Earnings Call Transcript - IRS Q1 2026

Santiago Donato, Investor Relations Officer

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the First Quarter 2026 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. Matias Gaivironski, CFO.

Matias Gaivironski, CFO

Good morning, everybody. So we are starting the fiscal year 2026 with good results. We closed the quarter with a gain of ARS 163.4 million compared with a loss last year of ARS 143.6 million. That was mainly driven by the gain of the fair value of our investment properties and also the good results from the rental segment. Regarding our malls, there was a growth in revenues and occupancy that we will see later, and despite the decline in tenant sales during the first quarter, that was 7%. Third, there was a busy quarter regarding acquisitions. There was an acquisition of a new mall, Al Oeste Shopping mall in Haedo. We paid $9 million for that, and we will see later the details of the transaction. Also, it was a stable quarter for rents and occupancy in our office portfolio and good progress in the ongoing developments, mainly Distrito Diagonal, the shopping mall in La Plata and Ramblas del Plata, that Jorge will explain later. And also, we started the distribution of a new dividend that our shareholders meeting approved in October. So we started the distribution. It's a payment of around 10% of dividend yield. So with this, I would like to introduce Santiago Donato, our IRO, to continue the presentation.

Santiago Donato, Investor Relations Officer

Thank you, Matias. Now let's discuss the shopping mall segment. We have increased the GLA this year with the acquisition of Terrazas de Mayo. Following the development we will complete in Al Oeste, we plan to incorporate our 17th shopping mall. Our portfolio is growing, and we have achieved an occupancy rate of nearly 98%. The business remains on solid ground, with revenues and EBITDA in the segment rising by 6% and 4%, respectively, despite a 7% decline this quarter compared to the first quarter of 2025. This stability is due to most of our revenues being tied to a fixed structure. With the recent election results, we anticipate more stability and continuity in economic policy, which should gradually boost consumer confidence and activity in our malls. We are seeing increased interest from international brands looking to enter the Argentine market, with several already under construction. We believe that economic activity and consumption in Argentina will improve and recover in the coming quarters. This quarter experienced weak sales as a result of the elections, market volatility, higher interest rates, and tightening monetary conditions triggered by the electoral process. However, we now have a clearer outlook moving forward. Turning to the office segment, it remains stable with no major changes. The stock remains at 58,000 square meters of GLA, primarily categorized as A+ and A, with only one B category building that we are converting into a workspace targeted at start-ups and entrepreneurs. We are pleased with the performance of the Philips building, while the rest continue to be A+ and A buildings, maintaining stable rents of $25 per square meter per month and achieving 100% occupancy consistently over the last four quarters. As for the hotel segment, we continue to see a decrease in revenues and occupancy, following the trend of the past year due to the peso's appreciation against the dollar. Although there was a real depreciation in the last quarter, it is too early to foresee a sustained recovery in hotel activity. Additionally, occupancy has dropped from 67% last year to 52%, primarily due to a weak winter season with no snow, resulting in fewer visitors to our Llao Llao Hotel and the city of Bariloche in Patagonia. The average hotel portfolio occupancy stands at 58%, with an average rate per room of $230 and slightly lower margins in this segment. I will now hand the call over to Jorge Cruces, our CIO, to cover the real estate chapter.

