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

Good morning, ladies and gentlemen, and welcome at the Echo Investment Group Financial Results. Today, we are going to summarize our 2023 activity and give you a broad overview for our 2024 plans and goals. My name is Weronika Ukleja-Salak. I'm the company's spokesperson. I'm here with Nicklas Lindberg, our CEO; and Maciej Drozd, our CFO. Welcome, gentlemen. And we will start, of course, with the presentation, and then we'll host a Q&A session. So don't hesitate to ask any questions. So without further ado, Maciej, please take it away.

Thank you. So welcome, and let's start from the highlights, I would like to draw your attention to the fact that we are now not only active in commercial and residential business, but we are expanding in what we call living sector, which is the Resi4Rent that's a business in which we are already for many years. And we just started student housing, and we'll talk more about that today. In the residential segment, residential for sale, we see very, very impressive growth, and that's something that we will also focus on today. In commercial business, we experienced strong tenant demand in central locations of Warsaw, Krakow and Wroclaw, and this is where we want to continue to expand our office projects. The bond and bank financing markets are very supportive, and they help us to achieve our plans and to continue to build projects. We are working and focusing on exits from the already completed projects in office and retail, and we'll talk about that as well. So once again, we are currently organized in a way that we work on the sectors that I just mentioned under -- in 2 companies. Archicom is focusing on residential for sale business. So this is a part of leading sector for sale and is active in many cities in Poland, and we are planning to add Katowice to the list of cities where Archicom is already present. In commercial segment, we are focusing in Echo on Warsaw, Wroclaw, and Krakow on central locations, but we are also expanding very, very aggressively leading sector for rent in Echo Investment. And as I mentioned, this is resi for rent, and this is student housing business, which is new, which is just started by us. What is also interesting is that we use synergies between commercial and residential segment, and we are converting currently a part of our commercial land bank for residential use, which is currently the best use available for this land. Important events of 2023 were that we contributed our residential business from Echo to Archicom. So Archicom is currently consolidated entire residential business of Echo Group. We are very proud of the results of 2023. So we sold over 1,800 apartments, and we delivered -- we handed over 2,100. But it's really only a basis of our achievements that we target for -- in 2024 and 2025 in this segment, which we believe is very strong and is supporting our ambitious growth plans. In Commercial segment, we started the construction of first building of Towarowa 22 destination project, and that's something very, very important for us, both because it's city center of Warsaw, but also because this project, Towarowa 22 is the largest destination project in our history. We also started in Wroclaw project called SPOT, which is also a proof that regional cities in the commercial segment are active and are supporting our growth plans. As I mentioned already, financial market is strong. On this basis, Archicom increased its share capital, raising PLN 220 million from the Warsaw Stock Exchange, which is very important and just after that, had its largest bond issue in history of over -- of PLN 210 million. Echo continued to refinance its bonds, and we started to do a new thing on the market. We proactively refinanced bonds maturing 1 year or even more ahead. So the process is more organized and more predictable. After the end of 2023, Archicom, who raised money that I just mentioned through ABB and through the bond issue, acquired a lot of very, very good projects, land for residential purposes, including land already having building permit on which we started to sell immediately. We started the construction of commercial projects. And what is interesting, we also refinanced 2 of our already completed projects, REACT and CITY2, which are operating very well and they are ready to be sold. As I already mentioned, we started -- we signed a joint venture agreement, which is currently subject to antimonopoly clearance, which we expect to obtain shortly and to start develop on the plots we already secured to roll over this project very, very quickly. Financial market is strong. So we continue to issue bonds. We continue to refinance our bonds. We just did a refinancing of PLN 100 million of bonds maturing a year from now. And Archicom continues to raise financing to buy more land and -- which is supporting its growth plans. I already mentioned that we are also focusing this year on the disposal of already completed projects, which are modern, which are complying with ESG criteria. And we are expecting the market, the investment market to perform much better towards the end of this year and in the beginning of 2025. So let's look in more detail on the segments in which we are operating. I already mentioned that the residential market is very strong that we are performing very well. We have a large increase in units under construction, increase in the land bank, but we continue to buy new projects because we have very big ambitions for this year and for next year on the market, which is very supportive. We are also growing our