PATRIZIA SE (PAT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Sabrina, your Chorus Call operator. Welcome, and thank you for joining Patrizia's 2022 Preliminary Annual Results Call. [Operator Instructions] I would now like to turn the conference over to Martin Praum. Please go ahead.

Good afternoon, everyone, and welcome to our preliminary '22 Analyst and Investor Call. This is Martin Praum speaking, Head of Investor Relations and Group Reporting. I'm happy to have our CFO, Christoph Glaser, with us today. He will present to you an overview of the business development and our preliminary financial results for the business year '22 as well as further details on the guidance for the Fiscal Year '23, followed by the usual Q&A session. During today's call, we will refer to the preliminary results presentation, which you can find on our website in the section Shareholders under Most Recent Publications. The presentation includes the preliminary financial results figures and details about our guidance for Fiscal Year '23. And in case of questions, you know CR team is more than happy to help you. As usual, this call will be recorded and will be made available on our website, and we'll also offer a call transcript for further reference. With that, I'd like to hand over to Christoph, to start the presentation. Christoph?

Thank you very much, Martin, and it's a privilege for all of us to be here once again today with all of you. I would like to start our presentation sharing with you what's top of our minds. So if you could go to the first slide? I highlighted here a couple of key themes. First of all, and not surprisingly, we're still in a fairly volatile environment with multiple challenges. We've been seeing what we will probably best describe as mixed financial results and, in parallel today, a very successful transformation of the company. And it's a combination of those 2 observations, we're really moderately optimistic going into 2023, which will still be a year with a significant degree of volatility. All of you are probably familiar with the geopolitical and global and inflation and interest rate shift related challenges that surround it. What I'd like to highlight here maybe is that volatility will continue to be at least for another 6 to 9 months, probably. But that said, we do feel good about one thing coming out of '23, which is our strong growth of assets under management. We obviously feel less good about a certain compression of our EBITDA. But all of that looked at in context, high-quality AUM growth organically and via M&A, in combination with the growth of recurring income are 2 very positive things to highlight. And in contrary to that, obviously, less of client activity has led to reduced transaction performance fee income. And there's also been a temporary expense inflation and a bit of restructuring cost in the mix. But notwithstanding that, cash flow has been quite strong for us, and we are very pleased to communicate today that we're going to pay a cash dividend again, an increased one in fact. And that we're going to continue for a little bit of time, our cash share buyback program as well. I already alluded to the point that the company has actually fared tremendously low from a repositioning point of view in '22. And it's really kind of summarized best by saying that leaving '21, we were a 10-year team real estate investment company. But leaving 2022, we are really a global real asset investment manager. And that is something that is very important for us because it positions ourselves very well for the years to come. And that in combination with a new leadership setup, a recurring cost base reduction, legacy issues being retired, the ability to do a lot more in the infrastructure and multi-manager space and a couple of brand-new blue-chip APAC partnerships and strategic focus will round out the picture. So going in 2023, there's one more thing that is important to note, which is that our balance sheet remains very strong. Liquidity remains very strong, and we have more than EUR 4 billion of firepower to grow AUM. So even if capital raising activities will remain a little bit subdued for the fourth term, at least, we're able to grow AUM regardless of that. And if and when opportunities arise in an environment where people will have to start to sell, we're there with a certain ability to buy and to make the company bigger. So that's really what's top of mind. And if you take it from there and go to the next slide, we've summarized for you once again sort of the essence of the company transformation, which has really happened in line with our strategy, despite the challenging environment in 2022. So as I already alluded, organic and inorganic growth have really led us to close to EUR 60 billion AUM. And we are particularly proud of a couple of new large mandates we have won in Asia Pacific, with large sovereign wealth funds as well as very large local payers. And that gives us a tremendous pace to grow in partnership, which is really essential in the Asian environment. The infrastructure capabilities are clearly there now with a strong focus on decarbonization, digitalization and also social infrastructure, which is very much in line with our sustainability and ESG-focused company strategies, ESG and sustainability really being built into every aspect of our business model these days. So that in combination with debt offerings as well as listed securities being in the mix now and enhanced credibility to also go with wholesale channels into more semi-institutional and high network individual customer base, something that we value. And that coming out of '22 and going into the midterm and into '23 is really something we feel good about. Now some of the resilience of the company and ongoing managed transformation is also visible in the broader diversification of our AUM, which you can see on the next slide, which can be looked at from a geographic point of view, a sector point of view and a risk point of view. Most of you are familiar with this chart. And all of these graphs are continuing to develop in line with us implementing our strategy. So Asia Pacific is now 5% of AUM. North America as well close to 5%. We've seen a lot of organic growth in Spain, Scandinavia and also the Netherlands. And a lot of the new deals that we have done have been closed outside of Germany. In fact, the number is somewhere around 70%. So the share of German-based assets is actually gradually declining, reflective of our continued diversification geographically. The sector split is equally increasingly diversified, and you can see the makeup in the chart in the middle. Risk style-wise continue to be very much focused on core investments around about 2/3. And then you see roughly 50-50 core plus and value-add activities. Of course, in the market, as we are facing it in '23, there may be more value at place at hand. And as I alluded to before, with the cash we have and the equity position we have an investment-grade rating