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 full year results 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, everybody, to the full year result 2020 of alstria. Thank you for being here with us this morning from a surprisingly sunny and hot Hamburg this morning. I'm here with Alexander Dexne, which is alstria's CFO; and Ralf Dibbern, which is our Head of IR. And I also would like to take the opportunity of today's call to introduce to you to [ Josef Steiner ] -- [ Steinerware ] which is our new reference for our purpose and has been instrumental interpreting today's call together. So welcome to the team, [ Josef ]. This year result and before I go there, just a short reminder about the disclaimer and the duty to update. And without undue delay, putting together this year result presentation was a bit different than previous year for kind of obvious reason. We usually take the opportunity of those calls to spend the first 15, 20 minutes and try to take a step back from the numbers and look deeper into the business and discuss more strategic items or what we believe are more fundamental key trend happening. Obviously, this year, the difficulty was to try to figure out what exactly we should focus on in this first part of the presentation. And it was not so much for the lack of idea, is what's more because we have actually too many topic we wanted to discuss and it has proven a bit complex to come up with what we believe were the most important items we wanted to focus during that conversation. And so we basically had an intense dialogue and discussion within the company to try to figure out where we stand and how we wanted to present that. And therefore, I'd just like to use again a slide which we published almost a year ago now, where we were trying to summarize the way we were looking at the situation in which we are. Unfortunately, I must say, we are still where we were a year ago, which is within the pandemic. And as long as we are here, we believe that there are going to be a lot of uncertainty and volatility in the market. I mean, obviously with the vaccine rollout, there is some kind of light at the end of the tunnel. But it is still very difficult for any of us, I believe, to focus efficiently and think straight about how the world after the pandemic is going to look like. What this is doing to us as a corporation to our tenants, it's kind of created a lot of unexpected. We were not prepared necessarily to what's happening right now. There's a lot of unknown, if anything. How long it's going to last is one of the biggest unknown. And it makes us, as an organization, also focus on immediate threat that we wanted to address and achieve in addressing. It grow -- I mean, we grow in patience. You want to go back to a more normal life and those kind of risk are not risk we are used to manage. The good thing in being an organization is you can have -- you can split your brain in 2. You can have part of the organization managing the immediate threat and the immediate risk, which I believe we have done successfully over the last 12 months and we're going to go back to that in a minute. And then you can have another part of the organization, which is focusing on the next stage and trying to actually distance itself from the immediate threat and try to take a step back and fix more broadly. And so if we take just a step back and assume what's going to happen right after the pandemic is over, I think it's pretty clear that we're going to end up into some kind of economic difficulty. I don't believe anybody is arguing right now that things are going to be sunny again, at least for the real estate market. Immediately after the end of the pandemic, there is a lot of economic uncertainty. German GDP is massively down. There're clearly an unknown about whether or not and how fast the recovery is going to take place and how bad is the economic damage right now. But this uncertainty, this unknown is something we are prepared for. It's something we know, we have managed before. We have 27% LTV, which make us very, very resilient to an economic crisis. Our rental income, currently average rent on alstria portfolio is 25% lower than the average rent that you can find it in the market. So we have a lot of reversion. Irrespective of how the market rent would move, our valuation at EUR 3,000 per square meter sounds completely reasonable and able to sustain any real estate shock. So we know what's going to happen in an economic crisis. We are prepared for that. And this is kind of a known unknown. We are able and prepared to manage those risk and we believe that essentially there're going to be more opportunities than risk in this uncertainty. So once we are out of the pandemic and we're in kind of a normalized economic crisis, it's something we've been preparing the company for quite a long time and we feel very, very strongly that we should be able to perform strongly within that environment. And then -- and this is the part where we want to focus on today. The question becomes once the economic crisis and the pandemic are behind us, what's going to be left? What kind of -- how things are going to be changing? What kind of trends are we going to see? And the difficulty from today's perspective is really to differentiate between trends and hypes. So when we have the conversation among us, we don't believe that the future of office is going to be decided on whether or not you're going to be using touchless pads to access your elevator. I mean this is probably more a hype than a trend. But there are clearly a number of trends here that has been put to light by the situation we're in and there is much more focus on those trends. And we might argue that some of those trend are being accelerated by the pandemic. And this is where we were trying to focus our attention and try to understand what impact they will have on the way we're running the business, and what kind of degree of certainty we have about them and how much control we have over them developing in the future. The first trend, which is kind of become very apparent and I think is like now mainstream wisdom, is that the office market is becoming obviously much more an operational business than a financial business. I mean there is the whole discussion about work-from-home, the whole discussion about how is the office of the future is going to look like. I mean, those are all discussions, which, in essence, you can link back to one single idea, which is that as a company, we need to understand the need of our customers and we need to produce a product, which is going to meet the need of those customers. This is not something which is new in the alstria context. I mean this is something we have discussed about on that very specific call and that very specific section for now a couple of years. And so this is not something which is necessarily taken out by surprise. We think one of the mistakes that could be made here is to believe that this is a one-off that the change in the product is going to happen once because of the pandemic and then it's going to stay the same for the next 20 years. And we believe that would be a mistake to think this way. We think that the change in the tenant behavior and the tenant demand is going to be continuously evolving over time, and the organization of the company need to basically adapt to follow on this evolution of the tenant demand. And it's going to be a continuous process, which we need to organize ourselves around. But again, from an alstria perspective, if we look at the way we've been running the business over the last 10 years, I mean this is exactly what we have been preparing for. And so this kind of accelerating trend is not something we're actually concerned about because we feel we are well prepared and we have been putting the company in the right footing and right track to actually continue to monitor and live by that trend. We actually believe that this trend is going to help company like us, which have both the capital and the operational capability to outperform other real estate actor in the market, which are solely focusing on capital, but do not necessarily have the operational capability. So we think this trend is actually reinforcing the attractiveness of a company like alstria or other listed company, which have the long-term view and the operational capability to manage the asset. But when we think about the other trend, which seems to be emerging right now and we feel is much more important for us to focus on simply because we don't necessarily have the same grip on it than we have on the operating trend. And that one is relating to ESG and we want to spend a bit of time in this introductory part of the call to discuss it in more detail and maybe try to illustrate our thought process around that. We have been, at alstria, looking at ESG for quite a while. As you know, we've been the first German company to publish a sustainability report almost 11 years ago now. And we've been very much active in that field, but it's still a field we feel there is a number of things that we do not have fully under our control. And so what we wanted to do here is to take a little bit of a step back and also to look at how the industry as a whole is looking at the ESG topic. What we're showing on this slide is -- it's an excerpt from a McKinsey report, which is basically showing the amount of CO2 reduction that need to happen in order to meet the 2030 and 2050 targets. And this is what we believe the legislator is going to be focusing on in the future as well. And what is interesting in that graph, and which is probably a bit new if you were to look at the same graph a couple of years ago, is the red part of the line, which basically is called negative emission, which is the idea that in order to meet those targets, we would need to actually take CO2 out of the atmosphere. Otherwise, we will be missing the net-0 emission. And this negative emission idea has so far been completely ignored by the real estate industry. If you look at most of the net-0 commitment that you have out there, they all rely and actually heavily rely on offsetting of CO2. And offsetting of CO2 is not what is going to be needed in order to achieve those. What's also interesting, and we've been looking around that for quite a while, is there is no existing technology that would allow real estate companies to efficiently achieve those negative emissions. So as much as it feel good to come out now and say my company is going to be net-0 by 2030 and 2050, I mean this cannot actually be delivered with the current state of technology and it can only be delivered with offsetting, which is not going to be good enough. And I think we tend, as an industry, to substantially underestimate the catch-up of the regulation, which is one way or another are going to look at those curves and going to ask us to -- as any other industry, to actually achieve negative remission, which we cannot do today. So from that perspective, when we look at the ESG, we feel that we are lacking grip on what's going to come next and we're lacking solution to basically be able to address it efficiently going forward. One thing we have discussed internally and one thing which was important for us to have a better grip is obviously to understand the scale of the problem that we might have. Whenever we discuss with the shareholders about the topic, whenever we discuss with investor or an analyst, there is obviously a kind of elephant in the room is how big is the problem, how important it is and how much focus and attention do we need to bring into it. And in order to be able to quantify that, we have discussed and we have been discussing the introduction of an internal carbon pricing. And we very, very rapidly realized that if you simply introduce a carbon price without actually attributing value to the existing carbon, you're basically missing a substantial part of the conversation here. So we got to the conclusion that it would make sense not only to introduce a carbon price but also to value the carbon that is embedded into our existing asset and as such, to start looking at it with the P&L and the balance sheet and start to report to our shareholder actually with the P&L and a balance sheet in relation to our carbon. This is obviously not compliant with IFRS. This is -- so we basically developed a carbon reporting framework from scratch, which we believe is providing a view, at least a first view, on the amount of asset and liability we have in relation to that and will allow us to have a much more educated and much easier and much better-educated conversation with you guys about that because we will not need anymore to discuss about Scope 1, Scope 2, Scope 3 emission. We don't need to discuss about whether or not the GHG protocol applied to real estate, but we're going to be able to discuss about 0 amount in a format and a context which is well understood by our stakeholder community. While we're doing that, we're obviously also able to answer one of the question of the TCFD, which is what are the financial consequence of climate change. And what better way to answer a question about financial consequence than actually to show a P&L and a balance sheet. That is going to allow us to provide an answer that is going to be understandable by most of the stakeholders that -- with whom we're going to have the conversation. We also think that the fact that we have been focusing on flows in the past, so just on the emission that are driven by companies, have led us to ignore the amount of carbon that is embedded into our assets, which again is also not only a liability but also viable assets and valuable asset. And that, we believe, is also one of the risks that we have because it's very, very likely that the legislation and the regulator is going to focus in the future. And you can start to see that going into the mainstream's press about the amount of carbon which is embedded and generated by construction activity. And this is, we believe, a risk that we are, at this stage, as an industry, are not focusing enough on and which deserve a bit more focus. So I mean what do we learn about that exercise when we actually build up our P&L and carbon balance sheet? Well, we learn, first of all, that if you apply the framework that we have developed and you believe in the assumptions that are in there, the carbon assets that we have on our balance sheet today is around EUR 34.9 million. That's both a lot of money and a small amount in relation to the total balance sheet. If it was a real estate asset, this would be our 31st largest and most valuable real estate asset. We have round about 120 assets on the balance sheet right now. So it's a sizable amount. But if you bring that back to the size of the overall balance sheet, which is around EUR 4.5 billion, it's still a completely manageable amount. I mean, this number, obviously, assume a price of carbon, which is currently at around EUR 30 per ton. And -- but it also allow you to very, very easily, I mean, have a view about what would that be if the price of carbon was 2x or 3x what it is today. What it also shows is if we -- the overall carbon that the company will emit to operate its portfolio at the current price of carbon capitalized to eternity in essence would create a liability on the balance sheet of a company of around EUR 20 million. Again, that has a EUR 30 per ton of carbon price, and you can assume and multiply that by whatever number you want to have sensitivity about the future. But it also puts things in perspective. So we have EUR 1.2 billion of net debt today on the balance sheet. So that's potentially additional EUR 20 million of liabilities that we would have. What we believe is also interesting is in essential, we have used basically EUR 37 million worth of assets, which we've never paid for. So we've never really kind of -- we never paid the atmosphere basically to use the carbon that is currently on our balance sheet. Last year, if we had to price carbon at EUR 30 per ton, we would have booked a kind of a negative P&L impact of around EUR 2.2 million because of the carbon we have emitted. So we would have a cash outflow of EUR 2.2 million, which is pretty much in line with the Green Dividend we're suggesting to our AGM over -- for this year of EUR 1.7 million. So in essence, another