presence in leading sectors, which is Resi4Rent, resi for sale. And we expect the combined size of residential for sale, for rent and student housing to reach over 75% of our business. We continue to see good performance of shopping centers, which are showing increasing rent and footfall, which is giving a good basis for our expectation to improve -- to further improve operating performance and to dispose them on the strong market. Let's go now segment by segment. So residential for sale, of course, we all know that this market performed very, very well in 2023 that it experienced a high growth of the demand and supply that it was not really following the demand. As a result of that, the offer started to be smaller and smaller quarter-by-quarter, and the prices were rising very, very quickly. And this is the market which is, of course, supported by the government program, but that was also a response to fundamental demand that is present in Poland, and we believe it will continue for many, many years. And we also believe that the supply issues are rather fundamental, so we don't really see a risk of oversupply. So on this basis, we are focusing on increasing our land bank, increasing -- starting construction of as many projects, as many units as we can. So for this year, we have a plan of over 5,000 units to be started. And 3,000-unit sale target is also a 50% increase compared to the last year. We are well prepared to do that in terms of cash position, in terms of available financing. So we -- when we buy, we focus on buying the right land when we can achieve and maintain very high margins, which we experienced last year. We achieved many building permits in Q4, and we continue to get them in Q1, but we also buy land already with building permits, so we can start these projects quickly. Resi4Rent segment is performing well, but we are starting projects, we are constructing as quickly as to keep our leading position. So we have around 30% market share in the institutional PRS sector with over 4,100 units under operation and 4,700 under construction. We expect to add over 2,000 units this year to operating units. So we are focused on staying on the leading position in this segment. The rents are -- continue to be strong. Of course, they are not growing as they did in 2023. In 2024, we experienced that they are stabilizing, but they are very high and they are supporting returns on the projects that we are starting this year and that we plan to start next year. Student housing is a new business that we want to -- also to become the leader in this sector. Polish market is very interesting. We have a very big student population. We have very little product in terms of institutional space for students. So -- and we are experienced to a certain extent in this area because we already built in the past few student houses. So we believe that our plan to build and operate 5,000 beds in the coming 3 to 5 years is absolutely achievable. So we are looking for new plots in Warsaw, Krakow and Wroclaw mainly. We already identified a number of projects, and we secured a number of projects. So we are focusing on starting them as quickly as we get the approval of antimonopoly office for our JV. In the commercial segment, we see that the supply is much weaker than in the previous year. As a result, we expect that -- we see that the vacancy rates remain stable, and we expect them to remain stable. And we focus on delivering new product, new offices in central locations because they are in demand by the clients. We started and we have right now projects under construction in Warsaw, in Wroclaw, we are starting Krakow. And we focus on operation of already leased projects so we can dispose them as soon as the market comes back, and we believe -- investment market, and we believe that this is happening by the end of this year or at the beginning of next year. And this, to a certain extent, will be driven by declining interest rates in the environment of lower inflation. Retail continues to show strong performance in terms of both footfall and turnover of tenants. We are satisfied with how the centers improved year-over-year in terms of NOI and overall performance. And we also see that they were built a few years ago, but they are fully ESG compliant currently as we had a proof that coming from the fact that we have refinanced one of them recently and that was done based on the very high, very, very strict ESG criteria. So this is one of the areas on which we start to focus more and more because it is also being demanded by the financing institutions. So we are happy that we are already there with the buildings, with the projects that were built recently. Construction market is supporting for us, meaning that the pricing is favorable. Actually, we see that the prices are stabilized or declined. We have currently lower budgets than for many projects that we had a year ago, even by 10%. We believe this is due to the fact that the activity in the construction market is slowed down compared to previous years and that there is a lot of resources that can be used and they are sitting and looking for work. So we benefit from this situation, and we contract as much as we can currently because we see that the pricing is favorable and is helping us to achieve high margins. Financial data for 2023, they were in line with the consensus. So we are -- we had a revenue of around PLN 1.6 billion and net profit of PLN 67 million. That was as expected. And in later part of the presentation, I will give you more detail on the structure of our revenue, our margins and our balance sheet.

