Irsa Investments & Representations Inc Q1 FY2025 Earnings Call

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the First Quarter of Fiscal Year 2025 Results Conference Call. First of all, I would like to remind you that both audio and a slideshow may be accessed through the 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.

Thank you, Santi. Good morning, everybody, and thank you for joining us in our first Q 2025 fiscal year. We started the year with an adjusted EBITDA that achieved ARS 46.9 billion. That is 8.8% below the previous quarter in 2024. That, as we will see later, is mainly related to our Hotel segment. The Shopping Mall segment remained stable, and the office portfolio, due to the reduction in the square meters, is a little lower than the fiscal year ago, but in terms of the metrics, is exactly the same. In fact, we increased our occupancy a little bit. Regarding the net income, we posted a loss of ARS 109 billion. This is a non-cash effect, mainly related to the valuation of our investment properties that we will see later in better detail. Regarding the tenant sales, we started to see some recovery. There is a slight recovery of 7% against the previous quarter, the fourth quarter of 2024, but still 12% below numbers from last year. We will see some evolution later as well. Regarding the office occupancy, we reached 98%. In shopping malls, we are at 97%. Also during the quarter, we were active in some acquisitions. We acquired a plot of land adjoining our Alto Avellaneda shopping mall for a future expansion. And finally, regarding the dividend payments, we announced and we already paid in Argentina, dividends for an amount of ARS 90 billion. That is around an 8% dividend yield. And also, we distributed shares in treasury for around 3.6% of our stock. So let me introduce Santiago Donato, our IRO, to follow the presentation.

Thank you, Matias. We can observe the trends in real tenant sales at our shopping malls and occupancy rates. There are indications of recovery in the first quarter of 2025 compared to the previous two quarters, although tenant sales remain below inflation levels. We are currently 12% down compared to the first quarter of 2024, which was one of our best quarters in recent years with a 10% increase due to heightened inflation and consumption during the electoral period. It was the best quarter in the last five. In terms of occupancy, there was a slight decrease to nearly 97%, with some vacancies at Dot Baires Shopping that we expect to fill soon. We don’t anticipate vacancy issues and expect our malls to perform well in the coming quarters as economic activity and real salaries recover. In the office segment, we have continued to sell some floors in recent quarters, having sold two floors from our latest development in Catalinas last year and one additional floor after the quarter ended at very competitive prices. We now have three floors left in that building and manage 58,000 square meters of office space, predominantly A+ and A grade, with only one building, Phillips, rated in category B. Our premium portfolio's occupancy has risen to almost 98%, which is significantly higher than the average for premium buildings in Buenos Aires City. This increase can be attributed mainly to improvements at the Dot Building next to the Dot Baires Shopping Center. Rents have remained stable in dollars, slightly lower but averaging $25 per square meter for the A+ and A buildings. Turning to our hotel segment, this quarter presented challenges, which we anticipated at the end of last year due to the strong performance hotels experienced over the past two years when we achieved record EBITDA and occupancy levels. However, we are now facing a decline in tourism due to reduced FX competitiveness, evident in the drop in our portfolio occupancy from 66% to 55% across our three hotels: Libertador, Intercontinental in Buenos Aires, and Llao Llao Resorts in Bariloche. Hotel rates have similarly decreased. Despite this downturn, our hotels continue to generate substantial revenues, offering good diversification for our rental portfolio. The future of this segment will hinge on FX and tourism trends in the coming years. I will now hand it over to Jorge Cruces, our Chief Investment Officer.

