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

Ladies and gentlemen, thank you for standing by. I am Nina, 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 2024 financial results. All participants will be in listen-only mode 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. 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 First Quarter 2024 Results Call. On today's conference call, I will open the call going over some key highlights very briefly of our results and corporate developments. Harris Goritsas 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 Developments Group EBITDA before asset valuations for the first quarter 2024 reached a new record of EUR 35 million. That is on the back of exceptional performance of our malls, marinas as well as the Ellinikon. Specifically, and as it is highlighted on Slides 5 through 7, we continue to achieve record performance in both our malls and marinas and achieved significant commercial and construction progress on the Ellinikon Project against adverse conditions. In terms of the investment assets, the malls and marinas, our 4 operating malls achieved a new record retail EBITDA of EUR 22.5 million, representing an 8% increase over Q1 of 2023. The key drivers of this performance were: first, a 7% increase in net base rents on a year-over-year basis, a 16% increase in parking income and then strong KPIs, KPI growth, including a new record high in tenant sales, 9% higher than last year as well as consistently high occupancy rates and rent collection at almost 100% for both. Our commercial leasing progress at the Ellinikon malls continues to surpass our goals with 70% of the Ellinikon Mall and 62% of the Riviera Galleria's GLA already agreed with tenants on heads of terms at higher rental levels as compared to our malls in operation. Our Marinas also continuing to outperform with record high levels for both revenues at EUR 7.3 million, and EBITDA at EUR 4.6 million, delivering strong growth of 14% in revenues and 13% in EBITDA on a year-over-year basis. In addition to the successful results in the malls and Marinas, we also made significant commercial and construction progress at the Ellinikon. First and foremost, we mentioned our cash proceeds which since the beginning of the project have now exceeded EUR 670 million, and that is primarily a result of the coastal front residential projects where construction milestones are progressing and progress of works is now visible from Posidonos Avenue. Based on the year-to-date performance and our expectations, we are on track to achieve our target of total cash collections of EUR 900 million by the end of the year. In addition to the coastal front residential development, we have launched 5 distinct projects within our little Athens development, which are also experiencing very strong buyer demand. We did that on the back of the very strong demand that we were already experiencing in the coastal Front developments. So in the little Athens developments, we have launched 342 units in the market. And out of those 206 units or approximately 60% have already been reserved. And importantly, those have been reserved at levels about 5% to 10% higher than our business plan. Also, the Ellinikon had a positive contribution of EUR 15 million to the group's EBITDA for the first quarter on top of the EUR 65 million contribution that the Ellinikon contributed for the full year of 2023. Progress has also accelerated, both in terms of construction and payment milestones, and the results will be increasingly visible as we move ahead. Our total construction CapEx to date has exceeded EUR 360 million. And that is while maintaining a solid cash balance for the group of EUR 570 million as of March 31. Our NAV at the end of the year, as detailed on Slide 12 was EUR 8 per share basically implying a 20% upside potential from our current share price. Lastly, we note that we continue to focus on accelerating the profitability of the project while also mitigating risk. As part of those efforts, we're in the process of completing a tender for 5 residential development land plots, which attracted considerable interest and achieved prices of approximately EUR 2,100 per square meter which is basically 2.5x the value -- the book value of those land plots on the books. If one considers that the average cost of the land and infra for the land plots in the Ellinikon, the residential is approximately EUR 800 per square meter. This implies a margin of EUR 1,300 per square meter or an additional EUR 1.3 billion of value when applying that margin across approximately 1 million square meter that is available for residential development in the Ellinikon. In essence, that translates to EUR 7 per share of additional value on top of our NAV of EUR 8, therefore, implying a target share price of EUR 15 per share. Note that this calculation doesn't even consider the development margin to be achieved through the execution of our residential development over time. I will now pass the floor over to Harris Goritsas, Group CFO, who will walk you through the important highlights of the group's first quarter financials.

