alstria S.à r.l. (AOX) Earnings Call Transcript & Summary

Dear, ladies and gentlemen, welcome to the conference call of alstria office REIT-AG regarding the Results H1 2020. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Olivier Elamine, who will start today's conference. Please go ahead.

Thank you very much and welcome today from hot and sunny Hamburg. I'm here in the room with Alexander Dexne and Ralf Dibbern keeping social distancing, of course. And before we move into the half year results, I would like to draw your attention to the usual disclaimer on the duty to update and the forward-looking statements. We have prepared today a presentation which is slightly out of the ordinary for half year result presentation, but we thought the circumstances warrant for us to do a bit differently than usual. So I'm going to spend just a few minutes going through the half year number. And then spend the rest of the presentation, discuss more what we see the impact of the situation is going to be on the business going forward and the way we are wrapping our minds around the situation. There will be obviously opportunities for you to ask question about the numbers, but we thought that having a kind of 10, 15-minute presentation on more of the strategy going forward would be an important milestone, not waiting for the full year results as we usually do it annually. The half year have been moving pretty much in line with our plans, with revenue at to EUR 87.2 million, our FFO at EUR 54.4 million, and our rent collection is virtually back at 100% in July. Our guidance is still unchanged with revenue at EUR 179 million and FFO at EUR 108 million. I think you would notice that EUR 108 million is just half -- double EUR 54 million, so we seem to be on track to meet that. And the EPRA NTA, which is the new EPRA NAV, at EUR 17.73, and net LTV at 26.3%. So basically our financial metric has been developing pretty much in line with our expectation at the beginning of the year. We have been, as you know, enhancing the liquidity position of the company. We have issued, over the last quarter, EUR 350 million bond with a 6-year maturity and a coupon of 1.5%, which give us substantial fire power to potentially [ size ] opportunities in the marketplace. I will come back this in a minute, but we are confirming that the company will be paying the dividend that we renounced in March, EUR 0.52 and 0.01 of green dividend. So in essence, the business has been developing pretty much in line with our expectations despite the circumstances. And I think you could take from this that things are almost back to normal, and that's exactly what we intend to discuss right now. The way we are looking at the situation is [indiscernible], and we wanted to try to frame that on the slide. We tried to make a difference between what's happening through the health crisis, the kind of pandemic we're in, and we believe the most important question we need to ask ourselves when we look at the pandemic is how long it's going to last. Obviously, the longer it lasts, the bigger the impact. And this is something which is unique, we've never been through such a [indiscernible] before. It raised a number of questions. But we think it's important to differentiate between causes and effects. And different causes are going to have different effects. So the pandemic itself is having a number of effects, which -- I mean the first one is we've been on lockdown for quite a while. People have not been going to the office or less going to the office, although we're trying to get back to a more normalized situation. And more importantly, the pandemic -- let's [ put aside ] the health situation, but more importantly from an economic perspective, what the pandemic did is that it created a recession that we are going through right now. And so there is a question mark about how deep this recession is going to be, and how -- what kind of recovery are we going to go through. A recession is not something which is unique, we've been there before. We have a pretty good grip of our -- what happened to the office market in case of recession, and again I'll come back to that in a minute. So the only question you have is basically how deep is this going to be, and recession offers both risks and challenges, but also usually offer opportunities for well-capitalized companies. So we feel pretty comfortable in our ability to navigate this part of the equation. Obviously, the depths of the recession is going to be immediately depending on how long the health crisis is going to last. And finally, there is another item, which is impacting our thinking today is those 2 things are having impact on long-term trends and are accelerating a number of trends. And the questions are, which are those trends? I think work from home is one of obvious comes to mind. And what impact is it going to have on the overall business of a company like alstria and our marketplace. And those trends, I think, need not to be underestimated because they tend to last and outlive both the recession and the pandemic. So those are probably going to be here to stay. So this is what's going to be remaining out and our transforming items that's going to be changing the marketplace going forward, and therefore, we need to take care of them over the longer term. So my intention is to go through each of those 3 metrics and give you a brief overview about how we are looking at those. The pandemic -- I think, as I mentioned before, our half year number are just -- are doing just fine, and they are pretty much in line with what our expectation. I can read that other companies, other office companies are doing just as fine and the headlines of all the research report I'm doing is a little impact from the pandemic on the numbers. And that shouldn't come as a surprise. The nature of our business is that all the things we've signed in the first half of the year and during the pandemic are things that started a long time ago, you can see the rent collection number, which have improved the contractual like-for-like rent, which is a 3.7%. I think what is happening below the radar is what's more substantially important than what need to be looked at. One early advanced indicator of our activity that we are monitoring quite closely is the inbound inquiry coming from tenants, which is shown on the 2 graphs at the bottom of this slide. And this is a very good predictor