IRSA Inversiones y Representaciones SA (IRS) 2011 Q3 法說會逐字稿

Good afternoon. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the IRSA earnings release third quarter fiscal year 2011 conference call, hosted by Alejandro Elsztain, II VP, Gabriel Blasi, CFO, and Mr. David Perednik, CAO. Thank you. You may begin your conference.

Good morning, everybody. We are beginning our conference call at the third quarter of fiscal year 2011. IRSA had in the rental segment revenues going high, very high, 23%, when the EBITDA of the rental segment went up 25%. The revenues for the nine first months of 2011 increased 6% to near ARS1 billion. The operating results rose 7% to ARS421 million and the EBITDA went up 5% to ARS540 million.

The shopping centers segment -- but it's the largest by size, increased in sales29%, EBITDA per sales kept at 78%, and occupancy levels, again very high at levels of 97%. In the hotel operations, there was a very firm recovery in occupancy and in EBITDA because of prices and went up to 26%. The real estate market looks very robust and the prices have increased significantly, impacting on our portfolio of land servers, developments, and offices. Net income was ARS223 million comparing to ARS300 million. And later we are going to explain difference. Main difference was the higher financial charge and lower income from Banco Hipotecario gain on sovereign bonds revaluation.

Our board of directors have called a general shareholders meeting scheduled for May 26 in order to deal with the position to adopt at the shareholders meeting called by Alto Palermo that will consider an increase in its capital stock. In addition, it will consider the approval of a dividend payment by the 26th of May.

If we go to page three, we can see the sales and the EBITDA of the segments and we can see how shopping centers went up 29% in revenues. Office and other stayed more stable, just 5% increase. The hotels, 25% in revenues increase and 22% in development and sales. Well within the EBITDA, majority of them went up. We see 32% growth in shopping centers, near even in office buildings, where we will see later why. 26% recovery in EBITDA in the hotel operations and a decrease in development and sales. This is mainly explained by the not selling office buildings like we did last year. This year, majority of the sales were done on activities without any rental and we're going to see later in the presentation.

So when we see the margins that the business are giving, we see an increase in shopping centers, going from 26% to 28% -- sorry, from 76% to 78%. In office buildings, a small decrease from 66% to 64%. In hotel and even respect to the margin and the EBITDA and a decrease, because what I said before in development and sales.

And in the graph of the -- hear we can see the evolution of last nine months -- ARS514 million of EBITDA and how we achieved the ARS540 of this nine months. And the first segment increasing shopping centers, office, and hotel, and a decrease in development and sales, and the consumer finance that last year we had on our books, but this year we have no more. We are keeping just 20% of that company, but we are no consolidating more this EBITDA of the Company.

If we turn to page four, we can see in each of the businesses and here the shopping centers segment showing very strong performance. An increase of 29% in quarters, comparing last year to this year, we can see the evolution of the EBITDA of every quarter of the [list] of the year. So we see evolution -- very positive evolution. Our tenants in all of the segments are selling more in quantities and in prices. And we remember that we have to keep adjusting for inflation. This company has a complement of the sale of our tenants. Every month we are charging them a percentage of those sales and that is why the recovery of the EBITDA is so strong.

We see that the evolution of the sales went up quarter to quarter 32%, so very strong quarter again in sales of our shopping -- the 12 shopping centers. And this quarter we didn't have an increase. The only shopping center that was included this year was Soleil and we are separating this for 10,000 square meters, achieving near 300,000 square meters of total growth leasing area on Argentina.

If we move to page five, we can see the office rental segment and in here we see, in the bottom graph, the portfolio evolution. So last year we were decreasing some of this portfolio because of the sales of some -- of square meters of non-strategic assets and we went to 140,000 square meters. We increased to 151,000 square meters today because of the entrance of the Dot Building. And we separate this building and we can see the third quarter with the building and without the building. And we see how when we do the 139,000 square meters, we can see that the occupancy of that that portfolio is 91%, vacancy is 9%.

When we add the new building, the total portfolio vacancy is 13%. So it's costing us a little. Today, the Dot is 35% occupied. This is the building -- the office building, not the shopping that is 100% occupied. The office building is 35% occupied. We are waiting for the entrance of big tenant, now we are discussing with many of them, three or four floors of that. But it's costing us a little more than what we expect. So we can, having Dot, we are having the same -- near the same revenues and EBITDA because of the combination of small sales and coming of the new building. But it's near empty, 35% occupied.

