Earnings Call Transcript - IRS Q4 2025

Santiago Donato, Investor Relations Officer

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the Fiscal Year '25 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 the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's earnings release regarding forward-looking statements. I will now turn the call over to Mr. Eduardo Elsztain, CEO.

Eduardo Elsztain, CEO

Thank you so much. Good afternoon, everyone, and thank you for joining us today. We are closing fiscal year 2025 with strong progress and important milestones for IRSA. First, we delivered a net gain of ARS 196 billion compared to a significant loss in the previous year. Second, our Shopping Malls show a solid recovery with adjusted EBITDA growing by 10% year-over-year. Third point, we express our Malls portfolio through acquisition and developments, including Terrazas de Mayo, which we acquired from Carrefour, the adjoining piece of land of Alto Avellaneda, which is 8 hectares next to our shopping, and the launch of a shopping center in La Plata, which has no shop in that city. Four, regarding the Office segment, rents remained stable, and occupancy of our premium portfolio reached almost 100%. Hotels were challenging due to the appreciation of the Argentine peso against the U.S. dollar and registered lower revenues and occupancy. Five, we also achieved significant progress in Ramblas del Plata with 13 transactions completed, including cash sales and swaps totaling approximately 111,000 sellable square meters. That's a big, big change for an asset that was in the company for more than 28 years. Six, on the financial side, we successfully returned to the international capital market after nearly a decade issuing $300 million in Series XXIV notes with a 10-year tenure and executing the exchange of Series XIV notes. And seven, we distributed an 8% dividend during this fiscal year and treasury shares equivalent to 3.6% of our capital stocks. These achievements demonstrate IRSA's resilience and our continued focus on creating long-term value for our shareholders. Now I will leave you with the team to guide you through the presentation and the details of all the whole year, which has been a very special year. Thank you.

Santiago Donato, Investor Relations Officer

Thank you, Eduardo. Moving to the following page. Here, we can see the Shopping Malls performance. They continued their recovery process and observed very good results in the fourth quarter of fiscal year '25. Tenant sales grew by 3.2%, compared to the same quarter in 2024 and ended the fiscal year a little bit below inflation, just 2.8% below due to the quarter's performance during the first half of the fiscal year, but then EBITDA and revenues in the segment grew by 10% and 8%, respectively, in fiscal year '25 compared to 2024, as we have a big part of the revenues linked directly to inflation. The stock increased due to the incorporation of Terrazas de Mayo that Jorge Cruces will explain later, adding almost 34,000 square meters to the portfolio and reaching a little bit more than 370,000 square meters of GLA. Occupancy remained at very high levels, close to 98%. This excludes Terrazas de Mayo, as we have recently acquired it, and we expect to improve its occupancy in the upcoming months. In fact, we bought it with an 81% occupancy, and currently, it is at levels of 89% Terrazas de Mayo. In Page #4, here we have the Office segment. This segment remained quite stable. We sold an additional floor of Della Paolera, so we have today a stock of 58,000 square meters. Then rents remain quite stable at levels of $25 per square meter per month, and occupancy reached almost full occupancy in our premium portfolio at almost 100%, 99.6%. Moving to the Hotel. The Hotel segment has represented a challenge this year after 2 years of record EBITDA and occupancy. The tourism activity in Argentina faced this year a situation of lower inflow of international tourism in the country due to the FX appreciation of the peso compared to the dollar. So occupancy decreased from levels of 66%, 2 years ago to levels of 60%-61% and rates per room also adjusted a little bit, and we observed lower margins in this segment. Here, we have the ESG progress during the year. We made a lot of progress on our ESG agenda during this fiscal year '25. Today, over 90% of our malls have transitioned to LED lighting, and we have solar panels in 3 additional malls: Alto Palermo, Dot, and Distrito Arcos, in addition to Mendoza Plaza. This is still incipient in our portfolio, but if conditions allow, the plan is to increase our exposure to renewable energy in our malls. We also completed our third carbon balance measurement, and we are currently working on mitigation plans and a climate risk metric to guide future actions in our malls and offices. 80% of our carbon balance comes from electricity. So it's a Scope 2, and we are working very, very hard in mitigating that measurement. On the social front, remember that we have a foundation called IRSA Foundation, together with directly and through Fundación. This year, IRSA invested around ARS 500 million in different types of actions benefiting about 70,000 people. We also have a contact center serving more than 400,000 customers in our malls, reinforcing inclusion through different certifications and programs. So these are good milestones that reflect our focus on sustainability and long-term value creation. I will now turn to Jorge Cruces, CIO of the company, for the projects of the year.

