IRSA Inversiones y Representaciones SA (IRS) 2005 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to the IRSA and Alto Palmermo conference call. At this time all participants have been placed on a listen only mode and the floor will be open for your questions following today's presentation. It is now my pleasure to introduce your host, Mr. Alejandro Elsztain, Director. Sir, you may begin.

Hello. Good morning everybody. We are going to speak about second quarter of the year 2005 results of IRSA and Alto Palermo. I will begin talking about the segments. The Company this year is finding very good results. Beginning directly, I'm talking about all business. It was 1 of the most encouraging part of the story of IRSA and it was factoring last year a lot. We saw a big recovery in both in rates and in same percentage of occupancy last quarter. We have decreased comparing year-to-year. But the good balance today we are achieving 85% occupancy in total. But we are going to be near full at the end of this period of 2005 because we see our chance looking for new space. There is none under construction more and that is making a recovery in occupancy and in rates.

So talk about rates. The worst part of the price is to drive up the of the AAA buildings. In our stock were about $6 per square meter and this year, 2005, we are beginning to discount about $13 to $14 a square meter of rent per month. So this drop of rent as well is to the worst level of $5m in the total year. Today in January of this year we are at a level of $6.5m of rent. We think that numbers of flows will be different because [indiscernible] occupancy of pricing our offices.

If we talk about Shopping Centers. This is probably the best performance of the Group and the largest in assets. We know that IRSA owns 61% of Alto Palermo and Alto Palermo had the first half of the year in a positive number comparing to a very small last year.

What happened this year, the revenues grew a lot and we had like 100% of occupancy. We have 99% occupancy. If we talk about the EBITDA of the period, which 87% comparing to 42% last year. So we achieved ARS72m EBITDA for the first 6 months. This is budgeting more than $40m a year of total EBITDA. That is a very good number for the Company and that is a combination of very steep improvement in the sales of our tenants.

To give you an idea, the third semester was 72% higher comparing last year. Calculating only the 7 shopping malls we have at the time. A part of that, the Company grew in 2 new shopping centers. 1 in Mendoza and 1 in Presario. But I will explain a little later.

About Tarjeta Shopping, that is a company that Alto Palermo owns 80%. Again, this year, the favorable complex gave us a very good performance and we grew 80% comparing year to year. And this with growth of ARS140m created a portfolio of credit the Company had today comparing to ARS60m last year. So more than doubling numbers of last year in credit and very good performance in the last line too.

So we have a new shopping center we purchased. We purchased in September of last year 2004 50% of Perez Cuesta. That was a shopping center that we had in the past 19% and after that purchase, today we control near 70% of that share. This is a shopping center of 37,000 square meters of [traffic] area. 144 stores. They have 97% occupancy.

This company had this investment, which they are starting to finish that debt. We are covering 100% of that debt and will be probably finished before the end of 2005. And with that this purchase will be a very profitable business, having numbers of very good EBITDA that we are going to explain in the second -- and fourth quarter of this year. But this is a mature business and we are changing [them]. We are improving the business. But not much because the last, the owners, the former owners were not investing because that burden of debt. They were not investing in the buildings and what we find, the past 2 months we are improving a lot the rent. We have a lot of demand. So we think we are going to receive very, very high revenues from that shopping center.

To give you an idea, this purchase will be in the level of $20 to $25m depending how we finish the restructuring of the debt. But will be between $20 to $25m investment, having 100% of the shares. So we are going to be this I believe 100% of the shares. We are going to be shareholders of 85% more or less because the other shareholder, Inversiones Falabella are only wanting to increase capital to [consider this].

As well as that, we purchased -- we built another shopping center - Alto Rosario. That will open at the end of 2004. This will open with 99% occupancy again. This is 123 retail stores and we, after our opening in December, a quarter of the hypermarkets opened. The hypermarket, the third stage will be on April of 2005 and the opening of the Showcase Cinema with 14 state of the art movie screens.

So the Shopping Centers inventory is at 98% total occupancy, charging a lot of key money and that is we're seeing with GDP growth of the economy and the sales of our tenants will be far again for 2005.

Talking about sales and development, in this we swapped many projects and in this quarter we swapped [Mega 3]. That will change from 1 tower for the land engaged with the development company and for that we made $8m swap. That is part of the result. This is we're going to receive like 5,000 square meters and calculating this $8m, this is a $1,600 per square meter sale. But the year to day, the square metering we talked about earlier is more than $2,000. So we took part of the gain in the balance sheet, but not all. The rest will be the day we are going to sell the apartment. That will be in not 2005. It will be 2006.

As well as that we have shown [indiscernible] that again is the same. We swapped our square meters for land and we showed part of that. But the big part will be shown later when we're going to begin the sale of the land, or the apartment of the other 2 projects.

