PATRIZIA SE (PAT) Earnings Call Transcript & Summary

Thank you, Stuart. Thank you, and welcome, everyone, to our analyst and investor conference call for the first half of 2020. I hope you're all in good health and also hope that you and your families have either had a well-deserved summer break already or look forward to some time off soon in this very special year 2020. You might have noticed, with this set of results, we are trying something new. You know that we had only constantly rethink and involve our business model and services to our global clients. Also within Investor Relations, Martin and his team is looking at existing processes with the aim to develop and further improve our services to you, our analysts and investors. That's why we have recorded an 8-minute video in which we explain our financial results for the first half of 2020 in detail. I hope all of you had the chance to watch it ahead of this call. With this, we want to provide better access to our financial results, independent from the conference call, event dates and easily accessible for interested analysts and investors. We're looking forward to receiving your feedback and whether it makes your life easier. With this new digital format available, I'd like to limit today's conference call presentation to only a few key messages to give us more time for Q&A. First, we are a stable and reliable partner for our clients in a fragile environment. Despite the COVID-19 pandemic, we continue to serve our global clients and produce growth in equity raised, transactions closed and in assets under management. Second, we are profitable, and the strong results for the first half give us good tailwinds to reach our full year guidance of EUR 100 million to EUR 140 million, which we confirm with today's results. However, if we look at overall European transaction data, it is not surprising that the second quarter was overall a weak quarter. And with the summer break currently going on, Q3 will unlikely show a significant pickup in activity. It pretty much depends on the fourth quarter of this year and whether a second lockdown becomes reality in major European real estate markets. Third, we have a rock-solid balance sheet and ample liquidity for further growth. Despite our share buyback program, during the first half of 2020, our available liquidity, again, grew since year-end 2019 to now around EUR 620 million. In addition, we are holding around 2.7 million treasury shares we could use as M&A currency, reflecting a further EUR 60 million in value. Beyond that, we continued to follow our strategic goals during the second quarter of 2020, and this includes selected transactions in high-quality properties in Europe. It also includes successful fundraising from our global clients. Take our turn to European Fund as an example, where we just announced the final close with further EUR 116 million of new equity commitments. The funds is backed by institutional vessels from the U.K., Europe, the U.S., Middle East and Asia. Also, the introduction of new technology to increase client experience and service. Take the new PATRIZIA investor portal as an example. We just launched this new tool early July to give our global clients best accessibility and comfort to monitor their investments with PATRIZIA, not only via desktop but also via mobile services. Clients now have a complete online overview of their investments, including performance and regulatory reporting. And last but not least, we continuously work on further ESG and tech measures for smart buildings to the benefit of our tenants and our clients. As just one example, which is we finalized the tender process for bidding of feed and water for the German part of our portfolio. We reduced the number of services -- of service providers from 36 to just 2. We will introduce automated data transmission and energy monitoring that will help us to monitor ESG targets. At the same time, our negotiation power, backed by several billions of AUM, will lead to attractive cost savings for our tenants. Another example is the bundling of energy contracts. Following Germany and France, we just finalized negotiations for Denmark. We will soon change to full green energy for our portfolio in Denmark, and our tenants have the possibility to join the contract. We will achieve savings of 231 tons of CO2 emissions per annum from this alone. You can see, we continuously work on future proving our AUM in the best interest of all stakeholders of PATRIZIA. With that, I'd like to hand back to Stuart to start the Q&A session.

[Operator Instructions] First question is from the line of Andre Remke from Baader Bank.

Only 2 questions. First, referring to the performance fees. For the second quarter, you mentioned you are expecting more to come. Does this relate to disposal and this is more biased to the fourth quarter? And in general, how likely is that you can collect them? Or if it would relate to disposals, how likely are the execution of the disposal? This is the first question, please.

Andre, thanks for your questions. Now the word performance fees is easy. Yes, it relates to disposals, but it relates to disposals in -- most likely in the third quarter of this year. And I would say we have pretty good visibility on the realization of those fees. And as I said, in the first quarter, and I think we've spoken between, Andre, for high-quality deals, there is a market. And as we've shown in the first quarter and generally in the first half is that we are able to execute on high-quality deals even in the current market.

And if that were to occur in the third quarter and -- these disposals, would they also trigger transaction fees? Or is it mainly related to performance fees?