about how the letting market is going to be doing within the next 12 to 18 months. Those number are alstria number alone, but our discussion in the marketplace with brokers and other players show that there is a very similar trend. All over the place. So what is happening right now is we have substantial decrease in inbound inquiries. They -- we started the year with a very good month of February, but since March, inbound inquiry are being down compared to the average of the last 3 years, and we're currently cruising at an average of 20% less inbound inquiry, which basically mean that the letting pipeline in the office market in Germany is slowing down, there is less people looking for space, which in turn means that the total take up volume within the next 12 to 18 months is going to be much slower than it used to be in the past. What's also interesting to look at is how this demand is being split in terms of square-meter demand. And what you can see is that there is a substantial demand for the low end of the market, which is the 500 square meter end and there is some kind of neutral demand on the high end of the market, everything which is above 5,000 square meter. In the middle is where we're lacking most of the demand, and the middle is actually the lion's share of the marketplace. What this translates is the fact that there are currently a lot of uncertainty within our corporate clients, which do not really know what to do with their real estate. And therefore, they are putting a freeze on, potentially, letting space and putting a freeze on space they're looking for, simply because they actually don't know what they're going to need, and they don't know what they're looking for. The other side of that meadow, which is not shown on this slide is we're seeing an uptick in people extending the leases where they are because it seems that the best option when you don't know what to do is basically start to go and stay where you are and do nothing. So what we're trying to say is, it shouldn't come as a shock that numbers are as they are right now. But the longer the pandemic lasts, the weaker everybody's pipeline is going to be on the letting side. And therefore, there is going to be some kind of consequences down the road if you're not prepared to meet those consequences. If we look at the recession, I think this is a much easier, also still impactful, but much easier things to grab because we've been there before, office business has always been and will always remain a cyclical business. And therefore, it's highly dependent on the strength of the underlying economy. It's going to be depending on the depths of the recession and the shape of the recovery. We know that the recession usually have 2 impacts, one impact is linked to the fact that tenant demand tends to weaken. It takes more time to get tenants into the buildings. But also, we know that yields tend to expand. There is risk aversion that happens during those recession phases. So this is something which is probably pretty much known and studied, and we've been before a couple of times, which is, to a certain extent, reflected partly in the valuation of the portfolio. I mean the value of our portfolio have declined on average by 2%. The -- on a relative basis, hotel and retail has been hit the hardest for obvious reasons. The hotels are not operating. The retails are not generated substantial income right now. So there is clearly some impact here, and we're probably less sensitive than other and reflecting the reality. The office market has been less impacted to a certain extent, the major impact that you see here is simply because we've taken more conservative assumption in terms of reletting, how long it takes to relet potential vacancy and the amount of CapEx that need to go into the building. But -- and I'll come back to that again in a minute. There is, in this recession, something, which is unusual compared to the others, which is that we have monetary and fiscal policy response, which is pushing real estate prices up and has been pushing real estate prices up for the last 5 years. And this has just increased with the new recession in pandemic. And this is going to be an opposing force to the usual yield expenditures that you would have. And the indication that we have in the marketplace today that we have from the market is not necessarily that office property value are going down. It's actually, to a certain extent, the opposite that we might be seeing. I think the jury is still out because the transaction evidence are still relatively limited. But we will have this kind of weird situation, which is new, at least for us, where monitoring fiscal policy responds to the economic crisis. It's so early and so massive that it's going to play an opposing force to the usual behavior that we were seeing on the marketplace. And I think this is also something that's going to have consequences on the way we're running our business and the way we need to be looking at things going forward. There are, from my perspective, 2 trends that has been accelerated or will be accelerated by what we're going through right now. And those 2 trends -- I mean, we speak a lot about home office but the actual underlying trend, which has been here forever, is the concept of work-life balance. I mean, this has been about improving the quality of space, real estate need to brand itself, you need to have better fit out, better amenities in order to allow people using the workspace to fit better. And home office is just another declination from the same trend, which is you try to make people life better by reducing their need for commuting time. The other trend that, from our perspective, has been accelerated massively through the pandemic and is getting much more focus is climate change. Again, this is not something which is new. It's something on which, here as a company, we've been looking at for quite a while. But it looks like there is today a stronger focus both from the shareholder and potentially the tenants on climate change, which is still a lot of things embedded under that work, but we are working, and I'll come back to that in a minute. Right now a lot on the embedded carbon. I think there is a debate about whether building need to be low tech or high-tech, whether you want to do refurbish assets or new assets. So a lot of those things are being put in the focus. The discussion around them are