IRSA Propiedades Comerciales S.A.
Q4 2021 Earnings Call Transcript

Published: 3 Sep 2021

[Santiago Donato:]

Good afternoon, everyone. I'm Santiago Donato, Investor Relations Officer of IRSA Commercial Properties, and I welcome you to the 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.irsacp.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 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.

[Daniel Elsztain:]

Hello. Good afternoon, everyone, and welcome to our fiscal year 2021 results. First of all, I would like to apologize with all of you. Since the COVID-19 restrictions, we were not able to fly and to go to America, so our English will maybe sound even more rustic than it usually does. So, for that, I excuse with everybody. So, starting with the results for this fiscal year 2021, we have been affected very much for the restrictions of the COVID-19 pandemic. The Company's shopping malls were closed for a big period of this time. And despite that the office remain operational, most of our tenants adopted a remote work modality. So, going to page number 2 and seeing some figures, we'll start with our adjusted EBITDA. We had an adjusted EBITDA that grew 54%, achieving ARS 14.4 billion, mainly explained by our sales and developments segment. We were able to sell some -- dispose some of our assets. We will talk a little bit later. But nevertheless, on the office segment and the shopping segment, we were also producing cash at levels of ARS 2 billion in the office segment and ARS 2.6 billion at the shopping malls segment, in both cases reflecting a decrease from last year -- from previous year of 30% in the office segment and 55% on the shopping malls. On the balance sheet, net income was a negative ARS 22.5 billion compared to a net gain last year of ARS 27 billion. Net income attributable to controlling company was negative ARS 21.9 billion. This is mainly explained by the loss of the value in the investment -- the change of fair value of our investment properties and also the impact of a deferred income tax that -- it was changed from 25% to 35% the gain tax, and this is showing the deferred tax for now to the future that also produces a very big impact. Both of these impacts are noncash impacts and as Matías will explain later. On the bottom of the page, the sales were 28%, down compared to last year, but we are not comparing apples with apples because in the two different years, we were open for different times. So, it's very difficult to compare. What is the good news is on the last quarter, we see a tremendous increase of almost 570% increase because on last year on this quarter was almost completely closed, and this year is open and we're going to see later a good recovery of the shopping center segment. On the office portfolio, we have -- we see an average rent per square meter of $25.7 per month. Occupancy at the malls is about 90%. It may be -- we are seeing the worst pictures in terms -- the worst picture in terms of occupancy. And on the future, we are seeing very good activity, and we'll talk about this a little bit later. On the office portfolio, occupancy is 80%, mainly explained that what we was occupied -- fully occupied and what we are now opening is not still full -- it's still full under operation. The main events for this year is because of the COVID restrictions, recovery is gradually and normal operation of the office segment despite home office working modality. We see a flight to quality in terms of the office sales. We did about $170 million in office sales. We were disposing those assets that we decided were not part of our main quality portfolio. And we opened the 200 Della Paolera, our new building in Catalinas. On the financial side, we did cancellation of approximately $140 million of debt, and we paid a dividend of approximately $120 million this year. On page number 3, we can see how was the year for us in terms of operation. We can see that when we started this year, we have the lockdown that started in June -- sorry, in March, and we were operating almost none. Our operation was only 6% of the total GLA was open and producing income. We see at the end of the first quarter that this is a little bit better because the rest, not Buenos Aires city, but the provinces were allow -- allow us to open in advance, so we moved to 44%. And only by December and only till March, we were operating at 100% open. Nevertheless, during that time, we had a lot of restrictions, not to allow all the people that wanted to get into the shoppings and many restrictions imposed by the cities that did not allow us to operate in normal conditions. This was not expected, but we had a second wave of lockdown, so from April 16 until June 11, we had another lockdown, especially in the city of Buenos Aires that took us down again to 44% of our GLA open. And only since June of this year, we were able to reopen our total amount of shopping centers. And since then, we are seeing a good recovery, more people coming to the shopping centers, more interest in the brands and operators to open activity in our shopping centers. During the period of COVID, we waived the base rent and commercial fund during lockdown periods. We did that to help our tenants and also to create value for the long term in our relationships with them. We only charged our