IRSA Inversiones y Representaciones SA

BCBA:IRSA

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Santiago Donato, IR Officer]

I will give a word to Matias Ivan Gaivironsky, CFO.

[Matias Ivan Gaivironsky, CFO & Administrative Officer]

Good morning, everybody. We finished our third quarter of 2023. We are very happy with the results. We can see a strong financial and operational performance. We saw during the quarter an increase in the occupancy of our shopping centers and also a tenant sales improvement. Our office portfolio, the premium part of the office portfolio has 100% occupancy. We reached 100% in the Della Paolera building during the quarter. Also our hotels has a strong EBITDA now and higher occupancy than the previous quarters.

During the quarter, we saw also disposals of our building in 200 Della Paolera, we sold 7 floors at very good prices. And also during the quarter, we reevaluated the remaining surface in this building because the prices that we have been selling were higher than the book value on the last quarter.

Also during the quarter, there was an important event regarding our leverage. We finished the process of the deleverage and the cancellation of all the remaining debt on the previous bonds that we have been dealing with the Central Bank regulation, we canceled the 2 ones, and we issue a new one --2 new ones to obtain the proceeds to cancel. So we are happy with that.

And also at the end of last week, we paid a dividend that was approved by our shareholders' meeting in April. There was an important dividend, a dividend yield of 13% at the moment that we approved the dividend.

So we will go through the presentation. Now I introduce Santiago Donato, our IRO, to continue the presentation.

[Santiago Donato, IR Officer]

Thank you, Matias. Well, here in this page, we can see the same shopping sales in real terms. We keep growing in the third quarter of fiscal year 2023, about almost 10% above the same quarter of fiscal year 2022. And when we compare to the pre-pandemic levels to the third quarter of 2019, we are up 33%. So it's -- this shows really good performance of our tenant sales in malls and in our revenues as well and is explained by more visitors in the malls, the higher apparel inflation and the strong recovery of entertainment and food courts in our malls.

Here, we can see the recovery of occupancy in our malls portfolio. Remember that during the pandemic and before the pandemic, Walmart let Argentina. So we have a vacant area in DOT Baires Shopping, and our occupancy went down from 99% to levels of 94%, then it came the pandemic, where we went to a minimum historical minimum of 89%, mainly due to the exit of Falabella, the Chilean retailer that left 3 of our malls, they left Argentina.

And now in the last 8 quarters, we are increasing occupying this space from big services, and we are very happy with the performance of the last quarter that we increased occupancy like 3 points, and we have reached almost 97% that is historical average occupancy.

Moving to the office segment. Here, we can see after the sales of buildings and floors made in the last year, including 7 floors that we sold of the Central Della Paolera during the last quarter. We currently manage 74,000 square meters of GLA in our office portfolio, mostly premium, A+ and A category. We can see that occupancy in these premium buildings increased to levels of 87% as of March 23, while B category is suffering a little bit more. We are -- we have just 2 buildings there. We have 1 that is completely empty. That is Suipacha, still in the same situation and Philips that has 60% vacancy.

But our target, that is the premium target that accounts for 85% of our revenues and our square meters are 87%, a little bit above the occupancy of the sector in Buenos Aires of the industry.

Rents are -- the average rates of the portfolio increased slightly to levels of 25% -- $25, sorry, per square meter per month. And hotels operating figures, we can see here a great evolution of our portfolio, reaching 68.6% occupancy at an average rate per room of 231.

We can see a very good recovery and a strong recovery in Buenos Aires hotels that recover occupancy to levels of 63% and also increasing rates. This is mainly due to the increase of tourism and the recovery of corporate events in Buenos Aires. On the we have seen very good performance in the last quarter, still growing, still fully booked. It's reached 83% occupancy in March -- as of March, with rates growing as well in levels of $413 per room.

So we are very happy with the rental performance of our portfolio, reaching very, very good levels of EBITDA. And I will turn now to Jorge Cruces, our Chief Investment Officer, for the real estate parts.

[Jorge Cruces, CIO]

Thanks, Santiago. Well, we are glad to announce that we acquired an office building through an auction from the city of Buenos Aires that was in last December. This office building is in downtown just a couple of meters away from jthe national government headquarters. We paid $7.9 million that it comes to -- it comes out to be less than $600 per square meter. It has 13 office floors, 13,700 square meters, and it's mixed use.

