IRSA Inversiones y Representaciones SA (IRS) 2022 Q4 法說會逐字稿

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the fiscal year 2022 Results Conference Call. First of all, I would like to remind you that both audio and a 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. After management remarks, there will be a Question-and-Answer Session for analysts and investors. (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. Matias Gaivironsky, CFO. Please go ahead, sir.

Thank you very much, Santi. Good morning, everybody. So this year, that ends will undoubtedly remember as an excellent year. We came from 2 years of operations that were affected by the pandemic. And despite that, we were able to generate excellent results. I would like to highlight the good results on several fronts. Our main business, the shopping malls shown a good recovery with occupation increasing and tenant sales surpassing in real terms pre-pandemic levels.

We were very active with our real estate portfolio. No doubt that the approval of Costa Urbana is one of the main milestones of our history. This will drive the growth of the company in the coming years. Also during the year, we sold on both many properties at very attractive prices. We are active with the rotation of our portfolio and we proved excellent execution capabilities during the year. In the financial front, the main highlights were the merger between IRSA and IRSA Commercial Properties. This generates a simplification of our structure and provides significant synergies.

We also keep deleveraging the company with an impressive reduction of almost 60% of our debt in the last 2 years. Also, after the closing, we completed the exchange offer of our main debt. This will help to extend the tenure of our liabilities. Additionally, we launched a buyback of our shares for up to one billion Pesos that we are fulfilling during the next days. So now I turn the call to Santiago, our IRO.

Thank you, Matias. Turning to page number 3 on shopping malls operating figures. We have seen a very good and a very strong recovery this year after 2 years of pandemic; where the shopping centers were closed for almost 7 months. We are improving in all the figures in visitors, in occupancy and in real terms as well. Stock remains to that level, so remained stable, a little bit higher than last year, 3035 -- sorry, 335,000 square meters of GLA, mainly due to the additional square meters of Altaba expansion that I will explain in the next page.

We have improved occupancy in our malls because we occupy vacant areas from the pandemic, mainly big services, (inaudible) that left in the middle of the covid times. So now we reached 93% occupancy. And in terms of sales, we can see a very strong recovery. We are almost 10% up in 2022 comparing to pre-pandemic level to 2019, and we have seen a recovery quarter-by-quarter in the last quarter 2022 compared to the same quarter in 2019 that was not affected by the pandemic. The increase in real sales quarter was 23.7%. So we are very happy on the performance of the shopping mall after 2 very, very difficult years.

Moving to the next page, you can see that we have concluded in terms of CapEx, the expansion of Alto Palermo. Remember Alto Palermo is our top seller mall per square meter in our portfolio, and we have increased by almost 2 thousand square meters of GLA, this mall with really good tenants. We have ended by August, the food hall, but today have 12 stores under operating and operation and 2 other stores that are still under construction works. We have invested almost $24 million in this project.

The next page, we can see the office segment. As you can see in the start, we see a big reduction. We have kept selling assets during the fiscal year that we will explain later in the following pages. And we reduced our portfolio to a level of 84,000 square meters of GLA. Occupancy has gone up a little bit, mainly in the premium portfolio. We reached 85.5% occupancy while the category is still very low and with high vacancy mainly because of the impact of Suipacha building that is completely empty. In terms of leases, we are quite stable in levels of $24.5 per square meter per month in our portfolio. We have seen in the last month a return to office basis from tenants in hybrid modalities. So we expect to occupy our vacant spaces in the next fiscal year.

Moving to page hotels, of hotels of another segment that was very, very affected during the pandemic, showed also a good recovery this year, mainly motivated by the boom in domestic tourism. Here, we can see the increase in rates and occupancy but still not in the pre-pandemic level, mainly in Buenos Aires city because the Llao Llao Resort is in a great moment, fully booked with historically top occupancy, the levels of 70%. We expect - the sector is expecting the better influx of international tourism and the full recovery of corporate events and convention activity to reach pre-pandemic levels.So now I will introduce Jorge Cruces, our Chief Investment Officer, to explain the real estate investments during the year.

Well, good morning. First of all, we're going to speak about the office sales that we mentioned before. During the fiscal year, we sold 10 floors, but subsequent we sold altogether 12 fourth floors. As you can see, we sold $122 million. That's an average of $8,560,000 -- per square meter. This doesn't include the presales we made before presales that we made before (inaudible). As you can see, the remaining surface that we have within the building is still 16,800 square meters. The other main deal that we did was the whole building in a block of the Republica building.

