IRSA Inversiones y Representaciones SA (IRS) 2009 Q4 法說會逐字稿

Good morning. My name is Christopher, and I will be your conference operator today. At this time, I would like to welcome everyone to the IRSA Earning Release Fiscal Year 2009 Conference Call hosted by Alejandro Elsztain, Second VP, David Perednik, CAO, and Gabriel Blasi, CFO. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

(Operator Instructions)

Thank you. Mr. Elsztain, you may begin your conference.

Good morning, everybody. We are going to talk today about the closing of the fiscal year 2009. If you go to page two, we can see that the net income of this year increased ARS258 million from the ARS55 million of last year. This was mainly driven by ARS41 million increasing operating income, a positive impact on the Banco Hipotecario investment, and the result of the acquisition of holding of Alto Palermo notes.

Regarding this performance of the various segments, we see that sales and developments rose 42% from ARS280 million and offices and others by 45% and shopping centers 15%. So we are going to explain deeper each of these lines. In the operating income, revenues increased 13%. And when we exclude the consumer finance that was very effective this year and Gabriel will explain later, we can see that revenues grew 24% and operating income 55%.

Shopping centers, the main activity of the portfolio of real estate, continues to perform well. The shopping centers' tenants rose by 11% their sales, and we have still very high occupancy, 98.5%. Last May, we opened the Dot Baires shopping center very successfully. This property is 100% occupied.

In the case of office rental business, we were selling some of the properties. We sold like 19,000 square meters of gross leasable area in non-strategic office properties at very attractive prices. And from the other side, we were able to finish and we added to our portfolio our Puerto Madero Dock IV building that is 90% occupied. So we have a net of less than 8,000 square meters for this year.

In the consumer finance segment, this was very impacted this year, and we had losses in this segment. But the last two quarters, there was a big improvement in the operating results that you're going to see later. And in the case of the Alto Palermo bonds, we were able to require like ARS64.5 million of nominal value of Alto Palermo notes. This improved the consolidated indebtedness ratios, and IRSA increased its direct and indirect ownership of Banco Hipotecario to 21.3%.

So, Gabriel, please?

Thank you, Ricardo. Good morning. Moving to page three, we can see there that the very positive evolution of both sales and EBITDA generation for the consolidated of the real estate operations. We have a compound goal of rate of growth from 2005 up to 2009 of 35% for sales and 23% for EBITDA. And especially comparing fiscal year 2008 against fiscal year 2009, we have a 13% increase in sales and 17% in EBITDA evolution, confirming the good health of the business.

If we move to page four, we start with a description of the shopping center evolution, considering the same period -- this is 2005/2009. The tenants sales have been growing at the compound rate of 25%, in the last year 13%. We have reached 71 million of people going to our shoppings, meaning that almost twice the population of our country goes to our shoppings at least one time. And the sales of our tenants is in the range of 4 billion for the period.

If you go to the upper right graph, you see that the revenues for the shopping centers for the same period have grown 24% -- 15% for last year. And we are getting from the total sales of the tenants compared to the revenues of the Company -- this is revenues against tenants sales -- a 9.7%, which is almost on the highest between the period of 2005 and 2009. During last year, the growth of the revenue for the period has been 15%, reaching ARS397 million.

On the EBITDA evolution on the lower left, for the last five years, the growth has been 21% -- 18% for the last fiscal year, reaching more than ARS300 million. Under the revenues, comparing same-store sales in US dollar terms and vacancy data for the period, if -- we reach 1.5% for the whole portfolio and $36 million, this amount of -- sorry $36 per square meter.

This amount of sales per square meter does not include the shopping malls, which are not full operational during the period; this is excluding those, and in the comparison going to the prior year, same criteria. The small drop that you see there from 41 to 36 is because of the devaluation pace that was much higher during 2009.

If we move to next page on page five, you see there that the shoppings keep in most cases their share of the total sales, meaning that for instance Abasto from 19% of the total sales represents 18%, Patio Bullrich is still with 7% of the total sales, Paseo Alcorta when from 10% to 9%, Alto Palermo from 17% to 18%, and the rest of the group in the range of 30%. This figure has not been affected by Dot; that only has one month of operation under this fiscal year.

Regarding the rental income, the base rent represents 49% of the total in the period, the variable and shop limit 18% and other concepts 33%. Annual GLA was increased by 21% in the period with the operating of Dot that Alejandro is going to refer to.

Successfully, we were able to open in May after two years of construction. And we had to postpone for few days. But at the end of May, we decided that we open and very successfully. We can see on page seven some pictures of the opening where there were like 10,000 people at the opening. And we say successfully because today it's 99.9% occupied. We have there an anchor store that is Falabella.