we enjoy with our partner banks that we are very well positioned to operate at the particular level if and when opportunistic place arise. But we can also do the same at the fund level, where we have a lot of fire power embedded, as I mentioned before. So with that, as an introduction, I'd like to transition to Slide 7, where we're going to start to talk a little bit about financial performance to move around and out a little bit of guidance in 2023. Perhaps one of the most appreciated fact is that we managed to grow our assets under management from EUR 48.6 billion to EUR 59.1 billion. And the organic portion of that accounts to about 1/3 of the respective growth and the inorganic or M&A driven growth accounts for about 2/3 of it. This is really reflected for us doing what we've always said. We will continue to grow even under tough market circumstances and to execute our M&A strategy as planned. There is really nothing more to be added to that. And the fact that we're still seeing positive valuation effect in 2020 -- sorry, in 2022 is really reflective of the quality of our asset base. I'm going to leave a little bit more to that perhaps in the Q&A session. The M&A activity not only added AUM under our belt, but they rather also represent a door opener for accelerated and continued growth because in particular infrastructure will be a space in which we will be able to grow and probably faster than in the real estate space for the foreseeable future. But both of them will have to grow and therefore, we are very happy that -- with the acquisitions we've made in 2022, we have not only added size but also added what we refer to as door openers for future growth. And perhaps one more important point to make is the last one on the page that our so-called flagship funds, both in the real estate and the infrastructure side account now for almost 50% of our total AUM. And a lot of these vehicles, which are in place today really can be grown and can be grown at higher fees in particular when we choose to make co-investments when they're strategically meaningful. So with that, I would like to go into a bit more detail with regard to AUM growth in the fourth quarter because it's interesting to talk a little bit [indiscernible] in the last part of the year. And interestingly, we see a very similar picture here, albeit maybe slightly more subdued but still positive in nature. Again, about 1/3 of the growth being organic in nature and about 2/3, the EUR 1.3 billion being M&A driven, in this case linked to the ADVANTAGE acquisition we did in early December '22. So growth was still there, albeit a little bit less relatively speaking. There is still very small positive valuation effect, again reflective of the resilience or quality of our AUMs and the acquisition, which I already alluded to rounded out the picture. It is perhaps again important to note, and that's what the last point on the slide refers to that we are facing a very actively rich AUM base with very limited loan-to-value level at 32%. And with the firepower of EUR 4 billion in our structures, we really differentiate ourselves along 2 criteria acquired from competition locally and regionally in particular, i.e. below [indiscernible] firepower or dry powder that we have in structures. So with that, I would like to transition to Slide 9, where I'll be talking a little bit about the revenue side of the P&L. And there is basically a very positive message here. And then 3 sort of market environment driven negative messages. The positive one being that our management fee revenue has grown from EUR 209 million to roughly EUR 241 million, which is very solid double-digit growth. And it almost managed to compensate for the decline we were seeing with regard to transaction fees and performance fees. Now the transaction fee decline was particularly severe from EUR 51 million to EUR 22.5 million, but all of you know that the transaction activity last year was except maybe for the first quarter, quite weak, and there was in essence, no season in late 3Q and early 4Q '22. With regard to performance fees, the increase has been relatively smaller at 25.3%, which essentially just means that we continue to reap from our -- benefit from our high-quality portfolio here. But that trend is probably going to still continue going into '23. So from a forward-looking point of view, I would maybe add 2 comments, which is that we do expect the transaction fee income profile to bounce back over the course of '23, most likely in the second half given the third quarter or the fourth quarter. But we will have to wait for a little bit longer for the performance fee profile to come back to '21 or '22 levels because that will probably only happen towards the end of the first half of the next cycle to kind of 3, 4 years from now. So there's going to be a distinctive different dynamic here with transaction fee profile coming back earlier than performance fee profile of the past. With that, let's go to the expense side of the P&L. Our net operating expenses have, in essence, grown due to acquisition consolidation but also integration efforts. So M&A acquisition or M&A activities we have already talked about and with that cost has basically been added. But then there has also been an integration effort, which we have already talked about in previous calls. And on top of that, we have done quite of reorganization and restructuring in the fourth quarter to address the absence of a transaction season and to make sure we balance cost and revenue appropriately. And given the ongoing volatility in the market, we have probably taken on certain legacy exporters also a slightly more conservative sense than in the past to be prudent. So all of these factors have played a role in the development of our cost base. If you go into a little bit more detail here, staff cost has in essence been driven by the acquisitions that were mentioned. Other operating expenses increase has been driven by special effects from strategic investments and integration efforts I already mentioned. There has also been a little bit of being up with regard to historical VAT exposures and so on and so forth. One thing that is worth to mention to provide a balanced view is that like in the past, certain favorable project development has helped us in a positive sense with our net operating expenses. In this case, it was in particular a project called Silver Swan in the City of Hamburg, which we have admitted to already on prior calls as well. So for the purpose of transparency here, we have a single data to show you the growth picture on both sides. There's been a lot of questions already asked about our reorganization expenses. We've spent around about EUR 10 million here to rebalance for growth. What we mean by that is that we essentially look at our cost base in 3 angles. Number one, we have looked at what is essential to execute our business as usual in good quality. And whatever else was not falling into that category is earmarked for removal. Secondly, we