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

Ladies and gentlemen, thank you for standing by. I'm Constantino, your ChorusCall 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] 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 thank you, and good morning to those of you calling in from the U.S. Thank you for joining LAMDA's Third Quarter 2024 Results Call. On today's conference call, I will open up the call going over some key highlights of the results and some corporate developments, and then Harris Goritsas will discuss the financial performance and the specific results for the period, and we will then open it up for Q&A. During the remarks, we will be referring to certain slides of the results presentation, which has been posted on our website and the webcast page. During the first 9 months of 2024, we leveraged strong market fundamentals to: first, continue breaking operating profitability records in our operating malls and the Marinas; second, accelerate the sales and construction progress of the Ellinikon, meeting and exceeding our targets; and third, to further improve the Ellinikon's profitability and balance sheet through the completion of land plot sales to third parties, completion of the agreements of our joint ventures and of course, the ongoing residential sales. At a group level, our EBITDA before asset valuations has more than doubled on a year-over-year basis reaching EUR 86 million on a reported basis and EUR 90 million when including a EUR 4 million gain on the sale of the Cecil office building. Furthermore, our adjusted net results after excluding any noncash items was EUR 26 million. Highlighting the main drivers of our results. Retail EBITDA for the 4 operating malls was EUR 66 million or 7% higher year-over-year for the 9-month period, registering a new record. The outperformance of the mall's business continues to validate the strength of the fundamentals which are driven by an ongoing shift from high-street retail to organized venues. Indicatively, our operating malls achieved a new record of tenant sales at EUR 593 million for the 9 months or 4% higher on a year-over-year basis. I think it's important to note that this trend is not only benefiting our existing malls in operation, but also the two new shopping destinations under development within the Ellinikon project. where the regional market of the growing Southern suburbs has not yet undergone that shift to organized venues. There, we see very strong demand for our offering after having agreed Heads of Terms with tenants for 69% of the GLA at Riviera Galleria and 63% of the GLA at the Ellinikon Mall, at higher rental levels as compared to our existing malls, as well as our initial projections, while the demand for the remaining GLA far exceeds the available GLA for lease. Looking forward, we identified 3 major positive catalysts for the Malls business. 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 triggered by prospective interest rate cuts. On the Marinas side, we have also established a steady growth trajectory with EBITDA increasing by 14% to EUR 16 million for the period. Our mega yacht 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, their transit to our Marinas aligned well with the periods when permanent local berth vessels are away. Looking ahead for the Marinas, we look forward to further development -- further improvement in results following the completion of the Agios Kosmas renovations. As well as the growth of the business with the development of the Corfu Mega Yacht Marina, which is going to start in 2025. Moving on to the Ellinikon, Europe's largest urban regeneration project. The project is now well into the execution phase with construction accelerating in all fronts and the project's true value just starting to show, and that is a result of both the exceptional progress of the residential development sales, as well as the recent completion of the sales of select land plots. Specifically, cash proceeds from property sales to date are approaching EUR 1 billion, surpassing the EUR 900 million target that we had previously set for the end of the year, so 2 months ahead of our year-end goal. Cash proceeds today 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 and the Riviera Tower having reached the 11th floor. The next wave of proceeds from residential development will come as we complete SPAs and start meeting construction milestones for the Little Athens projects. Note that of the 450 now units launched among the 5 distinct products for Little Athens, 383 of them or 85% have already been reserved. Moreover, construction works have basically commence in all of the projects on the residential front, including Park Rise, Pavilion Terraces, Promenade Heights, Atrium Gardens and Trinity Gardens. The visual depiction of the progress of works is available on Slide 51 of the presentation. Our total construction CapEx to date has reached EUR 486 million, including EUR 171 million in the 9 months of this year and while maintaining a solid cash balance for the group of EUR 633 million as of September 30. 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 sectors projects and a tight specialized labor market. We anticipate the pace of works on both the residential and infrastructure works to continue to accelerate towards the end of the year and into 2025. During the third quarter, we have also successfully completed 3 transactions regarding plot sales to third parties with the aggregate total consideration of EUR 258 million. Of that, EUR 194 million has already been collected through the end of October, while another EUR 16 million is expected to be collected through the end of the year and the balance within 2025. From the aforementioned said 3 transactions, LAMDA Development is expected to recognize a total accounting profit of EUR 173 million or EUR 0.98 per share. Note that of that, only EUR 39 million has been recognized in the 9-month results, implying that we expect to record the remaining EUR 134 million of gains between Q4 of this year and Q1 of 2025. These transactions highlight the hidden value in the Ellinikon project, which accretes to the company and by extension its shareholders, as shown on Slide 15. Specifically on an assumed price of EUR 2,100 per square meter for the remaining available GFA for residential developments, we would achieve a EUR 1.3 billion additional value or EUR 7 per share. I will now pass the floor to Harris Goritsas, Group CFO, who will walk you through the important highlights for the group's third quarter financial results.

