Echo Investment S.A. (ECH) Earnings Call Transcript & Summary

Good morning, everyone, and welcome at the Echo Investment 2022 Financial Results. For those who don't know me, I'm Weronika Ukleja-Salak, I'm the company spokesperson. And I'm here, of course, with Nicklas Lindberg, our CEO; and Maciej Drozd, the company's CFO. So without further ado, Maciej, please take it away.

Thank you. Thank you, Weronika. Welcome, everybody. So let's look at our results. And this time, we would like to start from talking about one particular project. This project is Towarowa 22. And it's the largest destination project in our history. I think everybody here is familiar with our Brewery project, which was a huge success. It's an example of great architecture and also a fantastic commercial success for the company. And we strongly believe that Towarowa will go in every measure will exceed Brewery. So the project actually started in a sense that we already demolished the old structure that -- we also presented recently an updated design and you will see shortly the details of that in the form of a movie. The project will be mixed use like Brewery, so it will comprise Resi4Rent, Resi4Sale, office part and also retail and services on the ground floors. But what is very important, it will also consists of a very large green area of a green park of 2 hectares in the center of Warsaw, and we are very proud that we will be able to do it. So without further delay, please have a look at the vision and at what you want to build. [Presentation]

So to sum up, we are building 200,000 square meters here. And residential for sale part will be done entirely by Echo. And the remaining commercial part and Resi4Rent part will be done in joint venture with AFI which is our partner. And as you can see on the film, the vision is fantastic, and we are absolutely convinced that it will be also a great commercial success. On this slide, you see all our destination projects, and I would like to remind you that Echo is a company that is focused on that. That's one of the pillars of our strategy to build destination projects. And you can see that we have them in Warsaw, Krakow, Lodz and Poznan. And I would like to focus on one of them, which is Wita. This is a project near the old town in Krakow, very well located. It is smaller than Towarowa, around 40,000 square meters. But because of its fantastic location, we believe that it will be also very, very successful. You can see some visualization here. Of course, like all destination projects, it will comprise different functions. So it will be mixed use in a very center of Krakow. Let's now look at the broad perspective. So we move from destination projects, in particular from Towarowa to our segments. But before we do that, I would like just to give you a sort of a picture where we were at the end of the year in terms our balance sheet and performance. You noticed that we had a lot of cash at year-end over PLN 900 million that we have a strong land bank in residential for around 12,000 apartments that our commercial assets were highly leased up in a strong leasing environment. In December, we sold one of the largest projects that we built and also in the marketwise, one of the largest transactions in office market, outside of Warsaw, it was face-to-face office project that we sold for around EUR 130 million, that our Resi4Rent segment that we have in JV performs very well that all apartments are leased and the rents are growing very strongly. You also notice that we in December, we refinanced a big part of our bond debt. And also that during the year, we reduced the bond debt overall by around PLN 95 million, and that our net debt, in particular, was very low compared to last year's. And that's, of course, also part of our strategy. So we have a very strong balance sheet and very well-performing assets, and we get into a new phase of our development. So let's look the segments. So Residential segment, of course, last year was under pressure coming from high interest rate from inflation. So the sales marketwise were much lower in 2021. But what we see now and what we are focusing on Echo is that already in Q1 this year, the market improved very significantly. It's very noticeable. If you compare Q1 to Q3 of last year, the difference is very, very peak. We see that not only cash buyers are buying now, but we see more and more people who finance their purchases with bank credit, and we believe that the momentum that started in January or maybe even in December last year, will continue throughout this year. So we think that it's time to buy land. It's right time to start new projects. And indeed, if you look at our Residential segment, you will notice that this year, we are starting new projects, in particular, in Warsaw, where there's a lack of product. And we believe that this project that we are starting will be very successful. Resi4Rent, of course, everybody knows that there is a lack of apartments for rent. And we see that very, very clearly in our portfolio with a strong increase in rents. And we stick to our plan, which is to build 10,000 apartments by end of '24, early '25. Because absolutely, the performance of the market, the demand from clients support that plan. And we already think about going even beyond what is already secured in the portfolio, but Nicklas will talk about that a little bit later. Office segment, similarly, to Resi4Rent, not as strong, but it is visibly performing, meaning that we were able to close a number of leasing transactions. And of course, we are successful, but also the market is supportive. Market is really allowing us to work according to plan. So we completed last year 5 buildings. The buildings that are completed are leased very highly. And as I said, the leasing performance is good. So we focus right now on starting new projects. And we focus also on selling projects in 2023. As you know, we sold in 2022, 7 buildings in 4 projects. And this year, we plan to sell another 3 office projects to the final investors. And also in this segment, not only in Residential or Resi4Rent, but also in this segment, we are looking for new plots for new projects, and we are starting also projects on the plots that we already own. So we are -- based on the market performance, we believe that this is the time to start new projects, to buy land and to expand this segment. Retail assets are generally performing well, in particular, of course, our assets Galeria Mlociny and Libero, but also, we see that the market is relatively strong. The year-on-year turnover is growing. And we are rather optimistic about the performance of the assets that we own. And we focus right now on achieving targeted NOI before disposal of these assets. Construction market is very interesting. Of course, there was a lot of talk about growing construction prices for a long period of time. We see that because of the less projects started in Residential segment and also other segments, there is more and more capacity in the construction sector. And we see that reflected in our ability to reduce construction prices. So we believe that the environment from that perspective is supportive and should allow us to achieve higher margins through lower construction costs. So that's actually -- if you sum up what I just said, you see that the outlook that we are seeing is favorable, meaning that this is the outlook where we should invest more. We should start more projects because we believe that the market is really supportive from operational point of view. So that these projects will perform in terms of leasing, in terms of margins, in terms of cost reduction, and that's what we are doing. So let's look again, and the main highlights of our business. So in Resi4Sale, as I already said, we are focusing on centrally located projects in larger cities because we believe that they will perform strongest in the market that is coming back. And that's what we start actually in Warsaw shortly. And definitely, this is one of the main focus points at the moment. In Resi4Rent, we focus on doing a plan of building 10,000 units. But as I already mentioned, we already looked beyond that. In Commercial segment, of course, we plan to complete the leasing and sell finished buildings, and we are definitely also starting new projects, in particular Towarowa. So one of the office buildings in Towarowa, we are very much focused on starting this project still this year and actually quite shortly, hopefully. In the Corporate part, I would like to highlight that bond market is performing better and better, especially this year. And we are confident that financing is definitely available for our projects. If we look at individual segments, we sold over 1,500 apartments, as I said, in a difficult market. And also in an environment where we did not have enough product, in particular, in Warsaw. We handed over all the 2,000 apartments. In the Commercial segment, we sold 7 buildings, and this created liquidity of coming from the sale of -- at the level of around EUR 300 million. In the land bank, in permitting area, we are very satisfied that we achieved Master Plan in Kapelanka, which is another destination project in Krakow. And in Corporate part, again, we are very active in the bond market, and we achieved financing for all our projects. Already in '23. So after the balance sheet date, we are starting Towarowa 22 project. We are progressing with the leasing. We are issuing bonds. And we also -- just to remind you, paid dividend that was approved last year, but it was paid this year in the amount of PLN 90 million, which is PLN 0.22 per share. Our financial performance was slightly better than expected by the market in the consensus. So if you can look at Q4, we had net profit that was exceeding the consensus. In the whole year, net profit was PLN 127 million, based on almost PLN 1.4 billion of revenue. So let's now look at the segment. Nicklas?

