Welcome everyone to our annual financial call for the first nine months of 2023. This is Martin Praum, Head of Investor Relations and Group Reporting speaking. I'm happy to have our CEO, Asoka Wöhrmann, and our CFO, Christoph Glaser, with me in the room today to present you an overview of the operating business, the market environment, and the financials for the first nine months of the year 2023. As well as further details on the guidance for the fiscal year, followed by the usual Q&A session. During today's call, we will refer to the first nine months results presentation, which you can find on our website in the IR section, on the most recent publication. The presentation includes the first nine months figures and details about our guidance for the full year. In case of questions, we are more than happy to take your call.
As usual, this call will be recorded and will be made available on our website, and we'll also offer a call transcript for further reference. With that, I'd like to hand over to Asoka Wöhrmann to start the presentation and give an overview of his impression of the first six months in office with PATRIZIA.
Thank you, Martin. Dear ladies and gentlemen, a warm welcome from me, too. I'm delighted to share my impression of the first six months of PATRIZIA, my view on the latest developments, and some initial thoughts about the future strategic direction we need to take. My conversation with most employees and many clients, I have found important strengths on which to build the future development of the company. A strong foundation based on deep-rooted German heritage, mixed with an international collective wealth of expertise and skills. An international platform spanning across many key markets in Europe and Asia Pacific, positioning PATRIZIA as a global player. A remarkably broad product offering across regions and asset classes in real estate and infrastructure, providing comprehensive solutions to our clients to achieve their individual portfolio objectives. PATRIZIA has a strong culture as an independent investment manager with a strong entrepreneurial mindset.
This is a very solid base to become a truly integrated global real assets player in the future. Looking at these strengths, together with our very solid financial profile, I'm convinced that PATRIZIA will become a strong global investment manager in the future. Let's turn to page 5. Nevertheless, in the many conversations with our clients and partners, I see much more clearly today that our markets are not just in a cyclical downturn, but fundamentally changing. This concerns primarily real estate, which is a big part of our business. After 15-year-long growth market, the current real estate cycle is different to previous cycles, and we expect a sharp year and longer recovery, with no improvement before second half of 2024, perhaps even later.
These markets are challenged by a combination of continued uncertainty, driven by rising geopolitical risks, as well as high interest rates and inflation, both expected to stay higher for longer. At the same time, we see a strong need for investment in ESG and decarbonization, a fundamental change in asset usage and valuation, and altering investor preferences regarding the portfolio diversification. These challenging markets leads to continued pressure on revenues, especially transaction and performance fees, but also valuations and management fees. But let's face it, changing markets are always a big part of our real reality and life. What is important, we need to adapt to this new market environment to protect our profitability and successfully managing through the current economic cycle with the clear goal to emerge even stronger. Let's turn to page six. Management is taking action.
Firstly, to safeguard profitability levels in 2024, but more importantly, to structurally improve our profitability in a sustainable way and to strengthen PATRIZIA's resilience against future market fluctuations in the business cycle. We will undertake a number of strategic initiatives to improve our value chain, drive synergies between real estate and infrastructure to better meet future client needs and strengthen the long-term success of PATRIZIA.... These core initiatives are based on a comprehensive review of our platform structure and operating, as well as through analysis of our cost bases. Our clear goal is to enhance the relationship between recurring income and recurring costs. Furthermore, management is actively working on right-sizing our platform while maintaining a healthy depth in our value chain, while preserving our client service standards and ability to act once markets recover.
The comprehensive review may lead to reorganization expenses between EUR 10 million and EUR 20 million in fourth quarter 2023. So what does this effectively mean? On the one hand, management aims to bring our cost base down to around financial year 2021 levels. This target is set to ensure 2024 profitability, considering the pre-inflation and pre-consolidation conditions following two M&A transactions of Whitehelm Capital and Advantage Partners. Furthermore, bringing costs down sustainably to financial year 2021 levels is a strategic move to safeguard profitability in anticipation of a potentially weaker revenue environment in the coming years. On the other hand, these effects are expected to yield significantly increased operating leverage in terms of platform efficiency, a better quality of earnings, and once market activity recovers, position the company and you as shareholders for higher earnings upside.
A combination of cost reduction and increased operating efficiency will put us in a sustained, stronger competitive position against struggling market peers in the future. What do we need to go beyond the cyclical adjustment reorganization, Rebalance for Growth from last year? Rebalance for Growth was executed with the assumption that market activity would pick up again in the second half of 2022. Looking at our cost position, which is flat in core costs in an environment of inflation, the measures taken were successful but not sufficient. Under our revised assumption of a longer and slower market recovery, we have to weather through the pre-crisis period, profitable during this cycle, and to be ready to generate additional profitability when market activity picks up again. These strategic targets will also be reflected in our new dividend policy. Let's turn to page seven.