Jorge Cruces, CIO

Good morning. We are pleased to announce the acquisition of our 17th shopping mall, Al Oeste Shopping. It's located in the Moron District, west of Greater Buenos Aires. It has approximately 32,000 square meters of GLA, including 46 stores, food courts, 14 cinema screens, 5 padel courts, and over 1,000 parking spaces. The purchase price is $9 million, of which $4.5 million has already been paid, while the remaining balance will be settled in 4 annual installments. Currently, the mall is operating way below its full potential. As part of our strategic development plan for the province of Buenos Aires, we intend to reposition the asset as an outlet center and relaunch it throughout next year. The first phase of the transformation will focus on the 20,000 square meters of GLA of the ground floor. We're planning to invest approximately $7 million in this stage, while the remaining area will be developed in a later phase. With this acquisition, the company's shopping mall portfolio now reaches 390,000 square meters of GLA. Southeast of Buenos Aires, in the city of La Plata, we are making great progress on our upcoming 18th shopping center, Distrito Diagonal. This new development will add 22,000 square meters of GLA to our shopping portfolio, strengthening even further our presence in strategic urban locations. The mall's opening is estimated for May 2027. The growth projected in the coming years totals over 458,000 square meters of GLA, representing an expansion of our portfolio of more than a third altogether. We have acquired through an auction what used to be the Israelita Hospital, an emblematic property located in the neighborhood of Flores in the city of Buenos Aires. We intend to reverse this iconic property into a mixed-use concept. The land plot has around 8,850 square meters and an existing built area of approximately 17,000 square meters. The purchase price was $6.8 million, which has been fully paid. In Uruguay, at the Distrito Calcagno, a new land-swap agreement was signed last week for $9.3 million. Casa FOA is being held in Uruguay for the first time ever. Casa FOA is an annual exhibition of architecture and interior design, and it's being held in the Distrito Calcagno. The opening event was attended by the President of Uruguay, the Mayor of Canelones, and Mr. Eduardo Elsztain. We believe this exposure could be a game-changer for the Distrito Calcagno. Regarding Ramblas del Plata, we decided to expand the initial sales stage, so 20 lots are now being commercialized. That's around 164 sellable square meters. To date, we've sold 2 lots and swapped another 11, and the combined value of these deals stands at $81 million, covering 110 sellable square meters to be developed. Regarding construction works, the overall progress of Phase A currently stands at 15%. Construction is advancing according to schedule with the execution of road works, sewers, drainage, and the recovery of the water body of the central bay. We are undergoing the environmental review and expect to schedule the public hearing for the second phase by the end of this year. Now I'll give back the floor to our CFO, Mr. Matias Gaivironski. Thank you.

Matias Gaivironski, CFO

Thank you, Jorge. On Page 12, we can observe how FX and inflation have evolved and impacted our numbers. This quarter, we experienced a greater devaluation than inflation, which is the reverse of last year's situation. This has resulted in a positive effect on our investment properties, which I will detail further in the upcoming pages. Regarding our adjusted EBITDA, we noted a total decline of 7.5%. The rental segment has increased by 3.5%, shopping malls have seen a 4% increase, and offices have risen by 16%. This growth is primarily due to higher occupancy rates. When we convert dollar figures into pesos, the greater devaluation compared to inflation yields improved figures in peso terms, despite a 22% decline in the hotels as previously explained by Santi. In terms of margins, we expect to maintain margins similar to last year. On the next page, we highlight the significant change in the fair value of our investment properties valued in pesos. When valuing the portfolio in dollars, the numbers remain unchanged; this discrepancy arises mainly from the conversion of dollars to pesos and inflation adjustments. However, in real terms or dollar values, the assessment of real estate in Argentina remains stable. Lastly, the two figures affecting the net income line are the net financial results, which have declined due to real devaluation. We have to convert our dollar-denominated debt into pesos, resulting in a loss this quarter compared to a gain last year caused by peso appreciation. This aspect is critical to the net financial results. We also saw a slight decrease in interest paid compared to the prior year. Regarding income tax, we are recognizing deferred tax whenever the fair value of investment properties appreciates, needing an adjustment of 35% on that increase. Last year, the opposite occurred; a decrease in investment property value prompted a gain in income tax. With these factors, we concluded the quarter with an ARS 163 billion gain, compared to a loss of ARS 139.2 billion last year. Turning to dollar terms on the next page, our rental EBITDA for the quarter was $51 million. While multiplying this by 4 doesn't represent our actual process, it provides a sense of our potential for fiscal year 2026. Finally, on Page 17, we review the evolution of our net debt, which remains unchanged in terms of overall debt, with the exception of the dividend payment. The net debt has slightly increased due to this distribution, standing at $308 million, which corresponds to 1.6 times EBITDA, under 9% in LTV, and over an 11x coverage ratio. Thus, our debt position remains very conservative even after the dividend payment, which we detail on the next page. We distributed ARS 173.8 million, roughly equating to today's blue-chip swap of $116 million, with a dividend yield of 10%. We initiated this payment locally on November 4, and for our GDS holders, it will take additional days, so we expect to establish the record date in the next 5 to 7 days. With that, we conclude the formal presentation and now open the floor for questions.

