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 9 months 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, operator, and welcome, everybody, to the 9 months conference call result of alstria office. I'm sitting here with Alexander Dexne, which is alstria's CFO and the rest of the team is watching us live on the webcast because of corona. Welcome to cold but sunny Hamburg today and without any delay, I'd like to put out to the usual disclaimer and the cautionary note regarding forward-looking statements and the duty to update and move on to the presentation itself. We have, as we did over the last 2 quarters, change a bit the format of the presentation. We believe the situation warrant slightly different focus than what we have usually, but you will obviously find all the relevant slides that we're not going to go through this morning and on which we are happy to answer question in the appendix of the presentation. The business of altria has been developing pretty much in line with our plan with revenue at EUR 131.5 million, our FFO at EUR 83.4 million and FFO per share at EUR 0.47 per share, in line with our guidance, and we are happy to report that our rent collection rate in Q3 2020 was back to 100%. The guidance for the full year remains unchanged at a revenue of EUR 179 million and FFO of EUR 108 million. As we highlighted in the previous conference call, this, I believe, should not come as a shock given that we are a real estate company, and that short-term fluctuation in the underlying market have limited impact on us, it's more the long-term fluctuation that we need to be focused on, and we're going to revert back to that. We are reporting the new EPRA metrics or EPRA net NTA at EUR 17.91 per share, which will be EUR 17.38 at dividend. We actually paid the dividend 2 days after the reporting period, and therefore, you might want to adjust the numbers for the dividend payment. Net LTV reported as 26.1 would be 28.2 net of the dividend payment. And we have currently free cash on the balance sheet of EUR 451 million that again, that number differs from the reporting number because of the dividend payment as well as the repayment of the bonds that we have announced a few days ago, where we are actually repaying an advance bond maturing in March 2021. As usual, third quarter of the year is the opportunity for us to discuss sustainability and we have published yesterday evening our new sustainability report, which I would highly incentivize you to have a look at. I'm hearing that ESG is becoming more and more important. So I'm really hoping that there's going to be more and more people reading that document, which the team spend a lot of time and a lot of efforts into, and I believe it's an interesting read, but I'm obviously biased in that view. Before we go into sustainability, if we look at how the business have developed over time, our rental income collection rate, as we discussed, has been steadily and gradually improving over the months, and we're not back to 100% collection rate. A little bit caveat here and what I'm going to say, we did waive rent for a number of our retail tenants. And obviously, given that this rent is being waived we assume we don't have to collect it anymore. And therefore, it's not counted in that, that's around EUR 200,000 in total, per month. So it's not a material impact, but I just wanted to do that caveat. And most of the rents that was not collected in April, May and June has been collected up of today. So from a cash perspective, we're almost back to normal. Like-for-like rental growth, we're still showing a 2.2% like-for-like rental growth. Again, that shouldn't come as a surprise that we're still showing that short-term movement in the market have little impact on the way and the direction the company is heading into. And that essentially is a result of most of the lettings that were done last year and in the beginning of this year. And we're going to discuss the letting market in a bit more detail right now. In the next slide, I'd like to start in the weird order. I'd like to start with the top right part of the slide and looking at the rental market. As you can see, the rental market overall has been going down. And what we tend to forget, and it's kind of easy to forget than the current situation is that Q1 2020 was not a great quarter. And that clearly was not related to corona because there was no corona at the time. And the letting market was already down around 27% at the time. And we tend also to forget that Germany was in technical recession at that time. And so the reason why the company has been prepared is clearly not that we were expecting COVID not to hit. But we were expecting a slowdown in the economy, which corona has actually clearly accelerated much more than anybody could have expected. But the direction of travel from our perspective was already pretty clear, and that's evident, at least, in the letting number that you see on that slide. The number I have keep on deteriorating from a global market perspective, and you can obviously take the glass-have-full view here and saying