Thank you, Apostolos. On my end, let me also thank everyone for attending today's results presentation. In a nutshell, Q3 follows the same positive trend we have discussed during Half 1 results call, breaking new records across all our operational metrics. I will start with group EBITDA before assets valuations, that more than doubled year-on-year to EUR 86 million, driven by 7% increase in the Retail business, our 4 operating malls, 14% growth in Marinas, and the significant increase in the third quarter of 2024 for the Ellinikon Project, largely on the back of the highly profitable recent land plot sales that Apostolos mentioned. After including the EUR 4 million capital gain from the sale of the investment property, the Cecil office building Kifissia, which has already been recognized in the first half results, group EBITDA before asset valuations reached EUR 90 million, a staggering 155% increase versus same period in 2023. Moving now to the LAMDA Malls Group. The four operating malls continue to break records, delivering retail EBITDA growth of 7% over 2023, at almost EUR 66 million, driven by continued solid growth across all operational metrics, namely base rents, tenant sales and footfall. To highlight the ongoing strength of our operating malls performance net base rents increased 6%, while Parking income grew 12%. Importantly, our malls tenant sales increased 4% a new record high on a 9-month basis. The 9 months performance is even more impressive if we consider that it follows a strong 17% increase for the full year 2023. In addition, occupancy rates remain at high levels, demonstrating our malls unique market positioning and retailers strong preference for our sector-leading assets. Such convenient 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 malls -- on the LAMDA Malls Group financial results as well as an individual malls performance, please refer to Slide 18 to 20 and on the dedicated sections on Slide 36 to 45 of the results presentation. If I move now to our Marinas, their performance confirms for yet another quarter the steadily growth trajectory, breaking new records in the 9 months 2024 results, both in total revenues with a 13% increase versus same period in 2023 and in EBITDA with a 14% growth. And there is more to come, as Apostolos mentioned. For the details on Marinas financial performance, please refer to Slide 46 of the results presentation. Turning now on 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 also in the 9 months of 2024, a remarkable accomplishment for such a large-scale and complex project. This is mainly driven by the revenue recognition on residential developments following achieved of construction milestones as well as the significant revenue from recent property sales. Focusing on Q3 2024 performance, results have been impressive, delivering a new record EBITDA on a quarterly basis at EUR 24 million largely by the -- on the back of the gradual gross profit recognition of the land plot sales that we have signed between July and September this year. Total cash proceeds from the beginning of the project and until the end of October 2024 reached EUR 967 million, surpassing our EUR 900 million annual targets two months earlier than the year-end. Out of the cumulative total proceeds of EUR 967 million, 70% relates to residential developments, both on the coastal front and in the Little Athens neighborhood, reflecting the commercial success of those projects. Cash collections in the 10-month period between the beginning of the year and until the end of October 2024, reached EUR 488 million, of which 52% related to residential developments. Details on cumulative cash proceeds can be found on Slide 22, together with our year-end targets. With the cash on the balance sheet with P&L revenues, let me point once again the time impact between actual cash collection and P&L revenue recognition according to accounting rules. At the end of September 2024, cash collections not yet recognized as P&L revenue, reached EUR 326 million. This amount is booked on our balance sheet at liability, deferred revenue this is under payables and will be recognized as P&L revenue following the construction progress. It is though worth mentioning that out of the total EUR 1.4 billion worth of third-party SPAs signed from the beginning of the project and until end of September 2024, only EUR 560 million have been recognized as P&L revenue so far. So there is more to come in the next quarters. Please refer to Slide 27 of the consolidated balance sheet summary, which includes the relevant notes for certain items. Commenting now on the construction progress, CapEx in the 9 month period of 2024 reached EUR 170 million, a 40% increase over the same period in 2023, bringing the total CapEx for buildings and infrastructure works from the beginning of the project and until end of September 2024, to almost EUR 490 million. Note that on a quarterly basis, total CapEx in the third quarter increased 55% versus third quarter in 2023. Details on the Ellinikon CapEx can be found on Slide 23. We once again reiterate our optimism about the prevailing positive trends on the Ellinikon Project and I believe that it will continue to register positive results. The 9 months 2024 performance clearly supports such an optimism. For the dedicated section of the Ellinikon Project financial performance, please refer to Slides 48 to 50, starting with the Ellinikon detailed P&L and on the relevant drivers on Slide 48. While for the visuals on the progress of works, please refer to Slide 52 to 60. Turning now on the group balance sheet. On Slide 13, we highlight the EUR 146 million group cash increase versus end December 2023, now standing at EUR 633 million. The key driver for this increase is the net cash generation of the Ellinikon Project, driven largely by the cash proceeds from continuation of residential sales and land plot sales. Another supporting factor that was successfully delivered as part of our strategy to dispose noncore assets is namely the Cecil office building and our land properties in Belgrade, Serbia. This group cash position provides significant liquidity to continue funding the progress of our works. So it's important to note that we have still not drawn down any of our available bank debt. And we confirm that for the remainder of 2024, we will not utilize any bank debt for the Ellinikon Project. Just to mention that Ellinikon Project excludes the financing of the 2 Ellinikon Malls. For the details of group reported cash flow, please refer to Slide 34. If I move to net asset value, which remains practically unchanged compared to end 2023 at EUR 1.4 billion or equivalent to almost EUR 8 per share. Compared to the last closing price of EUR 7.2 per share, the implied NAV discount stands at 9%. We continue to believe that this implied share discount clearly underestimated the significant growth and value potential of both the Ellinikon Project and LAMDA Malls story. Zooming into the breakdown of the net asset value on Slide 14, we present LAMDA's key NAV pillars at the end of September 2024. The NAV of Ellinikon of LAMDA Malls Group, including the 4 malls in operations and the 2 Ellinikon malls under construction amounted to some EUR 950 million or approximately EUR 5.45 per share and accounts for about 70% of total group's NAV. The Ellinikon Project NAV, on the other hand, stands at only EUR 340 million or equivalent to EUR 1.9 per share and accounts for about 1/4 of the group's NAV. We reiterate our strong belief that the NAV for 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 on the recent transactions we successfully completed. And I will mention that these were completed at circa 3x higher than our book value. As a closing remarks from my side, the 9 months 2024 results were another testimony to the group's execution of its strategic plans as well as to the continued delivery of solid operating profitability growth. We expect this momentum to continue in the last quarter of the year and beyond. We strongly believe that LAMDA development has a unique investment case on the back of its best-in-class business segments, namely our operating business units, that is Malls and Marinas. As well as our landmark Ellinikon Project that already delivers tangible financial results and has showcased the massive hidden value of its land appreciation with the recent land plot sales that we executed. 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 Kaparis Stathis with Axia Ventures.

