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 full year 2022 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Odissefs Athanasiou, CEO. Mr. Athanasiou, you may now proceed.

Thank you. Good afternoon, ladies and gentlemen, and good morning to those of you who are in the United States. Thank you very much for attending this presentation in which we'll have the opportunity to talk about the full year 2022 financial results and more than that. I will begin the presentation with a summary of the important highlights of the group's performance of last year, provide you a brief update on important recent developments as well, especially with Ellinikon. Following on Harris Goritsas, our Group CFO, will present the details of the full year financial results. Let's start with the income-producing assets, basically with our malls, and then we'll follow with a brief comments about our Marinas developments. Our malls, which now have become full after the acquisition of McArthurGlen now named Designer Outlet, had a very, very good year, meaning that if we compare the results of 2022 with 2019, which was the last pre-COVID year, our EBITDA reached new highs, improved by 1% versus 2019. If you take into account the fact that January of 2022, due to very bad weather, had almost 1 week of shutdown malls, then our EBITDA would be higher -- excluding this week, I mean, will be higher by 4% again compared to 2019. Apart from this, we had an exceptional last 6 months in 2022, with our tenant sales being higher by 7% compared again to 2019. Needless to say, if someone compares the results of 2002 with 2021, our growth would be double digits in any metrics that we would look at, but we prefer to compare 2019 as it was the last year before COVID. Apart from the performance in terms of sales and EBITDA, our cash collections and our debt levels were very healthy, with a net debt loan-to-value ratio of 49%. And this 49% includes also the EUR 140 million debt we raised in order to acquire Värde, the 32% that Värde owned in Golden Hall and Cosmos, along with the acquisition of Designer Outlet or, as I said before, McArthurGlen. So we believe that this debt is very, very sustainable and it's hedged in the more level at the level of 25%. Apart from the acquisition of these 2 malls, or if you will, the percentage in Cosmos and Golden Hall and McArthurGlen, apart from the very good EBITDA and cash collection performance and sales performance, we also had our valuations almost increased by EUR 45 million, and this against a rising interest rate environment. This increase in the valuations is a result of rise in contractual rent. But as you probably know, our rents go up by Greek inflation along with a margin of 1 or 2 points. Again, this is sustainable because of the very good performance of our tenant sales. And also, the other factor that contributed to the increase in valuation is a very conservative discount rate that we had due to the 2 years of COVID, in 2020 and 2021. Last, in our income production assets, a couple of words about the Marinas. Both Marinas, the Flisvos Marina and the Agios Kosmas Marina had also a very, very good, year with turnover being 40% above 2021 on average. And for the Flisvos Marina, on an apple-to-apple basis, EBITDA was better 30% than what we have budgeted for the year. We are -- not only all our works at this very moment, are leased, but we have a long outstanding line of yachts that are asking for births in both Marinas, which give us also pricing power as we realize. And regarding the Ellinikon Marina, we have a full plan in place for the births to accommodate longer yachts as now is a trend globally. Covering the main points of all the income producing assets. I will pass to the Elliniko developments, which were all on the positive side. I will start with the cash collections that have exceeded already EUR 220 million as of today, reflecting the very good performance in sales of the 3 residential developments, namely the Riviera Tower, the Condos and the Villas. We expect our cash, which, as I said, exceeded EUR 200 million to exceed EUR 0.5 billion by the end of the year. Apart from this, leasing in our 2 malls, we have many small and Riviera Galleria, is also moving very, very satisfactorily. We have already come to agreements with more than 50% of the GLA in Vouliagmenis Mall and more than 20% GLA in the Riviera Galleria. Demand is very, very strong. We have actually demand exceeding the available space. The only thing that makes us saying that we are at 15%, 20% levels is because we are looking for the best, for the optimum tenants mix that would satisfy not only the fashion segment, but also the leisure and the FMB segments. The other thing that makes us to be very happy with the Ellinikon performance is permitting. We