that you still have 50% of the letting, which are taking place, which is a reality, but those numbers are way below the historical average. And even if you go back 4, 5 years, you still have a massive drop in take up, which is not only a result in Q2 and Q3 of the slowdown of the economy, but essentially the result of the lockdown and all the uncertainty around the office market. When we look at the company, we did have substantial lease-up with flattish out of 100,000 square meter between new leases and lease extensions. And here, again, what I wanted to highlight is the change year-on-year on the letting of the company is not only impacted by the slowdown of the economy and the corona crisis, but it's also impacted by the fact that we did lease-up most of our vacant space back in 2019, to a certain extent by anticipation of the slowdown of the economy. And as such, we have less space to lease, our development pipeline essentially well is still 70% pre-let. And as a result, our letting level went down from last year, but this is not necessarily reflecting the fact that the market itself has slowed down. It's also reflecting the fact that we have less product to offer as we are coming to the end development cycle. Still, the new lease that we sign reflect EUR 52.5 million of future income and the extension slightly short of EUR 25 million. And our average rent per square meter is up to -- by around EUR 0.3 to EUR 12.9 per square meter. If we look at the investment markets, and in investment markets, I think, that there are 2 comments I'd like to make. The first one is, as a company, we have been consistently selling, not only in the first quarter, but also after the end of the corona crisis. And we have been still selling what we call the periphery, so some of the weaker assets in secondary markets where we have no intention to stay like Bremen, Laatzen, Meerbusch, Ratingen, Filderstadt, Ichenhausen, Hannover and the greater -- Norderstedt actually in Hamburg. So nowhere near the core market. And we've been selling at a premium to the 2019 year-end book value, on average, at a 7.2% premium. What you can also see is that the market itself, the volume of transaction. And again, here, you can take the glass-half-full or half-empty view. But in essence, the market have shrunk dramatically in Q2, Q3, with almost 50% reduction in the number of transaction in Q3. And most of the transactions that we are seeing right now closing are still closing at price levels, which are extremely close or even higher to the value that we're seeing post -- pre corona. The question mark, obviously, here is, is this some -- is this a dynamic which is going to continue? Or is that just -- I mean, the market itself not able to slow down fast enough to basically correct itself, and it's probably too early to call. And as we discussed on previous call, we believe there is here a competing effect on one hand, the recession and letting market, which is weakening. On the other hand, the low interest rate environment, which seems to be here lower forever rather than lower for longer and which have an impact on yields. And again, here, I think there's interesting dynamic running in parallel, and it's going to be interesting to see which one of the 2 is going to overtake the direction the market will take from a value perspective. In anticipation of the question, we have started our valuation process for year-end. Our value, our view is that the market is relatively stable, but it's still, obviously, too early to call. A lot of things can happen, as we've seen recently, a lot of things can happen in 2 months' time. But from today's perspective, the market -- the investment market seems to be extremely stable. And the transaction that we're seeing in the marketplace are at such -- extremely stable as well. So Q3 is the moment in time where we spend some time discussing about ESG, and we've been doing that for a number of years now. We have published yesterday evening our sustainability report, there is a number of new elements in that sustainability report, which I encourage you to have a look at. There's also a number of documents on our website. This year, we have introduced science-based targets. On our operational activities, we are providing a section to answer to TCFD, which is a primary answer, which we're going to improve all the time. We have been publishing our low carbon design principles, which are available on the alstria website and that we're now rolling over within the company. And obviously, we have introduced earlier this year the green dividend, and we're -- I mean, we are clearly -- I mean, taking ownership of the results of the vote and the way is being viewed by different stakeholders in the marketplace. We're actually pretty happy with the discussion that we had with different stakeholders around that topic. So all those elements, you will be able to find into our sustainability reports, which are new. And obviously, you will find all the other things we were discussing in the past. But the point we wanted to focus on this year essentially is related to the embedded