IRSA Inversiones y Representaciones Sociedad Anónima (IRS) on Q2 2021 Results - Earnings Call Transcript
Santiago Donato: Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA, and I welcome you to the Second Quarter of Fiscal Year 2021 Results Conference Call. First of all, I would like to remind you that both audio and slide show may be accessed through 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 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.
Alejandro Elsztain: Good afternoon, everybody. We begin in Page #2, the main events for these 2 quarters, half of 2021 results. We can see about the net results. There is a drop this 6 months, 2021, having lost ARS1.2 billion comparing to a gain of ARS6.6 million last year -- ARS6.6 billion. And when we see that related to -- attributable to controlling company, we see a better number. This year, we have a negative number of ARS0.6 billion comparing to last year lost ARS1.9 billion. When we compare about our rental segments and about the adjusted EBITDA of the real estate activity of this year, we can see a jump from ARS4.5 billion of last year, we grow to ARS8 billion -- almost ARS8 billion. This is a growth of 77%. And we can see in the rental segments, the office, the shoppings, we see a big loss -- a big drop, almost 75% loss year-to-year. And we have a big number that is related to sales and development, ARS6.7 billion are related to some sales in the company this semester. So hotels, it was almost closed, so a big drop of 170%. So we are going to see a little more details on the numbers. But this is the main thing, is that growth mainly explained by the season and the virus. About this maintenance of the 6 months, the shopping malls reopened since October. We finally finished the building 200 Della Paolera, nice office building that was opened in December, and we went here. We are now in this building. We are the first tenant. So we are occupying since December this beautiful building. And we had sales of offices during these 6 months over $170 million. The hotels reopened since December and one is really spending good time, the other 2 not so more. The one is Llao Llao. We did an exchange of our debt, the notes that we have -- we were -- we exchanged them, and we did with an acceptance of 98%. Matias will explain it later. And finally, the distributed dividend in kind of IRSA Commercial Property shares in November for ARS484 million. We can move to -- now to Page #3, and in here a short summary of shoppings, office and hotels. Our shoppings, keeping the same size, occupation going down, is 88% of occupation. It's mainly affected by the Falabella decision of leaving the country. This deal does not include Mendoza Plaza, that is going to happen probably next quarter. But with that, we have a big drop there in tenants. They have only three places in our shoppings for the 14 shoppings, but these 3 places may be hold on their shoppings. And the one that is moving faster is in Della that we are occupying and in Mendoza didn't come yet.
Matias Gaivironsky: Thank you, Alejandro. Good afternoon, everybody. So if we move to next page, we have the explanation of our investment in Banco Hipotecario. The main focus during the last semester was the restructuring of the debt. Banco Hipotecario refinanced the notes that expired in November 2020. It was a very successful exchange. With that, we achieved a reduction of $200 million of debt and approximately $20 million in interest savings. So that will benefit the ROI going forward. The current focus on the strategy of the bank is through the liquidity and solvency. They have achieved good ratios in liquidity coverage and other ratios. So the company is mainly focused on that, dealing with the current situation in Argentina. We can see the stock price remained low compared with the previous year. This is not so different than the rest of the banks in Argentina. If we move to Page 8, we can see the breakdown of our P&L. As Alejandro mentioned, we are finishing the first semester of the year with a loss of ARS1.2 billion compared with a ARS6.6 billion gain of the last year. If we exclude the line 14, the results from discontinued operations, that's basically the results on our investment in IDB, the result is almost ARS6 billion positive compared with ARS3.5 billion or ARS3,581 million loss during the last year. If we see the main drivers of this gain, the first one is in the line 4, the change in the fair value of our investment properties. This is how we measure our properties quarter-by-quarter. We can see that during the quarter -- in the left part of the table, we can see that during the quarter, we posted a loss of almost ARS17.5 billion, and the total gain during the semester is ARS9.2 billion. That means that during the first quarter, we posted an important gain and now because of the different vials in the macroeconomic side, basically, we recognized this loss. Remember that in shoppings, we are performing DCF and on the comparable -- in the offices and in the land bank, we are using comparables. So depending on what happens with inflation and the exchange rate, that will generate volatility in our books. The other important effect is in line 9. We can see that during the semester, last year, we posted a loss of ARS9.2 billion. This year is a gain of ARS1.2 billion, that I will explain in the next pages.
A - Santiago Donato: has a question.
Unidentified Analyst: Do you hear me?
Santiago Donato: Yes.
Unidentified Analyst: Yes. My main question would be current cash balance in order to face upcoming maturities. And I was wondering also that IRSA Commercial Properties distributed dividends in cash on the second quarter 2021. Is that correct? And is this kind of cash available for IRSA right now?
