PATRIZIA SE (PAT) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 9 months 2024 conference call. I'm Vicki, the chorus call operator. The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Verena Schopp de Alvarenga. Please go ahead, madam.

Welcome, everyone, to our analyst and investor call for the results regarding the first 9 months of 2024. This is Verena Schopp de Alvarenga speaking. I'm happy to have our CEO, Asoka Wohrmann; and CFO, Martin Praum, with us today to present you an overview of our operating business, market environment, financials for the 9 months 2024 as well as the guidance for the full year, followed by a Q&A session. During today's call, we will refer to the results presentation, which you can find on our website in the IR section home under most recent publication. In case of questions, the IR team is more than happy to take your call. As usual, this call will be recorded and made available on our website. We will also offer a call transcript for further reference. With that, I would like to hand over to Asoka to start the presentation.

Thank you, Verena. Ladies and gentlemen, thank you for joining. Also welcome from my side. And thank you for joining our third quarter 9-month earnings 2024 analyst call. And what are the key takeaways from our third quarter results before we go and deep dive the numbers, Martin. First, we are still operating in a subdued market environment. Second, we see a continued resilience of our asset base. Third, clients are shaping their risk return profiles for the upcoming cycle. On the positive side of market developments, very clearly, interest rates are stabilizing, overall uncertainties fading away, which helps the market recovery. On the less positive side, we are facing ongoing economic headwinds, not only in Germany, but in many markets across the world and geopolitical uncertainties. Both will dampen the economic recovery. However, looking at the overall transaction volume, in Europe, we see more investment activities in the market, albeit coming from very low levels. We see a stabilization in all major asset classes. Within that, the residential is leading, followed by industrial and logistics as well as hotel. The office sector remains a challenged asset class, and it is impacted by structural changes in our societies, in our economies and fundamentally changing future of work demands. What is also very clear in the upcoming cycle is clients look for diversification, optimized and more tailor-made risk return profiles and performance is key for their investment decisions. This is an advantage for us. We can navigate clients through the market volatility with our broad product platform and offering for real estate value-add recently and infrastructure investments. Let's move to the Page 4 of the presentation, please. As you know, in the investment cycle, equity raised precedes the investment process, forwarding investment process. So looking at equity raised in the first 9 months 2024, we gained momentum. This is different to last year. This is due to the positive shift in investor sentiment, certainly still on relatively low absolute levels, but we can see first sign of recovery. Equity raised substantially increased to EUR 0.7 billion, an increase in percentage-wise, almost 170%. EUR 450 million for real estate investments -- equity raised for real estate investments. That means in percentage-wise, 62% rise. And EUR 280 million for infrastructure investment, raised equity that nearly translated in percentage by 38%. This is certainly a significant improvement compared to the quarter 3 of last year. So we continue to diversify our transaction activities also. If you look at the right hand of the Slide 4, again, we achieved more than EUR 1.3 billion of signed transactions, 52% in real estate and being net buyer in this segment, 48% in infrastructure and our fund of fund business, AIP, Advantage Investment Partners, which was mostly driven by acquisitions. Overall, what we see is an increased demand for infrastructure investments, in particular, regarding the energy transition megatrend. This is driven by 2 needs; need for decarbonization and need for acceleration of the transition to renewable energy solutions. On the real estate side, we see increased demand for value-add products, particular in residential and logistics, but also alternative sectors. Investors are testing clearly the waters and returning to the real estate market, which leads to a more participant of real asset market, broader, the same broader real asset market, which leads to more participants and more deals resulting in a greater pricing transparency, which is relevant for the recovery. This trend is reflected in the major transactions we announced in the last months. And let's go to my -- to the next page before Martin starts and deep diving into the numbers. Looking at the latest large transaction we accomplished, you can see our strategic focus on smart real asset solution and real estate infrastructure gets more traction. So we achieved 3 large volume transaction in infrastructure, all are related to the energy transition megatrend, a major investment in renewables in Portugal, expanding our energy-based platform in Italy and investing in a leading rooftop solar company in the Philippines. In our real estate investment business, I would like to highlight a larger value-add transaction recently signed. This is a major refurbishment project in the prime office sector in London. You can see PATRIZIA continues to strengthen its positioning even in a subdued market as a smart real asset manager of choice in the industry. And we are expanding our global investment footprint across Europe and Asia-Pacific. And with that, I will hand over to our CFO, Martin Praum. Martin, please.