tenants the common expense -- the common charge expenses. And because of that, we were not burning cash. That allows us to pay our cost. And it was really -- it was demonstrating the strength of our portfolio. And the one important thing here is you to remember in Argentina, the rents, the tenant can cancel the contract any time during the period of the lease. And nevertheless, we see that we kept occupancy very high. Tenants were allowed to leave and they didn't took that option, the majority of them. On page number 4, we see about this -- some numbers about this. During the COVID period, we lost 235 exit stores. That means that people decided not to open, to leave the country or to close operations. We see some international exits, for example, Walmart, Falabella and others that left us a lot of square meters empty. Nevertheless, our team was working during the lockdown and especially after lockdown, and we recovered and we signed 232 new stores that is bringing -- giving us good hope that we're going to go back to high levels of occupancy in a very short term. In terms of these new contracts, we can see that the breakdown is very different than it used to be. In the past, we used to have 80% of the new contracts were apparel. And now you can see the breakdown at only 40 -- sorry, 54% of the new contracts are on clothing, 30% on services and others, restaurants, electronics. So, the shopping centers are also living a good transformation into giving more experiences, giving more services and procuring what the customers are looking in our centers. In terms of cost and SG&A, we did a big effort and we produced a 17% reduction in cost. Unfortunately, the business, because of the lockdown, is not allowing to show that good work that the team did because the business suffered more than the 17%. Nevertheless, we expect to keep this cost reduction for the future. And now that the business will start to grow again, we will be able to see the benefit of this cost reduction that the team was able to do. In terms of delinquency, we see the big difference in between the last -- when we finished last year was in a moment of completely lockdown, so we had ARS 464 million in delinquency. We see that, nevertheless, we are closing this year with ARS 188 million. It was just in the same month that the shoppings reopened and because of that and the work that the team did with our tenants that we were able to reduce delinquency. And this delinquency is mainly explained by the big tenant that unfortunately, were not able to -- I mean, it's going to Chapter 11 because with the rest, we are working to manage delinquency and get them the ability to pay us now that they reopened. And in terms of revenues, this represents, in the past, 5.2% of revenue and this year is 0.4% of revenues. Shopping malls, the total GLA remains stable, very similar. We see now the reduction on occupancy going from 94%, 93% to 89.9%. This is the lowest that I remember. But again, remember that they had the ability to leave all of them and shut down the contracts and go away. Nevertheless, we only lost a few points of percentages. And the majority of this space -- this empty space is explained by Falabella. Falabella is like a department store that we had in three, in Avellaneda, Soleil and in Dot, and they left the country so they left that empty space, and also Walmart. If we would exclude the impact of these 3 big stores, occupancy would have been 93.4%. Nevertheless, what I told you earlier, the team is working and the shopping centers are showing recovery in terms of visitors, in terms of sales. And that is bringing new tenants that want to get into the shopping centers. I can tell you that July and August, we see much better figures than the ones we are seeing at the end of this fiscal year. In terms of sales, as we see on the last quarter of 2020, this big drop of 93% which I never expected to see, now because of the reopening, we see on this last quarter a growth of 895%, totally outliers. From now on, we will start to compare with 2019 year's inflation rate with inflation to compare apples with apples because it's very difficult to compare this when we had the shoppings that was closed and this year is totally open. If we measure the whole year '21 to 2020, variation would have been an 8% growth nominally. And if we make in real terms, it's a 28% reduction. Nevertheless, we are comparing different amount of months opened in this between two years -- between these two years. I told you about the English. So, I hope you understand. Regarding our office portfolio, we had a big transformation of our portfolio this year to what we used to have. We did an important flight to quality. The size is very similar. We now have 113,000 square meters, and we used to have only -- we used to have 115,000 square meters, a small, slight decrease in the total GLA but the quality is totally different. We sold Bouchard 710 and Boston Tower. That were very good buildings, very good design but old and with a smaller floor plate. What we have now is newer, it's greener, better quality, better standards and also is what the tenants are looking. Speaking a little bit about the trend of the office. This year, most of the companies were working on remote, like a home office method. What we now see, it's a more clear