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

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the LAMDA Development conference call and live webcast to present and discuss the First Quarter 2021 Financial Results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like 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. Thank you very much for joining LAMDA's First Quarter 2021 Results Conference Call. Today, I have with me our newly appointed CFO, Mr. Harris Goritsas; as well as Dimitris Haralabopoulos, our Investor Relations and Financial Strategy Director. Before we proceed with the presentation of the first quarter results, I would like to take the opportunity to provide an update on the Hellinikon Project and the developments related to the CPs that will lead us to the financial closing of the transaction. Since our last results conference call in mid-April, there has been an important development in relation to the fulfillment of the required CPs. On May 21, last Friday, the Finance Ministry submitted to the Greek Parliament the draft law in relation to the transfer of rights in rem in the property to Hellinikon S.A. So in simple words, once the contract included in the above-mentioned law is ratified by the Parliament, then the ownership of the land shall be finally transferred from TAIPED to Hellinikon S.A. So clearly, this is a very important milestone, leading us to the transaction closing. As mentioned in our previous call, upon completion of the acquisition of Hellinikon S.A. shares, LAMDA Development will be granted full ownership rights to an area equal to 30% of the total surface area of the former airport, as well as an area equal to 30% of the coastal zone, excluding the seafront and the beach. And this area specifically includes the projects of all -- actually, all the residential development. So the Marina residential towers, the condos, the beach villas, the shopping mall on the Vouliagmenis Avenue as well as the high-rise mixed-use buildings and the high-rise office building on Vouliagmenis Avenue. It also includes the hotel on the coastal front, which forms part of the development to be undertaken through the agreement that we've made with TEMES. Also, following this, LAMDA will also be granted surface rights on the rest of the land plot for a period of 99 years, excluding our first public use in public facility spaces. Moving on in relation to the tenders to be awarded the casino license, the precontractual audit review by the Court of Audit is still in progress. And just as a reminder that the steps required for the fulfillment of the CP after the approval of the court awarded is the signing of the concession agreement between the Greek State and INSPIRE Athens, basically the JV between Mohegan and GEK TERNA and issuance of the casino license from the Finance Ministry. So this is a CP that we're still waiting for it to be fulfilled. With regards to the CP in relation to the pending litigation, as we already informed in the previous call in early April this year, the Supreme Court issued its final decision rejecting one petition for annulment of a joint ministerial decision relating to the urban planning studies. And we're still waiting for the Supreme Court's decision for the remaining pending -- 3 pending litigations in relation to other petitions of annulment, which basically had to do with the partial -- the spatial organization of certain development terms. We also need to add here an important development, even though it was not CP of the -- for the transaction closing that the Supreme Court issued on May 17 2 decisions rejecting petitions for annulment by third parties in relation to forestry matters. This is also very important for the development of the project, again, despite the fact it's not a CP because they finally rule out any disputes in relation to forestry matters in the property, which clearly will leave the project unaffected with such matters going forward. So having said all of the above, we'll once again suggest that having 7 years after the signing of the agreement with the Greek State back in November 2014, we understand that it's a matter of weeks before signing the agreement for the transfer of shares. Again, we point out that the government's commitment and efforts are continuing for the financial closing. And of course, from our end, we have not only continued, but we actually accelerated our efforts in relation to preparatory and preliminary works for the Hellinikon Project. And a lot of these details we'll be able to share with you in the Investor Day that we are in the process of organizing and for the timing of it. So thank you very much for your attention. If you have any question with regards to the Hellinikon Project, we will take them at the end of the presentation during the Q&A session. And I will now pass the floor to Mr. Goritsas, who will go through the presentation of the Q1 results. Thank you.