way to look at the Green Dividend is this is a cash that we would have to pay if there was a carbon tax. But given that there is none, we still have the cash on the balance sheet. So if you're a carbon-savvy investor and ESG-focused investor, one way of looking at it is just a reflection of what would have been paid if the government was getting it back together. And what's more interesting is if you look at the overall P&L impact that the carbon price would have on our -- assuming there would be a price for carbon, we would basically have made a gain of EUR 4.4 million last year, which highlight the importance of looking at carbon as an asset. And the reason why we're making a gain here is essentially because the value of the carbon embedded in our asset is growing faster and it's creating more value currently to the company than the cost of the emission that we're making. And we believe that this would allow the market to have a much easier view about whether or not you're doing the right things because we're not discussing about amounts which are difficult to comprehend. We're speaking about very simple accounting terms here, which do not require a Ph.D. in ESG accounting to be understood. And we think that that is really one of the main benefit of what we're trying to do here. We will, as I said before, offer a Green Dividend this year again, but we have substantially simplified the structure. And we listened to the feedback we got last year from our shareholders and we basically are simply asking this year to approve or disapprove the investment by the company of those EUR 1.7 million in a number of project. And based on that approval or disapproval, we will pay this year EUR 0.53 of dividend and we would then only deduct EUR 0.01 from coming year's dividend, if any. We're proposing, in line of what we've discussed before, 2 kind of project in which the company is going to invest. And again, here we have tried to simplify, to the maximum extent possible, the project we are suggesting to make it more palatable. We're proposing 2 kind of projects. The one -- the first one is a project which allow us to reduce emissions. Again, those are all project which are -- we would not do if we were just focused on financial returns, that wouldn't make sense financially. So the first one would be to install solar panel on our buildings. And if you're interested to know why this will not make sense financially, I mean the full calculation is disclosed on the website, greendividend.com. And in light which was we discussed previously and the importance of the carbon removal for the industry, we're suggesting to invest into project that would help real estate operators to permanently remove CO2 emission and those are all project which are early-stage development or early-stage R&D, which would require funding at this stage to be viable and become viable at the moment in time where the industry is going to need them and where we're going to be required by the legislator to actually act on that. The last point we wanted to make before we go into the regular presentation is none of the things we have discussed previously over the last 15 minutes or so would be needed if there was a proper carbon tax which is paid at the emission point. We believe that the current debate in Germany and the German real estate on whether or not it's the landlord of the tenant who should pay the carbon tax is kind of misguided. We believe that the carbon tax should actually be paid by the landlord. And if the market functioned properly, the landlord is going to be either able to pass that cost to the tenant or not pass that cost to the tenant, but this is going to be more about the management capability. But the simplest way to deal with the problem and to have a proper conversation with our shareholder to put that into our IFRS accounting without the need to come up with a new framework would be to have a carbon tax. So if anybody from the government is listening to this call, I mean we're clearly looking forward to this being introduced properly and simply, which would help us, as a company, would make -- would help our decision-making process much more than everything we're doing here. We are publishing today a number of elements. We are publishing what we call the real estate carbon accounting principle. There is a specific website for that, which is recap.wiki, which basically is kind of an accounting framework we have used to publish our carbon accounting. We are publishing our carbon accounting and you can find that on alstria website. And we're also publishing or have updated our Green Dividend website. We will be obviously more than happy to take the conversation with you on that topic, which we believe, again, is going to be the one that we are focusing on a lot simply because it's the one we feel we have the less grip on at this stage and we need to improve our grip and management of the risk going forward. The other theme are obviously important as well, but we feel are much more under control. So moving on to the regular part of the presentation and looking at the result in 2020. I think it's fair to say that despite the coronavirus and despite the pandemic, what you have on this slide could have much as been on any slide of the last 10 years we've been reporting those numbers. We hit our rental income target and FFO targets despite the pandemic. We have paid last year EUR 0.53 of dividend and we intend to pay the same this year. We have leased up, despite the weak letting market, around 120,000 square meter, which is round about half new leases and half renewal. Our refurbishment project are moving according to plan. And our disposable assets we have kept on -- and I'll come back to that in a minute -- with the strategies that we have to dispose assets in peripheral area of our portfolio and have continued our capital recycling, where we sold around EUR 120 million of assets and acquired around EUR 40 million of those assets. We've been a net seller during the year. So all in all, you could look at this slide and not really see that there was a pandemic out there. Having said that, we did obviously had a pandemic and we also wanted to come back to what has been like some of the focal point of our discussion with shareholder over the last 12 months. And this has been about the rental income collection. Our rental collection as of today for 2021 is very close to 100%. It was close to 99% in 2020. And if we look at what has been occupying a substantial part of our time, which is to deal with tenant request of waiver, although they occupied a lot of our time, if you bring them back to numbers, we have basically waived around 56% of the EUR 1.4 million request that we received, which is -- and we have deferred 44% of those EUR 1.3 million, which is in total EUR 1.3 million is around less than 1% of our total income. And so far, in 2021 we have discussion because we're obviously in Germany in the second lockdown for quite a while now, so we're having exactly the same conversation with some of the tenant. This represents a substantial part of the time, which is spend by our real estate operation team, but it's still a fairly insignificant number when you look at it from a total balance sheet and P&L. We have waived over 2020 rent essentially to retail tenant and food and beverage tenant. And we are continuing to doing that. And again, as we discussed in the past, we're not necessarily doing that as a show of our good heart, but simply because it makes more sense for us to support those tenants, which have been paying their rent punctually and have no rent arrear since they were a tenant of alstria and the only reason why they cannot pay their rent today is because they are -- their business is simply shut down, and we feel it's probably more interesting for us as a company to support them in that time rather than force them into bankruptcy and then have the need to find alternative tenants when the things restart. The few leisure and opportunity -- and hospitality tenant that we have in the portfolio, we basically have deferred the rent but have not waived so far. The second big conversation that we have been having with shareholder was about the request from tenant to reduce their office space. And again, I'm going to come back to that in a minute in more detail. But overall, in 2020 we had this conversation with 13 tenants, which basically we're looking to hand over slightly short of 9,000 square meter of space, which is less than 1% of the total amount of space we have in the portfolio. And we have agreed with some of those tenants that they could hand over early around half of that space and which represents short of EUR 1 million of rent. But obviously whenever we've agreed that, there was an exchange, an extension of the lease on other parts; so an extension of the remaining part of the lease or restructuring of the lease. So this was like a kind of a give-and-take discussion we had with them. But what we're trying to show here is we've been focusing a lot of time and attention, and that thing is kind of reflective of what we said initially about the pandemic into items, which in the grand scheme of things, when you look at them backwards, I mean they were important to handle, but they did not have a substantial impact on the performance of the company going forward. If we look at the portfolio and how the portfolio have developed, we have kept on with our process of de-risking and continuously improving the portfolio and the quality of the portfolio. I think one of the commentator or one of the analyst said this morning that a real estate portfolio always have a tail, and I completely agree with that. A real estate portfolio always has a tail. So capital recycling is always going to remain a point of interest for us. And we have been selling assets, as you can see on the map, in Hannover and Filderstadt and Meerbusch, and we have been reinvesting in Dusseldorf and Frankfurt. The value of the portfolio went up in the full year valuation and that's reflecting of what we're currently seeing in the market. And we intend to continue into that process. We were a net seller last year. We do expect to remain net seller this year. At least this is how our guidance has been built because we still feel that the reality of the downturn and the potential economic downturn have not yet trickled through completely through the market. But we also feel, as we said, very confident in the ability of the company to navigate those times. If you look at the letting result, we did lease-up around 59,000 -- short of 60,000 square meter of new leases and 57,000 square meter of renewal, which is obviously short of what we did last year. But the fact that it's short of what we did last year is not only related to the pandemic, it's also linked to the fact that the vacancy in the portfolio is much lower than it was before. And therefore, we had less primary good to work with. The letting market currently in Germany is very much subdued. We don't expect it to recover any time before the end of the pandemic itself. So most of the tenants we're discussing with are postponing decisions of taking space. We expect 2021 to be weaker from a letting perspective, but then we expect that once the pandemic is over, all the decisions that have been postponed in 2020, 2021 would then takes place. So we do anticipate to have a relatively strong letting market, I mean whenever the pandemic is over and people have more visibility, irrespective of potential economic downturn. It's just that there's a backlog of leases which are waiting is growing substantial. Despite all of that, our average rent per square meter have increased to EUR 12.93 and that is still substantially lower than the average rent that we see in the market who we estimate to be around EUR 16 to EUR 16.50, and provide us still ample room to maneuver if and when we re-lease space and we spend CapEx on the assets. If you look at how the vacancy has been developing over the years and we're showing here how it has been developing since -- after the acquisition of Deutsche Office, it has been consistently going down. We are now ending up a cycle of redevelopment, to which I will come in a minute. And so from here, we would need to create more vacant space in order to be able to run our CapEx program. What we're showing here is the development of the vacancy in our top-5 assets. As you can see, it's a dynamic process with asset being let and getting out of the top-5 and new asset coming in, which reflects actually the dynamic of the underlying business. What we call the like-for-like growth yield, which in essence is looking at how much CapEx we spent last year and how much rent actually started last year, come up at 6.5%, which, again, show that it's an efficient way of creating revenue and values for the company going forward. And we've been able to achieve, again, despite the pandemic, effective rent, which are up 3.2% year-on-year. And we have -- I mean, there's all the leases that we have signed over the last few months represent EUR 162 million of future income for the company. So despite -- and I think this is what you would also expect from a real estate company. Despite the fact that we've been in a lockdown and we have been doing and going through all the difficult times we've been going through, we have been performing quite well on the operations side, and we don't expect 2021 to be substantially different than that. If we look at how things have been developing over a development cycle and we look at how the like-for-like rent has developed over a development cycle. So from 2018 to today, we had like-for-like rental growth of slightly short of 10%, which basically is essentially a reflection of the increased rent that we can achieve once we spend CapEx in the building. And this like-for-like rental growth and the investment we're doing in the CapEx is, in turn, driving the value in the company itself. And here, we're showing how we expect the OMV of those development portfolio to -- over the same cycle to develop over time. I mean the EUR 1.01 NAV growth is not new, something we have disclosed already last year. Out of that, around EUR 0.85 is already priced into our NAV. So there's another 25% to go and until completion of the cycle. But that's kind of demonstrate that the way we're looking at the business, which is to refurbish and improve existing building rather than necessarily going out and buying very expensive building on the market, is delivering, from our perspective, higher growth than we can see in the direct market. As I've mentioned before, we've kept on with our recycling policy and we intend to continue to do that as we go. There is always a tail to the portfolio. We've been selling 8 assets across the year. And we've been selling them at an average book gain of 7.2%, so as a premium to the latest book value. And over the holding period, as you know, we've always underwrote our assets based on unlevered IRR and it remain our kind of main underwriting criteria and performance measure. We look at our business as a total return business. We've been achieving, on this sub-portfolio, an average unlevered IRR of 7%, which is spot in line with our target. Obviously, if you look at individual performance, there is a huge liability, which I think you would expect. But the overall portfolio is turning out to provide the return that we have underwritten initially. And we've been buying -- and I was mentioning our vacancy being at 7.6%, which is on the low end of what we expect to be able to work on. We've been buying assets with very short lease terms and/or with a lot of vacancy. We've been buying one asset in Hannover, [ Lauchhammer ] and Frankfurt, which is half vacant and another in Corneliusstraße in Dusseldorf, which we acquired from an owner/occupier and it's going to be vacated, hopefully, within the next 12 months with the view of repositioning and refurbishing those assets within their markets. So we are kind of building up the next internal growth potential within the company. And again, that's fully in line, I believe, with what we've been guiding the market to and announcement we're going to be doing. With this, I'd like to hand over to Alex, who is going to walk you through the financial, and I'm looking forward to our conversation.