Jorge Cruces, CIO

Thank you, Santiago, good morning, everybody. Well, we started our fiscal year with 336,000 square meters of GLA, having 15 shopping centers. In December, we bought our 16th shopping center, Terrazas de Mayo, which added 34,000 square meters more to our portfolio, reaching 371,000 square meters. The acquisition of the plot next to Alto Avellaneda mall increased another 32,700 square meters. We are developing the La Plata shopping mall, amplifying another 22,000 square meters of GLA. By the way, we estimate its opening for May 2027. Altogether, the growth adds up to 426,000 square meters of GLA, boosting 27% of our portfolio. There has also been strong real estate activity on the residential development side. Del Plata Building Trust, located in the heart of the theater district of Buenos Aires, kind of like the Broadway of Buenos Aires, this development has 720 residential units and 8 retail spaces, altogether, 35,000 square meters of sellable area. To date, we've sold 76 units for $11.4 million at an average price above $4,000 per square meter. Most of the buyers are not selling yet. Some of them even want to keep the apartments for themselves. As for the construction phase, we are currently running tenders for demolition, concrete structure, masonry, and basin-level installations. Nuevo Quilmes II, we own 124 single-family lots, to date, 41 lots have been sold for $6.3 million at an average price of $247 per square meter. We expect that the infrastructure will be completed by next summer. Coto Abasto towers, the project is located across the street from Abasto shopping mall. We've sold 8 units for $1.1 million. The average price sale is currently around $2,600 per square meter. The handover of these units is planned for the next couple of weeks. Actually, we started yesterday. Ramblas del Plata is one of the most outstanding real estate developments ever undertaken in the City of Buenos Aires, set in a premium location right next to Puerto Madero. Given the strong interest in the project, we decided to expand the initial sales stage from 14 lots to 20, meaning stage 1 plus now covers around 164,000 sellable square meters. We sold 2 lots A#2 and A#13, both with approximately 45,000 sellable square meters. The total transaction value was $30.5 million. Additionally, we swapped 11 lots, totaling approximately 6,500 sellable square meters with a total value of $50.6 million. The combined value of these deals stands at $81 million, covering 110,000 sellable square meters to be developed. Now I'll give the floor to our CFO, Matias Gaivironsky. Thank you.

Matias Gaivironsky, CFO

Thank you, Jorge. Going to page 11. So here we can see some information about our stake in Banco Hipotecario. IRSA has a 29% stake in the bank. The main milestone for the year for the bank was a reduction in the ratios, basically because of lower margins in the financial area; the interest rate and the gaps today are much lower than a year ago. So that has generated a reduction in the ratios. The results to IRSA reflect that. So this year, Banco Hipotecario contributed ARS 40.8 billion to IRSA, but this year is ARS 13.6 billion. The ratios are in good shape with solvency ratios and NPL. Another important development is that Banco Hipotecario started to distribute dividends. Last year, the part of IRSA was ARS 13 billion. This year IRSA will receive ARS 18 billion from the bank. This is for the first time in many years that the bank paid dividends for 2 years in a row. It is also important to mention that Banco Hipotecario was the first Argentine bank to restore the mortgage loans in the country. And after that, many other banks also started to provide mortgages. Remember that Banco Hipotecario has around 2% market share in the banking industry. In this market, we are one of the leaders, and the market share is 4%. Going to our financial results. So we can see that during the year, we finished with a net income of ARS 196 billion compared with a loss last year of ARS 32 billion. There are some effects in different lines. The main line is the change in the fair value of our investment properties. During the year, there was an appreciation of the peso, and also there was a big reduction in the Blue Chip Swap exchange rate. Remember that we value the offices and the land bank at the Blue Chip Swap. Since we saw an appreciation in real terms of that exchange rate, we posted significant losses regarding both offices and land bank. However, when we also include the shopping malls, there was also almost a flat result in that line, only ARS 2.5 billion reduction against ARS 488 billion last year. About the shopping malls, we increased valuation because we performed a DCF model considering the cost of capital released in Argentina, and the performance of shopping malls was much better than the previous year. The combination of the 2 drivers generated an appreciation of the Malls in dollar terms of almost ARS 500 million. So today, our malls in our books are valued at ARS 1.2 billion—$1.2 billion that, in terms of ratios, is more or less 7.5x EBITDA. Other important effects are in line 10, the income tax and in line 9, the net financial results that we can see in the following pages. The next one looks at the adjusted EBITDA. As Santi mentioned, there was a very good performance in our shopping malls, increasing 10% in real terms against last year. This is in pesos, and there was a reduction in Offices and Hotels. The Hotel segment is the most affected because of the current macro situation and an increasing cost in pesos adjusted by inflation, with a rate in dollars that was flat during the year and some reduction in occupancy. The Office segment remained stable. We have today a smaller portfolio of 58,000 square meters that is fully occupied with a stable tariff in dollar terms. But when we compare it with the previous year, inflation was higher than the valuation. Since this year, we sold a floor in one of our office buildings; that is the reduction that business remained stable. In terms of margins, you can see an improvement in shopping malls, a little reduction in offices, and hotels which were significantly impacted this year. About the net financial results, there was a reduction in the numbers, but it is still positive in that line. Part of it is generated by the appreciation of the peso and part is generated by the valuation of our liquidity and the investment of our liquidity and the inflation adjustment. Regarding taxes, this year, IRSA started to pay taxes again. We used to have a tax credit during the last years. We have already consumed all the tax credit and now we will start to pay a cash component this year. With all this, we finished the year with this profit of ARS 196 billion. Here, we can see information in dollar terms and the evolution of our rental EBITDA for the last 10 years. Leaving aside the pandemic, which was a crisis for the company, we can see the resiliency in dollar terms; no matter the context of Argentina and the volatility, we were able to maintain good levels of cash generation in dollar terms in all the years. This year, especially, we had a record in the Shopping Malls, $169 million generated from the Shopping Mall segment, which is a record for the last 10 years. Regarding our debt structure, we believe that we have a very healthy debt position today with only $184 million of net debt; in terms of ratio, this is 1x EBITDA or 8% of our assets or 12% of coverage ratios are very conservative. So we are ready to grow and to increase our debt if we find good opportunities to acquire or to develop interesting projects. Therefore, our debt today is very well structured and long-term spread over the next 10 years. We extended the duration significantly with the issuance we did in March, extending the debt for the next 10 years. With this, we finished the formal presentation. Now we open the line to receive your questions.

