Lighthouse Properties p.l.c. (LTE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our results presentation for the 6 months ended 30 June 2025. I really appreciate you all taking the time this morning to be with us. I know we're all very busy. And then I'm joined here today by my colleagues, as usual, Razvan Sin, who's our Head of Retail; and Jacobus van Biljon, who's our Financial Director. Razvan will run you through the projects and the letting initiatives that he's been busy with over the period. And then Jacobus also run you through the financial results and some of the highlights.  It's been a strong period for Lighthouse. We've had a notable growth in our distributions. It's largely driven by the accretive acquisitions that we've done and rotating out of listed investments. What's also infusing now is that most of our income or virtually all of our income is derived out of physical properties, whereas previously we have quite a large component of income from listed investments. So it's a very predictable sustainable income stream we're now delivering. And just in terms of Q&A at the end of the presentation, we will receive your questions. [Operator Instructions].  Just to summarize on what we will be covering today. I'll take you through an overview of the business, just highlighting our strategy. I'll take you through some of the operational as well as the financial highlights and then I'll touch on our listed real estate, which has become quite a small component of our business. And then the financial results will be presented by Kobus, the direct portfolio as well as the projects will be presented by Razvan.  Then we'll conclude on an outlook. And then like I said earlier, questions will be at the end. Before I leave a picture of [Alcoa Magna], one of the acquisitions during the year. It's in Madrid. And you see Primark on the left side there. It was opened during the course of last year, driving footfall to the center. We'll touch on the center in a bit more detail later on. And then I'll start with the overview. And again, before I leave here, this is what we call now [indiscernible] Montijo incase anyone gets confused, it was previously called Alegro Montijo. The name has been changed to [indiscernible] Montijo. The reason was it was a contractual commitment to rebrand the center because the IP of that Alegro brand belongs to the seller. So it has been rebranded to [indiscernible] Montijo, which is actually the regional name of the center back to what it was called at inception and it aligns with our other Portuguese mall being [indiscernible], you see Zara also brand new -- not brand new, but open in '23, but currently Zarra store is a good example of most of the malls in our portfolio, all dominant in Iberia portfolio specifically, all dominant all regional, all at Zarra, all at Primark.  Then I'll touch on the strategy. Nothing has really changed. We are only focusing on dominant malls in cities with strong economic underpin. And I think very importantly, it's cities that have got a strong economic population growth. They are depopulating cities in Europe that [indiscernible] focus on only growing regions. And so all our malls are located in the growing cities within the jurisdictions we operate. In terms of our Hammerson rotation, we commenced on that disposal program at the end of 2023. It was about EUR 250 million at peak and that rotation out of the Hammerson has been completed now and all of that cash or capital has been rotated into physical assets. So we ultimately bought 6 malls all located in Iberia now focusing [indiscernible] portfolio itself. So the [diversity is] core in nature it will be optimizing tenant mix and taking advantage of some of the upside that is left behind from the sellers.  So in terms of opportunities, we're seeing less opportunities. There are fewer opportunities, especially at the policy level that we require. We are also seeing a lot of institutional capital entering the market and cap rates have compressed. We've seen cap rates of assets around that level. So continuing to come down. I think they will continue coming down with the institutional investors now looking at retail again. It's good in a way because it [grows] our valuations and should go up by the end of the year. But the downside is reducing the opportunities that we [indiscernible] take you through the financial highlights.  Earnings increase is compared to the first half of last year of 7.9%. We've got 100% payout ratio, consistent again with last year. The dividends have also grown by 7.9%. And this is the benefit of the Hammerson rotation coming through. We sold Hammerson at a yield of effectively 5% and a rotation into assets of 7-plus percent yield. And then with you're actually picking up cash and cash yields of between 9% and 10%. So that's pushing through into the earnings there. Worth noting this number would have been well into double digits had we not had to refinance [indiscernible] was refinanced at the end of 2024. The interest rate went from just over 2% to around 5% and that grows back to at least 7.9% level. The good news is all of our debt has been refinanced or recently borrowed. So it's all sort of current or if anything, higher than market rates. So we don't anticipate any of these types of impacts going forward. NAV per share increased 3.8% from valuation increases at the portfolio as well as upward valuations on the listed portfolio through that period, although it's very small at the end of the first half. LTVs increased by -- well, from 25% to 35% at the period end. This is purely because of the acquisitions that we've done [indiscernible] acquisitions being [indiscernible] and Iberia now is sitting at almost 86% of our total exposure.  