have proceeded with all permitting actually in deadlines better than we expected. And this area has also been covered. The first building that's going to be ready is the EMEA building is going to be ready by September on -- within deadlines, actually, it will be better than deadlines and will be our first symbolic building that will be ready in Ellinikon. And Riviera Tower is also proceeding very, very satisfactory. Last Saturday, we completed all the piling of the core building that means 110 piles are now in a depth of average 50 meters. Their diameter is 1.5 meter. And this meant that we satisfied our first milestone in invoicing our buyers, another 50% is going to be invoiced by the end of June. And in terms of cost, this means another EUR 95 million will being in our bank accounts. On the debt front, in Ellinikon, we issued, in July, our second bond, EUR 250 million at the coupon rate of EUR 4.17, which means that the debt for Ellinikon, in total, is EUR 550 million consisted of 2 bonds that I just mentioned and another EUR 330 that we have issued in 2020. The average interest rate or the coupon, if you will, is close to 3.9%. And this is, as you can realize, since we are talking about bonds, it's fixed. That means we have no sensitivity in interest rate movements in Ellinikon. And because of the successful cash collections, we will not have any additional loans in Ellinikon for 2023. Actually, even for 2024, our loan needs will be minimal. And the only loan needs it seems we're going to have -- are going to be in -- for the 2 malls, and they are going to be generated mostly in 2024. Apart from this, we're having a very successful performance in the 2 venues that were created for society to be a part of Ellinikon starting in 2022. This is the experience part. We have more than EUR 1.1 million business already coming there. And the Experience Center has produced very positive dividends, not only to the local visitors, those international visitors, especially representatives of international media, who have exceptional performance -- exceptional presence in international media, and we intend to have a very strong presence at the second half of 2023, and mainly in 2024, targeting buyers, which means that we believe that the absorption of the additional residential we're going to bring to the market in 2024 and the pricing is far going to exceed what we have in our business plan. Just to give you an idea of what this means, we have about 1 million square meters to bring to the market of new residential products apart from what we have already brought in. And for every EUR 1,000 higher residential pricing that translates to EUR 1 billion cash or EUR 6 per share for our current market capitalization. Apart from this, we made progress in other things. One of them, the most significant one is the self-sustainability energy-wise of our developments in Ellinikon and for our malls by acquiring participation in [ R1 ], an energy company as I said, is going to allow us to be fully sustainable in our energy needs in both Ellinikon and the malls. Before I close this brief introduction, and before I pass to Harris for the financial analysis, I will just mention our metric regarding our current market cap, which we believe makes us to be one of the most undervalued companies in the Greek Stock Exchange. If you look at Slide 13 of the presentation that Harris, as I said, is going to analyze in a couple of minutes, you will see that the valuation of our malls, along with the small valuations of other properties, comes close to EUR 700 million. Given that our market cap now is EUR 1 billion, that means that Ellinikon, the land of Ellinikon is priced at EUR 300 million that is the difference between EUR 1 billion market cap and the EUR 700 million, I just mentioned for the malls. And given that we, or the TAIPED another EUR 600 million for the acquisition of land, the reflected price for Ellinikon is EUR 900 million. I remind you that we paid -- we have the contract for Ellinikon for the land of EUR 950 million, which means now we get no value for the fact that the country is in much better shape than it was in 2013, when we acquired the Ellinikon, but the bond gives back then were above 10%, that we didn't have any permitting, then we didn't have a master plan, and of course, we didn't have all the architectural studies and designs we have for a number of buildings and the cash collections that I mentioned before in excess of EUR, 200 million and agreed sales of more than EUR 1.2 billion. It's for you to do some thinking on what the current market capitalization reflects. Having said this, and I'm sure we'll have more to say in the Q&A session, I'll pass the microphone to Harris Goritsas for a more detailed analysis of the finances. Thank you from my side.

