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Edited Transcript of AOX.DE earnings conference call or presentation 27-Feb-20 9:00am GMT

Q4 2019 alstria office REIT AG Earnings Call

Hamburg Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Alstria Office REIT AG earnings conference call or presentation Thursday, February 27, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Dexne

alstria office REIT-AG - CFO & Member of Management Board

* Olivier Elamine

alstria office REIT-AG - Chairman of the Management Board & CEO

* Ralf Dibbern

alstria office REIT-AG - Head of IR & Public Relations

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Conference Call Participants

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* Andre Remke

Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst

* Kai Malte Klose

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Sander Bunck

Barclays Bank PLC, Research Division - VP of Real Estate Equity Research

* Thomas Neuhold

Kepler Cheuvreux, Research Division - Head of Research of Austria

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Presentation

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Operator [1]

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Dear ladies and gentlemen, welcome to the conference call of alstria office REIT-AG regarding the presentation of the full year results 2019. At our customer's request, this conference will be recorded. (Operator Instructions)

May I now hand you over to Olivier Elamine, CEO, who will lead you through this conference? Please go ahead, sir.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [2]

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Thank you very much, and good morning, everybody, from cloudy Hamburg this morning. I'm sitting here with Alexander Dexne, which is alstria's CFO; and Ralf Dibbern, which is our Head of IR, in order to introduce you to the financial result for the year 2019 of altria.

Before we start, I'd like to draw your attention to the usual disclaimer and cautionary note regarding forward-looking statements and duty to update, and then without undue delay, move to the agenda.

As we usually do, I mean since the company was founded, would like to spend the first 10, 15 minutes of this presentation to discuss something other than last year financial and operation result. And this year, we have chosen a theme, which unfortunately, is not so original anymore, given that it seems to be like the major themes of the time. But I think the approach we're taking to that theme is maybe slightly different. And the good news is we're not going to be talking about net 0 this morning, but we're going to be talking about an initiative we would like to start and where we will be very grateful for our future conversation that we have called the Green Dividend.

Before I move into the Green Dividend discussion, I wanted to, first of all, frame a little bit where we're coming from and what we have been doing in the field of sustainability so far. alstria was the first real estate company in the German-speaking countries to publish the sustainability data back in 2010, so a long time ago. And since then we've been making massive progress in our operation and our -- and managing our carbon impact. We have reduced, since 2013, our carbon footprint by around 43%. And that's, by the way, despite the fact that in the parallel period of time, we almost doubled the size of the portfolio.

The nature of the asset and the nature of the portfolio that we have is much less intensive in terms of energy than comparable German or European offices. And I think -- and that's probably the most important part of what we're doing here is at the heart of the way we create value in real estate, which is taking all building and refurbishing them and upgrading them, we have sustainability. Because whenever we actually improve a building, by definition, we don't only improve the look and feel of the building for the tenant, but we also improve the performance -- and the energy performance of the asset itself.

We're using the same rules that are being taught to our kids at school, the 3 R of sustainability: reduce, reuse and recycle. We reduce in a sense that we do not build new buildings out of the blue. We don't do greenfield development as a policy. And we usually try to build low-tech buildings, so limit as maximum possible the uses of materials in our assets. And we reuse and recycle in our refurbishment programs, where we're basically reusing as much as we can of the existing building and mainly in the superstructure, which have the biggest part of the embedded carbon in it.

As an example of the result of this policy, we're showing on this slide the Mundsburg Office Tower, where after refurbishment, we were able to dramatically reduce the impact of the asset from a CO2 perspective. More importantly for us, we have never fundamentally focused on reducing our CO2 footprint per se. It really comes embedded in the value creation process.

Our focus has always been on maximizing our financial returns. And we are really a believer in the fact that you cannot maximize 2 variable at the same time, and we should be focusing on maximizing our financial returns. And so the way we handle this is we basically follow up the existing regulations. We do not go further than the regulation. And within the framework of regulation, we try to work with an old concept in sustainability, which is the best available technology at no extra cost.

So we usually try to find the best technology possible that would allow us to have, within the framework of regulation and our cost framework, the best impact on our sustainable -- on the environment. By doing this, we obviously were able, over the last 10 year, to achieve relatively decent returns financially. Out of the EUR 1.5 billion of assets we sold since 2007, we generated unlevered IRR of around 8%. And our current target of underwriting IRR are still between 6% and 7%. And the few asset we're buying today will meet those targets.

Obviously, once you've said that -- we have been asking ourself and we have been having conversation with shareholder about what can we do more and can we do it faster. And when we were having those conversation internally, we basically came to the conclusion that, I mean from today's perspective, for us to improve a building, we need 2 condition to be met at the same time. We, first of all, need the building to be vacant. And I think we've been having this conversation from a business perspective for a long period of time where we're insisting on the importance of vacancy within our business model. If we do not have a vacant asset, we cannot add value. And as such, we cannot improve its sustainability performance. And we also need to have capacity in our balance sheet for the risk. As you know, we'd like to keep our refurbishment exposure somewhere between -- around 10% of the total balance sheet.

With this kind of approach, we turn around between 5% and 7% of the portfolio every year, which is still twice as much and faster as what the regular market does. I think the assumption here is that the real estate stock renew itself by around 1% or 2% every year. And therefore, it takes somewhere between 50 and 100 years to renew an entire market.

In order to go faster, if we wanted to do more on the sustainability front, we would need basically to relax 1 of the 2 constraints: either we need to work on an occupied building; or we would need to increase our balance sheet exposure to the refurbishment program.

On the second part of it, which is increasing our balance sheet exposure to refurbishment program, we're not going to touch base on today. I think we're pretty comfortable with the 10% exposure that we currently have. We have increased that actually dramatically over the last 2 to 3 years. And this is more a risk/return view that we're thinking of. But what we'd like to discuss today is should we work on an occupied building.

Sustainability and climate change discussion have not changed the fundamental dynamic in our industry, which is you can only add value when the asset is vacant. And there are a reason for that. The main reason is, in essence, that we have no obligation, neither legal nor contractual, to act. There is nothing in our leases which basically tell us that we need to do more. There is nothing that oblige the tenant to pay a higher rent if we were to improve the situation. And usually, when new regulation come into play, there are grandfathering rules that basically protect the building up to the moment in time where we can ask for a new building permit or new building authorizations, which by definition, imply that there's going to be limited cash flow available at the time where you would do the work in an occupied building. And at the best, you will basically have the cash flow coming to you when the building is going to be vacant the next time.

