IRSA Inversiones y Representaciones SA (IRS) 2021 Q4 法說會逐字稿

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the Fiscal Year 2021 Results Conference call.

First of all, I would like to remind you that both audio and slide show may be accessed through company's Investor Relations website at www.irsa.com.ar by clicking on the banner Webcast Link. The following presentation and the earnings release are also available for download on the company website.

After management remarks, there will be a question-and-answer session for analysts and investors. If you want to make questions, please use the chat or click the bottom labeled, raise Hand.

Before we begin, I would like to remind you that this call is being recorded, and the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's earnings release regarding forward-looking statements.

I will now turn the call over to Mr. Alejandro Elsztain, Second Vice President. Please go ahead, sir.

Good morning, everybody. We are beginning today the fiscal year, the whole year numbers for 2021. And especially, I would speak about the special year. This year was very affected by the COVID, and that affected a lot of our lines and businesses. And we are going to see through our presentation that effect that was really very material on the year.

And we can begin in the Page #2, looking at the net results. We see that this year, the net result for the whole period makes us a loss of ARS 38 billion comparing to a gain of last year of close to ARS 37 billion. And when we see this attributable to the controlling company, we see a negative number close to ARS 30 billion to a positive of last year ARS 21 billion.

Main explanation for this loss is 2 big effects. One is the change in the fair value of investment properties. We are going to explain deeper later. And the other big effect is the tax change, the country changed the deferred income tax. And then the last, government made a decrease going to 25%. But in this -- through this period, we came back to the 35%, again, so that 10% increase on the income tax compared with the fair value are the 2 main effects making a negative number.

When we go to the lower graph, here, we see the adjusted EBITDA. And here, we can see that there was in the adjusted EBITDA an increase. And this is special to explain, and we're going to see later in this -- in the main effects on the shoppings and the office. But we see a drop in the Rental segment from ARS 6 billion going to ARS 2.7 billion, so a drop of 55%. But there was an increase on sales and developments and others going to ARS 9 billion through the sales of big, important assets, office buildings mainly, so make an adjusted EBITDA increase of 55%. So the cash FX on the balance sheet were positive, where other noncash effects like the fair value, and the taxes were negative.

Main event for this year, for sure, the COVID affecting and closing almost more than half a year for shopping and some others, slightly hotels, closed for majority of the year. And in the office buildings, they were normal operations, but a lot of effect coming to the occupation and the use of the office.

We did a big flight to quality through this year. We are selling offices -- all the offices for $170 million, but we were opening Catalinas, our main office today. And related to debt and through capital increases, we did a lot in this year, we were very active, and we issued debt for $260 million. We successfully exchanged some debt of $180 million through the Central Bank Resolution. We did a capital increase for $29 million in IRSA. And we distributed dividends in kind IRSA shares, IRSA Commercial Property shares.

So we can move now to Page #3. We can see the 2 -- the 3 main effects on the rental, that is shopping, office and hotels. In shoppings, we kept our portfolio -- the stock is the same, 335,000 square meters. About occupation, there was a drop in this year. The last quarter was almost the same, but we come from higher levels. Now we are actually 90%. And this is mainly explained with the long -- the big -- like Walmart and Falabella's areas that we were receiving this year, these companies left the country, and now we are reoccupying them. The other tenants replacement was much easier. Small tenants on the shopping centers, we were able to replace. A lot of movement in tenants, but really occupation on the small places is very good. So now we are working on that occupation, and we are optimistic on that. There are a lot of smaller tenants to occupy those big places.

And about real sales, the last quarter that we are explaining today was very positive because we are comparing to closed last year. So the numbers are tough to explain. But in real terms, the whole year is 28% lower to last year numbers. Now we are, from the 1st of July, reopened, and we are working very well. Consumption is coming to the shopping centers. So this is much more active this year than last year.

Related to office buildings, same stop -- this is a same stock, increasing some but decreasing because of the sales, but the balance is the same. And occupation is in a drop. There is a decrease because tenants leaving the country or decreasing their sizes. Home office came to state, and they are using less space. So we are increasing our vacancy and mainly in the B class areas and the AAA are more friendly because best place to bring your employees to work. So we are there, and we are keeping prices on the rental, too. It's almost the same, because we are bringing better buildings, and we were selling buildings with lower prices. So this is the main situation of office building.

Related to hotels. This made majority of the year to be closed. The last months, we are open. Occupation is still very low. We are talking about this quarter of 12% occupation. The only one that is really receiving people is Llao Llao, where Argentina is the majority because foreigners are not permitted to come, are enjoying the hotel. So this is a place that is recovering in occupation much more than the 2 in Buenos Aires City.

