20-F 1 irsacpfs.htm PRIMARY DOCUMENT irsacpfs
 
        
 
 
 
 
 
United States
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
For the fiscal year ended June 30, 2020
 
 OR 
 
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 OR
  
  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report ___
 
 
Commission file number 000-30982
 
IRSA Propiedades Comerciales S.A.
 (Exact name of Registrant as specified in its charter)
 
IRSA Commercial Properties Inc.
(Translation of registrant’s name into English)
 
Republic of Argentina
(Jurisdiction of incorporation or organization)
 
(C1091AAQ) Moreno 877, 22nd Floor
Ciudad Autónoma de Buenos Aires, Argentina
(Address of principal executive offices)
 
Matías Ivan Gaivironsky – Chief Financial and Administrative Officer
Tel (+ 54 11) 4323 7449; ir@irsacp.com.ar
Moreno 877, 24th Floor, (C1091AAQ) Ciudad Autónoma de Buenos Aires, Argentina
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
American Depositary Shares (ADSs), each representing four shares of Common Stock
 
IRCP
 
Nasdaq National Market of the
Nasdaq Stock Market
Common Stock, par value ARS 1.00 per share
 
 
 
Nasdaq National Market of the
Nasdaq Stock Market*
* Not for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.
 
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report: 126,014,050
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes x No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.
 x Yes No
Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
                                                        Large accelerated filer                                  Accelerated filer x                                                                            Non-accelerated filer                                     Emerging growth company
 
 If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
 
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP
International Financial Reporting Standards as issued
by the International Accounting Standards Board x
Other
 
 If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. 
  
Item 17 Item 18 
 
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No
  
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 
 
 
    
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes No

Please send copies of notices and communications from the Securities and Exchange Commission to:
 
Carolina Zang
 
David Williams
 
 
Jaime Mercado
Zang Bergel & Viñes Abogados
 
Simpson Thacher & Bartlett LLP
Florida 537 piso 18º
C1005AAK Ciudad Autónoma de Buenos Aires, Argentina.
 
425 Lexington Avenue
New York, NY 10017
 
 
 
 
 
 
 
 
Table of Contents
 
IRSA Propiedades Comerciales S.A.
 
 
 
Page
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
i
PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
ii
PART I
1
ITEM 1. Identity of Directors, Senior Management and Advisers
1
ITEM 2. Offer Statistics and Expected Timetable
1
ITEM 3. Key Information
1
A. Selected consolidated financial data
2
A.1. Local Exchange Market and Exchange Rates
4
B. Capitalization and Indebtedness
4
C. Reasons for the Offer and Use of Proceeds
4
D. Risk Factors
5
ITEM 4. Information on the Company
33
A. History and Development of the Company
33
B. Business Overview
39
C. Organizational Structure
82
D. Property, Plant and Equipment
82
ITEM 4A. Unresolved staff comments
84
ITEM 5. Operating and Financial Review and Prospects
84
A. Operating Results
84
B. Liquidity and capital resources
123
C. Research and Development, Patents and Licenses, etc.
127
D. Trend Information
127
E. Off-Balance Sheet Arrangements
129
F. Tabular Disclosure of Contractual Obligations
129
G. Safe Harbor
129
ITEM 6. Directors, Senior Management and Employees
130
A. Directors and Senior Management
130
B. Compensation
135
C. Board practices
137
D. Employees
137
E. Share Ownership
138
ITEM 7. Major Shareholders and Related Party Transactions
139
A. Major Shareholders
139
B. Related Party Transactions
140
C. Interests of Experts and Counsel
143
ITEM 8. Financial Information
143
A. Consolidated Statements and Other Financial Information
143
B. Significant changes
145
ITEM 9. The Offer and Listing
145
A. The offer and listing details
145
B. Plan of Distribution
145
C. Markets
146
D. Selling Shareholders
148
E. Dilution
148
F. Expenses of the Issue
148
ITEM 10. Additional Information
148
A. Share Capital
148
B. Memorandum and Articles of Association
148
C. Material Contracts
153
D. Exchange Controls
154
E. Money Laundering
156
F. Taxation
158
G. Dividends and Paying Agents
165
H. Statement by Experts
166
I. Documents on Display
166
J. Subsidiary Information
166
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
166
ITEM 12. Description of Securities Other than Equity Securities
166
A. Debt Securities
166
B. Warrants and Rights
166
C. Other Securities
166
D. American Depositary Shares
166
PART II
167
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
167
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
167
ITEM 15. Controls and procedures
167
A. Disclosure Controls and Procedures.
167
B. Management’s Annual Report on Internal Control Over Financial Reporting
167
C. Attestation Report of the Registered Public Accounting Firm
167
D. Changes in Internal Control Over Financial Reporting
168
ITEM 16. Reserved
168
ITEM 16A. Audit Committee Financial Expert
168
Item 16B. Code of Ethics
169
Item 16C. Principal Accountant Fees and Services.
169
Item 16D. Exemption from the Listing Standards for Audit Committees
169
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
169
Item 16F. Change in Registrant’s Certifying Account.
169
Item 16G. Corporate Governance.
169
Item 16H. Mine Safety Disclosures
170
PART III
171
ITEM 17. Financial Statements
171
ITEM 18. Financial Statements
171
ITEM 19. Exhibits
171
 
 
          

 
 
 
 
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
 
This Annual Report includes forward-looking statements, principally under “Risk Factors,” “Information on the Company” and “Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this Annual Report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:
 
Factors that could cause actual results to differ materially and adversely include but are not limited to:
 
changes in general economic, financial, business, political, legal, social or other conditions in Argentina, Latin America or developed, emerging markets or either;
 
changes in capital markets in general that may affect policies or attitudes toward lending to or investing in Argentina or Argentine companies, including volatility in domestic and international financial markets;
 
inflation and deflation;
 
ongoing economic impacts of the COVID-19 pandemic on the Argentine economy;
 
measures adopted by the Argentina Government in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020, temporary closures of non-essential businesses such as shopping malls, prohibition of layoffs without cause and suspension of workers, among others;
 
impact on our business of the COVID-19 pandemic, such as an increase in our operating costs and the operating costs of our tenants, who may be unable to meet their payment obligations under the leases entered into with the Company;
 
economic consequences of the pandemic and the related impact on our buinsess and financial condition;
 
fluctuations in the exchanges rates of the peso and in the prevailing interest rates;
 
increases in financing costs or our inability to obtain additional financing on attractive terms, which may limit our ability to fund existing operations and to finance new activities;
 
current and future government regulation and changes in law or in the interpretation by Argentine courts;
 
price fluctuations in the real estate market;
 
political, civil and armed conflicts;
 
adverse legal or regulatory disputes or proceedings;
 
fluctuations and declines in the aggregate principal amount of Argentine public debt outstanding, default of sovereign debt;
 
government intervention in the private sector and in the economy, including through nationalization, expropriation, labor regulation or other actions;
 
restrictions on transfer of foreign currencies and other exchange controls;
 
increased competition in the shopping mall sector, office or other commercial properties and related industries;
 
potential loss of significant tenants at our shopping malls, offices or other commercial properties;
 
 
  i
 
 
 
our ability to take advantage of opportunities in the real estate market of Argentina on a timely basis;
 
restrictions on energy supply or fluctuations in prices of utilities in the Argentine market;
 
our ability to meet our debt obligations;
 
shifts in consumer purchasing habits and trends;
 
technological changes and our potential inability to implement new technologies;
 
deterioration in regional, national or global businesses and economic conditions;
 
changes on the applicable regulations to currency exchange or transfers;
 
incidents of government corruption that adversely impact the development of our real estate projects;
 
fluctuations and declines in the exchange rate of the peso, and the U.S. dollar against other currencies; and
 
the risk factors discussed under “Risk Factors.”
 
You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” “anticipates,” “could,” “target,” “projects,” “contemplates,” “potential,” “continue” or similar expressions. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this Annual Report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this Annual Report might not occur and are not guarantees of future performance.
 
You should not place undue reliance on such statements which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we might issue in the future.
 
Available information
 
We file annual and current reports and other information with the United States Securities and Exchange Commission (“SEC”). You may obtain any report, information or other document we file electronically with the SEC at the SEC’s website (http://www.sec.gov) or at our website (http://www.irsacp.com.ar). The information contained in our website does not form part of this Annual Report.
 
 
  ii
 
 
PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
 
In this  annual report (Annual Report”), references to “IRSA CP,” the “Company,” “we,” “us” and “our” means IRSA Propiedades Comerciales S.A. and its consolidated subsidiaries, unless the context otherwise requires, or where we make clear that such term refers only to IRSA Propiedades Comerciales S.A. and not to its subsidiaries.
 
The terms “Argentine government” and “government” refer to the federal government of Argentina, the terms “Central Bank” and “BCRA” refer to the Banco Central de la República Argentina (the Argentine Central Bank), the terms “CNV” and “CNV Rules” refer to the Comisión Nacional de Valores (the Argentine National Securities Commission) and the rules issued by the CNV, respectively. In this Annual Report, when we refer to “peso,” “pesos” or “ARS” we mean Argentine pesos, the legal currency of Argentina; and when we refer to “U.S. dollar,” “U.S. dollars” or “USD” we mean United States dollars, the legal currency of the United States.
 
References to “ADSs” are to the American Depositary Shares, each representing 4 shares of our common stock, issued pursuant to the deposit agreement, dated as of July 5, 2017 (the “deposit agreement”), between us, The Bank of New York, as depositary (the “ADS Depositary”), and the owners and holders of the ADSs issued from time to time thereunder, and references to “ADRs” are to the American Depositary Receipts, which represent the ADSs.
 
Financial Statements
 
We prepare and maintain our financial books and records in pesos and in conformity with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and the CNV Rules. Our fiscal year begins on July 1 and ends on June 30 of each year.
 
Our audited consolidated financial statements as of June 30, 2020 and 2019 and for the years ended June 30, 2020, 2019 and 2018, and the notes thereto (our “Audited Consolidated Financial Statements”) are set forth on pages F-1 through F-84 of this Annual Report.
 
Our Audited Consolidated Financial Statements have been approved by resolution of the Board of Directors’ meeting held on September 22, 2020 and have been audited by Price Waterhouse & Co S.R.L., Argentina, member of PriceWaterhouseCoopers International Limited, an independent registered public accounting firm whose report is included herein.
 
Functional and Presentation Currency; Adjustment for Inflation
 
Our functional and presentation currency is the peso, and our Audited Consolidated Financial Statements included in this Annual Report are presented in pesos.
 
IAS 29, Financial Reporting in Hyperinflationary Economies (“IAS 29”) requires that the financial statements of an entity whose functional currency is one of a hyperinflationary economy be measured in terms of the current unit of measurement at the closing date of the financial statements, regardless of whether they are based on the historical cost method or the current cost method. This requirement also includes the comparative information of the financial statements.
 
In order to conclude that an economy is “hyperinflationary,” IAS 29 outlines a series of factors, including the existence of an accumulated inflation rate in three years that is approximately or exceeds 100%. As of July 1, 2018, Argentina reported a cumulative three-year inflation rate greater than 100% and therefore financial information published as from that date should be adjusted for inflation in accordance with IAS 29. Therefore, our Audited Consolidated Financial Statements and the financial information included in this Annual Report have been stated in terms of the measuring unit current at the end of the reporting year. For more information, see section “Financial Statements” above and Note 2.1 to our Audited Consolidated Financial Statements.
 

 
  iii
 
 
Effective July 1, 2019, we adopted IFRS 16 “Leases” The standard establishes the criteria for recognition and valuation of leases for lessees and lessors. The changes incorporated mainly impact the tenant's accounting. IFRS 16 provides that the lessee recognizes an asset for the right of use and a liability at present value with respect to those contracts that meet the definition of lease agreements according to IFRS 16. In accordance with the standard, a lease agreement is one that provides the right to control the use of an identified asset for a specific period. In order for a company to have control over the use of an identified asset: a) it must have the right to obtain substantially all the economic benefits of the identified asset and b) it must have the right to direct the use of the identified asset. The standard allows to exclude the short-term contracts (under 12 months) and those in which the underlying asset has low value. The application of IFRS 16 increased assets and liabilities and generated a decrease in operating costs for leases. On the other hand, the balance of depreciation and financial results generated by the present value of those lease liabilities were increased. This application does not imply changes in comparative information.
 
Additionally, in accordance with the amendment to IAS 28, an entity shall implement the provisions of IFRS 9 to Long-term Investments that are essentially part of the entity's net investment in the associate or in the joint venture according to the definitions of said standard. The provisions of IFRS 9 shall apply to such investments with respect to the participation in the losses of an associate or a joint venture, as well as with respect to the recognition of the impairment of an investment in an associate or joint venture. In addition, when applying IFRS 9 to such long-term investments, the entity will make it prior to the adjustments made to the carrying amount of the investment in accordance with IAS 28. We opted for an accounting policy where the currency translation adjustments arising from these loans are recorded as part of other comprehensive income.
 
See Note 2.2 to our Audited Consolidated Financial Statements for a more comprehensive discussion of the effects of the adoption of these new standards.
 
                Non-IFRS financial measures
 
Our management uses the following non-IFRS financial measures; which are useful to evaluate the economic productivity of our operations and for purposes of making decisions about the allocation of resources and evaluation of management and business performance. In addition, we believe they are useful to investors or other interested parties to evaluate our operational and financial performance.
 
To supplement our Audited Consolidated Financial Statements, which are prepared and presented in accordance with IFRS as issued by the IASB, we use the following non-IFRS financial measures in this Annual Report:
 
Adjusted Segment EBITDA
 
Segment Net Operating Income or “Segment NOI”
 
In this section, we provide an explanation of each of our non-IFRS financial measures and their most directly comparable IFRS measures. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS.
 
We define Adjusted Segment EBITDA for each of our operating segments as our segment’s profit or loss before financing and taxation for the year excluding depreciation and amortization and share in profit / (loss) of associates and joint ventures and the unrealized results from the fair value adjustment of investment properties excluding the results due to barter transactions.
 
We define Segment NOI for each of our operating segments as our segment’s gross profit for the year less selling expenses, plus net realized gain on changes in fair value of investment properties, excluding the results due to barter transactions and plus depreciation and amortization.
 
We use non-IFRS measures to internally evaluate and analyze financial results. We believe these non-IFRS financial measures provide investors with useful supplemental information about the liquidity and financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and enable comparison of our financial results with other public companies, many of which present similar non-IFRS financial measures.
 
  iv
 
 
There are limitations associated with the use of non-IFRS financial measures as an analytical tool. In particular, many of the adjustments to our IFRS financial measures reflect the exclusion of items, such as depreciation and amortization, changes in fair value and the related income tax effects of the aforementioned exclusions, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be different from non-IFRS financial measures used by other companies, limiting their usefulness for comparison purposes.
 
Adjusted Segment EBITDA and Segment NOI are non-IFRS financial measures that do not have standardized meanings prescribed by IFRS. We present Adjusted Segment EBITDA and Segment NOI because we believe each of these measures provides investors with supplemental measures of our financial performance that may facilitate period-to-period comparisons on a consistent basis. Our management also uses Adjusted Segment EBITDA and Segment NOI, among other measures, for internal planning and performance measurement purposes.
 
Adjusted Segment EBITDA and Segment NOI should not be construed as an alternative to profit from operations, as an indicator of operating performance or as an alternative to cash flow provided by operating activities, in each case, as determined in accordance with IFRS. Adjusted Segment EBITDA and Segment NOI, as calculated by us, may not be comparable to similarly titled measures reported by other companies.
 
For more information regarding Adjusted Segment EBITDA and Segment NOI, see “Item 5. Operating and Financial Review and Prospects—A. Business Segment Reporting.”
 
                Currency Translations
 
We have translated some of the peso amounts contained in this Annual Report into U.S. dollars for convenience purposes only. Unless otherwise specified or the context otherwise requires, the rate used to convert peso amounts to U.S. dollars is the seller exchange rate quoted by Banco de la Nación Argentina of ARS 70.4600 per USD 1.00 for information provided as of June 30, 2020. The average seller exchange rate for fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.6343. The U.S. dollar-equivalent information presented in this Annual Report is provided solely for the convenience of the reader and should not be construed as implying that the peso amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. The seller exchange rate quoted by Banco de la Nación Argentina was ARS 78.1300 per USD1.00 as of October 23, 2020. See “Local Exchange Market and Exchange Rates” and “Risk Factors—Risks relating to Argentina—Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and results of operations.”
 
                Market Share Data
 
Information regarding market share in a specified region or area is based on data compiled by us from internal sources and from publications such as Bloomberg, the International Council of Shopping Centers, the Argentine Chamber of Shopping Centers (Cámara Argentina de Shopping Centers), and the INDEC.
 
                Certain Measurements
 
In Argentina the standard measure of area in the real estate market is the square meter (m2), while in the United States and certain other jurisdictions the standard measure of area is the square foot (sq. ft.). All units of area shown in this Annual Report (e.g., gross leasable area of buildings (“GLA” or “gross leasable area”), and size of undeveloped land) are expressed in terms of square meters (“sqm” and “m2”). One square meter is equal to approximately 10.8 square feet. One hectare is equal to approximately 10,000 square meters and to approximately 2.47 acres.
 
As used herein, GLA in the case of shopping malls refers to the total leasable area of the property, regardless of our ownership interest in such property (excluding common areas and parking and space occupied by supermarkets, hypermarkets, gas stations and co-owners, except where specifically stated).
 
 
  v
 
  
                Rounding Adjustments
 
Certain numbers and percentages included in this Annual Report have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in various tables or other sections of this Annual Report may vary slightly, and figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them.
 
 vi
 
 
PART I
  
ITEM 1. Identity of Directors, Senior Management and Advisers
 
This item is not applicable.
 
ITEM 2. Offer Statistics and Expected Timetable
 
This item is not applicable.
  
ITEM 3. Key Information
 
A. Selected consolidated financial data
 
The following table presents our selected financial data as of June 30, 2020, 2019 and 2018 and for the fiscal years ended June 30, 2020, 2019, 2018 and 2017. The selected consolidated statement of income and other comprehensive income data and the selected consolidated statement of cash flow data for the fiscal years ended June 30, 2020, 2019 and 2018 and the selected consolidated statement of financial position data as of June 30, 2020 and 2019 have been prepared in accordance with IFRS, as issued by the IASB, and CNV Rules, and have been derived from our Audited Consolidated Financial Statements included in this Annual Report.
 
The summary consolidated statement of income and other comprehensive income and cash flow data for the fiscal year 2017 and the summary consolidated statement of financial position data as of June 30, 2018 have been restated pursuant to IAS 29 to reflect the effect of hyperinflation in Argentina. As a result of such restatement, the selected financial information included in this Annual Report differ from previously reported financial information.
 
The summary financial data as of June 30, 2017 and 2016 and for the fiscal year ended June 30, 2016 has not been presented as these cannot be provided on a restated basis without unreasonable effort or expense. See “Presentation of Financial and Other Information—Functional and Presentation Currency,” “Risk Factors—Risk Related to Argentina,” “Operating and Financial Review and Prospects—Results of Operations— Effects of Changes in Inflation” and Note 2 to our Audited Consolidated Financial Statements.
 
You should read the information below in conjunction with our Audited Consolidated Financial Statements, including the notes thereto.
 
