IRSA Inversiones y Representaciones SA (IRS) 2012 Q3 法說會逐字稿

Good morning, everyone, and welcome to IRSA's third quarter 2012 results conference call. Today's live Webcast, both audio and slide show, may be accessed through the Company's investor relations Web site at www.irsa.com.ar/ir, by clicking on the banner, Conference Call. The following presentation and earnings release issued last week are also available for download on the Company's Web site.

(Operator Instructions)

After management's remarks, there will be a question-and-answer session for analysts and investors. At that time, further instructions will be given. Should any participant need assistance during this call, please press star-zero to reach the operator. You will also have 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 the information discussed today may include forward-looking statements regarding the Company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may 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, Executive Vice President of IRSA. Please go ahead, sir.

Hello. Good afternoon, everybody. We are beginning our conference call, third quarter, fiscal year 2012.

If you go to page number two, I will talk about the main highlights of the quarter. We see that IRSA's revenue for the first nine months of 2012 increased 6.5% to almost ARS1.1 million. And the EBITDA of the Company grew 18.5% to near ARS640 million.

Revenues and EBITDA from the shopping center segment grew 30% and 34% respectively. EBITDA sales margin, which 80%, and occupancy was over 97%. Revenues and EBITDA from the office rental segment increased 15.1% and 34% almost respectively for the nine-month period. This improvement reflects mainly the 100% occupancy of the Dot Building that last year was under-finished, but today is almost 100% occupied, which increased our portfolio for occupancy to 97%.

Net income for the last nine months was ARS216 million, 2.9% lower than previous year, mainly due to the higher financial losses and lower income from subsidiaries. In February, 2012, the Company completed the purchase of 3 million preferred shares, convertible into common shares, issued by Supertel, for a total amount of ARS30 million through a [very good] that IRSA owns 66%.

On February of this year, we issued a Series 3 and 4 simple, nonconvertible notes for ARS300 million. And we recently called a general meeting, general ordinary and extraordinary shareholders meeting that will be held on the 23rd of May, to consider the payment of the cash dividend, among other matters. So I will introduce Mr. [Matias Gaivironsky].

Hello, everybody. Going to page three, here we can see the evolution of revenues and EBITDA by segment. Revenues in rental segment were -- we have a very strong performance, while shopping centers increased 31%, compared with the previous year.

Office and other rental properties increased 15%. Hotel operations decreased 16%, mainly affected by a situation with our hotel, [Llao Llao] in [Catalonia], that were affected by the [Juacano Rapson] that closed their part of the city during the six-month period.

Sales and development decreased 8%, mainly due to last year we sold more properties than this year. Regarding the EBITDA, with shopping centers, the performance was strong, 34% increase; offices, 24% increase. And as I mentioned, due to the Juacano Rapson, the hotel operation decreased 72%. In sales and development, the decrease was 31%.

So overall, when you compare EBITDA from this year to the previous year, previous year was ARS540 million. So we increased 130 shopping centers, ARS19 million from offices, and a decrease of ARS19 million in hotels, decrease of ARS13 million in sales and development, and 15 in consumer finance, due to the consolidation of [tara shop] in the previous year.

So in total, we reached an EBITDA of ARS639 million this year. Regarding margins, we also improved in shopping centers and offices, an increase in hotels and sales and development.

Going to each of the segments in shopping centers, as I mentioned, we reached an increase of 31% in revenues. Occupancy is above 97%. Margins increased from 76% in the previous year, to 79%, almost 80% this year. Tenant sales increased 25% on nominal terms, compared with the same quarter of the previous year. And [CLA evolution], right now we've reach 308,000 square meters, and we plan to increase by 5% next year with the development of a new shopping center in the [Palermo] area in the city of Buenos Aires.

In the office rental, the same. The portfolio was almost the same than previous year. We remain with 150,000 square meters of Triple A buildings. Remember that there we have a strong position with control of almost 20% of the Triple A buildings in the city of Buenos Aires. And when you see evolution, we sold some assets during 2008 and 2010, and then increased with a new building, which is 150,000 square meters.

Occupancy went up. As Alejandro mentioned, we finished the commercialization of the Dot Building. So our occupancy went up from 91% last year to 97% this year. Prices remain stable. The absorption of the market was good during the last year. Remember that many projects were developed, mainly in the north corridor of the city of Buenos Aires. So right now, we reach an occupancy of 97%.

Regarding hotels, here we can divide our portfolio in two, the hotels of the city of Buenos Aires. We remain with a very good performance. Right now we have an occupancy of 81%. Average price for a room increased from $142 to $155. So performance of our hotels in the city are good. And then we have the situation with Llao Llao; that comparing the figures with the previous year, previous year, the occupancy was 50%, and during this nine-month period, decreased to levels of 20%.

That effect is reflected in our EBITDA that decreased from ARS26 million last year, over nine-month period last year, to 7.4% this year. And the same with the margin that decreased from 25% to 8.8%. So right now, the situation with Llao Llao is better. Their part is already open. So we expect a recovery in the near term.