I think a very basic cash flow analysis will show you that if you invest the money today and you only get additional cash flow 5 years down the road, it's going to yield much lower result than investing the money 5 years down the road and then getting the cash flow right away. So basically, investing in an occupied asset would mean accepting lower return. And again, our underwriting as of today has been to focus on maximizing returns, not lower them.

What we've -- we still looked at a number of opportunity we had in our portfolio. And we tried to discuss internally, if we are to accept lower return from a sustainability perspective in order to invest in sustainable project, at least we want to make sure that we are maximizing the impact that this investment is going to have from a sustainability perspective. So we want to make sure that for every euro we invest, we're saving as much CO2 as we can.

And the numbers that we were getting when we're looking at our projects were clearly not so exciting. And we start to wonder whether we were looking at life the wrong way or whether this was a more general issue which was linked to real estate.

And in order to benchmark ourself, we basically look at Green Bond Impact report, which have the merit of existence today. And we looked at around EUR 10 billion worth of Green Bond Impact report, which are split around 50% for real estate investment and 50% for other investment. And what we realize is what those impact report shows and what they confirm is that it is actually pretty inefficient to invest in real estate when you're looking at CO2 investment. It costs, on average, EUR 28,700 on those EUR 5 billion in investment green bond to save a recurring tonne of CO2. And this is 80x less effective than investment which is done, for instance, in renewable energy.

So it does raise the question: If we are targeting to invest money at lower returns, is real estate the right asset class to invest in? And clearly, the Green Bond Report supports the fact that this question is worth asking and worth answering.

What we took from there is we look at the way we could basically sort out the 2 issue we had. In theory, a dividend payment by a company -- I'm putting aside here for 2 minutes the REIT payment obligation. But a dividend signals lack of profitable investment opportunities and the return of capital to shareholder by the company. What we want to show with the Green Dividends is the existence of climate change investment opportunities which would not meet our return expectation.

So we're saying we do have potential project in which we could invest, which could help us to mitigate the impact on climate from the company and from its assets. However, those investment do not meet our financial return expectation. And that's the main difference that we're making between what we call the Green Dividend and the standard dividend that we're paying.

So the aim that we are looking for is to increase the dialogue with our shareholders through that instrument, mainly by making apparent the marginal cost for a company like alstria of improving the -- our impact on the -- in that case, on the CO2 and climate change mitigation issues while at the same time, doing more than what we can do, which is finance -- justified by our financial returns perspective. Again, here, we're already doing a lot. And we're looking at what should we do or should we go the extra mile.

What we're also trying to understand is how does this marginal cost compare with other opportunity which is available, not necessarily to us, but to our shareholders. So we're basically trying to answer 2 question: should we do more? And are we the best positioned to do more? And we are basically asking that question to our shareholders because we believe they are the right benchmark for us. And they have -- they can provide us with the right answers to those 2 question.

From a more practical perspective, we have identified 2 projects currently that -- in which we could invest. Those 2 projects have a marginal cost of CO2 avoidance of EUR 17,500 per ton of CO2 avoided, and this is a recurrent avoidance. And therefore, we are proposing to have EUR 0.01 of dividend as a green dividends, which again, represent EUR 1.8 million around about.

And we're offering our shareholder basically 2 option. The option one, they can take this additional cents of dividend and then invest it in more efficient green project, we hope. Or they refuse the dividend. And in that case, as a company, we would have been given a clear mandate to execute on this proposal with a clear understanding that those -- this investment is going to yield lower than our current expected returns.

So that's basically, in a nutshell, what we're trying to frame here. I do appreciate that it might be a bit complex to look at the -- at this. We have dedicated our management letter this year to this topic specifically, and we're looking forward to our discussion on the topic.

With this, I would like to hand over to Alex and move back to the financial 2019 and the outlook for the company for 2020.

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Alexander Dexne, alstria office REIT-AG - CFO & Member of Management Board [3]

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Thanks very much, Olivier. Good morning to everybody out there. It shall be my pleasure to take the next, whatever, 10, 15 minutes or so to walk you through the financial framework. And then we shall be looping back to more the operational performance of the company before we wrap up the session and obviously open the floor for discussions that we're already looking forward to have.

Let's start with the balance sheet and the key positions that have been our focal point of attention. I mean obviously, there has been a significant change in investment property values. Going from 2018 to 2019, we have a total change of around EUR 0.5 billion, which is a result of the net of disposals acquisitions. And obviously, there are revaluations we have seen in the portfolio. I shall spend some more time going through this in detail on the next slide.

It is very important for us, and this is also a recurring theme in previous presentations, that the quantum of debt we have put to play here remains relatively flat. So there have no -- have been no changes in the net financial debt as we moved from 2018 to 2019. And you can argue in sync with the changes in investment property, equity of the company, about -- NAV of the company is up 18.3%, which means, on a per-share basis, EUR 2.77 increase in the NAV per share of the company.

So as promised, let's look at the dynamics driving the investment property changes. As you can see in the first 4 columns, alstria is still a net seller. We are executing our strategy of selling peripheral assets, reinvesting the funds in more centrally located assets, thus improving the overall risk return profile of the company and really gradually improving the overall quality of the portfolio, also providing for more management efficiency of the portfolio because we're going to be, as a result, much more focused around these centers where we have boots on the ground and thus allowing for a much more efficient management of our portfolio.

So that brings us to a value of EUR 3.864 billion net of transactions. And then we have spent -- we did spend something like EUR 160 million in improving the quality of our assets that largely led to, I mean obviously, lease-ups and in the -- as a consequence also of a revaluation of the portfolio by EUR 455 million and giving us the end result in -- as of December 2019, of EUR 4.4 billion portfolio value.

If we move to the equity side of life, how did the NAV change over the last 12 months: we had a starting NAV per share of EUR 15, around about; paid a dividend of EUR 0.52; generated an operating profit of around EUR 0.62; disposal gains of EUR 0.10. So nicely covering the dividend payment out of operations, actually, plus the disposal gains, had revaluation of EUR 2.50 per share, which leads us to a year-end NAV per share of just shy of EUR 18.

