IRSA(IRS) - 2022 Q3 - Quarterly Report

Legal Information IRSA Inversiones y Representaciones Sociedad Anónima is an Argentine real estate investment and development company, with its fiscal year beginning on July 1st - IRSA Inversiones y Representaciones Sociedad Anónima is an Argentine real estate investment and development company, with its fiscal year beginning on July 1st[3][4][5] - The company's parent is Cresud S.A.C.I.F. y A., which holds a 53.68% voting interest[7][9] - A capital stock increase was approved on December 22, 2021, as a result of the merger by absorption with IRSA Propiedades Comerciales S.A., involving the issuance of 152,158,215 new ordinary shares[11] Unaudited Condensed Interim Consolidated Financial Statements This section presents the company's consolidated financial position, income, equity changes, and cash flows for the interim period, reflecting its overall financial health and performance Statements of Financial Position As of December 31, 2021, total assets increased to ARS 288,315 million, driven by investment properties, while liabilities decreased, significantly boosting shareholders' equity Consolidated Statement of Financial Position (in millions of ARS) | Metric | Dec 31, 2021 | Jun 30, 2021 | | :--- | :--- | :--- | | Total Assets | 288,315 | 268,321 | | Investment Properties | 238,739 | 220,590 | | Cash and cash equivalents | 7,264 | 2,326 | | Total Liabilities | 163,606 | 168,688 | | Borrowings (Current + Non-current) | 64,496 | 74,834 | | Total Shareholders' Equity | 124,709 | 99,633 | Statements of Income and Other Comprehensive Income The company reported a significant profit of ARS 25,520 million for the six months ended December 31, 2021, driven by revenue growth and fair value adjustments of investment properties Six-Month Performance Highlights (in millions of ARS) | Metric | Six Months ended 12/31/2021 | Six Months ended 12/31/2020 | | :--- | :--- | :--- | | Revenues | 11,051 | 7,473 | | Gross Profit | 6,835 | 3,505 | | Net gain from fair value adjustment of investment properties | 22,450 | 13,986 | | Profit for the period from continuing operations | 25,520 | 8,990 | | Profit / (loss) for the period | 25,520 | (1,758) | Earnings Per Share (Basic, in ARS) | Period | Basic EPS from Continuing Operations | Basic EPS for the Period | | :--- | :--- | :--- | | Six Months ended 12/31/2021 | 31.80 | 31.80 | | Six Months ended 12/31/2020 | 13.23 | (1.53) | Statements of Changes in Shareholders' Equity Shareholders' equity increased to ARS 124,709 million, primarily due to the period's net profit and net assets incorporated from the IRSA CP merger - Total shareholders' equity grew to ARS 124,709 million, mainly due to a profit of ARS 25,520 million for the period[26] - The merger with IRSA CP resulted in an increase in share capital by ARS 152 million and share premium by ARS 19,509 million, while non-controlling interest decreased by ARS 16,987 million[26] Statements of Cash Flows The company generated positive cash flow from operating and investing activities, leading to a net increase of ARS 4,967 million in cash and cash equivalents Six-Month Cash Flow Summary (in millions of ARS) | Activity | Six Months ended 12/31/2021 | Six Months ended 12/31/2020 | | :--- | :--- | :--- | | Net cash from Operating Activities | 4,692 | 6,645 | | Net cash from Investing Activities | 6,369 | 77,049 | | Net cash used in Financing Activities | (6,094) | (58,897) | | Net increase in cash | 4,967 | 24,797 | | Cash at end of period | 7,264 | 2,425 | Notes to the Unaudited Condensed Interim Consolidated Financial Statements This section provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, acquisitions, segment performance, and other significant events Note 1 & 2 – Business Overview and Accounting Policies IRSA is an Argentine real estate company whose financial statements are prepared under IAS 34 and restated for hyperinflation per IAS 29, reflecting the country's economic conditions - The Group operates 14 shopping malls (335,279 sqm) and 7 premium offices (109,859 sqm) in Argentina[42] - Financial statements are prepared in accordance with IAS 34 and