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

Ladies and gentlemen, thank you for standing by. I am Gaily, 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 2023 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Harris Goritsas, Group CFO. Mr. Goritsas, you may now proceed.

Thank you, operator, and good afternoon, ladies and gentlemen, and good morning for those joining from overseas. Thank you very much for joining LAMDA's First Quarter 2023 Results Presentation. Please note that, as always, the result presentation is posted on the corporate website as well as on the live webcast page. I will begin the presentation with a summary of the important highlights of the group's performance in the first quarter of 2023. And then following, Dimitris Haralabopoulos, our IR Director, will briefly present a few highlights on the recent developments in relation to the landmark Ellinikon project. So let's start with the group's Malls portfolio for which the first quarter of 2023 registers another record-breaking performance, underpinned by firstly, significant operating profitability as EBITDA growth is 20% versus 2022 on a like-for-like basis, that is after excluding the positive contribution of the Designer Outlet assets. When we include the Designer Outlet, the growth rate versus 2022 climbs to 36%. Notably, this is a new record high on a quarterly basis, 12% above previous record in 2019, again, on a comparable basis. The key driver for such growth is the 18% increase in base rent on the back of inflation adjustments and lower support to tenants linked to the COVID. Moreover, we note the solid growth in tenant sales, which was up 38% versus 2022. Given the positive start of the year, without making any forward-looking statements, based on the first quarter performance only as well as the KPIs we have witnessed so far and, of course, bearing any unforeseen and unique events. We feel confident that 2023 will be another record-breaking year for our Malls portfolio EBITDA. Remaining on Malls, our envisioned Malls' corporate reorganization is underway, aiming and simplifying the corporate structure and optimizing operations towards Malls' monetization. Our Board approved yesterday, and have just made public the relevant decisions relating to the first steps in this corporate reorganization process that will create a leaner, easy-to-access, investor-friendly as well as ring-fenced corporate structure. Turn now to Ellinikon, the game changer project that has already transformed LAMDA. There are 2 key performance indicators on such projects: cash collections and progress of works. For those indicators, first quarter of 2023 showcase the good progress we have achieved, while we remain focused on pressing ahead with the project execution. Let me highlight the following achievements. Firstly, the commercial success beyond our initial expectations of our cost upfront residential offerings is reflected on the amount of cash collections to date at EUR 205 million. This success is building on our confidence, not only on the specific project success but also on cash collections from other residential products, which are planned in Phase 1 of the Ellinikon as well as our continued efforts to bring forward cash proceeds from residential sales in general. Adding also the cash collections from other property sales and leases, mainly the proceeds from the property sales to the Hospitality JV with TEMES and the initial payment of the annual land leases relating to the IRC, the total amount of cash collections to date exceed EUR 240 million. During our recent full year 2022 results conference call in early May, you may recall that our CEO, Mr. Odissefs Athanasiou, revealed our projections that by end of 2023, we'll have collected some EUR 0.5 billion additional cash breaking the aggregated total cash proceeds above EUR 700 million. We confirm this projection, noting that we have achieved the first construction payment milestone for the Riviera Tower, which unlocks the collection of the second installment. Hence, the payments until June are expected to deliver an extra EUR 60 million to EUR 70 million cash proceeds based on the same contracts to date. Worth mentioning as well that today, any buyer who signs a contract for an apartment on the Riviera Tower will be required to pay 35% of the total consideration that is 20% initial payment plus 15% of the second installment. All in, we stress that LAMDA has a solid cash position with group cash at the end of first quarter 2023 at EUR 675 million that secure the unattended progress of the works. Due to this exceptional cash performance, we confirm that the Ellinikon project will not require any loan drawdown in 2023. This is the reason why we're currently under discussions with the banks that support the project to review the terms and conditions, adjusting them to the new reality of Ellinikon and aiming on reducing external funding, thus reducing cost for the group, some that is very important in the current environment of increased [indiscernible] bond rates. Secondly, we're also pleased with the commercial leasing progress of the Ellinikon Malls that exceeded by far our initial expectations. To date, we have pre-leased 53% of the GLA at the Vouliagmenis Mall, which upon completion will be the largest mall in Greece with 90,000 square meters GLA. Moreover, we have pre-leased 30% of the GLA at the Riviera Galleria, which is designed to become a one-of-a-kind retail and leisure destination in Greece. For both retail developments, we expect to start signing commercial agreements with tenants from end 2023 onwards, almost 3 years before commencement of operations. This is considered by any standard, a major accomplishment and for sure, a vote of confidence from the local and international retail and F&B sectors regarding the anticipated success of the Ellinikon project. Let me now pass the floor to my colleague, Dimitris Haralabopoulos, who will briefly present a few recent, but important developments in relation to the Ellinikon project. Dimitris, the floor is yours.