Good morning. We have acquired a property next to the Alto Avellaneda shopping mall. The total area of the property is 87,000 square meters, with a built area of 33,000 square meters. The purchase price was $12.2 million, of which $9.2 million has already been paid, and the remaining $3 million will be settled upon the transfer of the deed, which is still pending. The project previously known as Costa Urbana has been renamed Ramblas Del Plata, which was revealed at the Expo Real Estate Argentina event in August. In September, a public hearing was held to obtain environmental approvals for Stage 1 of the development, and we expect the approval soon. Once we receive the environmental approval certificate, we will begin construction on the infrastructure, roadwork, and public park for the first stage around the central bay area. During the Buenos Aires Real Estate Expo, we launched the development, leading to several expressions of interest from major developers. Many of these interests will be handled through barter agreements, while others will be direct purchases of the lots. The real estate and residential markets have undergone significant changes since the 2001 crisis. Previously, it was an investors' market, making it difficult for families to afford apartments due to unfavorable salary-to-housing ratios and a lack of mortgage options. Recently, changes in rental laws have encouraged more leasing activity, reducing the number of available small apartments previously held by investors. As a result, more people are buying homes, leading to increased prices and a growing awareness of this trend. We are experiencing positive momentum in the residential market, particularly with existing stock. Pre-sales have yet to gain traction due to ongoing negotiations about construction costs, but the current momentum remains strong. Ramblas Del Plata is strategically located near the Obelisk, offering excellent transportation access and various entertainment options. The project complies with the central area transformation regime initiated by the city of Buenos Aires, aiming to enhance the area and convert it into residential use. It is being developed through a trust agreement involving Banco Hipotecario for the land, several money trustees, IRSA as the developer, and TMF as the trustee. The project will include 721 apartments, 224 parking spots, and a commercial ground floor that offers amenities like a multipurpose room, swimming pools, massage rooms, a gym, storage units, and bike racks. Currently, the building is hosting Casa FOA, a major architecture and design exhibition in Latin America. Sales offices and model units have been created for the exhibition. The architectural project is ready for bidding, while the first phase of construction is underway, focusing on basement demolition and preparation for future bids and major civil works. Regarding Project Nexo Dot, it will take place in an empty area between the Dot Shopping Center and the Zetta building, which has been converted into office space. This project includes 160 apartments, two office levels totaling more than 5,000 square meters, and 79 parking spaces, targeting digital nomads to promote interaction with the shopping center. We are currently awaiting the renewal of the environmental aptitude certificate, after which we will submit work plans and construction permits. La Plata Distrito Diagonal is another project located on an 8-hectare block in northern La Plata, where two large supermarkets and a home center have recently been established. This mall will be an open-air shopping center with two floors, while the remaining 15 lots will accommodate residential and commercial developments, with a total construction capability of 78,000 square meters. Construction for Stage 1 began in September, and once significant progress is made, we will move forward with marketing the 15 lots, replicating a successful strategy we previously employed in Alto Rosario. City Block 35, Tower 3 is situated in the Caballito neighborhood of Buenos Aires and includes three towers of varying heights—27, 22, and 18 floors—with a total of 500 apartments and two levels of parking with 500 spaces. We have recently adapted the project to fit new market demands, and while the concrete structure and elevation are complete, masonry construction is currently ongoing. Now, I will turn it over to Matias, our CFO.

Thank you, Jorge. Moving to the next page, we can observe the changes in key macroeconomic variables, including foreign exchange and inflation. During the quarter, the peso significantly appreciated. When looking at the dollar MEP and the blue chip swap, we note a 20% appreciation of the peso, while the official exchange rate showed a 5% appreciation. Consequently, when we assess our investment properties in pesos, we will report losses, as their value in dollar terms has remained stable. In fact, we saw a slight increase in the valuation of shopping malls in dollar terms. However, once we adjust those figures for inflation in pesos, we need to report losses. This is the primary reason for the substantial loss visible in our bottom line. Importantly, this is not related to cash flow. In reality, all real estate values in Argentina are denominated in dollars. We believe, as Jorge pointed out, that we will see a rise in prices. Currently, this is not captured in our valuations, but we expect to see recovery in the next few quarters. As we look at the next page, we note that the adjusted EBITDA is 10% lower than a year ago. Shopping malls have remained stable, while office performance is down due to a reduced portfolio. When adjusting last year's figures for inflation, we find the adjustments exceed the valuations. Our agreements and portfolio are priced in dollars, leading to adjustments that outpace the official exchange rates. In hotels, there is a significant 60% decline, attributed to decreased occupancy and lower rates in that segment. Margins in shopping malls, however, remain strong, nearing 80%, while we see reduced margins in hotels due to the same reasons previously mentioned, alongside inflation-driven cost increases, primarily salaries. Regarding changes in fair value, there is a substantial loss of nearly ARS 225 billion, which I just described. For net financial results, we are recording a gain primarily from two factors. The first is the FX impact, as we are required to value our debt in pesos; the appreciation of the peso results in this gain. Additionally, gains from the fair value of our liquidity portfolio total ARS 7 billion. Net interest has remained stable compared to last year, and our debt levels have not changed significantly. As for income tax, we observe a gain of ARS 55 billion, linked to deferred tax on investment properties. Each time we recognize a loss in fair value, we record a gain in income tax due to reduced tax liabilities if properties are sold at those valuations. On current tax, we report a loss of around ARS 20 billion. We are likely to begin paying taxes again this year as we have utilized all our tax credits, although this is not merely a straightforward multiplication of that figure by four due to various factors to consider in the upcoming quarters. Ultimately, we report a net loss of ARS 109 billion, with ARS 105 billion attributable to our controlling interest. In dollar terms, over the past years, we see a steady performance, with EBITDA of $162 million across the three segments. This figure excludes real estate and rental activities, which are our more stable cash sources. Looking at our debt, we completed a new issuance in October, including two tranches: one with a five-year maturity at an interest rate of 7.25%, expiring in fiscal year 2030, and another smaller tranche of $15.8 million with a three-year maturity at an interest rate of 5.75%. After accounting for dividend payments, our pro forma net debt stands at $297 million. We maintain conservative ratios, with a net debt to rental EBITDA of 1.8x, an LTV of 14%, and a coverage ratio exceeding 8x. This does not encompass other parts of the portfolio that aren’t currently generating cash, so we feel confident in our debt position. Concerning dividend distributions, our shareholders' meeting approved a dividend payment of ARS 90 billion, yielding an 8%. This payment was processed two days ago in Buenos Aires for our ADR holders, and it should take about 10 to 15 days for the payment to finalize without anticipated delays. Over the past three years, we have paid out approximately $250 million in dividends, based on the blue chip swap, marking an extraordinary period of high dividend payments. Given our inactivity in launching new projects in recent years, we opted to allocate most of our cash towards strengthening our capital structure, including share repurchases, debt reduction, and dividend payouts. Today, we have a very robust financial structure. Regarding our share repurchase program, we concluded the last program in September, which accounted for around 1.6% of the shares at an average price of $9.94 per ADR. With that, we complete the formal presentation and now open the floor for a Q&A session. Thank you very much.

