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

Good morning, ladies and gentlemen. I'm glad that you are able to join us at the Echo Investment financial results. Today, we're going to summarize 2024 and talk about our plans for 2025. My name is Weronika Ukleja, I'm the company's spokesperson and I'm here with Nicklas Lindberg, our CEO; and Maciej Drozd, our CFO.

Good morning, gentlemen.

Good morning.

So as usual, we'll start our presentation within a second. Just a quick reminder that we have a Q&A session at the end. So stay with us. And without further ado, Maciej, the floor is yours.

Thank you. So we will start, as usual, with the highlights. I think it's very important that we have sold at the year-end a great asset in Lódz, The React office building, which is fully leased to international tenants, has great location and a very high technical quality in terms of all ESG requirements. What is also important that we sold it for a good value at the right price -- so we are very happy with this result as it shows that we can transact on investment market even when it is difficult for most of the players. And we'll talk much more about that later. Lódz is also a special city for us because of another event. We have been awarded 2 awards on the greatest real-estate fairs in the world on MIPIM. We got 2 awards, the first 1 for best urban regeneration project and for Fuzja and we also got a special jury award -- so we are very proud. And again, I want to stress that Lódz is not only an important city for us in terms of business, but it's also rewarding. I mentioned the sale of React and obviously, the sale of investment properties, the sale of leased assets fully operational is very important and is on the top of our agenda on top of our strategy. So I want to remind you that we have currently 5 buildings that are ready for disposal. 4 of them are already fully let. Towarowa is very close to the end of construction. It has also a very high leasing level, and it's planned to be operational. It will receive occupancy permit at the beginning of the second quarter, so very, very close from today. So obviously, the value of this transaction is very material from our balance sheet perspective. And I would like to stress 2 elements that will be triggered by these transactions. The first 1 is that, obviously, on these assets, we carry quite a lot of project debt. It's in excess of PLN 600 million. But also when we dispose of these assets, and we are very confident that we are close to that, much closer than a year or 2 ago when they were completed, but the market was difficult, and we will talk about the change in the market shortly. So we are close to that. It will not only cause reduction of the debt in terms of repayment of project debt, but it will create a lot of liquidity in excess of PLN 500 million. And obviously, we already have plans how to spend this money wisely. So first, we would like to further reduce the corporate debt of the group. We obviously would like and we will invest in new projects, especially in living sector, but also in Warsaw CBD offices. And last but not least, we will pay dividend out of the funds generated by these transactions. Residential is extremely important in our strategy because it's a growing segment. A couple of years ago, Echo was not an important player. Now with the growing sales and growing landbank, growing offer we become one of the key players on the market. And our strategy is to grow this business and also to grow compared to our competitors. The numbers that you can see right now have already been published a day ago. And you may have seen them on Article presentation. And I believe they are very impressive. You can see that not only we have stronger and stronger sales that we have added 3,500 units to the offer in 2024, but that we have a strong land bank and we continue to grow. But of course, there will be much more later in the presentation on the residential segment. So I will not stop more on that slide. Towarowa 22 is our largest single project. And of course, it has many elements. The first office building of Towarowa is, as I mentioned, almost completed. You can see this on the photos. It will start to be operational within a month or so. It's a beautiful and greatly located building in the city center of Warsaw, but it's also surrounded by the rest of the project. And in front of this building, Archicom is already building its first residential building and there will be 2 more and we'll soon start park, which is between this office building and Archicom building. And in this year, we also plan to start other buildings, which are part of this project. I already mentioned office projects that are close to completion, and I mentioned that we successfully sold React at year end. So it is really important to understand what is the dynamic currently of the office market. And that's also one of the highlights because we believe that we are in a special time because as a result of slowdown on the office market, less and less is being built. You can see on the slide that the volumes are very low compared to average volumes from the past. And they cannot be increased rapidly. That's the nature of this market that changes happen slowly. So what we know for sure that there will be not a lot of new product on the market. So tenants who need to look for a quality product for great locations, we need to pay higher rents, and we already see that the projects which are located in city center of Warsaw, Kraków or Rzeszów, where we are building our projects -- enjoy rents, which are significantly higher than before. And we also see increased investor interest, which is proven not only by the sale of React in Q4, but also by some other transactions. We see more active investors. We see more interest, more future liquidity. So we believe that we are in a turning point as far as the office market is concerned. Of course, we will act cautiously. We will focus mainly on Warsaw CBD in terms of new projects. But we really see that the sentiment is turning and there is a lot of interest coming from investors for the finished product. So just to sum up, again, what are the Q4 highlights. We had strong sales of residential apartments -- over 700 apartments, and that's very, very impressive, almost 40% year-on-year increase. On the market, which overall was shrinking because if you look at the entire residential market, it was not performing strong in 2024, contrary to Archicom and Echo Residential part of our group. [React] of course, I already mentioned and this is all on the back of strong leasing in office and retail assets. We'll talk about that a little bit more in a second. What is important also that in Q4, Echo repaid over PLN 200 million of bonds, not refinanced, because it's part of our plan to gradually reduce our corporate indebtedness that I already mentioned before. And also what is important that in Resi4Rent, we continue to open new projects we continue to start leasing and the leasing is very successful. So we'll continue to develop and provide to the market new PRS buildings. In '24, the residential sales continue to be strong. We are