IRSA Inversiones y Representaciones SA (IRS) 2017 Q1 法說會逐字稿

Good afternoon and welcome to IRSA's First Quarter 2017 Results Conference Call. Today's live webcast, both audio and slideshow, may be accessed through the Company's Investor Relations website at www.irsa.com.ar/ir and 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.

Thank you very much. Good afternoon, everybody. We are beginning our conference call of first quarter 2017 in page number two and the main highlights for the quarter, we can see the financial consolidated results for the first quarter. We achieved revenues for almost ARS19 billion. And as last quarter, we are dividing between Argentina and Israel, ARS1.3 billion from Argentina and ARS17.4 billion from Israel. At the EBITDA level, we have achieved ARS2.5 billion, ARS0.5 billion from Argentina and ARS2 billion from Israel.

At the net income level, the loss for the quarter is ARS782 million, a gain of 36%, small gain in the Argentine side and a loss of ARS818 million from Israel and attributable to IRSA shareholders, a loss of ARS577 million.

When we speak about the Argentina business center, we can see good results in the rental segment and [Danny] is going to explain deeper about the growth that we had at the investment properties growing at 24% comparing year-to-year. No results from sales of investment properties in this year comparing to last year that we had a lot.

We are developing three big projects, Dot, Catalinas and Alto Palermo expansion and there was a recent issuance of debt at IRSA level $184 million at 7% and ARS384 million at Badlar plus almost 300 basis points, and we cancelled all the short-term debt.

And in the Israel side, at the Israel Business Center, IDBD, the subsidiary of DIC, that is below IDBD accepted an offer to sell the stake of 40% of ChemChina in Adama -- to ChemChina of Adama. And for that reason, it's going to receive soon a lot of cash at DIC level. And during the first quarter, IRSA acquired from IDBD almost 9% of DIC shares for $26.7 million.

So now I will introduce to Daniel Elsztain.

Thank you, Alejandro. Good afternoon, everyone. On page number three, we can see some numbers about the shopping center portfolio. We can see that in this quarter, we had a growth of 21% in pesos. This is below inflation, mainly explained by two factors. A small reduction or deceleration of inflation and a small reduction in consumption. Occupancy levels remained very high at 98.4%. Our total GLA grew up for 1,000 square meters, it's a very small growth, the incorporation of a few stores in basically two shopping centers. And so the stock remains stable, occupancy remains very high, sales went up in pesos and we are stable in visitors. We're having about 110 million visitors a year. The shopping center is performing a little bit below what we estimated, but still very good.

On page number four, the segment of office buildings. We see a very sound market. Occupancy went to -- now it's at 100%. There's no vacancy at all in our portfolio. The price of per square meter is $25 per month per square meter. We see a small reduction compared to the previous quarter, but this is mainly explained by the leasing of two floors in our cheapest building. It's not that the market is going down, it's the contrary, renewals were going up and we see the price is very stable and trend going up. Again, this is a market that we collect in dollars, the leases are in dollars.

When we see our portfolio, we started the year with about 79,000 square meter. We have a small reduction by selling a floor -- two floors, sorry, at the Intercontinental Plaza building. So now we have 77,000 square meters. But when we finish the construction of the two new plazas that we will speak a little bit later, we will be at the level of 123,000 square meters, having about 12% of the market share of Buenos Aires City and (inaudible) buildings.

Today, we have an EBITDA of about $19.5 million in this segment, in office and we estimate that by the end of the construction of this building, we're going to have an EBITDA of $34 million.

In the following page, we can see also, we started the demolition and so we'll start the construction of an expansion of Alto Palermo shopping center. Alto Palermo shopping center is our flagship in shopping. This incorporation of -- it will be an incorporation of 4,000 square meters of new GLA. It will be an investment of about $25 million. This is not only the construction of this expansion, it also includes the amount that we will invest to update the systems and all machinery in the shopping -- in today's shopping -- existing shopping center.

Below the page, we can see also the render of the Polo Dot office building. This is the first building in an office product that we will -- that we are just about to start, demolition is underway also. It's an office product adjacent to our shopping centers. This location is the main -- the intersection of the main two highways of the whole country. This will be a building, the first building of 30,000 square meters of GLA. A total investment for this building will be approximately $55 million and we have leased so far about 75% of this building. We have the tenants and contracts signed. We estimate that we will finish this construction for fiscal year 2019.

Also in the Catalinas neighborhood, which is the best location in Downtown Buenos Aires, we are about to start the construction of the AAA building, LEED certificate for a total investment of $100 million, a total GLA of approximately 35,000 square meters. We also estimate that the opening of this building will be for fiscal year 2020. In this building, we already sold four floors where we have no further -- we have no further sales on this building.

