IRSA Inversiones y Representaciones Sociedad Anónima (IRSA) Earnings Call Transcript & Summary

Good morning, everyone. I'm Santi Donato, Investor Relations Officer of IRSA, and I welcome you to the fiscal year '23 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. If you want to make a question, please click the bottom labeled, raise hand or use the chat. 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. Eduardo Elsztain, CEO, for his opening remarks.

Thank you very much, Santi, and welcome to our annual year '23 -- 2023 results conference call. I am very glad to be closing another great year for IRSA, one of the historic one. The rental business had a great performance, mainly in shopping malls and the hotels, they both increased sales. In terms of assets, we sold office assets at very good prices in terms in pesos and in dollars. We made progress to launch our most ambitious project, Costa Urbana, which is a project that we have in the portfolio for more than 2 decades at half and we achieved permits after long patience. We successfully concluded a debt refinancing process, which positions us favorably for a new phase of growth in the coming years. I would say that the level of reducing debt has been one of the most impressive in 3 years and half that we are running the company. In terms of revenues, we increased revenues and occupancy in the 3 rental segments: in the malls, in the office and in the hotels. We have been also very active in the real estate transactions. We acquired assets. We acquired a building in an auction in Paseo Colon property for $7.8 million at the price which is really liquidation price. And we have been selling more than $161 million, including 9 floors of the tower of the building we did in Catalinas. And after the fiscal year finish, we sold -- and the first building we bought in IRSA, so we bought a building to the University of CEMA and we sold 50% shares of Quality, which is owner of warehouses in San Martin plot. As I mentioned before, we have been very active in the financial front as well. What we did is conclude all the refinancing debt process, including the exchange of the Series 2 notes for $360 million, and reduced our net debt by 67% since year 2020. Today, net debt is $247 million, and that will be explained in more detail by Mati later. We also lowered our average financing cost of all the bonds, and this has been incredible because not only reduce, but we also got an upgrade in the credit agents. And the other thing is -- we could show a value to our shareholders, distributing dividends twice this fiscal year for a total amount of $124 million, and we repurchased our own shares and approximately, we bought 1.7% of the capital stock in the buyback programs. In the last meeting -- in the last Board meeting, we called for a shareholder meeting in order to distribute a new dividend for the sum of up to ARS 65,000 million and distribute the treasury shares that we bought back in the program. I would say after mentioning all the main highlights that I want to emphasize that IRSA has a team of management which has been long term in an environment of inflationary and a printing money economy. And I repeat always what I say, real assets, real estate, farms is the best way to defend when you have the economy printing and printing and printing. So we have shown the real value of the assets in a period like this where we could do both things, growing operational, growing in sales, keeping value and deleverage the company as we never did before. And I hope you keep supporting the company in the future as you did until today. And I want you to now continue with the team, the rest of the team, which is Mati, Santi and Jorge to see the details of all the annual results. Thank you very much for joining us today in the morning.