satisfied with the level of sales. Of course, most of the year is still ahead of us. But the beginning of the year, is promising. We refinanced [Galeria Libero] with -- on very good terms, which also, we believe, shows the confidence of the banks towards -- Echo towards this asset, but also proves that this asset is performing very, very well. We continue to repay the bonds. We reduced by further PLN 50 million in January. But we issued new bonds in Archicom and that's part of the plan where we decrease indebtedness on the commercial part, but increase on the residential part, which is growing and which needs funds for development for growth for building the land bank. So let's look on the segments, as we usually do during this presentation, in the residential wholesale market, I think everybody is very well aware of what is going on, how they work, meaning that the offer was increasing quite rapidly, then it flattened. So it's not -- no longer increasing rapidly. We believe that it will stabilize and it will start to go down because, again, it's -- realistic markets react in a little bit delayed way to the demand, but the reaction will come. We see, of course, a very strong growth year-on-year, '24 to '23 in terms of sales, but the growth -- this growth flattened in Q4. So it was no longer a strong quarter-to-quarter -- but we believe that the prices will overall remain stable. And of course, there is competition. There are promotions. There's a lot of activity in the market. But overall, the level of offer of inventory and especially in terms of what we are doing in Archicom is fine. We continue to add to offer. We continue to grow our pipeline because we are successfully increasing sales. We focus on selected geographies like Krakow, where we are expanding, and we want to, of course, keep our competitive position in other cities where we are already strong, especially in Rzeszów. We are committed to the target of 4,000 units to be achieved in the coming years. And we see how to do that on the more challenging market than a year or 2 years ago, but we are confident that, that target will be achieved. Residential for rent, I already mentioned that the rental -- the leasing is very strong. We are fully let in the assets that have been opened a year ago. The or earlier, the assets which have been opened now have leased -- have leasing pass -- the increased leasing, which is going according to plan or better. We are still, by far, the largest operator of PRS market in Poland. And we continue to focus on that. So to start new projects in the cities where we are particularly successful, which is Rzeszów, Kraków and especially in Warsaw. We are looking for projects in Warsaw continuously because this is by far the best market and the strongest market we operate on. Student housing -- we are in the process of building 3 buildings over 1,200 beds, which is going according to plan. We have a target to operate around 3,000 in 2026 and 5,000 in 3 to 5 years. And we are definitely on the path to do that. The land that we have secured is a very, very high quality in great locations. So we are very confident that on the market, which really needs a product because there's not much institutional student housing facilities in Poland. What we are doing is very, very needed and will be met with strong demand. I already spent quite a while on the office. So I just only want to stress again that the new supply is very limited. Tenant activity is strong, and we see especially the tenants are looking for high-quality building in good location. So whenever we are close to finish the building. We are finishing the leasing. We really see that there is a lot of unmet demand, people who wanted to talk to negotiate the lease, but still we have no space. So it's very interesting because there's a big difference between demand for the quality space and demand for more, I would say, cheap, but actually obsolete offices that are no longer really demanded by the tenants. And we see really a gap and also an opportunity because as you know, we -- from time to time, and it may happen again buying these old office buildings to demolish them because we actually buy for the price of the land. Retail continues to work well, we -- we have been increasing both footfall and sales of our tenants. We are very happy how both Mlociny and [indiscernible] are performing. And also in retail, we see signs of investor interest. So it's not by accident that we put [indiscernible] also on the list of assets to be disposed. We believe that with the strong performance of this asset and with the interest of investors. We have a very good chance to close the transaction this year. Construction market remains to be supportive, to be favorable actually to developers because the level of activity from the perspective of construction companies is low meaning that they actually have resources. They are looking for work, and we have absolutely no problem to find quality contractors to find them at good prices so to keep our costs in the budget under control. So again, this situation for us is favorable, is stable, and we are therefore, happy with the way that market works for us. Key financial data. Of course, there is another section -- another larger section towards the end of the presentation where we can focus a little bit more and go a little bit deeper in the numbers. Here, I only want to highlight that we are compared to the consensus to market expectations, we are more than fine. Our numbers are better than average, significantly better. So it's fine. But of course, we would like them to be better. We will talk a little bit more about that later. But I would like to move now to the slide, we also present each time, which is explaining how we look at the valuation of our business. And as you, of course, are aware we are valuing to fair value most of our business lines. So in particular, in all commercial business, Resi4Rent and student space, we don't revalue land. We -- but we revalue projects that are ongoing. And of course, we revalue finished product. So we can say that we are relatively close to fair value in terms of all businesses, except residential. In residential, accounting principles do not allow to recognize any profit or revaluation during projects or before handover. And so that's why we are looking for a different way to reflect the value of the business. And because Archicom is listed company, we are looking at this -- at the market value. So if we make this correction to our book value. And if we replace value -- net asset value of Archicom assets with its share market price, then we can see that our that our value adjusted in this way would grow from PLN 4.06 per share to PLN 6.73. And we believe that this is the -- the good way that -- the important way to look at what we are doing. And of course, it's up to everybody to make their own judgment, but this is how we are looking at the value of our businesses because we are diverse. We have many segments, and I think it's important to see how they all play together and how they create value together. Now Nicklas, please, if you can explain what's going on in the segments.

