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

Ladies and gentlemen, thank you for standing by. I am [Gallie], your Chorus Call operator. Welcome, and thank you for joining the LAMDA Development conference call and live webcast to present and discuss the full year 2020 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I want to turn the conference over to Ms. Konstantina Karatopouzi, Chief Operating Officer. Ms. Karatopouzi, you may now proceed.

Thank you very much. Good afternoon to everyone. Good morning to those of you joining from the States. Thank you very much for being with us in this call of the 2020 results of the -- our company. And today I have with me Mr. Dimitris Haralabopoulos our Investor Relations and Financial Strategy Director. Before we go into the presentation that Dimitris will go over our financial results, I would like to take this opportunity to update you on the Landmark Hellinikon Project and the development to date with regard to the CPs, which will lead us finally to the financial closing of the transaction. Since our last conference call back in November 2020, and until today, there's been a significant progress with relation to the fulfillment of these required CPs, which we've talked about numerous times, and -- which will lead us to actually exchanging and getting the shares or -- from the side of LAMDA. 7 years actually since we signed MOU with a Greek privatization agency in November of 2014. We understand that it's only a matter of weeks before we actually get to sign the agreement for the tranche of shares. Now the most recent and the most important milestone to date is -- as at March 24, where the Greek Parliament voted with a large majority, the Partition and Surface Rights Agreement for the Hellinikon. And this is 1 of the 2 steps for the very important final maturity ownership for the land plot. And based on this agreement, eventually, LAMDA will be able to acquire the following: first of all, the full ownership rights to an area equal to 30% of the total service area of the old airport, and an area which is equal to 30% of the coastal zone, excluding the seafront and the beach. And as well, the surface rights for the rest of the land plot for the period of 99 years, excluding, of course, again, the public use and public facility spaces. With regards to the full ownership, right, this relates to all the residential development. The shopping center on the Vouliagmenis avenue, the high-rise mixed-use building, which is essentially includes the hotel and prime office space on the Vouliagmenis avenue, also another high-rise office building of Vouliagmenis avenue referred to the office tower, and the 1 hotel on the coastal front, the Beach Luxury Hotel, which forms part of the development undertaken through a JV strategic operation agreement with Värde, which we recently announced. With regards to the residential development, specifically, those relate -- for which we have full ownership right, the high-rise residential building on the coastal front, and on the marina residential tower, other residencies on the coastal front and all residential buildings on the perimeter of the Metropolitan Park. Now the law clearly envisages that the surface rights grant Hellinikon S.A., the right to fully utilize and exploit for 99 years, all other developments of the Metropolitan Park, which will then be to the Greek state. The development with surface rights include the area on which the integrated resorts casino is planned to be developed by a third player, which is starting to be developed by third party. The hotel and commercial development AXIA [indiscernible] Marina, and all recreational developments within the Metropolitan Park. Now the registration of this partition agreement to the competent land registry, which is a typical procedure in order for it to be completed, is now in progress. Now in the same law -- the same law also enables the fulfillment of the second important requirement for the land plot, which is essentially the transfer of rights to Hellinikon S.A. Moving to other important CPs. We have the other 4 pending legal cases before the Council of State, the country's Supreme Court, which has actually completed the hearing process since November of 2020. The preliminary research of the Supreme Court recently announced the rejection of the petition of an omen of adjoined and a sales decision related to the urban planning studies. This is a very important decision by the Supreme Court because it secures the legality and the validity of the urban planning studies. Now what is pending for the fulfillment of this CP, which is exactly the pending legal cases, is the Supreme Court's final ruling on the other 3 petitions, which were heard in November 2020. Finally, with regards to award of the casino license, the Hellinikon site, we just remind you that this was an international tender that took place for the award of the license back in -- it started back in February 2019. And then in October of 2019, 2 offers were submitted by Mohegan GEK TERNA JV and another one by Hard Rock. This is just a run-through what has happened in the past. The tender prices were subsequently delayed by petitions filed by both of the candidates. And then the big development back in October 2020 was that the Hellenic Gaming Commission announced as provisional preferred bidder, the joint venture between Mohegan GEK TERNA. The Gaming Commission completed in mid-February its review process of the concession agreement and then submitted the relevant files in the court of audit. So in order to complete the audit process. And then this is currently in progress. And of course, that's the next important milestone in order for the fulfillment of the CP, essentially, the decision of the court of audit -- the approval. And also the granting of this license through a municipal decision by the Ministry of Finance. So based on all this and considering that we're very -- we see the government's commitment and engagement in order to fulfill the requirements for the financial closing, we see that this is expected and possible, very likely to happen within May. Once again, we want to point out that during the last 2 years, LAMDA has performed significant preparatory works. We mentioned this in our last call as well, and we're trying to emphasize it because it's important for actually building all this time that we've been waiting for a lot of these CPs to be fulfilled. And this is just a reminder of the -- of all the material steps that have taken place. Recently, we launched 2 tender processes aimed at selecting a JV partner, one of them for the development of the Marina Residential Tower, which is a landmark waterfront high-rise residential building, previously mentioned. And another one for the Vouliagmenis mixed-use tower, which is also another landmark building. On top of that, we've been preparing a loss for the commercial environmental and development and other studies related to the project. Clearly, we've hired a large number of personnel in order to address the needs of the project. Launching tenders for the hiring of architects for the residential and the other commercial developments for the first 5 years, we also hired Hill International, it's a global leader in managing construction risk, in order to assist this and provide project management services for the infrastructure works of the project. And finally, as you know, one of the first things that we had announced was the demolition, the 2 places that started back in July of last year, and were completed in September. These are all the steps that we've accomplished to date, and we continue to work in this direction. At the same time other CPs are being fulfilled. So these are initiatives showed a strong commitment to the project. And despite the fact that LAMDA is not yet the legal owner of the land plot, even though we signed the agreement back in November 2014. So strictly to mention, we understand that after the 7 years, we believe it's only a matter of weeks until the transaction can be closed. So thank you very much for your attention, and I'll pass you now to my colleague Dimitris, who will run through the presentation of the financial results in 2020. And then again, we can take Q&A questions on any of the 2 subjects. Thank you very much.