This is one of our landmarks -- but it was at the moment - it had only 56% of occupancy. This was a sale at $131.8 million, and it comes to an average of square meters of 6,630 with an IRR of 11%. 20% of this sale was acquiring 4.6 sectors in the flat within the outskirts of Buenos Aires.. It's on the highway to -- in the neighborhood of (inaudible) that's on the way to La Plata, the capital of the province of Buenos Aires. This - and this plan has the potential to construct 5,521,400 square meters. So we bought the land at $68 per square meter.

The other main acquisition that we made this year, that is a very important issue acquisition, was acquiring a building from the city at $20.11 million, just besides Alto Palermo shopping. As we said before, we had a development on the other side Alto Palermo, and this is just across the street at the other side of Alto Palermo. This is a very good acquisition because it was only worth for only 2,500 per square meter, and it has a potential construction to add around 6,000 GLA square meters. The most important thing that was mentioned before, (inaudible) after 25 years was the approval of course, Costa Urbana.

We mentioned this before, but it's very important to mention it again now after a year as the most important thing that we did within development. This was approved having a 70% to public uses, and we're developing 30% of the whole land, it's going to take us between 15 and 20 years. The negotiation with the city was -- well, as we said before, we are giving them the 71% of the total land property, but we also have to give them 3 additional parcels of the 36 parcels. Then, we have to give them 2 million in cash and $3 million (inaudible). We already- these last couple of days, we paid the cash and it's very -- in the next couple of weeks, we're going to be paying the bonds.

The investment that we have to make an infrastructure that was negotiated with the city, the 40 million. We haven't started yet with (inaudible) the engineering at the moment. Maybe for the next phase, in the next 15 to 20 days, we're going to know exactly the engineering we're going to need for the whole land. And we also have another contribution to do to the city that is $10 million to build on the part in all the public spaces of the land. We already gained the city's schematic - the designing of the whole neighbourhood. And we are -- the city already has the survey and subdivision plan that we're working on it. We're working on it with the city. So maybe for the first quarter, let's say, in February, we should be able to give the land the 3 parcels that we owe. We're very proud of this development.

On the next page, you can see the residential agreements we have with different lands, that we have not only throughout Argentina, where we also have a land in (inaudible). We have the expectations of receiving more than $50 million in the next couple of years.

Yes. On the next page, we can see the ESG progress during 2022. We have been working hard to achieve the best standards of sustainability in our real estate operations and prospects. On the environmental front, we advanced in the process to certify - lead our latest development, office development, 200 Della Paolera that we expect to get it soon in the next fiscal year. In malls, we joined an initiative from VAC regarding waste management and Alto Palermo shopping was the first shopping centre in the city of Buenos Aires to get the green seal and now we are going to work on other malls that we have in the city of Buenos Aires.

On the social front, we have worked with Pakistan, education, health and gender diversity through actions, donations and volunteers, we reached 80,000 social beneficiaries -- with the total investment together with Fundacion (inaudible) since 1996, $103 million of investments.

I would say that regarding governments, our main event was a merger between IRSA and IRSA Commercial Properties that simplifies the corporate structure, increases company's floats, bring synergies and cost efficiency and eliminates conflicts of interest. So it's a great improvement in terms of governance. Now I will again turn to Matias for the financial chapter.

Thank you, Santi. So going to the description of our financial statements. Here, we included results on the last quarter and on the last fiscal year. So we are comparing with the previous year that was very affected by the pandemic. So the comparison probably is more rational compared with 2019 numbers instead of 2021 numbers. So here, we have both columns, the 2 years. We are finishing this fiscal year with a net income of almost 35 billion pesos gain, against a loss last year of 61.6 billion pesos. Most of this is attributed to our shareholders since we don't have minority stakes on the slight participation in some of our malls. When we analyse the results, there are different drivers. First of all, the operating income is increasing. We can see a 26 million pesos we sold during the year.