For now, it's office building. It's used by the city. It's going to be used for the next 18 months and we should be signing the deal in the next month or so -- in the next 45 days. Apart from acquiring the building, we bought 12 parking spaces from the building beside it. The building that we bought has 18 parking spaces. And so we needed more parking spaces and we bought another 12 parking spaces in the building beside it.

During the quarter, we sold 7 floors of our building 200 Della Paolera. It was a very important -- for an important amount of $81.2 million. This is for each square meter. By this, selling on these meters, we came out to the which we sold 76 percentage of the building that we have in stock remaining 8,500 square meters and these square meters are the top floors of the building.

So the fair value or the price of these floors are no less than $10,000 for each square meter. So regarding our stock value, it should be at least $86 million. And this comes out to be -- I mean our investment has been $112 million. That includes the land $25 million, construction $87 million, as we gained already $134 million plus $86 million in stock. This comes out to be that we've had an investment profit of almost 100%. We're very proud of this investment.

Now Matias Ivan Gaivironsky is going to continue. Thank you.

[Matias Ivan Gaivironsky, CFO & Administrative Officer]

Thank you, Jorge. So going to the financial results. First of all, to understand how to read our financial statements. It's important to mention that we have 2 factors that really impact our numbers that are -- that is inflation and devaluation.

Basically, we have to value every quarter our investment properties at fair value. So the volatility of the FX and inflation has a direct impact in our books.

So I separate always the operational performance that is very clear than the other 2 factors that are the par value of the investment properties and the financial part, the financial interest that has the impact of the inflation and the [indiscernible].

So if you see on Page 10, this is what happened during the 9-month period of inflation and devaluation. On the top left, you have the official FX evolution that was a devaluation of 67%. On the right part, you have the evolution of the dollar map, the blue chip swap that has a devaluation of 59%. And in the center, you have the inflation that was 74%. So in real terms, there was an appreciation of the pesos of 4% against an appreciation last year of 17%. This has a direct impact in our -- when we have to value our dollar-denominated debt in pesos that has a positive result because of this appreciation. And on the bottom right, you have the real appreciation of the dollar map that was 8% during this 9-month period against 17% last year that this has some direct impact when we value the offices and the land bank that we are using the blue chip swap and not the official FX.

So going to the easiest part of the Page 11, this is the evolution of our EBITDA. We can see the adjusted EBITDA growing 20% 41.8%. Office is decreasing 17.6%, hotels increasing by 110% and then the sales and development that during this quarter we saw -- during this 9-month period, we sold a little less than the previous year. So altogether, the rental EBITDA grew by 38.7% in real term, that this is impressive and we are very happy with that.

And on the right part, we can see the evolution of the margins. Not only we are increasing in revenues, we are now probably the results on all what we worked during the pandemic that we're reducing a lot of the cost of the company, and now we can see much better margins, shopping malls increasing by 600 basis points. The office is 12% of basis points and hotels increasing from 27.6 to 34.6 showing the improvement in all the business lines.

When we go to Page 12. So the operating income, including the fair value of the investment properties increased by 33%. The investment properties we are posting an important loss ARS 34 billion or almost ARS 35 billion during the 9-month period. This -- when we analyze the numbers in dollar terms, are basically the same numbers. So no appreciation, not the valuation, no impairment.

Only we have an appreciation regarding the Della Paolera building that we changed the valuation and improving because of the disposals that we did, but the rest remain stable. This is only the fact of converting the dollars into the pesos and compared with inflation that has a negative result.

In Page 13, we can see the evolution of the net financial results that has gain last year, higher than this year. This is basically the result of the -- in the -- you have the table below the graph that in the first line, you have the net FX results that last year, we saw a gain of ARS 22 billion against gain this year of ARS 5 billion is related to the appreciation of the official FX and the impact on our dollar-denominated debt.

And also important to mention that the line of net interest are decreasing significantly because of the deleverage of the company. Also, it's important to mention during the 9-month period, a positive effect on the -- on the income tax. Remember that during December, we decided to recognize again that we have been marking as a loss. So we reversed that loss into a positive result.

