IRSA Investments and Representations Inc. — Form 20-F Summary
Business context and reporting period
This is IRSA Inversiones y Representaciones Sociedad Anónima’s annual Form 20-F for the fiscal year ended June 30, 2022, prepared under IFRS and IAS 29 hyperinflation accounting in Argentine pesos. The request metadata refers to “2021 Q4,” but the filing is a full-year FY2022 report, not a quarterly filing. IRSA is an Argentine real estate company with shopping malls, offices, hotels, land reserves, residential developments and investments, including a 29.91% interest in Banco Hipotecario.
During FY2022, IRSA completed the absorption merger of IRSA Propiedades Comerciales S.A., effective July 1, 2021, with IRSA as the surviving company. Comparative information was affected by the merger, discontinued Israeli operations and COVID-19-related operating restrictions.
Financial performance and key metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | ARS 32,085 million | ARS 21,282 million |
| Gross profit | ARS 19,969 million | ARS 10,519 million |
| Operating profit/(loss) | ARS 26,166 million | ARS (9,755) million |
| Financial results, net | ARS 11,851 million | ARS 5,469 million |
| Profit/(loss) for the year | ARS 34,892 million | ARS (61,641) million |
| Profit attributable to parent shareholders | ARS 34,552 million | ARS (49,077) million |
| Operating cash flow | ARS 12,677 million | ARS 2,389 million |
| Investing cash flow | ARS 11,195 million | ARS 110,455 million |
| Financing cash flow | ARS (13,663) million | ARS (79,234) million |
| Cash and cash equivalents | ARS 12,776 million | ARS 3,167 million |
| Total assets | ARS 372,792 million | ARS 365,325 million |
| Total equity | ARS 169,727 million | ARS 135,653 million |
| Gross borrowings | ARS 74,734 million | ARS 101,887 million |
Gross margin was approximately 62.2%, compared with 49.4% in FY2021. The reported profit was materially affected by a fair-value gain on investment properties of ARS 13,650 million, compared with a loss of ARS 12,742 million in FY2021, and therefore includes significant non-cash valuation effects.
- Shopping Malls: revenue increased 98.6% to ARS 17,334 million; segment operating profit was ARS 12,541 million versus a loss of ARS 29,345 million. Tenant sales increased 105.2% to ARS 254,631 million, and occupancy reached 93.1% versus 89.9%.
- Offices: revenue declined 30.9% to ARS 3,041 million, primarily because of property disposals, including República and previously sold office assets. Occupancy was 73.3%, versus 74.7%.
- Hotels: revenue increased 184.8% to ARS 4,300 million as tourism recovered; occupancy was 40.1%, versus 2021 levels depressed by COVID-19.
- Sales and Developments: revenue decreased 41.3% to ARS 746 million, while operating profit increased to ARS 15,243 million, mainly due to investment-property valuation gains.
- Others: revenue decreased 74.6% to ARS 172 million and the segment remained loss-making at the operating level.
Material changes versus the prior comparable period
- Shopping malls and hotels largely reopened during FY2022, reversing much of the pandemic-related decline in FY2021. The DirecTV Arena remained closed throughout FY2021 but event activity broadly resumed by FY2022.
- Percentage-based shopping mall rent recovered sharply, increasing from ARS 2,366 million to ARS 8,376 million. Base rent increased from ARS 4,036 million to ARS 5,903 million.
- IRSA sold the República office building for approximately USD 131.8 million, with approximately USD 105.1 million paid in cash and the balance satisfied through land transfer.
- IRSA acquired the Beruti/Coronel Díaz property for approximately ARS 2,159 million, located opposite Alto Palermo Shopping.
- IRSA received approximately USD 25.3 million from a special dividend related to the liquidation of Condor Hospitality Trust.
- The merger with IRSA CP increased IRSA’s share capital through the issuance of 152,158,215 shares and simplified the corporate structure.
- Gross borrowings declined by approximately ARS 27,153 million, but current borrowings increased to ARS 61,682 million from ARS 25,268 million, creating substantial near-term refinancing requirements.
