Echo Investment SA

WSE:ECH

Earnings Call Transcript 2022-Q3

[Unknown Executive]

Good morning, ladies and gentlemen. Thank you for joining us today for the presentation of Echo Investment quarterly results. Today's presentation will be held by Nicklas Lindberg, CEO of the Group; and Maciej Drozd, CFO of the group. Maciej, can I please ask you to start the presentation?

[Maciej Drozd, executive]

Yes. Thank you. So good morning, everybody. And let's start from reminding ourselves about Ukraine and the war, and what we are doing for refugees. We -- for most of this -- of the year, we continue to support refugees in our office buildings, where we accommodate around 700 of them currently, and we'll continue to do this throughout this winter season. The war and inflation and many other changes in the business environment had a huge impact on the markets. So let's see what is that impact, how we see the future and also how Echo performs in that challenging environment.

So we were focusing on making sure that our balance sheet is strong, that we have a strong cash position, which is around PLN 700 million at the end of September, and the main success factors that are influencing our business are in a good shape. So we have a very strong land bank in residential segment, we have a very high level of lease up in commercial segment, both office and retail, and we have absolutely outstanding Resi4Rent performance with fully let apartments and with strong increases of rents.

Our gross debt already was reduced by end of September compared to a year ago, and we repaid further PLN 200 million in Q4 of this year. And our net debt is reduced by the ongoing asset disposal that we will talk about that are happening in the office segment.

So let's focus on individual segments, and let's start from residential, which is becoming more and more important in our business. So as everybody know, compared to exceptionally strong -- exceptionally high 2021, this year showed a significant decrease in the number of sold apartments. What happened then is that the developers started to delay, postpone or even cancel starts of new projects. So as a result, we can see that the prices on the market, the offer prices and the transaction prices are relatively stable despite of much lower volumes. And we see that our offer, so offer of Echo and Archicom, which is mainly consisting of centrally located projects in major cities, is the one that performs best in this difficult environment of residential sales. So we are focusing on that, and Nicklas will tell you later more about our projects and how we manage them in residential segment.

Resi4Rent, so rental segment, as I already mentioned, is performing in an extraordinary way. This is due to the very strong demand, and of course, the supply is not able to meet the demand. It's not possible to increase the supply of rental apartments in a short period of time. So of course, rents are growing very high compared to a year ago, and we have absolutely no vacancy in our projects. We -- I would like to remind you that we are active in this segment from 2018 when we took a strategic decision to develop Resi4Rent. And now we see that we have a very strong competitive advantage in this market because other developers, other residential developers only now starting to be present in this segment, and we think it's already late. So we have currently 3,000 units under operation, and we focus to build a portfolio of 10,000 units by end of '24, early '25. And again, Nicklas will tell you more about that.

Office segment is very interesting because during COVID, less and less projects were started. As a result, we have relatively little new supply, especially in the strongest markets like Warsaw, Wroclaw, or Krakow where we focus our activity. We also have very interesting situation with rents because they increased because of relatively low supply but also they do increase because of euro inflation. Because all these rent in existing buildings not only our buildings, but in the market are indexed with euro inflation. So it is expected that from the beginning of the next year, market rents will increase by around 9%, which, of course, is a very strong growth compared to the last few years when -- if inflation was low and the rents were very, very stable.

So we are focusing, as I mentioned, on the three cities, which are the strongest cities in office segment, Warsaw, Krakow and Wroclaw, and we start -- we will start new projects there because we see the market and we see the demand coming from tenants. And again, Nicklas will expand on that a little bit later.

Retail performance is very strong in terms of footfall, in terms of tenants turnover. And we see that when we compare this numbers to '21 -- 2020. So last few years, we see strong growth of footfall of tenants turnover, and we are happy, or very happy with the operational performance of these centers that we own. What is also interesting, and I think, again, Nicklas will, I'm sure mention a little bit more about that, is that we also see that the investment market is starting to be quite active in retail segment. And of course, it's important because we develop assets to sell. We are not keeping them forever.

