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 full year 2021 financial results. At this time, I would like to turn the conference over to Mr. Odysseas Athanasiou, Chief Executive Officer. Mr. Athanasiou, you may now proceed.

Good afternoon to everybody, and thank you for your time, and I should also say good morning to those of you on the other side of the Atlantic. In the next half an hour, we'll give you a brief overview of what we think taking everything into account. And in spite of the bad circumstances was an improved year in all fronts for LAMDA versus 2020. And then we'll, of course, after the CFO gives more light to specific numbers and comparisons, we pass to your questions. Starting off to say that, yes, it was an improved year in all profitability, but the comparison versus 2020 is not that meaningful since COVID affected both years, both 2021 and 2020. And therefore, this meant that we had our malls shut down for a significant period of the year less in 2021 compared to 2020. But still, as I just said before, comparisons are pretty much difficult. What makes more sense is to tell you that our absolute profitability for 2021 in terms of operating EBITDA, that is before valuations, came up to EUR 40 million, and this was 20% down compared to 2019. Again, 2019 was a record year for revenue for us. So the fact that we were 20% down in 2021 is rather relieving if you take into account that we had our malls shutdown for more than 3 months. If somebody wants to make comparison, as you probably have seen in our press release, and as high as we mentioned later, the profitability of 2021 in EBITDA was 65% better than 2020. Now definitely, on the policy side was the inclusion of Ellinikon first-time valuation by our independent appraisal Savills. In 2021, this happened. And this resulted to an increase in NAV of 25%. And the NAV share came to EUR 7.76, which is almost 21% discount to our stock price close as an hour ago. A fair point, which is worth mentioning and definitely positive is what some of what we call leading indicators are for [indiscernible] . First of all, occupancies substantially approach 100% levels. And [indiscernible] is because it's under renewal for the new tenant that is replacing the old one. Second thing is any contract we knew for existing tenants or any contract we signed for new tenants is at pre-COVID levels or even higher than that. Third point is a number of investments that some landmark brands like Zara, like IKEA, like Public have done in our centers. Just to mention that Zara has created a globally flagship store in Golden Hall investing more than EUR 5 million. Another point, which doesn't affect our profitability that much, but it's a sign of better times is the fact that our Flisvos Marina is at 100% in occupancy, their waiting list is long and the EBITDA so close to EUR 6.5 million is the rapid profitability for this Marina. And also to mention that from July of 2021, we have under our ownership and operation the second Marina, the Marina is within the Ellinikon boundaries and it's called the Agios Kosmas Marina, which is going to increase our profitability in the next 3 years by more than EUR 5 million. This is a summary of our most performance for 2020. Now if I mentioned a couple of words for the beginning of 2022, we will say that the turnover in our month -- in February, we don't have much data yet, but in February, it was 10% below 2019 for [indiscernible] will say that 2019 was a record year for us in all levels. And this [indiscernible] average the best-performing shopping center is the Golden Hall. The turnover there was 4% above 2019. So we have a record year already. Cosmos, which is our shopping center in Saloniki is down 8%. And the mall of Athens is down 18%, the bigger decrease in sales in the -- in TMA is because the food court is affected more from COVID than the other malls that don't have such a big court or they have open air food courts. Also the constraints shouldn't affect the performance in our cinemas and also the fact that 65% of the visitors in the mall of Athens, is coming there by train, which apparently is affected by the COVID effect. Now passing to The Ellinikon side. 2021 was a very, very, very important year for us because we have advanced in all fronts. And actually, I will tell you, we are starting real heavy infrastructure works in 2 weeks. Let me tell you a couple of points about Ellinikon or more than a couple, actually. One is all designs for all landmark buildings have advanced significantly, which allow us to work with very worldwide names, architectural names and be able to start all our landmark buildings before 2020 for a couple of them and at the beginning of -- sorry, before the end of 2022 and the beginning of 2023 for the rest of them. And I'm talking about the Marina Tower starting in October of 2022. I'm talking about the mall starting in early spring 2023 and the other resi in the coastline, also starting in 2023. The sports infrastructure and the sports venues will also start in 2023. Infrastructure works will start after Easter. They have already started mobilization. When I say they -- I mean, AVAX, the company that won the construction tenders [indiscernible] -- it was a package of EUR 250 million, and it is within our budget due to contingencies that we have put in place. And this is definitely a positive, given the increase in commodities and inflationary pressures. On the sales side, all resis that we have put in the market actually have been sold out. Typically, we say that the Marina Tower has seen presale agreements 75%. This is because the other 25% residents have not been signed yet. In reality though, in substance, we have agreed for 100% of all Marina Tower apartments. The 27 villas have also -- actually yes, 28 villas sold to 27 buyers. They have sold also them