Good day and a warm welcome to today's earnings call of PATRIZIA SE, following the publication of the Q3 figures of 2026. Kindly note that every participant is in a listen-only mode, but after the presentation, we will move on to a Q&A session where we would be happy to take your questions in person via the audio line. Having said this, I hand over to PATRIZIA's Director of Investor Relations, Janina Rochell.
Thank you, Judith. Welcome, everyone, to our analyst and investor call for the first nine months of 2026. This is Janina speaking. I am pleased to have our CEO, Asoka Wöhrmann, and our CFO, Martin Praum, with us today. Asoka will start with an update on our strategy and the market environment before Martin takes you through our financial performance and outlook. As in our half-year call, rather than walking you through the nine-month results presentation slide by slide, Asoka and Martin will focus on 10 key messages that best capture our performance, the progress we have made, and the key developments across our business. Directly after that, we will open the floor to your questions. If you have any questions after the call, the IR team is more than happy to assist. As always, we will record this call and make the recording available on our website.
We will also provide a call transcript for further reference. With that, I'd like to hand over to Asoka. Asoka, the floor is yours.
Thank you, Janina, and a warm welcome also from my side. Thank you for joining us today, and let me start directly, as Janina said, with the market and market developments. The investment regime has changed. The real assets once again have to earn their premium over bonds. Institutional capital is increasingly selective, and competition for allocations remains intense. Our biggest competitor for that capital is fixed income, because bonds are attractive and attracting a lot of money, as we have seen in also the last years. The third quarter showed this very clearly. The ongoing Iran conflict pushed up the oil prices, inflation, and inflation expectations. The ECB raised rates, and bond yields went up. Geopolitics is only a part of the story. Governments are borrowing heavily to fund their spending, and that pushes long-term rates up.
At the start of October, 30-year French government bonds were close to 5.5%. There is a contradiction here. Governments want private capital for housing and infrastructure, but their own borrowing makes that capital more expensive. The premium over bonds is no longer given. It has to be earned through active ownership, and that brings me to my second key message. The structural demand and active ownership create value beyond the market cycle. Our core themes are the anchor of our strategy, and in my view, housing and infrastructure are the two big tasks of our time. The shortage of affordable housing is one of the most pressing challenges facing our societies. Addressing it requires public and private capital to work together effectively. This is why we recently announced a GBP 1 billion investment commitment to UK Essential Living, with the ambition to deliver approximately 4,000 homes.
It demonstrates how we can bring institutional capital and investment expertise to address structural undersupply. Beyond housing, our acquisition of 24 Lidl stores across Italy, France, and Spain demonstrates our continued investment activity in the European food-anchored retail area. Our strategic cooperation agreement with the Abu Dhabi Projects and Infrastructure Centre also creates opportunities to explore infrastructure investment in the region. Housing has been central to PATRIZIA since 1984. Today, with around EUR 18 billion of residential assets under management, we continue to build on that heritage through our European affordable housing strategy, now with the second vintage. These examples show capital is there for the right strategies if you can also deliver them with a premium through active ownership, and we see this in our business volumes. Fundraising and transactions remained robust.
Capital is scarce and contested, even though the equity we raise from clients grew by 57% to EUR 1.2 billion. After nine months, we are already at the full year 2025 levels. On top of that, we have EUR 1.5 billion of open equity commitments. This is the basis for future growth in assets under management. Transactions also continue to recover. Closed transaction rose by 12% to EUR 2.6 billion. We have positioned PATRIZIA for the next phase of the cycle. We have capital ready to invest, and transaction markets are recovering. We are well-placed to put our clients' money to work as the right opportunities arise. With that, I hand over to Martin for our financial performance and outlook. Martin, the floor is yours.
Thank you, Asoka. A warm welcome also from my side. Asoka has shown where we see structural demand in a continued challenging market environment. Let me now show you how this translates into our numbers. First message from my side: we continue to deliver on profitability growth. Our cost discipline and higher transaction-related fees drove strong EBITDA growth in the first nine months. Our EBITDA grew by 37% to EUR 61 million, and our EBITDA margin expanded by 8 percentage points to 30%. Total service fee income remained broadly stable at around EUR 191 million, as strong transaction and performance fees largely offset lower management fees. Operating expenses declined by 9% to around EUR 150 million. Our earnings growth therefore reflects the benefits of a leaner cost base and stronger transaction activity in the third quarter. But growth alone is not the whole story here.
What matters to us is the quality of these earnings. Here is the second important point. Our recurring management fees continue to more than cover our operating expenses, and therefore evolve to a stable earnings contributor. Two years ago, in the first nine months of 2024, management fees alone fell short of our operating cost base by almost EUR 21 million. We were quite dependent on transaction and performance fees to close that gap, and that has changed fundamentally. In nine months last year, management fees covered all operating expenses for the first time, with around EUR 9 million left over. This year, this surplus has grown to EUR 13 million. Why is this relevant? Our recurring management fees now more than fully fund the operating platform. Every euro of transaction or performance fee therefore flows directly into earnings, which gives us real operating leverage.
