Earnings Call: H2 2023

Feb 29, 2024

Ladies and gentlemen, welcome to the PATRIZIA conference call regarding the 2023 preliminary annual results conference call. I would like to remind you that all participants will be listen only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for question at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Martin Praum. Please go ahead. Hi everyone, and welcome to our analyst and investor call for the preliminary financial results 2023. This is Martin Praum, Head of Investor Relations and Group Reporting speaking. I am happy to have our CFO, Christoph Glaser, with us today, who will present to you an overview of our operating business, market environment, and preliminary financials for 2023, and he will give further details on the guidance for 2024, followed by a Q&A session. We would also like to excuse our CEO, Achim Wermann, who is currently on a business trip. He will be with us next time. During today's call, we will refer to the results presentation with preliminary financial results for 2023, which you can find on our website in the IR section home under most recent publications. The presentation includes the preliminary financial results and details about the guidance and any questions, as always, the IR team is more than happy to help and take your calls. This call will be recorded as usual and will be made available on our website, and we will also offer a transcript for further reference. With that, I would like to hand over to Christoph to start the presentation. Over to you, Christoph. Thank you very much, Martin, and welcome everybody on the call. It is a privilege to provide you with an update, followed by a dialogue about the company's results. I am going to focus a little bit on the market environment as we have seen it in 2023 and now, and then in conjunction with that, the transaction environment before touching on 2023 and 2024 financials, followed by a Q&A. Let me start by diving into page 3 of the presentation. It is quite obvious that we are still facing challenging markets as much in 2023 as still in 2024. There are multidimensional geopolitical situations. We are facing low-growth economies. Interestingly, though, the inflationary environment seems to improve. Rates have stabilized and there is an anticipation of rates falling later this year, which will then in turn trigger transactional activity to rebound. Now, we have positioned ourselves in this environment with a net buyer posture, very active asset management, and we've been benefiting from incredibly stable client relationships, hallmark of the company. Despite a difficult market, we were able to safeguard and protect our company and to generate a bit of organic growth, and we're looking forward for that situation to improve as we go through 2024. With that, I would like to briefly allude to some of the transactional activity that we've been seeing. It is fair to say that 2023 has seen an incredibly low level of transaction intensity compared to the past. That's a fact. Having said that, we have signed and closed a few transactions, and we have most importantly, retained a net buyer posture. Here in the chart you can see that we've signed quite a few transactions, 3.6 acquisitions, 2.4 billion of disposals. When you look at it from a closed transactions angle, we have acquired 2.7 billion of assets and we have only disposed 0.7. Looking at that, it is clear that 75% of the transactions we've done were purchases versus 25% that were disposals. There has been some activity, but not a lot. Interestingly, these transactions have happened in spaces that we consider to be quite aligned with strategic mega trends. If you flip to the next slide, page 5, you can see a couple of examples of transactions we've done. Like for instance, investing in ultra-fast EV charging sector. Supporting the energy transition of a key theme. Secondly, we have created the largest independent embedded network platform in Australia, by consolidating the ownership of Active Utilities and Savant Energy. This is all about electricity consumption, aggregation, and smart meter-based bidding in the market and quite a promising business model. Equally, we are focused on the real estate side on investments in attainable or affordable housing or very urban-centric industrial and logistics markets like in the Nordics. All of these transactions are in line with the mega trends that we are focusing on as a smart real asset player. Decarbonization, urbanization, the transition of living and the transition of the energy sector. Saying that, our existing AUMs also benefit from active asset management and best-in-class debt refinancing under difficult circumstances. When you go to page 6, you can see two examples. One, about a EUR 210 million refinancing for major energy storage infrastructure assets in the north of Germany where gas and oil, and in the future, hopefully also hydrogen, are being stored underground. We've also managed to refinance Frankfurt's iconic Commerzbank Tower, a very prominent commercial asset in Germany. The key to success really has been improved asset utilization, investment renewal through successful debt