PATRIZIA SE (PAT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the PATRIZIA SE following the publication of the figures for the first quarter of 2025. [Operator Instructions]. And having said this, I hand over to PATRIZIA's Associate Director, Investor Relations, Tobias Ender.

Good afternoon, good morning, wherever you are. Welcome to our today's analyst and investor call for our 3M 2025 financials. I'm happy to have our CEO, Asoka Wohrmann; and our CFO, Martin Praum, with us today. Asoka will present to you an overview on the market environment and operational activity. Afterwards, Martin will guide you through our financials. This will follow -- will be followed by a Q&A session. And also during today's call, we will refer to our results presentation, which you can follow right on screen. And also, if you want to have a read through afterwards, you can definitely browse through our IR website. In case of questions afterwards, please also contact our IR team. We are happy to take your calls. And with that, I'm happy to hand over to our CEO, Asoka Wohrmann.

Thank you, Tobias. Dear ladies and gentlemen, a warm welcome from my side as well. We are still living in volatile times. We witnessed ongoing geopolitical challenges as well as uncertainties for the development of global trade based on the impact of the current tariff tensions. Nevertheless, we also saw slightly improving market conditions for investments in real assets. Client demand and activity has returned, and we believe the first quarter in 2025 could mark an inflection point for PATRIZIA as well. Three top KPIs have either grown or are at the point of growing again. EBITDA was up by 11.5% compared to the first 3 months in 2024. This was driven mainly by reduced staff costs and lower operating expenses. The EBITDA margin grew as well as by 3.1 percentage points to 23.4%. This level was above our guidance range. However, mainly due to annual carry payments received in the first 3 months in 2025. AUM development remained relatively stable at EUR 56.1 billion. On the remarkable note, we achieved our highest organic AUM growth since the end of 2023. And we expect AUM to grow during the course of 2025 based on organic growth, while trailing valuation effects are expected to slow and diminish throughout the year. In the first quarter of 2025, PATRIZIA successfully utilized open equity commitments and remain an active buyer. In total, we closed investments worth EUR 0.9 billion. At the same time, divestment activity was significantly lower at EUR 0.1 billion. This led to organic AUM growth of EUR 767 million, our highest quarterly net growth since quarter 4 2023. Most transactions that were closed were in infrastructure with activity in real estate being driven by residential and logistics sectors. We believe we are at an inflection point in the real estate market and expect to see stronger growth momentum as the year moves forward. For you, some investment highlights so far in forth following. We successfully entered the Philippine market with 2 attractive infrastructure deals. The first is one of the country's leading rooftop solar developers and the other into a new urban mobility solutions platform. We also made a strategic investment into Aligned Data Centers, one of the leading data center providers in North and South America. And we acquired a top office building for the new Italian headquarter of SAP and further investment in the APAC region by partnering with Kaer to accelerate the expansion of Cooling as a Service, a fast-growing infrastructure segment, not only in APAC but also globally. In the past few years, we have adapted our platform and realigned our organization to build an integrated investment division for infrastructure and real estate driven by our sector expertise and strengthened our international client division. And we just streamlined our executive division and hired a new CTO to strengthen our technology expertise and advance our digital platform to support all our business areas. With our newly formed organization, we are already able to harvest the first results and successfully execute on our midterm strategy 2030. With management fees virtually covering all operating expenses, we have reached a first strategic goal of 100% coverage, and we are aiming to grow our management fees with a clear ambition to surpass the 100% coverage. We will stay laser-focused on growth in 2025, prime to act at this market inflection point. Investors are looking to put more capital at work and to reposition their portfolios more actively. Modernizing European infrastructure is now at the center of public interest and to strengthen our competitiveness, especially given the current uncertainties in the global markets. The lifting of the German debt break included the announcement of huge investment into infrastructure by the German government, something we are also monitoring very closely. More investors are also starting to consider countercyclical plays in Europe, for example, in office and retail. Looking at equity raising in the first 3 months 2025, our result was still muted. Given the changing market sentiment, we will further advance our fundraising activities. PATRIZIA is well positioned to navigate and benefit from the -- on this ongoing market volatility, supported by the renewed investor appetite towards Europe. This also helps to protect investment portfolios focusing on Europe with limited direct exposure to tariffs and sector-specific thematic strategies. As said before, our clear goal is to continue our organic AUM growth in 2025. Our ambition is to future-proof PATRIZIA as a smart real asset investment manager in a world in transition. This year, we are laying the foundation for our growth path to more than EUR 100 billion AUM by 2030. We will focus our efforts on establishing new attractive and scalable investment solutions for our clients. And we will step up our fundraising activity to create more value for our clients. Our ambitious growth plan is mission-critical, especially in light of market conditions turning more favorable. Achieving attractive returns in real assets requires a transition from asset allocation to active asset management. Asset managers need boots on the ground, being closer to their assets in order to generate higher returns. This plays to our strength. And this is why value-add remains a key growth area for us where we can achieve double-digit IRRs for our clients. Living remains a strategic growth area for us as well. Living is far more than residential with attractive subsectors such as affordable housing, micro living, co-living and senior living in 2025. And we are very excited about future growth opportunities in the new emerging RE-Infra asset class. Thank you, and I will hand over now to Martin, our CFO.

