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 Full Year 2023 financial results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Odisseas Athanasiou, CEO. Mr. Athanasiou, you may now proceed.

Good afternoon from all of us, at least to those of you on the European side, and good morning to those of you on the other side of the Atlantic. We are happy to proceed with this call conference, having to present what we consider to be an exceptional year in all fronts where we operate. I will make 10 points before I give for a more detailed presentation the floor to Harris Goritsas, our CFO. The first point is that our EBITDA increased 70% coming up to EUR 200 million for 2023, out of which half is coming from our 4 operational malls and the 2 marinas. This number is expected to be doubled in the next 3, 4 years after the 2 malls we developed in Ellinikon come to operation. The third point is that all the leading indicators, all the indicators that show the future performance for the malls are also doing very well. And I'm talking about the footfall 17% up versus previous year. Our tenant sales were up 18% versus 2022. Revenues were up 23%. And as I said, operating EBITDA for the malls was up to 20%. At the same time, coming to more updated results about our malls in the first 3 months of 2024 also seem to be -- to appear to be exceptional. Since after this record year of 2023, the sales of the 4 malls are up by 9%. Coming to the Ellinikon front. Our sales continue to be outstanding, meaning that apart from the 300 apartments on the Coast line that we had brought to -- for sale in 2021 and 2022 and they all sold out, as you know, we started the sales of the Little Athens neighborhood. We brought to the market 250 apartments out in the last 25 months, out of which 140 are already sold. This is 58% of the apartment we have brought to the market and demand is very, very, very strong. On the construction front, against adverse conditions. You know the construction market is weak. You know the labor shortage issues. Against all this, the construction of the residential front is visible. We have reached the second floor on the Riviera Tower and all 15 buildings of the condos on the Coast line now are above the foundation stage. By the beginning of the summer, June, July, at least 5 to 10 of these buildings will have reached the first floor. And the Riviera Tower will probably pass the 70 to 80 meter height in August, September. On a group level, our cash indicators all in all our financial ratios are extremely healthy. The net LTV is at 20%. The ratio of net debt to NAV is 33%. We have EUR 550 million cash in our bank accounts. And finally, the last group indicator of our NAV passed the EUR 8. What is more significant than that is that the NAV of EUR 1.4 billion, significantly understates the factor that because of IFRS regulations, we report our land plots for residential development at Coast. That means every square meter that we have in our books appears at EUR 800 per square meter. This includes the land cost plus the infra cost, while the estimate we have from Savills, our independent appraisal is EUR 700 million higher than this value that is reported in our books, even more significant than that. Last week, we concluded our first tender for 50,000 square meter of land plots. 5 different plots came to the market. And we have indications in the forms of binding offers to be concluded hopefully in the next 2 months that all 5 land plots received binding offers at an amount that exceeds 2.5x the EUR 800 per square meter of cost that is sitting in our books. This is going to be translated to cash coming to our bank accounts by the end of June. And as you can understand, it is the biggest proof of the value we have built in Ellinikon and the demand by far exceeded these 5 offers that we got. Last, this year remarked the first year after many years that our net profit turned positive. We had a loss last year. We have EUR 57 million pretax profit and EUR 27 million net profit this year, again, turning a loss to a profit. And the number may not be huge, the EUR 57 million pretax. However, it's significant because just 2.5 years after getting Ellinikon, after acquiring Ellinikon, we have turned profitable with a lot of cash, as I said in our bank accounts, proceeding with full development of the project without even getting EUR 1 for a loan. These were the 10 remarks that I think show that this year is really a turning point for LAMDA. And I will turn it to Harris for some more detailed points before we go to the Q&A session.