Thank you, Maciej. Now I will take you through the different segments of our business, and we are starting from the residential segment. If we look from what Maciej said before, if you look back to the last year, we sold around 1,800 apartments. We have another 4,300 under construction. We're starting up over 5,000 new apartments, which is really showing that we have worked a lot, and we are really now showing that is benefiting from this one. We are keeping a high margin in our residential business. And also, we are allocating the right land bank from the both businesses into the right place of the organization, which is really helping us to do very much of the attractive projects in Warsaw, Wroclaw, and Krakow. We have talked before that we want our residential business to continue growing. We said that last year, we're going to be around 2,000. And this year, we're going to be around 3,000. And by next year, we're going to sell around 4,000 apartments. And this has always been in the strategy that we had from the beginning. The companies that we're investing into, we are building it up to be the leaders on the market segment where they are being present. What you see on the residential market, there is a very limited supply, but it's a very, very strong demand. So what we see here is the prices are continuing to increase. We are working, like Maciej saying, very much on the cost side as we have a much, much bigger business than many others, that is a much more diversified business. We can do bigger packages, we can use the synergies. So we would like to now to trying this year to start up as many projects as possible to benefit from -- we have a construction market, but we are stabilizing a slightly decreasing prices, and we have a residential market where we see we have increasing in pricing. We have also went into last year with a big land bank because all the money that Maciej talked before we raised by the ABB or we raised via bonds has already today been allocated into land plots that are with building permit or very advanced in the building permit process. So this is all in line with our strategy of quickly recycling the capital into land. Here, you see what we had talked about before, how we are continuously growing our business. And this is all in line with what I talked about before. We are not going to grow our business by cannibalizing our profit margins. We're going to keep having a steady profit margin, which you've seen that we have grown throughout the years. You're going to see us going forward where we have a very, very healthy margin on the projects that we are delivering. And that is based on that we are the leaders in the segment. We can get the right pricing out by delivering the right quality and also that we are super effective when it comes to how much money we spend by building our projects. So we are now saying by 2025, we're going to be up to 4,000. And from that one, we're going to continue making up our next plan, how we will continue growing our business. And as you see, like Maciej talked before, we closed a lot of land plots last year, and now week by week, we'll continue investing in more and more land to be able to support this growth inside our business. And I think it's important to say that to reach the 4,000 apartments sold next year, this is land that is already in our land bank that we will continue growing with that. And we now are looking how to buy more for '26 and forward and also to supplement '25. You see the apartment for sale. You see how we are selling in all the different markets. What is very important here looking forward, if you look for 2024, we're going to have a very big portion of our [ started ] project in Warsaw, Wroclaw, which is 2 of the strongest market. And you know for Warsaw that we have worked a long time to be able to start up many of our projects, and they are now coming to live, which is really supporting our strategy and continues to work on getting more land plots in the bigger cities. The handovers that we continue doing and what we did last year is like it's always a consequence of how many new projects we are starting and how we've been able to turn them into completed projects. This year is a lot of focus on starting a project, selling project, benefiting from the strong market that we've been present in at today's market. As you see here the offer, what we have today in the Echo Group, this is a slide that is already today updated. And you will see already now in 2024, we started another 11 or 12 projects that are not included here. So you will see here that going forward there will be a lot of new projects started. The land bank will grow, like Maciej said, we have more than 5,000 apartments, and we will sell out of them 3,000 apartments. So we are very, very well equipped to benefit from the residential market in Poland. And here you see how our land bank is spread. We have close to 12,000 apartments in our land bank, and you see Warsaw stands for 44% of it. And as all of you has been with us for many presentations, you see this is a very big figure for us where we continue growing. And as you see here, it's really supporting for us that we need to do more things in Krakow, we're Starting a project. Poznan that is today 0. We have also started up another project. So both these 2 here is today not 0. We are already up and running. And also, like we said before, you show Katowice where we're starting up another project now in Q2 of this year. And this is one of the projects that is benefiting that we have converted it from a land plot that was used to be in Echo from commercial land, but we're now turning into residential land in a very, very good location in the city center Katowice. We are focusing on being a developer on the 5 markets we're being on. We are continuously analyzing to get into more markets. And here, we are, of course -- like we said before, we are analyzing Tri-City, but we're also analyzing how we can grow our presence in Krakow because Krakow is a very, very big market and a very strong market where we like to have more projects under construction. And here, you see what I talked about before. Already in Q1, we have started close to 2,000 apartments. And this is a figure that will increase further because Q1 is not completed yet. And you will see here that we'll continue starting many, many more projects, and target is by the end of this year to start up close to 30 