Financials: Largely self-funded, low-risk model
Overall, it appears that LAMDA is well-capitalised and, if incoming cash and outgoing
costs flow as expected, the Ellinikon project should generate significant positive
cash flow, albeit over a fairly long timescale. Revenue and cost recognition policies
for the core malls and marina businesses are conventional. However, revenue and cost
recognition policies relating to the Ellinikon project are less straightforward as
they are often based on the percentage of construction completion accounting method
for build-to-sell residential projects in particular. Of course, there are risks to
be considered, particularly relating to cost overruns, but management has been able
to reduce these, largely by entering into guaranteed maximum price contracts with
contractors.
Balance sheet
At the end of FY24, LAMDA Development had total debt on its balance sheet of €1,754m,
which consisted of €1,174m in traditional borrowings, €201m in lease liabilities that
largely reflect the unexpired value of the leases on the land plot on which the Mediterranean
Cosmos shopping centre (to 2065) and the Flisvos Marina (to 2049) were developed,
plus €380m in consideration payable for the acquisition of Hellinikon SMSA, which
was the original vehicle that brought the development site to LAMDA.
Nearly half of the borrowings of €1,174m are made up of two listed bonds, one for
€320m with a coupon of 3.4% maturing in 2027 and a €230m green bond with a coupon
of 4.7% due in 2029. Combined, these two bonds have a weighted average fixed rate
of 3.9%. The other just over half of the borrowings is made up of floating rate and
hedged rate debt and, as at 31 December, the total borrowings, which had increased
modestly from €1,144m at end FY23 to €1,174m, attracted an average cost of 4.3%. At
that time, gross total debt was €1,754.0m (FY23: €1,705.3m) and net debt (IFRS 16
basis) had declined to €1,075.1m (FY23: €1,217.5m). Excluding the consideration payable
for the acquisition of Hellinikon SMSA, net debt declined from €850.7m at the end
of FY23 to €695.6m by the end of December 2024. LAMDA Development will exercise the call option for the early redemption of the entire
principal amount of its €230m Green Bond (ISIN: GRC2451227D9). This decision reflects
the company’s disciplined capital allocation strategy, aimed at reducing financing
costs while maintaining the financial flexibility to support future growth initiatives.
| Exhibit 11: Summary of total debt, net total debt and net debt on a pre-IFRS 16 basis (€m) |
 |
| Source: LAMDA Development, Edison Investment Research |
The consideration payable for the acquisition of Hellinikon SMSA of €379.6m is the
present value (PV) of €448.4m of outstanding future payments of:
- €8.4m – 30 June 2027;
- €220.0m – 30 June 2028; and
- €220.0m – 30 June 2031.
The difference between the total future payments of €448.4m and the €379.6m in the
balance sheet is the original nominal value of the share purchase of €915m, the present
value of this nominal value of €793m, minus payments to date, plus finance costs (see
note 23 of FY23 financial report).
Looking further out, LAMDA Development is hoping to match cash expenses with cash
inflows and, assuming it is successful, we do not believe that net debt should rise
materially above the current levels.
Revenue and cost recognition
LAMDA Development’s reported revenue and earnings are fairly complex. The existing
malls and marinas in operation report revenue and EBITDA in a traditional manner,
largely reflecting actual figures (ie earned revenue). This is the lease contract
revenue, recognised on a straight-line basis over the lease duration, minus costs,
which equals profit and the actual cash flow follows these figures fairly closely.
We have modelled future revenue and EBITDA from the core assets to follow the trend
of previous years, which implies that we expect steady, if unspectacular, growth in
both lines from the malls and the marinas. There have been no additions to the retail
space, nor any new assets entering the portfolio, or any disposals, so this element
is fairly uncontroversial. Revenue from the two Ellinikon malls currently under construction
is due to begin in 2026 and 2027.
However, revenue and cost recognition for the Ellinikon project is quite different.
For the residential projects with off-plan sales agreements (ie sales agreed before
completion of construction), revenue and costs are recognised at various stages, reflecting
the actual estimated proportion of construction completed. This implies that revenue
is effectively recognised in line with costs. Given this arrangement, construction
of the residential assets should produce a slightly positive net cash flow and therefore
have little or no impact on the balance sheet. Another element here that works to
LAMDA’s advantage is the fact that cash received for residential sales does not have
to be kept in a protected escrow account, which means it can be used to pay creditors,
reducing the costs of finance.
For the other developments, which are mainly land sales, revenue is recognised at
the point the sale is agreed, subject to the fulfilment of all conditions included
in each sale and purchase agreement. There are a few lease arrangements, such as the
IRC, which implies that revenue is recognised in line with the lease terms. Most of
these arrangements imply that the capital intensity of the project is as low as possible.
Risks and mitigation
There are of course risks that need to be considered and mitigated. For example, one
major risk is cost overruns on construction, which could reduce or eliminate cash
profit. LAMDA has sought to reduce this type of risk by entering guaranteed maximum
price (GMP) contracts with contractors. An example would include the Bouygues-Intrakat
JV for construction of the residential Riviera Tower.
Other ways LAMDA aims to reduce risk include:
- construction kick-off at the ‘advance design stage’, to ensure safe project cost estimates
due to the deferred construction starting point, combined with around 30% of the development
already reserved off-plan before the development is publicly launched; and
- no ‘locked’ price policy on residential units. This means that although LAMDA decides
on a sales price, if the market level has moved up prior to a definitive sale, it
will raise the expected selling price. This should extract full value, as well as
mitigate against the rising construction costs that will no doubt follow sales prices
in a buoyant market.