Thank you, Harris. Hello, everyone, and thank you for joining today's results presentation. Let me spend a couple of minutes to update you on a few recent important developments related to the Ellinikon. We're making material progress on both infrastructure works as well as the building's construction front. On the only important project of the Posidonos Avenue underpass, we've already completed 50% of the excavations in about a quarter of completing. Note that there's no precedent embrace of a private company undertaking such a large-scale infrastructure project that will ultimately benefit the society. The AMEA Building that will house people with special needs will be delivered according to schedule with the construction completion expecting within the summer. This is another important contribution by LAMDA to the society. The Riviera Tower construction works continue at an intensive pace, having completed 100% of the concreting of the foundation piles under the outline of the tower. These are foundation work of 50-meter depth with 111 piles of 1.5-meter diameter each. Moreover, 60% of the required works related to the drilling and concreting of the piles under the podium have been completed, while 90% of the construction of the all important perimeter diaphragm wall has been completed. Based on our schedule in the fall of 2023, the lobby floor level will be visible, while at the end of 2023, the first floors of the tower will be also visible. Note that in early May, we signed the contract with the general contractor for the Riviera Tower with a joint venture between Bouygues and Intrakat which had been previously providing consulting services in the form of Early Contractor Involvement, ECI as well as in its capacity as early works contractor. Staying on the construction front, 2 days ago, we signed the agreement with the joint venture between the Italian group, Rizzani and AVAX whereby the joint venture will provide consulting services prior to construction, namely the Early Contractor Involvement, ECI method for the development of the Vouliagmenis Mall Complex, the largest and most modern retail development in Greece and one of the largest in South Europe. The main construction works for the development of the Vouliagmenis Mall Complex are expected to commence in the first half of 2024 while the excavation works will commence in the second half of 2023. Another very important recent development was the signing of the agreement with Mandarin Oriental Hotel Group for the management of a new hotel as well as luxury-branded residences on the coastal front. This is in the context of LAMDA's strategic partnership with TEMES, our trusted partner and the leading investor, developer and operator of high-end tourism and real estate destinations in Greece. The expected commencement of operation is summer 2027. According to the updated business plan, the development consists of a 5-star hotel with 123 keys along with 17 luxury-branded residences with views of the Saronic Gulf and direct access to the sea. This is another very important addition to the list of world-class advisors and expert partners who assist LAMDA in the project execution. The above are just a few examples demonstrating that we at LAMDA are firing on all cylinders and taking necessary actions to ensure the commercial success of the project as well as bring forward additional cash flow. Clearly, all project execution has been done so far in a very challenging environment, dealing with mounting inflationary pressures and energy costs, rising interest rates and growing uncertainty regarding the overall macro outlook. These risks are constantly assessed, are taking into account in the implementation of our plans and are addressed to the extent possible through important mitigation actions. Let me now pass the floor again to Harris, who will point out a few additional highlights regarding the first quarter financial results.

