IRSA Propiedades Comerciales S.A.
Q1 2020 Earnings Call Transcript

Published: 11 Nov 2019

[Operator:]

Good morning everyone and welcome to IRSA CP First Quarter 2020 Results Conference Call. Today's live webcast, both audio and slideshow, maybe accessed through the company's Investor Relations website at www.irsa.com.ar by clicking on the banner webcast/link. The following presentation and the earnings release issued last Thursday are also available for download on the company website. After management's remarks, there will be a question-and-answer session for analysts and investors. At that time, further instruction will be given. [Operator Instructions]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. Our projections are subject to risks and uncertainties, and actual results may differ materially, please refer to the detailed notes in the company's earnings release regarding forward-looking statements.I will now turn the call over to Mr. Alejandro Elsztain, CEO. Please go ahead, sir.

[Alejandro Elsztain:]

Thank you very much. Good morning, everybody. We are beginning our first quarter fiscal year 2020 results. We can begin on page number two, the main highlights of the quarter, we can see that we achieved ARS 1.5 billion of adjusted EBITDA and this is a small drop comparing to the last year numbers 2.6%.We had the decrease in the shopping centers segment of 14.5% comparing last year, and an increase a big increase because of the accumulation of more square meters in the case of the office buildings, so an increase of 67% comparing last year and adjusted numbers now these are adjusted by inflation numbers.When we talk about the net gains, this year we are achieving ARS 2.3 billion net gain, comparing ARS 3.5 billion of last year. And the main explanation of the difference it's the lowering the operating results from the change in the fair value of the investment properties. We are going to explain you later how was the result of the quarter comparing year-to-year.When we speak about shopping centers, the same shopping centers small sales in real terms decreased 5% and occupation is still high 94%. We're going to show you details later. About the prices, keeping stable prices $26.6 per square meter. The capacity is decreasing some because of B-class decrease in occupancy. And we had announced a few days ago a dividend payment, we approved almost ARS 600 million, that represents a yield of 2.6% to the shareholders. And very soon 12 and 13 of November we're going to be paying the dividend.Now, I will introduce Daniel, please, Daniel Elsztain.

[Daniel Elsztain:]