Thank you, Maciej. If we look for less -- our residential business like Maciej talked about, we see an increase of 39% year-on-year, which is really showing that we are to continue growing even if the market has continued to decline slightly, we are growing our business. If we look for 2025, we have a target to exceed 3,000 units, which means we will have a further increase of 36% from the increase we had on 2024, which shows we are continue growing our business, we continue growing our land bank. We have strong sales, and we will have strong handovers. So we are really bullish about the residential market. We think we are in the right markets and that we will continue growing on these markets. Important thing here, we have the mix of apartments that we are selling is right for the market. We are now moving down, doing much more in the popular segment to be able to attract all the buyers on the Polish market. We see here, like Maciej said before, during 2024, we saw increase of supply. We see it stabilizing. And we are assuming during 2025, it will slightly decline from today. This is a very strong sign for us, which has a lot of projects in the pipeline. We'll continue starting new projects. And also what you will see, like Maciej mentioned, now in Q1, we started a lot of projects in Krakow, which is a strong market for us. The growth is important for us. We will continue growing to our target of 4,000 units we delivered in a single year. This year, we will break the barrier of our 3,000 units, which is an important milestone for us, but that will not stop us, we will continue growing. And what's important, we will continue growing and defending the margin that we have because we have a very strong margin in all our residential sales that we're doing all over Poland, which is a combination of having right products, selling at the right pricing, but most of all, we're building it at a very attractive pricing. The apartment sales you see here is spread over the different markets. We are going to continue growing in our key market, which is Warsaw Raków, Potoczyzna and then Kraków which and then we are focusing on now on increasing the project starts, which you will see when we meet again next time, but we had a lot of projects starts in Kraków in Q1 where we had only in Q4 last year, we only had 1 project ongoing, which is too little for us on a strong market like Kraków. Handovers in Q4 was sliding and those handovers, we will now hand over in Q1 instead. So it's just a matter of where -- in which quarter is happening. We see in all the projects that we are delivering, we are -- have sold all our apartments that we're having there, and we continue seeing strong sales in the ongoing projects for 2025, 2026. The offer is important for us. If we're going to get up to 3,000 sold this year, we need to increase the offer. So what you will see now, now we have an offer of 3,000. You will see when we come up to the Q1 presentation, but our offer has been growing. This is important for us to continuously having a big offer in all the different markets where we're being present because when you have a strong offer, will mean you have a strong sales in all the different projects. We are still sticking to the same strategy that we have always had in residential, up on completion. We should be 80% sold in the project 6 months after completion, we should sell the remaining 20% of the project. So looking from us, from a sales, from a land bank perspective, we are happy with what we have achieved. We're happy that we continue growing a land bank. We see the offer of residential land on the market is increasing, and we can do pretty attractive deals at the market at a given point of time today. So at the moment, there's a lot of land deals that are passing by our table, and we do quite a lot of deals on a monthly basis. We are -- only to see here, which is an important slide to show is that in Kraków, we have a very low offer at the moment, which you will see increasing next -- in the quarter 1 this year because that is an important market for us to be in. In Katowice, we only have 1 project that we have converted. We are still analyzing the market. We are selling very, very well in that project, but we are still going to look forward for that market to make sure that we're doing the right things when we're entering a new market. We are still, as you all see here, having Tri-City as an empty hole on the map. We continue analyzing Tri-City, but we will always do the deals in the market where it makes most sense for the company. So when we see the right time to enter the Tri-City market, we will do it at -- of today, we have seen it makes more sense growing in the existing markets than to enter a new market. But this is something that we continue monitoring. We will continue looking at it. And when the right opportunity comes, then we will be sure that we are there. Living and Resi4Rent. We are, by far, the biggest living provider in Poland and Resi4Rent, is a huge example of a success for us. We're