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Lamda Development | Progress towards Hellinikon kick-starting; meanwhile yields compress

Improving shopkeepers’ sales – Aggregate shopping centers tenants’ sales increased by 1.4% yoy in Q2 2019, reflecting increased spending per visitor as well as seasonality (Easter sales in Q2 2019 vs. Q1 in 2018). As a result, revenue from retail assets increased by 2.2% to €18.4mn, led by mild growth across all three shopping centers. Retail EBITDA increased by 8.5% yoy to €15.4mn, boosted by the IFRS16 effect in the case of Mediterranean Cosmos (land lease in effect). On an adjusted basis, Retail EBITDA remained flattish yoy, in-line with our estimates.

Yields start reflecting improving risk perception – Meanwhile, the Greek 10-yr sovereign yield has reached an all-time low of 1.6% (Sep ’19), reflecting investors’ expectations that the country is on track for macroeconomic growth. Given that property yields, are typically reflective of investors’ perception regarding country risk, Lamda’s property yields have recorded a fraction of the decline so far (-50 bps in H1 ’19), signalling that there’s room for further yield compression ahead.

Q2 2019 Review – These trends led to rental income of €19.3mn (+2.7% yoy). Group EBITDA increased to €62.6mn (+10.8% yoy) owing to revaluation gains of €49.7mn relating to The Mall and Golden Hall assets. Finally, Net Profit (including revaluations) reached €34.3mn from €22.9mn, broadly in-line with our expectations. Net Debt was largely unchanged vs. Dec ‘18, at €375.1mn. Finally, NAV (excluding minorities) increased to €486.1mn from €438.9mn in Dec ’18 owing to the aforementioned revaluation gains. Adjusting for treasury shares, NAV per share stands at €6.24. Lamda currently trades at a c. 30% premium to reported NAV, reflective of expectations for value crystallization in view of yield contraction and rental income growth ahead in the case of its income generating assets, as well as potential upside relating to the Hellinikon development.

Valuation: existing assets valued at €8.40 per share – We value Lamda Development using an asset-based approach that focuses on the net asset value of its income generating assets & land portfolio, taking into account avg rental income growth of c. 4.0% in 2019e-2020e along with a projected yield contraction of 80 bps. Our exercise effectively values Lamda’s existing business at €8.40 per share.

Hellinikon – The State is recording progress towards completing contractual pre-conditions for the development to commence, increasing visibility as to Lamda’s involvement in the project. As per our understanding, the group may seek increased involvement in Hellinikon, becoming a more active investor than previously expected. This implies increased value creation while it may also involve Lamda tapping into additional financial resources (combination of equity & debt). Given that there is no timeline for such actions yet, nor visibility as to sizes, the per share assignment of value creation stemming from Hellinikon under the new structure, albeit sizeable, is premature.