Thank you so much, Asoka. Let me kick off on Page 7 of this presentation with the financials of the first 9 months. Let's look at assets under management. You'll see that AUM is roundabout 2% and virtually unchanged if you look on a quarter-on-quarter basis. I think it's interesting to mention that we have bought more for clients than we sold. So we've been a net buyer in the market and this net organic growth supported AUM by EUR 0.4 billion. We had some cash out to clients, but certainly, the valuation impact of EUR 2 billion did at the end of the day, have an impact on AUM, which now stands at close to EUR 56 billion. Asoka already mentioned that we've been active in the market. And certainly, in transaction volume, close of over EUR 2 billion is low compared to what PATRIZIA delivered in the past. However, if you compare that number to the market and many other players, PATRIZIA is still a quite active investor for clients even in this market environment. I think this is an important message. Let's go to Page 8. I think this is an evergreen slide you're all familiar with. The diversified AUM portfolio that we have is really helping and shows resilience. If we look at the peak of the market in terms of AUM, we are now down roughly 5% in terms of AUM, which I think is a good number given the market environment we're acting in. And it's really good to have this diversified base as a basis for our business. In terms of split AUM by sector, not much change, but you'll see that going forward, this will change more towards infrastructure. We will certainly focus on living strategies and also you'll see more value-add strategy investments in line with our strategy. Now coming to profitability. Let's go to Page 9 of the presentation. You'll see the split of our 3 major revenue lines, management fees, transaction fees and performance fees. Management fees today make up 86% of total revenues, performance fees around 9% and transaction fees, 5%. If we look at management fees, top line, they're down 8.6%. But we have to bear in mind that last year, we had a higher contribution from real estate development service fees for our clients. And also, we had debt structuring fees that supported the 9 months in 2023. If we adjust for that, the management fees are down like-for-like 4.5%. This is also more in line with the effect from lower AUM. Transaction fees, actually, here, we've seen a trend reversal. Transaction fees are up year-on-year, and we also expect a good contribution from transaction fees in the fourth quarter of this year. I'll talk about it later when we talk about the guidance. And performance fees, not surprisingly, also down year-on-year. As I said, we've been a net buyer. We didn't have too many realizations for our clients, and this certainly has an impact on performance fees. But overall, revenues are down 13% year-on-year, and this certainly is the major driver for the reduced EBITDA and profitability of the company. Let's look at the cost side. Very, very important in this market environment. Operating expenses are down close to 3% year-on-year. So you'll see the first effects from our cost-cutting measures. We had a few in the past, especially on staff costs, you see the first effect of the FTE reduction. We reduced over time 100 -- close to 100 FTEs. Secondly, if we look at other operating expenses, they are up 0.6% year-on-year. But bear in mind, this position includes 2 major one-offs. If you exclude them, then also other operating expenses would be down 5% year-on-year. So summing up, I think the direction is right, but we have much more to do on the cost side to help at least partially offset the revenue pressure that we still experience in our business and in the market. On Page 11, you'll see the full picture and the composition of our EBITDA. My key message here is that at first glance, you'll see a material reduction in EBITDA, down 73% to around EUR 13 million this year. But as we mentioned in our releases and in the interim report, we had a significant negative consolidation effect of EUR 13.4 million in the first 9 months. So this has impacted numbers and also one-off costs of around EUR 5 million. So if you adjust for both, then you'll see that EBITDA is at a different level and much higher than reported. However, to be fair, and you will see that on the slide as well, other income has supported the EBITDA as well. This other income includes, for example, bonus pool releases because for cost-cutting measures, we decided to not use the entire bonus pool from last year and release it this year, and this is the positive impact you see here. So at the end of the day, we had costs from the last year that we shifted and that's helping us this year in our results. Overall, I think it's important to bear in mind the one-off I mentioned because that will become relevant when we talk about the full year guidance later in my presentation. Let's go to the balance sheet on Page 12 of the presentation. In terms of available liquidity, we stand at around EUR 120 million, which is slightly lower compared to last quarter, where we were at around EUR 130 million. The balance sheet overall, if we look at net equity ratio of over 60%, is still solid and especially helpful in this market environment. No doubt, available liquidity has come down over time. We've used the liquidity, especially to support new fund initiatives to co-invest and to warehouse assets. And for that, I'll give you a more detailed overview on Page 13 of the presentation. Also here, the picture is unchanged to last quarter. You'll see our balance sheet, and you'll also see that overall, we have deployed around EUR 1 billion of our corporate capital into strategic investments, but also into seeding and warehousing investments. So we've utilized our balance sheet a lot because we saw certain opportunities in the market. Some of these opportunities will stay a little bit longer with us than initially planned due to the market environment. But for others, I think we will also be able to deconsolidate given fundraising progress in these funds. For us, the most important here on this slide is that we are convinced of the assets and the asset quality that we bought and that we are comfortable to hold them on our balance sheet even if it's a quarter longer than initially planned. In addition, the assets we have on our balance sheet are also fully in line with our investment strategy. Note that we have 5 key investment areas and the assets we have include value-add strategies, living and also European infrastructure. With that, I'd like to go to the guidance page, which is on Page 14. We have confirmed the guidance for the full year. And also, we have not changed the guidance range, especially if we look at EBITDA of EUR 30 million to EUR 60 million. I think it's clear that this market environment does not allow for a clear path of recovery of the market. So clients are very picky, and we have to offer our clients very specific products for the needs that they have. And again, our diversified product offering is helping here. Another point is that PATRIZIA and especially its profitability still, to a certain extent, depends on market activity on transaction and performance fees. This has an impact on why we left the guidance as broad as it is. And then lastly, we have consolidation effects and it depends on timing when they'll kick in, which will impact the fourth quarter. And also, we might have other one-offs impacting the profitability, again, another reason for leaving the guidance range as it is. Overall, I think -- and this is something that Asoka also mentioned, most important to us is that equity raising is gaining momentum and also our deal pipeline starts filling up, and these are encouraging operational signs for stabilization and improvement in the environment. To help you bridge the gap to our guidance, let's go to the last page on Page 15. We are aware that consolidation and deconsolidation effects are sometimes tough to digest. So we want to give you a guidance what we think will happen. If we start with our EBITDA at EUR 13 million after 9 months, we do expect that one of the funds and assets we have consolidated will deconsolidate in the fourth quarter. So the negative impact that we've seen will be reversed. And also, we expect a profitable fourth quarter, higher transaction fees and also lower costs. And that's why we feel comfortable to have this guidance range. Whether we come up at the lower or at the upper end of the guidance range really depends on the speed of fundraising. It depends on timing of realizations and timing of transactions we signed for our clients. And also, as I said, there could be positive one-off effects related to historic M&A transactions and performance achievement of certain products and teams. With that, I'd like to close my remarks, and I'm happy for the operator to start the Q&A session.