Construction market is interesting as well because despite of the high inflation, we see the prices stabilizing. And in particular, in residential and office segments where less projects are being started, and we expect the same for the next year, we see more and more construction companies not having work. So willing to really offer much better prices than before. And we think that this trend will continue. So we should be able to build at the prices which are for sure not higher, but we expect them actually to be lower next year compared to what is happening now in the market.

So let's look just at particular highlights for -- and the drivers of our business. So once again, as I mentioned, before in resi for sale, we focus on central locations on large cities because this is -- these are projects which attract cash buyers. And as we know, this is the most active and the most dominant group that we can rely on currently because people who need to rely on credit, who need to borrow money, of course, they are much less at creating much less demand these days because of interest cost. Resi4Rent, we are focusing on building 10,000 units and having them in operation by early 2025.

In the commercial segment, as we have very high level of lease, and the projects are very close to be sold, we start new projects to keep up with the demand from tenants and also, of course, to build and sell them. And in the corporate part, we focus very much on the cash position, but also on managing the debt exposure in particular bonds. And as I mentioned before, we already repaid PLN 200 million in Q4, and we actively manage coming maturities.

So the highlights for the quarter were good. We had a very good number of handed-over apartments, over 1,500. We started the construction of second phase of Brain Park in Krakow. As I mentioned before, Krakow is a strong market, and we continue to develop projects. Also in Krakow, we have achieved master plan for Kapelanka project that will be another destination project in our portfolio. And also in Q3, we had a tender offer for Archicom shares, and we increased our shareholding in Archicom to around 71%.

After end of the quarter, we are happy with continued performance of residential segment. We start new projects in good locations. As I mentioned, good locations are what we believe -- we -- these are projects that will perform well even in this more challenging environment in residential segment. Brain Park is achieving very good lease-up level, and we started the next phase, and we opened two resi foreign buildings in -- with over 500 apartments. This is important because we see that the market is absolutely expecting these buildings, and they rent very, very quickly. Also, as I mentioned before, we -- after end of Q3, we repaid PLN 200 million of bonds, and we issued PLN 25 million of bonds in that period.

If we just look at the financial result at our profit. So the profit for 3 quarters of this year was around PLN 125 million. For the third quarter, was around PLN 63 million, and -- which was better than consensus and the consensus was around PLN 50 million of net profit. So the result is good. And later on, I will explain what was driving that result in particular. Nicklas?

[Nicklas Lindberg, executive]

Yes, let's go over and look at the residential business. Like Maciej said before, we have been selling around 1,200 apartments. We are focusing a lot on the cash payers that will continue being a strong part of our segment. We do center location, residential apartments with good quality, with a stable company, and this is what we're going to continue focusing going forward. And as Maciej showed before in the slides, we see in some of our markets, with Wroclaw is unique, where you see sales prices increasing. Our theory is as well that there will be less and less apartments started. And based on that, we will also see that prices are stable, and you will, in some markets, you will even see them slightly increasing.

The offer that we're having today is roughly 9 months of sales today, and we are assuming for next year that we're going to sell around combined 2,000 apartments. The lot of the stock is today in Archicom has around the stock. They should have around 12 months. And in active, we're going to continue starting up a lot of projects during 2023. A lot of them will be in Warsaw in very, very good locations. That will drive up the sales but also the expectations of future profits. So we are very bullish about our residential business.

We also are seeing now, on the market, that we continue selling at a good pace in all of our projects, which is also a very strong signal that we are having a theory in the market that is working going forward. And also, if you look at our completed projects, we have a very, very low rate of unsold completed apartments.

You will see that where Echo is being present today is in the bigger cities with a strong pipeline we did city-forming projects. And this is what we believe will be a big part of the market going forward in all these segments where we're being present. And also what you will see, and companies like Echo, the bigger developers would get bigger as they are having the stability, we have the cash position and we can continue driving the business going forward. The expectation from us is to say, a further consolidation of the market, and where we are also actively looking, how to continue increasing our residential presence in line with earlier strategies that we have been communicating.