Thank you, Maciej. If we look at the Residential part of our business, like Maciej said before, we sold 1,515 apartments last year. And here, I want to stress out, this is not the long term target we're having in Echo to sell 1,500. We want to sell between 3,000 to 4,000 apartments per year, and that's the target that we are pushing forward to as well. During last year, we were having a shortage of new land plots that was went through the permitting stage, especially in Echo. And we see now that, that is coming forward much quicker than we saw before. And we think in this year, we're going to start up a lot of the new projects, especially in Warsaw. And if you look back at our total land bank that is up to 12,000 apartments is really showing the potential that we have to continue growing. Also, it's important from this point of view, is how much we are having as a big developers, we can continue growing, we can continue to develop on this market. If you look for the market consolidation, what we see here is the bigger developers are getting bigger and bigger. We see that it's going to be more and more coming out from the bigger developers, and that is the way how we can continue growing. We see a potential of putting a lot of new projects in the bigger cities in the market. We focus especially in Warsaw, where we have 3 or 4 new projects coming up in the pipeline, which all of them are big and all of them we hit this segment that were really a lack of new products in the market. So we are very positive about starting up new projects. We think we will be few and fewer projects started. And we see also, like Maciej saying, demand is coming back here quicker than we expected. We see prices staying at a high level, and we think this is the market that we will continue growing on. On the other side, we also see that there's some a lot more land for us, but we have the possibility to acquire now. Where that one is a positive effect of the lot of divestment that Maciej showed from you from last year where we built up a very big cash bulk in the company that we will now continue investing both in new projects and also in new land. If you see on the list here, we still stay among the top developers. We still have the target to get up to 3,000 to 4,000, and we will now continue climbing up. Like I said before, the focus on Echo has always been to have a strong margin in all our projects. So we're going to continue growing in all our segments, but we're going to continue focusing on having a high margin that will develop a great shareholder value. And here, you see how we're selling among the different cities. And what you see here between '21 and '22, but we had a dramatic drop in the sales. And this is what we are catching up now again in '23. We're starting up a lot more new projects. And what you see here is Warsaw, that's going to be the main focus for 2023, where we're going to start a lot of new projects. And this is also where we see the biggest potential. So if you look for that in our market, we see this year, we started a project in Warsaw. We'll start a project in Wroclaw. We'll start Poznan, Lodz and Krakow. So in all these markets, we are starting up new projects. Our Wroclaw business has a lot of projects ongoing, and they are selling very, very well. And like Maciej is saying now, we think this year will be a year of strong sales. And also, we think there will be a very limited supply in the market, which will give us a very big advantage by having a strong land bank. A lot of projects in the advanced permitting that we can start up and deliver to the market. The handover of the apartment is continuously going in a good space. We are now continuing handing over a lot of apartments in Q1, and we're going to continue focusing going forward to continue having a stable flow of handing over apartments. Here is coming back to the handed-overs. But the important thing you should look at here is the slide -- on the bottom of the slide, where you see that we still have a margin of 34% for the group, which is a very, very strong margin. This margin, we are seeing that we continue defending going forward now and will even increase when we are then expanding our supply that we're having in Warsaw. So if you look from Echo point of view, we have a current offer in the different cities that we are focusing now on growing. Because here, what you see now is that we have a very low offer in Warsaw. We have a very low offer in Poznan. And this is where we're going to now this year, stably increasing that offer with very, very interesting projects that we're now putting up here. And this is all big destination projects. So what you will see now when we present going forward, you will see an increasing offer both in Warsaw and Poznan that will lead to much, much, much bigger sales. So this is a very exciting year for us going forward in our Residential business, and we are now ramping up to come back to the 3,000 to 4,000 units that has been our target. And you see here, we have a land bank of close to 12,000 apartments, which is defending the target that we're having of selling roughly 3,000 to 4,000 because we should have a land bank for between 3 to 5 years, our production always was in our land bank. And what we see now, this is also, like Maciej said, a year where we will be able to acquire much more land than we've done historically. The Resi4Rent, we have completed close to 3,000 units. We have increased rents this year, we have above 30%. We have a very, very strong land bank with up to 10,000 units. We're going to continue like Maciej looking beyond the 10,000 units. We see here that we are one of the few continuous growing in this segment of the market. So we're going to continue starting up a lot of projects. Like Maciej said before, we are in a beneficiary construction market where we see prices continues going down, but will benefit us in our Resi4Rent, in our Resi4Sale and in the office part of the business. And