Portfolio Repositioning And Deleveraging Will Drive A Stronger, More Resilient Real Estate Platform

Catalysts

About Branicks Group

Branicks Group is a German real estate platform focused on office and logistics assets and institutional asset and property management.

What are the underlying business or industry changes driving this perspective?

• Repositioning of the portfolio toward office and logistics, with logistics already seeing strong foreign investor interest, should support higher occupancy and like for like rental growth. This in turn underpins gross rental income and stabilizes net margins.
• Index linked leases and demonstrated rent uplifts, such as the increase in average rent from 9.63 euros to 10.34 euros per square meter, position the portfolio to benefit as inflation and market rents reprice. This directly supports revenue and earnings resilience.
• Growing demand from global funds for development, refurbishment and sustainability driven assets aligns with Branicks high quality, ESG focused projects like GreenBiz Park. This creates potential upside in development margins and transaction fee income.
• Ongoing integration of VIB Vermögen via the planned control and profit transfer agreement should unlock platform synergies, simplify governance and enable more efficient capital allocation. This may have a positive impact on operating leverage, FFO and return on equity.
• Continued deleveraging, improved bond covenants and a structurally lower average interest rate from 2.67 percent to 2.37 percent create room for future growth investments while reducing financing costs. This supports net margins and may accelerate the path back to net profit in 2026.

Assumptions

This narrative explores a more optimistic perspective on Branicks Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Branicks Group's revenue will decrease by 16.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -129.0% today to 33.9% in 3 years time.
• The bullish analysts expect earnings to reach €44.7 million (and earnings per share of €0.54) by about December 2028, up from €-289.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €8.9 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, up from -0.5x today. This future PE is greater than the current PE for the GB Real Estate industry at 11.2x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.98%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Ongoing portfolio disposals at prices below book value, highlighted by EUR 178 million of write downs on sales in the first 9 months of 2025, suggest that legacy peak cycle valuations may still be embedded in the balance sheet. This raises the risk of further impairments if transaction markets stay weak and puts pressure on earnings and reported equity based leverage metrics.
• Vacancy rates have been creeping up in both logistics and office, with around a 2 percentage point rise in office vacancy driven by expiring major contracts and asset sales of fully let properties. If re leasing or refurbishment takes longer than expected in a structurally challenged office market, this could erode gross rental income and compress net margins despite index linked leases.
• The deleveraging strategy relies heavily on large scale disposals of EUR 600 million to EUR 800 million in 2025 and beyond. In a structurally subdued German real estate transaction market with longer decision cycles for institutional investors, there is a risk that assets must be sold at deeper discounts or more slowly than planned, which would constrain liquidity, keep interest costs elevated and delay the targeted recovery in earnings.
• Although bond covenants and interest coverage have improved, the EUR 400 million green bond maturing in September 2026 remains a significant refinancing event in an environment of structurally higher interest rates and tighter credit. If refinancing conditions deteriorate or asset values weaken further, Branicks could face higher funding costs or restrictive terms that weigh on net margins and free cash flow.
• The planned control and profit transfer agreement with VIB Vermögen depends on court appointed valuations, minority shareholder approval and a capital increase at Branicks. Any delay, unfavorable exchange ratio or higher than expected guaranteed dividend to VIB minorities could dilute existing shareholders and limit the net cash benefit from VIB, thereby reducing the uplift to group earnings and return on equity that the narrative assumes.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Branicks Group is €8.0, which represents up to two standard deviations above the consensus price target of €4.21. This valuation is based on what can be assumed as the expectations of Branicks Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €8.0, and the most bearish reporting a price target of just €1.7.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be €131.7 million, earnings will come to €44.7 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 10.0%.
  
• Given the current share price of €1.84, the analyst price target of €8.0 is 77.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.