accelerating or the consequence of those trends happening is accelerating. But they are not necessarily new concept that we just discovered overnight. They were here for ages. There are a lot of know-how and understanding about how the dynamic of those things work. We just now need to be a bit more cautious and look maybe a bit more in detail about the focus point, which seems to be home office right now. I mean home office is clearly here to stay. And how do I know that? I mean simply because as a company, we've decided to allow our own employees to have 2 days a week of home office, which is 60 days annualized of flexible work where they can basically work from anywhere. The rule is it cannot be more than 3 days in a row. And the main benefit is to a low employee to limit commuting to the office and again, improve work-life balance. And if a landlord like us, which is an office landlord, is going into a home office, it's likely that other companies are going through the same experiment, and they're going to get to the same conclusion that we did. It was interesting for us to go through that process because running through the same experience and your clients basically give you a first-hand knowledge about the difficulty and the pitfalls they're going to be running into and what is feasible and what's not feasible. And I think one of the challenges, which is highly underestimated out there, is legal challenge of implementing those things and the clarification that will need to increase the possibility of home office, which is going to compete directly with worker right at the workplace. I'm not sure that it's going to be a plain sailing route. But having said that, I don't think that those challenges are going to be high enough to stop the trend of home office. There was a very interesting study, that I need to give back to Caesar what's owed to Caesar, which was done by Morgan Stanley Research, in which they have a number of questions about home office to potential users of office space across Europe. And what I found was the most interesting question was how are you -- I mean, how good are you with sharing a desk if there is a home office introduced by your employees? Because the reality is home office, per se, doesn't have an impact on our business. What has an impact is home office combined with debt sharing. If you do not have this sharing, basically, if you need a desk for every user, every worker that comes to your company then whether they come here for one day a week or 5 days a week, doesn't change the fact that you need the desk and you need the space to put that desk. The fact that there are -- part of the workforce, which is not working in the office is not new. I mean, I remember a very long time ago, all the sales rep, which were driving around, this is the country, they all had an office they use once a week or once every 2 weeks, and they were still using the space. Also there were in remote work, if you will. When I was working as a consultant, I also used to work a lot at clients, but I still had a desk in the office. So the real impact of home office would be the conjunction of the introduction of home office together with debt sharing. And so the relevant question for corporates, or -- and I think the question they're asking their self right now, is what is the value of offering a desk? How much am I willing to sacrifice to basically save potentially on the space that I'm offering to my employees versus, to a certain extent right now in Germany, having 45% of my workforce to feel very, very uncomfortable with the concept of sharing a desk. I mean those numbers are obviously pretty new. Those are debates that are taking place right now. So it would be presumptuous to come up with an answer to that question right now. And I think there are going to be a lot of trial and error before we get collectively the right answer to that question. And the reality is probably there is going to be the introduction of some kind of debt sharing within companies. But what I'm trying to say is this is going to be a relatively complex process that's going to take time to go through. And the impact on the office is even more complex because it's going to be highly dependent on the desk sharing acceptance within companies. What it means for alstria is that whenever we deliver a new space, we need to think about the fact that this space might be used in a desk-sharing way. And therefore, it needs to be designed in order to allow that. And we need to come up with what it means to share a desk or to have a workspace, which is designed as desk sharing within the building itself. And desk sharing actually, if you're a landlord, is not only about -- sorry, I've been a bit fast -- is not only about how you organize the space within the office, but it's also about how you organize the sharing of desk itself. And we are launching or will be launching in the third quarter of this year, a new feature that we will implement to all our new leases, which is called Beehive Enterprise, which is basically a suite of online tool, which basically allow tenant employees. So the employees directly not going through an HR or anybody else to book additional desk or meeting room in a seamless way through online or mobile tool within spaces, which is managed by alstria. This basically will offer our tenants, human resources department, the ability to have a centralized solution to manage [ flat desk ] policy. And they will have a better way -- tool to allow them to allocate costs to the different department and different employees individually. We are using agile development IT approach to develop this solution, which will allow us to roll out new functionalities based on tenant's feedback sorry. And the last thing I wanted to say is this is a full proprietary front-end and back-end solutions. So this is not something we're buying on the market. We think having those kind of tool is going to be a key competitive advantage on the letting market. And therefore, we are not necessarily willing to share that infrastructure, but we think it needs to be mastered and developed in-house. So this is basically part of our answer to the question. Again, I think it would be presumptuous at this stage to believe that we know exactly what's going to happen. But I believe that the home office/desk sharing is going to be one of the key focus of discussion with our clients within