To take you through the operational highlights. So you see the Iberian portfolios now that Spain and Portugal just around 86% has reduced to 14% of our total property exposure. Very pleasing metrics and KPIs from a property point of view, you see like-for-like NPI growth, 6.9% at a portfolio level. Spain, Portugal delivering strong NPI growth as well. You see France there 12%, very strong, but there were some one-offs in France [indiscernible] rent once the actuals came through were a bit higher than what we had anticipated. And for that reason, there was some one-off adjustments made to NPI. That won't repeat going forward for at least the second half of the year. So by year-end, we expect that growth to be a more normalized number rather than the 12% you see there. Sales growth, 7.6%, very, very strong in Spain and Portugal at 8% and 8.8%, respectively, and still good performance out of France of 3.8%. Then we've got growth in footfall of 3.9% at a portfolio level. And growth in footfall is quite difficult to achieve. It's not the same as sales you've got inflation, just giving you the natural sort of tailwind to grow footfall, you need to be growing populations and you also need to be adding new tenants and doing something different to build on the base you created the year before. So you see Spain that's the Primark [indiscernible] added that Zarra is being refurbished and the competing ones closed down. So that's pushing those footfalls up and same in France, new tenants coming into the various assets in that portfolio. We should see the same in Portugal once we start completing Primark and Zarra expansion.  Vacancy 2.7% at the period end that climb from the 2% we saw at the end of last year, mostly because of Spain at 2.2% was below 1%. The reason there is H2O undergoing quite a substantial project there and also relocating and moving some tenants around. So it's structural in nature. And one of the big ones is [indiscernible] Park, which Razvan will touch on a bit later, but that is going to give us opportunity to bring some fashion retailers to that and key international fashion retailers. So it's actually creating quite a nice opportunity there. But until the leases signed, it will be reflected savings. Some detail on the macroeconomic highlights at period end, going back about 3 years in most instances. We're discovering Spain, Portugal, France as well as the Iberia area. You see the GDP growth rate there, very, very strong in Spain and it's been consistently strong over the last 3 years and well above the euro area in fact, almost double.  Portugal, not quite as strong as Spain, but still very strong at 1.9%. And France, you'll see the underperformance in France and that pressure is that their economy is under a bit of pressure. France along with Germany within Europe are on the back and experiencing a bit of economic headwind. You see an inflation rate as well, much higher in Spain and Portugal versus France, euro area average of 2%. This is what they monitor when it comes to interest rate decisions. Where this is also relevant is our leases are all indexed to inflation or an index of inflation. And so you'll see actually better growth coming out of indexation out of Spain and Portugal and slightly lower in France going forward. And so that changes all in the same currency in euros. And then [retail] sales Spain, Portugal, again, very strong, 6.2% in Spain and 6.9% in Portugal. We saw that coming through in the property delivering growth over 8%. And then again, you see France underperforming minus 1.1% and the average of 3.1% for the euro area.  Unemployment Spain, a lot higher than most markets in Europe and structure does have a higher unemployment rate. It was over 25% at its peak in I think it was around 2013, but steadily reducing, and this is part of the driver towards the GDP growth. It's reducing unemployment, more people working and stronger GDP growth. But as you can see that it is steadily reducing and coming to more normalized levels. Portugal, France and the euro area are relatively stable at around the 6% to 7% range. Investment portfolio, the evolution of it over the period. That's fairly straightforward. We've literally acquired [centers] has grown from 49.3% to 58%, which has taken that Iberian exposure to 86% and France to 14%. So what's nice is the business is extremely easy to understand now. We got 86% in Iberia, that's comprised of 8 shopping malls and about 14% in France, which is comprised of 60% share of shopping malls. 