If we move to next page, Page #4, we see this flight to quality that we spoke, the sales of 2 main buildings that we did in the Bouchard 710 sale. There were 12 floors. We sold entire building and for almost $80 million, and this is at $5,800 per square meter and $87 million. And the other tower that is sold, we didn't have full one, the portion that we had, we sold 13 floors. And in here for $83 million for $5,600. The cap rate that we were selling is roughly 6% average, and we were happy of doing that, and using those proceeds to the financing of the company.

And from other site pinching, the building that we moved this year and the end of the last year, we finished in Catalinas building the Della Paolera 261. And with those, we are now putting our overhead and occupying the rest of the building. So we are very glad to open one of the best and more beautiful buildings of the city in this special environment. But the good tenants of Argentina are starting, because how do you bring an employee to work is to bring in a good location, a good space.

About barters, we were very active this year, swapping some land the company owns. And we have a lot of land bank and always we explain about that, in Argentina, in Cordoba and Buenos Aires, in Uruguay. Here, some examples of barters. In here, we didn't change our activity. We are still giving the space and receiving square meters on payment. Here, we see the example of the aerospace on Abasto, that is crossing in front of the shopping center, these towers, and we are going to receive the square meters on payment and Quantum Bellini. And we -- between all these Uruguayan swaps or barters, Cordova, close to the shopping center, [tawasito] in a land bank the company have not in the shopping center area, but the land that is under development for 4 lots, and we are doing the first one. We are betting close to $36 million on apartments to be sell. So these are going to be part of the sales and developments for the future quarters.

Something very material, and we prep-ed for that a lot, and this year began to appear. Costa Urbana project, former Santa Maria del Plata. Recently, a few months ago -- few days ago, not months. It was in August. We were approved in the first approval for the project in the Congress of Buenos Aires City after many years of waiting this. Finally, we're approving the first step.

We are now waiting for a public audience and a second vote that is needed to do this project. But after passing the first step, it's much more predictable and we are much more optimistic because was discussed and was approved. Here, we are going to have in the best location of Buenos Aires, South Puerto Madero area, a buildable area of close to 900,000 square meters. A long-term project. This is going to be at least 10 years or more. That will be a lot of construction activity, a lot of employment and a lot of houses and families to move to this area. And we were -- after the negotiation that we had this year, we gave to the government 67% of the area for public uses, and we kept 33%. This is keeping less land but not losing square meters. So instead of that, doing more square meters, so we are not giving back the view, but we did a lot of parts, and the good will be -- this will be part of the view for our apartment, in our residences, a lot of towers to be done.

So this is going to -- we expect in next quarter and next year, the last portions to be approved. And after that, we are going to begin with this infrastructure that we need to do a lot. And this is going to appear in our news. So we do speak up to now top because this was not really finished and approved, but one very important and relevant step was done last month. And we really are very happy of this situation.

So now I will introduce Mr. Matias Gaivironsky.

Thank you, Alejandro. Good morning, everybody. If we move to Page 7, we have the information about Banco Hipotecario. This year, Banco Hipotecario generated a loss for IRSA for ARS 757 million compared with a loss last year of ARS 572 million. The main impact this year were the regulations of the Central Bank and that control active and passive rates and the products pricing that generate losses for the bank.

The bank is focusing in preserving liquidity and solvency. They did a restructure of the debt, the refinance at the end of the year, their international bonds. So the situation of Banco Hipotecario in terms of the liquidity is much more predictable now.

If we move to Page 9, we have the breakdown of our P&L. It's a very hard year to compare now. We have the previous year almost normal up to March. All the operations were almost normal. And this year, we have different closures on the malls. So this -- on the operative side is very complicated to explain.

If we see the net income, we have lost this year of ARS 37.9 billion compared with a gain of ARS 35.6 billion. There are around 5 different reasons of this. I will explain the main drivers. The first one is in the line 4, the change in the fair value. You can see that the previous year, we posted a gain of ARS 50.6 billion. And this year, we have a loss of ARS 7.7 billion.

We are valuing our malls with a DCF model. In the DCF, there was an increase in the cost of capital in Argentina and also a decrease in the flow and the cash flow because of the pandemic during the first 2 years. So that are the main reasons of the decrease in the malls. But also on real terms, remember that here, we show on real terms. So the increase in nominal terms was positive. But when we include the 50% inflation of this year, that numbers go to negative.

The second important effect is in the line 10 or in the line 12, the deferred tax, Argentina increased the tax rate for income tax from 25% to 35%. When we value the fair value of the investment properties, the rule is that we have to record or post a loss on the tax or the deferred tax. That is the potential tax that we should pay if we sell all the properties. And that generated a direct impact on the whole portfolio. And so we are increasing the -- that deferred tax by 10%.

