IRSA Inversiones y Representaciones SA (IRS) 2012 Q2 法說會逐字稿

Good morning everyone and welcome to IRSA's Second Quarter 2012 Results Conference Call. Today's live webcast both audio and a slide show may be accessed to company's Investor Relation website at www.irsa.com.ar/ir by clicking on the banner conference call.

The following presentation and the earnings release issued last week are also available for download on the Company's website. After management remarks, there will be a questions-and-answer session for analysts and investors. At that time, further instructions will be given. (Operator Instructions). You will have also the possibility of sending a question via webcast by clicking on the question to host tool.

Before we begin, I would like to remind you that this call is being recorded and that information disclosed today might include forward-looking statements regarding the Company's financial and operating performance. All projections are subject to risks and uncertainties and actual results might differ materially. Please refer to the detailed note in the Company's earnings release regarding forward-looking statements.

I will now turn the call over to Mr. Alejandro Elsztain, Second Vice President of IRSA and Mr. Matias Gaivironsky, CFO of IRSA. Please go ahead sir.

Good morning, everybody. We are beginning our conference call of second quarter fiscal year 2012 of IRSA. If we move to page number two, we will see the main highlights of the quarter. IRSA's revenues for this first six months of 2012 increased 6% to ARS740 million and the EBITDA grew near 19% to ARS453 million.

The shopping center segment is our strongest and showed significant growth in revenues and EBITDA growing 32% and 37.9% respectively and the EBITDA sales achieved coming from 77% to 80% in this quarter. Occupancy near 100% at levels of 98%.

The net income for this quarter was ARS127 million was an 11% increase compared to last year quarter are mainly -- this increase was due to the operating income. Higher income from Banco Hipotecario and appreciation on the market value of the option held in Hersha, our REIT in the United States dedicated for hotels.

For this first six months that finished in December of this last year, there was a fall in net income of 22% comparing to last year mainly due to net financial losses that we are going to explain later.

IRSA, through its subsidiary, Real Estate Strategies, entered to an agreement with Supertel Hospitality for the purchase of up to 3 million convertible preferred shares to be issues by Supertel for an aggregate of up to $30 million.

During November of this year, the Company paid a cash dividend of ARS211 million equivalent to a dividend yield of 8.6% at the time of its announcement, and an amount per share of ARS0.36 and an amount per ADR of $0.87.

On February of this 2012, the Company has successfully issued in the Argentinean market a note with two classes in pesos and in dollars for a total amount of ARS300 million.

If we move to page number three, we see some of the valuations of our assets in Argentina. These are valuations for Buenos Aires and we see in three graphs one that shows residential prices, how the prices of the square meter, this is in an area of Recolecta to give an idea, good neighborhood of Buenos Aires, coming from levels of $1,000 up the compatibility collapse, we have a number of 2011 achieving more than $3,000 per square meter compound -- and a growth of 11% in this year.

This is residential. We see in here prices of the office buildings coming from levels of $1,600 those days and the valuation that comes from a third part increases, this is [elle Cota Ramos], a player office buildings in Buenos Aires, it's a brokerage company talking about more than $4,000, $4,500 per square meter in 2011, I'm showing land price, this is the price of the square meter for making a new apartment or issuance of the land, coming from levels of $100 or $200 going to $1,000 per square meter.

So these are the prices of the real estate of Argentina where IRSA has a lot of presence in the rental and in the land reserve that is [also].

If we move to page number four and we see the sales in EBITDA evolution in each of the segments of the rental part of IRSA, we see revenues increasing 32% in the shopping centers, 11% in office buildings, a drop of 19% in office -- in hotels mainly explained by Llao Llao, that we are going to explain later, because the volcano affected occupancy.

The airport was closed and that affected the sales of the total segment, not from Buenos Aires, but here in the Llao Llao, Patagonia, and the sales and development that was an increase of 6% in revenues. When we see about EBITDA, we see a big increase of EBITDA in the shopping centers, an increase of 38%. We are achieving ARS349 million in this first six months, an increase of 22% in office buildings.