4 shopping malls in total. The malls in Iberia are all very similar in nature, all core dominant assets. So it's extremely easy to understand the business and made our income and the understanding very easy as well.  I'll touch on acquisitions closed during the period. There were 2 of them and this is on top of the 4 acquisitions made during the course of last year, [Arca Magna I] won't touch too much on [Arca Magna] because we presented in detail at the last results presentation because we closed it just before we presented. So we gave all the information on the center there. We acquired a yield of 7.6% and a cost of ZAR 9.3 million, and that was closed in March. And then more recently and 3 days before period end, we had [indiscernible] that was closed that was acquired a yield of 7%. That was a cost of EUR 135.4 million. So the impact on the NII side is almost negligible or not even 3 days, but it will be reflected on our balance sheet because it's on books.  I'll just touch a bit more on especially Espacio Mediterraneo Footfall 7.7 so it's a large dominant regional center attracting a high footfall of 7.7 million strong sales growth for the first half of the year of 7.4% and acceptable footfall growth of 1.6% and you can see the vacancy almost 0.7%. The way we acquired this was through debt and that debt was secured by [Aspire] and this was acquired fully equity funded last year. So we drew a loan against that asset. And then we also drew loan against the asset itself against the target asset. I think what is nice about the center that comes with the Zarra already done. Zarra extension and refurbishment was completed just before we acquired the center. So it is bought the brand new flagship Zarra, which you would normally have to have quite a material cost and also the yield is often a bit dilutionary.  This is a picture just to give you a better understanding of the asset. What we acquired is what you see there in blue, and that makes up the mall Espacio Mediterraneo. So that's the shopping mall. And then [indiscernible] also forms part of the shopping mall, but it is under separate ownership. And you see it forms part of a greater retail precinct. This is 100,000 square meters of retail with very strong tenants, [indiscernible] MediaMark all adding to the offering. So it's very dominant, there is a lot of catchment. It's about 373,000 people within the catchment. In there you see [indiscernible] City center. There's 220,000 people living in that city. And it's a port city. It's got a naval base. It's oil refinery, the a lot of manufacture and it's quite reliant on tourism. So it's a diversified economy.  Another picture of the same thing, just a slightly different perspective. You see them on the left between those 2 Primark, that's the mall then you see the retail park section and the car park parking a lot of parking as well and gives you a good understanding of how the retail park integrates into the shopping mall. This is a picture of the interior to give you understanding of the look and feel. It's a high-spec mall. It's got very good quality finishes, not a lot to do in way of refurbishment to modernize the center. It's very acceptable as it is. The tenant you see is [indiscernible]. It's a cosmetics brand they're going quite a comprehensive rollout across Europe, even including in France and being introduced to many of the malls in Spain. So it's doing particularly well. And that picture of the Zarra store I mentioned earlier that was recently extended and refurbished. What happened here is they opened the Zarra store and closed on the high street. So now this is the only Zarra in the city. They did the same thing at Salera where they refurbished the store and closed on the city. We are doing a similar concept to the Zarra, this current sort of flagship concept. We're doing it in [indiscernible] and we'll be doing it in [indiscernible] extend the Zarra and refurbish to latest concept. And in both instances we expect them to close the high street or call it competing schemes in those cities, which will continue to drive footfall and continue to drive growth.  So this is [indiscernible] like I said, we did touch on it at the last presentation. So obviously an update. We're seeing the first half of the year, very strong sales growth, 8.9% and footfall growth of 3.7% been far above our own expectations. It sits fully occupied and it's benefiting from the Primark. Primark was introduced last year, took over the space of which replaced the H&M unit and Primark is pushing the growth of the center and it's actually now continuing to perform ahead of what we anticipated it to be.  Now I'll just take you through the listed investments, which has become quite a small part of our business. It was 34 million at the end of December, it's down now to EUR 14 million, and it's been rotated out to fund CapEx and projects in our pipeline within the portfolio, and we expect that to slowly reduce over time. So this has reduced substantially from what it was a couple of years ago in the business. And with that, thank you. I'll hand over to Kobus to take you through the financial results.