Okay. We'll start with the Q&A session. If you have a question, please use the chat. We will receive them in the order we receive them. We have the first from Marina Mertens from Latin Securities. With the next quarter being seasonally strong for shopping malls, do you expect tenant sales to show a further recovery compared to the same period of last year? And given the significant reduction in office assets in recent years, are there plans to rebuild or expand the office portfolio? Or is exiting from this segment a possibility?

Let me discuss tenant sales first. It was a year of significant fluctuations. When we look at the consumption trends over the last few quarters, we see that under the previous administration, there was an increase in consumption and inflation. After the elections on December 10, when Milei took office, the environment changed drastically. In the next quarter, when we compare the numbers, we will still see the first two months reflecting the previous administration's booming consumption, while the final 20 days will show the new circumstances. We believe we will continue to see recovery compared to the last quarter. Although we may see weaker numbers compared to last year, especially in December, we anticipate improvements. Previously, there was an 18% decline; this quarter, it's down to 12%. We expect better results in the upcoming quarter. The third and fourth quarters of this fiscal year should improve significantly, as we will be comparing with the new administration and we are beginning to see recovery in real wages. We have a positive outlook for those numbers. Regarding our office portfolio, we don't aim to simply accumulate properties in Argentina. We need to actively manage our portfolio. When we identify promising opportunities to sell, we will proceed with selling. Similarly, if we find good opportunities to develop or acquire properties, we will pursue those as well. We are not focused on achieving a specific square footage in our office portfolio or returning to our previous levels. Our decision-making hinges on spotting valuable opportunities for acquisition or development, without pressure to restore the portfolio to a set target.

Here, we have another question regarding Ramblas Del Plata. How is the processing of Ramblas Del Plata progressing? What are the next steps? What has changed since the last earnings in September? Since, Jorge, you mentioned something, but if you want to add some color on that process, how it's going to...

The interest from developers is very strong. We will soon begin signing barter agreements and sales agreements. That's the main development over the past month. As I mentioned earlier, we are on the verge of obtaining the environmental approval certificate, which will allow us to commence work. The significant change since the Real Estate Expo has been around commercialization, and it's been quite interesting to observe the developers' growing interest in our project.

And they are asking also, Jorge, here regarding the environmental processing if you can add something regarding the recent public hearing that ended on September 6.

We had a significant hearing last year about the entire project, and right now, we are in the first stage of a normal process. During this process, people express their views on what impacts the environment positively or negatively. We might receive some feedback from the government, but it's uncommon to get many comments because our presentations are typically prepared in collaboration with the government and the RK. Therefore, I don't foresee any issues. As I've mentioned before, we are expecting to receive the certificate at any moment, allowing us to commence work on the first stage.

I'll give it a few more minutes. If there is any additional question, you can use the chat. Okay then, if there are no more questions, we conclude the presentation. I will now turn back to Matias for his final remarks, and thank you for joining.

Thank you, Santi. For this first quarter of the fiscal year, there is like a new trend in consumption, but also very positive for real estate in general because of the tax amnesty and the launching of the mortgage industry again. This is a very important trigger for real estate. So we start to see, as Jorge has shown, good trends in signed deeds and movement. That is very, very positive for IRSA because we will have a lot of properties and projects to sell. So we start to see an increase in demand that will trigger prices. So we are very confident about that. And we are ready to be more aggressive in the development side with our financial structure very conservative, and we start to see good opportunities. We can monetize part of our portfolio and launch new projects again. So we hope to see that in the coming year. So, thank you very much for your participation. We will see you in the next call in February. Thank you very much.