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

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the LAMDA Development Conference Call and Live Webcast to present and discuss the 9-month 2022 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, ladies and gentlemen, and good morning to those of you joining from the United States. Thank you very much for being with us today to present our 9 months 2022 results and participate in the presentation. I'll begin the presentation as usual with some important highlights of the recent COVID development. And then my colleague, Harris Goritsas, our CFO, will present the details of the 9-month financial results. So following the group's resilient performance in the first half of the year, as we announced it, we're now witnessing another solid performance -- operating performance in the third quarter, while, of course, still operating in a quite challenging environment. The group 9 months EBITDA before asset valuations and Ellinikon expenses have now reached the 2019 record -- high record levels. Our malls solid business performance continues to be the key growth driver, delivering EBITDA growth of 50% versus last year, the 9-month '21 results on a like-for-like basis. And the like-for-like reference related to the acquisition of the designer outlet, we'll talk about this a bit more. Now the significant EBITDA growth versus the 2021 9 months has been driven by the gradual return to normality after 2 years of adverse conditions due to the COVID-19 pandemic. Now our KPIs of the shopping centers continue to be very healthy with occupancy levels averaging 99%, collections at 98% and tenant sales acceleration in the third quarter, which is one of the most -- the biggest changes in this quarter. Now the strategic acquisition of the designer outlet assets in early August, positively clearly contributed to our third quarter malls EBITDA, and we anticipate further profitability benefits in the future on the grounds of the diversification that exists both geographical, but also in terms of business concept as well as potential synergies that we see, and we envisage with our malls portfolio. And it's worth highlighting that following this acquisition, our malls portfolio gross asset value is now exceeding EUR 1 billion for the first time. Harris will present more details about the portfolio of the malls and the financial -- under financial performance in the presentation to follow. Now turning on to the Ellinikon project. Clearly, we're focusing on further pressing with the project execution. We're making a material progress on the terms of the infrastructure works and the project design. And we're also taking all necessary actions in order to ensure the commercial success of the project, very important for the first phase and bringing forward cash flows. Now as mentioned in the previous results presentation, we had already started signing SPAs for the Villa land plot in July, and we are continuing to do so in the signing in Q4. Also in the month of November, we also started to sign SPAs for the residential units on the Riviera Tower, which is, of course, a very material milestone in the execution of a business plan. We will announce in January the progress of all the SPA signing in 2022. So we'll be able to give you an update. Additionally, we've made significant progress on securing buys interest for the Cove Residences. This is the contrast residential project on the coastal front. And while being less actually than a year since the launch of our marketing efforts for this project, we've already received 3 agreement deposits from buyers, corresponding to approximately 85% of the NSA, the net sellable area. Here, we haven't started signing SPAs yet, it's very early. But we target to commence signing those in the end of the first quarter, in '23. At that point in time, we will start collecting 25% of the purchase price. Just as a reminder, the total estimated revenues of the sales from 3 residential projects in the first 5-year phase, so I'm referring to the Villas land plot sales, the units on the Riviera Tower and the condos exceed EUR 1 billion. Now our commercial leasing efforts for the 2 Ellinikon malls, they remain strong and is evident from the expression of interest that we have from tenants, which now stands at 92% of the GLA for the Vouliagmenis Mall and 71% of the GLA for the Riviera Galleria. Tenants strong interest is also reflected on the signed heads of terms for approximately 25% [indiscernible] for 65% of the GLA for the VMC -- for the Vouliagmenis Mall, which is quite ahead of the planned commencement of the operations, which is approximately 3 years. Now on the infrastructure works. These are well underway for several important infrastructure projects including the Posidonos underpass, the excavations that we're doing in the Trachones stream and as well as the works on the main road network. And overall, the progressing according to the project time line. Same applies on the permitting front, where we've already received pre-approval for various other projects. The construction works for the building that will have the people with special needs, so-called AMEA. They're also progressing according to the project time line. And in fact, as far as the work is concerned, we're in the concreting of the foundation, the basement and part of the ground floor has already been completed. So there's a material progress on that project. For the Riviera Tower, where the building permit was issued last August, actually ahead of time. And to be noted it's one of the most difficult, let's say, permits for the project. We expect to commence early work before year-end. Now in late October, we also announced LAMDA's first investment in green energy aimed at supporting the Ellinikon project as well as the malls energy autonomy. This is the acquisition of the initially a 20% stake in R Energy 1 Holding, which is a renewable energy company and for EUR 5 million in terms of cash as well as the purchase of a EUR 10 million convertible loan, the grant landed action upon conversion to reach a 50% stake in the company. So all in all, the 9 months results highlights once again the resilient performance and the attractiveness of LAMDA Mall's portfolio as well as the group's focus on the successful execution of the Ellinikon project. So I'll now pass the floor to Harris Goritsas, who will then run the results presentation in detail, and then we can have the Q&A session. Thank you very much.