This is an important slide. As many of you see, we are still in the top players. But as I've been very clear in my whole strategy from beginning, we are focusing on profitable growth. We are defending our margins, we're keeping selling at the right pace, and we have a very, very strong land bank. So what we are doing now, we're being very picky about the project that we are starting up, we are making sure that it's in the right location, and can deliver the return and the cash flow that we expect from our residential business. So our focus is to continue being in the top segment of the residential developers but more important, also being the top segment of the one delivering the best returns to the shareholders going forward, and delivering the best quality to the people buying our apartments.

Here, you see how we continue selling at the pace that we have anticipated. We are continuing focusing on next year going up and selling around 2,000 apartments. We'll continue completing a project in a pace that we are feeling fine with, and also the handovers are happening in line with our schedule. Like Maciej also highlighted before, we have started up more than 600 apartments already now in the last quarter, and we continue starting up new projects.

We're also looking at this one from a construction point of view, where the construction market was very, very strong a couple of quarters ago, and we see now it's softening based on low and lower amount of projects being started. As Echo has been very, very efficient with our internal resources, always to make sure that we get the most attractive pricing. We are already now seeing signals that the market are going down, and we think it's going to continue in 2023. So we are pretty sure that we can deliver even more effective on the construction side to meet the future demand.

You see here how we are handing over, how we continue defending a high margin in all our projects, and this is something you're going to see going forward also, but that is the margin that we're going to do in the project that we're starting up going forward. And we're going to continue staying at the same level of the margins, which is the level that we think from our perspective that we should stay at and making sure that we continue delivering that shareholders' return.

This is what I talked about before, the current offer. We are focusing on starting up new projects in 2023. From Echo, it's going to be a lot of projects in Warsaw where we have a very good pipeline of projects on Towarowa. We have projects on M-Park. We have project on Stacia. And we have other projects that you will see in the central part of Warsaw, which is the market that is proven to always be resilient on any changes in the market. And that's why we feel very sure to be able to have a very, very strong pipeline that we can continue feeding the market with. So you're going to see a lot of projects starting Warsaw during 2023.

We have a strong land bank all over Poland. We are up to 1,200 -- 12,000 apartments that we have secured in a long period of time. We are today feeling very, very happy with the land bank we're having. We're always looking for new opportunities, but we are not stressed in any way as we have a super strong land bank. And if something is going to be add on, we're going to make sure that it's the right value based on our future strategy.

Resi4Rent, like Maciej said, we went into this market in 2018. We were one of the pioneers in the market. And now we have continued building up our presence as the #1 resident supplier on the Polish market. We have today around 3,000 apartments in the operations. We have opened up another 560 apartments in this quarter now. And we have a land bank that is today almost giving up to the target of 10,000 apartments. Today, we have a land bank between 9,500 to 9,700 apartments. We have 3,000 apartments in operation. And we have said by 2024, we're going to have 10,000 apartments either in operation or ongoing. And today, when we see more, and we're going to continue focusing on starting up new projects. And what you will see this year, we are still striving to the target and get up to start up 4,000 apartments.

Because like Maciej said before, the demand is so strong, and we see it continue being a very, very strong demand for many, many years going forward because we just think we are in the initial stage of the development of the rental market in Poland. So we are going to continue driving that change, continue starting up new projects. And by 2024, our target is not only to have 10,000 apartments ongoing in operation, but also be able to have 8,000 apartments that are rented or being able to be rented to the inhabitants of Poland. And we think this is really going to be a strong game changer on the market. And we also see looking at the market around us, we are the one who has before been the leader, and we think we've taken further steps to be the dominant player on this market.

And also there -- our theory behind all these things that people would like to have a stable supplier of apartments that also can deliver a stable way of living for many, many years in a rental apartment has really, truly paid off, and we think we are just in the initial stage.

