Yandex to Buy Headquarters to Reduce Dollar-Linked Rent Expensesby
Company will pay for complex by issuing debt and equity
Deal will add 600 basis points to Ebitda margin, company says
Yandex NV agreed to buy its Moscow headquarters after surging rent payments that are linked to the U.S. dollar curbed profits as the local currency lost half of its value in the last two years.
The company, which operates Russia’s biggest search engine, will finance the purchase of seven buildings from Cyprus-based Krasnaya Roza 1875 Ltd. by issuing 12.9 million new Class A ordinary shares and approximately $490 million of debt, the company said in a statement Friday. After the transaction, Yandex said it will wholly own the complex where it is currently headquartered.
The purchase helps solve what has been a growing problem for many companies that lease space in Moscow. While commercial real estate rents in the city are collected in rubles, the amount is often fixed in dollars. The ruble has plunged 53 percent since March 2014, driving the amount tenants have to pay in the local currency progressively higher. By eliminating those payments, Yandex will add at least 600 basis points to its earnings before interest, taxes, depreciation and amortization margin, Chief Financial Officer Gregory Abovsky said on a conference call.
“The deal will lift the company of a dollar-related rent burden that has been weighing on profits,” Sergey Vasin, an analyst at Gazprombank JSC, said by phone from Moscow on Friday. “This is a smart decision long-term.”
Yandex, which gets most of its revenue in rubles, has been suffering from soaring rent costs since mid-2014, when plunging oil prices and international sanctions against Russia sent the currency tumbling. Its fourth-quarter adjusted Ebitda margin was 36 percent, the company said Tuesday.
The company’s U.S.-traded shares closed at $13.08 on Thursday. Based on that price, the 12.9 million shares issued to pay for the real estate would be valued at about $169 million, bringing the total acquisition price to around $660 million.
Owning the building will save Yandex approximately $60 million per year over the next five years, according to Kirill Yankovskiy, director of equity sales at Otkritie Capital International Ltd. The company, which has offices in countries from Turkey to Switzerland, occupies 65 percent of the space it is acquiring in Moscow and plans to rent the rest to other tenants in the short term. It will pay about $8,250 per square meter.
“If you look at the per-meter price, it’s a little too expensive for Moscow for the current class of real estate, and it remains to be seen how a search-engine company will handle the rent issues in the market that now doesn’t look too attractive,” Yankovskiy said. “The effect of the deal is neutral. The company paid the premium for the comfort of staying in the same place and not having to move out.”
Yandex slid 3.1 percent to $12.67 in New York Friday, pushing its decline from last year’s high in April to 39 percent.
“The share decline shows investors’ concern about the stock dilution,” Sergey Libin, an analyst at AO Raiffeisenbank, said by phone from Moscow. “But even though this might not be good news for shareholders right now, the fact that the company won’t have to depend on currency fluctuations while paying rent sends a positive signal long-term.”