Thank you, Konstantina, and good afternoon or good morning to all on the call from my side as well. As in previous calls, I will comment the announced financial results of LAMDA Development, referring to the presentation that is posted on the company's website as well as on the live webcast page. I will not go through 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 the group results for the 9 months period ended September '22. There are 6 key highlights there. First, group EBITDA before valuations and Ellinikon expenses landed at EUR 40 million, almost at same high levels with 2019 pre-COVID period and a notable 43% above 2022 same period. Key driver of that is our malls business, continuing their solid performance in quarter 3 with relevant EBITDA 1% above pre-COVID 2019 quarter 3 and 4% growth versus 2021 quarter 3 on a comparable basis. Second highlight, the acquisition of McArthurGlen now called Designer Outlet Athens, contributing EUR 1.3 million to our EBITDA from almost 2 months of operation. As a note, first reporting date to group was August 6, 2022. We estimate this new addition to contribute around EUR 8 million of EBITDA on an annualized basis. Third highlight, the gross asset value of our malls exceeded for the first time in our history, EUR 1 billion due to the Designer Outlet Athens acquisition with a contribution of EUR 109 million. Worth mentioning that for our 9-month results, we did not perform an independent valuation for our businesses, something that is scheduled to take place for year-end results. The fourth highlight is the Ellinikon project implementation that continues to increase pace and remains on track. This has a 2-side effect on our 9-month results. On one side, we report increased cash flows, now at EUR 112 million, fueled by the presales and initial SPAs of Villa land plot and the prepayments for condos as well as the proceeds from the sale of land to our newly established companies for the 2 shopping destinations in Ellinikon. This is we are mainly small [indiscernible]. Source of this cash while the proceeds from the sale capital increase in bonds, Thus, we moved cash from the restrict to free as also presented in our balance sheet. On the other side, since the revenues will be evident in our P&L gradually following the revenue recognition principles, the current 9 months 2022 results are negatively affected by the increased reporting expenses, which are cash and noncash relating to the Ellinikon project. Those [indiscernible] lead group reported net results to a loss of EUR 55 million. I want to stress here what I always say, for the Ellinikon project, we primarily focus on the cash at our balance sheet. On the P&L, we'll have a short-term impact due to revenue recognition principles, since the project is at its early stages with low construction completion rates. We estimate this to normalize from Q3 onwards as project matures and allow for cash to be translated into revenues. Also, it's worth mentioning that this net result is not comparable neither with 2021 base due to the first-time consolidation of Ellinikon back in June '21 having a substantial positive impact from investment asset valuation gain, nor with 2019 pre-COVID base since back then, the Ellinikon was at its infant stage with almost nonexisting expenses. This highlight is that during Q3, we have announced an investment in energy, as Ms. Konstantina mentioned, executing the first step of our strategy there which is to source with green energy, all our existing business and the Ellinikon project in the near future. The success visions of our green board back in July '22 under a very volatile money market environment provided the needed funds for this investment. The sixth highlight is our cash position and that remains solid at almost EUR 660 million, improved by EUR 120 million compared to December '21 and EUR 210 million compared to June '22 at the back of the successful green bond issuance, the malls performance and the sale of Ellinikon. For mall business, the key takeaways are: first, the continuation of the strong EBITDA performance with plus 50% versus same period 2021 and almost EUR 1 million below 2019 record high pre-COVID base on a like-for-like basis, that is before McArthurGlen acquisition. All malls performed strong on the comparison to 2021. This is anticipated due to the weak base affected by COVID. Comparing to the more relevant 2019 base, we see revenue growth on Golden Hall and the Designer Cosmos while the mall Athens lags with 5% on the revenues and 8% on EBITDA as a result of the change in trends regarding footfall and average spending per visitor. I want to focus on this point with 2 ratings for that trend. First, the mall license was impacted the most during COVID period in terms of footfall during to each increased dependent on cinemas and food and beverage categories. This explains the minus 42% reduction on footfall in quarter 3 compared to 2019 same period. Second and more important, the Mall Athens has the highest growth among our malls in terms of average spend per visitor as a result of losing visitors with lower spending and keeping or even increasing visits with higher spending. This leads tenant sales versus 2019 at minus 5% in quarter 3, a notable improvement from the minus 10% in quarter 2 and minus 28% in quarter 1. Tenant sales for October months are also very encouraging. Therefore, we believe this positive trend will continue. Overall, if someone reduced the tenant sales versus 2019, it is evident that we are improving quarter after quarter the performance. The recent acquisition of Designer Outlet also performed strong on tenant sales versus 2019 with double-digit growth in August and September the first 2 months of operations under LAMDA Group. It also contributed as said EUR 1.3 million to total 9 months EBITDA. Regarding Ellinikon project, Konstantina, mentioned the commercial side of Ellinikon, so I'll not comment more on that. From the financial side, as already explained, we are registering increased expenses, both CapEx and OpEx as the project accelerates, leading to a net result of EUR 56 million loss for the 9 months 2022 period. As I comment, this is an internal plan P&L result which will continue for the next few quarters since we will not register meaningful revenues despite our accelerated sales in the last few weeks due to the specific revenue recognition accounting rules. Group cash is fully supporting this plan. We will continue to closely monitor our cash flows to secure Ellinikon project is having the needed funds to continue with space. With that, we have concluded the presentation, and we are now open for the Q&A session.

