A short note following on from my event reminder earlier today.
Not a country I have any great time for but I’ve recently slightly changed my tune about Putin’s empire and reckon that it represents a decent value bet for investors – after many false dawns! As I have said many times before on these pages I am not ignoring the obvious ‘challenges’ but maybe we as investors need to hold the great Eurasian country to the same level of scrutiny as we hold powerhouses such as China. In particular, t strikes me that integrating Russia into the global economy – and polity – probably makes a bit more sense than encouraging it constantly prowl around on the outside making threatening noises.
Anyway, one of my preferred routes into the Russian consumer story is through a UK listed entity, with excellent corporate governance, called Raven Russia. All the obvious caveats apply – especially fear of the unannounced ‘visit’ by safety and fore officers (or tax officials) shutting down the business – but it does seem like Russia is at an inflection point in economic terms.
Raven Russia certainly seems to think so. It’s just announced a deal to acquire a logistics park in Moscow for up to $120m, comprising an initial consideration of $86.58m and a deferred payment of between $25.5-$33.29m due within 18 months of completion, dependent on letting vacant space.
According to Numis “ the yield on the maximum consideration payable is expected to be 11.38%, with a reversionary yield of 12.51%. The purchase price represents a capital value of $600 per sqm, which management notes is at or below replacement cost. The consideration will initially be funded from the fund’s cash resources of £237m, with the manager introducing investment debt in due course”.
The property itself comprises a Grade A warehouse complex of 195,132 sqm situated in North Moscow and was built between 2014 and 2017. It is currently 73% let to a mix of local and international tenants, including OBI, O’KEY retail Group, Major Logistics, Miratorg and R-Pharm. Leases are Rouble denominated with current rents of $10.42m rising to $14.99m on a fully let, ERV basis. The weighted average lease term is four years.
Raven reckons that the local market it operates in is probably near the bottom of the cycle and that rates of return are attractive. According to Numis “the manager highlights that ERV yields of over 12% are available, with capital values at or below replacement cost. In sterling terms, average rents are c.£4.60 per sq ft and capital values at £43 per sq ft”. this is the second deal this year and a fairly big one at that. Raven Russia (£334m market cap) is currently trading on a 7% discount to the NAV at 30 June. I continue to think that the convertibles probably represent slightly better value though the pace of these new deals suggests that the ordinary shares might grow more in value if Russia is due an upswing.