the next few months. And before we can have those discussions, they probably need to make up their mind and have an internal discussion among themselves with their own employees, about how and where they want to set that. The second part -- the second trend, which is accelerating, is climate change. And this is, again, something we have been concerned about and addressing for quite a while at alstria. We still believe that climate change remain the single largest long-term challenge that we need to address as a company. We could actually be a net 0 company. So we could be printing on LinkedIn every day how great we are, and we are net 0 because we are literally compensating all our emissions and are showing a net 0 bottom line carbon emission on the operating side. However, we believe it's not about what we claim, but it's more about what we do and how efficiently we do it. We have had, and we have joined the club of the 8 other real estate company who had their carbon targets approved by the science-based target organization, which is the highest level of scientific recognition of the fact that the target we've put in place and the plan that we have in place should allow us to comply with reaching the [ Paris ] agreement. We, however, believe that this plan is still incomplete because it only address what we're doing in operation. And the biggest impact that we're currently having is in the construction and the embedded carbon, which is the next part where we intend to tackle and I believe is going to be the next big focus of the industry going forward. And finally, we are introducing, and I'll come back to that in a minute. Again, the green dividend. Which we think is going to allow us to enhance the dialogue with our shareholders and ask a number of questions about what we should and should not do when it comes to climate change mitigation. So things are changing. That's -- I think that's a fact, we are all aware of that, and change, to a certain extent, is creating volatility and fear. But I just wanted to dig up a slide that we have discussed with you guys on the 2017, so 3 years ago, annual result presentation. And I think we could basically copy and paste this slide and put it into this presentation. The fact that things are changing, I don't think is something which is new. I mean, real estate, I know, is known as a very boring and long-term business, which have not changed for years and an office is an office in an office. But at the end of the day, nature of tenant demand is changing over time. We go through recession all the time. The office building we're building today is not the same than the one we were building 5 years ago. So the fact that the one we're going to build 5 years down the road is different shouldn't come as a surprise. Asset will require more capital going forward. Again, this is not a new trend. It has been here for a long period of time. As you know, we've been very, very cautious in terms of acquisition. We always argue that you need to consider the amount of CapEx you want to spend into an asset, and this is usually -- tend to be underestimated at the time of the acquisition. Product and services that you're addressing to a tenant need to constantly be reviewed. Again, that's not something, which is unheard of in other industries. I mean, if you speak to executive in the automotive, in software industry, they need to review their products and service all the time. And you need to have a much better cost-benefit analysis when you do a project and have -- and this needs to become a norm in our industry. Again, that's not completely new. What it means is we are more and more operators. And that's really something we need to be aware of, and that's something we are extremely focused on, which has been our key approach for years. It's very nice to be able to finance real estate and fund for real estate. But at the end of the day, if you want to be able to handle change, you need to be able to embrace the change, and you need to be able to operate the asset. You will fear the change if you're just financing the asset because you have new operational control. But if you control then you should not be concerned about change because that's part of your day-to-day life. And so yes, things are changing out there. There are new trends coming out but I can guarantee you that it's going to be the same thing 5 years down the road and the same thing 10 years down the road, and we'd better get used to it. So finance is not at the heart of what we're doing anymore. It's more about operation, but it's still a very, very important part of what we're doing. And a few years ago, 2 years ago, we were looking at how capital values and rental growth were evolving in Germany, and we were arguing that capital values were growing much faster than the underlying rents and GDP growth, and therefore -- and we believe that this was essentially linked to the amount of money which was pumped in through the monetary policy of the ECB. We are now in a situation where we might see this diversion even further. And again, the first indication we have from the investment market, although still anecdotical at this stage to draw large conclusion seems to go into that direction. We might see a complete disconnect where you have capital values going up. And rent and GDP going down, which would be a first, as far as I'm concerned. And this -- from this, we draw -- I mean, assuming this actually happens, we would draw 2 conclusions. First of all, I think focusing and having a very clear cash flow control and liquidity control is going to remain a primary focus. Because the lower the yield at which asset trades, the less you can afford to make mistakes on your cash flow planning. And that's going to become extremely important in our business, and you're going to see people running into trouble because they're not monitoring that thing specifically. The other thing that might happen at that moment in time is you might see a divergence between public and private markets. And that's because currently, public market seems to be rightly from my perspective, focusing on cash flow, whereby product market are focusing more on NAV and value. And if that disconnect keep on going on, there are going to be arbitrage that's going to exist between public and private markets that a company like us can use or other people will be using if we don't make -- we don't take