refinancing while maintaining a fairly modest LTV of 31% across the portfolio, which again speaks for the conservatism and the resilience of our business model. That's just a few points I wanted to make up front before diving into financials and guidance, which I'm going to start with by going to page 8 of the presentation. Here you can get a snapshot picture of our AUM development in the fiscal year 2023. We started with AUM of around about $59 billion, and we've seen in aggregate a moderate reduction by 3.2% to a level of $57.3 billion at the end of 2023. There's one thing I really like about that chart, which is the net organic growth it features. Again, EUR 2.6 billion of acquisitions versus EUR 0.7 billion of dispositions. That nets out to almost EUR 2 billion of organic growth. Now, of course, as expected, this got eaten up predominantly by the valuation impact worth EUR 2.7 billion of a drop. That was in line with our expectations. In fact, slightly better, i.e., less pronounced, but broadly speaking, in line with our expectations. We were positively surprised by the relatively low amount of cash flowing out of structure or only occasional redemptions, which compared to competition, differentiated us quite positively. Overall, has there been a decline of the AUM? Yes. It has been moderate, in line with expectations regarding valuations, and a small positive surprise with regard to net organic growth. That in the environment we have been facing is, I would say, decent performance, but we also equally look forward to the dynamics changing here in a positive way as we go through 2024. Now, on the next slide, there is not so much of a new picture, but I still think it's an important one, because we are happy very principally that we are independent of any individual market and we're independent of any individual asset class. We are reasonably well diversified, and that helps us to support a recurring income stream, which actually has been growing in 2023 despite the environment. It's that broad product suite that comes with it and that broad geographic presence that allows us to offer solutions irrespective of market cycles. That has worked beautifully, especially towards the end of the year when infrastructure transaction happened or transactions that were sort of in between infrastructure and real estate transactions. Vehicles which seem to attract a lot of demand, like our sustainable communities fund, started to get good traction. Now, I already alluded to growing recurring income, and this is probably my favorite chart here on page 10. On the left-hand side, the dynamics regarding management fees, which have grown by 4.2% to a level north of EUR 250 million. That includes traditional investment management fees, but it also includes some development service fees for very successful commercial and residential development activities that we've done on behalf of some of our investors. But it also includes increasingly debt structuring related fees. Not only has our management fee stream grown in size, but it has also somewhat diversified itself, and that's getting hopefully more traction in 2024. Now, unsurprisingly, the opposite picture can be seen in the middle of the page on the right side. Transaction fees have dropped once again to hopefully all-time low level of around about EUR 15 million in 2023. We do expect this to bounce back now in 2024. Performance fees have fallen as expected, and that trend is probably going to continue as we go into 2024. We won't be really able to count on performance fees bouncing back in 2024 compared to transaction fees and compared to the continuation of the growth of management fees. All of these trends in aggregate have led us to recurring income accounting for slightly over 80% of our total service income stream. But it is fair to say, and we say that quite humbly, that some of it is driven by good performance regarding recurring income. A lot of it is driven by the subdued nature of transaction fee income and performance fee income. Now with that, let's turn briefly to the cost perspective. Here, the picture is a mixed one. We feel very good about what we've done on the G&A side and other costs. We also feel that we've done the right things with regard to personnel expenses, but there has been a lot of inflation pressure. Also in last year, so 2022, we had a year in which we missed our targets in quite a pronounced fashion and therefore cut very hard on our variable comp components. Now in 2023, where we ended up at the upper end of the current guidance from EUR 50 million to EUR 70 million, yielding an EBITDA of EUR 69 million, which by the way, represents the midpoint of the original guidance of EUR 50 million to EUR 90 million. That led us to a situation where variable comp payouts or accruals related to that had to bounce back from the all-time low levels of 2022. That puts, in addition to inflation, additional pressure on personnel expenses. Which is, and that's my third point here, the very reason for why we took a hard look again at our structural costs on the personnel side and embarked on a meaningful restructuring program in the fourth quarter, which is what you see