PATRIZIA SE (PAT) Earnings Call Transcript

Good day, and a warm welcome to today's earnings call of the PATRIZIA SE, following the publication of the H1 figures of 2026. [Operator Instructions] Having said this, I hand over to PATRIZIA's Director of Investor Relations, Janina Rochell.

Thank you, Mara. Welcome, everyone, to our analyst and investor call for the first half of 2026. This is Janina speaking. I am pleased to have our CFO, Martin Praum, with us today. Martin will provide an update on current business developments. If you have any questions, the IR team is more than happy to assist. As usual, this call will be recorded and be made available on our website. We will also provide a call transcript for further reference. With that, I'd like to hand over to Martin. Martin, the floor is yours.

Thank you, Janina. A warm welcome also from my side, and thank you for joining us today. I'm happy to be hosting today's call and taking you through our performance in the first half of '26 and providing you with some background on the market environment and our outlook. Over the last few months, the Investor Relations team and management have thought about how to further optimize the format of our quarterly analysts and investor calls. But rather than walking you through the H1 financial results presentation slide by slide, today, I would like to focus on 10 key messages that, in my view, best capture our performance, the progress we've made and the key developments across our business. And directly after that, I will open the floor to your questions. So let me start with the first key message. In the first half of '26, our strategy further translated into results. Our EBITDA grew by 47% to EUR 43 million. Our EBITDA margin expanded by more than 10 percentage points to almost 32%. And net profit more than tripled to nearly EUR 15 million in a challenging but slowly improving market environment. With these financials locked in after the first half of the year, we are confirming our guidance ranges for the full year. As usual, we do not recommend simply extrapolating our first half results as certain performance fees booked in the first quarter and timing effects on the cost side supported EBITDA as in previous years. So before turning to our business performance in more detail, let me briefly touch on the market environment in which these results were delivered. So point #2, the market. You know that the Iran conflict temporarily weighed on inflation and interest rate expectations and briefly clouded the investment environment. But as tensions eased, sentiment recovered to pre-conflict levels by the end of the reporting period. So you could argue that market conditions have improved compared to the immediate aftermath of the conflict, but the investment environment remains selective and overall still challenging. Simply looking at the volatility of the 10-year bond yield as a risk-free rate, this has increased again by 30 bps after the end of the reporting period after dropping 30 bps before, showing the volatile market environment our clients and we are still faced with. Against that backdrop, it is encouraging to see that investor conviction in real assets remains strong in selected areas. So let's go to the next point. What do our clients think? Our latest investor survey shows that demand for real assets in certain areas is structural, not cyclical, while the overall appetite is still impacted by market sentiment, yield developments and geopolitical risks. Selectively, we nevertheless have reasons for confidence. Nearly half of the investors surveyed plan to increase their infrastructure allocations, up from around 1/3 a year ago. More than 3/4 intend to expand their living exposure over the next 5 years. And a striking 85% tell us that geopolitics is affecting their real estate and real asset portfolios, which is precisely why local European expertise and operational capability are becoming more valuable, not less. At the same time, investors remain highly selective in how and where they deploy capital. In that environment, the breadth of our product offering is an important differentiator, allowing us to address demand across multiple asset classes, strategies and investment themes. So this provides the backdrop to the business performance that we delivered in the first half. Let's come to point #4, our business volume. I mentioned the selective market environment, but we were able to deliver good fundraising momentum in the first half. Equity raised from clients climbed to EUR 0.8 billion from EUR 0.3 billion a year ago, with fundraising clearly accelerating in the second quarter with EUR 0.7 billion alone. The living sector was the main contributor, accounting for more than EUR 460 million of equity raised primarily through market-led initiatives. Our multi-manager platform, AIP, contributed more than EUR 300 million, while infrastructure added around EUR 60 million. So the direct and indirect infrastructure investments account for around 40% of equity raised. Transaction activity and investment activity also continued to recover with signed transactions rising by more than 15% to EUR 1.6 billion. Just as important, we entered the second half with EUR 1.5 billion of open equity commitments, which is up from EUR 0.9 billion a year ago. So this is capital that is ready to be deployed when the right opportunities arise and it is the foundation for future assets under management growth. With that, let's go to point #5, AUM. We ended the period at EUR 55.9 billion, virtually flat versus year-end, down only by around EUR 0.3 billion. Inflows and supportive currency effects largely offset disposals and net cash returns to clients, while valuation effects remained limited. The portfolio itself remains well diversified, more than EUR 45 billion in real estate and around EUR 10 billion in infrastructure spread across risk sectors, styles and geographies. During the period, the portfolio composition continued to evolve in line with our strategic focus areas. Living further strengthened its position as our largest exposure, while office decreased by 1 percentage point to 23%, driven by completed disposals across the U.K., Germany and the Benelux region. Retail also declined by 1 percentage point to 7%, reflecting completed asset sales in Germany, Spain and the Netherlands. This ongoing shift towards higher conviction sectors, combined with broad diversification across asset classes and geographies continues to support the resilience and the quality of our AUM base. Let's go to point 6, our P&L. Let's look at our own performance. The story this first half of the year, I think, is operating efficiency. Total service fee income was broadly stable at EUR 127 million with performance fees up almost 17%, partially offset lower recurring management fees. Yet, EBITDA grew by nearly half because our cost base is structurally lower. Operating expenses fell by 11% to EUR 100 million with staff costs and other operating expenses each down 13%. And these are not one-off savings. They result from platform optimization that is now embedded in the way we operate. While we expect expenses to trend higher in the second half, particularly in the fourth quarter due to normal seasonality and investments in strategic projects, we continue to expect operating expenses for the full year to be below the '25 levels. Let's have a look at the next point, the quality of our earnings. If there's one figure I would want to highlight, which I also did in the past, it is this. Our recurring management fees of EUR 110 million now more than cover our entire operating cost base with coverage of EUR 10 million against less than EUR 1 million a year ago. That means our core business generates a further improving operating profit even at subdued investment and transaction volumes in the market. The key driver behind this improvement has been the significant reduction in our cost base. Over the past 2 years, operating expenses have been reduced by EUR 34 million, materially widening the gap between recurring revenues and costs. As a result, the surplus generated by recurring management fees has increased significantly, fundamentally improving the resilience and the quality of our earnings profile. Let's go to the next point # 8, our balance sheet, liquidity and again, our earnings and value creation. We continue to use our balance sheet with discipline. In the first half of '26, we invested EUR 26 million in co-investments, which going forward will support our P&L with recurring participation and finance income. At the same time, we continue running a strong financial position with an equity ratio of 65%, a net equity ratio of 73% and available liquidity, which increased to EUR 122 million. The operating cash flow of EUR 17 million and the cash inflow from the partial realization of exit carry entitlements in the amount of EUR 49 million more than covered our dividend payments and the investments that we've done. And here is a super important point to make when discussing our financial results. Value creation goes beyond simply looking at the P&L. Some effects, for example, value changes of our co-investments and participations are directly shown in equity in the position other comprehensive income or OCI. Here, we saw a positive impact of slightly more than EUR 5 million in the first half of the year. At the same time, we crystallized value that we built over the last decade and that was so far only reflected in OCI and not in the P&L with the exit carry payments of EUR 49 million showing up in the investing cash flow. So together with our EBITDA of EUR 43 million and looking at our net income after minorities of over EUR 17 million in the first half, you can see the 3 dimensions of value impact from a shareholder perspective. Let's have a look at the outlook. We confirm our guidance for '26, which is assets under management between EUR 55 billion and EUR 60 billion, an EBITDA between EUR 60 million and EUR 75 million and an EBITDA margin between 22% and 26.5%. Within that, total service fee income is now expected to remain largely stable versus '25 with a stronger contribution from other income items and continued cost discipline expected. While we see some headwinds on AUM growth, but tailwinds for EBITDA and EBITDA margin based on the results that we've delivered in the first half, we recognize increased market opportunities in a selective way with client activity improving. Especially market-driven opportunities could impact the business activity in the second half and as usual, this depends on timing of signing and closing, which do impact AUM and P&L lines in our business. With that, let me close with the reason for some confidence that we have. In a half year that included a genuine geopolitical shock, our earnings grew, our margin expanded and our cost base came down further. That is a business model doing what it is designed to do. We, as management, will continue to focus on the things we can influence and with client demand that is structural, a recurring fee base that now covers our costs and the balance sheet that's built for flexibility, we think we are well positioned for the second half and beyond. With that, thank you so much, and I look forward to your questions.