carbon discussion, which we believe is really where the focus on the industry need to be going forward, we believe that just looking at operational carbon is missing the bigger picture as title of the slide says new building are part of the problem. That's one of the reasons why, as alstria, we only refurbish existing building, but we don't do ground-up development that doesn't only make sense from an economical perspective but make even more sense from an ecological perspective and a climate change perspective. And for the first time this year, we are estimating how much carbon emissions are avoided over the lifetime of the asset because of the refurbishment program that we're doing versus an equivalent destroy and build a new building. And what we see is that irrespective of the efficiency of the new building that you're building, a new building is, as far as we're concerned, always the wrong answer. And you're always better off, I mean, not only economically but also from a climate chain perspective, if you are refurbishing an existing building. And I believe this is going to become more and more important topic going forward and embedded carbon is going to be at the heart of what both regulator and hopefully, investors are going to be focusing on in the future. And clearly, at alstria, this is something we're investing a lot to better understand the impact it can have and how we can reduce and anticipate the changes that are going to take place when people are going to realize how important that topic is. So again, a lot of work has gone in our estimator report with respect to the topic. And I can only encourage you to both read it and eventually challenge what we're writing in there because this is a new topic and there's probably a lot of things that are debatable and discussable. And finally, I wanted to revert back to this slide, which we presented already at the early time of the pandemic because we believe that change -- and the things have not fundamentally changed. And where we are today is not fundamentally different from where we were 3 or 4 months ago. It's clearly the case that as long as we do not have a viable solution to the health crisis and the recent lockdown in which we are today or partial lockdown in which we are today, is a good illustration of that. There is still going to be a lot of volatility in trading. And this is not going to be over, unless there is a viable solution from a health perspective. And the length of the pandemic and the length of the health crisis is obviously, from our perspective, going to have an impact on the depth and the depth of the recession that we're in. And the depth of the recession is, by definition, is going to have an impact on the letting market because, as we all know, office is a cyclical asset class. It's highly sensitive to the underlying economic performance. So a long and prolonged recession and deep recession will have an impact on the letting market. We don't only look at that as a risk. It is obviously a risk, but we also look at that as an opportunity. We've been preparing the company to be able to withstand the headwinds and to withstand the risk of a recession. Obviously, as I mentioned before, we had no idea about how fast and how deep it's going to be, but we also look at that as potential opportunities. We are not currently saying, apart from some anecdotical opportunities to buy assets, we were not seeing any opportunities, but we are looking at this not only from a risk perspective, but also an opportunity perspective. And we believe the company is well prepared to size those opportunities. And then there is, of course, the longer trends, the work-from-home discussion; ESG, which we discussed briefly before being one of them; digitization; et cetera. And those trends are going to be managed on the long run. They are here to stay. They will impact our business. And what we take from those long-term trend changes and the impact that they are having on our business, and they have been having on our business for years now that might be more apparent today as that we are part -- I mean, with the COVID and the recession, but those trends has been here for quite a while, is that we are becoming more and more a portion of business. Like any other business, we need to focus on our client needs. Our clients need change. We need to adapt our products to the change of those needs. And that needs to be done through an extreme focus on the operation being very hands-on, on the assets and anticipating changes both from a cost and an opportunity perspective. And that's something, I think, as a company, we have been very much focusing on for years now. We've been arguing that the play is not so much anymore a pure financial play, but it's essentially an operational play. And we believe that this is going to become even more apparent as we move out of the recession and the pandemic, and we start to tackle the long-term trend in the real estate, which are being accelerated or highlighted by what we're going through right now. That's it on our side, and we look forward to our discussion.

