PATRIZIA SE (PAT) Earnings Call Transcript & Summary

Good day and a warm welcome to today's conference call of the PATRIZIA SE following the publication of the preliminary financial results of 2025. [Operator Instructions] Having said this, I hand over to PATRIZIA's Director of Investor Relations, Janina Rochell.

Thank you, Sarah. Welcome everyone to our analyst and investor call for the full year 2025. This is Janina speaking, and I'm pleased to have our CEO, Asoka Wohrmann; and our CFO, Martin Praum, with us today. Asoka will start by presenting the highlights of the year 2025. Afterwards, Martin will guide you through our preliminary financial results for 2025 and provide an outlook for 2026. As mentioned by Sarah, the call will be followed by a Q&A session. During today's call, we will refer to our results presentation, which you can find on our website. If you have any questions, the IR team is more than happy to assist. As usual, this call will be recorded and made available on our website afterwards. We will also provide a call transcript for further reference. With that, I'd like to hand over to Asoka to start the presentation. Asoka, the floor is yours.

Thank you, Janina. Dear ladies and gentlemen, a warm welcome from my side as well. Let's start on Page 3 of the presentation. Our world is changing rapidly, and uncertainty, volatility is the new geopolitical normal. The old world order based on the rule of law, open societies and free trade, are facing existential threat. The new emerging world order is dominated by 3 major powers. The use of political and economic power to pursue national interests on a global scale is part of the new norm, and military conflict is back also on the agenda. In the light of the current global turbulences, investors are looking for safe havens of stability to protect their investments for the long term. We believe this is the right moment in the new cycle to invest in real assets in the right geographies. Why is that? Real asset investments offer strong long-term returns. And they are also an inflation hedge, provides stable cash flows while other asset classes are impacted by increased uncertainty. In this environment, the attractiveness of Europe as an investment destination becomes even more apparent. In addition, the stability of the euro supports investment performance for international capital. We believe this is the moment for Europe's awakening. Europe is a beacon of stability, offers unique investment opportunities. We, PATRIZIA, are well positioned to capture this shift, with deep expertise, strong local presence and proven track record and proven execution across resilient European real asset markets. That said, let's move to the next slide and take a look back at 2025. The first -- let's talk about the market in 2025. After weaker-than-expected 2025, we see that a new cycle has started. We believe this cycle is different to previous cycles. It will be a longer, slower and bumpier. Despite the current geopolitical turbulences, we are more optimistic than in previous years about the real asset industry. Market sentiment is already improving. Investors are becoming more optimistic. We see signs of stabilization with slightly improving valuations. Thus, we expect this recovery to gain stronger momentum in 2026. PATRIZIA remains well positioned for long-term growth driven by the DUEL megatrends. These megatrends, digitalization, urbanization, energy transition and living transition, continue to shape our economies and societies, and we will continue to invest along the DUEL megatrends in 2026 and in the future. The creation of PATRIZIA's integrated investment platform, combined with strict cost discipline, has made our business more resilient and less dependent on market-driven revenue streams. And you can see this very well in our earnings performance. Our profitability has significantly improved compared to last year. Importantly, this reflects a structural set up or step up in our earnings profile. In 2025, our management fees fully covered by operating expenses for the first time. This means we can turn the market momentum into even stronger profitability in the new cycle. And this is an important step to strengthen our long-term profitability beyond 