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

Thank you for standing by, ladies and gentlemen, and welcome to the LAMDA Development conference call on the 9 months 2020 financial results. We have with us Mrs. Konstantina Karatopouzi, Chief Operating Officer; Mr. Vassilios Baloumis, Finance Director; and Mr. Dimitris Harlanbottler, Investor Relations and Financial Strategy Director of the call -- of the company, sorry. [Operator Instructions] I must advise you that the conference is being recorded today. I will now pass the floor to one of your speakers Mrs. Konstantina Karatopouzi, Chief Operating Officer. Please go ahead.

Good afternoon, everyone. Thank you very much for joining the call today. Special thanks to those joining from the U.S. We understand it's Thanksgiving holidays, so we really appreciate your time and your participation. Today with me is Mr. Vassilios Baloumis, our Financial Director; and Mr. Dimitris Haralabopoulos, who is our IR and Financial Strategy Director who recently joined the company. Given that we feel that we're approaching the date, thankfully, of the closing of the transaction that you've many times heard about before, we think it's a good opportunity just to give you a brief update of where we stand with the Hellinikon Project before we jump into the -- take your mask off. Before we jump into and explain the presentation of the financial results of the first 9-month period. So there's been a very good progress for all the CPs that are required for the -- to be on sales before the closing of the transaction. As you know, there's a number of them. Some of them have already been fulfilled. So I'm going to briefly go through those that are still pending. The first one of those relates to the casino license. Back in February of 2019, as you know, the process started, the tender for the casino license. And we had 2 tenders like the JV of Mohegan/GEK TERNA and also the one of Hard Rock, both of which ended up filing petitions for first decision that was made, and this caused a certain delay. The important step since then is that in October, the bidder has been announced. Now this is probably not news because, I mean, it has been out in the press, so you probably know about this. But this is the most material, the most important step that is taking place in order to risk CP to proceed. Therefore, even though it hasn't been totally fulfilled, we believe that the most important part has already taken place. Now in order for this to be finalized so we can sort of pick it off our list and consider it fulfilled, is that the Court of Audit although it has to approve the concession agreement for the casino license. That's one step. And the second one is that this -- granting the casino license has to be approved by the Greek Parliament. This is going to be done through a decision of the Ministry of Finance. So both of these steps still need to take place, but they're more of administrative nature rather than of essence. So there's no real risk there. Moving on to the other important CPs. There are certain -- or some legal cases still pending from the Council of State, the country's Supreme Court. Now the hearing of those cases have already taken place, which is also very important. So at the moment, we're just waiting for the decision to be issued. This decision is expected -- a reasonable time would be the next 2 or 3 months. Of course, taking into account or considering that there is no adverse development with any new lockdown that might prolong this period. With regard to the partition of the Hellinikon side, which is another CP pending, there was an agreement back in February between the state and the privatization agency, which, in essence, the pending item is that it has to be formally documented and signed. So this is the next step that needs to take place, the execution of this actual agreement. And once that is done, then it needs to be ratified by the Greek Parliament. And as a final step, it needs to be filed with the land registry, so the -- in Greek, the Ktimatologio. Again, these are regular steps. So we don't see any reason to have further delays on this particular set. Now based on these -- because these are the main parts of the cities that are pending. In reality, and given that we see still the government's commitment and willingness to pursue the remaining of these steps, we believe that within the beginning of 2021, first couple of months, there should be a significant time to allow for the transaction to take place, again, barring any unforeseen or prolonged period of general lockdown to deposits that might delay any of these steps that we previously described. Now the important thing to note is that because we keep referring to these CPs, which really are not in our -- in the company's control. It's really things that -- most of these things are driven by the state. During this time that we still have inside of us, but also the times that we've been waiting for these CPs to be fulfilled, the important thing is that we continue to do actions in order not to just sit and wait for these steps to take place. So one of the important things that you probably know that started back in June is the demolition. So even though we don't own the site yet, these demolitions started. In fact, in September, they were completed earlier than we actually originally planned. That's one of the important things that took place because this actually saves us time. On top of that, we have done a lot of preparatory work in relation to the project. Some of this involves the preparation of commercial, environmental and other studies required for the project. A large amount of personnel has been hired in order to address the increased needs of the project and to complement the team that has been running the project up to now. And this is from various functions and responsibilities. And also a lot of the studies which are necessary, whether required for the construction to follow or mainly on the design stages, these are also under preparation. And a lot of work has already been assigned to third-party consultants and architects. So there is also a lot of the procurement that has already started. So in terms of time that has passed, on one hand, yes, there has been a delay. On the other hand, we've totally used that time to complement it and use it as preparation for the project. So in essence, at the moment, there's no real actual delay because we didn't just sit and wait until the closing of the transaction. So given this commitment that we've shown up to now and despite the fact that we're not owners of the land, we don't see real delay at the moment. So this is a, let's say, a quick brief about the project at the moment. I'll pass on the floor to Mr. Baloumis to take you through the presentation of the 9-month results. And at the end, we'll do the Q&A session, we can go back to any questions that you may have further.

