Latest developments and financial performance
Revenues fell 6% for the year as the newly acquired investment caused a fall in interest revenue. The decrease in revenue
came despite rentals increasing by 40.9% YoY to BGN 3m as rents from the Business Park properties acquired in 2014
started to appear on the income statement. As a result, EBITDA increased 171% YoY to BGN 753k. However the company
reported a net loss of BGN 605k, versus a profit of BGN 1.7m a year earlier due to BGN 1.62m negative revaluation of the
properties in Borovets and Mladost and a decrease in net financial income by 80% YoY to BGN 263k. The siezable cash
position, which turned away investors was significantly decreased during 2014, falling from BGN 25.6m to BGN 9m, after
BREF made two acquisitions and announced a new project, which would reduce cash and raise current income. During 2014
BREF acquired 9 115 sq.m office space in Business Park Sofia, which has an occupancy rate of 97%. Additionally, the
company started designing a multifunctional building on its land plots near Sofia’s ring road. The preliminary plan is for a
project with built-up area of ca. 10,000 sq.m. BREF expects to complete the designing and to start looking for potential tenants
of the building in the near term. Management expects a construction permit during Q1’15 and the building to be operational in
late 2016.
Quite unexpectedly, the REIT, which had distributed dividend in each of the last 7 years, would not do so next year (out of
2014 profit) due to the reported revaluation loss.
Valuation and performance rationale
Our expectations are that the management would be active in expanding the portfolio. Based on the rents from office Building
1B and the Ring Road project, we revise our estimate for the company’s fair value to BGN 0.78/share. In our NAV valuation of
BREF, Mr.Bricolage and Business Park properties are valued as ongoing operations based on their rent inflows, while the rest
of the projects are assumed to be sold within 3-5 years. The Ring Road project is valued based on construction cost of
€550/sq.m., 3-year term of completion and market rent levels. Our assumptions yield BGN 57.5m fair value of BREF’s
investment portfolio and NAV/share of BGN 1.04/share, which we discount by 25% to arrive at the fair value of BGN
0.78/share. We rate the stock a BUY with upside potential of 46%, however the price would probably remain depressed in Q1
due to the no-dividend news.
Revenues fell 6% for the year as the newly acquired investment caused a fall in interest revenue. The decrease in revenue
came despite rentals increasing by 40.9% YoY to BGN 3m as rents from the Business Park properties acquired in 2014
started to appear on the income statement. As a result, EBITDA increased 171% YoY to BGN 753k. However the company
reported a net loss of BGN 605k, versus a profit of BGN 1.7m a year earlier due to BGN 1.62m negative revaluation of the
properties in Borovets and Mladost and a decrease in net financial income by 80% YoY to BGN 263k. The siezable cash
position, which turned away investors was significantly decreased during 2014, falling from BGN 25.6m to BGN 9m, after
BREF made two acquisitions and announced a new project, which would reduce cash and raise current income. During 2014
BREF acquired 9 115 sq.m office space in Business Park Sofia, which has an occupancy rate of 97%. Additionally, the
company started designing a multifunctional building on its land plots near Sofia’s ring road. The preliminary plan is for a
project with built-up area of ca. 10,000 sq.m. BREF expects to complete the designing and to start looking for potential tenants
of the building in the near term. Management expects a construction permit during Q1’15 and the building to be operational in
late 2016.
Quite unexpectedly, the REIT, which had distributed dividend in each of the last 7 years, would not do so next year (out of
2014 profit) due to the reported revaluation loss.
Valuation and performance rationale
Our expectations are that the management would be active in expanding the portfolio. Based on the rents from office Building
1B and the Ring Road project, we revise our estimate for the company’s fair value to BGN 0.78/share. In our NAV valuation of
BREF, Mr.Bricolage and Business Park properties are valued as ongoing operations based on their rent inflows, while the rest
of the projects are assumed to be sold within 3-5 years. The Ring Road project is valued based on construction cost of
€550/sq.m., 3-year term of completion and market rent levels. Our assumptions yield BGN 57.5m fair value of BREF’s
investment portfolio and NAV/share of BGN 1.04/share, which we discount by 25% to arrive at the fair value of BGN
0.78/share. We rate the stock a BUY with upside potential of 46%, however the price would probably remain depressed in Q1
due to the no-dividend news.
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