Urban Shifts And E-Commerce Will Weaken Rental Performance

Key Takeaways

• Growth in rental income may moderate due to normalization post-pandemic and shifting consumer preferences away from physical retail.
  
• Heavy investments and asset concentration increase exposure to refinancing risks and could challenge long-term profitability if market dynamics worsen.
  
• Resilient rental growth, mixed-use diversification, high occupancy, portfolio optimization, and strong financial discipline position the company for stable earnings and improved returns.

Catalysts

Wereldhave N.V. (“the Company”) is an investment company that invests in real estate (shopping centers and offices).

• Recent strong like-for-like net rental growth of 6% has been buoyed by favorable tenant demand and post-pandemic recovery, but the company acknowledges normalization as inflation cools. If investors are extrapolating high rental growth rates too far into the future, future revenues and earnings could disappoint as growth moderates.
  
• Ongoing urban demographic changes, including suburbanization and an aging population in some regions, may lead to a shrinking tenant and customer base for secondary-city assets, which could suppress long-term occupancy rates and rental income.
  
• The resurgence of e-commerce and consumer shifts away from physical retail for certain categories may gradually erode footfall and tenant sales in Wereldhave's centers, pressuring rental revenue and slowing top-line growth in the coming years.
  
• While the company's significant investment in "Full Service Center" transformations and acquisitions (notably in Luxembourg) has driven portfolio growth and near-term revaluation gains, these are capital-intensive and may not sustainably replicate recent IRRs as competition for mixed-use assets increases, potentially compressing future net margins and earnings.
  
• Management's guidance upgrades and upbeat commentary appear heavily reliant on cost discipline and favorable rent indexation, but higher leverage and asset concentration in mid-sized centers leave the company exposed to refinancing risk and anchor tenant vacancies, which could negatively impact future profitability and cash flows.

Wereldhave Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wereldhave's revenue will decrease by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 43.6% today to 54.6% in 3 years time.
• Analysts expect earnings to reach €93.9 million (and earnings per share of €1.91) by about August 2028, up from €88.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.3x on those 2028 earnings, up from 9.7x today. This future PE is greater than the current PE for the GB Retail REITs industry at 9.0x.
• Analysts expect the number of shares outstanding to grow by 5.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.36%, as per the Simply Wall St company report.

Wereldhave Future Earnings Per Share Growth

Risks

• Sustained like-for-like net rental growth (6% reported, with management indicating sustainability driven by cost savings, inflation indexation, and other rental income sources such as solar panels and EV chargers), suggests resilience in underlying revenues and potential for improving net margins.
  
• Successful transformation to mixed-use "Full Service Centers" demonstrates diversification beyond traditional retail, with strong tenant demand in segments like food & beverage, healthcare, and fitness, supporting occupancy and earnings stability over the long term.
  
• High occupancy rates (Netherlands and Belgium ~98%) and positive leasing spreads in key markets (e.g., new leases above ERV in Luxembourg and the Netherlands, waiting lists in prime assets like Nivelles) indicate steady tenant demand, providing downside protection for revenues.
  
• Ongoing portfolio optimization (active asset rotation, selling non-core and underperforming properties, focus on higher-yielding assets) enables capital recycling into accretive acquisitions (e.g., Luxembourg, joint venture with Sofidy) that improve average returns and support future earnings growth.
  
• Disciplined financial management (maintained credit rating, commitment to reducing loan-to-value toward/below 40%, cost control measures) puts the company in a stronger position for reinvestment, dividend reliability, and net profit improvement as market conditions stabilize.

Valuation

• The analysts have a consensus price target of €17.333 for Wereldhave 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 €20.0, and the most bearish reporting a price target of just €15.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €172.2 million, earnings will come to €93.9 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 7.4%.
• Given the current share price of €18.66, the analyst price target of €17.33 is 7.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.