Yes. Hi, everyone. I'll take the opportunity and obviously also the pleasure of just sharing what I think are a couple of noteworthy highlights of the financial cornerstones of our annual results and discuss those with you. I mean, we start with the balance sheet. Total balance sheet stands, as of reporting day, at around like EUR 5 billion, out of which EUR 4.5 billion is investment property, which is slightly up 2.6%. I'm going to delve into the development of the investment property in a second. Equity all-in-all is also up by 2.5% or 2.4% to EUR 3.2 billion. What's actually behind those numbers and probably most interesting message on the balance sheet is the company currently has some EUR 450 million of cash also on the balance sheet. So we have used partly the strength of the balance sheet to put or to generate some liquidity that we would be able to deploy if opportunities in the direct investment market should arise. So in a way, the net LTV of 27%, if capital would be fully deployed, would be more around slightly north of 30%. So we've actually taken the liberty of using the strength of the balance sheet last year to generate and then put aside some liquidity and cash that we are ready and prepared to deploy should opportunities arise. Rest of it, I mean, obviously, is a reflection of sheer strength, equity ratio. The G-REIT equity ratio stands at 71%. And as we discussed previously, LTV is at around 27%. If we go to the investment property bridge, I think what if -- I mean, obviously, shows the development from last year to this year and of the investment property. But what I think it shows quite nicely is how the capital rotation, capital recycling program at alstria works. In the kind of first section, you see that, as Olivier said, we're still a net seller and have been selling just shy of EUR 100 million worth of assets in the reporting period. And then this capital is deployed as we're not finding as much opportunities as we would like to find in the direct investment market. This capital is then recycled into the capital expenditure program. As you can see, this is -- stands at EUR 145 million last year. It's actually the highest amount we ever spent in a given reporting period into our own portfolio. And these investments then drive the valuation movements, which you can also see were around EUR 62 million. And this is a way where we're probably also projecting the capital recycling to go in kind of the same shape and form as we will be flowing through the '21 business year. Another way of looking at the balance sheet is obviously to look at the NAV or EPRA NTA development. And here, actually, key message is dividend payment is well covered by operating profit or our operating cash flow. And that we're generating something like EUR 0.05 per share in terms of disposal gains in the reporting period at around EUR 0.35 per share. Looking at... [Technical Difficulty]