2026. We are seeing a clear upward trend in fundraising, with higher equity raised in 2025 than in the prior 2 years. This demonstrates the growing investor appetite, renewed confidence in PATRIZIA's product offering and market position. Market -- the investment volumes gained momentum, reflecting a clear acceleration in transaction activity. This was fueled by our international business activities, underlining PATRIZIA's global footprint across real estate and infrastructure. With that, let's move on to the next slide. Let me briefly comment on our results for the financial year 2025, which we already published yesterday evening after markets closed. We significantly improved our EBITDA by 35%, up to EUR 63 million. We are improved or we also improved our EBITDA margin to close to 23%, well above last year's margin. Our earnings performance is a result of efficient operations, strict cost discipline and a stable portfolio. Our AUM remained almost stable at EUR 56 billion despite a slower and weaker market recovery and currency headwinds. On the positive side, we saw valuations improving gradually during the year. Let me now turn to our investment activity on the next slide. We already saw a small but encouraging increase in transaction activity in the second half of 2025. We signed more transactions and we also closed more transactions compared to last year. And PATRIZIA continued to be a clear net buyer in the market. We expect this positive momentum to continue in 2026. Valuations continue to improve. Transaction volumes are increasing. More clients are taking advantage of market opportunities in the new cycle, especially in real estate. And we believe this is the right moment to start investing in real estate again. That said, let me turn to our fundraising activity on the next slide. The increase of 22% in our equity raised compared to fiscal year 2024 shows the strong demand for real estate, especially in modern living, but also in infrastructure. And our multi-manager platform, AIP, contributed to this positive development. The progress we are seeing in fundraising clearly support our long-term growth ambition. We continue to see strong demand for our DUEL-aligned investment strategies, particularly across our flagship products. Building on the progress we have seen in 2025, let me now turn to the market outlook for the coming year. Looking at the market sentiment for 2026, we see clear signs of improvement. Interest rates are expected to remain stable or trend lower. Inflation is also expected to stabilize. As we can see again, geopolitical uncertainty remains a factor and it will impact investment sentiment in different regions in a different way. Overall, this environment is expected to create structural tailwinds for us as PATRIZIA. The positive market development should lead to a higher equity raised and increased investment volumes. We continue to focus on targeted investment solutions across our key strategies: living, value-add and infrastructure. Living has been a strategic growth pillar for PATRIZIA for more than 40 years. We have an exceptional track record in living, both in our home market Germany, but also across Europe and recently also in Japan. Living will be a key investment focus for PATRIZIA in the new cycle as valuations improve and offer attractive long-term returns for our clients. And as we all know, housing, especially affordable housing, is one of the most pressing challenges in our societies today. More than [ 23% ] households in Europe spent over 40% of their disposable income on housing and energy. But this challenge is also an opportunity, and PATRIZIA wants to become a leading impact investor in Europe. We are currently building affordable homes for 7,500 people in Ireland, in the U.K., Spain and Belgium. Our ambition is to provide affordable housing for 40,000 people in the next couple of years across Europe. Likewise, infrastructure remains a key investment focus for PATRIZIA in Europe and in Asia Pacific. Overall, we are well positioned to capture the opportunities in the new cycle. Thank you for your attention. I would now like to hand over to our CFO, Martin Praum. He will guide you through the fiscal year 2025 results and our outlook for 2026. Martin, please.