reflected in an increase in reorganization expenses, because it is exactly that that will stall this trend and take us into 2024, with a situation where revenues, meaning recurring revenues, will cover our cost base. That is a situation we want to be in as we go through 2024. Above that, the very fundamental positioning, we will hopefully see markets come back and revenue generation to bounce back. So that's a couple of points on the cost side here. Cost containment, needless to say, stays on the top of our management agenda as we go through another period of uncertainty in 2024. We're not going to take the foot off the gas here, to say it simply. The EBITDA picture is summarized on page 12. Again, starting with EUR 251 million of management fee income, which is up compared to the prior year. We see headwinds coming from transaction fee and performance fee income. A bit of upside from net sales revenues and co-investment income, and then a bit of operating expense growth again. There's always room for improvement, but the growth rate here is comparable to the growth rate of the recurring management fee income. So we have things in balance in that context. 2024, we'll see a better cost profile and a continuation of revenue growth, and therefore the operating leverage should improve. EBITDA in its totality coming in at EUR 54 million after having EUR 6 million to EUR 17 million of restructuring expenses. Coming from an EBITDA level of EUR 69 million, is obviously unfavorably to be compared with 2022. That said, excluding reorg expenses, EBITDA came in at the upper end of the current guidance and at the midpoint of the old guidance. As we closed out the year, we saw some favorable performance compared to points in time earlier in 2023. Maybe one last comment before I leave page 12, because to look at this picture without talking about operating cash flow would be maybe somewhat incomplete. The one last comment I would like to leave you with is that this P&L perspective comes with an operating cash flow perspective, where we've been seeing EUR 74 million of operating cash flow in 2023. To reconcile that, you only have to look at our P&L and some of the non-cash items that it contains, like certain depreciations, capitalized fund management contracts following acquisitions, which lead to a steady stream of non-cash P&L drag, but do not negatively impact our operating cash flow, which stands tall at EUR 74 million last year, and therefore also as a strong support pillar for the dividend proposal that's been made. Going to the balance sheet for a second, which is another important pillar for the dividend proposal that's been communicated. It is indeed a very strong balance sheet that safeguards our flexibility in the current environment. We're sitting on a very comfortable equity ratio of 57.8%. Net cash, excluding warehouse assets, of almost EUR 200 million. And we have a net equity ratio of almost 70%. From a liquidity angle, which is also an important consideration when deliberating on dividend proposals, we can communicate here that available liquidity stands at EUR 291 million at the end of the period. All of that said, a continued strong balance sheet, this net equity ratio of 69%, and a high level of available liquidity. We're, by the way, going to continue to pay back corporate debt as planned. We're continuing to enjoy strong operating cash flow. And thus want to remain, and will remain healthy in this respect. One thing that's important to us, and we have already done this a couple of times now, is that we want to keep you updated as to certain strategic moves we're making, also on the basis of our strong balance sheet to support strategic positioning of the company and growth under difficult circumstances. We do continue to make selective strategic seed investments. We do make occasionally very pointed warehousing moves where we believe that we get our hands on assets that are worth to hold, and then to spin out and place these appropriate vehicles. And we do continue to consider strategic co-investments. On the left side of page 14, you can see examples of some major recent transactions. You can also see by the labels that were put on that table that this is a rotating activity where we go in but also come back out. Some of these positions have already been paid back, either in the fourth quarter of last year or just very recently. And it is important to create some attention here that some of these assets have to be consolidated. Therefore, there is an impact on certain balance sheet positions, and we want to make sure that you understand where these activities impact the balance sheet and to ensure that there is a full transparency here and also a low risk of misinterpreting a certain balance sheet item. Last comment here perhaps is that the capital we have been deploying and we intend to selectively continue to deploy, has partially been returned already. We are sticking to our commitment of making this a rotating model under current sort of circumstances, namely in 2023 and 2024. Holding periods for some of these engagements do differ. They can be fairly short with regard to seed funding. They can be a bit