20-F 1 form20f.htm 20F CRESUD FY 2013 form20f.htm
 
 
 
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

[X]
  
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: June 30, 2013
 
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 EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report ___
 
For the transition period from ___ to___
 
Commission file number: 001-29190
 
CRESUD SOCIEDAD ANONIMA COMERCIAL INMOBILIARIA FINANCIERA Y AGROPECUARIA
(Exact name of Registrant as specified in its charter)
 
CRESUD INC.
(Translation of Registrant’s name into English)
 
Republic of Argentina
(Jurisdiction of incorporation or organization)
 
Moreno 877, 23rd Floor,
(C1091AAQ) Buenos Aires, Argentina
(Address of principal executive offices)
 
Matías Gaivironsky
Chief Financial Officer
Tel +(5411) 4323-7449 – finanzas@cresud.com.ar
Moreno 877 24th Floor
(C1091AAQ) 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
    
  
Name of each exchange on which registered
     
American Depositary Shares, each representing
ten shares of Common Stock
    
  
Nasdaq National Market of the
Nasdaq Stock Market
     
Common Stock, par value one Peso 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
 
The number of outstanding shares of the issuer’s common stock as of June 30, 2013 was 501,562,730
 
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act:
 
£    Yes                      S           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.
 
S    Yes                      £           No
 
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.
 
S    Yes                      £           No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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 and post such files).
 
£    Yes                      S           No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):
 
Large accelerated filer £                                                        Accelerated filer S                                          Non-accelerated filer £
 
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
S
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                      S           No

 
 
 
 
 
 
TABLE OF CONTENTS
  
   
Page No.
     
 
2
 
2
 
2
 
4
 
5
Item 1.
5
Item 2.
5
Item 3
5
 
5
 
8
 
8
 
8
Item 4.
31
 
31
 
40
 
85
 
86
Item 4A.
89
Item 5.
89
 
89
 
117
 
 
 
122
 
129
 
129
 
129
Item 6.
129
 
129
 
132
 
134
 
134
 
135
Item 7.
137
 
137
 
138
 
142
Item 8.
142
 
142
 
146
Item 9.
146
 
146
 
147
 
148
 
149
 
149
 
149
Item 10.
150
 
150
 
150
 
155
 
155
 
155
 
168
 
168
 
168
 
168
Item 11.
169
Item 12.
169
 
170
Item 13.
170
Item 14.
170
Item 15.
170
 
170
 
170
 
170
 
170
 
1
 

 
The Private Securities Litigation Reform Act of 1995 provides a “Safe Harbor” for forward looking statements.
 
This annual report contains or incorporates by reference statements that constitute “forward-looking statements,” regarding the intent, belief or current expectations of our directors and officers with respect to our future operating performance. Such statements include any forecasts, projections and descriptions of anticipated cost savings or other synergies. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” variations of such words, and similar expressions are intended to identify such forward-looking statements. You should be aware that any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties, and that actual results may differ from those set forth in the forward-looking statements as a result of various factors (including, without limitations, the actions of competitors, future global economic conditions, market conditions, foreign exchange rates, and operating and financial risks related to managing growth and integrating acquired businesses), many of which are beyond our control. The occurrence of any such factors not currently expected by us would significantly alter the results set forth in these statements.
 
Factors that could cause actual results to differ materially and adversely include, but are not limited to:
 
•
changes in general economic, business or political or other conditions in Argentina or changes in general economic or business conditions in Latin America;
•
changes in capital markets in general that may affect policies or attitudes toward lending to Argentina or Argentine companies;
•
inflation, changes in exchange rates or regulations applicable to currency exchanges or transfers;
•
our ability to integrate our business with companies and/or assets we may acquire;
•
unexpected developments in certain existing litigation;
•
current and future laws and governmental regulations applicable to our business;
•
increased costs;
•
fluctuations and reductions on the value of Argentina’s public debt;
•
unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms;
•
force majeure; and
•
the factors discussed under “Risk Factors.”
 
You should not place undue reliance on such statements, which speak only as of the date that they were made. Our independent public accountants have not examined or compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we might issue in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements after filing of this Form to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
 
 
As used throughout this annual report, the terms “Cresud”, “Company”, “we”, “us”, and “our” refer to Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, together with our consolidated subsidiaries, except where we make clear that such terms refer only to the parent company.
 
References to “Tons”, “tons” or “Tns.” are to metric tons, to “kgs” are to kilograms, to “ltrs” are to liters, “Hct” are to hectares, “m2” and “square meters” are to square meters, while in the United States and certain other jurisdictions, the standard measure of area is the square foot (sq.ft). A metric ton is equal to 1,000 kilograms. A kilogram is equal to approximately 2.2 pounds. A metric ton of wheat is equal to approximately 36.74 bushels. A metric ton of corn is equal to approximately 39.37 bushels. A metric ton of soybean is equal to approximately 36.74 bushels. One gallon is equal to 3.7854 liter. One hectare is equal to approximately 2.47 acres and 10,000 square meters. One square meter is equal to approximately 10,764 square feet. One kilogram of live weight beef cattle is equal to approximately 0.5 to 0.6 kilogram of carcass (meat and bones).
 
As used herein: “GLA or gross leasable area”, in the case of shopping centers, 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).
 
 
This annual report contains our audited consolidated financial statements as of June 30, 2013 and 2012 and for the years ended June 30, 2013 and 2012 (our “audited consolidated financial statements”). Our audited consolidated financial statements have been audited by Price Waterhouse & Co. S.R.L. Buenos Aires Argentina, a member firm of PricewaterhouseCoopers, an independent registered public accounting firm (“Price Waterhouse & Co.”), whose report is included herein.
 

 
2
 


Pursuant to Resolution No. 562/09 of the Comisión Nacional de Valores (CNV), as subsequently amended by Resolution No. 576/10, all listed companies in Argentina with certain exceptions (i.e. financial institutions and insurance entities) were required to present their audited consolidated financial statements for accounting periods beginning on or after January 1, 2012 in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  Therefore, we have prepared our audited consolidated financial statements under IFRS for the first time for our financial year ended June 30, 2013, which included comparative financial information for the year ended June 30, 2012. All IFRS standards issued by the IASB effective at the time of preparing the audited consolidated financial statements have been applied. In addition, we have applied certain IFRS standards which were not effective as of June 30, 2013 but for which earlier adoption was permitted.

The opening IFRS statement of financial position was prepared as of our transition date of July 1, 2011. Prior to the adoption of IFRS, we prepared our audited consolidated financial statements in accordance with generally accepted accounting principles used in Argentina, as set forth by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (“FACPCE”) and as implemented, adapted, amended, revised and/or supplemented by the Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires (“CPCECABA”) (collectively “Argentine GAAP”). We also complied with the regulations of the CNV.  

The application of IFRS 1 “First Time Adoption of IFRS” required us to adopt accounting policies based on the standards and interpretations effective at the reporting date of our first IFRS financial statements (June 30, 2013). As a result of adopting IFRS, we have changed many of our previous accounting policies. These IFRS accounting policies have been applied consistently in preparing our audited consolidated financial statements, and in the preparation of the opening IFRS statement of financial position at transition date.

In preparing the opening IFRS statement of financial position, we have adjusted amounts reported previously in our audited consolidated financial statements prepared in accordance with Argentine GAAP. An explanation of how the transition from Argentine GAAP to IFRS has affected our financial performance and financial position is set out in the following table.

   
July 1, 2011(1)
    
June 30, 2012(1)
  
Total shareholders’ equity under Argentine GAAP attributable to Cresud
     2,101,681       2,063,281  
Revenue recognition – “scheduled rent increases”
     51,991       78,479  
Revenue recognition – “letting fees”
     (35,447 )     (44,446 )
Biological assets and agriculture produce at the point of harvest
     58,727       38,517  
Inventories
     (6,745 )     (5,378 )
Trading properties
     (29,315 )     (18,946 )
Pre-operating and organization expenses
     (22,771 )     (22,767 )
Goodwill
     770,752       709,368  
Non-current investments – financial assets
     151,411       138,204  
Initial direct costs on operating leases
     698       946  
Tenant deposits
     114       329  
Commodity linked debt
     97       72  
Impairment of financial assets
     (2,088 )     (519 )
Present value accounting – tax credits
     14,644       10,931  
Investments in associates
     (56,224 )     (151,873 )
Investments in joint ventures
     (16,496 )     (11,271 )
Acquisition of non-controlling interest
     -       (22,627 )
Disposals of non-controlling interest
     -       2,690  
Amortization of cost debts
     110       384  
Warrants cancelation
     -       (2,706 )
Deferred income tax
     (33,917 )     (35,550 )
Non-controlling interest on adjustment above
     (217,523 )     (168,255 )
Subtotal shareholders’ equity under IFRS attributable to Cresud
     2,729,699       2,558,863  
Non-controlling interest
     2,480,379       2,132,648  
Total shareholders’ equity under IFRS
     5,210,078       4,691,511  

 
3
 

   
June 30, 2012(1)
  
Net comprehensive income under Argentine GAAP attributable to Cresud
     78,263  
Revenue recognition – “scheduled rent increases”
     26,488  
Revenue recognition – “letting fees”
     (8,999 )
Biological assets and agriculture produce at the point of harvest
     (17,001 )
Inventories
     1,367  
Trading properties
     10,369  
Pre-operating and organization expenses
     4  
Goodwill
     (60,428 )
Non-current investments – financial assets
     (13,207 )
Initial direct costs on operating leases
     248  
Tenant deposits
     215  
Commodity linked debt
     (25 )
Impairment of financial assets
     1,569  
Present value accounting – tax credits
     (3,713 )
Investments in associates
     (89,564 )
Investments in joint ventures
     5,225  
Disposals of non-controlling interest
     2,690  
Amortization of cost debts
     274  
Currency translation
     32,518  
Deferred income tax
     (2,178 )
Non-controlling interest on adjustment above
     14,556  
Subtotal net comprehensive income under IFRS attributable to Cresud
     (21,329 )
Non-controlling interest
     79,810  
Total net comprehensive income under IFRS attributable to Cresud
     58,481  

   
June 30, 2012(1)
  
Other comprehensive income under Argentine GAAP attributable to Cresud
     (58,692 )
Biological assets and agriculture produce at the point of harvest
     (3,209 )
Goodwill
     (956 )
Investments in associates
     (6,082 )
Currency translation
     (32,518 )
Deferred income tax
     544  
Non-controlling interest on adjustment above
     18,974  
Subtotal other comprehensive income under IFRS attributable to Cresud
     (81,939 )
Non-controlling interest
     (152,879 )
Total other comprehensive income under IFRS attributable to Cresud
     (234,818 )

(1)  
In thousands of Pesos.

Note 3 to our audited consolidated financial statements included in Item 18 of this annual report on Form 20-F contains a thorough description of the application of the optional exemptions and mandatory exceptions under IFRS 1 together with the required reconciliations of Argentine GAAP to IFRS and a detailed explanation of the adjustments.
 
 
Market data used throughout this annual report was derived from reports prepared by unaffiliated third-party sources. Such reports generally state that the information contained therein has been obtained from sources believed by such sources to be reliable. Certain market data which appear herein (including percentage amounts) may not sum due to rounding.
 
In this annual report where we refer to “Peso”, “Pesos”, or “Ps.” we mean Argentine pesos, the lawful currency in Argentina; when we refer to “U.S. dollars”, or “US$” we mean United States dollars, the lawful currency of the United States of America; when we refer to “Real”, “Reals”, “Rs.” or “R$” we mean Brazilian Real, the lawful currency in the Federative Republic of Brazil; and when we refer to “Central Bank” we mean the Argentine Central Bank.
 
Solely for the convenience of the reader, we have translated certain Peso amounts into U.S. dollars at the offer exchange rate quoted by Banco de la Nación Argentina for June 30, 2013, which was Ps. 5.388 = US$ 1.00. We make no representation that the Peso or U.S. dollar amounts actually represent or could have been or could be converted into U.S. dollars at the rates indicated, at any particular rate or at all.
 

 
4
 

 
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
 
 
The following selected consolidated financial data has been derived from our audited consolidated financial statements as of the dates and for each of the periods indicated below. This information should also be read in conjunction with our audited consolidated financial statements and the discussion in Item 5 “Operating and Financial Review and Prospects” included elsewhere in this annual report.
 
The selected consolidated statement of income data for the years ended June 30, 2013 and 2012 and the selected consolidated balance sheet data as of June 30, 2013 and 2012 and as of July 1, 2011 have been derived from our audited consolidated financial statements included in this annual report which have been audited by Price Waterhouse & Co.
 
 
     
IFRS
For the fiscal years ended June 30,
  
     
2013(1)
      
2013
      
2012
  
     
(in thousands of US$)
      
(in thousands of Ps.)
  
Audited Consolidated Statements of Comprehensive Income                        
Revenues
     654,891       3,528,551       2,859,849  
Costs
     (579,161 )     (3,120,522 )     (2,464,209 )
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
     164,578       886,744       700,946  
Changes in net realizable value of agricultural produce after harvest
     2,182       11,756       2,720  
Gross Profit
     242,490       1,306,529       1,099,306  
                         
                         
Gain from disposal of investment properties
     33,041       178,026       116,689  
Gain from disposal of farmlands
     27,762       149,584       45,490  
General and administrative expenses
     (63,564 )     (342,484 )     (311,962 )
Selling expenses
     (51,527 )     (277,626 )     (200,490 )
Management fees
     -       -       (8,696 )
Other operating results, net
     17,137       92,332       (93,381 )
Profit from operations
    205,339       1,106,361       646,956  
                         
Share of profit / (loss) of associates and joint ventures
     (1,822 )     (9,818 )     2,796  
Profit from operations before financing and taxation
    203,517       1,096,543       649,752  
                         
                         
Finance income
     40,270       216,976       159,579  
Finance cost
     (213,340 )     (1,149,476 )     (760,357 )
Other Financial results
     4,406       23,739       25,538  
Financial results, net
     (168,664 )     (908,761 )     (575,240 )
Profit before income tax
     34,853       187,782       74,512  
Income tax expense
     (6,221 )     (33,519 )     (16,031 )
Profit for the period
     28,632       154,263       58,481  
                         
Attributable to:
                        
Equity holders of the parent
     (4,993 )     (26,907 )     (21,329 )
Non-controlling interest
     33,625       181,170       79,810  
Profit for the period
     28,632       154,263       58,481  
Other comprehensive income:
                        
Items that may be reclassified subsequently to profit or loss:
                        
Currency translation adjustment
     33,576       180,908       (231,288 )
Currency translation adjustment from subsidiaries, associates and joint ventures
     318       1,715       (3,530 )
Other comprehensive income / (Loss) for the period (i)
     33,894       182,623       (234,818 )
Total comprehensive income / (Loss) for the period
     62,526       336,886       (176,337 )
                         
Attributable to:
                        
Equity holders of the parent
     12,185       65,647       (103,268 )
Non-controlling interest
     50,341       271,239       (73,069 )
                         
Audited Consolidated Statements of Cash Flows
                        
                         
Net cash generated from operating activities
     120,364       648,519       668,411  
Net cash used in investing activities
     (17,263 )     (93,012 )     (353,920 )
Net cash used in financing activities
     (3,185 )     (17,160 )     (478,941 )
 

 
5
 

 
 
        IFRS  
     
June 30,
      
July 1,
  
     
2013
      
2013
      
2012
       2011  
     
(in thousands of US$)
      
(in thousands of Ps.)
  