Our current dividend policy relies on growth of assets under management and management fees. This was with a reflection of the past international development of the company and the long industry growth cycle, consequently focusing on growth as the main KPI for our dividend outcome. Reflecting the fundamental change of the market and the review of our cost base and increased focus on profitability and earnings quality, management will review the current dividend policy and base the future dividend payments on a profitability KPI. Rest assured that we remain fully committed, that our shareholders will benefit directly from our new profitability targets and strong operational performance. As these targets are achieved and our operational performance improves, shareholders can expect to benefit from the rewards.
An update on the dividend policy, as well as the dividend proposal for full year 2023, will be given in February 2024, together with the publishing of the current preliminary results of fiscal year 2022. I will hand over to Martin Praum and to Christoph Glaser.
Thank you, Asoka. Thank you very much, Asoka, for sharing your views on the market and the company. It's great to have you with us today. With that, I would like to dive into our financials and guidance. As always, we'll give folks on the call a chance towards the end to engage in the Q&A, to have a good dialogue about everything we're gonna talk about. With that, I would like to pick up on something Hans-Ulrich was alluding to, which is choppy waters or markets that are still subdued. The good news is, if you look at the page nine of our presentation, that even under those market circumstances, we signed transactions worth around about EUR 1.6 billion. We've been a net buyer in the market.
Although that level of transactions is only roughly about one third of the level we were at in 2022, the good news is that a lot of it has been happening in the infrastructure space, which is a result of our traction that we're getting as regards to diversifying the business model. On this page here, I just want to show you a couple of examples of deals we have done very recently in the area of electric vehicle charging or embedded network platforms or solar power generation and storage facilities. But also, somewhat more traditional real estate, industrial or logistics platforms in the Nordics, as you can see from this page.
The bottom line is that we have rather successfully diversified from a capability point of view, and our recent acquisitions start to demonstrate traction in that respect. It's still a very low absolute level of transaction performance, but as I said, we are transacting, and we are a net buyer. With that, I would like to take you to page 10 of the presentation and talk a little bit about assets under management, which have been quite resilient despite valuation pressure. Again, to some degree, thanks to the fact that we have and maintain the posture as a net buyer. And the effect of that you can see on the left side, where it's been around about 1.3% net organic growth.
Unfortunately, not quite enough to offset some of the valuation pressure to the tune of EUR 1.8 billion, and some cash outflow out of structures, all of which led to a moderate decline of AUMs by 1.7%, which is obviously something we don't really appreciate, but under the circumstances and relative to competition, I think, we're holding up quite well. And the defense work done by the team on the existing base of assets under management is quite effective, and, we're committed to keep it that way.
I think the really important takeaway here is that on the back of our clients' trust, their equity positions, their cash positions, and their long-term posture in combination with our operational excellence around the asset management, operations, fund management, and our proximity to both the customer and the asset, we're faring rather well on that front. So with that, maybe a couple of words about the composition of our assets under management on page 11. Most of you are familiar with that slide. I'm not gonna really talk much about the geographic split today. We'd rather focus on the middle of the page, where you can see that our share of infrastructure investment is growing.
We're right now at around 16%, and we intend to continue to grow the share of infrastructure in the mix. We will keep you posted in that respect. So again, product diversification has started to gain momentum, and we really look forward to that accelerating once the market activity will hopefully bounce back in 2024. So that's really a space to watch. On the next slide, page 12, I will spend a little bit more time because it's all about the size and dynamics of our income streams. The main message here being that the size and the dynamic of the recurring income stream somewhat cushions the market development or market dependent revenue drop.
So on the left side, management fees growing by around about 2% to almost EUR 188 million is certainly a good story. Nowadays also includes occasional debt structuring related management fees. And that, to some degree, offsets the drop in transaction fee income and performance fee income. It's obvious that the market and also products, which are more all-in fee products, contributes to the drop of transaction fee income. The good news inside the bad news is that out of the transaction fees we're earning, a majority goes to acquisition-related transaction fees at a ratio of roughly 7:2 or 4: 1. And that's good because, again, it's reflective of us being a net buyer, and we continue to maintain that posture.
Performance fees are dropping as well compared to last year. That trend will probably somewhat continue into 2024. With regard to transaction fees, we obviously expect that there will be a bounce back of a certain size in 2024 on the other end. So, we will keep you posted in that respect. But the main message here is that recurring income streams are strong. They're not entirely offsetting for the drop in market-depending, dependent revenue streams, but the direction is right. The direction in terms of change of quality of earnings is right. And therefore, the mix of income is somewhat healthier compared to the past.