pattern for the future. The companies are saying that they will keep the modality, the hybrid modality, some days of the week in the offices and the same ways with remote work. But, what we are hearing from our tenant is that the majority will reduce a little bit the headquarters and will start to work with remote, like remote offices for people to opt to work at home or in these remote offices. So, they don't know if going to be exclusive or in a co-working modality for these remote offices. And we are starting to produce these spaces. We are working to produce these spaces for our tenants and also for new tenants. Regarding occupancy, we see that we're coming from 93%. Now, we are showing 80%. This again, we -- because of the -- we saw buildings that were fully occupied and we incorporated 200 Della Paolera that is not fully occupied and also because Falabella, as I mentioned, the department store left the country. And not only they left us, the space at the Shopping Centers but they also left us a big space in office at the setup building in the Polo Dot office center. The portfolio of the B class, it's running at 48%. This is mainly explained by the building of Suipacha that is almost all vacant and it's in the for-sale list of our assets. In terms of price, we see a small reduction of $26.6 last year to $25.7 this -- at the end of this quarter. We see some pressure on price. It's not fully reflected yet at the end of June, where we see some price compressing on the office segment. The good news is that what we have is the best quality, and also some of our space is fully ready to be occupied, and this is what the companies are looking for. It's like a build-to-suit or something that is ready to be used immediately. Regarding disposition, we sold these two buildings for approximately $170 million, an average cap rate of 6%, were very good dispositions. The floor plates were not so efficient as the one we are looking for. We are looking for big plates for our big tenants that they prefer to work more efficient in more big floor plates. Nothing new, we already spoke about this on the previous quarters. We opened our new building, the new headquarters that opened on December, 200 Della Paolera, ready to be LEED-certified, is ready and we are in the process of getting the certification. The full building, it's functional now. We have 30 floors, 3,500 square meters of GLA. And 80% as June 30 was occupied. It's a premium location. And we are actually -- we are working from this building and it really is the best of the best of our portfolio and the best of the best of the city of Buenos Aires. The tenants that are under construction are already working in the building are very happy and the building is demonstrated, it was a good -- a very good investment, our decision to flight to quality and the quality of this building. On page number 9, here we show some of our residential barter agreements and also the hidden value of the -- some of the hidden value of the Company. We have approximately 600, 700 (sic) square meters that are going to be received in the future for swaps that we did. We give the land -- we gave the land for developers, and we're going to receive in these three projects in Coto Airspace next to Abasto in Córdoba adjacent to the Córdoba Shopping and in Caballito. This is the first plot. We have four plots to be swapped. But only the one, the first one, we have about 6,700 square meters to receive that are approximately $15 million. And on the right side are the two main and big plots that we still have for future . The one in La Plata that is going to be adjacent to a commercial development and also in San Martin that we have the permits. In both sites, we have the permits ready and we are working how to best and most efficient and when to do these barters to receive apartments or commercial space or whatever in the near future. Despite the difficulty of the year, we were able to do many things on the technological transformation. First of all, we launched APPA. It's a 100% digital loyalty application, offering benefits, discounts in brands, in shoppings, in the shoppings and out the shoppings. As of a few days ago, we had 1 million downloads of this application. We have 1,400 corporate users. This is -- use of this application for corporations where you can reserve an office, you can reserve a desk. You can track what the employees are doing to -- we use it internally for co-working. And we use it also for lunch. The people can get the lunch benefit of the Company through the application in many restaurants, in the shoppings and outside the shoppings. Also, the application serves to pay parking today, and we have 127,000 parking users. That means that you get into a shopping center. Instead of you paying in the cashier, you use the application to pay the parking. And we have more than 2 million transactions approved through the application. The same way we can pay today the parking is about to be launched, APPA Pay that will allow this application to serve as a method of pay like many that you may know. So, you can pay with the application in the majority of our stores in our shopping centers initially. And the idea is to open it not only in our shopping centers. And also ready to be launched soon APPA Gift, which is the gift card of our