Audited Consolidated Statements of Financial Position                                
ASSETS                                
Non-Current Assets                                
Investment properties
     775,780       4,179,901       3,463,941       3,553,647  
Property, plant and equipment
     341,769       1,841,454       1,872,920       1,976,970  
Trading properties
     33,881       182,553       170,472       158,019  
Intangible assets
     23,258       125,312       75,077       80,457  
Biological assets
     56,260       303,128       278,208       325,864  
Investments in associates and joint ventures
     275,958       1,486,862       1,500,560       1,438,855  
Deferred income tax assets
     33,264       179,228       80,674       23,914  
Income tax receivables
     36,910       198,871       156,892       123,854  
Restricted assets
     10,139       54,631       -       -  
Trade and other receivables
     54,089       291,430       297,169       236,787  
Investment in financial assets
     47,094       253,742       626,683       426,152  
Derivative financial instruments
     4,710       25,377       18,434       60,442  
Total Non-Current Assets
     1,693,112       9,122,489       8,541,030       8,404,961  
                                 
Current Assets
                                
Trading properties
     2,169       11,689       10,529       28,443  
Biological assets
     18,108       97,564       85,251       107,239  
Inventories
     46,840       252,376       253,447       371,268  
Restricted assets
     190       1,022       -       -  
Income tax receivables
     887       4,779       28,762       76,116  
Trade and other receivables
     268,391       1,446,091       859,302       679,426  
Investment in financial assets
     71,564       385,585       72,069       62,465  
Derivative financial instruments
     7,710       41,544       2,578       18,966  
Cash and cash equivalents
     194,429       1,047,586       471,922       694,552  
Total Current Assets
     610,288       3,288,236       1,783,860       2,038,475  
                                 
TOTAL ASSETS
     2,303,400       12,410,725       10,324,890       10,443,436  
                                 
SHAREHOLDERS' EQUITY
                                
                                 
Capital and Reserves Attributable to Equity Holders of the Parent
                                
Share capital
     92,161       496,562       496,562       496,562  
Treasury stock
     928       5,001       5,001       5,001  
Inflation adjustment of share capital and treasury stock
     12,143       65,425       166,218       166,218  
Share premium
     143,482       773,079       773,079       773,079  
Share warrants
     19,722       106,264       106,263       106,263  
Cumulative translation adjustment
     424       2,284       (81,939 )     -  
Changes in non-controlling interest
     (4,082 )     (21,996 )     (6,889 )     -  
Equity-settled compensation
     1,549       8,345       1,833       1,012  
Legal reserve
     8,692       46,835       42,922       32,293  
Reserve for new projects
     62,558       337,065       389,202       320,064  
Special reserve
     129,107       695,628       -       -  
Retained earnings
     (4,922 )     (26,522 )     666,611       829,207  
Equity Attributable to Equity Holders of the Parent
     461,762       2,487,970       2,558,863       2,729,699  
Non-controlling interest
     414,086       2,231,096       2,132,648       2,480,379  
TOTAL SHAREHOLDERS' EQUITY
     875,848       4,719,066       4,691,511       5,210,078  
                                 
LIABILITIES
                                
Non-Current Liabilities
                                
Trade and other payables
     42,366       228,267       168,860       155,726  
Borrowings
     777,635       4,189,896       2,770,087       2,056,244  
Deferred income tax liabilities
     98,416       530,263       630,011       769,941  
Derivative financial instruments
     515       2,773       22,859       -  
Payroll and social security liabilities
     739       3,984       783       635  
Provisions
     13,294       71,626       22,553       14,939  
Total Non-Current Liabilities
     932,965       5,026,809       3,615,153       2,997,485  
                                 
                                 
Current Liabilities
                                
Trade and other payables
     169,209       911,700       596,542       588,311  
Income tax liabilities
     14,852       80,024       108,190       72,606  
Payroll and social security liabilities
     22,427       120,835       103,919       81,085  
Borrowings
     283,480       1,527,390       1,187,082       1,479,803  
Derivative financial instruments
     1,613       8,691       18,558       8,353  
Provisions
     3,009       16,210       3,935       5,715  
Total Current Liabilities
     494,590       2,664,850       2,018,226       2,235,873  
                                 
TOTAL LIABILITIES
     1,427,555       7,691,659       5,633,379       5,233,358  
                                 
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES
     2,303,403       12,410,725       10,324,890       10,443,436  


 
6
 
 
   
IFRS
  
   
For the fiscal years ended June 30,
  
   
2013
    
2013
    
2012
  
OTHER FINANCIAL DATA
  
(In U$S, except for percentages, ratios and number of shares)
     (In Ps, except for percentages, ratios, number of shares, per share and per ADS data)  
Basic net income per share (2)
     (0.05 )     (0.05 )     (0.04 )
Diluted net income per share (3)
     (0.05 )     (0.05 )     (0.04 )
Basic net income per ADS (2)(4)
     (0.54 )     (0.54 )     (0.43 )
Diluted net income per ADS (3)(4)
     (0.54 )     (0.54 )     (0.43 )
Capital stock
     93,089       501,563       501,563  
Number of common shares
     501,562,730       501,562,730       501,562,534  
Weighted – average number of common shares outstanding
     496,561,931       496,561,931       496,561,780  
Diluted weighted – average number of common shares (5)  
     558,917,099       558,917,099       558,916,948  
Dividends paid (6)
     -       -       120  
Dividends per share
     -       -       0.242  
Dividends per ADS (4)
     -       -       2.42  
Depreciation and amortization
     51,919       279,738       233,137  
Gross margin (7)
     29.6 %     29.6 %     30.9 %
Operating margin (8)
     25.1 %     25.1 %     18.2 %
Net margin (9)
     3.5 %     3.5 %     1.6 %
Ratio of current assets to current liabilities (10)
     1.23       1.23       0.88  
Ratio of shareholders’ equity to total liabilities (11)
     0.61       0.61       0.83  
Ratio of non-current assets to total assets (12)
     0.74       0.74       0.83  
Ratio of “Return on Equity” – ROE (13)
     0.03       0.03       0.01  
 
(1)
Solely for the convenience of the reader, we have translated Peso amounts into U.S. dollars at the exchange rate quoted by Banco de La Nación Argentina for June 30, 2013 which was Ps.5.388 = US$1.00. We make no representation that the 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.
(2)
Basic net income per share is computed by dividing the net income available to common shareholders for the period by the weighted average common shares outstanding during the period.
(3)
Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common shares assuming the total conversion of outstanding notes and exercise of outstanding options. Due to the loss for the year 2013 and 2012, there is no diluted effect on this result.
(4)
Determined by multiplying per share amounts by ten (one ADS equals ten common shares).
(5)
Assuming exercise of all outstanding warrants to purchase our common shares.
(6)
The shareholders’ meeting held in October 2012 approved the distribution of a cash dividend for an amount of Ps.120 million for the fiscal year ended June 30, 2012.
(7)
Gross profit divided by the sum of revenues and initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
(8)
Operating income divided by the sum of revenues and initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
(9)
Net income divided by the sum of revenues and initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
(10)
Current assets over current liabilities.
(11)
Shareholders’ equity over total liabilities.
(12)
Non-current assets over total assets.
(13)
Profitability refers to Income for the year divided by average Shareholders’ equity.
 
 
7
 
 
Exchange Rates
 
In April 1991, Argentine law established a fixed exchange rate which statutorily obligated the Central Bank to sell U.S. dollars to any individual at a fixed exchange rate of Ps.1.00 per US$1.00. On January 7, 2002, the Argentine congress enacted Law No. 25.561 (the “Public Emergency Law”), abandoning over ten years of fixed Peso-U.S. dollar parity at Ps.1.00 per US$1.00. After devaluing the Peso and setting the official exchange rate at Ps.1.40 per US$1.00, on February 11, 2002, the government allowed the Peso to float. The shortage of U.S. dollars and their heightened demand caused the Peso to depreciate significantly in the first half of 2002. As of October 24, 2013 the exchange rate was Ps. 5.8700= US$1.00 as quoted by Banco de la Nación Argentina at the U.S. dollar selling rate. During 2010, 2011, 2012 and the first semester of 2013, the Central Bank of Argentina indirectly affected the exchange rate market, through active participation with the purpose of isolating external effects and maintaining a stable parity.
 
 
The following table presents the high, low, average and period closing exchange rate for the average ask / bid of U.S. dollars stated in nominal Pesos per U.S. dollar.
 
   
Exchange Rate
  
   
High(1)
    
Low(2)
    
Average(3)
    
Period Closing(4)
  
Fiscal year ended June 30, 2009
     3.7780       2.9940       3.3862       3.7770  
Fiscal year ended June 30, 2010
     3.9130       3.6360       3.8255       3.9110  
Fiscal year ended June 30, 2011
     4.0900       3.9110       3.9810       4.0900  
Fiscal year ended June 30, 2012
     4.5070       4.0900       4.2808       4.5070  
Fiscal year ended June 30, 2013
     5.3680       4.5050       4.8914       5.3680  
July, 2013
     5.4850       5.3700       5.4218       5.4850  
August, 2013
     5.6520       5.4910       5.5625       5.6520  
September, 2013
     5.7730       5.6660       5.7173       5.7730  
As of October 24, 2013
     5.8500       5.7800       5.8152       5.8500  

 
Source: Banco de la Nación Argentina
 
(1)
The high exchange rate stated was the highest closing exchange rate of the month during the fiscal year.
(2)
The low exchange rate stated was the lowest closing exchange rate of the month during the fiscal year.
(3)
Average exchange rate for the fiscal year, month or partial period described in the table above.
(4)
Average of the selling rate and buying rate.
 
Fluctuations in the Peso-dollar exchange rate may affect the equivalent in dollars of the price in Pesos of our shares on the Buenos Aires Stock Exchange. Increases in Argentine inflation or devaluation of the Argentine currency could have a material adverse effect on our operating results.
 
 
This section is not applicable.
 
 
This section is not applicable.
 
 
You should consider the following risks described below, in addition to the other information contained in this annual report. We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business. In general, you take more risk when you invest in the securities of issuers in emerging markets such as Argentina than when you invest in the securities of issuers in the United States. You should understand that an investment in our common shares and ADSs involves a high degree of risk, including the possibility of loss of your entire investment.
 
Risks Related to Argentina
 
Argentina’s growth may not be sustainable.
 
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high inflation and currency devaluation. During 2001 and 2002, Argentina experienced a period of severe political, economic and social crisis, which caused a significant economic contraction and led to radical changes in government policies. Although the economy has recovered significantly since then, uncertainty remains as to whether the recent growth is sustainable, since it has depended, to a significant extent, on favorable exchange rates, high commodity prices and excess production capacity. The recovery, however, has resulted in inflation and has intensified the country’s need for capital investment, with many sectors, particularly the energy sector, operating near full capacity. Additionally, the global financial crisis and economic downturn of 2008 has had a significant adverse impact on the country’s performance and could remain a factor in the foreseeable future.

In 2012, the Argentine GDP increased 2.1%, according to data published by the National Institute of Statistics (“Instituto Nacional de Estadísticas y Censos” or the “INDEC”). For the six months ended June 30, 2013, GDP increased 7.3% relative to the same period the prior year, according to data published by the INDEC. As of June 30, 2013, the Monthly Economic Activity Estimator (“Estimador Mensual de Actividad Económica” or the “EMAE”) increased 5.7%, relative to the same period the prior year, according to data published by the INDEC.

 
8
 


The economic and financial slowdown in certain European countries, the United States, and certain other important commercial partners of Argentina, may imply a decline in the international demand for Argentine products, which could have a material adverse effect on our financial condition and the results of operations. Moreover, the country’s relative stability since 2002 has been affected by increased political tension and government intervention in the economy.

Our business depends to a significant extent on macroeconomic and political conditions in Argentina. We cannot assure you that Argentina’s recent growth will continue. Deterioration of the country’s economy would likely have a significant adverse effect on our business, financial condition and results of operations.

Continuing inflation may have an adverse effect on the economy.
 
The devaluation of the Peso since January 2002 has created pressures on the domestic price system that generated high inflation throughout 2002, before inflation substantially stabilized in 2003. In the fiscal years 2009, 2010, 2011, 2012 and 2013, inflation according to the INDEC was 8.5%, 11.0%, 9.7%, 9.9% and 10.5% respectively, in part due to actions implemented by the Argentine government to control inflation, including limitations on exports and price arrangements agreed upon with private companies. The uncertainty surrounding future inflation may impact the country’s growth.
 
In the past, inflation has undermined the Argentine economy and the government’s ability to create conditions conducive to growth. A return to a high inflation environment would adversely affect the availability of long-term credit and the real estate market and may also affect Argentina’s foreign competitiveness by diluting the effects of the Peso devaluation and negatively impacting the level of economic activity and employment.
 
Additionally, high inflation would also undermine Argentina’s foreign competitiveness and adversely affect economic activity, employment, real salaries, consumption and interest rates. In addition, the dilution of the positive effects of the Peso devaluation on the export-oriented sectors of the Argentine economy will decrease the level of economic activity in the country. In turn, a portion of the Argentine debt is adjusted by the Coefciente de Estabilización de Referencia, (“CER Index”, per its aconym in spanish), a currency index that is strongly tied to inflation. Therefore, any significant increase in inflation would cause an increase in Argentina’s debt and, consequently, the country`s financial obligation.
 
If inflation remains high or continues to rise, Argentina’s economy may be negatively impacted and our business could be adversely affected.
 
There are concerns about the accuracy of Argentina’s official inflation statistics.
 
In January 2007, the INDEC modified its methodology used to calculate the consumer price index, which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. Several economists, as well as the international and Argentine press, have suggested that this change in methodology was related to the policy of the Argentine government intended to curb the increase of inflation and consequently reduce payments on the outstanding inflation-linked bonds issued by Argentina. At the time that the INDEC adopted this change in methodology the Argentine government also replaced several key officers at the INDEC, prompting complaints of governmental interference from the technical staff at the INDEC. In addition, the International Monetary Fund (“IMF”) requested to clarify its inflation rates several times.
 
In June 2008, the INDEC published a new consumer price index which eliminated nearly half of the items included in previous surveys and introduced adjustable weightings for several items as fruits, vegetables and clothing, which have seasonal cost variations. The INDEC has indicated that it based its evaluation of spending habits on a national household consumption survey from 2004 to 2005, in addition to other sources.
 
The aforementioned 2008 consumer price index has been criticized by economists and investors after its debut report found prices rising well below expectations. These events have negatively affected the credibility of the consumer price index published by the INDEC, as well as other indexes published by the INDEC which require the consumer price index for their own calculation, including the poverty index, the unemployment index and real gross domestic product index. Argentina’s inflation rate may be significantly higher than the rates indicated by official reports.
 
In December 2010, the Argentine government agreed to meet with an official IMF team which arrived in Argentina to assist the INDEC with the development of a new national price index. In April 2011, the IMF team completed the second technical mission to assist on the design and methodology of a new national price index. As of the date of this annual report, the Argentine government has informed to the IMF that a new nationwide consumer price index will be applied in the foreseeable future, furthermore the Argentine government has stated that the new figures from the new consumer price may be differ with the consumer price now emplaced; in that sense all Argentine provinces have already signed an agreement to enter into the aforementioned new consumer price index, which will be submitted to the IMF during November 2013.
 
Any required correction or restatement of the INDEC indexes could result in a significant decrease in the confidence in Argentina´s economy, which could, in turn, have a material adverse effect on our ability to access to the international capital markets to finance our operations and growth, which, in turn, adversely aeffect our results of operations and financial conditions and cause the market value of our ADSs to decline.
 
Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth
 
In 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001. As a result of the restructuring the Argentine government announced that it had approximately US$ 129.2 billion in total gross public debt as of December 31, 2005. Certain bondholders that did not participate in that restructuring, mainly from the United States, Italy and Germany, filed legal actions against Argentina to collect on the defaulted bonds. Many of these proceedings are still pending as of this date and holdout creditors may initiate new suits in the future.
 
In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Central Bank in an amount equal to approximately US$ 6.5 billion. However, as of the date of this Annual Report, the National Government has not yet cancelled such debt. If no agreement with the Paris Club creditor nations is reached, financing from multilateral credit institutions may be limited or not available.
 
In addition, foreign shareholders of several Argentine companies have filed claims before the International Center for the Settlement of Investment Disputes (“ICSID”) alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and

 
9
 

equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party. Since May 2005, the ICSID tribunals have issued several awards against Argentina. Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently final. This decisions required the Argentine government to pay US$ 133.2 million, US$ 165.2 million and US$ 105 million, respectively. During the month of October 2013, the Argentinean Government has announced that has arrived to an agreement to settle the aforementioned claims against Argentina, in a settlement agreement which establishes a 25% nominal haircut, and the investment in newly sovereign bonds of Argentina to be issued, among other conditions.
 
