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

Ladies and gentlemen, thank you for standing by. I'm Pope, your Chorus Call operator. Welcome, and thank you for joining the Lamda Development Conference Call and Live Webcast to present and discuss the 9 months 2023 financial results. [Operator Instructions] And the conference is being recorded. [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 United States. Thank you for joining Lamda's 9-month 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 going over some key highlights for our 9-month numbers as well as recent corporate developments and accomplishments. Harris Gkoritsas, Group CFO, will then discuss our financial performance and results for the period, and we will then open the call up for Q&A. Starting at the group level, Lamda Development's consolidated EBITDA for the 9 months in 2023 reached EUR 77 million, more than doubled over the same period last year, driven mainly by 2 key factors: First, record performance of our Malls and Marinas. And second, the continued positive tangible progress made at Ellinikon as evident in the increasing cash collections and higher revenue recognition compared to previous periods, something which we expect to continue as we meet construction milestones in the months ahead. Lamda Malls portfolios has once again delivered record-breaking performance with EBITDA climbing to EUR 62 million, the highest ever on a 9-months basis. EBITDA grew 15% versus 2022 after excluding the positive contribution of Designer Outlet at Athens and for a comparison over the same number of malls, it grew even higher at 28% if you include Designer Outlets results. EBITDA growth was underpinned by the following factors: Rental income growth on the back of our inflation adjusted base rental agreements, parking revenue growth, core issue of the strong increase in footfall, sustained positive development across all key performance indicators led by strong growth in tenant sales at 23% year-over-year and solid occupancy rates. In addition to these positive developments and on top of our solid EBITDA -- operating EBITDA at EUR 62 million, the strength of our Malls portfolio is further highlighted by a fair value gain of EUR 20 million. The strength of our investment assets overall reflect solid performance quarter-over-quarter, aided by strong underlying macro fundamentals in Greece, which continued to move on a positive trend, outpacing the rest of Europe and the U.S. Slides 14 to 16 of our Highlights section provide an overview of some key metrics and a more detailed analysis breaking out results for individual malls is available on Slides 30 to 40 of the presentation. 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. The most important pending work streams are complete. Our investments in corporate transformation is, first; the completion of the contribution of the shares of some subsidiaries within the Malls' portfolio to Lamda Malls; and second, the completion of the corporate legal form transformation of Designer Outlet, Athens from a limited liability company to an SA. Most work streams currently in progress are expected according to our schedule to be completed by year-end. The commercial leasing progress of the Ellinikon Mall has exceeded by far our initial expectations of the mall. Today, we have pre-leased 64% of the GLA at the Vouliagmenis Mall, which upon completion will be the largest mall in Greece with 90,000 square meters GLA, 1.5x larger than The Mall Athens, which is currently the largest mall in Greece. We have also pre-leased 46% of the GLA of the Riviera Galleria, which is designed to become a one of kind retail and leisure destination in Greece. For both developments, we expect to start signing commercial agreements with tenants in the first quarter of 2024 and onwards, almost 3 years before the commencement of actual 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 of our malls in the Greek retail market. Relevant details on Ellinikon's Mall's leasing progress is on Slide 44 for your reference. Lastly, on the investment assets, Lamda's Marinas, Flisvos and Agios Kosmas delivered a new record high in EBITDA on a 9-month basis on the back of another solid performance with 100% occupancy rates even after price increases that we implemented during 2021, as illustrated on Slide 41. Moving to the development side of our business, the Ellinikon, Europe's [ pioneering ] 15-minute coastline city within a city which is at a pivotal point of showing tangible progress, both in terms of construction, but also in terms of cash collections and revenue recognition. With regards to the progress of works, we have concluded -- we have included a section with a visual update on the progress of works in the appendix of our presentation starting on Slide 45. Putting it into numbers, cumulative cash proceeds from property sales and leases to date have now reached EUR 448 million, of which EUR 241 million has been achieved within the first 9 months of this year. On Slide 21 of our presentation, you can see the first 3 Coastal Front residential projects are practically sold out, creating positive momentum for new projects coming online, and those are being introduced gradually into the market. In fact, buyers interest for Lamda's most recent product offering, the Park Rise project, which is a unique 50-meter high-rise designed by the globally renowned architectural firm Bjarke Ingels Group has already exceeded expectations. Out of the 33 units that we have offered to date, more than 60% of them have already been secured with deposits by the buyers. For the Park Rise, we plan to offer to the market an additional 30 units starting in December, and we have provided more detail for those sales on Slides 53 to 56. In addition to the progress of the Park Rise, we have also launched a marketing campaign for the mainstream Posidonos Avenue development, which is called the Pavilion Terraces. And we plan to offer to the market 58 units. About 1/3 of those units will be offered towards the end of the year. Slide 55 reflects the details for that. In the meantime, we highlight that out of the EUR 450 million -- EUR 448 million of cash collection proceeds achieved to date, only EUR 133 million has been recorded as revenue in our financials through September 30 on a cumulative basis. As of September 30, the deferred revenue not yet recognized on our profit and loss statement amounted to EUR 253 million, and we expect that to be recognized gradually once certain milestones are achieved and construction works evolve. Please refer to Slides 20 and 54 for the details there. To provide some more visibility on the actual construction milestones for the Ellinikon projects we note the following: First, for the Riviera Tower, we have completed the foundation works and the next construction milestones at tower lobby casting by year-end. It's an important milestone since it marks the commencement of the superstructure construction from the lobby outwards and that will be reachable from Posidonos Avenue, providing further tangible evidence of the construction progress for this unique residential development. We're also on track to achieve the second payment milestone by the end of the year, which will also unlock EUR 90 million worth of cash collections. For The Cove Residences, excavations have been completed in 2 out of the 4 plots while the remaining 2 are currently in progress. The concreting of the grand floor slab on 2 plots is expected to commence again near the end of the year 2023. Infrastructures and other construction works are also progressing according to schedule. Indicatively, 70% of the excavations and 35% of the concreting of the underpass has been completed to date. While 65% of the excavations for our flood prevention works have been completed at the Trachones Stream. On the permitting front, we have already received preapprovals and final permits in record time for Greek standards for a number of projects and anticipate receiving building permits for a number of key projects until year-end. Moreover, for The Cove Villas, the building permits have been issued for 3 plots with another 10 plots remaining until over the next couple of months. The above are a few examples of the tangible progress of construction and payment milestones that are being achieved by the team at Lamda, which not only contribute to the commercial success of the project, but also have the tangible impact on our financials as we steadily move into the main construction phase of the project and have already started recognizing revenue from our projects. I will now pass the floor to Harris Gkoritsas, Group CFO, who will walk you through the important highlights of the group's 9 months 2023 financial performance and results.