shopping centers. We used to have the Cheque Regalo. It was physical, none -- it was not possible to make it in units, small units. It was a fixed number. You were not able to see what the amount of money you had as in a gift card. And now, through the application, the APPA Gift will allow the user to have much more benefits, easier to buy, easier to send it. Also in APPA, we launched this year APPASHOPS. As an MBP, it's not been released yet. There was no publicity, no marketing about this. This is the shop, the marketplace that the shopping centers have. The idea is to sell the same brands that we have in the shopping centers. While open all over the country, you can pick up in the shopping center, you can ask delivery all around the country. And as of today, we are working with incorporating new brands. It's a challenge to make it into the system to make all the operations, all the logistics, but it's already functional. 69% of the orders that were done and it's only the power of mouth. By mouth and mouth, people is saying that we have this. With only a few brands, 69% of those orders were withdrawn with pickup. That means that people want to buy some things on the internet, but they choose to do pickup in the shopping, in the parking space, and we are working a lot. And this company is also getting people and getting traction. As I mentioned, technologically, we were able to do big efforts during the year to transform internally and also for our customers. We did many new things that allowed us to be more efficient, to have more information, to make transactions easier with our brands, with our tenants and also with our customers. Here are some of the examples. We are now signing contracts digitally. We are using options to buy things that we're buying for the common charges and the things we use. We make a deployment of the CRM, our customer relationship with tenants and also with customers. And we are working a lot. Now, we have HeatMaps on our shopping centers with our own cameras. We moved into a DataLake that will allow us to make a lot of prediction -- new predictions and analytics techniques for analyze the information on our customers as we have APPA now, right, and we have more information of our customers. For us, it was very important to have that information in a very good way, in an efficient way, an easy way to use that information online to make on-time decisions for promotions, activities and have relationship with our tenants. One other thing we did, we did TelePresence. So we took out all the kiosks that were having customer relationship. And instead of that, we move it to a TelePresence. So, we have digital stands that you can communicate in the digital stand or through a telephone directly with tenant -- with the service representants of our company to get information, service, help or whatever. On top of giving a better service, we are saving costs. In the majority of this, we are saving costs. Also, we did some robotics. So, many of the procedures that were used to be done with people now are done by bots that are doing that piece of work. And that help us also in cost reduction and efficiency in reducing errors. On page number 12, here, we're showing some figures on the Company's recent ESG indicators. Sustainability is part of our strategy. We're always seeking to achieve the best quality in our operations and high standards of environmental certification in our real estate projects. On the environmental front, we can see that we have 30% of our malls certified with ISO environmental certifications. And 50% of our building are ready LEED certificate or to be certified in a very short period of time. Regarding our social front -- sorry, regarding the management, we were always leaders and promoters of this. We always treated the plastic and materials recovery. We were always at the lead of working with the city to reduce waste, to manage recycling and now we are showing it. But, we have been very active on this for many, many years in this aspect and others that we were not so talking about it but it's important for us. It's very important for our teams and the people that work in our companies. On the social front, we have been very active with NGOs. As you can see here, we have many volunteers on the Company, and we have been working with a lot of NGOs, 78 exactly. And we -- this year, we gave ARS 127 million that the majority of them were done through the Fundación IRSA that has been working for 25 years now. It's an old foundation but we have been working with Fundación IRSA for a long time. And we have been helping people to access to education, work, health and housing. And regarding also, it's very -- we are working a lot to contribute to the development of the women in the organization. As you can see here in the chart, we have 26% of women. And also, we're working hard in inclusion and diversity in our Board, in our teams, in our managers. It's important for us, and the teams are really involved. And we are doing because we believe it. But the teams internally are pressing all of us to have conscious on this and to work with everybody internally and externally to be more open to promote inclusion and diversity all over the Company and within the teams. So, now for some financial results, Matías Gaivironsky, our CFO.