We have hypermarket that is Wal-Mart. We have Hoyts, like cinemas. And so the shopping center opened in very good shape, having a real year -- probably know everybody about Argentina. This was the main opening of the year, the largest investment probably of Buenos Aires recent investment. So, we were able to open 100% occupied.

And if you see in the page in the picture in the graph at the top left, we see that we opened just a shopping center. We are going to open next year in the beginning of 2010 the office building and the land reserve that is in the right. It's a part that we're going to make in the future. Probably we have to mature the shopping -- existing shopping, and we're going to add an additional something like the one we did this time. We can grow a lot in that shopping center using that land reserve in the right.

Okay. On next page -- page eight, a couple of considerations about the consumer finance segment, which at the end began to recover and show positive periods. Remember that we had a very tough year, thanks to the huge change in the local financing environment to the closing of the local pension fund. And remember, that those funds used to finance the consumer financing segment with ARS12 billion a year. We had to replace that. On the other hand, we received a hit of all the financial turmoil and the impact in the local market.

The revenues for the Company have gone from ARS49 million in the first quarter to ARS61 million in the last quarter. Operating costs from ARS44 million in the first quarter went down to ARS26 million in the last quarter. The expenses went from ARS54 million to ARS44 million, and the result from minus ARS24 million to ARS3 million positive in the last quarter. At the end, the operating result the end of fiscal year, we lost ARS126 million. But in the last period, this was only ARS3 million positive and minus ARS5 million of operating result, confirming that we put the Company in good shape.

We reduced significantly the leverage, as you can see in the low left graph from 32 times leverage that the Company had in fiscal year 2008. We went at six times compared to the net worth of the Company, thanks to the strong capitalization that Alto Palermo made. And also a delinquency rate, as you can see in the low right, are recovering consistently. So, we are optimistic about the near future of this Company in a way that we consider that the biggest impact of the financial turmoil has been already digested by the business.

If we move to next page -- page nine -- a quick comment on the office rental, making the same comparison that we made from 2005 to 2009. The growth of this rent has been 67% annually of compound rate. In the last year of 2008 to 2009, 45% of growth reached ARS148 million of rent. On the EBITDA, the income has been 33% -- 88% of compound growth for the period of five years, and going from ARS75 million to ARS100 million from the last period.

If we look to next page, we can see there are some market data where we can see that market price has continued to be very strong. Although, in the last quarter, it decreased slightly to some extent less than $30 per square meter. And our portfolio -- our consolidated portfolio is in the range of 22% for the total portfolio, considering all type of offices. The vacancy is still very low in the range of 6%.

And you can see there that the vacancy at fiscal year end has gone to 9%, considering the total portfolio, and this is including the Banco Hipotecario building. Remember, that we consolidated -- sorry Republica Building.. The growth for the last five year for this rent price has been from $7 to $22 and has been growing at 33% growth.

If we move to page 11, we can see the strength of the portfolio, where we can see that just three buildings that we were selling that were non-strategic office properties. We were able to sell 19,000 square meters. And let's see -- they were buildings that we didn't have 100%; we have part on some units. And the prices we were able sell -- $3,100 per square meter, $2,850 in the case of Dock del Plata, $3,300 in Libertador 498 [Ribeiro] building. So, we were able to sell those.

And at the same time, we were under -- have the construction of Dique IV. That is a new building. And the cost of that -- of making that new building was $1,400 per square meter. So we were able to repay some with all the sales and very lower level, and we occupied it. It's 90% occupied to Exxon. So, that was the movement the Company did this year.

In the case of the hotel segment, this probably in the real estate is one of the more affected. But when we see the whole situation, the sales grew 7% year to year, and the EBITDA dropped 13% year to year. This was mainly affected -- the one that was more damaged because of the lack of tourism and the situation of Argentina with the Llao-Llao. The other two in Buenos Aires, they were more resistant to the conditions, so that drop was mainly because of the Llao-Llao situation.

Going to page 13, a brief consideration about our real estate market. We continue to be pretty consistent. If you look at the upper-right -- look at upper-left graph, you see there that the price per square meter of new apartments in Buenos Aires continues to be moving up. They are reaching to $2,600 per square meter in the premium areas as an average for the city.

In the lower-left, we can see the price per square foot of Buenos Aires city compared to the rest of the world, and we see there that the city is still very cheap. And as we've been stating for the last years, still with almost no leverage behind it, we can see there that our mortgage to GDP ratio continues to be one of the lowest of America, less than 2%, compared with 10% in Brazil, 24% in Spain, and 27% in the USA, showing that our prices situation is still very comfortable.