In line 9, we can see a positive effect in the net financial results that last year was a loss of ARS 18.2 billion, and now it's a gain of ARS 3.3 billion. I will explain deeper in the next pages. And finally, in the line 14, we have the effect of the deconsolidation of our investment in IDB. That was in the first quarter of this year, and then we adjust that number by inflation.

If we move to Page 10, we can see the main effects on the operational by the adjusted EBITDA by segment. We are happy to finish on the shopping malls with positive numbers with an operation that was almost close during like 9 months of the year. We still generate cash on that segment. Offices was similar than in terms of size of the previous year, and I will explain the main reasons of the drop from ARS 2.9 billion ARS 2 billion this year. The hotels are very affected by the pandemic and the restrictions on foreigners to come to Argentina. So that is still affected by the pandemic. And finally, sales and developments that we have very good numbers because of the disposals that we did on the Office segment.

In Page 11, we can see what was the evolution by quarters in the malls that is in the left part of the slide, that we can see that before the pandemic, the EBITDA in the quarter was $23.7 million, and we have a decrease in March that the lockdown started. Then the 2 following quarters was very affected. And the operation was almost close 100%. And then when the operations start to open again, we start to generate cash with $12.3 million, $11.4 million, and in the last quarter with other closures, $4.1 million.

And in the offices, we can see in dollar terms, that last year was $34 million. This is the revenue, not the EBITDA. And we sold square meters that generated $8.7 million. We include new square meters that is the Paolera that brings $2.2 million. And the effect on the vacancy and the rent price, the vacancy generated $1 million and rent price $0.3 million. So the main effect is the part of the portfolio that we sold.

If we move to Page 13. Here, we have the -- sorry, one second. Page 12. We see the net financial results. Last year was a loss of ARS 18.2 billion and this year, a gain of ARS 3.3 billion. We see the graph on the bottom, we can see the devaluation last year, that was 65.9%, in real terms, 16.1%. And this year, we have an appreciation in real terms. So it was a devaluation of 35%, almost 36% and an inflation around 15%. That has a direct impact on line 2, the net foreign exchange gain or losses. Last year was a loss of ARS 9.3 billion, this year a gain of ARS 7 billion.

In terms of the net interest losses, we have an improvement. Last year was ARS 8.4 billion this year. We reduced the impact on interest that we pay to ARS 6.5 billion. Basically, we will reduce our leverage during the year because of the disposals of the buildings.

The other effect in the financial results is in the line 3, the fair value gain from financial assets. This is the management of our liquidity that generated gains during the year.

Now yes, we move to Page 13, the breakdown of our net asset value. This is all information that is in our financial statement. So we are valuing the investment properties at fair value. So using that fair value, we have a gross asset value at levels of $1,460 million with a net debt of $300 million that give us a net asset value of $1.1 billion. If we compare this with the market cap of the company, the market cap is only $305 million. So we are trading with a deep discount over our net asset value and considering that we are using very conservative numbers to value our investment properties.

Page 14. We already spoke about this, the capital increase. We increased capital by $29 million during the last quarter that was fully subscribed by our existing shareholders. So it was 100% subscribed, and we have almost 20% oversubscribed. So basically, up to now, we use the proceeds of this offering to reduce the leverage of the company.

In Page 15, this is a breakdown of our debt. The net debt of IRSA is $301 million, but it's important to mention that around $120 million of that debt is intercompany loans with IRSA commercial properties. So the debt with third parties is only $180 million. Here, we have the debt amortization schedule for the year fiscal year 2022. We have $72.6 million of amortizations, but we already raised money in the market. In August 26, we issued $58.1 million in a dollar-linked note in the local market at a cost of 3.9%. That will expire 50% in 2023 and 50% in 2024.

Another very good news during the quarter was the upgrade of our credit rating from A to AA. So after a tough last year with a lot of amortizations, now the financial situation is much more control and predictable for the near future.

So with this, we finished the formal presentation. Now we open the line to receive your questions. Yes, you can use the chat for the question-session or also click the bottom labelled, raise hand. The questions will be taken in the order we receive them.

We have the first one from Gordon Lee from BTG Pactual.

I actually had a quick question on Santa Maria. I was wondering if you -- I know that when it comes to politics and votes and Congress and legislatures, it's very difficult to have any visibility. But I was wondering if you could maybe give us a sense of what the next milestones are in terms of the approval process? And what's your best guess -- and I'm stressing, but I know it's a guess -- of the timing might be? And then secondly, assuming that it is approved, it's a big project, as you described, how would you go about financing the development? What's your plan at the moment for that?

