Echo Investment SA

WSE:ECH

Earnings Call Analysis

Echo Investment Reports Strong Results

Echo Investment experienced better-than-expected financial performance with plans focused on strategic growth in Warsaw. The company has amassed 10,400 plots and emphasized efficiently leasing developments ahead of schedule, including a new project in Wilanowska. Specializing in the top three Polish cities, Echo expects a gap in supply and strong demand by 2025, particularly for Class A office buildings. Commercial portfolio adjustments are set for a healthier leasing market, with fully leased projects generating positive returns. The NOI growth stands over 9%, anticipating further growth. Interest rates are believed to have peaked, promising favorable conditions for the planned sale of office assets and Libero in 2024.

Echo Investment's Bold Residential Strategy Transformation

Echo Investment Group, traditionally renowned in the commercial real estate sector, has ushered in a pivotal transformation, aggressively pivoting to the residential market with its Archicom consolidation. This strategic move, backed by a substantial cash raise through both equity and bond issuances totaling PLN 430 million, aims to position Echo as a dominant residential player in Poland, with a focus on converting existing commercial plots to residential use to maximize current market value.

Projected Growth in Residential Sales and Expansion Plans

Echo projects an ambitious sales target, aiming to escalate unit sales from 2,000 to 3,000 and 4,000 in the midterm. This growth trajectory is fueled by strong market demand and bolstered by Archicom's acquired plots and capital from recent fund-raising activities. The group's intention to become one of the largest residential players is underscored by its aggressive expansion strategy and its financial resources, including expertise and a robust construction pipeline.

Expanding Footprint in Living and Commercial Segments

Echo maintains a strong cash position and is continuously enlarging its extensive land bank. The group demonstrates robust demand and favorable performance within its commercial assets, specifically in large cities like Warsaw, Wrocław, and Kraków. Echo's residential sales are thriving, supported by a mix of cash buyers and traditional loan-supported purchases, independent of subsidized loans. Echo also highlights its intention to grow its living sector further, particularly its largest private rental sector (PRS) operator in Poland, Resi4Rent, with over 4,000 units operational and the same number under construction.

Echo's Commercial Focus on City Centers in Top Polish Cities

Echo envisions growth in its commercial real estate segment focused on the three largest Polish cities, where high demand and limited development activity create a favorable environment for Echo's city center projects. The group's strategic land acquisitions aim to fuel its aggressive residential expansion, while also targeting growth in office and shopping center projects.

Financial Performance and Dividend Payouts

The company recorded residential sales of approximately 1,300 apartments and handed over around 800 units, with a higher turnover traditionally expected in Q4. Echo has also paid dividends regularly, including an advanced dividend for 2023, reflecting its stable financial performance and shareholder-friendly policies.

Aspirations to Become a Market Leader in Residential Business

Echo's sold 1,300 apartments year-to-date and continues to focus on maintaining high margins across projects. With a strong land bank, Echo's optimized investment strategy aims to capitalize on market opportunities, with a target of 3,000 sold apartments next year. The company's ambition is to lead the market with a goal of having 50% of Echo's business in residential development, reinforcing the strategic reallocation of assets and business focus.

Living Sector Expansion and Market Discrepancies

Echo's living sector, notably its PRS offering Resi4Rent, has seen substantial growth, with 4,100 completed and 4,300 under construction units, with more to come. Despite the rental price stabilization, the market remains robust with a notable demand gap. Echo Investment sees this discrepancy as an opportunity to leverage its presence, particularly in the Warsaw market, which embodies strong rent growth and high demand for quality PRS projects.

Strategic Reduction of Commercial Development to Three Major Cities

Echo realigns its commercial strategy to concentrate on the significant markets of Warsaw, Wrocław, and Kraków exclusively in their city centers. This selective approach, characterized by a leasing boom and increasing rents due to reduced supply, implies development at better yields. Echo Investment envisages a supply scarcity by 2025, creating an opportune moment for its Class A office buildings to meet strong anticipated demand.

Earnings Call Transcript 2023-Q3

[Weronika Ukleja-Salak, executive]

Good morning, ladies and gentlemen, and welcome at the Q3 financial results of Echo Investment Group. My name is Weronika Ukleja-Salak, I'm the company spokesperson. And today's presentation will be led, as always, by our CEO, Nicklas Lindberg; and our CFO, Maciej Drozd. Straight after the presentation, we will go to the Q&A session. So if you have any questions, please stick around. And without any further ado, Maciej, please, the floor is yours.