Thank you, Odisseas, and hello, and thank you for joining today LAMDA's presentation from my side as well. Let me start by saying that this has been an important result announcement for LAMDA since the group has delivered a strong set of results, supported by extremely high performance across all business segments, as Odisseas has already mentioned. The key highlights that I will elaborate more are, first of all, our operating malls in Marina, delivering another record year of EBITDA performance. Second, the Ellinikon Project registering EBITDA profit in a period of just 2.5 years since the acquisition. Third, the gross asset value of our investments for yet another quarter reached new record high levels. And fourth, our cash position remains solid. It's an impressing performance and the outcome of a very hard work from all of us at LAMDA Group that makes us proud for such delivery and optimistic about the future. As part of my presentation, I will be referring to certain slides of the results presentation that have been posted on both our corporate website and the live website page. So starting with the full year 2023 P&L performance at group level. Let me highlight the following: Group consolidated EBITDA before assets valuation and other adjustments reached a new record of EUR 132 million compared to a EUR 13 million loss in 2022. As shown on Slide 9 of the presentation, the key drivers for the substantial year-on-year improvement are: 10% growth in LAMDA Malls group EBITDA to EUR 72 million. This figure represents the EBITDA of the newly created LAMDA Malls Group, which includes the 4 malls in operation, the 2 Ellinikon malls are the development, the malls property management company and the holding company. Focus on the performance of the 4 malls in operation, the retail EBITDA reached a new record high at EUR 81 million, an 18% increase versus 2022 on the back of solid growth across all operational metrics; mainly base rents, tenant sales and throughput. Overall, this record-breaking performance clearly shows the resilience of our malls and very strong return after the COVID-19 impact as well as the portfolio's promising growth outlook. For a detailed analysis on the most portfolio of financial results and performance, please refer to the dedicated section from the Slide 33 to 46 on the presentation. The second key driver is the 5% growth in Marinas EBITDA, achieving a new record high. For the relevant details, please refer to Slide 47 of the presentation. An important note on the future growth of the Marinas business segment is that we enrich the portfolio with the development of the Mega Yachts Marina in Corfu as in July 2023, we declared the preferred investor in the Greek privatization agency standard. Therefore, we reinforce our strategy to solidify the group's Marinas business as the undisputable leader in the relevant sector in Greece. The third key driver is a significant achievement of EUR 65 million operating profits before valuations and other adjustments in the Ellinikon project. The profitability was achieved in just 2.5 years since the purchase of the sales in late June 2021. The relevant figure in 2022 was a loss of EUR 67 million, so a significant turnaround. This turnaround in operating profitability was driven by the revenues from property sales and leases based on the fulfillment of relevant performance indicators and obligations as well as the revenue recognition of residentials following achievement of construction milestones. Let me point out once again the timing impact between actual cash collections and P&L revenue recognition. The total cash proceeds from the start of the project until March 2024 rate reached EUR 640 million, while the amount of deferred revenue not yet recognized, landed at EUR 130 million at the end of 2023. This deferred revenue is booked on the group balance sheet as liability and will be recognized as P&L revenue in the near future as progress of construction continues. We have said in the previous call that Ellinikon is close to delivered material improvements. The Q4 results validates this statement. Equally important, the Q1 2024 preliminary information we have makes us optimistic that this trend will continue, expecting the Ellinikon project to register EBITDA improvements in the following quarters as well. Following the progress of works that are now visible to everyone that passes by the Posidonos Avenue. Group consolidated EBITDA after assets value and other adjustments reached EUR 206 million, almost 70% higher compared to 2022, supported by valuation gains on both operating and development assets and despite some one-off charges lead with our evolving strategy in the Ellinikon project and selected noncore assets. For the relevant details, please refer to Slide 10 of the presentation. Group consolidated net results after tax and minority interest amounts to EUR 27 million profit a substantial improvement compared to the EUR 31 million loss in 2022. This is mainly explained