Thank you, Konstantina. Hello, everyone. I would like to start the presentation on making a reference to this new environment we are living due to the COVID pandemic. Of course, [indiscernible] this we have been left behind at our next call for the year-end results. So as you know, following the government's measures, the operation of the 3 shopping malls [indiscernible] spending from mid-March to mid-May. According to the law, the tenants were as exempt from the obligation to pay the 40% of the total rent for the months March, April, May and June 2020. In addition and beyond the existing provisions, the company has decided to provide an additional discount of 30%. So a total discount of 70% on the initial contracted rent only for April and May 2020. The government has extended the measure for a discount on the rent by 40% for the months July, August and September to certain sectors, mainly in the F&B and cinemas. Moreover, the company -- the group has completely lost the revenues from the relevant parking operation, the advertising income, as well as the turnover rent for the period of the first lockdown. These revenues have also been reduced during the period from reopening to the end of September due to the decrease in the footfall and the tenant sales. Subsequently, the group have received a reduction on the fixed portion of the rent paid to the research for the Mediterranean Cosmos for the period March to June 2020, amounting to EUR 0.5 million. The outcome of the both mentioned legislative acts, along with the group's decision to provide additional discounts to tenants is the decrease in the revenues from the parking operation, advertisement and turnover rent has been fully depicted in the financial results of the group for the 9 months. To be more specific, during the respective period, the total retail EBITDA declined by EUR 15.9 million. However, taking into account the effect of noncontrolling fee -- I mean, the minority interest and the income tax, the impact on the group net asset value amounted to EUR 10.1 million or EUR 0.06 per share. Also, it has to be noted that apart from the decline in the operating profits, group shopping centers have suffered fair value losses of EUR 24.3 million in total. Taking into account the effect of the noncontrolling interest, I mean, the minority interest of Värde, the impact on the group net asset value amounted to EUR 19.6 million or EUR 0.11 per share. You can see those items on Slide #9. So following the government new measures, the operation of the group, 3 shopping centers was spending again in November. The shopkeepers were exempted from the obligation to pay again 40% of the total rent for November. The impact on this discount of the group shopping center's total retail EBITDA amounts to EUR 2.1 million. Taking into account the effect of the minority interest and the income tax, the impact on the group net asset value amounted to EUR 1.3 million, which is less than EUR 0.01 per share. Of course, during this period, the group will completely lose their revenues from the relevant packing operation, part of the advertising income as well as turnover rent. The loss of -- we have both mentioned the revenues, after the noncontrolling interest and the income tax, amounts to EUR 0.6 million. So starting with the presentation, starting with Slide 1, which presents the results highlights for the first 9 months of 2020, the consolidated retail EBITDA, that is the EBITDA of the shopping malls, amounted to almost EUR 32 million, recording a 33% decline compared to the 9-month period in 2019, of course, due to the adverse impact of the pandemic outbreak. So consolidated EBITDA before property valuation losses, expenses related to Hellinikon Project and the positive impact from the Flisvos Marina acquisition amounted to EUR 26 million, a 36% decline compared to the same period in 2019. All in, the net result after tax and minorities amounted to a loss of EUR 19 million, equivalent to a loss of EUR 0.11 per share. Moving on to the company's net asset value. As of the end of September amounted to EUR 1.13 billion equivalent to EUR 6.42 per share. We will speak in more detail about the shopping mall's performance in the following slides. Yet, I wish to highlight 2 very important metrics for our shopping malls in light of the adverse operating conditions due to the pandemic. Firstly, the average occupancy rate of 98% as of end September, which was stable compared to the end June relevant metric. Secondly, and very important, the high collection rate of 95%. Finally, Konstantina has already provided a rather detailed overview of the developments around the Hellinikon Project, while I wish to point out 2 other important developments. Recall that in July, LAMDA successfully issued EUR 320 million over corporate bond trade-up on the Athens Exchange, which was oversubscribed with more than 10,000 Greek retail investors subscribing to the bond issue. This has been a significant success for LAMDA considering the period that the bond was issued right after a 2-month general lockdown during the pandemic. Next slide, #2. Moving on the slide, we present the evolution of 2 important KPIs for our shopping malls: tenant sales and footfall. Remember that we spoke before about the rather positive start in the year 2020. Well, by January and February, recorded rather strong growth for both