[Maciej Drozd, executive]

Thank you. Good morning. Let's start from the key events. I would like to focus first on the most important thing that happened in Q3, which is the implementation of the new residential segment strategy for Echo Group. Many things happened in that quarter. First, it was the consolidation of the segment in Archicom for contribution inclined. Then immediately after that, Archicom raised through accelerated book building process on stock exchange, PLN 220 million and increased its equity. And also very quickly after that, issued PLN 210 million of bonds. So all of that was to collect money to secure plots and to buy aggressively in a very strong residential market. So Archicom could become one of the biggest residential players in Poland. We are also working very hard, and we focus on converting some of the plots that are currently held by Echo to residential use, and we will explain a -- and we'll talk about this a little bit later. So what is Echo Group after this reorganization. So on one hand, we own around 75% of Archicom, which is active in also Warsaw, Wroclaw, Kraków, Poznan and [ Wuchand ], and which is also looking to expand to other cities in Poland. And the remaining part of Echo is focusing, of course, on traditional commercial segment, which is mainly offices, but we are also aggressively developing living sector, of course, in Resi4Rent area, PRS. But also, we are looking at student housing. And again, we will mention this little more expanded way a little bit later during this presentation.

So obviously, residential business is on a growing path. The environment is very favorable. And by organizing residential segment Archicom, we created the basis not only for operational efficiency, but also for a very strong growth. So our intention is to grow from the current level of around 2,000 units sold per year, to 3,000 and 4,000 in midterm. So that's a very aggressive plan, but we believe it's very doable with the resources that Archicom has, and it's not only the expertise and current pipeline, but also the plots that we are buying in Archicom, thanks to the cash raised in Q3 and Q4.

Next slide show already existing pipeline in Archicom, so -- which is divided between projects under construction and projects in preparation, and you can see that in total, it's around 11,000 units in different phases of development, which is impressive. But as I said, we are focused very much on growing this pipeline to achieve bigger size to be able to sell units per year. Now I would like to look at each of the segments, but to start from a little bit more global outlook. So at the end of the quarter, we continue to have very strong cash position, large land bank, which you already have seen. But again, we are expanding it. Our presence in living sector is growing and its first Resi4Rent, but again, we are also looking to expand it into student housing. Operationally, we see very strong demand and very good performance of our commercial assets. And I mean here, leasing activity in offices, but also very good performance of retail centers in terms of footfall turnover and tenant sales.

Lastly, Resi4Rent with over 4,000 units already under operation and over 4,000 under construction is the largest PRS operator in Poland, and we intend to develop it even faster. So now let's look at the segments. Residential segment, as everybody knows, performs very, very well. And of course, it's to a big extent due to the government program of subsidized loans, but it's not the only reason because we continue to sell a lot -- or majority of our apartments to cash buyers and to people who support themselves with normal loans, right? So not the subsidized loans.

Our sales are good, but we are aware that we need to expand the offer even more. So we are buying the plots in Archicom and we -- as I mentioned, we continue to convert commercial plots into residential. We are very proud to start in Warsaw Mokotów District next to Galeria Mokotów, first stage of very large project comprising 550 apartments. I mean, the first stage is that big, the total project is around 1,600, which sells very, very well and it really proves that the market in large cities really needs more offer and the main barrier to sell more and to stabilize prices as well is to have higher offer. So this is our focus in Q4, but also, it will be our focus in 2024. In the living sector, we see that the prices -- the rental prices are stabilizing. They are not growing as quickly as they did in 2023. They are more stable. But the market remains very strong, and there's still a demand gap. So we believe that absolutely, we need to build more and we need to develop more PRS project. So -- as I already mentioned, we have 4,100 units in operation, around 4,300 under construction. And now we are looking to reach around 11,000 units in 2026, which is on the basis of strong demand, but also it reflects the plots that we are already secured by now.

And we see that Warsaw is the strongest market, and we intend to develop now mainly in Warsaw, but not -- of course, not alone in Warsaw, but this is the main focus of our living sector. Nicklas will also mention a little bit more on student housing. We believe that this market is very strong, and this is the next area of expansion for us. Office, I already mentioned that we see a strong tenant activity. We have absolutely no issue to lease our projects that they are leased very, very successfully to big names. And we see that the rents are growing. They are growing for well-located projects, and this is what we are doing.

So we focus on 3 largest cities, Warsaw, Kraków and Wroclaw on city center locations, and this is where we see rental growth. And this is where we see a strong tenant demand. And again, this is also due to the fact that the development activity after COVID is much smaller. So not many projects appear on the market, and that's why tenants who want to lease in good locations in new projects need to basically take what is available and it's not much.

Retail performance continues to be strong. We see year-on-year increases both in footfall and tenant turnover. So we are very happy with how these assets develop, both Libero and Galeria Mlociny. And we focus on marketing. We focus on stabilization of the tenant base and on making it the most optimal. So we believe that the environment is generally favorable, and we see this reflected in the performance of our assets. Construction segment is interesting because we see that the price is stabilized or even in certain areas, they go down. I mean the prices of materials that we use for the construction of our buildings. But also, we see that because of low -- relatively low activity, compared to previous years in the construction segment, we can achieve intenders much better prices than expected. So we intend the process, we continue to achieve prices that allow us to achieve very good margins, both in residential and in commercial segment. And this situation probably will stay for some time. Of course, it is not permanent.