advantage of. So I think this is something where the jury is still out, but we just wanted to highlight that despite the fact that we did print a slow devaluation of the portfolio, which was more a reaction to the fact that the world have changed over the last 6 months, and I think the economy is in dire strait today than it was 3 months ago. We are still looking at this matrix quite carefully, and we're still curious to see whether the impact of monetary policy is going to overcome the way the behavior that you would see in a normal recessionary environment when it comes to office as buildings. We came into the pandemic with an extremely strong potential and balance sheet and a low LTV development pipeline, which was fully let. And we were clearly preparing the company to a situation where there would be some kind of shock to the economy, although we didn't know what was going to happen. We were clearly not prepared to a situation where the economy will literally stop overnight and where everybody would stay home. So when we were faced with the unknown of the pandemic, when we were faced with potentially the prospect of not paying your rent become the norm. We thought it was normal to take a step back and withdraw our dividend proposal to the AGM. We are now a number of months later. I think we have -- a better understanding would be probably an overstatement, but we have -- we know better what we are looking at. And we also believe, rightly or wrongly that we know better what it will require the company to go through it. And we think that looking at how things have been developing over the last few months and looking into the future, we feel relatively comfortable with where the company stands and actually relatively happy of all the work that we've been doing over the last few years to reduce the risk on the company balance sheet, and we also believe it is time for us to reap the reward of all of that, and therefore, are happy to confirm our dividend of EUR 0.52 per share and add an additional EUR 0.01 of green dividend, which I would explain in a minute. So I think we have now much more comfort compared to where we were in March, and we feel, although there is still a lot of uncertainty, the level of uncertainty and volatility that's out there is something that the company should be able to handle. I mean we have looked at this slide before, but given that this was at the -- in February, when we presented our annual result, I just wanted to go back through it again. We are offering EUR 0.01 of green dividend. And the concept is the following. We are going to be asking our shareholders whether they want us to pay this additional cent as a dividend. If they ask us to pay it as a dividend, of course, we will. And then we hope that they're going to be able to invest that money into a climate change mitigating project, but it's really up to them. But if they refuse paying -- they refuse the payment of that dividend, we have identified 2 projects that would reduce the CO2 emission of alstria that we would use the proceeds to fund for the realization of those projects. And you can find better description of the project themselves and the concept of green dividend on a special website, which is green-dividend.com. The basic idea is we would not fund those projects in our day-to-day course of business because they would not yield the financial return that we would expect, and they would not meet our financial hurdle, but they would be beneficial from a CO2 perspective. So the basic question we're asking here is how much, if any, return are you prepared to sacrifice to make as the -- I mean, to improve the footprint of the company? We don't believe we have a mandate to do that, but we believe it's an interesting dialogue to have. We are trying to engage into this dialogue. And the other question we're asking is, basically, are we in the best position to spend money below our hurdle financial return or are there other investment elsewhere in the economy that could yield a better result? And we're really looking forward to having the discussions because we think, again, in the grander scheme of things, with the accelerating trend of climate change. We think it's an important debate to have between us and our shareholders, but more widely across the economy about what exactly are we prepared to do or are we not prepared to do collectively for the climate change situation. So finally, just to wrap it up and before we open the floor to questions, I mean there were 3 questions we were asking in the beginning, how long will the pandemic last? I mean the answer is we don't know. We are clearly not prepared to the pandemic, but we have adapt to it. And we still think that volatility is going to be high across the marketplace, whether public real estate or private real estate, as long as the pandemic is not over, and it's clearly not over yet. How deep will -- the economic impact is? Again, this -- the answer to that question is highly dependent on how long the pandemic is going to be, but we feel that we are pretty much protected on the downside with the strength of the balance sheet of the company, the fully funded pipeline, our EPRA vacancy rate, which is at the lowest on record. And we also have built a EUR 350 million war chest that would allow us to basically size opportunities if and when they come. And the long-term trend, where I think there are a lot of discussion around those things, and rightly, there are a lot of discussion around those things, they have been clarified from our perspective, but they are not necessarily new. They reemphasize the fact that companies, real estate companies need to be operators if they want to be able to manage those trends. You cannot outsource the management [ to allot those ] trends to somebody else. And it also shows that there is clearly a need for intensification of the dialogue with stakeholders in order to share a common vision of the company's future, which is hopefully what we're trying to do today. And we're really hopeful to do in the coming weeks as well, while we continue our dialogue. And once all of that is going to take place. We're going to be plain sailing for the office market in 2025, 2026, before the cycle will start again. So that's it on my side, I was a bit long, but I thought the situation deserved maybe a bit more than usual half year result. And I'm looking forward for the questions.