Thank you, Asoka. Hi, everyone, also from my side. Let's discuss the financials, and I'll start on Page 8 of the presentation, which is also shown. Assets under management, key messages here is, first of all, as Asoka already stated, we bought more than we sold for our clients. So we've seen net organic growth in the first quarter of '25. If you look at the EUR 0.8 billion of net organic growth, then this primarily stems from infra investments with EUR 0.6 billion and around EUR 0.2 billion real estate investments for our clients. Second message is positive news there, we have organic growth, but this was a little bit more than offset by cash movements and trailing valuation effects. You might remember, we guided you that in our AUM, you might have a time lag in terms of valuation, for example, due to different business year- end of some structures, but we believe this will phase out during the year '25. So overall, net, we have an 0.5% smaller decline in AUM. In terms of transactions signed, we also saw more acquisitions than disposals in the first quarter, and that's why we also expect a positive impact from these investments for the AUM from the second quarter onwards. Let's go to EBITDA. EBITDA profitability numbers, I think, in this quarter are pretty straightforward. There are no major one-offs to be reported. If we look at revenues, which includes management fees, transaction fees and performance fees, total service fee income, down 6%, primarily due to lower performance fees, but in line with our management expectations. Net sales revenues and co-investment income, you see a material increase to EUR 3.8 million in the first quarter. This is the positive impact from the co-investments that we have on our balance sheet. On the expense side, you see a material improvement, and I'll discuss this later on the next slide. Perhaps also worth highlighting here is that other income is down 81%, down from EUR 5.7 million last year, down by EUR 4.6 million to EUR 1.1 million. That's also a proof that the quality of the EBITDA that we've shown in the first quarter is higher compared to last year. Let's move to the next page, more details on total service fee income. We've seen moderate declines in management fees, primarily due to the lower AUM base. Transaction fees were materially up to the first quarter last year. This is also a sign that there is more activity in the market. The transaction fees were sourced really from a number of different investments for our clients, especially in the residential and in the health care sector. Performance fees, as I mentioned, in line with our expectations, down year-on-year also because we didn't have any major disposal activity in the first quarter. Let's move to the next page to the cost side. And again, here, we've seen real progress on costs. If we look at staff costs down 13%, you see the positive effects, especially from the recent reorganization activities that we have pursued with the number of FTEs reduced to 875 from around EUR 940 million (sic) [ 940 ] last year. Also on other operating expenses, down 10%. This is the result of a thorough cost review of the organization to increase platform efficiency. As Asoka mentioned before, in the first quarter, our costs were virtually fully covered by management fees, and this is really allowing for operating leverage once the market activity shows a more pronounced pickup. Let's move to the balance sheet and liquidity. Here, the picture is virtually unchanged. We have a net equity ratio of slightly over 68%. So a strong balance sheet. We have available liquidity of slightly over EUR 100 million. This is slightly down quarter-on-quarter due to some cash deployment in co-investments, but no material change. The bank debt that you see here as bank loans for warehoused assets is also unchanged, but also on the asset side, our co-investments that we have on the balance sheet are also unchanged, still with exposure to the residential sector to logistics and to selected office assets in Germany. Let's move to the dividend proposal. As communicated in the past, the Board of Directors and we propose a payout of EUR 0.35, which is up around 3% year-on-year. As a reminder, the AGM will be held virtually on 4th of June. The ex date will be 5th of June. Given the relatively high dividend yield of 4.6% at the moment, don't be surprised by share price moves on the 5th of June, and the payment date is scheduled for 9th of June. That brings me to the last page of my presentation, the guidance for AUM, EBITDA and EBITDA margin. That is unchanged to what we published in the annual report. Again, we had a good start in terms of investments for our clients in the market in the first quarter. We had a somewhat softer start for equity raising, but we do see momentum building up, and we also see pipeline building up already in April. So we are happy to confirm the guidance for the year at the moment. And as Asoka said, we will continue to focus on fundraising and platform efficiency over the next few quarters. With that, I'd like to open the Q&A.

