Earnings Call Transcript - IRS Q3 2025

Santiago Donato, Investor Relations Officer

Good morning, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the Third 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. Following the presentation, the earnings release is 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 Gaivironsky, CFO

Good morning, everybody. We are beginning our call for the third quarter 2025 results. We are glad to post a gain of ARS35 billion, reverting the loss that we had in the previous six months as of December, which was ARS40 billion. During the quarter, we saw, again, a positive trend regarding our tenant sales. In fact, there was an increase of 13.4% compared to the same quarter of the previous year. We still are below the nine-month period, 4.6% below the previous year, but we see a positive trend going forward. In fact, during the last quarter, just in the last 12 months in dollar terms, we are posting a record high EBITDA for the malls for the last 10 years. Regarding the offices, we maintain our occupancy at 100%. In hotels, we saw a drop in revenues and occupancy, which we will show later. About Ramblas Del Plata, the main project of the company, Jorge will mention the good progress in the commercialization of the project. We are very happy with the results, considering that we launched the project around nine months ago. Finally, during the quarter, we tapped the international capital markets again, issuing notes for 10 years for $300 million. With that, let me introduce Santiago Donato, our IRO, to continue with the presentation.

Santiago Donato, Investor Relations Officer

Thank you, Matias. Here, we can see the operating figures for the shopping malls, as Matias mentioned before. This segment continued its recovery process and observed very good results in the third quarter of the fiscal year. As you can see, tenant savings grew by 13.4% compared to the same quarter in 2024. This is the first quarter of full-year growth since the current government took administration in December 2023. So great news, it shows the recovery of the economic activity and real wages in Argentina. In the next page, we can see the 10 years historical EBITDA in dollar terms. The malls are reporting great results in dollar terms, reaching an EBITDA of almost $160 million. This is a record in our last 10 years, which averaged almost $20 million. So really good performance in the malls. Occupancy reached levels of 98.1%, excluding Terrazas de Mayo, our latest shopping acquisition, which we expect to improve its occupancy level in the coming months. In this section, we can see the operating figures for the office segment. We currently manage a lower stock, just 58,000 square meters of GLA. Remember that we have been selling a significant amount of square meters since the pandemic, holding a portfolio mostly of A+ and A premium spaces. The office segment is evolving very favorably, mainly regarding occupancy, with a higher return to the office in Buenos Aires City. If the GDP grows next year, we can expect even an increase in rents, which currently remain at levels of $25 per square meter per month. Among the three rental segments, hotels have been the most challenging this year, although it remains marginal to our portfolio. After two years of recording record EBITDA and occupancy, this year the hotels and tourism activity in Argentina are facing lower improvement in international tourism due to the depreciation of the Argentine peso against the US dollar. Nonetheless, we still maintain a good occupancy level of 65% across our three hotels, which has been affected as we are currently undergoing construction works and some rooms are under renovation. Rates are slightly down, but the shopping centers in the total rental segments are more than compensating for this marginal effect in hotels. We have achieved really good results in the rental segment. Now I will give the floor to Jorge Cruces, CIO, for all the development aspects of IRSA.

Jorge Cruces, CIO

Thank you, Santiago. Good morning, everybody. The Ramblas del Plata project is the most important and ambitious real estate project in the history of Buenos Aires. It will change the city’s landscape, bringing life to an undeveloped area and will be an exceptional project due to its size in such a boutique location, facilitating the city of Buenos Aires in expanding and recovering its access to the river coast with public parks. In reviewing key figures of the project, there are 170,000 buildable square meters, 693,000 sellable square meters, with 10,000 new homes projected on an estimated investment of $1.8 billion. Regarding the marketing strategy, originally, the project was divided into three stages. Recently, due to the great interest from developers, we decided to expand the first stage by adding six more lots to the original fourteen lots, making Stage 1 now cover over 164 sellable square meters. Stage 2 now includes 259 sellable square meters, including lots A14 and F01, while Stage 3 covers around 270,000 sellable square meters. Since January, we have sold two parcels, A02 and G01, for $23.4 million and have signed swaps for another nine parcels for $42.7 million. The total operation amounts to $166.1 million and represents 95,000 sellable square meters. Additionally, we are progressing with another nine swaps, of which three are in an advanced stage. Altogether, regarding the extended Stage 1, we estimate sales of around $120 million. Construction work is currently in progress with the environmental approval certificate issued back in December, allowing us to start construction work in January concerning infrastructure, roadworks, and the public park of the first infrastructure phase around the Central Bay Area. We anticipate an investment of $27 million for the infrastructure works across 27 plots. Furthermore, we broke ground in January with earth-moving works, currently at 40% completion, while we have also started the roadwork and drainage for Phase A. The Edificio del Plata project is located in the heart of downtown La Plata, just steps away from the obelisk. It consists of around 720 units over 13 levels with eight commercial shops offering 35,000 sellable square meters. To date, the trust has sold 51 units for $7.8 million at an average price above $4,000 per square meter, with another 23 operations in the signing process for $3.5 million. The open-air shopping center mall in La Plata features 22,000 square meters of GLA, with construction works currently in progress, reaching completion of the sole movement phase by the end of this month. We have started outdoor gas infrastructure work, expecting completion by October, along with the concrete and steel structure work, which will continue throughout the year. We will be awarding new contracts shortly for major construction needs like masonry, dry construction, and electric installations. Additionally, we have developments in southern greater Buenos Aires with 313 single-family lots and six multifamily lots, of which we own 124 single-family lots and two multifamily lots. To date, we have sold 38 lots for $5.8 million and anticipate the completion of the infrastructure during the next summer. I will now hand the floor back to Matias.