The LTV is further down to around 27% now. If we look at the debt maturity profile, we did refinance all the maturities standing out -- or outstanding in '21 and earlier, and I think that gives us what I would consider a nice and staggered maturity profile, as you can see from the lower left-hand box, mainly focusing as we currently stand on capital markets. We have 3 bonds -- Eurobonds outstanding, still some bank debt in place and some [short-term] financing. I mean going forward, I'd obviously like to maintain the exposure in the bond market. The banking market has -- had offered a lot of flexibility in early redemptions, and therefore, I mean proportionately, has suffered the most in the mix of alstria's source of debt funding.

Looking at the LTV of 27% -- I mean we've been having a lot of discussions, obviously, with our investors around the 27%, how much we consider this a necessity and how much this is like a core element of our overall financing policy. My answer to this was usually, the 27% just reflects optionality for us, and it's not like a dogma to stay at 27%. I mean more across the cycle, our target is to stay sub-35%. That's really as a -- by way of pulling out, if you like, more like a financing policy. The rest, I would really consider as optionality and giving us flexibility also should the opportunity arise, also to tap on the debt markets in order to generate flexibility to execute on transactions.

More -- as additional reference point, we would also -- we actually have been reporting, and I'd like to continue to do this, where we stand in terms of net debt-to-EBITDA and also, which we feel is actually quite an interesting metric to look at, is the net debt per square meter because it gives you an untainted view on the indebtedness of the portfolio, disregarding valuation changes and then looks more at the -- really, the carrying value of debt per square meter. You look at the EUR 800. This is clearly, I would say, around the land value or probably even below the land value mark of our portfolio. So we feel very, very comfortable with where we stand with the level of indebtedness.

If you're agreeable, we move on from more balance sheet positions to the P&L statement. Gross rental income is down by around EUR 6 million year-on-year and has actually driven -- solely driven by the transaction results, the company, again, being a net seller over the last 12 months. At the same time, we have also seen some increase in SG&A expenses, which has here largely been driven by the share-based compensation. So it's noncash positions that have been driven by the share price moving very favorably, actually, over the last 12 months. And that gives us an FFO for the year which is, I think spot on with where we were guiding to at the beginning of the year of EUR 112 million.

Maybe to elaborate a bit on the changes, I mean we see rental income down EUR 6 million, SG&A up around EUR 3 million. FFO was only down EUR 2 million, where have we been able to compensate. There was, again -- yet again, I should say, a compensation by lower financing costs. I mean we're more running at -- the latest bond was issued at 50 basis point margin. So we locked in another EUR 4 million of interest rate savings.

And then looping back to the SG&A increase, we take out the share-based compensation part because, again, it's noncash out of the FFO contribution. So that's an adjustment of another EUR 2.5 million, which is kind of mitigating the cash impact, and this is why the FFO is only down EUR 2 million year-on-year in -- yes, as we can see.

Moving on to Slide 18. And that is just showing the, what I would think, fairly consistent dividend policy of alstria. Obviously, we're now introducing the concept of the Green Dividend, so we're offering our shareholders the additional EUR 0.01 and trying to earmark this additional EUR 0.01 really for -- to be spent in green projects to accelerate the overall speed of achieving and moving towards meeting the Paris climate goals. As Olivier said, if shareholders don't feel to be in a position to invest this additional EUR 0.01 into green projects that are more efficient than the ones we are suggesting, we stand ready to deploy this money internally in the projects that we have outlined and the efficiency that we have indicated to you.

Either way, the payout ratio will be 82%, or respectively, 84%. So we feel that also the -- with the Green Dividend proposal, we're nicely and sufficiently covered.

Look, I mean obviously, it is very important to also have a view about the market environment where we're operating in and to see how much we can benefit from the overall constrained supply situation in the German office market. We have obviously experienced a very, very successful year in terms of operations, in terms of being able to lease-up to reduce vacancy in the portfolio. And by doing so, we've been able also to realize and print some, what I would consider, very, very impressive like-for-like rental growth.

If we look at the contractual rent that was locked in and contracted -- I mean, it's in the name, obviously, at the end of 2018, which stood at EUR 197 million, and you take this net of transactions, it's -- again, the EUR 7 million of disposal result, you set the base at EUR 190 million as of the year-end, if you like, for the contractual rents, we're now standing at EUR 208 million total contracted rent that provides for a like-for-like rental growth of 9.7%. The overall rental growth, if you leave the transaction result in, is still a very impressive 5.8%.

And obviously, these contracted rents are something that we have locked in for the future, which help us to generate growth and drive the top line as we go into the next years. I have some more flavor on that on the next slide, where I would like to draw your attention to what we would consider our key growth drivers in our financial performance as we go through the next years.

And maybe we can start -- because this is tying into the previous slide, maybe we can start with the right-upper box, which is showing more the P&L impact. So the right side is more referring to P&L impact. And here, we have shown what kind of embedded growth we have in our current rental pipeline as of today. And this is the number I was showing on the previous slide, we have EUR 208 million of total contracted rent, out of which around EUR 28 million were secured in the last year. And then as per the latest valuation report, we see something like a 20%, or EUR 40 million, of rent reversion, which is in the portfolio -- embedded in the portfolio and still to be realized by our operations team, by the company as we go through the coming years.

So there's substantial embedded growth to be added in the -- actually in the next 2 years on this year's guidance, which is going to be the EUR 179 million. You can also see in the same column, EUR 28 million, we have locked in already with rental contracts that have been closed, and then you add to that the reversion.

Another important driver of increased profitability, as we expect to go through the coming years, could be still the financial expenses. Currently, we run at around EUR 18 million recurring financial expenses at an average cost of debt at 1.3%. Latest financing, and this is where the magic or the math obviously kicks in, if you apply our marginal cost of debt to the overall debt amount outstanding, you're more running at like EUR 7 million of annual financial expenses, which would give us some EUR 11 million of additional profitability embedded in the P&L.

If we move more to the balance sheet, and I think Olivier is going to spend a little bit more time also on the development pipeline. In the current development pipeline, we're realizing or we're unlocking something like EUR 1.60 in additional NAV. Out of those EUR 1.60, like EUR 0.60 have been realized and anticipated by the value already due to the lease contracts and the -- basically the vacancy risk that has been taken out of those developments. But we have another EUR 1 to go in what is currently in our development pipeline, so potentially, like, yes, bringing up the NAV into the EUR 19 order of magnitude.