Thank you, Konstantina, and good afternoon to all on the call from my side as well. I'm pleased to join the company at this period in which we navigate our existing business out of the pandemic, and in parallel, we prepare ourselves for the landmark project of Hellinikon as Konstantina has presented. I will provide color on the financial results of LAMDA Development for the first quarter of 2021, referring to the slide numbering at the bottom right of the presentation that is posted on the company's website as well as on the live webcast page. Let's start with Slide #1 and the key highlights. Retail EBITDA stood at EUR 9.7 million for the quarter, a decline of 33% versus same period last year, attributed to COVID-19 pandemic as our shopping malls remained closed for most of the period or operated with significant restrictions. Total group EBITDA after valuations and Hellinikon direct expenses stood at EUR 7.8 million, an increase of 28% with net losses of EUR 6.8 million compared to net profits of EUR 1.2 million same period last year. Finally, NAV was flattish at EUR 1.1 billion. We have to say that comparison versus last year is not indicative as COVID-19 pandemic has distorted the picture. This is more evident if someone looks at the sharp fall on tenant sales and customer visits indicators. We will comment the various factors during the presentation. It is important to stress at this slide 2 facts that for our shopping malls indicate a positive future. First, the resilient occupancy rate of approximately 99% with new leases and contract renewals during pandemic period signed at prepandemic rent levels. And second, the marginally positive revaluation results. This is an encouraging development, reflecting independent valuers, improved visibility on the timing for the potential return to normal operating conditions. Turning to Slide 2 of the presentation. Konstantina commented on the significant Hellinikon Project developments. I want to point out the execution of our strategy to focus on this project by disinvesting on noncore assets. Recently, we have sold 2 assets from our portfolio, the Ilida Business Center and 2 land plots in Spata area. Both transactions ultimately strengthen our balance sheet in terms of debt reduction and cash accumulation. Take note that land plot sales were executed at a premium to fair value. Regarding our shopping malls, the positive development is the reopening. We witnessed a gradual consumption trend recovery and a high consumption trend per visit. As COVID-19 impact diminishes in the society, customer visits will increase, and the F&B activities we see in our shopping malls would start. So we also expect positive future impact for our tenants and our revenues. On Slide 3, we captured the COVID-19 impact for our shopping malls. Obviously, this disruption delivers a negative impact to EBITDA, NAV and NAV per share. Nevertheless, we have registered marginal revaluation gains on our 3 shopping malls, building on our high occupancy rates and our ability to renew existing or sign new contracts with tenants at pre-COVID rent levels. I will now turn to Slide 4, where we see the development of revenues and EBITDA in our shopping malls. Following relevant legislation, our shopkeepers have been exempted from paying the full rent for all months in quarter 1, while the Ministry of Finance will compensate LAMDA through a rebate of 6% of the rents. This development explains the revenue reduction by 40% across our 3 malls and is a key driver of the 33% reduction at EBITDA level. The next 3 slides, numbering 5, 6 and 7, capture the details of revenues and EBITDA for our 3 malls separately during the quarter 1. I will not go through the details on those slides. If we review the tenant sales and footfall as percent a change in Q1 versus Q1 last year, it is obvious that COVID-19 pandemic is a driver of this negative performance for our base rent and other sources of revenues. Remember that last year, in Q1 2020, our shopping malls operated without any restriction in January and February. And it's worth mentioning that operating expenses reduction is due to savings, mainly in energy and marketing and more important, the fact that we have kept occupancy at 99%, same level as prior year, which is very optimistic for the future. So I will now turn to Slide 8 of the presentation and the total EBITDA performance for the group. Just to mention that this is a performance before valuation, so we observed that this was improved from the minus 33% of retail to minus 20%, now landing at EUR 9.2 million for the first quarter. The key driver is the Flisvos Marina EBITDA improvement mainly due to the technical increase following the change in the consolidation method. So turning to Slide 9 now and the net results of the group. The EUR 9.2 million EBITDA before valuations of the previous slide is impacted by various factors, results to a net loss of EUR 6.8 million in quarter 1 2021 compared to a net profit of EUR 1.2 million in the same quarter of 2020. Our positive EBITDA from existing business and the valuation gains of our 3 shopping centers were negatively impacted by 2 main reasons: first, the increased expenses of Hellinikon Project as the preparatory works are progressing and payroll expenses are increasing due to the step-up of our organizational structure; and second, the increased interest costs due to the new corporate bond of EUR 320 million issued in July 2020. In terms of comparison versus 2020 same period, there is not much to say as the conditions were very different due to the COVID-19 pandemic. So moving on now to Slide 10, where we present the NAV bridge. The slight reduction of EUR 4 million is attributed to the net results of the period as explained. On Slide 11, total investment portfolio value is increasing by almost EUR 21 million mainly due to 2 factors: retail assets increased by EUR 5 million as per the independent valuator's report; and second, land increased by EUR 15 million as a result of increased participation to a land plot in Belgrade. The next 2 slides, 12 and 13, provide a summary view on our balance sheet and each key metrics for March 2021 compared to December 2020. I want to mention only the cash reduction, which is mainly due to our expenses relating to Hellinikon Project and the increased interest costs. With that, we have concluded the presentation, and we are now ready for the Q&A session.

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

Yes. I have a question -- well, it's more like an update I would like on the Hellinikon Project. You said very nicely what we are expecting now. I was wondering if you could remind us the payment commitments following the closing of the agreement. Once we close the deal, I remember there's a payment -- down payment then and then after 2 years, if I'm not mistaken. Could you just remind us about this? And obviously, you have the cash and you're prepared for that, just as a reminder. And I was also wondering on the Hellinikon costs that we were talking that were EUR 6 million in the first quarter. Of course, they are higher because of the various projects that have been starting. Where should we be expecting this figure on a full year basis because it is a bit higher than what we were expecting in the first quarter? So maybe this is something we should see in our numbers.

First of all, with regards to the installments for the payments, so once upon the transaction closing, the first installment is EUR 300 million, which is due -- which is going to be paid on the day of the transaction. The next installment is, you rightly remember, EUR 167 million, at the end of the second year. And the remaining installment for the EUR 915 million are in the remaining period of the project. Now beyond those as well, there's a small installment on the sixth anniversary, EUR 28 million and the other EUR 220 million on year 7 and 10.

Okay. That's really good.