in the condos, which are about 100 apartments are also in progress of presales and every -- all the signs that we see so that the whole number of condos will have been presold by early summer that is by June. This means that in terms of sale agreements, we have exceeded EUR 1 billion of revenues. And in terms of collections, we believe that from these resi and some other agreements in 2022 will have more than EUR 200 million sitting in our bank accounts. And this is before we start construction, essentially, except for infrastructure, which means we are well ahead in terms of cash from any budget we had in our business plans and by far. In terms of joint ventures and derisking, if you will, we have done deals with TEMES for the 2 hotel and ground resi developments on the coastline. We also have an agreement with Brook Lane for developing together the mixed-use tower, that is a tower that includes apartments, hotel and office facilities. We have that deal with [indiscernible] that is, as you know, the biggest big box retailer in Greece. And apart from JVs, we have also sold the offices [ cores ], the new official boards to [indiscernible] for close to EUR 150 million. This make us very optimistic of Ellinikon. It doesn't make us ignoring the trends in cost and labor shortages and all the difficulties that we have in condos, especially given the recent geopolitical development, but we have some mitigants for which we want to talk about very briefly. If I say one last thing about the malls is that the per capita spend has increased even versus 2021, and this is very, very important. And the costs that apparently will affect our operational profitability in malls that everybody would think that they affect our operational profitability have mainly to do with energy costs. However, these are costs that are passed to the tenants. Now of course, if the tenants are burdened by higher energy costs, this will create some difficulty in them. To give you some numbers, first of all, we have closed contracts for energy until May. After May, we will see the increased costs. The number -- the energy cost for our malls is for annual -- on an annual basis, is EUR 4 million. As I said, it is passed through common charges and through consumption within their stores. It is passed to the tenants. With recent pricing in megawatts, the increase in this EUR 4 million on an annual basis would be something like -- about EUR 1 million, EUR 1.5 million. And -- but since this cost is going to affect us after May, we have closed contracts, apparently, it's going to be less. Last thing is to talk about what I said before, the cost increases you have seen in the market in all commodities and how this affects Ellinikon and what we could do about this. The first contract we signed was aforementioned, the EUR 250 million -- close EUR 250 million for the infrastructure works. And as I said, this was within our budget, we have contingencies for now, this doesn't affect our budget. And this includes cost up to 2 weeks ago. For the buildings now, regarding the villa sales, as you know, we have sold land plots and the construction cost is borne by the buyers of the villa [indiscernible] plots. So this -- any cost increases in the construction does not affect us. These villas, of course, are going to be developed according to designs of our architects. The construction progress is going to be managed by LAMDA, but the construction costs are, as I said, passed to the buyers. Regarding the buildings now, the part of the building that is going to start and be based on steel, copper and this kind of stuff is going to start at the end of 2022 or beginning of 2023. We hope that some cost de-escalation is going to have taken place by then. If not, regarding the condos, we can say that we have increased pricing so we have created extra cushion, hopefully, profitability at the end, but higher than we thought. But based to comparison to our initial business plan numbers, the prices that we sell now are much higher, and they offer us some cushion for increased cost for the condos. For the Marina Tower, apparently, we have sold -- locked pricing. So any further cost increase will affect us. But just to give you an idea of what that means is that if we have a further increase versus 2 weeks ago, in 2023, of 20%, this affects our profitability by approximately EUR 25 million. Again, this means that all costs that we are facing now will prevail in 2023 and 2024 if they de-escalate apparently we don't have such an impact. The last thing is that for the projects of high complexity and high cost, we have selected as delivered rotas procurement method, if you will, the early contract revolver. What this means is that the construction contractor will be with us from the beginning of the design -- and this means that, first of all, we have a very good idea of what the cost will be, but most importantly, that we'll be in a position to apply value engineering to the maximum extent, both for the materials will be used, for the construction methodology we're going to apply, even for some of the designs to be such that will optimize cost and of course, the value of the offering product. Last one, given the shortage that we think that the Greek market is going to have, if all projects that have been announced from the state and private projects come to market. What we're doing about this is trying to close as many contracts with contractors as we can now. So they are with us, we check their capacity, and we believe we'll be in a good position regarding contracts and construction execution. I think I have covered the main points about the operational side and The Ellinikon side. Harris will pass through the full analysis of our financials. And then I'm sure there will be some questions that we'll try to answer. Thank you from my side. Harris?

