IRSA Inversiones y Representaciones SA (IRS) 2022 Q3 法說會逐字稿

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the Third Quarter of Fiscal Year 2022 Results Conference Call. First of all, I would like to remind you that both audio and slide show may be accessed through company's Investor Relations website at www.irsa.com.ar by clicking on the banner webcast link. The following presentation and the earnings release are also available for download on the company website. (Operator Instructions) Before we begin, I would like to remind you that this call is being recorded, and 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. Eduardo Elsztain, CEO. Please go ahead, sir.

Good morning. It's a pleasure to share with you the main events of the third quarter of the fiscal year 2022. We are just going ahead with the merger with IRSA CP. It's successfully advanced. We are very happy with that. It's a transaction that we've been thinking for years, but after so many years of thoughts, we implemented. And after the shareholder meeting and with no (inaudible) objections by the SEC and the Commission Nationale de Valores. Next step will be the exchange of shares of the 2 companies. So that's a real achievement in all sense, management, directorships, less companies listed, rationales in taxes, it brings all the goodies.

On front of the rental, we have been seeing a very good recovery in shopping malls and hotels during this period. With higher revenues and better occupancy, the tenant sales have improved more than 20% in real terms compared to prepandemic times, and we are very happy to see the flow of people. I mean, we have to see that, in the 2 years of pandemic, we have many, many months the shopping centers closed. I think that's very, very good news. And also to see the (inaudible) fully books is a very good feeling.

Regarding 2 assets, I think it's been a fantastic time. The last quarter, sales and development, we sold 5 floors of the Della Paolera building, the new building we develop in the neighborhood of Catalina. We sold them for more than $52 million. And in April, we also sold 100% of the Republica building in block for $131 million. And that's -- I think it comes in the next quarter, but it's showing the liquidity of the assets that we've been accumulating over the last 3 decades.

On the financial front, we launched it in March 2022, a share repurchase plan for up to ARS 1 billion, and we already achieved the repurchase of 7.3% of the program. We think that if we compare at the price we are selling in the market compared to the value of per square meter in the company, we are really rebuying at a very large discount. So this first 3 quarters of the year, we achieved a lot with the merge, with Costa Urbana, with the sales of (inaudible), with the sales of real estate units. And I think that many, many good news in an environment of shaky markets and shaky world, I think that my perception of Argentina is very positive for this year to start, especially because of the incredible low leverage Argentinian People have. I always repeat that we have less than 1% of debt to GDP in all our portfolio of real estate of the country. We achieved a very long-term refinancing and very low interest rate for the country, which is part of the pandemic low interest rates.

And I think after the world printed money enormously, I think that what we are seeing now is the cycle of inflation. And inflation, the only thing that becomes very big demand is the real assets. And in that, I think the commodity is #1. And as Argentina is a producer of commodities, especially agriculture, I think that the cycle is very positive and Argentina is between the few countries that will have a benefit of this year in growth of GDP because of this effect.

Thank you for joining this conference. And I leave you with Matias, who will give you all the details in respect to accounting. Thank you very much for joining us.

Thank you, Eduardo. Good morning, everybody. So if we move to Page 3, we can see the recent developments on the merged approval status. We just finished with all the legal steps. So the public -- the public register here in Argentina (inaudible) in script the merge. So now we are in conditions to do the exchange of the shares. So probably in the next 2 weeks, we will fulfill all the steps to exchange the shares and the least IRCP from NASDAQ Buenos Aires Stock Exchange. So IRSA will remain the only listed company as the main real estate company for Argentina. The total outstanding shares will be 810 million shares plus the warrant. So this will be finished in the next 2 weeks.

Now if we move to the operating side, we can see very good evolution in shopping malls. After 2 years of crisis because of the pandemic, now we start to see the recovery of the industry. We are happy in terms of occupancy. We are seeing better numbers than the previous quarters and the evolution is very good. We hope to see better numbers going forward. You remember that we have 3 big spaces empty because 3 companies left Argentina or closed the operations, Falabella, Garbarino and Walmart, and we are occupying all those steps -- all those spaces. So we see a very good evolution in occupancy. And mainly in real sales -- sales in real terms, adjusted by inflation, we are surpassing previous quarters. So of course, in the last years because of the pandemic, but also when we compare with the quarter of '19, the same quarter in 2019, we see a 21% increase in real terms. So if you see in the bottom right, we see the evolution from 55% below and last quarter, it was 7.6% above and now 21%. So we are very happy with that evolution.