Of course, 80% recurring revenue contribution to total service fee income is a great number, but let's be modest and self-critical here and admit that a large part of it is driven by the relatively low level of the transaction fee income and performance fee income. But nonetheless, we feel good about the overall direction here as we transform the business. So with that, going to page 13, I would like to spend a little bit more time on net operating expenses, and we're gonna elaborate a bit more on what we're going to do in that respect, going forward, afterwards as well.
So in a nutshell, the net operating expense related picture year-to-date is a somewhat mixed picture because we've done a great job on general administrative expenses, but there is a bit of a moderate increase in the personnel expense base. And overall, the core cost is a bit too sticky for our taste. So when you look at the picture on the left side, we have, as we did last time, which is from EUR 177.4 million of net operating expenses, backing out or adding back, so to speak, the 2022 and the delta to get to the core cost base to the tune of EUR 184.8 million, which is comprised of 60 of G&A, year-to-date 2022 and 125 roughly of personnel expense.
Compare that to this year, nine months to date, you can see the pretty good story on the G&A side and the somewhat lukewarm story on the personnel expense side. Then we walk it back for you, adding other cost adders to get to the EUR 182.5 million of reported net operating expenses for nine months, 2023. The details for all of this, you can find in the release document that we shared online this year, so I'm gonna spare you the details behind the EUR 7.4 million and the EUR 2.6 million.
The main message here is that overall core cost is, for the market circumstances and the pressure we are facing on the market-dependent revenue, a bit too sticky, and therefore, cost containment is and will even more so be top of management agenda going forward. I will allude to that in a moment after having covered a little bit of work in the balance sheet. With that, I would like to take you to page 14. Here again, an overview that familiarizes you with the composition of our EBITDA year-to-date. Management fee income, decent story at EUR 187.7 million. Obviously, then transaction fee income at could all-time low level of EUR 8.8 million, complemented by performance fee income of almost EUR 32 million.
That together with a relatively low net fair value and co-investment income gets you to the complete revenue stream, which after deducting net operating expenses gets you to the year-to-date EBITDA of EUR 50.2 million. Which in itself is a pretty decent number, getting us into the lower end of the guidance range for the total fiscal year already. However, of course, compared to last year, we're operating at roughly two-thirds of the EBITDA level year-to-date. That's really it in a nutshell, and we can discuss this further in the Q&A. Balance sheet-wise, on page 15, couple of things have certainly not changed. It remains quite strong and gives us the necessary flexibility in the current environment to make moves, and we're gonna talk about that as well.
Total assets stand at EUR 2 billion, and equity at EUR 1.2 billion, giving us an equity ratio of 60.5%, pretty rich, as historically it has been the case. A lot of cash and cash equivalents and a few term deposits in the balance sheet, with a corporate loan backed against it to the tune of EUR 158 million, leaving us with a net cash position excluding warehouse assets of EUR 187 million, roughly. Net cash would be reported at EUR 38 million. Please bear in mind some of the assets we are warehousing come with the consolidation of debt positions, which is shown here, quite clearly. Net equity ratio at 71.3%, again, historically very strong, stays that way.
There is significant liquidity available, because you can see that cash and cash equivalents together with term deposits create a cash balance of EUR 345 million. That, minus the regulatory reserve requirements we have and a couple of operational liquidity cushions we have in place, provides us with available liquidity to the tune of EUR 282 million, and that does not include roughly EUR 50 million of treasury shares that PATRIZIA owns itself. If you would add that to the mix, you would be at roughly EUR 332 million versus the EUR 282 million. So we continue to enjoy a strong balance sheet with a strong net equity ratio and, depending on how you look at it, EUR 282 million or EUR 332 million of liquidity.
Now, I was briefly already pointing out that it's good to have a strong balance sheet and the financial strength to be flexible in the current environment. And some of what we do in terms of the active use of the group's balance sheet, we have summarized for you on page 16. So we're actively using the balance sheet to trigger and facilitate AUM growth through the cycle. And I think we are one of few players in the market who have the strength and the stamina to do that. I would generally group these activities into seeding of funds, warehousing of assets that we like, and co-investing together with partners where we have a partnership base that goes back to, like, for instance, in Asia Pacific with Mitsui or other partners.
And so here you can see a couple of the bigger activities we have undertaken on the seeding side, in infrastructure, debt fund or in the TransEuropean Property Fund, the real estate space. You can also see a couple of warehousing activities, both of them having occurred in Germany in the real estate space. One of them, more a value add office play, that we kind of like and that we're good at. One of them, more of the residential play in high quality, ESG type space. And we believe that we have the expertise in-house, on asset management, fund management, and certainly even in the future, transaction management, to get the most out of these assets.