Santiago Donato, Investor Relations Officer

We have a question from BTG regarding the impact of decreasing inflation and the early signs of the mortgage market reemerging in Argentina. They are interested in how this will affect demand for residential projects and the broader land bank monetization strategy. Additionally, they would like to know how construction activity is expected to respond in the upcoming months. I will repeat the question: With inflation coming down and early signs of the mortgage market reemerging in Argentina, how do you see this impacting demand for residential projects and your broader land bank monetization strategy? And on the supply side, how do you foresee construction activity responding in the coming months?

Jorge Cruces, CIO

Well, we've been talking about this for the last, I don't know, 6 months. Obviously, with mortgages, the stock of apartments in Buenos Aires started to move, mostly Buenos Aires, but all of Argentina has seen great activity these last 6 months. We said there has been a lot of activity. Prices even went up 20%, 30%, or 50% depending on the neighborhoods. Now regarding construction, construction costs are a little bit higher because labor is priced in dollars. So in the near future, I suppose there will be less construction maybe than last year, but there's still some stock to be sold. I think that the availability of mortgages has helped Argentina to get out of a crisis of stock. There's not much more apartments to be bought that have been invested in during these last 10 or 15 years. So I think that next year, there will be a lot of construction and new activity. But currently, I think the mortgages have mostly affected what was already in stock and some rented apartments are starting to be bought. I believe we will have a great year next year.

Eduardo Elsztain, CEO

Regarding the mortgage industry, probably what is currently missing in the sector is a lack of funding for the banks. Now the banks are providing mortgages, and the demand for bank services is huge. However, the banks are currently limiting the offers because of the lack of funding. What is missing is the securitization market where banks can sell part of their portfolios in the market. We believe that as the market normalizes and if there's no risk of devaluations and fluctuations of the exchange rate, this market may appear, which is what is currently missing to have a real market and a real offer from different players.

Santiago Donato, Investor Relations Officer

Here's a question regarding the electoral climate: how important is it for IRSA what's going to happen next October? And do we expect some political economic stability in the coming months?

Eduardo Elsztain, CEO

I don't know the answer. I hope to know, but we really don't know what the outcome of the elections will be. Of course, an election in Argentina generates uncertainty and volatility. What IRSA has proven over the last 30 years is that, no matter the context, we have a very resilient business; the main drivers of volatility in Argentina have always been inflation and devaluation. We have assets that are dollar-denominated, and our revenue structure is hedged against inflation. Having said that, of course, we need an economy that grows and with sustainable growth. However, this volatility isn't good for anyone in terms of making major decisions. We're going to launch many projects; we are performing many projects. We need to see a stable economy, but this is crucial for our growth. For our existing portfolio, I would say that we have growth in different contexts, and we can manage the company effectively.

