Raven Property : 2021 Interim Results

31 August 2021

Raven Property Group Limited ("Raven" or the "Company")

2021 Interim Results

Raven today announces its unaudited results for the six months ended 30 June 2021.

Highlights

• Portfolio occupancy stands at 96% today, up from 93% at 30 June 2021 (31 December 2020: 94%);
• Underlying earnings of £17.3 million in the six months to 30 June 2021 (30 June 2020: loss of £10.4 million) and IFRS
  profit of £41.2 million (30 June 2020: loss of £31.7 million);
• Investment property revaluation surplus of £29.5 million (30 June 2020: revaluation loss £12.5 million) increases
  investment property carrying values to £1.15 billion (31 December 2020: £1.12 billion);
• Net assets increase to £264.5 million at 30 June 2021 from £233.7 million at 31 December 2020 and diluted net asset value per share increases by 25% to 50p at 30 June 2021 (31 December 2020: 40p);
• Cash at bank remains stable at £53.1 million (31 December 2020: £53.1 million): and
• A successful conclusion to the purchase of Invesco Asset Management's holdings in the Company's instruments, 9.85 million ordinary shares purchased and cancelled by the Company, 100 million ordinary shares and 32.5 million preference shares purchased by way of a joint venture between the Company and its senior management and the remaining 46.8 million ordinary shares and 31.1 million preference shares placed in the market, all at a price of 21.6 pence per ordinary share and 90.8 pence per preference share.

Glyn Hirsch CEO said "Rouble rents are rising strongly and property valuations are following in a very tight market. It's pleasing to see net asset value per share rebounding to 50 pence, especially following the placing of Invesco Asset Management's ordinary share holdings at 21.6 pence in May."

Enquiries
Raven Property Group Limited	Tel: + 44 (0) 1481 712955
Anton Bilton
Glyn Hirsch
Novella Communications	Tel: [phone]
Tim Robertson
Fergus Young
Singer Capital Markets	Tel: [phone]
Corporate Finance - James Maxwell / Alex Bond
Sales - Alan Geeves / James Waterlow
Java Capital (South African Sponsor)	Tel: [phone]
Jean Tyndale-Biscoe / Andrew Brooking
Renaissance Capital (Moscow)	Tel: + 7 495 258 7770
David Pipia
Ravenscroft Consultancy and Listing Services Limited	Tel: + 44 (0) 1481 729100
Semelia Hamon

Financial Summary

Income Statement for the 6 months ended:	30 June 2021	30 June 2020
Net rental and related income (£m)	51.9	59.6
Underlying earnings / (loss) (£m)	17.3	(10.4)
Revaluation surplus / (deficit) (£m)	29.5	(12.5)
IFRS profit / (loss) (£m)	41.2	(31.7)

Balance Sheet at:								30 June 2021	31 December 2020
Investment Property Market Value (£m)										1,161			1,129
Diluted NAV per share (pence)										50			40
Letting Summary
Warehouse Portfolio Maturities
					2021			2022			2023			2024		2025-			Total
		Warehouse '000sqm										2032
		Maturity profile at 1 January 2021	357	204		275	262	677	1,775
		Breaks exercised	27	(15)		-	(4)	(8)	-
		Renegotiated and extended	(48)	(18)		(5)	(9)	(8)	(88)
		Maturity profile of renegotiations	-	6		1	8	73	88
		Vacated/terminated	(229)		-		-	-	-	(229)
		New lettings	22	3		1	23	160	209
		Maturity profile at 30 June 2021	129	180		272	280	894	1,755
		Maturity profile with breaks	161	249		394	373	578	1,755
Office Portfolio Maturities
					2021			2022			2023			2024		2025-			Total
		Office '000sqm										2032
		Maturity profile at 1 January 2021	2	16		2	11	17	48
		Breaks exercised	-	-		-	-	-	-
		Renegotiated and extended	(1)	-		-	-	-	(1)
		Maturity profile of renegotiations	-	1		-	-	-	1
		Vacated/terminated	-	-		-	-	-	-
		New lettings	-	-		-	-	-	-
		Maturity profile at 30 June 2021	1	17		2	11	17	48
		Maturity profile with breaks	2	20		1	8	17	48

Lease Currency Mix

30 June 2021	USD		RUB	Vacant	Total
Sqm		3%	90%	7%	100%
Secured debt currency profile
30 June 2021			RUB	EUR	Total
Debt portfolio			62%	38%	100%

Chairman's Message

I am pleased to report on a positive six months for the Group.