Thank you, Eduardo. Moving to the rental segment about our operations. We can see here the evolution of tenant sales in real terms for shopping centers, our main line of business. Remember that represents approximately 70% of our EBITDA. This grew 16% in the year in real terms. So it's a great performance, explained by more visitors, higher apparel inflation. Remember the apparel represents like 50% of our tenant mix and the strong recovery also of entertainment and food court sales. When we compare to the pre-pandemic levels, we are about 27% in real terms. So our business is very, very healthy, and we hope we can keep these levels of sales visitors and occupancy as well in our shopping malls portfolio. Here, we can see the evolution of occupancy. Remember that with all the pandemic and the exit of Walmart first and then Falabella, from Argentina, our minimum occupancy in those times were approximately 89%. We have recovered a lot. And during the last year, particularly, we grew like 4 points occupancy in our malls. We have almost all the portfolio full and we expect to keep growing in the future. This is a very, very good level of occupancy, similar to the ones pre-pandemic and historical levels of the IRSA. On the office market, as Eduardo mentioned, we have been selling more during the year. We sold 8 floors of the Della Paolera building, our latest development here in Buenos Aires. And after the end of the quarter, we sold Suipacha and one additional floor of the Central Della Paolera. So today, we have a total stock of around 72,000 square meters post those sales and consolidating a premium portfolio after the sale of Suipacha was a B class category. Now we have only on the glass building, the Philips building. In the picture there of occupancy and rents, we have just the A+ and A buildings that represents 95% of our total portfolio is showing good levels of occupancy, even above than the market. In Buenos Aires, we are 87% with a vacancy of 17% points. In there, we have just 13%. And we have also good levels of rent stable comparing to last year in levels of $26 per square meter per month. Hotels was record during this year, a new good year for hotels after many years of operations closed the whole 2020. And big part -- and the recovery was very gradual and this segment was very, very affected during the pandemic. Now we are in very good levels of occupancy, almost 5% average the 3 hotels. Remember that we own 50% of [indiscernible] in the city of Bariloche, one of the most exclusive resorts in the region, LatAm. And we also own 2 hotels, Libertador and Intercontinental in Buenos Aires, both of them recovered strongly during this year, and are showing very good figures in terms of rates per room and achievements. Regarding ESG progress, we have been making a lot of progress in our commitments assumes in the 3 fronts, environmental, social and governance. Our recent news is that we certified LEED for sale of Della Paolera building and now [indiscernible] Della Paolera and Zetta building, the 2 most modern latest development of in offices -- in premium offices of the company are certified LEED. This is 74% of our portfolio of premium offices in Buenos Aires. So it's great news. And also, we were very active on the social part directly and through Fundación IRSA, we have made more than 200 social actions, benefiting more than 100,000 people and investing even much more than last year, 21% above in real terms our social investment. And on the governance front, I would say that we celebrate the 75th anniversary of BYMA, it was one of the first companies and, of course, in the real estate segment, listed on the local stock exchange, and we have a long-term relationship with BYMA and we hope we can keep a very good relationships with them. And we integrated its sustainability index as well. This is great for the IRSA. We are one of the 20 companies with the best performance on ESG together with other 20 in the country. On the digitalization front, well, regarding -- this is our investment in [ APA. APA ] is our loyalty app that enhances the shopping experience of our visitors, offering benefits and discounts linked to their preferences, events, actions. It keeps growing. It's doing well. It's growing in terms of users of accumulated transactions. This surpassed 3.5 million accumulated transactions. Users are 1.8 million in the last month. This is 39% growth year-over-year. So we are happy with this. We think that these times of technology and digitalization, we need to keep complementing physical retail with digitalization in order to offer all the solutions to our visitors in the mall through this app, that is the for the retail and for the malls in Argentina. So I will now turn -- I will give the word to Jorge Cruces for the real estate transactions and the business of sales and development.

Thank you, Santiago. Good morning, everybody. Well, we -- regarding real estate acquisitions, we bought a building in an auction. It's a block and half away from Casa Rosada, the national government headquarters. We bought it at a great price, less than 600 official dollars for each square meter and it has a beautiful view to the park and to Puerto Madero. Actually, it's walking distance to Puerto Madero. This part of the city is changing. It's changing fast because there's a highway nearby. And now that highway is an underground highway. There's even a construction -- 2 constructions actually of 2 premium residential developments nowadays in the area. If we review the investment in 200 Della Paolera, we have continued to sell 200 Della Paolera. We invested a total amount of $112 million. Our revenue from sales has been $259 million, a valuation of remaining stock of $88 million, that comes up to the -- that's $235 million of profit, 210%. Of course, we're really proud of this investment. Regarding sales, we have sold the Maple building. The Maple building was vacant and that was an opportunity for us to sell it in block. It wouldn't be easy to sell it 1 floor at a time. It's a beautiful building, but in a downtown location, it hasn't recovered after COVID and may not recover for some time. Our first office building acquisition. You get a kind of emotional about it, but business is business, and it's going to turn out being the main building of one of the most important universities in Argentina. So we're happy for all of us. We also sold our stake in Quality. It's -- as Eduardo said, it's a big plot of land with warehouses. We're going to focus in developing other kind of developments, marketing positioning, project funding, mainly better game margins like Costa Urbana, we're going to talk later, made us decide selling Quality. We sold it at $20.9 million and with a $21.5 million upfront, these are hard dollars. Regarding Costa Urbana, on March, the cadastral authorities filed the approval of the cadastral survey plan. Also in March, the court issued the ruling out of the collective legal action. On April, the first steps of the editorial deeds for transferring ownership to the city also plugged a land for the 37.9 hectares of public park and the 3 lands were handed to the government's clerk's office. This is the second step in the process of creating the land registrations in the cadastral database of the city for issuing the titles of ownership and enable user to sell and transfer the plots. We are working on the environmental impact as well that has been submitted to environmental protection agency, and we will be holding a public hearing for its approval by the beginning of December. We are finishing the architectural and engineering documents of the infrastructure and public space projects to be submitted to the city authorities by the beginning of October. We continue with the residential swaps this fiscal year, close to 3,900 square meters today's total amount of square meters to be received is close to 8,900 square meters. Now Mati, our CFO, is going to continue with our financial results.