Thank you, Odissefs, and hello, everyone, and thank you for joining today's results presentation. Like our previous results webcast, I will present the important details and highlights of LAMDA's financials and business performance referring to the presentation that is posted on the corporate website as well as on the live webcast page. So let's start with Slide #6 of the presentation, where we will present the highlights of group P&L performance. Firstly, on the upper left-hand side, malls EBITDA at approximately EUR 69 million, a new record high, supported by the strong performance of all 3 malls, namely The Mall Athens, Golden Hall and Mediterranean Cosmos, which generated almost EUR 65 million of EBITDA, and as a said, 1% higher than the previous record in 2019. Worth highlighting as well that the 3 most registered, the best ever, second semester performance in their history. Secondly, we highlight the positive contribution from the Designer Outlet Athens, a strategic acquisition, which was completed in early August 2022, that delivered almost EUR 4 million of EBITDA for a period of approximately 5 months in 2022. Now based on the performance we see so far in 2023, we feel comfortable on validating our long-term forecast, calling for an EBITDA on an annualized level of at least EUR 8 million from these newly acquired assets. Group reported EBITDA after asset valuation on Ellinikon, stood at EUR 122 million versus the EUR 355 million we reported in 2021. Remember that in 2021, we had the first time consolidation of the Ellinikon, generating a positive impact of EUR 315 million related to the revaluation gains from each investment property. In 2022, we continue to register the valuation gains from the Ellinikon investment property. Worth mentioning here that on the P&L, we account for revaluation gains only for the investment properties, which accounts for almost half of the total income portfolio value. For the remaining part of the Ellinikon portfolio value, the remaining consists of residential property, we do not register any revaluation gains on the P&L as there is a different accounting principle for those assets. They are booked at cost plus CapEx additions, but on the balance sheet. On the bottom right-hand side, where we present the group's consolidated net result after tax and minorities, 2021 has been positively impacted by the aforesaid EUR 315 million revaluation gain from the first-time consolidation of the Ellinikon investment property. Whereas, in 2022, the bottom line results have been adversely impacted by the annualization of noncash expenses related to the account recognition of Ellinikon obligations for the deferred land purchase and the future infrastructure works. Moving on to the Slide #7. The important key takeaways here relate to the group balance sheet and other followings. Group asset value reached a new record high of EUR 3.2 billion. The key drivers for this new record are the Ellinikon at EUR 2 billion, almost EUR 160 million higher versus 2021 on account of net CapEx additions for the portion of the assets that are booked at cost on balance sheet, as on this date, and the investment property revaluation gains. These gains related to the portion of the assets that are valued by external values and consists of malls, offices, real estate, and the sports complex. The revaluation gain in 2022 was primarily driven by 2 factors: Firstly, the signs of last agreement in September 2022 for the IRC; and secondly, the significant commercial leasing progress in the Ellinikon malls that Odissefs also mentioned. The operational malls now stood at a new record high of slightly above EUR 1 billion on the back of the designer outlet consolidation that added EUR 116 million to the total, and the higher valuation of our existing 3 malls. Net asset value at EUR 1.36 billion at the same levels as in 2021, with Ellinikon at EUR 631 million, 70% of total, and malls and other properties together at almost EUR 700 million or 53% of total. As our CEO mentioned, we consider the special Ellinikon NAV as significantly undervalued by the market. Group borrowings at EUR 1.16 billion, increased by almost EUR 440 million versus 2021, following the addition of the green bond issued in July 2022. The EUR 150 million acquisition financing to support the purchase of the Värde Partner minority stakes in Lamda Malls and the acquisition of Designer Outlet Athens, as well as the consolidation of the Designer Outlet Athens debt already in its balance sheet. Worth highlighting here that 57% of the approximate group borrowings are either fixed, referring to the EUR 550 million