new projects. And this is things that is really benefiting from us that we have worked many years on the land bank. We have worked on bigger projects where we can call off the stage. All these things is done in the way that we are really supporting the growth of the residential. Resi4Rent is a market that is really, really interesting. We have seen a rapid growth for all years. We continue seeing rental growth but still on a lower level today than it used to be, but it's still on the 6% to 7% growth this year. We are going to open up another 2,200 projects in 2024. We opened 1,100 projects in 2023 -- 1,100 apartments in 2023. We have a very, very strong land bank that we are starting building on. So it's really showing us that this is the right market to invest in. The NOI is growing. We are showing that the tenants are really appreciating the quality we're delivering, the stability we're delivering and also what you see in this slide, which I think is super interesting, today, we are roughly 24% of the market, like Maciej is saying. But if you look on how big part we are or what's going to be under construction, this figure will go up to 40% based on what we are taking part of the market. So what you will see in the market is the PRS market is still growing, but we are growing quickly when the market is growing, but we have a stable project. We have an established brand. We have all the supporting functions. And also, we have established all the routines and processes that makes us grow. So for us, it's super important to start up more projects, being able to deliver the 2,200 apartments that we're going to deliver this year and then already then exceed the 6,000 threshold in coming years even further growing from that. We already today have land bank secured for 10,700 units. By the end of next year, we're going to have completed more than 9,000 units. And this year, we are at 6,200 units. So as you see before, we said we're going to be close to 10,000 units by 2025, and this is a target that we are achieving as well, which is I think is a very, very strong signal based that we have went through some pretty difficult market situations since we started up our Resi4Rent business. And it also shows that the Resi4Rent business is working throughout all the different stages of the market. You see our portfolio breakdown. We are focusing here, continue growing in the cities where we're being present. We like all the cities, Warsaw, we continue growing with even more projects because it's still the capital of Poland, and this is where we want to continue growing. But we want to be spread over all the different markets, but we have a strong presence in Warsaw, Wroclaw and Krakow. Here, you see that the projects were completed. And if you look at how much we are renting our apartments, in average, we are around 98% leased in all our apartments, which shows basically they are fully leased. And that is also a signal of our quality and what we can deliver to the market. Student housing, this was a natural step of us after our Resi4Rent business, and this is a market where we see huge potential to continue growing. In the same way as we invested with PIMCO in Resi4Rent, we are here investing with Signal Capital Partners. For us, as I said before, it's important not to allocate too much of your equity into one single part of our business. And here, we see a great potential of growing. This is an undersupplied part of the market that we are just starting to explore. We are having the same setup here as we're having Resi4Rent, Echo sourcing the land, Echo is developing. Echo is contributing with all the competencies and then getting fees for this in the same way as we're taking part of the upside in developing of the platform and in the exit of the platform. This is a very, very effective way of getting into platforms where you both are making sure that you get cash flow, you also have a secure offtaker of what you're delivering. And in the end of the day, you will get the benefit of the value creation inside the platform. So this is something that we're going to continue looking at. We're going to continue doing it, both in platforms. We're also analyzing it in products like we do with Towarowa, with AFI where we also have a JV partner. This is the way for us where we can diversify our business. We can then also get the maximum shareholder return to our shareholders. And in that way, we think that we are much more safe for the changes on the market compared to many and many other companies that are there. The Polish market for student has just started growing. Poland is a market that is both coming from international students and from domestic students. The universities are having very high quality. You have students that are from all different countries in Europe. And also, we think that this is something that all the new students coming here, they will look for the right quality of the student homes that we are delivering. Here, we're also benefiting, like I should say, by securing a lot of land plots today where the market is softer than it is before. This makes that we can then get hold of land plots that we could never get hold for a year or 2 ago. And here it's important for us, we want to quickly ramp up this market. We want to quickly get into the market, and we want to be able to deliver our first student homes already by end of next year for the first semester. If you see the market overview on the international students, how many students are in the different cities, how much are the different countries growing? This is a huge potential for Poland. And we think Poland as being a big country, this is where a lot of international students will go to high-quality, many universities, still a good quality of living. This is a market where we're going to continue investing. And like we said before, within 3 to 5 years, we want to be up to the 5,000 beds that we have targeted here. Rents are continue growing and will continue growing, maybe not in the same rapid pace but continue growing. We see in all the different markets and if this is all about location, location, location. And here, we have been able now to secure fantastic plot close to the universities that we have not seen for many, many years. So we thought now together with our investor, this was the right moment to enter the market because now we have opportunity to do things that we have not seen for a very