Matias Gaivironsky: The IRSA Commercial Properties, in fact, distributed dividends during November. That was a dividend of ARS9.7 billion that finally we paid in dollars. And what we did with the proceeds that IRSA received was to cancel the intercompany loan. So instead of paying interest to IRSA Commercial Properties, there was a cancellation of debt. So we used all the cash to reduce the exposure. There is still exposure. It's around $60 million of intercompany loan, and the rest we canceled.
Unidentified Analyst: Okay. So in case of need, you would use again the intercompany credit line with IRSA Commercial Properties?
Matias Gaivironsky: You know that our strategy always is to finance each vehicle at its level directly, but one of the alternatives could be to use the credit line.
Unidentified Analyst: Okay. And at best case scenario, you would try to roll over upcoming debt maturities, is that correct?
Matias Gaivironsky: Yes. Again, like we did last year, also we have sales. If we sell some of our assets, of course, will be also cash. And going forward, you know that IRSA Commercial Properties, always the strategy was to distribute dividends. So if we are allowed to keep distributing, IRSA Commercial Properties will.
Unidentified Analyst: I don't want to monopolize the conversation. I will wait if someone would have any question as well.
Santiago Donato: Next question comes from Gordon Lee from BTG Pactual.
Gordon Lee: Well, two questions. I guess 1 is a bit of a follow-up to the previous one in terms of thinking about sources of liquidity. I was wondering if you could let us -- if you could tell us what, if anything, in the portfolio is something that you're actively looking to sell to monetize at the moment? Or if the transactions that you did at IRSA Commercial Properties is enough as far as divestment of assets? And then the second question is, I was wondering, Matias, if you could maybe give us a little bit more detail on the, I guess, revaluation in the first quarter and then the markdown in the second quarter, what variables exactly? And what part of the portfolio was affected, simply just to get a better sense of whether we should expect volatility like this on an ongoing basis. So there was something unique to the quarter or to the half that would have caused that markup and then that markdown.
Matias Gaivironsky: Related to the realization, some of the assets at the IRSA level that could be on sale. As you know, Gordon, our investment in the U.S. was closed due to that and still starting opportunities of that realization in the international. From the local, the hotels mainly the turnover is under the radar of some buyers. So maybe not Llao Llao for sure, but some of the hotels could be under that position, too. So -- and some of the land banks are receiving swaps. You know that there is a lot of activity relating to residential. And we have a lot of lands that could be swapped and later to be sold through square meters. So I think these are the 3 kind of ways that IRSA could be realizing.
Alejandro Elsztain: Gordon, On the second part of -- second question, there is different assets. Now we have in the shopping malls, it's a DCF model that the main volatility that people have there is the change in the macroeconomic variables that we forecast is not so volatile than the rest -- the other part of the portfolio. The other part, the main gain that we have during the quarter was that we started to use the blue-chip swap in order to value the offices and the land bank, considering that all the assets that we sold and all the assets -- the real estate assets in Argentina are trading at real dollars than in order to value in pesos term, we are using the blue-chip swap. What happened after is that the blue-chip remained stable during the quarter. The exchange rate at the end of September was ARS138 and at the end of December was ARS180. And you have to adjust by inflation those numbers and the inflation between September and December was 11%. That means that in real terms, if we measure in dollars, the portfolio remains stable, nothing changes. In pesos term, I mean, real terms, there was a drop because to have the same numbers, at least we have to increase our -- the value of our portfolio by 11%, and that was not the case. In dollar terms, remained stable, and the exchange rate only changed like 1% instead of 11%. I don't know if I was clear.
Gordon Lee: Yes. No, that's perfectly clear. If I could just ask one follow-up then, just to confirm. So on an ongoing basis, going forward, you will mark up or down the value of the office portfolio with the blue-chip exchange rate. But the NOI that you're translating on to your P&L from a quarterly basis will continue to be done with the official rate, is that right?
Matias Gaivironsky: Yes. Yes. And remember, Gordon, that we collect our revenues using the official exchange rate now. The rates are in dollars, but the tenants pay at the official exchange rate in all that blue-chip.
Santiago Donato: Well, if there are no more questions, we conclude the question-and-answer session. At this time, I would like to turn back to Mr. Alejandro Elsztain for any closing remarks.
Alejandro Elsztain: Just to finalize the 6 months' comment, sales of the shopping centers after the lockdown are better than expected and we are seeing some shop incentives passing levels of inflation year-to-year. So we are happy on the -- how the shoppings are behaving. In related to the office, we opened in December Della Paolera, but the collection is going to come. So this is a 75% contract signed, but not in the rental cash, we are going to see that in our numbers soon. In the hotels, to begin to see some of them with 80% or more gives us the flavor of the country is opening, and our assets are holding again. So -- and the financial position of the year is much better than last year. So we closed the 6 months with good results and expecting the COVID won't affect again or close again. In the meantime, the company is behind it much better than the last 6 months.
Alejandro Elsztain: So thank you very much, and have a very good day.