having over 5,400 apartments up and running. We are over 98% leased to them. We have handed over another 1,000 apartments and we continue having a lot of apartments under construction. Here, we are very, very strong in continuing offer in a product in a market that is unique. We attract a lot of new people renting in all the different markets. What's also important that we took a strategic decision during 2024 is to sell off 2 of our projects as individual units, which is campaign in [indiscernible] and [indiscernible] in Warsaw. Here, we see a very, very strong sales pace in both projects. We're selling it at very attractive pricing. And this we're doing to bring home more cash to the ResiRent platform and continue investing that money in further growth of the business. We will always do the deals that makes most sense at a given point of time to continue to grow our business to be even further the market leader on the Polish market. What you see here, we're being present in all the different markets. We have a very strong pipeline under operation. We have a very strong pipeline under construction. And most of all, we are continuous buying. We are now looking to further increase our market presence in Warsaw, where we are now going to, during this year, start up quite a few new projects. We have here a land bank that is exceeding 10,500 units. We will continue growing that land bank. We will continue growing in the segments where we see further growth which is important, because you can see, we already for a long time, talked about the 10,000 apartments. We are getting there. If you look at what we have in the pipeline and what we have on construction, but we will not be satisfied with the 10,000. We will continue growing after that one. This is a huge market opportunity that we have only seen the beginning of. The rental market will be only growing for the coming years in Poland. Another market that we believe a lot in is the student housing. And here, we did a JV like we talked a year ago, but we started the first time. We're already now up and running with 3 projects that will be delivered in 2026, which is really a strong sign to the market. We are continue starting up new projects already now where we're going to focus on starting up new projects in Kraków. And you will see already soon they are getting up on the ground to be delivered for 2026. So you will see in this year or the year before, we started in Kraków to be delivered in '25. Now we're starting Warsaw to be delivered in 2026. Here, we are focusing on the 2 biggest markets, Warsaw and Kraków, where we see the biggest potential to continue growing our business. Here you see the pictures of the buildings already up and growing, which is an impressive pace -- and here, we're doing it both in traditional construction and also in prefab to deliver really the top-of-the-art new student housing buildings in Poland. And I think this is -- it really will change the student target market in Poland in the same way as we change the Resi4Rent market in Poland historically. We will quickly be up to be the market leader in this part of the market. This is a market that continues growing. You see there's a lot of old stock, but it's not really up to today's standards. We will deliver totally new buildings with a totally different standards and we see already now a big interest for renting in these locations. And I think here, if you look at it, compared to other markets. Poland is still way behind, and we are really now seeing this growth is something that we think we're going to be a big part of and also taking out of the older stock, and we're also going to take our people that are living from a Resi4Rent market today to go into the student-housing market. This is something that we are just starting to see the beginning of it and it will continue growing in the same way as we've seen on our Resi4Rent market. If you look at our commercial market, Towarowa, we have leased 90% of the building. And that opening in a month or 2, we will be close to the 100%, which is really showing that we'll deliver a state-of-the-art building in a market where Maciej said before, we're having more tenants looking at space than we can deliver. Both in [indiscernible] and Kraków, we see big interest for our city center locations. We have 6,000 square meters leased or under LOI. In Kraków, we have just got out of the ground. So when we presented in another presentation, we'll see that there we have even further grown our leasing. We signed the sale agreement of Lódz and we also refinanced [Libero]. The commercial sector is really now seeing uplift in 2025 versus 2024. So I think what we're seeing now, we see further transactions happening in the market. we see a shrinking amount of new space being delivered, and we will see rental growth. And here, what you will see, which is a very strong point of the group is that the mixed-use functions is where really where tenants are looking for. And go back to 2024, that was 61% of the Echo's ongoing project that