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

Ladies and gentlemen, thank you for standing by. I'm Costantino, 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 2024 Financial Results. [Operator Instructions] 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 U.S. Thank you for joining LAMDA's First Half 2024 Results Call. On today's conference call, I will open the call going over some key highlights of our results and corporate developments. Harris Gkoritsas will then discuss the financial performance and results for the period and we will then open the call up to Q&A. Just to note that during our remarks, we will be referring to certain slides of the results presentation that has been posted on both the corporate website as well as the live webcast page. During the first half of this year, we leveraged strong market fundamentals to continue breaking operating profitability records in our operating malls and marinas, while also accelerating the sales and construction progress of Ellinikon. At a group level, our EBITDA before valuations grew over 70% on a year-over-year basis, reaching EUR 46.5 million after taking into account a EUR 4 million gain on the sale of the Cecil office building. Our results were driven by yet another record-breaking period for the operating malls and Marinas, along with strong commercial and construction progress for the Ellinikon. Our operating malls continue to draw customers and who are spending more with tenant sales rising by 6% year-over-year to a new record high on a semiannual basis of EUR 375 million, and this increase is in net base rents and our increase in net base rents is supported by strong KPIs, leading to a record retail EBITDA of EUR 44 million in the first half which is up 8% from the same period last year. This ongoing EBITDA growth is driven by both our inflation indexed plus and margin base rents and the higher rental levels achieved on renewals and relets. That latter pattern is clearly reflected in our strong leasing activity during the first half of 2024, whereby the signed contracts for renewals and relets will generate 16% higher rental income on an annualized basis versus before. The unique market positioning of our malls and the strong market fundamentals underpinned by an undersupplied market are also evident in the exceptional commercial progress of the Ellinikon Malls where we have already agreed Heads of Terms with tenants for 63% of the Ellinikon Malls GLA and 69% of the Riviera Galleria GLA , a higher rental levels when you compare them to both the existing malls as well as our initial projections. Based on the success and the comparably weaker market for office developments, we have decided to redesign the Ellinikon Mall by adding an additional 10,000 GLA to reach a new total of 100,000 GLA instead of the previously designed offices of both malls area. Looking ahead, we identified 3 major positive catalysts for the malls. First, sustained growth from our current operational malls; second, a notable boost in results following the completion of our malls under development; and lastly, a potential increase in valuations across the industry really triggered by a prospective interest rate cut. Our Marinas have also established a steady growth trajectory with EBITDA increasing by 9% to almost EUR 10 million. The Mega Yachts Marina in Athens continue to operate at 100% occupancy of permanent berths while also capitalizing on the strengthening tourism fundamentals in Greece. Interestingly, as the Athenian Riviera gains popularity among vessels from foreign ports, they're transit to our Marinas aligned well with a period when the permanent local berth vessels are away. We anticipate this trend to continue in Q3, which is the peak vacation period for the permanent berth vessels in the Marinas. Looking ahead, we also look forward to further development and results following the completion of the Agios Kosmas renovations, which is part of the Ellinikon Project as well as the growth of the business with the development of the Corfu Yacht Mega Yacht Marina. Moving on to the Ellinikon. Europe's largest urban regeneration project, the project is now well into the execution phase with construction accelerating on all fronts and the project's true value just starting to show as a result of both the exceptional progress of our residential development sales as well as the recent sale of select landlords. Specifically, cash proceeds from property sales to date are now approaching EUR 800 million and we remain comfortable that we will surpass our year-end goal of EUR 900 million. Cash proceeds to date are primarily stemming from the coastal front residential projects where construction milestones are proceeding, and progress is now clearly visible from Poseidonos Avenue with the tower having reached the eighth floor and the Cove Residencies having completed their structural frames. The next wave of proceed will come as we complete SPAs and start leading construction milestones for the Little Athens residential projects, which have been recently launched. Note that of those -- that in the Little Athens area, of the 440 units that have been launched to date among 5 distinct products, 318 of them or 72% have already been reserved. As a point of references between early June and then August, we received some reservations for some additional 110 extra units, while at the same time, we placed an additional 100 units in the market. Moreover, excavations and early works have also commenced on the Park Rise, the Pavilion Terraces, Promenade Heights, Atrium Gardens, and Trinity Gardens. Essentially, all of the projects that have been launched to date under the Little Athens neighborhood. A visual depiction of the progress of work is available starting on Slide 53 of the presentation. Our total construction CapEx to date has reached almost EUR 420 million, including EUR 104 million in the first half of this year and while maintaining a solid cash balance for the group of EUR 555 million at June 30, 2024. We note that the pace of our CapEx continues to increase on a quarter-over-quarter basis despite very challenging market conditions due to the high demand for both public and private sector projects and a tight specialized labor market. We do anticipate the pace of works on both the residential and the infrastructure side to continue to accelerate towards the end of the year and going into 2025. As part of our goal to accelerate the profitability of the project while mitigating risks, we also successfully completed the previously announced sale of 5 residential development land plots in July for EUR 106 million of gross profits or approximately EUR 2,100 per square meter close to 4x the book value of the block. Of the total consideration, we expect EUR 86 million to be received through the end of the year with the balance next year, and we also expect to book a EUR 76 million gain. The buyers are well-established international companies. Brook Lane Capital, TENBRINKE as well as Greek well-established companies, Hellenic Ergon and Daedalus Development, which will further contribute towards the development as well as the acceleration of the pace of completion for the Ellinikon. The transaction highlights had another way of creating value in the Ellinikon Project, which accretes to the company and by extension its shareholders. With that, I will pass the floor to Harris Gkoritsas, Group CFO, who will walk you through the important highlights of the group's first quarter financial results.