On April 30, 2010, Argentina launched a new debt exchange to holders of the securities issued in the 2005 debt exchange and to holders of the securities that were eligible to participate in the 2005 debt exchange (other than brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment. As a result of the 2005 and 2010 exchange offers, Argentina restructured over 91% of the defaulted debt eligible for the 2005 and 2010 exchange offers. The creditors who did not participate in the 2005 or 2010 exchange offers may continue their pursuit of a legal action against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets.
 
Argentina’s past default and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets. Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments and awards against the Argentine government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations. Judgment creditors have sought and may continue to seek to attach or enjoin assets of Argentina. In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness. Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature has taken any significant steps towards adopting such legislation, we can make no assurance that the enactment of a new legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect.
 
Furthermore, in April 2010, a Court of New York granted an attachment over reserves of the Argentine Central Bank in the United States requested by creditors of Argentina on the theory that the Central Bank was its alter ego.  On July 2011, an appeals court reversed that ruling, stating that the assets of the Central Bank were protected by law.  Plaintiffs have petitioned the United States Supreme Court to review the appeals court decision and, as of the date of this annual report, the United States Supreme Court has turned down a petition by Argentina to reconsider a lower-court order requiring it to pay creditors upwards of $1.4 billion. In August, 2013 the U.S. 2nd Circuit Court of Appeals in New York ruled against Argentina in a separate issue in the same dispute. At the time, however, it put a stay on any action until the Supreme Court decided whether to hear the nation’s previously submitted petition; meanwhile, Argentina has appealed the August circuit-court ruling, and if that is rejected, the country could file a separate request to the Supreme Court.
 
As a result of Argentina’s default and the events that have followed it, the Argentine government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations.  Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth, which could adversely affect our results of operations and financial condition.

Significant fluctuation in the value of the Peso may adversely affect the Argentine economy as well as our financial performance.
 
The devaluation of the Peso has had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, initially led to very high inflation, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, such as utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations. If the Peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences on our business. Moreover, it would likely result in a decline in the value of our common shares and the ADSs as measured in U.S. dollars.

On the other hand, a substantial increase in the value of the Peso against the U.S. dollar also presents risks for the Argentine economy. The appreciation of the Peso against the U.S. dollar negatively impacts the financial condition of entities whose foreign currency denominated assets exceed their foreign currency-denominated liabilities, such as us. In addition, in the short term, a significant real appreciation of the Peso would adversely affect exports. This could have a negative effect on GDP growth and employment as well as reduce the Argentine public sector’s revenues by reducing tax collection in real terms, given its current heavy reliance on taxes on exports. The appreciation of the Peso against the U.S. dollar could have an adverse effect on the Argentine economy and our business.
 
Certain measures that may be taken by the Argentine Government may adversely affect the Argentine economy and, as a result, our business and results of operations
 
In November 2008, the Argentine Government enacted Law No. 26,425 which provided for the nationalization of the Administradoras de Fondos de Jubilaciones y Pensiones (the “AFJPs”) (See “The nationalization of Argentina’s pension funds has materially and adversely affected local capital markets”). More recently, the Argentine Government, has promoted a model of increase state participation in the economy through welfare programs, exchange and price control and the promotion of state owned companies. We cannot assure you that these or other measures that may be adopted by the Argentine Government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade, investment, among others, will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations and the market value of our shares and ADSs.
 
The Argentine government may order salary increases to be paid to employees in the private sector, 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 and may do so again in the future. In the aftermath of the Argentine economic crisis, 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 the high levels of inflation, the employees and labor organizations have begun again demanding significant wage increases. It is possible that the Argentine government could adopt measures mandating salary increases and/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.
 
 
 
10
 

The nationalization of Argentina’s pension funds has materially and adversely affected local capital markets.
 
Under Law No. 26,425, which was published in the Official Gazette in December 2008, the Argentine government transferred approximately Ps.94.4 billion (US$29.3 billion) in assets held by the country’s private Administradoras de Fondos de Jubilaciones y Pensiones (“AFJPs” per its Spanish acronym) to the social security agency (“ANSES”) managed by the National State.

Law No. 26,425 was supplemented, among others, by Decree No. 2103/2008 which describes the composition of the fund (Fondo de Garantia de Sustentabilidad) to be managed by ANSES and the directions for the management thereof; in turn, Decree No. 2104/08 regulates the matters concerning the transfer to the Argentine government of the contributions and all the documentation of the members of the capitalization regime retroactive as of December 1, 2008.

AFJPs were the largest participants in the country’s local capital markets, leading the group of institutional investors. With the nationalization of their assets, the dynamics of the local capital markets changed due to the decrease in their number, becoming a concentrated group. In addition, the government became a significant shareholder in many of the country’s publicly-held companies. Pursuant to current regulations, ANSES may exercise the voting rights corresponding to its respective shares, which could eventually result in uncertain consequences.
 
The nationalization of the AFJP has adversely affected investors’ confidence in Argentina, which may impact our ability to undertake access to the capital market in the future.
 
Exchange controls and restrictions on transfers abroad and capital inflow restrictions have limited, and can be expected to continue to limit, the availability of international credit.
 
In 2001 and 2002, Argentina imposed exchange controls and transfer restrictions substantially limiting the ability of companies to retain foreign currency or make payments abroad. On June 2005, the government issued decree No. 616/2005, which established additional controls on capital inflow, including the requirement that, subject to limited exemptions, 30% of all funds remitted to Argentina remain deposited in a domestic financial institution for one year without earning any interest. On October 2011, new exchange controls measures that restrict foreign exchange inflows and outflows of capital have been implemented, among them it was established as a requirement for the repatriation of the direct investment of the non-resident (purchase of shares of local companies and real estate), the demonstration of the income of the currency and its settlement in the single free exchange market “Mercado Único y Libre de Cambios”. This measure increases the cost of obtaining foreign funds and limits access to such financing.
 
The Argentine government may, in the future, impose additional controls on the foreign exchange market and on capital flows from and into Argentina, in response to capital flight or depreciation of the Peso. These restrictions may have a negative effect on the economy and on our business if imposed in an economic environment where access to local capital is constrained. For more information, please see Item 10 “Additional Information D. Exchange Controls”.
 
Rural Land Law
 
On December 22, 2011, the Argentinean Congress passed a new law in order to protect the ownership and sovereignty of certain rural areas of Argentina (the  “Rural Land Law”). The Rural Land Law sets limits to the domain of rural land by foreign individuals or legal entities ("Foreign Persons"), setting a maximum allowable percentage of ownership for foreigners of 20% in the rural areas of Argentina. Additionally, only 30% of the aforementioned 20% may be held by Foreign Persons of the same nationality, and from the date of enactment of the Rural Land Act on, any foreign person may only own more than 1,000 hectares throughout Argentine territory. The Rural Land Law states that it will not affect any rights previously acquired by Foreign Persons.
 
For the purposes of the Rural Land Law, the definition of Foreign Person includes Argentine companies in which a percentage higher than 51% of the outstanding capital stock is owned by foreign individuals or legal entities, or lower rates if the entity meets the proportions necessary to form the social will. The following also fall within the definition of Foreign Person (among others): (a) entities controlled by a percentage greater than 25% by a foreign company, or regardless of participation when such company holds enough votes to form the social will of that company; (b) companies that issued convertible notes, where a Foreign Person may exert over 25% of the voting power necessary to form the social will; (c) transfers for trusts whose beneficiaries are Foreign Persons in a percentage higher than 25%, (d) joint ventures, holding companies and any other legal persons present or in the future, and (e) foreign legal persons under public law.
 
On February 29, 2012, Executive Branch Decree No. 274/12 was published regulating the Rural Land Law. The Decree established a deadline of 60 days to the provinces to report the total area of ​​their departments, municipalities or political divisions equivalent discriminating rural and urban land and rural properties owned by foreign individuals or legal entities. Additionally, provinces should report the complete list of foreign companies registered at their jurisdiction. The decree also provides that foreign holders must report their holdings within 180 days from the date of enactment of regulations in the National Register of Rural Land.
 
Payment of dividends to non-residents has been limited in the past and may be limited again.
 
Beginning in February 2002, the payment of dividends, irrespective of amount, outside Argentina required prior authorization from the Central Bank. On January 7, 2003, the Central Bank issued communication “A” 3859, which is still in force and pursuant to which there are no limitations on companies’ ability to purchase foreign currency and transfer it outside Argentina to pay dividends, provided that those dividends arise from net earnings corresponding to approved and audited financial statements. If similar restrictions are enacted by the Argentine government or the Central Bank in the future, it could have an adverse effect on our business. Even though, there is no legal restriction currently in effect in connection with the payment of dividends abroad, there has been some delays to access to the “Mercado Único y Libre de Cambios” in order to purchase foreign currency under this concept.
 
Property values in Argentina could decline significantly.
 
Property values are influenced by multiple factors that are beyond our control. We cannot assure you that property values will increase. Many of the properties we own are located in Argentina. As a result, a reduction in the value of properties in Argentina could materially affect our business.

 
11
 

The stability of the Argentine banking system is uncertain.
 
During 2001 and the first half of 2002, a significant amount of deposits were withdrawn from Argentine financial institutions largely due to the loss of confidence of depositors in the Argentine government’s ability to repay its debts, including its debts within the financial system, and to maintain Peso-U.S. dollar parity in the context of its solvency crisis.
 
While the condition of the financial system has improved, adverse economic developments, even if not related to or attributable to the financial system, could result in deposits flowing out of the banks and into the foreign exchange market, as depositors seek to shield their financial assets from a new crisis. Any run on deposits could create liquidity or even solvency problems for financial institutions, resulting in a contraction of available credit.
 
 
In the event of a future shock, such as the failure of one or more banks or a crisis in depositor confidence, the Argentine government could impose further exchange controls or transfer restrictions and take other measures that could lead to renewed political and social tensions and undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth which could adversely affect our business.
 
The Argentine economy could be adversely affected by economic developments in other global markets
 
Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets. Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into other countries, including. Lower capital inflows and declining securities prices negatively affect the real economy of a country through higher interest rates or currency volatility. The Argentine economy economy remains vulnerable to external shocks, including those related or similar to the global economic crisis that began in 2008 and the recent uncertainties surrounding European sovereign debt. For example, the recent challenges faced by the European Union to stabilize certain of its member economies, such as Greece, Ireland, Italy, Portugal and Spain, have had international implications affecting the stability of global financial markets, which has hindered economies worldwide. Should measures taken by the European Union be insufficient to restore confidence and stability to the financial markets, any recovery of the global economy, including the U.S. and European Union economies, could be hindered or reversed, which could negatively affect the Argentine economy, and in turn our business and results of operations.
 
In addition, Argentina is also affected by the economic conditions of major trade partners, such as Brazil and/or countries that have influence over world economic cycles, such as the United States and China; if developing countries, such as Brazil and China, which are also Argentina’s trade partners, fall into a recession the Argentine economy would be affected by a decrease in exports. All of these factors would have a negative impact on us, our business, operations, financial condition and prospects.
 
The impact of the aforementioned situations on Argentina could imply in a reduction in the exports and foreign direct investment, and a decline in the national tax revenues and the inability to access to the international capital markets, which could adversely affect our business and results of our operations.
 
If prices for Argentina’s main commodity exports decline, such decline could have an adverse effect on Argentina’s economic growth and on our business.
 
Argentina’s economy has historically relied on the export of commodities, the prices of which have been volatile in the past and largely outside its control. High commodity prices have contributed significantly to government revenues from taxes on exports. Fluctuations in prices for commodities exported by Argentina and a significant increase in the value of the Peso (in real terms) may reduce Argentina’s competitiveness and significantly affect the country’s exports. A decrease in exports could affect Argentina’s economy, have a material adverse effect on public finances due to a loss of tax revenues cause an imbalance in the country’s exchange market which, in turn, could lead to increased volatility with respect to the exchange rate. In addition, and more importantly in the short term, a significant appreciation of the Peso could materially reduce the Argentine government’s revenues in real terms and affect its ability to make payments on its debt obligations, as these revenues are heavily derived from export taxes (withholdings). This could worsen the financial condition of the Argentine public sector, which could adversely affect the Argentine economy, as well as our financial condition and operating results.
 
Restrictions on the supply of energy could negatively affect Argentina’s economy.
 
As a result of prolonged recession, and the forced conversion into Pesos and subsequent freeze of gas and electricity tariffs in Argentina, there has been a lack of investment in gas and electricity supply and transport capacity in Argentina in recent years. At the same time, demand for natural gas and electricity has increased substantially, driven by a recovery in economic conditions and price constraints, which has prompted the government to adopt a series of measures that have resulted in industry shortages and/or costs increase.
 
The federal government has been taking a number of measures to alleviate the short-term impact of energy shortages on residential and industrial users. If these measures prove to be insufficient, or if the investment that is required to increase natural gas production and transportation capacity and energy generation and transportation capacity over the medium-and long-term fails to materialize on a timely basis, economic activity in Argentina could be curtailed which may have a significant adverse effect on our business.
 
As a first step of these measures, subsidies on energy tariffs are being withdrawn to industries and high income consumers. As a result, our operating costs may increase.

 
12
 

Risks Relating to Brazil
 
The Brazilian government has exercised and continues to exercise influence over the Brazilian economy, which together with Brazil’s historically volatile political and economic conditions could adversely affect our financial condition and results of operations.
 
Our business is dependent to a large extent on the economic conditions in Brazil. As of June 30, 2011 we consolidated our financial statements with our subsidiary Brasilagro-Companhia Brasileira de Propiedades Agricolas (“Brasilagro”).
 
Historically, the Brazilian government has changed monetary, credit, tariff, and other policies to influence the course of Brazil’s economy. Such government actions have included increases in interest rates, changes in tax policies, price controls, currency devaluations, as well as other measures such as imposing exchange controls and limits on imports and exports.
 
Our operations in Brazil may be adversely affected by changes in public policy at federal, state and municipal levels with respect to public tariffs and exchange controls, as well as other factors, such as:
 
•
fluctuation in exchange rates in Brazil;
•
monetary policy;
•
exchange controls and restrictions on remittances outside Brazil, such as those which were imposed on such remittances (including dividends) in 1989 and early 1990;
•
inflation in Brazil;
•
interest rates;
•
liquidity of the Brazilian financial, capital and lending markets;
•
fiscal policy and tax regime in Brazil; and
•
other political, social and economic developments in or affecting Brazil.
 
Actions of the Brazilian government in the future could have a significant effect on economic conditions in Brazil, which could adversely affect private sector companies such as our subsidiary Brasilagro, and thus, could adversely affect us.
 
Although inflation in Brazil has stabilized in the past years, an increase in inflation could adversely affect the operations of Brasilagro which could adversely impact our financial condition and results of operations.
 
Brazil has experienced high and generally unpredictable rates of inflation in the past. Inflation itself, as well as governmental policies to combat inflation, has had significant negative effects on the Brazilian economy in general. Inflation, government efforts to control inflation and public speculation about future governmental actions have had, and can be expected to continue to have, significant impact on the Brazilian economy and on our operations in Brazil. As measured by the Brazilian Índice Nacional de Preços ao Consumidor (National Consumer Price Index), or INPC, inflation in Brazil was 6.5%, 4.1%, 6.5%, 6,1% and 6.2% in 2008, 2009, 2010, 2011 and 2012, respectively. For the six month period ended June 30, 2013 the inflation in Brazil was 3.3%. We cannot assure you that levels of inflation in Brazil will not increase in future years having a material adverse effect on our business, on the financial condition or, the results of operations. Inflationary pressures may lead to government intervention in the economy, including the introduction of government policies that could adversely affect the results of operations of Brasilagro.
 
The Brazilian real is subject to depreciation and exchange rate volatility which could adversely affect our financial condition and results of operations.
 
