IRSA Inversiones y Representaciones Sociedad Anónima (NYSE:IRS) Q3 2024 Earnings Call Transcript May 8, 2024
IRSA Inversiones y Representaciones Sociedad Anónima isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Matias Ivan Gaivironsky: So good morning, everybody. Today, we will review the results of our Nine Months Period of our Fiscal Year 2024. This was a special quarter with a big change on the political side, with the assumption of the new administration, a big change also on the economic side, with the first measures of the new administration that tend to stabilize the economy, reduce the deficit, reduce the inflation. So, so far, there were good results. This is too early to see results on our industry. But we have a strong hope in the new administration and to obtain and achieve an stabilization of the economy that will be very good for our industry. When we review the results of the nine month period, we will see a loss on the net income of around ARS111 billion, that is explained mainly with a noncash effect on the fair value of investment properties that I will explain later.
Also, we see good results when we see the adjusted EBITDA with a 9% increase against the same period of the last year. During the quarter, there was a slowdown in consumption and our EBITDA, mainly in the malls, decreased compared with the same period of the last year, that also we will review later. Regarding tenant sales, there was a slowdown in consumption. So we will see a drop. Occupancy are at very good levels, both in malls and in offices. On the financial side, we decided to launch a new buyback program. So, so far, we acquired around 1.7% of our own stock. And also 10 days ago, we decided to pay a new dividend that we will start the distribution tomorrow for our local shareholders. The dividend is for ARS55 billion. So now I will turn the call with Santiago Donato, our IRO.
Santiago Donato: Thank you, Matias. Well, here, we can see the shopping malls operating figures, our tenant sales on the quarter and on the accumulated nine month period. On the quarter, as Matias mentioned, we have seen a decrease, a drop of 18.5%. This is the third quarter of 2024 compared to the third quarter of 2023 due to the acceleration of inflation and its impact on consumption during the third quarter of the fiscal year 2024. Occupancy remained very, very high at levels of 98% in our malls. And when we look at the accumulated sales, we are up almost 1% in the year compared to the same period of last year. So in the nine month period, we cover inflation. We’re a little bit above inflation, because until December, the first semester of this fiscal year was really good.
Sales were up like 10% in real terms. When we see the breakdown by type of business, we see that apparel is in the average, 19% down on the quarter. Services and miscellaneous are a little bit up as [hoped] on the distribution. And then restaurant, home and electronics and entertainment are a little bit even at levels of 25% to 30% decrease on the quarter. The next quarter is going to be a challenge as well to sustain tenant sales and activity and visitor flows in the malls. But we trust that in fiscal year 2025 that starts in July ’25, activity in the malls should recover in line with the recomposition of salaries and the economic activity. Regarding the office segment, after selling assets during the last three, four years, we currently manage about 59,000 square meters, mostly A plus and A buildings, that when you see occupancy remains very high at levels of 93%, this is above the average of the industry in Buenos Aires, while rents remain stable at levels of $26 per square meter per month.
And finally, on the third rental segment on the hotels. The three hotels have shown very good performance during the quarter, reaching on average almost 69% occupancy and a rate per room of almost $260. Buenos Aires hotels, the ones that we own here in Buenos Aires, the Libertador and the InterContinental, recovered strongly in occupancy and rates due to the recovery of the corporate events and the increase of tourism. And [indiscernible] that reached peak of occupancy of 83% last year, now it’s still in very high levels, at levels of 76% occupancy and it’s charging rates of — are approximately $470 per room. So despite the shopping centers that have showed a drop this quarter, in general terms, the rental segment is doing very well and closing the year in a good — with a good performance.
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Q&A Session
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I will now turn to Jorge Cruces. Jorge is the CIO of the company, to show the status of the upcoming projects of the company.
Jorge Cruces: Thank you, Santiago. Good morning, everybody. Costa Urbana, regarding the project for the infrastructures, we have completed the submittal of all additional information and documents requested by City Hall for granting the approval of the project for the infrastructures and road works. In respect of public park project, our design team is working with the City Hall on the architectural and landscape of the public park on all three phases. As for the environmental approval, having completed the submittal of all assessments requested by environmental authorities, we expect environmental public hearing to be held in June or July. La Plata development project. The land is a huge block of about 8 hectares in the north down of La Plata City.