In the following table, we have translated peso amounts into U.S. dollars at the seller exchange rate as of June 30, 2020, quoted by the Banco de la Nación Argentina, which was ARS 70.4600 per USD 1.00. The average of the seller exchange rate for the fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.6343. We make no representation that these peso or U.S. dollar amounts actually represent, could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all. See “Local Exchange Market and Exchange Rates” and “Risk Factors—Risks Relating to Argentina— Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and results of operations.” For more information see “Operating and Financial Review and Prospects—Factors Affecting Comparability of our Results.”
  
 
1
 
 
 
 
For the fiscal year ended June 30,
 
 
 
2020
 
 
2020
 
 
2019
 
 
2018
 
 
2017
 
 
 
(USD)(1)(2)
 
 
(ARS)(1)
 
 
 
(in thousands. except per share data)(1)
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND OTHER COMPREHENSIVE INCOME DATA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from sales. rentals and services                                                             
  121,529 
  8,562,955 
  10,826,406 
  11,181,313 
  11,425,699 
Income from expenses and collective promotion fund
  44,130 
  3,109,382 
  3,709,732 
  4,389,642 
  4,689,389 
Operating costs                                                             
  (58,196)
  (4,100,522)
  (4,884,942)
  (5,461,030)
  (5,984,645)
Gross profit                                                             
  107,463 
  7,571,815 
  9,651,196 
  10,109,925 
  10,130,443 
Net gain/ (loss) from fair value adjustments of investment properties
  356,604 
  25,126,324 
  (36,964,252)
  13,567,839 
  (8,367,314)
General and administrative expenses                                                             
  (17,328)
  (1,220,935)
  (1,329,059)
  (1,096,705)
  (1,025,668)
Selling expenses                                                             
  (11,734)
  (826,756)
  (646,499)
  (752,358)
  (727,201)
Other operating results. net                                                             
  390 
  27,506 
  (501,591)
  107,401 
  (34,463)
Profit/ (loss) from operations                                                             
  435,395 
  30,677,954 
  (29,790,205)
  21,936,102 
  (24,203)
Share of profit/ (loss) of associates and joint ventures
  2,525 
  177,910 
  (577,953)
  887,380 
  379,813 
Profit/ (loss) from operations before financing and taxation
  437,920 
  30,855,864 
  (30,368,158)
  22,823,482 
  355,611 
Finance income                                                             
  10,916 
  769,116 
  117,826 
  491,835 
  402,624 
Finance cost                                                             
  (49,578)
  (3,493,247)
  (3,191,921)
  (2,418,220)
  (2,353,163)
Other financial results  
  (65,707)
  (4,629,683)
  1,682,098 
  (6,037,814)
  663,953 
Inflation adjustment                                                             
  358 
  25,209 
  (300,850)
  (1,045,120)
  (245,935)
Financial results. Net                                                             
  (104,011)
  (7,328,605)
  (1,692,847)
  (9,009,319)
  (1,532,521)
Profit/ (loss) before income tax                                                             
  333,909 
  23,527,259 
  (32,061,005)
  13,814,163 
  (1,176,910)
Income tax expense                                                             
  (76,270)
  (5,373,999)
  6,138,041 
  6,534,323 
  586,634 
Total profit/ (loss) for the year                                                             
  257,639 
  18,153,260 
  (25,922,964)
  20,348,486 
  (590,276)
Other comprehensive income:
    
    
    
    
    
 
    
    
    
    
    
Items that may be reclassified subsequently to profit or loss:
    
    
    
    
    
Currency translation adjustment in associates                                                            
  (308)
  (21,703)
   
   
   
Revaluation surplus                                                            
  3,881 
  273,460 
   
   
   
Other comprehensive income for the year                                                             
  3,573 
  251,757 
   
   
   
Total comprehensive income / (loss) for the year                                                             
  261,212 
  18,405,017 
  (25,922,964)
  20,348,486 
  (590,276)
 
    
    
    
    
    
Total comprehensive income / (loss) attributable to:
    
    
    
    
    
Equity holders of the parent                                                          
  242,542 
  17,089,537 
  (25,772,658)
  19,624,143 
  (522,752)
Non-controlling interest                                                          
  15,097 
  1,063,723 
  (150,306)
  724,343 
  (67,524)
 
    
    
    
    
    
Attributable to:
    
    
    
    
    
Equity holders of the parent                                                          
  3,573 
  251,757 
   
   
   
 
    
    
    
    
    
Profit/ (loss) per common share attributable to equity holders of the parent for the year:
    
    
    
    
    
Basic                                                          
  1.92 
  135. 62 
  (204.52)
  155.73 
  (4.14)
Diluted                                                          
  1.92 
  135.62 
  (204.52)
  155.73 
  (4.14)
 
    
    
    
    
    
 
    
    
    
    
    
CASH FLOW DATA
    
    
    
    
    
Net cash generated from operating activities                                                             
  69,395 
  4,889,552 
  5,587,988 
  7,025,545 
  8,394,775 
Net cash used in investing activities                                                             
  (40,867)
  (2,879,459)
  (4,957,878)
  (9,726,750)
  (226,919)
Net cash (used in) generated from financing activities
  (50,544)
  (3,561,349)
  (2,631,309)
  4,959,238 
  (3,075,037)
Net (decrease) increase in cash and cash equivalents
  (22,016)
  (1,551,256)
  (2,001,199)
  2,258,033 
  5,092,819 
 
 
2
 
 
  
 
 
For the fiscal years ended June 30,
 
 
 
2020
 
 
2020
 
 
2019
 
 
2018
 
 
 
(USD)(1)(2)
 
 
(ARS)(1)
 
 
 
(in thousands)(1)
 
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DATA
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Non-current assets:
 
 
 
 
 
 
 
 
 
 
 
 
Investment properties 
  1,667,499 
  117,491,965 
  86,219,988 
  120,517,326 
Property, plant and equipment 
  5,004 
  352,610 
  474,932 
  449,720 
Trading properties 
  2,581 
  181,866 
  177,254 
  304,636 
Intangible assets 
  14,444 
  1,017,733 
  579,946 
  671,533 
Rights to use assets 
  8,180 
  576,346 
   
   
Investment in associates and joint ventures 
  65,800 
  4,636,259 
  2,296,365 
  3,465,880 
Deferred income tax assets 
  3,132 
  220,697 
  102,863 
  111,640 
Income tax and minimum presumed income tax credits
  92 
  6,516 
  12,991 
  348,393 
Trade and other receivables 
  72,290 
  5,093,549 
  696,656 
  2,123,469 
Investments in financial assets 
   
   
  643,138 
  91,814 
Total non-current assets 
  1,839,023 
  129,577,541 
  91,204,133 
  128,084,412 
Current assets:
    
    
    
    
Trading properties 
  96 
  6,768 
  1,586 
  1,659 
Inventories 
  551 
  38,854 
  41,339 
  55,327 
Income tax and minimum presumed income tax credits
  1,399 
  98,562 
  91,082 
  96,209 
Trade and other receivables 
  55,063 
  3,879,761 
  9,739,833 
  3,936,708 
Derivative financial instruments 
  91 
  6,436 
  8,022 
  105,304 
Investments in financial assets 
  88,964 
  6,268,377 
  8,679,337 
  11,413,885 
Cash and cash equivalents 
  65,663 
  4,626,609 
  6,001,314 
  8,100,482 
Total current assets 
  211,828 
  14,925,367 
  24,562,513 
  23,709,574 
Total assets 
  2,050,850 
  144,502,908 
  115,766,646 
  151,793,986 
Shareholders’ equity
    
    
    
    
Shareholders’ equity attributable to equity holders of the parent
  1,014,543 
  71,484,679 
  54,932,642 
  81,762,105 
Non-controlling interest 
  58,033 
  4,088,994 
  3,113,233 
  3,207,825 
Total shareholders’ equity 
  1,072,576 
  75,573,673 
  58,045,875 
  84,969,931 
Liabilities
    
    
    
    
Non-current liabilities:
    
    
    
    
Trade and other payables 
  17,578 
  1,238,572 
  1,229,156 
  1,366,831 
Borrowings 
  377,227 
  26,579,396 
  31,831,168 
  34,158,938 
Deferred income tax liabilities 
  340,326 
  23,979,404 
  18,781,365 
  25,454,439 
Provisions 
  1,024 
  72,184 
  62,713 
  27,251 
Derivative financial instruments 
  493 
  34,751 
  19,729 
   
Leases liabilities 
  8,550 
  602,408 
   
   
Total non-current liabilities 
  745,199 
  52,506,715 
  51,924,131 
  61,007,459 
Current liabilities:
    
    
    
    
Trade and other payables 
  50,539 
  3,561,011 
  3,593,549 
  4,423,790 
Income tax liabilities 
  64 
  4,537 
  21,381 
  102,411 
Payroll and social security liabilities 
  2,630 
  185,281 
  310,801 
  409,847 
Borrowings 
  177,408 
  12,500,160 
  1,800,063 
  679,236 
Derivative financial instruments 
  1,157 
  81,539 
  19,369 
  103,864 
Provisions 
  611 
  43,017 
  51,477 
  97,449 
Leases liabilities 
  667 
  46,975 
   
   
Total current liabilities 
  233,076 
  16,422,520 
  5,796,640 
  5,816,596 
Total liabilities 
  978,275 
  68,929,235 
  57,720,771 
  66,824,055 
Total shareholders’ equity and liabilities 
  2,050,850 
  144,502,908 
  115,766,646 
  151,793,986 
 
 
 
As of the fiscal years ended June 30,
 
 
 
2020
 
 
2020
 
 
2019
 
 
2018
 
 
 
(USD)(1)(2)
 
 
(ARS)(1)
 
 
 
 (except for number of shares, per share and ADS data and ratios) (in thousand)
 
OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
Basic net income per common share                                                          
  1.92 
  135.62 
  (204.52)
  155.73 
Diluted net income per common share                                                          
  1.92 
  135.62 
  (204.52)
  155.73 
Basic net income per ADS                                                          
  7.70 
  542.48 
  (818.08)
  622.92 
Diluted net income per ADS                                                          
  7.70 
  542.48 
  (818.08)
  622.92 
Dividends per share                                                          
  (0.10)
  (6.96)
  (8.00)
  (14.56)
Dividends per ADS                                                          
  (0.40)
  (27.85)
  (31.98)
  (58.23)
Number of shares outstanding                                                          
  1,788,448 
  126,014,050 
  126,014,050 
  126,014,050 
Capital stock                                                          
  1,788 
  126,014 
  126,014 
  126,014 
Depreciation and amortization                                                          
  4,144 
  292,002 
  194,275 
  168,684 
Capital expenditures (3)                                                          
  (37,209)
  (2,621,779)
  (6,637,932)
  (3,365,685)
Working capital                                                          
  (21,248)
  (1,497,153)
  18,765,873 
  17,892,978 
Ratio of current assets to current liabilities                                                          
  0.91 
  0.91 
  4.24 
  4.08 
Ratio of shareholders’ equity to total liabilities                                                          
  1.10 
  1.10 
  1.01 
  1.27 
Ratio of non-current assets to total assets                                                          
  0.90 
  0.90 
  0.79 
  0.84 
 
(1) Totals may not sum due to rounding.
(2) We have translated Peso amounts into U.S. dollars at the seller exchange rate as of June 30, 2020, quoted by the Banco de la Nación Argentina, which was ARS 70.460 per USD 1.00. The seller exchange rate for the fiscal year 2020, quoted by Banco de la Nación Argentina was ARS 59.6343 per USD 1.00. We make no representation that these Peso or U.S. dollar amounts actually represent, could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all. See “Local Exchange Market and Exchange Rates.”
(3) We define capital expenditure as the cash used in the acquisition of investment properties and property, plant and equipment plus the advanced payments for investment properties and property, plant and equipment acquisitions.
 
 
 
3
 
 

 
A.1. Local Exchange Market and Exchange Rates
 
In the period from 2001 to 2015, the Argentine government established a series of exchange control measures that restricted the free flow of currency and the transfer of funds abroad. By 2011, these measures had significantly curtailed access to the foreign exchange market Mercado Único y Libre de Cambios (“MULC”) by both individuals and private sector entities. This made it necessary, among other things, to obtain prior approval from the Banco Central de la República Argentina (the “Central Bank”) to enter into certain foreign exchange transactions such as payments relating to royalties, services or fees payable to related parties of Argentine companies outside Argentina. With the change of government and political environment, in December 2015, one of the first measures taken by the Argentine government was to lift the main restrictions that limited access to individuals and legal entities to the MULC. Despite this, as of September 1, 2019, the Argentine government and the Central Bank implemented new exchange controls and restrictions that limited access to individuals and legal entities to the MULC. For more information about exchange controls see, “Item 10. Additional Information—D. Exchange Controls”.
 
The following table shows the maximum, minimum, average and closing exchange rates for each applicable period to purchases of U.S. dollars.
 
 
 
Maximum(1)(2)
 
 
Minimum(1)(3)
 
 
Average(1)(4)
 
 
At closing(1)
 
Fiscal year ended:
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2018 
  28.8000 
  16.7500 
  19.4388 
  28.8000 
June 30, 2019 
  45.8700 
  27.1600 
  37.8373 
  42.3630 
June 30, 2020 
  70.3600 
  41.5000 
  59.5343 
  70.3600 
Month ended:
    
    
    
    
July 31, 2020 
  72.2200 
  70.4200 
  71.3795 
  72.2200 
August 31, 2020 
  74.0800 
  72.4200 
  73.1980 
  74.0800 
September 30, 2020 
  76.0800 
  74.1500 
  75.1036 
  76.0800 
October (through October 23, 2020) 
  78.0300 
  76.1500
  77.2613 
  78.0300 
Source: Banco de la Nación Argentina
(1) Average between the offer exchange rate and the bid exchange rate according to Banco de la Nación Argentina’s foreign currency exchange rate.
(2) The maximum exchange rate appearing in the table was the highest end-of-month exchange rate in the year or shorter period, as indicated.
(3) The minimum exchange rate appearing in the table was the lowest end-of-month exchange rate in the year or shorter period, as indicated.
(4) Average exchange rates at the end of the month.
 
B. Capitalization and Indebtedness
 
This section is not applicable.
 
C. Reasons for the Offer and Use of Proceeds
 
This section is not applicable.
  
  
 
4
 
 
 
D. Risk Factors
 
You should carefully consider the risks described below, in addition to the other information contained in this Annual Report, before making an investment decision. We also may face additional risks and uncertainties not currently known to us, or which as of the date of this Annual Report we might not consider significant, which may adversely affect our business. In general, you take more risk when you invest in securities of issuers in emerging markets, such as Argentina, than when you invest in securities of issuers in the United States, and certain other markets. You should understand that an investment in our common shares and Global Depositary Shares (“GDSs”) involves a high degree of risk, including the possibility of loss of your entire investment.
 
Risks Relating to Argentina
 
The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on our results of operations.
  
As of the date of this Annual Report, most of the operations and property are located in Argentina. As a result, the quality of our assets, our financial condition and the results of our operations are dependent upon the macroeconomic, regulatory, social and political conditions prevailing in Argentina. These conditions include changes to growth rates, inflation rates, exchange rates, interest rates, taxes, foreign exchange controls, government policies, social instability, and other political, economic or international developments taking place in, or otherwise affecting, Argentina.
 
In December 2019, a novel strain of coronavirus (SARS-COV-2) causing a severe acute respiratory syndrome (“COVID-19”) was reported to have surfaced in Wuhan, China. COVID-19 has since spread across the world, including Argentina, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. By late October approximately 1,090,589 cases of infections had been confirmed in Argentina. In response, countries have adopted extraordinary measures to contain the spread of the virus, including imposing travel restrictions and closing borders, requiring closures of non-essential businesses, instructing residents to practice socialdistancing, issuing stay-at-home orders, implementing quarantines and similar actions. The ongoing pandemic and these extraordinary government measures are disrupting global economic activity and resulting in significant volatility in global financial markets. According to the International Monetary Fund (“IMF”), the global economy has recently entered into a recession.
  
The Argentine government has adopted multiple measures in response to the COVID-19 pandemic, including a nationwide mandatory lockdown that began on March 19, 2020 that has been extended several times, most recently through November 8, 2020. The government has also required the mandatory shutdown of businesses not considered essential.
 
In order to mitigate the economic impact of the COVID-19 pandemic and mandatory lockdown and shutdown of non-essential businesses, the Argentine government has adopted social aid, monetary and fiscal measures. We cannot assure you whether these measures will be sufficient to prevent a severe economic downturn in Argentina, particularly if current conditions are prolonged and if Argentina’s main trading partners are concurrently facing an economic recession. However, the Argentine government may have more limited resources at this time to support the country’s economy; the pandemic has struck at a time when Argentina is simultaneously struggling to emerge from a two-year recession. On August 31, 2020, the Argentine government announced the results of its bond restructuring offer, announcing that holders owning 93.5% in principal amount of bonds outstanding and that this participation percentage was subsequently increased to 99% by virtue of the application of collective action clauses of the restructured bonds. The Argentine government faces the challenge of restructuring its debt in foreign currency issued under Argentine law, as well as its debt with the IMF. We cannot predict the outcome of these negotiations.
 
Some of the measures adopted by the Argentine government may adversely affect the business and financial condition of companies operating in the real estate sector, such as our Company. These temporary measures include the issuance of stay-at-home orders, closures of non-essential businesses such as shopping malls, prohibition of layoffs without cause and suspension of workers, among others. These measures have necessitated, among other things that we shut down our shopping mall properties resulting in lower rental revenue from our shopping mall clients whose rent is based in part on sales revenue. For more information in connection with the COVID-19 pandemic and their impact on our Company, see “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.” Although these measures may help attenuate the economic impact on the Argentine economy overall, they may have a negative impact on our business and results of operations.
  
 
 
5
 
  
The ongoing COVID-19 pandemic and government measures taken to contain the spread of the virus are adversely affecting our business and results of operations. Shopping malls have been required to remain closed since March 20, 2020, leaving exclusively those premises dedicated to items considered essential such as pharmacies, supermarkets and banks. In the months of May and June, these measures were relaxed and certain activities were reopened in some inland squares, such as Salta, Mendoza, Santa Fe and Córdoba, opening the Alto Noa, Mendoza Plaza, Alto Rosario, La Ribera and Córdoba shopping malls. Shopping under a strict safety and hygiene protocol that includes reduced hours, social distancing, and access control. In July 2020, we proceeded with the opening of Neuquén and at the beginning of August 2020, Arcos District was opened, an open-air premium outlet in the city of Buenos Aires. On October 14, 2020, the Company announced the opening of Alto Palermo, Paseo Alcorta, Patio Bullrich, Abasto Shopping and Dot Baires shopping malls, located in the City of Buenos Aires. However, the uncertainty of the situation could cause setbacks in the openings. The shopping malls mentioned above are restarting their operations under a strict safety and hygiene protocol that includes social distancing, reduced hours, access controls, among other measures. Likewise, it should be clarified that the activity in the food courts is limited to the commercialization of products through home delivery or take-away and the entertainment business remains closed.
 
Also, the DirecTV Arena stadium has been closed since March 20, the date on which social, preventive and all the planned congresses are suspended, a large part of the fairs and conventions were postponed, while the shows scheduled at the DirecTV Arena were mostly canceled. The reopening date of these establishments is uncertain, as well as the future agenda of fairs, conventions and shows.
  