Ladies and gentlemen, please hold the line. Due to technical issues, we have to dial back the speakers. One moment, please.

Sorry, guys. We're back on. Apparently, we didn't pay our phone bill, so we were taken off-line. Sorry, for the inconvenience. Sorry. I think where we left it was we were looking at the -- at the financing situation of the company. And what I thought is noteworthy and what I wanted to share with you is that maturity profile, I think -- I mean, it's evident there's no refinancing needs for the next 2 years. And then we've kind of taken some effort to evenly distribute the financing maturity profile over the years not to accumulate like overexposure in any given year, and this is really driven by what is a marketable like Eurobond emission, which is around EUR 350 million. This is pretty much driving the volume in any given year. And this is how we're looking at live from a maturity profile. Overall, cost of debt stand at 1.4% and the average maturity is just shy of 5 years. We've spoken about the LTV as a calibration. We're always also looking at the debt per square meter, which gives us some indication also to cross-check overall indebtedness. And this is why we're tracking those numbers and, obviously, happy to share those with you. If we move on to the P&L statement. I think the key message here is actually -- and just rebounding on Olivier's previous remarks. I still think it is remarkable that the company and the portfolio was resilient as it was and was basically delivering exactly the projected results, despite of all the difficulties we had in 2020 in the overall German economy. And we're obviously also kind of proud that we can report to you that we are -- we've been achieving FFO guidance, like more or less spot on. You can see that in terms of expenses, there is obviously no kind of expense management behind this. This is more like the cost, travel expenses down everything that was kind of impacted by the shutdown led to the kind of EUR 8 million that we came in short of the original kind of budgeted expenses, which were more on the same level as in 2019. But we took the opportunity that's actually going to be part of the guidance to basically skim through the overall SG&A structure and we feel pretty confident we can leave and manage also going forward SG&A expenses on a similar level, which I think is also potentially something that is valuable and going to be with us that is caused by the pandemic. FFO margin is at 61.4% and the EPRA cost ratio, as you can see, around 22%. There's actually not much to say about this other than that I still think it is impressive track record that alstria has been building of consistently paying an attractive dividend over the years. And as we said, we're going to propose to the AGM EUR 0.53 this year. And then we have, as we've discussed earlier, introduced the Green Dividend concept, which is when we're going to have an retrospective impact on the business here, but this year is going to be EUR 0.53 that is going to be the straight proposal. And really to wrap it up before we open the floor for discussion. The guidance we're giving is, again, a reflection of the stability that we have been discussing along and throughout this call. Revenues are projected and guided to be flat at EUR 177 million again. There's a bit of dynamics behind this. There's obviously lease-ups and some disposal assumptions behind it, but basically we are very comfortable to guide you at EUR 177 million of revenues, which then should lead us to an FFO of EUR 108 million. And again, as I said before, we assume stable costs and are very confident that we can keep costs stable. FFO margin, again, will be at 61% and this will give us an FFO per share of EUR 0.61. Having said that, I'll turn the mic back to the operator and then -- yes, we're looking forward to you shooting your questions at us. Thanks very much and speak in a second.

