PATRIZIA SE (PAT) Earnings Call Transcript & Summary

Good morning, and welcome to PATRIZIA. We published our '22 Group annual report today, and I would like to share with you some of my personal key takeaways, which revolve around 2 topics in particular. On the one hand, they revolve around a truly challenging market environment that has impacted our financial results in '22. On the other hand, they revolve around how well PATRIZIA has progressed on its strategic agenda, becoming a leading partner for global real assets and the many milestones we have achieved last year. Against that backdrop, let me start with the first of altogether 4 key messages covering financial results. Our '22 financial results were no doubt impacted by the increased market uncertainties and market volatility. But we took action. Geopolitical risks, significant inflation rate movements and the strong increase in interest rate levels led to increased uncertainty and reluctance to invest in real estate and infrastructure on the part of our clients. The environment hit both transaction fees and performance fees, which were down 56% and 25% year-on-year. Nevertheless, the strongest pillar of our P&L, recurring management fees, increased 15% so that our total service fee income was only down 5% in '22, a nice confirmation of PATRIZIA's resilience as an asset-light investment manager. Costs were up 11%, driven by the first time consolidation of M&A transactions, but also by reorganization costs. They were a result of our proactive decision to weatherproof PATRIZIA's platform and our continued work to improve efficiency. Overall, EBITDA came in at close to EUR 79 million, down 39% year-on-year, but still ahead of our most recent guidance range. Again, market activity-driven revenues and one-off items did hurt us but the quality of earnings has improved further with an ever growing level of recurring management fees, which takes me to my second message. Our assets under management keep growing and they're better diversified than ever with exposure to attractive assets, regions and investment styles and with low levels of leverage in the funds we manage. PATRIZIA's AUM grew 22% to more than EUR 59 billion in 2022 despite a difficult market environment. Strategic M&A and healthy organic growth supported this development. It is noteworthy that valuation effects on AUM came down on a relative basis, but still supported AUM growth during 2022, being testament to the high quality of the assets managed. So what were the major changes compared to '21? Firstly, we now have 15% of AUM invested in attractive infrastructure assets globally with a focus on decarbonizing our environment. Secondly, our geographic exposure has also further internationalized with now more than 11% of AUM outside of Europe. This confirms that PATRIZIA has successfully transformed from a pan-European real estate monoliner to a truly global and diversified real asset investment manager with continued growth momentum. Now on the other hand, what has remained unchanged compared to last year. Well, we were able to conserve the good things, namely the low LTV and the funds managed of only 31% and most certainly, our diversified and growing national and international client base. All of what I just said does have a positive influence on the core of our business, resilience of AUM, further growth of recurring earnings, which takes me to my third message, which focuses on how this stronger setup will help us travel through another volatile year. We are convinced that we are well prepared to take opportunities, and we do enter 2023 with moderate optimism. No doubt the changed macroeconomic environment continues to weigh on client activity. And we do believe that this uncertainty will continue at least until the end of the first half, if not even until the third quarter of '23. This explains that our financial guidance range for EBITDA in '23 remains initially broad with EUR 50 million to EUR 90 million. One thing we are optimistic about is the continued growth of recurring management fees also in '23 driven by continued AUM growth. Our target range for AUM implies continued organic growth to EUR 60 billion to EUR 65 billion. So why are we optimistic on AUM growth? Simply because we have more than EUR 4 billion of firepower and commitments, and these are backed by equity-rich investors with a great variety of investment strategies. This type of investors will be the first to take opportunities once they arise because they do have the financial flexibility to do so. Simply take 2 pieces of news flow we generated recently. The 2 mandates we received from global clients to invest up to USD 1 billion each in Japanese real estate and Asia Pacific infrastructure, confirms the continued interest of our clients in the asset classes we offer. In addition, PATRIZIA's strong balance sheet allow us to co-invest if attractive investment opportunities are identified by our local experts on the ground. Lastly, we have enhanced our platform organically and via M&A. Today, we can offer a much broader product range to our clients, ranging, for example, from real estate in Spain to infrastructure in Australia, we have private equity, debt, listed securities or diversified multi-manager investment strategies. Our flagship strategies now offer our clients investment opportunities in large-scale investment strategies, which are in line with megatrends like decarbonization, digitalization, demographics and urbanization. So you see we are prepared and we're in good shape once we identify new investment and market opportunities, which does take me to my fourth and last message. What's in it for our shareholders? Firstly, PATRIZIA continues to run a solid balance sheet with a high net equity ratio and strong available liquidity. So this does offer strategic flexibility if and when opportunities arise. In terms of operations, we have actively worked on reducing the recurring cost base and refocused strategic initiatives on selected flagship investment strategies, which should offer synergies in the future, not only for our clients but also for shareholders. Secondly, our shareholders participate in the strong cash flow generation in '22 with an increased dividend of EUR 0.33 per share. This is the fifth continued increase in dividend despite a challenging market environment, not only in '22, but also during the corona years. We also continued to buy back shares in the market after the end of '22 and reached the EUR 50 million target volume just a few days ago. So as of today, we are holding more than 7% of our own shares, which we can use, for example, as M&A currency, if and when opportunities arise. All of that said, let me summarize. PATRIZIA is in a better-than-ever position in terms of AUM resilience, product offering and market reach, and it is prepared to show growth momentum, most likely during the second half of '23. PATRIZIA's management is focused on growing recurring revenues while controlling costs at the same time. The actions and measures we took in '22 should lead to improved earnings quality. Lastly, shareholders profit from an asset-light business model with continued strong cash flow generation and a reliable dividend policy. If you would like to discuss this further, our Investor Relations team very much look forward to your calls and to continue discussing our equity story and outlook in the months to come. Thank you for your attention and speak soon.