listed bonds or hedged, referring to the EUR 112 million floating rate portion of more debt that is hedged. Hence, the floating rate unhedged for the group borrowings account for 43% of total borrowings. We have included a dedicated slide, and added 47 for those want to review on the presentation, with the relevant sensitivity analysis on interest rates. Key message here is that group is well positioned to navigate through the current turbulent period of rising interest rates. Closing of this slide, group cash approached EUR 700 million at the end of 2022, supported by the green bond issuance and the strong cash collections from the Ellinikon. Turning now to Slide 11. Let me present the key drivers to the consolidated bottom line results. Higher cash finance costs are due to the green bond issued in July 2022 and new acquisition financing to support the acquisition of the Värde Partners minority stake in Lamda Malls and The Designer Outlets Athens, as well as consolidation of The Designer Outlets Athens asset was driving this increase on costs. On the other half, noncash finance costs, as I've described in previous results presentations, are related to the accounting recognition of Ellinikon future obligations for the land purchase and the infrastructure works. Those costs impacted the entire year in 2022 versus almost half of the year in 2021. Also important to note that these costs do not impact the group cash flow. Moving on to the next section of the presentation relating to the malls. I will not spend too much time presenting the detail on each slide, but rather summarize the most important features showcasing our most solid performance and generating new record high EBITDA. Note that any comparison between 2022 and 2021 is meaningless, as Odissefs said, given that in 2021, performance had been adversely impacted by COVID. And as a reminder, in 2021, malls remained closed for almost 3 months during the year and rents have been reduced by low, by an effective head cut of 40% for a period of 6 months. Therefore, our key focus and comparison is against the pre-COVID 2019 record high year. So solid KPIs with record-breaking tenant sales, supported by the best ever second semester performance is the first important key highlight. Occupancy rates at approximately 99% remaining unchanged versus pre-COVID levels. In fact, we have managed to sign new leases and renew existing contracts at pre-COVID financial terms, which clearly showcases Lamda's undisputed market leadership as well as uniqueness of our assets. Notwithstanding strong inflation pressures, our contracts with tenants include an important inflation adjustment clause of Greek CPI plus a spread of up to 2 percentage points, which clearly pinpoint the elements of the natural hedge against inflation. The latter was among the most important drivers of the asset valuation increase in the context of the independent valuation exercise. The gross asset value for the 3 malls have climbed to a new record of EUR 916 million, EUR 24 million higher versus the previous record in 2019, with the addition for The Designer Outlet Athens in our portfolio that contributed EUR 116 million, GAV now exceeds EUR 1 billion, a new record number. Since we have already registered 4 months of performance in 2023, and without making any forward-looking statements, but based only on the KPIs we have witnessed so far, we are confident that 2023 will be another strong year in terms of our most EBITDA performance as we focus on reinstating The Mall Athens as the clear market leader and we extract the identified revenue and cost synergies at the designer outlet assets, bearing, of course, any new Blackstone events, which we own will not happen. Moving on to the Ellinikon section, I will spend a bit more time on presenting the key performance drivers and factors. As mentioned before, the significant acceleration to project execution as well as the consolidation of the project for almost half of the year in 2021 being the comparison between 2022 and 2021 is not practical. Nevertheless, turning to Slide 25, on the left-hand side, we present the asset split according to the accounting classification. Only the gross asset value of the Ellinikon stands at almost EUR 2 billion, higher by some EUR 230 million compared to the first-time consolidation at the end of June 2021. The approximately EUR 160 million difference between the GAV figures 2022 versus 2021, was driven by, firstly, the building CapEx increase, some EUR 50 million net of cost of assets sold. And secondly, investment property revaluation mentioned earlier. The blue-colored stack refers