long time. Here is a snapshot on the Polish student housing market. And here, we are going to continue informing you about that. For the next presentation, we will already show you the first project that we're putting on the market and how we're doing with that. So you're going to see quickly that this is not something we are just talking about. You're going to see quickly how we turn this into action, and you're going to see then already next year the first projects up and running. In office and retail, in our commercial segment, we are going to stick to the strategy we communicated last time, we are focusing on the 3 biggest cities Warsaw, Wroclaw and Krakow. And we're only going to be in the city center of these 3 projects -- cities. We have already started Towarowa in Warsaw. We have started Swobodna in Wroclaw, and we're starting Krakow WITA in Krakow, and all these buildings are having the highest ESG standards, they have the highest quality. And this is what we see as well. They are also destination projects. This is what we are really focusing. We're going to deliver destination projects, which we've seen after COVID. This is what all the tenants and occupiers want to come back to. This is the future of offices and the future of the commercial segment. We see here also there's fewer and fewer projects being started. Like Maciej said before, we are fully leased in all our completed buildings, and we see a strong tenant demand for all our projects, and we are very bullish. But by the end of this year, we're going to have a very, very high occupancy in all our projects and then forward looking how we can continue developing that part of the market. Today, the commercial market and office market is not looking the best as it is. But what you see the fundamentals, there's a strong demand. We see rental growth. We see no new buildings being built, and we see a strong tenant demand. This is showing that the investor demand will come. And by 2025, when we'll deliver, there will be not any projects on the market that is fulfilling the same quality with the same tenant mix and with the same long leases that we're going to deliver here. So we are sure that this is the right way for us to continue building. And like Maciej said, we are constructing this much, much cheaper than we did a year ago. This is Krakow WITA that we are now starting up. And here you see how we are mixing it and how we're truly creating a destination project with offices, with resi for sale with student houses, everything in one area and the full ground floor will be of restaurant attractions. This is a place where you can work, live and entertain. You never need to leave this. And for you, that doesn't know Krakow, you are within 10 minutes walking distance, you're in the old town of Krakow. So this is as central as you can get. You're in 4 to 5 minutes in the central station. So it's really, really a beautiful location in Krakow. Here, we're going to do a lot of greeneries. We do a lot of parks. We are really building a fully new area in the city center of Krakow. So this is very similar to what we've done on Towarowa, what we did in Warsaw Breweries, what we've done on Fuzja Lodz, we are now doing in Krakow as well. Towarowa that is our flagship project. We have now started up with the first office building, shortly, we're going to start up with the residential building, and then we're going to continue developing, building by building to be able to deliver this destination project. This is going to be a groundbreaking project not only for Poland, but for whole of Europe. This is like really truly a destination project that's going to be absorbed from many places around Europe just to show how you can deliver a beautiful project on a 7-hectare site in the city center. If you look here, you see in Wroclaw where we're creating our next project, a lot of greeneries, a lot of BREEAM certification. You see here a lot of terraces. This is truly a place where we see now -- we see from the tenant that they are really requiring to move into locations like this. So if you look from the offered market, we see a strong leasing market at the moment. We see that it's going to be even stronger. We see rental growth. We see tenants coming back to the office. We see investor market coming back year-end this year, early next year, and we continue going to see for '25 the project we are delivering, there will be a massive shortage of it and also international investors see that Poland here has a unique fundamentals with all these BPOs that are now coming back to the office, looking for new space. CitySpace is another of our business that is continue growing because short-term offices is just in the beginning. And here, we continue putting them into our new buildings, our new locations. And here, we are focusing continue growing them in the same way as we're growing Echo's business in the 3 biggest cities in central locations. Galeria Libero, the center that we have now had up and running. We have a turnover in 2023 that is 14% higher than 2022. We already see figures now in 2024, but it's also 2 digits higher than 2023. We see a huge interest for new tenants entering the center. So in the coming months, we are now going to highlight more new tenants entering the center. The footfall is increasing. We see the NOI is increasing. And we see this center is now slowly getting ready to be put on the market because it's really a fantastic center that we have been driving up now and being one of the best-performing centers in Katowice at the moment. Mlociny is a slightly bigger center. We are on the right track. We grow 12% in 2023. We're going to continue growing in 2024 also 2-digit figures. We have put in the biggest slide in Warsaw there. We're going to compete in more things there. We're attracting more families to come into the center, and we're going to focus on continue growing our NOI. So the retail, as a summary, there's a lot of NOI growth in the center. We see footfall growth, and we see really people coming back shopping in the centers. ESG is a crucial part of our business. We have an ambitious ESG strategy. We're going to continue focusing on environmental, social, governance and also how we continue being a better company for our employees and our stakeholders. So we want to be in the forefront of leading the ESG, and we want to continue making sure that Echo becomes a better organization and a company.