But currently, we have a very interesting situation where the construction prices are stable or even, as I mentioned, we can push them down, intend the processes, while the sales prices in residential, for example, are growing and also the rents are growing, not as quickly as residential sales prices, but still, there is a trend -- there is a different trend in our cost and our revenue, which is very favorable. So the highlights and the current drivers of our business in Resi4Sale, we continue to focus on centrally located projects. And we believe that this is the area which is sustainable, which is not only driven by the subsidized credit but will continue to be strong to perform strong.

And this is also the area where the shortage of product is the most visible. So the offer in large cities is really scarce in terms of -- in the area of more central areas of the cities. And this where we see -- this is the area where we see -- we expect price growth and where we expect the demand will chase not many available apartments. So we -- this is really our focus area. In living sector, for rent, we have -- we see very strong stable performance, growing canoe year-on-year. And definitely, this is also area where we can grow and expand our business. In commercial, by which we mean here, office, we focus really on 3 largest cities, which always perform well, which is Warsaw, Wroclaw and Kraków and on central projects. And in land bank, we buy new resi plots, we aggressively expand our residential land bank, and we are working on converting some of our commercial land to residential use, which is definitely giving the best value in the current environment.

Specifically, if you focus on Q3, our residential sales, this year, we reached around 1,300 apartments. We handed over around 800. And we will hand over much more in Q4, which is a typical annual pattern that we have that we hand over most of our apartments usually in Q4. We started construction of office project in Wroclaw. It's very well located, beautiful location and beautiful project in Wroclaw, called Sopot. In residential, I already mentioned the whole reorganization that was a very, very important event and we continue to pay dividend. Archicom paid remaining part of dividend for 2022 in Q3.

After Q3, subsequently after the closing of the books, we introduced new apartments for sale, and we will continue to introduce more in this year and also a lot in 2024. We started, of course, construction of the commercial project, which I already mentioned. And we are proud that our completed projects like [ Ract ] and CT2 were fully leased, and we also refinanced them successfully. So that allowed us to release part of equity from these projects.

Financially, I already mentioned before, Archicom activity, so equity rise, so largest issue of bonds in Archicom history. Also, Echo issued bonds in euro, I think it's quite interesting. It's quite on Polish market to issue bonds in euro. So it was EUR 43 million for 5 years, which is quite unique in our market. And we continue to issue under prospectus program that we do with Echo to individuals, we just finished EUR 50 million -- another EUR 50 million on top of what is on the presentation, which was done earlier as well.

So in total, we already issued EUR 100 million on the program to individuals. And we did pay recently PLN 22 per share of advanced dividend for 2023 as we usually do each year. If you look at the key financial data and the performance we can see that it was better than expected by the market. But as I already mentioned, most of the result in this year, like each year is expected really in Q4 on the basis of handovers. So I will focus on the details of the profit analysis a little bit later in the financial section.

And now Nicklas, please explain segments.

[Nicklas Lindberg, executive]

Thank you, Maciej. If we get into our residential segment, we have sold in Q1 to Q3 1,300 apartments. And to say, like Maciej said before, we have always focused on making sure that we have a strong margin in all our projects. And we continue focusing on that one. And what you will also see, we have a very, very strong land bank coming up ahead of us. And also to elaborate on what Maciej said before, the money that we have raised in Archicom is now invested in projects that can start quickly because we see an opportunity today in the market to invest in projects that we can quickly start and then quickly recycle the money again. That will be a big part of the growth in our strategy to continue getting up to 3,000 apartments sold next year.

So we are continuous investing. We're continuous growing, and we also hear are saying, an important thing, we want to be the market leader in the residential business, which has always been a driver for Echo to continue growing the residential presence. If you look at the offer, it's 1,150 apartments. We are now continuously increasing, like you saw in the slides before, we have already put another 350 units on the market. We're going to continue putting more projects on the market in the coming months.

We have a lot of great projects that are now being released for sale. A lot of them are in Warsaw and Wroclaw, which are today the strongest market. And like Maciej said earlier, this is the market where we're going to focus and continue growing. You see here, we have 3,200 partners under construction. We have another 700 plan to be started this year. and we have cash accumulated in Archicom, and we did this early in the process to be able to benefit from the market where we are today, where we find opportunities that we have not seen before, but we can continue investing the money and get a great return on the money that we have raised so far.

We see in all markets a very strong sales and a limited supply. This supply, we don't see short term will be bigger. We see that we have went through the permitting process many, many years. And now we're coming to the final step of releasing great projects. So we think this is a market that will continue and also, like Maciej said before, the 2% margin is not a big part of the sales and the people that are buying from us today under the 2% program would buy normally also but using normal financing.