[Matías Gaivironsky:]

Thank you, Daniel. Good afternoon, everybody. So, this is hard figures to understand because we are not comparing apples with apples. As Danny mentioned, during most of this period, our malls were affected by the pandemic and the lockdown. So, on the operational front, it's hard to compare. Nevertheless, we are presenting what it is. The results of the period is a big negative result of ARS 22.5 billion compared with a gain in the previous year of ARS 27.3 billion. If we analyze the main components of this drop are coming through basically 3 lines

[A - Santiago Donato:]

Yes. Now is the time for the Q&A session. Here, we have the first one. Looking to the healthy scenario of debt, the company are looking to new investments for next quarters. How the company are looking to pass through the high inflation scenario and economic recovery?

[Daniel Elsztain:]

Coming from Pedro, thank you for your question. Regarding looking for next year, yes, we are looking for good opportunities. But on top of looking for opportunities, we are going to be focused on really taking care of our assets. We are doing an interesting and intelligent CapEx work for the year, not in terms -- it's not a lot of money but it's going to be dedicated to take care of our shopping centers as they are coming back to produce good EBITDA. We are going to take care of our tenants. And also, the same with the office buildings. We are going to do a lobby of one of our office buildings and we are working on that. Saying that, we are starting to look some opportunities, nothing really that is compelling to be done. So, we are looking for these opportunities to come.

[Matías Gaivironsky:]

Pedro, the second part of the question regarding the high inflation scenario and the economic recovery, you know that real estate always was a safe haven against the inflation and the volatility of the country. We -- in terms of value, our properties are stable in dollar terms. That is a very good protection. In terms of the inflation, we used to have a very good link because we charge to our tenant. There is a composition between a base rent and a percentage of their sales. So, if they are selling more because of inflation, we will capture automatically part of that inflation in our revenue. So, this is in the part of the malls. The office is different that office is, we charge them dollars, X dollars per square meter. So, that gives us a protection in dollar terms because we have around $25 million or $22 million EBITDA that are dollarized. So, we have a good composition. So, we believe that it's a good structure to protect against the volatility of Argentina.

[Daniel Elsztain:]

And a small comment on that, Matías. This year, the law changed and we were to -- we were used to follow inflation with steps. So, we were trying to predict inflation and putting those steps in the contract. As of this year, law is permitting us to adjust to CPI, right? So, the majority of our new contracts are being adjusted to CPI. So instead of falling behind inflation, now we are following completely aligned to inflation, those contracts.

[Santiago Donato:]

Next question comes from Fernando Vichar. Are you going to look for new funds on hard dollar on the local markets?

[Matías Gaivironsky:]

Well, Fernando, our strategy, we don't have any amortization in the near term. So, we are not planning to go to the market in the coming months. We did it at the level of the parent Company recently and Cresud also. So, we are using the local market in dollar link, and hard dollar. There's some liquidity in the local market. So, we -- if we need or if we want, we have that market open. But, we don't have plans for the near term to issue new debt at IRSA Commercial Properties.

[Santiago Donato:]

Is there any additional question? Here, we have one more from Rodrigo Brandão. How the parent company plans to address their currently debt with IRSA CP? Why did that amount was changed from dollars to pesos? Could you give me more color on IRSA and Cresud bonds that IRCP carries on its balance sheet as well?

[Matías Gaivironsky:]

Yes. Thank you, Rodrigo. Well, if you see the strategy between the companies always was to finance itself in the market. We generated the credit line that partially was canceled through the dividend that we paid this year. Then, the change into pesos was because what IRSA CP had at that moment was pesos and not dollars. And then, IRSA CP lent those pesos to IRSA. Was not a change on the balance of the debt. So, we haven't changed the balance. What we changed was the way of the disbursement because what -- at that moment, IRSA CP lent IRSA was pesos but -- that was not a change in the balance of the debt. And then, there was just, last week, a reduction on the balance because IRSA issue dollar-linked notes and then canceled IRCP part of the debt. This is something that happened last week. And then, could you give me more color on IRSA and Cresud bonds that IRCP carries on its balance sheet as well? Yes, that's part of our liquidity management. We decided to invest in bonds of IRCP -- on IRSA and small -- we have a small part of Cresud bonds, mainly our IRSA bonds. Yes, we have -- and I think it's disclosed in the balance sheet, the amount of bonds that we have.

[Santiago Donato:]

Is there any additional questions? You can use chat or also your hand. Okay. It's fine. If there is no more questions, we conclude the Q&A session. And I would like to give -- to turn back to Mr. Daniel Elsztain for his closing remarks.

[Daniel Elsztain:]

So despite this unforgettable difficult year, we were able to achieve many important things for us. First of all, operationally, we were cash positive in all the main line businesses of the Company. We did a tremendous job in cost reductions. We were able to keep our financial strength. And this is also shown by the upgrade we got on the credit ratings. We were able to sell -- to have some disposition of assets, demonstrating two things