This segment that began the movement and we are expecting to have more swaARS for next quarter. And we begin the purchases. Now we're beginning to purchase again. But only in [indiscernible] City where we're starting more lots in the rest of Argentina.

And in the Office to, the Company is launching soon 1 building. It will be launched soon. We're going to make an office building and will begin the construction probably in June of 2005. It will be a 12,000 square meter building in our land reserve and will be an investment of around $10m total investment.

If we let's jump to Hotels, the fourth line of business of IRSA. We see here again a growth in sales and in average occupancy. Gabriel will explain in this how we grew. The segment is very delicate because tourism and the corporate is coming back to Argentina and that is allowing us to charge more dollars per room every night.

And in the case of Llao Llao we are beginning in February of this year the construction of 14 suites. And in the case of Sheraton we are beginning to redecorate the 200 room hotel. That's after the rescale of the debt that we will explain later. We are going to begin the redecoration of these rooms because we need them and today is making a very big cash generation. So we're going to use that really to redecorate it.

So as well as that I give the word to Gabriel Blasil, the Chief Financial Officer. We purchased a percentage in Alto Palermo from Goldman Sachs. We purchased -- today we are giving like 61%. We've bought their stake. We and [Paseo Alcorta], the other large shareholder bought with us Goldman Sachs part. They decided to sell last year in November of last year. We paid that. So with that we have today 61% of asset open shares of Alto Palermo. So this I leave. Thank you.

Good morning. I would like to explain the income statement of IRSA. The revenue we saw for the trimester was ARS66.8m compared to ARS22.4m in December 2003. That was a decrease of 25%. The sales of our Company at IRSA also from ARS124m to ARS125.2m. That's a 49%.

And the operating result has also increased from ARS24.5m to ARS59.3m. That means 142%.

If we see the segment chart, I'm going to explain each line, beginning with the Shopping Center business. The sales increased from ARS68.4m to ARS103.6m. That means 51%. This is basically an increase in the rental charges to our [business].

Also, Tarjeta Shopping, our [greater] company, increased significantly from ARS12.8m to ARS25.6m in their sales okay. In the semester.

With respect to the costs, we have an increase of 19% from ARS24m to ARS40.6m and this basically based on the increase in the revenue for Tarjeta Shopping.

The gross profit of the Shopping Centers increased from ARS24.2m to ARS63m and this is 84%.

Going to the Hotel segment, net sales from this segment increased from ARS35m to ARS45m. An increase of 29%. This was due mainly by an increase in the occupancies from 66.6% only to 77.4% in December 2004. And also we had increase in the average price per room from ARS265 to ARS314 per room.

The gross profit for the Hotel business increased from ARS16m to ARS21m. That means a 31%.

Going to the Office business, net sales increased in the first semester from ARS7.2m to ARS8.9m and that means also an increase in liquidity level of our business from 73% to 85% in 2004.

The gross profit line increased from ARS3m to ARS5m - 67%.

Moving to the Development and Sales segment, net sales increased from ARS13.4m to ARS27m - 105%. And this was due to the sale of the department 1 of [DK3] that I haven't mentioned before for ARS23.6m. So the gross profit line also increased from ARS2m to ARS15.8m. That means almost a 600% increase.

If we saw in the income statement -- we go to a [indiscernible] of the Company for ARS39m. This line was explained to you mainly by an increase in the profit of Alto Rosario. But IRSA [indiscernible] level by 25% and this brought us ARS20m and the rest was due to our resulting of the [other] companies.

We effectively have explained this. That we have a charge of ARS4.9m mainly due to the tax on total assets. But the shareholders agreement of October decided that the Company was going to increase charges of that tax of ARS4.5m. The income tax is ARS29.6m compared to ARS13.4m due mainly by the Alto Palermo balance sheet that brought us ARS18.6m - [15.3] and other related companies. Basically the result of discontinued operations ARS6.3m.

[Indiscernible] do you want to explain the financial?

Good morning. Regarding the financial developments from IRSA, as Alejandro said, there was an increase in the holdings of Alto Palermo. Right now subsidiary of Goldman Sachs.

Also we have as of December 2004 one-off business rise by almost $1m from $9m value which resulting in issuance of 1.6m shares. The proceeds of this transaction was $1.1m.

Concurrently, also our bid was reviewed by the conversion of convertible bonds of 0.9m for a value of 21.6m shares. At the same date, December 21, the amount of convertible bonds outstanding and [warrants] was 86.2m and 86.8m respectively. The total amount of shares 261.5m. This was ARS1 per value each.

Regarding the repo transaction, it was already in place in February 200 -- in January 3, -- sorry February in 2003.

With regards Alto Palermo and [indiscernible] those repos were cancelled on January 7, 2005. They had a value of ARS2.1m and ARS3m respectively.