So we think the residential market is a very, very interesting part to be present in. We have always talked before, if you look at the Echo Group, how much should we allocate into the different businesses. And where we are today is roughly that we are saying we would like to have 50% of our business in residential. We would like to have 25% of our business in the living sector and 25% of our business in the commercial sector.

This is something that we are constantly evaluating and making sure that how we allocate the equity in the business is what will get the best return for the shareholders. If you look at the Echo Group, we are continuous telling quarter-by-quarter. We'll continue increasing the volume now of apartment for sale in the Q4, and we will continue increasing it throughout the whole year of 2024 because we see the market is there. We see we have a lot of projects who went through the permitting stage. The bigger project where we have been managing to get the -- let's developer a plan to be issued on those projects makes it easier for us to release the project stage by stage. We're also here actively working on the cost side to continue making sure that we have a healthy margin in all our projects. If you look for the handovers, most of our handovers as every year are happening in Q4. And the reason for that is how the projects are being started and how we've been able to complete them. We are now going in full speed, handing over apartments in all our different projects, and that will continue where we have a very detailed plan to be able to reach the target that we have the plan for this year of the handovers.

The offer of Echo today is not at the level we want it to be, but we will continue increasing with another 700 in the coming months and continue increasing it step by step out of that one. And also what will be interesting, a lot of the projects that we acquired today will go directly from land purchase into sales, because we have now managed to identify quite a few projects that will go directly from a land purchase to sale, which has been our strategy. And that is also one of the reasons where we increased the capable of financing into Archicom to be able to benefit from these opportunities in the market that we don't think will be a long-term opportunity where we can do these things. Current offer is we have 10,000 apartments. And you see here, 50% is Warsaw and Wroclaw, where we see today that we achieved the highest margins and also where there is a very, very little supply. And many of these projects are now getting into permitting and these are the best location in all those cities. And on top of that, we are adding on new projects that we will be able to start directly from the land bank, as I said before.

So we are very positive on continue growing our residential presence. We see we have the right projects. We are working correctly with the sales. And also, we are working with the cost side to be able to benefit on the lack of new projects being started in the market. If you look at the living sector, living sector has always been something that has been very, very interesting for Echo investments. We have the Resi4Rent, where we have 4,100 completed, another 4,300 under construction, and we have another 1,000 to be started shortly. This is very, very interesting to be able to start all these projects. We are constantly opening up new projects. When we open up the new project, we see they are being leased out quicker than we are anticipating, and also they are being leased at good prices.

To clarify what Maciej said before, is last year, we had an increase of the sales prices with up to 30%. Now we see increase of sales prices on the level of 8% to 10%, which is still a very, very good growth in our business. So we are very, very bullish on continuing growing our presence in the PRS. We are looking also how do we continue growth in this sector because this sector is very, very interesting and Echo has before been in the living sector earlier in the days, and we have a lot of competence that can be used for our next investments in this area.

As you see here, the Echo is taking a bigger, bigger part of this total Polish PRS market. And we think that going forward by 2025, we will have taken an even bigger part of the PRS market. As you see today on the market, there's very few new projects being started. There's a very, very high demand, and we will benefit from this being an institutional player being able to continue growing our presence on that market, which we think is very, very interesting. And also, we think we're just in the beginning of the development of this market.

We have secured so far 10,400 plots. We are continuously securing more projects now. And like Maciej said before, we are focusing on growing our presence here in Warsaw. And we find opportunity today in Warsaw that we have not seen earlier, but we would like to continue benefiting from to continue getting an even bigger platform with a strong presence on Warsaw.

Here you see the portfolio breakdown of all the different cities and like we said now, the presence is continue growing Warsaw, continue making it stronger based on -- before, we had a challenge finding new opportunities in Warsaw, now we see much more opportunities coming, and we would like to take the advantage to benefit from the stage where the market is today. If you look at all our projects, we are fully leased in all our projects at rents that we were exceeding our expectation. We are renting out the projects quicker than we are anticipating, and we are constantly learning from one product to the next.

So we're being much more efficient in the construction period. We're being much more efficient, making sure we deliver the perfect apartment for the tenants on the projects. One of the examples is the new project we opened now in Wilanowska, which is a beautiful project, fully leased, way ahead of the schedule we were having before. And it also shows that but all the clients moving in there is really, really happy with the location and the quality that we are delivering to the tenants of those buildings.

The next project we're going into now that we've talked about last time, and we will now have developed our analysis with the market, and we think it's a very, very interesting market is the student housing. It's very similar to what we do in the PRS. It's smaller apartments, and we are now addressing the student housing. There is a big lack of student housing apartments in Poland. There is not even a fraction of the apartments needed and the quality that we can deliver here with the experience we're having from our Resi4Rent business will be really, really an interesting part to put into the market. This one, we will tell you even more in the coming quarters about, but we are strongly advancing.