Matias Gaivironsky, CFO

Thank you, Jorge. To analyze the results of the quarter, we need to understand what happened with inflation and devaluation in Argentina. As you can see from the graph, there was an appreciation of the peso, both in the official exchange rate and in the Blue Chip swap. Remember that we value our investment properties, the shopping assets, and the land bank using the Blue Chip swap, while we assess the shopping malls at the official exchange rate. An appreciation of the currency in real terms means that we posted losses on those properties, which was the main reason we encountered losses in our net income line in December. When we assess the adjusted EBITDA for the rental segment, we see a drop of 4.9%, primarily driven by the hotel segment, with a drop to nearly ARS9 billion this year. Recent comparisons show that in dollar terms, despite the fluctuating peso, the previous year figures were expressed at a more inflated price. The offices saw a drop of 20%, but in dollar terms, they maintained similar values to the previous year. The shopping malls, however, saw an increase of almost 10% compared to last year. In terms of margins, we see normal numbers, slightly higher than the previous year in shopping malls, lower in offices, and negatively affected in hotels by the current macro situation in Argentina. Regarding fair value, we witnessed a reduction in the gap between the official exchange rate and the blue-chip swap last year, leading to substantial losses due to the higher peso valuation previously used. This year, while the drop decreased, it is still significant, amounting to ARS141 billion. When analyzed in dollar terms, we observed appreciation in our shopping malls, with the value rising from around $755 million at the beginning of the year to $1.46 billion as of March. The rest of the offices and land bank values have remained stable. Considering net financial results, we posted a lower number this year at ARS52 billion compared to last year's ARS111 billion, maintaining similar values in dollar terms, but when adjusted for inflation, the preceding year's figures appeared significantly higher. Regarding income tax, we recorded a loss of ARS21 billion, relating to the valuation of properties and deferred tax. After all these factors, we ended the nine-month period with a gain of ARS35 billion, markedly better than last year's loss of ARS174 billion. About the rental segment and its evolution in dollar terms, we can say we've achieved an EBITDA of $177 million, surpassing the previous two years and likely reaching a record in the last decade. Finally, regarding our debt structure, we decided to tap the international capital market again after our last issuance in 2016. We recognized an opportunity to extend debt tenor with a very conservative debt structure that has low leverage, currently at only 1.3 times EBITDA with an LTV of just 10%. Our conservative ratios have been primarily short-term focused due to limited access to international markets; however, we were able to issue a 10-year bond at a yield of 8.5%, allowing us to maintain this conservative structure while feeling comfortable with our long-term debt. Now, we will open the line to receive your questions.

Santiago Donato, Investor Relations Officer

Now is the time for the Q&A session. If you have a question, please use the chat. We will take them in the order we receive them. Yes, we have some questions regarding Ramblas Del Plata: when is the construction of the first building expected to begin, and when will the urban development works be completed?

Jorge Cruces, CIO

The work for Stage A is expected to be completed by next year, possibly by July. The construction of the first buildings should start sometime within the next year or 10 months, as developers are currently making their plans and obtaining permits from the city hall. Hence, I believe the building developments can commence within the year.

Santiago Donato, Investor Relations Officer

There’s a question regarding the CapEx plan. Is the company shifting towards a more intensive CapEx base, and will the net financial debt-to-EBITDA ratio rise?

Matias Gaivironsky, CFO

Yes, as you know, during the last five years, IRSA focused on our own capital structure, opting not to launch new projects. There was an opportunity to cancel debt, buy back shares, and pay high dividends, which significantly influenced our cautious approach. Today, we see the future with optimism and believe we are ready to grow. Jorge has mentioned some of the projects we've already launched. It isn’t necessarily the case that our leverage will increase due to current projects. As Jorge highlighted, for the Rambla Del Plata project, we are strategically partnering with developers, meaning IRSA will receive square meters without heavy investment upfront. The La Plata mall will involve a moderate investment of around $40 to $50 million over the next two to three years, approximately $15 million a year, which shouldn’t significantly affect our cash generation. However, as opportunities arise, we might still leverage some of the raised funds to acquire more assets. Presently, our ratios remain extremely conservative, with a debt of 1.3 times and an LTV of just 10%, and we may seek to increase leverage slightly if warranted.

Santiago Donato, Investor Relations Officer

We have more questions regarding CapEx investments, which you've partially addressed. Here’s an additional question in that direction: could you elaborate on the structuring of agreements with developers for Rambla Del Plata? Furthermore, what is the upside in proceeds that IRSA keeps?