- Working capital was negative by ARS 44,010 million as of June 30, 2022.
Debt, liquidity and capital resources
Scheduled debt maturities at June 30, 2022 totaled ARS 74,734 million, including ARS 61,682 million due within one year, ARS 10,470 million due in one to two years and ARS 2,150 million due in two to three years. Approximately 99.1% of long-term financial borrowings carried fixed rates. Borrowings were predominantly U.S.-dollar denominated, while much of the operating revenue was generated in pesos, creating material currency exposure.
Operating cash flow improved to ARS 12,677 million. Investing cash inflows were driven principally by ARS 25,977 million of investment-property sales and ARS 3,586 million of dividends collected, partly offset by ARS 6,134 million of investment-property acquisitions and improvements and ARS 22,871 million of financial-asset purchases. Capital expenditures and development investments totaled approximately ARS 9,751 million.
After year-end, IRSA exchanged USD 238.985 million, or 66.38%, of the outstanding Series II Notes due 2023. It issued USD 171.203 million of 8.75% Series XIV Notes due 2028 and paid approximately USD 77.795 million in cash consideration. USD 121.015 million of Series II Notes remained outstanding after the exchange.
Guidance, outlook, commentary, risks and unusual items
Management did not provide formal numerical earnings guidance. It stated that COVID-19 was not expected to impair business continuity or the ability to meet financial commitments over the following twelve months, while noting that the effects remained uncertain. Management highlighted recovery in shopping mall traffic, tenant sales, domestic tourism and event activity, but office demand remained affected by remote work and elevated vacancy.
- Argentina remained hyperinflationary, with FY2022 CPI inflation of approximately 64.0% and peso depreciation of approximately 30.9% against the U.S. dollar. Financial statements were inflation-adjusted under IAS 29, limiting comparability with historical nominal figures.
- Exchange controls restrict access to the MULC and may limit the Company’s ability to acquire U.S. dollars, repay foreign-currency debt, pay dividends or transfer proceeds to non-resident investors.
- Key risks include Argentina’s inflation, currency depreciation, political and regulatory intervention, sovereign and capital-market stress, interest rates, tenant defaults, property-value volatility, office vacancies, competition from e-commerce, and refinancing risk.
- Material legal and regulatory contingencies include disputes involving Distrito Arcos, Puerto Retiro, Caballito and the Costa Urbana development. Puerto Retiro has recorded an impairment equal to 100% of the book value of its investment property, but other exposures remain uncertain.
- The FY2022 fair-value gain on investment properties was substantially non-cash and depended on external appraisals, discount rates, projected inflation, exchange rates, GDP growth and property-market assumptions. The auditors identified Level 3 investment-property valuation as a critical audit matter.
- Management reported effective disclosure controls and internal control over financial reporting as of June 30, 2022. Price Waterhouse & Co. S.R.L. issued unqualified opinions on the financial statements and internal controls.
Most important facts for an investor to verify
- Reconcile reported FY2022 profit with recurring cash earnings, excluding the ARS 13,650 million fair-value gain and other valuation or foreign-exchange effects.
- Review the ARS 61,682 million of debt due within one year and the post-year-end Series II/Series XIV refinancing, including access to foreign currency under Argentine exchange controls.
- Assess the sustainability of the shopping mall recovery, including 93.1% occupancy, tenant sales growth and the high contribution of percentage rent.
- Evaluate office exposure after the República sale, including 73.3% occupancy and continued remote-work effects.
- Review the assumptions supporting investment-property valuations, particularly discount rates, inflation, devaluation, GDP growth and the sensitivity of Level 3 assets.
- Confirm the status and potential financial impact of Distrito Arcos, Puerto Retiro, Caballito and Costa Urbana litigation and development approvals.
- Consider inflation-adjusted IFRS results, exchange-rate distortions and the comparability effects of the IRSA CP merger and discontinued Israeli operations.
- Verify the proposed FY2022 dividend of up to ARS 4,340 million, subject to shareholder approval and applicable debt covenants and exchange-control restrictions.