We discussed between us -- between the committee about if we are going to receive a lot of much more asking or not related to what we negotiate up to the approval that we received. We think not. We think that majority was discussed. And now we need to go to these next steps and the possibility of these next steps to happen this year, we are optimistic. The Internet, in some cases, is working, and the majority of these meetings are being by Zoom. So maybe the chance of this passing through this year, I'm talking about '21, it's very high. So we are optimistic on the next steps to be happening during the end of this year. And about the changes we're asking for more things, we don't know. Really, we think that we gave a lot. And we are optimistic on the approval, because it took us a lot of negotiation and a lot of things that we gave to the government and to the city. So we expect to be approved during this year.

Gordon, the second part of the question regarding the how we will finance this project. It's a huge project, will be definitely in steps. So at the beginning, we will need to make an investment in infrastructure. So that is probably more or less around $50 million that we will need to invest. But then the size of the project is so huge that we will have all sorts of financing. We can presell, we can do barter agreements where we give land to someone else and they develop. We can create some sort of structured finance or something like that. We can -- it's not defined yet, but we can create a new company for that. So it's soon to say. You know that we have been working hard for the approval. So after the approval, we will have time to define the steps and structure the project in its stages, and we will see how much is the needs for funding this.

And this -- Matias, just to -- I mean, I know it's been a long time in the making, but this is obviously a full mixed use project, right, which includes residential, but also will likely include retail and office. And so commercial properties, you say commercial properties would likely be involved at some stage in this as well. Is that correct?

It's like IRSA commercial properties has like implicit for refusal for the retail partner. It's not defined because they're 2 different companies, but definitely, the part that is retail or commercial is much more likely that IRSA commercial properties develop.

Perfect. Great. Well, congratulations on the progress so far. And hopefully, it continues that way.

Next question. The newly issued warrants seem to be misprices in New York? Can you buy them back?

We are not participating in buying or selling warrants. So we are not thinking to buy back the warrants in the near future. So it could be an opportunity for investors to do that.

Next question is from Hotel segment. When do you expect international tourism to recover? And do you think it is possible to reach an average occupancy level of about 60% until fourth quarter of fiscal year 2022?

I think 60% for Llao Llao easier than the corporate in Buenos Aires. These days, it was at 60% occupation. Return of tourism, there is a lot of pressure through the chambers. A lot of people are suffering. All the international tourism is canceled. And the country is very cheap today. If the country will be open, we think it would be a lot of people coming to Argentina to spend weekends and to enjoy the food and the quality of Argentinian things.

Still under discussion, not decided. This government unblocked many things in the country. So related to tourism, we are waiting for that approval. And 60% occupation of our average will take time, I think. Not to the Llao, but others, yes. But will take some time. I'm not so optimistic. And I hope the government soon they're discussing it's next month to open the borders to allow foreigners to come. So for us, it's not only because of hotels. Imagine what is the impact on shopping centers, too. So we expect that very much.

Besides the Costa Urbana project, can you please give us an update on the Puerto Madero rulings and on the residential projects in Uruguay?

They are not related.

No, no. Not related with the other question. It's a new -- from our land bank...

Puerto Madero, (inaudible) discussions with the government, and this is really not today. I cannot think it's more in the legal area, and we are not doing nothing. It's not under discussion, not on the approval. It's a legal issue and not very optimistic on that. And the second question?

Residential process in Uruguay that you show that...

The residential projects, there was a launch in one of these towers that you see, if we show you -- and that will be a good idea to present in the next presentation, the existing building, but it's close to the end. It's not very far to finish that building. So we are finishing one of those towers, and we are going to begin to barter, to sell the square meters of those. That is few square meter, few thousand square meters. So we need to launch the second and it's not decided still. The first one is done, and it's close to be finished.

Any additional question? Okay. If there are no more questions, we turn back to Mr. Alejandro Elsztain for his closing remarks.

We are closing a special year for real estate, very special all over the world and Argentina with the situations of Argentina combined. But the company showed the strength to keep positive cash flows and numbers, in business and rental. So the company showed the ability to move in this type of environment. And then for the next year, we began -- opened shopping centers, office buildings open too. So we are optimistic on the -- we expect not to have any lockdown on the economy on the shopping centers, mainly for the year. And if this is the situation, our ability of -- the tenant's ability of selling the assets then in the country or in posit, we are very optimistic.

We saw a very low level when you put the number of shopping centers in the last year, was the number of close to $20 million EBITDA, and we are expecting to recover much more. If you study our history, you can see what was that number in the past, and we are much more optimistic for next year because of the reopening in July.

So we thank to everyone the support in every issue and in every situation and the patience on the company and the management is very optimistic on doing things. The portfolio quality is amazing in a country that has some troubles, but the company is showing the ability to move on that environment. So thank you very much, and we see you in next quarter.