Some of them we may end up holding for a couple of years or three years or, or longer because we like them, and we know the cycle and the amount of time it takes to extract value. On average, though, I would say these co-investment or seeding activities probably have a lifetime of, let's say, if you make the envelope broader, between six and 24 months, if you make it a bit more narrow, maybe it's between 12 and 18 months or so, just to give you a direction about the timeline. We have to obviously make sure that there's going to be a rolling balance and that we won't end up just adding to the pile and not subtracting from the pile, needless to say.
Some of these activities obviously trigger a couple of new line items or differently sized line items on the balance sheet. So for instance, this regards to non-current borrowings, or this regards to inventories in the current asset space, or this regard to security positions in the current asset space. So we just thought it quite prudent to give you a bit of flavor and perspective here, where that comes from and why we're doing it, and how that fits our capital allocation and strategy and balance sheet utilization.
Obviously, then on the right side of the balance sheet, you now see a couple of short-term bank loan positions related to some of those real estate plays that we have outlined on the left side to the tune of EUR 149 million. And so we intend to further seed invest, in particular in European infrastructure. You may like to hear that we are actually, as we speak right now, actively deploying a bit more capital in the infrastructure space with European focus. There's a decent pipeline, team doing a good job of bringing transactions home. The demand is there, and the return output is pretty decent as well. So, it's a good way to bridge the consolidating period between cycles.
Now with that, I would like to spend a bit more time on cost management, as I was promising before. So if you go to page 17, I summarized for you some of the cost measures we have been announcing as recently as yesterday, and the impact they're going to have on this fiscal year, in particular the fourth quarter that's currently underway, but also fiscal year 2024 and beyond. At the end of the day, in a nutshell, 2023 is turning out to be a decent year under the circumstances. Again, as I mentioned, we're in the annual guidance range now, already having closed the third quarter. We do feel the need to tackle our core cost base more decisively, both on the personal expense and the general expense side.
And we can afford a more significant reorganization, so to speak, to be executed inside the fourth quarter now. And having said that, or having made that point, that we can afford to take action to make the income profile of the company better, it's important to note that 2023 also does include quite a bit of other income, some of which we really like. You know, an example being, again, the debt structuring related management fee income, et cetera. But there's not going to be potentially as much of that in 2024. And then the other thing that's going to happen in 2024 is there's not going to be as much of a performance fee income probably that we're seeing right now still, and it will take some time for that income stream to come back.
That's kind of the second and third point that's important to make, because the outcome of the activity needs to be that the EBITDA measure-- or the measures that we take right now benefit in particular 2024. Because excluding the benefits of the restructuring effort that we execute now, the 2024 outlook wouldn't be as great as you can see in the shaded orange part of the chart. But inclusive of the impact of the measures we're taking right now, we believe that we can hold it at quite solid levels also inside 2024, where we're gonna pay substitute performance fee income and also potentially not as rich a pipeline of other income streams as we're showing right now.
So long story short, 2023 is a decent year to take action. We can afford it while still staying in the guidance. 2024 will benefit from it, and probably most importantly, it's gonna give 2024 a better earnings quality profile on top of the dynamics that we have already alluded to earlier in the sense of recurring income contribution growing. But that in combination with the recurring cost base being covered or more than covered by recurring income and market-driven income streams bringing us, you know, be on top of that, I think that's kind of where we wanna end up. So there's a package of measures we have prepared and we are starting to implement to safeguard EBITDA and to increase recurring profitability in 2023.
And we can certainly dialogue more on that in the Q&A. Last but not least, on page 18, our guidance ranges for fiscal year 2023 are being confirmed with regard to AUM between EUR 57 billion and EUR 62 billion. With regards to EBITDA between EUR 50 million andEUR 70 million. As I mentioned before, the restructuring measures we've taken are going to move us from a very healthy place inside that range towards the lower end of that range, but it's an investment that carries strategic value, and I say so. And the margin between 16.7%, 21.2%. In very simple words, we're taking action to weatherproof the platform and to navigate through the next phase of the cycle. So with that, I guess, Martin, we can conclude on the presentation.
So again, I say thank you very much for a clear introductory comments about the market and the company. I think we've covered all the financial aspects, including some of the balance sheet dynamics and the cost containment related actions we're undertaking. And with that, I guess we can move into the Q&A.
Absolutely. Darwin, we're happy to start the Q&A.
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment, please, for the first question. The first question comes from the line of Remke Andre with Baader. Please go ahead.
Yeah, good afternoon, together. Thank you for the presentation. A couple of questions from my side, please. Starting with your cost measures. How long is the amortization rate of the EUR 10 million-EUR 15 million or EUR 10 million-EUR 20 million? And, what are the full annual effects and when it is expected to be achieved in full?