have looked at, what, 5 to 10 highly critical strategic activities we need to support in terms of resourcing in the short and medium and long term. And then we have, in set #3, we looked at what are the freed up resources we can reallocate through what we call rebalance for growth. All of that has happened over the course of October, November and December. And we are very pleased that we have put this behind us. And at this stage, we are not planning to do any more bets in the foreseeable future and with that, we are entering '23 with a streamlined recurring cost base. All of our strategic focus areas are being fully resourced, and the company transformation enabling us to take opportunities as they arise. So with that, I would like to go to the summary chart covering the entire EBITDA as a revision. And here, you can see that a combination of market inertia and proactive reorganization efforts obviously has led to a not so insignificant compression of EBITDA. And as I already mentioned, recurring income growth almost compensates for nonrecurring income compression. And then there has been a bit of a temporary cost inflation of Q2, the reorganization I mentioned and us taking a conservative sense in certain exposures. So yes, we have been seeing a 38.2% EBITDA compression, but on a positive note, having transformed the company over the course of literally 12 months, we feel quite good going into '23. So it's been a mixed year with a mixed financial picture throughout the period, but it's been a very successful year from a repositioning point of view. And in that sense, we are ahead of competition. If you go to Slide 12, you can see that we have managed to either meet or exceed our latest guidance for fiscal year '22 due to recurring income and cost containment. We are equally proud of both of those. The asset-light investment management platform has demonstrated its resilience. The shift towards recurring management fee income has continued, and the platform cost profile has been ripped into shape. So on the topic of management fees, yes, we have been at the upper end of the guidance. Transaction fee is somewhere just in the middle. Performance fee is slightly above the upper end. So overall, total service fee income in good shape. And then we are obviously particularly pleased by our effective cost containment in the other parts of the year, which ended up at EUR 250.1 million which was actually beating our guidance and then EBITDA -- and then EBITDA margin outcome mentioned in the comment at the bottom of the page. So that's the overall picture with regards to the total EBITDA situation. And maybe a couple of more facts as usual to the strong balance sheet position as summarized on Slide 13, which provides for security and the ability to make opportunistic moves, which is of particular interest for the months to come. So an equity ratio of 61.5% and the net cash position of EUR 172 million, which is probably a slightly conservative perspective because the bank loans was EUR 91.7 million, already temporary in nature and are just there to enable us to host temporarily certain aspect in our PGK platform in Germany. And members treasury shares on top of this, so the true picture is actually even better than EUR 172 million, and the net equity ratio north of 70% is obviously something we are really proud of. Total available liquidity stands at EUR 375 million, and that is really, really a lot of -- a lot of liquidity to work with. And again, as I mentioned, at the level below [indiscernible] of corporate across our 140-plus vehicles, we searching EUR 4 billion of dry powder. And therefore, we have the capability to opportunistically move at the Patrizia level, if it's required. And also, of course, at the fund level, which is what we would normally do. So our ability to make co-investments to further charge the growth of some of our flagship vehicles, our ability to make opportunistic moves is really there. And that's one of the main reasons for why we're going into '23 with a good degree of optimism and in, shall I say, perhaps relaxed fashion because the balance sheet is so strong. I've already alluded to the P&L. So maybe a couple of words on cash flow on Slide 14. Operating cash flow has been quite strong at plus EUR 120 million plus. Investment cash flow has also been positive, financing cash flow negative. Overall, a very, very solid picture. And because of that, we are very pleased that as a result of having a very high level of retained earnings in Patrizia AG as well as a very positive operating cash flow despite the compressed EBITDA and earnings before tax profile, we can pay a dividend again, and that's why we will do so. And we will, once again, I think for the sixth time increase that dividend paid. And again, we believe that this is a clear differentiator vis-a-vis our competition in the market. Last but not least, if we turn to Slide 15, we would like to take a moment to provide a little bit of guidance vis-a-vis '23. And once again, like I would summarize it by saying that we've taken a moderately optimistic plan. We do expect AUM growth to a level of somewhere between EUR 60 billion and EUR 65 billion. I've mentioned already that the incremental capital we have to raise so that is not really a challenge for us because we have so much dry powder available that we can grow AUM even if and when net capital raising continues to be a little bit subdued. So we should have the opportunity to make needs here, in particular, if other market participants will have to resort to sell with [indiscernible]. Secondly, at the EBITDA level, we are going to '23 with a relatively wide range, saying that we're going to land somewhere between EUR 50 million and EUR 90 million. The key question here is really when the normal transaction of the market participants will come back and when there will be a more active transaction market. So client activity is really of the essence here, which is where we're focused and left the range a bit wider. Secondly, obviously, there's possibly less of a favorable tailwind to be expected for project development. On the other hand, we will not have the headwind of restructuring expenses in '23. So there are puts and takes here. But again, as I already mentioned, the key question is when markets will normalize and then us being in a -- more in a position of the buyer than a seller for sure, we're quite optimistic. The EBITDA margin similar to the EBITDA range, so not much more comment is needed here. Perhaps one last comment. If you really peel the onion all over this, we expect the decent upper single-digit revenue growth, and we expect a subdued lower single-digit cost growth. So overall, probably something ball park to excess operating leverage, which is kind of the right profile to go through '23 with. So that's on guidance for '23 and again with that, I would like to hand it back to Sabrina to open the session for Q&A. And Martin Praum and myself are very happy to take your questions.

