PATRIZIA SE (PAT) Earnings Call Transcript & Summary

Good morning, and welcome Patrizia. My name is Christoph Glaser, and I'm the Chief Financial Officer of the company. I would like to take the time to update you about Patrizia's progress in the first 9 months of 2022 and our outlook for the full year. I'll talk about the market situation and our positioning, the financial performance in the 9 months of 2022, the guidance adjustment for the full year and perhaps most importantly, how we are prepared for an uncertain environment. Let's start with the markets. We're still faced with this geopolitical risks, unusually high inflation rates, rising interest rates and market volatility, all of which put pressure on capital markets. And yes, almost all asset classes, including stocks and bonds are negatively affected by the current news flow. As you can see from the chart, this is really unusual historically, but it does explain the cautious investor sentiment and the question marks over the future performance of other asset classes like real assets. The transaction market for real estate for these reasons showed a significant slowdown over the course of the first 9 months of 2022. Contrary to previous assumptions, Patrizia no longer expects the geopolitical environment to stabilize or market uncertainties to decline in the fourth quarter of 2022, which does have an impact on our guidance for the full year. But let us first move to the financial results for the first 9 months of 2022. In a weakening market environment, Patrizia was able to show continued growth in selected KPIs, while bottom line profitability was impacted by lower client activity. Importantly, for us, growth in assets under management and the associated growth in recurring management fees continue to make Patrizia more resilient, fully in line with our strategic agenda. Assets under management increased by 17.4% to EUR 57.1 billion. With that, we have reached the lower end of our AUM guidance for the full year 2022 after just 9 months, signed and closed transactions for our global clients were strong during the first 9 months of the year and also showed reassuring growth rates compared to last year. Recurring management fees showed strong growth driven by AUM growth and contributions from our most recent acquisition Whitehelm Capital. The increase in management fees virtually compensated for the decrease in performance fees and transaction fees in particular. Performance fees came in lower compared to last year, which is in line with our budget for this year. At the same time, the decline in transaction fees can certainly be attributed to a sustained shift in favor of recurring management fees and an increasingly cautious investor sentiment. Looking at all 3 revenue streams together, total service fee income declined only by a low single-digit percentage in spite of the current environment. Net sales revenues and co-investment income came in strong. The increase mainly stems from the profitable disposal of one of our last remaining balance sheet properties in the U.K. in the first quarter of the year as well as co-investment performance. Looking at our cost base, net operating expenses at first glance increased moderately, driven by higher staff costs due to the increased number of employees; secondly, one-off effects from the consolidation of Whitehelm Capital and further strategic investments. However, we have to bear in mind that the profitable deconsolidation of the temporarily held project development, Silver Swan, had a relieving EUR 18 million effect on net operating expense at the very same time. So our run rate cost base showed higher growth. Again, Whitehelm Capital played a role here. As explained and as a result of all these trends and headwinds, EBITDA came in weaker year-on-year. Nevertheless, we are talking about a profitable business, which has shown decent performance in a very challenging market environment. Looking ahead to the fourth quarter of this year, we do have to acknowledge that the outlook has clearly deteriorated. We do not expect a material improvement of market conditions in the next few weeks. We also note that the speed and the extent to which planned investments are put on hold has recently accelerated. This is especially true for European real estate investments. This recent change in environment led us to review and adjust our guidance for the full year. This particularly affects Patrizia in its forecast for transaction fees, which had to be lowered significantly, huge delayed investments, the guidance for growth in assets under management and for management fees for the year 2022 had to be adjusted as well, albeit to a relatively low degree. In addition, we had to adjust our guidance in further revenue and cost positions, the latter primarily driven by one-off items though. Overall, Patrizia now expects an EBITDA before reorganization expenses of EUR 70 million to EUR 85 million for the financial year 2022 and an EBITDA of EUR 60 million to EUR 75 million. The EBITDA includes planned one-off costs to adjust the company's cost base with the clear target to increase long-term profitability. While all of this does not sound like good news, there are enough reasons to remain positive about Patrizia's future. And we also are taking the necessary steps to future-proof the company. Firstly, we have a strong balance sheet and an excellent liquidity situation to weather the storm. This gives us an ever important competitive strength. We are well positioned to seize opportunities in the market if and when they arise, both on the product side in the form of co-investments, but also on the M&A side. Secondly, we do have a broadly diversified business model, both on the AUM side but also on the client side. Long-duration AUM with debt levels well below market average and an investment focus on high-quality locations, assets and tenants form the basis for resilient AUM through the cycle. This does give us confidence in the ability of our platform to generate substantial recurring management fees. Additionally, the geographic expansion that has been a primary part of our strategy in the last few years will benefit our clients and shareholders as we are not limited to certain investment markets during more volatile times. Lastly, our platform with real asset experts on the ground in the markets we're active in is more important than ever as client focus is shifting more to the operational expertise of an investment manager. Thirdly, with 11% of our AUM and infrastructure, we can offer a well sought after product that will help to achieve decarbonization targets worldwide. We see our clients focus on sustainable investing and impact investing remaining unchanged. As a last but very important point, we are acting to adjust the company's cost base, but also to rebalance it for selected growth initiatives. This will help to accelerate the scalability of our platform, increase the level of recurring income and increase the long-term profitability of Patrizia. We are very much looking forward to discussing our strategy, market view and outlook with you on one of the next broker roadshows or conferences. Thank you for your attention.