Robust German And Polish Rental Growth Will Unleash Future Potential

Key Takeaways

• Strong rental growth and portfolio modernization in Germany and Poland drive stable occupancy, predictable income, and operational efficiency.
  
• Strategic expansion in Poland and prudent capital management diversify earnings and provide resilience for future growth.
  
• Growth prospects are challenged by project delays, one-off valuation gains, high leverage, deferred expansion, and limited market-driven rental or asset value increases.

Catalysts

A real estate company, engages in the acquisition, development, and management of residential real estate properties in Germany.

• Continued robust rental growth in both Germany (2.9% like-for-like) and Poland (3.3% like-for-like), supported by ongoing housing shortages, urban migration, and demographic factors, is driving stable occupancy and predictable rental income, thereby supporting revenue and future net margin expansion.
  
• Strategic expansion in Poland, where demand for both rental and for-sale apartments remains strong amid falling mortgage rates and high household cash levels, is expected to materially boost group revenue and diversify earnings, especially with a significant ramp-up of rental units into 2027–2028.
  
• Portfolio modernization and targeted capex in Germany are producing attractive internal growth through vacancy reduction and ESG-driven asset upgrades, which bolster occupancy and enable premium rents, enhancing operating efficiency and net margins.
  
• Reversal of the negative valuation trend in core German and Polish portfolios (notably a 1.4% value increase in Germany and a 7% price uplift in Poland) signals that sector headwinds have abated, and sustained supply-demand imbalances should continue to support property values and EPRA NTA per share growth.
  
• Prudent capital management, marked by a reduced LTV (now at 45.3%), strong cash and liquidity positions, and stable refinancing costs, is mitigating interest expense risk and providing ample capacity for future development and growth, thus supporting long-term earnings stability.

TAG Immobilien Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TAG Immobilien's revenue will decrease by 25.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.5% today to 82.2% in 3 years time.
• Analysts expect earnings to reach €355.0 million (and earnings per share of €2.21) by about September 2028, up from €275.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €524.1 million in earnings, and the most bearish expecting €277 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.6x on those 2028 earnings, up from 9.8x today. This future PE is lower than the current PE for the GB Real Estate industry at 14.5x.
• Analysts expect the number of shares outstanding to grow by 0.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.56%, as per the Simply Wall St company report.

TAG Immobilien Future Earnings Per Share Growth

Risks

• TAG's growth in Poland is heavily reliant on continued strong sales and rental demand, but the company noted that a substantial portion of recognized revenue comes from apartment handovers in the fourth quarter; any construction or project delays could defer revenue and cash flow, directly impacting annual earnings and guidance.
  
• The company acknowledged that the 20%+ valuation uplift in the Polish portfolio this period was a one-time step change and should not be assumed as a repeated trend, meaning future asset value growth (and thus NAV per share) is likely to revert to lower, inflation-like increases that may limit long-term capital appreciation.
  
• TAG's expansion plans in Poland are dependent on construction starts, but the company admitted that no new rental projects were initiated in 2023 due to a focus on deleveraging and cash preservation-delaying the pipeline means meaningful rental income growth is deferred until 2027/2028, potentially creating a multi-year earnings plateau.
  
• Elevated leverage, with LTV at 45.3%, means TAG continues to be exposed to refinancing risks and future interest rate rises; management admits refinancing now occurs at higher rates (new debt 3.2%-3.7% vs. avg. 2.5%), which will increase interest expense and squeeze net margins over the long-term.
  
• While current rental growth in Germany is positive (2.9%), the company is seeing only modest asset value increases, a competitive but slow transaction market, and is reliant on internal growth rather than external acquisitions-if rental demand or value growth stagnates (due to demographic shifts or urbanization plateau), this could restrict future revenue and profit growth.

Valuation

• The analysts have a consensus price target of €17.65 for TAG Immobilien based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.3, and the most bearish reporting a price target of just €13.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €431.7 million, earnings will come to €355.0 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 9.6%.
• Given the current share price of €14.38, the analyst price target of €17.65 is 18.5% 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.