On December 28 there was a forecast meeting for the Banco Hipotecario loans of ARS37.4m issued on November 21 and that meeting approved certain amendments to the terms and conditions of those loans. Those amendments were related to the outside increasing in credit. Banco Hipotecario increasing credit and also certain adjustments to the covenants of the notes related to the debt reduction that the Company placed in the inception of those notes.

A development for next month. We are concurrently working in the restructuring of the Casa loan of $20m and during next month we will have some significant development on that basis.

Regarding Alta, Alta faced a [indiscernible] on November 17 as approved by the shareholders at shareholders meeting. Of October, the amount approved was 70.9m. You remember the Company recalls the tax related to the income and the amount was 3.2m. That turns in a final figure of [14.7m]. That is ARS0.088 per share.

Regarding Alto Palermo shareholders, we've fully retired the 130m notes outstanding during January.

Regarding the 85m convertible notes, the outstanding to date is 48.4m. Sorry, the convertible bond was 48,551 convertible notes, issuing 143,983.9 common shares of ARS1 per value. The outstanding today of convertible notes is 47m. 281,230 shares.

Regarding the next development [outstanding] we are in the process of [rescheduling] the debt from the first quarter the Company recently acquired in Mendoza Plaza. At the same time we are concurrently in the process of analyzing the proposal for the [restructuring] 15m bonds in Pesos which is maturing [indiscernible]. But we are going also to scale that debt with a very significant decrease in interest rate.

So time to summarize the results. At the end of this balance sheet is to Banco Hipotecario. Banco Hipotecario, but these are owned like 10% in the net profits of [purchasing] Banca Nazionale del Lavoro. That is an Italian bank that has more than 100 banks in Argentina. This is a purchase that the members of the Board were authorized to try to achieve. That deal is a $220m deal. So today is the finishing and the location. Then from the government approval, but having all shared [approved] we are very favorably news about the acceptance from the government. So after that Banca Nazionale del Lavoro will be in the first 3 banks of Argentina. Calculating a bit of the ratios we would like, we think more than 100%. So will be a big retail bank in the country.

So all of the lines which were growing sales grew in [income] in the profits in the operating income. So it was a very good quarter. Argentina in January 2005 in very positive mood. A lot of people are coming to the region. So we see a lot of real [indiscernible]. Everybody is wanting to ask will you take the [real estate]. The largest piece in the country and could save it in the crisis and today with an construction rate and plan, [continue] to grow in all of the segments.

So thank you very much. About the mortgages. We see that today they're beginning to grow. I mean is a very good news for the Company too. Mortgages were dropping every quarter and this last quarter is the first where mortgages are growing more than what they are containing. So we think that 2005 will be a very good year for Real Estate where it is placed very quickly.

So thank you very much and I'm here for the questions.

Thank you. The floor is now open for questions. [OPERATOR INSTRUCTIONS]. Thank you. Our first question is coming from Stephen Trent of Smith Barney. Please go ahead.

Good morning gentlemen and congrats on a solid quarter.

Thank you very much.

Just 1 or 2 quick questions for you. First, you mentioned that you are going to be renovating some of your hotel rooms. I was wondering if that will involve any meaningful shutdown time of some portion of your rooms over the near term?

And my second question, just a minor question on the Office space. The occupancy rate on Madero 1020 looks lower than the others. And I was wondering if there is something specific going on with that property? Thank you.

About renovation, Sheraton alone is 200 rooms that we are going to decorate. The floor will be 8% closed. We are thinking on a [month] or per room per floor. So we will be reducing the total capacity of Sheraton. The maximum space of 8% in the worst case. So we will be a year and a half or 2 years redecoration done by floors.

The second question about the rate per square meter in Puerto Madero, can you repeat it please?

Yes. I was just noticing that the occupancy rate looks on Madero 1020 on the Office space looks, if I'm not mistaken, lower than the rest of the Group. And I was wondering if there is something specific going on with that property?

Yes, the concern is not occupied. A small percent is occupied and today we are in the process of selling that property. Save only 1 floor for us and we are selling that property probably next quarter.

Okay, great. Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS]. Our next question is coming from Ben Laidler from UBS. Please go ahead.

Good afternoon. Just quickly on Puerto [Cardio], the P&L acquisition. Do you have a sense of when the government might approve this? Maybe what the issues are there that they're looking at and when you'd expect the transaction to close?

This is under -- will be under process. So I will try to avoid to answer that. That is something that is under discussion today. We think will be. We will know that pretty soon. But it is today under the Board of Banco Hipotecario discussions with the government. So this number I would not [disclose more] than it is today.

Okay. So they weren't party to the discussions before the deal was announced? This is a surprise for them?

No, it's not a surprise. They were under the -- they do read in the newspapers. They knew that and they were in discussions. So we think this successfully soon.

Okay. Thanks.

Thank you. There appears to be no further questions at this time. I'll turn the floor back over to you.

No further questions?

There are no further questions.

Okay. Thank you very much gentlemen. We will see you next quarter. Thanks again.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.