What you see here, this is the breakdown of our apartments. We are in the biggest cities in Poland. We're going to continue developing more projects in all the cities, and we're going to continue driving up the scale. Here, we're going for central locations, what we believe surely going to be rented out, and at the right size between the apartments. So this is something that we're going to talk more and more about in the coming quarters. And I think you're also going to see how year-on-year, our portfolio continues growing in a very, very good pace.

Here is an example of the apartments that we have started and that we are planning to start. So as you see, another 1,600 apartments to be started now in Q4, and we have already started 2,350 under operations. You see here it's a very, very strong land bank. It's a very, very strong portfolio that is under construction or already today in operations. And we are far, far from being ready when we think we get up to the 10,000. We see a much, much, much bigger potential in Poland.

The commercial center of Echo is, as Maciej said, we have completed Brain Park phase 1. We have now started up Brain Park phase 2. We see very strong leasing demand from the market. We're going to do a strong Q4 in leasing, which is just proving back to the latest year, it's going to be a very strong. We see rental growth. We're going to start up projects in Warsaw, Wroclaw -- in all these markets where we see rental growth. And also we're going to focus on divesting projects that Maciej said before, which I'm also going to come into later in this presentation.

Here is the project that we have sold so far. We have sold three projects in the first half of the year. And in the coming months, we're going to sell another two projects. This shows that the investors really believe in the quality of that Echo deliver, and also the tenants believe in the quality that we are delivering to the tenant. And that is proven by the lease-up that you see in all our projects. And the latest example now is my place to that is leased up to 90% of this space in the building, and it's going to continue being leased up in the coming months.

We have three projects that we're going to lease up now. And the main thing we're leasing up here is ReACT 1 that we're going to see a strong leasing coming up in the coming months. Brain Park 1, we're leasing up the last space. CT2 is already fully leased. So all these projects are high-quality projects that is going to be sold during 2023. And when we come into the 2023, in the next presentation, we're going to talk much more over the other focus that we have in 2023, but this is the clear focus that we're doing today. And here, we are already today, in discussions or in the earlier phases of discussions to be able to plan them to be divested in 2023.

Like Maciej said, our strategy is to develop, build and sell. And we're going to continue sticking on that strategy. And also what has proven that in good times or in bad times, we still continue selling off our commercial or residential assets.

We have a very, very strong land bank, and this is going to continue to be in focus going forward where we're looking on how to increase our land bank, how to get more square meters. And we are looking here, of course, on Warsaw, Krakow and Wroclaw that are the three biggest markets in Poland, and where our majority of focus is. And this is where we're going to continue focusing going forward to increase our presence in those three markets.

Like Maciej said before as well, and we see a very limited supply will drive up prices, and also inflation will drive up rent. So what we see here, the rent is going to be driven up by inflation and also that is limited supply. We also see, of course, that yield is going to be moved, but we think that it will be compensated by the increasing rent and also in what we're seeing as well that we're going to be further able to reduce our construction cost. So we see going forward, but from our point of view, it's the right time to continue starting on new projects in good locations where we can continue delivering the returns that we have done historically and the returns that we are targeting to going forward. And this is all based of having focused on the three biggest markets, which is a very clear target from our side.

Warsaw, my place 1, we've been able now to lease it up to 90%. We are having ongoing discussions on the remaining space, and this is now in the final phases of being divested. You see face-to-face is 100% leased. We leased up the last areas now to -- in the last month. And this is also now in the final, final stages of being divested, which has also proven that a strategy, continuous working, we continue having investors that are coming back, looking for high-quality buildings leased up with high-quality tenants, and then this is the investment products that you can keep for year after year that will stable and give you the good returns that you're looking for.

Krakow Brain Park is today 70% leased. We are now discussing on the remaining space, and we'll during 2023 being able to divest this project.