Santiago Donato, Investor Relations Officer

Well, now it's time for the Q&A session. If you have a question, please use the chat. We're going to take the questions in the order we receive them. Here we have the first question. If the company is entering a period of higher investment, higher CapEx, why was it decided to distribute such a large dividend? Has something changed?

Matias Gaivironski, CFO

Good question. Well, first of all, we are not changing the strategy. It's true that compared with the previous year, it's starting to accelerate the process of new investment acquisition development. So we probably have a CapEx of around $75 million that we plan to spend for the next year without any new acquisition. But the company has a strong cash generation. Today, we are generating like $180 million or $190 million of cash. And our debt was too low. So the company will start to pay taxes this year again. We used to have a tax credit for many years. So now we will start to pay taxes again. And it's not the most efficient capital structure to have that low leverage. So for that reason, we had before the payment, a strong cash position. So after paying this $120 million of dividends, we still have $180 million of cash. So we feel comfortable that with that $180 million plus the cash generation of every year, we have enough money to finance the projects. So we still feel very, very comfortable with the debt structure and the capital structure. If we need to finance new acquisitions, we will see the way to finance, but with the cash position that we have, that gives us a lot of room to keep doing things in Argentina.

Santiago Donato, Investor Relations Officer

Here, I have a second question related to Ramblas del Plata. What are the medium-term timelines for the projects? When will the construction of the first buildings begin? When is the park's construction expected to be completed?

Jorge Cruces, CIO

Well, we have 3 stages in Ramblas. As I said before, part of the second stage is becoming like part of the first stage. The first stage is bigger than before. But then again, we still have 3 phases, and we're working on the first phase. That first phase of infrastructure will be finished most of it next year. That's when we have to give the plots to the developers who are going to be making those buildings, and they're going to be starting next year. And these phases also have to do with the parks. Every time we finish the phase, we're going to be finishing that part of the park also. So answering the question, we will be finishing Phase 1 next year, and that's when the first of the buildings are going to be beginning their construction.

Santiago Donato, Investor Relations Officer

Thank you. Here, I have another one related to the exercise of the warrants of Cresud and Alto. Here we are in IRSA, Matias can explain both. If we're going to update the ratios after the dividend, I think has to do with that.

Matias Gaivironski, CFO

Is it related to dividends, the question?

Santiago Donato, Investor Relations Officer

No, regarding the warrants, but if we're going to.

Matias Gaivironski, CFO

The cost of the dividend.

Santiago Donato, Investor Relations Officer

Yeah, I imagine we're going to start construction.

Matias Gaivironski, CFO

Okay. Yes. As you know, the outstanding warrants have a clause that every time that we pay dividends, we have to adjust the strike price and the ratio of that warrant. So, yes, probably in the next few days, we will announce the new ratios. The next window to exercise the warrant is next week, so before that.

Santiago Donato, Investor Relations Officer

From 2017 to 2025.

Matias Gaivironski, CFO

Before that we will announce the ratios.

Santiago Donato, Investor Relations Officer

We’ll give some more minutes if there are any additional questions, you can use the chat. Okay. With this, we can conclude the presentation and the Q&A. I will now turn the call to Matias Gaivironski for his closing remarks.

Matias Gaivironski, CFO

Thank you, Santi. So, we are starting this year with a lot of optimism. The last quarter was a little volatile because of all the political environment and noise because of the elections. Now that it is much clearer the direction of Argentina, at least for the next years, so we see that with a lot of optimism. So we hope to see a much more normal environment and much easier to take decisions for many, many companies in Argentina. So we see that with a lot of optimism. And about our plans, we will continue with all our development projects and Ramblas del Plata, the commercialization. So we are very optimistic just to show more transactions in the coming months. And regarding consumption and the operation of our malls, we expect with more confidence from the people, our malls will keep receiving all the consumption and flow of people inside of our shopping malls. So with this, we finished the presentation. We hope to see you in the next quarter. Thank you very much. Have a nice day. Bye-bye.

Jorge Cruces, CIO

Bye-bye.