Thank you, Konstantina. Hello, everyone, and thank you for attending today's presentation. I will now briefly go over certain slides included in the full year results presentation, which have been posted on LAMDA corporate website, and can also be seen by the participants through the large webcast. Allow me to start by pointing out that 2020 has been a year of unprecedented challenges for the group on account of the adverse impact from the COVID-19 pandemic. Starting with Slide 1 of the presentation, we show the results highlights for the full year 2020. Retail EBITDA, that is the EBITDA of the shopping malls, recorded a 43% year-on-year decline to almost EUR 37 million due to the aforesaid adverse impact of the pandemic. In more detail, it is important to note that our shopping malls remains closed for an aggregate period that exceeded 100 days during the year. Operations were suspended between mid-March and mid-May, that is the first wave of the pandemic and between early November and mid-December. Nonetheless, during the remaining period of the year that our shopping malls were open, significant restrictions and other social distancing measures were enforced so as to prevent the spread of the pandemic. Moreover, based on legislative acts, the government-imposed 40% rent reduction across all tenant categories for an aggregate period of 6 months during 2020, namely from March until June and for November and December. Additionally, and after relevant legislation, there was a provision of 40% rent reduction for the months of July, August and September, only for tenants active in the food and beverage, cinemas and cultural segments. On top of the government imposed rent reductions, LAMDA decided to offer additional relief support to our tenants throughout the year in the form of rent reductions. In this context, consolidated EBITDA before property revaluations, direct expenses related to the Hellinikon Project and the positive impact from the Flisvos Marina acquisition amounted to approximately EUR 24 million, a 52% decline compared to 2019. After accounting for the property evaluation losses, direct expenses related to the Hellinikon Project and the positive impact from the Flisvos Marina acquisition, consolidated EBITDA amounted to a loss of approximately EUR 20 million. All in, the net results after tax and minorities amounted to a loss of approximately EUR 52 million. At the end of 2020, the company's net asset value amounted to EUR 1.10 billion, equivalent to EUR 6.23 per share. Although we will speak about our shopping malls performance in the following slides, I wish to highlight that despite the adverse operating conditions due to the pandemic and the associated significant impact to the KPIs related to tenant sales and footfall. The occupancy rates in our shopping malls remained resilient at 98%, same -- at the same levels compared to 2019. Our rent collection rates remained at healthy levels of 93%, while we managed to renew contracts with tenants under the same financial terms compared to the pre-COVID period. This helped us safeguard the value of the shopping centers. Moving on to the next slide, Slide #2. Konstantina has provided a rather extensive update in relation to the key developments around the Hellinikon Project. As regards to our shopping malls, in view with prevailing challenging conditions related to the pandemic during the first quarter of 2021, our malls reopened only for a very short period between mid-January and early February, and operated under significant restrictions designed to prevent the spread of the pandemic. Based on legislative acts, an effective 40% rent discount continued to apply for the entire quarter across all tenant categories. This affective discount is calculated as 100% government-imposed rent reduction, minus 60% rebate provided by the government to LAMDA. All in, the after-tax and minorities impact from the pandemic in Q1 2021 is estimated at EUR 5.9 million, equivalent to EUR 0.03 per share. Turning to Page 3. We once again, wish to highlight the resilient performance in terms of the occupancy rate at our shopping malls, despite the challenging conditions. As said before, occupancy remained at same levels compared to 2019. Two additional important points for our operations during the year. As said before, we managed to