And then with the financial results we are presenting here to you today, value per square meter of our portfolio is around EUR 3,000 per square meter. If we look at the latest capital market transaction, i.e., the [Covivio Goldwind] acquisition, which is valuing the target portfolio more at EUR 4,000 per square meter, this shows you that there doesn't seem to be any stopping of yield compression or valuation increase right now. So values seem to be still moving. And still, I look at our numbers, I feel we go through the next 12, 18 months, there should be potential to also move into the direction where other market participants are trading. I mean just to give you a flavor of the number, obviously, you move our portfolio value to EUR 4,000 per square meter, you're speaking about, whatever, EUR 5.50 in terms of NAV potential.

Right. Maybe to wrap my contribution to this annual results presentation up, I obviously cannot finish before I've shared our financial guidance with you. And just to make this a bit more transparent than just spitting a number, I mean we prepared a bridge. Starting with EUR 112.6 million FFO that we've generated in 2019. And then we have the net result of our operations, which is lease expiries of around EUR 28.8 million. Same order of magnitude in new leases, and again, some lower financing cost which is going to kick in -- which is going to provide for some mild FFO growth, EUR 213.2 million (sic) [EUR 113.2 million]. And then there is the net of the transaction result, which is going to knock off another EUR 5.2 million out of our FFO guidance. And therefore, the guidance we're presenting to you today is going to be revenues of EUR 179 million and FFO of EUR 108 million, which represents an FFO per share of EUR 0.61 and an overall FFO margin of 60%.

Having said that, I'm happy to turn the microphone back to Olivier and look forward to our discussion later on in this call. Thanks very much.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [4]

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Thank you, Alex. I will walk you through probably a very similar set of number, but coming more from the operational side of life.

2019 was a strong year for the company. We had -- our results were in line -- I'm always going to say as usual, in terms of revenue and FFO. But the underlying operating business was extremely strong with letting result, I'll come back to that in a minute, which were really, really strong, supported by the strong underlying letting market in Germany, which in turn, trigger a very strong growth in our contractual rent. And a lot of that was underpinned by the development portfolio that has also delivered pretty nicely on the letting side.

We have continued to derisk the portfolio. We're still cleaning up and selling assets outside of our core region approach, which we call selling the periphery and buying the core. And the term buying the core is maybe a bit misleading because we're not only buying assets in the city center, we're also reinvesting in our own assets in the city center, which is creating some kind of time gap within our cash flow, which I think we have tried to guide the market [as a true good]. And we're trying to do as well today with 2020 showing, from our perspective, everything else being equal, the low point from that perspective.

If we look at the portfolio very briefly, what you will notice is we've been selling assets in Bremen, in Recklinghausen, in Laatzen, in Kaiserslautern, so outside of the 5 city where we're focusing on. We've been trying to take as much possible advantage of the strong investment market. And we are continuously doing that. We still have another EUR 100 million, EUR 150 million to go. The portfolio value is up year-on-year around 12.3%, which is lower than the average value per square meter of the portfolio, again reflecting the fact that we have been net sellers. The contractual rent is also up 5.7%.

What I think is interesting to notice as well is the -- the increase in value of the portfolio is as much driven by yield compression than it is by the increase in the underlying rental income and the operational result, which is demonstrated by the fact that our valuation yield is still at around 4.7%.

What's also interesting to look at is the ERV of the portfolio has increased itself by around 4%, [just short] of 4%, which is again reflecting the underlying change in the rental market in Germany.

So we are basically supported by a strong letting market and -- we were supported by a strong letting market in 2019. We still have a very, very strong investment market with substantial demand for real estate asset in Germany. And on top of that, we were able to deliver on the operation, which have allow us to basically tap on those 2 phenomenon, which are in the market today.

The letting result at -- with -- almost 200,000 square meter of new leases, which is almost 2x as much as the average that we had over the last 5 years, and renewal of leases of almost EUR 180,000 (sic) [180,000 square meters] were clearly very, very strong from our perspective. And what I wanted to highlight again here, and reverting back on something Alex says a moment ago, is the vast majority of those leases are in our refurbishment program, and then the cash flow will only kick in, in the future. So out of those 200,000 square meter of leases, we have EUR 4 million, which is going to hit our P&L next year -- or this year in 2020, EUR 17 million in 2021, EUR 27 million in 2022 and then at full scale in 2023 with the full EUR 28 million of additional rent. So we have basically embedded in our current portfolio a substantial top line growth, which is going to kick in as soon as we start delivering the asset to the tenants.

The average rent of the portfolio has been going up steadily over the years, about around 2.1% per annum, which is pretty much in line with the guidance we usually give to the market, which is 1% to 2% beyond inflation.

And as you can see, we are achieving a substantially higher rent on the new leases we're signing after CapEx of around EUR 16.20 versus the extension of the leases, which is usually just a tenant exercising his option, which is only at EUR 11.80 per square meter.

So there is, again, then coming back to the start of the discussion, the idea that you do add value to the asset when you invest in them at the time where they are vacant, and this is being demonstrated again in this year letting result.

Our vacancy rate, as an obvious effect of what we've discussed before, is down to around 8.1%. We have had a net absorption this year of around 83,000, 84,000 square meters. So the vacant assets -- the largest vacant asset that we had in our portfolio have been now let. So Solmsstraße, Gustav-Nachtigal-Straße in Wiesbaden and Am Seestern are now fully let. And we are obviously working on the next assets on which we already made progress. Out of the asset that we are showing here -- out of the top 5 vacant asset, we just announced the signature of a 6,500 square meter lease in Gasstrasse here in Hamburg earlier this year. So there is still a strong momentum within our leasing pipeline.

Having said that, our vacancy rate, if you remember our guidance to the market, we usually say the vacancy is somewhere in between 7% and 12%, 13%. We're now closer to 8%, which is on the low end of our guidance. And because we need vacancy in order to be able to create value, this is something we will try to upgrade in the future and create the future growth potential in the company beyond what we have already secured.

If we look -- and this is a question we always have or we have relatively often when we discuss with shareholders and to rebound on an element that was provided by Alex a little bit earlier. Out of our current refurbishment pipeline, we have EUR 1.60 of NAV growth per share that we can foresee with today assumption. Out of that, around EUR 1 per share is already -- sorry, EUR 0.60 per share has been already booked in the 2019 result. This is what you can see, the EUR 102 million of profit.