We think this is a very, very interesting part of our business, and we think it's a natural next step for Echo to continue developing in the living sector. To coming back to what I said before, we want 50% of the business inside of Echo investment to be into the living sector and another 50% of Echo investment as into the commercial sector. And then I'm saying that when on top of that, I have the whole Archicom that is doing purely residential. So now Echo investment is taking the next step in the development where we started as a retail developer. We went more into residential and offices.

We then after that contributed the residential into Archicom. Now we're doing the next version of Echo investment that will be a mix between the living sector and the commercial part of offices and our shopping centers that are performing extremely well at today's market. As you see here on the market, there's a huge lack of apartments in this market, and the continuous amount of students in the market is increasing. We see this is both from Polish student and it's also from international students studying in Poland. And here, we are focusing to make sure that we can deliver a great project for the students, and which will also be up to the standards of today. Many of the student homes today are outdated and not really reflecting the standard students are expecting of today. And here, we think we can really add on a new layer of the quality and also a new layer for all the students being in Poland. This is just summarizing what we said. We have a positive analysis. We're going to continue taking the next step and when you will meet us next time, we will have more to tell you in -- how we continue developing in the student housing business. Commercial, if we look at Echo from the past, we were focusing on the 7 biggest cities around Poland. What we're saying now, we are only going to do it in the 3 biggest cities. We're only going to do Warsaw, Wroclaw and Kraków. We're only going to do it in the city center of these 3 cities. What also what's interesting with all the new projects we are starting today with today's market, you see rental growth as there is less supply in the market, and we see much more effective construction costs.

This means that we are developing our buildings at a much better development yield that we did historically. Meaning that we can sell them at the different yields and still making the same returns to our shareholders. So here, we see an opportunity really to continue growing in all these 3 cities. We see in all our completed buildings. We are now getting up to being 100% leased, and there's a really big demand. And we think by 2025, there will be no supply on the market, but there will be very, very strong demand. And then we will come to the market with top-of-the-line office building, all the ESG criteria in the best location, and we think this will be the way to continue working a little bit against the market, but this will -- what will create long term the best shareholder value.

We have Towarowa 22, the project where we started the office building, and hopefully, shortly, we'll start the next residential building there, and Swobodna in Wroclaw, where the construction process started, and we have a central location in cracker where we are planning to start the next office project that will also be next or a residential project. All our office buildings are now fully leased. We have been able to get financing and they are now generating really good returns. We see now that the interest rates has now peaked, and we think that 2024 will be a very interesting way for us to market these projects to the market and we think the appetite from investors will come back in 2024 in the second half.

We think new buildings that we're delivering with all the ESG criterias will really be a rare commodity when we are delivering it both now and in 2025. So we will have a very rare product for the Polish market. And here, you need to differ between what we're delivering, Class A office buildings in the City Center and the Class B buildings that are today a little bit out of date. And it's a massive difference between the two and there's a very big shortage of Class A office buildings.

We also now marketed Towarowa 22, together with AFI, that our next destination project, which is a fantastic project in the city center Warsaw we are really delivering something that I have never seen before. We're going to give a 2-hectare park back to the city, and it's going to be a project of close to 200,000 square meters and we have already started the first building. We are shortly starting the second building. And then you will see the buildings are coming up one by one as we continue going along in the same way as we build the Warsaw brewery. This would be a really Echos next flagship project that will be levered in Warsaw. And I'm super excited to see what we're going to do on this part of Warsaw.

Swobodna is opposite of midpoint, as you remember, the project we saw last year at a very good price to an investor and the building is today fully leased. Now we're starting the next project in a beautiful project where we're doing offices. And as you see on top of the offices, we have terraces. So we're really making sure this is the project where we has all these criterias. It has the terraces. It is all really the project where people will like to come back to the office, which we see a trend all over Poland that many, many more companies are coming back to the office, and we see that trend is rapidly going to grow during 2024 as well.

This is the building that we have in our pipeline and target to be sold in 2024. All of these buildings here are fully leased. Libero is having a strong performance, continued growing year-on-year, but really all the hard work we put into all these buildings. They have all these 3 criteria. They are really top of the line in all the cities where they are being present. We see '24, '25 as a very strong leasing market. We see there's a lack of supply. We see that we are delivering the products to the market that is really needed for those years. And we think by focusing on the 3 major cities, we are really taking a strategically important decision that we will benefit going forward from.

And we see here for Q3 2023, like we said, there's a very low office development, but also, we are leasing very, very well in all our projects. And this is a big step back from 2023, where we had a slower leasing period in 2020. Now in 2023, we see it's really picking up. In 2024, we think it will be even stronger. City space has now the 13 locations, focusing on the Echo buildings. We see the occupancies growing across all the buildings. We see also that the money they can charge by workstation is increasing. This is a business that we will continue going to focus on growing in the Echo buildings in the central location. This is a very important add-on to our buildings as many new companies would like to have the opportunity for employees to work in the flex space.