longer for warehousing activities, and co-investing depends on who the partner is and what the expectation is. With that, I would like to proceed to slide 15, where we communicate our dividend proposal for the fiscal year of 2023, as well as a new dividend policy. We have talked to the market about this yesterday, and it basically is best summarized as stating that we are proposing that a dividend of EUR 0.34 per share should be paid for fiscal year 2023. It would represent the sixth consecutive increase in a row. We have deliberated a lot on our dividend policy, and we would like to state that we do intend to be a dividend-paying company. PATRIZIA strives to offer steadily growing dividends to shareholders throughout market cycles with emphasis also on that last part of that sentence. Long-term, and this is equally important, we do aim to distribute more than 50% of the net profit attributable to shareholders in the form of dividends. What we are also saying indirectly here, that when times get difficult, we also do rely on our strengths to stay in the game. We continue to actively manage capital and return of capital to shareholders of the company. It is maybe, to finish off this page, important to say one more thing. Philosophically, we want to be a reliable dividend player. That is our objective. We do have the equity and the liquidity to pay, and I already alluded to that also in times of temporary, the weaker bottom-line profitability. But it is as important to say that long-term, once net income levels come back after a longer period of compression, this part of the dividend policy that is alluded to here on the bottom right corner of the page will kick in. Until then, we have strong annual cash flow to support our proposal, as well as existing equity, retained earnings, and so on and so forth. With that, I would like to go briefly into page 16. I already made the point that, with regard to 2023, we came in within the most recent guidance range. We are cautiously optimistic for fiscal year 2024. We are providing here guidance where we expect AUM to come in somewhere between EUR 54 billion and EUR 60 billion. The midpoint there would be EUR 57 billion, which would be, in essence, reflective of a flat positioning compared to how we left 2023. Again, a lot of this will depend on when rates will start to drop, price finding will be initiated, transactions will come back. That, in conjunction with us adopting a net buyer position, will significantly influence where we are going to land at the end of 2024 on the topic of AUM. With regard to EBITDA, we are really sticking here to the notion of being cautious but also optimistic. We are providing here a range between EUR 30 million and then EUR 60 million. A lot of the landing point here will depend on what I also just said, because that will be the catalyst to transaction fee income bouncing back. If we assume for a moment that management fee growth stays with us, transaction fee income bounces back, and we get as expected, a somewhat negative trend on performance fees, I think we should be able to do well within this guidance. We have to be clear though on two things. We had enjoyed a reasonably high level of other operating income in 2023, and a slightly higher than expected performance fee income. I think it would be foolish to assume that performance fee income will be a positive surprise in 2024. Equally, I would say that it would probably not be appropriate to assume that other operating income can be high again. That said, one could also choose to be an optimist on transaction fee income rebound and its magnitude. That is where we are cautious. If you look at this guidance range for EBITDA, depending on whether you adopt a cautious stance on the timing and magnitude of the transaction activity rebound, or a more optimistic stance on that front, you can end up in quite different places within this guidance. We obviously will do what we can in conjunction with market dynamics, to perform well within this framework or outperform it, and we will keep you posted in that respect. Similar commentary would apply to the EBITDA margin guidance range, so I will not repeat that. Last point here, and again, we have stressed this at the bottom of the page. It is important to know that the EBITDA earnings quality is expected to improve or continue to improve compared to last year's. Because of the lower cost base I already alluded to in the wake of the restructuring we initiated and the G&A cost controls we have put in place. But also, and that is equally good, a higher share of recurring revenues. That is in a nutshell really the picture. Appreciate the fact that you listened to me walking you through this presentation. I assume, Martin, with that, we can hand it back to the operator for Q&A. Absolutely. Operator, please open the Q&A. Thank you. We now begin the question and answer session. Anyone who wish to ask a question may press star one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. The first question come from the line of Jochen Schmitt with Metzler. Please go ahead. Thank you. Good afternoon. I have three questions, please. Firstly, on the dividend policy. The