Thank you. we will now move on to our Q&A. [Operator Instructions] We have already received a risen hand by Mr. Neuhold.?Can you hear us, Mr. Neuhold?

I have 2 questions. Firstly, on the investment market environment and the survey you did, what do you think would be or could be key triggers that the intention of your clients to increase the exposure to infrastructure and property markets translate into real investments. And I was wondering if you have any idea which percentage of your clients still have some legacy issues to work off? And do you also see new clients who are interested in the infrastructure property markets who are talking to you for the first time? That's the first question.

Thomas, thank you for your questions. First of all, yes, we saw some existing clients, but also new clients doing business with us. So I can clearly answer that question with, yes, there are new clients that are interested in our products. Certainly, the -- I mean, given the breadth of our client base, there are here and there some clients that have some things to digest from the last cycle. But again, we have the power, we have the product and the breadth of product to attract new clients and new product and volumes on our platform. The investment market in general, I think I can reiterate a little bit what I said and also looking at the feedback we got from our investor survey. It is selective, but it is very much focused on good cash flow, good IRR investment themes in the -- especially in the region of living. This still includes residential, student housing. This includes health care. But also on the infrastructure side, we see structurally a higher demand because many of our clients are still underallocated in this asset class and are still exploring ways to benefit from the growth expected in infrastructure.