On page number six, we can see some figures on hotels. Hotels are a very small part of our portfolio. Nevertheless, we see that occupancy remains stable, but price is going up and revenues are going up. Since the last quarter, we have observed small increase in people making reservations and we can see that revenues went up 55%, going to ARS173 million and EBITDA from previous quarter losing ARS3 million, now we are up ARS8 million. These are the three five star hotels, two located in the city of Buenos Aires and one is in Bariloche, which is the best resort of the country.

On the following page, we can see some business in USA. The Lipstick Building in Manhattan, we can see occupancy levels of 97% and we are having a lot of activity. So we can see also a little increase showing on this building. Price per square feet per year, this number $67 per square feet per year also is stable and we are now leasing at a range of mid-80%s at the middle up of the tower. The building is very nice. It's well maintained and as everybody knows that this is the best building on Third Avenue and now the tenants are comparing this building to what they call the Plaza District Building -- it's an alternative to the Plaza District Building.

On Condor, this is a hospitality REIT. We are present here on this REIT for a few years so far. And this was the total turnaround, management will be completely changed. The portfolio also changed for being economy hotels, very, very low-end hotels to select service hotels. Now, the relevant events for this quarter is that the EBITDA now is at $4.6 million with margins of 32%.

There's a big transformation on the portfolio and the management is doing very well. The Board re-established the common dividend that was paid on September, $0.03 per share. And we also are collecting now the preferred dividend which is 6.25% annually. There was two acquisitions during the last quarter to Aloft Hotels, one in Kansas and one in Atlanta.

So, now to talk about some international investment portfolio, Matias Gaivironsky, CFO of the Company.

Thank you very much, Danny. Good afternoon, everybody. So going to page -- next page, the Israeli business center, the investment in IDB, the latest developments are that as Alejandro mentioned at the beginning, we are waiting for the closing of the Adama transaction. DIC accepted an offer from ChemChina to serve the 40% stake for $230 million in excess of the total debt on that acquisition on Adama. So we are expecting a free cash for DIC of around ILS800 million in the coming days.

Regarding Clal, the shares increased by 4% in the first quarter 2017 versus the last quarter. Remember that here we value the position in Clal at market value. So, we will reflect on a quarterly basis the volatility of the shares in our financial statement. Remember that previously we had important losses coming from Clal because of the decrease in share. In this quarter we recognizes a gain of ARS181 million.

Another important news was regarding the issuance of debt of IDBD. Remember that we issued debt to ILS325 million collateral by shares of Clal. Unfortunately we went to the justice to ask for permission to pledge the shares and that petition was declined. So we have to cancel the issuance. So we already paid back to ILS244 million and the remaining, the 26% of the issuance, still subject to approval to pledge Clal shares.

Below IDB all the companies or some companies tap the local capital market in very good condition. DIC issue debt mature in 2025 at 5.7% interest rate. PBC, ILS600 million, ILS500 million at 3.95% fixed mature in 2029 a part in CPI, the same. A subsidiary of PBC, Matam that issue debt at ILS400 million at 3.1%. So this -- Cellcom the same, ILS300 million at 3.55% mature 2026. So this shows the liquidity in the Israeli market. So the companies has good performance that has access to the market at very low interest rate.

Another important news during the quarter was that IRSA acquired from IDB 8.8% of the shares of DIC. Regarding when IDB issue debt the ILS325 million that proceeds will go to cancel debt. And unfortunately when we have to use debt issuance, we can't use debt issuance. So IDB has to sell assets and IRSA decided to acquire directly the stake in the DIC for approximately $26.7 million. So today DIC is controlled by IDBD with 67.6% of the shares and 8.8% below two years.

Going to page 10, the breakdown of our financial statements. So here you can see the main explanations of the different segments. Remember that we decided to separate into two business centers, one Argentina business center, and one Israel with the idea to maintain explanation of each of the countries separately so you can have information separate between Argentina and Israel.

So in the rental segment, the figures were strong, an increase of 25% from ARS472 million to ARS590 million. Sales and developments, you can see here a decrease from ARS350 million to minus ARS51 million. This is basically because last year we saw some investment properties, mainly floors in the Intercontinental Plaza office -- office space in the Intercontinental Plaza in Maipu and a plot of land in Santa Fe and Isla Sirgadero.

The financials and others, you can see basically the same results, ARS33 million. Each of ARS33 million against ARS27 million this year is basically the results that came from Banco Hipotecario that this year we have a decrease from ARS71 million to ARS31 million. A better result from (inaudible) that this year we have ARS16 million of positive results and a decrease in Lipstick from ARS40 million to ARS60 million.

In page 11, there is -- here we have the evolution of the operating and EBITDA -- operating income and EBITDA from Israel. Remember that we started the consolidation of IDB in October 2015 -- October 2016, sorry. So here you only the results from the recent quarters and not a comparison from the last year. So you can see that we have positive results on the operational side in each of the segments, in real estate, supermarkets and telecommunications and ARS185 million decrease in other segments and a positive EBITDA in each of the lines.

