IRSA Inversiones y Representaciones SA (IRS) 2015 Q4 法說會逐字稿

Good afternoon everyone and welcome to Inversiones Fourth Quarter 2015 Results Conference Call. Today's live webcast, both audio and slide show, maybe accessed through Company's Investor Relations 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 website. After management's remarks there will be a question-and-answer session for analysts and investors, at that time, further instructions will be given (Operator Instructions).

Before we begin, I would like to remind you that this call is being recorded and that 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, Second Vice President. Please go ahead, sir.

Hello. Good afternoon everybody. We are beginning our conference call of the annual -- the fiscal year 2015. And if we go to page number two, we can speak about the main highlights for the periods. This year, our revenues were up ARS1.9 billion, 33% -- almost 34% compared to last year. In the revenues this year, we are excluding two things, expenses and common advertisement, in last year were included. This was [3.4] comparing to last year, but this year, excluding those items we are up ARS1.9 billion total revenues for the year.

As EBITDA of the year of the year, we achieved ARS2.8 billion, 91% comparing to last year numbers and as the net income, we had achieved a gain of ARS650 million comparing to a loss of last year of ARS830 million.

If we talk directly about IRSA Commercial Properties, the new vehicle we launched this year [are in] this Company -- the numbers of this Company as a pure rental company we did this year, the malls achieved ARS1,300 million, 31% more in EBITDA to last year numbers. At the EBITDA of the office, we had only operation for six months and we achieved ARS148 million. This is a bad comparison because last year we only had one building and this year, we are including the rest of the buildings.

We opened two shopping centers during this fiscal year, Distrito Arcos in Buenos Aires City and Alto Comahue in Neuquen City in Neuquen province. The Malls' tenant sales increased 33% and 30% at the same store sales. The office leases remained stable at the same price of last year at $26 per square meter. The occupancy was almost hybrid, 98.7% in shopping, 98.1% in office buildings.

And if we talk about directly IRSA, the (inaudible) real estate company, the sales of its investment properties at this level was ARS2.1 billion, mainly explained by sales of floors of Maipu and Bouchard and Madison the whole building in New York that we sold during this period. And more additional investment that we were doing in IDB, increasing stake up to 49%.

So if we move to next page, page number three. We can see the explanation of a new pure commercial vehicle that we did during December of 2014. From IRSA, we transferred to APSA Centros Comerciales and we renamed to IRSA Commercial Property creating the unique rental real estate company that includes both business, shopping centers, the 15 shopping centers and 83,000 square meters that were transferred achieving 95,000 square meters of office building of (inaudible) Buenos Aires City all of them.

So I will introduce Daniel Elsztain our COO, please Daniel?

Thank you, Alejandro, and good afternoon everyone. We can see on page number four, the shopping centers strong operations figures. This year, as Alejandro mentioned, we grew 33.3% compared to previous years, but if we do it same-store sales, we grew 30%. The difference is because (inaudible) revenues at base rents added and brokerage fees that mainly make about 60%, 61% of fixed income of our total revenues.

On page 5, we can see the evolution of our portfolio of shopping centers and this year we grew it from 311,000 square meters to almost 334,000 square meters that was inclusion of Distrito Arcos in the neighborhood of Palermo or Alto Comahue in the City of Neuquen. The occupancy rate has been very high and stable for this last periods. And we finally were able to achieve more than 100 million visitors along our shopping centers, we achieved totally 112 million visitors this year. That was a growth of 11.6%.

On next page, on page number six, we can see the two shoppings that we recently opened. The first one is the Premium Outlet shopping center we opened. And we opened this shopping center in two stages. The first stage which is fully occupied has -- well, there was a CapEx and investment of ARS210 million. And by the end of this year, we are planning to finalize the second stage, which will include addition 2,000 square meters with a new -- 13 new stores and a few more stands and that will be about ARS60 million investment. The sales have been very well. The tenants are very happy and we did something totally new to the City of Buenos Aires in a great, great location and is the flagship of our new business line of Premium Outlet shopping center.