Thank you, Odysseas, and good afternoon or good morning to all on the call from my side as well. Odysseas has captured the key highlights of performance in 2021, therefore, I will provide more color on the financial results of LAMDA development for the year ended 31st of December 2021 referring to the slides on the presentation that is posted on the company's website as well as on the live [indiscernible] guest page. I will talk on commenting the full year results since quarter 4 2021 versus same period last year is distorted by the fact that our board was closed for 2 out of the 3 months in quarter 4 2020 due to the COVID-19 government-imposed measures. I will not go through all the details on each slide, but rather provide the key highlights, and we'll be happy to take any questions at the end during our Q&A session. So let's start with zooming into Ellinikon on Slide 10. As Odysseas has mentioned, Ellinikon is contributing EUR 316 million to the P&L through the revaluation gain from its investment assets. As a note, we have captured such positive impact back in June 2021 when we first consolidated Ellinikon with a value of EUR 311 million. So we are seeing a slight increase in the valuation as provided by the independent valuer. Moving on to the section where we comment that the performance of our shopping malls -- on Slide 12, we see the development of revenues and EBITDA in our existing malls for the full year 2021 versus 2020. The key takeaway is that all our malls increased revenues and EBITDA above 20% as they remain open more days, thus more variable revenues for us and more income from parking, and we paid less COVID-19 related discounts. Comparing full year 2021 with 2019 now, on Slide 13, we are lagging 24% on revenues and 29% on EBITDA, fully attributed to the COVID-19 impact in our results from the government-imposed discounts and the related costs that we had to secure the health of our employees, customers and consumers. Interesting for some to see that The Mall Athens is the weakest performer attributed as also Odysseas has mentioned, to the fact that this mall is heavily dependent on cinemas and [indiscernible] , both significantly impacted by the pandemic as well as the proximity via public transportation, which is again heavily impacted by the pandemic. The next 3 Slides 14, 15 and 16 capture the details of revenue and EBITDA for our 3 malls separately versus 2020. [Technical Difficulty] '19 and '18 indicate the 2 key KPIs of tenant sales and footfall during half 1 and half 2 periods separately. On Slide 17, the comparison with 2020. What is clear that our tenants experienced double-digit growth in sales across our malls, ahead of footfall. With the first half being affected from COVID-19 government measures, while in second half, tenant sales was almost doubled since we did not have any major stations. On Slide 18, the comparison is with 2019 now, a record half year. With that comparison, the key message is that our tenants are closing the gap continuing to outperform footfall. Overall tenant sales in H2 2021 versus 2019 were minus 10%, when in H1 were almost minus 60%, indicating the fast recovery from the COVID-19 era. Slide 19, present the valuation of our shopping malls as delivered from the independent valuers of presence, 2 key messages here. First, during 2021, we have managed to register valuations upside on all our 3 assets amounting to EUR 17 million, following a very professional and diligent management of our malls. Second, for Golden Hall, 2021 valuation has exceeded by EUR 4 million, the record high number of 2019. Also attributed to the operation of the backpack [Technical Difficulty] We have mentioned the fact that all our 3 malls registered an increase versus last year in terms of valuations amounting to EUR 17 million. And we have -- and I just mentioned that for Golden Hall, 2021 valuation has exceeded the record high number of 2019. So with that, the last section of our presentation today covers the overall group's 2021 results. And I will mention on Slide 21, the total EBITDA performance for the group. So the performance of the group before valuations were improved versus 2020 by 65%, reaching EUR 40 million. The key driver is the Flisvos Marina EBITDA improvement. As also Odysseas mentioned, and the addition of Marina Ag. Kosmas, which is part of The Ellinikon transaction, which has contributed EUR 1 million small amount, but it's worth to mention that this is a EUR 1 million positive impact during the second half of 2021, where we had its operations. Turning to Slide 22 and 23 now and the net results of the group. The EUR 40 million EBITDA before valuations that I just mentioned is materially improved by The Ellinikon valuation gains of EUR 316 million resulting to a net profit of EUR 191 million in 2021 compared to a net loss of EUR 52 million in 2020. Worth to mention a couple of things. The swing of existing asset valuations from 30 -- from EUR 43 million losses in 2020 to EUR 10 million profits in 2021. The increased expenses for Ellinikon as we have started the project and stepped up also our organizational structure. The increased interest costs due to the new corporate bond of EUR 320 million issued in June 2020 as well as a technical noncash unwinding effect from The Ellinikon present value liabilities regarding the outstanding transaction consideration and the infrastructure obligation. Again, it does not impact cash, but it does impact the reported results. On Slide 24, where we present the NAV bridge, the 24% increase is materially driven by The Ellinikon valuation gains as we have analyzed. On Slide 25, portfolio of assets, the increase of EUR 1.8 billion is fully attributed to Ellinikon addition into our portfolio, while excluding Ellinikon, we have a reduction of EUR 16 million, driven mainly by a sale of an office asset. The next 2 and final slides, 26 and 27 provide a summary view on our balance sheet and its key metrics for December 2021, compared to December 2020. As already depicted in our past calls, Ellinikon is significantly altering the balance sheet view in numerous lines, on assets and liabilities, making the comparison of the 2 years not fully relevant. We estimate this to be corrected from half 2 2022. As a final note, I want to comment cash and its reduction compared to 2020 that is mainly due to the EUR 300 million payment for the first installment of the acquisition price for Ellinikon while we also reclassified a portion of the cash as restricted for securing investments towards Ellinikon project within 2022 and the second payment towards the state in 2023 based on relevant agreements. We more the -- closely the cash flows of the group and Ellinikon to secure adequate cash to manage the spikes and the seamless funding of the project. And with that, we have concluded the presentation and we are now ready for the Q&A session.