Thanks for the question. The EUR 10 million-EUR 20 million of restructuring cost load in then 4 Q 2023 should directionally yield us a benefit on an annualized basis between 1.3x and 1.6x, I would say, directionally. Secondly, obviously, question of timing of realization of payback. I would say that both from the P&L and cash payback point of view, I'd probably say three quarters direction. So that feels right. And that's where we're going to see, I think, part of the benefit already in 2024. Some of the small timing delays in the early stage of 2024 will then come and get added in early 2025. So it feels quite good on them.
It's on page 17, you show the gray bar, EUR 10 million-EUR 20 million reorganization expenses and the cost savings on the right-hand side. It seems to be much larger. So this is the 1.3 to 1.6.
Yeah. That's what I was referring to when I was talking about 1.3 to 1.6x. So you directionally multiply the box on the left side, the gray one, with the number to get to the cost saving and the impact in fiscal year 2024. And again, this should enable us to defend a solid, reasonable EBITDA level after measures compared to 2023. You may optically analyze that chart as you wish.
Okay. Okay, perfect. You mentioned the ratio between recurring costs and fees. Do you have a special target ratio for the upcoming years? Because probably it's not all what you are intending to introduce today, or over the coming weeks. You have something in your mind you could share with us?
Yeah, certainly do. There's been quite a lot of discussion among top management on that front because historically, it's probably fair to be critical of the company for not having secured recurring income coverage of recurring costs, which means that historically, until now or very recently, we have been running that equation on a ratio north of 100%, which is something that is not acceptable, and it has the potential of hurting us badly in a lengthy consolidation phase, which we expect to be the last 2.5 years or so, between 2022, 2024. And on that fact, we want to get it now when it's actually most painful to do so.
We want to get it in 2024 below 100%, so somewhere between probably 95% and 100%, I would say. And then, medium term, we're shooting more for something between around 85%, let's say, and long term, we need to get our arms around 70%. I think when we're gonna be at that level, which needs to be a function of both cost containment and markets rebounding, I think we will feel a lot better. And that's kind of something that so far, myself and then the rest of the leadership team have really set our sights on, and it's not up for negotiation anymore. So, that. I mean, maybe one more comment in that respect.
We're not saying that market activity infused fee income is bad, I mean, in the sense of transactional performance income. In fact, we are we believe that transaction fee income is more part of recurring in a way, but you can argue that performance fees is maybe geared a bit differently, because and they do show or they are reflective of value we generate for our clients, which is why we're getting paid those fees. So we're not, we're not trying to get into the mood of saying we only want to be in the game of of harvesting management fees. We do have our eyes also set on a rebound of transaction fees in 2024 compared to 2023, whereas opposite to that, performance fees will erode for a bit longer, as I mentioned before.
And then we'll hopefully have the full package again, later out in 2026 or so.
Mm-hmm. Okay, okay. Very helpful. So another question is on your dividend. You mentioned that this will be based on a profitability KPI. As far as I know, you only have one KPI, the EBITDA. So will this mean the growth rate of the EBITDA or a certain ratio of the EBITDA as a new reference? Or do you think about introducing another KPI? Or, let's finish the question then. Or is it just the case that you will not become more precise today due to the potential layoffs of staff and announcing a dividend?
Look, we're... Let me give you- let me put the topic a little bit in a perspective here for a second. There's a lot of things we're looking at right now in terms of playing defense and offense and short term and medium term measures. We have started discussions internally among management and also with the board of directors about a dividend policy that in the future would be more linked to a profitability type of KPI versus a set of growth KPIs as it is right now, because we have historically talked a lot about AUM growth and management fee growth. Now, that said, a couple of maybe four or five fundamental statements at this point in time from my side.
We do, we are a dividend payer, and we intend to stay a dividend payer. I think that in itself doesn't change and the intent to differentiate ourselves along those lines. Secondly, we believe that long term, i.e., in the future, we would benefit from tying the dividend payment more to profitability than historically and less to only growth. Now, it's needless to say that although that's where we want to go, 2022 and 2023, and potentially spill over to 2024, are somewhat special years because they make up that transition period between cycles.
And so we'll make really a judgment call on those periods, together with the board and after the proposal, which I guess is in place at the beginning of next year, that we'll look at profitability, it will look at cash flow, which tends to be in quite decent shape. It will look at the balance sheet strength and also what the market is doing and what competition is doing. So, we'll cross that bridge once we will have closed the year, and have that dialogue at the beginning of next year, and then come back to you. And that will be the right time for this.