was in this mixed-use sector. So this is really a unique part of the Echo Group, and this is where we think there will be a lot of big interest in getting into these mixed-use locations. Because after COVID, the traditional offices is not what you're coming back to. You come back to the offices that give you something more. And that's exactly what we're delivering in our mixed-use locations. Towarowa that we have a picture in front of you here is really is a project that is fascinating. I'm super proud of being a part of this project. And also what we see here is now we are changing to more residential in this project because what we see in this location, there is a need for more residential. So what you will see here coming back to the -- what we had before, we had more PRS -- now we will have more offices, more residential. So this is really a strength of the group, but we will adapt to where the market is turning, and we see the need of more offices and the need of more residentially strong in the city center Warsaw. This will also, as changes increase the profitability of the project, and we will continue always analyzing when we're building what is the right mix of projects, depending on where we are in the market. Towarowa is office sales, we're talking about. We have the apartments on going a beautiful apartment. And if you have not seen the M7 around Warsaw, go look at it now, it will really be a fascinating residential development. Soon, we're going to start up the tower and there are going to be 2 towers, 1 residential tower and 1 office tower, which is really showing that we are delivering new projects on the market. And this office tower will come in the part of the market where there's very, very few offices being delivered to the market. We are also now in the pipeline of delivering both the public park and Dom Slowa Polskiego, which will be the historical element of Towarowa. So by next -- already by this summer, when you come and visit Towarowa, you will see a lot of greenery, a lot of things happening there. And this will be the next destination product after brewery, and it will be even more fantastic when the brewery and the brewery is really awesome today. If we look at construction and leasing, we see both Swobodna and Gwiazdzista both projects are performing very well. They are in the city center of the regional cities. There is not much being built, but we see a big interest for these locations. And all of them fit into our destination strategy because around there is residential, there's retail, there is offices. There's everything in 1 area. And we see this is, like I said before, this is the future of commercial development. Here, you see the picture of [Gwiazdzista] where we already this year will be end of this year, all the projects here will be done and up and running, which is amazing. And this is a fantastic area in the city center Krakow that we are really converting from being deserted area to really be a new part of the city center. City space continues growing. The co-working is really being a much more integrated part. You see now that people are -- the tenants are looking for new, flexible solution. And we are focusing here in Warsaw, where city space opened up a new office in Warsaw, and you see here, there's a lot of locations focusing on Warsaw [indiscernible] and having smaller in the other areas. Libero is now -- continues growing the footfall, but also what we're seeing here now, there's a huge need from tenants to get into this -- our shopping center because they see all the great works we have done, all the footfall increase, all the turnover increase. And that is now where we replaced Media Markt with TK Maxx. And over the years, you will see even more changes because we see now -- this is a center that is now stabilized and taking the next level to be really the best convenience center in that part of categories. And we are getting that by getting renowned names like TK Maxx and others opening up in this location. Mlociny is still the same. We are now getting it stabilized. We'll continue getting the tenant mix upgraded, and we continue making sure that we have the best offer in Warsaw. If we look at the fashion of our Mlociny, it's unbeatable in the Warsaw market. This is the place where we're going when you're going to get all the different brands in 1 area. ESG is always an integrated part of our business. We are focusing how can we continuously delivering better places on the planet and delivering buildings that are using as little energy as possible. We reduced the Scope 1 and Scope 2 by 35%. We are continuously working on further decreasing of this. This is very, very important and deep rooted in the DNA of our company to continue being a very, very profitable company, but also being a company that takes care of the planet and how we continue maintaining our offices for a long time going forward and our residential and the whole living sector that we're developing. I will now leave over to Maciej and deep into the financials.