You can see that in the total service fee result, which describes our total service fee income net of operating expenses and excluding all other P&L effects. It has risen from EUR 6 million to EUR 40 million, and this is an improvement of around EUR 34 million alone in two years. Our earnings base is hence more stable and more predictable. Recurring fees carry the platform, and transaction and performance fees provide additional upside rather than just covering the gap. Let me turn to my third point, assets under management. They stood at around EUR 55 billion compared to EUR 56.2 billion at the year-end 2025. The development reflects strong transaction activity in both directions. On the one hand, continued fundraising and capital deployment brought in EUR 0.6 billion in inflows.
On the other hand, we have been actively executing on our clients' business plans, selling assets and returning capital, which resulted in outflows of around EUR 2 billion. The outflows outweigh the inflows, and that is the main driver of the modest decline in assets under management. Valuations have broadly remained stable, with an impact of only minus EUR 0.2 billion so far this year. That said, markets remain dynamic and volatile, and we cannot fully rule out some further valuation movements towards year-end, looking at the current yield environment in the market. That also explains the update in our AUM guidance range towards year-end. Let me now move to my fourth point, our balance sheet investments. We invest balance sheet capital very selectively. Our invested capital at cost amounts to around EUR 550 million and EUR 919 million at fair value.
This reflects an uplift of 67%, or roughly EUR 370 million of value above cost. The EUR 919 million are already net of the EUR 49 million gross exit carry payment we received from Dawonia this year. Part of this value creation is therefore already in cash, not just on paper, and the value creation uplift holds even after that payment. At the same time, the segment balance sheet investments contributes a stable EBITDA of around EUR 10 million, while value creation from certain investments is not shown in EBITDA, but directly in equity in other comprehensive income. Looking ahead, the additional Dawonia stake we recently bought, with closing in October this year, is not yet reflected on the balance sheet and will increase our invested capital from the fourth quarter onwards.
I will come back to that in a moment when we talk about my fifth key message, capital allocation. Capital allocation is a topic many of you asked us about over the last few quarters, so let me be very clear. We follow three priorities in the following order. First, we want to keep a synthetic investment-grade rating. That is non-negotiable. If required to maintain the rating, we use available liquidity to reduce balance sheet debt. A strong and solid balance sheet is the foundation for a long-term-oriented business model, also for an asset-light investment manager like PATRIZIA, as it enables financial flexibility throughout market cycles, it offers opportunities to invest when many other can't. Second point, we deploy capital into profitable growth to grow earnings and our dividend capacity. Balance sheet investments are selective and always subject to return thresholds, as well as our balance sheet capacity.
Third, if the two items mentioned before leaves excess capital, we will consider returning capital to shareholders through dividends and/or share buybacks, both which we've done in the past already, we continue to increase dividends over the past years. The latest investment in Dawonia in a stake is a good example of generating long-term profitable growth, driving returns up. in October this year, we completed the purchase of an additional 2.3% stake for around EUR 50 million, with a potential additional payment of EUR 11.8 million if certain performance thresholds are met. We bought at an attractive price into a longstanding flagship investment we know very well. The expected annual return is above our cost of capital, the dividend distributions and valuation gains will add nicely to our P&L and net profit going forward.
Important message here as well, a large part of our current balance sheet investments is not tied up for the long term. Around 70% of them are expected to turn into cash in the short to medium term. The Dawonia exit carry at 31% and our tactical seed investments at around 38% share of total belong to that. Only our long-term co-investments and opportunistic investments are held over the longer term. Now let's go to message number six for you on balance sheet and liquidity. Our balance sheet gives us the flexibility to deliver on all three capital allocation priorities going forward. Our equity ratio stands at 65%, our net equity ratio at close to 74%. Available liquidity increased to around EUR 150 million, including EUR 50 million already earmarked for the additional Dawonia stake investment I mentioned before.
Operating cash flow, very important, increased further by 10% to EUR 44 million year-on-year, helped by better earnings and improved collections and overall working capital management. This is a very strong foundation, but do not forget, we are still in a challenging operating market environment. This brings me to my last point, the outlook. Based on our year-to-date performance after nine months and better visibility, we have specified our guidance for the full year 2026. We now expect an EBITDA in a range of between EUR 65 million and EUR 75 million, an EBITDA margin between 23% and 28%, and assets under management between EUR 53 billion and EUR 57 billion, excluding currency effects. This implies a fourth quarter EBITDA of between EUR 4 million and EUR 14 million, roundabout. As usual, we do not recommend simply extrapolating our nine-month results.