[Operator Instructions] And the first question is from Jonathan Kownator from Goldman Sachs.

In terms of capital structure going forward, do you think you'll have a continued success in disposals over next month? And as a result of that, obviously, LTV is likely to go down, if value stay stable as you're sort of starting to point out to, would that mean that you could also consider at some point share buybacks given where the shares are trading at this stage? So disposal and share buyback, I guess, are the theme of the question.

Yes. Look, I think share buyback is something which we are intensively discussing within alstria. And the way we look at it is obviously, as a real estate company, you don't want to make a bet whether your share price is too high or too lower, whether the capital market is right or wrong or the private market is right or wrong. So it's basically an arbitrage between selling assets at a high price and then buying back assets at a discount to NAV. So you're using proceeds from asset sales to buy back shares. And I think that's a valuable proposition that can be made. We are now, as you rightly highlighted, we are working through the first phase of that potential trade, which is selling assets at a premium to NAV. And we have not yet decided for going through the second phase, and there's a number of reasons for that. The first one is, obviously, when you buy back shares, what you're also doing at the same time is you -- I mean, you're essentially giving money back to shareholders. So you're taking resources out of the company. And I think it's too early to say right now if there would be opportunity to deploy that capital accretively in the direct market. There is none right now, but we all know that there is like a kind of a time lag between the private market and the public market. And if you were to deploy this capital in the real estate market, then obviously, you increase the asset of the company and you increase the -- potentially the revenue of the company going forward. So we don't think -- we think it's a bit too early to call the lack of opportunities as a result of the crisis and too early to kind of give the capital back because we're still hoping that there's going to be opportunity for us to deploy that accretively in the future in the market. And for that matter, if the capital market is right above where it's pricing share prices, I mean, there should be those opportunity coming on. What we will not do -- and I'm sorry to be a bit longer on this question, what we will not do is increase leverage to buy back shares because that would be, in essence, so we'll not borrow, let me phrase it to be more specific because LTV would obviously increase if we were to buy back shares. So we won't borrow to buy back shares. And because that would just be betting on the fact that our share price is low, and I don't think that's our job at the end of the day. And so I don't know if that answers your question, Jonathan?

To some extent, so I guess a follow-up on that and just talking about disposals as well if you think that you have more disposals in the pipe currently i.e., peripheral assets still to sell, how much would that be of your current book? But the question is also what is the optimum level of LTV? I mean, at this stage, you're be 30%. Obviously, given the current environment, you want to maintain lower LTV, which is understandable. But what is a low LTV for you? And what is the threshold at which you would think your LTV may be too low?

Yes. I mean, basically, the way we're looking at the LTV is more. We're trying to look at the LTV across the cycle, and we believe that across the cycle, we're faring at a low level of LTV, so to speak, were below 35%. And you can clearly say from that and take from that, that we are currently faring at a level that we would consider, I mean, low and probably wouldn't see like need to further reduce the LTV level from where we currently are. I mean knowing, and I obviously reflect on that Olivier said before, value is telling us and we are seeing valuations are stable. But also, you want to have some cushion and this is what I mean with looking across the cycle. If market comes southbound, you want to have some cushion, obviously. So in a way, if we take that for granted that we currently think the LTV is low, substantial additional liquidity that we would generate from further disposals would really bring this -- the buyback topic more on the agenda than it currently is. Because if you look at the current cash levels, which is more around whatever it is, free cash, EUR 400-odd million, the EUR 300-odd million comes from the latest bond issue, which was more earmarked for this acquisition opportunities as we see the cycle bottoming out and opportunities increasing. And another like EUR 100 million is probably more going to be reinvested in our existing portfolio, i.e., generating the next -- or facilitating the next generation of development projects. So we're really only going to be at the discussion point, how to further allocate capital once there's -- we've realized another, let's say, EUR 150 million, EUR 200 million worth of asset sales, and then we really have a capital allocation question we need to address. From today's perspective, I would have EUR 200 million -- we would have EUR 200 million of additional cash on the balance sheet. Share buybacks would clearly be on the top of the list, how to spend that money. I think that's probably a fair comment and statement, but we need to go there and reach that level first. And that maybe, also, brings us back to what do we still see in terms of peripheral assets? What could we sell? Could we picture ourselves selling more something like EUR 200 million worth of assets as we go through the next, whatever, 18 months or so? Definitely, yes. And I mean there's always room, obviously, since setting the periphery and then staying focused on the center is also a bit of a relative term. But we clearly have room to sell another EUR 150 million, EUR 200 million worth of assets over the next 18 months. And then, I mean, consistently readdress and reassess the buyback opportunity.

Okay. And do you see interest from buyers, you have people still coming at here for assets or...