If you look for another pillar of our business, which is CitySpace, the co-working space has increased in importance. We see it in all our locations. In all our new office buildings, we're always put in coworking for the reason this is what tenants are looking for. The flexibility, be able to both have your permanent space at the same time as you have your flexible space. And this is a super important ingredient in the new flexible way of working. And for Echo with CitySpace, we have always been one of the pioneers in this market, and we're going to continue driving up the dominant position we're having in Poland. We're being present both in Warsaw, but also in round in all the regional cities.

And you see here also from CitySpace with the new locations that's been opened up has a very high lease up. And we also see that the increase in rent is also driving up the prices that we're getting for leasing up our shared offices. And here, we have today 12 locations, 3,400 workplaces, and we're going to continue growing our businesses in the coming years. And here is also the same as we have in other businesses, continue being a dominant player, continue adding on value in all our office buildings and also in the whole business that we're having that we look out for the whole aspect of our tenants to be able to deliver a sustainable project.

If we look at our retail, like Maciej said, we have Gallery Libero, which has been opened up just before COVID, has continued now in the last 2 years, delivered very, very good results. We're up now in 2022, which will be the record year. We had now two fantastic weeks in a row where both footfall and turnovers are continuously increasing. This is one of the projects that we are now getting up that we talked for a long time. We've now seen the center be stabilized. Like Maciej saying, we see that there's a strong demand of retail, investors are coming back, the yields are attractive levels. They see that the footfall, the turnovers in the center is really, really good. So this is one of the projects that we are now adding on and we are now looking at when is the right time to exit, and we think that will be coming in the coming years that we see that it is a potential to continue divesting this one and focus on investing in new areas. So what you see here as Echo, we are strong, we develop projects, we build them up, we create the football, we stabilize the center and after that, we find a new owner to the center.

Galeria Mlociny is the biggest center than Libero. We have driven up the footfall. We are now focusing on driving up the turnovers. This will take slightly longer time to stabilize, but we are on a very, very good path on the center to continue getting it as one of the dominant centers in Warsaw. And also, lately, we bid and on with a new tenant mix. I will say that Galeria Mlociny has today the strongest fashion offer in Warsaw, and we'll continue developing -- in the coming years to be able to be taking that dominant position in Warsaw with a new build center that we have targeted from the day we open up the center.

If you look for permitting, as many of you have seen, if you look out over the old -- side, we are starting demolishing. We are now ready to be able to soon launch a new project, that we're going to do a new destination project, adding up to 200,000 square meters of mixed use in the same way as we've done on Brewery where we had both offices, we have resident rent, we have resident sale, we have food and beverage, we have entertainment. This is really going to be a new way of VOLA establishing really the area as the new city center of Warsaw. This is a very, very exciting project that we have been working on that for many, many years, and we are now in the stage where we see it really fulfilling. And we are super excited by June 2023 to be able to announce to all of you the fantastic destination project we're going to build here.

From an ESG policy, we'll continue working on it. The main pillars of it would be planet, people and shareholders. We're also now focusing a lot that we have highlighted in the last presentation, how we plan more trees, how we make it more green in all our projects, but also latest what we've done is the demolition of all the existing centers where we recycle, and try to recycle up to 100% of the old areas. Because recycling of all the projects that we are now buying and demolishing is also a very, very important part of our ESG strategy. As you've seen through the last years, we have been acquiring a lot of standing assets that we are then reshaping to new areas of city centers in the different cities around Poland.

[Maciej Drozd, executive]

So now let's look again in more detail on the financials on our performance in the 3 quarters of this year. So again, PLN 125 million profit in 3 quarters, PLN 63 million in Q3 compared to around PLN 50 million consensus. You can see, as I think Nicklas already mentioned that we have strong margin in residential segment, that we also showed a positive revaluation in Q3 on the balance. And I think it's important to mention that a very important contributor to the result was a valuation of our Resi4Rent portfolio, which is currently 3,000 operating units. So we have still a long way to go to recognize the profit on the remaining 7,000, which we are planning to be operational by early 2025.