[Operator Instructions] And we received the first question from Kai Klose from Berenberg.

I've got 2 quick questions, if I may. The first one is on Page 19, where you show the valuation movement by assets class. Thanks for the great level of transparency. Also in the press release, you mentioned that, I think, 3 assets saw -- particularly as 3 assets saw a value adjustment. Maybe you could elaborate a bit more and give a bit more details, which kind of assets these are and what were the underlying assumptions for the appraisers to come up with a bit of a lower valuation? And then on Page 12, I think you mentioned before that due to the change in capital value, so the chart you show here, that might be an impact -- might also impact alstria's strategy going forward. Just to understand that a bit more in detail, do you plan higher asset recycling by selling more assets and realized capital values than we invest into -- yes, into the new assets? So maybe you could elaborate a bit more how you see your strategy being impacted.

Kai. Thank you for being here this morning. As the -- I think the 3 assets you're highlighting are essentially some of the larger assets we have in the portfolio. I'm looking at Ralf while I'm speaking. And again, as I mentioned before, we have taken kind of a more conservative letting assumption on those assets, which basically increase the time it takes to find new tenants and that have like a bigger impact on the valuation. So this is, for instance, the assets we have in Darmstadt both assets, which are in Darmstadt and the large Daimler campus in [indiscernible], which are that we're talking about. Obviously, in a market like Darmstadt, a situation like now is not going to accelerate the pace at which we're going to find a tenant. Although we did actually achieve a number of success in Darmstadt over the last few months, we did deliver almost 15,000 square meter to a tenant during the pandemic but the rest of the asset being vacant would require probably more time. So that's -- that probably explains the -- I mean the reference you're highlighting. In terms of asset recycling and the way we're looking at things, we are actually still in the process of marketing some of our assets. Because as I mentioned before, they do not seem to be a slowdown in the end pricing or at least a reduction in pricing. So we're trying to take advantage as much as we can of the situation as long as we can. We are also in the process of reviewing our next-generation pipeline. So beyond 2022, there are a couple of assets that are going to go through our pipeline in terms of refurbishments. And here, we're also assessing what would be the right product to deliver at that moment in time, how much CapEx needs to go in there, what's the new debt sharing policy is going to imply in terms of layout and infrastructure. So those are all the questions, which are -- we're going through right now. In terms of acquisitions, we feel it's a bit early to jump back into the market. What we're looking at right now, to be completely transparent, is potentially some hotels that could be converted into offices because clearly, hotel value has plummet. So we are looking at a couple of opportunities around those lines, but we're trying to be very, very opportunistic in the market where basically prices have been relatively steady or were the price movement have an order of magnitude that we're showing here, which is really not significant for -- from our perspective and would not warrant an opportunistic move at this stage.