Thank you, Dimitris. Before going to the Q&A session, let me highlight a few points which I'm sure our audience is considering. First, Ellinikon EBITDA appears loss-making. This is true [indiscernible] to, a, the significant buildup of cost which is reasonably anticipated in [indiscernible] regeneration projects at this early stage of development; and b, the international accounting standards, which require deferred income from property sales to be recognized in P&L with a time lag based on progress of works compared to the actual cash collection. Important to note that the deferred income in our balance sheet from property sales at the end of the first quarter amounted to EUR 143 million, whereas revenue recognition in the P&L is only EUR 17 million. We envision that Ellinikon would register positive EBITDA as progress of course continue and balancing the revenues will become the P&L revenues to cover for the operating expenses, some that will be evident quarter-by-quarter in 2023. Second, Ellinikon bottom line results are hit by the negative impact from the noncash financial expenses related to the accounting recognition of future obligations for the project. This is an accounting treatment, which we have described and presented in previous results conference calls. We can say again that these are the obligations related to the deferred land purchase, i.e., they remain in consideration payable to the Greek state as well as the infrastructure works to be delivered. It is a noncash item and in my view, should be adjusted for someone to understand the underlying profitability of the project. Third and finally, the group borrowings at EUR 1.6 billion, unchanged compared to year-end 2022. Worth noting that 57% of group borrowings are either fixed or hedged, hence, the unhedged floating rate part of group's borrowings account to 43% of the total. And importantly, are fully supported by cash generating assets. We have updated the dedicated slide in our results presentation. You can refer to the Slide #42 with a relevant sensitivity analysis on interest rates. The key message, LAMDA is well positioned to navigate through the current turbulent period of rising interest rates. All in all, first quarter of 2023 results once again highlight the solid performance and the unique in our view, investment case of LAMDA Malls as well as group's focus and accelerate the efforts on the successful execution of the landmark Ellinikon project, all secured with a strong cash position. And with that, I conclude today's results presentation, and we're now ready to proceed with the Q&A session.

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

I have a question regarding -- it's more of understanding what is the actual net figure or not net figure, but the figure relating to the Malls below the EBITDA. I will try to explain myself. I was trying to understand how much of the finance cost could we assume relates to the Malls because we have the Ellinikon loss and I wanted to see how the very good performance of the Malls in the EBITDA line filters down to the P&L and what we should expect going forward for the Malls on this respect? So this is one question I have on the Malls, and then I have some questions on Ellinikon. I don't know if you want me to shoot them all together and go ahead later or you want all to......

So, Natalia. Dimitris here. Natalia, can you please register your second question? So we can answer them one by one.

Okay. And then we can go. Okay. Right. Okay. The second question has to do with the revenue recognition in Ellinikon, I know we've touched it and Mr. Goritsas has just said also that this has a time lag. But I'm trying to understand if based on the construction and the milestones you said achieving like 20% plus 15%, plus another 15% probably coming by year-end, we should expect a total of 50% achieved and that 50% revenue recognized by 2023 year end for the Riviera Tower. Is this something I understood correctly? Or I'm rushing to see the revenues also there? And how is the revenue recognition going for the villa land slots, the Cove Villas because there is no construction there. This is regarding Ellinikon.

Natalia, thanks for the questions. Let me start with the second one, which I believe it's very valid and very important, and we have touch-based a month ago when we're presenting the results for the full year, if you recall. So revenue recognition on Ellinikon, and you rightfully mentioned the example of the Riviera Tower. So I will use this example. And let's assume that Riviera Tower was 1 apartment costing EUR 600 million, and we have sold this apartment, and we have received EUR 600 million of cash in our balance sheet. No, sorry, we have sold this for EUR 600 million and based on the contract, we have what 20%, 20% as pre-agreement and then another 15% and 65% by 2023. So by end of 2023, we have received 50% of the EUR 600 million in our balance sheet. So EUR 300 million in our balance sheet based on installments. So EUR 300 million, by the way, this is what we envisioned by end of the year. EUR 300 million will be in the balance sheet as cash proceeds from the Riviera Tower. Now what IFRS, International Standards, Accounting Standards tell us is that this EUR 600 million total signed SPAs will be registered in the P&L as revenues based on the percentage of completion of the tower, construction completion. We envision by end of the year, construction completion of the tower will be around 30%. So around EUR 180 million, EUR 600 million times 30% will be registered as revenue in the P&L. So EUR 300 million in the cash and EUR 180 million in the P&L, the other EUR 120 million will be as deferred income in the balance sheet to be registered in the P&L in the next years, '24,'25 with the completion -- with the percentage of completion of construction moving on.

Okay. Is it safe to assume -- as I understand it, the 15% milestone and another 15% add up to the 30% construction completion.