And we just wanted to give you the indication that we're gonna move that way because we believe it's fundamentally healthy, and it's one more change that we will embrace, and that really is for the time being.
Mm-hmm. Okay, understood. Then another question on the service fee, and for development and debt structuring, you earned in the third quarter. What is the amount here? And concerning debt advisory, so to say, is this not the usual service as an asset manager for an investment? And if not, could it become an additional revenue stream going forward?
Yeah, there's that question I can answer fairly, in a fairly straightforward way. As you know, we're doing a real estate development largely as a service for investors, to a much smaller degree on own account historically. Secondly, that yields on a fairly frequent basis real estate development related management fees. I think year to date, we're talking around about EUR 10 million or so, of which about EUR 5 million were in the third quarter alone. So that one I would subsume under the notion of recurring and normal course of business, although 2023, 2024 is probably gonna be, again, low tide type of environment for these type of management fees. There will be some more in the fourth quarter that we count on, similar direction.
The debt structuring service is also something we do quite a lot of, traditionally. As you may recall that we have, you know, an average, I guess, LTV of about 31%-32% or so across the whole portfolio of our vehicles. And we're managing EUR 16 billion-EUR 17 billion of debt with an in-house team with a lot of high degree of expertise. And so we're doing this kind of debt structuring work for our clients quite frequently, actually on a daily basis. I think this year we're prolonging around about EUR 2 billion. And some of that work is being rewarded increasingly because of the complexity that's increasing because of the market situation that makes it simply more complicated to pull off.
The good news is that there's 150 partner banks and a long history of reliable debt structuring. We're in quite good position to do this for our clients even today. Some of you may have heard about, for instance, the Commerzbank Tower refinancing that we did earlier this year. And there are other deals we doing that are safe, like on our caverns business or on large real estate portfolios in the state of Hesse. And some of those are just have the potential to be more rewarding from a management fee income point of view. And so we see opportunity there. There will be more of this going forward.
We'll see how that unfolds in 2024, but in this year, we had a couple of deals that are worthwhile to mention. So I would say that around about EUR 4 million or so are probably in that pocket in the third quarter. That's noteworthy to point out because it's only another what was it, about EUR 22 million or so in the second and the third quarter. So that's the one I would point out. It's not gonna be that much in 4Q and then in 1Q next year, but there will be some of that or more in general.
Mm-hmm. Okay. Okay. So then there are indication of a lower performance fee in the next year. So it's quite obvious because it's probably related to disposals. Is there a special reason for further decline, additional special reason? The background of the question is the question on the Dawonia performance. Is this still included and to be expected to be earned next year, or is this the delta?
No, I'll address those questions in exactly the same sequence. So, performance fee, we usually recognize when we dispose assets, and performance of the investment is above a certain threshold, the upside beyond which we are usually then sharing with investors. And, there will be, just structurally speaking, less disposals. Well, there are already less disposals right now. There will be less next year. Because of that, we are gonna be a net buyer, and there will just be less clients selling because most of the assets we're managing are decent quality. And most of our clients are, a vast majority of our clients, have no pressure to sell and will not be the kind of people who sell under force or pressure, but they will rather demonstrate their ability to sit through the transition period.
Just because of that, there will be less disposals and less performance fees being recognized, but there will still be some. The good news is that I don't foresee any change in that respect for our fiscal year at 2024 vis-à-vis Dawonia . We do expect to harvest a decent performance fee income vis-à-vis Dawonia in spring of 2024, as we did this year. A bit less probably, but directionally still quite significant. Then there will be some other positions on top of that, because across our portfolio, we are sitting on a well-known or on a decent number of embedded performance fees, and it's just a question of time when we recognize them.
But we are a bit cautious in that respect, and we think overall performance income will be lower next year compared to this. But opposite, the transaction fee income should be higher, and we hopefully will see continuous moderate, at least moderate growth of management fee income. All of this, by the way, excluding any assumption on M&A or quasi M&A or portfolio deals. Yeah, that is excluded from all this commentary because we traditionally don't plan for that, and we don't communicate about it until it happens.
Well, I intended to stop my questions here, but as you mentioned, the M&A thing. You also mentioned that the M&A drove the costs higher over the last two years, for good investments, by the way. But in the current market environment, in hearing your efforts to lower your costs, is it fair to assume that you will be a bit more prudent with regard to your M&A activity on the group level, at least for the time being?
I don't like the idea of implying that we are being prudent, but put, put that aside. I mean, as, as I mentioned before, we're, we're doing quite a few infrastructure transactions right now in the AIP business we purchased in Scandinavia recently, also have grown quite nicely. But put that aside for a second. We will, we will always be prudent when it comes to M&A, and as I mentioned on many calls before, we're not going to just buy AUMs. We, we will only make a deal if we see strategic value in it, either, geographic diversification-wise, asset class diversification-wise, con- maybe completing acquisition, acceleration growth, whatever. But they gotta, they gotta be a strategic fit to it.
