IRSA Inversiones y Representaciones SA (IRS) 2021 Q3 法說會逐字稿

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the Third Quarter of Fiscal Year 2021 Results Conference Call. First of all, I would like to remind you that both audio and the 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. (Operator Instructions)

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.

Thank you, Sandy. Let's begin our third quarter results, the first 9 months of 2021. We can begin in Page #2, about the net results of the company. And we can see that the net result of this year, it's worse, it's ARS 14.7 billion compared to ARS 6 billion last year. When we're comparing the net results attributable to controlling shareholders, it is a little decrease on the lost, this year it's ARS 11.5 billion loss compared to last year, ARS 13.6 billion. However, we are going to see many of the effects of the COVID affecting our balance sheet.

When we do the adjusted EBITDA of these 9 months, we can see an increase. This is an increase of almost 58% year-to-year, mainly explained by sales and developments, but was a very relevant line of the company in the COVID times. We found clients, and we were actively selling some of our office buildings. And because of that and the gain of the sales comparing to the book, this is a very positive. But when we compare the rental segment, just that there was a big decrease because of the COVID affect on our rental segment, a decrease of 62% year-to-year.

Among the main events of these 9 months, the COVID impacted mainly on the malls. The recovery came back in October of 2020. But finally now in April of this year, we are closing again, mainly in the Buenos Aires region. This is half of our portfolio, several shopping centers are closed and several shopping centers in the interior (inaudible) are open.

Related to office, we opened a new building in Catalinas area, Della Paolera building. It's opened since December of 2020. Now we moved our headquarters to that building, just using 2 floors. We came from Intercontinental with 4 floors.

Financially speaking, we issued this quarter's local notes for $65 million in March of 2021. And related to our capital increase that these days we are speaking is finally finalized, a capital increase of close to $29 million through an issuance of 80 million shares, plus 80 million warrants. And that was finalized these days, in May 2021.

If we move to the next page, to Page #3, we can see the evolution of the main activities of IRSA. Shopping centers, stock remains the same. Occupancy is not changing a lot, and we can see this occupancy very close to 90%. If we would exclude the vacancies at Falabella with their stores and WalMart exits, our occupation will be 96%. So these big international players leaving the country left us with close to 90% occupancy.

Related to the real estate sales -- real estates of our tenants, sorry, that was even in real terms. But if we exclude the closure period, would be a drop of 20%. Because of this new decrees, shopping centers in this region made us to close, still uncertain the opening. They spoke about May 21, we are waiting for that decision if they're going to keep close or not.

About what we do with our tenants? We help them to survive through these tough times. We subsidized directly and canceled the minimum base rent, and we just charged them the expenses in the time that it's closed.

Related to the office buildings, the stock is the same of last quarter of last year. Occupation has seen a slight increase slightly. It's very small difference. The rental average a slight decrease from $26.5 to $25.5. This is a business that is close to global operation. We have bigger vacancy because of selling of our entire buildings, but they were 100% occupied. And instead of that, we grew the Catalinas, that today is at the 75% or 80% occupation. So that is the main reason. But the COVID is affecting still, the companies are decreasing their size, so that is pushing some of the vacancies of the company.

Related to hotels, the hotels began to open last year, but the only 1 that really was working was the Llao Llao with some occupations, so making some positive numbers. The other 2 in Buenos Aires region, we started the operation last year, December. But still the occupancy level because of low tourism and low corporate is really very, very low.

We can move now to the next page, and we can see some residential agreements that the company was working last years, but now we are beginning to receive these apartments for sale, and these few examples: 1 in Montevideo that we are advancing a lot in the first tower or in the Coto Airspace close to Abasto Shopping; Quantum Bellini close to the shopping of Cordoba; and Caballito. These branches are receiving apartments. It's making us to receive 11,000 square meters, close to 12,000, to a total sale that will be of $36 million. This is about the line that will help in the year from now.

If we move to next page, we can speak about our investment in Banco Hipotecario, where the 9 first months, the result attributable to IRSA was a loss of ARS 414 million comparing to a loss of last year close to ARS 700 million. The regulations from the Argentine Central Bank make tougher time to the pricing systems and the credit cards mainly, so that is affecting a lot. The company is focusing on preserving its liquidity and solvency. And so the bank is setting up the best time through this tough COVID times and financial macroeconomic problems in Argentina.