On the right side, we can see the shopping center Alto Comahue Shopping that was opened in March of 2015 with 90% occupancy. This is about 104 stores, 9,500 square meters and we've invested in this shopping center about ARS280 million and we still have remaining land -- additional lands to develop residential or commercial or a mixed use. [The City] has been confirmed, is the opening of this shopping center that is next to a hypermarket that is also doing very, very well in the City.

On page number seven, we now are showing here a few small expansions we did during this year in some of our shopping centers. The first one, on the top left side, is Ribera shopping. We moved the food court that was not well located in this shopping and in that way we were able to increase the GLA of the shopping by 1,150 square meters approximately and that gave us opportunity to bring 14 new tenants to the shopping center and this is really the kick-off of the new shopping center, and now this is considered as the shopping centers of the City. This total investment was about ARS20 million, ARS19.8 million to be exactly and it's all really working.

On the top right corner, we can see our Alcorta Shopping Center. This has been in the Buenos Aires City location. It's a high-end location and here what we did is, we transformed -- we didn't expand GLA, but we transformed corridors and [made good] use of shopping malls into new stores. So we were able to produce five new stores with an additional of 260 square meters of GLA, but this is not GLA, just transformation of corridors into GLA with an investment of ARS8.6 million. This has been a tremendous asset for the store and for us also because they are producing very good rent. So we think we might keep doing this on this shopping center.

Bottom down right, we have Alto Rosario. Here, we are doing an expansion -- small expansion of the shopping center. We are going to build 650 additional square meters of GLA with total investment of ARS18 million in construction -- to actually fund the construction. We expect to finish this by March 2016 and therefore the list, the new stores have laid.

On the office segment, on page number 8, we can see the increase in values that we have been looking for the past few years, besides a small drop or a drop in 2012, we have been seeing stable growth in the price of selling office building. And I think this is mainly one of the main explanations why we have been taking the opportunity of selling some of our portfolio. The non-core or what we thought that we can flight-to-quality or kind of ideas.

Today, if we see our monthly lease, our total portfolio is about $26 per square meter per month on top of that we collect common charges and that is not including this number. And the occupancy is 98.3%. We have seen very small drop from the previous year, but this is because one floor has been -- lease was terminated, but now that floors are leased out. So we expect to go about to the numbers we were having all this time although a 19.3% is a very good number of occupancy compared with the rest of the market.

Here we can see on the right side, we sold at about $5,000 per square meter on the Torre Tower Intercontinental Plaza. The price of sales of 8470 square meters was about ARS376 million of a total of nine floors and at a cap rate of 5.5%. We have recognized a gain of about ARS138 million, and we still have remaining, on this tower, 14,000 square meters that we are talking with other potential buyers for selling.

On page number 9, here you can have a snapshot of our potential to growth. We could double the size of IRSA Commercial Property. On the left side, we see that we have today 333,000 square meters of shopping centers and we -- today existing shopping malls that we could make some expansions and new developments that we do already have the land we could grow for a total number of 566,000 square meter. That is 1.7 times of what we have today. And slowly we're taking advantage of these opportunities. We are doing as much as we consider that makes a lot of sense and we will keep on doing this. We will keep on this path.

On the office segment, today, we have 86,000 square meters and we have a potential to add another 78,000 square meters going to a total of 164,000 square meters. This will depend on demand and will depend on the market. We are now seeing in some of our assets that demand is growing and we are being consulted by tenants to make it build-to-suit or something. I think that we are in discursion, nothing really yet to comment on. One comment on the 86,000 square meters that we have today, that is excluding the recent disposal that we had on the Torre Intercontinental Tower of [8,500].

On page number 10. We can see our investments in Avenida. Avenida is the e-commerce of Argentina. We had a previous story of being in this segment and we did have success so we (inaudible) how to do e-commerce, so we invested within 2013. IRSA Commercial Properties acquired 23% at ARS13 million. On July, almost a year after, we exercised the call for another ARS10 million. New investors at that time acquired about a 33% of the Company injecting $15 million. At that time, we took the opportunity and we sold a 5% of our stake and we collected $2.2 medium.