metrics. However, and no wonder that the pandemic outbreak had an adverse negative effect on both tenant sales and footfall. For the 9 months in 2020, footfall dropped 45% compared to the same period in 2019, while tenant sales dropped 37%. Looking into the trends post September, I wish to highlight that we have not seen a deterioration in the KPIs for both metrics. Yet, we have not seen any improvement to the trends. Moving on to Slide #3. We mentioned before the 33% decline to our shopping malls' retail EBITDA, the total retail EBITDA. The improvement -- the important note here is that the impact related to the rental discounts, either imposed by law or offered by the company to support the tenants, amounted to EUR 14 million in the first 9 months of 2020. Slide #4 presents the key performance drivers for The Mall Athens. We briefly highlight the following. Occupancy remains unchanged compared to end June at almost 97%. KPIs for footfall and tenant sales remain admittedly weak. But importantly, did not deteriorate compared to the trends registered for the first half of the year. Rent reductions for the 9-month period amounted to EUR 6.5 million, a key impact to the overall decline in total revenue. Moving on to Med. Cosmos, the shopping mall in Thessaloniki. Occupancy remains unchanged compared to end June to almost [ 100% ]. KPIs for footfall and tenant sales remained weak, but importantly, did not deteriorate compared to the tenant trends hedged for the first half of the year. Rent reduction for this period amounted to EUR 4.4 million. Next slide, #6, the Golden Hall, which has performed better compared to the other 2 shopping malls. Occupancy remained unchanged compared to end June at 98%. KPIs for footfall and tenant sales remained immediately weak, but importantly, did not deteriorate compared to the trends registered for the first half of the year. Know that the drop in tenant sales is almost identical to the decline in footfall, something that we have not seen in the other 2 shopping malls during the course of the pandemic. Rent reductions for this period amounted to EUR 3.5 million. Moving on to Slide #7, we present the breakdown of the consolidated EBITDA, starting from the EBITDA of the 3 shopping malls and arriving to the consolidated EBITDA, which amounted to EUR 26 million. Of course, this figure does not include property valuation losses, expenses related to the Hellinikon Project and the positive impact from the Flisvos Marina acquisition of the 32 addition -- 32% additional stake. Next slide, #8. So we can detail the breakdown of the profitability drivers, starting from the EBITDA and driving of the net result. Note the following important items. Property valuation losses in the first 9 months of the year amounted to EUR 25 million. Expenses related to the Hellinikon Project remains almost unchanged compared to the same period in 2019. Next slide, #9. This slide briefly presents the overall impact of the pandemic to both the consolidated EBITDA and the company's NAV. Again, the total loss of EUR 0.06 per share. Slide #10, as always, shows the NAV evolution compared to the previous year-end. All in, NAV at EUR 1.13 billion as of the end September, or equivalent of EUR 6.42 per share. Note here that the impact of the property valuation losses stands at almost EUR 20 million or EUR 0.11 per share, another almost EUR 0.04 per share is the impact of the net result before the property valuation losses, another EUR 0.03 per share relate to the Hellinikon expenses. Next slide, #10. Sorry, next slide, #11 shows the property value of each shopping mall after the independent valuer's appraisal. Note that although we have not done valuation in the past, we have requested an independent valuation for the purposes of our 9-month results in view of the adverse conditions due to the pandemic. The average EBITDA yield at the end of September has ticked up to 7%. Slide #12 shows the value of the other property assets included in LAMDA's investment portfolio. The aggregate value of those assets on our balance sheet stands at EUR 87 million. Slide #13 shows the balance sheet, the values of LAMDA property portfolio overall, broken down into various categories. At the end of September, the value of the investment portfolio stood at EUR 1.21 billion. Of course, the vast majority, 80% comes from the value of our shopping malls, which amounted to almost [ EUR 172 million ], as shown in the previous slide. Coming to Slide 17. This shows the details of the balance sheet. We highlight that total assets amounted to EUR 2.2 billion, of which EUR 940 million is the value of the investment property and another EUR 900 million, as discussed, group equity, including minorities, up EUR 1.13 billion. On the liability side, the group gross debt, including lease liabilities at EUR 895 million. Remember that in July, LAMDA issued a EUR 320 million corporate bond. Moving on to the last slide that I wish to discuss with you, Slide 18. We wish to highlight the following. The low interest rate of our borrowing obligations incorporating, of course, the recent bond issue, which coupon was set at 3.4%. The net cash position of almost EUR 190 million at the end of September, which was almost unchanged compared to the net cash position at the end of June. So thank you for your attention. We are now ready to answer any questions you may have. Thank you.