Thank you, Asoka, and welcome also from my side. Let's continue on Page 10 of the presentation. Let's have a look at the AUM development in 2025. As Asoka mentioned, virtually stable development. We've seen some good inflows in 2025, both in real estate and in infrastructure. But as Asoka mentioned, we've seen an increased transaction volume in the market and at PATRIZIA with inflows, but also portfolio rotations and realizations. And this is a typical pattern for a market that recovers. It's time for asset allocation updates of our clients in the new cycle as the markets open up. We've seen valuation effects now turning slightly positive. This is also a sign for a market stabilization and improvement. And the real drag for our AUM this year were currency effects with minus EUR 0.7 billion, leading to the AUM of around about EUR 56 billion. Looking forward, at the same time, we still have open equity commitments that are available for investments of around EUR 1.3 billion waiting to be deployed in the market. Let's continue on Page 11 with the EBITDA composition. Key message here is, we've seen a strong increase in EBITDA to EUR 63 million, up 35%. And we've seen growth in management fees, but market-driven revenues like transaction fees and performance fees were still down year-on-year, having bottomed out in this market cycle. So overall, total service fee income down 2% year-on-year. At the same time, our balance sheet investments had a higher return and had a higher contribution to our results. If you look at other income, then this has materially decreased to last year and is a reflection of a better earnings quality that we are delivering. Now if we look at total service fee income, around 90% of total service fee income and from fees -- are coming from recurring management fees. Let's move on to Page 12 with a little more details. I already talked about the management fee development. Transaction fees are still down because if you look at the transaction volume that we delivered, only a slight percentage of these transactions had a transaction fee arrangement attached. So this is why the higher transaction volume did not have an impact on the transaction fees. And performance fees are also slightly down year-on-year, but this was in line with management's expectations. Let's have a look at the cost side on Page 13. You know that we actively adapted to the changed market environment over the last 3 years, and we intensified our cost efficiency measures, which led to a significant improvement of the cost side. We see total costs down 10% year-on-year to around EUR 225 million, both driven by staff costs and other operating expenses. Now what have we achieved? We've made the platform more resilient to market cycles, and we've increased the operating leverage once revenues come back in a more pronounced way. As an example of what this leads to, let's go to the next page on Page 14. Here you'll see the split of management fees versus operating expenses. Key message here is that management fees alone, for the first time, more than cover operating expenses. We've shown growth in EBITDA despite being at the bottom of the market in transaction and performance fees. Coming back, management fees as the most recurring item more than fully covering expenses. And this is a very good starting point for the next cycle, and we think we're well positioned for growth in the new cycle, given we have a better resilience and we have a better scalability of the platform, increasing the operational leverage once revenues come back. Let's have a look at our segment reporting on the next page, on Page 15. You might remember we described PATRIZIA as a 2-engine model. On the one hand, the asset-light investment management business and our balance sheet investments that we have deployed in strategic co-investments and seed investments. The asset-light part is up 29% in terms of EBITDA, again, driven by better efficiency of the platform. Balance sheet investments are slightly down year-on-year. But last year, we had an extraordinary positive effect. So underlying the -- also balance sheet investments have improved their contribution to our results. Consolidation and other effects are down materially year-on-year, so the negative effect has become smaller, and this drives the overall 35% increase in EBITDA for PATRIZIA Group. Let's have a closer look at the balance sheet investments on Page 16. I think you are familiar with that graph showing our invested capital at cost and at fair value and the value that we have created over time with our balance sheet investments. We have used the market opportunity to also invest more in the real estate living sector and also in infrastructure in 2025. The positive long-term returns that are primarily driving the invested capital are certainly driven by living exposure that we have. And at the same time, we've seen foreign exchange positive valuation effects also on our balance sheet investments in 2025, again, a confirmation that the market is stabilizing and changing. If we now focus on the right pillar and the fair value capital of our real estate of around EUR 783 million, around 40% of that pillar are profit entitlements or you could call them exit carry entitlements, which we will harvest step by step in the next years. This will support our cash inflow by around EUR 50 million per annum, and it's a sign that we actually crystallize the value that was created over the last 2 years to the benefit also of shareholders of the company. Let's have a look at the operating cash flow on Page 17. Also here, we've seen a significant improvement to last year. The operating cash flow is more than 4 times the level we've seen in 2024. This was driven, a, by a better general profitability. Secondly, more active working capital management. And thirdly, the quality of our income, which had a lower level of noncash items attached. The EUR 57.6 million more than cover our dividend payout for last year, which is around EUR 31 million. Also, if you look at the dividend payout in terms of net income, we have a net income after minorities of EUR 18 million this year. So on that basis, the dividend is not yet fully covered, but we're on a clear path to have full coverage also on net income going forward. Let's move on to Page 18 of the presentation. Our own liquidity, our balance sheet liquidity, has improved year-on-year to now EUR 175 million in total and EUR 115 million as available liquidity. The equity ratio was further strengthened to close to 74%. So we continue to run a solid and strong balance sheet and this will also be the backbone for our future activities. Let's go to Page 19 to look at the guidance for 2026. Asoka mentioned that the new cycle has started, and it will be slower and bumpier but we see lots of signs for improvement and also lots of opportunities in the market. So while our people will work on growing equity raising investments and AUM, we will continue to work on the further improvement of processes, of efficiencies and also the quality of EBITDA. And so basically, we expect a moderate improvement in the operating environment in terms of revenues and continued cost efficiency driving our EBITDA up to a range of EUR 60 million to EUR 75 million. This would also have a positive impact subsequently on the EBITDA margin. In terms of AUM, we expect an increase to a range of EUR 55 billion to EUR 60 billion. Again, it is a relatively broad range, depending on valuations of assets, organic growth, but also, as we've experienced on foreign exchange impact. Let's have a look at the dividend side of things on Page 20. We are proposing the eighth consecutive increase in dividends since we initiated payments in 2018. As I mentioned before, the dividend last year was covered 40% by net income. That has increased now to 53% coverage and we have a clear plan for full coverage going forward with. As a next step, based on our plans and guidance for this year, we would talk about, depending on tax rate, coverage of over 70%. Don't forget, our operating cash flow is very, very strong. We have a very solid balance sheet to cover the dividend. And as a last statement, don't forget that this equals a dividend yield of around 4.6% at the moment, and we will continue to deliver on the dividend policy that we've set in the past. With that, thank you for your attention. And now both Asoka and I are happy to take your questions.