[Operator Instructions] The first question is from Andre Remke of Baader Bank.

A couple of questions from my side, please. First question regarding your guidance on AUM. Is the range, the upper end of the range succeed EUR 5 million without any external growth, i.e., only a mix of disposal acquisition and valuation movements?

Yes. Thanks, and happy to have you on the call, Andre. Look, the AUM guidance is EUR 60 million to EUR 65 million roughly. With the dry powder we have in place and the market, as we believe is to come back, we think we should be able to play within the entire range on a fully organic basis. If and when opportunistic portfolio moves will be profitable, there's a chance that we could flow through that. But I would just say for now that the EUR 60 million to EUR 65 million is purely organically based. And just as a matter of fact, we actually never plan for M&A in this type of guidance. So that's the answer to your question.

Yes. And a follow-up question on that with regard to the valuation. You mentioned you expect somewhat limited valuation pressure here. Is this just a kind of a disclaimer or being based on more concrete look into any vehicles or asset classes?

Look, we are hosting something between 1,500 and EUR 2,000 assets on the real estate side. And we do that across roughly 150 vehicles, and we do something like 3,000, 4,000 valuations a year through [indiscernible]. And so we do have quite a bit of experience here and we obviously simulate for, let's say, the next rolling 12 months what the world could look like going forward. If you ask us with regard to our portfolio, we see something between 4% and 7% of the downside scenario across our entire portfolio. And depending on the sector and the geography and the type of assets, it could be anywhere between sidewards move or marginally positive move and also negative moves and some combinations set. And aggregate across the whole AUM based, I would say, 46%, 47%, all of that should be possible to be outperformed by organic growth. So we do believe a net positive effect and that's kind of what we're referring to with regard to that statement. I do know that that competition is probably directionally on average in not as good shape, but that's again because the quality of our assets tends to be very good. And we're also quite a bit of an operator in addition to just being an investment manager. So we probably had a little bit of upside there in benefits, proactively in that consolidation period. So that's it on that front.

Yes. But the -- let's take 4% to 6% -- let's say, 5% downside risk. Is this -- should be on EUR 60 billion, it is EUR 3 billion, right? Is this included in your -- in this guidance or is it just a maximum risk approach?

And as of -- when we talk about that rate of 46% to 47%, this is what we would consider at the maximum in terms of how bad it could get. And yes, it is improved.

The next question on your discussed EUR 4 billion firepower, dry powder. Could you indicate where the funds have to be invested in terms of regions and asset classes you talked about real estate in Japan as well as in Asia Pacific and infrastructure. Could you provide us with a rough split, is it even more in Asia Pacific rather than in Europe, so to say. So any indication on that?

Yes, happy to do that. And maybe just one more add on to your previous question. Just be mindful that out of the EUR 60 billion, you have to back out EUR 8 billion or so infrastructure to get to the real estate as AUM base cost, which you have to do the multiplication, we said 46% downside potentially. And so the number is probably more like EUR 2.4 billion versus EUR 3 billion, just a little more clarification here. Now to your last question, we don't see a big concentration of the AUM growth that we envision across any specific geography or any specific asset class. But it's probably fair to say that infrastructure will -- relatively speaking, see maybe a bit faster growth or relatively speaking a bit more growth because the spreads are better, there's more indexation, there's more appetite for this in the current environment. So the infrastructure-related AUM had a chance to probably grow faster than the real estate related AUM base. Now secondly, it's probably going to be a little bit more on the national than historically. So we are continuing to nurture our German business, and there will be growth there in certain flagship vehicles and some of them we will position more in a value-add fashion than a core plus section. So there will be growth there. But I would say that, relatively speaking, again, probably the pan-European vehicle growth will probably be a little bit more pronounced than the German key vehicle growth. And then in Asia, there will be growth, and it could be quite rapid. But bear in mind that you're starting from a relatively low base there. So in the grand scheme of things, I would not want to overemphasize the Asian potential from an absolute size point of view, but from a speed of growth, yes, it's going to be a key area. And then I would not be surprised if there's going to be a bit of -- a bit of movement also across the Atlantic. But perhaps the most intriguing sort of topic beyond Europe is that, as you may have heard, we have started to partner with some blue-chip entities in Asia Pacific, one large sovereign wealth fund in Southeast Asia and a very large Japanese blue chip player. And these partnerships are exactly how we want to grow there, because there is potential -- there is -- this appetite is slightly better margins. We have the power to do co-investments and we're around 5%-7%, 7%-8%, which is kind of very well received in the Asia Pacific region. So Asia Pacific we will see rapid growth. It will be very much partnership based, which is also good for a player of, let's say, a still relatively small sector in Asia today. It is licensed now in Singapore and a very strong partnership. So we feel good about that, but in the absolute grand scheme of things, I would not yet overemphasize that [indiscernible] The Pan-European flagship funds will grow quite a bit. We have a very well-known cap series in place. For instance, Trans-European which will continue, and there will be others that we'll receive potential ability.