And we are waiting -- we are expecting to have some more occupied at the end of this fiscal year, of June of this year. A part of that, we are beginning the construction in May or June of the building we bought in Catalina. With that, construction is beginning soon. This is going to add to the portfolio almost 30,000 new square meters to the portfolio of office building to IRSA. I will introduce Mr. Gabriel Blasi that will talk about sales and development segments.

Thank you, Alejandro. Good afternoon, everybody. Regarding this segment, our biggest project is Horizons and it started in 2007 on page six on the left upper side. You can see that that project, if you remember, we sold it out in one month, located in the new premium residential area, consisting of 44,000 square meters. We have delivered the first units and we are in the process that is going to be completed for the rest of the year to give the definitive bid of each of the units, starting with the first three towers and then the other three.

Regarding the office space, we have sold in Libertador 498, the 620 square meters of office at a price of $2.6 million, which reflects an increased price of dollar per square meters, $4,200, showing the very strong momentum that real estate prices have in Buenos Aires, in spite of the lack of leverage or strong financing available for that.

Regarding the general status of our projects, you can see on the same page in the lower graph, the status of each of the projects. Horizons, which is built 94% and already sold 100%. Nuevo Caballito, 100% built, 75% sold. Torres Rosario, which is close to our space in the [Museo], 100% built and starting the sale of the properties. The second group of the towers, 74% built. In El Encuentro and in El Encuentro, which is the land plots of a gated community in the northern area of the surrounding [Volosilles], 44% sold. Regarding the result recognition of all these projects during the period, IRSA recognized at NRV a price, a result of ARS39.6 million paid for this concept.

On page seven, going to hotel segment, a strong recovery has taken place in this area. If you look at the first upper two columns on page seven, you will find out the comparison of the average price per room, fiscal year '09, fiscal year '10, went down from $169 to $166 and occupancy rate from 70% to 66%. Remember that this business segment was affected strongly by the flu and by the international crisis during '08, '09. If you compare the figures for the first nine months of 2010 compared to the first nine months of 2011, you will see that the occupancy has increased from 65% to 76% and the price per room concurrently has gone up from $172 to $181.

With same criteria, if you look at the sales and EBITDA generation, the ARS159 million figure was ARS160 million for fiscal year 2010. For the first nine months of the year, ARS123 million went up to ARS154 million, increasing 25% of sales. In the case of the EBITDA, EBITDA for the fiscal year '10 was ARS22 million. For the first nine months of the year, we reached ARS21 million and we have increase [25] for the nine first months of 2011, reaching ARS27 million, a final figure for EBITDA. And EBITDA margin was in the range of 17% for the first nine months of the two fiscal years, in spite of the strong inflation that is affecting the general cost in the country.

Moving to page eight, going to the figures of Banco Hipotecario, you can see the continuation of the strategy of the Banco of (inaudible) defying its source of funds where the foreign currency debt is being reduced significantly for the last four years and replaced by local deposits as part of the book, reaching 76% or three-quarters of the total funding of the bank is provided in local currency deposits.

Regarding the interest income of private sector loans, as you see, now represents 76%, is represented by non-mortgage related loans and only 23% is related to mortgages. Reaching that income almost ARS190 million for the period as of March 2011. And the net financial margin has gone up to ARS140 million for the same period. Regarding the behavior of the bank portfolio, the non-performing loan, it has reduce to 2.6% of the portfolio as a percentage of the total of the loan. So really, the bank is confirming the very good momentum that the industry in general has in Argentina today. Now David is going to explain us about the income statement for the Company.

Good morning. With respect of the income statement of IRSA of 31st of March 2011, the operating income increased ARS28.1 million, 7.2% from a gain of ARS393.1 million in 2010 to a gain of ARS421.3 million in 2011 and this was mainly due to an increase in shopping centers, hotel operations, and offices and non-other -- non-shopping center in the property segments partially offset by decrease in development and sale of properties and consumer finances segment. With respect of the operating income arising from development and sale of properties, this segment decreased ARS51.7 million from a gain of ARS94.8 million in 2010 to a gain of ARS43.1 million in 2011.