The drop in the segment of hotels that last year was ARS18 million at this time, today is a positive [4] having a very negative in Llao Llao and the sales and development almost the same going to 39% last year to 37% this year.

When we compare EBITDA margins, we see an increase from 77% to and 80% in shopping centers, an increase of 61% to 67% in office, a big drop from 17% to 5% in hotels, and almost the same 33% last year to 30% in this year in sales and developments.

If we move to page number five, we see the evolution of shopping centers. In the first part we -- but the revenues are keeping very -- growing very much and we have this year, ARS436 million of sales comparing to last year ARS330 million the first six months.

EBIDTA from ARS253 million going to ARS349 million. The tenant sales growing in a year-to-year, 30.5% higher year-to-year and the evolution of gross leasable area we increased some because there was an increase of mainly La Ribera shopping, the shopping we bought in Sante Fe Province, so we are today achieving 308,000 square meters of gross leasable area for the shopping center segment. Vacancy is almost zero. We have achieved 98% of occupancy.

In the office rental segment, in page number six, we see the evolution. There was an increase on sales from ARS81 million last year to ARS91 million this year, the first six months, a 12% increase.

In the EBITDA, we went from ARS49 million last year to ARS60 million, an increase of 22% in pesos year-to-year. The portfolio is almost the same, some sales, but we are almost 150,000 square meters and occupancy, something that we talk in the June conference call and here we see that they occupancy level of the portfolio is today at levels of 96%.

In the segment of rental that is not positive, the hotels, in page number seven, we split in the two hotels of Buenos Aires city, the Sheraton and the Intercontinental, in this, we see that the occupancy is almost the same. The first months last year was at 82%, this year is at 81%, an increase of the average price per room from ARS142 to ARS157.

So an increase of the rental of the prices, but in the case of Llao Llao, going in a reduction of price per room from ARS306 to ARS262 and a big drop in occupancy going from 50% occupied last year to 15% the first six months.

This was affected by the volcano that hit Chile and made it to close the airport, majority of the year. In January began to operate again the airport, but it's not operating perfectly well, vacancy still very high. There are days of 10% today, yesterday I was seeing the pictures and it was at 20% occupied, so this sector is suffering, but Buenos Aires is having good time where we see EBITDA, the effect of Llao Llao is making last year ARS18 million going to this year to ARS3.9 million.

If we move to page number eight and we see sales and development, there are some new sales of this quarter. We sold Museo Renault. Museo Renault, half of that, we bought -- there is a shop -- there is a whole block and we bought all the mall that is in the basement of that mall -- of that building that is a residential, we bought for that property, we paid $3 million and we sold recently in this quarter for $5.2 million half of that property.

The gain that gave is ARS60 million. So almost selling half, we made more than what we paid for 100% of that property and probably we are going to sell the rest of this property too because of the kind of gain we will be able to do, and it's not strategic, it's not a shopping center, we thought it was a good opportunity to sell, the rental small sales of parts of what we received in apartments, that made gains of ARS21 million on the quarter.

Apart from that we made some other gains of ARS24 million in the sales of some more Horizons because -- 100% was sold, but making the final settlement, we made some more gains in Horizon, in Thames, in Caballito, and El Encuentro, so the whole segment made a ARS45 million gain and SG&A segment of costs made an EBITDA for the quarter of [ARS29 million], that for the six months made a ARS37 million gain for this segment.

Some of the pictures of the projects under development we began and there was a higher -- the company -- the construction company to make ARGOS began and is an 18-month construction. Here we see pictures of ARGOS how will be the future and how we began with the basement and the construction of the -- we are beginning with the lots preparation of the parts for the parking lot that are in the underground and we are -- and the restyling of Soleil, we see pictures of growth in this page number 11.

I will introduce now, Matias Gaivironsky. Matias is our new CFO. He is replacing Gabriele Blasi, that became the CFO of Banco Hipotecario.

Matias is with the company since 15 years ago. He was Head of Capital Markets and Investor Relation Manager from that time, and he became this in the beginning of this year, our new CFO, so he knows perfectly well the story IRSA and today he's beginning to speak with us in the conference call so Matias, very welcome, and we can move with you to page number nine.