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

I just wanted to clear a bit out what you said about revenues just have in the right, we will be seeing revenues in Q3 next year. Is this what I understood because I remember we were expecting some minor revenues coming from some agreements like TEMES or maybe -- or some other projects. And -- should we have none of them in our accounts for this year and maybe in the first quarter of 2023. I just wanted to be a bit more clear about this. And I also wanted to ask about the interest cost environment and how this is performing, not on the unwinding cost of Ellinikon, but actually on the higher debt and the costs we saw in the 9 months and what we should be expecting looking ahead on this. I understood we are not giving any news on the signing. We will have this in January. Can you give us something more than that and how it is going? If you can, okay, of course. I think that's my first question.

Thank you, Natalia. There are a couple of questions. So I will try to address them all. First of all, on the revenues. What I said was notable revenues. We will not see until quarter 3 -- so definitely, we'll see some revenues in the year-end results. And of course, in Q1 and Q3 2023 but this will not be as high as what we will be reporting on the cash side. So the Ellinikon should really -- especially on the first stage of the niche infant stages until construction really picks up from a balance view first. So we will see cash coming in, and we expect quite strong cash positions looking forward. We will not make any looking for that statement as you can appreciate here, but we can say that we are confident that the cash will improve significantly on Ellinikon, and of course, this will have a positive effect on the group as well. So how this cash will be translated to revenues? It depends on the completion of the percentage of construction completion for the project. So for the big projects like the Riviera Tower, for example, which is a construction project. It will start to really impact positively our P&L from half 1 of 2023 onwards. Now for the TEMES or for the land plot sales, definitely, this will be a positive register in our revenues, in the P&L, the moment we performed the transaction, which this will happen in the next coming months, not expecting this to take place in quarter 3, as I said. So my comment was mainly for the big projects that has construction, which will positively impact the revenue at that point of time, not now.

