IRSA Inversiones y Representaciones SA (IRS) 2010 Q3 法說會逐字稿

Good morning, and welcome to the IRSA earning release third-quarter fiscal year 2010 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. Sir, you may begin your conference.

Good morning, everybody. We are going to talk about the first nine months of fiscal year 2010 IRSA results. We have achieved revenues in this nine months that increased 14.4% comparing last year's, driven by a 32% increase in Shopping Center segment revenues.

The operating income of the three quarters increased 182% versus last year, achieving ARS393 million. The net income is -- of the nine months amounted to ARS299 million comparing to a loss of last year.

Shopping Center tenants' sales show a strong rebound in last two quarters with high occupancy level. Our investment in Banco Hipotecario present a gain of ARS140 million in the first three -- in the first nine months; and the other segments, Sales and Development, Office, and Other Rental Properties, Consumer Finance, and Hotels continue showing a big strength.

In page number three, we can see the sales and EBITDA evolution by segment, and it's good to see that all of our lines of business are increasing. If we talk about Development and Sales, there is a 13% increase in revenues. In Office buildings and Rental at 7.8%, in Shopping Centers at 32% in revenues. In operation in Hotels, there's a small drop in revenues of 3% and in the Consumer Finance in revenues at 3.6%.

But when we talk about EBITDA by segment, there is a 108% increase in Development and Sales, near [EBIT] 3% increase in Office Buildings because of the sales that we are going to explain a little later. There is an increase of 36% in Shopping Centers, a somewhat small drop in EBITDA generation because of flu of first trimester in the first July, August and September. That was a big drop.

At consolidated up to now, the nine months, it's a drop of 13% in EBITDA, but when we talk about the last quarter, there is a big rebound. In the Hotel too, we are going to see occupancy recovering from very bad levels of the first trimester to the third very bad -- very good, sorry.

And in the Consumer Financing last year, very big drop because of lack of liquidity of the market and big rebound of this nine months, going from ARS116 million negative last year to 37% -- ARS37 million positive this year.

And if you see in the lines, this year we have a 61% margin in Sales and Development, 66% in Office and Rent, in -- and other Rental, 76% margin of Shopping Center, 18% in Hotel operations, and 21% in Consumer Finance.

If we go to next page in page four and we talk about Shopping Centers, we see a big increase in revenues. The first nine months, a 32% increase comparing last year. In EBITDA, we see a 36% increase, 35.7%, achieving ARS283 million for the first nine months.

The recovery in tenant sales, we see a big increase comparing the last -- the third quarter of last year to this third quarter, a 51% increase in tenant sales. Here we see the occupancy of the Shopping Centers and we are almost full.

The biggest vacancy we have is Mendoza Plaza Shopping, where we have one part of the shopping that very soon a hotel -- a five-star hotel with casino will be opened very soon, and with that probably we are going to achieve -- this is 93% occupied, and with that opening of that hotel that -- it's not ours, we are going to increase the occupancy there, so we are going to be near -- today we are at 98% and we are going to be near 99% or almost 100%.

If we move to page five, we can see the portfolio of Shopping Centers. The current portfolio, the 11 Shopping Centers, the -- and we have a new picture about future projects the Company is intending to do. The first, the number one of the future projects, the Soleil Factory is a shopping center that was purchased in the past. We are going to receive it in July of this year.

We expect to receive this shopping in first of July, and this is a shopping center that will come forth to an outlet, and we are going to launch a new project there. We are going to rebuild it and bring new tenants and this come from Carrefour, we bought from Carrefour and will be the first outlet, premium outlet, of Argentina.

The second one, Arcos del Gourmet, it's a new project that the Company is intending to do in 2011 year, fiscal year, and this is not a shopping center strictly, it's a new concept model in Palermo at 20 blocks of Alto Palermo, where Alto Palermo was able to buy a concession in the lease for 17 years. But this will allow to make a new project of tenants.

We are going to present that project soon, but that is a long-term lease, and a construction for next fiscal year. The Shopping Neuquen, the land reserve we had in the many years, and we are beginning the movement of earth probably in July of this year. This is a lot of land that Alto Palermo owns in province of Neuquen, that is a western province of Argentina.

The Tucuman Plot, that is a land that we purchased where we bought Soleil, we bought land reserve that is in a Carrefour land again, and here we have the rights to make a shopping center and we are thinking on beginning in 2011.

And the Caballito Shopping that it's a land reserve that Alto Palermo owns in the middle of Capital Federal still waiting for the approval. We have not the rights to begin this construction up to now.

Thank you. Regarding the Office Rental segment, when we compared the evolution for the first nine months of the year, we have increased revenues of 7.8%. When we turn to the EBITDA generation, there is a slight change of 3% in the first nine months.

The reason is remember that we are in the process of turning around the portfolio. We have sold certain properties as you can see in the low right of page six, the small decrease in gross leasable area keeping the occupancy as part of the process of turning around the portfolio to stronger assets, AAA.

In that event when you look at the low left, you will see the premium plot that we have acquired in the area of Catalina just beside the Bank of Boston tower. We are going to develop there -- to construct a AAA office building in the next year.

And to complete the picture, you have the rest of the unit that we have already sold on the Rulero and Libertador 498 where we totalize $4 million of cash with the [sale] of 1,000 square meters, 1,200 square meters.

Going to page seven, on the Hotel segment, as Alejandro was explaining, we are in the process of recovering for a very poor fourth quarter last year and first quarter this year that suffered completely as on the international arena with the financial crisis, local and international, and the strong impact in the tourism of the flu.

As you see there, those figures are recovering steadily, especially regarding price and occupancy, and this is reflecting in the EBITDA generation of the sector.