[Operator Instructions] And having said this, we will first start with Philipp Kaiser.

I have a couple of questions and I would like to go through them one by one, if I may, starting with the AUM. As far as I understood, you updated your AUM policy and now include also fee-generating commitments. Firstly, could you elaborate a bit more on this idea? And secondly, do you also adjust the 2024 numbers accordingly?

Thank you, Philipp. Yes, what we did is, we had a look at our AUM policy overall, and you might remember that our AUM policy should always be aligned to market standards and the INREV standard. And as part of that, we updated the policy and included, as many other players, the commitments where we already generate a fee. And this had a positive EUR 0.3 billion impact and we have highlighted that here and will make that very transparent also in the annual report. And we have not adjusted the previous year number. But again, given we mentioned the EUR 0.3 billion impact, you could adjust yourself in your model, if you like.

Perfect. With regards to the AUM guidance, you mentioned earlier during the presentation that the investment market is, yes, slightly increasing and the market dynamics are improving. That said, your AUM guidance includes a downside scenario. What's the scenario for this case? Is it the macroeconomic upheaval we currently see or any other implications?

Yes. Thank you for the question, Philipp. It's actually just to cover for potential timing effects. I mentioned before, we are in a market phase where you also see portfolio rotation, where also investors might realize some performance. At the same time, we also want to cover for foreign exchange impacts. As you have seen, this had a relatively high impact on our AUM in 2025. And depending on AUM fluctuations, we just want to have a certain downside protection here in terms of the guidance range we're giving. But if we would say you should focus on the midpoint, we expect further increase in equity raised in '26. We expect a modest increase in transaction activity. So organically, we are planning for growth in AUM.

Okay. Perfect. Does the 2026 outlook exclude or include potential currency impacts?

The current outlook excludes -- I mean excludes currency impact. So we didn't make any specific currency assumptions in the planning.

Okay. Perfect. Very, very helpful. And then let's move on to the operating cash flow. Cash flow improved significantly, so congrats to this development. And just for my understanding, the crystallization of the roughly EUR 50 million per annum Dawonia entitlement will further stabilize your operating cash flow in the coming years. Is that correct?

It is partially correct, Philipp, because it will come into the cash flow in the investing part of the cash flow, not the operating cash flow.

Okay. Perfect. And then my last one with regards to net sales revenue and they were driven by rental income from warehouse assets. Will those assets stay on your balance sheet throughout the current fiscal year? Or do you have already concrete plans to transfer the entire assets or part of the assets into funds during the year?

No. If we look at the exposure we have here, we have assumed for the time being that they'll stay on the balance sheet for the year. If we see a market opening up in certain areas, there might be an exit earlier, but assume in your model that they'll stay until the end of '26. And again, we'll see how the market develops.

Perfect. Very helpful. Just one follow-up on the operating cash flow then. You already mentioned the 3 pillars, improved net profit, working capital management and other positive effects. Of the 2 -- last 2, how much could also [ recur ] in 2026 of those positive effects?

Good question, Philipp. I think we've advanced already in our working capital management, but there are still some fruits to be harvested. So I would expect at least a positive effect in the single-digit million euro area also in 2023 -- sorry, 2026, from more active working capital management.

And then we will move on with the questions from Lars Vom-Cleff.

I would be interested in your growth aspirations. I mean thank you for sharing the split of your '25 fundraising with us. Which asset classes do you expect to be strongest contributors to your growth this year? Will it be real estate or infrastructure again or maybe AIP?