So now we are going to begin to explain about our financial results. I will give the word to CFO, Matias Gaivironsky. Matias, please.

Thank you, Alejandro. Good morning, everybody. So if we see the breakdown of our financial statements, as Alejandro mentioned, we have several different effects. First of all, we are comparing on the operational side with a year that was almost normal. Remember that we closed our operations around the 20th of March. And so when we compare this year with the previous year, we see the decline because of this. The net income of this 9-month period, we ended with ARS 14.7 billion against ARS 5.9 billion last year, attributable to our controlling shareholders is ARS 11.5 billion against EUR 13.6 billion loss. And if we see the main drivers, the first 1 came in the line 4, the change in the fair value. This is the impact on the valuation of our investment in properties, mainly shopping malls, offices and land bank that last year, we posted again of ARS 3.3 billion and this year a loss of ARS 6.8 billion.

The second important effect is in the line 9, the net financial results, that we have again this quarter or this 9-month period of ARS 1.5 billion against ARS 13.2 billion loss during the last year. The other important effect is in line 14, the result from discontinued operations, that this year, we have the consolidation of IDB that generated a loss of ARS 8 billion against a loss last year of ARS 1 billion.

Going to the next page, we can see the evolution on the operational side. Of course, we have the shopping malls with a decline in the period of 64% in the quarter, 31%. Then in the offices, we have a decrease of 30% during the 9-month period, 22% during the quarter. Here, we have different drivers. Some increase in the vacancy, the effect on dollars and the inflation that last -- during the year, we have an appreciation of the peso and that generate a decline in pesos turn against last year and some slight decrease in the rate that we charge to our tenants.

The hotels we have most of our operations affected by the pandemic, only Llao Llao is performing well. The 2 hotels in the city are with very, very low occupancy since the frontiers of the country is still closed. And sales and development, that we have an important gain during the 9-month period that is related to disposal of some of our office buildings or some office floors that generated a gain during the previous quarters.

Going to the next page, we can see the net financial results that is explained basically by the evolution of the exchange rate. We can see here, last year, we have a devaluation in real terms that was 12%. This year, we have an appreciation of the peso of 3.5%, and that generate has an impact on line 2, the net foreign exchanges. That last year generated a loss because we value all our dollar-denominated debt into pesos and that is the fact that we can see that last year, we have a loss of ARS 6.5 billion against a gain of ARS 2.3 billion during the quarter. Also in the line 3, the fair value of financial assets, that also during this period, we generated again, this is related to our investment liquidity portfolio of ARS 4.2 billion against a loss ARS 793 million.

If we move to next page, we can see the net asset value of the company. And remember always that we are using all the metrics at book value. So when we value the asset at fair value, is a good proxy to the real value. But when we don't have that value, we are putting the book value. So for instance, hotel, here, we included that only $27 million. That definitely, the value is much more. Banco Hipotecario, we are using the market value of the shares. And the land bank is the fair value of the land bank.

So with this, we have a net asset value of $1 billion, $1.58 billion. For instance, the -- when Alejandro showed the value of the stock of real estate units -- residential units that we have, for instance, here it's not included at all. So the $35 million that Alejandro mentioned is not included here because in our books are -- everything is at book value.

So with this, the net asset value is the $1 billion, the LTV is 24%. Remember that our market cap is around $256 million. So we are still trading with a deep discount over our NAV.

Next page. And we have the capital increase. We finished last week with -- successfully the capital increase with an oversubscription of around 20%. 99% of the shares were subscribed in the first run. Remember that we extended preemptive rights to all our shareholders, so we registered the shares at the SEC and in [CMV]. So we gave the option to everybody to subscribe. 99% was subscribed in the first round, and then the remaining 1% was under the accretion right under the acquisition rights. So the company received $28.8 million. The use of proceed of this will be divided in different 4 uses: the equity invested, the debt cancellation; real estate developments; and other business opportunities. So we haven't defined yet specifically the use. That is good news to -- for us that we have the support of our shareholders and received the funds to strengthen our capital structure. Also, with the capital increase, we gave warrant. So every single shareholder that subscribed also receive a warrant to subscribe more shares in the future.

