Earnings Call Transcript - IRS Q2 2025

Santiago Donato, Investor Relations Officer

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the Second 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.

Matias I. Gaivironsky, CFO

Thank you Santiago. Welcome and thank you for joining us in this presentation of our second quarter 2025 results. Let me summarize the main events of the quarter. During this six-month period, we reported a net loss of 41 billion Pesos mainly explained by non-cash effects of the appraisal of our investment properties. Our shopping malls have shown a steady recovery in occupancy and tenant sales. We have also completed the acquisition of our 16th mall, Terrazas De Mayo, in greater Buenos Aires. In the office segment, we have achieved full occupancy of our premium portfolio. About our hotel segment, after a record high during the last year, this year we are seeing weaker results both in occupancy and revenues. Also, we have achieved a major milestone with the sales of the first two plots of our main project, Ramblas Del Plata, that Jorge will explain later. Finally, during the last quarter, we paid dividends again with a yield of 8% plus shares in treasury. So now, let me introduce Santiago Donato, our IRO to continue with the presentation.

Santiago Donato, Investor Relations Officer

Thank you, Matias. Here we can see in this page, Page Number 3, the evolution of real tenant sales in the last years in our shopping malls and occupancy rates as well. As Matias mentioned at the very beginning, our shopping malls keep recovering on a quarterly basis. They increased by 21.4% in the second quarter of 2025 compared to the previous quarter but are still 8.5% below compared to the same quarter of last year. The positive news is that we are starting to see positive numbers in recent months, so we expect that the next quarter, the third quarter of 2025, is going to be really good. So perspectives are positive in line with the economic and real wages recovery in Argentina. In terms of the stock, as you can see there, we incorporated a new shopping mall into our portfolio this quarter, Terrazas De Mayo, that then Jorge Cruces will explain a little bit more about that acquisition, adding almost 34,000 square meters of GLA to the portfolio. Occupancy remains quite high and stable at levels of almost 98%. But if you compare it to last quarter, last quarter was a little bit down. This figure we are excluding here, the Terrazas De Mayo as we have recently acquired; Terrazas is occupied at 82.3%, but we expect to improve its occupancy level in the upcoming months. The plan there is to do a turnaround and an improvement in tenant mix and occupancy and profitability, that then Jorge will explain better. Moving to the next page, here we have the office operating figures. We have been selling some additional floors. We sold one floor more of the Della Paolera in the last quarter at very competitive prices. So we currently manage a portfolio of 58,000 square meters of GLA, mostly A plus and A category. The great news is that we have fully occupied that portfolio; that premium portfolio will reach 100%, mainly due to the full occupancy at Dot building. So there is a return to office work in the country. And we are seeing very good occupancy levels in the whole industry, even though our portfolio is above the average of the market. And in terms of rents, we are at similar levels, quite stable at levels of $25 per square meter per month. To finish the rental part, we have the hotels. The hotels have represented the challenge this year after two years of boom and record occupancy. The tourism activity and hotel activity in Argentina is facing the context of the appreciation of the Argentine Peso compared to the dollar and a lower influx of international tourism in the country. So you see an occupancy a little bit down compared to last year from almost 72% to levels of 67%. Rates per room also decreased a little bit, except in Llao Llao where we reached almost $500 per room. Despite this situation, the hotels are generating good revenues when you compare to their historical average levels and provide good diversification to our rental portfolio. Of course, the evolution of these segments will depend on TFX and tourism trends in the country. So moving forward, I will introduce Jorge Cruces, our CIO for all our CAPEX plans and projects under development.