Very important, the outlook is pretty good as you can see on the low left, that the tourism recovery in Argentina is improving significantly too.

Moving to page eight, there we make an update on the investment of Hersha. At present we have a stake of 11.31% on a fully diluted base considering the option that we acquired with the first investment. We can go up to 14.85% of the Company.

We have invested $47 million considering all the [growths] in the different capital increases that the Company made in the last months, and our present investment value as of March 31 totalized $91 million, represents an increase of 92% of our investment.

Just for a small wrap-up, the total assets of this Company represents 76 hotels, almost 10,000 rooms in the Northeast of the United States. The Company has improved very, very significantly its financial situation and also the business evolution. As we have discussed on the Argentine side, it's doing very well too.

If we move to page nine, we have the status of our development at Cesar our joint venture with Cyrela on the Horizon projects in Vicente Lopez that is going to be delivered in 2011. We are 78% near to completion as you can see from the upper right picture, and we have already sold 99% of the 59,000 square meters that we have in place.

And the -- we have also launched the sale in third quarter 2010 of El Encuentro Project. El Encuentro is a plot of land of 12 hectares located in Benavidez, the province of Buenos Aires, up to the north area of the city, initial development of a gated community. We have put to sale 110 plots.

On the financial side, on the financial segment, Banco Hipotecario has contributed significantly to our result. As you can see, ARS140 million of result have been contributed to Banco Hipotecario, just to show this -- the change that the bank is having in its portfolio of assets with a not-so-significant presence of the mortgages and other type of loans, which has a given a stronger balance sheet and improving the financial margin; and also the financing results where the bank is relying more of deposits and less of external financing, also getting stronger in this side of the balance sheet.

Regarding Tarshop, remember that we are in the process of waiting the approval of Banco Central for the sale of 80% of the stake of the Company to Banco Hipotecario. We are in the process of completing the documentation and analysis of the dossier by the Central Bank.

You see there the improvement, a very significant improvement, as Alejandro was explaining, in the result of this segment with a loans overdue decrease and only reaching 3.6% of the portfolio, and a recovery of revenues and EBITDA that is having a very positive impact in the balance sheet.

In regarding -- with respect to our -- IRSA's income statement for the nine months of 2010, we see that our total sales have increased 14.4% from ARS832 million to ARS952.1 million, and our net result, our net gain from loss of ARS106 million last year for nine months, we reached as at 31st of March, ARS299.7 million of profit.

When we go through the operating -- we see the operating income line, we see that this has increased 182.4% from a gain of ARS139 million in 2009 to a gain of ARS393 million in 2010, mainly due as was said before from -- with -- from Alejandro and Gabriel, due to an increase in Consumer Finance, Shopping Centers, our segment of Development and Sale of properties and partially offset by a decrease in Hotel segment.

When we see our -- the operating income arising from Development and Sale of properties, this segment increased ARS49.6 million from a gain of ARS45.2 million in 2009 to a gain ARS94.8 million in 2010.

The operating income arising from the Offices Rental properties increased 4.9% from ARS56 million in 2009 to ARS58.7 million in 2010. Going to our Shopping Centers, the operating income segment increased 35.9% from ARS146 million in 2009 to ARS198.9 million in 2010.

Our operating income Hotels decreased ARS2.4 million from ARS11.9 million in 2009 to ARS9.5 million in 2010. The operating income from our Consumer Financing segment increased ARS152 million from a loss of ARS120 million in 2009 to a gain of ARS32 million in 2010.

Going into our financial results line, this line decreased from a loss of ARS207 million to a loss of ARS69 million, and this was due to a positive exchange difference caused by lower depreciation.

As our debt mainly is expressed in US dollars, in the year 2009, there was a depreciation, a big depreciation, sorry, -- in 2009, there was a depreciation of -- from ARS3.02 million to ARS3.72 million and --

No, pesos per dollar.

Sorry, it's pesos per dollar, sorry. And this year we had almost none devaluation. The exchange rate remained almost in ARS3.85 per dollar. The gain from our related companies increased ARS209 million from a loss of ARS62.9 million in 2009 to a gain of ARS136 million in 2010 and this was mainly to devaluation and acquisition of Banco Hipotecario additional shares. We generated a gain of ARS140 million.

The income tax increased from ARS1.9 million and went to a loss of ARS111 million due to our gains in our operating business. Minority interest went from a gain of ARS29 million to a loss of ARS49 million -- almost ARS49 million. And this is almost due to the gains that produced our companies that we are consolidating.

So the net result went from a loss of ARS106 million last year to a gain of ARS299.7 million in this year 2010.

Regarding the debt situation, there are no major developments in the size and shape of it as you can see from page 12.

The total net debt deducting the bonds that are held from Alto Palermo in IRSA is $380 million. It's more important to announce that the Company has launched a transaction for the insurance of another 10 years bond.

The transaction was launched yesterday according to Argentina regulation. It's a 144A bonus we are going to be placing in the market in the next weeks, and the use of funds is to provide a financing for the different projects that the Company has for development of their business lines.

Maybe we can ask operator for questions now.

(Operator Instructions) There are no questions at this time.

Okay, we have shown in this nine months period a very strong balance sheet in all line of business. The uncertainty of currencies probably and the low interest rates on the markets are making more interests in real assets. And we are seeing that in our assets, but the Company owns a big portfolio.

It's very firm, the price of the square meter, and any sales we are showing show that strength. The consumption in Argentina is very strong too. We see that in Shopping Centers. We have -- we are in a good agriculture year that is making a big surplus in the trade balance for the country and it's helping the consumption too.

So we hope to keep this strong performance for next balance sheet too. Thank you very much and have a good day. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.