also, in our Resi4Rent business, we have now, during the year, got definancing that is helping us to further grow this business. What is interesting here, if you look at it, we are today roughly 40% of the market, and we're going to continue being around 40% of the market going forward. And I think if we look at it today was being started, I think we are going to be above 40% of the market in Poland, and we're going to continue growing our pipeline here. And this is such a big potential in the market with this Resi4Rent. We see this is just something that has just started and it will just continue growing and growing and growing. And here, we have the forefront as we started this business 5 years ago, and we have all this in-house team. We have all the experience. We're building up all the tools. So I'm super excited about this business. And I think the strategic decision we took 5 years ago to go into this business is really paying off today. And we're just in the beginning, if you compared to many other modern western markets like Germany, like Sweden and others, that has a much, much bigger institutional residential market that you see in Poland. So this is something we're going to talk about much more. And here is a lot of hidden value creation in this business that is going to be released as we are then showing more evidence in the market where the transactions are happening. And here, we're showing about the rental growth. You see this is how it's continued growing across all the different cities. And we think now that we're going to continue seeing growth. We have a lot of people looking for new apartments. And here is like for us, continue delivering great projects in the best locations with attractive setups in rent and also delivering the right product to the market. So we think here that we are one of the leaders in this market, and we're going to continue driving this market going forward. Here, you see also how we're having it. We have 3,000 in pipeline. We have under construction, another 3,000, 4,000, and we're going to have another 3,000 in the pipeline. So the target to get to '24 -- late '24, early '25, the 10,000 is very, very feasible. When you get up to 10,000, we're really having that critical mass. And you remember us talking back, we talked about 5,000, then we delivered the 5,000. And we talked 7,500, now we talk 10,000, and we're going to continue growing this going forward, to be able to satisfy the market needs and already when you are the leader in the niche, it's continuous growing that leadership is the crucial part for all our businesses. As you remember, since we have been talking much in meeting since beginning, we have always said we're going to be #1 to #3 in all markets where we're being present. And here we are clearly #1 in the Resi4Rent. If you see our portfolio breakdown, you see how we are in the different cities. We are going to continue expanding Warsaw, where we're going to get an even bigger share of our business into Warsaw. And we are now already now seeing the potential acquisitions in Warsaw that we have not seen before. So we will here use the market where other development might have a more struggling position, where we are coming in. We have a stronger cash position and can acquire more and build now when there's less construction at lower prices. And in 2 years, we will hit the market that is much stronger than it is today. So in all our businesses, we are trying now to go in full speed and move against the cycle. Here, we see a breakdown of the different projects. What we have under construction, what we have in operation and what is in preparation here. Our Commercial business, I think this is a super exciting going back to 2022. We managed to sell 7 buildings, out of which we did the last transaction in December for an office building in Katowice, close to EUR 113 million, which is by far the biggest transaction outside of the regional cities. And remember, we got a lot of questions during the year, will you really sell all of these things. And I think what we showed now is that in all markets, our products are that attractive, so they will be transacted. And we continue seeing now for 2023, but we have another attractive pipeline of products that we're going to put on the market, and we have already now seen big interest of them. We see a leasing market coming back, but we see a lot of leasing on all our different projects. Like Maciej said now, we have leased up REACT in Lodz to above 80%, and we continue now in the coming months to get closer to 100%. And that market when -- that project were then disposed. And this is really something that we are seeing. With us being able to divest this project, being leased up the ones we're having given us a perfect opportunity to start up new projects like Towarowa, like Swobodna, like Empark, all the projects we're having around in our portfolio. So this is really the right time for us to continue growing our business. And here is a picture of Face2Face in Katowice, which is a beautiful project. It's 100% leased, sold to Investika in Q4. And this is really where we see that when you have the right buyer looking for quality product in the regional cities is really paying off to be able to deliver this and also to show to the market that Echo can deliver, sell-of-office buildings, no matter where the market is. And here is the start of the new project where you see Towarowa, like Maciej talked, an office building of 31,500 square meters. Swobodna in Wroclaw, the first phase of 16,000. In Krakow of another phase of 27,000 and. While we're starting up Krakow now is that our project Brain in Krakow is now getting up to leasing above 80%, when it's time to us to start up the next project. All these 3 projects or flagship projects, in the City Center of all these 3 cities. So we already now see strong demand from tenants. And this is also a project that will come to the market in 2 years where this will be