Okay. The next question refers to Page 9 of the presentation when you talked about the transaction fee here is a remark below the chart. So there are a number of transactions with all-in management fee structures. We talked about this in the past there, but is this materializing trend, the general trend, i.e., could we expect management fees as a rate of assets under management to improve over time and transaction fee income ratio will go down over time?

The answer in short is 2x, yes. So there is a trend -- a continuing trend towards all entries, which in turn means that the relative waste of our management fees is going to increase. It will still take some time. And of course, it depends a little bit on the type of vehicle going through 2023. Some of them will be almost entirely all in management fees focus. Some of them, especially if they have a bit more of a core plus value-add current could see a continued mix of transaction income and we're actually looking forward to what that mix will look like because if you mentioned doing a EUR 500 million or EUR 1 billion transaction, let's say, in this report to value add fund, there could be an instant boost in transaction fee income and a pretty decent management fee attached to it equally, if I see that on a core fund with an all-in fee or core plus fund, and may just have a differently timed revenue recognition associated with it. So this is something that we will see how it develops. As I mentioned before, we are sort of in a visual flight review now for the next 3, 4, 5 months. Too early to call ahead probably.

And what does it mean to the performance fee. Is this also the same as with the transaction fee. So it's also accounted here?

I would -- well, in the guidance, we have assumed that performance fees will overall be at a more moderate level than historically. If I recollect from memory, I think we were seeing something like 80 plus -- EUR 80 million plus of performance fees in 2021. We've seen around about EUR 60 million or so in '22 now. And in '23, it's probably going to be less than that. So the trend is kind of pointing us more towards the level of EUR 40 million, EUR 45 million of performance fee, which is kind of natural because as I mentioned before, the -- as we're transitioning between cycles right now, the momentum transactions come back, transaction fees will come back. So that will be short term in a way. Performance fees will take a few years to come back at the level that we used to see them in '21 or 2020. The ones we do have on the radar for '23 and which are part of our guidance are pretty much locked in, and we have good line of sight into those. So we are going with a high degree of substantiated planning security into that part of the P&L. But there will be a limited amount simply because it'll take a couple of years for the next cycle to get traction.

Okay. Not to overstress my questions. So a very last question is on the operating expenses of EUR 97 million for the year. For last year, you mentioned integration costs, VAT effect, especially many one-offs. What kind of magnitude we are talking about here and will the number be lower than next year, i.e., this year?

You mean operating expenses as a whole?

No, the other operating expenses, apart from the staff. You already talked about the staff costs, but there is a block of EUR 97 million -- EUR 97 million other operating expenses. So it went up very strongly from last year. So -- and within this block increased by 11%. You mentioned in the presentation, it's driven by special effects. So one-off costs, et cetera, et cetera. And I was curious to see what could we expect for next year?

Yes. Let me answer the question, taking first a step back and then I'll answer the question. So on the revenue side, we're going from EUR 329 million to a guidance range from EUR 323 million to EUR 370 million. So if you take the midpoint of that, we're talking around about 7%, 8% growth on the revenue side, okay? Now on the cost side, from a reported point of view, you see EUR 250 million going towards the range of EUR 273 million to EUR 280 million. Now what do you have to do to put the EUR 250 million into perspective, you have to basically back out the project effect of Silver Swan and you have to back out the reorganization expenses, which are not going to repeat themselves. And then you have to look at also the other income of EUR 10 million. And when you net that all out, you basically normalize '22 at roughly EUR 268 million, EUR 269 million or so. And from there to the midpoint of the guidance, we're talking about 3% of cost growth, which is something that I alluded to before is that we're actually going to see a little bit less than half of the revenue growth on the cost side, which is why I was referring to about 2x operating leverage, which is something we feel good about. And we will continue to enhance that going into '24-'25 because ultimately, the operating leverage is to reach a level of 3% to 4% between revenue growth and cost growth to the margin -- to the margin accretive situation. And there's maybe one more comment on what you're not going to see any more in '23. So M&A, integration and consolidation effects you're not going to see. And the run rate or the stand-alone cost, when you really peel the onion, excluding the cost we've consolidated some of the M&A activities. When you look at that and you normalize it, we're actually flat. So that's pretty good in an inflationary environment to the tune of, I guess, 4% to 8% depending on what market you pick. So yes, so that's really it.

