IRSA Inversiones y Representaciones SA (IRS) 2011 Q1 法說會逐字稿

Good morning. My name is Sonya, and I will be your conference operator today. At this time I would like to welcome everyone to the IRSA earnings release first quarter fiscal year 2011 conference call hosted by Alejandro Elsztain, David Perednik, and Gabriel Blasi.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Elsztain, you may begin your conference.

Thank you very much. Good morning everybody. Welcome to the first quarter fiscal year 2011 result. And we can begin in page number two. And the revenues of this quarter and the EBITDA of the quarter increased 17% comparing last year. The operating income increased 24% to ARS138 million. The net income was lower than last year, ARS56 million comparing to ARS131 million in the same period of last year and mainly because of lower income of Banco Hipotecario that we are going to explain later.

There was a substantial increase in revenues in the Shopping Centers and Hotels, two businesses that increased a lot its results, mainly in the Hotel because of occupancy that last year because of the disease that the country suffered we had lower occupancy levels, but this year we received a lot of tourism and corporations coming to the country because of the growth of the country and the experts going to the rest of the world.

The new -- the Dot Building was opened, and today we are beginning the commercialization of that. And that is decreasing our occupation of the rest of the portfolio. We're going to see later that this new building is adding like 10% to the rest of the Office Buildings, and this is up to now is still just two floors are occupied, the rest is still on commercialization, and that is reducing our occupation for the whole portfolio.

In the 1st of July of this year we began the operation of the new shopping center, Soleil, that is our 12th shopping center. It's an existing one we bought from Carrefour, and we are going to explain little later. After the closing of this quarter, IRSA consummated the purchase of Parque Arauco equity interest, and now we are increasing our participation of Alto Palermo achieving 94.9%. And we decided in a meeting held in October 29th the distribution of dividends for -- to ARS120 million, close to $30 million. That is going to be very soon in November of this year.

So I will introduce Mr. Gabriel Blasi.

Thank you, Alejandro. Good morning everybody.

Well, the significant highlight of the quarter is regarding the strong EBITDA growth in Rental segment. As you can see on the chart of page three Shopping Center for the period has risen its cash generation, almost 30%; Offices, pretty stable. In Hotels, a very significant recovery from almost [even] to ARS7 million, meaning that the Rent segment has increased a total -- the total generation to almost ARS150 million, 29%.

On Sales and Development, at present we are lagging compared to the same period of last year, but we will recover in the rest of the year, the fiscal year. And consumer financing has both a very significant recovery, showing the excellence of the consumer market in Argentina as of today. It's important to address that since September the 1st, Tarshop is not longer consolidated in IRSA's financial statement as it has been acquired by Banco Hipotecario. This is going to be part of their financial statement as well.

Moving to page four, we can see the evolution of the revenues by segment with the effect mentioned on revenues of sale. As I mentioned, if you compare the same periods of last year of the -- on the upper left graph, last year at this time of the year we have sold a couple of buildings. In this year the sales has been represented especially for some minor land reserves. As I mentioned, we are likely to recover these in the rest of the fiscal year.

On Office and Office Rental, the revenue situation is pretty similar to the last part of the year in spite of the reduction of square meters that we developed last year through the sales of non-strategic assets. And Shopping Centers has shown a very significant improvement of 31% in revenues; Hotels 66%, as Alejandro explained with a very significant increase of tourism again in the country. And Consumer Financing, 33%.

With cash generation, with the exception of development of sales of properties as I have explained in the rest of the segment we have a very positive quarter with strong improvements in cash generation which is also reflected in the EBITDA margin on the low left where Development and Sales continue to have a -- in the range of 75% of EBITDA margin; Offices, 71%; Shopping Centers, over 77%; Hotels, 15%; and Consumer Financing, 34%, showing the huge experience that the Company has in these segments.

Okay, the breakdown of the EBITDA mostly explained by Shopping Centers, the recovery of Consumer Financing and the Hotels at [Ziala], and with the exception of Development and Sales that, as I mentioned, we're expecting to recover in the rest of the fiscal year.

If we move to page five, go in details to the Shopping Center business, 30% of growth in the revenues, upper left. The cash generation of 30%, reaching ARS114 million of cash generation. Our revenues in tenant sales continues to be in the range of 9%, and the EBITDA margins 77% if business continue to be extremely strong in the behavior. The tenant sales continued to improve significantly. There you see that the -- in -- under the comparison of the same quarter of last year, considering the same shopping malls we increased 37% of sales, and on top of that we add Soleil as Alejandro has explained. The GLA evolution has increased in the period to 299,000 square meters and the occupation continue to be pretty strong with 98% rate of occupation.