[Operator Instructions] First question from Andre Remke, Baader Bank.

A couple of questions from my side. First, starting with the deconsolidation, which you expected on the equity investment in the fourth quarter. How is the probability of this? Or it's other way around? Is there any risk related to that, that will not happen? And what is the share of the EUR 13 million you could probably recover?

Sure. Andre, thank you for the question. First of all, we see a very high probability of that happening. We have good fundraising momentum for that product, and that's why we also included that in our guidance. And so we are confident that this will happen in the fourth quarter. In terms of the magnitude, I have to become a little bit more technical. You know that we had a negative impact on EBITDA of EUR 13.4 million from this temporarily consolidated fund. But you have to bear in mind that as it was fully consolidated and there are also other investors in that fund, there are minority shareholders that also have to bear part of the loss. And if you look at our P&L, you'll see that bottom line, the EUR 22 million loss split between PATRIZIA shareholders and minorities. And of that EUR 13.4 million, around EUR 5 million is actually to be borne by minorities. So the net effect on PATRIZIA after 9 months was around EUR 9 million. And in the fourth quarter, we would expect a reversal effect, which is only relating to PATRIZIA and its shareholders, and that would be in the direction of, say, EUR 8 million or so as a positive impact on Q4.

And with no effect on the minority side?

Correct.

Perfect. Then you mentioned other extraordinary positive effects. Is this a meaningful amount?

It could be meaningful. It certainly would be one-off and probably also noncash. But again, that depends on certain target achievements. That's why we cannot comment on that at this stage. So we'll have to wait until we have better indications how the rest of the year runs.