[Operator Instructions] And we already received the first hand from Andre Remke.

A couple of questions from my side, starting probably for Martin, a question on OpEx. Do you see any further potential for further reductions this year? Or is the first quarter probably the run rate? And what kind of additional management and transaction volume could you run with the current staff or other way around, could we expect an increase of OpEx again in case the business activity gains momentum? This is the first question, please.

Thank you, Andre. If you look at staff costs and OpEx, they're really materially down year-on-year as you might have noticed. And I wouldn't be over-bullish to extrapolate the first quarter cost side because historically, also if you look at other PATRIZIA quarters, you've seen some cost increase over the quarters, also depending on business activity. So with further growth, I think we are very well set up with the platform we have today to manage and transact much higher volumes than currently. And you also know the volumes this platform has basically managed in the past, and we think we can digest that as well with our further growth ambitions. But it is certain, say, smaller growth over the quarter in terms of costs, I wouldn't rule that out. And to your last question, there's always options to reduce costs further, which we will certainly look into just in case the market growth is not materializing.

Okay. Perfect. The second question is on AUM. What do you expect in terms of cash movements and valuation impact for this year? And I guess this is already included in your asset under management guidance. As a related question, you mentioned equity commitments of you have on your hand at the moment, EUR 1 billion or so. Is it right to assume that this would be not enough to reach the lower end of your AUM target range, assuming it's a negative valuation, it's a cash payment's counter effect.

Yes. Thank you, Andre. It's correct that we have EUR 1.1 billion of equity commitments available for investments in the market. And indeed, our internal planning goes for higher growth. So we will need some fundraising to deliver on our internal targets. But as we said, the pipeline is building up, and we are optimistic that new equity will come in to fund further acquisitions in the market. In terms of valuation, as we said, we have still some trading effects. But overall, by the end of the year, we expect some smaller positive valuation effects on AUM. And that's -- if you look at where some of these markets and subsectors develop at the moment, we were still confident that this will also materialize.

Does it mean by year-end? So on a year-on-year comparison, you expect a positive valuation impact?

Yes, a smaller positive impact, correct. So if you look at Q1, you start with a slightly negative impact, and this should basically turn around over the year.

Okay. Perfect. Then a question on your available liquidity of roughly EUR 100 million. This is now on the lowest level since 10 years. And what level do you think it should be the minimum level, so to say, to run your business operationally? And could this also limit your strategy of co-investments in the future?

Yes. Thank you for the question, Andre. The EUR 100 million, in my view, is indeed a level that I would describe as rather a minimum level, how we want to run the company and its financials. But also bear in mind, we have a lot of financial flexibility. Just to give you one example, we have a revolving credit facility in place that we can draw whenever we need it for around EUR 100 billion. So this also increases our financial flexibility if it is needed. And the remainder of the liquidity development will depend on our strategic decisions regarding co-investments and the assets we have on our balance sheet. But there's no need to rush certain exits, as I said, as we have a very strong balance sheet and banks are happy to provide us with financial flexibility.

Okay. And the last question, you stated in the presentation that the transaction fees are driven by real estate. Does it mean that the infrastructure investment did not really contribute to the transaction fees because this was a majority of investments or transactions in the first quarter. And is this, in general, the case for infrastructure investments?

I think that's a fair statement, Andre. The majority of transaction fees, especially on acquisitions, are still generated in the real estate world, especially with mandates in Germany and Continental Europe. On the infrastructure side, it's not so often that you have transaction fees attached. But in certain areas and mandates of infrastructure, we also have acquisition fees, but to a much lower extent compared to the real estate world.

So in general, is it fair to assume for the years to come, if you're expanding the infrastructure side, you will earn automatically lower transaction fees?

Structurally, that's correct, yes.

[Operator Instructions] And in the meantime, we move on with Lars Vom-Cleff.