Thank you, Apostolos. Hello, everyone, from my side as well, and thank you for joining today's results presentation. Starting with the 9 months 2023 P&L performance at group level, let me highlight the following: Group consolidated EBITDA before asset valuation and other adjustments reached EUR 35 million compared to only EUR 3 million in 9 months last year 2022. As shown on Slide 6 and 8 of the presentation, the key drivers for the substantial year-on-year improvement are: first, the 28% growth in Malls EBITDA, reaching new high records on a 9-month basis on the back of solid growth across all of the metrics, mainly the base rents, the tenant sales and footfall. The acquisition and consolidation of Designer Outlet Athens also provides an additional growth driver. Overall, this record-breaking performance solidifies the strong return of our malls after the COVID-19 impact. For a detailed analysis on the Malls' portfolio financial performance, please refer to the dedicated sections of the presentation on Slide 32 to 40. Second, is a 7% growth in our Marinas EBITDA, setting a new record high on a 9 months basis as well. Apostolos mentioned earlier, the solid operating performance, therefore, I will not go into the details. For the relevant ones and details refer to Slide 41 of the presentation. And thirdly, the revenue increase from property sales and leases resulted in the significant improvement of the Ellinikon EBITDA before valuations and other adjustments. Losses have been contained to about EUR 22 million versus EUR 36 million in 9 months 2022. If we also include the EUR 22 million fair value gain based on the independent value assessment for the Ellinikon investment properties, EBITDA after asset valuations amounted to a marginal 0.6 million losses versus EUR 26 million losses in 9 months '22. As Apostolos mentioned earlier, total revenue in 9 months 2023 reached EUR 107 million and gross profit reached EUR 42 million from virtually 0 in 2022. The detailed Ellinikon P&L is presented on Slide 43 of the presentation. Apostolos referred earlier to the timing impact between actual cash collections and P&L revenue recognition, let me then repeat that the amount of deferred revenue not yet recognized reached EUR 253 million at the end of September. This deferred revenue is booked at our group balance sheet as liability on the payables. We have said in previous calls that Ellinikon will deliver material improvements quarter after quarter. Q3 results are validating that. We also continue to expect Ellinikon project registering EBITDA improvements in the following quarters as progress of works continues, leading to the first revenue recognition recognized as P&L revenue. Group consolidated EBITDA after asset valuation reached EUR 77 million, more than double versus 9 months 2022. This includes the following asset revaluations. EUR 20 million fair value gain based on independent valuers' assessment of the group investment assets that is Malls and other properties as of June 30, 2023, and the EUR 22 million fair value gain based on the independent valuers' assessment for the Ellinikon investment property that is Malls, offices, hotels, the IRC, the casino and the sports again on June 2023. So it is important to note at this point that we have not performed an asset valuation as part of our Q3 results, something that is planned to take place for our Q4 results. Group consolidated net results after tax and minority interest amounted to EUR 6.1 million loss, a substantial improvement compared to the EUR 55.2 million loss in 9 months 2022. This is mainly explained by the aforesaid significant EBITDA growth, coupled with a positive impact from the fair value gains. As regards the negative impact from the noncash financial expenses, this relates to the accounting recognition of future obligations for the deferred land purchase and the infrastructure works of the Ellinikon project. it is a noncash item. And as said in previous calls, should be adjusted for someone to understand the underlying profitability of the Ellinikon project to date. A [ handy ] summary of the group income statement is on Slide 7. For a detailed analysis on group P&L performance, please refer