Thank you, Apostolos, and hello, everyone, and thank you for joining today's results presentation from me as well. In a nutshell, following a record rating performance in 2023, all business segments and operations continued their upward trajectory in the first half of 2024. Group EBITDA before assets valuation grew 57% year-on-year to EUR 42 million, driven by an 8% increase in the retail EBITDA of our 4 operating malls, 9% growth in our Marinas EBITDA and the profitable operating results of the Ellinikon Project for a second quarter in a row. After including the EUR 4 million custom gain from the sale of an investment property, group EBITDA before asset valuations reached EUR 46.5 million, an impressive 72% increase versus same period in 2023. Starting now with the LAMDA Malls Group, the 4 operating malls, which continue to break records delivering retail EBITDA growth of 8% over 2023 at almost EUR 44 million, driven by continued solid growth across all operating metrics, namely base rents tenant sales and footfall. Highlight -- to highlight the ongoing strength of our operating malls performance, net base rents increased 7%, mainly on account of our inflation adjusted rents which account for 70% of the growth, while parking income grew 14% versus same period 2023. Importantly, our mall tenant sales increased 6% over Half 1 2023, a new record high on a semi-annual basis. The average spending per visitor in Half 1, 2024 has also increased by 4% versus the same period in 2023. The first half performance is even more impressive if we consider that it follows a strong 17% increase for the full year 2023. The highlights of the first half performance are shown on Slide 16, 17 and 18 of the results presentation. A couple of key messages on the LAMDA Malls Group financial performance. First, the best-in-class occupancy rate on another is 99% for the Mall Athens, Golden Hall and Mediterranean Cosmos and a notable improvement to the average occupancy rate of 98% at the Designer Outlet Athens versus the 96% same period in 2023, alongside the year-end the year-on-year EBITDA growth for all our 4 operating malls. This clearly reflects our most unique market positioning as well as the retail strong preference for our sector-leading assets. You can refer to Slide 37 of our results presentation, which highlight the significant growth potential of our 4 operating malls rental income. Furthermore, our exceptional commercial leasing progress at the Ellinikon Malls as presented on Slide 47-- 45, sorry. We have Heads of Terms with tenants for 63% of the gross leasable area at the Ellinikon mall and 69% at the Riviera Galleria. Important to note, those Heads of Terms are at higher rental levels versus both our initial projections and the contracts on our 4 operating 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 a detailed analysis on the LAMDA Malls Group financial results as well as on the individual mall performance, please refer to Slide 16 to 18 and on the dedicated section from Slide 33 to 45 of the results presentation. Moving on to Marinas. Their performance is on a steady growth trajectory with both revenue and EBITDA reaching new record highs on a semiannual basis, also following a record breaking performance in 2023. This uninterrupted solid performance is mainly attributed to the customers' strong preference to our 2 Marinas since both Marinas registered a 100% occupancy in permanent berths as well as to the annual contractual increases investing fees. For the details of Marinas financial performance, please refer to Slide 46 of the results presentation. Turning now to the landmark Ellinikon Project. Following the significant achievements in the full year 2023, whereby we delivered positive EBITDA in just 2.5 years since the purchase of Ellinikon shares in late June 2021 we continue to register positive EBITDA in Half 1, 2024 as well. This is a remarkable accomplishment for such a large-scale and complex project exceeding our initial expectations. This is mainly driven by the significant revenue from land plot sales based on the fulfillment of relevant performance obligations as well as the revenue recognition on residential developments following achievement of construction milestones. Total cash proceeds from the beginning of the project and until the end of August 2024 reached EUR 776 million, with cash collections in the 8-month period until the end of August, raising almost EUR 300 million. From the recent sale of the 5 residential land plots in July that Apostolos mentioned, out of the total EUR 106 million transaction consideration, we have already collected some EUR 32 million in cash while another EUR 54 million in cash will be collected until year-end and the remaining EUR 20 million within 2025. Details on cumulative cash proceeds can be found on Slide 20, together with our year-end targets. Let me point out once again the timing impact between actual cash