Congrats on solid set of results. I got 3, if I may. The first one is on Riviera Tower and the construction. What are the main levers that will drive the acceleration in the building process going forward, mainly in the next year? The second one is on Ellinikon Malls ahead of terms agreements. Can you give us some color on the process in light of the year-end targets as well? I mean how strictly do you want to comply with those targets? And how much flexibility would you like to have to achieve better pricing? And the third one is -- apologies on the NAV, there are some changes on the Ellinikon and Ellinikon Malls as well, if you can comment on those? And also, what is the reason for the operating malls NAV drop in Q3? I mean operating performance is better year-on-year.

Thank you, Stathis. We've taken down most of this, so let us try and take them one by one. So in regards to the Riviera Tower, I think that construction is progressing well. There have been some small delays that have already been sort of announced. However, it is moving well. Levers in terms of moving forward, I think that the big construction milestones are the next one is in April of the coming year. And then there after you reach certain milestones. The next big one is getting to the 22nd floor, and we're currently on the 11th floor of construction. Your second question, I think, was in regards to Ellinikon Malls head of terms. So yes, we have 63% already fixed on the Ellinikon Mall and then 69% on Riviera Galleria, the demand for the remaining GLA is far exceeding the available capacity. So we're in the process of negotiating those. For Riviera Galleria specifically, I think that the -- it's essentially a matter of time. We are negotiating with tenants and trying to achieve the best results. And then for the Ellinikon Mall, we -- it is really a combination of time and optimizing the tenant mix following the sort of redesign that we recently decided.