Look, thank you, Lars, for the question. Definitely, I can tell you without any doubt real estate will be the -- the majority of assets will be generated this year along our expectations because, as I outlined, affordable housing topic as well as value-add, living is the right macro moment for the long-term investors to harvest great returns. So therefore, I do think definitely we are expecting this year living strategies to kick off where we have the best, in my opinion, track records, not because we have track records, but I do think that's the right moment for the investors, and that's what we have been advising also and have the conversations. But also, I think, I can see, by the way, in logistic, in real estate area, the last mile logistic, this strategy will be -- will change. There is -- logistic become a very like Re-Infra, what we are calling convergence of real estate infrastructure because energy, how you building on logistics, the rooftop solar, battery techniques, charging stations, all that is, in my opinion, very much upcoming now in the demand of clients. And I do think this is an area what I'm really expecting to grow. But also, in my opinion, early signs that some value-add investors are on the street, are looking for, let me say that, value-add opportunities in offices is not excludable. This year is the first time after 3.5 years, I would say, we can first time think, is there interest? And then your question regarding infrastructure, I think, look, all the investment bills of these government bills, what they are now all announced, that will come down mostly for infrastructure first, except affordable housing or let me say the bottleneck in housing in our societies, but I do think what we are seeing is all that we are today in the modern infrastructure, let me say, energy storage techniques or investments, roof sustainable energy, waste to -- energy to waste, all these strategies will be -- will come up now beside the very heated topic of data center. As you know, we entered last year into this consortium deal in the U.S., Aligned Data Centers. By the way, we already capitalized and has been sold to big asset manager and developer in the Middle East, very well get profited from that. I do think, we are expecting also, especially last -- in Asia, infrastructure to kick off. And I do think, especially last year, we can see we invested more than EUR 300 million in Philippines with partners, co-investment partners. I do think I am very, very positive on infrastructure in Asia. Also our new fund strategy, emerging markets sustainable infrastructure strategy, what we are looking to place in Asia, what we are raising in a -- capital raising in a first round. We have a promising not only deal pipeline but also promising clients are coming in and have interest. So therefore, let me say, if you ask me, Asoka, what is exactly the portions, 50% to 70% in real estate, 30% in infrastructure, might be 10% between a little bit out of the infrastructure, I would say we can phrase that as a Re-Infra area. So this is a little bit the storyline what we are seeing in Europe as well as in Asia.

Crystal clear. And then I can't withstand to ask the question, and I think on the Q3 call, you said that illiquid assets would also look very attractive and that would -- you would be happy to elaborate on that in one of the following calls. Is today one of the following calls?

Yes, you asked the illiquid or liquid.

Illiquid.

Illiquid.

Illiquid. Yes.

Illiquid. We are in the illiquid. I have to say that illiquid assets, I do think, to be honest, do not feel all -- we are all investors -- the gold is performing unbelievably well as fears of market participants are coming to a level decrease and also the world -- explosions in the market, that people are going to protect themselves with these strategies. I think, to be honest, nothing is, let me say, cash generating, no return generating. It is the time and also the correction from Bitcoins, all these digital currencies, this is a sign these areas are exhausted. I think gold will still get as an illiquid asset, by the way, illiquid asset for me, because you have not the illiquidity, you can trade it every day. But again, it's not interest rate bearing. It's not interest rate generating. I think, to be honest, if you have a stable grade in valuations, if you buy it today into real estate or infrastructure as a long-term investment, you have a fantastic returns in front of you. I would take this part as a diversifier. So my conviction for illiquids, even now, not last time only I discussed, it is already I would say if you're not already looking into that, you should, and that's the way we are advising. And we can see, by the way, more and more clients are looking into that. And I do think the geographies are not unimportant. Europe people feel undervalued. And again, besides all the press releases talking down Europe, the unimportance of Europe compared to the 3 big players in the world with China, U.S., and in some way, Russia and some other ones, but I have to say, I feel Europe is the right place to invest. Asia is the right place to play growth. And this is -- valuation-wise, it's a place to be, especially in the right sectors and right place of growth and overall returns is Asia. So in my opinion, we are in the right geographies and I do think -- I am very confident. And you know that I've been a long-time investor and CIO in my former career. I have a very strong conviction, Lars. Hopefully, it is now. If you know, it's the right time. It's a macro moment what I'm saying. This is a macro moment where you should -- it's -- most of our clients are shy sometimes to take risk. But I do think this is the right time to take risk in illiquids.