collection, registered in our balance sheet and P&L revenue recognition according to accounting rules. At the end of June 2024, the deferred revenue not yet recognized as P&L revenue amounted to EUR 237 million. This is deferred revenue booked in our balance sheet as liability under payables and will be recognized as P&L revenue soon following construction progress or fulfillment of relevant performance obligations. Please refer to Slide 25 for the consolidated balance sheet summary, which includes the relevant notes for certain items. During both the full year 2023 and the first quarter 2024 results conference call we communicated our optimism about the prevailing positive trends and our belief that the Ellinikon Project will continue to register positive results. The half year 2024 results clearly support such optimism. [indiscernible] again delivered tangible results. We want to amplify our belief that the Ellinikon Project will continue on that trajectory. Speaking on construction progress, CapEx in the first half of 2024 exceeded EUR 100 million, a 33% increase over the same period in 2023, bringing the total CapEx for buildings and infrastructure work from the beginning of the project and until end June 2024 to over EUR 400 million. Note that on a quarterly basis, CapEx in the second quarter increased almost [ 30% ] versus the first quarter. Details on the Ellinikon Project can be found on Slide 21. There is a dedicated section on Slide 54 to 62, with visuals on the progress of works in the Ellinikon Project. Details on the Ellinikon P&L have been found on Slide 48, along with the key drivers on important P&L items. Turn now to the group balance sheet. On Slide 13, we highlight the EUR 67 million cash increase versus end of December 2023, now to EUR 555 million. The key drivers for this increase are the exceptional sales of the Ellinikon Project as well as the outcome of our strategy to dispose noncore assets. Namely the Cecil office building and portion of 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 draw down on the available bank debt for the Ellinikon Project since the front-loaded cash proceeds from residential and land plot sales more than cover the CapEx and OpEx needs. We feel optimistic but for the remainder of 2024, we will not utilize the available bank debt for the Ellinikon Project, excluding, of course, the 2 Ellinikon Malls. Net asset value remained practically unchanged compared to end 2023 at EUR 1.4 billion or equivalent to circa EUR 8 per share. Compared to the last closing price of EUR 6.9 per share, the implied NAV discount stands at 13%. We continue to believe that this implied service count clearly underestimates the significant growth and value potential of both the Ellinikon Project and LAMDA Malls. Zooming into the breakdown of the net asset value on Slide 14 of the presentation, will present LAMDA's key NAV pillars at the end of June 2024. The NAV of LAMDA Malls Group, including 4 malls in operation and the 2 Ellinikon Malls under construction amounted to some EUR 940 million or approximately EUR 5.3 per share accounting for about 2/3 of group's total NAV. The Ellinikon Project NAV stands at almost EUR 400 million or equivalent to EUR 2.3 per share, accounting for 1/3 of the group's total NAV. We want to stress our strong belief that the NAV of the Ellinikon Project is currently very low, considering especially the hidden value that we have repeatedly suggested in the past namely the future profits from residential projects as well as the true market value of the residential land plots based also on the recent transactions we have successfully completed which according to IFRS are not captured at market prices but are kept at cost. As a closing remark from my side, the first half 2024 results where a testimony to the group's focus on execution of its strategic plans as well as to the continued delivery of solid operating profitability growth. We expect this momentum to continue for the remainder of the year and beyond. We strongly believe that LAMDA Development has a unique investment case on the back of its 2 rather unique business pillars. On the one hand, LAMDA Malls with a portfolio of unique assets as well as a very resilient and profitable business together with an appealing growth outlook from both the operating malls and the under development Ellinikon Malls. And on the other hand, the significant growth opportunity associated with our landmark Ellinikon Project that has already started delivering tangible financial results. We will once again point out the sizable hidden value of the Ellinikon Project that is not in full reflection yet on the group's balance sheet and financial statements due to accounting principles. The recent residential land plot sales, 4x higher than book value, have more than emphasized this hidden value. 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 Svyriadi Natalia with Eurobank Equities.