Thank you. So let's look again at the financials in more detail. So as I mentioned, our total revenue was around PLN 1.6 billion, out of which around PLN 1.3 billion came from residential with a very strong margin over 30%. And I think this is the margin that we want to continue. So as we repeated a few times during this presentation, we focus on managing the costs and we focus on managing the top line to maintain that type of margin in our residential business. We also continue to deliver services to Resi4Rent platform on a high margin, and we also benefit from rents coming from offices and retail that we have under operation. So overall, our combined margin was at the level of 31%, which was strong. If you look at the fair value gain on investment properties, we experienced a strengthening of zloty, so euro went down. And as you know, our commercial assets are all valued in euro because they are achieving euro rents -- we are receiving euro rents, both in office and retail. That's why when euro got weaker against zloty, we also had a decline coming from that and the negative impact of the decline was over PLN 86 million out of PLN 105 million of fair value change in Q4 2023. So it's a very strong impact. But of course, it's coming from the external factor. If you look at our balance sheet, it didn't change a lot compared to a year ago if you look at the total number. So we are around PLN 6 billion. Also, our inventory did not change a lot because on one hand, we are buying a lot of projects, a lot of land for residential. But as you have noticed, in Q4, we also had a very, very big handover number, which, of course, reduced the inventory. So that's why it stayed on the same level despite of the fact that we grow our business, and we will continue to grow this in 2024. Cash figure also very strong, over PLN 800 million, and that's a source of our comfort and our ability to continue growing residential business, where we are investing cash. You can also see that the value of our JVs increased. This is mainly the growth of value of Resi4Rent, but in future, you will also see here quite impressive growth of Towarowa 22 project, which is also done in a form of the JV. If you look at our liabilities, you can see that, again, total number of equity and liabilities, of course, it's around PLN 6 billion and didn't change a lot compared to a year ago. But you can see some changes in the structure. Our equity slightly increased, our liabilities coming from financial debt short term and long term slightly increased, but these are not big movements. And we had an important decrease in other liabilities. Our overall net debt ratio, we finished the year with 35% net debt ratio, which is within our target range. So we are fine with that. But of course, we are looking at the overall debt reduction with asset disposals because as you remember our commercial assets, they all have project debt on them. So this project debt, of course, will be repaid when they are sold. And this will have a large impact, a positive impact, decreasing net debt ratio. If we look at, as usual, at our bond and corporate debt maturities, you see the similar profile. We are focusing right now on managing already 2025. We did some of that -- already in '23, we refinanced '24 and later. And we'll continue to do that. The market is, as I mentioned before, very supportive, so we can achieve that objective. And I just want to report how we are progressing right now. So already in Q1, we did refinance both 2024 and '25 maturities. We issued new debt. And if you look at '24 and '25, our plan is that we will mainly repay 2024 maturities and we will continue refinancing 2025 to move the maturity to 2029. So that's basically the plan. And also what you can expect is that as Archicom is growing, it will issue more debt because Archicom in the past was having no net debt for a long period of time. So now we see the move being that Archicom will issue more debt, will be a more active bond issuer and corporate debt issuer, but Echo part, the commercial part will need less debt, so we will move the balance within the group with the intent that overall indebtedness is stable, it's not growing or rather decreasing. So that's the plan. The dividend we paid last year, PLN 0.44 is just a reminder. That's not a new information. But as a reminder that we paid twice, including the advanced dividend for 2023 in the amount of PLN 0.22 per share, which was PLN 90 million. That's all. Thank you. And now it's time for Q&A.