Additionally, we face various risks arising from the economic impact of the pandemic and government measures which are difficult to predict accurately at this time, such as:
 
 Our tenants may terminate their leases, and as a result of the loss of key or anchor tenants our shopping malls and office spaces may become less attractive;
  
 Consumer spending has sharply dropped and its persistence may generate a change in consumer habits and a trend in favor of e-commerce, which would translate into lower attendance at shopping malls or public places, thus adversely affecting our tenants’ ability to generate income and default on or terminate our leases;
 
 The situation generated by COVID-19 could cause an increase in our operating costs and the operating costs of our tenants, who may be unable to meet their payment obligations under the leases entered into with the Company. This situation could cause a reduction in our rental income and negatively affect our financial situation;
  
 As a result of financial turmoil in Argentina caused by disruptions in supply chains and public debt restructuring, we may experience difficulties in our ability to pay off our debts and other financial obligations. We could also face difficulties in accessing debt and capital markets and may be forced to refinance our indebtedness;
 
 An extended period of remote work by our employees could deplete our technological resources and result in or exacerbate certain operational risks, including an increased risk of cybersecurity. Remote work environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts to exploit the COVID-19 pandemic; and
  
 COVID-19 poses a threat to the well-being and morale of our employees. While we have implemented a business continuity plan to protect the health of our employees and we have contingency plans for key employees or executive officers who may become ill or unable to perform their duties for an extended period of time, such plans cannot anticipate all scenarios, and we may experience a possible loss of productivity or a delay in the deployment of certain strategic plans.
 
We are continuously monitoring the impact of the ongoing COVID-19 pandemic on our Company. The ultimate impact of the pandemic on our business, results of operations and financial condition remains highly uncertain and will depend on future developments outside of our control, including the intensity and duration of the pandemic and the government measures taken in order to contain the virus or mitigate the economic impact. To the extent the COVID-19 pandemic adversely affects our business, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
  

 
 
6
 
  
 
We depend on macroeconomic and political conditions in Argentina
 
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and depreciation of the currency. As a consequence, our business and operations have been, and could in the future be, affected to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as: inflation; price controls; foreign exchange controls; fluctuations in foreign currency exchange rates and interest rates; governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement with economic activity; civil unrest and local security concerns. You should make your own investigation into Argentina’s economy and its prevailing conditions before making an investment in us.
 
Historically, Argentina went through periods of severe political, economic and social crisis. Among other consequences, these crises resulted in Argentina defaulting on its foreign debt obligations, introducing emergency measures and numerous changes in economic policies that affected utilities, financial institutions, and many other sectors of the economy. Argentina also suffered a significant real depreciation of the Peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. In the past three years, GDP grew 2.7% in 2017, but it contracted 2.5% in 2018 and 2.2% in 2019. On September 22, 2020, the Argentine Treasury announced that it expected GDP to shrink 19.1% in 2020 and fiscal deficit to reach 4.7%, both figures higher than previously forecast.
 
A decline in international demand for Argentine products, a lack of stability and competitiveness of the Peso against other currencies, a decline in confidence among consumers and foreign and domestic investors, a high rate of inflation and future political uncertainties, among other factors, may affect the development of the Argentine economy, which could lead to reduced aggregate demand and adversely affect our business, financial condition and results of operations.
 
The primary elections (Elecciones Primarias, Abiertas y Simultáneas y Obligatorias or “PASO”, per its acronym in Spanish), which define which political parties and which candidates of the different political parties may run in the general elections, took place in August 11, 2019. In these elections, the Frente de Todos coalition (which included former president Fernandez de Kirchner as a candidate to the vice-presidency) obtained 47.78% of the votes, while the Juntos por el Cambio coalition (then-president Mauricio Macri’s coalition), obtained 31.79% of the votes.
 
After the results of the primary elections, the Peso depreciated approximately 30% and the share price of Argentine listed companies dropped approximately 38% on average. In turn, the emerging market bond index (EMBI) peaked to one of the highest levels in Argentine history, above 2,000 points on August 28, 2019. As a consequence of the aforementioned effects, the Central Bank re-implemented exchange controls in order to reduce currency outflows and restrict exchange rate fluctuations, strengthen the normal functioning of the economy, foster prudent administration of the exchange market, reduce the volatility of financial variables and contain the impact of the variations of financial outflows on the real economy.
 
Presidential and Congressional elections in Argentina took place on October 27, 2019, which resulted in Alberto Fernández being elected President of Argentina, having earned 48.1% of the votes. The Fernández administration assumed office on December 10, 2019. As of such date, the Argentine Congress was composed as follows: Frente de Todos commanded a majority in the senate with 41 seats, followed by Juntos por el Cambio with 28 seats. In the house of representatives Juntos por el Cambio held a slight majority with 119 seats and Frente de Todos held 116 seats.
 
The political uncertainty in Argentina about the impact of the measures that the Fernández administration took and could take with respect to the economy, including with respect to the crisis resulting from the ongoing COVID-19 pandemic, could generate volatility in the price of securities issued by Argentine companies’ or result in a decrease in their prices, in particular companies like ours with operations in the real estate sector.
 
We can offer no assurances as to the policies that may be implemented by the Fernández administration, or that political developments in Argentina will not adversely affect the Argentine economy and our business, financial condition and results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our shares to decline.
 

  
 
7
 
 
We cannot predict the effect that changes in economic policies, laws and regulations adopted in recent years by the Argentine government may have on the economy 
 
The Macri administration took office in December 2015 and immediately implemented significant economic and policy measures, ranging from (i) lifting foreign exchange restrictions, (ii) eliminating certain energy subsidies and ordering a substantial increase in electricity tariffs, (iii) restoring the credibility of the Argentine National Institute of Statistics and Census (the “INDEC”), (iv) reducing foreign trade controls, (v) settling claims by bondholders, (vi) reforming the framework applicable to the transport and distribution of natural gas, among others described in more detail below.
 
On June 29, 2016, the Argentine Congress enacted the Historical Reparation Program for Retirees and Pensioners (Programa de Reparación Histórica para Jubilados y Pensionados). This Program included (i) payments to more than two million retirees and retroactive compensation for more than 300,000 retirees and (ii) creation of a universal pension for senior citizens, at a total cost of approximately ARS 122,000 million.
 
In December 2017, the Argentine Congress approved the tax reform law. The reform was intended to eliminate certain inefficiencies in the Argentine tax regime, curb tax evasion, expand the tax base and encourage investment, with the long-term goal of restoring fiscal balance by creating new taxes or increasing the then existing contribution rates.
 
In November 2017, the Argentine Congress approved Law No. 27,401, which establishes a system of criminal liability of corporate entities for criminal offenses against the public administration and national and cross-border bribery committed by, among others, its shareholders, attorneys-in-fact, directors, managers, employees, or representatives. Convicted legal entities are subject to various sanctions including a fine of between 1% and 20% of their annual gross revenue and the partial or total suspension of their activities for up to ten years. In addition, the law expands the national criminal jurisdiction to all cases of bribery including those committed outside the Argentine territory by citizens or companies domiciled or headquartered in Argentina.
 
At the beginning of September 2018, the Argentine government announced a series of measures in connection with the previously approved IMF loan agreement (“Stand-By Agreement”) and implemented changes in monetary policy, reducing the amount of Pesos to be issued, thus easing pressure on the foreign currency market and on inflation. In terms of fiscal policy, the government also reinstated wheat and corn export duties, and a duty for all other exports.
 
Following the results of the primary elections held in August 2019, the Argentine government adopted certain exceptional measures to relieve tension in the financial and foreign exchange markets, including:
 
increase of 20% in the federal minimum wage and implementation of special deductions for retirees and formal employees, together with an increase in the income requirements for federal income taxes;
 
exemption from employee contributions and from tax contributions for simplified filers;
 
temporary increases in welfare benefits;
 
adopting a 10-year tax moratorium for small- and medium-sized companies, as well as for self-employed workers and simplified filers;
 
implementing a 90-day freeze on gas prices,
 
               exchange controls and restrictions to access to foreing exchange markets.
 
The fiscal cost of all of the above measures was estimated to be in excess of ARS 40,000 million.
 
Likewise, in order to mitigate the economic impact of the Covid-19 pandemic, the government has imposed temporary measures that include, among others:
 
the closure of businesses considered non-essential such as shopping centers,
 
the prohibition of dismissals without cause
 
suspension of workers,
 
rate freezing.
 
We have no control over the implementation of the reforms proposed by the Argentine government nor can we assure you that these reforms will be implemented at all or in a manner that will benefit our business. The failure of these measures to achieve their intended goals could adversely affect the Argentine economy and our business, financial condition and results of operations.
 
 
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Continuing high rates of inflation may have an adverse effect on the economy and our business, financial condition and results of operations.
 
Historically, high rates of inflation have undermined the Argentine economy and the Argentine government’s ability to foster conditions for stable growth. High rates of inflation may also undermine Argentina’s competitiveness in international markets and adversely affect economic activity and employment, as well as our business, financial condition and results of operations.
 
The INDEC reported cumulative variation of the CPI of 24.8% for 2017, 47.6% for 2018, 53.8% for 2019 and 2.3%, 2.0%, 3.3%, 1.5%, 1.5%, 2.2%, 1.9%, 2.7% and 2.8%, for January, February, March, April, May, June, July, August and September 2020, respectively.
 
In recent years, the Argentine government has taken certain measures to curb inflation, such as implementing price controls and limiting wage increases. We cannot assure you that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the Fernández administration to control inflation will be effective or successful. High rates of inflation remain a challenge for Argentina. Significant increases in the rates of inflation could have a material adverse effect on Argentina’s economy and in turn could increase our costs of operation, in particular labor costs, and may negatively affect our business, financial condition and results of operations.
 
A high level of uncertainty with regard to these economic variables, and a general lack of stability in terms of inflation, could have a negative impact on economic activity and adversely affect our financial condition.
 
As of July 1, 2018, the Argentine Peso qualified as a currency of a hyperinflationary economy and we were required to restate our historical financial statements in terms of the measuring unit current at the end of the reporting year, which could adversely affect our results of operations and financial condition.
 
Pursuant to IAS 29 “Financial Reporting in Hyperinflationary Economies”, the financial statements of entities whose functional currency is that of a hyperinflationary economy must be restated for the effects of changes in a suitable general price index. IAS 29 does not prescribe when hyperinflation arises, but includes several characteristics of hyperinflation. The IASB does not identify specific hyperinflationary jurisdictions. However, in June 2018, the International Practices Task Force of the Centre for Quality, which monitors “highly inflationary countries”, categorized Argentina as a country with projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present, providing prima facie evidence that the Argentine economy is hyperinflationary for the purposes of IAS 29. Therefore, Argentine companies that prepare financial statements pursuant to IFRS and use the Peso as their functional currency were required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018.
 
Adjustments to reflect inflation, including tax indexation, such as those required by IAS 29, are in principle prohibited in Argentina. However, on December 4, 2018, the Argentine government enacted Law No. 27,468, which lifted the ban on indexation of financial statements. Some regulatory authorities, such as the CNV and the IGJ, have required that financial statements for periods ended on and after December 31, 2018 be restated for inflation in accordance IAS 29.
 
During the first three fiscal years starting after January 1, 2018, tax indexation will be applicable if the variation of the CPI exceeds 55% in 2019, 30% in 2020 and 15% in 2021. The tax indexation determined as of June 2019 was allocated as follows: One-third in that same year, and the remaining two-thirds in equal parts in the following two years. The tax indexation determined for fiscal years beginning on July 1, 2019 and July 1 2020 will be allocated as follows: One-sixth in that same year, and the remaining five-sixth in equal parts in the following five years.
 
                For fiscal years starting after January 1, 2021, the tax indexation procedure will be triggered under similar standards as those set forth by IAS 29.
 
We cannot predict the future impact that the eventual application of tax indexation and related inflation adjustments described above will have on our financial statements or their effects on our business, results of operations and financial condition.
 
 
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High levels of public spending in Argentina could generate long-lasting adverse consequences for the Argentine economy.
 
During recent years, the Argentine government has substantially increased public spending. Argentina recorded a primary deficit of 3.9%, 2.4% and 0.4% of GDP in 2017, 2018 and 2019, respectively. However, the new Fernández administration has indicated that will seek to foster economic growth, which may require additional public spending. If government spending continues to outpace fiscal revenue, the fiscal deficit is likely to increase. Additionally, the economic impact of the COVID-19 pandemic and the nationwide lockdown may also require the Argentine government to increase public spending.
 
The Argentine government’s ability to access the long-term financial markets to finance such increased spending is limited given the high levels of public sector indebtedness. The inability to access the capital markets to fund its deficit or the use of other sources of financing may have a negative impact on the economy and, in addition, could limit the access to such capital markets for Argentine companies, which could adversely affect our business, financial condition and results of operations.
 
Argentina’s ability to obtain financing in the international capital markets is limited, which may impair our ability to access international credit markets to finance our operations in Argentina.
 
Argentina’s 2001 sovereign default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited Argentina’s ability to access international capital markets to obtain financing. In 2005, Argentina completed the restructuring of a substantial portion of its defaulted sovereign indebtedness and settled all of its debt with the IMF. Additionally, in June 2010, Argentina completed the renegotiation of approximately 67% of the principal amount of the defaulted bonds outstanding that were not swapped in the 2005 restructuring. As a result of the 2005 and 2010 debt swaps, Argentina restructured approximately 92.1% of its defaulted debt that was eligible for restructuring. Holdout creditors that had declined to participate in the exchanges commenced numerous lawsuits against Argentina in several countries, including the United States, Italy, Germany, and Japan.
 
As a result of the litigation filed by holdout bondholders and their related efforts to attach Argentina’s sovereign property located in the United States and other jurisdictions, Argentina’s ability to access the international capital markets was severely limited. In April 2016, the Argentine government settled USD 4.2 billion outstanding principal amount of untendered debt.
 
In 2018, due to Argentina’s limited access to the international capital and lending markets, the Argentine government and the IMF entered into a “stand-by” arrangement for USD 57.1 billion principal amount with a 36-month maturity. As of the date of this Annual Report, Argentina has received disbursements under the agreement totaling USD 44.8 billion. Notwithstanding the foregoing, the Fernández administration has publicly announced that it will refrain from requesting additional disbursements under this agreement, and instead vowed to renegotiate its terms and conditions in good faith.
 
Shortly after taking office, the Fernández administration also initiated negotiations with creditors in order to restructure the country’s current Peso- and U.S. dollar-denominated public debt. In this context, on February 5, 2020, the Argentine Congress passed Law No. 27,544, pursuant to which the sustainability of the sovereign debt was declared a national priority, authorizing the Ministry of Economy to renegotiate new terms and conditions with Argentina’s creditors within certain parameters.
 
Additionally, in the midst of debt restructuring negotiations, on April 5, 2020 the Argentine government issued Decree No. 346/2020, through which the repayment of Argentine law-governed dollar-denominated notes was postponed.
 
On April 21, 2020, the Argentine government launched an exchange offer with the aim of refinancing its external indebtedness in a manner which does not compromise the development and potential growth of Argentina over the next years. On August 17, 2020, the Argentine government submitted its modified bond restructuring offer to the SEC. On August 31, 2020, the Argentine government announced the results of its bond restructuring offer, announcing that holders owning 93.5% in principal amount of bonds outstanding and that this participation percentage was subsequently increased to 99% by virtue of the application of collective action clauses of the restructured bonds. However, the Argentine government faces the challenge of restructuring its debt in foreign currency issued under Argentine law, as well as its debt with the IMF. We cannot predict the outcome of these negotiations.
 
Moreover, difficulties in accessing Argentina's international credit may have an impact on our company as the Argentine government postponed the maturity dates of its bonds, and cut interest rates.
 
  
 
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Foreign shareholders of companies operating in Argentina have initiated proceedings against Argentina that have resulted and could result in arbitral awards and/or injunctions against Argentina and its assets and, in turn, limit its financial resources.
 
In response to the emergency measures implemented by the Argentine government during the 2001-2002 economic crisis, a number of claims were filed before the International Centre for Settlement of Investment Disputes (“ICSID”) against Argentina. Claimants allege that the emergency measures were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties by which Argentina was bound at the time.
 
Claimants have also filed claims before arbitral tribunals under the rules of the United Nations Commission on International Trade Law (“UNCITRAL”) and under the rules of the International Chamber of Commerce (“ICC”). As of the date of this Annual Report, it is not certain that Argentina will prevail in having any or all of these cases dismissed, or that if awards in favor of the plaintiffs are granted, that it will succeed in having those awards annulled. Ongoing claims before the ICSID tribunal and other arbitral tribunals could lead to new awards against Argentina, which could have an adverse effect on our capacity to access to financing or the international capital markets.
 
Significant fluctuation in the exchange rate of the Peso against foreign currencies may adversely affect the Argentine economy as well as our financial condition and results of operations.
 
Fluctuations in the rates of exchange of the Peso against foreign currencies, particularly the U.S. dollar, may adversely affect the Argentine economy, our financial condition and results of operations. In 2017, 2018, 2019 and the first six months of the year 2020, the Peso depreciated by approximately 16%, 105%, 59% and 18% against the U.S. dollar, respectively. Depreciation of the Peso in real terms can have a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, and also lead to very high inflation and significant reduced real wages. The depreciation of the Peso can also negatively impact businesses whose success is dependent on domestic market demand, and adversely affect the Argentine government’s ability to honor its foreign debt obligations. A substantial increase in the exchange rate of the Peso against foregin currencies of the Peso against the U.S. dollar also represents risks for the Argentine economy since it may lead to a deterioration of the country’s current account balance and the balance of payments which may have a negative effect on GDP growth and employment, and reduce the revenue of the Argentine public sector by reducing tax revenue in real terms, due to its current heavy dependence on export taxes.
 
As a result of the greater volatility of the Peso, the former administration announced several measures to restore market confidence and stabilize the value of the Argentine Peso. Among them, during 2018, the Argentine government negotiated two agreements with the IMF, increased interest rates and the Central Bank decided to intervene in the exchange market in order to stabilize the value of the Peso. During 2019, based on a new understanding with the IMF, the Government established new guidelines for stricter control of the monetary base, which would remain in place until December 2019, in an attempt to reduce the amount of Pesos available in the market and reduce the demand for foreign currency. Complementing these measures, in September 2019 foreign currency controls were reinstated in Argentina. As a consequence of the re-imposition of exchange controls, the spread between the official exchange rate and other exchange rates resulting implicitly from certain common capital markets operations (“dólar MEP” or “contado con liquidación”) has broadened significantly, reaching a value of approximately 110% above the official exchange rate. As of October 23, 2020, the official exchange rate was ARS 78.1300 per USD1.00.
 
The success of any measures taken by the Argentine government to restore market confidence and stabilize the value of the Argentine Peso is uncertain and the continued depreciation of the Peso could have a significant adverse effect on our financial condition and results of operations. 
  
 
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Certain measures that may be taken by the Argentine government may adversely affect the Argentine economy and, as a result, our business, financial condition and results of operations.
 
The Argentine government exercises substantial control over the economy and may increase its level of intervention in certain areas of the economy, including through the regulation of market conditions and prices.
 