Secondly, we've got the balance sheet to do one, if it makes sense, but we're not under pressure. I would rather focus the mindset on capital allocation that is linked to the three topics I was mentioned before, seed investment, warehousing, and co-investment. I think there will be more seed investing and more co-investments. Warehousing is more tactical item when you see it and you like it. On top of that, I see us more looking at the portfolio deals, small, medium, large size, or looking at other market participants to shift portfolios to us. So kind of quasi-organic growth, if I may say so. There will be some of that, and that could be quite exciting in 2024, but we'll see.
I think M&A as an idea is further away from that in terms of likelihood at the current, but we're looking. So, I wouldn't exclude it as a possibility, but also coming at the end, but, that, I guess, summarizes our collective perspective.
Okay. Thank you very much. I think I have to stop here. Thanks so much, Mark.
You're more than welcome.
Thank you. The next question is from Philipp Kaiser with Warburg Research. Please go ahead.
Yeah, thank you both, and also welcome [from my side] . Thanks for taking my question. Regarding your strategy to get that right, like, you mentioned kind of EUR 4 million are linked to project development service fee and, debt structuring fee in the third quarter. Am I right?
Thank you. Briefly, I was talking about development-related management fee income year to date, about EUR 10 million, of which half sits in the third quarter, the other half in the first half of the year, and there will be some in the fourth year as well. The other topic we talked about was, let's call it positively choppy, a debt structuring,
Mm-hmm.
-income, management income in the third quarter, because we had about close to EUR 4 million of that in the third quarter, which was a bit more than we normally receive. So that made the third quarter a good quarter also. So that income is clearly more in the category of recurring. The debt structuring fee income is, let's say, a bit less recurring and comes in a bit more bulky chunks, once in a while. So it's up to you to choose whether you want to view this core or not. The seeding, coincidentally, goes quite strong in the third quarter, which is nice under the circumstances, by the way.
Okay. Clarification. Then with regards to those development service fees, how long can you kind of benefit from your pipeline, to generate those fees? I would assume it's kind of a legacy business in the current market environment, isn't it? Or, yeah.
Yeah, we have a stack of developments that are currently being executed. We've just actually we're actually finishing a bigger one now in the fourth quarter/ first quarter next year. So there will be a bit of income related to that, I think, in the course, in the first quarter of next year. So that stack of active real estate development projects that we do pursue as a service called The Strategic Fund is getting a bit smaller at the moment. So the activity level is reducing, which is not surprising under current market circumstances.
Mm.
Good news is we don't really have our own balance sheet at risk here. And the second good news is that the 35, roughly 35 or 30-40 people who are working on this, as a team, they're a very good team and we have a phenomenal opportunity to reposition some of their capacity away from a shrinking sort of traditional development set of activities towards brown- to-g reen, and black- to- green, ESG asset management or ESG-focused asset management activities.
So think about some of our development experts to become a first-class value-a dd brown- to-g reen asset management strategy, owners and service providers for clients who have to address ESG and CapEx needs to maintain quality of the property. So that's how we look at it, which is a nice flexibility that we have in there.
Okay, so in terms of the amount draw will be a bit smaller next year, but if the market picks up, then the pipeline does not dry out?
No, the projects that we still have, that we're still working on the last step, 2024 and 2025, I would have to check that. I don't know off the top of my head what's the longest tail year, but it's definitely beyond next year, so.
Okay, perfect. Thank you very much.
It may come back and get into some add-on deal too.
Okay. Yeah. Clear. Thanks. The last one is on the amortization of fund management contracts. Could you give us kind of the guidance for the last quarter? Could you just take the last quarter as a run rate or anything special popped up by the end of the year?
Yeah, I'll refer that question to Martin, who has looked at this recently from a technical number point of view.
Yeah, sure. Hi, Philip. So for the fourth quarter, if you look at amortization, typically, we talk about a run rate of, say, around EUR 80 million per annum, which you can then fit into quarters. If you look at other items and depreciation amortization, you might see, or at least we budget a little higher number in the fourth quarter just to prepare for potential valuation effects of the temporarily held assets. So, just say EUR 5 million plus for your model.
Perfect. Very helpful. Thanks a lot. That's all from my side.
Thank you. The next question comes from the line of Lars vom Cleff with Deutsche Bank. Please go ahead.