We go back. Sorry about the confusion. The last one was 11, this is the nine. We have a problem in the numbers. We are going to talk about the Supertel investment that we did in the international brand of IRSA.

Okay, thank you very much, Alejandro, for your introduction. It's a great honor for me to achieve this new position. So as Alejandro said, I have been working for the group for the last 15 years, so probably my main activities won't change significantly, but for sure the responsibility will be much higher.

So going to page nine in Supertel, we are glad to announce that during February, we closed a new transaction, an international transaction. We entered into an agreement with Supertel Hospitality, Inc. to acquire up to 30 million -- sorry 3 million convertible preferred shares for an aggregate amount of up to $30 million. Probably IRSA will invest around $20 million for this $30 million.

We close part of the front section and we expect to close the whole transaction in the next 20 days. So Supertel is a Real Estate Investment Trust focused in mid-scale and economy extended stay segments of the hospitality industry. They have more than 100 hotels with more than 8,800 room in 23 states of the United States. The company operates -- the hotels are operated by various parties management companies like Comfort Inn, Days Inn, Hampton Inn, Holiday Inn, and Super 8.

So we expect with this new investment that Supertel will have improved significantly the capital structure to optimize the operations and regain the financial flexibility that they need to reach its full potential. We believe there is a huge difference between the value of this company and the price of the shares. So since we announced this deal, the shares increased by 100%. We announced this a few months ago and the shares increased 100%. So we will appoint four directors including Daniel Elsztain in this company and we will have around 34% of stake of this company.

So going to page 10, about Hersha's call exercise. Hersha announced on February 10 that they will exercise an option that they have to acquire a call option that we have to acquire more shares of Hersha. So when we signed the agreement with Hersha on August the 4th, 2009, we remained with an option to acquire more shares at a price of $3 per share, but if the shares go up above $5 during 20 trading days, they have the option to buy back our option, but giving us more shares but without paying anything. So we will receive 2.5 million shares in the next days without any payment that represents at market value of $13.7 million.

Going to page 12, about Banco Hipotecario, and as we have been mentioning during the last conference calls Banco Hipotecario keeping a strategy to diversify both the loan portfolio and the funding of their operations and they are achieving very good results of that. Right now, the mortgages represent 26% of their portfolio, corporate 33%, and consumer finance 40% of their portfolio. At the same time, the non-performing loans achieved very good performance going down to only 1.6% of their total portfolio.

From our perspective, from IRSA, this semester ending December 2011, the results from Banco Hipotecario represent ARS53 million compared with ARS37 million last year.

Going to page 13, our financial statement, here we can highlight mainly the increase in our operating income by 22% from ARS300 million last year to ARS366 million this year.

Below the operating income, we can highlight a higher loss in financial results that I'm going to explain in the next slide. Gains on equity investments ARS50 million below last year and a net income of ARS133 million compared with the ARS170 million in last year.

But if you open this figures and in the two quarters, the first quarter and the second quarter, in the second quarter, remember that we announced results of only ARS5.7 million compared with ARS66 million last year. The second quarter we recognized ARS127 million compared with ARS114 million last year. So this semester we are ending with ARS133 million compared with ARS170 million in the previous year.

Going to the main explanations of this reduction and going to page 14, starting with the ARS170 million of the last year, we have better operating income of ARS65 million, lower financial results with a loss of ARS134 million that the main explanations are the increase in interest paid and higher debt of ARS34 million, and the evaluation on recognizing an exchange rate difference of ARS63 million.

It's important to address that last year during the semester of the previous year, the evaluation of the dollar was only 1.1% compared with 4.7% this year. That affected our debt denominated debt -- sorry dollar denominated debt in ARS63 million.

Then equity investments with ARS15 million below last year that the main explanation are that last year we sold a 10% -- sorry a small stake of our Hersha shares with ARS28 million of gain last year that this year we are not selling the shares, so this is the difference of ARS28 million and Banco Hipotecario and Tarshop with ARS17 million gain compared with last year.

