Patrizia SE

SWB:PAT

Earnings Call Transcript 2022-Q1

[Christoph Glaser, executive]

Good morning, and welcome to PATRIZIA. My name is Christoph Glaser, and I'm the Chief Financial Officer of the company. Following an established tradition, I'd like to spend some time providing you with an update regarding our progress on a quarterly basis.

Now before I do that, I would like to introduce myself given the fact that I just started in my new role on the 1st of April. And I would like to do that by simply summarizing for you who I am and what I and our finance team at PATRIZIA stand for. I'm a CFO with experience in both financial services and infrastructure businesses, more specifically in banking and renewable energy. I have worked in Europe, in Asia, but also in the U.S., and I've helped both finance and sales leadership positions.

In that context, it's a privilege for me to support PATRIZIA on its journey towards a truly global real asset investment manager. My team's objective simply revolves around 2 things. We enable sustainable, profitable growth of the company, and we ensure transparent and reliable communication with the financial community. Of course, I'm starting my journey at PATRIZIA at a time when there's a lot of market uncertainty and volatility, and they are much higher than they have been for a long time.

Some challenges include geopolitical risks, increased market volatility, rising inflation and interest rates, a lot of disruptive trends and a huge drive for decarbonization. Of course, some of these challenges change at a high speed, which is okay because challenges represent risks that need to be managed, but also opportunities that those who are prepared and to have the financial strengths to benefit from will really be able to rely on to move their business forward.

From my first week at PATRIZIA, I really do see a unique platform that does have ample of opportunities in the current environment. This is a strong balance sheet and on the basis of that, a huge degree of strategic flexibility. Against that backdrop, let's briefly talk about what we have done and how we've done during the first quarter of the year.

Firstly, let's take a look at how we've progressed along the lines of our strategic agenda. Of course, some of you know that we've closed the Whitehelm Capital acquisition on the 1st of February. We can now present you with the first consolidated results. What's most important is that with this acquisition, PATRIZIA has further developed along its strategic agenda to turn from a European real estate investment manager into a global real asset investment manager.

We're happy to welcome 70 professionals and experts for infrastructure equity and debt from Whitehelm Capital in London, Sydney and Canberra. I've met some of them already, and I'm impressed by their ingenuity, optimism, courage and tenacity because infrastructure will play a super important role in an inflationary environment, and it will be critical to achieve decarbonization targets across the world. This, of course, dovetails nicely with PATRIZIA's corporate purpose of building communities and sustainable futures.

Infrastructure now represents 12% of PATRIZIA's assets under management. The geographic split of our AUM has further internationalized with now 47% being held outside of Germany and only 53% being invested inside Germany.

After having talked about a couple of strategic moves, I would like to talk about the financial results of the first 3 months of the year. The most important message is probably that despite a lot of market uncertainties, our results are reflective of our resilience, our continuously improving revenue mix quality and future-oriented investments.

Our assets under management have increased 13.8% year-to-date to a balance of roughly EUR 55 billion. Of course, this has been driven by a number of key factors. Firstly, the closing of the Whitehelm Capital acquisition, which I've already alluded to; secondly, a continued positive valuation impact on AUM; and thirdly, higher closed net acquisitions. Signed transactions for our global clients came in at EUR 1.1 billion, an increase of 16.4% year-over-year. And closed transactions worth EUR 1.3 billion showed an even higher growth north of 150% year-over-year.

Total service fee income showed resilience with the mix of revenues further improving. Management fees increased by 7.4% to roughly EUR 55 million. Performance fees amounted to roughly EUR 26 million, representing an increase of 2.8% year-over-year. Transaction fees of EUR 2.2 million came in at a much lower level than before after a decrease of 66.3% year-over-year.

Now what is important to mention in this context is that this decrease is temporary in nature and it is in line with expectations because the majority of the transactions that we have signed during the first 3 months of this year were transacted for funds with all-in management fee structures. So as a result, for parts of our funds, transaction fee revenues strategically shift to the benefit of higher recurring management fee revenues in the near, medium and long-term future.

If you look at all 3 revenue lines together, we can see that our total service fee income has remained stable at a level of EUR 82 million, which if you take the current environment into consideration, it's something we actually feel very good about. Our net sales revenues and co-investment income has increased by almost 100% year-over-year to a level of EUR 5 million. The main reason here is the profitable and strategy compliant disposal of one of the last remaining balance sheet properties in the United Kingdom.

With that move, PATRIZIA has reached the target to become a full asset-light third-party investment manager. Now let's look at the cost side. Our net operating expenses have increased by almost 15% year-over-year to a level of EUR 61.4 million. This is driven by 2 things: one-off effects linked to other operating expenses in light of the Whitehelm Capital acquisition. And on top of that, a growth in workforce and costs aimed at diversifying and globalizing the company even further.

As a result of all the before-mentioned trends, EBITDA came in at EUR 26 million, a decrease by about 16.8% compared to the previous year period, which is reflective of our resilience, improved revenue mix and future-oriented investments. Uncertain times require reliable partners.

PATRIZIA operates a robust and profitable business with a strong and solid balance sheet. Post the net equity ratio of 71.5% and the available liquidity of almost EUR 500 million are proof of PATRIZIA's intrinsic strength. It also gives us the flexibility to continue on our growth path and to harvest opportunities that may present themselves along the way. How could growth look like? Of course, on the one hand, there will be organic growth driven by investments in product offerings, technology and sustainability, and I have already alluded to that before.

On the other hand, PATRIZIA was, is and will continue to be a strong force in a consolidating industry. We are continuously reviewing attractive M&A opportunities in line with our midterm strategy. Today, we show once again that we can deliver even in a difficult market environment. There is one thing that will not change. It's our clients' need for our services and expertise, which is stronger than ever. Conviction investment ideas to generate sustainable and growing risk-adjusted returns require experience, best-in-class in-house research, latest technology and an established network of real asset experts. And this is what makes PATRIZIA unique.

Finally, I would like to invite you as a shareholder to our upcoming virtual Annual General Meeting. We would be pleased if you follow the event live on the Internet on the 1st of June 2022. The invitations to the AGM have already been published, and you can already access the agenda documents on our website.

Thank you so much for your attention. We hope to see you soon on one of our investor road shows or conferences, and I personally very much look forward to meeting many of you in person in the next few months. Thank you, and goodbye.