progress in leasing in the next 6 months. The disappointment and the delay in letting this space is offset in part by the fact we are now talking to tenants at significantly better rents than a year ago. Ultimately shareholders will benefit from leasing at higher rents and the effect this has on value once rents are capitalised.
Elsewhere in Moscow our projects are 100% full save for a small amount of space at Southern. On inspection the vast majority of our tenants' space looks full and many are reporting an improvement in business and are willing to discuss expansion.
During the last quarter we completed on the sale of Baltia, Moscow. This building had been fully leased since we acquired it in 2005 at a yield of 12.5%. All the three main tenants in the building were keen to expand their operations and we were successful in moving one of them to Istra where they took 13,000 sqm on a new five year lease. In St Petersburg, at our Shushari project, we have secured a couple of notable lettings during the year including 12,000 sqm to Johnson Controls and 33,000 sqm to Dixy, the Russian retailer, both on long term leases. The remaining space at Shushari is attracting interest from tenants and whilst supply is higher than in Moscow and demand less we still expect to lease the majority of the remaining vacant space during the coming year. In total, in St Petersburg including our Pulkovo property, we have leased 66,000 sqm during the year.
Tenant demand in Rostov and Novosibirsk has been improving, driven by mainly Russian companies including retailers. In total we have leased an additional 41,000 sqm during the past 12 months. Average demand in the regions is 5,000 sqm-7,500 sqm which is smaller than in Moscow but which gives us a broader tenant base.
Lettings to third parties have been offset by the consolidation of our Roslogistics subsidiary, where we took back 58,000 sqm of space in St Petersburg and the Regions. The business now operates out of 77,000 sqm of our space and we expect a full contribution to rent on this space in 2011.
Land Bank
At the year end JLL also valued the Phase 2 development land at Noginsk, Klimovsk, Rostov and Kiev, a total of 87 ha. These projects benefit from existing infrastructure and utilities and should the Company choose, development could commence on them in short order.
The company holds an additional 290 ha of land in Kiev, Ukraine, Minsk, Belarus and in various regional cities of Russia that has longer term potential. We still do not envisage any speculative development on these sites, although all remain available on a Build to Suit basis or as parcelled land sales.
The Market
Evidence of an improving rental market and also renewed investor interest has been helpful to JLL in producing the year end valuations. Equivalent yields in Moscow for Grade A, well let, rack rented warehouses are now in the region of 11.5%. This isn't demanding and provides an investor with substantial positive cashflow if he is able to secure debt at a 60% LTV and a margin over US Libor of 500bps. With these financial dynamics, and the potential for rents to rise, then so should valuations.
As mentioned earlier property is a cyclical business and the strategy we have followed over the past five years has protected us when the market dipped in 2008 and 2009. In Moscow, especially, we are now into a different part of the cycle. Supply has been eaten up over the past 12 months, so much so that JLL report a year end vacancy rate of only 3.9%. Demand has been very strong, particularly from the local retailers and pharmaceutical groups. Rents are on the rise and we know of at least one deal that has been signed at a rent of over $120 per sqm for a 10,000 sqm letting.
In Moscow, where almost 60% of our portfolio is located, the lack of new supply caused by the absence of debt and equity should see the market move more towards Build to Suit, where the tenant shares some of the development risk. Tenants who need space immediately will have less and less choice and will have to pay up or choose secondary properties.
Financial Review
The 2010 financial year has been the first year with a fully completed portfolio and no significant construction projects. As the Chairman and Chief Executive have said, the focus has been firmly on leasing space.
Income
Investment Portfolio
The warehouse portfolio generated $50.4 million of NOI (2009: $46 million) from third party tenants and after absorbing the cost of servicing vacant space of $20.8 million (2009: $16.5 million). This cost will reduce in 2011 as new lettings commence.
Roslogistics
We have completed the consolidation of the Roslogistics business in the year. When we bought out our partners in late 2009, the business had leased or pre let 135,000 sqm of our portfolio, 106,000 sqm of which was in St Petersburg and the Regional cities. We have now reduced this space to a more manageable 76,600 sqm, 72% of which is in Moscow and St Petersburg. We have assisted in rationalising the business, terminating loss making contracts and focussing the management on operational efficiencies. The business has shown the results of this moving from a negligible contribution to NOI in 2008 and $2.5m in 2009 to $5.7m in 2010. 2011 should see the full benefit of the reorganisation and an improving market for third party logistics operators.
Raven Mount
With a contribution to NOI of $4.9 million (2009: $1.8 million), we continue to liquidate Raven Mount stock at above acquisition cost. Gross sales of residential stock in the year totalled $8.8 million (2009: $8.3 million) and our share of the Coln joint venture contributed a further $9 million (2009: $6.7 million) of sales. This achieved against the backdrop of an extremely difficult market for first time buyers and second homes in the UK.
Overheads
Overheads for the investment portfolio were $13.2 million (2009: $14.9 million) and central overheads, which support our listing and our Guernsey/Cyprus tax structure, $6.1 million (2009: $7.4 million). Roslogistics and Raven Mount reduced to $3.4 million (2009: $4.5 million) and $3.1 million (2009: $5.4 million) respectively before depreciation, following the integration of both into the Group. In addition, the cost of moving to the Official List was $2 million and Roslogistics had a cost of $1.4 million to close a loss making site. There was a cost for share based payments of $6.4 million (2009: $0.2 million) as the various share incentive schemes began to vest. This cost is dependent on the share price on the day of vesting and is reversed through reserves, so no effect on reported NAV.