And the way the valuation works is as we derisk the project, for instance, because we secure pre-letting or because we secure the cost base of the construction site, then we will start to book part of the profit. But we still have EUR 180 million of profit that can be expected from those development pipeline, which again reflects EUR 1 per share of NAV that was discussed earlier with Alex. And this EUR 1 per share will follow-up around EUR 200 million of CapEx investment that we're planning in the years to come on assets which are, for the vast majority of them, fully let.

So the main risk that exists on this slide is linked to the assumption that we're taking on the yields. And there is a footnote about that. We're assuming a 4% yield for Hamburg, Stuttgart, Frankfurt and Wiesbaden and 4.5% for Darmstadt and Mannheim. And I'll leave it up to you to adjust those yields and then potentially adjust the growth expectation from an NAV perspective out of the pipeline.

If we move to the transaction side, our strategy here have not changed. We're selling the periphery. We're buying the center, and we've been consistently doing that. We sold around EUR 140 million of assets over the last 12 months at an average premium to our 2018 book value of 11.2%. And year-to-date, we sold EUR 62 million of assets, which represent 3 assets at an average book value of -- premium to the 2019 book value to the latest valuation of around 10%.

And this is something we're continuously doing. We think the environment is right to take benefit and advantage of the strong investment market in Germany to increase and improve the overall risk profile of the portfolio and selling peripheral assets. And at the same time, and although this become harder to do from a pure acquisition perspective, invest within the center. We've been buying, last year, 5 assets for a total value of EUR 50 million, an average capital value of EUR 2,800 per square meter. So consistent with the current value of the portfolio, a relatively low in-place rent of EUR 9.20. And therefore, an asset that offer still the opportunity in the current market for us to hit our underwriting result. The vast majority of the opportunities that we see today are not in direct acquisition in the market. They are in our ability to invest in our own portfolio, where we're getting -- we still have an embedded and secured pipeline that yields an extremely strong result.

To wrap it up, last year, we started the 2018 result presentation by providing you with a strategic outlook. And we thought it would be interesting to take a look back at what we've shown you last year and where we believe we stand today. If you remember, we had 4 quadrants who we're looking at -- where we were looking at a number of macro events, which are basically how capital value are doing versus rental market. What the status is in the financing market and are in the low interest rate environment is going to remain where it is or not. And based on the different analysis, we were positioning ourselves, as you can see on the slide, on the upper-left segment where we would call the ECB stimulus is going to continue.

We believe we are still there. Over the last 12 months, the portfolio value have increased by 12.5%, which is what we were expecting. The yield has continued to go down, which is what we were expecting. The cash flow growth came mainly from the refurbishment project, which is what we were expecting. We had been trading closer to NAV, but on an NAV, which is and has been trailing the direct market recently. And again, we are following capital market signal when it comes to our capital market view on whether or not to deploy capital. And on the debt side, we have kept the leverage low.

In the next 12 months, we don't see any fundamental reason why this environment would change, not taking into account any gray or black swan event. But we still expect office capital value to grow ahead of what the rental value growth is going to be. We do not see any fundamental reason why interest rate environment will change from where it is today. And more importantly, and this is something we're seeing in the investment market, the desperation for yield is still there. And that's going to keep on pushing our real estate value upward. And we are seeing that clearly in the different transactions that we are noticing and following up in the investment market. So we believe we are in for a very similar environment, although I think one of the major differences, and something we have a very, very close eye into, the overall state of the German economy is probably weaker today than it was 12 months ago. And this might have an impact on the letting market at one stage. But as we speak, we have not been able to realize that impact. And we're still operating in a very strong environment.

So that concludes our presentation for today. There are a couple of slide, as usual, that Ralf has prepared on the back of this presentation, which basically allow you to bridge the different financial number that we were presenting. And we are looking forward to our discussion.

Operator, I think we can open the floor for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Thomas Neuhold, Kepler Cheuvreux.

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Thomas Neuhold, Kepler Cheuvreux, Research Division - Head of Research of Austria [2]

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,I basically have 2. Firstly, on Slide 20, the rental income potential of EUR 248 million, you provided a very good overview about the impact coming from pre-letting in the next couple of years. Can you give us an indication of when you think you will or can reach the EUR 40 million rent reversion potential? That's the first question.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [3]

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Yes. I mean the -- in order to reach the reversion potential -- I mean the full EUR 40 million reversion potential, we would need the whole portfolio to be empty at one stage. So some of it is very back-ended. For instance, we have still assets in Hamburg, which are rented to the City of Hamburg with a very, very strong reversion but still a 10- or 15-year lease on the clock with the City of Hamburg. So I think we're really giving the guidance to show that there is substantial value embedded in the portfolio beyond what you can see. And we are capturing around about somewhere between 10% and 15% of that on an annual basis, if you assume that we have a 25% of our portfolio, which become vacant. We have a 5-year WALT, around about to 20% of the portfolio become vacant every year, of which, probably 60% of the tenants renew. So you have 40% of the 20% which is empty. And on that potential -- on that part, we can achieve the reversion.

But the other thing I wanted to highlight as well is the reversion that is shown by the valuer, assume we do not spend money on the assets, which we never do. We usually spend money and then we achieve a substantially higher rent than what is the current ERV. So the concept of ERV here is you spend very, very little money. You just change the carpet, paint the wall, et cetera. When we spend money, and this is really where I think the interesting part of our business is, you can achieve substantially higher results in our refurbishment portfolio. Our -- I mean our underwriting target yield on cost is somewhere between 6% and 7%, which is substantially higher than anything you can find in the market. And so ultimately, the reversion we're achieving is substantially higher than what we show here. So the EUR 248 million, I think you need to take it as a more theoretical floor value to where the value is in the portfolio.

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Thomas Neuhold, Kepler Cheuvreux, Research Division - Head of Research of Austria [4]

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Okay. Understood. And my other question is on the FFO guidance, the FFO bridge on Page 21. I'm just wondering why that the impact of new leases is lower than the lease expiries. We had rising rents across the board in the last couple of years. So I was just wondering why the FFO contribution of new leases is below that of lease expiries. And the EUR 4.5 million lower FFO from disposals, are there still spillover effects from the disposals in 2019? Or did you dispose some assets in 2020 already?