renew contracts at the same financial terms compared to the pre-COVID period. There were no amendments to adjusting contracts, while any adhoc support offered to our tenants did not take the form of a term amendment. In our view, these important achievements enabled us to safeguard the long-term value of our shopping malls. Moving on to Slide #4. We present the challenges faced during 2020. Remember, we talked about that we started the year 2020 on a very promising note, with January and February recording strong growth for both footfall and tenant sales, following the positive momentum in 2019. No wonder, and obviously, the pandemic outbreak completely changed the entire backdrop. As mentioned before, during 2020, our shopping malls remained closed for an aggregate period that exceeded 100 days, that is equivalent to almost the 1/3 of the year. During the opening period between June and October 2020, we need to stress the important takeaways. First, customer consumption trends have performed better compared to footfall. And secondly, the full year headline year-on-year decline rate for tenant sales clearly distorts the significant recovery seen in consumption trends during the reopening period and especially in September and October. However, please keep in mind that during the reopening period, significant restrictions to retail trade were improved by the government in the form of the click away, click inside and other social distancing measures. Slide #5 supports my previous comments in relation to the significant recovery and consumption trends during the opening period. The graph on the left-hand side shows that even under significant restrictions in retail trade operations, the year-on-year decline rate for tenant sales is significantly lower than the headline rate seen for the full year. Also note the gradual recovery during September and October. On the right-hand side, table, we show the trends during this period, the reopening period, for each shopping mall. This shows that Golden Hall has performed relatively better than the other 2 malls. While The Mall Athens has been severely hit by the fact that customers visit these malls predominantly via the train, while the closed cinemas and the restricted F&B operations added an extra pressure to the KPIs. Moving on to Slide #7, we present the key performance drivers for The Mall Athens. We briefly highlight the following: occupancy remained at the same level compared to 2019, at the levels of 97%. We also said before that The Mall Athens was the hardest hit among our shopping malls in 2020, registering a drop of over 50% in tenant sales and over 60% in footfall compared to 2019. Rent reductions due to the pandemic amounted to approximately EUR 10 million in 2020, which explains the 41% year-on-year decline to total revenues. Moving on to Slide #8. We present the profitability drivers for Golden Hall. As said before, the mall -- sorry, Golden Hall has performed, overall, relatively better than the other 2 malls. Occupancy rate remained solid at 98%, while KPIs for footfall and tenant sales exhibited almost identical annual decline rate of approximately 40% compared to 2019. Also remember the comment I made before about the fact that the full year headline decline rates in the KPIs marks the significant recovery in consumption trends seen during the reopening period from June to October 2020. Tenant sales at Golden Hall during very reopening period declined by about 15% compared to the relevant period in 2019, way below the full year headline decline rate of roughly 40%. Rent reductions due to the pandemic amounted to almost EUR 6 million in 2020, which again explains the approximately 30% year-on-year decline in total revenue. Moving on to Slide #9 for Mediterranean Cosmos, our shopping mall in Thessaloniki, Greece' second largest city. Again, occupancy rates remained solid, almost unchanged -- sorry, at same level compared to 2019. And rent reductions due to the pandemic amounted to EUR 6.8 million in 2020. Turning now to Slide #10. We present the breakdown of the consolidated EBITDA from recuring operations, starting from the EBITDA of the 3 shopping malls. Let me please note the following: As regards the Marina, the amount in 2020 reflects the full consolidation of Flisvos Marina since acquisition date, whereas the