In the next page, we can see the expansion of Alto Palermo, we have been disclosing this in the last quarters, but last quarter, we already opened most of the new spaces. Now we expect to open the final part, the food hall, in the next quarter that we already commercialized that space, and we will open a new concept of the traditional food court. Now we are modifying in a food hall with more services. And then we will close the old food court and renew that part with new stores. So we are happy with this. The occupation is fully occupied all the new space. So we see this as a very successful expansion of our -- one of our main shopping centers.

In the case of the office buildings in the next page, we see the reduction of the portfolio because of the disposals that we did in the past quarters and in this quarter. We sold some floors in the Catalinas building that we will explain in the next page, and also the Republica building. So we expect to finish the fiscal year with 83,000 square meters, and we are happy on the performance of the disposal. And how we are selling at very good prices. You know that we are active in our portfolio. Our strategy is not just to accumulate square meters. And if we see good prices to sell, we will do it.

In terms of occupation, remain stable in the AAA and A category. And in the B category, we are suffering a little more, the new trend in some areas of Buenos Aires. We have 1 building in downtown Buenos Aires, that is empty, so that 30% reflect that building and also our building in Philips close to (inaudible) shopping center.

In terms of price per square meter, we remain stable at $25 per square meter.

So if we see in Page 7, and we believe that is the most important in the strategy of the offices, we have been selling a lot. In this quarter, we sold 5 floors of the Della Paolera building at the official exchange rate, [$8,800] per square meter. Here, 1 metric that we would like to see is that we sold so far, 11 floors of this building for $110 million. And when we see the cost of construction, plus the cost of the land, that number is exactly the same, it's $110 million. So we remain with 18,000 square meters that if we see at the average price per square meter that we have been selling that was [$8.300] per square meter that give us like $150 million more of value above the cost of construction.

Page 8, we see what we did in the case of Republica building. This was one iconic office building in the downtown or in the area of Catalinas plus Aroma. We sold in block all the building for $131.8 million. From that number, $105 million we collected in cash and 20% we'll receive a plot of land between Buenos Aires and La Plata is 20 kilometers away of the city of Buenos Aires of (inaudible). So we will -- we have now this plot of land with a construction capacity of more than 500,000 square meters that we can develop a mixed-use project, so this is new for us.

We are starting what to do in this plot of land. So probably in the next quarters, we will give more details on our plans. But we saw the opportunity to sold all this building is an iconic business, a very good building, but it's a little old. So we believe that we can replace that surface in a new building, probably with a construction cost lower, or replacement cost lower than the disposal. So we thought that this was a good opportunity to sell.

In the next page, in Page 9, we see the -- one of the latest acquisition. So we have been selling a lot during the last 2 years. This was an opportunity to acquire something. This was a plot of land. It's a building in front of Alto Palermo, our -- one of our main shopping centers that was sold by the city of Buenos Aires. It was an action -- it was an auction, sorry, and we decided to participate, and we offer $20 million at the official exchange rate for that plot of land that consists in a building with 8,000 square meters. We have capacity to expand this building and probably our idea is to replace this with a mixed-use project, probably will have some retail in the basement and in the main floor and offices above. This is an area that we know very well, and we have in front Alto Palermo. So we will have probably some synergies with the shopping. So we are happy with the acquisition. The price per square meter that we paid, we think, is attractive. So we hope to see a development going forward. Something important to mention is that, in the auction, one of the conditions was to give or rent or give free of charge for the use to the City of Buenos Aires for 30 months. So we will receive the property in 30 months. We can't just start construction right now. So we will have to wait. So probably in that period, we will develop the plan and decide exactly the project.

On Page 10, we can see our hotels operation. After the pandemic that was a disaster for us. We start to see a recovery, mainly in the Llao Llao Hotel. So the Llao Llao also was in some remodeling works in some rooms. So leaving aside those rooms, we have 90% occupancy in Llao Llao, so that is very, very high. Llao Llao is performing very, very well. In terms of overall occupancy, we can see the 35%, still some lag in the Buenos Aires hotels. This is mainly hotels for business tourism. So those are lagging a little more, but Llao Llao is performing very well.