Jorge Cruces, CIO

Thank you, Santiago. Good morning, everybody. Well, as said, we have acquired the Terrazas De Mayo shopping mall located in Malvinas, Argentina. By the way, I live close by. This is the outskirts of the city of Buenos Aires towards the Northwest. It has a gross leasable area of approximately 33,700 square meters. It features around 86 stores, 20 stands, plus 15 food court shops and 10 cinemas. The transaction amount was set at $27.75 million, of which $16.65 million has been already paid. As for the rest, it will be settled in halves, with 20% due 36 months after the first payment, and the other 20% upon the deed signing. We are very excited about this acquisition, not only because $800 for each gross leasable area is a very reasonable acquisition price, but also because we believe there's a great turnaround opportunity. Let's recall key numbers of Ramblas Del Plata. 870,000 buildable square meters with basements, it totals more than a million square meters. If we convert to sellable square meters, it's around 700,000 square meters, more than 10,000 new homes, with an estimated investment over $1.8 billion. We are proud to say that it's the most important private development in the history of Buenos Aires, and it's rolling. Marketing the peninsula is divided into three phases. Stage one covers over 125,000 sellable square meters and is located surrounding Central Bay. Stage two covers close to 300,000 sellable square meters and is located towards Porto Madero. Stage three covers around 270,000 sellable square meters and is closest to the river. We sold two parcels to a well-known developer for $23.4 million, with a 30% down payment. The parcels are labeled as A, number two, and G, number one. More than 40,000 square meters are allowed to be built. We also signed a lease agreement for the development of a sports complex. It will have a driving range, paddle tennis, gym, and other attractions. Meanwhile, we are moving forward with 14 swaps, of which 10 are in an advanced stage. All together, we estimate the sales will be $120 million. The environmental approval certificate was issued in December, enabling us to start construction of the infrastructure, roadworks, and public park of the first stage and part of the second stage. The infrastructure work will be in service of 27 plots, almost half of the total amount of plots. We estimate an investment of $23 million. We've broken ground with earth-moving works, consolidating the earth mound around Central Bay. This is required so we can complete the seal sheet piling border. The sheet piling work contract has been awarded to a local contractor who will start delivering steel sheets and working on-site by April. We have also received bids for roadworks, sewers, and drainage. We shall be awarding those contracts in the next weeks. The building hosted Casa FOA during the month of November, one of the most important design and architecture exhibitions in Latin America. For the event, a sales office was set up along with two model units to showcase and launch commercial actions. Around 100 apartments have been reserved at an average price of $4,000 per square meter, totaling $15.3 million. We have begun the process of signing the purchase agreements. Regarding construction, architectural projects have been delivered, so we are ready for bidding. Upcoming bids shall include concrete structure and major civil works. In the meantime, we have already started our first phase of construction by doing some demolishing work in the basements. Next, Nexo Dot Housing, the project is located between Dot Shopping Center and Zetta office building. It includes two levels of office space, around 5,000 square meters, 160 apartments across five levels, and a commercial esplanade that links it to Zetta. We estimate the Environmental Aptitude Certificate renewal will be granted by March, which will allow us to start work plans and construction permits. The estimated delivery date for architectural projects is by the end of May. Project Caballito, city block number 35, consists of three residential towers with 500 apartments and 500 parking spaces. We have been adjusting the project to meet new market needs. As for the construction work, the focus is on Tower Number 3. The concrete structure in elevation is totally finished. Masonry work has been completed up to the fourth floor, and we are currently working from the fifth floor to the 13th floor. La Plata construction works are in progress. The soil movement stage has been completed, and stage two should be finished by the end of May. We started outdoor gas works for structure and estimate completion by October. Last but not least, we are soon beginning concrete and steel structure work. From then we shall start marketing the residential parcels surrounding the shopping mall. We expect this to be another success story like Alto Rosario has been in the past. Alto Rosario is a mixed-use development where we first built the shopping mall. Then we sold the whole city block for mostly residential but it also included office buildings and a hotel. Now, the subdivision of the parcel of the shopping mall has been approved. This allows us to construct four residential towers, approximately 40,000 sellable square meters. Alto Rosario is still growing and has become one of the trendiest areas in Rosario. Mixed-use developments close to our shopping malls have been very successful. Not only in Alto Rosario but also it has happened in several locations. Residential buildings in La Plata diagonal district should be a hit, no doubt about it. We will link this to market trends. We expect the infrastructure to be finished by the end of the year. The overall project has 330 single-family lots, and 125 lots are ours; we expect to sell them for approximately $23 million. We began commercialization, to date 33 lots are being sold for $5 million. We spoke quite a bit about residential developments, and that's because we believe in their potential. First, as a percentage of GDP, mortgages are 0.5%, close to nothing. But this is changing; credit deeds were around 15% this last year. Apartment prices have also increased somewhere between 10% and 20% depending on the neighborhood. That's because there have been a lot of sales this last year, as we can see on the chart. These fundamentals are driving us to focus on residential. Now, let me give the floor back to Matias, thank you.