Sure. I mean this is -- Sure. This is all over the place. I mean you obviously have -- I mean, you always have people that are trying to bottom fish and then trying to figure out how -- where your pain points are. But I mean you can offer some sort of cash flow visibility right now. I mean there's going to be tons of interested buyers. And this is probably where we're going to be seeing the divide for some time to come is that a whatever Class A asset or Class A investment opportunity is not so much going to be determined by the location, but by the stability of the cash flow you can offer because this is really what we are seeing where investors are focusing on. And actually, you recall and look back to the figures Olivier was presenting about the state of the letting market, obviously, no surprise that investors are focusing on cash flow visibility right now because you buy a 5-year cash flow, at least you have a certain degree of comfort and visibility that you're going to make it through the crisis as long as your -- the covenant of your tenant is relatively strong. So I would be looking at the current situation, looking at the discussions we're having with our transactions team would be fairly positive that there is ample of opportunities to sell more peripheral assets.

The next question is from Thomas Rothaeusler from Jefferies.

One question on letting markets. They look rather weak still. Did you see any reason signs of recovery? Is there anything which makes you more optimistic in the -- for the next couple of quarters?

Look, I think there is a divide and we discussed that, if I'm not wrong, in the half year in where the volume are coming up into letting market and where they're not. If you look at -- there's basically 3 buckets in the market. There is like more smaller transaction, which are taking place, and we are leasing up here and there on a regular basis, space, which are smaller than 500 square meter, 1,000 square meter. There are all the very large transaction, I think, this morning alone, KPMG let -- announce the letting of 19,000 square meter, I think, in Cologne. And we are in discussion with a number of large tenants, which are considering letting large spaces because those are spaces that are going to be needed anyway, irrespective of how you do work from home, a company like KPMG and the Cologne example, which is not in alstria portfolio, by the way. But I mean they just need an office. And whether it's going to be 19,000 or 20,000 or 15,000 to a certain extent, become irrelevant in the conversation. And then you have everything which is in the middle. So a large corporation, which are renting between 5,000, 6,000, 7,000 square meter. And all those decisions seems to be like holding up and people are waiting to better understand what they're going to do and how they're going to be reacting to the work-from-home situation. And I think as long as you're into the midst of the epidemic, it's very, very difficult for anybody to focus on what the world is going to be after the pandemic. And it's very, very difficult for anybody to make a decision. So my expectation is, the transaction which are not taking place now, it doesn't mean that people do not need the space, it just means that they don't know how much, they don't know when, they don't know what kind of space they need, but they still need space. So I would expect that you're going to have some kind of catch-up effect once there is a better visibility and once the health crisis is over, where people are going to be able to make decisions, and we're going to have more visibility. And I mean the billion-dollar question is, as work from home is going to impact the demand? Is there going to be less demand, more demand, what kind of space people are going to be looking into? And this is where I was more interested on focusing on operation and understanding tenant needs. But I think the dips that we're going to see in the letting market and next year, I think it's going to be just as bad as this year because letting takes time. So the discussion we're not having this year are going to lead to lower letting markets next year. So most of the number that you're seeing today, leases that you're seeing being signed are discussions that started 12, 18 months ago, so prior to the pandemic. But the point I'm trying to make is, this demand is not disappearing. It's going to happen one time in the future. So you're going to have a gap in letting demand for a couple of years. But then once there is more clarity, once the pandemic is over, I do believe you're going to have a number of exceptional years in terms of letting simply because there is going to be some kind of catch-up effect. I mean when and how -- I think this is entirely depending on the length of the health crisis. Because -- unless you have sorted that out, nobody is really in position to focus efficiently on anything else.

One question on development and refurbishment cycle. Your current pipeline is getting more mature. When can we expect you to plan new projects, just to get a rough idea about the cycle?