Good morning. Lighthouse shares in issue increased from June 2024 as a result of partial scrip distributions on the 1H 2024 and 2H 2024 distributions and book builds during September 2024 and June 2025. Distribution per share increased by 7.9% to EUR 0.122 per share during the current period and net asset value per share increased to EUR 0.63 per share. The loan-to-value ratio increased from year-end to 35%, mainly as a result of the inclusion of subrogated debt related to the acquisition of [Alcala Magna] as well as loans drawn down to finance the acquisition of [indiscernible]. The slide includes all of Lighthouse's interest-bearing borrowings. I'd like to point out the debt with maturity at 12 June 2028, which is the subrogated debt obtained as part of the [Alcala Magna] acquisition as well as the first 2 maturities on 27 June 2022, which are the loans drawn down to finance Espacio Mediterraneo and secured by the Mediterraneo and Espacio shopping centers, respectively. The weighted average remaining loan term is now 5.2 years with a corresponding weighted average effective interest rate of 4.99%.  The Lighthouse maturity profile has correspondingly shifted significantly towards 2032. Hedge profiles substantially match the related debt profiles and the majority of Lighthouse's loans now have fixed interest rates. As Lighthouse invests exclusively in Western European malls, the Lighthouse Board has adopted EPRA best practice recommendations and the corresponding metrics with effect from 1 January 2025. Lighthouse considers the key metrics as net tangible asset value, the loan-to-value ratio and the vacancy based on estimated rental values. EPRA adoption has had no impact on the calculation of the distributable earnings. The table sets out differences between the key EPRA metrics and the corresponding historical metrics as there are no significant differences either in the current or the prior period. And with that, I'll hand over to Razvan.

Thank you, Kobus. In the next slides, I will present briefly our direct portfolio, highlighting the main property KPIs, the leasing activity and the ongoing projects in the first 6 months of 2025. In the picture, [indiscernible] with 2 trading levels. [indiscernible] is a new opening, open in 2024. This is a shopping center that we are very happy with. It has footfalls of more than 9 million visitors in the last 12 months and sales growth of 8.5%. Property portfolio, including the 2 malls acquired in 2025, the portfolio comprises more than 500,000 square meters GLA. With 12 malls, we are becoming relevant, especially in Iberia. And to put it in perspective, we have more than 600 tenants and 90 million visitors in the last 12 months. We have one of the largest landlords for many of the tenants in Iberia, including tenants like Primark and Zarra. Average occupancy is 97.3%, so vacancy of 2.7%. Vacancy in Portugal is close to 0, in Spain, vacancy is also close to 0 in all the properties with the exception of H2O. H20 has a vacancy of 8%, which is concentrated mainly in one unit, a former trampoline park that closed in Q1. We are negotiating the lease agreement. And once it's signed, the vacancy also in H2O will be decreased.  In France, vacancy is 6.4%. It's slightly higher than previously reported. This is due to several store closures mainly in [indiscernible]. In France, tenant failures continued with the most notable one in 2025 being Jennifer. They closed 220 stores across the country. We had Jennifer in [indiscernible] in a large unit, 1,100 square meters. We replaced them quite quickly with [indiscernible] and the new store is open. So the impact in this case was minimized. The 10 largest tenants by rental, they represent 25.6% of the income and 31% of the surface. Inditex with 8 brands is the largest tenant. They occupy 8.3% of the surface. They are present -- Inditex is present in all the malls with one exception in [indiscernible] in France. Zarra continues the consolidation process. We are currently extending 3 of their stores. Once the 3 stores will open, we will have in the entire portfolio across the 3 countries, we will have only 2 Zarra stores that are not rightsized and updated. This will be H2O and in [indiscernible].  The second largest tenant is Primark. They occupy 7.4% of the surface. They are present in all our shopping centers in Iberia and in 2 out of 4 in France. I think we are the largest landlord for Primark in Iberia with 8 stores. JD Sports is the third largest. They have increased the surface in the majority of our shopping centers. [indiscernible] looking at H&M, we see a recovery of their sales, but from a very low basis. So they're still very far from the performance that they used to have. Performance metrics, portfolio vacancy of 2.7% as already mentioned, collection rate 98.3%. In Spain and Portugal, collection rate is 99%, in France, 96%. We made very good progress to replace tenants in France and to improve the profile of the tenant mix. So 96% is a high collection rate, and we are working to improve it even further.  