Thank you, Jorge. Good morning, everybody. So if we jump to Page 16. First, I would like to mention what happened with the macro economy in Argentina in order to understand our figures. You can see in the center of the graph that the inflation accelerated from the previous year to reaching levels of 116% compared with 64%. On the FX side, on the official exchange rate, we have a valuation of 100%. That means that in real terms, we have an appreciation of the peso of 5% compared with 20% of the last year. That is important to understand what happened with prices of our investment properties when we value the investment properties in our books and also to restate our dollar-denominated debt in pesos. On the blue chip swap side on the map FX evolution, there was a devaluation of 93%. That means a 10% in real terms compared with 8% in the previous year. So we're going to see later some effects related to that. About our adjusted EBITDA, we can see a decline of 40% from the previous year from ARS 59 billion to ARS 36 billion. This is related to 3 different things. The first one is the sales and development segment that another segment that this year decreased from ARS 25.1 billion to a loss of ARS 6.5 billion. The last year, we sold more than this year. So the last year was an extraordinary year in terms of sales. We remember that we sold the entire República building, and we posted an important gain related to that. Also during this year, we have 2 on short effects. One is related to salaries and board member fees and the other is related to a claim that we received from our investment in Israel that we discussed in December, we decided to make a provision of around 23 -- was $20 million, we increased in this quarter to $23 million that is posted in the other segment. So if we leave aside those effects, the more recurrent part, that is our rental EBITDA increased by 25%, reaching ARS 42.5 billion in this fiscal year. March is -- are increasing. The shopping malls increased from -- almost 71% to 74.5%. In the office segment, here, we have the impact of all the disposals. So the fixed part now is a little higher than before in terms of margins. So the offices went to 75% compared with 80 last year, and hotels remained stable at 25%. So related to those effects, we can see that the operating income leaving aside the effect of the fair value of investment properties effect is a reduction of 15% from ARS 26.9 billion to ARS 23 billion. If we analyze the fair value of our investment properties here, we have a major effect with a loss of ARS 49 billion compared with again last year of ARS 29 billion. To understand here what happened, we have to see the evolution of the macro economy of Argentina here. We are recognizing results in pesos terms in real pesos. If we analyze -- what happened with the valuation of our investment properties in dollar terms is stable in the 3 segments in malls, in offices and landbank we have probably almost the same numbers in dollar terms. But when we translate those dollars into pesos and because that the devaluation was lower than the inflation. And here, we are adjusting pesos by inflation. That is the main reason or the only reason why we are recognizing this kind of loss during the year. Then we have 2 other significant effects on the before the net income. One is related to the net financial results. We can see a decline, both our gains, both our gains in the previous year was ARS 25.5 billion. This year, it's ARS 15.5 billion. The main difference is related to the table below the graph, the first line, the net FX results that during the last year since the appreciation of the peso was much higher than this year. Last year, we posted a gain of ARS 31 billion compared with ARS 6.7 billion this year. We also reduced significantly our debt. So the combination of the major appreciation plus a decline of the debt is explained that difference. Related to the net interest, we are reducing our interest payments. We can see there, there was a reduction from ARS 16.6 million to ARS 11 billion. And finally, the last line that is the fair value of financial assets. This is related to the evolution of different securities that we have to manage our liquidity that generated an important gain this year of ARS 7.4 billion. The final effect is related to the income tax. We discussed that in the previous quarter or 2 quarters ago, that was a positive effect that was generated related to some decision of the Supreme Court related to other companies that allow the companies to adjust by inflation the tax grade and also recognized a positive results on the adjustment of the tax balance sheet with inflation, that generated an important gain for us of ARS 66 billion. We decided to recognize the gain after we received -- or we saw the rule of the Supreme Court allowing the companies to do what we have been doing on the tax basis, but not on the accounting basis. So now we recognize that gain. So finally, with the net result, we posted a net result of ARS 58 billion during this fiscal year. So analyzing what happened with our rental EBITDA, we are very happy with this evolution. We -- now we have last 12 months EBITDA or the some $167 million compared with $131 million pre-pandemic in 2019. About our debt. So today, we have our debt that is distributed in the coming years. It's not concentrated anymore in a single year. This is much more tied to our own cash generation. So the net debt went to levels of $247 million. We can see here the evolution, so it was a significant reduction from $755 million in the middle of the pandemic, with all our malls closed to levels of $248 million currently. So this is an LTV of 10% a net debt-to-EBITDA of 1.5x, with a coverage ratio that is very, very high. So we feel that this capital structure is very conservative and will allow us to keep growing. Remember that this is as of June 30. So after this, we sold Quality and we sold [indiscernible] or the liquidity still improving and our net debt will go down only with these 2 effects, then as Eduardo mentioned, there is the call for our shareholders meeting to approve a new dividend. So related to that, we have the liquidity to pay the dividends of this in terms of net debt will increase a little because of that, because of the dividend, but still very, very conservative. Well, as I just mentioned, the evolution of the dividend payments, we can see on the graph that we decided during the pandemic and during the tough years to reduce our dividend to almost 0. Last year after refinancing all our debt and canceling most part of our debt, we decided to be more aggressive on the dividend. We paid an important dividend of $124 million during the fiscal year. And for the new fiscal year, that is 2024, we just call the shareholders' meeting to approve a dividend that will be important again is in terms of dividend yield is around 15% dividend yield. So this is an extraordinary and very significant dividend again. Also, we were very active on buying back shares. So we did 1 program that we finished during the fiscal year, that was the first program of ARS [ 1,001 ] billion, then we approved a new program of ARS 5 billion. From that program, we already invested almost ARS 2 billion, and we just announced that we increased the maximum price that we can pay for our shares to levels of ARS 720 per share or $9 per ADR. So we will continue to acquire shares as part of this program. Also one of the points in the agenda of the next shareholders' meeting is the approval of distributing our own shares to our shareholders. So we will distribute all the shares that are on treasury that is around 1.7% of our stock. So with this, we finished the formal presentation. So now we open the line to receive your questions.

