In H1’16, Bulgarian Real Estate Fund (BREF) delivered 79% y/y rise in the top line to BGN 4.2m while net profit retreated 13% to BGN 702k, report ELANA Trading analysts in the latest BREF equity research report.
BREF property sales would be a cash generator
BREF’s legacy portfolio would have mixed effect on future returns as H1’16 results suggest. In Q2’16, the company sold some of its older inactive property. The divestment of 30 250 sqm near Veliko Turnovo delivered 5x return on initial investment while the sale of a 3 616 sqm Mladost IV project plot was expectedly below book value as the project underwent considerable rearrangement after the approval of the master plan for the district. The latter deal confirmed our valuation
for the buildable area of the Mladost IV project. ELANA Trading analysts pointed out that although selling all inactive properties could hardly be expected to generate returns, any additional plot sales would be a nice cash generator for the company as such projects are no longer leverage.
On the lookout for new revenue generator
Finishing the Kambanite project, BREF is on the lookout for new revenue generating office property to add to its portfolio. It has not revealed any specifics but is preparing the balance sheet for a potential capital raise, if necessary (1-for- 3 reverse split in Q1’16 and stock nominal value decrease expected Q3’16). With below 10% interest bearing debt-to-equity, BREF has plenty of room to add leverage in pursuit of BGN 20m+ deals. At the start of 2016, it took a BGN 11m, 10 year Sofibor+3.1% bank loan, 44% of which used in H1’16.