IRSA(IRS) - 2022 Q1 - Quarterly Report

Legal and Corporate Information This section provides an overview of IRSA Inversiones y Representaciones Sociedad Anónima, detailing its legal structure, primary activities, and capital status Company Overview IRSA Inversiones y Representaciones Sociedad Anónima is an Argentine company established in 1943, primarily engaged in real estate investment and development, with Cresud S.A.C.I.F. y A. holding a 62.22% voting interest Company Details | Category | Detail | | :--- | :--- | | Denomination | IRSA Inversiones y Representaciones Sociedad Anónima | | Legal Address | 261 Carlos Della Paolera St., 9th floor, Autonomous City of Buenos Aires, Argentina | | Company Activity | Real estate investment and development | | Parent Company | Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria | | Parent's Voting Interest | 62.22% (direct and indirect) | Capital Status | Capital Status | Amount (in millions of ARS) | | :--- | :--- | | Shares Authorized for Public Offering | 658,707,201 | | Subscribed, issued and paid up nominal value | 659 | Unaudited Condensed Interim Consolidated Financial Statements This section presents the company's financial performance and position for the three months ended September 30, 2021, including statements of financial position, income, equity changes, and cash flows Consolidated Statements of Financial Position As of September 30, 2021, total assets stood at ARS 237,104 million, a slight decrease from ARS 243,463 million as of June 30, 2021, primarily driven by a reduction in non-current assets, particularly investment properties, while total liabilities also decreased to ARS 147,880 million from ARS 153,060 million over the same period Consolidated Statements of Financial Position | (in millions of ARS) | 09.30.2021 | 06.30.2021 | | :--- | :--- | :--- | | Total Assets | 237,104 | 243,463 | | Total non-current assets | 221,796 | 228,247 | | Total current assets | 15,308 | 15,216 | | Total Liabilities | 147,880 | 153,060 | | Total non-current liabilities | 126,629 | 128,868 | | Total current liabilities | 21,251 | 24,192 | | Total Shareholders' Equity | 89,224 | 90,403 | Consolidated Statements of Income and Other Comprehensive Income For the three months ended September 30, 2021, the company reported a net loss of ARS 1,014 million, a significant reversal from the ARS 12,716 million profit in the prior-year period, primarily driven by a substantial net loss from the fair value adjustment of investment properties amounting to ARS 6,494 million, compared to a gain of ARS 36,728 million in the same period last year, while revenues increased by 78.6% to ARS 4,382 million Consolidated Statements of Income and Other Comprehensive Income | (in millions of ARS) | Three months ended 09.30.2021 | Three months ended 09.30.2020 | | :--- | :--- | :--- | | Revenues | 4,382 | 2,453 | | Gross profit | 2,628 | 780 | | Net (loss) / gain from fair value adjustment of investment properties | (6,494) | 36,728 | | (Loss) / profit from operations | (4,689) | 35,856 | | (Loss) / profit for the period | (1,014) | 12,716 | | Basic (Loss) / profit per share (ARS) | (0.91) | 17.53 | Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity decreased from ARS 90,403 million at the beginning of the period to ARS 89,224 million as of September 30, 2021, primarily due to the net loss for the period of ARS 1,014 million and other comprehensive losses of ARS 164 million Consolidated Statements of Changes in Shareholders' Equity | (in millions of ARS) | Amount | | :--- | :--- | | Balance as of July 1, 2021 | 90,403 | | Loss for the period | (1,014) | | Other comprehensive loss for the period | (164) | | Warrants exercise | 2 | | Other changes | (1) | | Balance as of September 30, 2021 | 89,224 | Consolidated Statements of Cash Flows For the three-month period, net cash generated from operating activities was ARS 1,653 million, investing activities used ARS 205 million, and financing activities used ARS 1,048 million, resulting in a net increase in cash and cash equivalents of ARS 400 million, bringing the ending balance to ARS 2,153 million Consolidated Statements of Cash Flows | (in millions of ARS) | Three months ended 09.30.2021 | Three months ended 09.30.2020 | | :--- | :--- | :--- | | Net cash generated from operating activities | 1,653 | 5,125 | | Net cash (used in) / generated from investing activities | (205) | 63,187 | | Net cash used in financing activities | (1,048) | (41,387) | | Net increase in cash and cash equivalents | 400 | 26,925 | | Cash and cash equivalents at end of period | 2,153 | 6,704 | Notes to the Unaudited Condensed Interim Consolidated Financial Statements This section details the accounting policies, significant transactions, segment performance, investment property valuations, borrowings, and other material events impacting the financial statements Note 2 – Summary of significant accounting policies The financial statements are prepared in accordance with IAS 34 for interim reporting and are restated for hyperinflation as required by IAS 29, using a price variation of 9% for the three-month period ended September 30, 2021 - The financial statements have been prepared under IAS 34 and are restated for hyperinflation according to IAS 29, as Argentina's cumulative three-year inflation exceeds 100%[49][51][52] - The price variation used for inflation adjustment for the three months ended September 30, 2021, was 9%[54] Note 4 – Acquisitions and disposals During the quarter, the company sold several real estate parcels in Hudson, Mariano Acosta, and Merlo, proposed a merger between IRSA and its subsidiary IRSA CP to streamline operations, and noted Condor Hospitality Trust's agreement to sell its portfolio of 15 hotels in the United States - The Boards of Directors of IRSA and IRSA CP approved a prior merger agreement, with IRSA as the absorbing company, and the proposed exchange ratio is 1.40 IRSA shares for each IRSA CP share[67][72] - Condor Hospitality Trust, in which IRSA holds a 21.7% stake, signed an agreement to sell its portfolio of 15 hotels in the U.S. to an affiliate of Blackstone Real Estate Partners[65][66] - The company completed sales of real estate parcels in Hudson for USD 0.6 million, Mariano Acosta for USD 0.7 million, and Merlo for USD 0.7 million[62][63][64] Note 6 – Segment information For the quarter ended September 30, 2021, the Group's total revenues were ARS 4,382 million, with the Shopping Malls segment as the largest contributor, but reported a total operating loss of ARS 4,689 million, primarily due to a significant net loss from the fair value adjustment of investment properties amounting to ARS 6,494 million Segment Performance | (in millions of ARS) | Revenues | (Loss) / profit from operations | | :--- | :--- | :--- | | Shopping Malls | 2,225 | (2,241) | | Offices | 716 | (1,280) | | Sales and developments | - | (1,204) | | Hotels | 473 | 17 | | International | 2 | (10) | | Corporate | - | (115) | | Others | 14 | 59 | | Total Reportable Segments | 3,430 | (4,774) | - The net loss from fair value adjustment of investment properties was ARS 6,494 million, mainly due to changes in macroeconomic conditions, including variations in projected income growth, inflation, and an increase in the discount rate[79] Note 8 – Investment properties The fair value of investment properties decreased from ARS 200,154 million to ARS 193,895 million during the quarter, with a net loss of ARS 6,494 million from fair value adjustments recognized in the income statement, while the 'Costa Urbana' development project received initial legislative approval Investment Properties Fair Value | (in millions of ARS) | Amount | | :--- | :--- | | Fair value at beginning of period | 200,154 | | Additions | 487 | | Disposals | (245) | | Net (loss) from fair value adjustment | (6,494) | | Fair value at end of period | 193,895 | - The 'Costa Urbana' development project bill was approved in its first reading by the City of Buenos Aires Legislature, proposing to dedicate over 67% of the 70-hectare property to public use[93][94] Note 17 – Borrowings Total borrowings as of September 30, 2021, were ARS 65,082 million, a slight decrease from ARS 67,900 million at June 30, 2021, and in August 2021, the company issued USD 58.1 million of Series XIII Non-convertible Notes to refinance short-term liabilities Total Borrowings | (in millions of ARS) | 09.30.2021 | 06.30.2021 | | :--- | :--- | :--- | | NCN | 55,473 | 56,700 | | Bank loans | 