Fair enough. Then you mentioned that potential transaction fees are expected for the fourth quarter. What about performance fees? Do you expect any performance fee apart from the Dawonia fee booked already in the first quarter of the year?

We do indeed expect some performance fees in the fourth quarter, but at a very low level compared to the previous quarters. So it will be a minor amount. So rather a much stronger pickup in transaction fees in the fourth quarter.

And the last question is you mentioned to be a net buyer currently in the market. How is your transaction pipeline for the fourth quarter? Is it similar, i.e., geared more towards acquisitions rather than to disposals? And do you expect this continue also for the next year? Or are potential disposals are just more delayed and will follow with the stabilization of the market? We all know the discussions. Why I'm asking is you have EUR 15 billion of assets under management in offices, which you also on your own described as more facing structural issues.

Yes. Sure, Andre. So first of all, pipeline, as I said, is building up. And yes, we have more acquisitions planned than disposals. In terms of the asset classes, it is really a variety. And it even can include office, for example, if you have a value-add strategy. I'm just referring to the latest mandate that we acquired in London Pinners Hall, which is a classic value-add refurbishment project where our experts can add value to clients. So it's -- as I said, the pipeline is building up. We see clients are more willing to talk about new ideas, new investment strategies. And it's really especially in our focus areas, living, value-add commercial and especially infrastructure, where we're talking about new ideas.

But you do not see a risk that offices or your clients, which have a stake in offices are about to sell more from their positions to reallocate to other asset classes?

No. That certainly could happen, Andre. But I want to remind everyone that the majority of our AUM and assets are in core investment strategies, so high-quality location asset and counterparty risk. And this is why our clients also didn't have the pressure to sell in the last few, say, quarters and years. So they are happy to stay with their investments. But structurally, you're right that if you look at asset allocation, it would be rather investors selling commercial, especially office for the benefit of new investment strategies like logistics or infrastructure.

The next question from Jochen Schmitt, Metzler.

I have 3 questions, please. Firstly, on the Dawonia fund, there is still no news on your talks with investors how you will proceed with this mandate in the longer term and how your deferred performance fee claims will be treated. Could you please comment on that? Second question, maybe a bit technical, but nevertheless, on the negative contribution from the equity result in the 9 months report, you mentioned scheduled start-up losses, but also an impairment on a convertible loan as reasons. Could you give some more explanation here? And third question, very briefly, could you give an indication for depreciation and amortization to be booked in Q4?

Absolutely. Thank you. First of all, on Dawonia, we can only reiterate what we said last time. We are in still constructive discussions with our investors. As a reminder, the complexity with this fund is that basically we -- for a prolongation, we have to agree on -- basically with 100% vote from all investors on a prolongation, and this is simply technically something that takes time. In terms of asset quality, the kind of future outlook for the asset, I think we're all aligned that Dawonia is still a great asset and a great fund. In terms of the equity result, you are right. We had initial losses for a fund, which is normal in the life cycle of a fund that when you set up a fund that the fund first creates losses and then turns into profitability after a few quarters. This is driven by initial expenses, advisory, et cetera, when assets are bought. The special effect we had in the consolidated funds was that this includes an EV charging business. And in this business, in this company, we have consolidated, there was one of the service providers that went into financial distress. And the company that -- where we invested had given that service provider a convertible loan. And we assume that within the insolvency proceedings of that service provider, the majority of the value will not be recoverable. And given we have currently temporarily consolidated that fund, this also hit our numbers after 9 months. Again, the majority of that negative impact, as I illustrated to Andre a few minutes ago, will be recovered, and we expect a positive impact in the fourth quarter. Now you might ask how is that possible? It is possible because we talk about 2 different approaches. When we consolidate an asset at equity then you will see the full impact of profit and loss in our P&L. So basically, the initial amount that we consolidated is impacted by running losses in this case. And then when you deconsolidate, it depends on the valuation of the participation, and that includes the future outlook of the business, and that can be different from the accumulated losses incurred. And that explains why we expect a rather net neutral-ish impact of that. In terms of depreciation and amortization for the fourth quarter, we would guide for around EUR 12 million for your models.

The next question from Lars Vom-Cleff, Deutsche Bank.