So we are actually in the process of planning the new projects internally. And we are -- I mean, essentially, I think our next construction cycle, so the moment in time where we need to decide to spend the money and to have a product which is already designed and where we decide to spend the money would come essentially at the end -- at the earliest at the end of 2021 because this is basically the moment in time. I mean we can, of course, postpone that decision, but at the earliest would come in 2021. So from a timing perspective, I think, we've been a bit lucky here that the pandemic has hit us at the moment in time where we were in the process of preparing for the next pipeline. And therefore, we have now the time to basically look back at what we're doing and try to incorporate what we feel could be the impact of the different trends happening in the marketplace right now and potentially postpone or increase or reduce the amount of spending we want to do in the asset place. So we -- there is a bit of luck here from a timing perspective. But you're right, our current pipeline is done and essentially, we almost run through it. And the next one and final decision at the earliest need to be made by around 2021.

Okay. One last question on -- there's the suspension of the insolvency law in Germany, which matures, I think, end of this year. Do you see any negative impact from this for you in the beginning of next year? Could we expect a hike of insolvencies? And could you be also impacted from that?

I mean this is mainly a reporting suspension of, let's say, troubled companies. If I would be troubled right now, as a company, I will clearly speak to my landlord right now and discuss extending -- I mean, better payment terms for the leases, reducing leases, reducing space, whatever. We have no such indication. So there is -- I mean, as we reported, there's 100% rent collection right now. So that I don't see actually from the suspended reporting, but there is like an underlying risk in our tenant base currently because otherwise, we would have some indications of people being traveled and stressed. So in a way, the short answer is I wouldn't expect any like substantial surprises coming out of the then resumed reporting of insolvency procedures because the signs would be there already and the sign would be visible in the rent collection. And since we're not seeing anything, I don't think the fact that reporting is going to be resumed it's going to change anything in that respect.

The next question we received is from Kai Klose from Berenberg.

I've got just 2 quick questions. The first one, could you explain a little bit on the change of the personnel expenses on a quarterly basis? We had, I think, EUR 5.4 million in the first quarter and then, I think, somewhat about EUR 4.4 million in the second and now we are at EUR 4 million. So maybe you could explain the change in the reduction quarterly -- on a quarterly basis? And then last question -- second question would be on the table on Page 3 of the report regarding the larger lettings, it's -- first of all, many thanks that you published also the rent-free period, could you indicate where these 65 lettings of larger sized lease extensions or new leases?

Kai, I'll take the personnel expenses. There is no reduction in personnel happening at alstria and that is, I think, also like very important for us because the complexity of the projects we are doing has rather like increased over the last years than has been reduced. So we're really maintaining and intending to maintain our current staff levels and workforce. And clearly, a reduction in head count is not what you're seeing here. It is simply -- there is a substantial part of our package and as the executive package, but also some of the employee incentivation is based on share price. And with the decline of the share price that we have witnessed over the year also those share-based payments are valued -- I mean, they're basically mark-to-market every quarter, and this is actually driving the fluctuations in the personnel expenses from quarter-to-quarter that you're referring to.

And on your question on the letting in Page 3, those are essentially new enters that took place and -- yes, not least renewal. You could essentially see that from the lease line. The only one which is a bit skewed because it's both renewal and -- at both an extension and -- both the new lease and an extension, it's the one in Ratingen, where it's an existing tenant who basically have taken -- renewed its current lease and also expanded within the building.

Okay. Maybe on that topic, you sold a property in Ratingen, and you extended the lease in -- for property which you still own in Ratingen. Could you maybe explain why this one in Ratingen was sold and the other one was kept? Or is the second one for sales potentially as well?

We have another -- we have a third one in Ratingen. So I mean if you...

Yes, I know.

But the one we sold in Ratingen was in a completely different part of the city is of Ratingen itself. So for people who are not aware and are on the line, Ratingen is a suburb of Düsseldorf which is not far away from the airport. And the property we sold was rented to Vodafone and was completely off even within Ratingen. So whereby we have are more kind of an office district. But Ratingen is clearly, from our perspective, part of the periphery and not of the centers. So with the logic we expressed before, they would be clearly potentially up for sale if we were to refocus more. In Düsseldorf area, we have assets which are further out, we have an asset in [ Noice ] for instance, which I would consider less -- I mean, even more in the periphery than Ratingen itself. So...

