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

Ladies and gentlemen, thank you for standing by. I'm [ Popi ], your Chorus Call operator. Welcome, and thank you for joining the LAMDA Development Conference Call and live webcast to present and discuss the first half 2023 financial results. [Operator Instructions] and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Apostolos Zafolias, Chief Strategy and IR Officer. Mr. Zafolias, you may now proceed.

Thank you. Good afternoon, ladies and gentlemen, and good morning to those of you calling in from the U.S. Thank you for joining LAMDA's First Half 2023 Results Call. The results presentation has been posted on both our corporate website as well as on the live webcast page. On today's call, I will open the call by going over some key highlights for our first half results as well as some recent corporate developments and accomplishments. Harris Goritsas, our Group CFO, will then discuss our first half 2023 financial performance and results in some more detail, and we will then open up the call for Q&A. Starting at the group level, LAMDA Development consolidated EBITDA for the first half of 2023 was EUR 72 million, registering a 90% increase over the same period of last year, driven by 2 main factors: First, record performance of our malls and marinas, and second, the positive tangible progress made at the Ellinikon project, which resulted in higher revenue recognition as compared to previous periods, something which we expect will continue to see as we meet construction milestones in the months ahead. Specifically, LAMDA's Malls portfolio has once again delivered record-breaking performance with EBITDA reaching EUR 41 million on a half year basis. EBITDA grew 14% versus 2022 after excluding the positive contribution of the designer outlet Athens, for a comparison over the same number of malls or 30% year-over-year if you include the designer outlet's results. EBITDA growth was underpinned by an increase in both inflation adjusted base trends and across all key performance indicators, which overall reflects solid performance quarter after quarter as underlying macro fundamentals in Greece continued moving on a positive trend outpacing the rest of Europe and the U.S. The strength of our mall portfolio is further highlighted by increasing valuations to the tune of EUR 41 million despite the underlying challenges of rising interest rates and persistently high inflation. Moreover, we continue executing towards our goal of creating a simpler corporate structure with optimized operations for our malls portfolio by consolidating all of the separate entities under one umbrella. An important step in this reorganization process was completed with the approval of a demerger of the subsidiary company law during the recent shareholder meeting. We target completing this process by the beginning of 2024, providing greater optionality for future monetization options. We're also pleased with the commercial leasing progress of the Ellinikon malls that has exceeded by far our initial expectations. To date, we have pre-leased 57% of the GLA at the Vouliagmenis Mall, which upon completion will be the largest mall in Greece with 90,000 square meters GLA, serving the undersupplied market of the southern suburbs. We have also pre-leased 36% 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 the end of 2023 onwards, almost 3 years before the commencement of operations. This is certainly a significant vote of confidence from the local and international retail and F&B sectors for LAMDA malls and a testament to the differentiated offering our malls offer in the Greek retail market. LAMDA's Marinas, Flisvos and Agios Kosmas delivered a new record high in EBITDA on a half year basis on the back of solid performance with 100% occupancy rates even after pricing increases that we implemented during 2022. On top of this, in early July, LAMDA Marinas was declared the preferred investor in the tender by the Hellenic Republic Asset Development Fund or the Greek privatization Agency for the 40-year subconcession for the Mega Yachts Marina in Corfu. This development is expected to strengthen LAMDA's leading position in the Marinas sector. Importantly, now