And Stathis, if I may take your third question about the NAV changes. I would suggest that we -- you see those changes, especially on the Q3 results at total level, at total group level, where you see, I would say, flattish, no movements especially if you compare also with prior quarter. Why is that? But indeed, there are some movements in between the segments. Your comment about the operating malls, indeed, there is a great -- as we also said, a great momentum there. But quarter 3 typically is a quarter where these malls pay a dividend. So there is a shift of NAVs, as you can appreciate from operating malls to parent company. Also, there are shifts in between also the segments as we prepare ourselves for the closing of the loan agreement for the construction of our two Ellinikon Malls. So there is move of assets to support this start of construction, which again shifts a little bit the NAV. It's not significant. It's not big numbers. And again, it's zero sum at total group level.

Next question comes from Natalia Svyriadi with Eurobank Equities.

Good afternoon, everybody. And thank you for taking my question. I...

Natalia, we can't hear you very well.

Can you hear me better now?

Yes, yes.

Okay. I was wondering if you could -- I don't know if you could share actually. Anything about the tender of the land plot areas, the new tender that we are expecting on the land plot areas at Poseidonos Avenue, which was in the news a little time ago. If you have any further info with the big residential news on this because I understand that you like -- [indiscernible] land plot sales and then this will be moving [ on to sales proceeds ] as it has already done. So I was wondering if you have anything further on that. That is one question. And I also have one more on the debt for the Ellinikon Malls, if we time line there. And when can we expect this to start coming?

Okay. Natalia, you broke up a little bit there, but let me -- I think that your first question was regarding residential land plot sales. Just to reiterate what we have done to date is we completed the sale of 51,000 square meters to third-party developers. That was EUR 106 million of total proceeds. And we also completed the sale of 86,000 square meters of resi, offices and education to Mr. Prokopiou, and that was EUR 120 million of gross proceeds. So that's EUR 225 million, that's around EUR 1 million of gross proceeds that we closed really within a matter of 6 months or so. And I will take the opportunity to say that it is also the significant showing of the hidden value of the company. On average, the residential plots were sold at EUR 2,100 per square meter, actually probably a little bit more for the Prokopiou land plot. But even if you take the EUR 2,100 and deduct the cost of land and infra, you're getting a EUR 1,300 margin or NAV accretion, if you wish. And applying that over the remaining GFA to be developed, you get to EUR 1.3 billion of additional value, that's EUR 7 per share. But to answer your -- to actually answer your question, I think that going forward, we always look at the idea of mix between developing and selling or developing to build or selling. What you can expect as far as what you mentioned is that in the beginning of the year in 2025, we're probably looking to sell about 40,000 square meters of additional residential land plots. And frankly, I forgot...

No, no, I will take -- Natalia -- I will take the second question. If I listened correct it was about the debt of Ellinikon Malls and where we are currently in the process, correct?

That's exactly. Correct.

Okay. Okay. Look, first of all, to say that both those development assets have already started with some ground works, of course, not construction yet. So we are funding those early works with equity. We have our own cash, I would say. And we are very close on landing the new bank debt with a syndication. It will be the known banks that already support us, so no surprise there. We aim for signing those detailed documents by year-end. And most probably, we will start the drawdown at the beginning of next year, 2025. Riviera Galleria will start first and then Ellinikon Mall will follow.

Okay. Okay. Great. That's clear. May I ask one more question if you can answer it -- in the tower, how much the percentage of completion of the construction we see in the 9-month period? If you could share this number because it's significant for the revenue recognition. So I was wondering if we could have the percentage.

Yes, yes. No, no, you can ask Natalia. I mean currently, what we have for the 9 months is 31% to be exact, 31% of completion.

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

Jakub here. A couple from my side, I would prefer to ask one by one. Just following on Natalia. I didn't hear you well, Apostolos, you mentioned that you're looking to sell another 40,000 square meters of additional residential land plot by which date?

Correct. 40,000 starting the first half 2025.

Got you. And for the first phase, would this be it? Or are there any notable land plots that you would also be looking to sell maybe this year, next year '26?

I think we'll consider that on a case-by-case basis as we go forward.

Got it. Then could you remind us, including the branded residences and condos sort of taking all the apartments in the first phase together that are intended for sale, how many there are in total roughly and how many have been sold so far?

Sure. It's -- so the total units to be developed is 1,250 units. Of that, we have sold or reserved about 700 units. So we have about 550 units remaining to be launched.

Got it. And this would also include the branded residences?

The branded residences -- what are you -- which branded residences are you referring to? That was a land plot sale.

Right. Because I thought that in some of the JV projects, essentially, there will be also sort of serviced apartments.