Two quick questions, if I may. The first one, I mean, with great pleasure, I hear you, Asoka, saying that Q1 could have marked the inflection point. So the question following naturally is, how is Q2 developing so far? What are you seeing?

Thank you. I think we have seen also from the colleague asked earlier, Andre, the valuation went nearly 9 consecutive quarters or might be 10 down. So there is a really stabilization in all segments, in all sectors. That's just one thing is what we are observing is very, let me say, for me, and a very constructive view on market. Then also the high volatility in liquids had also created some refocus back in illiquid opportunities -- and I think also the interest rates, even with all the volatility you have seen, I think it looks like ECB is cutting the front end further. And there is some expectation the Fed can reduce because a recession talks in the market. All that is bringing also interest rates down. And I do think our investors get more comfort now to look into the illiquids. And that is generally great for us, especially in real estate as well as infrastructure. And I do think we can -- I think I don't know many, many of us have been concerned for 4 or 6 weeks ago about Trump administration and all the activities went out of U.S., but it has also now strengthened Europe more or less as a reaction, as a counter reaction. That means people are focusing on Europe more. People are thinking about global value chains. They are thinking should we always go 80%, 90% with our investment to U.S. or should we not have a better balance between our home markets and U.S. and investing outside Europe. All that -- and also the currency volatility, all that created for me an alignment that our European investors are more now interested. There is not raising hands to giving us money. That is not like on the top of the last cycle. But I do think I am seeing constructive signs. And that is what I said, inflection point is -- might be -- was this quarter and now I think next quarters can be constructive. Still volatile. The next cycle will be not the same like the last 10-, 12-year cycle, but I can see people are looking into opportunities. Opportunities, and I do think as the transaction market has dried up in the last 18, 24 months, there's more possibilities there for more transactions, even smaller bits and pieces, but I do think I am constructive. That is -- that was my comment on that.

Perfect. A very detailed answer, which I really appreciate. And then teasing Martin a bit again. I mean, I was patient for the last 6 months. I looked at my records. But can I ask you if there's any update on your Dawonia renegotiation?

Thank you, Lars. And not surprisingly, the same answer is that we are still in constructive discussions with the investors in the fund and working on a long-term prolongation of the mandate.

And the significant decline of the Dawonia performance fee this year, that was rather given that the assets are coming down?

No, it is partially driven by the -- primarily driven by the number of privatizations that Dawonia generates, and this is then a reflection of the market. In terms of valuation, we've seen stability at Dawonia over the last quarter.

So we will then move on with the person who's dialing with the number ending with 707. [Operator Instructions]

I think the operator meant me, Manuel from ODDO. Just one question. Asoka. When it comes to the investors and your products, you see a kind of an inflection point, a potential inflection point. But in your view, what must be the conditions for investors really coming back in full year 2025? Or what are they waiting for? Is it for lower interest rates or Trump disappearing in the U.S. or maybe something else? Perhaps you can give me a bit a flavor on that, please.

Yes. I do think, Manuel, I think conditions, I think the atmosphere for investors were more or less in the past 24 months and now nearly 2 years here, was not really illiquid friendly. They have been greatly invested also in the late cycle, the valuations came down, inflation spiked. Interest rates went dramatically up. Central banks hiked. Now you can see since some quarters, central banks are in a cutting mode, except of, by the way, Japan. Japan, BOJ is -- might be on a hiking mode after many, many years. By the way, there is more economically more constructive. I've been last week in Japan. I have seen now after 30 years the market is going to recover. The business mood is much better. Even the inflation is going to -- starting to go up when the Central Bank going to hike. But I think now besides Japan, the rest of the world is enjoying and experiencing now Central Bank cuts, the front-end cuts. And I do think from that perspective, it's a very good condition, first of all, for illiquid investors to go in. And there is still great opportunities. As I always say, saying that is quite an investment law, and still is a fact of my career, if you have the opportunities, there is no money to invest because capital raising is so difficult because people are uncertain. But I do think now, Manuel, as I said to Lars, there is interest rates, there is repricings happened. But also there is now people are willing to negotiate in the market for transactions. I can see in the both sides, demand as well as supply, there can -- there is -- the market is starting to functioning even lower level. I'm always saying first signs an inflection point means we are past the trough. And I'm -- from that perspective, I do think interest rates is great. The atmosphere for investors are more friendly. And the volatility and the unbelievable, let me say, people shifted the last 2 years not only away from illiquids, they went into bonds, liquid bonds mainly. They shifted immediately interest rate-bearing assets and they have not really ignored the illiquids. Now they are already have seen now volatility in bond prices, volatility, massive volatility in equity, even that is settling after 4 or 6 weeks, people now saying, okay, I want to have duration assets. I want to have a good IRR perspectives. And hopefully, also for this, let me say, interest rate levels, if I can have a good cash returns, I'm willing to look into that. And that is exactly happening. It can happen in the sense that we can reopen our German closed-end funds. That's one thing. And the value-add is attractive as, I think, not been the last 10 years. You can residential value-add, living value-add, you have you have nearly 14%, 16% IRR. That's a great opportunity if you invest for 7, 8, 10 years into these strategies. Data centers, there is also new, let me say, RE-Infra trends like data centers are coming, are sizzling returns. And that is also playing at the moment. And as we raise for Aligned Data Centers project with 2 partners, 1 global partner and 1 U.S. partner, the money or capital, you have seen there is investors. They have deep pockets. They have a strong conviction, they are going in now. And that is triggering the next quarters more momentum, more activity, and that is our hope. Hopefully, Manuel, I explained -- I can't say now 2% interest rates are great. But I think front end, that is -- the trend is down. That is one of the important conditions for many, many clients.