The next page is the breakdown of our debt. This -- as of March 31, we issued $65 million in the local capital market with a 3 series of different bonds, 1 in Badlar rate; the other 1 was Uva that is CPI linked; and the other 1 was a dollar-linked note. So with that, we extended the tenure of our debt for 3 years, and we clean the amortizations that we have during this year. So almost this year, we don't have any other important payment to do. So the net debt of the company total before the capital increase, at $331.9 million.

So with this, we finished the formal presentation. Now we open the line to receive your questions.

(Operator Instructions). First question comes from Álvaro García from BTG Pactual.

Can you hear me?

Yes. Perfect.

Perfect. Great. Just 2 questions. One, the first 1 maybe an update on the potential sale of a hotel. If that is still the plan or not?

And the second 1 for Matias perhaps on sort of when we think of the ease of rolling over your debt going forward and refinancing going forward? How would you say that outlook has changed over the past half year? As things sort of normalize on a relative basis, how would you say it got easier and why?

I begin with the first about the sale -- probable sale of a hotel. It's true that 1 of the hotels in Buenos Aires area is under that discussion because we don't see a lot of potential on that. And so some negotiations are under delay, under discussion. We were not operating hotels since the beginning. And this business segment is very affected. So -- and today, the ability of canceling debt, some of that could be happening. So yes, we keep that idea, still not moved in. And so we don't speak of the things. Meantime, the hotels lines in general, not -- and you know that we never operate those business in the history. So this could be under process of (inaudible).

About the second?

So Álvaro , regarding the debt, if we analyze last year was really a stress test for the company. It was a year with the pandemic, with a lot of amortizations during the year. Last year, the amount of debt that expired for the group was really important. And we were able to refinance everything in the market, issuing new debt and selling some assets. And with that, we were able to pay all our commitments and also access to the market, even reducing the cost of the debt for the group. I remember last year, we were able to issue below the cost of the debt that expire. So it was really good news that we could manage a very tough situation, I think, very well.

Going forward, we have a completely different scenario. Now we have -- the debt is much amortized in different years. We don't have the amortization in a single year like last year. I believe that after what we did last year, also the concerns of some investors or people that could have on the amount of debt that expire, I think, was clean. This year, we issued debt again at very good conditions in the local market.

Of course, I would like to see Argentina open to the world in this scenario of 0 interest rates all around the world, and we are isolated and not invited to that party. A company with this leverage, I think in a normal scenario, in a normal country, we were AAA. And unfortunately, Argentina is not -- the international capital market is not open. And so we need to live with our own resources and the local capital market. But I believe that going forward, we should keep managing well our liability, our liability debt.

Great. Understood.

I have another question from the chat. What is the current status of Solares project. Has IRSA submitted the project to Buenos Aires (inaudible) agreement? Or it is seeking approval through other means? Can we expect any news soon?

I have to be -- not to be optimistic because we are presenting this project since 1998. Now we still discuss that with the government. We think that there could be an opportunity to be approved. One day that will happen. We have this discussion today, too, and we are optimistic of that. But nothing to really be sure because this depends on both politicians, and we think that 700,000 square meters of residential, mainly from commercial, are a lot of interest to a country that really needs work and investment, but at the same time, they give an excuse every year, we couldn't approve. But we are working a lot this year again. And yes, maybe we could have some news.

If there isn't any additional questions, we conclude the Q&A session. At this time, I will turn back to Mr. Alejandro Elsztain for his closing remarks.

First, it's the impact of COVID. I hope COVID will really fall or reduce or some control. This is affecting a lot mainly shopping centers and congress centers and hotels. Real estate is very affected by COVID. And I would like to see that recovery from the economy and reopening soon, mainly for shopping centers, having half of the shops closed is tough -- really tough for us. Then that we are finishing our construction. Now we are delaying only the opening of shopping center of Alto Palermo, the increasing of 4,000 square meters that we were doing. Maybe this will be delayed from August, I hope, to October, November, and I hope we'll finish that.

So we are waiting this, again, with stabilization of the economy and the COVID situation. And we then, we fertilize very much the balance sheet of the company through the issuance that we did and the lot of sales on the office buildings. So we are much more comfortable to face this new year, but we hope the country will be enough smart to reopen the activities that they are closed.

So just to thank you, everybody, mainly to the shareholders because of the big support on the increase of capital, this is a very important signal for a country that is a love to the world, but this company is very loved to the share. Thank you very much, and have a very good day