Regarding our sales and development segment, remember that broadly, this is our more volatile segment, and our figures will depend on the sales that we generate every year. All of our portfolio is a book value. So we only recognize gains when we sell the property.

Remember that at the beginning, we recognized if we close different sections, we recognize the gain in the line of net realizable value. And then in the nine-month period, we recognized there, ARS40 million, mainly of the Museo Renault sale, some properties in Rosario, an office floor in Libertador 498, and other properties for ARS7 million.

Regarding our EBITDA, considering the amount of line of NRV of ARS40 million, then you have to add other sales, mainly (inaudible), but you have the pictures in the slide seven. And then all the expenses that we allocate to that segment, finish with an EBITDA of ARS29.9 million.

Regarding the status of the process, we complete the (inaudible), and we almost sold 100% in [Horizons] and 81% in (inaudible), 31% in [Alto Rosario]. So we remain with a strong land reserve in our balance sheet. Real estate prices went up in the last year. So it's not reflected up to now in our balance sheet.

I would introduce now our recently-appointed COO, Daniel Elsztain, to the conference call. And he will explain about the sale of (inaudible). So welcome, Daniel, to our table.

Thank you. Good afternoon. Talking about sales and development. In slide number eight, we can see an example of -- we recently sold in March, 2012, this year. We sold property, the (inaudible). We acquired in 2007, and it was sold for $5.2 million, which is a price of about $6,900 a square meter. If we see this piece of land, it's a block away from our shopping center, and to give you an idea of the price of retail today in Buenos Aires City, in the premium locations.

Going on, on developments, we can see on slide number nine, project (inaudible), it's the new shopping center that is under construction. You can see the parking space is being under construction. And it's going to be a total of 40,000 square meters, and a GLA of 15,000 square meters.

This project is located in the trendy neighborhood of Buenos Aires today, which is Palermo. And we expect to finish this project during next year. The picture in the lower part of this slide, are the [remodelization] and [retailing] of Soleil Shopping Center, which we acquired a couple years ago. And we're making the transformation of -- this used to be the first shopping center in Argentina. And it's now going to be the first premium outlet of the country. And we already started the process, and we are seeing very good --

We're going to finish this construction by October this year. But the process is there. The marketing process already started. And we are seeing very good opportunities on this business. And the people are taking this project very serious. And we see sales increasing.

Going to the international investment, we acquired at the end of 2010, a building on 183 Madison Avenue. This was a distressed building when we bought it. It was almost 30%, 31% vacancy. We went through the process of construction.

And after, we spent $10 million during this construction. We remodeled elevators, a lobby. We did a pre-build program. And we took occupation to 83% at the end of March, and leasing continues to show that we are on a good trend. And on top of that, prices in New York are going up. Today it's not anymore distressed buildings. And it booked very, very well.

On the Hersha investment, also in 2008, we acquired 11% of the shares of Hersha Hospitality, we traded on the New York Stock Exchange. And at that time, we bought 11%, and an average price of $2.50 with a warrant. This investment in 2011, we sold only 1.5%, at an average price of $6, giving us a gain approximately of 70% of our investment. We still have in our portfolio the remaining of this investment. And it's almost 10% of the total company.

So going to page 11, we have the performance of Banco Hipotecario. Remember that we acquired Banco Hipotecario a long time ago. And the Banco Hipotecario started a process of diversification of the portfolio. Here you can see the evolution of the non-mortgages loan from only 11% in 2004, to levels right now of 75%. So mortgage loans used to be 90%. Right now it's only 25%.

The same with funding diversifications. We used to finance all operations of Banco Hipotecario through debt in the capital market. Right now debt is only 21%, while deposits increased to levels of 80%.

Going to the performance of the bank, you see one of the main important drivers, there is the non-performing loans. You can see here that the non-performing decrease from levels of 14% in 2003 to levels right now of 1.6%, and remaining stable during the last year. We are in the same levels of previous years. So up to now, we don't see any sign of bad performance of the loan.

The same was reflected in the results that IRSA recognized from Banco Hipotecario, mainly explained by better performance of the financial intermediation system, which are more interest from loans to the private sector. So we increased last year, we recognized a gain of ARS56 million, and this year we are recognizing a gain of ARS76 million. That has been increasing at 35%. So I introduce David Perednik, our CAO, to explain in detail our financial statement.

Thank you. With respect to the P&L, as of the 1st of March, 2012, the total revenues of sales, rental and services increased by 6.5% from ARS1.13 million to ARS1.788 million. Because of sales increased less than the amount of last year, it decreased 4.7% from ARS401 million last year, 2011, to ARS382 million in 2012. Therefore, the gross profit increased more than the revenue, 13.8% from ARS612.4 million to ARS696.8 million.

With respect to the operating income, it increased 20.4% from ARS421.3 million to ARS507 million. And this was explained by comments done before by Alejandro on [Brasilia]. This was due to the improvements in the operating margins of our shopping centers, and offices, and other non-rental shopping centers renting property segment, and partially offset by decreases in the operating margins of our hotel operations, consumer financing, and development and sale of property segments.

