LAMDA Development S.A. (LAMDA) Earnings Call Transcript & Summary

Thank you for standing by, ladies and gentlemen, and welcome to the LAMDA Development conference call of the half year 2020 financial results. We have with us Mr. Vassilios Baloumis, Finance Director; Ms. Konstantina Karatopouzi, Chief Operating Officer; and Mr. Alexandros Kokkidis, Treasurer and Investor Relations Director of the company. [Operator Instructions] I must advise you this conference is being recorded today, Tuesday, the 22nd of September 2020. And I will now pass the floor to one of your speakers today, Mr. Baloumis. Please go ahead, sir.

Thank you very much. Good evening to everybody. We are announcing today the financial results of the first half of 2020. Thoughtfully, as we all realized, I may confess that this particular time might be one of the most unusual and the remarkable period that our company has ever gone through. Since an unexpected event has come to affect the performance of a year, which has definitely started under the best conditions, not only for the Greek economy, but also for our company itself. Certainly, at every opportunity given to us, we had announced the effects of the COVID-19 pandemic and that is exactly what we did in the announcement of financial results of 2019 in April in the prospectus of the bond loan related in early July and the announcement of the first quarter results by the end of July. Consequently, I consider that the financial results we are announcing today were indeed expected, both for the management and the shareholders. At this point, let me also remind you that following government decision and comprehensive measures to protect the business and labor from coronavirus effects, rents have been reduced by 40% from the third up to the sixth month of the year for the totality of retail stores in shopping malls. And in addition to that, for all activities related to F&B services and cinemas still apply the discount within July and August. While this -- there is a rumor, the latter measurements will be expanded up to September at most probably over the following months. Also take into consideration that according to our company's decision, our retailers have been offered an extra discount of 30% during the fourth and the fifth month. It is therefore obvious that the financial implication of all abovementioned measurements have been fully capsuled within our first investor results and particularly reflected to the EBITDA outcome of the retail segment. Overall impact is approximately equal to EUR 12.5 million, but upon extracting both the minority rights of 32% in Mediterranean Cosmos and Golden Hall and the taxation impact, latter impact amounts does not exceed the amount of EUR 7.9 million or EUR 0.04 per share. With regards to the abovementioned measure related to the reduction of rentals, both in the F&B and cinemas, 40% for July and August, the monthly estimated impact is about to reach up to EUR 250,000. Whereas after the equivalent extraction of minority rights and tax impact, the net impact amounts to EUR 180,000. These figures -- I mean this amount per month refer to the second semester of this year. Lastly, regarding customers' visits and shopkeeper sales performance, about the decreased rates following the lockdown period, these have been also affected by the same negative reasons such as imposed restriction and safety distances applied to food stores and cinemas. By the overall security filling in the closed spaces, but also by specific factors such as tourism reduction relevant to Med. Cosmos in Thessaloniki, and the significant reduction in the use of transport means relevant to mall -- to The Mall Athens. So retail EBITDA dropped by 39% to EUR 19.5 million. Total EBITDA before valuation, Hellinikon expenses and Flisvos Marina acquisition impact decreased by 43.3% to EUR 15.3 million. Total EBITDA reached EUR 9.7 million, and net losses of the period stood at EUR 5.7 million, and NAV per share dropped by EUR 0.03 -- approximately EUR 0.03. NAV at EUR 1.150 billion