by the aforesaid significant EBITDA growth of the Ellinikon project. A heathy summery of the group income statement is on Slide 7. For a detailed analysis on Group P&L performance, you can also refer to Slide 8, 9, 10 and 32 of the presentation. Moving now to group balance sheet. Please refer to the following slides of the results presentation. Slide 11 for a snapshot of the group balance sheet that shows the continuing increase in the group gross asset value, reaching a record high of almost EUR 3.3 billion, driven predominantly by the malls' valuation gains which clearly reflects the malls' significant EBITDA improvement and solid underlying trends in the KPIs. Also, the 3% increase in net asset value now to almost EUR 1.4 billion or slightly above EUR 8 per share. And also the solid cash position even after the payment of EUR 167 million second installment for the Ellinikon land. This cash position provides significant liquidity to continue funding the progress of our works. Next, on Slide 25, we present the detailed breakdown of the group portfolio of assets. Note here that Ellinikon gross asset value at almost EUR 1.7 billion is largely made up of 2 elements. The first is the EUR 1 billion worth of residential development assets classified as inventory booked at cost on the balance sheet. This includes the land, infra and construction cost to date. If this EUR 1 billion worth of residential development assets was mark-to-market as of course being recorded at cost, we estimate that the value appreciation would amount to additional EUR 700 million to EUR 800 million, as Odisseas said, which is equivalent to EUR 4.5 per share. This clearly reflects the hidden value, which will be gradually released as the residential projects are developed and solved. And second, the EUR 620 million worth of assets classified as investment property, matched a fair value by an intended valuer, which relates to land plots for the development of offices, hotels, sports and the IRC lease. Lastly, the group assets portfolio, namely Flisvos Marina, land plots, offices and others amounted to EUR 140 million. On Slide 26, there's a detailed overview of the group balance sheet, while on Slide 27, there's a detailed overview of the key financial metrics for the group, all at healthy levels. Zooming to the breakdown of the net asset value on Slide 13 of the presentation, we present LAMDA's key NAV pillars at the end of 2023. Following the asset reclassification of the Ellinikon Malls from the Ellinikon into LAMDA Malls business in the context of the LAMDA Mall's corporate transformation, the NAV is now almost EUR 1.4 billion at the end of 2023 and is made up as follows: EUR 400 million or approximately EUR 2.3 per share is now the Ellinikon, accounting for almost 1/3 of the total NAV of the group, while EUR 920 million or approximately EUR 5.3 per share is the newly created LAMDA Malls Group, accounting for the rest 2/3 of the total NAV. Only the reported 9% at the end of 2023 of EUR 8 when compared to the latest closing price of EUR 6.4 implies a NAV discount of 21%. We believe that the current stock price clearly underestimate the significant growth and value potential of both the Ellinikon project and LAMDA Malls. On Slide 28, we present the breakdown of the group borrowings being bank loans and listed bonds, as well as the interest rate sensitivity, showing that 57% of group's borrowings at the end of 2023 were either fixed or hedged. Important to note that during 2023, there were no drawdowns on bank debt for the Ellinikon, something which is consistent without past statements. Furthermore, on Slide 29, we present the outcome of our recent LAMDA Malls debt refinancing, which has generated important benefits to the group's credit profile. I want to mention 3 key outcomes for that refinancing. We reduced the overall financing cost, generating some EUR 5 million savings each year. We extended the maturity to June 2030 now, and we increased the hedge amount strengthening the protection from interest rates volatility. Oddly, following this refinancing, 73% of the group's borrowings are now either fixed or hedged and the overall blended group financial cost has declined to 4.7% from 5% at the end of 2023. As a closing remark from my side, full year 2023 results further highlights the group's impressive performance and is an additional testimony on quarter-after-quarter improvements, we have been discussing in previous results conference calls. We have a unique in our view, investment case with LAMDA Malls, a very resilient and profitable business with an appealing growth outlook, especially when you consider the under development Ellinikon Malls as well as a great growth opportunity with our landmark Ellinikon Project that is now delivering tangible financial results and progress of work is visible to everyone that passes by the Posidonos Avenue. And with that, I conclude today's results presentation, and we are now ready to proceed with the Q&A session.