The next question we received is from [ Carl Rich Awanies ] from [ Restro ] Capital.

Thanks a lot, by the way, for the quite an extensive discussion on the sort of -- on your thinking about share buybacks. But I was just a bit, I guess, not clear on one part of that discussion. On one hand, you're saying sort of that it is something that you're considering very much right now. So it's a topic that is very much on your minds. On the other hand, I thought you might be saying that you would only be doing that if you raised additional capital and delevered further through asset sales, but that, that could take a year plus, or it could be occurring over that kind of a time frame period. So I was just wondering in terms of your thought process, if you were going to do anything, would it be something in terms of a buyback that we should expect to hear from you something in the next, I don't know, 3 months? Or is it something that would be much longer term? I mean, clearly, in terms of where your prices, property values would have to decline substantially. You would have to be a quite a dramatic drop to be equal to the kind of opportunity that currently the share price represents of buying, let's say, whatever through shares, the evaluations that it implies.

So I think what we -- I mean, in short to answer your question, the way we're looking at right now is that, and I think you hinted to that in your question is, we would announce -- if we were to announce the share buyback, it would come together with further asset disposal. And the reason why this is the case is because we look at it really as a capital allocation question. And what I think Alex was hinting to is, if you look at the cash on the balance sheet that we have today, EUR 300 million, EUR 350 million is coming from the bond that we issued. So if we were to lose that money to buy back share, we're basically levering up the company in order to buy back shares. So we'll be putting leverage on fitment basically and increasing the leverage kind of disproportionately. The EUR 100 million that we sold is what we would do in a regular year in order to fund for our CapEx program and reinvest within the portfolio. So any resources, any capital that we would allocate to a buyback would need them to come from additional asset sales. And so we are -- as I mentioned, we are considering right now further asset sales. We think there is some kind of appetite in the market to do so. But they need to come in conjunction. The other thing is, I think -- I mean, the share buyback only makes sense if only move the needle, in essence, if it comes kind of with a substantial amount. And so if you do a share buyback with EUR 5 million, EUR 10 million, I mean, you might as well not do it because it's not moving the needle. And so -- I mean, the amount of capital or the amount of disposal you need to execute, would need to be in the region of EUR 150 million to EUR 200 million. And this, I think, was the number, Alex, was hinting to before. The thing we don't do, and I don't know whether that was implied in your question is the reason why we do a share buyback is not because the share price is low. It's simply because, as you said, there is a gap between where the property value are and where the share price is trading. So we're not assuming that the capital market is right and the share price is too low or the private market is wrong or vice versa. It's just an arbitrage. You're basically going short one market along the other one, right? And this arbitrage only works if you have the 2 transactions happening at the same moment in time. And this is really the way we're looking at that. So we don't believe our job is to decide whether the share price is too high or too low. But we can clearly make use of that arbitrage if we have the opportunity to move that. And I appreciate that, I might be a bit confusing here, but this is...

No, no. That's fine. That's clear. Understood.

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

Just have one question then, gentlemen. During the last couple of months, as you experienced different in the amount or quality or price of properties, which have been offered to you.

They have clearly been an acceleration of the amount of assets put on the market over the last few months. And not necessarily different in quality, I think we're seeing assets coming from all across the spectrum from the value-add to the core part of the markets. But I think the volume that is currently being offered on the market is substantially higher from what it was before, and that's really not reflected in the amount of transaction, which are closing, which also make us a bit worry about the fact that price would hold for a very, very long period of time. But one thing is clearly sure is price expectations from all the property which are put on the market remain pretty much anchored into the pre pandemic world. And there have not been massive changes in price expectation. Apart from a couple of anecdotical evidence and we're looking into those right now, most of the prices expectation remain very much at the level of where they were prior to the pandemic, including ours, by the way. So because the assets we sold were still at a premium. So it doesn't look like a shocking things to do when you're on real estate because there are still evidence that you can get it there. But there is a massive increase in the amount of assets being put on the market right now.

The next question we received is from Sander Bunck from Barclays.