In page number six we can see the new shopping center that we increased in our portfolio is Soleil Factory was incorporated in July, 1st of July of this year. It's 12 kilometer off Buenos Aires City, 14,000 square meters. And this will be transformed not -- was not done up to now, but is going to be transformed in the first premium outlet in Argentina. We are inviting the best brands, that they are not today there, to participate in this new launch of the Company. And we are beginning to open this kind of outlet that the Company up to now didn't have, and we are expecting a very high EBITDA in this shopping center. Really the purchase price was $20 million, and we are in the middle of the north area of Buenos Aires in the middle of Unicenter and a new shopping center that was launched recently. So we are entering our outlet in the middle of a very premium of the north of Buenos Aires. So we are very glad. And we expect from this shopping center very, very high EBITDA generation.

Going to the Office segment, on page seven, revenues are pretty similar to last year. And same situation with cash generation with a slight growth to ARS29 million. It's important to address that as you see in the low-right graph although we reduce our GLA from 152,000 square meters to 140,000 square meters. And we have added Dot Building recently, that explains the drop in the occupancy because the business -- the building has been just put into business. And with that addition we are recovering the full square meter.

On the left, low left of the graph we have a description of the market situation where you see the average monthly income per square meter according to Colliers International, the new square meters tariff. It's important to show the vacancy in each area, important to show that the areas where our portfolio is most relevant, very well defended because of the lack of space for the construction of additional square meters.

Moving to page eight, Hotel segment recovery. We see there the very significant recovery in price per room in US dollars and the occupancy rate, 76% for the period, $179 for average price per room. The comparison effect of the cash generation with an increase in the period to $7 million. You can see there that the tourism has rebound significantly and the Hotel is aligning to its figures between the range of $5 million to $10 million of cash generation per year.

If you move to page nine, our investment in Hersha Trust. As of November, our total investment has been $64 million. Remember, this company, when we made our original investment was in severe distress. We -- the Company has gone through four rounds of capital (inaudible) registration of product in the United States. At present, the investment value is $134 million adding more $100 million of total value. Our participation is almost 11% with a possibility to grow up to 14%.

In the period, if you go to page 10, we have completed the sale of 80% of Tarjeta Shopping from Alto Palermo to Banco Hipotecario, pursuing the objective of putting the financial bankers together with obvious synergies between the two, allowing a much stronger situation for the development of the business segment is being an entry-level for customer to Banco Hipotecario, at the same time providing through the (inaudible) the liquidity support of the bank itself. On the other hand, we, in October 15th, we acquired 30% of the stake of Alto Palermo, 29.6% specifically, from our old partners Parque Arauco from Chile, reaching almost 95% of the total stake of the Company at a price of $126 million. That was completely paid in the period.

If you move to page 11, a quick wrap-up on Banco Hipotecario situation. Although in the quarter the result for the holding of security has not been so positive like in the prior one because of the evolution of the bonds mainly issued by the Republic of Argentina. But you can see there that the bank continue with its new structure of funding with increasing presence of deposits, local deposits, as you see there, representing 67% of the funding of the bank, only 33% funding by foreign currency. Also we can see that the bank is continuing to improve the share of the private sector loan with a smaller participation of mortgages, 38%, aiming to reach the status of a more diversified bank.

The net financial market shows -- margin show a very good result with ARS182 million, and with a very good behavior of the loan portfolio as we can see there, non-performing loans, up to 180 days, means slightly over 3%, and with a very, very -- with a very low delinquency rate.

I direct you, if you want to get further information about the bank get the press release and the result release from Banco Hipotecario directly.

Good morning, with respect to the IRSA's income statement as of first quarter 2011, total revenues increased by 16.5% from ARS263 million to ARS306.8 million. The gross profit of the Company increased by 29.8% from ARS157 million to ARS203.7 million. And the operating income increased by 23.7% from ARS111 million to ARS138 million.

The operating income, when we go into our segment business, the operating arising from Development and Sale of Property segment decreased ARS19.3 million, 70.4%, from a gain of ARS27.4 million in 2009 to a gain of ARS8.1 million in 2010. This was mainly due to higher cost and there were no significant transactions closed during this quarter as compared to the same period of the previous fiscal year.

With respect to the operating income arising from the offices and other non-shopping center rental property segment, they slightly increased from ARS22.3 million in 2009 to ARS22.5 million in 2010. Revenues remain almost equal at about ARS40.7 million.

The operating income from the Shopping Center segment increased 41.3% from ARS60 million in 2009 to ARS84.7 million in 2010.

Operating income of Hotel operation increased ARS7.5 million from a loss of ARS4 million in 2009 to a gain of ARS3.6 million in 2010.

Operating income of the consumer financing segment increased ARS13.2 million from ARS5.9 million in 2009 to ARS19.1 million in 2010. This reflects the Tarshop full recovery owing to the measures adopted by the management during the previous fiscal year. And it's important to say that after selling to Banco Hipotecario the 80% of APSA's interest in Tarshop this company no longer consolidates in IRSA since September 1, 2010. Therefore, the data reported for the first quarters of 2011 corresponds only to July and August 2010.