So if we go to the financial side, Page 12, we can see we are finishing the 9-month period as of March. We are finishing with a gain of ARS 11 billion compared with a loss of ARS 22.8 billion of the previous year. The previous year was affected by the pandemic. In that 9-month period, almost 6 months, our shopping centers were closed. So it's not a good comparison. If we compare with the previous one in 9 months of 2020, the loss was ARS 9.2 billion. If we analyze the main drivers of the net income gain, we can see the main effect in line 4, the change in the fair value of our investment properties that I will explain in the next pages. But there, we can see a negative effect of ARS 11 billion in this fiscal year -- this fiscal year '22.

And if we see during the quarter, in the first column, we see a net a negative effect of ARS 37 billion. So that was very important, and I will explain the reasons. Here, something else to mention is the net financial results that we see a positive result of ARS 9.6 billion. And also something important is the income tax. We are seeing, for the first time in many, many quarters, a negative result in the current taxes of ARS 5.9 billion. This is related mainly to the inflation adjustment on the tax side that is generating a negative result. We don't believe that this tax will be effectively paid in cash. So we are thinking in different strategies and probably, as we did in IRSA commercial property as disclosed in our financial statement, probably we will go to the (inaudible) and ask not to pay that in cash. We -- basically, we have tax credits that are historical and with levels of inflation of 60% we believe that the company has the right to adjust that tax credit by inflation. So we will probably work on that in the coming quarter.

So if we go to next page, something important to understand these numbers is to understand what happened with the FX and the inflation. FX during the year, the devaluation of the pesos at the official exchange rate was only 16% when the inflation index was 40%. So in real terms, we have an appreciation of the peso of the official exchange rate and also about the blue chip swap in the dollar map, we can see that the devaluation also was 16%, with an inflation of 40%. That means that the MAP in real terms also declined 17%.

To understand the effect of that, all the assets that the company has that are probably dollar-denominated asset, but when we have to express that in pesos, since we have an appreciation of the pesos that is generating losses, so on the size of the asset, this affect generate losses. But on the side of the liabilities, where we have dollar-denominated debt, that generate profit. So that is the line of the change in the fair value that is -- in pesos term, is decreasing and in the debt is increasing. In terms of -- in real dollars, we see the portfolio stable. So when we value this in dollar terms during the year, we see a slight appreciation in the shopping, stable in offices.

And then we have the revaluation of Costa Urbana that we did in the last quarter that generated a profit in dollar terms.

When we go to the adjusted EBITDA, more the main -- the operational driver, we see in the shopping malls and a strong recovery during the quarter in -- during the quarter of 72%, in the 9-month period of 147%, and we still lag pre-pandemic level. The pre-pandemic levels we are 12% below. In offices, we see a decline. This is more related to 2 drivers: one, the reduction in the stock; and the second one that this segment generates profits or revenues tied to the official exchange rate. And when we compare that with inflation that is lower. So considering that we generated more or less the same rent in dollar terms, in pesos term is lower now when we adjust the previous quarter by inflation.

In the hotels, we also see the recovery during the 3 months and the 9 months, and still lag the 9-month period where the hotels in the city of Buenos Aires performed much better than what is performing now. Sales and development, here, we have the realization of the disposals of the offices. So during the quarter, we have the impact of the 5 floors that we sold in Della Paolera. And in the 9-month period, when we compare it, we have also, in the previous year, we have the effect of the 2 buildings that we sold. Remember, that we sold Samsung building and the 50% of the Boston Tower.

Going in a little more detail in shopping and offices in the next page, we can see, in dollar terms, what is the evolution of our EBITDA. The company is recovering good levels of cash generation. During the last 2 quarters, we generated $25 million in each quarter. So that is more than the pre-pandemic level. So we are happy with that recovery. In the offices, here, we have more breakdown on the comparison between the last year and this year and the different drivers that generated the decline. Part is the square meters that we sold, part of the new square meters that we have in Della Paolera, some is related to vacancy and a little related to the rent price.

Then in Page 16, we have the net financial results. As I mentioned, the final line is ARS 9.6 billion gain, and the main effect is in the Line 2 that generated during the 9-month period, ARS 10.7 billion of profit. That is the net exchange related to our dollar-denominated debt that we expressed that into pesos generated a profit. In terms of the interest losses, we are seeing lower numbers here related to the decrease in the leverage that we will see in the coming pages, but the company is reducing leverage. So we will reduce also our interest burden going forward.