The Russian warehouse market now mirrors the global trend for our asset class, with upward pressure on market rental levels and low vacancy rates. The larger e-commerce players, such as Ozon and Yandex.Market, have been extremely active, securing the space that they require for growth.

With Russia effectively closing its borders in reaction to the pandemic, the flow of cheaper labour into the country has been cut off. Together with a weak Rouble, this has increased inflationary pressures and the cost of construction for logistics' development has increased significantly, again placing upward pressure on rental levels.

The pro inflationary impact has moved the current official rate of inflation to 6.5% compared to the Central Bank of Russia's ("CBR") target rate of 4%. The CBR has taken a hawkish approach, hiking its key rate by 225 basis points, from 4.25% at the beginning of the year to 6.5% today. External influences such as sanctions aside, the CBR expects to see a strengthening of the Rouble in the second half of the year as a reaction to its policy.

The spectre of the Covid pandemic has by no means subsided and in fact, cases in Russia increased significantly in the six months as vaccination uptake remains subdued. The Government has avoided further lockdowns, pushing responsibility onto the regional administrations to enforce local restrictions and policies. We continue to follow strict protocols in our Russian offices, encouraging working from home and operating two week shift rotations for those wishing to use our offices, combined with regular testing of our employees.

This has not had an impact on our trading, with full rent recovery in the period and no material outstanding debtors or rent deferrals.

We were relieved to finally deal with the acquisition of Invesco Asset Management's ("Invesco") holding in the Company's listed instruments in the period. Through a joint venture vehicle with the Company's senior management, 100 million ordinary shares and 32.5 million preference shares were acquired from Invesco on 11 May 2021 for 21.6p and 90.8p per share respectively. The Company also purchased 9.85 million ordinary shares directly, at the same price, and cancelled those shares. Invesco's remaining holding of 46.8 million ordinary shares and 31.1 million preference shares were placed with existing holders and we thank them for their support in this transaction.

Our search for additional non executive directors is progressing well and we have engaged with a specialist recruitment agency to assist in our Board diversity programme. We hope to make positive announcements before the end of the financial year.

We also continue to work with KPMG to ready ourselves for the implementation of the task force on climate related financial disclosure recommendations ("TCFD"). In that regard, I am also pleased to report that the first phase of our solar farm at our Rostov site has now been completed and has started operation and elsewhere we continue to switch our energy requirements to RosHydro from the traditional energy suppliers.

Whilst our second half profitability will feel the impact of higher interest rates, it is encouraging that, in this set of results, our improving balance sheet position is driven by positive underlying market dynamics rather than foreign currency exchange rate swings. This bodes well for our net asset value per share.

Sir Richard Jewson

Chairman

30 August 2021

Chief Executive's Review

The warehouse market in Russia is in a good place. Market rents are on the increase as vacancy levels reduce and growth in the e-commerce sector is making a significant difference to market dynamics.

We saw strong tenant demand during the period and that is continuing today. This has resulted in reduced vacancy in our portfolio and in the market as a whole.

Our portfolio is 96% let today with interest in the majority of our remaining vacant space. Our average rental rate at 30 June 2021 rose to R5,062 per sqm (30 June 2020: R4,833 per sqm).

Increasing CBR interest rates may dampen some of the good letting news in the second half of the year's profitability but we expect a strengthening of the Rouble to compensate, especially in balance sheet terms, combined with a positive environment for our asset valuations. Increasing construction cost inflation is impacting the logistics' development market and this is restricting new supply, contributing to the increase in market rents. If this trend continues, we expect further positive progress in our underlying Rouble property valuations later in the year.

As described below, the acquisition of Invesco's holding in the Company's ordinary and preference shares in May this year has altered our balance sheet. 9.85 million ordinary shares have been cancelled and 49.4 million ordinary shares are now effectively held in treasury as a result of the transaction, producing a positive movement in net asset value per share. As a result of this transaction, your highly focussed management team is now even more focussed and committed.

To see our net asset value per share at 50p (31 December 2020: 40p) is particularly gratifying, as foreign exchange currency movements had minimal impact on the figure.

Whilst the rental market and valuations are performing strongly the profit outlook for the year is heavily dependent on interest and exchange rates and therefore, as last year we will consider a single, final distribution by way of tender offer share buyback at the year end.

Property Update

With minimal vacant space available in our portfolio, we are now in advanced negotiations to extend the larger maturities which arise in 2022. Our focus is on reaching full occupancy by the year end and how best to generate returns from the trapped space that inevitably remains across the portfolio at these occupancy levels.