attractive for many, many investors. By June, what we're doing today, we will be able to hit the market when there is a lot of tenant demand, but also where prices are much lower for construction than it was 6 to 12 months ago. As I said before, we are now this year going to sell the 4 buildings. My Place II what we said before, but it's in a very advanced stage. And we will shortly come up with more news about this, React, Brain and City II, but all of them now being fully leased up and now invest -- talking to investors of how to take the next steps. Here, we also have a strong land bank in all the different cities where the 3 cities that we're mainly focusing now is Warsaw, Wroclaw and Krakow. These are the 3 cities, but in all times no matter market is, we continue divesting our projects. We also know, like Maciej said, we see the opportunities of continuing increasing our land bank. So this year will be where we're looking a lot to increase our land bank, both in offices, in Resi4Rent and in Resi4Sale. And we're doing that because the market is now giving us opportunity to buy land at prices where we think is attractive, and we can make the returns that we think are the right returns for our shareholders. What we see here as well is that there's a limited supply that will drive further rental increase. We see it already now, rents are increasing. The tenants coming to us, looking for new projects. We see that the cost to build is also going down. So we think now and also on top of that, all the new buildings we're delivering now is fully is EC compliant. This, we see a lot of new tenants looking for this one. They want to move into our new buildings. They want to get the new feeling. And this is also one of the drivers that brings back people to the office. When you come to a new super fresh building, you get a new fresh start, and it has all these key criteria, it has all the greeneries. It has all the things that you want to comeback to the office. So we see a strong drive coming back to office, a strong drive coming back to new office buildings that we are delivering. Lodz, we are now up to 80% leased, and we're continuously now leasing on the last square meters of this building, and it also shows in Lodz, you need to be much more advanced with your building. You need to be in the end as building is standing there, and then you are leasing it up. So it's really, really the way that we're going to continue developing. CitySpace has always been a nice add-on to our business. We see they are now filling up in all the different locations. We see that it's really the first step when people are coming back to office, they go into the CitySpace locations. We see many new tenants that are taking space with us are decreasing from the space they had before to less space in the new locations. But by that, they also want to have the option to have CitySpace in the building. So we are now up to 12 locations in CitySpace, and we're going to continue growing that in all our new buildings going forward. This is what I talked about before, how we are present in all the different cities. And now we are present in the Echo buildings, and we are now close to 4,000 workplaces across Poland. Galeria Libero has always been a project that I have really focused on making sure that it's a beautiful project. It's in Retail location that really makes sense. We have now increased turnover year-on-year. We're up 40% in turnover a year ago, footfall up 35%, and it's really showing that people are coming back to the centers. We have changed the tenant mix. It's a lot of value-add into the shopping centers. There's a lot of value-add fashion tenants and really showing that people want to come back to shopping centers. You only need to make sure that you have the right product, but you can really deliver what clients want here. And we see this continuous growing, like Maciej is saying, this is one of the Center that we continue growing the NOI with continued growing the footfall. And when we get up to the satisfactory level then we will produce this project for a divestment. Galeria Mlociny is the biggest center. It will take us more time for us to be stabilized. And that is why we continue working on this. We see really that it's the turnovers is following the same trend as we see in Libero. We see we continue working on it. We continue expanding the center. And this is really 2 centers that are on the right track. We're still going to put a lot more work into both centers. And Libero is going to be on the stage where we can divest it quicker than Galeria Mlociny, but they are both very positive growth. And they are both going in clearly in the right direction to continue being the profitable centers that we developed. ESG: We have an ESG strategy that we have implemented now for 2020 -- 2030, where we're going to reduce the CO2 emission. We're going to have more greenery. We're going to focus on the -- both on the planet, on the people and on stakeholders. This is something that we have worked actively throughout the years, and we are very, very proud of it, and we're going to continue focus on working on how can we improve, how can we contribute much more to the EC and how can we contribute to the society, both by planting trees, by doing destination products that we're doing, how do you get heating, how do we get energy to our buildings. We want to be the responsible company who takes care of the planet and our people. This is also another positive thing that we do. We continue to supporting the Ukraine's refugees. We still have our center open here in Warsaw. We were visited with a very prominent visitors. And it really shows what we're doing. We have had this center open for more than a year, and we're going to continue having it open to continuing giving that support because I think that is very, very important for us as a company and in our EC philosophy to be taking care of the people that are in need. Over to you, Maciej.