Here, we have in line 4, one driver that is affecting is the change in the fair value. You know that we are valuing our properties at fair value. In malls, we are using a DCF methodology and in - and in offices and land bank, we are using compile -- this year, the shopping malls are increasing significantly. When we did the DCF last year, our estimation of recovery was lower on the -- against the current numbers. So now we are adjusting the model, and this generate like $200 million at the official exchange rate more for our shopping malls valuation. In offices remain very stable. And in Land bank the main event was the approval of Costa Urbana that after the approval, the evaluation of the property is significantly higher than that. Then you know that we have to adjust by inflation. So some of the numbers are affected by - in comparison between what happened with the devaluation of the peso and what happened with inflation at this year, we will see in the next page that the devaluation was lower than inflation.

Also, the line 9 is generating good results. The net financial results generated 11.8 million pesos gain, and we will see later what is the effect. And also something important to mention is in the line 11. We -- here, we are seeing an important number, 16 billion pesos in the current tax -- this is the effect of the adjustment by inflation of -- on the tax balance sheet. This is in the current tax, but we are not paying cash for that. We will have a discussion with the IRS - with the local IRS because we believe that we should adjust the tax credits by inflation and the current rule is not allowing that. So we will have a discussion with the IRS regarding this line.

So we can go to the next page, and we can see the main macroeconomic figures. During the year, the inflation was 64%. And on the left side, you can see that the devaluation was only 31%. That means that in real terms, we have an appreciation of the pesos of 20%. So if we are comparing numbers like in the office portfolio that the driver is dollars, and we generate revenues in dollars and dollar link is in pesos at - tied to the official exchange rate. So to compare apples with apples, we will see a 20% decrease in pesos term numbers.

And in -- and also if we are valuing any stock, this is the stock in dollars, that this will generate some results. In the right part, we have the evolution of the MEP, the blue chip swap effect. And there, we can see that the devaluation was 51%, also against with inflation of 54%, in real terms is an appreciation of 8%. That affects our devaluation of our properties, mainly the offices and the land result that we are using the blue chip swap to convert the dollars into pesos. When we see the adjusted EBITDA evolution, we can see that in shopping malls against last year, we have an increase of 180%. Of course, we are comparing with a year that was very affected by the pandemic, when we compare with 2019 numbers, this is still below pre-pandemic at 22% below.

The good news here is the evolution, when we see evolution quarter-by-quarter, and you can see on the left part that the last quarter, we already surpassed the 2019 last quarter by 4.7%. So we - Santiago showed the evolution of the retail sales, retail sales are increasing in real terms. And at the end of the day, we capture part of that portion of the sales from - for our contracts that are tied to tenant sales. So going forward, we should see a recovery also in real terms on our EBITDA.

Remember that at the beginning of the fiscal year, we still have some concessions to our tenants because of what happened with the pandemic, and we decided to give time to the tenants to recover, and then we eliminate all the waivers that we gave during the pandemic. So today is completely normal business for us. In offices, it's a little more complicated to compare because we sold a lot. We incorporated the Della Paolera building, but also we sold a lot. And as I said, since here, we generated dollars, and the dollars comparing to the pesos, we have an appreciation of 20% of the peso. So we see a decline here. So probably a little more complicated to compare or to take conclusions in these figures.

The hotels are recovering, mainly the Lloa Lloa hotel is performing excellent well to the internal tourism in Argentina is booming. Lloa Lloa is capturing a lot of that. The 2 other businesses, probably they are more focused to -- or target to the business tourism that is still affected by the pandemic, but the trend is positive. We saw better numbers quarter-by-quarter. And the sales and development, as we mentioned, we were very active buying and selling.

Here, we can see the evolution of the EBITDA in dollar terms. I saw in pesos, but this is quarter-by-quarter what happened with the malls - EBITDA. And we can see that during the last year, we generated very good levels of cash in dollar terms. Of course, we are using pesos transforming to dollars at the official exchange rate, but we can see a very positive evolution, even higher than the pre-pandemic levels. And in the offices to try to explain the variations using business and revenues, not the EBITDA using -- starting with 2021 numbers of 23.5. We can see that we lost $3.1 million of revenue because of the assets that we sold. We incorporated 2.6 because of the Della Paolera, and we have a higher vacancy that generated $2.8 million of decline.

To put in perspective what happened this year against the previous year, you can see that the shopping malls were really affected by the pandemic in 2020-2021 with only $19 million last year. This year, we are finishing with $89 million that we are forecasting for the next year, a much higher number of that. So we are almost close to levels of 2019 numbers, of $93 million. Offices always generated EBITDA even in the pandemic, and this year, it's a little lower because of the assets that we sold. And on top of this, we are including the hotels that generated more or less or the same level of 2020, but still a little lower than the 2019 numbers. And on top of this, the asset sales that generated very good levels of cash that help us to reduce the leverage.