[Operator Instructions] The first question is from Markus Kulessa, Bank of America.

I had a question on the like-for-like rent growth in 2020. If you can just quickly come back to tell us because you right that the market rent, German office market really stable, yours is slightly down. Do highlight what is behind it and to understand if I'm right in your 2021 guidance, you guide implicitly also a small like-for-like decline in your rents?

Well, thank you very much for the question. I mean, our guidance, I think that was on the slide, I'm going to try to go back to the slide a bit. But basically on the guidance, we're essentially guiding to the fact that we're going to lose rental income essentially from disposal. That's going to be compensated by rental income of leases, which going to start -- which we already signed and is going to start in 2021. And that's essentially in Frankfurt on the [ Landstrasse ] building and in Wiesbaden -- on the 2 buildings we have in Wiesbaden. But we don't necessarily underwrite kind of like-for-like -- negative like-for-like rental growth for 2021. We usually do not guide on like-for-like rental growth. I'm just looking at Ralf, if you have a number for 2020. We are really looking at that across the development cycle because we think that the -- I mean that's the way where it makes sense. I mean, our business doesn't run year-on-year, but it runs across the time you need to empty a building and then fill it back again. And then -- and that usually goes on to a multiyear period of time. And this is why we've been reporting the like-for-like rental growth on a multiyear basis. If you just look at 2020 alone, the expiry of the lease in telecom in Dornstadt, which I think is a well-known fact, would have led to a like-for-like rental growth of slightly -- I mean, minus 0.8% on -- in 2020 alone. Does that answer your question?

Yes. So -- but also to try and see how the office market is decelerating office rent in the German office market and your out or underperformance versus the office market, but understand given the mix with the development, so repositioning it's difficult, but maybe you can tell us a bit about how you see the office market.