Thank you, Apostolos. Hello, everyone, and thank you for joining today's results presentation. As standard practice, I will be referring to certain slides of the results presentation that has been posted on both our corporate website and the live webcast page highlighting key performance areas. In a nutshell, following a record-breaking performance in 2023, we saw continued strong performance in Q1 2024 across all our business segments and operations. Starting with our operating malls that continue to break records, delivering retail EBITDA growth of 8% over 2023 at almost EUR 23 million now driven by solid growth across all operational metrics, mainly base rents, tenant sales and footfall. To highlight the strength of our operating malls performance net base rent increased 7%, mainly on account of our inflation adjusted rents while parking income grew 16% versus same period 2023. Moreover, our most tenant sales increased 9% over Q1 2023, setting a new record high on a first quarter basis. This Q1 performance is even more impressive if we consider that it follows a strong 17% increase for the full year 2023. On Slide 18, we present the EBITDA for our newly created LAMDA Malls Group, incorporating both the 4 operating malls as well as the 2 Ellinikon malls under construction. Two key messages from my side on LAMDA Mall's Group financial performance. First, the best-in-class occupancy rates of 99% for the mall Athens, Golden hall and Mediterranean Cosmos and the improving average occupancy rate of 97% at the designer outlet Athens. Just to remind you that this was 94% a year ago, alongside the year-on-year EBITDA growth for all our 4 operational malls. Second, our exceptional commercial leasing progress at the Ellinikon malls, whereby we have heads of term with tenants for 70% of the gross leasable area at the Ellinikon mall formerly Vouliagmenis mall and 62% at the Riviera Galleria. Important to note, those heads of term are at higher rental levels not only versus our initial projections, but also versus our existing malls. Such continued strong results quarter after quarter are a testament to LAMDA's unique market positioning and unparalleled expertise in malls, management and operations. For the detailed analysis of the LAMDA Malls Group financial results as well as on the individual mall performance, please refer to Slides 15 to 19 and on the dedicated sections from Slide 34 to 45 on the results presentation. Moving on now to the Marinas. Both revenue and EBITDA have reached new record high on a first quarter basis, also following a record-breaking performance in 2023. Revenues for our 2 marinas grew 14% and EBITDA 13% over same period 2023. This performance is mainly attributed to [indiscernible] contraction increases in yacht berth fees as well as higher revenues from yacht transits. For relevant details, please refer to Slide 46 of the results presentation. Turning now to the Ellinikon project. Following the significant achievements during Q4 2023, we report positive EBITDA for a second consecutive quarter with operating profitability in Q1 2024 achieved in less than 3 years since the purchase of sales in late June 2021, something remarkable for such a big and complex project. This is mainly driven by the significant revenue from property sales based on fulfillment of relevant performance obligations as well as the revenue recognitions on residential developments following the achievement of construction milestones. Let me point out once again the timing impact between actual cash collection and P&L revenue recognition. The total cash proceeds from the start of the project until end May 2024 as Apostolos has mentioned, exceeded EUR 670 million while the amount of deferred revenue not yet recognized in PNL, amounted to EUR 230 million at the end of March 2024. This deferred revenue is booked on our balance sheet as liability and will be recognized as PNL revenue soon following progress of construction. During the full year 2023 results conference call 2 months ago, we communicated our optimism about the prevailing positive trends and now believe that the Ellinikon project will continue to register positive numbers. Current Q1 results is a testament on turning these opportunities to tangible results. We continue to believe and we expect that the Ellinikon project will register positive EBITDA in the following quarters as well on the back of more sales to come and progress of current works that are now well underway and are visible to everyone passing at the Posidonos Avenue. As regards to CapEx, Q1 2024, we expect EUR 46 million, bringing the total CapEx for buildings and infrastructure works from the start of