Average occupancy cost 10%. This gives us room to increase the base rents at lease expiries. Weighted average unexpired lease term, 7.6 years. In the chart on the right side of the slide, the lease expiry profile by rental income. The value of the leases that expire every year is somewhere between 7% and 10% of the income by 2029. So in the next 4.5 years, the leases that expire represent 37% of our income. We signed 70 lease agreements in the 6 months, representing 16,000 square meters GLA. Average rental reversion is 4.9%. It excludes the indexation, which is applied on the indexation date for each lease. The chart on the right side is the split of the GLA per retail segment. Fashion occupies 38% of the surface. We are very focused on fashion, followed by leisure and food and beverage with 10%. Groceries is only 5%. This is because most of the properties are anchored by large hypermarkets that are separately owned, so they are not included in this graph.  In terms of performance, segments that performed well are fashion, groceries, food and beverage segments, underperforming households and sports brands like such as Foot Locker, JD Sports, Snipes were either flat or slightly negative in the first half. Leisure is 14.5% of the surface. This is mainly represented by cinemas, a large proportion. Ticket sales were slightly up in the first half compared to the first half of 2024, plus 1%. We expect a stronger second half of 2025. So we expect in the second half growth of somewhere between 3% and 5%. Leasing activity is a picture with the return levels [indiscernible]. This slide represents part of the lease agreements that we signed this year and the brands that are currently fitting out their new stores. Since the vacancy in Spain and Portugal is very low, most of the deals signed in the 2 countries are relocations and extensions. While in France, we are signing deals for the remaining vacant space, and we are replacing tenants that closed. Zarra, we signed the lease agreement for [indiscernible] we are extending the mall and Zara is almost doubling the surface. They are also fitting out the unit in [indiscernible], we started the works for the extension and we are extending both [indiscernible] relocated on a larger footprint. They were performing very well. They expressed interest to open a larger store and JD Sports took over the old units and they are now out. [indiscernible] opened [indiscernible]. In France Inditex is present with Zarra and [indiscernible]. We are extending their presence. They will open -- we signed lease agreement and we will open flagship [indiscernible]. We down-sized one of the existing tenants and we are opening [indiscernible] with more than 1,000 square meters. Also [indiscernible] Adidas opened a new large concept, 500 square meters took over the unit of Jennifer. And in Doc76, [indiscernible] out their unit, and they will open now in September, a large anchor store that is the main electronics retailer in France, part of [indiscernible] Group. This is one of the largest tenants in Europe.  The trend that we observe across all countries is that large malls are becoming more and more the preferred target for retailers. Many times, this is in the detriment of the city centers and the smaller shopping centers. Large malls, they have the flexibility to provide additional space, which is needed by the retailers in larger concepts as the trend is to open larger stores and to close the small ones. The development pipeline is almost in existence. It's very, very low and this puts a spotlight on the existing malls. We see city centers that are losing tenants are not performing well, and this is mainly due to the lack of parking and the restrictions that the cities put on deliveries and logistics. A good example in this respect is, [indiscernible] which you see here in the picture. It is 45,000 square meters GLA. This doesn't include the Continental hypermarket, which is 17,000 square meters. It does include a small retail park. We like to have these retail parks in our schemes or very close to our schemes. Sometimes we own the retail park and sometimes we don't, but it's good to have a concentration of retail. This gives us the flexibility to include in the tenant mix things that are normally are not present in malls, large discount stores, pet stores and clinics and furniture stores which are present in the retail level.  In several of our properties, we have rights to build additional space. This is the case for [indiscernible] Montijo but also H2O, [indiscernible] it allows us to extend when we consider that the current surface is not sufficient and we have tenant demand. We think there's a sweet spot somewhere between 40,000 and 50,000 square meters where the mall has enough mass to be relevant, but it's not too large. So it doesn't include all the tenants. So there is flexibility to replace the underperforming tenants.  Moving to projects. This is a picture -- it's an old picture of H2O. This area of the mall is currently under construction. On the left side, you can see the park that is now being downsized. The project cost us EUR 10 million. This amount was included in the acquisition price. So the yield of 7.5% is the acquisition yield. Project status works have commenced and completion is expected by the end of the year. We are replacing -- we already replaced the floor in the mall. You can see it in the picture on the upper side. We are replacing the terrace with glass ones, refurbishing the lobby, the toilets, we are including the lighting. So the mall will look very different once the project is finalized. On the left side, on the upper side, you can see the new JD Sport that opened a few weeks ago.  