Santiago Donato, Investor Relations Officer

Here's a question regarding financing. Are we considering tapping the domestic or international markets to fund projects? How do you see volatility and interest rates in the coming quarters?

Eduardo Elsztain, CEO

No, we are not considering going to the market with our current capital structure and the cash position of the company and with our current plans. As Jorge mentioned, the projects we have already launched can be funded without needing to go to the market. If we see a good opportunity to acquire something, of course, our capital structure and net position allow us to increase. However, with organic growth, we don't need to go to the market in the coming quarters. Regarding interest rates and what is happening with the peso curve today, we hope to see a normalization of that. IRSA currently has no debt in pesos, but during the last 2 months, Argentina has been very volatile in terms of interest rates. That will definitely affect consumption. If the interest rates remain very high, and consumer financing disappears, that will affect consumption. So we hope to see a normalization of the peso curve after the elections.

Santiago Donato, Investor Relations Officer

Here is a question regarding the difference in the square meters sold at Ramblas. This is because we have recently made an addendum to one previous transaction, adding $7 million and approximately 5,000 additional square meters. That is something that we can discuss in detail, but it's just an addendum to a previous transaction. This is why today, we are showing 111,000 square meters from swaps and sales in the total Ramblas Del Plata.

Eduardo Elsztain, CEO

That was a transaction that was signed for a specific plot of land. Then the buyer decided to change to a better location and better unit. So we received the deal, charged them the difference in price, and they paid for that. Now they have a bigger project.

Santiago Donato, Investor Relations Officer

Another additional question related to this is how do you see the pace of future sales in Ramblas evolving from here? Should we expect this to maintain or to accelerate at Ramblas?

Jorge Cruces, CIO

We're doing much faster than we thought we would. So we're very happy. We started with The Bay project, which is mostly completed. Now we're going to expand our lots. As I said before, we're going—it's bigger. We went from 14 to 20 lots. I think we're going to continue selling. We aim to have the best developers in Argentina and the region at Ramblas. So, I think this will happen; we will be selling all 20 lots in the next 6 to 8 months, what's left of what we've planned.

Santiago Donato, Investor Relations Officer

Perfect. One that we have already answered.

Jorge Cruces, CIO

Regarding prices, I don't know if they are asking about prices, but I think the price that we've been selling is almost 800 and something for each sellable square meter. And the swaps, I think they're going to go up. So the swaps might be close to 30, and the prices should be over 850 for each sellable square meter in the future.

Santiago Donato, Investor Relations Officer

Another question regarding Hotels. Are we expecting to divest our small position there in Hotels, or join with our partner? What are the expectations with hotels?

Eduardo Elsztain, CEO

Well, we are always analyzing opportunities if they appear in the market. You know that we haven't expanded in the Hotel segment for many years now. So we have the portfolio of 3 hotels. Last year was probably a record high in our history. This year is a little more affected, but we are not growing. If opportunities arise to sell some of our assets, we may analyze that.

Santiago Donato, Investor Relations Officer

Questions regarding Manzana 35 project in Caballito— is it advancing?

Jorge Cruces, CIO

Yes. We're planning to launch Manzana 35, one of the towers, between March and May next year. It all depends on the elections and the situation in the country next year. But it's most likely that we're going to launch one of the towers next year between March and May.

Santiago Donato, Investor Relations Officer

Questions regarding dividends—are we expecting to pay this year?

Eduardo Elsztain, CEO

Yes, we are expecting to pay like last year. We haven't defined the final proposals yet, so we will submit them to our shareholders' meeting by the end of the month. We have time until that moment, but yes, the idea is to keep paying the dividends.

Santiago Donato, Investor Relations Officer

Some additional questions. Do you plan to build new offices as rental properties? Is that something the company is thinking about today?

Jorge Cruces, CIO

Yes, we are actually considering that. We are very concentrated at the moment, close to the Dot shopping mall. We already have 2 office buildings. Most likely next year, we may start the construction of more office buildings in the Dot section. At least 1 of the 2 that we have planned, we may start construction next year, adding around 15,000 square meters of GLA.

Santiago Donato, Investor Relations Officer

Perfect. I'll give some minutes more for some additional questions. I have a lot here; you have my contact details for specific questions, and we can go on a follow-up call. You have the IR department contact. But I'll give some minutes more for any additional questions that you may have. Okay. There are no more questions; we conclude the Q&A session and the presentation. Thank you very much for joining. I hope to see you at the beginning of the first fiscal year '26. Thank you very much.

Jorge Cruces, CIO

Thank you.

Santiago Donato, Investor Relations Officer

Good day, bye-bye.