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

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the third quarter of fiscal year 2025 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 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. Matias Gaivironsky, CFO.

Good morning, everybody. We are beginning our call for the third quarter 2025 results. We are glad to post a gain of ARS 35 billion, reverting the loss that we had in the previous 6 months as of December, that was ARS 40 billion. During the quarter, we saw, again, positive trend regarding our tenant sales. In fact, there was an increase of 13.4% compared with the previous or the same quarter of the previous year. We still are below when we sum all the 9-month period, 4.6% below the previous year, but we see a positive trend going forward. In fact, during the last quarter, using the last 12 months in dollar terms, we are posting a record high EBITDA for the malls for the last 10 years. Regarding the Offices, we maintain our occupancy at 100%. Hotels, we saw a drop in revenues and occupancy that we will show later. About “Ramblas del Plata, the main project of the company, Jorge will mention the good progress in the commercialization of the project. So we are very happy on the results, considering that we launched the project just around 9 months ago. Finally, during the quarter, we tapped again the international capital markets, issuing notes for 10 years for $300 million. So with that, let me introduce Santiago Donato, our IRO, to continue with the presentation.

Thank you, Matias. Well, here, we can see the operating figures for the Shopping Malls. As Matias mentioned before, this segment continued its recovery process and observed very good results, great results in the third quarter of the fiscal year '25. As you can see, tenant sales grew by 13.4% compared to the same quarter in 2024. This is the first quarter of real growth since the current government took administration in December 23. So great news, shows the recovery of the economic activity and real wages in Argentina. In the next page, we can see the 10 years historical EBITDA in dollar terms. The malls are showing great results in dollar terms. They reached an EBITDA of almost $160 million. This is a record in our last 10 years. That was an average of 100 -- almost [ $20 million ]. So really good performance on the malls. Occupancy reached levels of 98.1%. This is excluding [ Terrazas de Mayo ], our latest shopping acquired recently that we expect to improve its occupancy level in the coming months. In this page, we can see the operating figures for the Office segment. We currently manage a lower stock, just 58,000 square meters of GLA. Remember that we have been selling, since the pandemic, many square meters. We hold a portfolio of 58,000, mostly A+ and A, mostly premium. The Office segment is evolving very, very favorably, mainly in terms of occupancy. There is -- we are seeing a higher return to office in Buenos Aires city. So we think that if the GDP grows next year, we can see even an increase in rents that until now, they remain in levels of $25 -- stable at $25 per square meter per month. From the 3 rental segments, the Hotels are the ones, even though it is marginal in our portfolio, is the one that is more challenging this year. After 2 years of recording record EBITDA and occupancy, this year, the hotels and the tourism activity in Argentina is facing lower influx of international tourism due to the FX appreciation or depreciation of the peso, the Argentine peso, compared to the U.S. dollars. But we still have a good level of occupancy, 65% is the average of the 3 hotels. [ Llao Llao ] is affected, but this is affected because there is -- we are doing some construction works, some rooms that are under construction works. And rates are a little bit down, but it's a good diversification to our portfolio. And the shopping centers in the total rental segments are more than compensating this effect in Hotels that is more marginal. So really good results in the rental segment. And I will now give the word to Jorge Cruces, CIO, for all the development part of IRSA.