By way of example, in 2008 the Fernández de Kirchner administration nationalized and replaced the former private pension system with a public “pay-as-you-go” pension system. As a result, all resources administered by the private pension funds, including significant equity interests in a wide range of listed companies, were transferred to a separate fund (Fondo de Garantía de Sustentabilidad, or “FGS”) to be administered by the National Social Security Administration (Administración Nacional de la Seguridad Social, or “ANSES”, per its acronym in Spanish). The dissolution of the private pension funds and the transfer of their financial assets to the FGS have had important repercussions on the financing of private sector companies. Debt and equity instruments which previously could be placed with pension fund administrators are now entirely subject to the discretion of the ANSES. Since it acquired equity interests in privately owned companies through the process of replacing the pension system, the ANSES is entitled to designate government representatives to the boards of directors of those entities. Pursuant to Decree No. 1,278/12, issued by the Executive Branch on July 25, 2012, the ANSES’s representatives must report directly to the Ministry of Public Finance are subject to a mandatory information-sharing regime, under which, among other obligations, they must immediately inform the Ministry of Public Finance of the agenda for each meeting of the board of director and provide related documentation.
 
Also, in April 2012, the Fernández de Kirchner administration decreed the removal of directors and senior officers of YPF S.A. (“YPF”), the country’s largest oil and gas company, that at the time was controlled by the Spanish group Repsol, and submitted a bill to the Argentine Congress to expropriate shares held by Repsol representing 51% of the total outstanding equity of YPF. The Argentine Congress approved the bill in May 2012 through the passage of Law No. 26,741, which declared the production, industrialization, transportation and marketing of hydrocarbons to be activities of public interest and fundamental policies of Argentina, and empowered the Argentine government to adopt any measures necessary to achieve self-sufficiency in hydrocarbon supply. In February 2014, the Argentine government and Repsol announced that they had reached an agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares. Such compensation totaled USD 5 billion payable by delivery of Argentine sovereign bonds with various maturities. The agreement, which was ratified by Law No. 26,932, settled the claim filed by Repsol before the International Centre for Settlement of Investment Disputes (“ICSID”).
 
Historically, actions of the Argentine government concerning the economy, including decisions regarding interest rates, taxes, price controls, wage increases, increased benefits for workers, exchange controls and potential changes in the market of foreign currency, have had a substantial adverse effect on Argentina’s economic growth.
 
It is widely reported by private economists that expropriations, price controls, exchange controls and other direct involvement by the Argentine government in the economy have had an adverse impact on the level of investment in Argentina, the access of Argentine companies to international capital markets and Argentina’s commercial and diplomatic relations with other countries. If the level of government intervention in the economy continues or increases, the Argentine economy and, in turn, our business, results of operations and financial condition could be adversely affected. 
 
The Argentine government may mandate salary increases for private sector employees, which would increase our operating costs.
 
In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees. Argentine employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to high levels of inflation, employees and labor organizations regularly demand significant wage increases.
  
 
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Through Decree No. 610/2019, a staggered increase of the minimum salary was approved as follows: (i) ARS 14,125 as of August 1, 2019; (ii) ARS 15,625 as of September 1, 2019; and (iii) ARS 16,875 as of October 1, 2019. In addition, the Argentine government has arranged various measures to mitigate the impact of inflation and exchange rate fluctuation in wages. In December 2019, Decree No. 34/2019 doubled legally-mandated severance pay for termination of employment. The Government went a step further amid the COVID-19 pandemic, and issued Decree No. 329/2020, restricting the ability to terminate employment with or without cause for 60 business days, prorogued it for 60 additional business days by Decree No.624/2020. Also, in January 2020, the Argentine government issued Decree No. 14/2020 which established a general increase for all employees of ARS 3,000 in January 2020, and an additional amount of ARS 1,000 in February 2020 (total ARS 4,000 effective as of February 2020).
 
It is possible that the Argentine government could adopt measures mandating further salary increases or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.
 
Property values in U.S. dollars in Argentina could decline significantly.
 
Property values in U.S. dollars are influenced by multiple factors that are beyond our control, such as a decreased demand for real estate properties due to a deterioration of macroeconomic conditions or an increase in supply of real estate properties that could adversely affect the value in U.S. dollars of real estate properties. We cannot assure you that property values in U.S. dollars will increase or that they will not be reduced. Most of the properties we own are located in Argentina. As a result, a reduction in the value in U.S. dollars of properties in Argentina could materially affect our business and our financial statements due to the valuation of our investment properties at fair market value in U.S. dollars.
 
Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions and investors may face restrictions on their ability collect capital and interest payments in connection with corporate bonds issued by Argentine companies.
 
On September 1, 2019, the BCRA issued Communication “A” 6,770, which established various rules for exports of goods and services, imports of goods and services, foreign assets, non-resident operations, financial debt, debts between residents, profits and dividends, and information systems. The Communication was issued in response to the publication of Decree 609/2019, pursuant to which the Argentine government implemented foreign exchange regulations until December 31, 2019. Decree 609/2019 sets forth the obligation to convert the value of goods and services exported into Pesos in the local financial system, in accordance with terms and conditions established by the BCRA.
 
Additionally, on December 5, 2019 the BCRA issued Communication “A” 6,844, setting forth the consolidated set of rules governing foreign trade and exchange (“Exterior y Cambios” in Spanish).
 
Among other restrictions, Communication “A” 6,844 requires prior authorization from the BCRA for the pre-cancelation of debts corresponding to imports of goods and services. For overdue or on-demand debts for the import of goods with related parties abroad outstanding as of August 31, 2019, the importer must request authorization from the BCRA if the debts exceed USD 2 million per month. BCRA authorization is also required for payments of services with related parties abroad. Prior authorization from the BCRA is required for the “constitution of foreign assets” (e.g., purchase of foreign currency, among others) by legal entities, local governments, mutual funds, trusts and other vehicles. Additionally, individuals must request authorization from the BCRA for the “formation of foreign assets,” family aid and the granting of guarantees in derivative transactions, when those items exceed USD 200 in the calendar month, among other circumstances.
 
With respect to financial debt, borrowers must enter and settle in the foreign exchange market new financial debts from abroad that are disbursed from September 1, 2019. Compliance with this requirement must be proved to access the foreign exchange market and cancel the principal and interest. Communication A 6,844 also requires companies to obtain prior authorization from the BCRA before transferring profits and dividends abroad, as a general rule.
  
 
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Likewise, Communication “A” 6,854, issued on December 27, 2019 established that rules incorporated into the consolidated text of the regulations on foreign trade and exchange other than those applicable for export of goods and services, as set forth in Communication “A” 6,844, shall remain in full force and effect as from December 31, 2019.
 
Subsequently, the BCRA issued Communication “A” 7,030, through which it established that for the purpose of accessing the exchange market for the realization of certain transactions such as (i) payment of imports and other purchases of goods abroad, (ii) purchase of foreign currency by residents with specific application, (iii) payment of profits and dividends, (iv) payment of capital and interest on financial indebtedness , among others, the entity shall have the prior consent of the BCRA unless it has an affidavit from the client stating that at the time of access to the exchange market: (i) all of its foreign currency holdings in the country are deposited in accounts in financial institutions and that it does not have liquid external assets available; and (ii) undertakes to liquidate on the exchange market, within five working days of its making available, those funds that it receives abroad arising from the collection of loans granted to third parties, the collection of a term deposit or the sale of any type of asset, where those funds have been acquired after May 28 2020.
 
On the other hand, the Communication provides that until June 30, 2020 (a period subsequently extended until 31 July 2020 by Communication “A” 7,052), - when accessing the market for the payment of imports of goods or for the cancellation of debts arising from the import of goods, the BCRA must pre-approve the transaction unless the entity has: (i) a customer's affidavit stating that the total amount of payments associated with its imports of goods during 2020 does not exceed the amount by which the importer would have access to the exchange market that was officialized between January 1, 2020 and the day leading up to accessing the exchange market; and (ii) documentation that allows the company to verify compliance with the remaining requirements established for the operation by the exchange regulations.
 
At the same time, the Communication provides that until June 30, 2020 (a period subsequently extended until July 31, 2020 by Communication “A” 7,052), prior approval of the BCRA will be required for access to the foreign market for the cancellation of financial indebtedness principal services with the foreign sector where the creditor is a counterparty linked to the debtor.
 
As for transactions corresponding to foreign market outflows, the Communication amends from 30 to 90 days the period within which (i) no sales of securities with liquidation in foreign currency or transfers thereof to foreign entities shall have been concluded in the country, and (ii) sales of securities with liquidation in foreign currency or transfers thereof to entities abroad shall not be arranged in the country, in this case, counted from the moment the foreign market was accessed.
 
Finally, on September 15, 2020, Communication “A” 7,106 established that companies must refinance maturities of financial debt principal in the period from October 15, 2020 to March 31, 2021. In this sense, the Central Bank will give access to companies for less than 40% of maturities and companies must refinance the rest within at least two years or should be cancelled using currency already in possession of the Company. Furthermore, Resolution No. 856/2020 of the CNV established a 15-day “parking” requirement for both transfers of securities from local accounts abroad. As a result of all the exchange restrictions mentioned and all those that may be issued in the future by the BCRA in the context of the exercise of its powers, it is clarified that there may be potential “holdouts” in the context of the restructurings that Argentine companies are obliged to carry out with the consequent possible claims. The Central Bank measure, would, in many cases, result in non-compliance or a default on corporate debt  denominated in U.S. dollars. It will be a challenge for issuers of corporate debt denominated in U.S. dollars to fully quantify the implications of Communication “A” 7,106. In order to fulfill the requirements of this regulation, a refinancing plan for financial debt due for registration until December 31, 2020 must be submitted to the Argentine Central Bank before September 30, 2020. For maturities to be registered between January 1, 2021 and March 31, 2021, the plan must be submitted at least 30 calendar days prior to the maturity of the principal to be refinanced. Which implies in a risk to obtain financing for new productive projects. As a consequence, there could be an increase in the spreads of corporate bonds. In addition, since June 2020, through Communication “A” 7,030, companies could no longer access to the MULC to cancel financial debt between companies in advance. It is also noted that such possible proposals for restructurings will fully comply with the requirements established by the applicable and current regulations, as long as the non-compliance brings the application of the foreign exchange criminal law to the members of our board of directors.
 
As of the date of this Annual Report, the restrictions outlined above remain in place. Such measures may negatively affect Argentina’s international competitiveness, discouraging foreign investments and lending by foreign investors or increasing foreign capital outflow which could have an adverse effect on economic activity in Argentina, and which in turn could adversely affect our business and results of operations. Any restrictions on transferring funds abroad imposed by the government could undermine our ability to pay dividends on our ADSs in U.S. dollars. Furthermore, these measures may cause delays or impose restrictions on the ability to collect payments of capital and interest on bonds issued by us. The challenge will be to achieve acceptance by creditors, in accordance with the BCRA regulations mentioned above, especially when it has highly diversified and retail creditors.
 
 
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The Argentine economy could be adversely affected by economic developments in other global markets.
 
Argentina’s economy is vulnerable to external shocks that could be caused by adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners (including Brazil, the European Union, China and the United States), including as a result of the ongoing COVID-19 pandemic, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. In addition, Argentina may be affected by economic and market conditions in other markets worldwide, as was the case in 2008-2009, when the global financial crisis led to a significant economic contraction in Argentina in 2009.
  
Since 2015, the Brazilian economy, Argentina’s largest export market and the principal source of imports, has experienced heightened negative pressure due to the uncertainties stemming from the ongoing political crisis, including the impeachment of Brazil’s president, which resulted in the Senate of Brazil removing Dilma Rousseff from office for the rest of her term on August 31, 2016. Michel Temer, who previously held office as vice president of Brazil, subsequently took office until the end of the presidential period and in October 2018, Jair Bolsonaro was elected president. Mr. Bolsonaro has libertarian, conservative and nationalist tendencies and assumed office on January 1, 2019. Given that Brazil is the largest economy in Latin America, the economic measures it implements can have great impact in the region. A further deterioration in economic conditions in Brazil may reduce the demand for Argentine exports to the neighboring country and, if this occurs, it could have a negative effect on the Argentine economy and potentially on our operations.
 
In addition, financial and securities markets in Argentina have been influenced by economic and market conditions in other markets worldwide. Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have in the past substantially affected, and may continue to substantially affect, capital flows into, and investments in securities from issuers in, other countries, including Argentina. International investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors.
  
The Argentine financial system and securities markets could be also adversely affected by events in developed countries’ economies, such as the United States and Europe. On June 23, 2016, the United Kingdom voted in favor of the United Kingdom exiting the European Union (“Brexit”). The United Kingdom formally left the European Union on January 31, 2020. Even when the United Kingdom agreed its departure from the European Union, negotiations on the terms and conditions are expected to continue during the transition period, which is due to expire on December 31, 2020. The effects of the Brexit vote and the perceptions as to the impact of the withdrawal of the United Kingdom from the European Union may adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally, and could contribute to instability in global financial and foreign exchange markets. In addition, Brexit could lead to additional political, legal and economic instability in the European Union and have a negative impact on the commercial exchange of Argentina with that region.
 
On November 8, 2016, Donald Trump was elected president of the United States. His presidency has created significant uncertainty about the future relationships between the United States and other countries, including with respect to the trade policies, treaties, government regulations and tariffs that could apply to trade between the United States and other nations. We cannot predict how Mr. Trump’s protectionist measures will evolve or how they may affect Argentina, nor will the effect that the same or any other measure taken by the Trump administration could cause on global economic conditions and the stability of global financial markets. Moreover, the next presidential elections in the United States are expected to take place in November 2020, and we cannot predict the outcome of such elections.
  
In July 2019, the Common Market of the South (“MERCOSUR”) signed a strategic partnership agreement with the European Union (the “EU”), which is expected to enter into force in 2021, once approved by the relevant legislatures of each member country. The objective of this agreement is to promote investments, regional integration, increase the competitiveness of the economy and achieve an increase in GDP. However, the effect that this agreement could have on the Argentine economy and the policies implemented by the Argentine government is uncertain. Recently, in October 2020, The European Parliament passed a non-binding resolution opposing the ratification of the trade agreement between the European Union and Mercosur due to concerns over the environmental policy of the Jair Bolsonaro government.
 
 
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Changes in social, political, regulatory and economic conditions in other countries or regions, or in the laws and policies governing foreign trade, could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Argentine economy. Also, if these countries fall into a recession, the Argentine economy would be impacted by a decline in its exports, particularly of its main agricultural commodities. All of these factors could have a negative impact on Argentina’s economy and, in turn, our business, financial condition and results of operations.
  
Furthermore, the financial markets have also been affected by the oil production crisis in March 2020 arising from the OPEC’s failure to reduce production. Any of these factors could depress economic activity and restrict our access to suppliers and could have a material adverse effect on our business, financial condition and results of operations. A decline in the international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth, which could adversely affect our business, financial condition and results of operations.
 
Argentina’s financial recovery from the 2001-2002 crisis occurred in a context of price increases for Argentina’s commodity exports. High commodity prices contributed to the increase in Argentine exports since the third quarter of 2002 and to high government tax revenue from export withholdings. Consequently, the Argentine economy has remained relatively dependent on the price of its main agricultural products, primarily soy. This dependence has rendered the Argentine economy more vulnerable to commodity prices fluctuations.
  
A continuous decline in international prices of Argentina’s main commodity exports could have a negative impact on the levels of government revenue and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy and, therefore, our business, results of operations and financial condition.
 
Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect the Argentine economy and financial condition, which in turn could adversely affect our business, financial condition and results of operations.
  
The lack of a solid institutional framework and the notorious incidents of corruption that have been identified as a significant problem for Argentina present meaningful challenges to a robust economic recovery. The Argentine economy is sensitive to local political events. Such political events could generate uncertainty and be adverse for the development of a stable market for business in the country, which could affect the Argentine economy and, indirectly, the business, results of operations and financial situation of the Company.
 
Likewise, institutional deterioration and corruption may adversely affect Argentina’s economy and financial situation, which in turn could adversely affect the business, equity and financial situation and results of the Company’s operations.
  
The absence of a solid institutional framework and corruption have been pointed out as an important problem for Argentina and continue to be. Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the former Macri administration adopted several measures aimed at strengthening Argentina’s institutions and curbing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The Fernández administration’s ability and determination to implement these initiatives taken by the former administration is uncertain, as it would require, among other things, the involvement of the judicial branch, which is independent, as well as legislative support.
 
We cannot guarantee that the implementation of these measures will be successful or if implemented that such measures will have the intended outcomes.
 
 
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Our internal policies and procedures might not be sufficient to guarantee compliance with anti-corruption and anti-bribery laws and regulations. 
 
Our operations are subject to various anti-corruption and anti-bribery laws and regulations, including the Corporate Criminal Liability Law and the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”). Both the Corporate Criminal Liability Law and the FCPA impose liability against companies who engage in bribery of government officials, either directly or through intermediaries. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may deal with entities in which the employees are considered government officials. We have a compliance program that is designed to manage the risks of doing business in light of these new and existing legal and regulatory requirements.
  
Although we have internal policies and procedures designed to ensure compliance with applicable anti-corruption and anti-bribery laws and regulations, there can be no assurance that such policies and procedures will be sufficient. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on us, limits being placed on our activities, our authorizations and licenses being revoked, damage to our reputation and other consequences that could have a material adverse effect on our business, results of operations and financial condition. Further, litigations or investigations relating to alleged or suspected violations of anti-corruption laws and sanctions regulations could be costly.
 
On July 30, 2020, the Executive Branch introduced a bill to the Senate relating to a proposed reform of the Judiciary. The project provides for, among other issues: (i) the merger of 12 federal criminal courts with 11 courts with jurisdiction over economic criminal matters, doubling to reach 46 courts in the Federal Criminal Justice, which will be located in the City of Buenos Aires, (ii) a system of surrogacy to fill in the new courts with the intervention of the National Chamber of Appeal in Criminal and Correctional matters, the Council of the Magistracy and the Senate, (iii) the unification of the appeals chambers and the expansion of the justice system with the creation of new oral courts, prosecutor's offices and defense offices, and (v) the merger of the Federal Civil and Commercial jurisdiction with the Administrative Litigation.
 
Risks Relating to our Business
  
Disease outbreaks or other public health concerns could reduce traffic in our shopping malls.
 
As a result of the outbreak of Swine Flu during the winter of 2009, consumers and tourists dramatically changed their spending and travel habits to avoid contact with crowds. Recently, as a result of the COVID-19 pandemic, the Argentine government enacted several regulations limiting the operation of schools, cinemas and shopping malls, which has significantly reduced traffic at our shopping malls. See “Risks Relating to Argentina – The ongoing COVID-19 pandemic and government measures to contain the virus are adversely affecting our business and results of operations, and, as conditions are evolving rapidly, we cannot accurately predict the ultimate impact on our results of operation”. We cannot assure you that new disease outbreaks or health hazards (such as the Ebola outbreak in recent years) will not occur in the future, or that such an outbreak or health hazard would not significantly affect consumer and/or tourists’ activity. The recurrence of such a scenario could adversely affect our business and our results of operations.
  
We are subject to risks inherent to the operation of shopping malls that may affect our profitability.
 