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Alexander Dexne, alstria office REIT-AG - CFO & Member of Management Board [5]

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I mean this is really not meant to sound smart or anything, but the reason really why the vacancy is not overcompensated by the very strong lease-up is because the vacancy was even stronger, hitting our books. And this is here really driven by a very singular event, and that is something I think we've hopefully been guiding and pointing to, that is the rather large asset, 80,000 square meter in Darmstadt, which is occupied by Telecom, which is basically going to be vacant -- or partly vacant because we already had some good leasing results on that building. But that is the biggest impact. And this is an impact that is shy of EUR 10 million even in overall P&L impact for the year. So this is a very -- it's a singular event. But this singular event is driving the overall mechanics of covering with our lease-up. What is expiring is tilting in this into the negative. That's really the explanation there.

And to the other point you're rightly making, there is always the dynamics in disposals because you will always have disposals, which were executed midyear 2018 that office -- or midyear 2019, sorry, that I'm going to have also a carryover effect on the next year. So it is actually the impact, the cash flow or P&L impact that's also driven by prior year disposals. And in addition to that, you have the split on Slide 28. We did sell assets in 2020. And those asset currently carry an average -- I mean a rent of EUR 4 million per annum.

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Operator [6]

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The next question is from Sander Bunck, Barclays.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [7]

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Two questions from my side. First one is on the -- again, on the reversionary capture. How much do you expect you need to spend in order to get the reversionary capture? What's your current estimate of that, of the EUR 40 million?

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [8]

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So the -- thanks for the question. Again, the reversion that we're showing here assume a very minimum amount of spending. So assume EUR 150 to EUR 200 of spending per square meter. We usually spend more. We usually spend before between EUR 500 and EUR 700 per square meter. And then we usually capture a much stronger reversion at that point in time. So the incremental amount of money we spend is yielding substantially more than what we would get here.

So you have a 20% reversion around about on the portfolio that you could capture with this amount of money. But this remains very, very theoretical because it assumes that you're going to have -- it's going to take you longer to lease-up the space, and you're going to have a number of unintended consequence in leaving the space as it is. Our underlying business plan is always to refurbish the space and spend more than that and then achieve a higher rent than that.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [9]

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Sure. But just in terms of millions, so how much in millions -- and I appreciate it's a very conservative number, but how much in millions do you think you need to spend in order to get the very conservative EUR 40 million reversionary number? What is your current underwriting on that?

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [10]

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So the EUR 40 million, I mean I would need to go back on the total number. We would need to go back to you on the total number in million. But the amount per square meter is what I mentioned to do is EUR 150 to EUR 200 per square meter. And if you assume that you spend that on the entire portfolio where the reversion is, you're probably going to be around EUR 220 million of spending needed to achieve that.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [11]

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Okay. Perfect. The second question I had is a slightly more broader question. I mean if you look at the portfolio metrics, the portfolio remains, as you indicated various times, very conservatively valued. Your top line growth is expected to be quite good, maybe not for FY '20, but definitely thereafter due to the lease-up of assets. You've been net seller because you find better deals to sell than to buy because the market is extremely expensive. So basically, a lot of things are going well for you. Why are you, at this point, not considering a special dividend, for example, in order to take advantage of the very strong balance sheet that you currently have and distribute some money back to shareholders? Because basically, in the current market, you remain under geared.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [12]

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So I think the -- there are discussion that we're having right now. And so you're suggesting is we borrow money to pay back a special dividend. That's your suggestion.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [13]

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Correct.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [14]

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So I think there is a number of questions that's raised. Again, as Alex mentioned before, we believe that the under gearing today is optionality for the company. And what you also need to bear in mind is we are investing pretty heftily in our own portfolio to be able to generate the growth. So it's not like we're lacking investment opportunity within alstria's portfolio right now. And so we have use for the capital that is available to us. If you look -- I mean we -- the net seller concept is a bit misleading, because it is true that we're selling more assets than we're buying. But if you look at our investment, we're actually investing more in our portfolio. So if you add acquisition plus CapEx in our development program, this is higher than what we're actually selling.

So we are currently not running into a situation where we are cash-rich. And we do have use for our resources. And so the view we're taking at this stage, it's probably too early for us to say that our job is done, there is nothing else that we can do with the capital, which is available to the company, and therefore, we might as well give it back to the shareholders.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [15]

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No. I appreciate it. And I agree. Just to push you a bit on that because I know there is a -- you have a -- there's -- a net seller is in that way, misleading because obviously, there's implicit options within the existing portfolio as well. But to counter that, the profits you're getting on that CapEx are really high, i.e., the leverage impact is definitely offset with some of the profits that are coming through. And as you highlighted earlier, I think recent transactions show that your portfolios are about 30% lower compared to the market, what you currently see -- what you're currently seeing.

So I agree with you that's -- on the status quo, you're probably not under geared. But if you were to really marked-to-market everything, there would be that optionality. And it's more a question of, would you be willing to take that slightly more aggressive view? Because as you've been saying as well, you don't expect the market to materially change over the next, say, 12 to 24 months. If anything, it is probably going to be stronger. Hence, don't you want to gear up in that more aggressively?

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [16]

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So I think again, there is merit in what you're saying. And this is a discussion we have on a regular basis. The -- I think where we're probably not completely on the same page is -- and this is really based on our past experience. It is pretty easy to take the view today that the market is going to remain like it is for the next 12 to 18 months and lever on the back of this assumption. But it's going to be much, much, much harder to delever at that -- if 18 months from now, the market turns around the other way. And we feel we're still at the moment in time where we do not have enough clarity on whether or not the situation is here to last for the next 10 years or only for the next 12 or 18 months.

And so we feel there is still some work to be done on the portfolio. There is still opportunity for us to generate -- I mean to use the capital. As you rightly mentioned, yes, our developments are going to deliver, and this is what we clearly expect and what we're showing you. But there is still some kind of uncertainty around that and how much they're going to deliver. And so we -- again, I feel there is merit in what you're saying and having that conversation. But we don't feel the moment is right to just now execute on that.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [17]

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Okay. In which circumstances would you think that moment is right? Just so we know.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [18]

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I mean let's assume that 18 months down the road, we have delivered on all the refurbishment, the cash flow and where it is, and then our LTV, based on the new valuation, is at 15%, it's probably time to review. I think -- so the basic thing I'm trying to say is we're constantly reviewing our capital structure. We're constantly asking ourselves is that the right time to get more capital? To get less capital? To lever or delever? And this is a question we're constantly asking ourselves. And so we are, almost on a daily basis, reviewing our position on that. And we're clearly not hung on one position versus the other. I think circumstances change. And where the circumstance have changed, we need to adapt.