Thank you. So let's look again on financials now in a little bit more detail. So to repeat, net profit of PLN 127 million for the year. It was driven to a big extent by margin that came from Residential segment, but also around 20% of that margin came from Commercial segment from rents and different services. So that was a good composition in total, percentage margin was around 35%, including Commercial part. Fair value gain was good in offices. And I think we see that the market should be performing in terms of actual sales and realization of the profit that we show. And we also focus right now on the preparation for the sale of Libero, as Nicklas mentioned. So we expect that actually the accumulated fair value gain that we show on this project will convert into cash in the near future. Balance sheet is strong. As I mentioned before, we have a high cash position of over PLN 900 million. We have assets held for sale. MyPlace, City II and also some other assets are in the preparation to be sold in 2023, which will both increase cash and reduce net debt. And this will give us a lot of power and flexibility to expand the parts of our business that we want to expand, which is residential by increasing our land bank and continued growth in Resi4Rent. If you look at our liabilities, what is quite clear is that they went down, in particular, short-term financial debt because that is always linked to commercial assets. So when they are sold, it automatically goes down. And the net difference between asset value and the debt shows up as cash. And this helped us to reduce net debt ratio well below 30%, with a potential to go even lower when we sell further assets. So again, this confirms that we are in a very strong financial conditions. Cash position is -- compared to maturity of our bonds again, is high. We don't have a lot of bonds maturing in 2023. We will nevertheless continue to issue bonds in 2023. And we are focused now, as we already did in December, on refinancing 2024 and 2025. We were very successful because in December, we refinanced 24 months to 2027. It was PLN 180 million. And definitely, that's one of our focus points for this year. We are paying the dividend, we paid in last year, PLN 0.22 in respect of PLN 0.21, and we declared additional dividend, so advanced dividend for 2022, which was paid in February. So we continue that policy according to our long-term dividend policy. So we'll continue to do that as well. Actually, that's time to Q&A.