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

Congratulations on the results. I was wondering if we could say a bit more on the financing costs, which we just mentioned. The EUR 5 million savings you said, is this something we will see in 2024 in our cash -- net cash finance costs the noncash item, I assume that doesn't have to do with this. So the EUR 71 million we saw in finance costs in 2023, should we expect this to go down in 2024 and looking ahead? I was looking a bit more color on this on the financing because it was quite a big amount on your net profit -- eating in your net profit. And also, I have a question on the malls and a question on Ellinikon. I don't know if you want to answer first the financials.

Yes, Natalia, thank you for the question. This is Harris. I will answer this question. Clearly, this EUR 5 million that I have mentioned is a year-on-year benefit. So we will be seeing that starting from 2024 onwards each year. It's -- just to give a little more color, as you said. It's the current 4 existing malls that we have had a bank loan of EUR 575 million. We now have a loan of EUR 600 million, slightly up because we are renovating The Mall of Athens, The Mall Athens. And we have managed to refinance this new loan with a significant deduction on the margins. Something like in the range of 100 bps below. So this will give you clearly this EUR 5 million even, I would say, a little bit more on an annualized basis from 2024 onwards.

Okay, great. That was very good. And after you said this, I was -- the next question on the mall was about the CapEx on the mall assets because I was left with the impression that there's a refurbishment going on there. So do you have any CapEx, I don't know, plan on this how much this will cost the changes in the mall and The Mall Athens. And if you have also some other plans for the other malls also, that would be nice to hear about in investment.

Yes, Natalia. Clearly, as I said, I mean, we have secured also the financing for this, I would say, significant renovation. Just to mention that The Mall Athens was the mall that we have not invested I would say, from acquisition, from creation of this mall, we were -- we have started to do a major refurbishment, already the first refurbishment are evident to whoever visit the mall. It's not only aesthetics, but it's also energy-efficient investments. So we are following the strategy of upgrading the efficiency, the energy efficiency of our malls. And the overall investments in the range of EUR 20 million, EUR 25 million, which will conclude we have started and set which will conclude by the end of this year, mainly in the first half of -- first quarter of 2025. For the other malls, we do have also some plans for renovation, not in the magnitude of this -- of The Mall of Athens. I would say, is in the range of EUR 5 million total for the rest 3 months, and we renovate a little bit the designer outlets and we do small-scale investments in the other 2 malls being the Golden Hall and the Mediterranean Cosmos.

Okay. Some of these projects, you said that are energy efficient investments in going into [ RRF ] or something? Could you -- or no, it's just...

Look, I mean, these are in the biggest scheme of scale. These are small numbers for investments in energy for our existing malls but we will utilize [ RRF ] for sure. The biggest utilization of [ RRF ] though would be for the 2 malls under construction in the Ellinikon, being that we have [ Menis ] Mall and the Riviera Galleria. This -- the RRF number is significant in the range of EUR 300 million, just only the RRF number. And it's going to be a great support to the plans of constructing from scraps and efficient malls there.

Yes. So obviously, the numbers are big or large also. Okay. I also have a question on Ellinikon Malls. It's not a question, it's more if you could remind us a bit what are the actual sales we are expecting next, Little Athens, which has come in. And could you give us more color on what else we should be expecting like in 2024 mainly, let's keep it close.

In total, after the success of the Coast line residentials, we decided to bring in Phase 1 1,500 apartments. Out of which, so far, we have brought to the market 550. So there's another 900 to 1,000 apartments that we will brought out in the next 12 to 15 months.

Okay. Mainstream apartments mainly?

Mainstream, exactly, exactly right.

[Operator Instructions] The next question comes from the line of Tsangalakis Spiros with Pantelakis Securities.

Congratulations on the good results and on Ellinikon turning profitable. I want to have a bit more info on this land plot sales that you are planning, what sort of amount are we looking at? And what sort of square meter type of thing? And that's my first question. My second question has to do with the prices realized for these new apartments that you're selling versus your initial targets?

Right. The first tender for residentials included 5 land plots with a total size of 50,000 square meters. And as I said, based on the indications we have, which are going to be announced, hopefully, in the next month or so, we ended up with a price more of higher than EUR 2,000 per square meter, which means that we'll get EUR 100 million. As far as our plans, probably we're thinking of bringing another 2 rounds of similar size. So this will bring the total square meters to 150,000 square meters. And again, I cannot speculate on the price but given the success of the first one, I would assume at least EUR 2,000 per square meter. And you can imagine the gains that this creates very early on realized gains and cash in our bank accounts so early for the project.

This is like 100% gross margin, right? So bottom line, basically.