Brazil’s rate of inflation and the government’s actions to combat inflation have also affected the exchange rate between the real and the U.S. dollar. As a result of inflationary pressures, the Brazilian currency has been devalued periodically during the last four decades. Throughout this period, the Brazilian federal government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic devaluations (during which the frequency of adjustments has ranged from daily to monthly), floating exchange rate systems, exchange controls and dual exchange rate markets. During 2008, 2009, 2010, 2011 and 2012 the real appreciated (30.1%), 24.9% , 4.6%, (13.3%) and (9.63%), respectively, against the U.S. dollar. In the six months ended June 30, 2013, the real depreciated 9.09% against the U.S. dollar. There can be no assurance that the rate of exchange between the real and the U.S. dollar will not fluctuate significantly in the future. In the event of a devaluation of the real, the financial condition and results of operations of our Brazilian subsidiary could be adversely affected.
 
Depreciation of the real relative to the U.S. dollar may increase the cost of servicing foreign currency-denominated debt that our subsidiary may incur in the future, which could adversely affect our financial condition and results of operations. In addition, depreciation of the real creates additional inflationary pressures in Brazil that may adversely affect our results of operations. Depreciation generally curtails access to international capital markets and may prompt government intervention. It also reduces the U.S. dollar value of Brasilagro’s revenues, distributions and dividends, and the U.S. dollar equivalent of the market price of our common shares. On the other hand, the appreciation of the real against the U.S. dollar may lead to the deterioration of Brazil’s public accounts and balance of payments, as well as to lower economic growth from exports, which could impact the results of our subsidiary Brasilagro.
 
The Brazilian government imposes certain restrictions on currency conversions and remittances abroad which could affect the timing and amount of any dividend or other payment we receive.
 
Brazilian law guarantees foreign shareholders of Brazilian companies the right to repatriate their invested capital and to receive all dividends in foreign currency provided that their investment is registered with the Banco Central do Brazil, or the Brazilian Central Bank. We registered our investment in Brasilagro with the Brazilian Central Bank on April 28, 2006. Although dividend payments related to profits obtained subsequent to April 28, 2006 are not subject to income tax, if the sum of repatriated capital and invested capital exceeds the investment amount registered with the Brazilian Central Bank, repatriated capital is subject to a capital gains tax of 15%. There can be no assurance that the Brazilian government will not impose additional restrictions or modify existing regulations that would have an adverse effect on an investor’s ability to repatriate funds from Brazil nor can there be any assurance of the timing or duration of such restrictions, if imposed in the future.
 

 
13
 

Widespread uncertainties, corruption and fraud relating to ownership of real estate may adversely affect our business.
 
There are widespread uncertainties, corruption and fraud relating to title ownership of real estate in Brazil. In Brazil, ownership of real property is conveyed through filing of deeds before the relevant land registry. In certain cases, land registry recording errors, including duplicate and/or fraudulent entries, and deed challenges frequently occur, leading to judicial actions. Property disputes over title ownership are frequent, and, as a result, there is a risk that errors, fraud or challenges could adversely affect us, causing the loss of all or substantially all of our properties.
 
In addition, our land may be subject to expropriation by the Brazilian government. An expropriation could materially impair the normal use of our lands or have a material adverse effect on our results of operations. In addition, social movements, such as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra, are active in Brazil. Such movements advocate land reform and mandatory property redistribution by the government. Land invasions and occupations of rural areas by a large number of individuals is common practice for these movements, and, in certain areas, including some of those in which we are likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot give you any assurance that our properties will not be subject to invasion or occupation by these groups. A land invasion or occupation could materially impair the normal use of our lands or have a material adverse effect on us or the value of our common shares or ADRs.
 
The lack of efficient transportation, and adequate storage or handling facilities in certain of the regions in which we operate may have a material adverse effect on our business.
 
One of the principal disadvantages of the agriculture industry in some of the regions where we operate is that they are located a long distance from major ports in some cases, nearly 1,500 kilometers. Efficient access to transportation infrastructure and ports is critical to the profitability in the agricultural industry. Furthermore, as part of our business strategy, we intend to acquire and develop land in specific areas where existing transportation is poor. A substantial portion of agricultural production in certain of the regions where we operate is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to the U.S. and other international producers. As a result, we may be unable to obtain efficient transportation to make our production reach our most important markets in a cost-effective manner, if at all, which could have an adverse effect on our business and results of our operations.
 
Risks Relating to Our Region
 
Our business is dependent on economic conditions in the countries where we operate or intend to operate.
 
We made investments in farmland in Argentina, Brazil, Paraguay and Bolivia and we may possibly make investments in other countries in and outside Latin America. Because demand for livestock and agricultural products usually is correlated to economic conditions prevailing in the local market, which in turn is dependent on the macroeconomic condition of the country in which the market is located, our financial condition and results of operations are, to a considerable extent, dependent upon political and economic conditions prevailing from time to time in the countries where we operate. Latin American countries have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability. Certain countries have experienced severe economic crises, which may still have future effects. As a result, governments may not have the financial resources necessary to implement reforms and foster growth. Any of these adverse economic conditions could have a material adverse effect on our business.
 
In the past year, the world’s economy experienced the effects of the crisis that unfolded in mid-2008 as a result of the disruption of the United States’ subprime mortgage market. Though there has been some recovery, an interruption of such recovery may have an impact on the economic conditions difficult to predict. Triggering a less favorable or an unfavorable international environment for the countries where we operate or intend to operate, forcing domestic policy adjustments, which could cause adverse economic conditions and adversely affect our business.
 
We face the risk of political and economic crises, instability, terrorism, civil strife, expropriation and other risks of doing business in emerging markets.
 
In addition to Argentina and Brazil, we conduct or intend to conduct our operations in other Latin-American countries. Economic and political developments in the countries in which we operate, including future economic changes or crises (such as inflation or recession), government deadlock, political instability, terrorism, civil strife, changes in laws and regulations, expropriation or nationalization of property, and exchange controls could adversely affect our business, financial condition and results of operations.
 
Although economic conditions in one country may differ significantly from another country, we cannot assure that events in one country alone will not adversely affect our business or the market value of, or market for, our common shares and/or our ADSs .
 
Governments in the countries where we operate or intend to operate exercise significant influence over their economies.
 
Emerging market governments, including governments in the countries where we operate, frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and prospects may be adversely affected by changes in government policies or regulations, including factors, such as:
 
•
exchange rates and exchange control policies;
•
inflation rates;
•
interest rates;
•
tariff and inflation control policies;
•
import duties on information technology equipment;
•
liquidity of domestic capital and lending markets;
•
electricity rationing;
•
tax policies; and
•
other political, diplomatic, social and economic developments in or affecting the countries where we intend to operate.
 

 
14
 
 
an eventual reduction of foreign investment in any of the countries where we operate may have a negative impact on such country’s economy, affecting interest rates and the ability of companies to access financial markets.
 
Local currencies used in the conduct of our business are subject to exchange rate volatility and exchange controls.
 
The currencies of many countries in Latin America have experienced substantial volatility in recent years. Currency movements, as well as higher interest rates, have materially and adversely affected the economies of many Latin American countries, including countries in which account for or are expected to account for a significant portion of our revenues. The depreciation of local currencies creates inflationary pressures that may have an adverse effect on us generally, and may restrict access to international capital markets. On the other hand, the appreciation of local currencies against the U.S. dollar may lead to deterioration in the balance of payments of the countries where we operate, as well as to a lower economic growth.
 
In addition, we may be subject to exchange control regulations in these Latin American countries which might restrict our ability to convert local currencies into U.S. dollars.
 
Inflation and certain government measures to curb inflation may have adverse effects on the economies of the countries where we operate or intend to operate our business and our operations.
 
Most countries where we operate or intend to operate have historically experienced high rates of inflation. Inflation and some measures implemented to curb inflation have had significant negative effects on the economies of Latin American countries. Governmental actions taken in an effort to curb inflation, coupled with speculation about possible future actions, have contributed to economic uncertainty at times in most Latin American countries. The countries where we operate or intend to operate may experience high levels of inflation in the future that could lead to further government intervention in the economy, including the introduction of government policies that could adversely affect our results of operations. In addition, if any of these countries experience high rates of inflation, we may not be able to adjust the price of our services sufficiently to offset the effects of inflation on our cost structures. A high inflation environment would also have negative effects on the level of economic activity and employment and adversely affect our business and results of operations.
 
Developments in other markets may affect the Latin American countries where we operate or intend to operate, and as a result our financial condition and results of operations may be adversely affected.
 
The market value of securities of companies such as us may be, to varying degrees, affected by economic and market conditions in other global markets. Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into and securities from issuers in other countries, including Latin American countries. Various Latin American economies have been adversely impacted by the political and economic events that occurred in several emerging economies in recent times. Furthermore, Latin American economies may be affected by events in developed economies which are trading partners or that impact the global economy and adversely affect our activities and the results of our operations.
 
Land in Latin American countries may be subject to expropriation or occupation.
 
Our land may be subject to expropriation by the governments of the countries where we operate and intend to operate. An expropriation could materially impair the normal use of our lands or have a material adverse effect on our results of operations. In addition, social movements, such as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra in Brazil, are active in certain of the countries where we operate or intend to operate. Such movements advocate land reform and mandatory property redistribution by governments. Land invasions and occupations of rural areas by a large number of individuals is common practice for these movements, and, in certain areas, including some of those in which we are likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot give you any assurance that our properties will not be subject to invasion or occupation by these groups. A land invasion or occupation could materially impair the normal use of our lands or have a material adverse effect on us or the value of our common shares and/or our ADSs.
 
We may invest in countries other than Argentina and Brazil and cannot give you any assurance as to the countries in which we will ultimately invest, and we could fail to list all risk factors for each possible country.
 
We have a broad and opportunistic business strategy and you should understand that we may invest in countries other than Argentina and Brazil including countries in other emerging markets outside Latin America such as Africa. As a result, it is not possible at this time to identify all risk factors that may affect our future operations and the value of our common shares and ADSs.
 
Risks Relating to Our Business
 
Fluctuation in market prices for our agriculture products could adversely affect our financial condition and results of operations.
 
Prices for cereals, oilseeds and by-products, like those of other commodities, can be expected to fluctuate significantly. The prices that we are able to obtain for our agriculture products depend on many factors beyond our control, including:
 
•
prevailing world prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide demand and supply;
•
changes in the agricultural subsidy levels in certain important countries (mainly the United States and countries in the European Union) and the adoption of other government policies affecting industry market conditions and prices; and
•
demand for and supply of competing commodities and substitutes.
 
Our financial condition and results of operations could be materially and adversely affected if the prices of grains and by-products decline.
 

 
15
 


Unpredictable weather conditions may have an adverse impact on our crop and beef cattle production.
 
The occurrence of severe adverse weather conditions, especially droughts, hail, or floods, is unpredictable and may have a potentially devastating impact upon our crop production and, to a lesser extent, our beef cattle and wool production. The occurrence of severe adverse weather conditions may reduce yields on our farmlands or require us to increase our level of investment to maintain yields.
 
 According to the United States Department of Agriculture (“USDA”) estimates, Argentina’s crops output (wheat, corn and soybean) for the 2013/2014 season are expected to be slightly better than in the previous cycle. They forecast not only an increase in the sown area in the case of soybean and wheat (corn shows a slightly fall due to higher costs), but a general increase in the expected yields in comparison with the previous campaign. The estimated production of soybean is supposed to reach 53.5 million tons, the wheat production 12 million tons and the corn production 27 million tons.
 
However, we cannot assure you that the present and future severe adverse weather conditions will not adversely affect our operating results and financial condition.
 
Disease may strike our crops without warning potentially destroying some or all of our yields.
 
The occurrence and effect of crop disease and pestilence can be unpredictable and devastating to crops, potentially destroying all or a substantial portion of the affected harvests. Even when only a portion of the crop is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs for the entire crop have been incurred. Although some crop diseases are treatable, the cost of treatment is high, and we cannot assure that such events in the future will not adversely affect our operating results and financial condition.
 
Our beef cattle are subject to diseases.
 
Diseases among our beef cattle herds, such as tuberculosis, brucellosis and foot-and-mouth disease, can have an adverse effect on milk production and fattening, rendering cows unable to produce milk or meat for human consumption. Outbreaks of beef cattle diseases may also result in the closure of certain important markets, such as the United States, to our beef cattle products. Although we abide by national veterinary health guidelines, which include laboratory analyses and vaccination, to control diseases among the herds, especially foot-and-mouth disease, we cannot assure that future outbreaks of beef cattle diseases will not occur. A future outbreak of diseases among our beef cattle herds may adversely affect our beef cattle and milk sales which could adversely affect our operating results and financial condition.
 
We may be exposed to material losses due to volatile crop prices since a significant portion of our production is not hedged, and exposed to crop price risk.
 
Due to the fact that we do not have all of our crops hedged, we are unable to have minimum price guarantees for all of our production and are therefore exposed to significant risks associated with the level and volatility of crop prices. We are subject to fluctuations in crop prices which could result in receiving a lower price for our crops than our production cost. We are also subject to exchange rate risks related to our crops that are hedged, because our futures and options positions are valued in U.S. dollars, and thus are subject to exchange rate risk.
 
In addition, if severe weather or any other disaster generates a lower crop production than the position already sold in the market, we may suffer material losses in the repurchase of the sold contracts.
 
The creation of new export taxes may have an adverse impact on our sales.
 
In order to prevent inflation and variations in the exchange rate from adversely affecting prices of primary and manufactured products (including agricultural products), and to increase tax collections and reduce Argentina’s fiscal deficit, the Argentine government has imposed new taxes on exports. Pursuant to Resolution No. 11/02 of the Ministry of Economy and Production, as amended by Resolution 35/02, 160/2002, 307/2002 and 530/2002, effective as of March 5, 2002, the Argentine government imposed a 20%, 10% and 5% export tax on primary and manufactured products. On November 12, 2005, pursuant to Resolution No. 653/2005, the Ministry of Economy and Production increased the tax on beef cattle exports from 5% to 10%, and on January 2007 increased the tax on soybean exports from 23.5% to 27.5%. Pursuant to Resolutions No. 368/07 and 369/07 both dated November 12, 2007, the Ministry of Economy and Production further increased the tax on soybean exports from 27.5% to 35.0% and also the tax on wheat and corn exports from 20.0% to 28.0% and from 20.0% to 25.0%, respectively. In early March 2008, the Argentine government introduced a regime of sliding –scale export tariffs for oilseed, grains and by-products, where the withholding rate (in percentage) would increase to the same extent as the crops’ price. Therefore, it imposed an average tax for soybean exports of 46%, compared to the previous fixed rate of 35%. In addition, the tax on exports of wheat was increased, from a fixed rate of 28% to an average variable rate of 38%, and the tax on exports of corn changed from a fixed rate of 25% to an average variable rate of 36%. This tariff regime, which according to farmers effectively sets a maximum price for their crops, sparked widespread strikes and protests by farmers whose exports have been one of the principal driving forces behind Argentina’s recent growth. In April 2008, as a result of the export tariff regime, farmers staged a 21-day strike in which, among other things, roadblocks were set up throughout the country, triggering Argentina’s most significant political crisis in five years. These protests disrupted transport and economic activity, which led to food shortages, a surge in inflation and a drop in export registrations. Finally, the federal executive branch decided to send the new regime of sliding-scale export tariffs to the federal congress for its approval. The project was approved in the House of Representatives but rejected by the Senate. Subsequently, the federal government abrogated the regime of sliding-scale export tariffs and reinstated the previous scheme of fixed withholdings.
 
Export taxes might have a material and adverse effect on our sales. We produce exportable goods and, therefore, an increase in export taxes is likely to result in a decrease in our products’ price, and, therefore, may result in a decrease of our sales. We cannot guarantee the impact of those or any other future measures that might be adopted by the Argentine government on our financial condition and result of operations.
 
The international 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 international credit crisis had a significant negative impact on businesses around the world. Although we believe that available borrowing capacity under the current conditions and proceeds resulting from potential farmland sales will provide us with sufficient liquidity through the current economic environment, the impact of the crisis on our major customers cannot be predicted and may be quite severe. A disruption in the ability of our significant customers to access liquidity could cause serious disruptions or an overall deterioration of their businesses which could lead to a reduction in
 

 
16
 


their future orders of our products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operations and liquidity.
 