Two, if I may. The first one, I agree that '24, very volatile, hard to predict, but -- and it's far too early for '25 outlook. But just for me to get a first feeling, do we have to prepare for another year with significant one-offs given how you currently do the business? And then also not at least given your ambitious medium-term targets, would you agree that the improvement we shall expect of business conditions we shall expect for next year would rather still be muted and not coming or business activity not coming back in full force again?

Perhaps we'll split the answer. I'll give my finance view and Asoka will then chime in. First of all, if you look at the composition of our 9 months results, then I think it's important that the outlook for '25 certainly depends on the business volume, business development and also our cost-cutting measures. And also, if you exclude the one-offs that we've shown, you'll see that the results were supported by other income. And this is something we do not budget for next year. So our budget is based on operational business, business growth and also further cost containment. But we have to bear in mind that to increase management fees, you always have to build up a pipeline, and this certainly takes a little while to translate into management fees. So if we look at the market today and the environment, we would say that we would probably look for a flattish development, '25 versus '24. With that, I'll hand over to Asoka.

Yes. Thank you, Martin. Lars, I think your question regarding '25, it is '24, I think most of us, we thought second half of the year, we can see a sharper recovery of the market, what we have not seen. And that is not because of interest rate and inflation, let me see fears. It is a subdued growth, economic uncertainty, all that. I do think '25, we are planning carefully even we are positive. What we are seeing for '23 is as we described today in this call, and the first time that we can call year-on-year, the capital raise or equity raise is much -- is starting to, let me say, more -- get more traction. And I do think '25, there will be more transaction in the market and more opportunities. We can see some people want to still exit. That means they are also willing to exit because the market transparency is there and people are looking for great opportunities. I do think '25 will be still a mixed year, even though I do think it's much more positive than '24. And with our broader platform, we are expecting to get more gain on the capital raise side, that will translate that it depends on when the capital is coming to our -- and the fee schedule are going to get started. But I do think next year, it's quite up on growth because on the cost side, we are doing everything what we can do, but it is quite dependent on market next year. Did that answer your question or...

No, absolutely. Yes. I guess as far as you are able to answer the question at this stage, that was extremely helpful. And now that I have your attention, Asoka, of course, I'm well aware that the current business environment rather needs the management focus to foremost be in-house focused. However, given that, as you say yourself, market sentiment continues to show signs of improvement, and also given that you have treasury shares worth more than EUR 50 million as an acquisition currency, would now not be a good time to also think about potential external growth again?

Yes. No, I do think -- Lars, thank you also for this question. You're always forward-looking, but I do think -- let me also say, I can see, and I'm looking really deep into the market. There are opportunities, but most opportunities are troublesome, let me say, opportunities. We are shaping our organization and platform the way that we want to really play an important role in the next cycle. I am in the opinion, Lars, we don't want to help or solve other ones problem, we have to reshape and prepare ourselves for the next new cycle. What is full of opportunities, even we are not seeing fully -- that will show up in '25, but I do think next cycle is very different. We are well positioned. But at the moment, we can't show it. But M&A per se is for us or let me say, unorganic actions is not my first priority, but even though if there are any opportunities we can do. And let me say that can add either new skill set, other geographical destination and what we feel that is great, we will not touch. That is a clear view I want to outline today. It can change in 6, 8, 9 months. We are still consolidating our own platform, and we have to do our homework well. Even you guys are not seeing that all. As Martin said, we are doing that, and we will -- we are focusing on that. Focus is relevant in this, let me say, a part of the cycle.

The next question from Manuel Martin, ODDO BHF.

Two questions from my side, please. One by one. The first one, a follow-up question on outlooks and potential scenarios. Given the elections in the U.S. that we have seen with Mr. Trump and now upcoming views on maybe interest rates higher for longer. Is it something that you have discussed with your clients and which could also influence 2025, i.e., have you been implementing lower interest rates in your 2025 scenario? And what could happen if interest rates stay higher for longer?