Perfect. And then you indicated increasing transaction activity. I guess also listening to my real estate colleagues, it's something where momentum will build up over this year, right? It's starting, but we should rather expect transactions to be a bit more back-end loaded this year.

You're right. I think the whole story of our industry is always back ended, back ended, back ended. I can't hear that anymore, and I'm not also giving any excuse to also offer to us. Yes, last year was a disappointment, as Martin has already shown. We are transparent. I think, as you know, PATRIZIA has a fantastic transaction team around Europe and also in Asia in both asset classes. We can be -- one point, if you want, was a disappointment, not because our people are bad. There was a really, the market has not played with us. You need to play -- you need a tango partner also in the market. Market were not the right tango partner for us. And I do think this year I can see sizes are increasing. And the great thing is I feel that clients are asking, do you see now interesting transactions? Can you show us? Is there any good risk, reward you can show us? This is a good moment in my opinion. So it's still slow as we are saying. This cycle is slower, bumpier. It's very different from the last time. There is no, let me say, macroprudent policy supports in the sense of central banks are helping us, is more other way. But I do think this is what I'm seeing. I can see now the right time for all that to act and the transactions will -- we will see more transactions this year. And also more in, by the way, in real estate because people, family offices, they're smaller tickets what I'm seeing and then the big packets -- packages. But you need deep pockets and strong conviction and there's only very less players in the world can do these things, but I can see that it's coming. I'm confident.

Perfect. And then one last question, if I may. With business momentum picking up slightly and I love your picture of tango partners. What about new tango partners for you? We haven't seen some bolt-on M&A from you recently. So is there anything in the pipeline in order to speed up your assets under management growth?

Let me say that I've always said bold acquisitions are for lazy managers. We are not lazy.

I know you say that all the time.

You know I'm saying that always, Lars. But I do think, joke aside, I think PATRIZIA has grown fantastically before I came in. Unbelievable, they flew over the cycle, even with the great cycle what we have seen, we go -- grew so exceptionally well. But this consolidation was needed and consolidate our platforms, creating global platforms, creating efficiency, as Martin said, there was a hard working of reorganization, platform building, all that. And we feel we are ready. Our core is stable. If you think about our balance sheet position, if you think about our operating business, how that's improving, I am not shy to say that's a time to look around to partnerships, not only acquisition bolt-ons and all that. It is also partnerships. The world is going to build by partnerships. There's a big task there and big profit pools can be shared. I do think from that I'm super confident with our resilience, what we have shown the last 3 years. We've done our homework. We are showing what we -- again, you guys can all -- if you go back, since what we are talking here, not promise too much, that we're doing our efficiency work, that we are doing the cost cutting, we are doing the reshaping, we are putting our product shelf in the right to win in this cycle. All that is coming. We have a stable core now, resilient platform, great balance sheet. We are ready for all things, not only to build partnerships, bolt-ons, all that. It is -- if that's fitting to us, it's great. But what I'm not going to agree to -- with no one, not inside, outside, we are not buying because something is cheap. And we are solving this problem, that they should solve themselves. If that fitting to our strategy is something what we are missing, we feel there's growth in, we are there and we are looking. It is -- and your question is absolutely right and relevant. Many, many transactions has been offered to us. But good managers have to also say no inside and outside, and that's what we do.

[Operator Instructions]

Hello? Can you hear me?

Yes.

We can hear.

Perfect. Manuel Martin from ODDO BHF. I have 2 questions from my side, if I may, please. Maybe one by one. The first question is, as far as I understand, real estate might be preferred -- one of the preferred asset classes this year, especially living strategies. When it comes to offices, maybe they are in value-add strategies, that could be something. When it comes to offices, have you heard anything from your clients when it comes to the topic artificial intelligence and demand for office space, which might influence this asset class? I don't know if you have some insights to share here.

