Urban Housing Undersupply And Recurring Income Pipeline Will Drive Long Term Earnings Potential

Catalysts

About One United Properties

One United Properties develops and manages premium residential and mixed use real estate projects in Bucharest and other prime Romanian locations.

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

• A large pipeline of nearly 3,000 units scheduled for delivery in the next 12 months and approximately 10,000 units planned for the next 5 to 10 years supports sustained growth in residential revenues and scale driven operating leverage that should benefit earnings.
• Persistent undersupply of new housing in Bucharest, combined with a rising urban population and affordability at around 6 years of income per average apartment, creates room for further price increases that can support both top line growth and residential net margins.
• Strong visibility on contracted cash flows, with EUR 372 million to be collected from signed presale agreements through 2027, alongside 82% of current inventory already sold, underpins future revenue recognition and reduces earnings volatility.
• Upcoming delivery of key income generating assets in 2026, including One Gallery, One Technology District and the Mondrian Hotel, should expand recurring rental and hospitality income and gradually lift the share of stable cash flow in overall profits.
• Favorable legislative changes that speed up land book registrations and notarized sales, combined with disciplined leverage at a 31% loan to value ratio, position the company to monetize demand faster, recycle capital into new projects and enhance return on equity and earnings growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming One United Properties's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.2% today to 26.1% in 3 years time.
• Analysts expect earnings to reach RON 454.9 million (and earnings per share of RON 4.11) by about December 2028, up from RON 382.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, up from 8.3x today. This future PE is lower than the current PE for the RO Real Estate industry at 14.7x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 17.16%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Residential demand could soften if macro uncertainty in Romania persists or worsens, with elections, fiscal deficit tightening and cautious consumer behavior leading more potential buyers to postpone purchase decisions, which would put pressure on revenue growth from apartment sales and slow earnings momentum.
• Long term construction cost inflation, which management acknowledges tends to average five to ten percent annually, could at some point outpace the company’s ability to raise selling prices, eroding the currently elevated residential gross margins of about 37% and reducing net profit growth.
• A normalization of the current undersupply in Bucharest or a slowdown in premium housing demand would make it harder to sustain the recent 15% to 22% annual price increases per square meter, which could limit future top line expansion and compress net margins as new projects are brought to market.
• Legislative and regulatory changes in the real estate and zoning framework, such as constraints on down payments, delays in new zoning approvals like those needed for Herastrau City or tighter rules on pre sales, could slow project launches and cash collection, weighing on contracted presales, revenue visibility and earnings.

Valuation

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

• The analysts have a consensus price target of RON34.75 for One United Properties based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be RON1.7 billion, earnings will come to RON454.9 million, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 17.2%.
  
• Given the current share price of RON28.95, the analyst price target of RON34.75 is 16.7% 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.