Okay. This is clear.

Okay. So that was the one question on revenues. The second one was on interest and the high interest rates or the increase rates that we witnessed in the market now, correct?

Yes, correct.

Okay. So just to give you some high-level numbers, group debt at this point is around EUR 1.2 billion, primarily, this is split around 50% from bonds and 54% from bank loans -- if someone wants to split this EUR 1.2 billion into secure, nonsecure or, I would say, pledge, not pledged, around 55% to 60% is pledged and the main driver is the bonds. So around 40% is not pledged. It's not, let's say, secured and it has to do with volatility on the [indiscernible] increase will give you around EUR 4.5 million to EUR 5 million on the non-hedged side. So this is -- if you like, the sensitivity. We're talking about EUR 4 million to EUR 5 million from -- on an annual basis from a 1% increase on due report, which is something that we are taking into consideration our planning.

Okay. Okay. Okay. This is good. Yes, this is clear on the interest rate cost, so what we can be seeing ahead. And on the cash inflows and the agreements you have signed, the 200 million you were talking about by year-end will this be achieved? Should we expect all these or whatever you can give us on that would be very helpful.

No, Natalia, I mean, what we can say at this point of time, and I recall the discussion and the question back in 6 months results is that we are on track to deliver risk promise. SPAs have started with good pace. Just to remind everybody on the call that we have started the SPAs for the Villa plant block back in July. And we have started the SPAs for the Riviera Tower for the apartments on the 200 meters towers of Posidonos front in November. We witnessed good pace on this SPA signings. We feel comfortable that this will continue, this good pace will continue. So the EUR 200 million, which is the sum of all revenues, actually not revenues, cash, to be very exact cash from the Ellinikon project is something that we will see in the 12-month result. Having said that, what we consider is to have also a press release before the official announcement of the 12-month results, which, as you can appreciate, it will be towards May. So before May, where we officially every May, which we will officially announce the 12-month results. We are considering having a press release to give the status update of this very, very important milestone for us, which are the sales.

Okay. Can I -- if I may, one more. What about the progress on the tenders you were eyeing into year-end for the metropolitan park area and the athletic center and all these and the malls, which we were expecting. Are these going to be until year-end? Or we will be expecting the next year?

They're all under in the tender process. When they are finalized and there is a preferred bidder, which is announceable, we will make an announcement. We don't have anything at this time -- the evaluation process hasn't finished yet.

The next question is from the line of Caithaml Jakub with Wood & Co.

This is Jakub from Wood & Co. Three from my side, please. I would prefer to ask one by one. First, on the energy investments. Could you share more details, please, on what is the leverage of the target company that you are acquiring? And what valuation does the purchase price imply per megawatt? And also, how much do you expect may be needed to invest in order to bring up the portfolio to 100 megawatts, which seems to be the target?

Yes, this is Dimitris. We -- sorry, I'm stumbling a bit. We cannot share at this point in time. What we can do is we can share with you all the relevant transaction metrics that are implied based on historic performance of that particular company. Unfortunately, we cannot disclose the company's detailed investment plan other than what the company has suggested openly to the market. I expect it anticipates to increase its installed capacity from the June of -- 43 megawatts to around 100 megawatts. We cannot disclose the exact investment plan and the required CapEx or the investment the budget for that. But we will share with you offline the relevant metrics.

Understood. Then moving on Ellinikon, -- just to follow on what has been discussed. Can you share what do you expect to be the key milestones for 2023?

In terms of what, in general, for the project, what we can say...

What will be the most important construction starts, permits completions?

Well, we have -- the first one will be the RT, that is the Riviera Tower, which at the moment before year-end, the early works are going to start, preliminary works have already started, but the actual early works contracts will start. And then in the first quarter of 2023, the actual main contracts of the works will also start. That is the biggest and the first one within the year. We also have the continuation of the infrastructure work, which is a contract which is also underway. The tenders at the moment, which are completing is the one we mentioned earlier about the sports. So that is expected to start within the year, the first quarter of the year. We also have the tender that's design as the metropolitan park.