the project and until end March 2024 to EUR 361 million. Retention on the P&L can be found on Slide 48 with a breakdown of the cumulative cash proceeds from the project start and until end May 2024 on Slide 21 and the breakdown of the cumulative cash proceeds from the cost up front and Little Athens expected sales on Slide 49 of the results presentation. On the back of the aforesaid exceptional performance across all our group's business segments, group EBITDA before valuations and other adjustments, registered a fourfold increase year-on-year to EUR 35.3 million. Group EBITDA after asset valuation and a one-off capital gain of circa EUR 4 million from the sales of the Cecil office building in February 2024 reached EUR 40.2 million, a fivefold increase versus Q1 2023. Note that we did not perform an independent external valuation on our group's investment assets at the end of March 2024, as such independent valuation is scheduled for the purposes of the half year 2024 results. Details on group EBITDA before and after valuations and other adjustments can be seen on Slides 9 and 10 of the results presentation. Group consolidated net results after taxes and minority interest amounted to almost EUR 1 million profit, a substantial improvement compared to the EUR 21 million loss in Q1 2023. This is mainly explained by the aforesaid significant EBITDA growth of the Ellinikon project. The detailed analysis can be seen on Slide 32 of the results presentation. Turning now on the group's balance sheet. On Slide 11, we present the EUR 82 million cash increase versus end December 2023 now reaching EUR 570 million. The key drivers for this increase are the exceptional sales of Ellinikon project, almost 70% of the increase attribute to that as well as the outcome of our strategy to dispose noncore assets, mainly the Cecil office building that I have mentioned and the land plot in Belgrade. This group cash position provides significant liquidity to continue funding the progress of our works. Important to note that we have still not drawn down on the available bank debt for Ellinikon. Since the front-loaded cash proceeds from the residential and land plot sales more than cover the CapEx and OpEx needs of the project. We feel optimistic that also in 2023, we will not utilize bank debt for Ellinikon project, excluding, of course, the 2 Ellinikon malls. Net asset value remained practically unchanged compared to end 2023 to EUR 1.4 billion or equivalent to slightly above EUR 8 per share, admittedly without having any impact from external buyers assessment on our investment assets. Compared to the last closing price of EUR 6.65 per share, the implied NAV discount is up 17%. We believe that this implied service count clearly underestimates the significant growth and value potential of both the Ellinikon project and Lamda Malls. 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 March 2024. The NAV of our newly created LAMDA Malls Group including 4 malls in operation and 2 Ellinikon malls under construction amounted to EUR 930 million or approximately EUR 5.4 per share accounting for almost 2/3 of group's total NAV. The Ellinikon project NAV, on the other hand, reached slightly above EUR 410 million or equivalent to EUR 2.4 per share accounting for 1/3 of group's total NAV. We want to stress our strong belief that the NAV for Ellinikon project is currently very low considering the hidden value that we have talked in the past, mainly future profits from residentials that are not captured at market prices but are kept at cost due to IFRS treatment. Lastly, on Slide 29, we present the breakdown of group's borrowings as well as the interest rate sensitivity showing that 73% of the group's borrowings at the end of March 2024 were either fixed or hedged. During the full year 2023 results, we discussed the outcome of our recent LAMDA malls debt refinancing which has generated important benefits to the group's credit profile. These benefits are now clearly seen on Slide 29, predominantly in the sense that we have strengthened the protection from interest rate volatility while reducing the group's overall cost of debt. As a closing remark from my side, Q1 2024 results further highlight the group's continued strong performance and additional testimony on quarter-after-quarter improvements we have been discussing in previous results calls. We have a unique NAV view investment case with LAMDA malls as well as a great growth opportunity with our landmark Ellinikon project that is now delivering tangible financial results quarter after quarter. 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 [Bunocoris ALexandros] with [Europ] Securities.