So if you look at how -- I mean, if you want to look at how we are performing compared to the German office market, I think the most effective way to do that is to look at how our effective rent has been evolving over time. And our effective rent, which is basically the rent of the leases we've signed last year, is up 3.2% compared to the year before. I mean, so far we have not seen -- we've seen the office market decelerating in a sense that there is less transaction taking place, but we're not necessarily seeing a massive pressure on rent. What is happening and what I would expect is a natural defense mechanism of the market is incentives are going to grow and this is why I think it makes sense to focus on the effective rent and not to look at the headline rents, which kind of ignore the incentive. So incentives are going to go up. And then you're going to move into a situation where effective rent are probably going to drop year-on-year. And I would expect, although there is no numbers about those, that the effective rent are going down. But as I mentioned before, we're still showing a growth in effective rent of around 3.2%. So we're not really reflecting that. I think what you also need to bear in mind is we came in, as an industry, from a very, very strong point where the -- I mean, vacancy rate in most of the German market were at record low and there was a strong imbalance in the negotiation between landlord and tenants in favor of landlords. So when we came into the pandemic, there was barely any incentive anymore being provided to tenants. And I think this imbalance is now being corrected on the market. So you're seeing now kind of incentive increasing. I would expect them to stabilize around 10% probably of the value of the lease over time. And before you reach that level, it's unlikely that you're going to see massive movement into the rental price. But that, of course, depend on the overall kind of economic situation when we go out of that. And the other point I just wanted to highlight, which is what we were saying in the presentation is our current average rent is at EUR 12.80 -- EUR 12.83, if I'm not mistaken -- EUR 12.93. And the market rent, the average market rent is closer to EUR 16, EUR 16.50. So we still have kind of substantial room basically to grow the rent on the portfolio. Obviously, it require CapEx, but we still have substantial room to grow. So we're also not so much sensitive of how the rental movement are taking place in the market because of the sheer structure of the portfolio and the kind of the low rent level we have compared to the overall market.

Yes. EUR 16.50 or EUR 16.15 for the market rent?

It's between EUR 16 and EUR 16.50 I would say.

Okay. So you have around almost 30% positive rent reversion.

We have 25%, I would say, is a reasonable amount, yes.

The next question is from Sander Bunck, Barclays.

Two questions from my side. The first one is actually on the development pipeline. And I noticed that T-Online Allee 1 has been removed. It was quite a large scheme, I think, last year. Can you just provide some further color why it's no longer in the development pipeline? And the second one on that is that, actually I noticed that for quite a few of the underwriting rents that you assume the days dropped by around 10% year-over-year and costs for some other schemes have gone up. So actually, your yield on cost has pretty much declined across the board. Can you just share some further light on that? And then I have another question after that, but I'll do this one first.

So I mean, on your first question on T-Online Allee 1, I don't think it has been removed from the pipeline because it's still part of our pipeline. What might have happened is that maybe it has been renamed because -- I mean, that's the beauty of -- it's now Telekom Allee 9, so.

It went from 1 to 9?

Yes. But that's the beauty of real estate is like assets are immovable, but they do move across down the street and down the line. And I think it has to do with the fact that we've tried to create multiple entrants and multiple address for multiple tenants. So -- but it's still the same. And the second point, it is actually true that we're taking a more cautious approach to the market. I think we are assuming that it's going to take more time. Affective -- as I mentioned before, affecting rents are probably going to go down. We're going to need to provide bit more TIs and incentive to tenants. So I think it is reasonable to assume in 2020 compared to your assumption in 2019 that you're probably going to -- it's going to be more difficult and you're probably going to be less comfortable in your assumption in terms of letting. So it doesn't sound to me completely unreasonable to basically have reduced assumption on the overall development pipeline. I think it's just a reflection also of the market where we are. But despite all of that, when I look at the kind of overall yield on cost we're showing, it still sounds reasonably attractive.

Okay. That's useful. And then the other question I had is on the amount of cash you had on the balance sheet. You mentioned briefly already EUR 450 million to EUR 500 million. And I think it was mentioned that potentially using that for investment opportunities. But at the same time, you're kind of saying like, look, basically, in 2021, we expect to be net sellers. How -- and I don't think there's any near-term debt maturities that come up. So what is it exactly you're looking to do with that amount of cash and other potentially any other things you could to do with that?

I think you know the say, it's prepare for the worse and hope for the best. So when we guide the market, we obviously do not assume that there's going to be a huge investment opportunity tomorrow in which we're going to be able to deploy the capital. But we still believe that we are at the point of the cycle where, as I mentioned before, there is volatility in the market and there is a lot of instability. So the opportunity might just knock on the door tomorrow morning and we want to be ready to seize that opportunity. And this is the reason why we actually raised that cash and we have that prepared. There is obviously a cost of carrying for that cash. And that's basically the opportunity cost of being able to deploy it if need be and if the opportunity shows up, which is something we have accepted as a cost when we decided to go that way. I mean, the worst-case scenario would be that we would repay the 2023 bond with this amount of cash and then basically, our LTV would remain at 27%. If you look at what happened in 2008, 2009, I mean the first real investment opportunity showed up at the beginning of 2010. So it took 18 to 24 months before you actually see price adjustment in the marketplace. I mean, obviously, this time is different than 2008. I mean, I'm not trying to reconcile, but I'm just trying to say that it usually takes time between the moment where capital markets react and physical market react. And then in 2010, we were not in position to lever up again. And so there was also the idea, and this is the whole purpose of having a 27% LTV, is to be able to react and to lever up if the opportunity shows up, but you want to be able to make use of that opportunity. So that's why we have such an amount of cash currently on the balance sheet, is to be able to be reactive to potential opportunities that would show up. So what I'm trying to say is we are -- again, we are planning for the worse and being prepared for the best in essence.

Yes. And I think you mentioned previously that you did potentially see some opportunities coming into the market and potentially there was some distress selling. Is that where are you still seeing opportunities currently? Or is it pretty muted overall?

So look, we bought EUR 50 million of assets, which is, I appreciate, not a lot. But still, we were able to find those opportunity. One of them was sold by corporates who had need for cash. And the other one was sold by a number of private individuals who actually were not able necessarily to refinance in order to do the refurbishment project they were planning on the assets. So we still scout the market, and we're still looking for those kind of opportunities, but we are also -- I mean, it's not because we have EUR 400 million on the balance sheet that we're going to start buying assets here and there without any cognitive view on value. So we're still very strict on our underwriting criteria and we're still looking at the end of the day, not at how much we can buy, but how much money we can make once we have bought the asset and what kind of return we can achieve once we have bought the asset. Again, I'm still hopeful that we're going to find more asset to buy. But I'm not counting on it. It's very much opportunistic rather than something where -- I mean, you don't plan acquisition in essence. They just happen.