So at that moment, our investment was almost zero, we still kept 16.5%. Recently, a couple months ago, actually July this years, the two current shareholders that invested on July last year and had new one invested another $30 million at evaluation of $70 million. So it makes a total capitalization of $100 million and our stake, because not investing new cash is about 11.38%. One comment is that the new investors are Tiger Global Management and Naspers, the big two players on this area so we have a lot of confidence on this team and we also like the new investors and because of this investment we have to recognize, we recognized gain of approximately ARS8.6 million.

On page 11, now we can see IRSA. IRSA now is basically composed of the stake on IRSA Commercial Properties which is (inaudible) of pure real estate in Argentina that has shopping centers as we talk and office buildings, making a total of 429,000 square meters of rental GLA plus some landbank. Also IRSA has three hotels, we will talk a little bit about hotels later, IRSA has some landbank. The international investments which mainly is the investment in Israel in IDB which is 49% stake on IDB and the investment in Condor Hospitality Trust, which used to be the former Supertel, also at international where we have secured the Lisptick building. And last is the investment on Banco Hipotecario, which IRSA owns 29.99% of Banco Hipotecario. This is how it looks today IRSA.

Talking about the hotels on page 12, we can see that occupancies remains quite stable this year. I mean both in Sheraton and Intercontinental, they stay about 72%, last year was 73%, but there was a small decrease on rate, the average price. And the whole segment is having the same problems as we are talking now what we are seeing in IRSA. And this is really very small when compare with the total assets that we have. But the real problem we can see -- which the occupancy this year went down a lot I can say from almost 60% to 50% and that's because basically the eruption of again another volcano and hit us in the high season. The price went up and the hotel is -- there's nothing to say about the hotel, but the eruption of volcano really made a big impact on the hotels. Again, the total revenues from [hotels] maybe less than 1% of the total of our Company.

Page 13, snapshot of sales and development. And you see here we acquired a plot of land in Buenos Aires province for ARS210 million and then the idea here is to make a future mixed use development. Nothing to be announced yet, but this is about 1,054 hector that could make 10 million square meters. The total price we paid is about $2.4 per square meters which is very, very cheap and then we felt this was an opportunistic investment. So we've (inaudible) going to do something interesting with this plot. It's less than an hour ride from Buenos Aires City and has a big potential.

We sold, down below that picture on the left side you can see that we sold a hotel in the city of Rosario. We bought it, I don't remember, I think two years ago, we sold it for a total amount of ARS36.7 million and produce us a profit of ARS13.3 million. On the right side, we can see the two main buildings of offices that we sold during this fiscal year. On the left side, we can see Torre Bouchard. That was a total sales of about ARS524 million approximately. We sold about six floors totaling 7,500, almost 7,600 square meters at a price of $8,300 per square meter.

I think it is one of our top sales that we had at a 4% cap rate. We recognized a gain of ARS458 million and we feel have here on the parking space, 116 parking spaces of the buildings. So we sold everything we had it in this build, if you can see, we sold this office building eight times book value, I mean the book value was ARS65 million and we sold it for ARS523 million.

On the right side you can see a partial sale on the (inaudible) building. We had sales for ARS75 million, about 2600 square meter at a value of $3,300 a square meters. It's a different kind of building compared to the other ones at the cap rate of 5.8%. We recognized a gain of ARS64 million and we still have some floors on this building that are being to market. Yet, we saw that 7.5 times its value. Again, we are very happy with the results we had. We sold at good prices non-core or things that we believe that we can replace easily in a better, better conditions and better prices, that's a better investment.

On the next page, we can see also that we sold as an international sale in Madison the building we acquired in 2010 for $85 million. We sold it on September 14 that was in this fiscal year. We sold it for $185 million, we sold at a 3.8% cap rate and as you remember, we had here a debt of $75 million that was cancelled and we recognized a gain on balances for ARS296.5 million. The IRR for this investment for the period of less than four years was 20% IRR, measured in dollar.