Thank you very much. Good afternoon. You mentioned in your presentation that assets under management were hit by a - 3% valuation impact so far this year. And if I remember correctly, you said you're assuming or you're guesstimating 4%-5% for the full year. That is still your latest estimate, or would you change that at this point in time?
I would let that sit there at somewhere between 4% and 5%.
Okay, perfect. And are you seeing different trends when looking at the various real estate sectors, or are all sectors hit by more or less the same amount of valuation?
It varies, it varies quite widely, not wildly, but widely. The, I think directionally, from an asset class or sub-class point of view, infra is in very good positive shape in general. Residential, if it's in the right places, is either stable or lower single digits. Logistics is in decent shape. Office, mixed use and office are under quite some pressure. There you can easily see, in some cases, double digits, 10%, 15%, 20%, I would say. You're not in a good spot if you have office with ESG investment pressure in these locations. Let's summarize it that way. As I mentioned before, we have very few of those. But office is the one that keeps everybody awake at night, maybe us a little bit less so than competition.
It's a location question. Our mixed use is quite a topic. High street retail has been a negative topic. It's kind of digested, I would say, at this stage, at least on our side. Geography-wise, we have seen quite a bit of deterioration in Benelux, Southwestern Europe and partly also UK, Ireland. Less so in the Germanic region or part of the Nordics. It's fair to say, though, that, as I mentioned before, we're still going to see some lower single-digit valuation downside probably in 2024. Make that 3% or so, I don't know, but somewhere between 0% and 5%, probably. There's going to be tail end in some of the, let's call it Germanic markets on average. Yeah.
Okay, perfect. Thank you. You also mentioned you would assume transaction fees to bounce back at some point in time next year. At this stage, I guess that's rather a guesstimate, or are you already seeing something in your pipeline that would back this statement?
We're starting to see transactions. In fact, I was just reading about one being closed yesterday. EUR 40 million or so, it's pretty timely. We see what I'd call early days of a new pipeline. Let's put it this way, the very early days.
Okay.
And then there are transactions that. So, so in a way, it's funny. It was not funny, but professionally speaking, there is a tail of an old transaction pipeline that's still in place and that's being diligently executed by some of our investors and us. Then there's not really much new stuff coming out of, you know, late 2022 or 2023, because it's kind of quiet waters. And then there's some sort of beginnings of a new silver lining, and that can be coming from many directions, at early days. So, so it would be not appropriate to say that we have a fully substantiated transaction fee pipeline for 2024. But, it's gonna be more than this year, unless something goes badly wrong.
That at least sounds promising. Which, which brings me to my last question, if I may. I mean, playing around with the numbers, would you regard your assumptions and, and your slide 17, yeah, more or less showing an, an EBITDA on, on this year's level, as realistic or, or as conservative? I mean, comparing it to 2021, the year you take for the comparison or to compare your, your cost base to, the cost base would come down by, I don't know, EUR 25 million-EUR 30 million. Management fees are, let's say, EUR 40 million higher, given the acquisitions you made than they were in 2021. Transaction fees bouncing back, at least not, no diving further. Admittedly, yes, other operating income performance fees coming down.
It's pretty hard for me to come up with an EBITDA, which is not markedly higher than this year's.
No, I'm not. That's not what we're saying on page seventeen. I guess you can maybe interpret page seventeen that we're saying we gave a guidance between EUR 50 million and EUR 70 million for this year. We're feeling pretty good about our position inside that guidance before taking restructuring action.
Mm-hmm.
After having taken those, we will end up somewhere around the lower end of that guidance. And the effect of preloading that will then benefit next year. And you know, if you take a ruler and do a bit of navigation in this chart, you can estimate right at least that's two in 2024. So it's gonna be a decent EBITDA level. It's directionally conservative on performance fee income. It's mildly bullish on transaction fee income. It assumes a moderate growth in management fee income, but that will be subject to the valuation effect of still. And the cost will come out with the multiple I explained, and the range for that is on the page.
So if you play a little bit with horizontal lines on that chart, you get a feel for what we're thinking.
That's extremely helpful. Okay, perfect. Thank you very much.
Thank you. There are no further questions at this time. I now hand the conference back to Christoph Glaser for closing comments.
Thank you very much, operator. As usual, we really enjoyed hosting everybody today. I'm super excited about having Asoka with us this time. It's gonna stay like this from forward, which is great as well. We're very happy to see you on the road. Over the course of the next couple of weeks, we're gonna actually fly out to London tonight, and then be in London tomorrow and the day after, and then there'll be more activity on the road after that. And we are virtually fully booked, by the way, at the Deutsche Bank three-day investor conference end of November, which is amazing to see and makes us quite excited about the interest in the stock. So thank you for that, and happy to keep in touch, and we'll speak soon.
Thank you.