It is more because the cost of the land plots, the infra is EUR 800 which, by the way, have not paid all of it yet, right? And we realized a profit of more than 100% because of the selling price is EUR 2,000 or more, apparently.

Indeed. Given the share price discount to net asset value and there's hidden value on your balance sheet according to what Mr. Goritsas said of a minimum of EUR 700 million. Would it make sense to be more aggressive on your buyback?

Yes. It makes sense, and this is what we're going to do. We were kind of held up so far for curations. One is before our cash collections got so high because of our residential sales. And because of obligations we had with the banks, we're kind of conservative now that the residential sales have gone so well. And the first tender was also successful. Yes, we will become more aggressive. Just as one note, that we have this regulatory constraint. We can only buy more than 20% of the average daily volume of the last 2 months, but we will reach our limits in the treasury shares buyback project.

That's very good news. And my second one had to do with the prices realized on these new apartments that you're selling versus your initial targets. Are they better, significantly better or what?

They are significantly better just compared to what we had thought about 10 months ago. We're selling now at 15% to 20% higher than these numbers.

That's very good. And the cost -- on the cost side, are you -- what you assumed a few months back or has there been an increase to it or why this 20% more better price that you achieved?

We are within the budget that we had about a year ago. So including the contingencies we have there. So we still have contingencies. But our profit margins have improved after the first Coast line wave. All the apartments we are bringing to the market now have better margins than we just -- that we estimate just 10 months ago.

That's very good news. One final one, I presume Ellinikon will stay self-funded, right, for this year and maybe the next year by the sound of it?

By the sounds of it, yes, we think that at least for the year will stay out of launch and maybe it's going to be the first project globally that is going to be self-funded fully [indiscernible] the malls, of course, they're going to be in their own entity. But Ellinikon is going very, very well. Yes, this is true. Unless something extraordinary happens, we expect to be self-funded. The only unknown is a discount, as you said, of the share price to NAV, especially you taking into account this EUR 700 million, at least of the residential land plots value that is not in our books. You compare the [ EUR 1.1 million ] yesterday's market cap to NAV, including the EUR 700 million of EUR 2.1 billion which is even higher if you take into account the price we achieved in the tender. It's -- at least on this one, I don't have an answer. I don't know if you do, but I don't.

[Operator Instructions] The next question comes from the line of Caithaml Jakub with Wood & Co.

This is Jakub from Wood. Also a couple of questions from my side. Thanks for the opportunity to ask. The first one, can you remind us roughly how much total CapEx are we talking about until the end of the first phase, just sort of a ballpark number for the resi projects for the offices for the malls sort of the whole thing altogether?

Yes, thanks for the question. It's around a little bit higher than EUR 2 billion, it's EUR 2.1 billion to be exact for the total Phase 1, as you said.

And this includes also the infrastructure spend up until the end of first one.

Correct.

And also the malls?

Sorry. And the malls you said? No, no, no, the malls are not in this number.

And on the malls, I wanted to ask, is the separation of the malls score still on the cards? Is this something that you would like to pursue maybe this year or the next one? And if yes, can you talk about the funding of the 2 mall developments in this context? I mean will it be funded only by that? Or will there be some equity transfers between LAMDA Group and LAMDA Malls in case there is a separation?

The separation of the malls from an organizational standpoint has already taken place. So now we have an entity that includes all 6 malls, the 4 operational ones, plus the 2 under development. We have taken the decision to go to an IPO as we have announced in the past, the timing of the IPO will depend on market conditions because as you understand, given the stellar performance of these malls, we're not willing to give a discount that probably the markets are asking now given the global treatment of malls in the last 6 to 12 months. So the funding of the malls is going to be achieved through a bridge loan, just to make sure that when we go to the market to an IPO, this will be done in 6 months, 9 months, 12 months, it will be done under market conditions, which we think are proper for the valuation of our malls.

So if the IPO goes ahead, then the malls CapEx will be funded just with loans. Can you talk about what implications would this have for the LTV of the malls entity?

The LTV for the malls entity will be around the 50% range.

Even with the construction CapEx funded by the loan for the 2?