And also, as we mentioned last quarter, we also include a provision on our books regarding a potential liability in Israel of $20 million. So with that, we finished this 9-month period with a gain of ARS 31.7 billion against a gain last year of ARS 23.5 billion.

If we see the evolution of our rental EBITDA, this is without the disposals, we can see a positive trend. Now we have reached $162 million in the last 12 months, and this is much better than the pre-pandemic levels that in 2019 was $131 million. million.

Regarding our refinancing process, we have been talking about this for a while. Fortunately, we finished all the process in March or in February this year. We canceled all the remaining bonds with some conditions with the Central Bank. So we obtain approvals from the central banks, and we were able to cancel all the debt. During February, we canceled around $200 million of outstanding bonds, and we issue a new bond for $90 million.

After that, the Credit Rating agency decided to increase our rating reaching AA+ from AA previously. So we are very happy with this upgrade and also with the evolution of our debt. We have seen in the next page, what is our current debt. The net debt as of March was $196 million after that. Remember that we approved the dividend and pay a dividend. So the pro forma -- on a pro forma basis today is around $300 million, the net debt. And we can see that the concentration of amortization is in the coming year. So there is no pressure on the financial side.

Page 17, we can see the evolution since 2018, and we can see an impressive deleverage from $755 million in 2020 to $300 million currently.

So finally, after canceling the debt, we felt much more comfortable to be more aggressive in our dividend distribution. So we decided to approve a dividend for ARS 21.9 billion that was paid. This is around ARS 27.3 per share or around ARS per GDS. This is a dividend yield of 13%.

On the peso side, we already paid last Friday. And on the dollar side, we are working with Bank of New York. That is the trustee of our GDS to distribute the dividend as soon as possible. So we hope like last year, to distribute in the coming days, that amount, and we will for our -- our investors as soon as we have more information to give more or less to calculate a dividend in dollars that will be around $0.58 per GDS that is estimation on how much will be the amount in dollars. So we can see the last dividend payment that during the pandemic, there was almost 0 dividends, but after the pandemic and after recover and sold all the refinancing risk, we are now more aggressive on the dividend payment. This fiscal year we distributed $124 million of dividend that is almost 70% of our EBITDA.

So with this, we finish the formal presentation. Now we open the line to receive your questions.

[Santiago Donato, IR Officer]

[Operator Instructions]. Here, there is a question I think Matias just answered it of the dividend when it will be paid and how much it will be in dollars.

[Matias Ivan Gaivironsky, CFO & Administrative Officer]

Okay. As I mentioned, the peso side, we already paid that and on the dollar side, we are working with Bank of New York in order to be ready to pay in dollar terms. So we hope to pay that in the coming days.

[Santiago Donato, IR Officer]

Perfect. There is another question here with the hand from [indiscernible] from BTG.

[Unidentified Analyst]

Good morning. Can you guys hear me? Hello?

[Matias Ivan Gaivironsky, CFO & Administrative Officer]

Yes, we can hear you.

[Unidentified Analyst]

Okay. Perfect. My question is on the office portfolio. Could you talk a little bit more about what strategy you guys are approaching the offices. I understand it's 50% of revenues for the office portion. What's your strategy there? You guys acquired the Paseo Alcorta property and you guys had potential for converting into mixed use. So just trying to understand what the strategy is here? And what sort of occupancy levels you might be expecting for the coming year?

[Matias Ivan Gaivironsky, CFO & Administrative Officer]

Okay. Thank you, Filipe. In Argentina, unfortunately, like compared with other countries, you have to be much more involved in managing the portfolio. It's not just a play where you can rent forever. So typically, in the past, what we did was to rotate the portfolio, was trying to always have new buildings, selling the old buildings and reconvert into premium and the newest trend possible. This is what we did with in the past.

If you remember, we used to have more space available than we sold some floors or some buildings and replace those square meters with the 2 new buildings 1 in the Salta building and one -- the Catalinas building, the 200 Della Paolera building.

Today, what we saw during the year, what we saw is a lot of people trying to dollarize or trying to protect the pesos against the volatility of Argentina, and we received very good offers at very good prices in this building, and we decided to sell the newest building. When Jorge has showed the performance, we invested $120 million and so far, we received proceeds for $245 million from the disposals. So there was a very good business selling.