Okay, great. And my second question would be on operating leverage. Obviously, you have done a great job in reducing costs over the last 2 years. So I was wondering if AUM growth comes back by, let's say, by 10% or 20%, how much would your OpEx need to grow in order to capture the new business?

Sure. And Thomas, we didn't simply cut costs in this cycle, and that's why we always mentioned that we optimized the platform and the processes. We're also working a lot on introducing new technologies and certainly also AI solutions to make us even more efficient. So from here, if we look at the efficiency that we've built so far with an increased operating leverage, we definitely see that AUM growth and revenue growth would be higher going forward than cost growth because we simply became more efficient through the measures we've taken in the last few quarters.

We have another risen hand by Mr. Philipp Kaiser. You may speak now.

Can you hear me?

Yes, perfectly.

Congrats to the strong performance in the first half of the year. Just a couple of ones from my side, probably starting with the most obvious, you already touched it. And during your presentation, you had a strong first half with regards to the EBITDA development and kind of only confirming the guidance. Could you walk us through the guidance bridge for the second half of the year? What's your scenario also cost-wise?

Certainly. Philipp, thank you for your question. Just to reiterate for the benefit of all listeners, yes, in the second half, we are somewhat more cautious versus the first half. Simply, these are technical effects in the first quarter we usually book the performance fee driven by one of our major investments, which is unlikely to reoccur in the second half of the year. And also, we had some cost items timing-wise that will rather occur in the second half versus the first half. So this is why we currently expect that the EBITDA in the second half will be a little bit lower than in the first half. And I mentioned that also in my comments when I talked about the guidance, we left the guidance ranges as they are because there's still some uncertainties in the market. And although we have increased our basically operating income from recurring management fees still, some of our revenues do depend on market activity and also in the second half. And there's always a certain level of uncertainty when exactly we do signing and when exactly we do closing, which then impacts P&L or AUM. But taking your point, absolutely, I would agree. We started the year with a strong first half. And if I look at the guidance ranges we've given, obviously, on AUM, we still think we can achieve the midpoint. Currently, we are slightly below that. On EBITDA, I would say we are -- starting with the midpoint, we have good opportunities to be above that at the moment. And definitely for EBITDA margin, we are more in the upper range of the range than in the lower end of the range.

So there's no real realistic scenario for the lower end of the EBITDA guidance in your view?

As I said, we feel comfortable now with the midpoint. Currently, I would be surprised if we really had to hit the lower end given if we look at what we achieved so far and how our pipeline looks like.

My next one is on the total service fee income. You slightly kind of lowered the guidance. Is that management fee driven? Or what's the main driver behind this?

Absolutely. We basically now expect a little lower contribution from management fees for the full year. But on the other side, we have other contributing factors, for example, like participation income from investments that we did, which will offset that. So it's a smaller change in the mix of, call it, revenues or income items, but not a material change to what we expect.

Perfect. And is the management fee income driven by a lower than previously assumed AUM growth in the first half or limited expectation on the development in the second half or closing maybe towards more the last quarter?

It's certainly, again, timing does play a role here. If you want to generate management fees and grow management fees, you need to have AUM on board. And if equity raising takes a little bit longer than expected, then also deploying that capital takes a little longer and then the positive effect on management fees also is delayed. And this is kind of the reasons for a change in view. Some things do take longer these days. We -- and as you've seen, you see equity rates going up. You see that our firepower is going up, but some of these things take a little longer than initially planned.

Understood. Then speaking of management fee, as far as I remember correctly, last year was positively impacted by some development fees. Could you give us a kind of a like-for-like management fee growth rate, excluding those development fees?

The delta is only EUR 1 million roundabout from this effect delta compared to last year.

Okay. Perfect. Then speaking of activity. So activity recovers also visible in your equity raise. I think the first inflection point since a couple of quarters. Signed transaction also rose by almost 16%, but it's heavily disposal led reversing last year's mix and should eventually weigh on your AUM and the management fee. And do you see any trend reversal towards more acquisition in the short term? What could be the trigger for that? And any major impact on AUM?. Sorry.

No, sure, Philipp. And I think this is a typical pattern you see. I think I mentioned it before in this part of the cycle where you see some portfolio rotation. And with the market now opening up and we have more transparency, more deals coming to the market, this also means that we advise some of our clients to do some portfolio rotation. As you've seen that we changed sectors as an active adviser. And this is why simply in the first half, you've seen more disposals than acquisitions, but also look at the equity raised and the open equity positions that we have, they will certainly translate into investments. They will be deployed, and that will then also have an impact in the future on the transaction volume in terms of acquisitions and subsequently upon closing also on stabilizing AUM and growing AUM. So we still believe and are confident that also in 2026, we'll see AUM, which are at a higher level than last year.