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LAMDA DEVELOPMENT | Adjusting estimates for COVID-19

Adjusting estimates for COVID-19 impact – We have revisited our model for Lamda Development to adjust our numbers for the impact of COVID-19, following the Govt’s third step of easing lockdown measures that allowed Greek shopping centres to re-open under certain rules, removing a key uncertainty regarding the duration of the shutdown. Under our baseline assessment, the implied decline in 2020e base rents for the three shopping centres is estimated at 25.2% yoy, with total revenue and EBITDA from the Retail sector declining by c. 30-31%.

Our base case scenario – Our base case scenario reflects invoicing of 30-60% of base rents from March until June and 85% during H2 ’20, along with no income from turnover rents (portion of rent linked to shopkeepers’ sales) and significantly lower parking and marketing activities. We also pencil in a 20% decline in footfall in H2 to account for strict rules in terms of the number of persons allowed per square footage as well as the likelihood that customers might be hesitant to extend their stay within the shopping centre, thus limiting the amount of spending per stay (lengthier dwell time was associated with increased spending in the pre-COVID era). With regard to 2021, our baseline scenario assumes a 5% decline in base rents (vs. 2019 levels) offered to tenants as a means of support, which indicates a c. 30% increase vs. 2020. We also assume normalisation of trading, with footfall increasing by c. 28.5% yoy (i.e. 16% lower than 2019 peak levels).

No significant impact on NAV, given the long-term nature of the lease agreements – With regard to yields, we remain conservative assuming flat yields in 2020, despite the fact that Lamda’s yields have recorded a disproportionate decline in comparison to Greek bond yields so far. This places Lamda’s NAV at €1,138mn from €1,155mn at the end of 2019.

Valuation - Looking beyond 2020, which is heavily affected by measures against the spread of COVID-19, we assume a more conducive market environment. We take into account average yoy rental income growth of c. 30% in 2021e (i.e. -10% vs. 2019 levels) and 8.8% yoy in 2022e along with a projected yield contraction of 30 basis points on average during the same period. Our exercise effectively values Lamda’s income generating assets and land portfolio at €6.80 per share. Building up from an estimated 2020e NAV of €1,201mn for Lamda’s existing asset base (including proceeds from the €650mn share capital increase completed at the end of last year), we estimate the company’s fair value including the accretion from Hellinikon at €1,774mn or €10.00 per share (from €11.15 per share previously).