Our balance sheet is strong. It did not change a lot compared to the beginning of the year, and also not a lot compared to a year ago. We have ongoing divestment processes, so my place face-to-face and CTI 2 are assets held for sale. And you can see that when they turn into cash, of course, this will be a very, very important liquidity event. Of course, our cash remained strong at the level of around PLN 700 million, which is similar to what we had a year ago.

And let's look at the other side of the balance sheet, so at our liabilities. Also slight decrease of debt. And as I mentioned, you will see further decrease in Q4 when we repaid PLN 200 million of bonds. Otherwise, we don't see a lot of movement. I think what is important is to look forward. So we had PLN 700 million of cash at the end of the quarter. PLN 200 million of bonds falling due in 2022 were already repaid. As I mentioned, we don't have a lot maturing in '23. 2024 is higher, but we are already very actively managing this liability as we are focusing on extending the maturities. But also, of course, like in case of PLN 200 million, also on repaying the bonds as we create liquidity coming from the asset disposals.

Just to remind you that we did pay PLN 44 per share of dividend in respect of 2021. And of course, we have dividend policy that is to be applied to 2022, and it will be later a decision on how much profit will be distributed in respect of 2022.

And that's basically it. So Tomasz, let's look at the questions.

[Unknown Executive]

Thank you very, Maciej. Actually, the first question goes to you because it's related to financials. So are we planning to pay a dividend in December?

[Maciej Drozd, executive]

Well, I think -- we can only announce it when we take the decision, right? And of course, just to remind you on the process, it's a resolution of the Management Board that needs to be supported by Supervisory Board. So there's a due process and of course, we'll inform the market as soon as this happens or not, right? We cannot disclose that at the moment.

[Unknown Executive]

Nicklas, could you be a little bit more precise because we received a question, which offices will be disposed actually in this year? Because we said in a few months. Is there any chance that any of this office will be sold until this year?

[Nicklas Lindberg, executive]

Of course, there is -- we are working very actively on them. As you all know, we are already now in December, and is very difficult to say if those transactions happens in December or January, but that is in the -- where in the range where we see that we see those transactions happening. And that's why we have been a little bit more vague if it happens this year or early next year because it's very difficult when you come into December, and it's Christmas holidays and nothing's happening. But our target is to be able to close transactions this year.

[Unknown Executive]

Maciej, a few of our viewers also noticed that there is a negative valuation on Libero. Could you explain that to our viewers?

[Maciej Drozd, executive]

Right. I think as I mentioned, that also Nicklas expanded on the fact that we are very happy with operational performance of Libero. But of course, operational performance is really about rental income, NOI, and we see growth here, and it's very satisfactory. But as we also mentioned, we are focusing right now on the disposal of, of course, of delivery of the market is becoming more active. And with the higher interest costs in Eurozone, we also see that the transaction yields that happened in the region are slightly higher than they were before. So we felt that we need to adjust the valuation.

So it has nothing to do with the operational performance, but it reflects the fact that the interest costs are high and of course, this has somewhat -- some impact, which, of course, you appreciate it's not a big impact on the yield. But we felt it's important to reflect this as we are really focusing on disposing the asset possibly next year.

[Nicklas Lindberg, executive]

And I think also it's important to add on here, but retail has always been a business for us now that we're saying that is something that we did in the past that we are now slowly fading out to that business. So our target for me and Maciej is to be able to divest our retail assets and then recycle that money into new businesses. So that is our #1 priority. And as Maciej highlighted, the revaluation we did was very, very small based on the business. But the important takeaway from this should not be focused on this revaluation. You should be focused on the strong performance we see in the center, it's stabilized, and it's now ready to meet we put into the next stage of divestments.

[Maciej Drozd, executive]

Yes.

[Unknown Executive]

Nicklas, another two questions are related specifically to the projects. The first one is about the Vita Fasha project. When do you think we will be able to release -- projects -- or some news about that?