Okay. Thank you, gentlemen. Let's start with a question regarding our biggest destination project so far. So Towarowa 22. I think this question goes to you, Nicklas. When is the construction of our PRS apartments at Towarowa going to start?

The PRS apartment is going to start at the second stage of this development because what you see now, what we communicate, we are first going to start offices that is already ongoing. After that, we're going to go shortly starting up the next first resi for sale building. Then I think after -- in q4, we are then going to start up the PRS buildings and more resi for sale buildings as well. But what you will see now is office is ongoing. We're going to start up the next resi for sale in the coming months. And then in Q3, we're going to start up more resi of sale and Resi4Rent buildings. And also, we're going to do the whole park in Dom Slowa Polskiego that is happening in between. So what you will see now in the coming months, you will see a massive change on Towarowa and how it's clearly developing into the destination product we want to build.

Exactly. Thank you so much. And now let's move a little bit to our living sector. And Maciej, maybe you will answer our viewers about converting commercial plots into living. Can we elaborate more on that, how we are going to do that?

Right, right. So I mean, I will not give specific examples. Of course, we are working on rezoning, on permitting. But in fact, we were pioneers in so-called Lex developer, right? we converted ex office park into modern residential for sale in front of Galeria Mokotow. So this is what we want to continue. And we have a number of plots, which are suitable for similar conversion. And we are using our experience in that area to achieve that. And we do this not only in Warsaw, we do this also in other cities. It's mainly through that mechanism, as I mentioned, so like the developer, but not only because sometimes we can use different planning tools to change the use. And I think it shows that we can benefit from the fact that we have a diversified business. So if the best use of the plot changes, we can change it to benefit from that.

Yes. Yes, yes, exactly. And sticking to the subject of living sector residential for sale, our viewers would like to know, given the favorable cost environment, is there a space for margins growth in the residential segment in 2024. Nicklas, please?

It depends in which market you are because if you look at it, we have a very, very healthy margin in Archicom, if you look at the just presented results yesterday, it's a very, very healthy margin. What you will see here, we will do more projects in Warsaw, which of course, will drive up the margins even further with the Warsaw project, but we have a mix of the different projects. So from our point of view, if we can stay at the margin we are today at and then growing with another 50%, I think that will be an extremely good result based on what the margin we already are achieving today.

Thank you. And along with our financial report, we have published our fourth ESG report, and we have some questions in that segment. And Maciej, it just goes to you, do we monitor our carbon footprint emissions and are we planning to reduce it in any way.