and NAV per share at EUR 6.51. Tenant sales recorded a fall by 43.2%, and customer visits decreased by 47%, both driven by malls' closure and the lockdown restrictions. The average occupancy approached 98%, less than 100% drop compared to the year-end. Collection rate stood at 90%. Finally, the major developments, the successful completion of the bond issue rate at 3.4%, callable on year 2 thereafter. Next, The Mall Athens debt refinancing with National Bank of Greece, and the first phase of demolitions at Hellinikon completed earlier than expected in September. And Flisvos Marina acquisition, the share increased from 32% to 64%, contributing a step-up gain of EUR 8.5 million. Slide #3 presents results for sales and visits for the last 6 years. In H1 2020, there was effect to retail KPIs due to malls' closure for almost 2 months and the economic downturn during COVID-19 pandemic. Shopkeeper sales down by 43.2% and customer visits by 47%. Next slide, #4, present the EBITDA for the retail sector. The fall of the retail EBITDA reached 39%. Here, we can see the drop by EUR 12.5 million, as I have said, excluding the minority interest of Värde and the effect of the corporate income tax of 24%. The bottom-line effect is less than EUR 8 million. Next slide, #5, it presents the KPI and the EBITDA breakdown of The Mall Athens. So shopkeeper sales decreased by 47%, number of visitors decreased by 52%, occupancy 97%, and total revenue is down by 35.8%, and EBITDA decreased by 41%. Next slide, #6, Mediterranean Cosmos. Shopkeeper sales decreased by 42.7%, visitors decreased by 44.6%, and occupancy 99.5%, total revenue down by 34.5%, and EBITDA decreased by 40%. Next slide, #7, Golden Hall. Shopkeeper sales decreased by 37.2%, visitors decreased by 36.3%, and occupancy at 99%, and total revenue decreased by 27.6%, and EBITDA decreased by 35%. Next slide, #8. Total EBITDA before valuations, Hellinikon expenses and Flisvos Marina acquisition impact dropped by 43.3% to EUR 15.3 million versus EUR 37 million last year. Next slide, #9, presents the income statement. The bottom line of EUR 5.7 million loss versus EUR 37.2 million last year. Next slide, #10, is the net asset value evolution, starting from the amount of EUR 1.155 billion. The addition of EUR 8.8 million valuation loss, plus the step-up gain from Marina acquisition, minus Hellinikon expenses, EUR 2.7 million, minus the losses of the period and last EUR 2.3 million other items, reaching to EUR 1.150 billion. Next slide, #11, analyzes the retail investment portfolio. The retail portfolio decreased by EUR 8.4 million. The average EBITDA yield is now 6.9% versus 6.8% in December '19. Slide #12 or the land plots portfolio is now EUR 87.1 million. Next slide, #13, is the total investment portfolio by sector and by country. 81% focused in the retail sector and 94% in Greece. Slide #14 presents the cost of the EBITDA for all the 3 centers in total for the period between 2006 and 2019. I would like to mention that the total EBITDA started in 2006 at an amount of EUR 30 million. And an -- at 2019, it reached the level of EUR 64.3 million, which is a record EBITDA for the group as it happens of the last 6 years, but due to the COVID-19 pandemic has ceased this trend. Next slide, #15 and #16. We can skip the slides, as I think you are very familiar with them since they are repeated each quarter. Next slide, #17, is the balance sheet summary. No -- there are no significant changes in the balance sheet. The right-of-use assets of EUR 178.5 million versus EUR 78.8 million list year represents the addition of Marina Flisvos due to the new consolidation method. Accordingly, the increase of lease liability from EUR 78.7 million to EUR 177.7 million. Next slide, #18, presents the indicators. I would like to point out the drop -- the average interest rate is now 3.2% versus 4.2% last year. Next slide, #19, the share performance from 2016 until now. And the last slide, #20, which is the shareholder composition. So we are ready to hear your questions. Thank you very much.