Thank you, Santiago. Good morning, everybody. The project, Ramblas del Plata, is the most important and ambitious real estate project in the history of the city of Buenos Aires. It will change the landscape of the city, bringing life to an undeveloped area and will be an exceptional project due to its size in a such a boutique location, providing the possibility to the city of Buenos Aires of expanding and recovering its access to the river coast with public parks. Reviewing key figures of the project, 170,000 buildable square meters, 693,000 sellable square meters, 10,000 new houses or homes on an estimated investment of $1.8 billion. Regarding the marketing strategy, originally, the project was divided into 3 stages. Recently, due to the great interest of developers, we decided to expand the first stage of adding -- by adding 6 more lots to the original 14 lots, which means that Stage 1 now covers over 164 sellable square meters, Stage 2 now covers 259 sellable square meters, including lots [ A14 and F01 ]; Stage 3 covers around 270,000 sellable square meters. [ Commercialization ] progress. Since January to date, we sold 2 parcels, [ A02 and G01 ], for $23.4 million. And we signed swaps for another 9 parcels or $42.7 million. The total operation add to $166.1 million and represents 95,000 sellable square meters. At the same time, we are moving forward with another 9 swaps, of which 3 are in an advanced stage. Altogether, regarding the extended Stage 1, we estimate sales for $120 million. Construction work in progress. The environmental approval certificate was issued in December, enabling us to start construction in January of the infrastructure, roadworks and public park of our first infrastructure Phase A around the Central Bay Area. The infrastructure work will be in the service of 27 plots. We estimate an investment of $27 million. Regarding the construction, as we said, in January, we broke ground with the earthmoving works, consolidating the earth mound around the Central Bay. And shortly after, the sheet piling work started, which have now reached almost 40% completion. Additional, recently, we have started the roadworks, sewers and drainages of Phase A. Also, we will be receiving biddings and awarding other contracts in the next weeks, plantation buffer forest and recovery of the Central Bay water body. [indiscernible] del Plata. The project is located in the heart of downtown Buenos Aires, a few steps away from the obelisk, around 720 units developed at 13 levels with 8 commercial shops, 35,000 sellable square meters. As of today, the trust has sold 51 units or $7.8 million at an average price above $4,000 per each square meter. And there are 23 other operations in the signing process for another $3.5 million, [indiscernible] in the city of La Plata. The mall is an open-air shopping center with 22,000 square meters of GLA. Construction works are in progress. We are finishing the [ sole ] movement phase by the end of this month. We've started outdoor gas infrastructure work, and we estimate completion by October. Also, we have started with the concrete and steel structure work, which will continue throughout the year. Additionally, we will be awarding new contracts in the short term, main contractor, [ Mason Re ], dry construction, electric installation. [indiscernible] The development is in [ La Plata ], Southern great Buenos Aires. The overall project has 313 single-family lots and 6 multifamily lots, of which 124 single-family lots and 2 multifamily lots are ours. To date, we have sold 38 single-family lots for $5.8 million. We expect the infrastructure will be completed during next summer. Now I will give the floor back to Matias. Thank you. Oh, I'm sorry. Regarding the mortgages in Argentina in the city of Buenos Aires, we mentioned this before, but it hasn't -- it's been having an evolution this last past year. As comparing with our GDP, we have mortgages at 0.5%. Obviously, this is very low for the world and even for the region. Now credit needs in Buenos Aires City regarding the transactions in the Buenos Aires have went up from 3% to 21% and maybe less than a year. So this is -- has an effect on the prices in the whole market of Buenos Aires. Prices in neighborhoods are going up between 12% and 22%, depending on the neighborhood. And not only that, there's -- as I said before, there's much more transactions in Buenos Aires. This has been going on for the last year, and we believe that it's going to continue. We believe that actually residential prices at Buenos Aires is going to continuing going up. So this is very important for us. But we have a very big portfolio to develop. So this is -- it's very important for us the projections of how the price is going to go up in residential market. Now I'll give the floor back to Matias. Thank you.