Correct. 15% is the second milestone, which we have already achieved, and we have already started to receive the second installment and then another 15% by -- towards the end of the year. So we think 2023, we'll receive 30%.

Okay. Okay. This is now understandable. What about the villa land slots, how do we recognize there?

Villa land plot. This is an outright sale of land plot. We have received already the 50% of those land plots that have signed SPAs and the other 50% will be received upon delivery of the land free of whatever it has on it -- I mean land ready for the new owner to start construction of the villas. We envision this to happen within 2023. So by end of 2023, we should have received 100% of the cash with around EUR 200 million. Okay. So cash flow-wise, we will receive EUR 200 million by end of 2023. And had already received around EUR 100 million and other EUR 100 million in 2023. Revenue-wise, P&L-wise, we have currently registered 0 on that one. Why? Because you have to fulfill the CPs of cleaning up the land and making some preliminary infrastructure works on the area of this plot. We envision this to happen within 2023. So by the end of 2023, we'll register the full EUR 200 million in the P&L as well. So Natalia, you can envision that, as I said to my speech previously, that Ellinikon is indeed registering losses currently in the P&L. But our view -- our focus for 2023 is that Ellinikon will turn positive in terms of profitability. We still have a lot of revenues to be written in the P&L, which cash is already in the balance sheet. So this should give confidence to the investors and the analysts, of course, that once -- and this is always what I say for the Ellinikon project, once you see the cash in the balance sheet and you -- we confirm good progress on works, P&L -- strong P&L will follow.

Will follow, yes, definitely. Okay. And now about the Malls, the Malls performance below the EBITDA line and....

On the first question about the Malls performance. First of all, let me confirm that whatever interest expense, we're -- actually the majority of the interest expense is relating, of course, to the Malls performance. Currently out of the EUR 16 million that we listed as group total cash finance costs, not a non-cash, around EUR 7 million is relating to the Malls interest expense in Q1 2023 always.

This is the number I have in mind. But I guess EUR 16 million sounded too big to me, and then I was trying to understand what's below there. Okay. So it's around EUR 7 million, okay, for the Malls. And so okay, it's a quite good performance. And I assume the Malls financials have increased because of the Malls acquisition and the Designer Outlet also?

Correct. Correct. We do have another EUR 150 million worth of debt relating to these 2 points that you are referring to. So this is an example of why this is increased as cost for the Malls compared to prior year.

[Operator Instructions] The next question is from the line of [ Athanasakis George ] with [ Pentelakis ] Securities.

Do I understand it correctly that Ellinikon is self-financed until now. I mean looking at the presentation on Slide 24, I see that CapEx until now is EUR 50 million plus EUR 142 million, so its EUR 192 million and collections are EUR 240 million -- EUR 242 million up until now. Is that right? And would you expect that to continue? I mean Ellinikon mid-term financed, is this why you talked about renegotiating with the banks, the terms of the debt in -- and within that context, where would you expect your debt to peak in the near and medium-term future?

Thanks for the question, George. Very valid. And indeed, I confirm what you have just understood. So far, EUR 0 have reached from borrowings to Ellinikon. So all is our money -- group's money that support the project. This definitely was not the original planning.

Sorry to interrupt, I think it is actually client money that is financing that not group money, EUR 242 million proceeds from sales. Is that right? And EUR 192 million CapEx plus infrastructure up till now. This is client money, right?

Not exactly, not exactly because one should consider that Ellinikon also has a cash at this point, EUR 200 million cash in the bank. So we have raised money through the share capital increase and through our 2 bonds that we have raised in order to support the project. Those money supported the project at the early stages. It is true. But in late 2022 and of course, in 2023, this continues, we have very, very good sales proceeds. So of course, we have clients' money in our books. So one should see this issue. That's why, I was trying to do group funding the project. I don't know if this is clear, George. I mean, before I go to the that, how do we forecast.......

It is clear to me that this project is self-financed until now and it seems it is going to continue to be self-financed. I mean when I say self-finance, I mean, client money financing the development of Ellinikon. And now we come to the renegotiation of the debt that you refer to during the presentation. What does this mean exactly? I mean.....

