IRSA Propiedades Comerciales S.A. (IRCP) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Ian, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the IRSA first-quarter fiscal year 2006 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

Thank you. It is now my pleasure to turn the floor over to your host, Gabriel Blasi, CFO and David Perednik, CAO. Gentleman, you may begin your conference.

Thank you. Good morning to everybody. First of all, I would like to apologize that Mr. Elsztain was unable to be with us. He is on a travel today. So David and I are going to take a go round.

As the highlight of the first quarter of the fiscal year 2006, we like to address that net income for the first three months was 18.6 million. That means higher than the same period in the past year, which was 17.2 million.

The operating income has also a significant growth of 7.8% from 19.6 million in previous year to 33.4 million this year. Also, the sales have a significant improvement, growing to 106 million compared with the 70.9 million of the previous year. As a result, the EBITDA of the Company for the three-month period ended in September was 3.5 million -- that means 41% higher than on a previous year.

All of the lines of business are behaving significantly well. The average occupancy of offices also growing, reaching 95% at the end of this period, compared with 83% at the same date of the previous fiscal year. That means that although we still are far from our historical record of $30 per square meter, we are on track to continue the recovery. If you compare Buenos Aires' situation to the rest of Latin American cities, we have got 5,000 (ph) on cliffs (ph) plus eight (ph) offices in Buenos Aires today at a price of about $13, with a vacancy rate (ph) of 5% in the market as a whole, compared to Mexico D.F., where the price is $23 per square meter with a vacancy of about 14%. Sao Paulo, $19 per square meter with a vacancy of 18%; Santiago, Chile, $17 per square meter with a vacancy of about 4%. Alto Tibideo (ph) in the range of 8 to $12 per square meter, with a vacancy of 13%. A study (ph) -- our market has a very good outlook, and it's behaving extremely well in these segments.

Regarding the hotel business, the occupancy rate also has improved significantly, reaching 75% in this quarter compared with 71% of the same quarter last year. Prices also recovered from -- in pesos, 273, driving up to 344 (ph) pesos per room.

Regarding the sales and development, we started commercialization of our two residential projects, San Martin de Tours and Cruceros Dique 2. We expect to launch more sales on the new projects in the next quarters.

On the shopping mall industry, we continue with the very good performance. The Alto Palermo subsidiary that operates the shopping mall has a growth of 67.2, and operating income compared with the previous figures reaching 28.7 million. The occupancy rate in the shopping mall for volume reaches 99%. The total sale was 73.7 million, 62.5 higher than in the same period of the previous year.

And net income, as I mentioned -- 9.3 million compared with 2.5 million in the same period of the previous year. That means an increase of 272%.

The same situation with the Tarjeta Shopping, the greatest (ph) company belonging to Alto Palermo, where also the net revenues had an increase of 159% (ph) and the operating results increased to 5 million, almost 200% higher than the previous period.

David is going to make a comment on the different line of business (ph). And after, that we can discuss the financial of the 12 months (ph).

Thank you, Gabriel. Good morning to everybody.

In respect to the profit and loss -- the charge of IRSA, we see that the company increased 8% its net profit from 13.2 million pesos in September 2004 to 18.6 million pesos also September 2005. With respect to lines of sale, we increased our sales by 50% from 70-point (ph) million pesos to 106 million pesos. And the line of the gross profit increased 62.6% from 37.2 million pesos to 60.5 million pesos in 2005.

Going into the business units of the IRSA, the shopping center sales increased 62.5% from 45 million pesos to 73.7 million pesos, with the transaction sales momentum of our shopping centers and also the increase in the sales of our subsidiary, Tarjeta Shopping. This increase is mainly due to a 39.5% increase in our tenant sales -- also by the inclusion of the remaining assort (ph) Mendoza Plaza Shopping of 3.1 million pesos, and due to the increase of 2.6 million pesos generated by the opening of Alto Rosario shopping in November 2004.

The cost increase from 19 million to 28.4 million, 49% primarily due to the increase in not-recovered condominium expenses and also the increasing de-amortization (ph) of the precision charges of Alto Rosario Shopping and Mendoza Plaza Shopping. A gross profit of the shopping center business increased from 36 million pesos to 45.3 million pesos -- that means 72.1%. The selling expenses increased from 3.1 (ph) billion (ph) pesos to 8.2, 116% due to an increasing advertising expenses mainly. And measured (ph) expenses increased from 5 million pesos to 9.6 million pesos -- that means 70%, basically due to increase in fees, payment for services and personnel, taxes (ph) rates and contribution.

Going into the line of hotels, the sales from this segments increased from 19.8 million pesos to 24.9 million pesos -- that means 25.6%. The average occupancy rates in our hotels increased notably, reaching 35% comparing to 7.6% in the previous year. Also, the rates improved with an average price per room of pesos 344 this year compared to 273 in the previous year.

Cost of the hotel operations increased 24.8% (ph) from 11 million to 13.9 million pesos due to higher level of the revenue from our three hotels. The gross profits increased from 8.7 million to 11 million, 26%. Also the selling expenses increased from 2 million to 2.7 million, 25%. Due to higher gross sales tax and higher revenues, our measured (ph) expenses increased from 4.2 million to 5 million, 18%.