to investment property. Assets such as malls in the Ellinikon, offices, hotels, IRC and the sports complex, whose value is derived from the independent valuation exercise performed by Savills. Note here that although the P&L fair value gains related to the investment property amount to approximately EUR 160 million, the balance sheet value as of 31st of December 2022, appears [ steady ] versus 2021, as there was an accounting reclassification of some EUR 140 million worth of assets, predominantly offices that were reclassified from investment property to inventory, the gray-colored stack. Following an update on our business plan. Cash balance at the end of 2022 reached EUR 204 million, reflecting the strong cash collection, especially from residential projects. And we will present the relevant details in the outcome dedicated slide on cash proceeds shortly after. Turning to Slide 26. This is the first time we present a detailed analysis on the Ellinikon P&L. Therefore, we need to provide some extra information in relation to the accounting treatment of certain elements. The last quarter of 2022 marks the start of revenue recognition for the project. The revenue figures [indiscernible], of almost EUR 26 million includes mainly EUR 22 million Riviera Tower revenues based on the accounting principle of the percentage completion method, and IRC annual land lease, pro rata since September '22, when we signed the Land Agreement. Gross profit reflects revenues that I just mentioned, minus cost of property sales, which includes mainly the construction cost, allocated land and infra costs as well as the corresponding nonrecoverable VAT. In 2022, the gross profit figure includes predominantly cost of property sales for the Riviera Tower. As regards operating expenses, please remember that, in 2021, the income was consolidated for almost half of the year. Thus, we present here the key drivers of the EUR 41 million increase between the periods. Let me just highlight the EUR 13 million non-deductable VAT that has burdened OpEx compared to 0 in 2021, the annualization impact of personnel costs for the new hires as well as construction costs of our AMEA building that will be donated, thus classified as operating expense to the P&L. The aforesaid increase in OpEx clearly explains the reported EBITDA loss of EUR 67 million. Moving on to Slide 28, the CEO briefly spoke about the important achievement recurring cash collections. The total amount of cash proceeds to date exceeds EUR 220 million, and is broken down between: first, EUR 185 million from coastal front residential projects; and secondly, from property sales and leases, and I will give you some examples. EUR 30 million cash received from the signing of the contract to sell residential properties to the Hospitality JV with TEMES and another EUR 5 million received from the JV between GEK TERNA and Hard Rock regarding the long-term land lease for the IRC. Turning to Slide 29. We provide more color to the cash collection to date from the coastal front residential projects. The box titled Total Gross Contract Value to date illustrates the implied gross revenue from the sale of the relevant units under the assumption that SPAs are signed for those units that have been secured by buyers through a deposit. Only, the total is like gross revenue from the sale of the relevant units, which amounts to EUR 980 million that Ellinikon will generate significant cash flows in 2023 onwards. The box to the right-hand side titled Total Gross Contract Value shows Lamda's estimated total gross revenue from the sale of all units in Phase 1. As the CEO mentioned in his opening remarks, residential presales have exceeded our initial expectations, hence, increasing our confidence for the overall success of the project. My last comment will be on the Slide 30, which is another area of success for us that the CEO also briefly referred to in his opening remarks. The important takeaway in that slide is at almost 3 years before the commencement of operations of our retail developments in the Ellinikon was secured more than half of the GLA for the Vouliagmenis Mall and waiting it to reach 70% by year-end. Similar promising figures for Riviera Galleria with 21% of the GLA currently reaching 50% by year-end. This development is considered by us as a strong vote of trust from our prospective tenants. To give more color on that, during our market sounding process, the clear feedback received from prospective tenants was that Lamda's Malls are the place to be. And with that, I conclude today's results presentation, and we are now ready to proceed to Q&A session.

