EUR 100.00 For Business Accounts Only

BREF Update - December 2021

DESPITE LIKELY SHORT-TERM DIVIDEND DROUGHT, LONG-TERM PROSPECTS REMAIN PROMISING
• We maintain our „BUY“ recommendation for BREF with a target price of BGN 2.60. Our valuation approach includes DDM to account for the company’s strong income generation potential as well as NAV for some of the company‘s assets.
• BREF already received permit for operation of part of its project in Sofia Tech Park – Synergy Tower and the rest of the building is expected to become operational in a few months. Currently the occupancy rate in the property is just 25.64%, which is a cause of, hopefully, a temporary concern. We expect a gradual increase of the building’s occupancy rate, which would be boosted by a nearby subway station, expected to be in use in 2026.
• The change in legislation, allowing REITs to account for principal payments when calculating the adjusted net profit, used in dividend calculation, will ease the pressure on BREF‘s balance sheet. This however means very low or even no dividends in the next few years.
• We expect the retail portion of the portfolio to remain unaffected, while the office properties to suffer in the coming years.
• On the upside, Bulgaria remains among the cheapest destinations in the EU for outsourcing both in terms of rent per sq.m. and labour costs. Combined with overall business environment improvements, this could persuade more international companies to open divisions in Bulgaria, driving office space demand upwards in the long run.
• The company has a fixed term in its Articles of Association – 2029, offering a predictable and easy exit path to larger investors, which is very important in the lower liquidity environment on the Bulgarian Stock Exchange.