2,687 | 3,405 | | Bank overdrafts | 4,993 | 5,775 | | Other borrowings | 1,595 | 1,511 | | Total borrowings | 65,082 | 67,900 | - On August 26, 2021, the company issued USD 58.1 million in Series XIII Non-convertible Notes with a fixed rate of 3.9%, maturing in August 2024, with funds used to refinance short-term liabilities[111] Note 29 & 30 – Other Significant Events and Subsequent Events The Group operates in a complex Argentine economic context marked by high inflation and currency volatility, with the COVID-19 pandemic severely impacting operations, particularly in Shopping Malls and Hotels, though all malls are now operational, and subsequent to the quarter's end, a shareholders' meeting approved a reserve write-off, and the company sold three floors of the '261 Della Paolera' tower for approximately ARS 3,197 million - The Group's operations are affected by Argentina's macroeconomic volatility, including high inflation, currency depreciation, and capital controls[135][136] - Due to recovery from the pandemic, 100% of the company's shopping malls are operational as of the report date[139] - Subsequent Event: On November 2, 2021, the company's subsidiary IRSA CP sold three floors of the '261 Della Paolera' tower in Catalinas for approximately ARS 3,197 million[145][146] Business Summary and Outlook This section provides a consolidated overview of the company's Q1 FY22 results, segment-specific performance, financial debt position, and strategic outlook for its real estate operations Consolidated Results Overview In Q1 FY22, revenues grew 78.6% YoY to ARS 4,382 million, driven by the recovery of Shopping Malls and Hotels, but the company recorded a net loss of ARS 1,014 million, compared to a gain of ARS 12,716 million in Q1 FY21, due to a negative fair value adjustment on investment properties, while Adjusted EBITDA decreased by 72.2% to ARS 2,076 million Consolidated Results Overview | (in millions of ARS) | IQ 22 | IQ 21 | YoY Var | | :--- | :--- | :--- | :--- | | Revenues | 4,382 | 2,453 | 78.6% | | Adjusted EBITDA | 2,076 | 7,477 | (72.2)% | | Result for the period | (1,014) | 12,716 | (108.0)% | Segment Performance The Shopping Malls segment showed strong recovery with revenues up 297.3% and positive Adjusted EBITDA of ARS 1,506 million, while the Offices segment's Adjusted EBITDA slightly decreased by 4.2% to ARS 567 million due to lower occupancy, the Hotels segment is recovering, posting positive EBITDA of ARS 79 million, and the Sales and Developments segment's Adjusted EBITDA fell sharply to ARS 164 million - Shopping Malls: Tenant sales were 322% higher than in Q1'21 but remained 10.7% below pre-pandemic levels (Q1'20), with portfolio occupancy reaching 89.6%[265] - Offices: Portfolio occupancy for Class A+ & A offices was 78.9%, with an average rental price of USD 25.1 per sqm[276] - Hotels: The segment is showing signs of recovery driven by domestic tourism, with average occupancy at 21.0% and an average rate of USD 243/night[281][287] Financial Debt As of September 30, 2021, IRSA's total debt stood at USD 338.3 million, resulting in a net debt of USD 331.6 million, while its main subsidiary, IRSA CP, had a total debt of USD 426.4 million and a net debt of USD 259.0 million Financial Debt Overview | (in millions of USD) | IRSA | IRSA CP | | :--- | :--- | :--- | | Total Debt | 338.3 | 426.4 | | Cash & Investments | 6.8 | 126.0 | | Net Debt | 331.6 | 259.0 | Outlook The company is optimistic about the continued recovery of its shopping centers in fiscal year 2022, with the office segment focusing on leasing premium properties and adapting to hybrid work trends, the hotel segment's full recovery contingent on international tourism, and a key strategic focus on the proposed merger with IRSA CP to enhance efficiency and consolidate its real estate portfolio - Optimistic about the recovery of the shopping center business and will continue to develop its Marketplace to complement physical sales[318] - The office portfolio is positioned for a "flight to quality" trend, with a focus on leasing the new "261 Della Paolera" building[319] - The proposed merger with IRSA PC is a key initiative for corporate reorganization, aimed at streamlining costs and consolidating the portfolio[322]