Thank you. Right. So once again, we have delivered results for the quarter, which are better than the consensus. I think you can see on the slide that our margins remain strong, especially in apartment sale. That's a very, very healthy margin, which is good. And also that we have shown a fair value gain on investment properties, which is quite a thing to be stressed because as you remember, the market was difficult. And most of the time, we had not shown the gains on investment property valuations because of stronger euro, because of the yields. So despite of the good performance of the leasing market that was not easy to maintain improved valuations. So this quarter was different. Looking at the balance sheet, I think -- and this is where we focus most at the moment, and I will explain why. Because we have presented to you a number of assets to be sold, and I already mentioned that, of course, there are assets on the balance sheet, but there's also debt which is associated with these assets in excess of PLN 600 million. So our plan is to dispose of them, to repay the debt and to use liquidity in appropriate way. So you can see that out of PLN 1.5 billion that we have on the balance sheet as investment properties and asset held for sale very big part is Libero brain [indiscernible] and there's also Towarowa shown in a different line because it is a JV, so we don't show the full value of the asset. We only show the value of equity that we have invested in the business and how we value it currently. What you will also notice that we had a significant increase in inventory, which really means the growth of Archicom because inventory is really a residential business. It's land and projects under development. So you can see that this part is growing very, very significantly like also JVs because we're not only growing Resi4Rent JV, but we also started new JV in student housing. So this part of balance sheet is going to grow in the future. So once again, inventory and JVs are for sure to grow in the future, while we'll have less and less of investment properties to the point where we achieve a new stable level, which is lower than historically was the case. If you look at our debt and short and long term debt, you can see that the short-term debt decreased quite significantly compared to a year ago, long term debt increased, and most of this increase happened in Archicom, and again, this is due to the fact that Archicom is growing and investing in the land. And the rest of the increase is our proactive bond issues that we did in order to refinance the debt that is expiring also that was originally expiring also in '25 and later. So we refinanced all the debt. So I will talk about this when we look at the next slide a little bit more. So again, disposals of commercial assets will trigger also repayment of project level debt. And that if you take this alone into account, you would see that our net debt ratio would be decreased by around 600 basis points, so from around 40% to really below 35%, which is the number very well within the range that we always said we want to be in. But obviously, when we repay on top corporate that debt ratio would go even lower. This is our maturity profile of the bonds. You can see that nothing is really maturing in '25. In '26, the volume is low. It's only in '27 when it becomes, I would say, high on a more stable basis. So our situation from that perspective is very, very comfortable. But as I mentioned, we will continue to reduce the debt -- so of course, from time to time, we will refinance, we'll issue new issues in Archicom if needed. But most of the time, we will be reducing the debt encumbering commercial business. And I would like to end up this part with a summary. So once again, actually to repeat most of the points we already touched upon during this presentation, but just to collect them all on 1 page. So again, in commercial sector, we are selling -- we are disinvesting of operating assets in office and retail -- and we do this on the investment market, which has become more active, it's more liquid, shows more interest. And the effect of that will be to reduce that part of balance sheet and to increase liquidity. We will focus in commercial business in offices really on CBD Warsaw because it's the most interesting market -- it's the market where investment liquidity is always the highest, but also tenant interest, as Nicklas mentioned before, is very strong as proven by what we experienced with Towarowa 22. Living sector is the area of growth for us. So not only from a balance sheet point of view that I just mentioned before on inventory, but mainly the sales and handovers, we are already growing sales quite dramatically. This happened in '24, and we will continue in '25. And this will be followed by handover. So the margins will also be reflected on P&L in already this year but mainly in the future, where the full size of our increased business will be visible. We will continue to develop a student space platform that we are confident that will be very successful. We obviously continue to develop new PRS projects. But also in parallel, we are withdrawing capital from more mature PRS projects, like I mentioned, Brewer and [Kempa] where we are selling these projects by unit, but also through refinancing that is also happening. So when we finish the construction, when we improve the sales, we are able to refinance on better terms and withdraw part of capital and through other ways of disposal as way because these assets are mature. And we want to stay in the sector. We want to develop new projects, but we are developers. So we don't have an intention to keep these assets on our balance sheet forever. And the last point is really the finance. So the result of disposals will be repayment of project level debt. And the surplus liquidity that will be created as a result of these disposals, we plan to apply to reduction of corporate debt to investment in new business. It's mainly living segment, but also Warsaw CBD office development and obviously, payment of dividend which we want to continue according to our policy and to reward investors with these payments and to share the successful disposal of the result of that with our investors. And that's all. Thank you.