to the Ellinikon, Europe's pioneering 15-minute coastline city within a city. It is at a pivotal point of showing tangible progress, both in terms of construction, but also in terms of cash collections and revenue recognition. Specifically, cumulative cash profits from property sales and leases have reached EUR 366 million to date, of which EUR 184 million has been achieved within the first month of this year. The first 3 coastal front residential projects are practically sold out, creating positive momentum for the other residential projects, which are gradually being introduced to the market. In fact, buyers' interest for Lamda's most recent product offering, the high Rise project, a unique 50-meter high-rise designed to be globally by the globally renowned architectural firm, Bjarke Ingels Group has already exceeded expectations. Out of the 25 units that have been offered since the beginning of this month, almost 50% of them have already been secured with deposits by the buyers. All of the above is not only evidence of the project's commercial success, but it also provides visibility on the expected revenue recognition going forward as we meet project construction milestones, which Harris will cover in more detail in his section. In the meantime, I just want to mention that of the EUR 366 million of cash collection proceeds achieved to date, only EUR 98 million has been recorded as revenue on our financials through June 30, 2023, on a cumulative basis. The lag between the pace of cash collections and the revenue recognition is due to the delta between the percentage of progress payments as those are mandated in our contracts and the percentage of construction completion as that is defined within IFRS. It implies that over EUR 260 million of actual cash collections to date will be recognized in our P&L as we achieve those defined milestones and increase our construction progress percentages in the coming months. In addition to that, we expect to collect an extra approximately EUR 300 million of cash proceeds through the end of the year, which again will be recorded into revenue over time as milestones are achieved. In terms of those milestones, specifically construction milestones for the Ellinikon project, we have the following updates. First, for the Riviera Tower, we have achieved the first construction milestone one month ahead of schedule, unlocking approximately EUR 90 million of cash collections. Second, we're on track to achieve the second construction milestone by the end of the year, which will unlock an additional EUR 90 million worth of cash collections. The achievement of that second construction milestone also marks the commencement of the superstructure construction from the lobby upwards, which will be visible from Posidonos Avenue providing further tangible evidence of the project -- of the progress of the project. Furthermore, we completed construction and delivered the AMEA building complex for use by the 4 associations for people with disabilities, meeting a major milestone as per our previous announcements. Infrastructure and other construction works are also progressing according to schedule. Indicatively, 70% of the excavations and about 1/4 of the concreting of the Posidonos underpass has been completed. Also, 60% of the excavations of our flood prevention works and 88% of the excavations for rain water collections have also been completed. On the permitting front, we have already received pre-approvals and final permits in record time for Greek standards for a number of the projects, such as the Riviera Tower and Riviera Galleria, and we anticipate receiving building permits for a number of key projects until year-end. For example, the Vouliagmenis commercial hub. The above are a few examples of the tangible progress of construction and payment milestones that are being achieved by the team of LAMDA, which not only contribute to the commercial success of the project, but also have a tangible impact on our financials as we moved into the construction phase and start recognizing revenue. I will now pass the floor to Harris Goritsas, Group CFO, who will walk you through the important highlights of the first half financial performance.