Our shopping malls are subject to various factors that affect their development, administration and profitability, including:
  
declines in lease prices or increases in levels of default by our tenants due to economic conditions;
 
increases in interest rates and other factors outside our control;
  
the accessibility and attractiveness of the areas where our shopping malls are located;
 
the intrinsic attractiveness of the shopping mall;
  
the flow of people and the level of sales of rental units in our shopping malls;
 
the increasing competition from internet sales;
  
 
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the amount of rent collected from tenants at our shopping malls;
  
changes in consumer demand and availability of consumer credit, both of which are highly sensitive to general macroeconomic conditions; and
  
fluctuations in occupancy levels in our shopping malls.
 
An increase in our operating costs could also have a material adverse effect on us if our tenants were to become unable to pay higher rent we may be required to impose as a result of increased expenses. Moreover, the shopping mall business is closely related to consumer spending and affected by prevailing economic conditions. All of our shopping malls and commercial properties are located in Argentina, and consequently, these operations may be adversely affected by recession or economic uncertainty in Argentina. Persistently poor economic conditions could result in a decline in consumer spending which could have a material adverse effect on shopping mall revenue.
  
Our assets are highly concentrated in certain geographic areas and an economic downturn in such areas could have a material adverse effect on our results of operations and financial condition.
 
As of June 30, 2020, most of our revenue from leases and services provided by the Shopping Malls segment derived from properties located in the City of Buenos Aires and the Greater Buenos Aires metropolitan area. In addition, all of our office buildings are located in Buenos Aires and a substantial portion of our revenue is derived from such properties. Although we own properties and may acquire or develop additional properties outside Buenos Aires and the Greater Buenos Aires metro area, we expect to continue to be largely affected by economic conditions affecting those areas. Consequently, an economic downturn in those areas could cause a reduction in our rental income and adversely affect our ability to comply with our debt service and fund operations.
  
Our performance is subject to the risks associated with our properties and with the real estate industry.
 
Our operating performance and the value of our real estate assets, and as a result, the value of our securities, are subject to the risk that our properties may not be able to generate sufficient revenue to meet our operating expenses, including debt service and capital expenditures, our cash flow needs and our ability to service our debt service obligations. Events or conditions beyond our control that may adversely affect our operations or the value of our properties include:
  
 downturns in national, regional and local economies;
 
 decrease in consumer spending and consumption;
  
 competition from other shopping malls and sales outlets;
 
 local real estate market conditions, such as oversupply or lower demand for retail space;
  
 changes in interest rates and availability of financing;
 
 the exercise by our tenants of their right to early termination of their leases;
  
 vacancies, changes in market rental rates and the need to periodically repair, renovate and re-lease space;
 
 increased operating costs, including insurance expenses, salary increases, utilities, real estate taxes, federal and local taxes and higher security costs;
  
 the impact of losses resulting from civil disturbances, strikes, natural disasters, terrorist acts or acts of war;
 
 significant fixed expenditures associated with each investment property, such as debt service payments, real estate taxes, insurance and maintenance costs;
  
 declines in the financial condition of our tenants and our ability to collect rents when due;
 
 changes in our or our tenants’ ability to provide for adequate maintenance and insurance that result in a reduction in the useful life of a property; and
 
  changes in law or governmental regulations (such as those governing usage, zoning and real property taxes) or changes in the exchange controls or government action (such as expropriation).
 
  
 
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An adverse economic environment for real estate companies and the credit crisis may adversely affect our results of operations. 
 
The success of our business and profitability of our operations depend on continued investment in real estate and access to long-term financing. A prolonged crisis of confidence in real estate investments and lack of credit for acquisitions may constrain our growth and the maintenance of our current business and operations. As part of our strategy, we intend to increase our properties portfolio through strategic acquisitions at favorable prices, where we believe we can bring the necessary expertise to enhance property values. In order to pursue acquisitions, we may require capital or debt financing. Recent disruptions in the financial markets may adversely impact our ability to refinance existing debt and the availability and cost of credit in the future. Any consideration of sales of existing properties or portfolio interests may be offset by lower property values. Our ability to make scheduled payments or to refinance our existing debt obligations depends on our operating and financial performance, which in turn is subject to prevailing economic conditions. If disruptions in financial markets prevail or arise in the future, we cannot provide assurances that government responses to such disruptions will restore investor confidence, stabilize the markets or increase liquidity and the availability of credit.
 
Our revenue and profit may be materially and adversely affected by continuing inflation and economic activity in Argentina.
  
Our business is mainly driven by consumer spending since a portion of the revenue from our Shopping Mall segment derives directly from the sales of our tenants, whose revenue relies on the sales to consumers. As a result, our revenue and net income are impacted to a significant extent by economic conditions in Argentina, including the development in the textile industry and domestic consumption, which has experienced significant declines during 2019 and 2020. Consumer spending is influenced by many factors beyond our control, including consumer perception of current and future economic conditions, inflation, political uncertainty, rates of employment, interest rates, taxation and currency exchange rates. Any continuing economic slowdown, whether actual or perceived, could significantly reduce domestic consumer spending in Argentina and therefore adversely affect our business, financial condition and results of operations.
 
The loss of tenants could adversely affect our operating revenue and value of our properties.
 
Although no single tenant represents more than 3.7% of our revenue in any fiscal year, if a significant number of tenants at our retail or office properties were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, or if we failed to retain them, our business could be adversely affected. Further, our shopping malls typically have a significant “anchor” tenant, such as well-known department stores, that generate consumer traffic at each mall. A decision by such tenants to cease operating at any of our shopping mall properties could have a material adverse effect on our financial condition and the results of our operations. In addition, the closing of one or more stores that attract consumer traffic may motivate other tenants to terminate or to not renew their leases, to seek rent concessions and/or close their stores. Moreover, tenants at one or more properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies. The bankruptcy and/or closure of multiple stores, if we are not able to successfully release the affected space, could have a material adverse effect on both the operating revenues and underlying value of the properties involved. See “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.”
  
We may face risks associated with acquisitions of properties.
 
As part of our growth strategy, we have acquired, and intend to do so in the future, properties, including large properties (such as Edificio República, Abasto de Buenos Aires and Alto Palermo Shopping), that tend to increase the size of our operations and potentially alter our capital structure. Although we believe that the acquisitions we have completed in the past and that we expect to undertake enhance our financial performance, the success of such transactions is subject to a number of uncertainties, including the risk that:
  
 we may not be able to obtain financing for acquisitions on favorable terms;
 
 
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 acquired properties may fail to perform as expected;
  
 the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;
 
 acquired properties may be located in new markets where we may have limited knowledge and understanding of the local economy, absence of business relationships in the area or are unfamiliar with local governmental and permitting procedures; and
  
 we may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into our organization and to manage new properties in a way that allows us to realize cost savings and synergies.
 
Our future acquisitions may not be profitable.
  
We seek to acquire additional shopping malls to the extent we manage to acquire them on favorable terms and conditions and they meet our investment criteria. Acquisitions of commercial properties entail general investment risks associated with any real estate investment, including:
 
 our estimates of the cost of improvements needed to bring the property up to established standards for the market may prove to be inaccurate;
  
 properties we acquire may fail to achieve, within the time frames we project, the occupancy or rental rates we expect to achieve at the time we make the decision to acquire, which may result in the properties’ failure to achieve the returns we projected;
 
 our pre-acquisition evaluation and the physical condition of each new investment may not detect certain defects or identify necessary repairs, which could significantly increase our total acquisition costs; and 
 
 our investigation of a property or building prior to its acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.
 
If we acquire a business, we will be required to merge and integrate the operations, personnel, accounting and information systems of such acquired business. In addition, acquisitions of or investments in companies may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees.
 
The properties we acquire may be subject to unknown liabilities. 
 
The properties that we acquire may be subject to unknown liabilities, in respect to which we may have limited or no recourse to the former owners. If a liability were asserted against us based on our ownership of an acquired property, we may be required to incur significant expenditures to settle, which could adversely affect our financial results and cash flow. Unknown liabilities relating to acquired properties could include:
 
 liabilities for clean-up of undisclosed environmental contamination; 
 
 the costs of changes in laws or in governmental regulations (such as those governing usage, zoning and real property taxes); and
 
 liabilities incurred in the ordinary course of business. 
 
Our dependence on rental income may adversely affect our ability to meet our debt obligations.
 
A substantial part of our revenue is derived from rental income. As a result, our performance depends on our ability to collect rent from our tenants. Our revenue and profits would be negatively affected if a significant number of our tenants or any significant tenant were to:
  
 delay lease commencements;
 
 decline to extend or renew leases upon expiration;
 
 
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 fail to make rental payments when due; or
  
 close stores or declare bankruptcy.
 
Any of these actions could result in the termination of leases and the loss of related rental income. In addition, we cannot assure you that any tenant whose lease expires will renew that lease or that we will be able to re-let the space on economically reasonable terms. The loss of rental revenue from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to comply with our debt service obligations. These factors are particularly disruptive in the context of emergency situations such as the COVID-19 pandemic which has caused significant adverse impacts on our business as tenants have been required to shutdown or significantly reduce their operating activities.
  
It may be difficult to buy and sell real estate quickly and transfer restrictions may apply to part of our portfolio of properties.
 
Real estate investments are relatively illiquid and this tends to limit our ability to change the mix of our portfolio in response to economic circumstances or other conditions. In addition, significant expenditures associated with each investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when an investment generates lower revenue. If revenue from a property declines while expenses remain the same, our results of operations would be adversely affected. Certain properties are mortgaged and if we were unable to meet our underlying payment obligations, we could suffer losses as a result of foreclosures on those mortgaged properties. Furthermore, if we are required to dispose of one or more of our mortgaged properties, we would not be able to obtain release of the mortgage interest without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect our business. In this kind of transactions, we may agree not to sell the acquired properties for a considerable time which could affect our results of operations.
  
Some of the land we have purchased is not zoned for development and we may be unable to obtain, or may face delays in obtaining, the necessary zoning permits and other authorizations.
 
We own several plots of land which are not zoned for our intended development plans. In addition, we have not yet applied for the required land-use, building, occupancy and other required governmental permits and authorizations for these properties. We cannot assure you that we will continue to be successful in our attempts to rezone land and to obtain all necessary permits and authorizations, or that rezoning efforts and permit requests will not be delayed or rejected. Moreover, we may be affected by building moratorium and anti-growth legislation. If we are unable to obtain the governmental permits and authorizations we need to develop our present and future projects as planned, we may be forced to make unwanted modifications to such projects or abandon them altogether.
  
Our ability to grow will be limited if we cannot obtain additional financing.
 
We must maintain liquidity to fund our working capital, service our outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue new business opportunities. Our growth strategy is focused on the development and redevelopment of properties we already own and the acquisition of additional properties for development. As a result, we are likely to have to depend to an important degree on the availability of capital financing, which may or maynot be available on favorable terms if at all. We cannot assure you that additional financing, refinancing or other capital will be available in the amounts we require or on favorable terms. Our access to debt or equity capital markets depends on a number of factors, including the market’s perception of our growth potential, our ability to pay dividends, our financial condition, our credit rating and our current and potential future earnings. Depending on these factors, we could experience delays or difficulties in implementing our growth strategy on satisfactory terms or at all.
  
Adverse incidents that occur in our shopping malls may result in damage to our reputation and a decrease in the number of customers.
 
Given that our shopping malls are open to the public, with ample circulation of people, accidents, theft, robbery, public protest and other incidents may occur in our facilities, regardless of the preventative measures we adopt. If such an incident or series of incidents occurs, shopping mall customers and visitors may choose to visit other shopping venues that they believe are safer, which may cause a reduction in the sales volume and operating income of our shopping malls.
  
 
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Argentine laws governing leases impose restrictions that limit our flexibility.
 
Argentine laws governing leases impose certain restrictions, including the following:
  
 a prohibition on including automatic price adjustment clauses based on inflation increases in leases; and
 
 the imposition of a two-year minimum lease term for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease requires a shorter term.
 
As a result, we are exposed to the risk of higher rates of inflation under our leases, and any exercise of rescission rights by our tenants could materially and adversely affect our business and results of operations. We cannot assure you that our tenants will not exercise such right, especially if rental rates stabilize or decline in the future or if economic conditions continue to deteriorate.
 
On October 1, 2014, the Argentine Congress adopted the amended Civil and Commercial Code which is in force since August 1, 2015 (the “Argentine Civil and Commercial Code”) which provides that leases must have a minimum term of two years and a maximum term of 20 years for residential properties and of 50 years for non-residential. The Argentine Civil and Commercial Code modifies the regime applicable to contractual provisions relating to foreign currency payment obligations by establishing that such obligations may be discharged in pesos. The prior legal framework required that debtors could only discharge their foreign currency payment obligations by paying in that currency. Although judicial decisions have held that this feature of the regulation can be set aside by the parties to anagreement, it is too early to determine if this is legally enforceable. Moreover, there are no judicial decisions on the scope of this amendment and, in particular, its impact on the ability of landlords and tenants to set aside the new provision and enforce such agreements before an Argentine court. In recent years certain rulings have been rendered affirming the obligation of a tenant to pay in foreign currency if the obligation was freely assumed.
 
We may be liable for certain defects in our buildings.
 
The Argentine Civil and Commercial Code imposes liability for real estate developers, builders, technical project managers and architects in case of hidden defects in a property for a period of three years from the date title on the property is tendered to the purchaser, even when those defects did not cause significant property damage. If any defect affects the structural soundness or make the property unfit for use, the liability term is ten years.
  
In our real estate developments, we usually act as developers and sellers while construction generally is carried out by third party contractors. Absent a specific claim, we cannot quantify the potential cost of any obligation that may arise as a result of a future claim, and we have not recorded provisions associated with them in our financial statements. If we were required to remedy any defects on completed works, our financial condition and results of operations could be adversely affected.
 
We could have losses if we have to resort to eviction proceedings in Argentina to collect unpaid rent because such proceedings are complex and time-consuming.
 
Although Argentine law permits filing of an executive proceeding to collect unpaid rent and a special proceeding to evict tenants, eviction proceedings in Argentina are complex and time-consuming. Historically, the heavy workloads of the courts and the numerous procedural steps required have generally delayed landlords’ efforts to evict tenants. Eviction proceedings generally take between six months and two years from the date of filing of the suit to the time of actual eviction.
 
Historically, we have sought to negotiate the termination of leases with defaulting tenants after the first few months of non-payment in an effort to avoid legal proceedings. Delinquency may increase significantly in the future, and such negotiations with tenants may not be as successful as they have been in the past. Moreover, new Argentine laws and regulations may forbid or restrict eviction, and in each such case they would likely have a material and adverse effect on our financial condition and results of operations.
 
 
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The recurrence of a credit crisis could have a negative impact on our major customers, which in turn could materially adversely affect our results of operations and liquidity.
 
The global credit crisis has a significant negative impact on businesses around the world. Similarly, Argentina is undergoing a credit crisis that could negatively impact our tenants’ ability to comply with their lease obligations. The impact of a future credit crisis on our major tenants cannot be predicted and may be quite severe. A disruption in the ability of our significant tenants to access liquidity could pose serious disruptions or an overall deterioration of their businesses, which could lead to a significant reduction in future orders of their products and their inability or failure to comply with their obligations, any of which could have a material adverse effect on our results of operations and liquidity. 
 
We are subject to risks inherent to the operation of office buildings that may affect our profitability.
 
Office buildings are exposed to various factors that may affect their development, administration and profitability, including the following factors:
  
 lower demand for office space;
 
 a deterioration in the financial condition of our tenants that causes defaults under leases due to lack of liquidity, access to capital or for other reasons; 
 
 difficulties or delays renewing leases or re-leasing space;
 
 decreases in rents as a result of oversupply, particularly offerings at newer or re-developed properties; 
 
 competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from our tenants;
 
 maintenance, repair and renovation costs incurred to maintain the competitiveness of our office buildings; 
 
 exchange controls that may interfere with their ability to pay rents that generally are pegged to the U.S. dollar;
 
     the consequences of a pandemic, epidemic or disease outbreak that would produce lower demand for offices spaces; and
 
 an increase in our operating costs, caused by inflation or by other factors could have a material adverse effect on us if our tenants are unable to pay higher rent as a result of increased expenses. 
 
Our investment in property development and management activities may be less profitable than we anticipate.
 
We are engaged in the development and construction of properties to be used for office, residential or commercial purposes, shopping malls and residential complexes, in general through third-party contractors. Risks associated with our development, reconversion and construction activities include the following, among others: 
 
 abandonment of development opportunities and renovation proposals;
 
 construction costs may exceed our estimates for reasons including higher interest rates or increases in the cost of materials and labor, making a project unprofitable; 
 
 occupancy rates and rents at newly completed properties may fluctuate depending on a number of factors, including market and economic conditions, resulting in lower than projected rental revenue and a corresponding lower return on our investment;
 
 pre-construction buyers may default on their purchase contracts or units in new buildings may remain unsold upon completion of construction;
  
 lack of affordable financing alternatives in the private and public debt markets;
 
 sale prices of residential units may be insufficient to cover development costs;
  
 
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 construction and lease commencements may not be completed on schedule, resulting in increased debt service expense and construction costs;
 
 failure or delays in obtaining necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, or building moratoria and anti-growth legislation;
  
 significant time lags between the commencement and completion of projects subjects us to greater risks due to fluctuation in the general economy;
 
 construction may be delayed because of a number of factors, including weather, strikes or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters, resulting in increased debt service expense and construction costs; 
 
 changes in our tenants’ demand for rental properties outside of Buenos Aires; and
 
 we may incur capital expenditures that require considerable time and effort and which may never be completed due to government restrictions or overall market conditions.
  
In addition, we may face claims for the enforcement of labor laws in Argentina. Many companies hire personnel from third-parties that provide outsourced services, and sign indemnity agreements if labor claims from employees of such third company arise. However, in recent years several courts have rejected the existence of independence in those labor relations and ruled that joint and several responsibility by both companies.
 
We are subject to risks associated with property development, such as cost overruns, design changes and timing delays arising from a lack of availability of materials and labor, weather conditions and other factors outside of our control, as well as financing costs that, may exceed original estimates, possibly making the associated investment unprofitable. Any delays or unanticipated expenses could adversely affect the investment returns from these development projects and harm our operating results.
  
Greater than expected increases in construction costs could adversely affect the profitability of our new developments.
 
Our businesses activities include real estate developments. One of the main risks related to this activity corresponds to potential increases in constructions costs, which may be driven by higher demand and new development projects in the shopping malls and buildings sectors. Increases higher than those included in the original budget may result in lower profitability than expected.
  
The increasingly competitive real estate sector in Argentina may adversely affect our ability to rent or sell office space and other real estate and may affect the sale and lease price of our premises.
 
Our real estate activities are highly concentrated in the Buenos Aires metropolitan area where the market is highly competitive due to a scarcity of properties in sought-after locations and an increasing number of local and international competitors. The Argentine real estate industry is highly competitive and fragmented and does not have high barriers to entry for new competitors. The main competitive factors in the real estate development business include availability and location of land, price, funding, design, quality, reputation and partnershipswith developers. A number of residential and commercial developers and real estate service companies compete in identifying land acquisition opportunities, attracting financial resources, and appealing to prospective purchasers and tenants. Other companies, including joint ventures of foreign and local companies, have become increasingly active in the market, further increasing competition. If one or more of our competitors is able to acquire and develop desirable properties, because it has access to greater financial resources or otherwise, if we are unable to respond to such pressures as promptly as our competitors, or competition increases, our business and financial condition could be adversely affected.
  
