Decarbonization Investments And Lease Indexation Will Drive Long Term Rental Income Upside

Catalysts

About Hamborner REIT

Hamborner REIT is a German real estate investment trust focused on income producing retail and office properties with long term leases.

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

• Resilient occupancy with an EPRA vacancy rate of 3.4 percent, a portfolio WALT of 5.5 years and a roughly 95 percent tenant retention rate positions Hamborner to sustain and gradually grow rental income and stabilize earnings through cycles.
• Ongoing indexation of leases, particularly in the office portfolio, is already supporting like for like rental growth of 1.5 percent and is expected to continue to uplift revenue as inflation adjustments flow through the rent roll.
• Strategic disposals of noncore assets, combined with disciplined leverage at an EPRA LTV of 43.3 percent and a low 2 percent average interest cost, provide capacity to recycle capital into higher yielding properties and improve net margins and FFO growth.
• Digitalization of facility management and data driven portfolio management, including systematic property data collection and process optimization, is expected to lower nonrecoverable operating costs over time and enhance net operating income and FFO margins.
• Structured decarbonization investments, backed by clear multi year ESG spending plans and measurable reductions in energy related emissions, are intended to enhance asset quality and financing access, supporting higher rental growth, stronger tenant demand and improved long term earnings visibility.

Assumptions

This narrative explores a more optimistic perspective on Hamborner REIT 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 Hamborner REIT's revenue will grow by 2.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 13.6% today to 11.0% in 3 years time.
• The bullish analysts expect earnings to reach €12.0 million (and earnings per share of €0.15) by about December 2028, down from €13.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €2.7 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 91.2x on those 2028 earnings, up from 25.5x today. This future PE is greater than the current PE for the GB Retail REITs industry at 25.5x.
• 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 7.69%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent asset disposals without sufficiently accretive reinvestment could structurally shrink the portfolio, reducing rental income from the current annualized level of around EUR 88.6 million and putting sustained pressure on FFO and earnings growth.
• Longer negotiation cycles, rising tenant sensitivity to rent levels after several years of indexation driven increases and slightly lower reletting rents in some contracts signal a softer letting market that may cap future like for like rental growth and compress net margins.
• Ongoing cost inflation and structurally higher maintenance, digitalization, personnel and ESG related expenses, which are already rising at high single to double digit rates, could outpace modest rental growth and drive a prolonged decline in FFO and earnings.
• Further fair value write downs beyond the EUR 34.7 million already seen in the first nine months of 2025, driven by weaker transaction markets or higher yields for retail and office properties, would erode net asset value and could ultimately weigh on earnings via higher leverage metrics and refinancing costs.
• Rising regulatory and financing demands around sustainability and data transparency from lenders and other stakeholders, combined with increasing tenant dependence for Scope 3 emission reductions, may force higher long term CapEx and maintenance outlays than planned, constraining cash flows, net margins and dividend funded earnings.

Valuation

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

• The assumed bullish price target for Hamborner REIT is €10.8, which represents up to two standard deviations above the consensus price target of €8.13. This valuation is based on what can be assumed as the expectations of Hamborner REIT'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 €11.0, and the most bearish reporting a price target of just €7.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be €109.7 million, earnings will come to €12.0 million, and it would be trading on a PE ratio of 91.2x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of €4.37, the analyst price target of €10.8 is 59.6% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.