Asset Sales At 27% Premium And Portfolio Expansion Will Strengthen Future Prospects

Key Takeaways

• Effective vacancy reductions and rent adjustments are expected to enhance revenue growth and improve financial performance.
  
• Strategic asset management, including portfolio rotation and acquisitions, aims to boost earnings and stabilize margins.
  
• Rising costs, higher vacancy rates, and limited growth opportunities pose challenges to Hamborner REIT's revenue and long-term financial outlook.

Catalysts

HAMBORNER REIT AG a public company listed in the SDAX that operates exclusively in the property sector and is positioned as a portfolio holder for high-yield commercial properties.

• Hamborner REIT expects further positive like-for-like rent effects from potential vacancy reductions and additional index-based rent adjustments, which are likely to improve revenue growth.
  
• The company is actively pursuing its portfolio rotation strategy by disposing of non-strategic assets, such as the Hamburg office property sold at a 27% premium over recent market value, which can positively impact net margins and overall earnings through effective capital management.
  
• Despite a challenging environment, the company maintains a stable financial situation with a low average interest cost of 1.9%, which may support stable or improved net margins as refinancing costs are managed effectively.
  
• Hamborner REIT is exploring acquisition opportunities to enhance its portfolio, and successful acquisitions aligned with strategic goals could potentially boost future revenue and earnings.
  
• The company's manage-to-core strategy, illustrated by reclassified properties like the one in Ingolstadt, aims at increasing the value and utility of the portfolio, potentially enhancing overall earnings through strategic asset management.

Hamborner REIT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hamborner REIT's revenue will decrease by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 13.4% in 3 years time.
• Analysts expect earnings to reach €12.9 million (and earnings per share of €0.16) by about February 2028, up from €8.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €7.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.6x on those 2028 earnings, down from 65.0x today. This future PE is lower than the current PE for the GB Retail REITs industry at 70.4x.
• 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 7.45%, as per the Simply Wall St company report.

Hamborner REIT Future Earnings Per Share Growth

Risks

• The company experienced a decline in funds from operations (FFO) by 1% due to various income and cost effects, which may indicate margin pressure and affect future earnings.
  
• Increased maintenance expenses to €10 million for the year may impact net margins as operating costs rise.
  
• The rise in vacancy rates, now at 3.1%, and declining reletting rents could pressure rental income, affecting revenue growth.
  
• Current refinancing discussions suggest future debt costs may increase, which could impact net margins and raise financial liabilities.
  
• Limited attractive acquisition opportunities in a slow market might restrict portfolio growth and revenue potential, potentially affecting long-term income.

Valuation

• The analysts have a consensus price target of €8.05 for Hamborner REIT 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 €9.0, and the most bearish reporting a price target of just €7.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €96.1 million, earnings will come to €12.9 million, and it would be trading on a PE ratio of 62.6x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of €6.55, the analyst price target of €8.05 is 18.6% 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.