longer term payout ratio target of above 50% in combination with your desire to grow dividends steadily, this suggests to me that you expect a major medium-term earnings recovery, because otherwise the clause more than 50% would probably rather look like significantly above 100%, at least if referring to your outlook on 2024. That's my first question. Second question, very briefly, could you specify D&A in Q4? And third and last question, could you comment on the development of the deferred Dawonia performance fee claims? And I assume the decline in shareholders' equity is related to that. And maybe also a comment on the portfolio revaluation result of Dawonia. Thank you. Hey, thanks, Jochen, for your questions. Good to have you on the call. On the dividend policy related question, it is indeed our explicit objective to have a profitability related approach in this respect, and in particular in the medium to long term. When you look at that on one side and you look at where we stand right now in the third year of a consolidation phase that is unprecedented, there is of course an implicit assumption that there will be a significant midterm rebound. Yes, the answer to your question is yes in that respect, and that's what we expect and we expect it as a combination of markets coming back and our business model yielding diversified higher level income streams, again, while having actively locked in the cost base short of certain inflationary adjustments. The combination of the two in addition with a smart real asset player strategy, which we are in the process of formulating right now, for later communication this year, should get us there. The second question you were asking is on, was it D&A or G&A in Q4, Martin? D&A, please. You mean depreciation amortization, Jochen? Right. Yes. Oh, that was the one I was expecting. Yes. In the fourth quarter last year we saw, let's say an unusually high level of depreciation and amortization. We had a couple of warehousing assets that we had to subject to downward valuation pressure, which we of course, diligently did. And then there have been a couple of capitalized fund contracts that had to be impaired. So there had been a quarter-to-quarter, an unusually high level of depreciation and amortization. But I would not expect that to continue, and hence the depreciation and amortization levels that you are seeing this quarter 2023 should be expected to be substantially lower in 2024. So if we have seen a level of about EUR 15 million in 2023, I would say we're probably going to see a level of maybe EUR 40-ish or less in 2024. Now, that means EBITDA in itself will improve from that angle, but for both periods, it is non-cash relevant, so it does not impact the operating cash flow. On your third question, which was related to the development of the Dawonia performance fee, I would just say the following things and maybe the first couple of points will be repetitive compared to what I said in the past. The Dawonia investment is an investment with a size north of EUR 5 billion. It is a very high-quality portfolio that has seen only around about 4.5%, 5% of valuation pressure in 2023. And that said, we're actually as we speak, even this week, we are in active dialogue with our 27 investors in this vehicle, all of which are very strategically oriented long-term German institutionals. It is our objective to extend this mandate in terms of managing it as an AIFM and an advisor into the future. It is our intention to make the performance fee claim more tangible by either crystallizing it in cash or a tangible stake in the vehicle. We are in discussions with the investors as to how we adapt certain governance approaches to make the vehicle more open to new capital or other moves. So I'm feeling quite good as to how we progress with our partners there. And as I said before, I do expect that we will be able to communicate in spring, at some stage, how we will proceed. Now on the equity reduction in 2023. That was indeed specifically linked to this 5% valuation impact I was just alluding to. The way this works technically is that if the AUM or the gross asset value sees a roughly 5% valuation hit, that obviously kicks through into the valuation of our performance fee, but it also impacts our 5.1% stake. Equity was burdened in its totality by roughly EUR 50 million-EUR 60 million, Martin? Yeah. That's really it technically. Now if residential values stabilize or bounce back, you will see the opposite trend, of course, also happening. Thank you very much. The next question is from Thomas Neuhold with Kepler Cheuvreux. Please go ahead. Good afternoon. Thank you very much for the presentation and taking my questions. I also have three questions, and I think the best is to take them one by one. Firstly, on 2023 results, you mentioned a valuation drop of 4.6%. Can you provide, please, more color on the valuation development in different asset classes? Okay. The first question. Yeah. In aggregate, we have seen 4.6% of negative valuation impact. Maybe upfront, directionally for 2024, we still also expect a negative trend, but more moderate. Maybe more in the area of 3% or 3%-plus. From an asset class