The financial results net loss increased ARS21.6 million from a loss of [41-point] million in 2009 to a loss of ARS63.1 million in 2010 and this was mainly due to an increase of ARS13.2 million in interest expenses, mainly due as a result of additions of new negotiable obligations. ARS12 million loss from the impairment and sale of the 80% of APSA's interest in Tarshop because it's eliminating the result that we have previously stated in consumer finance segment. ARS7 million positive exchange difference caused by lower depreciation during this year compared to 2009. And going into the gain from related companies, they decreased ARS75.5 million from ARS97.2 million in 2009 to ARS21.8 million in 2010. This was mainly due to the result from the evaluation of Banco Hipotecario to the stake that IRSA has in Banco Hipotecario.

The income tax, our minimum presumed income tax decreased ARS14 million, from a loss of ARS26.1 million in 2009 to a loss of ARS12 million, and this was due to the loss carry forward that generates the sale of Tarshop in Alto Palermo.

Minority interest increased ARS20 million from a loss of ARS5.5 million in 2009 to a loss of ARS25.5 million in 2010, and this was mainly due to Alto Palermo's higher results. For the above mentioned, our net income for three-months period ended in September 30, 2010, it decreased ARS75.3 million from a gain of ARS131.4 million in 2009 to a gain of ARS56.2 million in 2010.

Thank you, David.

If we move to next page, regarding our consolidated debt as of September 30, as you can see on page 14, the important (inaudible) the second issuance although we should add the prior quarter of $150 million. You see there the prior loan maturing in 2017 with a [coupon] of 8.50% and the second one with a [coupon] of 11.50%. Important to understand both notes are today quoted over par, almost 101% for 2017. And 117% for the 2020 showing the excellent momentum of our grade in the market.

The total debt as of that date was ARS407 million and after bond repurchase that dropped to ARS353 million. Regarding the issuance of those bonds, the opportunity was chosen to be able to repay the acquisition of the [package of] Parque Arauco on Alto Palermo.

A couple of considerations which are relevant to the interpretation of this chart after September 30 is that APSA has paid dividends for ARS113 million, that IRSA has sold the stake on Alto Palermo bonds as it has in its portfolio of ARS38 million which has been already informed to the market.

IRSA has fully paid to Parque Arauco $120 million for the balance of the stake in Alto Palermo. And as Alejandro mentioned, the Company is intending to pay dividend for ARS120 million, approximately $30 million prior to the year end.

So we invite to investors to make the questions now. Operator. Operator, we would like to invite investors to make questions now. Sonya.

Operator?

Operator, are you on the line?

Yes, sir. (Operator Instructions) We have a question from Celina Merrill.

Hi, good morning. Thank you so much for the call, and congratulations on the quarter. I had two quick questions. One was what do you expect your capital expenditures to be next year and what specific projects are those associated with?

In the business of Shopping Centers, we are announcing two new shopping centers, one in the neighborhood of Palermo. That is not exactly a shopping center; it will be a urban space. And the other one is a shopping center in the province of Neuquen. Those two are investments for near two years, we don't do in a year period, and we have two investments of almost $50 million.

In the case of office buildings, we are beginning to launch a new office building in the neighborhood of Catalinas. We bought this plot of land, and this will be an investment of like $50 million more, and again for two-year period. So these are the -- like $100 million between these three projects for the next two years.

I got it. And my second question was what was your actual cash interest expense for the quarter.

Celina, will you repeat?

What was the actual cash interest paid for the quarter?

Sorry, I'm missing somewhere, after cash you have said -- the cash?

The cash interest paid during the quarter.

The cash interest paid?

Yes.

Let me check.

It was ARS50.7 million.

Okay, perfect. Thank you very much.

That includes, of course, the impact of the issuance of the new note.

Right.

Explain the biggest difference with the prior year.

(Operator Instructions) And there are no further questions at this time.

We would like to finalize the presentation. We are running like 0.5 million square meters of rental properties when you combine the shopping centers, the office buildings, hotels. We think we have the best portfolio of the country, and the portfolio is increasing its performance every quarter. We expect to add new properties to the portfolio.

The prices of the country are still cash and we don't cash prices, we are still seeing very same prices on the real estate in the country. We are seeing a recovering or recovery of the financial situation of the country. We are seeing a lot of Argentinean companies entering to the capital market that is the reducing the cost of capital to the country. And that is pushing the economy too.

The country is in a good shape. We are seeing a lot of entrants of new capital to the country. So we expect to keep this growth for the next quarter.

Thank you very much, and have a very good day. Thank you.

Thank you for your participation in today's call. You may now disconnect.