Right, right. Well, I think in general, I would say we just published the report, which is a massive document. And of course, it has a lot of detail, and there's absolutely no space to elaborate on these details right now. It's simply a huge, huge amount of information. And if any of you is interested, I strongly encourage you to look for the answers there. Of course, yes, it's already our fourth report. We started to monitor Scope 1 and 2 for a couple of years. We just started to do it with the Scope 3, and we can proudly say that we managed to reduce in Scope 1 and 2 by 35% compared to the previous year. And we'll continue to do that. We have ambitious plans for both for the offices we use, right, so for our offices, but also for the buildings that we build and sell, right? And as I mentioned, I mean, we have no space to go into a lot of details. But we already mentioned that we do have BREEAM certificates and other certificates. We use more and more of green energy in the buildings. So this is what we can do and what we do already now, but we have ambitious plans, and we are currently when we reorganize with Archicom, we are actually working on renewing or reformulating our strategy, ESG strategy and including decarbonization as well.

Thank you so much. So we strongly recommend reading our ESG report in detail, and now let's have another question, I guess for you, Maciej, as well because given the expectation for European Central Bank Rates cuts this year, is there a space for yield compression in 2024?

Well, I would maybe call it differently. I think the reason why there is so little activity in the market currently is because the expectations of sellers and buyers are quite apart. It's not that there's no buyers, but of course, there are sellers, but the expectations are apart. And I think what will help a lot is the compression. So they will come closer. And I think that we will see -- on this basis, we should see market becoming more and more active. And I think on this as a process, I think later on, we will see -- we may see yield compression, but I think it will be a process and not a one-off event, right? We first need to see the transactions happening and decrease of euro rates is necessary and extremely helpful and I think necessary for this process to happen.

We have already seen now in Q1 that the investors are coming back to the market and there is transactions are going. So we are hopeful for, like we said before, for the second half of this year or beginning next year, but that is when the market will clearly come back.

It'll be recovering. Okay. Thank you so much. I think there's another question to you, Maciej. I'm sorry. Now let's ask you a couple of questions in a row, and I will then switch to Nicklas. What about dividends for 2023 apart from the advance?

Well, I mean, we -- I think you can look yourself at the results of last year and of the -- what we already paid for the advance. So I think that if you do that, that will answer your question that simply it was high enough according to our dividend policy. But I think it's too early to talk about entire year. I think it's -- we are just at the beginning. A lot of things may happen. So we don't do any declarations at this stage, right?

And one question about Archicom and their intention to issue more bonds. Can we count on the company to also conduct public offers for individual investors?

Well, I think we see that the individual investor market is also strong. It's not only the institutional market, but also there's a strong demand coming from individuals. We had a huge oversubscription of Echo bond issued to individual investors. I think I believe -- strongly believe that Archicom would also be very much in demand. Of course, it's a process that takes time, right, to prospect all these formal steps. But I think -- I would say that in the future, it's possible or maybe even likely that Archicom will also use that tool because we have experience with the group, we can support the process. And as I said, I think that the demand I would expect would be also very, very strong for Archicom bonds.

Thank you. And so maybe to finish it up, Nicklas, you already mentioned about the importance of ESG within the organization using green energy in our buildings. Do you want to add something on that?

No. If you look for our buildings, we use green energy in our buildings where it's being available today and where it's not available today, we work actively for it to be available going forward. So this is a big part of our whole business and how we both want to talk to investors, talk to tenants, how we talk to our own employees. So that's why it's a big part of the whole group. So that's why we put a lot of focus in it. And like we said before, we strongly encourage you to read our report where there's a lot of facts and a lot of things how we continue working. And this is a live document that we're going to continue updating and working on every year.

Thank you so much. And I think this will be it for today. Thank you, gentlemen, for this Q&A session. Thank you, everyone, for joining us today. And we will answer your questions if they haven't been answered so far, either Grzegorz Iwanski, Head of Investor Relations or I by e-mail. And we'll see you in May on the quarterly results. Thank you so much, and see you soon.

Thank you.