Earnings Call Transcript - IRS Q1 2022

Santiago Donato, Investor Relations Officer

Good afternoon everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the first quarter of fiscal year 2022 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. 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. Please go ahead, sir.

Matias Gaivironsky, CFO

Thank you, Santiago, and good afternoon everyone. We started fiscal year 2022 with strong results, particularly in the rental sector for shopping malls and hotels. However, we noted a slight decline in rent and occupancy in our office spaces, although liquidity remains high and sales prices are robust. This week, we announced the sale of several floors in the 200 Della Paolera building, which we will discuss later. In terms of our development segment, we received the initial approval for Costa Urbana, our largest land bank, and are now awaiting a second approving step. On the international front, Condor, our investment in the US, announced a sale of its portfolio to a Blackstone affiliate, pending shareholder approval expected in the coming months. Quarterly EBITDA reflects full rental operations, unlike last year affected by the pandemic, but there were no asset sales this quarter, leading to a lower result compared to the previous quarter. While rental EBITDA remains 36.5% below pre-pandemic levels, it is showing good recovery. We reported a net loss for the quarter due to changes in the fair value of our investment properties, amounting to ARS 600 million attributable to our controlling company. Additionally, we proposed a merger with IRCP, which has been approved by both Boards and awaits a shareholder meeting later this year. Looking at our operational segments, shopping malls maintained a consistent amount of square meters with a slight increase from the opening of the first development stage in Alto Palermo. Occupancy remains steady at 89.6%, which rises to 94.3% when excluding the impact of Falabella's exit. We are optimistic about filling the remaining spaces and improving results. Tenant sales have increased by 322% compared to last year, but remained 10.7% below pre-pandemic levels from fiscal year 2020. The gap has narrowed from a 55% decline in the last quarter to just 10% now. In our office portfolio, we maintained stability despite a slight occupancy decrease to 78.9% and a minor dip in rental prices to $25 per square meter. Companies are returning to offices, adopting a hybrid model that still requires adequate space for social distancing. The hotel sector in Argentina has faced challenges due to the pandemic, but the recent reopening of borders gives us hope for improvement in performance. The Llao Llao hotel has thrived, but others have struggled. We successfully sold three floors of the 200 Della Paolera building for 3,582 square meters at a rate of $8,950 per square meter, totaling $32 million collected. Our strategy of focusing on quality and liquidity will continue, as we find profitable opportunities to sell floors and develop new buildings. Regarding Costa Urbana, we received the first approval from the city Congress, with the public audience concluded recently. We are optimistic about receiving final approval, which we believe will significantly boost construction and create jobs and housing opportunities for thousands. Financially, we reported a loss of ARS 1 billion this quarter compared to a profit of ARS 12.7 billion last year, impacted by fair value changes and macroeconomic factors in Argentina. The adjustment for inflation has resulted in losses in real terms. Our financial results show adjusted EBITDA in shopping malls reached ARS 1.5 billion, recovering despite past losses during lockdowns. Office results mirrored previous years, while hotel operations began generating positive cash flow again. Sales and development have no major updates this quarter. Our financial net results showed a gain of ARS 1.3 billion, significantly better than last year's loss, thanks to foreign exchange gains from currency appreciation. The net asset value stands at approximately $1.2 billion with a debt to value ratio of 21.9%. Current debt stands at $331.6 million, part of which is owed to IRSA Commercial Properties. Finally, regarding the merger proposal with IRCP, we have submitted necessary documents to the SEC and anticipate a shareholders’ meeting for approval in December. We will announce the exact date soon. With this, we conclude our formal presentation and open the floor to your questions.

Santiago Donato, Investor Relations Officer

We'll start with the Q&A session. Yeah. We have the first one, how much money did the company save after the merge? Is the company still invested in Israel, or do you expect to invest out of the country?

Matias Gaivironsky, CFO

The rationale behind the merger has several implications. We believe it will simplify our corporate structure and enhance liquidity, as our shares currently lack sufficient liquidity. By merging the two companies, we expect to improve this situation. Additionally, we will eliminate potential conflicts of interest that might arise between the two companies and address issues related to land banks. This merger addresses those potential conflicts effectively. Furthermore, there are expected synergies and cost savings, including approximately $1 million in hard cost savings due to the merger, alongside tax efficiencies. Presently, we have tax credits at the IRSA level and in normal scenarios for IRCP, but we noticed that we began to recognize tax losses this quarter. Taxes represent one of the main costs for IRCP. Therefore, we believe this merger will provide advantageous synergies for all our stakeholders. Now, addressing the second part of the question about Israel, we announced last September that we have deconsolidated our investments, so we no longer have any interest in IDB. Our strategy involves a more opportunistic approach to finding good investment opportunities outside Argentina. However, given the current situation and capital controls in Argentina, it is inefficient to export capital from here. The cost of capital in Argentina is among the highest in the world right now, making it extremely challenging to find viable opportunities using funds from Argentina. Thus, it is very unlikely that we will encounter any opportunities abroad in the near term.

Santiago Donato, Investor Relations Officer

Okay. If there are no more questions, we turn back to Matias Gaivironsky for his closing remarks.

Matias Gaivironsky, CFO

Thank you very much. We're pleased to report that we closed the first quarter without the impacts of the pandemic or disruptions to our operations. People are returning to malls, and we're seeing an uptick in foot traffic and interest in leasing new retail spaces. We're optimistic that tourism will return to Argentina, which is currently very affordable in dollar terms. This influx should enhance both mall and hotel activities. We're hopeful about our future and are waiting for approval on our merger proposal with IRCP, which we believe will lower costs, streamline our structure, and consolidate our real estate assets into a single entity. We look forward to updating you again in the next quarter. Thank you and have a great day.