If we move to page 14, we can see the construction of the six buildings of the Horizons project, the company, IRSA-Cyrela, the combination of Argentinean and Brazilian company. The degree of progress is around 30% and to be delivered in 2011. And this was 467 apartments, 99% sold. So what we are doing now, which we are -- we have full payment of the sales. I think the delinquency is less than 1%, and so we are in a process of construction.

If we move to page 15, we are going to launch at the beginning of 2010 the Abasto project. They are two buildings complex, 24 floors each, 284 apartments; they are in front of the Abasto Shopping. And this will be launched at the beginning of 2010. Another and a third project of this Company is a project that will be launched in Uruguay in the Montevideo city. We are going to launch a project for 13 new buildings, 130,000 square meters of selling area.

This is in the Carrasco area. It's in the outskirts of Montevideo, 20 minutes from downtown. And, we are very close to 200 hectares of natural reserve. And this we can see some picture about the project we're going to launch, first project in Uruguay country.

Moving to next page, regarding the Banco Hipotecario. The bank recently launched a mortgage loan program. It has returned to capital markets last month to mortgage backed issuance in the local capital market. We have reached 21% of the total holding of the bank interest. You see there the evolution of time deposits reaching ARS3.5 billion with a very strong improvement in the efficiency ratios of the bank, considering expenses against net service income.

And also, we have a recovery of the net financial margin as in most of the banks everywhere, showing that probably the worst of the crisis has going up. The return for the bank has gone up from 0.70% to 6.30%, confirming the excellent momentum that the business is showing today.

We recently were able to purchase 10% of the stake of Hersha Hospitality Trust. That is a REIT dedicated to hotels, and it's a listed company of United States. What is that? It's a company like IRSA, but dedicated fully for hotels. They have 73 select upscale hotels totaling 9,300 rooms approximately with franchises like Marriott, Hilton, Starwood, Intercontinental.

They have the portfolio of hotels at the Northeast, mainly corridor including cities like New York, New Jersey, Boston, Philadelphia, Washington. They have a solid track record in the industry for the last 35 years. And, we were able to purchase a part of this 10.5% warrants that there is attached to this company that we can achieve up to the 20% of the company.

There was a big drop of the share value, and we took the decision of purchasing because that drop went from 14 to 2.5. At 2.5, IRSA was able to take that opportunity. And Eduardo was invited to be a board member, and he's participating in the board of that company. We think that this will have a big recovery, and we were able to enter to this real estate drop in the United States.

Our next page -- page 19. The figures of sales and EBITDA, we have already discussed them. There is a description per segments. Let's go to page 20 to the income statement.

Good morning. With respect to the income statement of IRSA, total sales increased 12.6% from ARS1,084 million to ARS1,220 million. The gross profit increased 14.85% from ARS620 million to ARS712 million. And our operating income increased 16.04% from ARS254.8 million to ARS295.7 million, mainly to an increase in our development and sale of property segment, our shopping centers, offices, and other non-offices and our non-shopping center rental properties, and partially offset by a decrease in consumer financing and hotel operation segments.

With respect to the operating income arising from development and sale of property, the segment increased ARS101.9 million from a gain of ARS19.3 million in 2008, to a gain of ARS121.2 million in 2009. With respect to the offices and other non-shopping center rental property segment, it increased 44.5% from ARS52.9 million in 2008 to ARS76.5 million in 2009.

Considering our shopping centers segment, the operating income increased 17.9% from ARS182.3 million in 2008 to ARS214.9 million in 2009. Our segment of hotel operations -- the operating income decreased 52.4% from ARS18 million in 2008 to ARS8.6 million in 2009. We had an operating loss in the consumer finance segment -- it increased ARS107.7 million from a loss of ARS17.7 million in 2008 to a loss of ARS125.4 million in 2009.

With respect to the financial results, the losses increased 77% from ARS76.7 million negative in 2008 to ARS136.4 million in 2009. And these were mainly due to a negative exchange difference caused by higher depreciation during the current fiscal year, as compared to the appreciation that we had in the Argentinean peso against the US dollar during the year ended in 2008.

These fluctuations in the exchange rate and being the Company's total debt greater than it's assets generated a higher net loss in fiscal year 2009 of ARS166.3 million. This loss was partially offset by the results from the repurchase of our notes [as] negotiable obligations of ARS105.9 million.