angle, obviously commercial real estate is probably the area to focus on. Then again, as I said before, it depends. If I would be more precise, I would say commercial or office assets in B locations with substantial CapEx requirements to convert them brown to green or black to green. That's been certainly a bit of a negative leader. Compared to that, logistics and retail are okay. Retail maybe with the exception of high street retail assets. At PATRIZIA, we have already dealt with some of these small pockets of high street retail assets we had in the past and managed them out. To my knowledge, there's not much left in that respect. Residential has seen some pressure, but I would say in our case, quite moderate. We have even seen positive trends in some geography portfolio combinations like Italy and student housing and so on. That said, I would say everything has been directionally under pressure led by the office asset class I mentioned, and maybe retail already seeing a silver lining. Residential seeing already a silver lining, and I think that's going to crystallize itself more as we go through 2024. For 2024, I expect office to still face pressure. The other asset classes are stabilizing, and then we will take it from there. Infrastructure is a positive outlier in general. Thank you. My next question is on your comments on the guidance. You mentioned you expect the further growth in the management fees and also rebound in transaction fees. I was just wondering if there's no AUM growth, where the growth will come from in the management and transaction fees? Now, first of all, I would say that on AUM growth, there are three scenarios, logically. Either flat, so no growth, or growth or negative growth. We would directionally bank on either a flat situation or maybe a moderately positive one, which would then help us increase management fees. But even if that's not going to happen, i.e., if it's going to be flat or mildly negative, you must not forget that there are income streams in here that are increasingly emerging, that are somewhat independent from the AUM growth. Like for instance, development fees, some of which you will see already in the first quarter this year. Also that structuring fee income, although probably fair to say that that structuring fee income is only to be had if you really go above and beyond and do unusually complicated, successful transactions for customers, investors who are expecting good service in that front. But if you do what I just alluded to, like in the example last year of the Commerzbank Tower refinancing, I think there's an additional incremental revenue stream to be had here as well. So I think the logic that you were proposing has its merits, but I think you cannot look at this on a standalone basis, so we have ways how to mitigate a flat or a negative scenario. Okay, thanks for the clarification. The last question I have on the potential rebound in demand. You mentioned that obviously falling interest rates could be a key potential trigger for a comeback of the investment markets. I was wondering if this is a sufficient criteria. Or from your discussions with investors, are they also looking for, I don't know, stabilization of prices, more transaction evidence, economic recovery in order to trigger a rebound, and then which sectors you think will rebound firstly? I would maybe start by saying that it is clear to everybody that the rate environment and dynamics of the rate environment will work as a catalyst. I've already alluded to that. Now that said, the return of activity. We are looking at firepower we have across our vehicles to the tune of EUR 3.4 billion. Not all of that is fully at our disposal. Some of it requires, obviously, investor consensus or decision-driven deployment. But what is important is that we have now the infrastructure optionality in addition to just the real estate product suite, which we have been enjoying the portfolio for the last almost 2 years now. That has shown already also in 2023, that it gives us an additional optionality to grow. On the real estate side, we do believe that part of a smart real asset investment management positioning needs to be in conjunction with decarbonization as a major trend, a brown to green value add investment strategy and asset management proposition. That is going to be quite central for us as we enter 2024, in addition to infrastructure-related, energy transition-related strategies, and so on. Philosophically, I would maybe add one more comment. It is not always just about asset investment management. It is really going to be a lot about asset management and not asset allocation. We believe that we have the expertise to propose and execute strategies along those lines. Again, digital, urban living and energy. For that, we are prepared. So when the catalyst kicks in terms of falling rates, alternative investment opportunities are, let's say, going to stay as they are right now. I think we are going to see on the back of our product offer, the optionality that comes with it, and the execution skills and proximity to the physical asset we have, we are going to see positive dynamics. Thank you very much. As a reminder, if