BREF – Steady Performance in Q2 2022 – Q2 2022 results

• BREF continues to be one of the most stable performers in Q2. Regardless of the geopolitical hurdles that many face, the company’s stock has appreciated 20.9% YTD due to strong fundamentals in its portfolio, which is able to generate steady returns even in worst case scenarios. Portfolio’s potential is still greatly undervalued.
• Total revenues increased significantly in Q2 primarily due to the completion of the deal to sell their Bricolage Varna property. Additionally, they managed to sell the agricultural lands near Veliko Tarnovo. The Bricolage Varna exit recorded 3.6% CAGR not accounting for the rent revenue through the years. Both deals generated a very comfortable cash pillow of over EUR 7.5mln (EUR 6.8mln from Bricolage Varna and EUR 0.7mln from Veliko Tarnovo).
• This outcome allows the management to concentrate on the more important opportunities ahead associated with their Sofia office locations and gives them the cash to meet any unexpected expenditures that may arise or secure future dividend payouts.
• Rental revenues increased 6.5% YoY to BGN 3,703 thousand compared to last year’s H1 of BGN 3,477 thousand. BREF management has been very active to find replacements to the main tenants, which they lost in Q4 2021. Because of the outflow, the occupancy rate at their Kambanite site dropped to 33% by year end. However, the signings with TEU Bulgaria (shipping and forwarding) and Neterra (internet service provider, networking and cloud services) increased the occupancy rate to 55% via 5 year rental agreements.
• The Synergy Tower operational schedule is on track and no delays are reported. Once lent at 95%, total rental revenue to the fund will more than double. Currently, negotiations are underway for a large portion of the GLA with a government backed institution. The process is in the final stages, but it is likely that the process is delayed because of the political insecurity stemming from recent government changes and upcoming elections.
• With a current market price of BGN 2.46 we see the stock as greatly undervalued with 31% potential from the NAV of BGN 3.23 (derived from BGN 111,966,000 equity and 34,641,925 outstanding shares). We believe investors abstain from purchases due to the geopolitical uncertainty, but that does not seem to affect their business so far. Stock price has increased 20.9% YTD.

Full report can be downloaded here.