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

I hope you can hear me. I will take it from the end given that you just said the total cash proceeds. Mr. Athanasiou said that by the end of this year, we should expect, if I'm not mistaken, EUR 500 million, and we are at EUR 230 million to EUR 223 million currently. How does this build up to EUR 500 million? The 50% I understand, comes from the Riviera Tower. We said that this would be EUR 90 billion. But how do we get from there to EUR 500 billion -- million, sorry. And that was one question on the cash proceeds. And I was wondering if you could give us an update on the construction costs of the Riviera Tower, which has already started and what you're expecting also in the malls and the other projects regarding the Ellinikon?

Okay. Starting with the first question about bridging the EUR 200 million, EUR 0.5 billion. 30% of the nominal value of Riviera Galleria, which is about EUR 200 million is coming in the form of 1 installment in June, the 15% you mentioned based on the milestone we achieved last other day. And the other 15% is going to come at the end of the year with the other milestone, which has to do with progress on works. So if you add the 2 together, they are close to EUR 200 million. Adding to the existing EUR 200 million, we come to EUR 400 million. The rest is going to come from the villas, mainly installments on the progress of the design in the various villas plots we have sold to the buyers. Actually, we believe we're going to exceed EUR 0.5 billion because don't forget that we have the condos and we expect to start signing SPAs in the condos as well within 2023. Now regarding -- it's not clear for you, please feel free to...

I have noted in the EUR 500 million. Is this clear?

Yes, we're saying we're going to exceed EUR 0.5 billion, but to be conservative, let's say, EUR 0.5 billion is the target.

Okay.

Now regarding the construction costs, the Riviera Tower, we are going to announce tomorrow the contractor with whom we're signing a GMP contract, a maximum guarantee price contract. So we have locked the pricing there in the cost. And we think that also the name of the contractor is going to be -- is going to satisfy even the most demanding buyers of the apartments. Regarding the malls, we're going to announce most likely by the end of May, the contractor with whom we're going to sign an early contractor involvement contract. We're going to follow the same pattern we followed with Riviera Tower, which we think is very satisfactory because it allows us to exploit value engineering opportunities. And we hope to sign again a GMP contract for the Vouliagmenis Mall at the beginning of 2024. But the most important news, by the end of May, as I said, we're going to have the contractor to go for ACI. The Riviera Galleria is a smaller project. We're going to go for a GMP contract and we are going to have attended that is going to probably have a contractor taking the award within the next 3 months. For the condos, we are going to have a contractor for an early package contract for the [ Bobotis ] condos, which is half of the condos. The other half is going to ISV. For the Bobotis development, we're going to have a contractor announced by the end of May or beginning of June. So this is the update. Regarding commodities pricing, steel, copper, cement and all this, we are seeing a softening on the cost side. And what remains is to see what's going to happen on the labor side. However, we believe that the biggest majority of the tsunami we had in the construction cost is behind us. I don't know if this covers all your question, if not please...

No, no. This is very clear. I was also wondering where the taxes came from on a group level? I was expecting a lower number in taxes. And I was wondering if you have anything to comment on that.

Yes. Let me take this one because it's quite a complicated calculation that has to do with the fact that we have to, based on Greek accounting standards, of course, keep a tax book. And of course, the IFRS reported numbers, which do not coincide. The majority of the taxes registered in the P&L has to do with the fact that Ellinikon has immense the sales in 2022 -- late 2022. But I will give you one illustrative example of how this affects both books. I think the example has to do with the fact that we have sold quite a lot of land that has to do with the coastal front villas. So based on the IFRS, this revenue is 0 for 2022, because we have not yet completed all the CPs. We have not passed the lands to the new owners, which will happen in 2023. So all revenues from these villa sales, land plus for villa sales, will be registered in the P&L of 2023. Having said that, tax books account for 100% of the sale to be taxed as revenue in 2022, not only the 50% cash that we have received, but 100% of the revenue. So if villa, for example, on villa plot accounts for EUR 7 million, we have received EUR 3.5 million in cash, this is in cash flow. We have registered 0 revenues in 2022, and we have been taxed for the full EUR 7 million of revenue in 2022. So this gives you an example of how, in our situation where we do not registered so far revenues, still, we pay some taxes for Ellinikon. And of course, if I turn around a little bit to the question, this gives, to someone, the confidence that in 2023, we'll register a lot of revenues with not so high taxes.

Okay. Clear.

The other, Natalia, just to mention here is that these are taxes in the P&L. Important for someone also to reveal a bit of cash flow, when you see tax -- the cash tax impact, which is not so significant for 2022.

The next question is from the line of Memisoglu Osman with Ambrosia Capital.

Thank you for the detailed presentation. I have a few questions to ask, please. On the IPO or potential IPO of the malls, are you able to give us any color on when you think you can do this? Are you looking to do it as soon as possible? Any color would be appreciated. I'll wait for the answer of this one.