These companies are most likely to surprise in real estate H1 earnings season

Bernstein forecasts a mixed but potentially positive first-half earnings season for the European real estate sector, highlighting companies like LEG Immobilien, VGP, Segro, Merlin Properties, and Mercialys as likely to exceed expectations due to specific catalysts such as asset disposals, leasing progress, and valuation uplifts. While anticipating solid rental growth across the sector, Bernstein notes ongoing macro and political uncertainties as short-term headwinds. However, the sector's significant 31% discount to 2025 net tangible assets, well below its long-term average, suggests a supportive valuation backdrop and potential buying opportunities, particularly in the UK, prompting several rating upgrades including Covivio and Carmila.

Analysis

Bernstein projects a cautiously optimistic outlook for the European real estate sector's first-half earnings, driven by solid rental growth from indexation and positive leasing trends. Specific companies are positioned to potentially raise guidance, including LEG Immobilien (LEGn), which is reportedly near a portfolio disposal to accelerate deleveraging, and VGP (VGP1), where progress on joint venture property disposals is a key focus. Other potential outperformers include Segro (SGRO), which may benefit from improved occupancy and rental growth in the logistics space, and Merlin Properties (MRL), whose data center valuation uplift is a primary catalyst. Despite these positive micro-level drivers, the sector faces headwinds from macro and political uncertainties, including potential tariff impacts and political instability in France and the UK. A critical valuation metric underpins the positive thesis: the sector currently trades at a 31% discount to its forecasted full-year 2025 net tangible assets, substantially wider than the 10% long-term average discount. This valuation gap has prompted several rating changes, including upgrades for Covivio (CVO) and Carmila (CARM), and has led Bernstein to view the recent sell-off in UK names like British Land (BLND) and Land Securities (LAND) as a buying opportunity, while maintaining underperform ratings on Warehouses de Pauw (WDPP) and Aroundtown (AT1).

Key Decisions for Investors

• Given the sector's significant 31% valuation discount to NTA, investors may consider overweighting European real estate, particularly focusing on names with strong ratings and clear near-term catalysts.
• Prioritize exposure to UK-based firms like British Land (BLND) and Land Securities (LAND), which are highlighted as specific buying opportunities, and other Outperform-rated names like Segro (SGRO) and Covivio (CVO).
• Monitor upcoming earnings reports for key inflection points, such as asset disposal news from LEG Immobilien (LEGn) and joint venture updates from VGP (VGP1), which could trigger stock re-ratings.
• Investors should remain cautious of macro risks and consider underweighting or avoiding companies with 'Underperform' ratings, such as Warehouses de Pauw (WDPP) and Aroundtown (AT1), which may lag the broader sector recovery.