So by now, we have one further virtual hand left and it's as well from a personal dialer with the phone ending 809.

It's Miro from JMS. I have 2 questions. The first one regarding the performance fees, which have been a bit lower now in this quarter. Can you please elaborate better on the outlook for these fees if we now assume this so-called inflection point, as you have called it? That's the first one. I'll take them one by one, if I may.

Yes, sure. thanks for the question. So performance fees in the first quarter of the year are always primarily driven by the Dawonia carry plus some other performance fees, which you've also seen in this quarter with EUR 0.3 million. Overall, in terms of our planning, we currently plan for structurally lower performance fees because we're entering a new cycle. We're building up new vintages and building up new performance fees we will then harvest over the cycle. In terms of, let's put it, hidden reserves, we still have over EUR 100 million in theoretical performance fees on the books in the funds in case we would sell these assets today. But as you might remember, these performance fees are sometimes in nondiscretionary mandates, so we're not always in the driver's seat to realize these performance fees. So short answer is structurally lower performance fees. We do not expect short term to -- at least in our planning, to go back to the levels seen in the years '18, '19 or '20.

Okay. Sure. Very clear. The second question is regarding the operating costs, mainly personnel costs. If I look at the number of FTEs that you employ, I mean, it went down, as you can see, by more than 100 people compared to others who went, say, through a consolidation/crisis phase, I don't know whether this is the right word in your context. We sometimes see much further measures and much harder measures, so to speak. Question is, is this EUR 875 million now the, let's say, the end of the story? Or are you still working hard to bring the personnel cost down?

First of all, Miro, we are continuously monitoring the staff costs and efficiency of the platform where and how we can optimize processes how we can use new technologies to become more efficient. At the same time, and if you remember our midterm strategy, we have communicated ambitious growth targets until 2030. And with the platform we have today, we want to use the people and the platform to deliver on these targets also to show the operating leverage. In case these revenue and growth targets do not materialize or there will be a prolonged market weakness, then certainly, it would be the time to review the cost base and also staff costs again. But quick answer is we will continuously monitor staff costs, and we want to improve efficiency of the platform, as you know, to increase the quality of earnings and also lower the volatility of earnings.

So in the meantime, we have received no further questions. So at this point, just the final call, if there are still questions or follow-up questions you would like to ask, just let us know. But it seems everything is answered so far, and there are no open topics. So therefore, we come to the end of today's earnings call. Thank you for joining and you showing interest and the lively conversation. So should further questions arise at a later time, please feel free to contact Investor Relations. And a big thank you also to you, Asoka and Martin, for your presentation and the time you took today. So it was a pleasure to be your host. And with this, I hand back again to Martin for some final remarks, which concludes our call for today.

Thank you so much for hosting the call, and thank you for everyone who dialed in. In terms of next events, as I mentioned before, 4th of June, we'll have the Annual General Meeting. And on 12th of August, we will have our first half financial results. And we hope to see many of you on the coming conferences and roadshows. And as said before, the IR team is more than happy to take any follow-up questions. Stay healthy and speak soon. Thank you, everyone.

Thank you, everyone. Thank you all.