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Alexander Dexne, alstria office REIT-AG - CFO & Member of Management Board [19]

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Just to jump on that theme. I mean 3 days ago, 5 days ago, whatever the number is, I mean our share price was more -- was EUR 2 higher than it is today, which was giving you an implied valuation of the portfolio of, wherever it was, 4.3%, 4.2%. So to buy accretively when your portfolio is implicitly valued at 4.2% is much more likely than to buy accretively than if your portfolio is valued at 4.7%.

And you're moving in a range where your portfolio is implicitly valued at, let's say around 4%. I mean to put debt in the game to do acquisitions can be, all of a sudden, very attractive. And this is really where the whole optionality concept comes into play, that really, we need to see how -- what is the market signal we are getting, at which level we can play and also reverse gears, shift gears, and probably have a more aggressive stand also on deploying capital in net acquisitions.

So I mean this is just the development of the recent days, I think is just a very, very good endpoint how the optionality concept can play for us. And I'm actually not that negative and that desperate to say that we're going to be out of the acquisition game for the next 24 months because markets will not signal us otherwise. So I mean let's just wait and see and also not overreact.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [20]

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So am I correct to understand you're referring to buybacks? Or am I misunderstanding? Sorry.

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Alexander Dexne, alstria office REIT-AG - CFO & Member of Management Board [21]

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No. No, no. I'm not -- a buyback territory for me would be when I'm trading at 30% discount to NAV. But if I'm trading at an implied yield of the portfolio of around 4% -- I mean my criteria to invest, to buy, is also to look at what can be accretive or not accretive to the existing portfolio. If my portfolio is valued because of where the share price is, at a 4% yield, then I can have a different look at the investment market than if my portfolio is valued by the market at a 5% yield. This is what I'm referring to. So I'm clearly not speaking about buybacks. I'm more closer to NAV.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [22]

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I think what we're trying to say and probably have a hard time explaining with this keyword is we feel that where the share price is trading today, we're so close to NAV and like turning around NAV, that the signal we're getting from the capital market is unclear. It's unclear whether the right thing to do is to raise money and go back and buy in the market. It's unclear whether we should, like, raise debt. And that's -- so it's obviously part of our job to get that clarity and to be able to figure out what we want to do next. But we don't feel that we are in a situation where we need to decide now urgently and that if we don't do it now, we're missing out on the huge opportunity.

So we are prepared to shift gear and to go back and buy assets again in the market if we feel that we can deliver what our shareholders expect as cost of capital. And this is clearly our main underwriting criteria. And we're also always considering the option to kind of give back capital to our shareholder. The only thing we're trying to frame here and to answer your question is just to say that, as we speak, we have not made up our mind. And this is an ongoing conversation.

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Operator [23]

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Your next question is from [Amar Ariki, M&G].

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Unidentified Analyst, [24]

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Congratulations for the strong results. I have a question actually on -- S&P actually recently increased the outlook of alstria as positive, BBB flat positive. How is that important to you to get to BBB+? And in that regard, would you look at maybe some liability management on the debt side of things? How would you look at this? I know it's a completely different question than the previous one, if not opposite, but just to get your view on this would be helpful.

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Alexander Dexne, alstria office REIT-AG - CFO & Member of Management Board [25]

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It is obviously a consideration amongst others to -- I mean to -- once you [go with] the process of being rated, being in the debt capital market, the rating impact of everything we do is something that we keep in mind. Our discussion with S&P was more in a direction that they're looking basically at the vacancy rates staying sub 10% and the LTV commitment sub 35%, which they would consider to be critical in the way they are looking at the company and in light of the review of how they would rate us.

So we feel, really, in light of the discussions and in the context of everything that has been said, that we're really in the sweet spot where S&P would like to see the company moving and acting. And we still have, obviously, also some room to maneuver in that regard.

So yes, the short answer is it is important for us. We're clearly position ourselves in this framework. But -- and therefore, I think we're on a good track to confirm the positive outlook and eventually get there.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [26]

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But if I might add 2 things and then maybe add more color and maybe different color to what Alex just said. I mean first of all, I think your question is interesting because it highlights what we were saying before on the entirety of the capital market. I mean we just have a conversation before, which was to increase leverage. And now we're having conversations to reinforce the rating, which is obviously going in a different direction.

As Alex mentioned, once you decide to be operating into the public debt market, then rating, obviously, is something which is on your radar. But I think what I'm clearly not prepared to do is to do things just to achieve a rating. So we do what we think is right for the company. And eventually, S&P is going to figure out that we're doing the right things and increase the rating. And so far, all the things we've done, we didn't do because we wanted to be BBB or BBB+. We did it because we thought this was the right approach for the company. So we're -- S&P is -- and the rating is a resultant of the thing we're doing. It's not the determinant of the thing we're doing.

And we still feel we -- that the reason why we reduced vacancy is because there was a strong market. We feel the economy might be a bit more shaky right now. It makes sense to have a lot of pre-let where we stand in the cycle. And that's led -- if that leads S&P to believe that we deserve a BBB rating, then great. But I don't think you should be driving the company to do things simply because your rating is going to improve.

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Unidentified Analyst, [27]

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Yes. Understood. Understood. And would you look at doing some debt buyback or some type of tender going forward? So [that’s my question] on debt.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [28]

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So that's just -- that's a very similar question to the one we had before, except it's on the debt versus the equity. And again, at this stage, we're not -- we don't have, like a massive amount of cash that we don't have use to, that we would then need to -- I mean that we are looking to give back to any of our capital provider, whether on the debt or on the equity. So we're more looking at deploying cash in our portfolio, improving our returns, rather than giving back the money to either/or as we speak today.

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Alexander Dexne, alstria office REIT-AG - CFO & Member of Management Board [29]

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And also like -- I mean liability management, with the still remaining maturity of 3 years, tends to be very, very expensive. So we're more looking at coming closer towards the maturity of the instruments. And then like our policy is more 18 -- 12 to 18 months before maturity, we will tackle the respective debt maturities.