All inclusive, all inclusive. The debt that we have in our existing malls, which is around EUR 570 million plus the debt we're going to get for the 2 malls, which is going to be in the area of EUR 650 million, total debt divided by portfolio value is going to be in the range of 50% LTV, going down, of course, by the valuation of the new malls is going to increase.

Got it. Then on Ellinikon, we have seen a very strong gross profit margin in '23. Can you remind us what were the key projects, which were driving the revenue last year, which were recognized in '23? And how much of the high-margin projects, presumably the [ gross ] would be among those are left to be recognized in '24 and in the following years?

Yes. Actually, the margin that you saw in these results is probably lower than what you're going to see in the future. This round includes the percentage of completion for the Riviera Tower and the condos, which were the first projects to come to the market therefore, the margins were thinner than the projects we are bringing to the market now. Having said that, what helped us in a better margin in the first round were the villas for which we sold land plots. So there, the profit, as you can understand, was higher than what we had in the Riviera Tower or in the condos. In the second round, which has started to take place already and the results of which we are going to see apparently in the results of '24 when we start construction. The margins are even better because, first of all, our budget for the cost included all the increases that took place in the last 3 years. But of course, labor costs and so forth. While as I said before, the pricing has increased 15%, even by what we had in the budget just 10 months ago. And as a last remark, we believe that pricing may have some room for further improvement, given the fact that we're starting this year, our international campaign going west for -- to an audience that I think the pricing we have increased is extremely reasonable, not to say low.

And how much of the revenue and how much of the gross profit recognized in '23 for Ellinikon was attributable to the villas?

It was around close to EUR 200 million for the villas, EUR 180 million to be exact.

And that's revenue or that's gross profit?

No, no. That's the revenue. And the gross profit, as you can imagine, it's quite significant because of the cost. It's all in the land, the cost of the land and the infra. So in terms of gross profit, I would say out of this EUR 180 million, close to EUR 140 million was the gross profit.

Got it. That's very helpful. And last one from me. On the land plots that you intend to be selling and are in the process of selling in Ellinikon, can you talk more about what kind of land plots are these? What sort of buildings will be developed by someone else and not you and also the area figures, which you quoted, the 50,000 square meters for the first tranche, is this the actual size of the land? Or are we talking about the buildable area?

The 5 land plots we sold, the 50,000 square meter we talked about were the buildable square meters. Because the building efficient -- the average building efficient was [ 7.1 ]. The size of the land is approximately the same. These 5 land plots were close to Vouliagmenis avenue, just in the lower part of the -- we have [ Menis mall ], Vouliagmenis malls I assume. So just on the -- as you look at the map on the West part geographically or south, if you look at the map vertical, let's say, this is where the 5 land plots were. The plots that we're going to bring to a tender are not announceable yet. We are -- we have selected 2 or 3 locations for which we could bring plots in the market, depending on the infrastructure completion and some other considerations. We're going to announce them some months from today.

And are these largely offices? Or is it mostly residential? Or what kind of buildings are those?

Residential.

I see, I see. And last one on this. Can you help us understand the sort of internal discussions you were having and why you decided to sell these plots and not develop them yourselves and why these plots and not some other plots within Ellinikon?

Yes. We are a master developer. That means we are developing a master plot that covers a very big amount, a very big area and also about 2.5 million square meters. In order to accelerate the execution of the plan in order to hedge risk in order to strengthen our cash position, we have been bringing a balance in our strategic plan of selling some land lots, doing JVs in some others in which we don't have expertise of development like hotels like the integrated casino, for example. And as I said, for the resi mainly to select certain land plots and bring them to the market. That's a strategic plan we had from the beginning. And now it's clear for us which location to select. In terms of sizes, not only the value we are in a very healthy cash position, but it gives a very good message to the market, I believe, of the value we have already built in our land plots because as I said before, when our balance sheet, the land lots have a value of EUR 800, and we're selling just at the beginning of the project, plots in the area of EUR 2,000, EUR 2,500 per square meter in the location I told you, you can invest in the value that is hidden in our balance sheet. It's hugely understated.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. The conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good evening.