A couple of questions from me. The first one is on the rent states that you signed. Can you comment on how those lettings, the new rental agreements that you achieved, how those compared to ERV?

I mean they are pretty much in line with ERV. For the time being, on the lettings that we are signing, we're not seeing any massive shift in terms of -- actually, we're not seeing any shift in terms of rent level. What is potentially shifting a bit is the tenant incentive. So we might give a bit more offering free period than we did a few months ago, but you need to remember, we're coming into this from a very, very strong position from a landlord perspective. So I don't think that in initial phase, you're going to see a massive rent reduction in headline rents because, as usual, the market is going to adjust first the tenant incentives and increase the tenant incentives. And this is really what we're seeing right now in our conversation with tenants. So the leases that we signed were pretty much in line with what our expectations were, and there have not been any major changes at that level, which doesn't mean it's not going to happen, but so far, it has not happened.

Understood. And in terms of the average lease length that you signed, I, mean they still look quite long. Do you notice a difference in appetite from tenants to same potentially shorter-term leases or not really?

Not really. I mean what we're seeing is, when it comes to lease extension and when it comes to tenant who are getting close to the end of that currently, they might ask for 1 or 2 years extension, but this has more to do with the fact that they don't really know what they need. And therefore they need more time to get to that decision point. And for them, the kind of less contestable discussion is to stay where they are with what they are. So that's what we are seeing. We are seeing tenants coming back and saying, "Can I stay another year? Can I say another 2 years in the building?" But tenants who are leasing are leasing pretty much with relatively the same terms that they were doing before.

Okay. Great. And do you have an idea of the current office usage? Like -- yes, how many people are currently back in the office across Germany or in your portfolio? Do you have any sense of that?

Yes. I mean we don't have very recent numbers since the new lockdown is pretty -- I mean, pretty recent. We were heading back to almost -- I mean, almost normality. And if I take, for instance, our own offices here, we were almost back to 85%, and now we're more back to 30% in terms of occupancy. So I think with the new lockdown and work-from-home recommendation, the likelihood is that the office occupancy is going to go down probably below 50%.

Okay. That makes sense. And then last question from my side. Obviously, with the half year, you were somewhat cautious by writing down some assets in your portfolio. How are you thinking about that going into year-end? I mean you mentioned that some of your incentives are potentially increasing, but at the same time, pricing from sellers remains pretty firm -- price expectations from sellers remains pretty firm. What are you expecting in terms of what were your terms to the values to happen?

I mean when we did the valuation in the half year results, we did that essentially in May, where there was literally no evidence of any market transaction. And so this was more like a desktop exercise and trying to read into the future. Since then, we have more evidence of what has been happening in the marketplace. As I mentioned in the introduction, we have started the valuation process like a few days ago. So it's a bit early to call because a lot of things could change. But from my perspective right now, if you just base and you assume valuation is not necessarily anticipating things which are going to happen in the future, but just looking at market evidence and market transaction, I don't see like a reason why value would move from where they are, I really don't see that.

Okay. So you expect broadly stable values into the event?

Yes. And that's based on current market evidence. Obviously, if everything -- I mean, what I'm trying to say is things can change dramatically over the next 2 months, so the situation needs to be monitored. But as of today, I don't see any reason why things would change.

And actually, what we have done mid-year, we've kind of taken out the obvious risk. So we devalued, actually, our hotel exposure, we devalued our retail exposure quite steeply. So I would feel that we derisk that part of the portfolio. And as Olivier said, in the office transaction market -- I mean, if anything, we're seeing price increases actually and decreases. So I think there's ample of evidence right now that value is going to hold for year-end.

There are currently no further questions on the lines. [Operator Instructions]

Well, if there is no further questions, I'd like to thank you for joining us this morning for the call. We're obviously available if you have any follow-up questions. We're more than happy to participate. We're going to be on the road virtually in the coming weeks. So we might also have the opportunity to discuss then. And otherwise, we speak again for the full year results this time of the company. I mean stay healthy and looking forward to speaking to you next time. Thank you very much. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.