Thank you, gentlemen. Thank you for the presentation. We will now go ahead with the Q&A session. And let's start the Q&A session with the commercial sector because as you already mentioned, this is already a good year for commercial sector. And you stress a lot that we are focusing on CBD in Warsaw as an interesting part of our activity. So could you give broader information. What's our game plan regarding commercial market? When can we expect new office projects in Warsaw to commence? Nicklas?

If you look for Warsaw office market, what I said before, we are very happy with the development of the Towarowa and the building we have started. We are now going to start shortly another tower that is 52,000 square meters. We are reviewing part of the Towarowa to be further offices. So -- and we are also looking for more office space to be bought in CBD Warsaw. So we are going to start quite a few new offices in CBD Warsaw because we see there is a very big supply gap. And this is something that we are focusing on very much together with Archi to be able to deliver that in the best possible way. But in parallel with this, we're looking like Maciej is saying to further grow our offices in Warsaw because our strategy is to rather focus on doing more than Warsaw properties in commercial and less in the regional cities.

Okay. There is a question about regional cities. So I will just ask it right away because we understand that, okay, the liquidity is always higher in Warsaw. However, our viewers are really curious about our projects in the regional cities. So are there any plans what is going on?

We have 2 projects in regional cities that we're doing very well with both from construction and also from a leasing point of view. But looking for us, today, we see a bigger potential to continue growing in the living sector, and we see a bigger potential to continue doing more CBD Warsaw where we see a bigger demand, more investors and a bigger profitability. So that is what we're going to do. At the moment, a year from now, we don't know how to look like. Maybe we will come back and do more in the region in the cities. We should never say never. At the moment, we are now focusing on these things because that is where we see the trends and the market changing at the moment.

Okay. Thank you so much. This is clear now. So let's change subjects for a second, Maciej, this question goes to you. Do you expect yield compression on our standing assets in 2025? If you care to answer or maybe Nicklas will take this one.

We see that the gap between investors and developers has been shrinking dramatically during 2024. And now in 2025, when interest rates are going down, we see that it's getting closer and closer. So we see now that based on where the market is, the yield expectations between investors and developers are very close now. And from our point of view, coming back to the questions where before, how sure are we bought our sales -- we are already now having 3 of our projects in very advanced discussions with buyers, but we have found a way to get closer in the expectations and also for us to be able to continue reinvesting our money into new investments. So we see yield compression, I don't believe it will be a quick yield compression. We see that the expectations on the market has been much, much closer, and we see a big potential of doing a lot of transactions in 2025.

Okay. So our divestment activity is bringing a lot of questions from our viewers. So let's get into this 1 because we have 1 question about Galeria Mlociny. What is our general outlook for the sale of our stake in Galeria Mlociny, can we talk a little bit about this one.

Yes, Galeria Mlociny is not at the level where we will consider to exit our 30% stake. Based on that -- if you look compared to Libero, Libero has -- it's a smaller center. It takes quicker to stabilize it. And now we're up at the NOI level, that is the NOI level, we are confident of being -- going to the market. And we see in Mlociny, we see a constant growth for footfall. We see a constant growth of NOI. We see growth of the turnovers of the tenants. So if you look from Mlociny, it needs another 2 years until it stable as enough for us to then to divest it on the market. Saying that, we constantly get approached by people who would like to buy into Mlociny but for our we think that we are not ready, and it's not the right time for us to exit because we think that then we will not get the full potential out of our investment for our shareholders.

Okay. So if we are not ready to exit this investment, but are we ready to exit Resi4Rent. So there is a question. Let me elaborate regarding ever-growing Resi4Rent pipeline. Could you please provide us with an update on potential Resi4Rent exit?

Like Maciej said before, I think it's important to be clear. We have no intention of staying as a long-term holder in any of our investments. But we will always stay as long as we think we get the full potential out of it to our investors. During 2023, 2024, we continue to grow a market there was not as much investors on the market as we see now in 2025. We decided then to refinance the stabilized asset and in that way, get more cash to continue growing our business. We also took a decision to sell off 2 assets that was very well valued on the residential market that was extremely strong, which means that we created much more shareholder value by doing that. In 2025, we're already now seeing both a lot of interest for investors going into the commercial segment, but also a lot of interest for buyers to go into the Resi4Rent segment. So this is something that we will continue keeping you updated on and continue monitoring the market. And as soon as we see the right opportunity, of course, we will then do a full exit or partial exit to continue growing our business because it's important to say what Maciej said, no matter if we will exit, we still think this is an interesting part of the market that we would like to continue being a big part of.

Okay. Thank you so much. So there may be a shift from the future sales to current ones. I'm focusing on Nicklas today, but this is a question, I think, goes to you as well. Could you please provide a little bit of more color regarding [Hodna] plot sale.