Thank you. So you're ready for questions?

Yes.

Yes. Yes, we are.

[Operator Instructions] Your first question comes from the line of Jakub Caithaml from Wood Co.

It's Jakub from Wood. A couple of questions from my side. Would you kindly repeat or kind of elaborate a little bit more on kind of the government rules and also the rent reductions from your side that have been taking place kind of since the lockdown began and into summer, kind of where do we stand now for the different types of tenants and how did we get here. I didn't quite catch this part at the beginning of the presentation.

Jakub, I don't know if we clearly understood your question. What happened is that in March and April and May, the government directive -- regulation was to provide -- in June -- sorry, in June to provide discounts at 40%. That was the obligation. So in -- LAMDA Development decided for the month of April and May to provide 70% discounts, an additional 30%, 40% plus 30%, that was a decision by LAMDA Development. Then it was -- for the month of July and August, it was announced that -- it was announced there was a new decree that came out from the government, certifying that food, beverage and entertainment should enjoy discounts of at least 40%. Okay. So -- and LAMDA Development followed this directive. This regulation rather. I don't know if we answered your question.

Yes. This is very helpful. And could you perhaps elaborate on how are any subsequent discounts -- in case you are going to be granted and you are granting any sort of subsequent discounts beyond what has been mandated by the government to the tenants as we kind of gradually emerge from the lockdown?

Well of course, we will follow any new regulation that will be issued, which we are not in a position now. We don't know anything new as yet. It could be -- as Mr. Baloumis mentioned earlier on, it is quite likely, but there's nothing out officially yet. The discounts on food and beverage and entertainment shall continue, but this is not certain. What we are doing as a company is like the same thing we did back during the economic crisis. We are helping those tenants that are significant, and we've been working with them for many years and we have an excellent collaboration of who needs some assistance, and we provide common expenses assistance. You remember, we did this in the past, and we shall continue to do that at this time. And of course, this is an -- on an ad hoc basis. It is not horizontal or something like that. So we are following up with each separate tenant to assist and -- regarding common expenses. We're not changing the contracts, right? The rent contracts remain as they are. So it's up to us to provide this support to specific tenants that within these -- for the benefit of all the shopping centers.

Understood. And would you be -- would it be possible to share with -- what percentage of the tenants have you reached any sort of -- this agreement on any sort of interim adjustments to the contract that would help them in a short run? And related to this, could you also comment on kind of the like-for-like turnover dynamics during the summer months, if in case you have the data already for July and August?

No. We don't have the official data yet for July and August. I'm sorry for that. But now I didn't really clearly understood the first part of your question. Whether we reach the -- if you can repeat?

Right. So I was wondering if you can share what roughly share of the tenants have you reached any sort of agreement that would mean that for perhaps the time being, they are not required to pay the full rent, but maybe there could be some short-term discounts. I mean is it like 20% of the tenants? Is it 90% of the tenants that you have reached some short-term additions to the overall rental contract?

If you're referring about what happened in the past month, it's clearly for everybody. So there's no particular exception or addition. If you're talking about the months to follow, there is no agreement per se because as Mr. Baloumis mentioned, we don't change the contract. There is no specific agreement. They're ad hoc, per case [ as they adjust and ] as we go and as the turnover is changed.

I see. So -- I see. Understood. So as long as the tenant is doing fine, they are required to pay the full rent. And if they are struggling but you see the business case is viable, you would reach some agreement about short-term reduction in the rent?

It's not exactly correct to say that -- we're not reducing rents. What we are doing, we are paying part of the common expenses that they are obliged to pay, the tenants, that's part of the agreement. So that's what we offer, our support. So indirectly, you may be right, it is an indirect discount on the rent, but it's not actually -- it is not literally the same thing. That's why we have the -- legally this capability and freedom to decide how much support to provide to the tenant.

Sure. Understood. Then on a different topic, could you share kind of the feedback from the appraisers regarding the revaluation result, kind of what were the inputs, what was driving this approximately 1% decline in devaluations? And if -- I mean, obviously, I don't think that there is much of a transaction evidence at this stage in Greece in shopping centers. But would you expect that there could be, I mean, further evolution movements? Or would you really see these valuations as robust based on the feedback that you have from the realtors that you speak with?

The line keeps cutting out. So...

You are back in the conference. [Operator Instructions] Your next question comes from the line of [ Michelle Femara ] from Halcyon. Okay. We'll go to the next question. Jakub, please ask your question.

Me again. Sorry, I wanted to ask about the revaluation results. So firstly, if you could help us understand better what was driving this approximately 1% revaluation was? And also, how do you see this going forward in case you have some feedback from the appraisers that you work with?

Well as we mentioned, they were -- we provided official discounts. There was a discount for the months of March, April, May and June. And there's a discount on food and beverage for July and August, and that's been taken into account. And that reduces the value. So it is factual reduction in value. Specific -- or specifically defined based on natural facts.

Right. But no adjustments to kind of the long-term capitalization rates or yields or to the long-term sustainable rent levels?