[Operator Instructions] Our first is from Natalia -- sorry, [indiscernible] from Eurobank.

I have a question on the current actually trading conditions and the lockdown we are under currently. Are you thinking any further discounts, are you considering any further discounts further than 40% on your base rents, as was the case earlier in the year in April and May? And do you believe this could be extended in December? And what about the discounts for the cinemas and restaurants, which we actually saw continuing even after lockdown measures. Do you have any thoughts on that? That's my first question. And maybe I have another question on LAMDA Mo's IPO, if you have a time line or some considerations on that.

Thank you for the question. At the moment, for the month of November, it has already been announced by the state. So the 40% is already being provided to the tenants across the board, so there's no differentiation at the moment. We anticipate the same thing probably happen in December, which is, of course, something we will follow if so. Otherwise, if it doesn't, we will kind of see how December goes. And we will assess it depending on how the -- depending on which day. Because at the moment, the announcement and the [indiscernible] at the end of the month, but we're still waiting to see how that's going to evolve. So there's no decision made at the moment. We'll assess and decide. The second question was about the IPO. So from a strategic point of view, it still remains in the plans of the company as we had originally decided. However, at the moment, as you understand, the timing is not good. We have to wait and see when we have visibility from the pandemic to see when it ends and then when the conditions are going to be satisfactory and appropriate in order to proceed with the IPO. But yes, it does remain in our plan.

If I may add -- sorry, if I may add something on your first -- on the first -- on your first question with regards to the rent reductions during November. We have stated in the results press release the impact to our bottom line after taxes and minorities, which amounts to EUR 1.9 million. EUR 1.9 million. Which is equivalent to EUR 0.01 per share. So it's currently.

Yes. That's quite clear. I was just wondering if you have any indication on December. But okay, you told me you will assess this. What about the cinemas and the restaurants part? Because I understand they had discounts also after the lockdown measures were released?