All of our shopping mall and commercial office properties are located in Argentina. There are other shopping malls and independent retail stores and residential properties that are within the geographic scope of each of our properties. The number of competing properties in a particular area could have a material adverse effect both on our ability to lease retail space in our shopping malls or sell units in our residential complexes and on the amount of rent or the sale price that we are able to charge. We cannot assure you that other shopping mall operators will not invest in Argentina in the near future. If additional competitors become active in the shopping mall segment, such competition could have a material adverse effect on our results of operations.
 
 
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Substantially all of our offices and other non-shopping mall rental properties are located in developed urban areas. There are many office buildings, shopping malls, retail and residential premises in the areas where our properties are located. This is a highly fragmented market, and the abundance of comparable properties in our vicinity may adversely affect our ability to rent or sell office space and other real estate and may affect the sale and lease price of our premises. In the future, both national and foreign companies may participate in Argentina’s real estate development market, competing with us for business opportunities.
  
Some potential losses are not covered by insurance and certain kinds of insurance coverage may become prohibitively expensive.
 
We currently carry insurance policies that cover potential risks such as civil liability, fire, lost profit and floods, including extended coverage and losses from leases on all of our properties. Although we believe the policy specifications and insured limits of these policies are customary, there are certain types of losses, such as lease and other contract claims, terrorism and acts of war that generally are not insured under the insurance policies offered in the Argentina. In the event of a loss that was not insured or a loss in excess of insured limits, we could lose all or a portion of the capital we have invested in a property, as well as its anticipated future revenue. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. We cannot assure you that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and the existence of mold, or, if offered, these types of insurance may become too expensive. 
 
We do not have life or disability insurance for our key employees. If any of our key employees were to die or become disabled, we could experience losses caused by a disruption in our operations which will not be covered by insurance, and this could have a material adverse effect on our financial condition and results of operations.
 
An uninsured loss or a loss that exceeds policy limits could subject us to lost capital or revenue on those properties.
 
The terms of our standard form property leases currently in effect, require tenants to indemnify and hold us harmless from liabilities resulting from injury to persons or property at or outside the premises, due to activities conducted on the properties, except for claims arising from negligence or intentional misconduct of our agents. Tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability insurance policies. We cannot provide assurance that our tenants will be able to properly maintain their insurance policies or have the ability to pay deductibles. If an uninsured loss occurs or a loss arises that exceeds the combined aggregate limits for the policies, or if a loss arises that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of our properties, which could have a material adverse effect on our business, financial condition and results of operations.
 
Demand for our premium properties, aimed at high-income consumers, may not be sufficient. 
 
We have focused on development projects that cater to affluent consumers and we have entered into property barter arrangements pursuant to which we contribute undeveloped land parcels to joint venture entities with developers who agree to deliver units at premium development locations in exchange for our land contribution. When the developers return these properties to us, demand for premium residential units could be significantly lower. In such case, we would be unable to sell these residential units at the estimated prices or time frame, which could have an adverse effect on our financial condition and results of operations.
 
Our level of debt may adversely affect our operations and our ability to pay our debt as it becomes due. 
 
We had, and expect to have, substantial liquidity and capital resource requirements to finance our business. As of June 30, 2020, our consolidated financial debt amounted to ARS 39,080 million, including accrued and unpaid interest and deferred financing costs. Although we generate sufficient funds from our operating cash flows to meet our debt service obligations and our ability to obtain new financing is adequate, considering the current limited availability of loan financing in Argentina, we cannot assure you that we will have sufficient cash flows and adequate financial structure in the future.  On September 15, 2020, Communication “A” 7,106 established that companies must refinance maturities of financial debt capital in the period from October 15, 2020 to March 31, 2021. In this sense, the Central Bank will give access to companies for less than 40% of maturities and companies must refinance the rest within at least two years. Fore more informarion see. “Item 10. Additional Information—D. Exchange Controls.”
 
 
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The success of our business and the feasibility of our transactions depend on the continuity of investments in the real estate markets and our ability to access capital and debt financing. In the long-term, lack of confidence in real estate investments and lack of access to credit for acquisitions could restrict growth. As part of our business strategy, we will strive to increase our real estate portfolio through strategic acquisitions of properties at favorable prices and properties with added value which we believe meet the requirements to increase the value of our properties.
 
We may not be able to generate sufficient cash flows from operations to satisfy our debt service requirements or to obtain future financing. If we cannot satisfy our debt service requirements or if we default on any financial or other covenants in our debt arrangements, the lenders and/or holders of our securities will be able to accelerate the maturity of such debt or default under other debt arrangements. Our ability to service debt obligations or to refinance them will depend upon our future financial and operatingperformance, which will, in part, be subject to factors beyond our control such as macroeconomic conditions and regulatory changes in Argentina. If we cannot obtain future financing, we may have to delay or abandon some or all of our planned capital expenditures, which could adversely affect our ability to generate cash flows and repay our obligations as they become due.
  
The shift by consumers to purchasing goods over the internet, where barriers to entry are low, may negatively affect sales at our shopping malls.
 
In recent years, internet retail sales have grown significantly in Argentina, even though the market share of such sales is still modest. The Internet enables manufacturers and retailers to sell directly to consumers, diminishing the importance of traditional distribution channels such as retail stores and shopping malls. We believe that our target consumers are increasingly using the Internet, from home, work or elsewhere, to shop electronically for retail goods, and this trend is likely to continue. Retailers at our properties face increasing competition from online sales and this could cause the termination or non-renewal of their leases or a reduction in their gross sales, affecting our percentage rent based revenue. If e commerce and retail sales through the Internet continue to grow, retailers’ and consumers’ reliance on our shopping malls could be materially diminished, having a material adverse effect on our financial condition, results of operations and business prospects. For more information with respect to the COVID-19 pandemic and its impact on our business, see “Item 5.A. Operating Results – The Ongoing COVID-19 Pandemic.”
  
Our business is subject to extensive regulation and additional regulations may be imposed in the future.
 
Our activities are subject to Argentine federal, state and municipal laws, and to regulations, authorizations and licenses required with respect to construction, zoning, use of the soil, environmental protection and historical landmark preservation, consumer protection, antitrust and other requirements, all of which affect our ability to acquire land, buildings and shopping malls, develop and build projects and negotiate with customers. In addition, companies in this industry are subject to increasing tax rates, the introduction of new taxes and changes in the taxation regime. We are required to obtain permits from different government agencies in order to carry out our projects. Maintaining our licenses and authorizations can be costly. If we fail to comply with such laws, regulations, licenses and authorizations, we may face fines, project shutdowns, and cancellation of licenses and revocation of authorizations.
  
In addition, public agencies may issue new and stricter standards, or enforce or construe existing laws and regulations in a more restrictive manner, which may force us to incur expenditures in order to comply. Development activities are also subject to risks of potential delays in or an inability to obtain all necessary zoning, environmental, land-use, development, building, occupancy and other permits and authorizations. Any such delays or failures to obtain such government approvals may have an adverse effect on our business.
 
In the past, the Argentine government regulations regarding leases in response to housing shortages, high rates of inflation and difficulties in accessing credit. Such regulations limited or prohibited increases on rental prices and prohibited eviction of tenants, even for failure to pay rent. Most of our leases provide that tenants pay all costs and taxes related to their respective leased areas. In the event of a significant increase in such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby negatively affecting our rental income. We cannot assure you that the Argentine government will not impose similar or other regulations in the future. Changes in existing laws or the enactment of new laws governing the ownership, operation or leasing of shopping malls and office properties in Argentina could negatively affect the real estate and the rental market and materially and adversely affect our operations and financial condition.
  
 
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We are dependent on our chairman, Eduardo Sergio Elsztain, our board of directors and our controlling shareholder IRSA.
 
Our success, to a significant extent, depends on the continued employment of Eduardo Sergio Elsztain and certain other members of our board of directors and senior management, who have significant expertise and knowledge of our business and industry. The loss or interruption of their services for any reason could have a material adverse effect on our business and results of operations. Our future success also depends in part upon our ability to attract and retain other highly qualified personnel. We cannot assure you that we will be successful in hiring or retaining qualified personnel, or that any of our personnel will remain employed by us.
  
Further, we believe that our success also depends, to a significant extent, on the continued success of IRSA which owns approximately 80.65% of our outstanding shares as of June 30, 2020. IRSA is engaged in a range of real estate, investment and other business activities, many of which are different from our business, including IRSA’s significant investments in Banco Hipotecario, an Argentine bank, and IDB Development Corporation, a large conglomerate in Israel engaged in a range of businesses including real estate, telecommunications, supermarkets, agribusiness and insurance, which recently was forced into bankruptcy proceedings in Israel by its creditors. As this case is still ongoing, we cannot assure what impact this situation will have on IRSA or its controlling shareholder, CRESUD. As a result, IRSA is exposed to certain important risks, as described in its audited consolidated financial statements and its filings with the SEC, which under certain circumstances could have a material adverse effect on its financial condition, results of operations and business prospects. We cannot assure you that IRSA will not be adversely affected by the risks that it faces (including those relating to its investments in Banco Hipotecario or IDB Development Corporation), and we believe that if IRSA were to be so affected, the market perception of the group of companies controlled by Eduardo Sergio Elsztain, including us, could be adversely affected as well.
 
Labor relations may negatively impact us.
  
As of June 30, 2020, 46.6% of our workforce was represented by unions under collective bargaining agreements. Although we currently enjoy good relations with our employees and their unions, we cannot assure you that labor relations will continue to be positive or that deterioration in labor relations will not materially and adversely affect us.
 
Our results of operations include unrealized revaluation adjustments on investment properties, which may fluctuate significantly over financial periods and may materially and adversely affect our business, results of operations and financial condition.
  
During the year enden June 30, 2020, we had fair value gains on investment properties of ARS 25,126 million. Although the upward or downward revaluation adjustments reflect unrealized capital gains or losses on our investment properties during the relevant periods, the adjustments do not reflect the actual cash flow or profit generated from the sales or rental of our investment properties. Unless such investment properties are disposed of at similarly revalued amounts, we will not realize the actual cash flow. The amount of revaluation adjustments has been, and will continue to be, significantly affected by the prevailing property markets and will be subject to market fluctuations in those markets.
 
We cannot guarantee whether changes in market conditions will increase, maintain or decrease the historical average fair value gains on our investment properties or at all. In addition, the fair value of our investment properties may materially differ from the amount we receive from any actual sale of an investment property. If there is any material downward adjustment in the revaluation of our investment properties in the future or if our investment properties are disposed of at significantly lower prices than their valuation or appraised value, our business, results of operations and financial condition may be materially and adversely affected.
  
 
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Due to the currency mismatches between our assets and liabilities, we have high currency exposure.
  
As of June 30, 2020, the majority of our liabilities, such as our Series 2 and Series 4 Notes (which was canceled on September 14, 2020), were denominated in U.S. dollars while our revenues are mainly denominated in pesos. This currency gap and restrictions to access to foreingn exchange markets to acquire the required U.S. dollars to pay our U.S. dollar denominated debt, exposes us to a risk of volatility, which circumstances may adversely affect our financial results if the U.S. dollar appreciates against the peso and may affected our ability to our U.S. dollar denominated debt. Any depreciation of the peso against the U.S. dollar increases the nominal amount of our debt in pesos, which further adversely affects our results of operation and financial condition and may increase the collection risk of our leases and other receivables from our tenants and mortgagees, most of which generate peso denominated revenues.
 
We issue debt in the local and international capital markets as one of our main sources of funding and our capacity to successfully access the local and international markets on favorable terms affects our cost of funding.
  
Our ability to successfully access the local and international capital markets on acceptable terms depends largely on capital markets conditions prevailing in Argentina and internationally. We have no control over capital markets conditions, which can be volatile and unpredictable. If we are unable to issue debt in the local and/or international capital markets and on terms acceptable to us, whether as a result of regulations and foreingn exchange restrictions, a deterioration in capital markets conditions or otherwise, we would likely be compelled to seek alternatives for funding, which may include short-term or more expensive funding sources. If this was to happen, we may be unable to fund our liquidity needs at competitive costs and our business results of operations and financial condition may be materially and adversely affected.
 
Property ownership through joint ventures or investees may limit our ability to act exclusively in our interest.
  
We develop and acquire properties in joint ventures with other persons or entities or make minority investments in entities when we believe circumstances warrant the use of such structures. For example, we currently own 50% of Quality Invest S.A. (“Quality Invest”), a joint venture that holds our investment in the Nobleza Piccardo plant. We could engage in a dispute with one or more of our joint venture partners or controlling shareholder in an investment that might affect our ability to operate a jointly-owned property. Moreover, our joint venture partners or controlling shareholder in an investment may, at any time, have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to the timing and terms of any sale or refinancing of a property. For example, the approval of certain of our investors is required with respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties. In some instances, our joint venture partners or controlling shareholder in an investment may have competing interests in their markets that could create conflicts of interest. If the objectives of our joint venture partners or controlling shareholder in an investment are inconsistent with our own objectives, we will not be able to act exclusively in our interests.
 
If one or more of the investors in any of our jointly owned properties were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, there could be an adverse effect on the relevant property or properties and in turn, on our financial performance. Should a joint venture partner or controlling shareholder in an investment declare bankruptcy, we could be liable for our partner’s common share of joint venture liabilities or liabilities of the investment vehicle.
  
Risks relating to the ADSs and common shares
 
Common Shares eligible for sale could adversely affect the price of our common shares and the ADSs.
  
The market prices of our common shares and the ADSs could decline as a result of sales by our existing shareholders of common shares or the ADSs in the market, or the perception that these sales could occur. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
 
IRSA as of June 30, 2020, owned 80.65% of our common shares (or approximately 101,624,666 common shares, which may be exchanged for an aggregate of 25,406,166 ADSs). Sales of a large number of our common shares and/or ADSs would likely have an adverse effect on the market price of our common shares and the ADS.
  
 
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If we issue additional equity securities in the future, you may suffer dilution, and trading prices for our common shares and the ADSs may decline. 
 
We may issue additional common shares to finance future acquisitions or new projects or for other general corporate purposes, although there is no present intention to do so. Any such issuance could result in a dilution of your ownership stake and/or the perception of any such issuances could have an adverse impact on the market price of the ADSs.
 
We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States.
  
There is less publicly available information about the issuers of securities listed on the Argentine stock exchanges than information publicly available about domestic issuers of listed securities in the United States and certain other countries. Although the ADSs are listed on the NASDAQ Global Market, as a foreign private issuer we are able to rely on home country governance requirements rather than relying on the NASDAQ corporate governance requirements. See “Item 16G. Corporate Governance—Compliance with NASDAQ listing Standards on Corporate Governance.” Additionally, as a foreign private issuer, we are exempt from certain rules under the Securities Exchange Act of 1934, as amended, or the “Exchange Act” including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their Annual Report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their Annual Report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders companies that are not foreign private issuers.
 
Investors may not be able to effect service of process within the U.S., limiting their recovery of any foreign judgment.
  
We are a publicly held corporation (sociedad anónima) organized under the laws of Argentina. Most of our directors and our senior managers, and most of our assets are located in Argentina. As a result, it may not be possible for investors to effect service of process within the United States upon us or such persons or to enforce against us or them in United States courts judgments obtained in such courts predicated upon the civil liability provisions of the United States federal securities laws. We have been advised by our Argentine counsel, Zang, Bergel & Viñes, that there is doubt whether the Argentine courts will enforce, to the same extent and in as timely a manner as a U.S. or foreign court, an action predicated solely upon the civil liability provisions of the United States federal securities laws or other foreign regulations brought against such persons or against us.
 
If we are considered to be a passive foreign investment company for United States federal income tax purposes, U.S. holders of our common shares or the ADSs would suffer negative consequences.
  
Based on the past and projected composition of our income and assets and the valuation of our assets, including goodwill, we do not believe we were a passive foreign investment company, or “PFIC,” for United States federal income tax purposes for the taxable year ending June 30, 2020, and do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to different interpretation. If we become a PFIC, U.S. Holders (as defined in “Item 10. Additional Information—Taxation—United States taxation”) of our common shares or the ADSs will be subject to certain United States federal income tax rules that have negative consequences for U.S. Holders such as additional tax and an interest charge upon certain distributions by us or upon a sale or other disposition of our common shares or the ADSs at a gain, as well as reporting requirements. Please see “Item 10. Additional Information—Taxation—United States taxation—Passive foreign investment company” for a more detailed discussion of the consequences if we are deemed a PFIC. You should consult your own tax advisors regarding the application of the PFIC rules to your particular circumstances.
 
 
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Changes in Argentine tax laws may affect the tax treatment of our common shares or the ADSs.
  
Law No. 26,893, which amended Law No. 20,628 (the “Income Tax Law”), was enacted on September 12, 2013, and published in the Official Gazette on September 23, 2013. According to the amendments, the distribution of dividends by an Argentine corporation was subject to income tax at a rate of 10.0%, unless such dividends were distributed to Argentine corporate entities (the “Dividend Tax”).
 
The Dividend Tax was repealed by Law No. 27,260, published in the Official Gazette on July 22, 2016, and consequently no income tax withholding was applicable on the distribution of dividends in respect of both Argentine and non-Argentine resident shareholders, except when dividends distributed were greater than the income determined according to the application of the IncomeTax Law, accumulated at the fiscal year immediately preceding the year in which the distribution is made. In such case, the excess was subject to a rate of 35%, for both Argentine and non-Argentine resident shareholders. This treatment still applies to dividends to be distributed at any time out of retained earnings accumulated until the end of the last fiscal year starting before January 1, 2018.
  
However, pursuant to Law No. 27,430, dividends to be distributed out of earnings accrued in fiscal years starting on or after January 1, 2018, and other profits paid in cash or in kind —except for stock dividends or quota dividends—by companies and other entities incorporated in Argentina referred to in the Income Tax Law, to Argentine resident individuals, resident undivided estates and foreign beneficiaries will be subject to income tax at a 7% rate on profits accrued during fiscal years starting on January 1, 2018 to December 31, 2019, and at a 13% rate on profits accrued in fiscal years starting on January 1, 2020 and onwards. If dividends are distributed to Argentine corporate taxpayers (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of foreign entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina), no dividend tax would apply.
 
Nevertheless, the initial date for the application of the tax rates mentioned above was modified by Law No. 27,541, published in the Official Gazette on December 23, 2019. According to said law and recent interpretations made by the Federal Tax Department, the 7% tax rate is currently applicable for fiscal years starting on, or prior to December 31, 2020 and the 13% tax rate is applicable for fiscal years starting as from January 1, 2021.
 
In addition, capital gains originated from the disposal of shares and other securities, including securities representing shares and deposit certificates, are subject to capital gains tax. Law No. 27,430 effective as of January 1, 2018, provides that capital gains obtained by Argentine resident individuals from the disposal of shares and ADSs are exempt from capital gains tax in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares are traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, and/or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV.
  
Such law also provides that the capital gains tax applicable to non-residents for transactions entered into until December 30, 2017 is still due, although no taxes will be claimed to non-residents with respect to past sales of Argentine shares or other securities traded in the CNV’s authorized markets (such as ADSs) as long as the cause of the non-payment was the absence of regulations stating the mechanism of tax collection at the time the transaction was closed. General Resolution (AFIP) No. 4,227, which came into effect on April 26, 2018, stipulates the procedures through which the income tax should be paid to the AFIP. The payment of capital gains tax applicable for transactions entered into before December 30, 2017 was due on June 11, 2018.
 