The next question is from Ben Richford, SocGen.

Just following up a little bit on your comments around the expected leasing market. Thank you for those. I get the impression that you're clearly seeing an expected weakening, sort of 10% down in net effective rents. You're seeing economic weakness versus the backlog of leasing deals in the market sort of backlog that needs to be fulfilled. Could it be worse than that? We're at very depressed levels of gross leasing, availability will naturally go up. Do you not see a worst-case scenario, is question one. And then related to that, if you see a 10% fall in net effective rents, what will that do to your valuation?

This is the first time anybody asking me whether it could be worse than our views. So thank you very much for asking the question. But it also shows how the market has turned. I mean, look, it can always be worse than what you expect. And to a certain extent, I'm a bit kind of in between because we -- as a company, we can go for much worse than that. And actually, it would offer us much more opportunity because to a certain extent, and I'm really not hoping for any bad things happening to anybody, but if we want to see more distressed than more acquisition opportunity, you need things to go sideways at one moment in time if the market stands very, very strongly. So there is this kind of schizophrenic view on one side in order to be able to achieve -- in order to achieve and tackle on the opportunities, you need things to go sour. And then you're obviously along that same market. So you're kind of on both sides of the same equation. And you just want to make sure that the opportunity is going to outweigh the negative impact. So to your point on valuation, I mean, if effective rent go down 10%, 15%, as I mentioned before, our rent is currently 30% below the average rent. So if the rent in the market go down 10%, then the upside we potentially have on our assets is just lowering a bit, but it's still there. I mean we're not taking a loss. We're just reducing the potential profit. On the other hand, the more pain there is in the market, the more our 27% LTV is going to become an asset and the EUR 450 million we have on the balance sheet, we're going to be able to deploy accretively going forward. So it is a bit -- I appreciate my answer is a bit schizophrenic, but that's also a reflection of where we are. And we are, to a certain extent, on both sides of the equation. Our portfolio today is very, very defensive. When I look at it, I really struggle to see -- we're trading on an average at EUR 3,000 per square meter and all the assets we see, which are operating in the market, are closer to EUR 6,000, EUR 7,000 per square meter, at least on brand-new asset. So there is still a massive room for us to invest CapEx and still capture value. So if the market dropped by 10%, I still feel we're very much hedged on the downside and we have all the upside. And that's really by construction because we buy assets which are rundown, which are very low value per square meter and very low rent per square meter. And -- but still are well-located within the market and has the potential to grow. And yes, the more we can buy off those, I think the better it's going to be for the company going forward. So I appreciate I might not be answering exactly your question and I might sound a bit schizophrenic here, but I think it's a fair reflection of where we are.

Look, I think it's understandable given the uncertainty. I think you've expressed yourself well. It's just we're in an uncertain environment. And I just -- I guess, a slight follow-on to really the same question linked into Sander's question on development. Given the markdown in expected rents, the rising cost on some of those schemes, have values have been appropriately marked down because of those changed assumptions at the full year?

So one of the biggest mystery, as far as I'm concerned of what happened over the last 12 months, is the fact that property value did not go down. And I appreciate I'm probably walking a fine line here in being an executive of an office property company. But if you look at what we've done in half year 2020 when we didn't have any market evidence, we did write-down the portfolio by, off top of my head, EUR 150 million at the time because we were expecting that everything we're going through right now would actually end up taking a toll on the property markets and we didn't have any market evidence. What we had by year-end and what we have not only by market evidence, by third-party market dividend, but by our own transaction in the market, is we did realize that this is not happening. And property value today, despite everything we're discussing, despite the fact that rental market are being challenged and weaker, you're still seeing property value going up. And there is this kind of, I mean, strong cognitive dissonance here, which is taking place, at least for me, where everything I learn at school tells me it should go down. But what I'm seeing with my own eyes in the marketplace is that it doesn't. And I believe, rightly or wrongly, it have a lot to do with the fact that there is way too much money chasing, way too little assets in Germany right now, and then that's keep on pushing price up and not down. So as weird as it might sound, what's happening on the underlying rental market is completely ignored by the investment market, just at least so far. It doesn't seem to have any impact. And the monetary policy of the central banks, the fiscal stimulus which is being put in by the government is by way outweighting the gravity force of the rental market, which is -- which should be bringing value down. So I appreciate -- because I'm the first one who is -- can be confused by the situation. But this is what we're actually noticing on the market if you look at the real estate transaction, which are being priced right now in the German market. I mean, price keep on going up and capital value keep on going up. And there is such an imbalance between offer and demand still, and especially on long-term leases, especially on assets, which are centrally located, that it's -- I mean, we're just not seeing property value going down, which is one of the reason why we still believe and we still kind of saying that we might end up being a net seller at the end of the year.

The next question is from Thomas Rothaeusler, Jefferies.

I have a question on disposals and pricing actually. You expect to be a net seller again this year by disposing basically periphery. What pricing trend do you see for these assets? Do you expect more pressure on pricing of secondary?

So we're still -- I mean, the first indication that we have, and obviously those are just indication which doesn't mean anything because before you have a signed contract, you don't have anything, is that the asset we are putting on the market are showing prices which are slightly north of our current value, recurring value of the books. If you look into our book value, obviously, there is a yield gap between the center and the periphery, which you would expect. But we're still, we believe, going to be able to sell assets at a premium potentially to the carrying value. And so yes, in essence, there is a gap between the 2. But this is already reflected into our current valuation and to the fact that we sell the periphery, which is improving the overall quality of the portfolio. And we're still able to do that while printing a profit, I mean, from a fair value perspective. So...

Maybe one on development. You see better opportunities to invest in the existing portfolio, as I understand. What are potential new refurbishment assets if you go through -- and for example, Stuttgart, Daimler, I think, that is one potential asset. And by when can we expect, actually, a ramp-up of the development pipeline?