If I may take that, Martin, and Manuel, thank you for the question. Yes, it's just nearly 1 week ago. I do think it will be interesting to see now, and we are seeing that already in some market segments, what Trump administration will trigger in the U.S. and might be also impact the rest of the world and Europe, especially. I think it is -- it was a planned rate cut by the Fed more or less directly after the election, won election by Trump. It was not a forced action by administration. But I do think -- and you are right, Manuel, I am still -- and as a former CIO, I would say that I'm still looking with curiosity how the Fed is going to react. Is that really more pronounced rate cycle in front of us? Or are they going to a little bit take back, but not much more than what we can see? Because if you think about custom, introduction of customs and more or less means -- deglobalization means inflation, rise of inflation in all the economies in the Western world is a threat for Central Bank policy. I do think interest rates, in my opinion, -- and I have a very clear view, it will not go down dramatically, we will settle around 3% around the world. That is a normal world. It's still, compared to all the historical business cycle, quite low. Don't compare this cycle with the last 15 years with all the monetary policy, let me say, support after Lehman happened. I do think that will not come back to negative or 0 interest rates. But I do think interest rates will be either managed or will stay around 2% to 3% around the Western world. The only the exception will be Japan is more or less -- it looks like in a hiking cycle. So therefore, I do think we have to take all -- we have to consider the interest rates around that. That means all business models what we are offering to clients are expecting much higher returns compared to the core anchor rates, plus we have to expect more volatility in the future. So this is why I think to be honest, for me, the real assets can be a great weapon, but also not '25, '26, '27, I can see real assets as a good medicine against financial repression that means negative real rates if that comes through, let me say, the trend world is coming and let me say, triggering a growth potential around the world, especially triggered by U.S. and inflation will have to go up, but the central banks are a little bit -- will dampen but not going to enter into new hiking cycle. So this will be the scenario where I can see, especially the real asset can perform well. And I do think real assets are lagging the liquid markets by, I think, miles now, and they have to catch up. And they are showing attractive opportunities in the market as we see in the pipelines, what we can see for our clients.

That's very helpful. And my second question, hopefully, a bit less tricky. It's about the valuation result of PATRIZIA. After 9 months, I think PATRIZIA had a kind of decelerating devaluation effect in the third quarter. Can you give us maybe an update on the assumption that you have for the property devaluations for 2024? And maybe if possible, kind of feeling or outlook for 2025, please?

Sure, Manuel, I'll take that over. If you remember that when we began the year, we had an indication or assumption for something between 3% and 5% devaluation. Now if you look where we stand today, this is better than we thought. but don't become overly optimistic because due to our AUM structure and some of the assets only being valued once a year, there might be some lagging effects on valuation. That's why we would expect perhaps slight devaluations towards year-end, but very unlikely the 5% upper spectrum. And some of that will also have an impact on 2025, and then we do expect stabilization and a slow improvement. Also for the assets that we have on our own balance sheet, we've also included in our assumptions for the full year, smaller devaluation effects. You have seen some of that already in the 9 months results, which is shown below EBITDA.

The next question from Kai Klose, Berenberg.

It's Kai Klose of Berenberg. I've got 3 questions, if I may. The first one is on Page 15. Just want to check, you mentioned that you expect in Q4 a positive deconsolidation effect of EUR 8 million, so which means that you do not recoup the EUR 13 million negative effect, which we had in Q3. I just want to check that. Second question is on the split of management fees. You mentioned the reduction by 9% was partly due to lower development fees and the absence of client debt structuring fees, what was the earnings contribution from these 2 items in the management fees before? And what can we expect going forward? And second question is regarding Page 13, the warehousing assets, when -- at which price or at which value you expect them to get off the balance sheet into a fund product to increase the liquidity of the company again?

Thank you, Kai. On the first question, you're right that on EBITDA level, we will not or unlikely recoup everything of the EUR 13.4 million. But on net income level, as I mentioned before, that will be virtually fully offset. And so that's why we expect the positive impact in the fourth quarter of the year. In terms of management fees, last year, we had a positive impact from real estate development service fees, which was around EUR 10 million, EUR 11 million that supported management fees and debt structuring fees was close to EUR 4 million. And if you look at the 9 months results, we didn't have any debt structuring fees, but we had real estate development service fees of between EUR 6 million and EUR 7 million that supported the results. Going forward, we will say we expect a single-digit million -- or higher single-digit million support from service development fees in our management fees. And your last question was on the warehouse assets. Our base case assumption is that, as I said, we'll deconsolidate one of the funds already this year. And given our solid balance sheet, there's certainly no pressure to sell certain assets at this stage, but we would expect a strategic decision on these assets within the next 24 months.