Government intervention in our markets may have a direct impact on our prices.
 
The Argentine government has set certain industry market conditions and prices in the past. In order to prevent a substantial increase in the price of basic products as a result of inflation, the Argentine government is adopting an interventionist policy. In March 2002, the Argentine government fixed the price for milk after a conflict among producers and the government. Since 2005, the Argentine government, in order to increase the domestic availability of beef and reduce domestic prices, adopted several measures: it increased turnover tax and established a minimum average number of animals to be slaughtered. In March 2006, the registries for beef exports were temporarily suspended. This last measure was softened once prices decreased. There can be no assurance that the Argentine government will not interfere in other areas by setting prices or regulating other market conditions. Accordingly, we cannot assure you that we will be able to freely negotiate all our products’ prices in the future or that the prices or other market conditions that the Argentine government could impose will allow us to freely negotiate the price of our products.
 
We do not maintain insurance over all of our crop storage facilities; therefore, if a fire or other disaster damages some or all of our harvest, we will not be completely covered.
 
We store a significant portion of our grain production during harvest due to the seasonal drop in prices that normally occurs at that time. Currently, we store a significant portion of our grain production in plastic silos. We do not maintain insurance on our plastic silos. Although our plastic silos are placed in several different locations, and it is unlikely that a natural disaster affects all of our plastic silos simultaneously, a fire or other natural disaster which damages the stored grain, particularly if such event occurs shortly after harvesting, could have an adverse effect on our operating results and financial condition.
 
Worldwide competition in the markets for our products could adversely affect our business and results of operations.
 
We experience substantial worldwide competition in each of our markets and in many of our product lines. The market for cereals, oil seeds and by-products is highly competitive and also sensitive to changes in industry capacity, producer inventories and cyclical changes in the world’s economies, any of which may significantly affect the selling prices of our products and thereby our profitability. Argentina is more competitive in the oilseed market than in the market for cereals. Due to the fact that many of our products are agricultural commodities, they compete in the international markets almost exclusively on the basis of price. Many other producers of these products are larger than us, and have greater financial and other resources. Moreover, many other producers receive subsidies from their respective countries while we do not receive any such subsidies from the Argentine government. These subsidies may allow producers from other countries to produce at lower costs than us and/or endure periods of low prices and operating losses for longer periods than we can. Any increased competitive pressure with respect to our products could materially and adversely affect our financial condition and results of operations.
 
If we are unable to maintain our relationship with our customers, particularly with the single customer who purchases our entire raw milk production each month, our business may be adversely affected.
 
Though our beef cattle sales are diversified, we are and will continue to be significantly dependent on a number of third party relationships, mainly with our customers for crop and milk sales. In the fiscal year 2013, we sold our products to approximately 400 customers. Sales of agricultural products to our ten largest customers represented approximately 77% of our net sales for the fiscal year ended June 30, 2013. Our biggest three customers are Bunge Alimentos S.A., Green Ethanol and Molinos Río de la Plata S.A., represented, in the aggregate, approximately 41% of our net sales in agricultural products, while the remaining seven customers in the aggregate represented approximately 59% of our net sales in the fiscal year 2013.
 
In addition, we currently sell our entire raw milk production to one customer in Argentina, Mastellone Hnos. S.A. For the year ended June 30, 2013, these sales represented approximately 3.4% of our agricultural business revenues. There can be no assurance that this customer will continue to purchase our entire raw milk production or that, if it fails to do so, we could enter into satisfactory sale arrangements with new purchasers in the future.
 
We sell our crop production mainly to exporters and manufacturers that process the raw materials to produce meal and oil, products that are sent to the export markets. The Argentine crop market is characterized by a few purchasers and a great number of sellers. Although most of the purchasers are international companies with strong financial conditions, we cannot assure you that this situation will remain the same in the future or that this market will not get more concentrated in the future.
 
We may not be able to maintain or form new relationships with customers or others who provide products and services that are important to our business. Accordingly, we cannot assure you that our existing or prospective relationships will result in sustained business or the generation of significant revenues.
 
Our business is seasonal, and our revenues may fluctuate significantly depending on the growing cycle.
 
Our agricultural business is highly seasonal in nature. The harvest and sale of crops (corn, soybean and sunflower) generally occurs from February to June. Wheat is harvested from December to January. Our operations and sales are affected by the growing cycle of the crops we process and by decreases during the summer in the price of the beef cattle we fatten. As a result, our results of operations have varied significantly from period to period, and are likely to continue to vary, due to seasonal factors.
 
The restrictions imposed on our subsidiaries’ dividend payments might adversely affect us.
 
We have subsidiaries, and therefore, dividends in cash and other permitted payments of our subsidiaries constitute a major source of our income. The debt agreements of our subsidiaries contain covenants that restrict their ability to pay dividends or proceed with other types of distributions. If our subsidiaries are prevented from making payments to our company or if they are only allowed to pay limited amounts, we will be unable to pay dividends or to repay our indebtedness.
 

 
17
 


Our principal shareholder has the ability to direct our business and affairs, and its interests could conflict with ours.
 
As of June 30, 2013, Mr. Eduardo S. Elsztain, was the beneficial owner of 39.30% (on a fully diluted basis) of our common shares. As a result of his significant influence over us, Mr. Elsztain, by virtue of his position in IFISA, has been able to elect a majority of the members of our board of directors, direct our management and determine the result of substantially all resolutions that require shareholders’ approval, including fundamental corporate transactions and our payment of dividends by us.
 
The interests of our principal shareholder and management may differ from, and could conflict with, those of our other shareholders. Pursuant to a consulting agreement we pay a management fee equal to 10% of our annual net income to Consultores Asset Management S.A., formerly known as Dolphin Fund Management S.A. (“Consultores Asset Management”), a company whose capital stock is 85% owned by Eduardo Elsztain and 15% owned by Saúl Zang, the first vice-chairman of our board of directors. This performance based fee could be viewed as an incentive for Consultores Asset Management to favor riskier or more speculative investments than would otherwise be the case. In addition, as of June 30, 2013 Mr. Elsztain was the beneficial owner, due to his indirect shareholding through us of 66.1% of the common shares of IRSA Inversiones y Representaciones Sociedad Anónima ("IRSA"), an Argentine company that currently owns approximately 95.7% of the common shares of its subsidiary Alto Palermo Sociedad Anónima (APSA) (“Alto Palermo” or “APSA”) whose chief executive officer is Mr. Alejandro G. Elsztain, Mr. Eduardo Elsztain’s brother and our chief executive officer. We cannot assure you that our principal shareholders will not cause us to forego business opportunities that their affiliates may pursue or to pursue other opportunities that may not be in our interest, all of which may adversely affect our business, results of operations and financial condition and the value of our common shares and the ADSs.
 
We could be adversely affected by our investment in IRSA if its value declines.
 
Our investment in IRSA is exposed to the common risks generally inherent in investments in commercial and residential properties, many of which are outside IRSA’s control. Any of these risks could adversely and materially affect IRSA’s businesses, financial position and/or results of operations. Any available returns on capital expenditures associated with real estate are dependent upon sales volumes and/or revenues from leases and the expenses incurred. Besides, there are other factors that may adversely affect the performance and the value of a property, including the local economic conditions prevailing in the area where the property is located, macroeconomic conditions in Argentina and in the rest of the world, competition from other companies engaged in real estate development, IRSA’s ability to find lessees, non-performance by lessees and/or lease terminations, changes in legislation and in governmental regulations (including those governing the use of the properties, urban planning and real estate taxes), variations in interest rates (including the risk of an increase in interest rates causing a reduction in the sales of lots in properties intended for residential development) and the availability of funding. In addition, and given the relative illiquidity of the real estate market, IRSA could be unable to effectively respond to adverse market conditions and/or be compelled to undersell one or more of its properties. Broadly speaking, some significant expenses, such as debt services, real estate taxes and operating and maintenance costs do not fall when there are circumstances that reduce the revenues from an investment.
 
These factors and/or events could impair IRSA’s ability to respond to adverse changes in the returns on its investments thus causing a significant reduction in its financial position and/or the results of its operations, which could have an adverse effect on our financial position and the results of our operations.
 
We could be materially and adversely affected by our investment in Brasilagro.
 
We consolidated our financial statements with our subsidiary Brasilagro. Brasilagro was formed on September 23, 2005 to exploit opportunities in the Brazilian agricultural sector. Brasilagro seeks to acquire and develop future properties to produce a diversified range of agricultural products (which may include sugarcane, grains, cotton, forestry products and livestock). Brasilagro is a startup company that has been operating since 2006. As a result, it has a developing business strategy and limited track record. Brasilagro’s business strategy may not be successful, and if not successful, Brasilagro may be unable to successfully modify its strategy. Brasilagro’s ability to implement its proposed business strategy may be materially and adversely affected by many known and unknown factors. If we were to write-off our investments in Brasilagro, this would likely materially and adversely affect our business. As of June 30, 2013, we owned 39.64% of the outstanding common shares of Brasilagro.
 
We may be subject to extensive environmental regulation.
 
Our activities are subject to a wide set of federal, state and local laws and regulations relating to the protection of the environment, which impose various environmental obligations. Obligations include compulsory maintenance of certain preserved areas in our properties, management of pesticides and associated hazardous waste and the acquisition of permits for water use. Our proposed business is likely to involve the handling and use of hazardous materials that may cause the emission of certain regulated substances. In addition, the storage and processing of our products may create hazardous conditions. We could be exposed to criminal and administrative penalties, in addition to the obligation to remedy the adverse effects of our operations on the environment and to indemnify third parties for damages, including the payment of penalties for non-compliance with these laws and regulations. Since environmental laws and their enforcement are becoming more stringent in Argentina, our capital expenditures and expenses for environmental compliance may substantially increase in the future. In addition, due to the possibility of future regulatory or other developments, the amount and timing of environmental-related capital expenditures and expenses may vary substantially from those currently anticipated. The cost of compliance with environmental regulation may result in reductions of other strategic investments which may consequently decrease our profits. Any material unforeseen environmental costs may have a material adverse effect on our business, results of operations, financial condition or prospects.
 
As of June 30, 2013, we owned land reserves extending over more than 357,505 hectares that were purchased at very attractive prices. In addition, we have a concession over 112,747 hectares reserved for future development. We believe that there are technological tools available to improve productivity in these farmlands and, therefore, achieve appreciation in the long term. However, current or future environmental regulations could prevent us from fully developing our land reserves by requiring that we maintain part of this land as natural woodlands not to be used for production purposes.
 
Increased energy prices and fuel shortages could adversely affect our operations.
 
We require substantial amounts of fuel oil and other resources for our harvest activities and transport of our agricultural products. We rely upon third parties for our supply of the energy resources consumed in our operations. The prices for and availability of energy resources may be subject to change or curtailment, respectively, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in production by suppliers, worldwide price levels and market conditions. The prices of various sources of energy may increase significantly from current levels. An increase in energy prices could materially adversely affect our results of operations and financial condition.
 

 
18
 


We depend on our chairman and senior management.
 
Our success depends, to a significant extent, on the continued employment of Eduardo S. Elsztain, our president and chairman of the board of directors, and Alejandro G. Elsztain, our chief executive officer. The loss of their services for any reason could have a material adverse effect on our business. If our current principal shareholders were to lose their influence on the management of our business, our principal executive officers could resign or be removed from office.
 
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.
 
The Investment Company Act may limit our future activities.
 
Under Section 3(a)(3) of the Investment Company Act of 1940, as amended, an investment company is defined in relevant part to include any company that owns or proposes to acquire investment securities that have a value exceeding 40% of such company’s unconsolidated total assets (exclusive of U.S. government securities and cash items). Investments in minority interests of related entities as well as majority interests in consolidated subsidiaries which themselves are investment companies are included within the definition of “investment securities” for purposes of the 40% limit under the Investment Company Act.
 
Companies that are investment companies within the meaning of the Investment Company Act, and that do not qualify for an exemption from the provisions of such Act, are required to register with the Securities and Exchange Commission and are subject to substantial regulations with respect to capital structure, operations, transactions with affiliates and other matters. In the event such companies do not register under the Investment Company Act, they may not, among other things, conduct public offerings of their securities in the United States or engage in interstate commerce in the United States. Moreover, even if we desired to register with the Commission as an investment company, we could not do so without an order of the Commission because we are a non-U.S. corporation, and it is unlikely that the Commission would issue such an order.
 
In recent years we made a significant minority investment in the capital stock of IRSA, an Argentine company engaged in a range of real estate activities. As of June 30, 2013, we owned approximately 65.45% of IRSA’s outstanding shares. Although we believe we are not an “investment company” for purposes of the Investment Company Act, our belief is subject to substantial uncertainty, and we cannot give you any assurance that we would not be determined to be an “investment company” under the Investment Company Act. As a result, the uncertainty regarding our status under the Investment Company Act may adversely affect our ability to offer and sell securities in the United States or to U.S. persons. The United States capital markets have historically been an important source of funding for us, and our future financing ability may be adversely affected by a lack of access to the United States capital markets. If an exemption under the Investment Company Act is unavailable to us in the future and we desire to access the U.S. capital markets, our only recourse would be to file an application to the SEC for an exemption from the provisions of the Investment Company Act which is a lengthy and highly uncertain process.
 
Moreover, if we offer and sell securities in the United States or to U.S. persons and we were deemed to be an investment company and not exempted from the application of the Investment Company Act, contracts we enter into in violation of, or whose performance entails a violation of, the Investment Company Act, including any such securities, may not be enforceable against us.
 
We hold Argentine securities which might be more volatile than U.S. securities and carry a greater risk of default.
 
We currently have and in the past have had certain investments in Argentine government debt, corporate debt, and equity securities. In particular, we hold a significant interest in IRSA, an Argentine company that has suffered material losses, particularly during the fiscal years 2001 and 2002. Although our holding of these investments, excluding IRSA, tends to be short term, investments in such securities involve certain risks, including:
 
•
market volatility, higher than those typically associated with U.S. government and corporate securities; and
•
loss of principal.
Some of the issuers in which we have invested and may invest, including the Argentine government, have in the past experienced substantial difficulties in servicing their debt obligations, which have led to the restructuring of certain indebtedness. We cannot assure that the issuers in which we have invested or may invest will not be subject to similar or other difficulties in the future which may adversely affect the value of our investments in such issuers. In addition, such issuers and, therefore, such investments, are generally subject to many of the risks that are described in this section with respect to us, and, thus, could have little or no value.
 
Risks relating to our investment in IRSA.
 
IRSA’s performance is subject to risks associated with its properties and with the real estate industry.
 
IRSA’s economic performance and the value of their real estate assets, and consequently the value of the securities issued by them, are subject to the risk that if IRSA’s properties do not generate sufficient revenues to meet its operating expenses, including debt service and capital expenditures, their ability to pay distributions to their shareholders and our cash flow will be adversely affected. Events or conditions beyond IRSA’s control that may adversely affect its operations or the value of its properties include:
 
•
downturns in the national, regional and local economic climate;
•
volatility and decline in discretionary spending;
•
competition from other shopping centers and office, industrial and commercial buildings;
•
local real estate market conditions, such as oversupply or reduction in demand for office, or other commercial or industrial space;


 
19
 


•
decreases in consumption levels;
•
changes in interest rates and availability of financing;
•
the exercise by IRSA’s tenants of its legal right to early termination of its leases;
•
vacancies, changes in market rental rates and the need to periodically repair, renovate and re-lease space;
•
increased operating costs, including insurance expense, salary increases, utilities, real estate taxes, state and local taxes and heightened security costs;
•
civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;
•
significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property;
•
declines in the financial condition of its tenants and its ability to collect rents from its tenants;
•
changes in its ability or its tenants’ ability to provide for adequate maintenance and insurance, possibly decreasing the useful life of and revenue from property; and
•
changes in law or governmental regulations (such as those governing usage, zoning and real property taxes) or government action such as expropriation or confiscation.
 