With respect to the gain on results on equity investments, they increased ARS74.8 million from a loss of ARS13.2 million in 2008 to a gain of ARS61.5 million in 2009. And this was mainly due to the valuation and acquisition of shares of Banco Hipotecario S.A., which generated a gain of ARS142 million compared to a loss of ARS12.4 million during the previous year. This gain was partially offset by a loss of ARS82 million in our share of Metropolitan 885 First Avenue LLC.

The income tax and minimum presumed income tax remained relatively stable, increasing from a loss of ARS78.1 million in 2008 to a loss of ARS80.3 million in 2009. Our minority interest increased ARS53.2 million from a loss of ARS27.9 million in 2008 to a gain of ARS25.3 million in 2009, mainly due to the interest in our subsidiaries' negative results of this year. And in the last line, we had an increase in our net results of 189% from ARS54.9 million to ARS158.6 million in 2009.

Finally, as we comment on the debt book if we move to page 21, looking at IRSA's level, the total debt book of the Company is in the range of $200 million, mostly represented by the $150 million note and the sellers note of the acquisition of Republica Building, $26 million. And in Alto Palermo level, we have the note related to Alto Palermo -- $120 million note issued also with maturity in 2017, and the balance of $44.8 million for the peso-linked note that originally was $50 million.

We have a consolidated cash position of $49 million as of the closing of June 13. And with the purchase of a bond of series I and series II notes that were repurchased by IRSA in the face value of $44.6 million represented 37% of the series I note, and $13.8 million represented 40% of the series II notes leave the Company with a consolidated net debt of $211 million, which is extremely low considering the assets and the market price of those assets, as we have already discussed.

We invite to participants to question, please?

(Operator Instructions)

Your first question comes from the line of Francisco Schumaker. Your line is now open.

Hi. Congratulations on results. Basically, I have two questions. One is regarding Banco Hipotecario. You have consolidated holdings there. And the question regarding--what was the reason for this movement? What are the steps to follow if you are planning to increase your stake further? Do you want to sell or both?

And then I have a second question regarding the Lipstick Building that you acquired a stake in July, and well -- it didn't go probably as planned. And if you are going to exercise a put option -- and there are further capital increases, you might have to do there, no? And also an overview on how you're seeing property prices in New York regarding this office building.

Hi, Francisco. Well, as you have been noticing, not only in the case of Banco Hipotecario, but as a general view, and all the acquisitions that we have made -- different type of security in other companies, we have been working strongly towards strengthening our corporate situation.

The decision was taken to put the control of the bank at IRSA level and consolidating the holding as we have been doing with the rest of the securities that we have in the market. That's the reason for Banco Hipotecario movement. It might be that we might make some additional investment, but I would not think of IRSA as changing significantly the holding that we have today.

Regarding the Lipstick Building, regarding the exercise of the put option, we are analyzing the possibility of exercising that option; that's something that we can do at any moment we want to.

With respect to the valuation of the equity of the Metropolitan LLC society that holds the Lipstick Building, we had marked the impairment that the Company suffered due to the valuation of the net discounted inflows that every company had to make in their assets due to the crisis in the United States. We have marked this impairment, and we are taking these investments at zero value. But, this can change in the future with respect to what could happen in the market of offices in the United States in New York.

Probably, we are in advance of what are American companies doing -- probably not showing that (inaudible) IRSA is taking a very conservative position of going full, like we did in Argentina in the case of the impairment of the assets from the drop of [compatibility] in 2001.

(Operator Instructions)

There are no further questions at this time. Mr. Elsztain, I turn the call back over to you.

We think that this next year 2009/2010, we're going to keep growing, probably some opportunities in the American market that can appear, like the Hersha that was after the end of 2009. We think we have a very consolidated portfolio. And we, this year--we're going to reflect a full year of Dot business shopping centers and Dique IV, the Exxon building, too. We think this year probably will be quieter for [shopping], our consumer finance company because of the situation, the Company today and the first two months are spending more quiet.

In the case of IRSA-Cyrela, it's going to launch projects. And it's going to show and reflect gains because it needs to -- to reflect gain you have to advance in construction, and so you can show when the building is near the end. So that is -- it's going to appear in our balance sheet soon -- the IRSA-Cyrela numbers because of that is an accounting system. Probably, we're going to receive Soleil shopping center. That is the one we bought in the outskirts of Buenos Aires in the great Buenos Aires region.

Soleil is going to be an outlet for the Company, the number 12 shopping center for Alto Palermo. We expect to be approved some new projects. We are near to some new projects, so we expect to do -- to have those in this 2010 period. So, we are very optimistic for this next balance sheet.

So thank you very much for participating in this conference, and we'll see you in the first quarter of 2010. Thank you very much.

This concludes today's conference call. You may now disconnect.