Good afternoon. I hope you can hear me. I was wondering if we could actually sum up and have an update on the projects that we are waiting until the end of 2024. And maybe what is scheduled for 2025 in Ellinikon. Like, I mean more, you said that there are like EUR 100 million -- EUR 120 million coming into tax proceeds budgeted, probably the EUR 50 million is coming from the 5 land plot sales. So what are the remaining we are expecting? Is it all the residential? Should we be expecting something more? And what are the key projects in 2025, we should be expecting cash proceeds from? So I would like to have these in a more -- in a nutshell so we can understand what we are expecting. And I have another question regarding the debt. You haven't drawn down any debt. Of course, it's very -- the Ellinikon is going very well. I was wondering if we are expecting any new debt for the Ellinikon malls development. And if this would be in 2024 or in 2025, what are your expectations on this? And I also have a question, it's mostly a clarification on the changes we saw in the financial statements regarding the changes in inventory, some land you want to develop and you will sell and some land that you will actually develop and not sell. Does this have to do with the change you said earlier in the mall. I was wondering if we could have a clarification on this and how is this reflected in asset revaluation?

Okay. Natalia, thank you for your questions. You gave us a lot there. So I'm going to try to remember all of them but please...

We can take them one by one.

Yes. Let me -- let's start with -- I think your first question was sort of remaining projects and anticipated proceeds. So to start with that, we have about EUR 780 million worth of proceeds to date. We've already said that we expect another EUR 52 million of proceeds from the land plot sales that were announced in July. And thereafter, the remaining sort of estimate is based on Ellinikon residential sales progress payments and reservation payments. As far as number of projects, I think that the sort of the what you need to know there is that we have the 5 distinct projects that have already been launched under the Little Athens, of those, there's a total of 456 units, I believe, and 440 units of those have already been placed in the market, 72% of those have already been reserved. Beyond that and going into year-end, we will be launching the remaining units for Little Athens which are, I'd say, in total, right around the same number as what has been launched to date. So I believe that answers your first question, no.

Yes. I was wondering then what we are expecting in 2025. Are we expecting more eventual coming? And I don't know, maybe some more projects you have in development?

Yes. So that was the reference that I made on the remaining Little Athens, which will be approximately another 450 to get to the total units being launched in the first phase.

Perfect.

Then the -- in terms of the changes in inventory and land valuation, I mean, look, the one thing that we've always said is that the residential land plots are sitting on the balance sheet as inventory at cost thereby a large amount of hidden value. A prime example of the sort of amount of that hidden value was the sale of the 5 land plots at over -- about EUR 2,100 per square meter against a book value, if you wish, of about EUR 500 or 4x higher booking at EUR 76 million gain. So that's sort of an indication you're talking about [indiscernible] of gain, if you wish, on those specific land plots per square meter. The one thing that was a little sort of weird this time around was the change in the use of the area that was the offices above malls in relation to the Vouliagmenis Mall. That was also sort of sitting as inventory. So that has now been -- since we've decided to convert that area to more GLA for Vouliagmenis Mall, you have seen a onetime write-off associated with that.

And Natalia if I may also step in on your second. I believe, question about the debt. Indeed, we confirm not drawdown in terms of the Ellinikon percent. And if this is not good trajectory, which we -- as we communicated, we continue, we believe we'll continue to see, most probably we are going to have good news also on that front to communicate for 2025. That's quite early. But indeed, on the Ellinikon Malls, of course, there, we don't have -- expect income until those are operational. So for the construction of those malls, we are at the final stages of aligning with our banks the debt there, and we believe we have in our plan to have the fresh drawdown towards the end of this year.

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, and maybe I will ask them one by one. First, on the existing malls. The tenant sales are strong, they are growing ahead of inflation. Can you give us an indication of the base of the rental growth that we could expect to see in 2025 in the existing malls driven, I guess, mainly by releasing of the contracts given the inflation has come down?

I think that -- look, for 2025, it's a little bit far out. But I think what we could tell you is what we saw in this quarter whereby we saw the leases that were expiring and renewing were being renewed at a level that would produce 16% more income. So essentially a 16% increase on expirations on expiry -- new versus expiry rate.

That's helpful. How big share of the lease contracts are due for sort of rolling over in '25?

Sorry -- Jakub sorry, if you go to slide 37.

It's around 37. It's -- 34% of the total rental income has been under negotiation for renewal in 2025.

Then second question on the Marina within the Ellinikon development. Would it be reasonable to expect some reduction in the rates to compensate the boat and yacht owners for any inconveniences during the construction? Or would you think that you can hold the rates even during the next 2 years?