Then minority interest ARS48 million at least mainly Alto Palermo and the rest of the subsidiaries that we don't have 100% so there is the difference of 22% of the net income through this year.

Going to page 15 about the local bond that we issue this week. We issued a new bond of ARS300 million. We announced this deal previous week with an intention to obtain ARS140 million but due to the high demand in the market we decided to increase the size of the issue to ARS300 million. So we issues two different branches, one in pesos and one in dollars, the tranche in pesos was ARS153 million, a Badler plus 249 basis points and the tranche in dollars was ARS147 million with an interest rate of 7.45%.

The maturity in the case of the pesos are 18 months with three installments and in the case of the dollars, it's 24 months in four installments.

Going to page 16, here we can see our total debt, on the upper left you can see our total debt of $620.4 million but from that you deduct the cash and the debt repurchase, we have a net debt of $528 million of debt. That represents 2.7 times our EBITDA, but remember that we have only around 60% of our assets that are generating EBITDA. The rest are the land reserves Banco Hipotecaria and the international assets that are not generating EBITDA right now.

So if you can see the GAAP rate on that, this ratio is a little lower. The same with the debt to assets that right now we have 42% ratio, but again, all the assets here at that book value and if you take into consideration the fair market value of the asset, this ratio is much lower.

So with this new issuance of notes that we did this week, we [restructurate] part of the short term debt so you can see on the right part of the slide that on the short term we have previous of this bond, we had $141 million of debt with maturities here. Right now we have $72 million, but if you can see here, the cash position of $77 million, we have a very conservative debt structure.

I now will ask the investors to make questions, so please operator.

(Operator Instructions). You first question comes from the line of [Claudia] Quiroga from Raymond James.

Yes, hi, good morning. This is Clara. Thanks for the call. I have a couple of questions. The first one is related to the shopping center division. During the quarter, growth at shopping centers tenant sales show certain deceleration, do you believe growth will remain at this level going forward or will continue accelerating?

My second question is regarding the office segment. Occupancy has been increasing during the last quarters. Do you see that this level going forward or somewhat decreasing? And also regarding this segment your average rental price for the (inaudible) office portfolio decreased during the first quarter, fiscal year '12, and increased during the second quarter. Do you believe it's going to go back to the levels of $25 per square meter per month? That's all. Thanks.

About the sales of shopping centers, December -- there was some concern in November and the beginning of December, but at the end of December, consumption came back. So the country was a little delay and again, in January, but in February came back.

So we are seeing consumption strong, and we are not expecting, and up to now, nothing [sales] and in February numbers that we have seen are still firm so we are not expecting a drop and we are not worried about sales in shopping centers. They are firm enough and the vacancy doesn't exist and the sales on shopping centers, January was quieter, but February stays firm again.

What's happened in the office and the small drop is because of the entrance of the [Dot] building. Dot building, it's a office building that brings levels of $20 of rental per square meter and that makes some reduction on price because of the -- this is a building that cost us much lower than the three plays of Catalina and that made a small drop on that price.

Today that full event was in the price you are seeing and occupancy, we are thinking that's going to stay stable. They are at 96% and so we are not expecting a big movement of that.

Perfect. Thanks a lot. Very clear.

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

Okay, I would like to clarify something about the Supertel investment. I said that we -- on a consolidated basis, we will invest from a vehicle that we will control $30 million. From those probably IRSA will invest directly around $20 million so the total stake that the vehicle will have will reach 34% but will not be our direct investment. Our direct investment will be lower than 34%.

So the other highlight for the quarter, prices of the real assets are very firm and every quarter are firmer and firmer and Museo Renault is a good example of how firm the market is, 100% payment on cash and a lot of clients for each property. And you are seeing percentage of sales of each of the sales and development projects, so we are under construction of more rental.

We are seated on a real estate that is increasing price quarter to quarter so and we are increasing our investment abroad taking the opportunities international markets are giving us. So with this comment, we expect to see you in the next quarter. Thank you very much and have a very good year. Thank you very much.

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