Thank you, Jorge. So to analyze the results of the quarter, we have to understand what happened with inflation and devaluation in Argentina. As you can see from the graph, there was an appreciation of the peso, both in the official exchange rate and in the blue-chip swap. Remember that we value our investment properties, the shopping -- sorry, the Offices and the land bank at the blue chip swap and the Shopping Malls at the official exchange rate. So when we have an appreciation of the currency in real terms, that means that we posted losses about that properties. That was the main reasons why in December, we posted losses in our net income line. So when we see the adjusted EBITDA for the rental segment, we see a drop of 4.9%. That was triggered mainly by the Hotel segment, where we see a drop from previous to the 9 -- almost ARS 9 billion of the current year. Remember that when you have to compare figures that were more related to dollars, that is the case of the Hotels and the Offices, when we expressed the previous year by inflation, but considering the appreciation of the peso means that the last year figures appeared in pesos term more inflated, like are bigger. In dollar terms, when you divide that price at, that level into dollars at the current level, it seems that is much higher than it was last year. But -- so that is the case, basically, of the Offices that here, we see a drop of 20%. But when we analyze that number in dollar terms, are very similar than the previous year. And about the Shopping Malls, we see an increase of almost 10% compared with the previous year. About margins, we see normal numbers, a little higher than the previous year in Shopping Malls, in Offices, a little lower and the Hotels that were affected by the current macro situation in Argentina. About the fair value, last year, since there was a reduction of the gap between the official exchange rate and the blue-chip swap, we posted losses that previously, we market the properties in peso terms at a higher exchange rate. This year, this drop decreased, but still significant of ARS 141 billion. If we analyze that number in dollar terms, we will see that we generated an appreciation of our Shopping Malls since there was a reduction in the country risk, the DCF model that we are using, we are increasing the value in dollar terms at the beginning of the year. That number was around $755 million. In -- as of March, that number is [ $1.46 billion ]. The rest of the Offices and the land bank remain stable in dollar terms. About the net financial results, we see a positive number this year, ARS 52 billion compared with a higher number last year, ARS 111 billion that has a similar effect than what I mentioned, in dollar terms, is similar. But when we convert that in pesos adjusted by inflation, then the previous year seems higher than it was. About the income tax, we are -- we have a ARS 21 billion loss that is related to the -- with a gain of the valuation of the -- since we have a loss in the valuation of investment properties, we have to mark a gain in the deferred tax. But with the tax of the year, that number is lower, is ARS 21 billion negative. With all these drivers, we finished the 9-month period with a gain of ARS 33 billion -- sorry, ARS 35billion compared with a loss of ARS 174 billion last year. About the rental segment, in dollar terms, the evolution of the last 12 months period, we can see that it's -- we posted -- or we have an EBITDA of $177 million that is higher than the previous 2 years and probably the record in the last 10 years. Well, finally, about the -- our debt structure. During March, we decided to tap the international capital market again after -- there was -- the last time was in 2016 that IRSA issued bonds in the international capital markets. So we saw an opportunity to extend the tenor of the debt. Remember that we had a very conservative debt structure with very low leverage. The current numbers is only 1.3x EBITDA, the rental EBITDA, the recurrent EBITDA and LTV of only 10%. So we're -- very, very conservative ratios, but used to be more concentrated in the short term because there was no access for the international market that may -- probably you can extend tenor of the debt. So when we saw the window opportunity that was open for internal for Argentine corporates, again, we decided to tap the market. So we issued a 10-year bond that expired 33% per year from 33 to 35, with an interest rate of 8%. So the transaction was at a yield of 8.5%. So with that, we still maintain very conservative ratios. But now our debt is in the long term, so we feel much more comfortable with this very conservative debt structure. So with this, we finished the formal presentation. Now we open the line to receive your questions.

Well, now is the time for the Q&A session. If you have a question, please use the chart. We will take them in the order we receive them. Yes, we have some. Regarding Ramblas del Plata”, when is the construction of the first building of the project expected to begin? When will the urban development works be completed? So initiation and end of the project.

Well, the work should be completed for this first -- for Stage A. We believe it's going to be completed next year. Maybe in the middle of -- maybe by July of next year, it should be completed. And regarding the first building, the first buildings are going to start maybe in a year from now or 10 months from now. The developers are making their plans to projects and all the permits from the city hall. So I believe the buildings are going to start developing within the year.

There's a question regarding CapEx plan. Is the company entering into a more intensive CapEx base? And then, will the net financial debt-to-EBITDA ratio rise?