Warehouse Portfolio

With the largest e-commerce players and retailers competing for market share, our existing vacant space and additional vacancies arising on lease maturities have let quickly, all at rents ahead of expectation. In the first six months we completed 209,000sqm of new lettings and 88,000sqm of lease extensions.

The largest maturity in the portfolio occurred at the beginning of the year, Wildberries releasing their short term lets at Krekshino and Pushkino of 29,000sqm and 44,000sqm respectively. These were quickly absorbed. Home Market took 21,000sqm of space at Krekshino, the remainder taken by smaller lets. At Pushkino, DNS have taken 21,600sqm and Ozon, 22,700sqm.

Other lettings in the year included Yandex.Market leasing 18,000sqm at Klimovsk and 4,500sqm in Rostov; Sladkaya Zhizn 16,000sqm at Klimovsk; and Ozon taking a further 8,000sqm in Rostov. All other new lets were for blocks of less than 10,000sqm.

The other large maturity in the period arose at Istra in May, DSV vacating 59,000sqm. This was the largest single space available on the Moscow market at that time, allowing us to expand our relationship with the Russian e-commerce giant, Ozon, who have taken 52,000sqm of the space since the period end. Beluga have made up the difference, leasing 8,400sqm.

Portfolio occupancy at 30 June 2021 was 93%, rising to 96% today on the re-letting of the DSV space.

In the second half of the year we have 130,000sqm of expiries, 72,000sqm of which has already been extended or re-let. RosLogistics account for 44,000sqm of the remaining maturing leases with their underlying clients' requirement expected to drop to 36,200sqm. Negotiations on the remaining maturities and vacant space are at an advanced stage.

Office Portfolio

The office portfolio has performed in line with our expectations in the period. The buildings are operating as normal and tenants have returned to their offices although many continue to allow employees to work from home for one or two days a week. We do not have any large breaks or expiries during the remainder of the year and occupancy is running at 98%.

All office tenants have paid and continue to pay their full rental obligations.

Finance Review

Operating results in the six months have been strong in Rouble terms, the weaker average exchange rate in the period taking some of the shine off when converting to Sterling. The balance sheet position at 30 June 2021 shows the benefit of the strong market dynamics, with property values on the increase and higher interest rates and oil prices stabilising the Rouble. This translates into a significant increase in IFRS earnings and net asset value per share.

Income Statement

Net Rental and Related Income

The Group generated Rouble denominated net rental income of R5.4 billion in the six months to 30 June 2021, up from R5.2 billion in the same period in 2020. The significantly weaker Rouble/Sterling average exchange rate in the period of 103.1 compared to 87.3 in the six months to 30 June 2020 means our Sterling presentation income drops to £51.9 million from £59.6 million. The step down in income as the last of the non Rouble leases convert to market rates was principally taken in 2020, with only 3% of our portfolio now remaining on US Dollar leases compared to 17% of US Dollar and Euro leases at 30 June 2020.

Administrative Expenses

Administrative expenses include transaction costs of £1.25 million in relation to the purchase of the Company's shares from Invesco in the period.

Excluding this cost, both underlying and IFRS administrative expenses have reduced compared to 2020 even with slightly higher employment costs reflecting some bonus payments in 2021. Bonus decisions were deferred in 2020 due to the pandemic so there is no comparable charge.

Net Finance Costs

Our weighted average bank interest cost in the six months was 6.37% (2020: 5.48%). In 2020 we were in a low inflation, decreasing interest rate environment in Russia, the key rate dropping to 4.25%. That situation has now been reversed, with rising inflation forcing the CBR to enter into a programme of interest rate increases in the first half of the year, from 4.25% at 31 December to 6.5% today. The full effect of this will be seen in the second half of the year if there is no easing of the policy.

This has had a positive effect on the mark to market of our interest rate derivatives, generating a valuation gain of £2.2 million (30 June 2020: loss of £1.5 million).

The re-designation of our convertible preference shares in September 2020 also means we no longer account for the premium on redemption, a charge of £3.6 million in the same period last year.

Together this results in a drop in net finance costs from £40.4 million to £33.2 million for the six months.

Taxation

The underlying corporation tax charge increased in the period to £4.3 million (30 June 2020: £3.4 million) as positive foreign exchange gains arising in the Russian subsidiaries are taxable. The IFRS tax charge also increases to £8.6 million (30 June 2020: £5.1 million) as a deferred tax charge of £1.8 million is applied to the positive investment property revaluation movement.