Thank you, Alejandro. Good morning, everyone. On page number three, we'll start with the shopping mall operating figures. As Alejandro mentioned, we are running at 94% occupancy rate. Our portfolio was reduced a little bit by the ending of the concession of the Buenos Aires Design, the total GLA to-date in the range of 332,000 square meters. And this occupancy that went down compared to last year's numbers, it's mainly explained by the DOT shopping center we have lost Walmart last year, this is 12,000 square meters.And as of today, we already signed leases for that space of about 12%, 13%. And we are really negotiating with the rest we believe we're going to have the balance of this shopping center during the year almost completed at similar prices what was paying Walmart.If we would have excluded the Walmart situation occupancy would have been 98%. So compared to the 99% of last year it’s a small drop, I mean, taking into account that what happened term model of the year in terms of consumption, it's pretty good compared with all competition and other shopping centers.In terms of sales on the right side of the page, we see that the drop in real terms of sales is 5.1%. But compared to the previous quarters, we see a big increase. This is mainly explained by government incentives to consumption Ahora 12 Ahora 18 that are giving payments for consumption. And we see that since the ending of the quarter also sales were at this level their consumption in our shopping centers is trying to get closer to inflation. And we see that trend keep going on.On page number four, we did a breakdown of the different segments of what we said in our shopping centers. We have seen in the previous quarter a big drop on electronic appliances. There was a recovery. But if you see it's doing even worse than the other categories that we have. Nevertheless, we have been reduced the electronic appliances portion of our shopping centers. We are more focused on services, food and beverages, and clothing that were doing better than electronics. And also we can see here our performance related to competitors. We are doing at 5.1% reduction and our competitors are doing 9.8% reduction in terms of sales. This is measured by the index in the metropolitan area of Buenos Aires.On page number five, we see some expansions we did in this quarter. First in the left side at Alto Comahue, this is in the city of Neuquén. We open recently 10 days ago, a new food Hall. The proposal of food on the shopping was being high demand, was getting high demand and that we decided to open a new food hall open, doing very, very well, it's new. This is 11 new proposals on the shopping centers. And just so you know Alto Comahue where Neuquén is the city that is closest to Vaca Muerta, which is the oil and gas reserve of the country that is doing big development and big investment in the country. So this is the closest shopping center. And it's starting to do better and the incorporation of this food hall is attracting more people to the shopping center.On the right side, an expansion on Alto Rosario, this is basically the expansion is of bigger stores. I mean there is one or two new stores, but mainly the explanation of this expansion is making bigger stores and they are doing -- performing Alto Rosario is performing excellent. And the sales on these new stores really are performing -- outperforming what we underwrote in the -- in our projections.On page -- on the following page, page number six we can see some technological innovations we did. We launched it during the year. Appa is a customer fidelity application. It was called Pareto, we rename it into appa, which is unbelievable, we did in a very short period of time 676,000, approximately maybe a little more now people downloaded the application.So we have all the information of the standards, we have the telephone number, we have the email, we have the information, gender, name, and also what people like. Because this application gives you opportunity to get discounts in our stores, but it also gives you the opportunity to make reservations for activities when you want to do the line for certain activity, let’s just say, to take a picture with Santa. I mean, you can do it on the app.So you don't have to make the line you're being called when it's your time to get into the activity. Also, we launched it with this application last month. You can pay the parking lot with the application, you don't have to go to the machine, you don't have to the cashier, you can scan with your telephone. They tick the parking ticket, and pay directly with your -- in the application.So this is being growing, and we're very active, bringing new proposals to the application, giving more service to the customers and the customers are getting used to this technology and will give us a lot of information so we can work to sell more, and to serve better to our customers, and also to help our centers to use that information to sell more.On page number seven, some office buildings operating figures. We increased our portfolio by the incorporation of Zetta Building, as Alejandro I mentioned. Our stock today is 115,000 square meters, an increase of 39%. Next year, by the incorporation of 200 Della Paoler our construction in Catalinas we're going to have another increase.We're going to increase 30,000 square meters achieving for 145,000 square meters of GLA in Class A office buildings. As Alejandro mentioned occupancy in the A Class and A category building is very stable is solid, there is demand and we can see that then we are running at 96.6% occupancy.We do have some vacancy on the Class B building specifically on one building in downtown the Suipacha building and that's why we are running at 46.2%. This is low, but it's only on the Class B. The Class A segment as of today is very healthy and very stable in terms of pricing.There is no new demand coming into the city besides -- I'm sorry, no new supply coming into the city besides our new building and also one in the North part of the city that's also coming to the building. So that's why it's very stable.On page number eight, we can see the 200 Della Paoler development; this is a 35,000 square meters of new GLA. The company owns 87% of this total GLA the rest was sold. The opening is for fiscal year -- for fourth quarter of fiscal year 2020, we're really at the end of the construction sometime during January and March, tenants will start to work in the premises. The estimate investment itself around $90 million, now we are closer to finishing construction, we know that it's a little below that number. And the stabilized EBITDA for our stake on the building will be in the range of $10 million to $12 million EBITDA.Commercialization as of today is 21%, it's already signed we have high -- a lot of prospects for the building. And there is demand for this new building really it’s a wonderful building, great services in the building and we expect that by -- when we start -- the building opens, we're going to have high occupancy on the building.On the residential segment that we haven't been very active, we finally trans -- we signed barter agreement. This is swept with the developer that we transfer to a non-related party. The right to develop residential buildings, this is next to the Abasto Shopping Center on top of the COTO Supermarket we have the rights to build and we swap this rights to a developer. The total development for the first tower is going to 8,400 square meters, 22 floors, and we're going to receive around $4.5 million of which we already collected $1 million and the balance will be paid to us by giving us 35 apartment units.We also signed with them the optionality, so if they perform and they did well to take the second tower, and will keep also for us to sell all the parking spaces that are already built underground and belong to the company to be sold to the buyers of this new tower.Now for our financial results, Matias Gaivironsky, CFO of the company.