Yes, we -- as you know, during the last 5 years, IRSA was very concentrated in our own capital structure. So we decided not to launch new projects. There was an opportunity to cancel debt, to buy back shares and to pay high dividends. So we decided not to launch new projects in that environment with more uncertainty. Today, we see the future with a lot of optimism. And we believe that we are ready to grow. So Jorge some of the projects that we already launched. But regarding the -- it's not necessarily true that we will increase the leverage with the current projects that we launched. Now we -- as Jorge mentioned, Ramblas del Plata, we are executing a strategy where IRSA won't invest money. So developers will make the investment, and IRSA will receive square meters. So we are developing our most ambitious plan, but in a way that we won't to invest money, at least in this first stage. Probably in the future, you will see us developing some of the buildings. But at the beginning, to give speed to the projects, we are doing through developers. The shopping mall of La Plata is not a big investment. It's an investment of around $40 million to $50 million that will be deployed during the next 2 to 3 years. So that means that it's $15 million per year. So it's not significant for our cash generation. So -- and probably we will land some other projects, but not so big. So probably what we are looking is for opportunities to acquire more things. So if we execute some of the -- we find opportunities, maybe we will deploy part of the use of the money from our bond, bond that we issued to buy new things. So in that case, we can increase the leverage. But remember that the current ratio is the lowest, probably the lowest ever for IRSA, is 1.3x. 10% LTV for a real estate company, that is nothing, probably won't be very efficient in terms of our capital structure. So probably we will try to increase a little the leverage. So -- but basically, we will control that through the CapEx and dividend payments. So that will be the trigger of our debt to go up.

There are some questions here regarding CapEx, investments, I think you have already answered. Here is an additional in that direction. Could you elaborate on the structuring of the agreements with developers for Ramblas del Plata? And what is the upside in proceeds that IRSA keeps? Probably explain a little bit the swap, how it works in terms of percentage and what IRSA will receive in the future and this upside that IRSA keeps doing this way through swaps?

The swaps, we give the land, we give the lot, and we agree with the developers in a percentage. A percentage nowadays is quite low because we're just starting. So we're starting at maybe 25%, 26%. In the near future, we're going to be close to 30%. But then again, it's a whole new development, a whole new neighborhood, starting by the Bay. So we will be receiving those square meters, maybe in 2, 3 -- 3 years from now. And from now until then, the market is going to be -- is going up, as I said before, the residential market in the city of Buenos Aires. But also, because the neighborhood, it's starting, it's -- month by month, it's going to be more expensive. So from here until we receive the 25% of the square meters, 3 years from now, it's going to -- there's going to be more value on each square meters. We don't need the money today. As I said before, we already sold 2 plots. So we have the money more than enough for the infrastructure, for all the market needs. So in meantime, we're going to be with the developer, developing through the developers. And later, we're going to be developing ourselves with partners or by ourselves. Don't forget, in Argentina, we have presells. So usually, you don't need that much money to develop. So that's the way it works in Argentina. That's the way we're doing it. And it's just the first stage. So there's a lot to be done in the future.

Here is -- there are some -- many questions regarding dividends, dividends policy going forward. And if we plan to do some new share repurchase program, how that will move forward in the coming months?

Okay. So as you can -- you saw from last year's, we paid high dividends during the last 4 years -- 3 years with a dividend yield of around 15% -- almost 15% during the last 3 years. Today, the main limitation that we have are our accounting results, not liquidity situation. We feel very comfortable with our debt structure and liquidity. So it's not a problem. But there is a limitation about the accumulated results. But we have to have positive numbers to pay dividends and to buy back shares. So we just posted this gain of ARS 33 million, so that gives us a little room. So we will see -- we will wait to see our final numbers in June and then decide the dividend payment. As always, our shareholders' meeting is around October. So during that month, we will decide the dividend payment. But -- yes. So we don't have a fixed dividend policy. But our behaviors is that -- was that every time that we can pay dividends, we pay dividends. And with this debt structure and low leverage, definitely, we will keep paying dividends in the future.

What is the blended yield of your shopping centers portfolio based on the latest valuation?

Today, it's at $1 billion. So considering...

It's like approx 7x EBITDA. This is like a 15% cap rate. The shopping centers are generating well in terms of EBITDA, $158 million.

I tell you, this is the only driver in our books that is more difficult to value since you don't have market transactions. In the case of the Offices and in the case of the land bank, there are plenty of operations in the market that you can use as comparable with your own portfolio. So that part is much easier to value. In the Shopping, since we are performing the DCF, the way that we value the property is that we engage a third-party appraisal. In this case, we are using new work to value the properties; they are performing a DCF model. And in the DCF, you have to use the parameters of the market. And also, the country risk or the discount rate today that use a financial rate is much higher than what the participants in the market used to buy real estate. In fact, if you value at the DCF Mall and Office, where the participants paid 6% cap rate, 7% -- 5% cap rate valuation should be much lower. But in the market, you can sell properties easily at a much lower cap rate using a DCF one. What I'm trying to say is that the Malls or valuation is still very conservative, but it's our best that we can do to approach fair value.