The plot sale is developed next to brewery that we have been working on for some time. End of last year, they came an opportunity for us to divest [Hodna] and at that point, we got what we consider to be the right pricing for us to exit. And also, most of all, we had an opportunity to put that money to use at other places. Because the problem for us, which is the opportunity for the buyer is that this project is only 6,000 square meters, which is a little bit too small for us with the big platform we are having -- so we decided to divest this project and reinvest that money into Krakow, where we had a great opportunity to do new projects and also where we had a shortage of projects to be started now in Q1. So this was a strategic view from us where we saw an opportunity to be able to further grow our business and doing a deal that was beneficial both for us and for the buyer.

Okay. Thank you so much. I will give you a short break. And I have 1 question for Maciej, regarding the levels that -- what levels can debt reduction be expected at what levels? Does the company have set target levels for indicators.

Well, I think our guidance for indicators was that we would like to be between 30% and 40% net debt to assets. Actually, we -- as our residential business is growing and more and more of our balance sheet is really focused on residential. Residential companies have normally lower leverage than the commercial, especially developed commercial assets. So currently, we are focusing at the lower end of this range, so around 30%, and I think this is the right guidance. Of course, that would take some time to get to this level and that is a result of disposals we talked about, but also disposals that are potential in '26, not in '25. So we should be aware that, of course, this process may be spread over time depending on how quickly these disposals actually happen. But I think what is very important is that we communicate in a clear way the direction that we are taking. And the level I think is -- yes, it's the right thing to say that it would be 30% or potentially lower.

30% or potentially lower. Thank you so much. [indiscernible] is bringing a lot of emotions. Our projects that we are delivering with Afi and Archicom. Could you tell us a little bit more about the change function? Do we plan to change Towarowa 22, any other function? What's the plan? What are we focusing on?

We're focusing on doing the best possible project in that location. And if you remember from when we acquired the project, we were planning to do a big shopping center. Then it turned into being more of a mixed use. And then at some point, we had a peer sector. We have a Resi sales sector, we had an office sector. What we see now is -- and this is important for us. This PRS part of it doesn't belong to us. It belongs to our JV partners. It's not the PRS that we call under Resi4Rent. And here, we have now taken a decision to convert partly of this PRS part of the business into being offices and residential part of our business. And this is something that we continue to evaluate on a day-to-day basis and see where we get the most of the returns. And all the reasons for those changes is because of the returns to the shareholders. So we will always do what gives the best return to the shareholders and what we think the market is really looking for. And it's important to highlight that in these kind of locations, usually, the resi for sale is generating a much higher value than you're doing in a Resi4Rent part of our business, which is also coming back to why we are selling off our part in the PRS on brewery because it's generating so much more value to sell it off as individual unit versus keeping them as a rental platform and the yields you're getting on the rental platform.

Today, we had a lot of questions about Resi4Rent and maybe let's finish with the PRS sector as well because we have a question regarding our plans for development in the PRS segment after reaching the 10,000 apartments Resi4Rent or maybe also a part from Resi4Rent?

Resi4Rent, we have always had a target of exceeding the 10,000. But what you will see now part of it, we're now selling off as resi for sale, which will then decrease, it will take us slightly longer to exceed the 10,000. We are also constantly monitoring the market, like I said before. So when we would see an opportunity to do some kind of exit of it. We will, of course, then do an exit and continue growing our platform going further. And that's also why we talked before of doing refinancing of existing assets that will bring more cash into our business. So looking at today, from our portfolio point of view, we are not investing more equity into the business. We're getting that money out either by sales of individual units or refinancing or in an exit point of view that will happen -- going forward, that will generate a substantial about of liquidity to Echo and to their shareholders.

Thanks. Staying in the PRS sector but from more pricing perspective? And maybe can we briefly talk about pricing of PRS deals and how they do compare to yields on individual apartments.

If you look at the yields on PRS versus offices, there's always -- there is always better yields on PRSs versus the office deals if you look at across the portfolio. And this is something that we still see that there is a lot of -- there's still a difference between these 2 and will continue being a difference between these 2. The reason why we went in to sell off the individual units in these 2 projects is because we saw a big spread gap between the yields that we can get selling them as individual unit and selling them as unit by unit. And if you're going back to that, we saw that spread being around 200 basis points between those 2 selling them ever as the PRS was selling at a resi for sale -- and that's why it was a pretty simple decision for us to take to go that way and selling them off unit per unit.

Thank you, Nicklas. Thank you, Maciej. I think that we have reached full hour of our presentation. So we're going to end now. So I really hope that you enjoyed the content of the presentation. I really hope that you like the new layout of it because I did. And we'll see each other in May on the quarterly results. So see you soon. And have a good day.