Two questions on my end regarding the residential land plot sales that you mentioned, 5 residential land plot sales. Could you mention a bit more about that regarding the timing? And are these from the other phases? Or are the land plots from Phase 1 that turn into land plot sales or from Phase II onwards and being front-loaded currently and being sold? This is my first question. Any further color on this would be great. On the -- and the second question is regarding the infrastructure CapEx. What kind of progress should we expect towards year-end? Should we expect an increase compared to current levels? And where do we stand on that?

Thank you, Alex, and thank you for your questions. Let me address the first issue first in regards to the land plot sales. As we discussed previously, those are land plot sales for a total of 50,000 square meters at an average price of a little -- right around EUR 2,100 per square meter, implying EUR 100 million in process. These are land plots that were initially scheduled to be developed in future phases. So in other words, you are truly accelerating the profitability of the project. and obviously, providing a level of certainty in reducing the risk, given that we would not be developing those ourselves. A third party would be developing them alongside us. I think that covers the first question. In regards to the second one, on CapEx, we are -- we have been running at about EUR 46 million per quarter. That implies about a EUR 15 million per month rate. We do expect that rate to increase through the end of the year. I think that the bigger jump is going to be sort of Q3 going into Q4.

Great. Just as a follow-up on the land plot sales. Do you -- could we have any clarity on the timing? Will it be in the year-end or something?

No, we're -- Sorry, Alex, yes. No, we're planning on closing those within the next month or so.

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

Very, very good results indeed, and we can start seeing the progress in Ellinikon. I would like a bit further on the CapEx that we just discussed. If you could remind us, actually, as for the [ FDA ], how much CapEx we should be expecting in the range of it throughout the project? And I can see that infrastructure works is here -- from the beginning from project inception at EUR 116 million. So should we expect that the acceleration we will see in year-end that you just mentioned will be also further accelerated in the following year? Obviously, those are the cash proceeds are more than enough to cover that. But just to get an understanding of how this we should expect this to evolve. That's the question on the CapEx. And I also have a question on the cash proceeds. I think you said that we are expecting by year-end EUR 900 million from residential, that's more than EUR 200 million coming from residential. This is from the residences that are already being out in the market and commercialized? Or is there something else we should expect coming in this year?

Okay. Let me try to address some of it and then Harris could jump in as well. On the CapEx side, I think your question, what you're trying to get at is what is the sort of overall CapEx the more relevant figure may be Q1? Basically for -- sorry, Phase 1, not Q1, Phase 1. So the first phase CapEx in total, which is both infra as well as resi is about EUR 2 billion. As we mentioned, we have done about EUR 400 million to date, and the pace is accelerating. I think there is going to be a significant uptick towards the end of the year. And 2025 is a pretty heavy year for CapEx as you've moved past sort of the main construction phases. And you're going to some more economically intensive and labor-intensive elements which tend to be heavier on the spending side.

And then -- sorry, what was your -- on the cash proceeds, Natalia, the EUR 900 million target that you have mentioned for year-end, it's twofold. It's EUR 700 million coming from resi and EUR 200 million from land plot sales. You can see also on Slide 21, this analysis. So it's a mixture of both, and we believe we are on good track to deliver the EUR 900 million as Apostolos mentioned in his piece.

Yes, you've been very, very good in your cash proceeds, which is very strong. Okay. And also land plot sales, which would these be like -- like the tenders you already mentioned, the first tender of the first pipeline so we should expect more of these, if I understand correctly.

We do expect to close about, call it, 80,000 square meters of total land club sales through the end of the year of which 50,000 square meters is what we have already announced, and we're working to close within the next month or so.

Great. I have one more question. If you have an update on the -- I don't know, in the sports park or I don't know if it's something we can disclose or we could discuss on what's going on there.

Works are already underway. The sports facilities are already sort of in construction, foundation mode and so on. And they're ongoing targets there are to have something ready by the end of 2025, so that can be utilized by [ Athens ], residents, so [indiscernible] yes the existing residence so on and so forth.

[Operator Instructions] The next question comes from the line of Murphy Andy with Edison Research.

It's Andy Murphy from Edison. Just interested on the Ellinikon and Athen malls. Could you give us an updates on when you expect the first revenues on those 2 to come through. I was just curious on the residential, what was the target market for the occupies? Is it Greek residents? Or is it sort of after when international people looking for second homes or something else?

I'll start with the second. In terms of the target market. I mean the target margin is a combination of both. Just to give you some stats of how things will build up to date. I'd say that the coastal front developments were primarily sold to Greeks and Aspen Greeks with a very small percentage, 5% to 10% going to foreign buyers. The -- that is shifting as we're introducing projects under the Little Athens neighborhood, where we see foreign buyers approaching the 30% mark. The target market is both and to either be used as a primary or sort of secondary residents. And it is important to note that the international campaign has only started in March. And that was concentrating on sort of the eastern side from Greece, whereas the western side of the international campaign is just now getting kicked off. So you should see the additional impact from that going forward. You just made me actually remember something else in terms of the progress of sales. I think it is very important to note that first phase lease and excluding any build-to-rent projects, we have about 1,300 units of -- 1,300 apartments that are to be sold. As we have disclosed, we have already sold all of the coastal front, which is about 300 units. And then we have reserved over 200 units under the Little Athens project. So that gets you to a total of 500 units or thereabouts or 40% of the total units to be sold. So if we continue growing on that pace, I think it would be good. And obviously, you have a significant derisking of the project in the sense that you're going to have closed or at least agreed on head of terms for a large number of the residential units. And the second question was in regards to...