One more. Is there really clause that allows -- I imagine that is regarding Ramblas or any other swap. Is there any clause that allows IRSA to retake a property if construction of the building has stopped or failed to reach a timeline? When do you effectively transfer the land?

Yes, actually, there is. If the developer doesn't -- isn't able to develop for any reason, even if it has problems with city permits or whatever, whatever problem developer has, the land should -- it goes back to us. Hopefully -- it never happened to us in the past. Hopefully, it's not going to happen to us in Ramblas.

And also, we maintain a mortgage on the land.

We'll take a mortgage in the land. But for it to get back to us, a lot of things has to happen. As I said before, it's written that way. It never happened. We never had that case, scenario in the past. So hopefully, it's not going to happen in the future.

One question. Well, I will -- some -- regarding noncore assets, what are your plans for the 30% stake in Banco Hipotecario? And also the Hotels division that is a little bit smaller now, are there any plans to sell the division into a rising market?

Well, About Banco Hipotecario, we are happy with the performance of the bank during the last year. Now we started to receive dividends from Banco Hipotecario. In fact, this year, we will receive around $15 million. Last year, it was around $12 million. So there's -- generate cash for first time in many years. So we are happy with the performance. The bank has plans to increase their capital in order to expand their business. So we are happy with the evolution of the strategy of the bank, and we support the strategy. So we hopefully see the banks growing in the future. And about the Hotels, Jorge?

As mentioned in the question, we -- it hasn't grown since a long time. We bought the hotels in 1997 -- 1998, and it hasn't grown since. So yes, we're not planning in growing anymore. And yes, if we can sell one of our hotels in the city of Buenos Aires, we will try to sell it. As you said, it's a rising market. Argentina is doing much better. There's going to be more institutional investors. So yes, we might be -- we might try to sell one of our -- one of the cities we have in Buenos Aires.

I will go with the last one, 2 in 1 regarding on the financial front. So you are canceling the $100 million in loans that you're having in the short term this year? This is one. And the other one. If there are plans to issue more debt in the international markets, do we expect conditions to improve and help reduce cost of financing for IRSA and other corporates in Argentina?

No. About plans to issue more debt, no, we don't have needs to raise more cash. Regarding the consolidation of $100 million debt, yes, we mentioned that part of the use of proceeds of the new bond was to cancel the existing debt. So in fact, from the $300 million that we raised, $58 million were in exchange of the previous bond. So that is not -- do not imply new cash for IRSA. So from the remaining $242 million the net of the discount price that we issue and cost of the transaction, we received around $231 million, $232 million. So part of that will go to cancel existing debt, and the remaining will go to finance opportunities that can appear as an M&A transaction or to finance the existing developments.

Last question. Has the company considered investing into logistics?

Well, for some time, now we -- yes, we are planning or analyzing the possibility to get into that business. We think it's a great match for us, having been in office for many years. And we think we have a great strength to get into that business. That business is growing. It's growing fast. So yes, we are considering to get into logistics. We are analyzing the way to get in, and we have been for some time now.

Well, with this, we like to have a lot of people attending the webinar. Good times for Argentina. And a lot of questions, that is good, we appreciate. I will now turn the call to Matias for his closing remarks.

Thank you very much for your participation. So we are very positive about the future for IRSA. We believe that is -- with the normalization of the economy and the access for credit, the real estate industry has a lot to grow. At IRSA, we are very well positioned to take advantage of the new cycle with plenty of new projects to launch. Also, our main segment, the Shopping Malls, has start to show positive numbers again compared with previous year, with the highest EBITDA levels for many, many years, very healthy position that will allow us to take advantage of market opportunities. So we hope to see a new cycle for IRSA with a lot new projects to come. So thank you very much for your participation, and hope to see you in the next quarter.