Thank you, gentlemen. So I think it will be easy to start with the subject that comes up on every presentation. So what about the price uplift in the residential sector. Maybe, Nicklas, would you care to start?

We see -- it depends where you are here, but if we see a price uplift in all the segments of our Residential sector. We see especially Warsaw will have a dramatic price uplift because there's so little supply. And like I said before, we have beautiful projects, 3 big destination project coming up in Warsaw, with both Towarowa, we have Empark and [Indiscernible] 3 really big projects that we are super excited to put on the market. And for us here, it's important to say that we are continuing growing our Residential presence, and we're not happy with the 1,500 apartments we sold last year. This year, we're going to exceed 2,000, and when we're going to complete 3,000 and 4,000. So we are clearly on the path and continue growing our residential presence in all parts of the segment. And for us here is like both we see a price uplift. We see construction costs slightly going down. And we see the part of our pipeline now going through the permitting stage, which is really, really exciting as this is a big part of value creation to get this 12,000 apartments in land bank up to be started projects.

Okay. And if we are in the subject of residential, we received a lot of questions regarding PRS. So our viewers want to know if you have some guidance regarding the Resi4Rent revenues in 2023? Maciej?

Well, I think if you look at our project, I mean, we don't give specific guidance for the total number. But of course, if you're an analyst, you can look at our financial statements where we give project level data with NOI and the date. And in the current environment, we are actually consistently exceeding our expectations. So if you look at -- for the last 12 months or even longer, if you look at what we are achieving compared to what we are planning, it was always higher. So I think that performance is very strong. Of course, we are not right now in a phase where we actually take out cash from this segment. It is being invested. But of course, this means that we don't need to invest as much because revenue is actually paying for the growth of the platform for new projects. So again, we are not taking cash out, but we can -- because of strong lease performance because of EBRD financing, we can actually grow platform. And now without significant equity investment, which I think is a great thing because it's to a big extent, self-financing.

I think that is something that is very important to highlight, like Maciej is saying. Now, but this is nothing that we are focusing on the NOI at this stage. We want to grow it up to 10,000 units. We see a lot of interest we get financing both on the product level. We get financing from EBRD. We need to put in less equity and the business is continuously growing with 4,000 units now this year. So it's really an impressive business where we are now continuing -- focusing on continuous growing it. And that Maciej highlighted, we have a limited equity cost to be put into the business.

Okay. But following up on that, still sticking to PRS sector, do you see any visible yield uplift in the PRS important?