If any one or more of the foregoing conditions were to affect IRSA’s business, it could have a material adverse effect on our financial condition and results of operations.
 
IRSA’s investment in property development, redevelopment and construction may be less profitable than we anticipate.
 
IRSA is engaged in the development and construction of office space, retail and residential properties, shopping centers and residential apartment complexes, frequently through third-party contractors. Risks associated with our development, re-development and construction activities include the following, among others:
 
•
abandonment of development opportunities and renovation proposals;
•
construction costs of a project may exceed IRSA’s original estimates for reasons including raises in interest rates or increases in the costs 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 rates and a corresponding lower return on our investment;
•
pre-construction buyers may default on its purchase contracts or units in new buildings may remain unsold upon completion of construction;
•
the unavailability of favorable financing alternatives in the private and public debt markets;
•
sale prices for residential units may be insufficient to cover development costs;
•
construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs;
•
impossibility to obtain, 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 IRSA to greater risks due to fluctuation in the general economy;
•
construction may not be completed on schedule because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters (such as fires, hurricanes, earthquakes or floods), resulting in increased debt service expense and construction costs;

 
20
 


•
•
general changes in IRSA’s tenants’ demand for rental properties outside of the city of Buenos Aires; and
IRSA may incur capital expenditures that could result in considerable time consuming efforts and which may never be completed due to government restrictions.
 
In addition, IRSA may face contractors’ claims for the enforcement of labor laws in Argentina (sections 30, 31 and 32 under Law No. 20,744), which provide for joint and several liability. Many companies in Argentina hire personnel from third-party companies that provide outsourced services, and sign indemnity agreements in the event of labor claims from employees of such third company that may affect the liability of such hiring company. However, in recent years, several court rulings have denied the existence of independence in those labor relationships and declared joint and several liabilities for both companies.
 
While IRSA’s policies with respect to expansion, renovation and development activities are intended to limit some of the risks otherwise associated with such activities, IRSA is nevertheless subject to risks associated with the construction of properties, 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 its control, as well as financing costs, may exceed original estimates, possibly making the associated investment unprofitable. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these redevelopment projects and harm its operating results.
 
The real estate industry in Argentina is increasingly competitive.
 
IRSA’s real estate and construction activities are highly concentrated in the Buenos Aires metropolitan area, where the real estate market is highly competitive due to the scarcity of properties in sought-after locations and the increasing number of local and international competitors.
 
Furthermore, the Argentine real estate industry is generally highly competitive and fragmented and does not have high barriers to entry restricting new competitors. The main competitive factors in the real estate development business include availability and location of land, price, funding, design, quality, reputation and partnerships with developers. A number of residential and commercial developers and real estate services companies compete with it in seeking land for acquisition, financial resources for development and prospective purchasers and tenants. Other companies, including joint ventures of foreign and local companies, have become increasingly active in the real estate business in Argentina, further increasing this competition. To the extent that one or more of IRSA’s competitors are able to acquire and develop desirable properties, as a result of greater financial resources or otherwise, its business could be materially and adversely affected. If IRSA is not able to respond to such pressures as promptly as its competitors, or the level of competition increases, its financial condition and results of its operations could be adversely affected.
 
In addition, many of IRSA’s shopping centers are located in close proximity to other shopping centers, numerous retail stores and residential properties. The number of comparable properties located in the vicinity of its property could have a material adverse effect on its ability to lease retail space at its shopping centers or sell units in its residential complexes and on the rent price or the sale price that IRSA is able to charge. IRSA cannot assure you that other shopping center operators, including international shopping center operators, will not invest in Argentina in the near future. As additional companies become active in the Argentine shopping center market, such increased competition could have a material adverse effect on IRSA’s results of operations.
 
IRSA faces risks associated with property acquisitions.
 
IRSA has in the past acquired, and intends to acquire, properties, including large properties (such as the acquisition of Edificio República, Abasto de Buenos Aires, or Alto Palermo Shopping) that would increase its size and potentially alter its capital structure. The success of their past and future acquisitions is subject to a number of uncertainties, including the risk that:
 
•
IRSA may not be able to obtain financing for acquisitions on favorable terms;
•
acquired properties may fail to perform as expected;
•
the actual costs of repositioning or redeveloping acquired properties may be higher than its estimates;
•
acquired properties may be located in new markets where it may have limited knowledge and understanding of the local economy, absence of business relationships in the area or unfamiliarity with local governmental and permitting procedures; and
•
IRSA may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into its organization and to manage new properties in a way that allows it to realize cost savings and synergies.
 
Some of the land IRSA has purchased is not zoned for development purposes, and it may be unable to obtain, or may face delays in obtaining the necessary zoning permits and other authorizations.
 
IRSA owns several plots of land which are not zoned for the type of projects it intends to develop. In addition, IRSA does not yet have the required land-use, building, occupancy and other required governmental permits and authorizations. IRSA cannot assure you that it will continue to be successful in its attempts to rezone land and to obtain all necessary permits and authorizations, or that rezoning efforts and permit requests will not be unreasonably delayed or rejected. Moreover, IRSA may be affected by building moratorium and anti-growth legislation. If it is unable to obtain all of the governmental permits and authorizations it needs to develop its present and future projects as planned, IRSA may be forced to make unwanted modifications to such projects or abandon them altogether.
 
Acquired properties may subject IRSA to unknown liabilities.
 
Properties that IRSA acquires may be subject to unknown liabilities for which it would have no recourse, or only limited recourse, to the former owners of such properties. As a result, if a liability were asserted against it based upon ownership of an acquired property, IRSA might be required to pay significant sums to settle it, which could adversely affect its financial results and cash flow. Unknown liabilities relating to acquired properties could include:
 
•
liabilities for clean-up of undisclosed environmental contamination;

 
21
 


•
law reforms and governmental regulations (such as those governing usage, zoning and real property taxes); and
•
liabilities incurred in the ordinary course of business.
 
Some potential losses are not covered by insurance, and certain kinds of insurance coverage may become prohibitively expensive.
 
IRSA currently carries insurance policies that cover potential risks such as civil liability, fire, loss of profit, floods, including extended coverage and losses from leases on all of its properties. Although IRSA believes the policy specifications and insured limits of these policies are generally customary, there are certain types of losses, such as lease and other contract claims, terrorism and acts of war that generally are not insured. Should an uninsured loss or a loss in excess of insured limits occur, IRSA could lose all or a portion of the capital it has invested in a property, as well as the anticipated future revenue from the property. In such an event, IRSA might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. IRSA 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 its operations, delay revenue and result in large expenses to repair or rebuild the property. Moreover, IRSA does not purchase life or disability insurance for any of our key employees. If any of its key employees were to die or become incapacitated, it would experience losses caused by a disruption in its operations which will not be covered by insurance, and this could have a material adverse effect on its financial condition and results of operations.
 
In addition, IRSA cannot assure you that it will be able to renew its insurance coverage in an adequate amount or at reasonable prices. Insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and mold, or, if offered, these types of insurance may be prohibitively expensive.
 
IRSA’s dependence on rental income may adversely affect its ability to meet its debt obligations.
 
The substantial part of IRSA’s income is derived from rental income from real property. As a result, IRSA’s performance depends on its ability to collect rent from its tenants. IRSA’s income and funds for distribution would be negatively affected if a significant number of its tenants or any of its major tenants (as discussed in more detail below):
 
•
delay lease commencements;
•
decline to extend or renew leases upon expiration;
•
fail to make rental payments when due; or
•
close stores or declare bankruptcy.
 
Any of these actions could result in the termination of the tenants’ leases and the loss of rental income attributable to the terminated leases. In addition, IRSA cannot assure you that any tenant whose lease expires will renew that lease or that we will be able to re-lease space on economically advantageous terms. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet debt and other financial obligations.
 
Demand for IRSA’s premium properties which target the high-income demographic may be insufficient.
 
IRSA has focused on development projects intended to cater to affluent individuals and has entered into property swap agreements pursuant to which IRSA contributes its undeveloped properties to ventures with developers who will deliver to its units in premium locations. At the time the developers return these properties to it, demand for premium residential units could be significantly lower. In such case, IRSA would be unable to sell these residential units at the estimated prices or in the time frame it estimated, which could have a material adverse effect on its financial condition and results of operations.
 
It may be difficult to buy and sell real estate quickly and transfer restrictions apply to some of IRSA’s properties.
 
Real estate investments are relatively illiquid and this tends to limit its ability to vary its portfolio promptly in response to changes in the economy or other conditions. In addition, significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a decrease in income from a certain investment. If income from a property declines while the related expenses do not decline, IRSA’s business would be adversely affected. Some of its properties are mortgaged to secure payment of its indebtedness, and if IRSA is unable to meet its mortgage payments, it could lose money as a result of foreclosure on such mortgages and even lose such property. In addition, if it becomes necessary or desirable for it to dispose of one or more of the mortgaged properties, IRSA might not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect its business. In the type of transactions of this kind, IRSA may also agree, subject to certain exceptions, not to sell the acquired properties for significant periods of time.
 
An adverse economic environment for real estate companies and the credit crisis may adversely impact our results of operations and business prospects significantly.
 
The success of IRSA’s business and profitability of its operations are dependent on continued investment in the real estate markets and access to capital and debt financing. A long term crisis of confidence in real estate investments and lack of available credit for acquisitions would be likely to constrain our business growth. As part of our business goals, IRSA intends to increase our properties portfolio with strategic acquisitions of core properties at advantageous prices, and core plus and value added properties where IRSA believes it can bring necessary expertise to enhance property values. In order to pursue acquisitions, IRSA may need access to equity capital and/or debt financing. Recent disruptions in the financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact IRSA’s ability to refinance existing debt and the availability and cost of credit in the near future. Any consideration of sales of existing properties or portfolio interests may be tempered by decreasing property values. IRSA’s ability to make scheduled payments or to refinance its obligations with respect to indebtedness depends on its operating and financial performance, which in turn is subject to prevailing economic conditions. If a recurrence of the disruptions in financial markets presents itself in the future, there can be no assurances that government responses to the disruptions in the financial markets will restore investor confidence, stabilize the markets or increase liquidity and the availability of credit.
 

 
22
 
 
IRSA’s level of debt may adversely affect its operations and its ability to pay its debt as it becomes due.
 
IRSA had, and expects to continue to have, substantial liquidity and capital resource requirements to finance its business. As of June 30, 2013, IRSA’s consolidated financial debt was Ps. 3,695 million (including short-term and long-term debt, accrued interest and deferred financing costs).
 
Although IRSA is generating sufficient funds from operating cash flows to satisfy its debt service requirements and its capacity to obtain new financing is adequate given the current availability of credit lines with the banks, IRSA cannot assure you that it will maintain such cash flow and adequate financial capacity in the future.
 
The fact that we are leveraged may affect our ability to refinance existing debt or borrow additional funds to finance working capital, acquisitions and capital expenditures. In addition, the recent disruptions in the global financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact our ability to refinance existing debt and the availability and cost of credit in the future. In such conditions, access to equity and debt financing options may be restricted and it may be uncertain how long these circumstances last.
 
This would require IRSA to allocate a substantial portion of cash flow to repay principal and interest, thereby reducing the amount of money available to invest in operations, including acquisitions and capital expenditures. Its leverage could also affect its competitiveness and limit its ability to react to changes in market conditions, changes in the real estate industry and economic downturns.
 
IRSA may not be able to generate sufficient cash flows from operations to satisfy its debt service requirements or to obtain future financing. If IRSA cannot satisfy its debt service requirements or if IRSA default on any financial or other covenants in its debt arrangements, the lenders and/or holders of its debt will be able to accelerate the maturity of such debt or cause defaults under the other debt arrangements. IRSA’s ability to service debt obligations or to refinance them will depend upon its future financial and operating performance, which will, in part, be subject to factors beyond its control such as macroeconomic conditions (including the recent international credit crisis) and regulatory changes in Argentina. If it cannot obtain future financing, it may have to delay or abandon some or all of its planned capital expenditures, which could adversely affect its ability to generate cash flows and repay its obligations.
 
IRSA may be negatively affected by a financial crisis in the U.S., the European Union and global capital markets.
 
IRSA must maintain liquidity to fund its working capital, service its outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, IRSA could be forced to curtail its operations or may not be able to pursue new business opportunities.
 
The capital and credit markets have been experiencing extreme volatility and disruption during the last credit crisis. If IRSA´s current resources do not satisfy IRSA´s liquidity requirements, IRSA may have to seek additional financing. The availability of financing will depend on a variety of factors, such as economic and market conditions, the availability of credit and IRSA´s credit ratings, as well as the possibility that lenders could develop a negative perception of the prospects of IRSA or the industry generally. IRSA may not be able to successfully obtain any necessary additional financing on favorable terms.
 
The recurrence of a credit crisis could have a negative impact on IRSA´s major customers, which in turn could materially adversely affect IRSA´s results of operations and liquidity.
 
In recent years, the credit crisis had a significant negative impact on businesses around the world. The impact of a crisis on IRSA´s major tenants cannot be predicted and may be quite severe. A disruption on the ability of IRSA´s significant tenants to access liquidity could cause serious disruptions or an overall deterioration of their businesses which could lead to a significant reduction in their future orders of their products and the inability or failure on their part to meet their payment obligations which could have a material adverse effect on IRSA´s results of operations and liquidity.
 
Adverse incidents that occur in IRSA´s shopping centers may result in damage to IRSA´s image and a decrease in IRSA´s customers.
 
Given that shopping centers are open to the public, with ample circulation of people, accidents, theft, robbery and other incidents may occur in IRSA´s facilities, regardless of the preventative measures which may be adopted. In the event such an incident or series of incidents occurs, shopping center customers and visitors may choose to visit other shopping venues that they believe are safer and less violent, which may cause a reduction in the sales volume and operating income of IRSA´s shopping centers.
 
IRSA is subject to risks inherent to the operation of shopping centers that may affect its profitability.
 
Shopping centers are subject to various factors that affect their development, administration and profitability. These factors include:
 
•  
the accessibility and the attractiveness of the area where the shopping center is located;
 
•  
the intrinsic attractiveness of the shopping center;
 
•  
the flow of people and the level of sales of each shopping center rental unit;
 
•  
increasing competition from internet sales;
 
•  
the amount of rent collected from each shopping center rental unit;
 
•  
changes in consumer demand and availability of consumer credit, both of which are highly sensitive to general macroeconomic conditions; and
 
•  
the fluctuations in occupancy levels in the shopping centers.
 
An increase in operating costs, caused by inflation or other factors, could have a material adverse effect if IRSA´s tenants are unable to pay higher rent due to the increase in expenses. Moreover, the shopping center business is closely related to consumer spending and to the economy in which customers are located. All of IRSA´s shopping centers are in Argentina, and, as a consequence, their business could be seriously affected by potential recession in Argentina. For example, during the economic crisis in Argentina, spending decreased significantly, unemployment, political instability and inflation significantly reduced consumer spending in Argentina, lowering tenants’ sales and forcing some tenants to leave IRSA´s shopping centers. If an international financial crisis has a substantial impact on economic activity in Argentina, it will likely have a material adverse effect on the revenues from the shopping center activity.
 
The loss of significant tenants could adversely affect both the operating revenues and value of IRSA´s shopping center and other rental properties.
 
If some of IRSA´s most important tenants were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, or if IRSA simply failed to retain their patronage, IRSA´s business could be adversely affected. IRSA´s shopping centers and, to a lesser extent,

 
23
 


IRSA´s office buildings are typically anchored by significant tenants, such as well-known department stores who generate shopping traffic at the mall. A decision by such significant tenants to cease operations at IRSA´s shopping centers or office buildings could have a material adverse effect on the revenues and profitability of the affected segment and, by extension, on IRSA´s financial condition and results of operations. The closing of one or more significant tenants may induce other major tenants at an affected property to terminate their leases, to seek rent relief and/or cease operating their stores or otherwise adversely affect occupancy at the property. In addition, key tenants at one or more properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and/or closure of one or more significant tenants, if IRSA is not able to successfully re-lease the affected space, could have a material adverse effect on both the operating revenues and underlying value of the properties involved.
 