Jorge Cruces, CIO

In our swap agreements, we provide the land and establish a percentage agreement with the developers. Currently, this percentage is quite low since we are just starting, but it is set to begin at approximately 25% to 26%. Moving forward, we expect to progress toward about 30%. Given the context of this new development, we anticipate an increase in value per square meter as time goes on. It’s worth noting we will not need the cash immediately; we've already sold two plots, securing sufficient funds for infrastructure and market needs. Therefore, while we’re developing through partnerships with developers, we expect substantial future value gains as the neighborhood develops.

Santiago Donato, Investor Relations Officer

There are several inquiries regarding the dividends policy going forward. Are there plans for a new share repurchase program and how will this move forward in the coming months?

Matias Gaivironsky, CFO

As you know, we paid high dividends over the past few years, with a yield of around 15% sustained during that period. While we feel comfortable with our liquidity and debt structure, we're constrained by our accounting results. We need to ensure positive numbers to distribute dividends and buy back shares. Having posted this recent gain of ARS33 billion offers some breathing room. We will wait for our final numbers in June and decide our dividend payments then. Our shareholders' meeting is around October, where we will finalize those decisions. We don't have a fixed dividend policy, but our tendency has been to pay dividends whenever we can, and with our current debt structure and low leverage, we expect to maintain that into the future. Currently, our shopping centers portfolio is valued at around $1 billion...

Jorge Cruces, CIO

It's approximately seven times EBITDA, which amounts to about a 15% cap rate. The shopping centers are doing well in terms of generating EBITDA, amounting to $158 million.

Matias Gaivironsky, CFO

The valuation of our shopping centers is one of the more challenging components since there are limited market transactions available. In contrast, valuations for our offices and land bank are easier due to ample transactions to reference as comparables. The shopping malls are valued using a discounted cash flow model, relying on market parameters and discount rates significantly higher than what market participants would consider for real estate purchases today. The valuations have been conservative, but they reflect our best efforts to ascertain fair value.

Santiago Donato, Investor Relations Officer

One more question: Is there a clause allowing IRSA to retake a property if construction has stalled or missed a timeline? When would the land effectively be mortgaged?

Jorge Cruces, CIO

Yes, there is indeed a clause that allows us to regain the property if the developer fails to proceed due to any reason, including issues with city permits. However, to date, this situation has never occurred, and we hope it won’t happen in the future.

Matias Gaivironsky, CFO

We also maintain a mortgage on the land.

Santiago Donato, Investor Relations Officer

We have a final question regarding non-core assets: what are your plans for the 30% stake in Banco Hipotecario and the smaller hotel division? Are there plans to sell the division in a growing market?

Matias Gaivironsky, CFO

Regarding Banco Hipotecario, we are happy with the bank's performance, which has improved significantly, and this year we will receive around $15 million in dividends, an increase from around $12 million last year. We believe the bank’s strategy supports growth and expansion, allowing it to increase its business effectively. As for our hotel division, we haven't seen significant growth since we purchased the hotels back in 1997 and 1998. If we have an opportunity to sell one of our hotels in the current rising market, we would consider it.

Santiago Donato, Investor Relations Officer

The last question concerns your plans to cancel the $100 million in short-term loans this year, and whether there are plans to issue more debt in the international market, particularly if conditions improve.

Jorge Cruces, CIO

Regarding plans to issue more debt, we currently have no immediate need for additional cash. Specifically, concerning the cancellation of the $100 million debt, as mentioned, part of the proceeds from our new bond issuance was allocated to settling existing debts. From the $300 million raised, we used $58 million to exchange the prior bond. This won’t signify raising new funds for IRSA. From the remaining amount, net of transaction costs, we received around $231 million. Part of that funding will be used to pay down existing debt, with the rest designated to finance opportunities that arise, possibly M&A transactions or support for ongoing developments.

Santiago Donato, Investor Relations Officer

Has the company considered investing in logistics?

Jorge Cruces, CIO

Yes, we have been analyzing the prospects of entering the logistics business for some time now. We see it as a great opportunity and a complementary match to our extensive experience in offices. We believe this is a growing sector with a strong growth trajectory and we are actively considering potential entry strategies.

Santiago Donato, Investor Relations Officer

We appreciate the attendance and the number of questions received today illustrates the growing optimism around this time for Argentina. Thank you for your participation. I will now turn the call back to Matias for his closing remarks.

Matias Gaivironsky, CFO

Thank you very much for your participation. We are very positive about the future for IRSA. With the normalization of the economy and access to credit, the real estate industry has significant potential for growth. At IRSA, we are well-positioned to capitalize on this new cycle, with plenty of new projects to launch. Our main segment, the shopping malls, is beginning to show positive growth again compared to previous years, achieving the highest EBITDA levels we have seen in many years. We are in a healthy position to leverage market opportunities. We look forward to seeing a new growth cycle at IRSA with many exciting projects to come. Thank you again for your participation, and we hope to see you in the next quarter.