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Operator [30]

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The next question is from Kai Klose of Berenberg.

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Kai Malte Klose, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [31]

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I've got a few questions. The first one is on Page 7 of the presentation. First also, thanks for the detailed information on ESG. And you mentioned that value is only added when the vacant -- when the asset is vacant. Could you maybe split -- talk a bit more about the magnitude and the difference between refurbishment of -- in this regard, for an occupied and a vacant building? And maybe we could also elaborate if some of your tenants, if you have been in contact with your tenants, if they are maybe willing to contribute to your efforts in terms of ESG and CO2 reduction?

Second question would be on the annual report, 13 and 14, looking to the lease renewals and new leases. It seems that the longer award of the portfolio mainly came from new leases, while the number of lease renewals, relatively short term, particularly in Stuttgart. Maybe you could elaborate if this is asset-specific or if you see among your existing tenants to look for -- to extend just on a shorter lease.

And second -- and the third question would be on Page 28 of the annual report regarding the CapEx and split. Could you maybe just indicate here for 2020, what would be the split or how the split may look like between development and investment portfolio?

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [32]

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Okay. Thank you very much for the question. I'm going to try to take them one by one. And on the last one, I would need help from Ralf. So I'm just looking at him.

On the vacant asset, I mean first of all, we're -- what we mean is you reset the rent clock when you lease up the asset. And once you have an in-place lease, it's usually very, very difficult, and there is limited mechanism in place to basically upgrade the rent level because you're doing such things. It's open to negotiation. And we do have negotiations with some of our tenants. We do implement project that are going to improve the sustainability of our assets in occupied buildings, where we share all the tenant is paying or accept to increase rent, but those are not the thing we're discussing here. But -- because our argument is for all those things, we don't need to discuss about them. We're just going to do them. If there is a way for us to reach our return expectation while doing good, that's clearly something we do every day. What we're talking here is about doing things where we know that there is not going to be any incremental returns for the company.

So we do have a discussion with tenants, where we're investing in the building in exchange of a higher rent. And those are really the bread and butter of the company going forward. So I hope that answers the first question. And if it doesn't, please let me know.

On the WALT, you're absolutely correct. We're signing much longer leases on new leases, on new refurbished assets than we are on extension. And that mainly has to do with the fact that extension are usually, as I mentioned before, a tenant exercising options. And the reason why it's a bit shorter is simply because we tend to provide tenants with shorter options. The longer the option the tenant has, the further down the road we would be able to renegotiate the rent and secure the reversion. So we try as much as possible not to give 5-year option, but 3-year option. And the average that you have, which on top of my head, is around 3.8 years, is simply the mix of tenants exercising 3-year option versus a 5-year option.

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Ralf Dibbern, alstria office REIT-AG - Head of IR & Public Relations [33]

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It's Ralf speaking. I mean you're referring to Page 28 in our annual report, right, on the capital expenditure. And here, for 2019, we have EUR 116 million, which is split EUR 44 million for the development portfolio and EUR 72 million for the investment portfolio. So for next year, I would expect a total number of around about EUR 150 million of CapEx, which is split around about EUR 100 million for development and EUR 50 million for the investment portfolio.

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Operator [34]

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At the moment, there are no further questions. (Operator Instructions)

And the next question is from Andre Remke, Baader Bank.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [35]

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Basically, 2 questions. First, a follow-up question on the disposals you mentioned on Page 28, I think, of the EUR 4 million year-to-date disposals. Is this included in the FFO guidance for this year? And are those disposals excluded also from the EUR 208 million contractual rent? This is the first question, please.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [36]

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So they are clearly included in today's guidance in FFO. And I'm looking at Ralf on the EUR 208 million. And it's excluded as well -- it's included in -- it's still included. The EUR 208 million of contractual rent is looking at year-end, whereby those are post balance sheet.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [37]

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So then your number would be EUR 204 million, right?

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [38]

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Correct.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [39]

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Okay. Perfect. Then, Olivier, you mentioned [to create] future potential via higher vacancy rate. So with 8% at the moment, will this be based on the existing portfolio via, let's say lease expiries and to prepare for further refurbishments or go in line with your strategy? Or is there a likelihood also to buying properties with vacant space? So what is the, let's say short to midterm, most likely possibility for you?

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [40]

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So I think there is a lot of potential in the existing portfolio. If you look into our annual report, I think we are providing you with an overview of the asset we are looking at in the midterms. And most of them being assets we have acquired pretty recently, for instance, in Berlin. So it is about also mainly managing the assets that we have within our portfolio. Buying today in the market is proving relatively expensive and much less valuable for the company than working on its existing asset.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [41]

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And this is also true for, let's say, deeply value add, let's say, empty buildings?

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [42]

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Yes. I think it's true for -- I mean today, I mean the prices are high for literally everything: vacant, long-term lease, short-term lease. There is still a difference in pricing. But on the relative basis compared to what we hold in the portfolio, we are able to generate much stronger result on our existing portfolio than anything else we can find in the market, which is something we've been highlighting in the past. And we see that as a very strong benefit we're in because we don't need to rely on acquisitions. We can still generate growth within the portfolio and with the assets that we currently have.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [43]

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Okay. That's clear. Then very last question on your cost ratio, it increased strongly to 26% from, let's say 23% last year and 20% 3 -- the years before. Is this also a reflection of the share price increase this year? Or is this...

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [44]

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So you're probably talking about the EPRA cost ratio, including vacancies that are [fortunately 2] cost ratio within EPRA. I think the increase in the share price, which has an impact on the SG&A, is part of that. The other part is the fact that, again, this cost ratio includes the vacancy, and we have a substantial number of assets which are vacant today and being refurbished and therefore, are impacting the overall EPRA cost ratio.

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Operator [45]

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As there are no further questions, I would like to hand back to you gentlemen for some closing remarks.

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Olivier Elamine, alstria office REIT-AG - Chairman of the Management Board & CEO [46]

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Well, thank you very much for joining us this morning. We are obviously available if you have further questions. We will be hopefully on the road to discuss those results in more detail and we're looking forward to further conversation. Thank you for your attention, and we'll see you at our General Meeting. Thank you. Bye-bye.

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Operator [47]

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