Matias I. Gaivironsky, CFO

Thank you, Jorge. Trying to explain our financials for this six-month period. First, we need to understand what happened with inflation and the evaluation. Remember that last year in December was the big jump in the FX from $350 pesos to $800 pesos per dollar. During this year, the government implemented a strategy of a crawling peg going at 2% per month and now at 1% per month. So, in terms of real appreciation or depreciation of the Peso last year, we had an important devaluation of 52%, and this year we have an appreciation of the FX of 7%. Also regarding the Blue Chip swap, this year the FX gap between the official and the Blue Chip swap almost disappeared. Remember that we express in Peso terms valuation of our offices and land bank we used the dollar map, and because of that, we are posting some losses this year because that gap didn't exist anymore. So we are going to the next page about the adjusted EBITDA. We can see numbers in line with the previous year in malls and in offices. In offices, we have seen some improvement because of the FX; in dollar terms, it's almost the same. Remember that we signed the agreements at official dollars per square meter. So now we have a little better numbers in Peso terms. Also, we can see here the drop in the hotel EBITDA from 15 billion Pesos to 5 billion Pesos this year. Our margins show malls in line with the previous year, offices improving a little, and a drop in hotel margins from 38% to 17%. On the next page, we can see in the right part the main effect of this semester about the valuation of our investment properties. Last year, we posted an important gain of 300,000 million Pesos compared with a loss of 233 billion Pesos this year. When we analyze the value in dollar terms, I can say that in offices and the land bank remain very stable in dollar terms, so almost the same numbers. In malls, we are improving a little in valuation because we are using a DCF model, and the counter risk decreased during the year. This generated an improvement of around $100 million in our mall portfolio. Going forward, we believe that this valuation of malls should increase a little more basically because the country risk is decreasing and our figures on the operational side are also improving. So we believe that in the next quarters, we will keep increasing the valuation of that segment. About the net financial results, as I said at the beginning, last year we had the impact of the valuation that you can see in the table on the left side on the bottom where you can see a net FX result of 205 billion Pesos loss compared with a gain of 21 billion Pesos this year due to the appreciation of the Peso. Then we have lower results on the inflation adjustment due to the reduction of the inflation. The net interest remains stable compared with the previous year, and we have a gain of the fair value on financial assets and liability that are related to our liquidity, which improved in terms of valuation. Finally, about the income tax, we can see here the gain of 34 billion Pesos divided into a gain of 93 billion Pesos related to the deferred tax and a current tax of 60 billion Pesos; this year we will start to pay taxes again, the income tax again after consuming all the tax credit during the past years. We estimate that this year we will start to pay income tax again. So with all those effects, we finished the quarter, the six-month period with a loss of 40 billion Pesos compared to last year's gain, an important gain. When we value in dollar terms, we can see here the rental EBITDA evolution, where we can see that we will keep generating good levels of cash across all the segments in line with previous years. We are happy with this performance. Regarding our debt, we finished as of December 31 with a net debt of $255 million. Remember that during the last quarter of the year, we paid a dividend of around $77 million and also paid 60% of the acquisition of the shopping mall Terrazas De Mayo. With that, we only increased a little the net debt to $255 million, which is very conservative in terms of ratios, 1.6 times net debt to EBITDA and LTV of only 12%. As I said, we paid a dividend in the last quarter of $77.6 million, which resulted in a dividend yield of 8%. So we keep paying good levels of dividends over the past three years. With that, we conclude the presentation. Now we invite you to ask any questions you may have.

Santiago Donato, Investor Relations Officer

Thank you, Matias. While we start the Q&A session, we will take the questions by chat in the order we receive them.

Unidentified Analyst, Analyst

Here we have the first one related to Ramblas Del Plata if we can give some color on the price per square meter that you're planning to achieve for this project?

Jorge Cruces, CIO

Well, it depends on the building. There are going to be different kinds of buildings. I believe that the high towers are going to be more expensive than the other ones. But let's say that when we receive those apartments, it's not going to be less than $4000 at the beginning. It depends on how the project is going to be consolidated, also based on the country, but I don't think it's going to be less than $4000. The lower buildings might be close to $5000 for the tall towers; it might even reach $6000 in the future.

Santiago Donato, Investor Relations Officer

Thank you, Jorge.

Unidentified Analyst, Analyst

Another question regarding financing of this project probably for Matias. How do you plan to finance all these huge investments that you're expecting for the next years?

Matias I. Gaivironsky, CFO

Well, it depends on the project. About Ramblas, as we mentioned in the past, what we are doing with this strategy is, at the beginning, we sold some plots that will cover the infrastructure, and we are also swapping the rest of the plots with local developers. So basically, IRSA won't make any investment. We will receive the score of the finished units and then sell the units. So that won't consume any cash for the company. Regarding the La Plata project or Edificio del Plata where IRSA is one of the investors—I’m not the only investor—we have around 28% of the square meters. So we are one of the investors. For the Nexo building, we have today a strong cash generation, so I think that any of these projects will take like two to three years of development. You have to divide the amount of the investment by three years. Thus, we believe that with our own cash generation, we can easily finance all those projects. If we need to increase a little our debt today, we believe that our debt structure is too conservative in terms of ratios, in terms of LTV, considering that the company will start to pay taxes again. The tax shield on the debt will also help us to improve our capital structure. So maybe we will need to increase a little our debt.

Santiago Donato, Investor Relations Officer

Well, I don't see any more questions, so I will turn back. We conclude the presentation. I will now turn back to Matias for his closing remarks. Here I have one more, sorry.

Unidentified Analyst, Analyst

How do you plan on managing all the maturities that maturities next year 2025?

Matias I. Gaivironsky, CFO

Well, first of all, we have liquidity, so we have an important cash position. If we want to just cancel the debt, we can. We will analyze the structure if we go to the market or raise debt in the banking system. But we have today the liquidity to cancel the debt, so we feel very comfortable about the following amortization.

Santiago Donato, Investor Relations Officer

Now yes, Matias, if you can conclude with your closing remarks for the period and we’ll see you next quarter.

Matias I. Gaivironsky, CFO

Okay, so we expect the next two quarters to bring positive news for our shopping mall segment. As Santi said, as we compare against the period following the beginning of the Milei administration when consumer spending experienced a significant contraction, we anticipate seeing improved numbers on our contracts when we compare with last year. Additionally, we should see further progress in signing of the initial swaps of Ramblas del Plata, so we expect positive news about that in the next two quarters, as well as the commencement of construction for several of our projects. So we see the year very positively, with good news to come. Thank you very much to all of you for participating in this call, and see you in the next one.