Thank you, Apostolos. Hello, everyone, and thank you for joining today's results presentation. Starting with the first half 2023 P&L performance at group level, let me highlight the following: Group consolidated EBITDA before asset valuation and other adjustments amounted to EUR 27 million profit compared to almost EUR 6 million profit in first half 2022. The key drivers of this significant year-on-year improvement are: First, 7% growth in malls EBITDA, rising new record high levels on a half year basis on the back of solid growth and gross all operational metrics namely 13% growth in inflation index base rents on a comparable basis, 26% growth in tenant sales and 27% growth in footfall. A holistic growth, confirming the strong return of our malls after the COVID-19 impact. Second, 6% growth in marina's malls [ in marina's ] EBITDA, setting a new record high on a half year basis as well. As Apostolos mentioned earlier, this solid performance was delivered with 100% occupancy rates, even after an approximately 15% price list increases affected in 2022, which more than offset the increased lease cost at fleet was due to indexation and the increased personnel costs. Thirdly, significantly contained EBITDA loss for the Ellinikon project on account of the gradual P&L revenue recognition from property sales that is mainly residential units and the land plots, reducing the increased costs, which is reasonable and anticipated in an urban regeneration project at this early stage of development. Important to note here that first half 2023, P&L revenue in the Ellinikon project reached EUR 72 million versus almost the same period last year. To further stress, this timing mismatch between actual cash collection and P&L revenue recognition, the amount of deferred revenue not yet recognized reached EUR 220 million. This deferred revenue is booked on our group balance sheet as liability and payables. We therefore expect the Ellinikon to raise their positive EBITDA as progress of work continues and the deferred revenue amount are recognized as P&L revenue something that will be more evident in the remaining quarters of 2023. Group consolidated EBITDA now reached EUR 72 million, including the following asset revaluations, 20 million fair value gain based on the independent values assessment for the group investment assets that is malls and other properties and 25 million fair value gain based on the independent values assessment, again, on the Ellinikon investment property that is malls, offices, hotels, the IFC and our sports [ banks ]. Moving now to group consolidated net results after tax and minority interest, we reached EUR 18.4 million profit compared to EUR 22.2 million loss in the first half of 2022, mainly driven by the aforesaid significant operating profitability EBITDA growth coupled with a positive impact from the fair value gains as mentioned. As regards to the negative impact from the noncash financial expenses, this relates to the accounting recognition of future obligations for the deferred lab purchase and infrastructure works of the Ellinikon project. It is a noncash item and in my view, should be adjusted for [indiscernible] understand the underlying profitability of the Ellinikon project. Moving on now to the group balance sheet. Group gross asset value reached a new record high of EUR 3.22 billion, consisted of: first, our malls gross asset value now at EUR 1.1 billion, EUR 21 million higher than December 31, 2022. We note that malls gap reached a new all-time record even when accounting for just the 3 malls for comparison reasons. The revaluation gains clearly reflect more significant EBITDA improvement and solving underlying trend in KPIs. Worth mentioning here is that the most portfolio weighted average exit yield used by the independent values, in their valuation exercise remained unchanged versus end 2022 at 7.5%. This is [indiscernible] 150 basis points above the relevant peer group average in [indiscernible] Italy, Spain and Portugal, whereas at the end of June 2023, the Greek 10-year sovereign bond yield stood at 3.6% versus Spain at 3.4% and Italy at 4.1%. For a detailed overview of the exit yields comparison, please refer to the dedicated slide #55 in the results presentation. Second, Ellinikon's gross asset value of a EUR 2 billion, EUR 40 million increase versus Decemeber 31, 2022 driven by the positive impact of EUR 25 million investment property valuation and EUR 15 million building CapEx net of cost of assets sold. Recall that the Ellinikon EUR 2 billion gap consists mainly of the following 2 key elements. First, the EUR 900 million worth of assets classified as an investment property measures at fair value [indiscernible] which relates to last month's for the development of malls, offices, hotels, IRC and sports. And secondly, approximately EUR 1 billion worth of residential development assets classified as inventory, book at cost on our balance sheet, including land, infra and construction costs. We note that this EUR 1 billion worth of residential development assets, if it was mark-to-market by an independent appraisal as opposed to being recorded as cost as per IFRS standards. We estimate that the revaluation gain will be amount to approximately EUR 0.5 million based on estimates provided by third-party appraisals, showing the significant amount of hidden value and bidding the project. Thirdly, the gross asset value of all other group portfolio assets, mainly Flisvos Marina, land plots, offices and other amount to EUR 175 million unchanged versus end of 2022. Moving on now to LAMDA's net asset value. It reached EUR 1.35 billion, made up of EUR 700 million from Ellinikon and approximately EUR 600 million from value added due to the malls. If we look to group borrowings, gross reached EUR 1.19 billion, about even to the figure at the end of 2022. Worth noting here that 55% of our group borrowings are there fixed or hedged, placing us in a good position to navigate through the current turbulent period of interest rate increases. Lastly, we have mentioned a solid group cash position of EUR 589 million, providing significant liquidity to fund the progress of works following the payment of the second installment of EUR 167 million to the Greek state related to the large purchase. So far, LAMDA has already paid to the Greek state EUR 464 million or 51% of the total consideration for the land purchase, and there are no significant payments to the Greek state for the land purchase until June 2028. As a closing remark from my side, first half 2023 results highlight the group's holistic performance and the unique in our view, investment case of LAMDA Malls as well as the group's focus and accelerate efforts on the successful execution of the landmark Ellinikon project. And with that, I conclude today's results presentation and we are now ready to proceed to the Q&A session.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Svyriadi Natalia with Eurobank Equities.