Okay. We'll start with a Q&A session. [Operator Instructions] First question here comes from [indiscernible]. We ask you for -- in the case of the country goes to a dollarization of the currency, if you think that is likely to occur and how that would work in the country.

I would prefer to answer the question on the business side. I don't know if that will work for the country or not. I leave that for the politicians. For the company, we will have to adjust the agreements. At the end of the day, real estate in Argentina were always quoted in dollars. People think in dollars, the transactions are in dollars, some prices were always fixed in dollar terms. So I don't see that as a major change. In terms of our revenues, both offices and hotels are agreements that are in dollars. At the end of the day, they pay an official exchange rate. So if are in dollars, we will receive the dollars. And related to our main cash generation that is most our agreements are in pesos today tied to inflation. It's a combination between a fixed amount and percentage of tenant sales. So if there is a change in the currency, I assume that inflation probably won't be a major issue anymore. And so our agreement should increase in terms of the tenant sales that will increase by the evolution of the economy. So we don't anticipate a major disruption if we have a change in the regime in the monetary regime . It's not clear yet what could happen and when it could happen that. So it's not a major concern for us today.

Next question. Can you give a little bit more color on the extraordinary compensation for the Board this fiscal year?

Yes, this is a one-shot effect that is not related with just this fiscal year. I said that this was a 3-year cycle where the company were very active in many, many transactions, we sold more than $500 million of assets. We simplified our corporate structure with the merge of IRSA and IRSA commercial property generating a huge synergy in terms of cost, payments, taxes, everything. There was also an extraordinary work related to the renegotiation and refinancing of our debt. We canceled debt generating a lot of value, and at the same time, selling assets that help us to add a lot of value in those transactions. Also, there was extraordinary work in our own capital structure, acquiring shares on paying dividend for more than $150 million. So there was a cycle of 3 years, the increase in fees are related to that cycle. So it's one-shot effect related to that.

Here, there is a question related to the rationale of well, the split, is not a split of shares and when that is expected to take place?

Well, the split is more a technical issue. I will say that will take place in the coming days. We are waiting for the approval of the CMB, a final approval but probably will happen in the next days. At the end of the day, this won't have any impact for our shareholders will be a change in the way that our shares trade but won't have an impact on an economy impact. We did this in order to be ready or to pay more dividends. There was a smart way to a technical issue that we have on the dividend distribution. And because of that, we are changing that way that our shares trade, but won't have any impact for our shareholder economics.

