Dragon Capital Research: DUPD Reports Solid 1H11 NAV
News: Real estate developer Dragon-Ukrainian Properties & Development (DUPD) today released its 1H11 financial results, reporting an end-of-period portfolio valuation of $76.6m (flat YTD) and a net loss of $2.9m (vs. a loss of $1.3m in 1H10). The announced results imply end-1H11 NAV of $292.8m (flat y-o-y and -1% YTD).
The reported loss resulted from $3.1m of operating and administrative expenses (-10% y-o-y) and a $2.3m loss on revaluation of investment properties (vs. a $1.1m gain in 1H10), partly offset by $3.3m income from associates (+696% y-o-y), mainly from the Arricano and Henryland projects. An independent appraiser valued DUPD’s interest in commercial and residential properties but did not include the value of DUPD’s land bank which was recorded at cost ($124m, flat YTD). DUPD’s end-1H11 cash balances stood at $38.4m (down from $44.9m at end-2010). The company remained debt-free as of end-1H11.
DUPD also announced solid operating results for the period, reporting successful sales campaigns for its two gated communities, business-class Green Hills and high-end Riviera Villas, with total property sales in these developments reaching 26 and six, respectively. The company is also close to beginning construction of its Obolon premium residential project (expected in 2H11), reporting final-stage talks with banks to raise debt financing. DUPD also continues to benefit from fast post-crisis recovery in the retail property market — the company anticipates dividends from the Henryland project (development of DIY stores) in 2H11, given the $1.6m net income Henryland earned in 1H11. (Company)
Dragon view
The company’s 1H11 operating results fall generally in line with our expectations of steady recovery in the domestic real estate market supported by gradually improving access to credit. On the financial side, DUPD has so far underperformed our expectations. However, with DUPD maintaining a balanced project portfolio, we think the company should catch up with our forecast in 2H11 as growing domestic demand for real estate should gradually improve property valuations. This assumption, however, is highly dependent on the current global financial market turbulence proving temporary and entailing no significant negative implications for the Ukrainian economy (and its banking sector). Meanwhile, we confirm our Buy recommendation on DUPD.
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