So we think this is a really, really important part of our business that we're going to continue growing. Libero that we opened up just before COVID has really continued to develop great year-on-year. We see the NOI growth over 9%, and we see continued growth for next year. We have exchanged a lot of tenant base. It's really going to be a flagship and is focusing on the value retail. This is the fastest-growing shopping center in Katowice, and this has really shown that when we do the things we do the right things. We continue to focus on proceeds. We continue focusing on having the right brands. We are just in the beginning of the journey of Libero to continue growing in the NOI.

Mlociny is doing the same thing. We continue growing the presence. We continue growing the footfall. We have a very strong occupation ratio in the center, and we are continue focusing a lot on getting the right tenant mix in here. And we see here, we have opened up a lot of new stores there, and we continue open up a lot of more doors. So we think for 2024, you will continue seeing strong NOI growth in both our centers.

[Maciej Drozd, executive]

Let's look again at the financials, you had a quick look at the beginning of the presentation. Now we can look a little bit closer. So as I already mentioned, the results were better than consensus. In particular, our residential margin continued to be very strong at 39%. It's a gross margin, of course. We also continue to collect revenue from Resi4Rent and commercial segment with good margins. This quarter also showed a positive fair value gain on investment properties over PLN 50 million. So all of that contributed to the result. But as we already both mentioned, handovers are concentrated on Q4. So a big part of our result this year will -- is expected to come from Q4 on the basis of handovers that are being done as we speak.

Our balance sheet didn't change a lot from the end of the last year. We show investment and assets held for sale as Nicklas already mentioned, these assets are prepared to be sold during 2024. This is our plan for office assets and Libero is also in that category. So we expect the market to improve on the basis of interest rates in euro not growing, but stabilizing and hopefully going down. So that's our plan in that area.

Otherwise, not much change between end of the year and today. In terms of liabilities, they also -- our long-term debt and short-term debt was stable, didn't change a lot. Our net debt ratio continues to be favorable. It's 29%, so it's as planned, it gives us a comfortable position of cash and net debt ratio give us comfortable position for further growth in Archicom mainly. So in this part of our balance sheet, which is linked to residential assets should show next quarter's good growth on the basis of what we have today.

If you look at our obligations, in particular maturity of our bonds in 2023, we don't have anything left as of today. We already refinanced a part of 2024, in particular, most of eurobonds falling due in 2024. We continue to work on that, but we feel comfortable in the current bond market environment. And actually, we'll start to focus very soon on refinancing 2025. So pushing maturities to 2028 and beyond that date. So you can see again that we are quite active on the bond market, both institutional and individual investors and also including euro.

So again, the financing market is working well for us, both for corporate loans, but also, of course, project level loans, as I mentioned before, [ Reagent ] were refinanced this year quite recently. So we see no issues with financing of our commercial projects or Resi4Rent or any other projects that we are doing. The dividend that we paid this year actually was PLN 44 per share. Just to remind everybody, we paid first installment in February, it was in respect of 2022. And in respect of 2023, we already just paid advanced dividend in the same amount of PLN 22 per share. That's all in terms of presentation and now Q&A.

[Weronika Ukleja-Salak, executive]

Yes. Thank you, Maciej. Thank you, Nicklas. Let's start the Q&A session.

We usually start with residential. So let's start with offices for a change. I don't know who would like to start, but I have a question about demand. Why do we assume that demand in the office market will increase in 2024? Nicklas?

[Nicklas Lindberg, executive]

It depends what demand we're talking about. If you look from the tenant's perspective, we see the demand has already increased. Tenants are coming back to the office. They want to move into the ESG offices and the offices of the future. We see that is what we're delivering. And we see a strong demand for moving into these offices and they are moving away from the offices they used to have before COVID.

If we look at also from perspective going forward. We think this is like really what -- if going forward as the investment fund, that is what you would like to continue investing in. You would like to invest in the office building that has long leases. We have long leases. We have in the best location and also, we are having all the strong occupiers there.

What's different between many other markets and Poland is that we have a very strong demand from the tenants to move into our buildings. If you look from 2023, the investors has not been in Poland or anywhere else in the market. We see already now the investors' appetite are coming back. We see that already now deals are starting to happen again. My clear very now is when interest rate has been coming to a level where it has peaked or is very close to peaking. And then the investor will come back to the market and continue investing where the market is functional and where we see it is in Poland and will continue being forward in the locations where we're being present.

[Weronika Ukleja-Salak, executive]

I understand since you already mentioned it before, but can you repeat briefly which commercial assets do we plan to sell in Wroclaw?