you wish to register for a question, please press star one on your telephone. The next question is from Martin Manuel with ODDO BHF. Please go ahead. Yes. Thank you for taking my questions. Two questions from my side, please. Also, maybe one by one. The first question would be on the cost structure of PATRIZIA. You have taken your reorganization hit in Q4, so you are going to spend less costs in 2024. Suppose that the challenging real asset environment persists even longer than we think. Would you see more room for cost cutting going forward? Maybe two, three points to answer that. In hindsight, it is probably fair to say that what we did in late 2022 was at the time, but knowing what we knew at the time, probably not sufficient. I think the move we made now in late 2023, where we also touched the entire cost structure of the company, starting with upper management, and therefore also incurring a relatively or higher average of restructuring costs, I think has been more holistic, more coordinated, and more severe. Again, that does give us a situation for 2024 where recurring income is going to cover all costs. That said, in the unlikely scenario that there is a medium to long term muted market environment, and therefore, and in combination with no catalyst, no transaction activity unfolding, we will, of course, have to consider additional structural cost cuttings. I consider that at the moment, not so likely, but if we have to do it, we will do it. Okay. Second question. As the market is actually not really easy, can you give us some more color on what is going on in the M&A market or potentially might going on? It looks relatively quiet, but maybe you can give us some impression on what you think and whether there are possibilities for PATRIZIA. Well, first of all, I will repeat what I always say first when I get a question like this, which is that we do not plan for any M&A impact in our outlook that we provide. That said, we are constantly screening the market for meaningful opportunities. We do stick to our principle that we would not just acquire for purposes of size or scale. I think there needs to be a strategic value add to it in the form of additional or an expansion of our product portfolio offering, maybe a strategic distribution angle, maybe an instrument type angle, or a substantial synergy angle if it would be having the nature of a consolidating acquisition. It is probably fair to say that there are topics we are looking at, but I do not think there is anything that would warrant any form of communication at this stage. I look at this topic more as a range of topics, because we will hopefully in 2024 see traditional asset level transactions bouncing back. We will probably see more portfolio transactions, i.e. asset group type transactions. We may see market participants like for instance, insurance companies doing balance sheet pruning efforts and maybe dropping entire sets of portfolios into customized vehicle setups. Then there could be distressed opportunities or even M&A opportunities. So I look at this as a range of opportunistic plays that we will look at. We are actively positioning these skills and resourcing the company that we have to handle that, but it is probably premature to allude to that further at this stage. Okay. Thank you very much. The next question is from Klaus Kai with Berenberg. Please go ahead. Yes. Good afternoon. I have got two questions. The first one, in your AUM guidance, what is the amount of redemptions included there? Hey, Kai. Good to have you on the call. Very, very small. Which is what? EUR 1 billion? Half a billion? Did you say million or billion? Billion. No, not even close. Just to give you a feel, where we do see some redemption requests, they are partial in nature, they are small to medium sized tickets, and we see them more in the area of some of our U.K. vehicles or one or two of the pan-European vehicles, and we are talking about ticket sizes of EUR 20 million or EUR 30 million or so, maybe in some cases EUR 40 million. So you get a handful or two of those. You are talking, I do not know, somewhere in the lower EUR 100 million. It is fair to say it will be less than the EUR 900 million last year? Oh, sorry. Be careful here. The EUR 900 million are not necessarily redemptions. There is cash outflows and redemptions. The redemptions as such have been quite subdued, which is something we did not expect to be as low, but it is what it is. And I think it is a function of our investors being very equity and cash rich, and in many cases also upping their capital contributions, and holding together vehicles. That is quite good to see that we are really benefiting from their stability and stickiness. And the number you were just quoting includes cash returns, like for instance, also dividends. So be careful there how you parse that number. The number is substantially smaller than the one you were quoting, so more in the lower EUR 100 million space. What is more important on the opposite side is the EUR 3.4 billion of firepower we are sitting on in terms of committed capital and cash and structures. So, redemptions for us at this stage are not well, they are a topic