Here, there is a question. I think you answered part fairly on the financing of the proposed -- on the funding of the proposed dividend -- just want to understand the pro forma figures in terms of leverage after the dividend.

Well, if we go just directly, the dividend will be ARS 64 billion, it's not clear yet if we're going to pay in only 1 installment or different installments. So we will decide that between now our shareholders meeting will decide that in the next month. So if we consider that the ARS 64 billion in real dollars, around $85 million. We have disposals after the fiscal year for $24 million, $25 million. That means that we still have to refill to use other sources for $60 million, and the company today has more liquidity than that. So we can use our own cash to pay the dividend or we can use another sources, but we are defining that since now until the shareholders' meeting.

What is your current assessment of NAV per share per GDS? Well this figure we show it always expressed at the official effects you're going to see in our presentations. As of fiscal year '23, this is $2.1 billion. It's around $526 per GDS. But this is all at official. So you have the problem here with the gaps and the dollars, but it's a figure just to have an idea or in mind. I think the rest of the questions were answered in some way, if you have any additional questions, we can submit for additional questions. The Argentine macro situation? I'm looking forward to next year in 2024, how it will impact the business.

It's a little uncertain what could happen in Argentina. Next year, you know we have elections in the coming months. It seems that we will have a change in the regime. What we are happy to see the discussions behind the candidates and it seems that Argentina should enter in a new trend and a more normal situation where we have a lot of imbalances that should be corrected. We see probably a first trend to accommodate all relative prices that could impact on the economy and probably we will see a slowdown on the economy at the beginning because there are many, many things that should be corrected that will have an impact in consumption in some way. So we are analyzing that. Then the rest I believe that the company is very well prepared in terms of our current capital structure to face all the changes that could happen in the economy. We don't know today what will be the currency. We don't know what will be the proposals. But I think having the company with the lowest level of leverage ever, I would say is a good way to face what could happen in the future. And also the company is very well prepared for future expansion. We haven't launched projects -- big projects in the last years, so we work more in our capital structure, but the company is ready to grow. We have plenty of projects to launch. So we hope to see a normal economy. If we have a normal economy, the cost of capital for the companies will be lower, and we can speed up the process of new development.

Some additional questions regarding the dividend level, if this is recurring or there is an element on the tax decision from the Supreme Court that is boosting this dividend level is the tax gain and one-off?

Well, Álvaro, I won't say that this kind of dividend is recurrent. No, I would say that if we analyze the history of IRSA Commercial Properties, every time that we can pay dividends we pay, but we don't want to say or to fix the dividend to a policy because of the volatility of Argentina. This year, when we analyze the next year CapEx plus the current debt, plus the current levels of liquidity, we feel comfortable to maximize the dividend to our shareholders. But in the future, the decision will be taken, analyzing all those drivers. Related to the tax decision, it's not related to the Supreme Court, nothing. So we have the results. We can pay, and it's not related to that order.

And another one from Álvaro from BTG. Why are you distributing repurchase shares and not canceling them?

Well, this is something, Álvaro. I don't think that this is technical. At the end of the day, the consequences of the 2 is the same. Now we can cancel or we can distribute at the end of the day is the same. I think we used to distribute all what we acquire is something that we did it in the past, and we are repeating. But it's not -- I think it's more like something that we have been doing, that's something that one alternative is better than the other. So we prefer to do this.

The last one, regarding the net debt after the disposals and the dividends, at which level it will be the target related to the leverage of the company?

I would say that the current level of debt is lower than the optimal point. So after -- as I said, we have to pay a dividend that is around -- sorry, is around $85 million. We sold properties after the end of the quarter. for around $25 million. So let's say that from the number that you are seeing there, we will increase debt for around $60 million -- that is without accounting the cash generation or the rest of the cash generation that today, we are generating around $10 million per month.

Well, with this, I think we cover all the questions. We conclude the Q&A session and the presentation. And we thank you very much for participating. And I will turn back now to Matias for his closing remarks.

Thank you, Santi. Thank you, everybody, for your participation and your support. We are very happy with all the performance in the last years. We believe that we are very happy with the tremendous execution and everything that we did in terms of real estate on the financial side and on the operational side. So we hope to see a normal economy going forward and see IRSA growing again in new projects. So thank you very much, and have a good day. Bye.