[Nicklas Lindberg, executive]

We are starting to sell in 2024. We have brain, Phase 1 and 2. We have CT2 in Wroclaw, and we have a react in [indiscernible], which is the free buildings we're having. And that will continue focusing on divesting. And here is also that we are, at the same time, making sure that they are -- we're updating all the ESG criteria. We're updating the tenants mix. We are prolonging the leases to make sure in 2024, when people are coming back looking at the market, we will have the most attractive offices for sale.

[Weronika Ukleja-Salak, executive]

Yes. Understandable. And now let's talk a little bit about our exit roots and our vision for Resi4Rent. Maybe Maciej, could you please walk us through potential exit root and schedule regarding Resi4Rent or this is also a question to Nicklas.

[Maciej Drozd, executive]

No, no, no. I mean -- but this is really quite, I would say, specific question. We do not assume. We do not assume an exit that would happen quickly. We have a number of scenarios. I think it's not really a place to elaborate on them here, but there are specific scenarios depending on type of buyer, et cetera. We know that it's a great asset. And we know that, of course, investment market, both in our commercial and any other asset class was not great 2023. We believe on the basis of interest rates stabilizing and going down in '24 and beyond, the investor interest will be much more active because we do have investor interest but it does not translate into transactions.

And I believe the main thing, of course, is the level of interest rate, which is expected to go down. But also, of course, the political climate, I believe it's better stock exchange performance shows. Recently, I think Poland is specific better, which is also a factor. So -- but I wouldn't like to go into the specific scenarios of exit, I think it's not appropriate to do it here.

[Nicklas Lindberg, executive]

And also it's important to highlight is that here, we are building value also by the performance of the assets. So if you look at the asset since we invested, how we have been able to drive up both rents in these assets. So we are creating a lot of value over time, and we are now at 4,000 assets and another 4,000 to be completed shortly.

So we are now building up our platform going forward. And like Maciej is saying, this is a product that attracts a lot of investor interest. And also, this is where we have built today is by far the biggest PRS platform in Poland. And that will continue growing with excellent occasions in the city centers. So we are very bullish about this market, like Maciej is saying, go into the different alternatives of exit. This is not the right forum to go into that kind of discussion.

[Weronika Ukleja-Salak, executive]

I understand and still staying in the living sector because this quarter, you also mentioned that we are interested in student housing. And our viewers would like to know given investors in student housing sector are euro-dominated. How do we propose to ensure a future exit of our developments to international investors? Nicklas?

[Nicklas Lindberg, executive]

If you look at all the student housing worldwide, they are in the local currency of that market. You can do part of it in euros, and we are looking at that one. Investors are looking at this based on it being slot dominated. And we see this is something that is not scaring investors to continue focusing and looking at it. And many of the investors will look both at the Resi4Rent or a student housing has a natural hedge on a higher level in their organization. So it's -- we are looking, of course, both of them to be -- if we're going to have part of the rent in euros, but this is not a critical part for continuing developing our student housing neither for us or for the future investors.

[Weronika Ukleja-Salak, executive]

And can we share a little bit more about our plans for construction of student house in 2024?

[Nicklas Lindberg, executive]

We are planning to start quite a few projects in this sector in 2024, and we want to get up to be a market leader in that part of the segment. So -- and the amount of product we're going to start, and which projects we will come back in the next quarter too.

[Weronika Ukleja-Salak, executive]

Okay. Yes. Thank you. And let's talk about residential because it's always the hottest topic. And could you please provide our 4 -- Q4 sales update? And do we expect to sell over 2,000 apartments in '23?

[Maciej Drozd, executive]

Yes. This remains the target. Of course, we are close to the year-end. So definitely, yes. I think Archicom presentation was just few days ago. And I would encourage -- I mean the way it works now, is that really, you have a lot of details in the Archicom presentation, including project details and with the date, et cetera. So I think the best is not to bore everybody with all the data to just look at what they are showing there in terms of product starts and handovers.

I think this information is quite detailed. And yes, 2,000 is our target for this year and around 3,000, I would say, for next year. All of that depends also on project starts. We are just starting projects as we speak. So we will be close to that number, but how close, it's hard to say at the moment. Yes. We still have 1 month. And usually, December is a month despite of the Christmas, it's still a very, very high activity month. So the sales will happen until the New Year's Eve, I would say.

[Nicklas Lindberg, executive]

And also, like Maciej is saying, we are now starting projects on a weekly basis. It's like every week, we're starting a new project that is coming to the market. Based on that, we have such a big pipeline of projects that are in that stage today that we can put on the market. That will be our strengths for 2024.

[Maciej Drozd, executive]

And also, what we are doing, which I think is not everybody is aware how the market works because the offer is -- the market offer is a little limited. We are actually not focused on selling as much as we can, but we are focused on selling at the right price. And the problem that we have noticed, for example, in our model Mokotów project that it was actually selling too quickly, which means that the price was not right.

