The office in exchange for shares
Internet company “Yandex” buys part of the business centre “Red rose”, located in Moscow, Lev Tolstoy street near the metro station “Park of Culture”, the company said on Friday. Now in this business district is the Moscow headquarters of the company.
“Yandex” has signed an agreement with the owner of the “red Rose” — the Cyprian company “Red rose 1875 limited” (part of KR Properties Alexander Klyachin), which will create a new company. She will be a part of the office complex and approximately $490 million of debt obligations of the former owner. “Yandex” will be a full-fledged owner of a new legal entity — the company will release and will pass “red rose 1875 limited” 12.9 million new shares. The current owner of the “red Rose” for its part undertakes to sign an agreement limiting the sale of securities for a period of 90 days after the closing of the transaction. The parties are waiting for approval of the transaction by the Federal Antimonopoly service (FAS). In the FAS on a Friday night are unable to respond promptly to the request. According to plan, the deal should be closed in the second half of 2016.
The representative of KR Properties Andrey Patrushev confirmed that the deal will be performed exactly on a “shares plus debt”. “The deal is a further step of the long-standing cooperation with “Yandex”, which in the current economic situation benefits both sides, he said. But I wouldn’t call it a purchase: the deal no money, in fact, this exchange of assets”.
Given that part of the transaction depends on the price of shares of the company, its size may change by the time of closing. If you evaluate the cost of such shares based on capitalization of “Yandex” on the NASDAQ as of 19:00 GMT on 19 February, it is $163,7 million Thus, taking into account the debt the deal amounts to about $654 million In “Yandex” expects to pay “significant” part of the debt at the time of closing of the transaction using the funds available on the balance sheet of the company, said during a conference call with analysts on Friday, financial Director of “Yandex” Greg Abovsky.
Total area of the business quarter “Red rose” is 137 thousand square meters, “Yandex” buys part of the business district, which includes seven office buildings of classes “A” and “b” total area of 80 thousand square meters “Yandex” occupies 65% of office premises in the business center. After buying a “red Rose” the company will continue to lease the current premises to the lessors, including, for example, the Bank “Opening”. In the future, following the expiry of their lease agreements, “Yandex” will be able to increase the size of their own office. Market value of the premises purchased by “Yandex”, $500-600 million at the current rate, estimates the Director of the Department of representation of interests of tenants Colliers International consulting company, Francois Nonnenmacher.
The long-awaited purchase
“Yandex” leases an office in “red rose” since 2009. However, a contract between “Yandex” with the owners of the business centre was nominated in dollars, and in the last financial report the company noted that the devaluation of the ruble causing significant damage to its operational financial performance. Payments “Yandex” for rent office in 2015 amounted to approximately $55 million, and adjusted EBITDA of $287,7. Thus, in the past year rent has eaten from “Yandex” about 19% of pre-tax profit.
In November of last year, “Vedomosti” wrote that the negotiations for the purchase of its own office of “Yandex” is already a few years, but could not agree on a price the owner asked for the whole business center is about $1 billion, said one of interlocutors of the edition. “The current economic situation, tenants of commercial space to purchase property at attractive terms and thus to optimize their costs on the property,” — said Alexey Efimov, regional Director at JLL, which advises Yandex in this transaction.
Previously, tenants were rarely purchased their offices, says partner of company Blackwood Konstantin Kovalev. However, the current economic situation contributes to the Commission of such transactions, he agrees: “Real estate assets are now cheaper than before the crisis, so “Yandex”, apparently, took advantage of this situation.” Now Cusman & Wakefield observes an increased interest from a number of companies to acquire the leased space, says partner and head of capital markets and investments of the company Alexey Locksmith: the acquisition space is becoming an attractive alternative to long-term leases, and this could prompt the company to purchase the leased premises.
“We believe the transaction is the effective use of capital and are the result of a reasonable approach to the management of operating expenditure in the current climate,” says Greg Abovsky. He expects that the deal could increase the EBITDA margin by end of 2016 6 percentage points. By the end of 2015 this indicator of “Yandex” has reached minimum for last five years and amounted to 35.1 per cent.