Well, the majority will relate to performance fees. There's a small portion of transaction fees, which is not, I would say -- in the greater scheme, not material.

Okay. Excellent. Then your investment in the WohnModul, if I see it correctly, it was one of the major investment vehicles you start with. With regard to the planned exit, what could be here a reasonable time frame? Second question, will this be replaced with the same client? Will it still be your client? How was the performance in general for this vehicle? And could we expect further gains out of the exit of this investment vehicle?

Andre, yes, well spotted. WohnModul is running out. And I think WohnModul will be -- WohnModul 1, I have to say, will be completely sold within the next 12 to 24 months. It has been a very successful value-add vehicle across Europe, across various asset classes with a very, very attractive IRR. And as you know, we collect performance fees only if the IRR is above 11% or above 18%. And we collected performance fees out of both buckets. Again, I can't tell you from the top of my head, what the average IRR is, but it's kind of somewhere between 11% and 18%. And because it has been such a successful fund, we have already launched WohnModul 5 last year -- launched and funded on WohnModul 5 last year with the same client.

And this is the same investment approach?

Yes. Generally, yes.

And similar volume?

Absolutely. Again, it's an open-ended vehicle. It's going to be -- it's probably as WohnModul. WohnModul wasn't a capped vehicle. It was an open-ended fund. And I think the peak AUM in WohnModul, I think, was around EUR 2 billion. So it was quite a big fund, and there's no reason why WohnModul 5 wouldn't be similar. The only difference is that in WohnModul 1, we co-invested. And WohnModul 2, we're not co-investing.

Next question is from the line of Kai Klose from Berenberg.

I've got 3 questions. The first one, as you mentioned on Page 9 of the presentation that we had a 3.1% like-for-like development in the AUM management fees. Could you indicate how the underlying AUMs have changed on a like-for-like basis? And the second question, could you maybe remind us what kind of aperiodic effect we had in the last year? And is this what you say on Page 12 of the report? Is it from these discontinued obligations? And the second question, moving on to Page 11 that we had for this more or less similar type of -- similar amount of disposals, the higher -- quite a significant higher disposal fee. Maybe could you explain a bit more what kind of -- what would cause that increase in these policies for this quarter -- for this period?

Sure. Kai, I hope I remembered all 3 questions, but I surely remembered the first one, Kai. So you may have to help me with walking through all of them. Now the first one was the management fees and a periodic effect, that one was actually very simple. In 2019, in particular, for Trans VII, we received commitment fees that are built basically retroactively to the launch of the funds. And we also had a fund in Italy where we had aperiodic effect from -- in the fund payment. But it's not related to aperiodic effects in AUMs. So the AUMs are actually like-for-like, but the fees had this aperiodic effect, which is quite really what happens every now and then, in particular, when -- in a fund where we're able to collect commitment fees back to day 1 of the launch of the fund.

And what worthy like-for-like management fees?

I think we're talking about EUR 3 million in change, EUR 3.9 million, I think. So if you take those -- if you take them out, I think, the like-for-like growth in management fees would have been around 3%.

And referring to which kind of like-for-like AUM?

The AUM actually -- the AUM are unchanged because the fees were built on existing AUM. And you have to help me with the second question again, Kai.

The second question was on Page 11 of the presentation, where we had a -- well, if I see that correctly, in H1 '19 and '20, a similar amount of disposals, at the bottom below, when you split the collection fees, we had 10 policies for EUR 1.5 million, for the actual volume in H1 '20. And last year, we had the same amount of disposal volumes but just EUR 7.6 million of disposal fees. Just want to understand is the underlying type of assets -- there was a different structure of disposed assets? Or what caused the increase in fees by the same amount of transactions?

There are 2 effects, Kai, to remember. One is the -- in percent, transaction fees are not the same across the various funds. So they vary from fund to fund. And the funds also differ in terms of payment dates. Some funds pay upon closing and some pay upon signing.

Okay. And could you may be split or indicate what kind of assets were sold? Or was it more -- was it office plus retail?

Well, it was across -- really across the board. This year, as you know, we sold resi in the Netherlands. We sold office in Germany. We were in a market with a smaller retail portfolio. It was really across the board.

Okay. And last question in the pictures you show on Page 4, the transactions. If I see that correctly, the action date was all after the reporting date. So is it fair to assume to us -- that we see the fees for those transactions in Q3 or more likely in Q4?