to Slides 8, 9 and 29 of the presentation. Moving now to group balance sheet. Please refer to the following slides of the results presentation. Slide 23 for the detailed overview of the group portfolio assets and Slides 24 and 25 for the group balance sheet and key financial metrics. Some key highlights from my side. Group gross asset value reached a new record high of EUR 3.2 billion consisted of: first, Malls gross asset value of EUR 1.1 billion, EUR 21 million higher versus December 2022; and we know that Malls gross GAV reached a new all-time record, even when accounting for just the 3 malls. Revaluation gains clearly reflect Malls' significant EBITDA improvements and solid underlying trends in KPIs as we have said. And second, Ellinikon gross asset value of EUR 2 billion, a EUR 40 million increase versus December 2022 driven by the positive impact of EUR 25 million investment property revaluation and EUR 15 million building CapEx net of cost of assets sold, of course. Recall that Ellinikon EUR 2 billion GAV consists mainly of 2 key elements: First, approximately EUR 1 billion worth of residential development assets classified as inventory, thus booked at cost on the balance sheet. This includes land, infra and construction cost to date. And second, EUR 900 million worth of assets classified as investment property and measured at fair value by an independent valuer, which relates to land plots for the developments of our malls, offices, hotels, IRC, the casino and sports. So the EUR 25 million investment property revaluation gains that we have referred to are attributed to those EUR 900 million worth of asset base. Or in other words, are attributed to only 45% of total Ellinikon gross asset value. So if the EUR 1 billion worth of residential developments assets was mark-to-market by an independent appraiser as opposed to being recorded at cost as per IFRS standards, we estimate that the revaluation gains will amount to approximately EUR 500 million, reflecting the significant amount of hidden value embedded in the project. This hidden value will be gradually revealed as we build and sell our residential products. The gross asset value for all other group portfolio assets, namely Flisvos Marina, some land plots, office and some other investments amounted to EUR 176 million, almost unchanged versus year-end '22. I have the summary of the group asset valuation of Flisvos on Slide 30 of the presentation. Moving now to net asset value. At the group level, this has reached EUR 1.3 billion, made up of EUR 670 million from Ellinikon and almost EUR 620 million of value attributed to the malls. For the detailed analysis of net asset value evolution as well as on the net asset value pillars refer to Slides 11 and 12 of the presentation. Moving now to group borrowings of EUR 1.19 billion, which is basically flat versus the end of 2022. The important to note here is that we have not raised bank debt for Ellinikon, thus, we execute our strategy to self-fund the project as communicated back at the beginning of the year. This effort, together with the fact that 55% of existing group borrowings are either fixed or hedged, placing us in a good position to navigate through the current turbulent period of interest rates. One can refer to Slide 26 of the presentation for more details. Lastly, commenting on my favorite topic of group cash, we have maintained a solid position of EUR 523 million despite the payment at the end of June on the second -- on the second installment of EUR 167 million to the Greek state related to the Ellinikon land purchase. This cash position provides significant liquidity to fund the progress of our works. As a closing remark from my side, 9 months 2023 results further highlights the group's solid performance and is a testimony on quarter-after-quarter improvements we have been discussing. We have a unique, in our view, in the management case with Lamda Malls, a very resilient and profitable business as well as a great growth opportunity with our landmark Ellinikon project that is now delivering the first tangible financial results. And with that, I conclude today's results presentation, and we are now ready to proceed with a Q&A session.