And maybe the last question on the placement of the latest bonds, the EUR 350 million. If I see that correctly in the presentation, this has been designed more as -- entirely as proceeds for acquisitions. What would you -- what would be the reasons for you maybe to aim for an even lower financial leverage, meaning keeping some cash rather than spending and strengthening the balance sheet even further from these levels?

I mean we don't necessarily have the intention right now to lower the LTV further than what it currently is or reduce the amount of debt that we have on the balance sheet. I mean, you're right, the EUR 350 million are contracted, as we said in the presentation, as a war chest for acquisitions. On the other hand, we also stick by what we were saying before. I mean, it's not because you have money that you want to do like stupid deals. So the precondition for us to buy an asset is we believe that we can make money with that asset. And as long as that doesn't happen, we're probably not going to be deploying the cash. So we're basically taking advantage of the market because the debt market was open. We didn't know for how long they would be open. So we just wanted to make sure we have built up the reserve. I think our next bond come to maturity in 2023. If by then, we have not invested the EUR 350 million, we'll just repay the bond with it, and move on with our life, but I'm pretty hopeful that between now and 2023 we should be able to find interesting investment opportunity, even granular one, so we don't need to deploy the money at once, but we can also buy here and there.

The next question we received is from Manuel Martin from ODDO BHF.

Two questions from my side, please. On your markdown, I mean, you said that you did the markdown mainly because of being conservative and seeing that reletting might be a bit more tricky. My question would be would it have been possible to have leeway and to say, okay, yes, the reletting situation might be just temporarily tricky and to say we keep values stable? So was it a conservative decision from your side?

Yes. I mean, in essence, I'm just going to state an open secret it, but the valuation is whatever you want it to be. At the end of the day, it's -- I mean, we all call it external value, but it's management decision to do the valuation the way it is. So we own it, and we were comfortable with it. Otherwise, if we felt that we should not have shown any devaluation, we would have not. Having said that, I think we also need to be realistic. I mean GDP is down 7%. And I mean, the economy has stopped. You -- for 3 or 4 months, you could not visit assets, and we are having basically inbound inquiry from tenants, which have anything but vanish for everything between 1,000 and 5,000 square meters. So the question is, how much you want to put your head in the sand and refuse to see things how they are because it makes sense to assume that you're going to be able to lease-up as fast as you were leasing before in the city like Darmstadt. I think our job is also to be realistic about how things are moving and not to be overly pessimistic nor overly conservative, but just realistic. And when you have hotels, which are basically literally stop trading and you argue that the value of hotels is down 3%. I mean, yes, you can do whatever you want, but at one stage, we also need to be realistic. And what we've done, I believe, is neither being conservative nor aggressive, which has been realistic.

Okay. Okay. Very clear. Second question and last question from my side. Do you already see some buying opportunities in the market? Or is it still too high and still too much money flowing into the market?

As I said before, we are seeing very small and limited opportunities, as I said, a couple of hotels that we could reposition our offices, which are trading at very low capital values, which again reflect back on what I was saying before. But in the office space, per se, we -- I mean, the value is moving down like 2%, 3%, [ there is a warrant, ] from our perspective, complete change in our approach and the way we're looking at live. So we think it's a bit too early to have some more substantial and kind of potentially like bracket-changing opportunities. So what we're seeing right now is more anecdotical and relatively small.

We have currently no further questions. [Operator Instructions]

Well, if there is no further questions, I'd like to take the opportunity to thank you all for joining us this morning. We're -- we will be doing some virtual roadshows in the coming week and months. So I'm looking forward to have that conversation and discussion with you. And otherwise, we speak again for the Q3 results presentation where we would revert back to a more normalized quarterly presentation. Thank you very much for your attention. Enjoy the rest of the day. Cheer.

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