I would like to start with the Ellinikon. I have one or 2 questions. I was actually looking if you could guide us through a bit on the CapEx, we are expecting now closely like we have CapEx at EUR 172 million buildings CapEx up until now for the buildings you have done. But what should we be expecting like in the near term until year-end? We said about the cash inflows we are expecting. So could you guide us through a bit on how this will evolve up to the end of the year. And I don't know if you have anything for 2024 or it is too early for that. This is one question on Ellinikon. And I was wondering also about the tenders for the metropolitan park, the sports center, is there any news on these? Have they progressed, something we know about them or something that has changed? .

So let me address the second part of the question and Harris can address the CapEx part. Look, in terms of the tenders, I don't think there's any other -- there's any significant update to give on this goal. We're progressing with them, along with some other projects. And as we have information, we will be providing more clarity to the market.

And the value regarding your first question about CapEx, indeed, EUR 172 million spent so far from project inception out of which EUR 52 million was spent in the first half of 2023. So your question is around 2023 remaining, we estimate roughly another EUR 100 million. So we accelerate the pace and there, we believe that around this amount EUR 150 million will be also for 2024, although we need to see this and validate that as we move forward. So it is an accelerated pace as more projects are progressing, these costs will increase.

Okay. Great. And should we assume that it will accelerate also for infrastructure works, which [indiscernible] are related, I assume.

Absolutely correct.

Absolutely correct. Okay. And I also have a question on the malls. On the new structure now that where we are trying to get your'e thinking of after it's simplified, what are the next steps we should be expecting. Somebody is asking, will it only be the malls that you're going to stay in the structure? Would you go for an IPO of the malls and something else, another investment assets in this -- how are you thinking about this thing with the malls IPO going ahead after the simplification.

In general, the answer to your question is we are -- the first step is to get everything reorganized under one common umbrella and by everything, what we mean on that is the 4 existing malls that are under operation as well as the 2 new malls under the Ellinikon project. Thereafter, yes, we have talked about a potential IPO going forward. The timing of that is obviously going to be somewhat market dependent. But what we're trying to do on our end is get everything lined up. So we are ready to act depending on market conditions.

Okay. So this is going to be depending and after the like mid-2024 or when everything is ready. Could I have one last question on the Marinas. If I recall correctly, the Agios Kosmas Marina needs refurbishment or closing. I don't know. I was wondering if you could say what we are expecting there in the Agios Kosmas because I remember there's something that's going to happen.

Absolutely, Natalia. No not closing, Agios Kosmas is much part of the Ellinikon project. It's an operating marina and it's going -- it's delivering great results, as we now have announced. There is a plan to completely, let's say, redo the [indiscernible] Marina and to bring it up to the standards of LAMDA Group. Flisvos is a good example. And if someone sees the Marina's currently and the fleets the difference we are aiming for. This will happen gradually, no closing of the marinas of Agios Kosmas, and it's part of the overall Ellinikon project CAPex that we have mentioned.

Okay. I guess I was wondering if it's going to close to be refurbished or it's something that's going on and ongoing, so we can understand because you had good results from the marinas. So they're starting to be meaningful in the bits and pieces. Okay. And the Kosmas Marina is a tender underway as I understand. It's just a tender, you have won and it is for later.

That's correct.

The next question comes from the line of [indiscernible] Axia Ventures.

Congratulations for [ these ] results. Just a couple of questions from my end. So firstly, which are the next important milestones for the projects that you have already signed agreements? And the second question is what is the amount of expected recognized revenue that will be recognized in your P&L for the remainder of the year?

In terms of the milestones, I think the next biggest one that's coming up is the one, the Riviera tower which we mentioned during the script, which is the second construction milestone by the end of the year and that's expected to unlock an additional EUR 90 million of cash collection. In regards to -- sorry, was your question in regards to cash collections or revenue recognition by the end of the year.

It's revenue recognition?

Okay. So in regards to revenue recognition, well, let me go top line and then break it down. That might be helpful for the rest of the audience as well. So total cash collection proceeds to date have been EUR 366 million. Of that, to date, so cumulatively through 2022, 2023 to date, we have only accrued about EUR 98 million. We further expect to accrue an additional EUR 100 million to EUR 130 million by the end of the year in terms of revenue. Now on top of that, we're also going to be collecting cash of an additional $300 million by year-end. So going forward, while you do have a lagging effect, you have to basically cover revenue recognition from all of these sort of inflows that are lined up. I hope that answers your question.

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

Very strong growth of turnover of the tenants in the existing malls. Three questions from my side, please. First, a follow-up on the discussion with Natalia on the Mega Yacht Marina in Corfu. Is it possible to walk us through the time line of the project and the expected economics of the deal in a bit more detail? Or what period do you expect the construction CapEx to be spent? Is there any upfront component to the concession, how much FFO do you expect this could contribute once up and running?