If I may, chip in, in terms of permitting we anticipate in the coming months, the permit issuance for the Cove Villas, Cove residences that is condos, which are obviously, as you can find these are different building permits based on the statues. In the first half of the year, we anticipate the permit issuance for the complex, which will quite basically with the start of the construction, but we also have the early works for each and every project, which do not coincide with the issuance of the building permit.

Also the construction of the mall after the summer when the permit is expected to be issued.

Perfect. So it's the Riviera Tower, the Cove Residences -- the condos and then in the second half of the year, the construction of the [indiscernible] should kick off.

Right.

But don't forget that we will be also as book and suggested build announcing on the revenue front the evolution on the SPAs by the beginning of the year. So that will clearly provide the relevant positive signs to the market.

The initiation of the condos.

The initiation of SPA signing for the Cove residences, the condos. So that is from the very beginning of 2023, some early positive signs.

Understood. And then this starts to the last question on funding. Given this sort of encouraging progress that you are now seeing on sort of the presales and the demand, especially for the residential projects. Can you share with us some color on how much external funding do you expect to need to raise within '23, '24, if any?

Yes. Look, although we cannot share all the details, as you can appreciate. But what we can say is that we are pushing later the first drawdown of our agreed funding with the banks currently because of the project very good start in terms of sales. So we are now with discussions with the banks in order to release -- again the business plan because of that. And of course, because we have also increased on costs. I mean -- this is evident, but all of these are covered by the revenue side. So we feel comfortable that whatever fund we have agreed with the banks will not be required so early as originally planned. So without being able to go to all the details, what we can communicate here is that we will not -- there is no rush, there is no need to raise external funding as early as originally planned. So we are talking about later in '23 about the Ellinikon project.

[Operator Instructions] The next question is a follow-up question from the line of Natalia Svyrou Svyriadi with Eurobank Equities.

I have a follow-up I was thinking about. I was wondering if you -- what you're thinking about the IPO of the malls now that you have 100% of the malls and the Designer Outlet and what are your projections there. We were thinking about early '23? Do you think this is achievable?

Look, no, no. First of all, the plan is a plan. We are not changing the plan. So we have the IPO. And actually, the strategy is unfolding with the Designer Outlet acquisition in order to create the critical mass and to diversify. So we are following that plan. And of course, with the acquisition of the sales from [indiscernible]. So we have 100% now of overall malls. If we're going to go to early '23, I can tell you from now, no, this is not the plan. We are thinking about later in '23 as the earliest to be honest, but this will be dependent on the external environment as well. We are preparing ourselves to be ready for that the soonest with in '23, but all will depend on the market conditions and what we can achieve. Just to mention that we are not in a rush for that one. We want to have a good valuation to be able to monetize what we believe is a good value and a good offer proposition out there. But as long as the external conditions, will not appreciate that we will not ask -- we want to do it right at the right moment.

And if I may chip in, not the right price because market conditions right now are not supportive. When if you look around European shopping mall operators they tried at a dip discount to NAV. So that prevents us from doing anything on that front -- but we are closely monitoring the market conditions.

Yes. Real estate, I think, is at a discount. So there's a moment in many, not only for the retail.

Natalia, we are very comfortable about how to run this business, these are bread and butter, if I may say so. So we have a lot of good plans on really not only support but also developing our existing assets -- that's why we feel strong about the decision to really acquire 100% of those and to accelerate the growth on that front, around malls. So again, I would expect to see very, very positive results in 2023. And of course, this will even strengthen our proposition out there. So I would say the time is on our side on this one. In terms of every -- as we leave behind also the bad COVID period, and we see also good valuations from our independent valuers as we really invest on our malls and also as we see progress on the other 2 under construction malls in Ellinikon because this also should be part of the equation. We do have 2 new under construction malls. So I think we will see more good valuations out from the market. Now if this will be appreciated from the market, it remains to be seen.

[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.

I'd just like to thank you one more time for your participation. It's most useful to have your questions and have the opportunity to share. Dimitris is always available for any follow-up questions and details. So thank you very much.

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