[Nicklas Lindberg, executive]

That we will -- what you see now lately, what happened in the last weeks is that the master plan has become final and binding. We are now having the final discussions with the city. And early Q1, you will see more about Vita -- product being announced in the way it's going to be built going forward. You will see a destination project consisting of offices, reserver, receive or sale and all functions in this fantastic location next to the railway stations.

So in Q1, this is one of the projects that is high on the agenda to start next year. And you're going to see now much more about the project early in Q1.

[Unknown Executive]

And another actually question is about projects in -- which is located in -- What are the plans right now for this spot?

[Nicklas Lindberg, executive]

What we have done before is we have focused on this project here to be an office project. Lately now what we've seen is the market is extremely strong in both in the resi rent and the student housing sector. And this is why we are now reshaping this project to be more in that area of business where we see strong demand. This is one of the areas on the map that we are not covering today. So what we're going to be much clearer in the coming presentation if we're going to much more define them under the reserve segment.

So what you will see is some of the produce before what was on the office segment will be now relocated to a [indiscernible] segment that you have not seen before in our presentation, but we're going to be much more clear from the next presentation going forward. So the project has not disappeared. It's a beautiful project in the city center of Katowice. It's just going to get a new use that we think is better adapted into today's market.

[Unknown Executive]

We're coming back to financials. The company has issued retail bonds this year. Are we preparing a new program for individuals? This is the first part of the question. And second, are we considering euro bonds for institutional investors for -- in the next year?

[Maciej Drozd, executive]

Right. Well, I think these are very good questions. We -- in fact, we say during each of these quarterly presentations, we are happy to use diverse sources of financing. So we will definitely continue to work with individual investors, so we will -- we are preparing the new program for sure. And of course, euro financing is important for us because we have assets, which are actually euro-denominated assets like offices and retail. So of course, we already have both at corporate level but also at subsidiary level. So absolutely, yes.

[Unknown Executive]

We still have 5 minutes, so I think we can ask 3 or 4 more questions. Actually, the next question goes to Nicklas. What is the construction price for 1 square meter of the building now compared to a year ago? And the second part of the question, what about fit-out costs? Do they specifically in Resi4Rent? Did they increase or decrease?

[Nicklas Lindberg, executive]

Coming back to your first question, it's -- you cannot do general on what the price of one -- because it depends what you're building. But what we can see that if you go back and looking at it from a more historical point of view, there was COVID, the prices was going down because it was less production going. Then in the end of COVID, prices went up based on that everybody started up. And a year ago, I think it picked up, and we've seen it from that moment constantly going down.

So if you look from us, what we will see from the peak a year ago until where we are today, we will roughly say that we are 15% lower in the cost of construction that we saw at that point. Saying that, we were very, very restricted in starting up new projects when the prices were at those level. So today, we see projects that are coming in below the budget that we had in the past, likely below, and we think this will continue going down with another 5% to 10% during 2023. And this is the theory that we are basing it on. And we think that we already see more and more signals flowing in that direction.

Fit-out for Resi4Rent is not that it has increased dramatically. And I think we are not the best comparison here because we start so many projects. And we are trying to build it like a machine so that everything has the same standard in all the different locations. And we don't see construction prices fit-out increasing dramatically. We see more that we have changed our standard that has increased the fit-out cost of the total area of construction. Percentagely, the fit out is the same of the total construction that has been historically.

[Unknown Executive]

Let's stay in the area of Resi4Rent because we received more questions about that product. Do you see any further growth in the class of rents in this portfolio?

[Nicklas Lindberg, executive]

I think we are just in the beginning of the increase in rent. But it's based on that we will look at many other markets that has a much higher sales price, much higher rental market. What you will see, historically, Poland was a market where everybody tried to buy the apartment. Many more will rent their apartments.

And if we look at -- we look a lot about the affordability ratio in our Resi4Rent apartments today, and it's historically in a very low percentage compared to other markets because there's more people living in it, the salary of those people are having is pretty high. So we see this continue increasing the prices. It will not increase as dramatically as we've done during the last 12 months, but it will for sure continue increasing. And we also think this is a part that will drive that sales prices for apartments in very good location will also increase because the people that are investing will see that they will get a better return on their money.