We've announced by early July, the following. Although we have been declared the preferred investors, this transaction has not closed. What we announced is that it's also under consideration that LAMDA Marina, our subsidiary, will be paying to the Greek privatization agency for the 40-year concession period will be to the tune of EUR 89 million. That's EUR 89 million, okay. The investment for the construction of this Mega Yacht Marina, which is nonoperational as we speak, is about -- it will be north of EUR 50 million. Now we haven't laid out any other specific details after the project because we have not signed the final agreement with the privatization agency, but we will, in due course, relate further information about this project. The expectation is to become operational by 2027.

That's clear. That's very helpful. We'll be staying for more news on this one. The second question on the high-rise by BIG. Just first, to clarify, do I understand correctly from the presentation that the average apartment size is around 280, 290 square meters, given the sellable area and the number of apartments.

No, no. The typology range is from 70 square meters, 70 square meters of 1 bedroom, up to more than 300 square meters for 5 bedrooms. This is not the average. We don't have right now the exact -- the average typology, but this is not the correct average.

And so how should we see the -- if the -- I thought in the presentation, we have this 25,000 square meter of gross sub area. So this includes the 88 apartments and the 25,000 square meters, these numbers are not sort of the same thing as [indiscernible].

You can understand that we've seen that in the case of the [indiscernible] buyer buying the entire [indiscernible] and then dividing the [indiscernible] into different apartments. So what we suggested so far is that the total unit after the initial project is 88 units. The exact typologies will be agreed with the interested buyers. Allow me to repeat myself. The typologies range from 70 square meters for 1 bedroom all the way up to 5 bedroom flat of about north of 300 square meters.

On this one, is it possible to share was the value of land and infrastructure allocated to this project? And what is the expected construction CapEx you expect for the full.

I don't think -- service information at this point of time. We have -- the one thing that I will give you a little bit of color is during our Investor Day presentation, we did give you the GSA, yes, total number of units across the high rises and a general gross margin across the remaining residential projects that are due to come to the market through the second half of 2023. So that might be a little bit of help, and I know that the gross profit margin at the time was at 38%.

Third final question from my side, please. A more general one. I mean, in Ellinikon as we discussed the CapEx, which is being spent now, the whole project is just starting. And in, say, 2 years' time in 2025, there will be significantly more construction activity. Many more projects will be in full swing. And if the Greek economy continues on the upward trajectory in the recovery mode, probably we will see also other projects being started in the city. Based on your discussions so far with the contractors, with subcontractors, how do you see the construction capacity in the Greek market in terms of people, machinery, the number of companies. What is the overall picture given that the decade when the economy and construction activity were dormant probably a lot of companies either [indiscernible] or maybe scale down? And what would you identify based on your discussion so far as the key potential growth point for the execution of Ellinikon of the first phase?

Look, I think that what you're trying to get at is execution risk and sort of labor -- the labor market overall in Greece. Clearly, this is something that we're monitoring on a monthly, weekly, we keep monitoring on an ongoing basis, and it's something that we're trying to mitigate. One of the things that we do in mitigating is we're putting protective clauses in our contracts with our contractors and subcontractors and there's other things that are sort of early in the process of -- early in the process to sort of give you any more detail. But rest assured that it is clearly, we do see the risk. We have identified it and we're looking at solutions to mitigate it.

Is it possible to share, I mean, some rough estimates. I mean, once we are in the sort of full swing mode over the first phase, maybe how many people will be working, let's say in '25 in Ellinikon at the same time on these various projects or I don't know how many cranes will need to be on the site so that everything can sort of progress at the same time?

Not off the bat, but that's something that we can definitely look at and I'll get back with some more specifics.

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

Thank you very much all for your questions and your participation on the call. Before closing, just a clarification on one of the items that we mentioned on the call, which was when Harris was talking about the appraised value from independent appraisers of the Ellinikon investment projects versus what is currently in our books as book value. The differential there was $0.5 billion, not $0.5 million that may have come across. I would also, before closing the call, like to address one question that came in through a shareholder as well, which I had to do in -- which had to do with share repurchase programs. And just to reiterate that we do have a share repurchase program approved by the Board. We have completed share repurchases up until the beginning of the blackout period for earnings. And we intend to continue to look at that going forward. Again, always in conjunction with maintaining the blackout periods and whatnot. That is about it from us. Thank you very much for your participation, and we wish you a good evening and good day [ accordingly ].

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