In Page 17, we tried to show here the net asset value of the company. Of course, with all the distortions of the FX, it sometimes is difficult, but this is all information related on our financial statement. So this is how we show or how we value all the properties in our books and dividing by the official exchange rate. So this is pesos on our books, divided by the official exchange rates. So sometimes investors do some adjustment because on how they value the assets in real dollars, but this is to give you how we construct this number is using all at the official exchange rate. So we can see that the gross asset value of the company remain at the level of ARS 2.3 billion with a net debt decreasing to $445 million at official exchange rate. That give us a net asset value of $1.8 billion at the official exchange rate with an LTV of only 19.6%.

As Eduardo mentioned at the beginning, we launched a buyback program for ARS 1 billion. Here, we have some limitations in terms of the size of the program and how fast we can go and acquire. There are some limitations because of the rules of the CMV that allow us to buy up to 25% of the volume of the last 90 days, but we believe that this is a good deployment of cash. We are buying back shares that implicitly has a value per square meter much lower than what we are selling every time that we sell any property of the portfolio.

Finally, in Page 19, we have the evolution of the net debt. I remember when we launched the merge, we gave some sort of soft commitment to reduce the leverage from $570 million to $470 million. So we already surpassed that. We have now a net debt as of March of $447 million. That is a 40% reduction from levels in 2020. And also, as I mentioned, we sold the Republica Building for $100 million cash. So this number, going forward, will reduce more to levels of $347 million, and probably we will see more disposals. So the company will continue to deleverage strongly. So this is the consequence of the disposals that we are doing. The amortization schedule remain challenging. We have the main amortizations during the next fiscal year. So we will work in order to extend the tenor of the debt going forward. So with this, we finish the formal presentation. Now we open the line to receive your questions.

Well, we'll start with the Q&A session. (Operator Instructions) We have some questions here in the chat. Can you please clarify the breakdown of EBITDA in dollar terms in the quarter and last 12 months?

Sorry, I will repeat the question. Can you please clarify the breakdown of EBITDA in dollar terms in the quarter and last 12 months?

Yes. The last 12 months, we saw levels of $110 million of EBITDA. From that 61% is related to malls, 16% is related to offices, 4% related to hotels and 26% related to sales and development. Remember that we are using the adjusted EBITDA. So we cleaned the adjusted EBITDA from the results of the fair value of investment properties if we don't sell. But when we sell, we mark the effect of the disposal.

And in the quarter, the EBITDA of malls was $25 million, office is $5 million, hotel $3 million, and sales and development $19 million.

I will leave word now to Álvaro García, go ahead, Alvaro. If you have a question.

Matias. One question on sort of use of proceeds and development generally. So after the Republica sale, as you just mentioned Matias, you get down to healthier leverage levels. But -- and my question really is on this new plot of land that was acquired alongside the sale -- how should we think about development on that the mixed-use development potential on that plot of land, how can we compare it to Costa Urbana from a timing standpoint? And also sort of on Costa Urbana specifically, if there's been any developments. Just to think of when we might see development? It would be a lot faster than what we've seen at Costa Urbana? Or is it something that's going to take a long time? That would be my question.

Thank you, Álvaro. I believe that in terms of priority, we will see faster news in Costa Urbana rather than the new projects, not the new land. So we -- as you know, we received the approval in December of Costa Urbana. So we are working hard to define the project and define stages of commercialization and development. So all the team is working on that. Those are not very fast processes. Now we -- since we defined the project, we approved the final developments and then start the construction and then start to see high levels of CapEx, that will take time. It's not for the next fiscal year. Probably it will take 2 years to start seeing levels of CapEx higher than and soft cost of the project. So we are not anticipating any measure CapEx for the next year in Costa Urbana and also in the new land. In the new land, probably we can do different type of developments or strategies and -- so not necessarily the company will develop the project now.

Super clear. And then you mentioned that we should expect more asset sales. I know you can't say much, obviously, but maybe if you can help us on where, and sort of -- if it's going to be more offices, more likely than not or maybe some retail portion of the portfolio or hotels? Anything you can mention would be helpful.