[Unknown Executive]

And staying with the Resi4Rent, is there any direct linked with Ukrainian refugees coming to Poland that -- and the success of our projects that are 100% leased?

[Nicklas Lindberg, executive]

Of course, there is. You cannot ignore that, that its been coming so many people from Ukraine, from other countries, from Belarus and other countries coming into Poland, which, of course, has been driving up that there's a much bigger demand. But what you should remember, even before the war, we were fully leased in all our projects. So what you will see, and we also look -- translate -- a mix between people.

So it's -- of course, there is a link that a lot of people coming into Poland need to rent a apartment. But they're saying that, that is not something that will change going forward because the underlying demand is still there from the Polish inhabitants and also Ukrainian people coming into Poland will stay here for a longer period because we see a lot of them that are renting from us is already now establishing a new life in Poland.

[Unknown Executive]

And the last two questions. Actually, this question could be asked to any of you, Maciej or Nicklas. So I will ask the question and one of you can start answering. So what are the current prices of plots or parcels that we are planning to buy to our land bank? And is the secondhand supply become more and more visible?

[Maciej Drozd, executive]

Well, I think I would say that, of course, you have many, many developers that have product projects prepared for start -- that are not starting -- and of course, you also have many landowners that were working on the sale that is not happening because, of course, if the developers don't start projects, they also don't need to buy land. So it's quite obvious that the land prices need to adjust, but I think we are at the beginning of that process. I think it will go much deeper in 2023 because people need time to realize that the expectations need to be adjusted. So I think the prices will go down, for sure. And that's why we are patient.

When we look at new opportunities, of course, good land is always good, right? You should not expect that, or it will be for free. But overall, prices will need to be adjusted for sure, right?

[Nicklas Lindberg, executive]

But I think it's important to what Maciej is saying here, but pricing relocations will never be extremely cheap. We have never seen it during COVID, and we will not see it now. But what we see, we are being approached today with land plots that was historically not for sale, that is today for sale. But like Maciej saying me -- him and me analyzing, and we think that we're just in the beginning and there will be coming better opportunity for us going forward. Where we can have a unique situation, we are having a very strong land bank at the same time as we have a strong cash balance in the business.

[Unknown Executive]

And having said that, do you believe lower cost, of course -- potential lower cost of construction and plots can boost our margins? Or potentially allow prices to be lower? And I think Nicklas...

[Nicklas Lindberg, executive]

Maciej you can start again, and maybe Nicklas will have the last word, right?

[Unknown Executive]

Read from the crystal ball -- that's the last question.

[Maciej Drozd, executive]

No, I think that it's a little bit about how you plan the whole process, how you plan the pricing, right? And of course, if your costs are lower and you know they are lower, you can offer a lower price, right? Because it's not that -- and because we know what the market is. And of course, this is a market where you need to be even if you have excellent product, you need to be conscious about the price you offer. So of course, that would be, I would say, first priority.

And the reason why we had exceptionally high margins, for example, this quarter, right, is that we also were selling at the time when market was extremely strong, right? So it's not that you basically do with the margins what you want. You need to look at the market and you need to think what is the right selling price, what is your cost. So I don't think that, of course, we'll not plan to have extraordinary margins on projects that are not justified. But again, Nicklas can confirm only that we have very good projects in Warsaw, for example, for the next year. And on these projects, I think we will not be so much willing to compromise on the price, right, because they are simply excellent projects. If you have something which is more repeatable, more similar to what others are offering, of course, you need to play the price cut much stronger.

[Unknown Executive]

Nicklas -- Great. Thank you very much, gentlemen. With this final question, we have reached the end of our session. I would like to thank you for all of the viewers for very interesting question. We try to respond to most of them. But if there is any question that remains, unanswered, of course, me or Emil Gorezko will contact you directly. And thank you very much again, and hope to see you soon at the end of March when we will publish the full year results. Thank you very much.