There are service branded residence is included in the hospitality JV, but we don't account for those within the inventory of the residential units.

Understood. And can you remind us on the land plots, which you have sold recently to the third-party developers, how many apartments can we expect to see developed there? And do you understand what kind of time frame they have in mind? I mean will this overlap with the first phase? Or is this only later on that this will be sort of start to be put on market?

So look, we don't know their plans yet. We do have a concept design approval, but we don't have those concept design yet, so I can't tell you the exact numbers. but figure that the total residential land plots that have been sold to date are about 80,000 square meters. The 2 things to mention on that is that, one, first of all, they're in different locations, strategically picked to be away from both the coastal front as well as the Little Athens development. And secondly, that our developments are sort of ahead, if you wish. Will there be some overlap? Yes, I think there could be some overlap, but we're way ahead in terms of progress of sales. And as I mentioned already, we've already surpassed the 50% mark on total Phase 1 units to be sold.

Great. I hear it. Final one from my side. You mentioned also in the report that you have spent over EUR 170 million in Ellinikon CapEx year-to-date. As we're getting closer to '25, could you share your estimates with us, how much do you expect to spend in CapEx for the Ellinikon in '25? And sort of following on Natalia's question, could you give us some rough indication on how much CapEx do you think you could spend on the 2 Ellinikon Malls next year?

Sure. Let me take the first one in terms of CapEx to date. So I think the most important thing is that CapEx has been accelerating both on the infrastructure as well as the residential front. If you take the last quarter, which is about EUR 70 million of total CapEx that goes on a run rate of EUR 270 million per year, which is significantly higher than what the run rate was for -- well, not the run rate, but the actual yearly spend was in 2023. And we do expect that run rate to accelerate significantly going forward as well, as we try to resolve some of the labor issues and also accelerate the development of the remaining Little Athens development. I just -- as I think I mentioned in the script, that to date, you've mainly had coastal front developments registering in your books. As of this quarter, you now have construction going on all fronts, so in all of the Little Athens projects. So the combination of accelerated CapEx for infra and accelerated CapEx due to more developments for residential is what we think is going to continue leading that sort of increase on a quarter-over-quarter basis.

And any indication for the Ellinikon Malls?

I don't think that we have it for -- on a year-over-year basis yet. I mean I think that the excavation works and all of that has already started and early works are going to begin in 2025. The overall budget for the Ellinikon Malls was, call it, EUR 800 million of development costs.

[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. My apologies -- Excuse me, Mr. Zafolias, to interrupt you. There is one last question from Mr. Tsangalakis Spiros with Pantelakis Securities.

Congratulations on the good results. I just want to ask about this property management company, facility management company that you've been discussing. Are there any numbers that you can disclose? What sort of revenue are you looking at? And another question. Given all the sales that are happening, do you think you could pay a dividend at some point?

Sure. Let me -- so first, in terms of the property management question.

Or if I may add, sorry, if I may add or accelerate the buyback given you're selling at 3, 4x book, your stock is trading at 0.8, 0.9x now, if I'm correct?

Sure. So as far as the property management question, I think that's a business that we're building up now. And we're obviously -- we're including it in our contracts. We don't have specific numbers to share, but we will in, call it, the first half of 2025. I think the real attractiveness of that business is that you're going to have a golden standard across the pool. That is going to be a sort of welcome service to not only the residents, but also the overall quality of the development. Now in terms of the land plot sales versus dividends. Look, I think that in a project like this that you have ongoing development, the dividends are a little bit difficult, but that doesn't mean that you can reward shareholders. And as you've already sort of indicated by your question, you are selling land plots at a significant premium to NAV, and you are buying back shares at a small discount to NAV. So that's just an arbitrage by itself. And we plan on -- we have to date maximized our buyback capacity so we can reward shareholders that way. And we plan on executing the buyback program similarly going forward.

Excellent. And one final one. Will this 40,000 square meters that you're planning to sell at some point in the first half of 2025 be followed by other sales? Give us -- how successful these sales have been to date?

I think Natalia or somebody already answered -- asked the question. Look, I think those are going to be viewed on a case-by-case basis. I think that the sort of balance of power there, if you wish, is maximizing the long-term profitability, which includes the development margin or accelerating some of that profitability for a number of reasons, including taking advantage of the arbitrage that we just discussed.

Ladies and gentlemen, there are no further questions at this time. Mr. Zafolias, the floor back to you.

Thank you all. We appreciate your time and your questions. Wishing you a good rest of the day.

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