This was mainly due that -- to the fact that we don't close the sales of office building for a substantial amounts in this year as we did in the same period of the previous year. With respect to the operating income arising from the offices and other non-shopping center rental properties, this segment slightly increased from ARS58.7 million in 2010 to ARS60.1 million in 2011. The operating income from the shopping centers segment increase ARS43.5% from ARS198.9 million in 2010 to ARS285.4 million in 2011. While the operation income for [operation] increased ARS7.2 million from a gain of ARS8.5 million in 2010 to a gain of ARS15.7 million in 2011.

With respect to the financial results, the net loss increased ARS116.2 million from a loss of ARS59 million in 2010 to a loss of ARS185.2 million in 2011 and this was mainly due to a ARS51.1 million increase in interest expenses due to the issue of our new negotiable obligations in 2011, a decrease of ARS42.9 million in the results generated by financial operations that this was mainly due to the impairment recognized in the sale of Hersha and also from the holding of Hersha option of ARS23.7 million. And also we had ARS23.1 million negative exchange difference cost by a ARS20.4 million mainly related to the new issued negotiable obligations of EBITDA and a higher depreciation during the current nine month period.

With respect to the gains from related companies, it decreased ARS22.9 million from ARS146.1 million in 2010 to ARS123.2 million in 2011 and this was mainly due to the lower results that we see from Banco Hipotecario, ARS76 million less, partially offset ARS43.2 million from the higher results on the sale of shares and this is of Hersha are from the results of [partial] -- ARS8.8 million.

With respect of the income tax, it decreased ARS38.9 million from a loss of ARS111.9 million in 2010 to a loss of ARS73 million in 2011 and the developed generated mainly by the carry loss forward that we had in the operations of this year. Minority interest increased ARS6.5 million from a loss of ARS48.8 million in 2010 to a loss of ARS55.3 million in 2011. And for the above mentioned, our net income for the nine-month period ended in 31st of March 2011, decreased ARS76.6 million from a gain of ARS299.7 million in 2010 to a gain of ARS223.1 million in 2011.

Thank you, David.

Yes, Gabriel. Regarding the debt. Yes. Okay. Regarding the debt on page ten, a portion -- the total debt of IRSA's consolidated debt [top] is $487 million with the most relevant valuation that we have in the period is the issuance that is mentioned of the new shorter-term bonds that were issued in the local capital markets. And the increase of the short-term debt of IRSA are represented in pesos at 180 days. On the consolidated base, the IRSA net debt considering the cash that is still in the Company, as of March 31, is $487 million, with the consolidated debt repurchase of $14 million that we did. There is no other significant variation in the debt structure of the Company.

If you move to page 11, the relevant financial information that we released is that APSA called to a general shareholders meeting on May 26 to consider a capital increase for up to ARS205 million through the issuance up to 2,050 million new common shares of nominal value, ARS0.10 each. And also in the same possibly, it will be considered disposition alternatives in connection with the outstanding of the convertible notes that the Company has at present.

Concurrently, IRSA also called to a general shareholders meeting on the same date to consider the procedure to be followed by IRSA in APSA's shareholders meeting regarding the required approval of the pre-mentioned projects and also the distribution of a cash dividend. And Alejandro, if you want to make some closing remarks.

No, I will ask to the investors, please, to make question now and we are going to close later. So, please, operator.

(Operator Instructions). I'm showing we have no questions from the phone line.

Okay. I will finalize, first talking about the growth of Alto Palermo. Alto Palermo has a lot of projects under construction now. We are beginning the [Altos] and the [Milken] projects. We are thinking on -- at the end of this year or beginning of next, we are thinking of beginning to command project two. So there are some greenfields coming to the Company. Apart of that, there are a lot of projects on the pipeline to close of existing shopping centers, not just in Argentina, but abroad, too. So the Company has a big room to grow for next quarter.

We are seeing the net debt of the Company going down. Last quarter, the net debt of IRSA was ARS534 million. Today net debt is ARS487 million. That shows a strong business that is helping the cash generation that will be [some form] in growth and dividend for shareholders. We see the rental going up, mainly driven by shopping, and assets going up. And we see everything we are selling very strongly, like the Enquentro lots, of the apartment of [Kawashito], for the rental that we sold at Libertador that Gabriel mentioned. So we think that the Company has a lot of room to keep growing, not just in Argentina, but in the region. So thank you very much and have a good day.

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