Following on page 15, on international investment on Lisptick Building, we still have position on the Lisptick. The Lisptick is doing very well in terms of occupancy since we got it in June 2013, it was at 86%, now it is almost 92% and we see that the leasing in New York keeps growing. The price per square meter also grew to 64.7. Remember that we are talking about meter and not per foot. And this building is doing very well. I mean we are backing on the market, this is the best building on the 3rd Avenue and we are now getting investment, not on the [lawyers] that we had. We have good, great tenants and the premises -- you see the new installations is really, really very, very good, top quality, that's building on 3rd Avenue.

On the REIT side, Condor changed the name Supertel. Remember, it was previously Supertel, now it's called Condor Hospitality Trust. The new CEO was appointed on March 2015 and new strategy of select hotels -- sell the economy hotels and buy deluxe service hotels that actually is better margins and better scale. We are selling the hotels in $1 million, $2 million, $3 million range and we have Supertel -- sorry Condor now is buying hotels in the $10 million, $12 million, $16 million range. The new CEO is working and he is achieving a very good goals in the short-term.

Hersha, we finally sold our last stake. We still had 1 million shares remaining. We sold it at an average price of $6.74 and so now we have nothing in our balance sheet of Hersha.

So now, I'm going to introduce Matias, CFO of the Company.

Thank you, Daniel. Good afternoon everybody. Going to page 16, we have the description of our latest investment in Israel in IDB. So this is the structure that we have. Today, we control 49% through Dolphin of IDB. IFISA, very close controlled by our Chairman, Eduardo Elsztain has 17.7% of the company, and Extra our original partner in this business has 14% of the company. Others that trade in the Israeli stock exchange has 19%.

So the company has one of the best portfolio of assets of the Israeli economy including real estate, telecommunications, super market, retail, and insurance. And the latest news here was during the fiscal year, we invested $105 million in the rights offering, increasing our stake to 49%. IFISA at that moment acquired 12.5% and Extra, our former partner diluted to 16.2%, originally was 50/50 investment. After that, Eduardo Elsztain was elected sole Chairman of Board of Directors of IDB.

The Board of Directors today is composed by nine members. Three where appointed by our group, three were still appointed by Extra, and three are Independent Directors. Then, we exercised warrants, the series number 4, invested an additional ILS150 million and that moment IFISA increased their stake to 17.7% and Extra diluted to their current to 14%. After that, Extra launched buy and sell option in our original shareholders agreement. Mutually we gave to the other parties a right to launch buy and sell.

So our partners launched, now we are discussing in an arbitration proceeding the technicalities of the application of that buy and sell and we expect a resolution from the Judge for the next [days]. During the fiscal year 2015, we recognized a loss of ARS381.7 million compared with the previous year that were ARS771.7 million to loss, but remember that during the nine month period that last quarter, we recognized a loss of ARS944.6. So during the last three months, we recognized again because of the increase in the price of the shares in the market.

Remember that we decided to recognize our investment through the market value of the share, so we will have the fluctuation of -- in our financial statement, we will recognize the fluctuation of the price of the share for the next period. So, today we invested in Dolphin ARS300 million, that was the accumulated investment. We have underwriting commitments for the rights of 2015 for ILS200 million that -- this is an underwriting commitment. So IDB will launch capital increase that (inaudible) will have the right to participate and if not we will call a ARS200 million. When I said we, this is together with IFISA.

Obligations, we have the obligation to launch tender offers in 2015 and 2016 for a total amount of ILS125 million this year, ILS131 million for the next year and remember that this obligation is jointly [answerable] with our partner Extra, so this is only the 50% and our partner has other 50%. So, in the bottom of the slide you have the evolution of the price of the share and that caused the main losses on our financial side. So, today, we have a market value for our investment of $468 million and last year was $68 million.

Going to page 18, here we have the description of our investment in Banco Hipotecario. Remember that here we control 30% of Banco Hipotecario. The total result two years for this fiscal year were ARS142.5 million against ARS183.7 million of the previous fiscal year. Our market value of our share today total ARS282 million. Other important information for us was the Banco Hipotecario distributed dividends for a total amount of ARS42 million during this fiscal year against ARS30 million during the previous one.