  
 
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In addition, Decree No. 824/2019, published in the Official Gazette on December 6, 2019 and which introduced the new consolidated text of the Income Tax Law, maintains the 15% capital gains tax (calculated on the actual net gain or a presumed net gain equal to 90% of the sale price) on the disposal of shares or securities by non-residents. However, non-residents are exempt from the capital gains tax on gains obtained from the sale of (a) Argentine shares in the following cases: (i) when the shares are placed through a public offering authorized by the CNV, (ii) when the shares were traded in stock markets authorized by the CNV, under segments that ensure priority of price-time and interference of offers, and/or (iii) when the sale, exchange or other disposition of shares is made through an initial public offering and/or exchange of shares authorized by the CNV; and (b) depositary shares or depositary receipts issued abroad, when the underlying securities are shares (i) issued by Argentine companies, and (ii) with authorization of public offering. The exemptions will only apply to the extent the foreign beneficiaries reside in, and the funds used for the investment proceed from, jurisdictions not considered as not cooperating for purposes of fiscal transparency.
  
In case the exemption is not applicable and, to the extent foreign beneficiaries neither reside in, nor the funds arise from, jurisdictions considered as not cooperating for purposes of fiscal transparency, the gain realized from the disposition of shares would be subject to Argentine income tax at a 13.5% effective rate on the gross price. In case such foreign beneficiaries reside in, or the funds arise from, jurisdictions considered as not cooperating for purposes of fiscal transparency, a 31.5% effective rate on the gross price should apply.
 
Therefore, holders of our common shares, including in the form of ADSs, are encouraged to consult their tax advisors as to the particular Argentine income tax consequences under their specific facts.
  
Holders of the ADSs may be unable to exercise voting rights with respect to the common shares underlying their ADSs.
 
As a holder of ADS, we will not treat you as one of our shareholders and you will not have shareholder rights. The depositary will be the holder of the common shares underlying your ADSs and holders may exercise voting rights with respect to the common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our bylaws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying common shares. However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our common shares will receive notice of shareholders’ meetings through publication of a notice in the CNV’s website, an Official Gazette in Argentina, an Argentine newspaper of general circulation and the bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Instead, in accordance with the deposit agreement, we will provide the notice to the ADS Depositary. If we ask the ADS Depositary to do so, the ADS Depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the ADS Depositary as to voting the common shares represented by their ADSs. Under the deposit agreement, the ADS Depositary is not required to carry out any voting instructions unless it receives a legal opinion from us that the matters to be voted would not violate our bylaws or Argentine law. We are not required to instruct our legal counsel to give that opinion. Due to these procedural steps involving the ADS Depositary, the process for exercising voting rights may take longer for ADS holders than for holders of common shares and common shares represented by ADSs may not be voted as you desire.
  
Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions.
 
Our corporate affairs are governed by our bylaws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina. In addition, your rights or the rights of holders of our common shares to protect your or their interests in connection with actions by our board of directors may be fewer and less well defined under Argentine corporate law than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions. In addition, rules and policies against self dealing and regarding the preservation of shareholder interests may be less well defined and enforced in Argentina than in the United States, putting holders of our common shares and ADSs at a potential disadvantage.
  
 
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Restrictions on the movement of capital out of Argentina may impair your ability to receive dividends and distributions on, and the proceeds of any sale of, the common shares underlying the ADSs. 
 
The Argentine government imposed restrictions on the conversion of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Argentina. Argentine law currently permits the government to impose these kind of restrictions temporarily in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance. We cannot assure you that ADS Depositary for the ADSs may hold the pesos it cannot convert for the account of the ADS holders who have not been paid. No assurance can be given that payments to non-resident investors will not suffered delays or be subject to any additional restrictions, under the current foreign exchange market regulations or future regulations that may be enacted. In this regard, we suggest consulting with the corresponding custodian banks about the exchange regulations applicable. See “Item 10. Additional Information—D. Exchange Controls.”
 
The protections afforded to minority shareholders in Argentina are different from and more limited than those in the United States and may be more difficult to enforce. 
 
Under Argentine law, the protections afforded to minority shareholders are different from, and much more limited than, those in the United States and some other Latin American countries. For example, the legal framework with respect to shareholder disputes, such as derivative lawsuits and class actions, is less developed under Argentine law than under U.S. law as a result of Argentina’s short history with these types of claims and few successful cases. In addition, there are different procedural requirements for bringing these types of shareholder lawsuits. As a result, it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholder than it would be for shareholders of a U.S. company.
 
We may not pay any dividends. 
 
In accordance with Argentine corporate law we may pay dividends to shareholders out of net and realized profits, if any, as set forth in our Audited Consolidated Financial Statements prepared in accordance with IFRS. The approval, amount and payment of dividends are subject to the approval by our shareholders at our annual ordinary shareholders meeting. The approval of dividends requires the affirmative vote of a majority of the shareholders entitled to vote present at the meeting. As a result, we cannot assure you that we will be able to generate enough net and realized profits so as to pay dividends or that our shareholders will decide that dividends will be paid.
 
Our ability to pay dividends is limited by law and by certain agreements. 
 
In accordance with Argentine corporate law, we may pay dividends in pesos out of retained earnings, if any, to the extent set forth in our Audited Consolidated Financial Statements prepared in accordance with IFRS. Our shareholders’ ability to receive cash dividends may be limited by the ability of the ADS Depositary to convert cash dividends paid in pesos into U.S. dollars. Under the terms of our deposit agreement with the depositary for the ADSs, to the extent that the depositary can in its judgment convert pesos (or any other foreign currency) into U.S. dollars on a reasonable basis and transfer the resulting U.S. dollars to the United States, the depositary will promptly as practicable convert or cause to be converted all cash dividends received by it on the deposited securities into U.S. dollars. If in thejudgment of the depositary this conversion is not possible on a reasonable basis (including as a result of applicable Argentine laws, regulations and approval requirements), the depositary may distribute the foreign currency received by it or in its discretion hold such currency uninvested for the respective accounts of the owners entitled to receive the same. As a result, if the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the dividend distribution.
 

 
 
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You might be unable to exercise preemptive or accretion rights with respect to the common shares underlying your ADSs.
 
Under Argentine corporate law, if we issue new common shares as part of a capital increase, our shareholders will generally have the right to subscribe for a proportional number of common shares of the class held by them to maintain their existing ownership percentage, which is known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed common shares of either the class held by them or other classes which remain unsubscribed at the end of a preemptive rights offering, on a pro rata basis, which is known as accretion rights. Under the deposit agreement, the ADS Depositary will not exercise rights on your behalf or make rights available to you unless we instruct it to do so, and we are not required to give that instruction. In addition, you may not be able to exercise the preemptive or accretion rights relating to the common shares underlying your ADSs unless a registration statement under the US Securities Act of 1933 is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the common shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, you may receive only the net proceeds from the sale of your preemptive rights by the ADS Depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse. As a result, US holders of common shares or ADSs may suffer dilution of their interest in our company upon future capital increases.
 
Our shareholders may be subject to liability for certain votes of their securities.
 
Our shareholders are not liable for our obligations. Instead, shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and do not abstain from voting may be held liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine Companies Law or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.
 
ITEM 4. Information on the Company
 
A. History and Development of the Company
 
General Information 
 
Our legal name is IRSA Propiedades Comerciales S.A. Formerly, our legal name was Alto Palermo S.A., which was modified by vote of the special shareholders’ meeting (asamblea extraordinaria) held on February 5, 2015. We were organized and incorporated on August 29, 1889, under Argentine law as a stock corporation (sociedad anónima), and were registered with the Public Registry of Commerce of the City of Buenos Aires (Inspección General de Justicia or “IGJ”) on February 27, 1976 under number 323, on page 6, book 85 of the stock corporations volume. Pursuant to our bylaws, our term of duration expires on August 28, 2087.
  
Our common shares are listed and traded on the Bolsas y Mercados Argentinos (“BYMA”) and our ADSs representing our common shares are listed on the NASDAQ Global Markets (“NASDAQ”), both under the ticker “IRCP”. Our headquarters are located at Moreno 877, Ciudad Autónoma de Buenos Aires (C1091AAQ), Argentina. Our telephone is +54 (11) 4344-4600. Our website is www.irsacp.com.ar. Information contained in or accessible through our website is not a part of this Annual Report.
 
All references in this Annual Report to this or other internet sites are inactive textual references to these URLs, or “uniform resource locators” and are for your information reference only. We assume no responsibility for the information contained on these sites. Our depositary agent for the ADSs in the United States is The Bank of New York Mellon whose address is 240 Greenwich Street, New York, N.Y. 10286, and whose telephone numbers are +1-888-BNY-ADRS (+1-888-269-2377) for U.S. calls and +1-201-680-6825 for calls outside U.S.
  
History
 
We were organized in 1889 under the name Sociedad Anónima Mercado de Abasto Proveedor (SAMAP), and, until 1984, we owned and operated the main fresh products market in the City of Buenos Aires. Our main asset during that period was the historic Mercado de Abasto building which served as the location of the market from 1889 to 1984. In July 1994, IRSA acquired a controlling interest in us and, subsequently, we concentrated on real estate operations. In April 1997, we merged with fourteen wholly owned subsidiaries, including Alto Palermo S.A., and subsequently changed our name to Alto Palermo S.A. Since then, we have continued to grow through a series of acquisitions and the development of our businesses.   
  
 
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Since 1996, we have expanded our real estate activities in the shopping mall segment, through the acquisition and development of the following shopping malls: Paseo Alcorta, Alto Palermo Shopping, Alto Avellaneda, Alto NOA, Abasto Shopping, Patio Bullrich, Mendoza Plaza Shopping, Alto Rosario, Córdoba Shopping Villa Cabrera, Dot Baires, Soleil Premium Outlet, La Ribera Shopping, Patio Olmos Shopping, Distrito Arcos and Alto Comahue Shopping.
 
On December 22, 2014, we acquired from IRSA, our controlling shareholder, 83,789 square meters of premium office space including the República Building, the Bouchard 710 building, the Della Paolera 265 building, the Intercontinental Plaza Building, the Suipacha 652 building and the land reserve “Intercontinental II” (the “Acquired Properties”) with the potential to develop up to 19,600 square meters, each located in the City of Buenos Aires. The acquisition was carried out as part of our strategy to expand our business of developing and operating commercial properties in Argentina and to create a unique and unified portfolio of rental properties consisting of the best office buildings in the City of Buenos Aires and the best shopping malls in Argentina. The total value of the transaction was USD308.0 million, based on third party appraisals.
  
In 2007, through Panamerican Mall S.A. (“PAMSA”), we started the construction of one of our most important projects called “Polo Dot”, a Shopping Mall, an Office Building and different plots of land to develop three additional office buildings (one of them may include a hotel). This project is located in Saavedra neighborhood, at the intersection of Avenida General Paz and the Panamerican Highway. First, the Shopping Mall Dot Baires was developed and opened on May, 2009 and then the Office Building was opened in July 2010, which meant our landing on the growing corridor of rental offices located in the North Zone of Buenos Aires. In addition, on June 5, 2017, we reported the acquisition of the historic Philips Building, adjacent to the Dot Baires Shopping Mall. Likewise, through PAMSA, we developed the Zetta building, A+ and potentially LEED building, which was inaugurated on May, 2019, it has 11 office floors with a profitable area of 32,173 square meters, fully leased at the opening date.
 
As of June 30, 2020, our main shareholder is IRSA which owns 80.65% of our share capital outstanding.
  
As of June 30, 2020, we own 15 shopping malls in Argentina, 14 of which are operated by us, totaling 333,062 square meters and 115,640 square meters of gross leasable in eight premium office buildings of rental office property.
 
Significant acquisitions, dispositions and development of businesses
  
The following is a description of the most significant events in terms of acquisitions, dispositions, real estate barter transactions and other transactions which occurred during the years ended June 30, 2020, 2019 and 2018:
 
Fiscal year ended June 30, 2020
  
Acquisitions
 
Barter transaction airspace Coto 
 
On October 25, 2019, in a barter transaction we transferred the rights to construct an apartment building (“Tower 1”) to an unrelated third party on the airspace of the Coto Supermarket located in the Abasto neighborhood of the Autonomous City from Buenos Aires. Tower 1 will have 22 floors of 1 to 3 rooms apartments totaling an area of 8,400 square meters. The amount of the operation was USD 4.5 million: USD 1 million payable in cash and remaining balance by delivering at least 35 apartments units, representing the equivalent of 24.20% of the total square meters of the development, with a minimum of 1,982 square meters to be guaranteed.
 
In a 30 months period since the signature, when certain conditions have been met, we will be required to transfer to the same unrelated third party the rights to build a second apartment building.
 
As of June 30, 2020, the results of this transaction amounts to ARS 288 million that are included in the line “Income from sales, rentals and services” and “Operating costs” of the Statements of Comprehensive Income.
 
 
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Barter transaction Plot 1 - Caballito Tower 
 
On December 23, 2019, we transferred in a barter transaction title to Plot 1 of the parcel located at Av. Avellaneda and Olegario Andrade 367, in the Caballito neighborhood of the Autonomous City of Buenos Aires, to an unrelated third party.
 
Plot 1 has an estimated surface area of 3,221 square meters on which a 10-story apartment building will be developed for a total of 11,400 square meters, a commercial ground floor for 1,216 square meters and a basement of 138 parking spaces (“Building 1”). 
 
The amount of the operation was USD 5.5 million to be paid in future functional units of Building 1, which represent the equivalent of 23.53% of the own square meters, with a minimum of 2,735 square meters consisting of 1,216 square meters of commercial space, 1,520 square meters of residential space and a certain number of parking spaces that represent 22.50% of the square meters to be developed for parking and not less than 31 spaces. The consideration is granted by a mortgage on Plot 1 and Building 1. The buyer has an option to acquire the adjoining Plot 2 of the same property until August 31, 2020 and Plots 3 and 4 until March 31, 2021, subject to certain suspensive conditions. As of June 30, 2020 this transaction has not had impact on the Statements of Comprehensive Income of the Company.
 
On July 20, 2020, we have been notified of the filing of a protection action (amparo) that is processed before the Administrative and Tax Litigation Jurisdiction of the City of Buenos Aires, where the plaintiff has requested the nullity of: 1) Administrative act that grants the certificate of environmental aptitude and 2) Administrative act that registered the plans. On October 1, 2020, the Chamber confirmed the precautionary measure. The Government of the City of Buenos Aires appealed the measure by filing a Constitutional Challenge. For more information, see “ITEM 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal or Arbitration Proceedings—Caballito.”
 
TGLT – Recapitalization agreement
 
On August 8, 2019, we entered into certain arrangements with TGLT S.A. (“TGLT”) providing for collaboration in TGLT’s financial restructuring and recapitalization. We participated in the recapitalization agreement whereby TGLT committed: (i) to make a public offer to subscribe Class A preferred shares at a subscription price of USD 1.00 per TGLT share; (ii) to make a public offering of new Class B preferred shares which may be subscribed by: (a) the exchange for ordinary shares of TGLT, at an exchange ratio of one Class B preferred share for every 6.94 ordinary shares of the Company and / or (b) the exchange for convertible notes, at an exchange ratio of a Class B preferred share for each USD 1.00 of convertible notes (including accumulated and unpaid interests under the existing convertible notes); and (iii) to grant an option to subscribe new Class C preferred shares in a public offer for cash to be carried out if: (a) the public offer of Class A and Class B preferred shares are consummated and (b) a minimum number of option holders have exercised that option at a subscription price per Class C preferred share of USD 1.00 (or its equivalent in pesos).
 
In addition, as a holder of convertible notes of TGLT, we entered into an agreement, that defers interest payments due on the convertible notes as of February 15, 2019 and August 15, 2019 until November 8, 2019 and an option agreement by which Class C preferred shares may be subscribed.
 
Finally, in support of the recapitalization plan, IRSA CP signed with TGLT a subscription commitment for Class A preferred shares under Class A Public Offer to make a contribution in kind of shares of La Maltería S.A., 100% of its ownership, for an amount up to USD 24 million and promised to exchange its convertible negotiable obligations into preferred Class B shares.
 
In turn, on November 22, 2019, TGLT held a bondholders of convertible negotiable obligations’s meeting in order to consider the modification of different clauses of the indenture in force at that date, and in line with what was agreed in the recapitalization agreement, IRSA CP voted in favor of the modifications.
 
Under the agreements described above, the successful consummation of the offer by TGLT, and having reached the thresholds of consent of the holders of convertible notes of TGLT, on December 11, 2019, the Company concluded the established process in the recapitalization agreement and related documents through the subscription of preferred Class A shares, integrating them in kind through the contribution of the shares of La Maltería S.A., 100% of their ownership and, likewise, proceeded to the exchange of the convertible note - including deferred interest and accrued interest from August 15, 2019 to December 11, 2019 - in preferred Class B shares.
 
During the year ended June 30, 2020, preferred shares were converted into ordinary shares, giving IRSA CP significant influence over TGLT, which became an associate as from that date. 
 
 
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Dispositions
 
Sale of Catalinas Tower building
 
On June 9, 2020, IRSA CP signed with an unrelated third party the cession and transfer of the right to deed with a delivery of possession of two medium-height floors of the tower under construction “200 Della Paolera” located in Catalinas District in the Autonomous City of Buenos Aires for a total area of approximately 2,430 square meters and 16 parking lots located in the building.
 
The price of the transaction was ARS 1,165 million (USD 16.9 million).
 
Fore more information about dispositions please see the “Recent Developments” section.
 
Fiscal year ended as of June 30, 2019
 
Acquisitions
 
Acquisition of Catalinas
 
Our board of directors approved the acquisition from its parent company IRSA of 14,213 square meters of gross leasable area of the building under development called “Catalinas” located in the City of Buenos Aires.
 
The building consists of 35,208 square meters of gross leasable area in 30 office floors and 316 parking lots in four basements and is currently under construction. The purchase price was fixed at USD 60.3 million. Previously, we adquired 16,194 square meter from IRSA. Accordingly, after completing this transaction, we had adquired a total of 30,407 square meters of gross leasable area, equivalent to a total 86.37% of the building's gross leaseble area.
 
Constitution of La Malteria S.A.
 
On July 11, 2018, "La Malteria S.A.” was formed, with a capital contribution of ARS 0.1 millon represented by 100,000 common shares. IRSA CP subscribed 95,000 shares of share capital, while the remaining 5,000 were subscribed by Fibesa S.A.
 
Constitution of Pareto S.A.
 
On October 8, 2018, Pareto S.A. was formed, and its purpose is to design, program and develop software and mobile and web applications.Pareto started with a capital of 100,000 common shares of which 65% were owned by IRSA CP.
 
On December 17, 2018, a capital contribution of 16,500 shares was approved and subscribed in full by us with a paid in capital of ARS 5,045.75 per share, amounting ARS 101.6 million. As a result of this capital increase our stake in Pareto increased to 69.96%. 
 
On the same date, Espacio Digital S.A (EDSA), issued a transfer of assets offer to Pareto S.A which includes among other things the source code of the application, clients portfolio and brand for total consideration of USD 0.6 million.
 