Now, as I said, the original plan was that from the committed lines that we have. And by the way, we're paying some fees for these committed lines to the bank. We have -- on the original plan, we have assumed that funding will be required in 2023 for the Ellinikon project. This is not the case as we have just said, it's self-financed. So what we say is that we confirm that in 2023, none of the committed lines will be utilized and in 2024, a few of the committed lines will be utilized mainly for VAT. So we envision that with this pace of sales and progress of works, Ellinikon will continue to be self-financed, as you say, in 2023 and in the major part of 2024.

This is very, very confusing. And if I may add to that, in hindsight, are you happy with the prices that you sold the apartments and villas and land plots for the villas and all that? In hindsight, given the development of real estate prices in Greece.

Look, I would say yes, we're. And why do I say that? Because it's a combination of 2 factors. First of all, we have the presale. We have started quite early, and especially for Riviera Tower. This is what we have announced also in previous calls that definitely, if we were to sell Riviera Tower later on, of course, we would have struck better pricing. But we have done that with a purpose, which also led to the fact that because of the high demand and the queue of customers that were not able to find an apartment in the Riviera Tower, there was a big queue for the condos, for example. In the condos, we have increased prices quite significantly versus our original plan to cater for the increased costs, we have to say that. But also because of the high demand. So on a blended case, we're happy about the level of pricing that currently our products are in the market. What I can say also is that if this trend of high demand continues, definitely, we're going to revisit the selling strategy and the pricing strategy of our products in Ellinikon. Ellinikon has started many, many products when it comes to especially the residential. So one should consider that for EUR 1,000 above the current plan that we have for our products in Ellinikon, we'll generate EUR 1 billion more revenues for Ellinikon, which is EUR 6 appreciation price on stock price. So there are opportunities definitely for better pricing as long as we confirm this good progress of sales.

George, pardon me. Dimitris here. We're building momentum. We're building momentum with the -- by placing to the market the high-profile luxury coastal front residential projects. And we're about to place to the market the main -- the so-called mainstream residential, the high-rise and the mainstream residential. And for me, to place these to the market, we have -- we will be also tapping the international market because so far, we have been only tapping the local market, and we have been positively surprised by local demand. This is an important one. But as I said, we're building momentum.

Great. And if I may, last question, the top floors of the Marina Tower, have they been sold? Are you negotiating? What prices are you looking at?

Okay. We -- I cannot -- we cannot reveal the prices yet. Definitely, it's not going to be cheap, as you can imagine. Yes, we're -- [indiscernible] are already, as we say, sold, but we're under negotiations with future buyers. Why? Because as you can appreciate, we're talking about very luxury apartments there. And the buyers before signing, they need to have some details with architects in order to change some things on the interior design of the apartment on the high floors. So that's why what we have said is that this floor will be sold or will be signed, the SPAs will be signed later in 2023. But we can confirm that all floors have already locked in terms of sales.

That's great new.

George, the most important aspect is what I suggested before. The achievement of the first construction milestone unlocked invoicing of the next installments. So anyone buying right now on the Riviera Tower has to pay 35% of the consideration.

Okay. So the installments are linked basically to construction milestones. So the money that you have received are linked to speed that the construction execution is happening. So okay. All right. I get it. Any how, the fact of the thing is self-finance is very good in my view and the most stock market has started appreciating that, as you can see, by the movement in the share price. So I hope things continue this way, and I'm sure they will.

Thank you.

Thank you.

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

So yes. Thank you, operator, and thank you all for being with us today. A month after the 2022 full year results, we confirm that 2023 has started on the right foot. Growth for our existing business, i.e., Malls continues with strong results, and we confirm another success year 2023. While in Ellinikon, the sales continue strong, construction works continue as planned, so we feel very confident that in that front, people will also see the construction from ground up towards the end of the year. The accounting principles will allow us to register this cash inflows to the P&L. So again, the investors will see this happening quarter after quarter. So we feel very confident that LAMDA Group and Ellinikon-specific project will unveil its full potential in 2023 onwards. Thank you again, and looking forward to see all of you, all in the next call of our results.

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