restated for hyperinflation per IAS 29, as Argentina's cumulative three-year inflation exceeds 100%[44][46][47] - For the six months ended December 31, 2021, the price variation used for inflation adjustment was 20%[50] Note 4 – Acquisitions and Disposals The company completed several real estate sales and a significant merger by absorption with IRSA Propiedades Comerciales, aiming to streamline operations - Sold floors in the "261 Della Paolera" (Catalinas Tower) building for a total of ARS 3,197 million and USD 9 million in separate transactions[61][62] - Received a special dividend of approximately USD 25.3 million from Condor Hospitality Trust following the sale of its hotel portfolio to a Blackstone affiliate[66][67] - Approved and executed a merger by absorption with IRSA Propiedades Comerciales (IRSA CP), with an exchange ratio of 1.40 IRSA shares for each IRSA CP share, aiming to streamline resources and simplify the corporate structure[68][69][72] Note 6 – Segment Information Total segment profit was ARS 26,443 million, with 'Sales and developments' being the largest contributor due to fair value adjustments, while 'Shopping Malls' showed an operating loss Segment Performance - Six Months ended Dec 31, 2021 (in millions of ARS) | Segment | Revenues | Profit / (Loss) from Operations | | :--- | :--- | :--- | | Shopping Malls | 5,991 | (1,345) | | Offices | 1,250 | 1,816 | | Sales and developments | 131 | 25,863 | | Hotels | 1,383 | 218 | | Total | 8,816 | 26,520 | - The net gain from fair value adjustment of investment properties was ARS 22,450 million, significantly impacting segment results, especially in 'Sales and developments'[81] Note 8 – Investment Properties The fair value of investment properties increased to ARS 238,739 million, primarily due to a ARS 22,450 million net gain from the revaluation of the Costa Urbana property after regulatory approval Changes in Investment Properties (in millions of ARS) | Description | Six Months ended 12/31/2021 | | :--- | :--- | | Fair value at beginning of period | 220,590 | | Additions | 1,449 | | Disposals | (4,611) | | Net gain from fair value adjustment | 22,450 | | Fair value at end of period | 238,739 | - The Buenos Aires City congress approved the development regulations for the Costa Urbana property, enabling the construction of approximately 895,000 sqm[96][97] - Following the regulatory approval, the financial valuation of the Costa Urbana property at fair value increased to approximately USD 360 million as of December 31, 2021[101] Note 17 – Borrowings Total borrowings decreased to ARS 64,496 million, reflecting active debt management through new NCN issuance and early redemption of existing notes Borrowings Breakdown (in millions of ARS) | Type | Dec 31, 2021 | Jun 30, 2021 | | :--- | :--- | :--- | | NCN | 55,233 | 62,489 | | Bank loans | 2,217 | 3,753 | | Bank overdrafts | 5,306 | 6,364 | | Total borrowings | 64,496 | 74,834 | - On August 26, 2021, the company issued USD 58.1 million of Series XIII Non-Convertible Notes in the local market with a fixed rate of 3.9% to refinance short-term liabilities[118] - The company executed an early redemption of its Series VII Notes on November 25, 2021, which were originally maturing in January 2022[119] Note 19 – Taxes The company recorded an income tax expense of ARS 5,257 million and provisioned ARS 1,448 million for a potential tax liability related to an inflation adjustment applied by its absorbed subsidiary - Total income tax from continuing operations for the six-month period was ARS 5,257 million, composed of ARS 779 million in current tax and ARS 4,478 million in deferred tax[123] - For its absorbed subsidiary IRSA CP, the company filed its FY2021 income tax return applying a systemic inflation adjustment, arguing that not doing so would result in confiscatory taxation[125][126] - Due to the risk of a challenge from the tax authority, the company has provisioned for the potential liability, which amounts to ARS 1,448 million (including interest) and is disclosed under non-current provisions[128] Note 28 – Results from Discontinued Operations No results from discontinued