If I may, on the last one. We have 2 value-add offices. You expect these 2 assets to get off the balance sheet or one of those into a fund or will it be the residential project development?

No, basically, the deconsolidation in the fourth quarter is relating to the infrastructure fund. The value-add office properties, this is something we want to develop further. So we're going to invest CapEx and turn that into core, so that will take a little while. And then probably in terms of ranking what is going to leave the balance sheet first, it's probably going to be the logistics exposure before the other ones will follow.

So the 2 warehousing assets are expected to stay on the balance sheet for longer?

At least the current plan is that we want to develop these value-add assets. As I said, value-add is our expertise. This is what we're good at. We have the great people to do that and reposition assets. And I think it's much better value for the company and also shareholders if we develop these assets.

And last question on that. So it's not likely to become an asset for a retail fund?

Absolutely. That could also, at the end of the day, become a fund for our clients. But this -- again, on these warehouse assets, we'll have these decisions later.

The next question from Philipp Kaiser, Warburg Research.

First, starting with a follow-up on the depreciation and amortization. Martin, you mentioned EUR 12 million for the fourth quarter. Does this include potential impairments on these balance sheet assets already?

Philipp, no, no, it does not. There might be a single million-digit add-on to that.

Perfect. The next one on the cost base. So there are still -- there are at least some improvements here. Are there still room for improvement in the next quarters? So can we expect a further decline in the last quarter? And a follow-up on that, when do you think you reach a bottom here where the measures cannot have any positive impact anymore? When we can expect the cost base to start to increase again?

I think and I'm looking at Asoka, we both agree that the cost base has to come down further at PatIia. You'll certainly see impact in the fourth quarter of this year. And also, if we look into '25, to us, this means further cost base consolidation. And if you remember the plan that we've set out to the market with our ambitious EUR 100 billion AUM growth market, if we have significant revenue growth, then this has to be much stronger in terms of growth than cost base to create operating leverage and scalability to enable a better profitability of the company. So we all have a super focus on this topic.

We've done already in a quite focus, as Martin said, alluded earlier, on the personnel costs. We will now do more as we reduce also, I think that a little bit muddling through the consolidation effects in the G&A, we will look much deeper into G&A and other overall platform costs. So therefore, you can expect more to come. We will manage that very diligently due to our top lines. And I think our profitability has to increase and our operating leverage have to go up.

Perfect. So overall, we can expect for the next year also a declining cost base, taking all the costs into account?

It's too early that we will not guide you directly to '25, but that is the direction of what we are going into.

Perfect. And the last one is on your guidance. So you reiterate your broad guidance range as you expect the negative effect to be revealed in the last quarter. From your current visibility on the last quarter, would the -- at least the lower end of your EBITDA guidance reachable without the deconsolidation and the positive effect?

We have no doubt we're not going to reach the lower end of the guidance. So to put another way, yes, we're confident that the EUR 30 million is doable.

[Operator Instructions] We have a follow-up question from Lars Vom-Cleff, Deutsche Bank.

Just a quick housekeeping question for Martin after we already discussed the amount of D&A we shall envisage for this year. So doing a back of the envelope calculation, I end up with around about EUR 34 million, EUR 35 million for this year after rather EUR 45 million to EUR 50 million for the years before. Is this, let's say, EUR 35 million D&A our new run rate we should also expect for the next couple of years? Or will that change again?

Lars, first of all, if you look at D&A, you have a technical impact from amortized funds that we depreciate over time. This stack will become lower with running depreciation. So this is something that should decline over time. So we would guide for, yes, still double-digit D&A going forward, but probably in the area of perhaps EUR 25 million, EUR 30 million.

This was the last question, gentlemen. I would like to turn the conference back over to you for any closing remarks. Thank you.

Thank you so much for listening in and all your questions. As you know, the IR team is more than happy to take up any follow-up questions that weren't answered. We very much look forward to be on the road again soon. Next event we will attend will be Deutsche Borse Eigenkapitalforum in Frankfurt end of November. So very happy to see many of you at that event and discuss PATRIZIA on 25th and 26th of November. Stay healthy and speak to you soon. Bye-bye.

Thank you. Goodbye.

Ladies and gentlemen, the conference is now.