Going forward, we have a lot of portfolio to some locations that are suitable to offices, as the rest of the portfolio today, we are more cautious on launching new projects because of the volatility of Argentina. So if you see what we did during the last 3 years, we haven't launched any new projects. The 2 acquisitions that we did [indiscernible] -- and the last 1 in Paseo Colon, we're much more opportunistic. The price per square meter was very cheap, and we believe that we can reconvert that in something much more profitable. It's not defined yet the final users probably will have some component of offices, but could be other uses as well, but we are not planning to launch any of these 2 projects in the coming year.

Remember that the contract that we signed, we give like a free rent to the city or in 1 case, for a 20 -18 months and the other case for 30 months. So we won't have the building ready during the next year. So probably, we will work during this year to define what we're going to do. But as of today, we are not announcing any new process.

We are ready. We have a lot of land available to launch different kinds of projects, but as of today, we haven't announced any launching.

[Santiago Donato, IR Officer]

Yes, there is a question from Matias Castagnino from BCP. What is the -- similar to the other one, what is the strategy for the building acquired to the city after the 18 months free rent period. rented to the city, to private companies, selling it?

[Jorge Cruces, CIO]

Well, it's very -- it has a very good location. It has beautiful views to Puerto Madero. That part of the city is becoming residential, all the new developments there are residential for young people. So we'll see. At first, it should be an acquisition for office space, maybe invest to make an upgrade to the building, maybe to AAA or something to an A building. And it should be -- and at first, we're thinking that it should be an office building, but it could be of a conversion. We're going to be thinking these next 1.5 years if it's going to be converted -- if we're going to convert it to residential, we're going to keep it office space.

If we convert it to residential, it's very possible for us to sell the units in the building. If we make it to an office building, it's very possible, that we're going to rent that at first. I don't know if that's okay. Any other questions?

[Santiago Donato, IR Officer]

Yes, I have one more regarding Costa Urbana. Jorge, you can describe the legal status of the project of Santa Maria Costa Urbana, if there is any updates on the project timing, which are the plans?

[Jorge Cruces, CIO]

Well, we've -- in March, we -- sort of the survey plan has been approved. That's very important for us. So that means now we have the different plots throughout the landscape. And then again, regarding the legal action that took place last year. As for March, the court issued the status of returns with no appeal. So that means that -- that means that ruling out the legal action from March. We -- actually, the city made a national competition of ideas for the park that we are giving to the city.

[Santiago Donato, IR Officer]

So that means that regarding the legal process, we have any limitation or everything was released, and we are ready to start construct?

[Jorge Cruces, CIO]

As for March, we're ready to start to do. There's no -- let's say that as a -- was it appealed by the claimant -- as from now, the ruling out, it's a total ruling out of the legal action. So as for March, we can do -- we can start construction.

So as I said, there was -- in March, -- the city made a competition of ideas for the park that's going to be there. It's a very big part. So there was a winner -- and was the winner with the Argentinian studio that's called Polo. So we're talking with them. We're not -- we don't have any -- we're not compromised to do things with them, but as they are winner, so we're talking to them to see if they're going to do the project of the park.

And in the next couple of months, we're going to start with the deeds -- with the deeds of the part for the city and the 3 or 4 plus that we have to give the city. So we're going to be doing that for the next couple of months. So everything is on track.

We're even doing an environment impact assessment these next couple of months. So everything is okay. So there's only good news, especially the 1 of the legal action that was very important for us.

[Santiago Donato, IR Officer]

Well, I will give you some minutes more for any additional questions that you may have. Remember, you can use both the chart and the hand -- raise your hand.

And if there are no more questions, I will turn back to Matias Ivan Gaivironsky, CFO, for his closing remarks.

[Matias Ivan Gaivironsky, CFO & Administrative Officer]

Thank you, Santi. I think we covered in the presentation the most relevant part. We are happy with the performance, higher occupancy in the malls, good performance in the in the hotels, the disposals in the offices, the leverage of the company, the dividend payment, the approval of Costa Urbana. So I think we have a very good year with very good news. And we are ready to keep capturing opportunities that can appear in the context of volatility of Argentina and the company, I think, is very well prepared for that. So thank you very much, and see you in the next quarter.