IRSA´s future acquisitions may be unprofitable.
 
IRSA intends to acquire additional shopping center properties to the extent that they will be acquired on advantageous terms and meet IRSA´s investment criteria. Acquisitions of commercial properties entail general investment risks associated with any real estate investment, including:
 
•  
IRSA estimates of the cost of improvements needed to bring the property up to established standards for the market may prove to be inaccurate;
 
•  
properties that IRSA acquires may fail to achieve within the time frames IRSA projects the occupancy or rental rates IRSA projects at the time IRSA makes the decision to acquire, which may result in the properties’ failure to achieve the returns IRSA projected;
 
•  
IRSA´s pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs, which could significantly increase IRSA´s total acquisition costs; and
 
•  
IRSA´s investigation of a property or building prior to its acquisition, and any representations that IRSA 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 IRSA´s acquisition cost.
 
If IRSA acquires a business, IRSA will be required to integrate the operations, personnel and accounting and information systems of the acquired business. In addition, acquisitions of or investments in companies may cause disruptions in IRSA´s operations and divert management’s attention away from day-to-day operations, which could impair IRSA´s relationships with its current tenants and employees.
 
IRSA´s ability to grow will be limited if they cannot obtain additional capital.
 
IRSA´s growth strategy is focused on the redevelopment of properties IRSA already owns and the acquisition and development of additional properties. As a result, IRSA is likely to depend to an important degree on the availability of debt or equity capital, which may or may not be available on favorable terms. IRSA cannot guarantee that additional financing, refinancing or other capital will be available in the amounts IRSA desires or favorable terms. IRSA´s access to debt or equity capital markets depends on a number of factors, including the market’s perception of IRSA´s growth potential, IRSA´s ability to pay dividends, its financial condition, its credit rating and its current and potential future earnings. Depending on the outcome of these factors, IRSA could experience delay or difficulty in implementing its growth strategy on satisfactory terms, or be unable to implement this strategy.
 
 
Serious illnesses and pandemics, such as the 2009 outbreak of Influenza A H1N1 virus, (the “Swine Flu”), have in the past adversely affected consumer and tourist activity, may do so in the future and may adversely affect IRSA´s results of operations.
 
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. Furthermore, several governments´ enacted regulations limiting the operation of schools, cinemas and shopping centers. Even though the Argentine government only issued public service recommendations to the population regarding the risks involved in visiting crowded places, such as shopping centers, and did not issue specific regulations limiting access to public places, a significant number of consumers nonetheless changed their habits vis-a-vis shopping centers and malls. IRSA cannot assure you that a new outbreak or health hazard will not occur in the future, or that such an outbreak or health hazard would not significantly affect consumer and/or tourist activity, and that such scenario would not adversely affect IRSA´s businesses.

IRSA is subject to risks inherent to the operation of office buildings that may affect IRSA´s profitability.
 
Office buildings are subject to various factors that affect their development, administration and profitability. IRSA´s profitability of its office buildings may be affected by:
 
•  
a decrease in demand for office space;
 
•  
a deterioration in the financial condition of IRSA´s tenants, which may result in defaults under leases due to bankruptcy, lack of liquidity or for other reasons;
 
•  
difficulties or delays renewing leases or re-leasing space;
 
•  
decreases in rents as a result of oversupply, particularly of newer buildings;
 
•  
competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from IRSA´s tenants; and
 
•  
maintenance, repair and renovation costs incurred to maintain the competitiveness of IRSA´s office buildings.
 
IRSA are subject to risks affecting the hotel industry.
 
The full-service segment of the lodging industry in which IRSA´s hotels operate is highly competitive. The operational success of its hotels is highly dependent on its ability to compete in areas such as access, location, quality of accommodations, rates, quality food and beverage facilities and other services and amenities. IRSA´s hotels may face additional competition if other companies decide to build new hotels or improve their existing hotels to increase their attractiveness. 
 
In addition, the profitability of IRSA´s hotels depends on:
 
•  
IRSA´s ability to form successful relationships with international and local operators to run its hotels;
 
•  
changes in tourism and travel patterns, including seasonal changes and changes due to pandemic outbreaks, such as the Swine Flu virus or weather phenomenon or other natural events, such as the eruption of the Puyehué volcano in June 2011;
 
•  
affluence of tourists, which can be affected by a slowdown in global economy; and
 

 
24
 


•  
taxes and governmental regulations affecting wages, prices, interest rates, construction procedures and costs.
 
An uninsured loss or a loss that exceeds the policies on IRSA´s properties could subject to lost capital or revenue on those properties.
 
Under the terms and conditions of the leases currently in force on IRSA´s properties, tenants are required to indemnify and hold harmless from liabilities resulting from injury to persons, or property, on or off the premises, due to activities conducted on the properties, except for claims arising from IRSA´s negligence or intentional misconduct or that of its agents.
 
Tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies. In addition, IRSA cannot assure the holders that the tenants will properly maintain their insurance policies or have the ability to pay the deductibles.
 
Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of IRSA´s invested capital, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on its operating results and financial condition.
 
IRSA´s business is subject to extensive regulation and additional regulations may be imposed in the future.
 
IRSA´s activities are subject to 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 patrimony, consumer protection and other requirements, all of which affect its ability to acquire land, buildings and shopping centers, develop and build projects and negotiate with customers. In addition, companies in this industry are subject to increasing tax rates, the creation of new taxes and changes in the taxation regime. IRSA is required to obtain licenses and authorizations with different governmental authorities in order to carry out IRSA´s projects. Maintaining IRSA´s licenses and authorizations can be a costly provision. In the case of non-compliance with such laws, regulations, licenses and authorizations, IRSA may face fines, project shutdowns, and cancellation of licenses and revocation of authorizations.
 
In addition, public authorities may issue new and stricter standards, or enforce or construe existing laws and regulations in a more restrictive manner, which may force IRSA to make expenditures to comply with such new rules. Development activities are also subject to risks relating to potential delays in obtaining or an inability to obtain all necessary zoning, environmental, land-use, development, building, occupancy and other required governmental permits and authorizations. Any delays or failures to obtain government approvals may have an adverse effect on IRSA´s business.
 
In the past, the Argentine government imposed strict and burdensome 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 IRSA´s leases provide that the tenants pay all costs and taxes related to their respective leased areas. In the event of a significant increase in the amount of such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby negatively affecting IRSA´s rental income. IRSA 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 properties in Argentina could negatively affect the Argentine real estate market and the rental market and materially and adversely affect IRSA´s operations and profitability.
 
Argentine Lease Law No. 23,091 imposes restrictions that limit IRSA´s flexibility.
 
Argentine laws governing leases impose certain restrictions, including the following:
 
•  
lease agreements may not contain inflation adjustment clauses based on consumer price indexes or wholesale price indexes. Although many of IRSA´s lease agreements contain readjustment clauses, these are not based on an official index nor do they reflect the inflation index. In the event of litigation these provisions may not be enforceable and therefore it may be impossible for IRSA to adjust the amounts owed to IRSA under its lease agreements;
 
•  
residential leases must comply with a mandatory minimum term of two years and retail leases must comply with a mandatory minimum term of three years except in the case of stands and/or spaces for special exhibitions;
 
•  
lease terms may not exceed ten years, except for leases regulated by Law No. 25,248 (which provides that leases containing a purchase option are not subject to term limitations); and
 
•  
tenants may rescind commercial and office lease agreements after the initial six-month period.
 
As a result of the foregoing, IRSA is exposed to the risk of increases of inflation under its leases and the exercise of rescission rights by IRSA´s tenants could materially and adversely affect its business, therefore IRSA cannot assure you that its tenants will not exercise such rights, especially if rent values stabilize or decline in the future or if economic conditions deteriorate.
 
Eviction proceedings in Argentina are difficult and time consuming.
 
Although Argentine law permits a summary proceeding to collect unpaid rent and a special proceeding to evict tenants, eviction proceedings in Argentina are difficult 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 the suit is filed to the time of actual eviction.
 
IRSA usually attempts to negotiate the termination of lease agreements with defaulting tenants after the first few months of non-payment in order 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 proceedings, and in such case, they would likely have a material and adverse effect on IRSA´s financial condition and results of operation.
 
IRSA is subject to great competitive pressure.
 
IRSA´s principal properties are located in Argentina. There are other shopping centers and numerous smaller retail stores and residential properties within the market area of each of IRSA´s properties. The number of competing properties in a particular area could have a material adverse effect on IRSA´s ability to lease retail space at its shopping centers or sell units in its residential complexes and on the amount of rent or the sale price that IRSA is able to charge. To date, there have been relatively few companies competing with IRSA´s for shopping center properties. However, if additional companies become active in the Argentine shopping center market in the future, such competition could have a material adverse effect on IRSA´s results of operations.
 
IRSA´s assets are concentrated in the Buenos Aires area.
 
IRSA´s principal properties are located in the City of Buenos Aires and the Province of Buenos Aires and a substantial portion of its revenues are derived from such properties. For IRSA´s fiscal years ended June 30, 2012 and 2013, approximately 81% and 83% of IRSA´s consolidated revenues were
 

 
25
 
 
derived from properties in the Buenos Aires metropolitan area including the City of Buenos Aires. Although IRSA owns properties and may acquire or develop additional properties outside Buenos Aires, IRSA expects continued dependence to a large extent on economic conditions affecting those areas, and therefore, an economic downturn in those areas could have a material adverse effect on IRSA´s financial condition and results of operations.
 
IRSA faces risks associated with the expansion to other Latin American markets.
 
From 1994 to 2002, IRSA had substantial investments outside of Argentina, including Brazil Realty, which was sold in 2002, and Fondo de Valores Inmobiliarios in Venezuela, which was sold in 2001.
 
IRSA continue to believe that Brazil, Uruguay and other Latin American countries offer attractive growth opportunities in the real estate sector. IRSA will continue to consider investment opportunities outside of Argentina as they arise.
 
Investments in Brazil and other Latin American countries are subject to significant risks including sovereign risks and risks affecting these countries’ real estate sectors. These risks include competition by well-established as well as new developers, unavailability of financing or financing on terms that are not acceptable to IRSA, exchange rate fluctuations, lack of liquidity in the market, rising construction costs and inflation, extensive and potentially increasing regulation and bureaucratic procedures for obtaining permits and authorizations, political and economic instability that may result in sharp shifts in demand for properties, risks of default in payment and difficulty evicting defaulting tenants.
 
In 2009, IRSA has acquired a property in Partido de la Costa, Department of Canelones, Uruguay, near Montevideo, where IRSA plans to develop a real estate housing units and commercial premises.
 
If the bankruptcy of Inversora Dársena Norte S.A. is extended to IRSA´s subsidiary Puerto Retiro, IRSA will likely lose a significant investment in a unique waterfront land reserve in the City of Buenos Aires.
 
On November 18, 1997, IRSA, in connection with the acquisition of its subsidiary Inversora Bolívar S.A. (“Inversora Bolívar”), indirectly acquired 35.2% of the capital stock of Puerto Retiro. Inversora Bolívar purchased such shares of Puerto Retiro from Redona Investments Ltd. N.V. in 1996. In 1999, IRSA, through Inversora Bolívar, increased its interest in Puerto Retiro to 50.0% of its capital stock. On April 18, 2000, Puerto Retiro received notice of a complaint filed by the Argentine government, through the Ministry of Defense, seeking to extend the bankruptcy of Inversora Dársena Norte S.A. (“Indarsa”). Upon filing of the complaint, the bankruptcy court issued an order restraining the ability of Puerto Retiro to dispose of the real property it had purchased in 1993 from Tandanor S.A. (“Tandanor”). Puerto Retiro appealed to the restraining order which was confirmed by the court on December 14, 2000.
 
In 1991, Indarsa purchased 90% of Tandanor, a formerly government-owned company, which owned a large piece of land near Puerto Madero of approximately 8 hectares, divided into two spaces: Planta 1 and 2. After the purchase of Tandanor by Indarsa, in June 1993 Tandanor sold “Planta 1” to Puerto Retiro, for a sum of US$18 million pursuant to a valuation performed by J.L. Ramos, a well-known real estate brokerage firm in Argentina. Indarsa failed to pay to the Argentine government the outstanding price for its purchase of the stock of Tandanor. As a result, the Ministry of Defense requested the bankruptcy of Indarsa. Since the only asset of Indarsa was its holding in Tandanor, the Argentine government is seeking to extend Indarsa’s bankruptcy to the companies or individuals, which, according to its view, acted as a single economic group. In particular, the Argentine government has requested the extension of the bankruptcy to Puerto Retiro, which acquired Planta 1 from Tandanor.
 
The time for producing evidence in relation to these legal proceeding has expired. The parties have submitted their closing arguments and are awaiting a final judgment. However, the judge has delayed his decision until a final judgment in the criminal proceedings against the former Defense Minister and former directors of Indarsa has been delivered. It should be noticed, regarding the above-mentioned criminal procedure that on February 23, 2011 it was resolved to declare its expiration, and to dismiss certain defendants. However, this resolution is not final because it was appealed. IRSA cannot give you any assurance that  the company will prevail in this proceeding, and if the plaintiff’s claim is upheld by the courts, all of the assets of Puerto Retiro would likely be used to pay Indarsa’s debts and the investment in Puerto Retiro, valued at Ps. 44.9 million, as of June 30, 2013, would be lost. As of June 30, 2013, IRSA had not established any reserve with respect to this contingency.
 
Property ownership through joint ventures or minority participation may limit IRSA´s ability to act exclusively in its interest.
 
IRSA develops and acquires properties in joint ventures with other persons or entities when IRSA believes circumstances warrant the use of such structures. For example, in its Shopping Center segment, as of June 30, 2013, IRSA owned approximately 95.7% of Alto Palermo. Through its subsidiary Alto Palermo, IRSA own 80% of Panamerican Mall S.A., while another 20% is owned by Centro Comercial Panamericano S.A and 50% of Quality Invest S.A.. In IRSA´s Development and Sales of Properties segment, IRSA has ownership of 50% in Puerto Retiro and 50% in Cyrsa S.A. In IRSA´s Hotels
 
 
26
 
 
segment, IRSA owns 50% of the Llao Llao Hotel, while the other 50% is owned by the Sutton Group. IRSA owns 80% of the Hotel Libertador, Hoteles Sheraton de Argentina S.A. owns 20%. IRSA owns 76.34% of Hotel Intercontinental. In the Financial Operations and Others segment, IRSA owns approximately 29.77% of Banco Hipotecario, while the Argentine government has a controlling interest. Finally, IRSA owns a 49% interest in Metropolitan, 49% in a building located at Madison Avenue in New York and holds voting rights with respect to a 34% interest in Supertel Hospitality Inc.
 
IRSA could engage in a dispute with one or more of its joint venture partners that might affect its ability to operate a jointly owned property. Moreover, its joint venture partners may at any time, have business, economic or other objectives that are inconsistent with its 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 the other investors is required with respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties. In some instances, its joint venture partners may have competing interests in its markets that could create conflicts of interest. If the objectives of its joint venture partners are inconsistent with its own objectives, IRSA will not be able to act exclusively in its interests.
 
If one or more of the investors in any of its 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 its financial performance. Should a joint venture partner declare bankruptcy, IRSA could be liable for its partner’s share of joint venture liabilities.
 
IRSA is dependent on its board of directors and certain other senior managers.
 
IRSA´s success depends on the continued employment of Eduardo S. Elsztain, its Chief Executive Officer and Chairman of the Board of Directors, and certain members of its board of directors and senior management, who have significant expertise and knowledge of its business and industry. The loss of or interruption in his services for any reason could have a material adverse effect on its business. IRSA´s future success also depends in part upon its ability to attract and retain other highly qualified personnel. IRSA cannot assure you that we will be successful in hiring or retaining qualified personnel. A failure to hire or retain qualified personnel may have a material adverse effect on its financial condition and results of operations.
 
Due to the currency mismatches between assets and liabilities, IRSA may have a significant currency exposure.
 