In the exterior area, the lake area, we are reducing the lake from 2,500 to 7,000 square meters. This allows us to create the destination in front of the shopping center. We are extending the existing park and improve the connection with the retail park, which is located next to the mall. On the next side, the lower picture is [indiscernible] it's actually an actual picture with the new restaurant that we opened on the lake 700 square meters. It's a very successful project. For [indiscernible] the works for the extension have started. It's a project cost of EUR 12 million and the yield of 7.5%. We are extending Primark, Zara but part of the projects are also the extension of [indiscernible] lease agreements are signed and the completion, the opening of all the stores, all the new stores is expected in the third quarter of 2026.  [indiscernible] it went through a process of reanchoring, it started in 2022 with the opening of Primark. It continued with the opening of [Alcampo] hypermarket in '24. And in 2026, we will open the large flagship Zarra. Zarra also has a store in the city center, which we expect that we will eventually close when the large concept will open in [indiscernible] we are almost doubling their surface. Part of the project is also the extension of the addition of a new anchor tenant and the rightsizing of [C&A]. a project cost of EUR 5.9 million with a yield of 5%. The way we calculate the yield is by dividing the incremental income with the cost. We don't include here the benefits on the mall that we would get once the flagship open. And we see this impact is material. We see it in Salera where Zarra did the same thing, they closed the city center stores and the impact on the mall was material. The sales improved in Salera in 2024 with 8.7% in the first half of '25. [indiscernible] project the cost was included in the acquisition price, the tenant already took occupation of the additional space and they are busy fitting out. The store remains open. So they will not close during the period. And with this, I finish my part and hand over to Justin.

Then I'll conclude with an outlook picture in Portugal, a very large report with 30 different -- more than 30 different restaurant offerings. Quite popular in Portugal to have these large groups with many options to eat and they're very popular with the residents of Portugal. Then just on the outlook, like I mentioned, we're going to remain disciplined in our investment approach. So we're not going to chase assets that don't achieve the quality that we need that aren't dominant. So we won't chase yield. We do anticipate because of this, we will see less acquisitions going forward, and this is because of just being -- the supply of the assets is going to be a lot less. And as I mentioned earlier, the institutional capital that's now entering the market. Iberia does remain strong. The economy remains strong and the performance of those assets remains strong, and that's expected to continue into 2026. And I think we'll get the full benefit of our assets especially the acquisitions that we've done during this year in 2026. So we are expecting some good growth to continue. And I think with regards to guidance, we've confirmed our guidance of EUR 0.027. I think what has changed is there were some assumptions around acquisitions at the time guidance was given. Those have now been achieved and are no longer assumptions are facts. So we reaffirm our guidance of EUR 0.027. It will be for the full year of 2025.Okay. And then next, we will look to address the questions. So the first question is what sort of indexation did the portfolio achieve during 1H 2025?

So indexation in Spain is 2.8% Portugal 2.4%. In France, we have a different indexation per quarter. The first quarter was 3.03% in quarter 2, 2%. And in quarter 3, it will be slightly under 1% to 0.96%. We don't have it yet for the fourth quarter, but we expect it will be around 1%.

The next question, Razvan is, how much are online sales growing in your portfolio's retail categories? And how are you and your tenants adapting to this shift?

Yes. So the Spain and Portugal are well below the European average for the penetration of online. What we see is that there is a ceiling to the online sales, and they are growing, but -- they grew very fast during the COVID period, but now the growth is very small. I don't have the latest number, but I think it's about 12%. The tenants are adapting what we see is that the most successful tenants are the ones that are combining the online with the offline. And what we actually see is that also that some of the tenants that are only present online, now they open stores in the shopping center. So I believe that there were a lot of questions about online affecting the physical stores maybe 2, 3 years ago, especially after COVID. But this has changed and now there is -- the opinion among retailers is that the best solution is having online with retail presence and actually shopping centers are benefiting from this trend.

That seems to be some total of questions at this point in time. Okay. There are not many questions, but we will be having one-on-ones in the coming days, and we probably answer some more questions. There's some more coming through now, sorry. So the next question is, given the forward curve in Europe, when are you likely to benefit from lower refinancing cost? Yes, you can probably take it to our debt maturity profile.