Dispositions 
 
Sale of Tarshop
 
On February 14, 2019, we sold our entire shareholding in Tarshop S.A. to Banco Hipotecario S.A. The parties agreed that the seller will be entitled to a variable remuneration, if the buyer, in a period not exceeding two years, sells all or part of the participation to a third party. 
 
The loss recorded as a result of this transaction was ARS 177.1 million.
 

 
 
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Fiscal year ended June 30, 2018  
 
Acquisitions 
 
Acquisition of La Arena S.A.
  
On February 20, 2018, IRSA Propiedades Comerciales, through its subsidiary Ogden Argentina S.A. ("OASA"), which we indirectly control through Entertainment Holdings S.A., acquired a 60% equity interest in La Arena S.A., which developed and operates the stadium known as “DIRECTV ARENA”, located in Tortuguitas, Province of Buenos Aires. The price for the acquisition of the equity stake was USD 4.2 million, of which USD1.9 million was outstanding as of the date of this Annual Report.
 
Acquisition of plot of land La Plata
  
On March 22, 2018, we acquired, directly and indirectly, 100% of a plot of land of 78,614 square meters located in the city of La Plata, Province of Buenos Aires. The price for the acquisition was USD 7.5 million, which has been fully paid.
 
The transaction was completed through the purchase of 100% of the shares of common stock of Centro de Entretenimientos La Plata S.A. (“CELAP”), which owns 61.85% of the property, and the direct purchase of the remaining 38.15% of shares of common stock from union-related third parties. The purpose of this acquisition is the future development of a mixed-use project, given that the property has characteristics for a commercial development in a high potential district.
 
Acquisition of plot of land in Mendoza
 
On March 14, 2018, we acquired a parcel of 3,641 square meters adjacent to our Mendoza Shopping mall, for USD 1.2 million, which has been fully paid.
 
Dispositions
 
Sale of units in Intercontinental Building
 
We sold 851.8 square meters corresponding to one floor of office space and eight parking spaces in the Intercontinental Plaza building. The consideration was USD 3 million, which was fully paid by the purchaser.
 
Capital Expenditures 
 
Fiscal year 2020
 
During the fiscal year ended June 30, 2020, we incurred capital expenditures of ARS 2,621.8 million, of which: (i) ARS 2,451.3 million was used in the acquisition of investment properties, mainly, in the offices segment; and (ii) ARS 159.2 million was related to the acquisition of property, plant and equipment; and (iii) ARS 11.3 million was related to advanced payments.
 
Fiscal year 2019 
 
During the fiscal year ended June 30, 2019, we incurred capital expenditures of ARS 6,637.9 million, of which: (i) ARS 2,506.0 million was used in the acquisition of investment properties, mainly, in the offices segment; and (ii) ARS 89.4 million was related to the acquisition of property, plant and equipment; and (iii) ARS 4,042.5 million was related to advanced payments mainly by the acquisition of new units on the Catalinas building.
 
Fiscal year 2018
 
During the fiscal year ended June 30, 2018, we incurred capital expenditures of ARS 3,365.7 million, of which: (i) ARS 3,075.0 million was used in the acquisition of investment properties, mainly, in the Offices segment; and (ii) ARS 52.5 million was related to the acquisition of property, plant and equipment; and (iii) ARS 238.2 million was related to advanced payments.
 
 
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Recent Developments 
 
Reopening Shopping malls
 
On October 14, 2020, the Company announced the opening of Alto Palermo, Paseo Alcorta, Patio Bullrich, Abasto Shopping and DOT Baires shopping malls, located in the City of Buenos Aires since today which are added to the Distrito Arcos open space Premium Outlet which has already been operational since August.
  
The shopping malls mentioned above are restarting their operations under a strict safety and hygiene protocol that includes social distancing, reduced hours, access controls, among other measures. Likewise, it should be clarified that the activity in the food courts is limited to the commercialization of products through home delivery or take-away and the entertainment business remains closed.
 
As of today, the Company is operating all its shopping malls, except for Alto Avellaneda located in Greater Buenos Aires and Alto Comahue in the province of Neuquen that closed temporarily until October 25, which is equivalent to 294,732 sqm of gross leasable area, representing 89% of its portfolio.
 
The Company keeps its commitment to safeguard the health and well-being of its clients, employees, tenants, and the entire population, constantly reassessing its decisions according to the evolving events, issued rules and guidelines of the competent authorities.
 
Corporate Information
 
On September 22, 2020, it was reported that Mr. Jorge Cruces by majority vote of our board members was appointed as the new Investment Manager and Mr. Arnaldo Jawerbaum as the new Operations Manager of Shopping Malls and Offices. Mr. Daniel Ricardo Elsztain's position was changed to General Manager of Real Estate Operations and Investments.
 
Board Meeting
 
On September 22, 2020, our board of directors decided to convene an Ordinary and Extraordinary General Meeting of Shareholders on October 26, 2020. The notice of call to the General Ordinary and Extraordinary Shareholder’s Meeting includes the following agenda:
 
1) Appointment of two shareholders to sign the meetings’ minutes.
 
2) Consideration of documents contemplated in paragraph 1, Section 234, Law No. 19,550 for the fiscal year ended June 30, 2020.
 
3) Consideration of the capital increase from the sum of ARS 126,014,050 to the sum of ARS 54,123,001,970 through the capitalization of reserves and the consequential issue of shares for the amount of ARS 53,996,987,920 to distribute among the shareholders in proportion of their ownership.
 
4) Allocation of net gain for the fiscal year ended June 30, 2020 for ARS 17,089,535,712. Distribution of cash dividends in periodical fees for up to ARS 9,700,000,000.
 
5) Consideration of Board of Directors’ performance for the Fiscal Year ended June 30, 2020.
 
6) Consideration of Supervisory Committee’s performance for the Fiscal Year ended June 30, 2020.
 
7) Consideration of compensation payable to the Board of Directors (ARS 320,769,717, allocated sum) for the Fiscal Year ended June 30, 2020.
 
8) Consideration of compensation payable to the Supervisory Committee (ARS 1,575,000, allocated sum) for the Fiscal Year ended June 30, 2020.
 
9) Determination of number and appointment of regular directors and alternate directors for a term of three fiscal years.
 
10) Appointment of regular and alternate members of the Supervisory Committee for a term of one fiscal year.
 
11) Appointment of certifying accountant for the next fiscal year.
 
12) Approval of compensation for ARS 28,770,129 payable to certifying accountant for the fiscal year ended June 30, 2020.
 
13) Consideration of annual budget for implementation of the audit committee’s annual plan and compliance and corporate governance program.
 
14) Implementation of incentive plan for employees, management and directors, approved on the Shareholders Meeting held on October 30, 2019, for up to 1% of the stock capital for released shares provided in Item 3 of this Agenda for the incentive plan according to Art. 68 of Law 26,831 of Capital Market.
 
15) Consideration of the amendment of Article 6 of the bylaws due to a change in the nominal value of the shares from the sum of ARS 1 to the sum of ARS 100.
 
16) Authorization to carry out registration proceedings relating to this shareholders’ meeting before the argentine securities commission and the general superintendence of corporations.
 
Boston Tower floor’s sale
 
On August 26, 2020, we reported that on that date it has sold and transferred 5 floors of the Boston tower located at 265 Della Paolera Street, in the Catalinas district of the Autonomous City of Buenos Aires for a gross locative area of approximately 6,235 sqm and 25 parking spaces located in the building. The transaction price was approximately USD 34.7 million (USD/sqm 5,570), which was paid in full. After this operationwe own 7 floors with an approximate location area of 7,383 m2 in addition to garage units and other complementary spaces.
 
The Boston Tower is a modern office building located in one of the most premium corporate areas of the Autonomous City of Buenos Aires. It was designed by renowned architect Cesar Pelli and has 27 floors and 126 garages in approximately 31,670 square meters of gross locative area.
 
 
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Evolution of COVID-19
 
On June 29, 2020, we informed our shareholders and the market in general that in compliance with the provisions of Articles 2 and 10 of Decree 605/2020 promulgated by the National Executive Branch, which aims to continue mitigating the risk of spread of the virus and protect public health, shopping centers located in the Autonomous City of Buenos Aires and Greater Buenos Aires will continue to operate only in areas considered essential as pharmacies, supermarkets and banks until August 2, 2020. In addition, the clothing and footwear venues of these shopping centers whose access is through public roads, as well as the gastronomic ones under the "take away" modality can also operate. In the interior of the country, most provinces continue to flex and open their commercial and recreational activities. In this context, on July 17, 2020, the Alto Comahue shopping center reopened in the province of Neuquén, which joins the already operational Alto Noa, Mendoza Plaza, Córdoba Shopping, Alto Rosario and La Ribera Shopping. Alto Comahue resumed operations under a strict safety and hygiene protocol that includes social distancing, reduced hours, access controls, among other measures that aim primarily to prevent crowds and thus the spread of COVID-19. As a result of these reopenings, IRSA CP is operating all of its shopping centers in the interior of Argentina for approximately 133,000 m2 representative of 40% of the gross locative area of its portfolio, except for the food and local patios of the entertainment of the shopping centers in Neuquén, Córdoba and Santa Fe that have not yet resumed operations. IRSA CP remains committed to preserving the health and well-being of its customers, employees, localities and the entire population, constantly re-evaluating its decisions according to the evolution of events, the rules that are dictated and the guidelines of the competent authorities.
  
Impact of COVID-19 to our shopping centers.
 
On August 4, 2020, we informed our shareholders and the market in general that in compliance with the provisions of Articles 2 and 10 of Decree 641/2020 promulgated by the National Executive Branch, whose objective is to continue mitigating the risk of spread of the virus and protecting public health, the shopping centers located in the Autonomous City of Buenos Aires and Greater Buenos Aires will continue to operate only in the areas considered essential as pharmacies, supermarkets and banks until August 16, 2020 with the exception of Distrito Arcos, commercial center of the Company that, for its open-air characteristics, reopened its doors on August 3, 2020 as did the commercial premises of large avenues and main commercial corridors of the city. In the interior of the country, most provinces move forward with the easing and opening of their commercial and recreational activities. Distrito Arcos joins the already operational Alto Noa, Mendoza Plaza, Córdoba Shopping, Alto Rosario, La Ribera Shopping and Alto Comahue that IRSA CP owns in the interior of the country. The total of the shopping in operation reaches approximately 148,000 m2, representative of 44% of the gross locative area of its portfolio, except for the food and entertainment venues of the shopping centers in Neuquén, Córdoba and Santa Fe that have not yet resumed operations. IRSA CP remains committed to preserving the health and well-being of its customers, employees, localities and the entire population, constantly re-evaluating its decisions according to the evolution of events, the rules that are dictated and the guidelines of the competent authorities.
 
Bouchard 710 Building Sale
 
On July 30, 2020, we reported that on that date it has sold to an unrelated third party the entire building "Bouchard 710", located in the Plaza Roma district of the Autonomous City of Buenos Aires. The tower consists of 15,014 m2 of gross locative area in 12 floors of offices and 116 units of garages.
 
The transaction price was approximately USD 87.2 (USD / sqm 5,800) and has been paid in full. Bouchard 710 is a AAA category office building, with LEED Gold rating, located in one of the premium corporate areas of the Autonomous City from Buenos Aires.
 
Signature of a Purchase ticket regarding Boston Tower floor with possession
 
On July 15, 2020 we reported that on that date it has signed with an unrelated third party a purchase ticket with possession of a medium-height Boston Tower floor located at 265 Della Paolera Street, in the Catalinas district of Buenos Aires for a total area of approximately 1,063 sqm and 5 parking spaces located in the building. The transaction price was approximately USD 6.7 million (USD/sqm 6,300), which was paid in full. After this operation, we have 12 floors with an approximate location area of 13,800 sqm. In addition to garage units and other complementary spaces. The accounting result of this transaction will be recognized in the Financial Statements of IRSA CP for the 1st quarter of fiscal year 2021. The Boston Tower is a modern office building located in one of the most premium corporate areas of the Autonomous City of Buenos Aires. It was designed by renowned architect Cesar Pelli and has 27 floors and 60 garages in 31,670 square meters of gross locative area
 
B. Business Overview
 
We own, develop and manage commercial real estate properties, which consist primarily of shopping malls and office buildings throughout Argentina. We are currently the largest owner and operator of shopping malls and one of the largest owners of office buildings and other commercial properties in Argentina in terms of gross leasable area and number of rental properties according to data published by the Argentine Chamber of Shopping Centers.
 
We operate our business through four principal business segments, namely “Shopping Malls,” “Offices,” “Sales and Developments” and “Others”:
 
 
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Shopping Malls” includes the operation and development of shopping malls, through which we generate rental income and fees charged for services related to the lease of retail stores and other spaces. Our Shopping Malls segment includes highly diversified, multi-format assets with a particular focus on retailers that cater to middle- to high-income consumers.
 
Offices” includes the lease of offices and other rental properties and services related to these properties.
 
Sales and Developments” includes the sales of undeveloped parcels of land and properties, and activities related to the development and maintenance of such properties.
 
Others” includes the entertainment activity throughout ALG Golf Center S.A. (La Arena), La Rural and others.
  
Shopping malls
 
We own 15 shopping malls 14 of which we manage directly, with an aggregate 333,062 square meters of GLA as of June 30, 2020. Of the 15 shopping malls we own, six are located in the City of Buenos Aires, two in the Greater Buenos Aires area, and the others in the provinces of Salta, Santa Fé, Mendoza, Córdoba and Neuquén. In addition, we operate La Ribera Shopping in the City of Santa Fé which we own through a joint venture, and own the historic building of Patio Olmos shopping mall in the Province of Córdoba, which mall is operated by a third party.
 
The following table shows selected information about our shopping malls as of June 30, 2020:
 
Shopping malls
Date ofacquisition/development
Location
 
GLA(sqm)(1)
 
 
Numberof stores
 
 
Occupancyrate (%)(2)
 
 
Ourownershipinterest (%)(3)
 
 
Rental revenue (in millions of ARS)
 
Alto Palermo
Dec-97
City of Buenos Aires
  18,655 
  136 
  91.9 
  100.0 
  997 
Abasto Shopping(4)
Nov-99
City of Buenos Aires
  36,760 
  164 
  94.9 
  100.0 
  854 
Alto Avellaneda
Dec-97
Buenos Aires Province
  38,330 
  125 
  97.4 
  100.0 
  600 
Alcorta Shopping
Jun-97
City of Buenos Aires
  15,725 
  114 
  97.3 
  100.0 
  532 
Patio Bullrich
Oct-98
City of Buenos Aires
  11,396 
  89 
  91.4 
  100.0 
  308 
Dot Baires Shopping
May-09
City of Buenos Aires
  48,805 
  167 
  74.6 
  80.0 
  653 
Soleil Premium Outlet
Jul-10
Buenos Aires Province
  15,156 
  79 
  97.1 
  100.0 
  248 
Distrito Arcos
Dec-14
City of Buenos Aires
  14,335 
  65 
  93.8 
  90.0 
  459 
Alto Noa Shopping
Mar-95
City of Salta
  19,313 
  85 
  99.0 
  100.0 
  185 
Alto Rosario Shopping(4)
Nov-04
City of Rosario
  33,681 
  142 
  97.2 
  100.0 
  520 
Mendoza Plaza Shopping
Dec-94
City of Mendoza
  43,313 
  129 
  97.8 
  100.0 
  295 
Córdoba Shopping
Dec-06
Córdoba
  15,361 
  104 
  95.4 
  100.0 
  177 
La Ribera Shopping
Aug-11
City of Santa Fé
  10,530 
  68 
  99.0 
  50.0 
  59 
Alto Comahue
Mar-15
City of Neuquén
  11,702 
  95 
  96.2 
  99.9 
  377 
Patio Olmos(5)
Sep-07
City of Córdoba
   
   
   
   
   
Total
 
 
  333,062 
  1,562 
  93.2 
    
  6,263 
 
(1) Corresponds to gross leasable area at each property. Excludes common areas and parking spaces.
(2) Calculated dividing occupied square meters by leasable area as of the last day of the fiscal year.
(3) Company’s effective interest in each of its business units.
(4) Excludes Museo de los Niños which represents 3,732 square meters in Abasto and 1,261 square meters in Alto Rosario.
(5) IRSA CP owns the historic building of the Patio Olmos shopping mall in the Province of Córdoba, operated by a third party and does not include the rental revenues of Patio Olmos, for more details see “Our Shopping Malls-Overview.”
 
 
 
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The following table shows information about our expansions and our future expansions on current assets as of June 30, 2020:
 
Expansions
 
Ownership interest
 
 
Surface
 
Locations
 
 
(%)
 
 
(sqm)
 
 
Alto Palermo Adjoining Plot
  100 
  3,900 
City of Buenos Aires
Subtotal current expansions
    
  8,800 
 
Other future expansions(1)
    
  98,055 
 
Subtotal future expansions
    
  98,055 
 
Total Shopping Malls
    
  101,955 
 
Patio Bullrich - Offices / Hotel
  100 
  10,000 
City of Buenos Aires
Philips Building
  100 
  20,000 
City of Buenos Aires
Subtotal future expansions
    
  30,000 
 
Total offices
    
  30,000 
 
 
    
    
 
Total expansions
    
  131,955 
 
 
(1)  Includes Alto Palermo, Paseo Alcorta, Alto Avellaneda, Soleil, Alto Noa, Alto Rosario, Mendoza, Córdoba y La Ribera Shopping
 
Offices and other properties
 
We own, develop and manage eight office buildings and other rental and investment properties throughout Argentina as part of our Offices and other properties segment. 
 
As of June 30, 2020, we owned and managed eight office buildings located in the City of Buenos Aires with 115,640 square meters of total gross leasable area.
 
The following table sets forth selected information regarding our office buildings as of June 30, 2020:
 
 
Date ofacquisition/development
 
GLA (sqm)(1)
 
 
Occupancy rate(2)
 
 
Ownership interest
 
 
Total rental incomefor the fiscal yearendedJune 30, 2020
 
 
 
 
 
 
 
(%)
 
 
(%)
 
 
(in thousands
of ARS)
 
Offices
 
 
 
 
 
 
 
 
 
 
 
 
 
AAA & A buildings
 
 
 
 
 
 
 
 
 
 
 
 
 
República Building 
Dec-14
  19,885 
  86.9 
  100 
  433,254 
Bankboston Tower(5) 
Dec-14
  14,865 
  96.4 
  100 
  324,165 
Intercontinental Plaza(3) 
Dec-14
  2,979 
  100.0 
  100 
  40,421 
Bouchard 710(6) 
Dec-14
  15,014 
  92.5 
  100 
  371,835 
Dot Building 
Nov-06
  11,242 
  84.9 
  80 
  232,468 
Zetta 
Jun-19
  32,173 
  97.5 
  80 
  760,908 
Total AAA & A buildings
 
  96,158 
  93.0 
    
  2,163,051 
B buildings
 
    
    
    
    
Philips 
Jun-17
  8,017 
  82.7 
  100 
  74,172 
Suipacha 652/64 
Dec-14
  11,465 
  31.2 
  100 
  39,010 
Total B buildings
 
  19,482 
  52.4 
    
  113,182 
Total Offices
 
  115,640 
  86.1 
    
  2,276,232 
Other rental properties(4)
 
    
    
    
  38,924