operations were recorded for the current period, contrasting with a ARS 10,748 million loss in the prior year related to deconsolidated IDBD/DIC operations - No results from discontinued operations were recorded in the six months ended December 31, 2021[146][147] - The comparative period ended December 31, 2020, showed a loss of ARS 10,748 million from discontinued operations, related to the deconsolidation of IDBD/DIC[147] Note 29 – Other Relevant Events & Economic Context The company operates in a challenging Argentine economic environment with high inflation and currency depreciation, but its core businesses are recovering from the pandemic - The Argentine economic context is challenging, with annual retail inflation at 50.94% and a 22.1% depreciation of the peso against the US dollar from Dec 2020 to Dec 2021[156] - As of the report date, the company's shopping malls and office buildings are fully operational, while hotels are operating but face restrictions and limited international tourism[154] - Despite the uncertain economic impact of the Coronavirus, management does not expect it to affect business continuity or the ability to meet financial commitments over the next year[155] Unaudited Condensed Interim Separate Financial Statements This section presents the parent company's standalone financial position and income statements, reflecting the direct impact of the IRSA CP merger on its assets and liabilities Separate Statements of Financial Position The parent company's total assets significantly increased to ARS 267,476 million, primarily due to the direct incorporation of investment properties from the IRSA CP merger Separate Statement of Financial Position (in millions of ARS) | Metric | Dec 31, 2021 | Jun 30, 2021 | | :--- | :--- | :--- | | Total Assets | 267,476 | 136,707 | | Investment properties | 189,250 | 46,531 | | Investments in subsidiaries, associates and joint ventures | 59,049 | 84,686 | | Total Liabilities | 150,326 | 61,920 | | Total Shareholders' Equity | 117,150 | 74,787 | Separate Statements of Income and Other Comprehensive Income The parent company reported a profit of ARS 25,375 million, largely driven by a significant gain from the fair value adjustment of investment properties Six-Month Separate Performance Highlights (in millions of ARS) | Metric | Six Months ended 12/31/2021 | Six Months ended 12/31/2020 | | :--- | :--- | :--- | | Revenues | 7,658 | 3,143 | | Net gain from fair value adjustment of investment properties | 23,767 | 7,008 | | Share of loss of subsidiaries, associates and joint ventures | (1,191) | (1,434) | | Profit for the period | 25,375 | 939 | Notes to the Separate Financial Statements These notes detail the accounting for the IRSA CP merger, which incorporated ARS 17,406 million in net assets, significantly altering the parent company's standalone balance sheet - The merger with IRSA CP was effective July 1, 2021, with IRSA absorbing all assets and liabilities of the subsidiary[202][207] - As a result of the merger, net assets of ARS 17,406 million were incorporated into the parent company's financial statements, including ARS 122,288 million in investment properties and ARS 40,459 million in borrowings[210] - The investment that IRSA held in IRSA CP (valued at ARS 68,027 million at June 30, 2021) was reduced as part of the merger accounting[211][218] Business Summary and Prospects This section provides an overview of the company's consolidated performance, segment-specific results, financial debt, and future outlook, highlighting key strategic initiatives Consolidated Results Summary Consolidated revenue increased by 47.9%, but Adjusted EBITDA decreased by 47.2% due to lower property sales, while net profit was boosted by the Costa Urbana revaluation Consolidated Performance - 6M 2022 vs 6M 2021 (in millions of ARS) | Metric | 6M 22 | 6M 21 | YoY Var | | :--- | :--- | :--- | :--- | | Revenues | 11,051 | 7,473 | 47.9% | | Adjusted EBITDA | 6,467 | 12,253 | (47.2)% | | Result for the period | 25,520 | (1,758) | - | - The decrease in Adjusted EBITDA is primarily attributed to the Sales and Developments segment, which had lower