The next question is from Kai Klose of Berenberg. He withdrew his question. The next question is from Philipp Kaiser of Warburg Research.

Just a couple of questions left from my side. You already pointed out what the effect on the valuation for this year. But what are the particular driver for your valuation result in 2022, like sector-wise or country-wise?

Yes, the -- thanks for your question, Philipp. Looking back, I would say that -- let's look at it from a geographic point of view first. There's been probably a handful of countries where we've seen positive valuation trends throughout '22. For instance, Germany, Japan, Switzerland to just name a few. On a more sort of headwind side, you have seen single-digit 4%, 5% deterioration in markets like Ireland or the U.K. or Finland, just to name 3 on the other side of the coin. When you look at it from a sector point of view, interesting the logistics has been faring quite well. Health care as such executed the [indiscernible] residential as well. And when you look at the other side of the coin, mixed uses, i.e., mix use between commercial and residential. So I'm not referring to mix commercial use, but rather really mixed commercial and residential use. They have been suffering a bit to the tune of 4%, 5% clinics as the special sector on the health side has been suffering a bit. And then, of course, not surprisingly, the hotel factor, although the deterioration there has been quite low, more like 1% or 1.5% or so perhaps, which is after some of the hits they've taken in the past maybe kind of expected. But it's sort of a sidewards trend/moderate negative trend. So that would be -- that would be the backward-looking perspective. Looking forward, as I said, we see at the moment the maximum of maybe 4% to 7%. That said, we don't believe that the German market, at least from our angle will be as badly impacted some of the international investors believe. Again, flight-to-quality development is stopping, demand going to be high, population is rising. So there's going to be quite a few positive counter trends. And so we will -- they're not bearish on Germany as much as some of our competitors or international investors.

My next one is on M&A front, we're quite active recently, what, you still have like 6 million treasury shares and ample liquidity. Are there still any interesting targets out in the market in short term, and if in which sectors will be?

Yes. Maybe again one step back before I answer your question. I mean our capital allocation strategy, probably first and foremost, centers around turbocharging the growth of our key vehicles in the foreseeable future because we have the products that we need pretty much. And so a very strong focus is on strategic co-investments to accelerate growth where others can't. So that's point #1. Point #2 is probably centering around opportunistic place if and when they shall arise with different degrees of Patrizia engagement. After that, we will always look at M&A opportunities if and when they come along. But there's got to be a strategic angle to it. We're not -- I don't think we're going to make moves just because of price on that front. That's probably more reserved for asset plays. But if something interesting comes along, it gives us an additional consolidation opportunity in a geographic focus area, whether that's Asia Pacific or the Americas, you will probably look at it or if it's something that gives us an instrument that we are missing, like I say, maybe on the front of real estate debt, we would probably look at it. But we've done that in the past, and we are remaining -- we continue to be a bit conservative there. And also, please bear in mind, I mean, we have consolidated a lot in Germany in 7, 8 years ago, we have completed the Rockspring acquisition in '18. We have just now bought Whitehelm Capital in early '22 and a much smaller ADVANTAGE business in December. So for companies our size, we've done a lot. And I think we've done the right things. We need to be mindful of not overspending ourselves. But if the right thing comes along, we will make the move. And we have a lot of opportunity based on the balance sheet that we're running and also based on the investment-grade position we enjoy of partner bank. So I think we can move if it makes sense, but I wouldn't put it in the foreground as a discussion right now.

And as you kind of pointed out like turbocharging of your funds. How is that going? How much cash you already invested and kind of some positive effects already able or what we can expect for this year?

Yes. We have -- when you really look at our capital allocation as of December '22, and I think it's somewhere on Page 60 or 65 in the annual report. There's about 113 of co-investments out there, of which around about 80 on the real estate space and around 30 to 40 are in the infrastructure space. So -- and the infrastructure-related co-investments will probably grow faster than the real estate related co-investments. And then, of course, there's the development position to the tune of around about EUR 180 million, which is stable, and the performance related to that. So 113, 80 real estate, 30 to 40 infrastructure right now, and that mix will probably shift in favor of infrastructure. In particular, infrastructure debt, sustainable investment being both in Asia Pacific, Europe, European infrastructure, there will be a lot of activity there. Maybe important to note is that all these co-investments will be relatively short and medium term in nature. So we will recycle that capital once these vehicles will have reached critical mass. So we're looking at -- not as necessarily in all cases as a long-term commitment, but rather short and medium-term commitments to get growth going and establish confidence and then move on. So -- but if there's a big portfolio they're going to be available, either on the most important in the real estate side, and we weren't trying to be able to specialty into. We're probably going to think about making also a move ourselves. So you may end up seeing a few moves in that context, maybe not in the very near term, but let's say, during the year. So let's see.

The next question is from Jochen Schmitt with Metzler.