Going to page 12. So with this we finish the explanation of the operating income that increased from ARS724 million last years against ARS1.1 billion this year, ARS700 million coming from Israel and ARS448 million from Argentina. The other very important effect is the net financial results where we have an increase in losses from ARS437 million against ARS1,474 million this year, ARS1,056 million came from Israel and ARS418 million came from Argentina. So the main explanations in Israel are the net financial cost ARS1.3 billion and again of ARS181 million that is the market value of Clal. And then in Argentina, we have higher interest expenses because of that devaluation. The last year, we accrue interest at exchange rate on average of ARS9 and this quarter the average was ARS15.15. And also the net FX losses, because we have the evaluation of ARS0.30 during the quarter from ARS15 to ARS15.31. So with this -- as I said, the main explanation of the net financial results, so with this we finished with a net income that passed from ARS316 million to ARS782 million attributable to our controlling shareholders ARS577 million of losses.

In page 13, we have the breakdown of our debt. So during the quarter, we were able to refinance all the short-term debt of the IRSA issuing two notes, one in dollars at 7% interest rate $184.5 million and another in pesos, ARS384.2 million at Badlar plus 299 bps. With that, we call the remaining 2017 notes. So now in the graph, you can see the blue lines are the debt mature most in 2019 and 2020.

Regarding Israel in the page 14, we have the evolution of the debt since we started our investment in Israel. Decreased significantly by ILS2 billion standing at LIS2.785 billion and the debt amortization is scheduled for the year, the remaining payment is ILS154 million and the rest that mature between 2017 and 2025. The net debt of the Company stands at $728 million.

So with this we finished the presentation. Now we are happy to receive your questions.

Thank you. The floor is now open for questions. (Operator Instructions) Jorel Guilloty, Morgan Stanley.

My question is basically pertaining to the landbank. We know that you have a couple of projects that you've already started expansions and Greenfields. But you have a very extensive landbank including Solares de Santa Maria. And what I was curious to know is, has there been any update on, say, permitting or financing or anything of that sort as it pertains to the landbank and more specifically for the Solares plot.

Thank you, Jorel. Yes, we have a great landbank, maybe the best in the country and we are working now in two ends, at [Caballito] and Solares de Santa Maria working with the city to see if we can get finally approvals for those two projects. Nothing to be communicated but we are working hard.

Okay. And as I understand there was recently a Board meeting or sorry, shareholders' meeting where the amount -- the capacity for the global notes offering was expanded, I believe, to $500 million. I was wondering the expansion of that capacity, what was the motivating factors that you're looking at potential acquisitions later on or is it development or what drove this?

Jorel, you know that the system here in Argentina you need to have the program approved, if you want to issue something. With the last issuance, the capacity of the Company to raise money if we need was at full capacity. So if we need to issue a new debt, we have to ask for shareholders' approval. So the ideas was to have the approval, but without any specific plan in the coming months so the Company is not thinking and issue more debt in the next month. But if something appear we want to, I don't know to finance a CapEx or acquisitions or whatever we will have the flexibility to raise money in the market.

Alejandra Aranda, Itau.

I have two questions if I may. The first one is regarding IDB. I was wondering now with these new additions that you made, if you would expect to tap the market again in order to pay next year's amortizations or if we're good with that? And then my second question is regarding the costs, mainly on the shopping mall side. How do you see the costs evolving and is there anything that you could do in order to contain increasing costs while we wait for activity to pick up?

Alejandra regarding IDB, as I mentioned the IDB issued debt in the market with the idea to have the proceeds to cancel all the amortization for this year. After the restriction from the Supreme Court to pledge the Clal shares, IDB now is working in other structures to try to stop the market again with another structure that the Company is working. So we expect them to show some (inaudible) in the coming days. But the idea is still that the Company will find other sources of finance to cancel the debt amortization scale.

Regarding the cost?

Yes, regarding the cost, Alejandra, on the numbers we are showing now you see one-time effect that is one store that it's not in the shopping center, but it's across the street from Abasto Shopping Center where we have delinquency and it's under legal process to collect the money. So, that's mainly the biggest cost that we have on this quarter.

Going forward and talking about cost, yes we can manage to make some reductions in cost, in all the services that we get to the shopping center. But we don't -- we are not planning to go that down because that then it's difficult to recover and we are expecting the next year will be a little better than what we are seeing now.

(Operator Instructions) Showing no further questions, this concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Alejandro Elsztain for any closing remarks.

So just to finish our conference call of the quarter, the companies are really in the middle of a big development everywhere. In Israel and Argentina they are developing and refinancing. And so we are seated on a very good and strong portfolio of assets. So we thank you everybody and we see you next quarter. Thank you very much.

Thank you. This concludes today's presentation. You may disconnect your lines at this time and have a nice day.