number in 2019 reflects the consolidation under the equity method hence, the amount represents the share -- LAMDA's share over the net result for the period. As regards to all offices and participations, the amount in 2020 has been burdened by EUR 3.4 million revaluation losses stemming from the land plot in Serbia. Overheads in 2020 do not include certain direct expenses, which have been reallocated to the Hellinikon direct expenses. All in, we arrive at the consolidated EBITDA from recurring operations of the amount, EUR 24.1 million, which excludes, as said before property revaluations and Hellinikon direct expenses. Next slide, #11, shows the profitability bridge starting from consolidated EBITDA from recurring operations and arrived at the consolidated net result after tax and minorities. Again, let us note the following important items. Property revaluation losses in 2020 amounted to approximately EUR 43 million due to the prolongation of the uncertainty related to the pandemic, enhance the uncertainty over the return to normality in terms of the rental income generation. Direct expenses related to the Hellinikon Project increased to EUR 9.4 million, reflecting LAMDA's intensive efforts to prepare the ground for the initiation of the landmark Hellinikon Project. Note that this figure also includes personnel expenses. Konstantina, during her introduction, mentioned all relevant details in relation to LAMDA's efforts and initiatives around the Hellinikon Project. The difference in the net interest expense in 2020 versus 2019 is explained by the EUR 4.5 million IFRS 16 related impact from the full consolidation in 2020 of the Flisvos Marina. Finally, as regards to depreciation expenses, the difference between 2020 and 2019 is attributed to the full consolidation of the Flisvos Marina since the acquisition date. All in, the consolidated net result, after taxes and minorities, amounted to a loss of almost EUR 52 million compared to almost EUR 50 million profit in 2019. Moving now on to Slide 12, this summarizes the aggregate impact to NAV from the pandemic. The total impact amounted to EUR 49.5 million, which is equivalent to EUR 0.28 per share. This impact consists of 2 elements: the profitability element on the one hand, which we deem as non recoverable in the future. After taxes and minorities, the impact reached almost EUR 18 million, equivalent to EUR 0.10 per share. On the other hand, the asset valuation element, which could be potentially recovered in the future on the basis of the return to full operations of our shopping malls. This impact amounted after minority interest, to EUR 32 million, equivalent to EUR 0.18 per share. We talked before about the key mitigants, which enabled us to safeguard the long-term value of our shopping malls. And just again to mention the high rent collection rates, the resilient occupancy rates, and of course, our efforts, our successful efforts to bring new contracts under the same financial terms compared to the pre-COVID period. Moving on to Slide #13. We present the net asset value bridge between the end of 2019 and the end of 2020. At the end of 2020, NAV amounted to EUR 1.10 billion, which is equivalent to EUR 6.23 per share. Notably, the majority of the net asset value decline stemmed from the loss generated at the net results level, i.e., after taxes and minorities. The negative impact associated to the deferred tax is an accounting treatment stemming from the property valuation losses during the year. Note that in 2019, the revaluation gains as they relate to differed tax had a positive impact to NAV. Next slide, #14, shows the breakdown of LAMDA's investment portfolio. Note here that the property values appearing here are based on the appraisals of third-party independent values. No wonder that our shopping malls form the majority, 80%, of LAMDA's investment portfolio. Moving on to Slide #15. The table presents the third-party independent values assets appraisals of our shopping malls for 2020 compared to 2019. Slide #16 shows the total value of the land plots included in LAMDA's investment portfolio. The aggregate value of those average on our balance sheet stands at EUR 84 million at the end of 2020. With this, I conclude my presentation on results highlights for the full year 2020, and we are ready to take your questions.