Well, actually, not all of them have been after the day. Well, actually, the first one, The Cabot in London was just -- was after the reporting date. That's correct. So the fees will be recorded in Q3 and Q4. TransEuropean VII, the oversubscription that was simply equity raised, not invested. And Ericus-Contor, the deal on the far right-hand side, was signed in April. [Technical Difficulty]

Hello?

Sorry, I was -- Ericus-Contor was signed in April, but it's closing now in the third quarter. And for this one also, the fees coming in the third quarter.

Next question is from the line of [ John Leung ] from Highclere International Investors.

I was saying congratulations for the strong set of numbers. I was hoping whether we could get a brief update with regards to the health of the underlying assets in the different segments of office, retail, et cetera. And how these various assets are performing in terms of collections, etc.?

[ John ], yes. I mean, obviously, with the ease of lockdown situations across Europe, August situation for the rent collection has changed. As you know, I think we spoke about it on a call earlier this year, the areas which were more hit by COVID, particularly when it comes to rent collection, was in the space of High Street Retail and hotels, shopping centers. And shops in general have opened again. Hotels have opened again. And with that, the rent situation is slowly changing and improving. Now I'm expecting retail to recover quicker than hotels, mainly because I think the travel behavior is probably taking longer to pick up and to normalize compared to shopping behavior. And I think we also spoke about it generally, the exposure to those asset classes is limited. The hotel exposure is less than 2%. The High Street Retail exposure is below 10%. So from an overall perspective, across the EUR 45 billion, the COVID impact when it comes to rent areas is rather limited.

Understood. And just a quick question in regards to how valuations are being conducted. In the various segments where you've seen some impact from COVID, have you seen any material sort of adjustments in the values of these buildings? And how are the appraisals going about the valuation process?

Well, as you know, all of our assets are appraised externally. And roughly 1/4 of our assets is appraised on a quarterly basis, and the rest is appraised on an annual basis. So far, we haven't seen a significant or a material adjustment to values. What we've seen, though, is in ready for example, further value appreciation. We do expect in High Street Retail, values to go further down as they have really over the past years. Whether it's going to be material or not remains to be seen. But the majority of the values, as you know, are long-term valuations or long-term values. And short-term vacancy or short-term dips in rent collection usually only has a limited impact on the valuation.

[Operator Instructions] Next question comes from the line of Manuel Martin from ODDO BHF.

I have 2 actually. First one is on possible acquisition targets. Have you observed or do you have the feeling that the number of potential targets might have increased for PATRIZIA during the COVID-19 crisis?

Manuel, the answer is yes. We have seen a little more activity or at least more, I would say, calls from banks. And we -- actually, I have to say, I expect more calls to come and more banks to come after the summer break. But given that some investment measures are owned by banks or financial institutions that are impacted by COVID or will be impacted by COVID, we expect the activity to pick up in the second half.

Okay. And second question, do you think -- or could you describe as possible COVID-19 impact on your activities of collecting funds on a global basis, that means Europe, U.S., Asia? Was there anything you could share with us?

Well, Manuel, to be very honest, I think in the current situation or the current snapshot of the current situation, we think it's not really based on that. We can make a qualified assessment on the trends. What we actually see is generally that with the increase in global sovereign indebtedness, I think the lower-for-longer interest rate environment will prevail. And with that the demand will -- for real assets will further increase. We have collected over EUR 600 million of equity this year. As far as possible, we are in very close contact with a lot of our clients, obviously, traveling is very difficult. But I wouldn't expect a material pickup this year simply because COVID, on the global scheme, is a burden for investors. It's hard to visit assets. It's hard to see them, but I expect for -- given the current situation, it's going to be, again, a decent year in fundraising. EUR 600 million year-to-date, I think, is actually a pretty good number, given that half of the first -- given that 50% of the first half was basically in lockdown globally.

There are no further questions at this time. And I would like to hand back to Karim Bohn for closing comments. Please go ahead.

Thank you, Stuart. Thanks, everyone, for joining the call. We're going to be in a numerous virtual conferences throughout the rest of the year. And we hope you can make the time for more meetings virtually and hope to see you then. I'll talk to you then. Thank you very much. Have a great summer. Bye.