In their surroundings, there’s two supermarkets and a home center, becoming by far the most important supply center of the city. It’s a mixed use master plan. The huge block has been subdivided into 18 lots, two of them becoming public squares to be transferred to the city, the largest one for shopping center and the other plots for developing residential and commercial buildings. The shopping center will be a two level open air and will have 22,000 square meters of gross leasable area and 720 parking spaces. The residential and commercial buildings will have approximately 78,000 salable square meters. Today’s status. The town council has approved the project and issued the construction permit. In April, industrial survey plan and proposal for creating the new plots was filed and registered, enabling the lots to be sold.
Project and bidding documents already completed and ready for tender process. The La Plata Building. Late December, Banco Hipotecario, in its capacity as owner and truster of the land, transferred the fiduciary domain of the property in favor of TMF Trust Company as trustee. In January, City Hall approved the construction license for the project, allowing us to start the construction works. The first meeting of the Trust Executive Committee has been held in March and authorities were designated. And most importantly, a closure regarding the final list of money transfers and the percentage of participation of the investment. Nowadays, the architects are working on the final technical augmentation, which is expected to be finished by June. In the meantime, we are signing the contract with the construction manager and beginning some minor demolitions.
Big numbers of the development. Total surface area of 60,000 square meters, salable square meters of 35,000, 15 floors and four parking floors in the basements, 721 apartments, eight shops 224 parking lots. Last but not least, these last couple of weeks, there’s been a game changer. Mortgages. Just in the last couple of weeks, some banks actually — Banco Hipotecario was the first bank to announce it, but now there’s been like five banks announcing that they’re going to start with mortgages these next couple of months. This is a game changer for us, not only because of our stake of 30% in Banco Hipotecario but it’s a game changer regarding all our projects that we have in our portfolio. We’re really anxious to see how this plays out, but we’re confident that it’s going to be very important for the next two or three years for the company.
Now I’ll give back the floor to Matias, our CFO.
Matias Ivan Gaivironsky: Thank you, Jorge. And to reinforce the idea of how the mortgage industry can change real estate, we have to mention that Argentina is an economy with no leverage. Mortgages to GDP in Argentina is only 0.3%. When you compare that with our neighbor countries, that number is much, much higher. So we believe that if this — the economy stabilize and we will start to have this kind of offer on the mortgage side, this will be a very big change for our real estate industry. So to enter in the financial results, I would like to spend 30 seconds saying what happened with the main variables, the FX and inflation. As you remember, there was a big devaluation in December. We discussed that in the last conference call, the official FX went from 350 to 800.
And then during this quarter, the FX remain stable. You know that the government is implementing a crawl impact of 2% per month, they maintained that during the last three months and also during April. So that generates volatility in our results. We have to put all the numbers in peso terms adjusted by inflation. So this kind of movement — big movements really generate volatility in the results. You know that on the asset side, we value the malls at the official exchange rate, a fair value at the official exchange rate. And then in the land bank and office portfolio, we are valuing at the blue chip swap at the dollar [MEP], that also was stable during the quarter. The last quarter, we finished with 995 and now with 117. So when we see numbers adjusted by inflation, you will see that on the bottom left, the official exchange rate that closed at 858, equivalent in December was 1,225.
And then the blue chip swap was 1,800 in the third quarter and we finished at 1,017 in March. So we will see the impact on that in the following pages. First, on the adjusted EBITDA, we still have good numbers. The adjusted EBITDA increased by 6%, the rental EBITDA by 12%. So remember that we finished December with better numbers. And then in this last three months period, for instance, the mall EBITDA decreased by 18% compared with the same period of the last year. This is when we compare numbers in pesos term. Probably going forward, we won’t see results in pesos term. But if the dollars remain stable, maybe we’ll see good numbers in dollar terms but lower numbers in pesos terms. When we see the margins, margins remain stable, shopping malls at levels of 76%, offices at 81% and hotels at 40%.
So in the following page, so leaving aside the effect of the change in the fair value numbers were good. Operating income increasing by 40%. But then when we see the loss generated by the change value in the investment properties, there was an important loss of ARS385 billion. So that — basically the effect is what I described at the beginning, that is the effect of the FX and the inflation. If we see the numbers in dollar terms, our malls remain at the same value. The office is at the same value and the land bank at the same value. So no major changes. It’s only the effect of posting the results in pesos term. The next page, we see the net financial results. Here, we have good numbers. There was an important result from the fair value of our assets.