And finally, regarding our financial statement, is the net financial results here, we can see a positive results, mainly generated by the line 2, the net foreign exchanges that - because of the appreciation of the peso, we have to value here all our debt at in pesos terms and compare with inflation and since the inflation was higher than the devaluation, we are generating positive results in this line. And also important here in the line one, the net interest losses that is significantly lower than the previous year because we are reducing the leverage of the company.

Well, something that we want to show is in Page 20, is our net asset value. This is an exercise in Argentina today, it's difficult to put everything at one dollar now because you have different numbers - different exchange rates. So here, we are putting all of the official exchange rate. What we do is to take the numbers in pesos from our financial statements so at what prices we are valuing our portfolio and dividing by the official exchange rate. And this give us a gross asset value of almost $2.5 billion of gross asset value against that net debt of 321. This is a loan-to-value of 13%. So that this gave us a net asset value of $2.1 billion.

Sorry, going back one second. The main news here compared with the previous years is the increase in the shopping malls, as I said at the beginning, almost $200 million more of valuation because of the improvement in the conditions of our cash generation.

Well, this is what we did during the last 2 years. We were very active in the financial front. So we did transactions that improve the liquidity of the company by $940 million between the asset sales and financial transactions like the capital increase and issuance of new bonds or exchange offers on our existing debt. So this significantly improved the financial condition of the company, and we can see in the next page, the result of this is an impressive deleverage, 57% decrease in the leverage in the last 2 years.

Considering that we were in the middle of the worst crisis ever on our operation that was our pandemic. And even that, we were able to reduce the debt - probably if we have to imagine what could happen in this scenario, maybe the logical results were the increase in the leverage, and we were able to decrease the leverage to levels of 323%. We can see in the graph, the 2 companies together (inaudible) there's a commercial properties and here's that - never in the history has this level of leverage. So we feel very comfortable. And I remember that when we announced the merge, our guidance on debt was around $470 million, so the $323 million, and we can see that even that this is lower than today's $300 million is a very, very conservative leverage for the company.

On Page 23, this is important news regarding our debt. We launched an exchange offer on our main debt that was the bond that IRSA Commercial Properties issued, that expire in March 2023. You know that the rule of the Central Bank doesn't allow the companies to buy the dollars and pay. The Central Bank is - put a rule that the company has to refinance around 60% of the debt, and they will sell up to 40% of the dollars. But this is only available 45 days before the expiration of the debt. In our case, the debt is in next year in March 2023, but we didn't want to be in the last minute dealing with the main debt of the company.

So we went to the Central Bank and asked for a special approval. This is outside the rule, so we need to present a formal requirement with the Central Bank. And fortunately, we were able to get the approval from them. So we launched an exchange offer that basically consists offering our existing bond holders 2 options. One option was to receive only bonds. And the other option was to receive the bond and cash, so we put all the cash available to that option.

At the end of the day, the people that choose option A collected 50% - almost 50% of the existing debt and the remaining -- they accepted a new bond that will expire in 2028, but will be with amortization of 17.5% each year from 2024 to 2027 and 30% in 2028. The rate of this one is exactly the same as the previous one, 8.75, and we paid a premium for the people to -- that selected Option B and Option A. The final results of this was 66.38% acceptancy. So we still have a remaining $121 million that expire in March. But we were able to refinance most part of the loan to a longer term.

So finally, we can see the -- what happened before and after the exchange offer with our debt, this is the debt amortisation schedule before was -- although we have much less leverage, mostly all the debt expire in fiscal year '23. Now we extended the tenor. We still have a challenge during the fiscal year '23 during the next year. Basically, we have 2 bonds, the remaining $120 million of this exchange offer and another bond for around $52 million. We have cash, so we have $152 million cash. This is basically pesos. So we are converting those pesos into dollars to present the information here. So here, the challenge is that the company has not access to buy dollars. So we don't know what will be the rules from the Central Bank or what kind of tools the Central Bank will give us to pay. It's not an issue of capabilities. It's more a technical issue here if the Central Bank will sell the dollars or not.

