BREF – Stable performance in turbulent times Q4 2021 results

Stable performance in turbulent times

Q4 2021 results

• BREF reported positive 2021 annual results amid a very turbulent year with Revenues increasing over 18% and Net Profit growing more than 40% to keep superb Net Profit Margin of 45.7%

• The notable increase in Non-Current Assets, as well as Current and Non-Current Liabilities is due to the utilization of the investment loan for the completion of the Synergy Tower and the ongoing works associated with it. A point to note is the extension of the completion date for the building to 2022, rather than Q4, 2021.

• Anchor tenants left as part of their strategy to centralize operations searching for even bigger office space locations – a notable trend among the largest IT and BPO providers. Modis Bulgaria, part of Adecco, left the Kambanite Green Offices resulting in occupancy drop to 33.26% effective end of March 2022. Atos IT Solutions left Business Park Building effective end of December 2021 resulting in occupancy drop to 50.15%. BREF managed to find replacement – New Work Business Park – effective April 2022, increasing the occupancy of the building to 67.56%.

• An agreement was reached to sell Bricolage Varna for EUR 6,800,000. The deal is expected to be finalized by end of Q2, 2022. Additionally, the land plot in Mladost 4, Sofia, was sold in Q1, 2022, for EUR 350,000. The sales allow for a very comfortable cash cushion to meet dividend payments or possible unexpected costs associated to asset renovation.

• Despite the decline in revenues in 2022 due to decline in occupancy and asset disposal, the expected annual rental revenue decline, even if no further tenants are found, is negligible 0.65%. This is due to the positive impact of the operations of Synergy Tower. Realistically, tenant agreements are expected in 2022 from 3 of its assets – Synergy Tower, Business Park and Kambanite Office Bldg – which would significantly improve the revenue figure at the end of 2022.

• With a current market price of BGN 2.10 we see the stock as greatly undervalued with 57% potential from the NAV of BGN 3.30 (derived from BGN 107,628,000 equity and 34,641,925 outstanding shares). We believe investors abstain from purchases due to the geopolitical uncertainty, however, the portfolio seems to be generating steady returns even in worst case scenarios, which do not consider the upside of their main asset, Synergy Tower.

The full report can be downloaded here.