Going into the office and other business unit, sales from this segment increased from 4.3 million to 6.5 million -- that means 50%, mainly reflecting the increase in the occupancy levels and rates of our business and due to the acquisition of a new building, Bouchard 710. Occupancy of our office buildings continue to recover, reaching 91% in the fiscal year 2005 as compared to 76% in the previous year. The gross profit increased from 2.4 million to 4.4 million, 80%.

With respect to the development of our sales, during (ph) the sales decreased from 1.3 million to 0.5 million, mainly because we are selling less units of Abril (ph), but the Company is -- IRSA (ph) is going into new developments. So we expect that these lines going to recover during this year.

The results from valuation of inventories -- we are going out from the business unit, we're going into the profit and loss charts. We are at the line of result from valuation of inventories at net sales value -- they gave us an amount of 2.9 million. That means the new accounting policies -- that we have to adjust the receivables (ph) at these (ph) prices. And this gave us 2.9 million, mainly for the Cruceros property.

Financial results increased from 12.3 million loss as of September 2004 to 13 million loss as of September 2005. This was due to the decrease of 3-point (ph) million gain in our financials operations. The exchange difference gain with regard to the previous year, amounting to pesos 0.3 always (ph) was the appreciation of the peso to the U.S. dollar from to 2.24 in 2004 to 2.87 in 2005. And you also to lower financing expenses of 1.7 million from a loss of 14 million pesos to a loss of 12.3 million.

With respect to the line of equity gain from related parties, the net result derived from related (ph) Companies decreased from a gain of 22 million pesos to a gain of 19 million pesos -- 15% (ph), principally due to less gain recognized to the equity valuation method of (Spanish Language). With respect to the income tax and asset tax, we had a loss of 8.9 million last year compared to a loss of 13.3 million this year. That means an increase in the line of 49% and this was due mainly from our subsidiary, Alto Palermo, that increased its tax charge of 3.9 million due to a larger gain in its operations. And net income for the year, it was 18.6 million compared to 17.2 million last year, and 8.5%.

Well, before getting to the financial transaction, I would like to clarify that because of a technology breach (ph), we missed some lines in our press release as to the operating result. That information is going to be filed to the SEC under the 6-K form tomorrow. If any of you have any type of consideration and need a copy of the complete information, we will be very happy to furnish it to you directly.

Regarding financial transaction, (indiscernible) company made a third payment -- principal payment on the secure note -- on the secured loan. That means that they will cap in 34.5 million and $21.2 million of outstanding as of today.

The Company also launched a proposal buyback of its debt (ph) as of these two loans up to 85% of its value, but during day (ph) -- for the acceptance of the proposal is November the 21st.

Regarding our warrants, we're exercised for a total of 45.6 million par value, which means in the issuance of 8.4 million shares, that receipt of the transaction were at $5.5 million that went into the Company. The outstanding of convertible bonds is $57 million on (ph) 67.8 million of warrants outstanding.

Regarding the interest rate swap that the Company has a currently inside (ph) Deutsche Bank, the transaction was set off with a gain of $0.4 million for the period. The continuous loan restructured debt agreement with Credit Suisse has been renewed to restructure the debt with a new deadline of March 2006.

During this quarter, the Company also purchased an interest of 40% of the stock capital of a subsidiary called Carteras (ph) al Fresco (ph) having the properties of Ruis (ph) al Cordova (ph) and $1.4 million. At the same time, we received an upgrade for the qualified rating agency Fitch as the rating of the loans of the Company from BB less on the Argentine scale to BB+. And then also, an upgrade was granted to Alto Palermo, our subsidiary, to A+, one of the highest in the country. Regarding else of this (ph), there was no significant development, leaving aside the making the second payment of the loan relating to the purchase of the shares of Mendoza Plaza Shopping of almost $2 million.

As we have discussed, the outlook for the next quarter is good and our most of our business line, with a good development in hotel, a very good one in the office with recovery both in prices and with a very high occupancy rate. The currency situation in the country is stable. We may address that since the worst moment in the crisis that drive up values (ph) have recovered almost 30%, which is now routine (ph), but in the shopping center still and also in our retail sales like supermarket (ph).

For the mortgage business, although the mortgage loans are recovering, and today, we have new loans of offsetting the maturity of older loans, still there is a huge room to grow. We have less than 2% of mortgage loans to GDP compared with other countries in the region like Chile, where that ratio, that -- 14% or in the state (ph), 90% -- there is significant room to continue growing in this market. We desired (ph) impact in the price of the property which should reflect, especially in those neighborhoods, not a premium, but which have still a significant gap compared with the premium, with a premium like Porto Marero (ph), Palermo Chico (ph), where in the score meter (ph) capital (ph) $3,000 compared with a medium-class neighborhood like Abollito Virginado (ph), where the price is one thousand and one point five thousand dollars (ph) per square meter.

Regarding the -- doing some (ph) activity in the country, the income of tourism continue to grow significantly, reaching by the end of 2005 almost 4 million people, 3.8 million people. Our significant also improvement in the expenditure, up to a result on $3,200 per person.

We can go to the Q&A session if you want.

(OPERATOR INSTRUCTIONS). Gentlemen, it appears we have no questions at this time.

Okay. Thank you very much everybody. And any further information we will be very happy to assist you.

Thank you. This does conclude today's IRSA conference call. You may now disconnect your lines and have a great day.