So we could have sold more. But what we don't want is to sell at the wrong price, but that's our responsibility as the management to really understand what the market price is. And it's very difficult because with -- the market conditions are quite unusual. I mean the imbalance between offer and the demand is very big. So it's very hard to say really -- especially if you have 500 apartments to sell, right, not 30. What is really the right price. So we are focused really on that, I would say, a little bit more than on reaching the sales target, which we think is less critical. It's more important to sell at the right price at the moment, yes.

[Weronika Ukleja-Salak, executive]

Yes. I agree. And can we elaborate more about the subside sorry, subsidized mortgage program? And what percentage of our residential apartments have been bought refusing of this progress.

[Maciej Drozd, executive]

I would say, recently, in Archicom, it was around 30%, right, of all sales. But I think Nicklas already mentioned that we believe that many buyers who use this program would buy with normal loans, but it was simply more favorable for them to use that program. So -- and of course, probably the next question is what happens later. And of course, nobody knows what type of program, if any, will be introduced later once this one runs out of the money. So -- but anyway, we believe that this -- in our case, because I think it's not a case of all developers, but in our case, the buyers were simply using more favorable option.

It was not the only option they had. So it's not the case that they disappear in case this program is not continued, but it was the most favorable. So yes, we believe that there could be some sales impact, but not very big. In terms of value, of course, as most of our projects are in Warsaw and Wroclaw and quite a number of them that will be newly introduced. I would say, a little bit more expensive than the projects for this type of product. We mainly based our sales assumption on the overall strength of the market and on -- not on this particular segment that is benefiting from subsidized loan.

[Weronika Ukleja-Salak, executive]

Yes. Thank you. And let's talk a little bit more about our JV projects because our viewers would like to know what is our suggested income from JVs in Q3 2023. How much of it was associated with Resi4Rent evaluation? And how much with Towarowa?

[Maciej Drozd, executive]

Yes. I would say most of it was -- again, I wouldn't like to give a very detailed answer, but it was really a Resi4Rent revaluation, which was very strong based on -- mainly on the very good year-on-year NOI performance, so to the growth of net operating income. So it was -- majority was that. And other JVs, so Towarowa very little and also similarly Mlociny. So it's mainly Resi4Rent.

[Weronika Ukleja-Salak, executive]

Mainly Resi4Rent and still being on the topic of Resi4Rent. What is the current LTV of Resi4Rent? And what is the average yield the apartments are booked at -- can we talk a little bit about it?

[Maciej Drozd, executive]

Yes. I think it's, again, a very, very specific question. I think the way we finance Resi4Rent that we finance this at project level but also at the corporate level. Overall, consolidated, I would say, LTV is below 50%, it's well below 50% because we need to remember that at the moment, we have also a lot of land a lot of projects that we have acquired, so they are not leveraged at the project level and the projects that are developed and in the investment phase, meaning they are performing the value increase cost loans to be really below 50%.

So the leverage is very, very comfortable at the moment. And there was also a question of yields. We believe that the yields are -- I would say, of course, the yield is very important and its indication on which price we can exit Resi4Rent. So I think it's a bit sensitive, and we believe that the cost at which we are developing these assets, I mean, historically and today, I would put it this way, gives us a lot of room in terms of difference between the yield at which we are developing or running these assets or potential yield at which we can exit.

And I would like to limit at that because I think it's a bit sensitive discussion right now in terms of exit, but we have plenty of room. And I think we are -- that we are growing that platform much quicker than other competitors, I think, because we have a way to develop the assets on a very favorable development yields, meaning NOI divided by total development cost. And I think that's something that gives us a big comfort and when we exit, we will exit at a significant profit.

[Weronika Ukleja-Salak, executive]

Thank you. And I think that we still have time for the last question, maybe to you, Maciej, how potential return of tightening of monetary conditions in plants could affect our business?

[Maciej Drozd, executive]

Well, I think it's a macro really question. And of course, we are both in PLN and in euro, right, in euro it's affecting our commercial business. So the question was really more about part of Polish environment. So in terms of financing, of course, there could be an impact not on loan -- on project level loans, which are mainly hedged, right?

So in Resi4Rent, we do have PLN loans, which are -- majority of them is swapped. So it's not something that would have immediate impact. But of course, we have bonds. And so far, we are benefiting from actually decreasing interest rates in bonds. And I would say we do hope it will be that way. So mathematically, of course, if the rates go up, we have higher cost, right? But we do believe that they may not go down as quickly as we would wish, right? But the path of them going down is quite clear.

[Weronika Ukleja-Salak, executive]

Okay. Thank you. And I think this is it. Thank you, gentlemen. Thank you to the viewers. Thank you for joining us today. We tried to answer all of your questions. If we haven't either Mazowieckie, our Investor Relations Director, and me, will answer them directly. So this was the last presentation this calendar year, but we'll see you in March to summarize our activity in the whole 2023. So thank you, and see you then.