Going to page 19, here we will start to show results separately between IRSA Commercial Properties and IRSA and the idea is to starting giving the information of our rental Company IRSA Commercial Properties separated. Yes of course this is public company, so you have full financial statement and full description of the business in our website in IRSA Commercial Properties, but the idea from now in the conference call obviously start dividing the results from IRSA Commercial Properties of IRSA.

So revenues by segment of shopping centers increased 29% this fiscal year reaching ARS1.8 billion it's ARS1,778 million. Offices increased significantly and here the comparison is because in the previous fiscal year, we only had one building close to dot and now with the transference of the offices from IRSA to IRSA Commercial Properties, we will start to see much higher results on IRSA Commercial Properties.

In EBITDA grew 31%, reaching ARS1,327 million for this fiscal year. EBITDA margin totaled 74.6% against 73.1% of the previous fiscal year. In the Offices, EBITDA grew to levels ARS148.2 million. So today the EBITDA break down shopping centers were 85.4% that will decrease probably in the next months because today we are recognizing only six months of the offices because we transferred the offices in December so we only recognize six month of results here. So probably that's when -- on passage of time that will [decrease] a little the part of the shopping center.

During the fiscal year 2015, IRSA Commercial Property paid dividends for a total amount of ARS437 million, that is around $50 million, that represent a dividend yield of 2.8%, IRSA Commercial Properties paid in two II tranches, in November and in April this year.

Page 20, here we see the consolidated operating income by segment. So here we include the results from IRSA and IRSA Commercial Properties. IRSA, the rental segment reached ARS1.279 billion that most part of this came from IRSA Commercial Properties. We still have one office building at that IRSA level and the hotels that accounting at the IRSA stand alone and the rest came from IRSA Commercial Property.

Sales and development, it was a very good year of sales. So we increased significantly the results from the sale and development reaching ARS1.1 billion. And here we have the results from Madison, we have the results from the Intercontinental Plaza. Remember that at the moment of the transference of the office building from IRSA to IRSA Commercial Properties, we haven't recognized any results, because the rule of accounting is when yield done -- [sale] to the third parties, you can't recognize any result. So when we sold this building to a third-party through IRSA Commercial Properties, we recognizes the result at IRSA and also at IRSA Commercial Properties level from the difference between the prices of acquisition and the disposal. Other were ARS145 million, here it's mainly the part of the result from Madison that we take in this segment.

So going to page 21. So I explained the results from the operating income that increased significantly from ARS1.2 billion in the previous fiscal year to ARS2.5 billion this year. Then we have the net financial results that review significantly from a loss of ARS1.719 billion in the previous fiscal year to ARS942 million. The main explanations here is the lower FX losses. Remember that the previous fiscal year, we have a revaluation in Argentina of 51%, the exchange rate, peso to dollar were from 5.39 to 8.13 and in this fiscal year we have only a revaluation of 12% from 8.13 to 9.09. So we have ARS800 million of lower losses of FX.

The income tax, there is a significant decrease from 64% gain in the previous fiscal year, remember that we had loss in the previous fiscal year to income tax of ARS488 million. Here the main explanation is the disposal of Madison and disposal of investment properties as the IRSA level and at the IRSA Commercial Properties level. So with those explanation, we achieved a net result of ARS650 million this fiscal year against loss of ARS831 million in the previous fiscal year that is attributable to controlling shareholders ARS520 million and non-controlling interest of ARS130 million.

Going to page 22, here we have the breakdown of our debt. At the IRSA standalone basis, we have a net debt of $87.2 million. This is deducting the credits that we have from IRSA Commercial Properties of $246.4 million. This is the purchase price that -- an installment that IRSA Commercial Properties has to pay in 2017 and in 2020. The net debt at IRSA Commercial Properties is $373.9 million. That is roughly a net debt to EBITDA of 2.1 times. And remember that here our EBITDA only consider a part of office results. So on a pro forma basis, this is lower than the 2.1 times.