[Operator Instructions] The first question comes from the line of [indiscernible] Ventures.

Congratulations for these set of results. I've got a couple of questions from my end. We see that quarter-on-quarter that your net asset value diluted. Could you give us some more color on the underlying reasons of this move? How should we expect net asset value drivers to unfold in the coming quarters? And my second question is probably a bit of a clarification, after the completion of Riviera Tower Foundation works, what do you expect to be the next milestone with regards to development progress?

Thank you for the question. Let me take a more time on the NAV. Look, really, it is a matter of timing here, and it's something that we have tried to communicate during the call. It has to do with the timing of recognizing the revenue versus the time that you actually collect the cash. Just to put some numbers around it, as we had said, we have collected almost EUR 450 million worth of cash to date, but we have only recognized EUR 130 million worth of revenue on the books. Therefore, only EUR 130 million of that revenue has flown through -- down through the income statement, and therefore impacted our NAV. So as this catches up over time, and the sales progress of Ellinikon goes on, you should see that tipping over to the positive on a go-forward basis. On the second question regarding milestones. Look, the most important one in terms of size is indeed the milestone for the Riviera Tower. And there is -- the second one is the tower lobby casting, which we expect by the end of the year.

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

I was actually wondering if you could outline a bit -- like a bit broadly, the EUR 130 million, you just said on revenues. It's mainly coming from the Riviera Tower, but what else is in these revenues? And what should we expect by the end of the year there with the progress we said on the development. And then I have 1 or 2 questions on the malls. Maybe we could answer first Ellinikon and then go to Malls.

Okay, Natalia, let me take this one. Out of the revenue recognition, first, yes, the majority has to do with Riviera Tower because this is the most, let's say, developed product in our resi. So this has a lion share, I would say, around 60% of that comes from the Riviera Tower. Though have recognized revenues from the Coastal Front Villas, small, but this will increase. And just also to couple with what is coming next, so Coastal Front villas, we'll sign off the rest of the consent, we delivered the land close to our, let's say, new owners, this will keep positively the P&L. There is some [ condos ], which is very marginal, again, as well. But again, this will yield a lot of revenue recognition, I would say, in 2024. And there is also the IFC. Just to remind that we have EUR 15 million of IFC revenues, annual revenues, from leasing the land. So this flows down nicely to the P&L as revenue and the [ Yacht Club ]. Again, we have delivered in 2023.

Okay. And I assume that the milestone of the Riviera, which will be achieved by December also will have some flow further flow to year-end. Is this correct to assume.

Correct. Correct.

Okay. That's very clear. And also on the malls now, I would like to know to have -- to get a feeling if you're seeing any signs of consumption or footfall slowdown because of the very high pricing and everything in the retail, saying that October, September, October wasn't going really good from other calls I've heard up to now. So did you actually get a feeling of consumption or footfall slowdown in your malls? And maybe you could give us an overview of the first year of the Designer Outlet. How has this rolled over in the past year? And what's coming ahead there?

So I'll take the first question. In terms of footfall, we have seen increasing numbers on the year-to-date basis as reported. From here on till the end of the year is a little bit of a choppy period in the sense that October is usually a little bit of a lower seasonal month. But then you're going into the holiday. So November and December, we expect to have some strong numbers as well. But generally speaking, to answer the macro, I suppose, question...

May be the general picture.

Yes. Generally speaking, we have not seen any impact from the increase in pricing on our side. So to date, we have not seen any negative impact or slow down.

And Natalia on the Designer outlet, again, I would say, we're having strong results for this new acquisition, with 22% versus '19 and 20% versus '22 when it comes to...

Revenues or EBITDA.

No. Actually, this is yes. These are tenant sales, so the actual performance of the tenant. I think 2 important notes on the Designer Outlet, One, we have increased the occupancy rate since the time that we -- that Lamda acquired the asset to 96%. So we are starting delivering on that front, bringing -- trying to bring it in line with the other high apparently occupancy rates that we have for the other assets that we own. Additionally, on the cost front, we are, of course, based on what we said before, we are experiencing the cost synergies that we have mentioned in the past. Also, on the revenue front, we have implemented the all-important inflation-adjusted base rent adjustments. And these are flowing into the revenue side.

Yes. It's a very good performance, as I've seen. So because you said you were renegotiating in the first year to order to see how everything is going. That's why I was wondering how everything is flowing. So it sounds great. Do you think you will have any parking costs, having people pay for parking there as in the other malls or no? I remember this is key there.

Yes, Still we cannot comment on that one. It's an outlier currently. But let's say we do have the ability to charge parking and it is something that we're monitoring on an ongoing basis.