Well, I think Alex highlighted that last year we spent EUR 150 million in the portfolio. If you compare that number with 2 years before, was closer to EUR 60 million. I do believe there was some kind of ramp-up in the process. And we have a couple of new assets coming through different pipeline. As we've discussed, we are more like ending a cycle and starting a new one. Some of them are in Stuttgart. We have a building which is called Atlanta, which is going to be in our development pipeline. And we have -- I mean, the Daimler companies, as you mentioned before, is also clearly a candidate for that. So those are -- the next big development cycle for us is going to be starting 2022 and going forward because this is going to be the moment in time where we're going to -- we will have finalized what we currently have and we're going to be starting like the new one. In terms of quantum and volume, I think where the kind of run rate that we have today is the run rate where we're kind of -- we don't necessarily intend to increase. It's potentially more than where we are today. The amount of volume, EUR 150 million per year on a running basis, is probably where we feel comfortable with in relation to the overall size of the balance sheet and the risk we're taking in those development projects.

Okay. Maybe a last one. I mean we actually hear that there's a trend of lower rents for longer walls. Can you confirm that?

Well, if -- I think I really don't know who you hear that from. But the reality today is on the market, most of the large leases that are being signed today are signed by public authorities. And public authorities have a tendency to trade-off lower -- I mean, longer leases for lower rent because they also know that there is also a lot of value for investor in terms of yield to have a government or a government-like entity in the building. So at the end of the day, as we always said, we are more looking at it from a total return perspective. So if I get EUR 2 less, but I get a 3-year lease, which's going to be valued at 1% tighter yield than a 5-year lease, then from a global perspective, it makes sense to go for the lower rent. So this is the kind of arbitrage you're going to be doing. So to answer your question, I think you're more referring to public authorities. And the answer to the question is, yes, public authorities tend to sign longer leases and they also tend to ask for lower rent in exchange of the longer leases.

The next question is from Thomas Neuhold at Kepler Cheuvreux.

First of all, thanks a lot for the carbon accounting report. It's really a good food for thought. On the carbon topic, I have 2 questions basically. Properties account from 1 and 1/3 of GHG emissions. And as you rightly said, that basically limits to reduce emissions and then also that offsetting measures will not be enough to reach the long-term reduction targets. What do you think governments could, should or likely will do to reduce emissions in the property sector once they realize that the gross emissions, excluding offsetting measures, don't decrease as much as hoped? And do you think is there a large stranding asset risk in the sector in the long run? And what could be the strategy of our more stranded assets?

Well, I mean, first of all, thank you very much for asking a question around carbon. It's very much appreciated. The -- I mean, what the government should do or will do is that it will eventually impose taxes and a carbon tax. I think it will end up getting to that one way or another. And one of the thing we're trying to show here is and quantify is how bad the situation could or will be. I mean we look at carbon as essentially is going to be a cost one way or another for a company like us. On the stranded asset side, I don't think it's so much a question of having stranded asset. It's a question of when you refurbish a building today, you will upgrade it and put it back to where it need to be in terms of quality and what is expected it from the government. So I think what's going to happen is it's going to -- I hope because I don't necessarily think it's going to happen, but I hope that what's going to happen is that it's going to be much harder to build new buildings because the government is eventually going to realize that a lot of the emission are happening during the construction of the asset and not during the operation of the asset, and you're going to have much more support for refurbishment of existing buildings, which I think is going to be one of the -- hopefully, one of the conclusions the government is going to get to. You'll start to see more and more in the German press and elsewhere debate and discussion about how much construction industry is responsible for the overall carbon situation. And it's -- I mean, when you start having those kind of conversation in the press, it's usually a sign that it's going to end up sooner or later being part of the political debate and discussion. So when I look for it from an alstria perspective, the question is are we properly estimating the cost of refurbishment of our assets? Are we underestimating how much we would need to spend into reaching potentially new regulation and carbon emission targets? So I don't think we will end up with stranded assets in a sense that those are assets which are not usable anymore. But there is clearly a question of how much CapEx needs to go into those assets. And you'll start to see actually some open-ended funds and insurance company which are going through those number and then realizing how much money they would need to spend in the asset and then putting those asset back on the market to try to kind of get rid of the problem to a certain extent. And this is where I believe our approach to refurbishment and the kind of constant focus on buying asset at a reasonable price and looking at capital values is the most protective things we have. So it is, to a certain extent, embedded into our business and the way we're looking at life. But the main risk is a fundamental increase into the requirement for refurbishing a building, which will then kind of increase the overall CapEx we need to spend just to reach that goal. So this is really what we're monitoring very, very closely in trying to get a grip on in essence.

A follow-up on the refurbishment, if I may. Taking the current regulatory environment into account and then also your cost of capital, by how much you can currently reduce your CO2 emissions of its refurbishments?

I mean when we -- look, we just rented the building to the city of Frankfurt in Solmsstraße. And the building is fully compliant with all the rule and regulation that the City of Frankfurt has in terms of carbon emission. It has a full-fledged solar panel on a roof, facade isolation, et cetera. And we're making a very, very decent return out of this. So at the end of the day, the amount of money that you put in a building to refurbish it and whether or not you make money out of it is a function of a number of things; among other things, how much you paid initially for the building, how much rent reversion you have in that building. And so accounting for the need of carbon is just one element among others. And I think Solmsstraße building in Frankfurt is a good example of how the whole equation can work and should work. So I think that's really part of our day-to-day job and business and responsibility to make sure that the whole thing work. So we are able today to deliver buildings with -- while spending EUR 1,500 per square meter that actually meets all the standards that are required as of today. I think the question mark is more -- the more you reinforce the standard, the more constraint you have. I mean, this is what you need to anticipate. And what we -- I mean our main concern is this carbon removal thing because this is something we don't have a grip on today. We don't have a solution for that. Everything else, we know how to handle. But this one we just don't know and we don't know how much potentially is going to cost us if we need to go there. So this is one of the reasons why we try to understand and figure it out.

We have no further questions. I would like to hand back for some closing remarks to the speakers.

Well, thank you very much for your time and joining us today. We're going to be virtually on the road in the coming weeks and months. So we're looking forward to our further conversation. As we've put back on the slide the contact detail of Julius, which you're more than welcome to contact if you have any follow-up questions. You can, of course, contact me or Alex or Ralf just as well. But Julio's being new to the team, we're just highlighting his contact detail here. Thank you very much for your attention. If we don't speak between now and then, we will probably be speaking again for the first quarter results and the coming General Meeting. Thank you and have a nice day and stay safe.

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