Of course, yields are moving as interest rates are moving. But I think what's the intent to see here from our point of view, we had a rent uplift of 34% to 36% last year. So if you look for us, even if you look into a yield shift here, the total volume of the deals is still getting much, much bigger than it was a year ago based on that rent has moved much, much, much, much more than the yields has moved. And also, if you want to go into Poland and invest into Resi4Rent, you will then give a premium for having a very, very big platform with management in place to be able to. You will go from directly into the market to be a market leader with potential to grow enormously up to new heights.

Okay. And switching to Retail. I think you mentioned it before, but can you talk a little bit more about plans regarding the disposal of Galeria Libero.

Galeria Libero is now stabilizing. It's still not up to the levels where we wanted it to be, but we see now it's coming up to the levels where we think it's interesting to start to talk to investors and see the potential and what you can do with an asset like this because we are now changing on the tenant mix. We're having an attractive scale. There's a lot of people coming in there and the footfall and the revenue is increasing. But we are still in the early stages of this one. So this is nothing that we are highlighting especially at this presentation. But this is something that we will come back to clearly during the year and give more information about.

What about retail part of Towarowa 22? Because our viewers want to know, do we plan any bigger retail part in this destination project?

It will be very similar to what we've done in the Brewery, with restaurant and cafes. It will be the Retail that is really adding on to the resident, offices building there. So there will be no retail, retail in that aspect. It will be retail that is serving in the people and the offices and the surrounding areas with gastronomy, pharmacies, all this add on retail. So there will be no retail in the meaning of retail centers.

I understand. And regarding the valuation of our commercial projects, we have a question regarding our cap. Have we decided to lift our cap rates in Q4 in 2022? Do you think that there's another yield uplift that can follow?

Well, I think we are, of course, constantly reviewing current evaluations. And our because of the increase of the euro rates in 2022, and recently, of course, the cost of financing increased for the buyers, which affects the yield. The good thing for us is that it affected our project relatively -- in a relatively small way meaning that the yield shift was relatively small, and we also need to remind you that there is a rental growth coming from taxation that is around 9% year-on-year. And also the supply is relatively small of new projects. So we believe, especially in Warsaw, when we start Towarowa and in central projects like Swobodna in Wroclaw, we see that we can achieve better rents than before. So it's a little bit similar to Nicklas - to what Nicklas mentioned in Resi4Rent, you have the effect of higher cap rate, but you also have the effect of higher rent, right? So to a certain extent, this offsets each other. And of course, in the case of office products, also euro rate, foreign exchange rate, euro is was what is important if it's high, then our profit is also high. So there's a number of factors that influences that. And I said we are constantly reflecting this. And of course, this also affected Libero last year. So we market to market. So at the moment of sale, we basically we convert, right? What is showed as a profit, we convert into cash, right? So if you ask me, should we expect more yield expansion, of course, this depends on what's going on with the interest rates in Eurozone and that's sort of a bigger question. But at the moment, all expectations are already priced in the cost, they are priced in the yields. We see that the investors are active, which I think is very important that it's not a theoretical valuation exercise, but we are able to convert these values into cash. We sold that many office projects last year, we have very active processes for the assets that we showed during the presentation, to be sold. And also Libero will soon enter this path. So we think that the assets are priced in the right way. And we focus on turning this into cash.

And you mentioned interest rates. And our viewers they would like to know if we see any risks regarding the increase of interest rates concerning, for example, our bonds.

Yes, that's, of course, sort of a macro question, right? Meaning that it's not specific to Echo. Its everybody is subject to the same market forces, both in PLN and euro. And of course, it's something that may change, and there's always a risk. But for the time being, what we can see in how people behave, how our investors behave or how the buyers behave for residential for sale apartment, it seems that they believe that the further increases are not likely, at least people who buy from us, that's, I think, the approach. And I think that's how we also explain what's going on in Residential for sale because I mentioned before that we see more and more buyers who support themselves with credit, right? With bank loans. And of course, it's not as big as 2 or 3 years ago that was very cheap, but it's much bigger than it was in Q3, Q4. So it's a clear trend. And I would explain this trend by exactly that, that people start to believe that it's a time to get that because the likelihood of interest rates going up is low, right? So I think that's how the market seems to be going.

If there is not anything that you would like to add, I think that we are finished with questions. And if there's any question that remains unanswered, it's like either me or [Indiscernible] will contact with you directly via e-mail. So thank you so much for joining us today, and see you very soon during the quarterly results. Thank you.