Yes. I think, look, PATRIZIA has a really a great portfolio in, especially in Europe, not mostly. I can tell that in Europe, offices, we ourselves, I don't know if you have the chance ever to visit us physically. We are creating over 5 years since before COVID but also during the COVID and up to now the real showcases how to invest in offices. We spent quite much money. I want to invite you, for example, to visit also our London office in London, in our international hub in London that just won, by the way, PROPS Awards. And let me say that your AI question is a very valid one. I would not say AI, but I think today, there's 3 things in offices are relevant beside now risk classes. It is important that you make your offices attractive for your employees. This is relevant because the home office tendencies has killed the offices mostly if you think about U.S. and New York and the big cities. Europe is also very much impacted. The second -- what has led -- that has led to reduce offices because people only reduce the place, let's say, space to reduce costs. What we've done, we upgrade our offices. We are showing that our employees have incentive to come over. There is a more, let me say, not only a brutal desk, there's areas to sit together, communicate, to build kind of community within the offices. I really invite you, our Frankfurt office, soon in Augsburg and also in London especially, but also other places like Hamburg, what we have in, especially in Europe. And again, that is one effect that has negatively impacted, but at the same time, and you have to give an answer to employer and give an incentive to come back to offices, that they like to work with -- and that's relevant in my opinion. You can command like in the U.S., the CEOs, we have also 3-2 rule, 3 days in the office, 2 days home with agreement within your -- with your teams. But again, the same time, you can't command. You must give the incentive. So that's the first thing. And that means offices have to change in their conceptual setting. That's the one thing. The second thing is, in my view, is especially the digital sphere and what you are saying. Today, the tech part is absolutely relevant. We've shown our -- and that's -- that -- the London office won the PROPS Award in 2025 in the U.K. as the best office building, let me say, turning into office story that has really worked well. Tech played a key role there, key role. And I think this is relevant. AI is something different for me. AI is also now it's -- is coming to our big decision-making spaces, but also back and middle offices. We are in the full of the process to use AI to become efficient, become modern, become time to market, become -- make us better also in reporting and reporting standards for our clients. And this is helping us and to enrich our people. And I think the efficiency win is something in front of us now, all that. So I would say that's not necessarily combined with the offices that you can -- this is -- but I think offices will play absolutely a new story, how they get structured, how important -- and I think, by the way, the real factor is also ESG, the means. The offices have to, in the refurbishment, have to follow special standards, all that. It's why the office market, you have to enter into a value-add area, not -- you can't -- I think, to be honest, as a core asset is at the moment difficult. And by the way, the last remark, you have to be in core, core -- centers of cities. And that's what we have. Mostly if you are in the C areas, I think then the mixed use is -- might be an option to come out of that, but that takes time, that takes resources, that reduces your returns at the beginning and might be you are avoiding a stranded asset.

And if I can add to that, Asoka. Manuel, on the second, what Asoka just said, I would say that AI will have the first real impact, especially on process-driven work and on back-office work. And these are typically in secondary locations due to cost optimization outsourcing, and these locations will be impacted first. The human intelligence and the decision-makers, the analytical part of our work, will want to continue to work in A locations in urban areas. And in our view, AI will actually intensify the flight to quality to A locations in the office sector.

Yes, sounds logical. Sounds really logical. My second question and last question would be on, again, on the clients and the macro environment. In your opinion, what is holding back the clients? They are still a bit shy, as some people say. Is it that the prices are not yet at the correct level? Or is it the interest rates, which is shaky? What would be the start button in the sports car to let you drive again at high speed?