[Matias Gaivironsky:]

Thank you, Danny. Good morning, everybody. So in page 11, we have the results of the first Q. We finished the quarter with a gain of ARS 2.2 billion that is 35% below last year, it was ARS 3.489 billion. If we see the main drivers of the drop is basically the one that is reflected in the line four change in fair value. You can see that last year we have a gain of ARS 7.2 billion against ARS 6.3 million, then the rest of the line is the gross profit, we finished the quarter with a drop of only 4.3%. The net financial results were in line of last year then the net income almost the same.So going to page 12, we can see the breakdown by segment. We see here a drop in the shopping malls of almost 15%. We saw during the quarter that the sales of our tenants are improving that is a good signal. So we expect to capture part of that if the sales maintained in the same trend. So the adjusted EBITDA was almost the same than the revenues so we maintain our margin at around 72%.In the offices since we collect dollars, performance was different and also the -- we incorporated this quarter the results of the Zetta building so we recognize the increase in our revenues by 53% improving the margin. So the adjusted EBITDA increased by 67% and the EBITDA margin achieved 85.3% again 78.5% of last year.On page 13, we see here the breakdown of our net financial results. The net interest this quarter was 5.3% below last year. So lower interest payment. This is basically because of the revaluation. Last year we have revaluation of 43% against the revaluation of 36% this year, that those affected in lower size the line number two, the foreign exchange differences and the rest of the line reflect the results of the performance of our cash that is reflected in the line three.Going to page 14, we see here the breakdown of our net asset value. This is the value of our properties in our books. So this is the estimation that we perform every quarter. We can see here that our net asset value finished at level of $974 million. This is below last year, last year as of September we do have $1.5 billion.So, we already reflected in our figures the drop basically on the shopping malls of the different macroeconomic variables we perform in the shopping malls the DCF model [ph] is in the current exchange rate and the current cost of capital of the company. This figure last year, in the shopping mall that this year we have $659 million last year was $1 billion. So we already reflected the drop in our books.When you calculate this square meter, it's -- we are today the shopping malls, we are boosting value of around $2,000 per square meter, so this is probably very conservative comparing with replacement cost on the historical value.When we move to page 15, here we included certain financial metrics. So you can see that our last 12 months EBITDA was $112 million, the NOI $138 million, the FFP almost $80 million. And when we use these variables to calculate valuation ratios in the cap rate, we trade at the value -- at the ratio of 18.2%. The multiple EV to EBITDA is 6.7 times, price to FFO 5.1 times and price to NAV is in the figures in our financial -- in our books is only 0.4 times.Finally in page 16, we have the breakdown of our debt. You can see in the bottom left the debt monetization scale, so we have for the next fiscal year the local bond under Argentine law that expire $140 million and the rest main amortization is in 2023. The net debt to EBITDA increase because of the drop in EBITDA to 3 times. Our net debt today as of September was $346 million.As Alejandro mentioned after September, we decided to distribute that dividend of almost $10 million. That dividend will be paid in dollars abroad or on short according to each of the shareholders preference. So that you have time until this week to tell how you want to collect, but if you don't say anything we will pay in dollars abroad.So with this we finish the presentation. Now we open the line to receive your question.

[Alejandro Elsztain:]

Just to thank everybody and to wait for the next quarter. The company is finishing the things under construction and working on the management related to the sales of the properties and related indicate of shopping center improving the company to last quarter. And we are seeing that numbers to keep staying stable now comparing to last year. So we have recovered some of the space that we lost last year, we are beginning to recover that. So finishing the building, the office buildings that we are under construction. So let's wait for the next quarter. Thank you very much and have a very good day. Bye.

[Operator:]

Thank you. This concludes today's presentation. You may disconnect your line at this time. And have a nice day.