I have 3 questions, please. Firstly, management fee income in Q4, since has been down quarter-on-quarter when comparing the full year figures with the 9 months results. Could you give some explanation here? Secondly, the staff costs include a release of a provision in Q4. And thirdly, could you please briefly comment on the financial result in Q4 because it seems that there were some nonrecurring items included. These are my questions.

Could you repeat the third one again?

Yes. It's on the financial result. I think there were some nonrecurring items included in Q4. Could you please comment on that?

Well, let's tackle it -- first of all, thanks for your question, Jochen. Good to have you on the call. On the first question, with regard to management fee income in the fourth quarter, there was less in there stemming from project development than in the quarters before. So that's the short answer. So management fees linked to project development activity done by the real estate development team that we have in-house as a service for investors has been lower than before. And therefore, there has been less of the contribution from that part of the business to the management fee income line, which is kind of not surprising knowing where the trends on project development has been going. Secondly, on the topic of staff costs and one-time effect in the fourth quarter. As you may appreciate, the mixed financial performance of the year leads to a situation where management will not enjoy a target bonus pool allocation as historically planned, but a significantly lower variable compensation level, which is why we have reduced the respective accruals accordingly, which I think is a sign of good governance and really shared responsibility. And as a result of that, we have a relieving effect on staff costs in the fourth quarter, which is kind of nice to see from a cost management point of view and obviously hard for the team, but the right thing to accept under the conditions. And then the last question on financial results and nonrecurring income. There is a technical impairment booked in the financial results, which has impacted it. And I think we have commented on the details of that in the annual report. So that would be the short answer on that one, and it's not that material, if I'm not mistaken.

The next question is from Manuel Martin of ODDO BHF.

Three questions from my side, if I may, please. First question is on Page 15 of the presentation. I would like to come back to the EBITDA guidance for 2023. The range, EUR 50 million to EUR 90 million seems to suggest that downside in your guidance is quite high or the upside is relatively low. Maybe you can share your thoughts on just how did you construct that guidance? Hello?

Sorry, we had a technical issue here. We had you on mute. I apologize for that. I'll restart my answer. The guidance for '23 uplift between EUR 50 million and EUR 90 million. So the midpoint is about EUR 70 million, which is slightly between the actual look of '22. If you make the assumption that the transaction fee income, if and when the market normalizes in the second half comes back to a level between 2021 and 2022, you're talking about adding or not adding roughly EUR 20 million of transaction fees income. So when you play with that number starting at the level of EUR 70 million, you know you're playing in that range. There can be upside, there can be downside. So -- but that's the main driver for why the range has been chosen the way it is. And I would not say that the downside outlook is outweighing the upside outlook and not at all because, as I mentioned before, there can be opportunistic transactions, which we are not necessarily planning for aggressively, which could take you in the upper end of the range or even beyond that. But that is some -- that's a bridge we're going to cross when we get there. So I look at that range really in a relatively neutral fashion. But it would be -- it would be not appropriate to say that the upper end is in the back because the transaction behavior revival occurs in the later part of the fourth quarter, we may see another sort of partly disappeared season. And it's still too early to talk about that. So a note of caution is important. Secondly, we obviously get tailwinds from not having to incur restructuring expenses again. And we are probably not going to see favorable project development impact anytime soon. So really, it boils down to what's going to happen on the transaction side and whether opportunities will outweigh the risk associated with this another subdued season. So that's really the logic there. We may end up pure in that range. As we go through the year, we'll see.

My second question would be on Q4. And the full year results were a bit better than expected and EBITDA level seems that Q4 was a bit more favorable. Could you give us in short words on what has been better in Q4 than expected, maybe as a feeling for that quarter?

The fourth quarter on the revenue side has seen, let's say, a little bit of embedded downside on management fees because of the development fee adders disappearing. It has seen a little bit of upside on performance fees. And that transaction fees have been very subdued. So that is the short answer on the revenue side. On the cost side, we have managed to do more cost containment than we were originally planning to do. So that's good news in a way. We feel good about that. Obviously, the bonus accrual reduction has helped that, which we kind of feel mixed about, but it is what it is. So we feel good about the cost upside. And on the revenue side, it's been plus and puts and takes between management fee income and performance fee income.

My last question refers to Page 7 of the presentation of -- it's regarding the evaluation impact. There was a detail, which I didn't completely understand. In brackets, there's ex-Dawonia. So that means the valuation impact of 0.4% to 2.5% per annum, that does not include effects from Dawonia. If it is that case, can you say something about the Dawonia evaluation effect?

Yes, the effects highlighted here are essentially treating you an average feeling for the portfolio excluding Dawonia. The Dawonia portfolio itself actually saw a favorable valuation development to the tune, I think, 4%, give or take, because the total AUM base there has shifted from December '21, at a level of EUR 5.1 billion to a level of EUR 5.3 billion as of December '22. So that's around about 4% of upward evaluation, which was actually more than we expected. Nowadays, we're probably expecting to see more the sidewards movement in the foreseeable future. But for the portfolio, excluding Dawonia, it is the numbers that we have highlighted on the page, which is ranging from 0.4% to 2.5%. So long story short, if you would add Dawonia to -- the range would be 0.4% to 4.1%. But again, Dawonia is a very high-quality portfolio, which is very precious. And so in that sense, there's no surprise there. But for purposes of being clear on the more normal, let's say, portfolios we have, I wanted to focus the comment on that.

