IRSA Investments and Representations Inc. — Form 20-F Summary
Reporting period: Fiscal year ended June 30, 2021. The supplied metadata refers to “2020 Q4,” but the filing is an annual Form 20-F for fiscal 2021, not a quarterly filing. Financial statements are prepared under IFRS, presented in Argentine pesos, and adjusted for hyperinflation under IAS 29. Comparative periods were retrospectively restated following the deconsolidation of IDBD and DIC.
Business context
IRSA is an Argentine real estate group operating principally through shopping malls, offices, property sales and development, hotels, international investments, entertainment and a minority investment in Banco Hipotecario. As of June 30, 2021, it operated 15 shopping malls totaling 334,826 square meters and owned or controlled office properties totaling 113,291 square meters. Most assets and revenue are concentrated in Argentina, particularly Buenos Aires.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | ARS 12,978 million | ARS 21,263 million | Down 39.0% |
| Gross profit | ARS 6,414 million | ARS 12,391 million | Down 48.2% |
| Gross margin | 49.4% | 58.3% | Down 8.9 percentage points |
| Fair-value gain/(loss) on investment properties | Loss of ARS 7,770 million | Gain of ARS 50,664 million | Material adverse swing |
| Operating profit/(loss) | Loss of ARS 5,949 million | Profit of ARS 58,051 million | Material adverse swing |
| Net financial results | Gain of ARS 3,334 million | Loss of ARS 18,235 million | Improved by ARS 21,569 million |
| Income tax expense | ARS 21,673 million | ARS 10,065 million | Higher expense |
| Net loss | ARS 37,591 million | Net profit of ARS 35,651 million | Material adverse swing |
| Cash flow from operating activities | ARS 1,456 million | ARS 46,731 million | Down materially |
| Cash flow from investing activities | ARS 67,880 million | ARS 61,049 million | Inflows mainly from asset sales |
| Cash flow from financing activities | Outflow of ARS 48,840 million | Outflow of ARS 114,343 million | Lower outflow |
| Cash and cash equivalents | ARS 1,931 million | ARS 135,719 million | Down substantially |
| Total debt | ARS 62,133 million | ARS 564,991 million | Lower primarily after deconsolidation |
| Current liabilities | ARS 22,138 million | ARS 215,362 million | Lower after deconsolidation |
| Current assets | ARS 13,923 million | ARS 308,987 million | Lower after deconsolidation |
The company reported negative working capital of ARS 8,215 million. Debt maturities included ARS 15,409 million due within one year, ARS 40,633 million due between one and two years, and ARS 5,695 million due between two and three years. Approximately 96.3% of long-term financial loans carried fixed rates at June 30, 2021.
Material changes versus the prior comparable period
- Shopping mall revenue declined 40.3% to ARS 5,321 million. Tenant sales fell 27.8% in real terms to ARS 75,795 million, and portfolio occupancy declined to 89.9% from 93.2%.
- Shopping malls were closed for extended periods due to COVID-19 restrictions, including April 16 through June 11, 2021 in the Buenos Aires metropolitan area. Management estimated that pandemic-related closures reduced fiscal-year revenue by 40.3%.
- Office revenue declined 22.2% to ARS 2,764 million, partly because of the sale of Bouchard 710 and floors in Boston Tower. Office occupancy fell to 74.7% from 86.1%.
- Hotel revenue declined 69.7% to ARS 921 million. The hotel segment moved to an operating loss of ARS 723 million from operating income of ARS 243 million.
- Fair-value losses on investment properties replaced the prior year’s large gain. Shopping mall valuation was adversely affected by higher tax rates, peso depreciation, and a higher discount rate.
- IRSA lost control of IDBD and DIC in September 2020 following insolvency and liquidation proceedings. The related operations were deconsolidated and presented as discontinued operations, including a fiscal 2021 loss of ARS 8,923 million from discontinued operations.
- IRSA sold Bouchard 710 for ARS 8,791 million and sold several Boston Tower units for aggregate consideration of approximately ARS 8,417 million.
- The company completed an equity offering of 80 million shares and issued 80 million warrants, raising approximately USD 28.8 million. Subsequent to year-end, 30,741 warrants were exercised.
Outlook, commentary, risks and unusual items
Management stated that the pandemic’s ultimate effect remains uncertain but did not expect it to impair business continuity or the ability to meet financial commitments during the following twelve months. Shopping malls were fully operational as of the filing date, offices remained operational despite remote work, and hotel and event activity was expected to recover gradually as restrictions eased. The filing does not provide formal quantitative earnings guidance.
- Major risks include COVID-19, inflation, peso depreciation, Argentine exchange controls, high country risk, restricted access to international financing, real estate valuation volatility and weaker consumer spending.
- Most U.S.-dollar debt is supported by revenue that is primarily peso-denominated, creating a material currency mismatch. Exchange controls may limit access to dollars for debt service and dividends.
- Argentina required companies with certain principal maturities through December 31, 2021 to refinance a portion of debt; the Central Bank could provide foreign-exchange-market access for only up to 40% of certain maturities, with the balance refinanced for at least two years.
- Significant legal contingencies include proceedings involving Puerto Retiro, Distrito Arcos and the Caballito development. Puerto Retiro had previously recorded a full impairment of its investment property; outcomes remain uncertain.
- Management’s fair-value estimates rely heavily on Level 3 assumptions, including discount rates, inflation, exchange rates, GDP growth and land values. Approximately 28% of investment properties were valued using discounted cash flow methods.
- After year-end, IRSA issued USD 58.1 million of Series XIII notes at a 3.9% fixed rate, payable in pesos at the applicable exchange rate, primarily to refinance short-term liabilities.
- After year-end, IRSA announced a proposed merger by absorption with IRSA Propiedades Comerciales, subject to regulatory and shareholder approvals, at an exchange ratio of 1.40 IRSA shares for each IRSA Propiedades Comerciales share.
- Condor Hospitality Trust announced a proposed USD 305 million hotel portfolio sale and liquidation plan, subject to shareholder and customary approvals.
Most important facts for investors to verify
- Reconcile the sharp reduction in reported debt, assets, liabilities and cash with the September 2020 deconsolidation of IDBD and DIC; the year-over-year balance-sheet changes are not fully operational.
- Assess recurring operating cash generation separately from proceeds from property sales, discontinued operations and other investing inflows.
- Review the maturity profile, refinancing requirements and foreign-exchange access for the company’s U.S.-dollar and peso-linked debt.
- Test the sensitivity of investment-property valuations to discount rates, inflation, GDP, exchange rates, tax rates and land-use approvals.
- Monitor shopping mall tenant sales, occupancy, rent collections and the pace of post-pandemic recovery.
- Review the status and potential financial exposure of the Puerto Retiro, Distrito Arcos and Caballito proceedings.
- Confirm the approvals, exchange ratio, accounting treatment and potential dilution associated with the proposed IRSA and IRSA Propiedades Comerciales merger.
- Verify dividend capacity and the practical effect of Argentine exchange controls on remittances to GDS holders.