Okay. Now with regards to the -- your comment on the expenses, yes, of course, they are much higher than the previous year. The -- I wouldn't call it -- these are not operating expense of the company. These are expenses that were recurring exactly because we are acting as if -- almost as if we have already obtained the shares. So basically, this is not at all an indicative number of the spending during the year. I wouldn't even multiply. So it's not like 6x for 2021. This is mostly -- part of it is related to project expenses, more than 50% of this EUR 6 million. Part of it is personnel costs and some other expenses related to the project. So as we move into the project more -- so at the moment, most of the costs are related to studies that are done by third parties, consulting fees, third-party providers. And as we move on, we will also have more that has to do with contractor costs. So of course, the costs are going to increase. So there's no -- I cannot give you a specific indication because it's basically the CapEx of the project. So the amount that we're going to be spending in the next EUR 5 million, part of it you will see on this line as part of it is going to be OpEx, but most of it is going to be part of capitalized expenditure for the project. So you won't see it here. You will just see the development on our balance sheet.

Okay. That's pretty clear on that. So I won't be expecting this to continue much higher looking forward because it's going to go and be allocated, part of it is also in CapEx, okay.

Just to supplement my answer to have a better picture, the expenses in the beginning, the operating expenses, they're going to be -- let's say, more of the costs are going to be amortized through the P&L. And over time, though, most of them are going to be capitalized. So as we move more into the project, most of the costs are going to be CapEx.

Okay, okay. Yes. That sounds good. Okay. Could I also ask, what you've been seeing like from when the opening started from when the malls open, and if we've seen people going back and if we have an indication of the current state of play actually in the malls?

Yes. We have, let's say, 2 -- I would say, 2 steps, 2 phases that we saw. The first one was on the 24th of April when the shopping centers started their operation, but they were still with restrictions in terms of access and the way that we're allowed to do the shopping. So it started as what we characterize as none, so not extremely enthusiastic, I would say. But since the beginning of middle of May that the restrictions have been much easier for people to attend, and we see more of our customers coming back to the shopping centers and the trends to be improving.

Yes. And if I can understand that beverage and dining outside is open, but the cinemas aren't yet. Is that correct?

The cinemas are not. And at the moment, the F&B is open as takeaway. So the restaurants, which are closed and not in operation yet. So that's another reason.

Okay. Yes, maybe we can see something when this is allowed.

Natalia, this is Dimitris. If I may chip in to Konstantina's response, the indoor activities of the F&B segment will commence operations once we have sufficient number of vaccinations in the Greek population according to the ministry. And this expectation, according to the ministry, is somewhere -- sometime within June. And then at that time -- at that point in time, the indoor activities of the F&B segment will have also a cap. The cap is at 70% capacity.

Okay. Yes.

There's probably the opening strategy by the government.

Okay. That's good to know. And do the discounts continue also in May? Do you know something about that? I saw you said about April. Do we know what's going on in May?

Well, the -- basically, the legislation was initiated -- was introduced, sorry, yesterday or something like that. So this is the most updated information that we have that yes, in May, the legislation in relation to the provision of 100% rent reduction, which will be counterbalanced by the 60% rebate offered to LAMDA by the Finance Minister, will apply.

Okay. So we have this also in May. Okay.

Yes.

[Operator Instructions] The next question comes from Zouzoulas, Constantinos with Axia Ventures.

A question on the land. I understand that you are accelerating your efforts to offload your land bank or at least part of it. Is there an indicative timetable? And next question is, with the money that you're going to get from this sale, what do you plan to do, reduce debt or -- that's my question.

Okay. As far as the first question is concerned, no, there is no specific -- I wouldn't say there's a specific time frame that we'll be able to provide. This is based on market, let's say, development. The same way, these 2 specific transactions that took place in May, there was a result of either small or big effort during a number of years to see and find the right partner in order to sell at the price that we wanted. The same thing applies for the property that is already -- that's still on our balance sheet. So we cannot provide a specific timetable. When the right time comes, we'll be able to proceed. With a specific sale proceeds, clearly, they go into the cash flow of the company and support the business plan that we have at the moment. There's no specific alternative need for them. They're LAMDA Development cash, and they support the main projects that we have at the moment. So we'll go towards the funding of the projects we have in place, the main one being the Hellinikon Project.

Constantinos, for the avoidance of any misunderstanding, LAMDA is not a poor seller. This is part of the ongoing strategy to offload certain noncore assets. Okay.

Yes, yes. This is understood, of course. And I do understand that it's something that you have been looking for, for some time. But I can see that there is some actions from your side the last few months that could indicate that this thing accelerates. But I guess there's no specific timetable.

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.

So thanks again for your time and your attention. As previously mentioned, we appreciate that we're -- this is a big day that we're anticipating in terms of the transaction closing. This is a very important milestone for our project. We will keep you updated as soon as there is specific information that can be shared. And again, the Investor Day is something that we are planning. We will be able to inform about the details of it as soon as we know, specific date about the closing as well, the date. So thank you again very much.

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