With respect to the financial results, the net loss increased ARS101.6 million, 54.8%, from a loss of ARS188.2 million in 2011, to a loss of ARS286.8 million in 2012. And this was mainly due to a decrease of ARS13.4 million in the results generated by financial operations, from a gain of ARS8 million in 2011 to a loss of ARS5 million in 2012, an increase of ARS45.8 million in the interest expenses generated mainly from the IRSA series 1 and 2 note, and the new series 3 and 4 issued in February, 2012, and bank overdraft.

And a negative exchange difference of ARS38.8 million, due to the total amount of $300 million issued in foreign currencies by IRSA. And the depreciation during the period in 2011 was lower than the depreciation of the same period in 2012.

With respect to the gain from related companies, it decreased at ARS24.4 million from a gain of ARS123.2 million in 2011, to a gain of ARS98.8 million in 2012. And this was mainly due to lower results from (inaudible) ARS8.6 million, a non-recurrent gain of ARS40.2 million related to the sales, the result of sales of Hersha shares of last year, and partially offset by the results from Banco Hipotecario that increased 34.9% from ARS56 million to ARS76 million.

With respect to the income tax on (inaudible) income tax, it increased ARS17.8 million, from a loss of ARS73 million in 2011, to a loss of ARS90.8 million in 2012, due to the faster results of the Alto Palermo (inaudible - background noise).

The minority interest increased ARS41.6 million, from a loss of ARS55.3 million in 2011, to a loss of ARS13.7 million in 2012, mainly due to the minority interest derived of Alto Palermo, caused by the increase in the equity interest acquired for (inaudible), and the minority interest from titles mainly through our holding company, (inaudible), with ARS20.9 million gain.

With the above mentioned, our net income for nine-month period ended on March 31, 2012, decreased ARS6.5 million, from a gain of ARS223 million in 2011, to a gain of ARS216.7 million in 2012. On page 13, we can see the same explanation, separated by all the parts that I have already recalled before.

So going to page 14, here you have a breakdown of our debt. Remember that in February, we issued some bonds in the local capital markets. We should see [ARS100 billion], the rate of (inaudible), 249 basis points. In the case of the pesos, and [745%] in the case of the dollar trend.

Right now, as of March 31, we have a consolidated net debt of $559 million. And below this slide, you have the debt amortization schedule. We have the (inaudible) that we place in the market in 2007 and 2010, maturing 2017 and '20, and some short-term debt.

So when you see our ratios, net debt to EBITDA, last 12 months, it's 2.7 times. Remember that only 60% of our assets generates the rest of the land reserve, Banco Hipotecario, international assets that are not generated EBITDA right now. So that ratio should be lower, if you consider some return on those assets. And debt to us, long-term value of our assets, is 42% at book value. At market value, this ratio is lower. So I will ask now to the investors, if you want to make questions, operator, please.

(Operator Instructions)

Your first question comes from Federico Chapto of Raymond James. Please go ahead.

Good afternoon. Thanks for the call. My first question is related to a shopping center business, and more specifically to base rent. That figure that currently represents around 45% of the revenue of that segment, how do you see other ratios going forward, is the first question.

And the second question is regarding the [Catalia] project, if you could provide an update in terms of estimated CapEx [ratchet] and timing of the project.

Thanks for the questions. Regarding the base rate on the shopping centers, will stay similar what it is today. We have the step-up on the contract. And also, we always have the hedge with a percentage of sales. So growth will go up, but at the percentage, I think will stay probably where they are today.

Regarding [Tore Catalia], we are finishing the final details on the project. And we are in the process of budgeting this construction. But as of today, we don't have any final details to comment.

Okay.

(Operator Instructions)

We have a follow-up question from Federico Chapto of Raymond James.

Yes, thanks for taking another question. Regarding the Catalia project, and [Alto] Palermo, a more general question, what will be a funding of those projects? And if you are comfortable in terms of the current debt structure of the Company, so just have more color on that.

Okay. Thank you, Federico, for the question. When you see our EBITDA generation of the last month, you see that we are generating a strong cash flow with the actual capital expenditures. We don't need to get more finance into -- to finance those projects. So we plan to finance with our own cash and cash generation.

And regarding the debt, we are comfortable with the ratio that we have right now. We try to be conservative in terms of the debt.

Okay.

(Operator Instructions)

I'll now turn the floor back to Alejandro Elsztain for any closing remarks.

Thank you very much. I think we followed the presentation. We talked to all the (inaudible) about the rentals, but it's still very thin, very occupied. The Llao Llao is beginning to recover. The real assets are very valuable, and we're seeing the market, the prices (inaudible) are very thin. So the Company keeps its project of construction. So we'll see you next quarter. That is our final quarter of the fiscal year 2012. Thank you very much, and have a very good day.

Thank you. This concludes today's presentation. You may now disconnect your line at this time. And have a great day.