[Operator Instructions] The first question is from the line of Tsangalakis, Spiros with Pantelakis Securities.

With regards to the Marina Tower back in Q3, you were guiding for EUR 348 million potential future revenues for 77% of net salable area. It seems now that you have revised upward your guidance to EUR 374 million or 75% of the salable area. This implies a 10% improvement compared to the third quarter. How is that -- is that possible given that precontracts have been signed assuming, of course, that you have not increased the square meters involved. Could you please shed some light on this?

Yes. The answer mainly lies in what you said is your assumption at the end, which apparently is a very correct assumption, but we had good developments for us. And based on changes we managed to bring to the architectural designs, we have increased our net salable space by close to 10%. It's about to finalize in the next couple of months. But it's when we have additional space and additional revenues and additional profitability that will also allow us to absorb some of the increased costs if again, this increased cost persist for 2023. But so this is good news for us, the increased space. Is that clear or...

Yes. Great.

The next question is from the line of Svyriadi Natalia with Eurobank Equities.

Well, I will start with a follow-up in what we just said on the MRT. Is this the same -- does the same thing apply on the beach condos because there's obviously a higher price there also coming in. You said that you have raised prices just to stem cost rises, making a cushion. But are we also looking there for increased space?

No, we don't. There we just have a simply better pricing when we brought the condos to the market, the pricing we have there is much better than what we had in our initial budget some months ago.

Yes. We're talking about a significant increase there. Okay. I was also wondering if you could -- will shed some light on how the contract signing process is going and when will we start seeing cash flows coming in -- or if we have already cash flows coming in the first quarter or up to now, what's going on the -- from the revenues in the villas, I don't know, the MRT.

Right, right, right. Okay. Yes, we are still following our schedule for collections regarding the dealers and the Marina Tower regarding 2022. And as I think I said when I was talking, we will exceed EUR 200 million in total for 2022. Now there is -- if you count this in weeks and months and days, yes, there is some delay in the collections. The reason is that in order to get the first deposit from the villa buyers, we need to finalize with them the designs and sign the SPA. In order for the designs to be signed, of course, the buyer has to be fully satisfied with the floor plan, the layout, the specs. And these are villa buyers nobody cannot abuse or push them to the limit to finalize the design when we're talking about EUR 15 million and EUR 20 million villa. So it's, in my opinion, natural to have some weeks' delays, we're talking about weeks here, to sign the first SPAs with the villa buyer. So in May, we're going to have most likely the first 2 deposits from the first 2 buyers out of the 27. But we see nothing to delay us in a significant way or nothing to worry us about the collections, which will exceed EUR 200 million within 2022.

Okay. This is clear. So within H1, which is within the timeline, we should be expecting this...

No. Not the EUR 200 million...

200 million is for the whole year -- starting will come -- within H1.

Yes, correct. Yes. The first villa signing will happen in half 1. That's absolutely correct.

Okay. Okay. That's perfect. Also, you haven't mentioned about the mainstream resi, when do you expect these kicking in. We said about the beach condos, the Marina Residential Tower and the villas, which are the first coming in our view. But we have some mainstream residential apartments also in the first 5 years. You have a plan on that or when you see this? Okay.