So with this, we conclude the explanation of the results. So now we open for questions.

(Operator Instructions) Jorel Guilloty

Start out with IDBD, you said that -- so just want confirm the numbers you said. So far IRSA through Dolphin has invested in IDBD $300 million and there are underwriting commitments in 2015 of $200 million and then there is the tender offers of $125 million in 2015 and $131 million in 2016. Is that -- am I correct there? Is it in shekel, the last three?

The correction, the $300 million invested are dollars and the commitments are ILS200 million for 2015. And that tender offers are ILS125 millions for this year and ILS131 million for the next year.

Okay. And then for these underwriting commitments and the tender offer, if you have it available or if you provide [EBIT], could you provide detail on how you (inaudible) in the future?

Today the cash -- we have the cash on our book, so most of the investment that we need to do on the underwriting and commitment are already in cash in the Company.

Okay. And then I've read on the financial statements that so far Dolphin had invested ILS670 million in commitments to capital increases and Extra Holdings had invested ILS200 million. However the financial statement say that IDBD is reclaiming its fair share from Extra Holdings, which is ILS200 million more. So was this the buy and sell option you were speaking about earlier or is this something different?

So Jorel, this is something different. At the moment, we enter in this investment, we enter in a bankruptcy of the parent company. So at that moment, we [entering at a rights] spend together with Extra. At the beginning, we committed to inject around ILS800 million shekel both parties together, 50-50. So Dolphin already invested its part and what IDB is claiming to Extra is their part. (inaudible) the buy and sell option is completely different than if we acquire the claim is not against us.

Okay. And can you explain a little bit more detail the buy and sell option that -- this whole legal proceeding that Extra Holdings undertook?

Yes, for the buy and sell, we have to put a price. So our partner sent us a letter at a price of ILS1.64 per share and that is the only condition that included in the letter. So he said, I buy or sell my portion at ILS1.64 per shares. He decided to acquire, but we are discussing with him a condition of this acquisition because he thinks that, he can include in that acquisition his obligation under the tender offer and we believe that he doesn't have that right and that is the thing that we are discussing with him in our (inaudible).

Okay. So basically, what it means is Extra Holdings is sharing -- is selling their share at ILS1.64 per share. However, they also want to transfer over the responsibility for the tender offers. And that is what's being discussed right now. Is that correct?

That is correct. Thank you.

Okay great. And my last question is on the income and losses from interest in equity investees. So you had ARS434 million in losses for the year, we calculated that for 4Q15, this JV income was actually ARS409 million for the quarter. I was wondering if our calculation is correct, whether that'd be ARS409 million for the fourth quarter. And if so what drove that gain? You've mentioned earlier, it seems that IDBD droved part of the gain because you had about ARS460 million in gain in 4Q, but I was just wondering, what the different drivers were for the JV income in the fourth quarter?

I would say that most part, Jorel, is from IDB, the equity net of recognitions. There is a loss last year of ARS517 million from IDB and this year it is ARS412 million and the other came from the financial results at parts of IDB, but we can -- I can -- that is the information that is in the -- the financial table I can send to you after the call the details.

Federico Rey.

I have a question on IDBD. Little bit how our -- any strategy in terms of asset sales that you can share with us?

It is under discussion and these are all public companies. So really something that we cannot be speaking at this level what the company is intending to tell, but the company is now thinking what kind of assets to keep and what to be selling on the market.

This concludes the question and answer session. At this time, I would like to turn the floor back to Mr. Alejandro Elsztain for any closing remarks.

Just to finish, we closed a very good year, we closed a very occupied in our rental portfolio, well in sales, in our rental properties and in sales, international and lot of growth. We are expecting to keep doing business plan for next year. We are now discussing what to launch and now we are in planning time with many buildings, office and shopping centers. We are very optimistic of the future for the country. We expect to keep growing our portfolio of real estate in the country and abroad. So we thank very much for investor for the question and we see you next quarter. Thank you very much everybody, have a very good day.

Thank you. This does conclude today's presentation you may disconnect your line at this time and have a nice day.