of fund management attention, of course, because it is a topic across a number of vehicles which is being actively monitored and managed. But it has been managed very well until now, and I have to say that it is also largely due to our very, very strategic investor base. A good picture. Okay, but the EUR 900 million obviously was negatively impacting your AUM development in the last year. If you take the same number, redemptions and cash flows, what are your expectations for 2024, and what is included in the AUM guidance? I would directionally maybe expect a three-digit million trend again. I think what we've seen in 2023 could maybe be a starting point to think about 2024. Then again, it becomes a question of organic growth compared to that and valuation trends. So valuation trends being still negative, but less so, i.e., more favorable compared to 2023. Redemptions maybe directionally again being in this lower hundred million space. Organic growth more likely bouncing back later in the year. I think the net equation should be decent. But again, you can see it reflected in our AUM guidance range that we are cautious here. But I would verbally summarize it as I just did. Okay. Could you indicate what was the payout ratio for 2023 in the context of the new dividend policy? Hi, it's Martin speaking. Kai, if you base that on net income, then we're certainly way above 100%. But as we said, the dividend that we'll pay, which will be as a total sum, if you base it on the shares that are eligible for dividends, so you need to deduct the treasury shares that we own, then we talk about a number of say EUR 28 million, EUR 29 million, and then that's well covered by the operating cash flow of the company. Which is what in terms of payout? Or a normalized payout, or referring to what kind of normalized EPS? If you look, we have a net profit attributed to shareholders of EUR 5.8 million, and compare that to the EUR 28, EUR 29 million, so you can do the math. Thank you. So it's about a third of the operating cash flow, and it's about 5x of the current compressed attributable net income level. Assuming a rebound in the midterm, i.e., a decompression of the P&L and a steadily strong operating cash flow, it will both come into equilibrium again at some stage. The emphasis on saying that this is our long-term goal, in combination with the ability to sail through the down cycle is in essence what we've been alluding to. Thank you. The next question is from Lars Vom-Cleff with Deutsche Bank. Please go ahead. Hi, good afternoon. Thanks for taking my question. It's just a quick follow-up on Dawonia, just a clarification. Have I understood you correctly that we should expect news in spring on the enormous profit entitlement, and that this then could at least partially become P&L effective, or at least be turned into an asset which you can sell at any point in time in order to raise the value and the gain? No. I would not want to be that specific yet at this stage, and it is also not my role to speak on behalf of the investors that we're partnering with here. That would be premature. What I was saying is the following. As we communicated before, we entered into a temporary prolongation of the contract in 2022. Within that prolongation period, it is the joint objective of the investors and us to decide on a long-term renewal on the contract, and we are right now very actively in negotiations in that respect. Unless something unexpected happens, I assume that directions and then commercial terms might be agreed over the course of the next weeks and couple of months, and then we will be in a position to communicate. The strategically important points here are that we are dealing with a EUR 5 billion plus portfolio, which is incredibly valuable and also stable, relatively speaking. We are dealing with a very significant asset investment management and advisory mandate. So we are dealing with a value add or back to value add German residential portfolio here that we would like to take to the next level and being a residential expert of pan-European or global nature, I think this is a mandate that is super important for us. Once we will have negotiated the long-term solutions with the investors, we will come back with more specific update. Understood. So there might also be a risk that the status quo will continue, i.e., your profit entitlement is piling up, becoming more and more valuable, but you do not have access to it. I would say it is more likely that there will be a lot more clarity. Okay, understood. That is sufficient at this stage. Many thanks. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christoph Glaser for any closing remarks. Thank you very much. Look, thank you everybody for attending the call, and thank you in particular for all the interested questions. We hope we presented ourselves in a clear manner and answered your questions to your satisfaction. Thanks for attending. The final numbers and the annual report will be published on March 22. Martin? Yes. We hope to see you on one of our roadshows or broker conferences shortly. Thank you very much and have a great day. Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.