Yes. Actually, we have started working there with the -- are actually considered by many one of the best of his generation, Värde and his company big. We're working on the first 50-meter tower, which is going to be very close to the coastline. And the designs are going to be given to the first potential buyers in September. And also, we're going to bring some other products in the market, hopefully, in 2022, which has to do with mainstream residential close to the Alimos Avenue side of Ellinikon and close also the coastline. As we said, I think, in the previous presentation, our target is to exceed our first phase plans by close to 1,000 resi or if you want, more than 100,000 square meter of net selling area, and we're still following this plan.

Okay. Yes, this is good news. And with the changes you had in the Marina Tower square meters, I think, so overall, it's very good news on the residential part.

Yes, it is.

Yes. Could we also talk a bit about the infrastructure. You said we have the EUR 250 million, with AVAX. If I recall correctly, we are looking for some more infrastructure coming in the first 2 years. Is there a tender going on for these? Or you view...

Yes. We have said that all the tenders about first phase of construction are going to be done within the first 2 years. One was completed, as we said last month, and the other one is going to take place in half 1, 2023 most likely. So all of this is going to be probably more than EUR 150 million in total or EUR 200 million. So they are going to come out in the next 12 to 18 months.

Okay. Do we have cost hike there? Do we feel that we might have something worse than what we were expecting there and the ones coming in forward?

Right. Given the increase in the commodities' costs, of course, we're going to have a cost increase. We just hope that the contingency we have will be enough to cover this increased cost. We have contingency in our plans. The reason we had contingency is because we believe that the 0 inflation is not something that is going to be a global phenomenon for the rest of our lives. We may be used to 0 inflation for the last, I don't know, 5,6 years, but it's not a normal situation if you follow the hikes of the economy. So we have put plenty of contingencies in our plan. And so far, we are within our plans. Actually, I'm sure you know that real estate is considered an inflation head, which means that, yes, you have the cost side, but at the same time, the prices are increasing. And as an example, not in Ellinikon but in our malls, we have, in our contracts an annual increase in our rents based on [ rig CPI ] plus 1% or 2% margins. So it will have an inflation, for example, of 3% . That means our rent will go up by 3% plus 1% or 2%. So yes, inflation is something that is cleared the national cost side. We have enough for now, continues to cover on the cost side, and we have the upside that is above our base levels of the revenue side.

Okay. That's very clear and helpful. Well, I have only a last -- what is happening with the malls' IPO? What are you thinking? I know the market is not helpful. But I don't know, are you still planning for it in 2022? Or have you changed that?

No, we have -- yes, we have moved the target to 2023, half 1, 2023. We hope that if COVID is going to give us some peace in 2022, the malls will come back to their normal profitability and everything else. And so 2023 half 1 will be probably a good time for us to bring the malls -- in May June. And at the same time, we are not, I would say, resting in our current levels in malls. We are thinking of how we're going to incorporate the malls while developing Ellinikon in the IPO possibly. And this will depend on how far the leasing agreements we have progressed in 2023. We didn't expect this rate of success, but right now, we have more than 80% of our GLA covered by lease pre-agreements the demand is high. Actually, you have 140% demand of GLA. But because we want specific tenant mixes, we're very selective on the brand. And right now, we have 80% already covered before we even start excavating for foundation. So if this continues, which I believe it will, it means that half 1 2023, almost 100% of our malls will be leased of our Ellinikon, which will allow us to bring them as part of our IPO offering, which is another very good piece of good news for us.

Yes. That's really good news also. And the demand for the mall is very good as you say. So yes, very nice. Thank you very much, and very good work.

[Operator Instructions] We have a follow-up question from Mr. Tsangalakis, Spiros with Pantelakis Securities.

We saw that you did quite a bit of share buyback earlier in the year, which was very accretive. We assume you paused the share buyback because you were entering into a close period. Now with the results of and you're getting cash flows -- inflows way ahead of your business plan, and the share price at very low levels, would you continue the buyback?

Yes, very correct assumption. As you know, before we announce our financial results for a month, you are not buy your own shares. And as a proof of the correctness of your assumptions today, we did start again our share buyback. We think that these levels are extremely, extremely attractive. We don't know for how long the share will be a big level, but definitely, based on fundamentals, the share is extremely, extremely under buying. So we're buying, and we will keep on buying.

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

I want to thank each one of you for your attendance, for your faith in the stock if you are already shareholders and you are not -- hopefully, you will join the club soon. And I also want to thank the LAMDA team for having done an extreme amount of good work in very, very -- under very hard circumstances. I mean the COVID and I mean the more than doubling of the headcount, just to mention in the last 1.5 years. We went from a company of 200 people to the company of more than 500 people, many come from abroad. And I want to thank also every one of them for contributing to these very, very good results given the circumstances. Thank you.

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