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

Good results. 4 questions from my side, please. Also I would prefer to ask one by one. Firstly, on milestones, but slightly more broadly for 2024 for Ellinikon, what are the key things that we should look forward to in terms of project commercialization and launches of sales of new projects in terms of construction progress and new project construction launches for next year.

So Jakub, thank you for the question. In terms of progress -- in terms of milestones for next year, I think the important thing is going to be the launching of the residential projects. After the Park Rise, we're going to have the Pavilion Terraces”, as we mentioned. And then it's 2 different -- I guess, 3 different developments within Mainstream Alimos which are consistent of 3 different buildings. Totally, in total, what we're talking about is launching 200 -- approximately 200 units. And those launches are starting at the end of the year with a Pavilion first and then going into the next year. In terms of payment milestones as we close those projects and there's progress payments attached to each one of the sales, we're going to be able to recognize that revenue. And each project has a different percentage, if you wish, of -- in the contract for progress payments.

Got it. That's clear. Second question, how much money do you expect to put to work next year on Ellinikon? Can you give us some indicative CapEx guidance for '24.

Not yet. Jakub. I think that we're working through the cost side of the equation. We're looking at it very specifically now. As we are progressing towards a more predictable phase of the project, we will be putting guidance specifically on the cost side, but not as of right now.

Got it. So I guess this partly precluded my following question because I wanted to ask about the debt and how much we could expect you to be drawing down next year because I think a big takeaway from this year so far, which I don't think is something that we were expecting as a base case maybe this time last year, is that the debt balance has been roughly stable, that probably the inflows from sales have been more significant than we were expecting. So any guidance on how much capital would you need to raise from outside sources outside of the inflow from sales?

Jakub, this is Harris. Let me take this question. Indeed, we are very pleased about the collections, the revenue collection so far or the cash collections for our resi projects. It's beyond our expectation. Although we cannot say about year-end results, but again, the cash -- my favorite topic is going to be a strong cash position. So to cut a long story short, we do not expect at this point of time to raise any additional debt for Ellinikon apart from a VAT line that we have, this is a recoverability, which we would like to utilize enough benefit. So for construction CapEx, the current understanding is that no debt will be raised in 2024.

Got it. This is very helpful. And again, I think better than what we were hoping for initially, given the magnitude of the project. Last question for me and following on the discussion with Natalia, on the leasing of the existing malls, when you are turning contracts over when you are either inviting a new tenant or when the contract is expiring, can you release? What is the reversion versus what is in place currently in terms of the rent levels in light of the very, very strong performance on the turnover.

Let me take that, Jakub. So all the existing malls, if this is the correct definition, it is for the existing malls, correct?

Yes, that's right.

So when we see -- when we renew contracts, first of all, we renew it with -- at financial terms, better or at the same levels as we have done before. So we have -- and we have taken all the, as we have communicated, all the inflation increase. We have not witnessed any issue with payments. And the collection rates is progressing very fine. We have 0 bad debts, which is phenomenal. And we don't have any exits at this point of time. So I would say all in good shape.

And Jakub, don't forget about the inflation adjustment in the base rents. Therefore, assuming today that you sign a contract with 100 units, 100 basis points, give or take, and we apply the inflation going on in the future, the base at which you will renew that contract will be at the inflation-adjusted base rent at that point in time, at a high level. That's what I'm trying to say.

But I guess because what we are seeing now is that the turnovers, at least for the recent period, the turnovers of the tenants are growing much faster than what was the inflation adjustment. So I was wondering if this is something which you can capitalize on and maybe increase the rents when they are coming due even at a higher pace than what the inflation adjustments would imply?

Look, there are 2 elements on the revenue collection from our existing tenants. There is base rent and then there is the turnover rent. So -- and actually, in the context of the turnover rent, it becomes base rent after 2 years, 2 or 3 years depending on the mall. So we are capitalizing the turnover growth of our tenants through the turnover rent at the end of the year. And after 2 or 3 years, this becomes the base rent. So we do -- with the time lag, we do get the benefit of the high turnover.

I see. So essentially, at the beginning of next year, we could see -- based on the performance of the sales during this year, we could see a higher increase than what the indexation would imply because thanks to the strong turnovers, some turnover rent would be kicking in above what was in place currently.

Look, yes, Jakub, we have almost 800 to 1,000 tenants in our 4 malls. It depends on when their contract expires; in 1 year, 2 to 3 years, and renewed. It's not that you will see all in next year. But definitely, this will have a positive effect on the renewals.

Got it. That's clear.

[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.

Thank you. Thank you very much for joining the call, and we wish everybody a good rest of their day. And happy Thanksgiving to those celebrating -- that celebrated yesterday, belated. Thank you all. Bye-bye.

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