On the last page, here something that we launched during the last quarter was a buyback program for up to 1 billion pesos. We believe that the price of our shares and train with a big discount, and we are using part of our liquidity to buy back shares. The main limitation - what we have here is the liquidity, there is a rule on the CMD that only allow to buy up to 25% of the volume of the share, so we are fulfilling that rule. And because of that, we can't go faster.

So with this, we finished the formal presentation. Now we open the line and the camera to receive your questions. It's time for the (inaudible)session. If you have a question, one second I will open the camera. (Operator Instructions)

Thank you very much to all of you to participate in the call. We are very happy with the fiscal year that we finished the vacancy's recovery. We saw very good levels of all the drivers and all the figures, more consumption, more visitors, more in our malls, more occupancy. So we will continue working next year in the full recovery of our rental business, improving the offer for our visitors and tenants, trying to transform more our malls, while keep analysing new projects to launch if we see better conditions in Argentina. Thank you very much to all of you for joining. I'll see you in the next call.

Here, we have the first from Juan Vasquez. Please confirm the sales figures of the Santo Della Paolera and Republica building are shown at the official FX.

Yes, that is correct. And if they were settled in pesos, yet the transactions are fixed in dollars blue chip swap but payable in pesos, but we show it there in the slides at official effects than (inaudible). It's something - Juan that important is that real estate in Argentina is quoting dollars. So everything - when you think in real estate, you're thinking dollars, and then to play the transactions, we are accepting the pesos. But always, when you fix prices, you start with the dollars. Then since we have applications for the pesos, we feel comfortable to receive the pesos. It's not the rule of the market. Sometimes when people sell their houses, they don't accept pesos, they want the dollars. In our case, we are more flexible on that.

Another question from Juan. Any thoughts on whether you would proceed with another refinancing round of this time of the 2023 bonds that didn't participate in the voluntary exchange.

We haven't defined yet Juan what to do. We really don't know the condition of the Central Banks since we started or since we went the first time, didn't improve. I would say that maybe the conditions are worse than before in terms of the Central Bank reserves. This is not a -- it's a fact that the Central Bank is losing reserves, and they don't want to give access to the companies in advance to buy dollars. So we don't know if we go today to Central Bank and ask for something else, if they will approve. But we will be, of course, very active dealing with this because it's the main challenge that we have during fiscal year 2023.

And here, we have another question regarding free cash flow in dollar terms. We have here an adjusted FFO of the fiscal year was around $123 million at an EBITDA of almost 200. So on the operational cash flow was around 200, but the adjusted FFO around $120 million.

The next question, plans regarding the office buildings Suipacha. We have different plans. There's a special law in the city of Buenos Aires, which allows you to have a tax benefit if you convert your office space in residential, or some other kind of development on senior citizens or for students or other kinds of uses. We want to reconvert the city of Buenos Aires downtown to a place to live, not only to work. So we do have some plans regarding that law to maybe convert that building in residential or something like that because of the benefit or they need to do it by themselves or maybe in the (inaudible) of a partner.

But we are studying a couple of situations regarding the law, using maybe university or some other kind of deals. But it is a problem to have it empty, regarding cash flow, but it is a good thing to have it empty if we're going to do one of these developments. We should be making a decision in the next couple of months. Actually, that's what we're going to do.

Okay, the next question, if we have an estimated or expectation of paying dividends this year or extending the repurchase shares plan.

Well, we will take the decision in the coming days. We need to call our shareholders meeting before the end of October. So we will need to decide what to propose to our shareholders meeting. But at the end of the day, the entity that will decide the dividends, and also we will announce that in the coming days what we're going to do. Regarding the share buyback program, there is still some room. We are around 87% of the program, so it will take some days to finish. And then we will decide if we're going to increase or stop for the moment. I prefer to give the information when we decide what to do.

I can see no more questions, and we'll give one minute more. We can receive any additional questions -- if there are no more questions, we conclude the Q&A session and this presentation. I will turn back to Matias Gaivironsky, CFO, for his closing remarks.

Thank you very much to all of you to participate in the call. We are very happy with the fiscal year that we finished. The business is recovering. We saw very good levels of all the drivers and all the figures, more consumption, more visitors, more -- in our malls, more occupancy. So we will continue working next year in the full recovery of our rental business, improving the offer for our visitors and tenants, trying to transform more our malls while keep analyzing new projects to launch if we see better conditions in Argentina. Thank you very much to all of you for joining. See you in the next quarter.

Goodbye.