Yes, plus 4% valuation uplift, and that's a strong number.

And as I said, I think going forward, it's going to probably be more the sidewards moved for the time being, let's see. Some of the evaluation development or time lagging in Germany because the appraisers assumption of what is the normal market difference from the perspective of the international appraisers who have more current market perspective, so a little bit of a time lag between the different markets.

It's Martin Praum. I may add that the 4% that Chris just mentioned is -- you mentioned that as a range. So in that range over the last 10 years, included between 0.4% and 4%. But suddenly, we hit the 4% in upfitting. It was more a look at certain years between 1.8% and 2% area.

The next question is from Kai Klose of Berenberg.

And I've got 3 quick questions, if I may. The first one, could you explain again why transaction fees have come down by 56% where transaction volume has come down by say 11% or if very differently, how much of the decline was coming that we have seen more all-in -- that we have more all-in contracts rather than index related.

Yes. Look Kai, good to have you on the call. The transaction volume has been pretty decent, somewhere around EUR 6 billion. But as we mentioned before, transaction fee income in terms of development didn't go offset, this transaction volume because we did a lot more transactions inside vehicles, which are featuring all-in management fees. So basically, no transaction fees upon signing or closing an acquisition of assets. Again, the biggest example is our Living Cities Fund, where we did a very large deal for instance, in Barcelona. And so there's -- that's in essence the main explanation here, full stop.

But can you quantify how much of the decline in transaction fee was due to the change in structure that is more all-in?

I'm not going to cover in my head, but I can get back to you on that one.

Second question in, quickly indicate of the EUR 2 billion of equity rating in the last year, how much will be on real estate and how much on infrastructure investment and where was it raised from?

That was actually being raised across the board. I would say that the vast majority was on the real estate side. So it probably follows directionally the mix of the portfolio, if I execute the co-investment activities.

And from which region?

Yes. Sorry, I forgot that part of your question. And more international than domestic, probably 70% outside of Germany, 30% in South Germany, which is not surprising, honestly speaking, because our position inside Germany is quite strong.

And the last question, I mentioned to you, company warehousing of properties in the balance sheet. Have you set yourself a limit how much do you want the warehouse or how much maximum you want warehouse?

The honest answer is, we haven't set ourselves a hard limit, but we're obviously watching on a monthly rolling forecast basis how much of our positive cash flow or cash balance at any given point in time, we are planning to absorb. We're going to leave a healthy margin for operational purposes and eventuality. So -- but we haven't set ourselves a hard limit. And secondly, depending on what we see, we will play with our own cash or we will -- we may choose to partner or also maybe in some exceptional places that we're up. We'll see how that goes, so -- but no hard limit, which I think would ultimately be appropriate because there may be large opportunities coming along. So -- but we are watching very carefully cash positions, so.

And what is the maximum period you made in -- yes what is the maximum period, period you are considering rounding properties or assets, 3 months, 12 months, 15 months, 24 months?

Tough to say, I just -- not long term, I would say, but rather maybe anything between 6 months and probably 24, certainly 24 months, somewhere there. So somewhere around the 12, 18 months, 18 months -- yes, 12 to 18 months, maybe sort of mid the point, tough to say it. It depends a little bit on the speed of growth and some of the infrastructure vehicles would be shorter. It could be a bit longer in the most strategic Asian potential vehicles, so.

And the last question is on Page 5. When we look into the event by risk side. How does the infrastructure assets could be classified by risk style, how much other popular singer yet.

I would say maybe directionally a bit -- like a bit inverse on the -- no, that would be too much. I would say maybe 50-50. It could -- depends a little bit at the -- so on the real estate side, we have 1/3 value-add in TRIUVA or in Core Plus in TRIUVA core, I would say on the infra side, it's probably fully balanced mix. But we can get back to you on that because I have to honestly say I don't have the details on top of my head [indiscernible] with classification is the right one to choose here. But directionally, a bit less conservative probably.

There are no further questions at this time. I hand back to Christoph Glaser for closing comments.

Look, thanks, everybody for joining. A lot of questions, very much appreciated. I hope we answered them in a satisfactory manner. And I guess I'll limit my closing remarks to what I said at the beginning of the call. The environment has been volatile, we're entering a second year of market consolidation or second to another half year of market consolidation with a lot of volatility, but we feel more than strong enough to weather that. So that's point #1. Point #2, we are actively aware of the fact that our results have been mixed, but we are moderately optimistic for '23, and we have the capabilities and the balance sheet power to move proactively unlike many competitors, and we have enough light powder to make AUM-growth-related moves across our vehicles. So that's kind of how we're going into the year. So we feel good. We feel moderately optimistic, and we will see how the markets come back. So we'll probably know more next time talk. Thank you very much for your attention today. And I guess with that Martin, we can complete the call.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.