I can take that. Yes. Andy, your first question was about the Ellinikon malls, first operation, correct? Yes. So we -- the sequence will go before Riviera Galleria targeting to open in 2026 well as a year later that we have the [ Munis ] mall will commence in 2027.

[Operator Instructions] The next question is a follow-up question from the line of Murphy Andy with Edison Research.

Yes. Just a quick one. Just interested in the LAMDA malls flotation. Can you give me -- or give us an update on the timing of that, please?

Sorry, say that again, Andy, the Malls what?

The LAMDA malls flotation.

Oh, I got you. So look, that was something that we've discussed pretty -- it was a pretty consistent message since the beginning of the year. And that is that we are working on LAMDA malls IPOs, subject to market conditions. I think that right now, while we have done the sort of corporate transformation, we have completed the organizational side, if you wish, of things, getting our docks in a row. The markets are a little challenging and for mall specifically. And considering that we don't need the funds right now, we are really just waiting for the right time to be doing an IPO.

The next question comes from the line of Atanasaqis-Jorgos with Pandalaki Securities.

Congratulations on the good results. I just wanted to ask about the potential upside into rents for the operating malls out of lease expiries going forward. What sort of upside should we expect, I mean, in terms of rent per square meter?

So it's -- look, basically, what we have seen to date, we have had strong leasing activity. What we've seen today is about 11% upside on renewals or relettings and that accounts for about 18 contracts that we have done in the first quarter. And I'd say that, that is very significant, especially when you consider the growth rates that we have seen to date. As we mentioned before, inflation index net base rents were up 7% to begin with. So that's -- that 11 that I mentioned are new contracts or relettings and that is over and beyond that 7%, which is primarily driven by inflation indexation.

And can you give me an idea of the latest rent per square meter for the mall or the Golden Hall. What sort of rent per square meter you're achieving there in the renewals?

On -- look, on the renewals, we're probably talking about upwards of EUR 50 per square meter.

Okay. And what sort of rent per square meter are you assuming for the new malls in the Ellinikon area?

It is a very good question. We're in the progress of building the book. I think that what we can tell you is that -- and I think it was mentioned before that they are at higher levels than our existing malls and our business plans. We're at about 70% on the Ellinikon Mall already head of terms and then about 62% on the Riviera Galleria. So we will be providing those numbers, but obviously looking very good. And also to add to that, those numbers are out of choice. What I mean by that is that the demand for the existing GLA or for the remaining GLA is significantly higher than 100%. So it's just a matter of doing the right contracts and picking the right counterparties.

George, if I may chip in to Apostolos's response. As regards to net base rent, this 7% growth that we saw in Q1, roughly 80% of that is explained by inflation indexation and the reletting that we do, as Apostolos mentioned is very important because this is a significant positive reversion to our contracts. And to give an idea, in 2023 for the full year, we signed contracts for reletting some renewals of about 135 contracts with the outcome of this exercise was a plus 4% annualized rental income. So you understand that this has started already in 2023 is continuing even stronger in 2024.

Okay, sounds good. All right. Okay. If I remember correctly, in the previous call, regarding the land plot, moving to Ellinikon now. If I remember correctly, all the shares mentioned in the previous call that there will be more land plot sales in Ellinikon besides those 50,000 square meters, you mentioned 80%, but I thought it was much more than that. Is there a plan that you can discuss with us? I mean how many square meters could you potentially sell out not develop yourselves? Is it 80,000, I mean is it more? I mean, depending on the situation?

No. Look, right now, it's the 80,000 that I mentioned, 50,000 of which is already sort of being finalized, if you wish. And then over time, yes, we might consider doing more. That is going to be probably towards at the end of the year or going into next year. And again, we're going to be judging that on market conditions at the time.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Zafolias, for any closing remarks. Thank you.

That's it from our side. Thank you all very much for joining the call, and have a good night or good day as applicable. Thank you.

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