Álvaro, it's hard to say. You know that our strategy always is to disclose when we do things and not before. I believe that we are pretty good doing things. We have been doing a lot during the 2 years. And if you see the levels of disposal during the last years was very, very high. So no, I prefer to announce the disposals when we do the things. But as I mentioned, our strategy is not to be accumulators of real estate in Argentina because of the cost of capital, we need to be very active. So if we see good levels on offers of any of our asset, we will analyze. So no, we are not in love with any of the assets.

Thank you, Alvaro. We have here a question also related to CapEx. I think Matias answered the one, what do we expect for the rest of 2021, but it asked why was the CapEx $27 million in this quarter?

The $27 million is related to the acquisition of the Beruti. Beruti, the new plot of land in front of Alto Palermo that cost us $20 million. That is basically the most part of the CapEx, and the rest was the finalization of Alto Palermo. So we are finishing the development of the expansion of Alto Palermo that was probably the main part of the $7 million.

Next question comes from Austin Fortunato, has the company made any recommendation to the Board to refinance next year debt? Do you plan to go to the international market, make an exchange offer or other option?

We are working on that. As you know, there is a rule of the central bank that is in place up to December this year that oblige company's with obligation in dollars to refinance 60% -- up to 60% of the size of the bonds and the Central Bank allowed to pay 40%. Unfortunately, that rule established that the company has access only 45 days before of the expiration. So that is, for us, March next year. So probably we will have access in February. So we are working trying to think how to do this and not to wait until February. So we hope to see some news in the next time.

Next question. Are you considering a dividend for shareholders this year?

We will define this at the end of the year. This is a year with -- where we have first the challenge on the debt side to refinance the debt. So the level of liquidity so far of the company is good. So we -- as you know, the strategy before with the IRCP was always to pay dividends. So that is probably a good guidance on what we did when we can pay. But we will define when we see the end of the year the results and the liquidity and the stage of the debt refinancing.

One more question from Marina Cruise from BTG Pactual. Can you please give me more color on what do you expect to see a recovery in the Class B office's occupancy?

I introduced here -- I am with Jorge Cruses, our CIO. So probably, Jorge, you can answer better than me on that part.

Good morning. We're kind of surprised with the Class B office building within the near -- in the neighborhoods where close to residential. So those Class B close to residential, not in downtown, but in residential locations, Class B is performing very well, even -- in some cases, even better than before COVID. In Downtown, Class B is not performing as well. And we'll see how that comes out in the future. But we can say that Class B buildings in the nearby residential neighborhoods are performing quite well.

Okay. Good. We go to the next one. They ask here to give more details on the project of Costa Urbana.

Costa Urbana, we're advancing as it was determined by law when this happened in December, where next week, we are going to be presenting the first project that we had in our schedule. We're also analyzing commercial-wise the stages of the future development and infrastructure. We're analyzing within those stages at different stages of infrastructure. And everything is -- we're on schedule. At this time, we're -- it hasn't been so much time, so we're still on schedule. We'll see in the near future if we can continue to be on our schedule.

And related to approval, after the approval, there was a legal proceeding protection action from some organization that tried to stop the approval, challenging that the city of Buenos Aires did like this process of approval and not on the right way. And the company and the city, there was an action against mainly the city. The city and also the company appealed for that, and we have any -- now we don't have any restriction on that. There was -- will be a final resolution from another court. From our side and from the city side, we are confident that we did everything well. So we don't expect that action to have a major impact on the approval.

Okay. That's all the questions that we see here in the chat or in the ones that raised hand. (Operator Instructions) Okay. If there are no more questions, we conclude the Q&A session, and we turn back to Matias Gaivironsky, our CFO, for his closing remarks.

Thank you. So we see a very good quarter, very active in all the fronts, very active on the operational, very active in the in buying and selling very active on the financial side. So the company is recovering very well after the pandemic. We see levels of EBITDA, increasing good levels of cash generation, deleveraging the company. very optimistic on the rental recovery in the next quarter in shopping malls and hopefully with the and -- or with the reduction of the effect of the pandemic, we will see better numbers also in the hotels. Next days, probably we will finish the merge. So everything is well for to finish this fiscal year with very good results. So thank you very much for your participation, and we will keep in touch.