sales of investment properties compared to the previous fiscal year[296] Segment Performance Review Rental segments showed strong recovery, particularly Shopping Malls and Hotels, while Offices faced declining occupancy and Sales and Developments saw reduced EBITDA due to fewer property sales Shopping Malls The Shopping Malls segment achieved a robust recovery, with tenant sales increasing 122% and Adjusted EBITDA growing 226.8%, nearing pre-pandemic levels - Real tenant sales reached ARS 92,168 million in 6M 2022, a 122% increase from 6M 2021 and nearly equal to pre-pandemic levels (6M 2020)[298] - Portfolio occupancy was 89.1%, or 95.5% excluding the vacancy from large stores like Garbarino[299] - Adjusted EBITDA for the segment grew 226.8% YoY to ARS 4,298 million for the six-month period[302] Offices The office segment faced challenges with declining occupancy of 68.6% and a 29.9% decrease in Adjusted EBITDA to ARS 834 million due to lower occupancy and exchange rate lag - Total office portfolio occupancy was 68.6% as of Q2 2022, with Class A+ & A occupancy at 76.7%[311] - Adjusted EBITDA for the six-month period decreased by 29.9% to ARS 834 million compared to the prior year[312] Hotels The hotels segment showed recovery driven by domestic tourism, generating a positive EBITDA of ARS 357 million, a significant turnaround from the prior-year loss - The hotel business is recovering due to domestic tourism, though it is still affected by restrictions on international travel[317] - For the six-month period, the segment generated positive EBITDA of ARS 357 million, compared to a loss of ARS 462 million in the same period of the prior year[318] Sales and Developments Adjusted EBITDA for the Sales and Developments segment sharply decreased by 85.7% due to a lower volume of investment property sales compared to the previous year - Adjusted EBITDA for the segment fell 85.7% YoY, from ARS 10,865 million in 6M 2021 to ARS 1,550 million in 6M 2022[319] - The decrease was caused by a lower volume of investment property sales compared to the prior-year period[319] Financial Debt and Subsequent Events Total debt stood at USD 602.0 million, with key events including debt refinancing, property sales, and the crucial legislative approval for the Costa Urbana development project Debt Summary (as of Dec 31, 2021) | Metric | Amount (USD Million) | | :--- | :--- | | Total Debt | 602.0 | | Cash & Investments | 101.2 | | Net Debt | 500.8 | - The company sold and transferred four floors of the "261 Della Paolera" tower for a combined price of approximately USD 41.2 million[334][335] - The 'Costa Urbana' project received legislative approval, unlocking a construction capacity of approximately 895,000 sqm for mixed-use development[337][338] Prospects for the Fiscal Year Management is optimistic about shopping center recovery and the Costa Urbana development, while acknowledging ongoing challenges in the office segment and focusing on merger integration - The company is optimistic about the recovery of the shopping center business and will continue to integrate its online marketplace with physical stores[363] - The office segment faces challenges from increased vacancies and a transition to hybrid work, but the company is confident in its high-quality portfolio[364] - Future growth will be driven by the development of the 'Costa Urbana' project, with its 895,000 m² of construction capacity, and the finalization of the merger with IRSA PC[366][367] Reconciliation of Non-IFRS Measures (EBITDA, NOI, FFO) The company uses non-IFRS measures like Adjusted EBITDA (ARS 6,467 million) to provide supplemental performance views, reconciled from net profit by adjusting for various financial items - The company provides reconciliations for non-IFRS measures including EBITDA, Adjusted EBITDA, Net Operating Income (NOI), and Adjusted Funds From Operations (Adjusted FFO)[351][354][358] Reconciliation to Adjusted EBITDA (in millions of ARS) | Metric | Six Months ended 12/31/2021 | | :--- | :--- | | Profit for the period | 25,520 | | Adjustments (Interest, Tax, D&A, Fair Value, etc.) | (19,053) | | Adjusted EBITDA | 6,467 |