Well, we think that we can hold the rates over the next 2 years, I think that after the -- well, a, we're trying to minimize the disturbance and b, I think that we -- the benefit of it is that you get a nice spot in the new Marina after the construction is completed. So there is a cooperation, if you wish, on an ongoing basis.

Got it. Then -- and this is a little bit similar to Natalia's question. On CapEx, I wanted to ask, in the investment properties, we see that you have invested EUR 24 million of CapEx. Most of this is for the Ellinikon Mall, the stands outside of the CapEx, which you show for the Ellinikon in the presentation. Can you please remind us where we can see the EUR 44 million that you have invested into the infrastructure works of the Ellinikon, in the cash flow statement over the first half?

You want the slide. Jakub, I mean...

Jakub, let's take it offline and we can direct you to the relevant information.

I see. Okay. And last question because I wasn't sure I fully understood the explanation of the last question that Natalia was asking. So even though the Vouliagmenis area was office, it was booked as inventory. And I wasn't sure I understood the bit about the write-down.

Let me give a little bit more color on that, Jakub. The original plan of [ Vouliagmenis mall ] have managed more 2 components, the mall and then the office is above mall. Since the original plan was for the office, mall are more to be constructed and sold from our side, based on accounting rules, this portion of the mall was registered in our books of inventory, okay, at cost. Now with a new plan that we don't have any more of these but have a bigger mall based again on accounting rules, we have first to move this from inventory to investment asset. And then, of course, take this cost out of our books as inventory. And of course, we have an offsetting factor as an increased valuation from our buyer because the mall is bigger now, and we expect higher income from that mall. So there is a technical one-off write-off, as Apostolos has mentioned, because of that change in our plans.

But shouldn't the net effect be positive because the book value of inventory is lower than the value attributable to the investment properties?

Indeed. And if someone sees the overall P&L indeed, but in terms of steps, you have to write this down. So you have to be able to show that in your P&L as a write-off. And then the valuation is higher, okay.

Jakub, you get a benefit on the valuation of the malls itself. And you're obviously, long term, you're going to get a benefit from the recurring revenue stream of the retail, if you wish, component of the addition of the 10,000 square meter GLA for the mall.

So the 7 million figure, the gain from fair value adjustment of investment properties in the P&L., this includes the gain booked on this area?

It does. It does. But, Jakub, again, this is technical. We can take it offline. But just to give you a nutshell. It is the group results, the valuations and gains from the valuation of this semester is a marginal EUR 7 million, whereas last year, it was EUR 44 million -- EUR 45 million. So this drop is technically reduced. Why? Because you have a higher valuation from your valuers for the reasons that we have discussed, but then you have a write-off which is significant -- it's a book value. It's around EUR 25 million, EUR 26 million from this move. So this drags down your total valuation appreciation. That's why you see this discrepancy.

If you isolate the 3 component the existing malls have registered a significant valuation gain. If you add also you isolate the offices above mall, the Ellinikon malls have registered a positive revaluation gain. And what I've mentioned is that this EUR 26 million write-off comes and dilutes the other 2 positive figures.

We can take this offline, but what I don't understand is if it was booked as inventory and now it's booked as investment property. I would expect the investment property value to be higher because the inventory is held at cost and the cost is not high.

It is, it is, Jakub. And we can take this offline. It is.

The next question comes from the line of [ Kalomoiris Konstantinos with European Securities. ]

Good evening. Thank you very much for the presentation. Two questions. One, regarding the CapEx for the next 12 months, if it is possible to provide a rough estimate. Second, a more opportunistic question, what is the probability for the transaction in the next 12 months in the 4 malls that are operating. I mean if there is a probability to see a transaction regarding sale of one, for example.

Thank you for your question. Look, in terms of CapEx, I think that we are -- our CapEx for the first half of 2024 was approximately EUR 104 million. So that implies a run rate of EUR 200 million that is going to be sort of accelerating as we go further towards the end of the year and going into 2025. The reason for the acceleration is going to be the increase of works on the residential side, where you're going to have more projects coming online and obviously, an uptick in the pace of infrastructure works. Beyond that, I think that we're going to be sort of giving that -- providing that on a quarter-over-quarter basis. As far as the mall side of the question goes, I think that we have discussed in the past that we are taking an opportunistic approach to that. Right now, the market has not been that great for a transaction, and we don't need to do a transaction. So I think the answer is going to be a little bit dependent on market conditions, what happens with interest rate cuts and so on and so forth. But again, there's no need for a transaction, so we are taking a more opportunistic look into this going forward and in a manner to maximize shareholder returns.

[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 all for joining, and we look forward to speaking to you at the next quarter. Have a good day.

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