[Operator Instructions] The first question is from the line of Svyriadi Natalia with Eurobank Equities.

I have 1 or 2 questions on Hellinikon and if you could -- the first 1 that has to do -- if you could update us, after a proposed to the pay -- the shares transfer, which you already said where we should be possibly expecting in May, what is the time frame for the various project development and the ones you have in your -- the first ones you have in the pipeline and have been preparing for? And another question on Hellinikon is, maybe if you could remind us on the pending litigations for the Supreme Court has to decide upon the 3 petitions you said, if you can remind us more about this? And then I have another question on the results. As we said, Dimitris said just now, do you believe that we should be expecting any further revaluations in 2021 because as we said, these came from the uncertainty coming on our EBITDA from the pandemic, should -- it is going to be a recoverable amount as I understood in the future, but what should we be expecting in 2021?

Thank you very much for your questions. Let's start with a -- I'll start with the last question first, which relates to the valuation. Now I think it would be really a unprofessional or unclear to say that we know exactly where the valuation is going to go because it all stems from assumptions that we're making or actually our third-party valuers make about how the pandemic is going to evolve, how the vaccinations are going to be effective or not in the future, and when exactly that's going to is into specifically our market. And after that, then we have specific assumptions that relate to our shopping centers. So in terms of making estimates, what we can tell you is that the valuations that we have at the moment, which look into the future and have certain assumptions about when we're going to come back into recovery, they have assumptions that go even until mid of 2022. So they're already assuming that there's going to be some kind of effect from now -- from beginning of 2021 and until mid-2022. So keeping this in mind, if we consider that going forward, things are going to continue to improve on the basis of the vaccinations, there could even be no further reductions. If, on the other hand, there's a reason in our next estimates, which, again, our valuers are going to do in the next few months. And they believe the situation is going to materially deteriorate, then they won't extend this to another quarter or another 6 months. But because this has already been taken into account, that's the reason why in terms of totally being on a reasonable basis, we don't believe there's going to be a big impact. But it really depends on how the pandemic is going to evolve. What we can say is that we are optimistic about, from the moment that the shopping center is open, which, of course, is a very important milestone. We believe that this is going to be very positive for the obvious reasons, but also because we believe that our customers will return back to the shopping center. This is the estimate that we can make as a company. Now and in terms of when that's going to happen, again, there's no official decision about when they're going to open. But from what we're hearing, we understand it's going to be very soon. In the next -- or possibly even in the next few weeks. So that's as far as the valuations are concerned. In terms now of your question that relates to the pending legal cases, which were trailed back in November. All of those 3, they still relate to similar matters to the one that was announced, so about town planning matters, permitting urban planning. We -- again, we're waiting for these to be issued possibly the decision within May. It's not up to us, it's the court that is going to issue the decision, but it's a reasonable estimate, we believe, based on the time that is been since the trial took place.

If I may add on the pending litigations, there was the -- and Konstantina mentioned that, the recent decision by the Supreme Court was very important in terms of confirming the legality of the urban planning studies, which is really important. And sort of gives a -- an estimate -- a safe estimate of potential positive ruling in relation to the other pending litigations. Now as regards to the projects that are envisaged during the first 5 years, allow us to revert because we do have plans to present in more detail what are the envisaged plans of the first 5 years as soon as the transfer of shares occurs. So we will be back on that.

Okay. So we should be expecting a call once this -- the transfer of shares is done, with an update?

Yes. Yes. We envisage hosting an Investor Day, which we will lay out the envisaged plan for the next 5 years.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Ms. Karatopouzi for any closing comments. Thank you.

Thank you very much for your participation and for the questions received. We understand that there may be many more questions we cannot post at the moment. And there is a big anticipation about the transfer of shares of the Hellinikon. It's also our main concern and driver of our doing at the moment. So we will keep you posted and as soon as the transaction takes place, as Dimitris mentioned earlier, we will hold specific events. We will be able to announce more information about the project and our plans. Thank you very much.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.