Yes, yes, it's also a great question. I think there's 2 -- I think let me say also 3 factors. First, don't forget -- before we are forgetting and we are great market people, that's why we are always fascinated about markets. And -- but one thing we should not forget, before COVID or during the COVID, the first 1.5 years, we have seen extremely low or negative interest rates. And people have been exposed, overexposed into illiquid to hunt a return, to withstand the negative rates and have long-term returns. And they've done, by the way, in this context, some late-cycle investments. That is not playing out well for them. And they have to take a long breath, breathe on that to solve out of -- they need solutions get out of their portfolio. But at the same time now, the sudden -- let me say that '22, '23 is a sudden death of illiquids. As Lars discussed earlier, I'm mentioning, I think there was a sudden death of illiquids. People don't want to invest and people want to go now all, more or less all their liquidity, the pension funds, the lifers, the -- also even sovereign wealth funds, they want to be in fixed income. They are the most favorite asset class, other fixed income and private credit. And now also with the inflation moderated, and I think to be honest, also I would not -- I would really -- if I look at the sovereign debt explosion in the world, all the AAA status, A and AAs, I'm questioning this ballooning of debt, if that's sustainable. And that means, by the way, that's -- the only good thing is that will lead us to a longer expectation or long-term expectation that the rates have to be very low, not to overburden the fiscals -- fiscal budgets of states. So saying that, fixed income was the most favorite asset class, still the favorite asset class, corporates, private debt, government bonds and there are other institutional factors in Europe. I think, to be honest, the central banks and regulators with the solvencies and all that, also our -- we have mostly institutional clients. They have been in long-term bonds and that is underwater. So their risk limits to go into illiquids also low. So saying that all, at the moment, what is holding back, you're asking me, but what they can't hold anymore back is because I think they want to be at one day now real assets. They are seeing the attractive risk returns in the value-add and core plus because at the moment that is the easiest to say and that is nothing marketing you get for core plus risk, or let me say, core plus risk value-add returns. This is exactly what asset managers like us have to deliver, asymmetric risk return profiles. That is, by the way, has not existed earlier. This is now. And also, I think if the office area also revalued stronger, I think U.S. happened and it's still not settled 100%. Europe are -- all devaluations are happening slower. If that the certainty there, people will go with both hands into these areas. And that's what I'm seeing that is upcoming, starting with living, starting with also, in my opinion, kind of logistic. There are some retail portfolios underway in the market, all that giving you opportunities. So in my view, let us -- we have -- I am impatient in general, but I do think I have the conviction the matrix for illiquids are going to change over the next 2 years. And that's where my hope is coming.

If I may add to that, Manuel, exactly what Asoka said, the market first had to digest the relative overallocation of real estate at the peak of the cycle. Then now the market has repriced. The expectations, I think, have changed and the market becomes more transparent with more transaction volume. The world seemed brighter in many other areas than Europe for quite a while, and now we have a reallocation and rotation back to Europe. And the refocus on generating cash flows, generating recurring income, is also one thing that we think will drive investors and will kind of break up this situation where investors were hesitant to invest in real assets.

100%.

Okay. And where are we more or less? The digestion might still hold on a little bit and then maybe people can move more freely. Or where do you think where we are right now?

I mean it's been a process really for 3, 4 years, and you know that we haven't seen a V-shaped recovery in the market. It was all slower and as Asoka said, bumpier. And when we talk to our clients and simply, we derive that from the feedback we get from our clients. They are more open to talk about real estate investments again. They are more open to talk about infrastructure. For some of them, the regulatory environment has also eased and changed. They have more flexibility to invest in infrastructure. And all these, if you put all that together, are signs and are confirmed in the way we discuss with our clients that there's a regained interest in the sector.

If you need also a picture, again, we are not 5:00 in the investment clock, we are at 7. We passed the 6, trough is behind us. So that's important and that's what long-term investors are seeing and that's why we are -- they are earning money. And with these views are now coming more and more, and I do think Martin said a very important thing. The transaction makes the valuations visible for investors. That gives the confidence also. If you are doing in the [ frock ] transaction, you don't know if that's still 5:00 or 7:00. It's important.

Okay. Okay, I will try to put the clock in my office. Okay. That's a good example.

Thank you so much for your questions. So in the meantime, we did receive not any further questions or virtual hands, so everything seems to be answered by now. Should further questions arise later, please feel invited to get in touch with Janina and her team at any time. So thank you very much. And with this, I hand back to Martin for some final remarks, which concludes our call for today.

Yes, thanks so much for your attention. Thanks so much for your very good questions. And we are very happy to continue the discussion both on IR team level and also during the next conferences that we have planned, for example, one in London and then there will be other venues where we have the ability to discuss our financials and the strategy. Stay healthy and speak soon. Thank you, everyone.