Total service fee income is expected to normalize after a strong third quarter driven by transaction fees. Our cost base is seasonally higher in the fourth quarter, comparable to the quarterly pattern seen last year, and some costs will only come through in the fourth quarter. All of this is already reflected in our full-year guidance. The yield environment and market volatility continue to be a challenging factor, which is why we also updated our AUM guidance for the full year 2026. Achievement levels do depend on the timing of closing of signed acquisitions and disposals, as well as on valuation assumptions from our external valuation providers. Currently, we see the midpoints of the new guidance ranges as the most realistic assumption for the full year performance. Let me close with this.
Again, although facing a challenging investment environment, we have delivered earnings growth and improved profitability, supported by a structurally lower cost base. With structural client demand, management fees that now exceed our costs, and a strong balance sheet, we see ourselves well-positioned and continue to be a solid and, most importantly, a reliable partner for all our stakeholders. Thanks, everyone, for listening, and I look forward to your questions.
Thank you very much for your presentation. Dear participants, we will now move on to your questions. To keep this conversation engaging, we kindly ask you to ask questions in person via audio line. To do so, please click on the raise your hand button on the lower part of your screen. If you have dialed in by phone, you can raise your hand by pressing the key combination star key nine, and with star key six, you can unmute yourself. The stage is yours. We are happy to take your questions. The first hand is up from Philipp Kaiser. Please accept the allowance to speak. Yes, you can unmute yourself. Hello.
Hello, everyone. Can you hear me?
Yes.
Perfect. Thanks for the presentation. Thanks for taking my question. Just a couple. One, starting with regards to the management fees. Management fees amounted to EUR 53.3 million in Q3. What exit run rate should we assume for the entire 2026?
Philipp, for the remainder of the year, we would assume a slightly higher number in management fees versus the third quarter, so probably comparable to the second quarter as a run rate.
Perfect. Thanks a lot. My next one is on the disposals. Disposals amounted to EUR 1.9 billion of the EUR 2.6 billion closed in the first nine months. How much of the proceeds did clients already invest, or is your assumption, will reinvest in PATRIZIA products?
That really depends on client and investment strategy, Philipp. There is always a certain amount of clients or certain part of clients that do reinvest in our products, but typically there is also a time lag between the disposal and the reinvestments. Please bear that in mind.
Perfect. Thanks. Thanks a lot. My next one would be on your AUM. If I remember correctly, your AUM already includes fee-earning commitments. How much of the current outstanding EUR 1.5 billion of open commitments already earns fees today, and how much only once it is invested?
Philipp, the EUR 1.5 billion is separate of the AUM number. It is indeed true that in our AUM, we have capital commitments, and if they earn fees, then they are included in AUM. If they do not earn fees, then you will see them in the pipeline number that we mentioned, the EUR 1.5 billion.
Okay, perfect. Thanks for the clarification.
EUR 1.5 billion.
Yeah. Okay, perfect. Then maybe also trying to look ahead, looking into next year. Since the two ECB rate hikes, do you see any changes in client commitments and fundraising already?
Look, we mentioned that fundraising and client activity is very selective. I think I mentioned that before, the great advantage of PATRIZIA is that we have a very well-diversified platform. So even in this market environment, we can cater for the needs of our clients in different areas. Also, look at what we've achieved after nine months, a significant increase in equity raised in a very tough market environment where many of our competitors weren't able to raise equity. We think we will continue to see very selective activity in equity raising. If I look at next year, probably in that area, would go for a flattish development in terms of equity raising versus this year.
Thank you very much. Very, very helpful. My last one is also on this topic. In H1, you expected to convert committed capital into AUM during the second half of this year. Over what period do you now expect to deploy the open commitments, and how much visibility you already have for next year? Is there a kind of a timeline to get a feeling from fundraising translating into your AUM and then basically into management fees?
Sure. Typically, there's a pattern. You could argue that it's depending on investment strategy and client takes between six and 18 months to deploy the capital that has been committed. As an average, I would guide for around 12 months on average between raising and deployment.
Okay, perfect. Thanks a lot for the clarifications. Very helpful, all from my side.
Thank you, Philipp.
Thank you very much. We will go on to your next questions, ladies and gentlemen. Please be reminded that it is still possible to ask questions via audio line by raising your hand or pressing star key nine if you have dialed in via phone. I am holding the room for another moment. We do not have received any further questions at that point, so everything seems to be answered by now. Should further questions arise at a later date, please feel invited to get in touch with Janina and her team at any time. Thank you very much. With this, I hand back to Janina for some final remarks, which concludes our call for today.
Thank you, Judith, for handing back to me. Thank you, Martin and Asoka. Thank everyone for joining us today, and thank you for your questions. If any more questions are coming up, please don't hesitate to reach out to the IR team, as we are always happy to help. As I said, the recording and transcript can be found on our homepage afterwards. Thank you again for your time and interest in PATRIZIA, and we look forward to speaking with you again soon. Have a great day. Goodbye.