As of June 30, 2013, the majority of IRSA´s liabilities, such as its 7.45%, 8.5% and 11.5% notes due 2014, 2017 and 2020 respectively, Alto Palermo’s Series I Notes are denominated in U.S. dollars, while a significant portion of its revenues and assets as of June 30, 2013, are denominated in Pesos. This currency gap exposes IRSA to a risk of exchange rate volatility, which would negatively affect its financial results if the Dollar were to appreciate against the Peso. Any further depreciation of the Peso against the U.S. dollar will correspondingly increase the amount of its debt in Pesos, with further adverse effects on its results of operation and financial condition and may increase the collection risk of its leases and other receivables from its tenants and mortgage debtors, most of whom have Peso-denominated revenues.
 
The shift of consumers to purchasing goods over the Internet may negatively affect sales in IRSA´s shopping centers.
 
During the last years, Internet retail sales have grown significantly in Argentina, even though the market share of Internet sales related to retail sales is still not significant. The Internet enables manufacturers and retailers to sell directly to consumers, diminishing the importance of traditional distribution channels such as retail stores and shopping centers. IRSA believes that its target consumers are increasingly using the Internet, from home, work or elsewhere, to shop electronically for retail goods. IRSA believes that this trend is likely to continue. If e-commerce and retail sales through the Internet continue to grow, consumers’ reliance on traditional distribution channels such as IRSA´s shopping centers could be materially diminished, having a material adverse effect on our financial condition, results of operations and business prospects
 

Risks Related to IRSA´s Investment in Banco Hipotecario S.A.
 
As of June 30, 2013, through IRSA we owned approximately 29.77% of the outstanding capital stock of Banco Hipotecario (without considering treasury shares) which represented 12.45 % of our consolidated assets as of such date. All of Banco Hipotecario S.A.’s operations, properties and customers are located in Argentina. Accordingly, the quality of Banco Hipotecario’s loan portfolio, financial condition and results of operations depend on economic, regulatory and political conditions prevailing in Argentina.
 
These conditions include growth rates, inflation rates, exchange rates, changes to interest rates, changes to Government policies, social instability and other political, economic or international developments either taking place in, or otherwise affecting, Argentina.
 
The Argentine financial system’s growth and profits are partially dependent upon changes in long-term funding.
 
Due to the global economic recession, Argentina’s banking industry underwent a significant slow-down, which was reterted in late 2009. Although the extension of credit to the private section rose by late 2009, year-end results exhibited a smaller expansion. Loans to the private sector rose in subsequent years. Despite the recovery in credit extension, the recovery of the long-term credit market (i.e., mortgage and pledge loans) makes progress at a slower pace.
 
If longer-term financial intermediation did not grow, the ability of financial institutions to generate more profits could be adversely affected. Although deposits with the financial system have risen since 2002, most placements are sight deposits or a short term deposit, which exposes the banks, engaged in long-term credit extension to liquidity risk and intensifies their need to depend on the Argentine Central Bank as a potential liquidity guarantor.
 
The stability of the financial system depends upon the ability of financial institutions, including Banco Hipotecario S.A. to retain the confidence of depositors.
 
The measures implemented by the Argentine Government in late 2001 and early 2002, in particular the restrictions imposed on depositors’ ability to withdraw money freely from banks and the pesification and restructuring of their deposits, resulted in losses for many depositors and undermined their confidence in the Argentine financial system. Although the financial system has seen a recovery in the amount of deposits since 2002 (measured in Pesos), Banco Hipotecario may not assure that this trend will continue and that the deposit base of the Argentine financial system, including Banco Hipotecario’s, will not be negatively affected in the future by adverse economic, social and political events.
 
If, in the future, depositor confidence weakens and the deposit base contracts, such loss of confidence and contraction of deposits will have a substantial negative impact on the ability of financial institutions, including Banco Hipotecario, to operate as financial intermediaries. If the Banco Hipotecario is not able to act as a financial intermediary and otherwise conduct its business as usual, its ability to honor its debts, might be adversely affected or limited.
 

 
27
 

Financial institutions’ asset quality is exposed to the non-financial public sector’s indebtedness.
 
Financial institutions carry significant portfolios of bonds issued by the Argentine Government and provincial governments as well as loans granted to these governments. To an extent, the value of the assets in the hands of Argentine banks, as well as their capacity to generate income is dependent on the creditworthiness of the non-financial public sector, which is in turn tied to the Argentine Government’s ability to foster sustainable long-term growth, generate fiscal revenues and cut back on public expenditure.
 
As of June 30, 2013, the Banco Hipotecario’s total exposure to the public sector indebtedness was Ps. 2,042.2 million, that is, 11.8% of the Banco Hipotecario’s assets at that date.
 
Actions for collection as a means of enforcing creditors’ rights in Argentina may be limited.
 
In order to protect the debtors affected by the 2001 economic crisis, starting in 2002 the Argentine Government adopted measures that suspended proceedings to enforce creditors’ rights (mortgage foreclosures and bankruptcy petitions) in the event of defaults by debtors.
 
Although at the date of this Annual Report those measures were no longer in force, Banco Hipotecario cannot assure you that they won’t be reinstated in the future, or that the government will not take other measures that limit creditors’ rights. Any such measures could have a material adverse effect on the enforceability of creditor’s rights.
 
Consumer protection laws may limit the enforceability of certain of Banco Hipotecario’s rights.
 
Argentine Consumer Protection Law No. 24,240, as supplemented or amended (the “Consumer Protection Law”) establishes a number of rules and principles for the defense of consumers’ interests. The Consumer Protection Law does not contain specific provisions for its enforcement in relation to financial activities, but it does contain general provisions that may be used as grounds to uphold such enforcement, as it has been previously interpreted in various legal precedents.

Banco Hipotecario may not assure you that the judgments passed by the courts and/or the resolutions handed down by administrative authorities in connection with the measures adopted by Argentina’s Secretary of Homeland Trade and other competent authorities will not increase in the future the degree of protection afforded their debtors and other clients or that they will not favor the claims filed by groups or associations of consumers. This could affect the ability of financial institutions, including the Banco Hipotecario’s, to freely collect charges, commissions or fees for their services and/or products as well as their amounts, and consequently affect their business and the results of their operations.

Class actions against financial institutions for unliquidated amounts could adversely affect the financial system’s profitability.

Certain public and private organizations have initiated class actions against financial institutions in Argentina. The Argentine National Constitution and the Consumer Protection Law contain certain provisions regarding class actions. However, their guidance with respect to procedural rules for instituting and trying class action cases is limited. Nonetheless, through an ad hoc doctrine, Argentine courts have admitted class actions in some cases, including various lawsuits against financial entities related to “collective interests” such as alleged overcharging on products, interest rates and advice in the sale of public securities, etc. If class action plaintiffs were to prevail against financial institutions, their success could have an adverse effect on the financial industry in general and indirectly on the Banco Hipotecario’s business.

Banco Hipotecario operates in a highly regulated environment and its operations are subject to regulations adopted, and measures taken, by several regulatory agencies.

Financial institutions are subject to a major number of regulations concerning functions historically determined by the Argentine Central Bank and other regulatory authorities. The Argentine Central Bank could impose sanctions to Banco Hipotecario in the event that it breaches any applicable regulation. Similarly, the Argentine Securities Commission, which authorizes securities offerings and regulates the public markets in Argentina, has the authority to impose sanctions to Banco Hipotecario and its board of directors for breaches of corporate governance. The Financial Information Unit regulates matters relating to the prevention of asset laundering and has the ability to monitor compliance with any such regulations by financial institutions and, eventually, impose sanctions.

Banco Hipotecario cannot assure you that such regulatory authorities will not commence proceedings against Banco Hipotecario, its shareholders or directors nor issue sanctions against Banco Hipotecario.

In addition to regulations specific to its industry, Banco Hipotecario is subject to a wide range of federal, provincial and municipal regulations and supervision generally applicable to businesses operating in Argentina, including laws and regulations pertaining to labor, social security, public health, consumer protection, the environment, competition and price controls. Banco Hipotecario may not assure that existing or future legislation and regulation will not require material expenditures by Banco Hipotecario or otherwise have a material adverse effect on Banco Hipotecario’s consolidated operations.

Future governmental measures could adversely affect the economy and the operations of financial institutions.

The Argentine Government has historically exercised significant influence over the economy, and financial institutions, in particular, have operated in a highly regulated environment. Banco Hipotecario cannot assure that the laws and regulations currently governing the economy or the banking sector will remain unaltered in the future.

Accordingly, Law No. 26,739 has been recently enacted to amend the Argentine Central Bank Charter, the principal aspects of which are: (i) to broaden the scope of the Argentine Central Bank's mission (by establishing that such institution shall be responsible for financial stability and economic development while pursuing social equity); (ii) to change the obligation to maintain an equivalent ratio between the monetary base and the amount of international reserves; (iii) to establish that the board of directors of the institution will be the authority responsible for determining the level of reserves required to guarantee normal operation of the foreign exchange market based on changes in external accounts; (iv) to empower the monetary authority to regulate and provide guidance on credit through the financial system institutions, so as to "promote long-term production investment”. Banco Hipotecario is not able to ensure that any current or future laws and regulations (including, in particular, the amendment to the Financial Institutions Law and the amendment to the Argentine Central Bank Charter) will not result in significant costs to Banco Hipotecario, or will otherwise have a material adverse effect on its operations.

A highly volatile regulatory framework could affect the country's economy in general, the financial institutions and Banco Hipotecario.

The Argentine Government has historically exercised significant influence over the Argentine economy and financial institutions in particular have operated in a highly regulated environment throughout different periods. Since December 2001, the Argentine Government has promulgated numerous,


 
28
 


far-reaching regulations affecting the economy in general and financial institutions in particular. The laws and regulations that currently govern the economy and the financial sector may change in the future. We cannot assure that any changes in the regulations and the policies of the Argentine Government will not adversely affect financial institutions in Argentina, including Banco Hipotecario, its business, financial condition, the results of its operations or its ability to service foreign debt denominated in foreign currency. A non-stable regulatory framework would impose significant limitations on the activities of the financial system, including Banco Hipotecario, and it would give rise to uncertainty as regards its future financial condition and the result of its operations.

Increased competition and M&A activities in the banking industry could adversely affect Banco Hipotecario.

Banco Hipotecario foresees increased competition in the banking sector, additionally, if the trend towards decreasing spreads is not offset by the increase in lending volumes, the ensuing losses could lead to mergers in the industry.

Mergers could lead to the establishment of larger, stronger banks with more resources than Banco Hipotecario. Therefore, although the demand for financial products and services in these markets continues to grow, competition could adversely affect Banco Hipotecario’s results of operations, shrinking spreads and commissions.

Differences between the accounting standards inforce in Argentina and certain countries, such as the United States, may make it difficult to compare Banco Hipotecario´s financial statements and those prepared by companies from  other countries.

Publicly available information about Banco Hipotecario in Argentina is presented differently from the information available for public companies in certain countries with highly developed capital markets, such as the United States. Except as otherwise described herein, Banco Hipotecario prepares its financial statements in accordance with Argentine Banking GAAP, which could differ in certain significant respects from Argentine GAAP and from U.S. GAAP.

The effects of the legislation that restricts Banco Hipotecario’s ability to pursue mortgage foreclosure proceedings could adversely affect Banco Hipotecario.

The ability to pursue foreclosure proceedings through completion in order to recover on its defaulted mortgage loans has an impact on Banco Hipotecario’s activities. On December 13, 2006 and pursuant to Law No. 26,177, the “Restructuring Unit Law” was created to allow all the mortgage loans to be restructured between debtors and former Banco Hipotecario Nacional as far as they had been granted before the entry into force of Law No. 23,928 (the “Convertibility Law”).

Law No. 26,313, the “Pre-convertibility Mortgage Loans Restructuring Law” was enacted by the Argentine Congress on November 21, 2007 and partially signed into law on December 6, 2007 to lay down the procedure to be followed in restructuring the mortgage loans within the scope of Section 23 of the Mortgage Refinancing System Law in accordance with the guidelines established by the Restructuring Unit Law. To this end, a new recalculation was encated for certain mortgage loans originated by the former Banco Hipotecario Nacional before April 1, 1991.

Decree 2107/08 issued on December 19, 2008 regulated the Pre-convertibility Mortgage Loans Restructuring Law and established that the recalculation of the debt applies to the individual mortgage loans from global operations in force at December 31, 2008 and agreed upon previous to April 1, 1991, and in arrears at least since November 2007 and remaining in arrears at December 31, 2008. In turn, Decree 1366/10, published on September 21, 2010, expanded the universe of Pre-convertibility loans subject to restructuring to include the individual mortgage loans not originating in global operations as far as they met the other requirements imposed by Decree 2107/08. In addition, Law No. 26,313 and its regulatory decrees also condoned the debts on mortgage loans granted before the Convertibility Law in so far as they had been granted to deal with emergency situations and in so far as they met the arrears requirement imposed on the loans subject to recalculation.

Subject to the Argentine Central Bank´s supervision, Banco Hipotecario has implemented the recalculation of mortgage loans within the scope of the above-discussed rules by adjusting the value of the new installments to a maximum amount not in excess of 20% of the household income. In this respect, Banco Hipotecario estimates that it has sufficient loan loss provisions to face any adverse economic impact on the portfolio involved.

However, Banco Hipotecario may not assure you that the Argentine Government will not enact new additional laws restricting Banco Hipotecario’s ability to enforce its rights as a creditor and/or imposing a condonation or a reduction of principal on the amounts unpaid in Banco Hipotecario’s mortgage loan portfolio. Any such circumstance might have a significant adverse effect on Banco Hipotecario’s financial condition and on the results of operations.
 
The Argentine Government may prevail at Banco Hipotecario’s General Shareholders’ Meetings.

By virtue of Law No. 23,696 (the “Privatization Law”) there are no restrictions on the Argentine Government’s ability to dispose of its Class A shares and all those shares minus one could be sold to third parties through public offering. Banco Hipotecario’s By-laws set forth that if at any time Class A shares were to represent less than 42% of Banco Hipotecario’s shares with right to vote, Class D shares automatically lose their triple vote right, which could result in the Main Shareholders losing control. Should any such situation materialize and should the Argentine Government retain a sufficient number of Class A shares, the Argentine Government could prevail in Shareholders’ Meetings (except for some decisions that call for qualified majorities) and could thus exert actual control on the decisions that must be submitted to consideration by the Shareholders’ Meeting.

Banco Hipotecario may in the future consider new business opportunities, which could turn out to be unsuccessful.

In recent years Banco Hipotecario has considered some business acquisitions or combinations and it plans to continue considering acquisitions that offer appealing opportunities and that are in line with Banco Hipotecario’s commercial strategy. However, Banco Hipotecario may not assure you that such businesses could deliver sustainable outcomes or that Banco Hipotecario will be able to consummate the acquisition of financial institutions in

 
29
 


favorable conditions. Additionally, Banco Hipotecario’s ability to obtain the desired outcome as a result of said acquisitions will be partly dependent upon Banco Hipotecario’s ability to follow through with the successful integration of the businesses. To integrate any acquired business entails major risks, including:

 
• Unforeseen difficulties in integrating operations and systems;
 
• Problems inherent in assimilating or retaining the target’s employees;
 
• Challenges associated with keeping the target’s customers;
 
• Unforeseen liabilities or contingencies associated with the targets; and
 
• The likelihood of management having to take time and attention out of the business’s day-to-day to focus on the integration activities and the resolution of associated problems.

Risks Related to Our ADSs and Common Shares
 
Shares eligible for sale could adversely affect the price of our common shares and American Depositary Shares.
 
The market prices of our common shares and American Depositary Shares (“ADS”) could decline as a result of sales by our existing shareholders of common shares or 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.
 
The ADSs are freely transferable under U.S. securities laws, including shares sold to our affiliates. Inversiones Financieras del Sur S.A., which as of June 30, 2013, owned approximately 39.01% of our common shares (on a fully diluted basis) (or approximately 190,031,684 common shares which may be exchanged for an aggregate of 19,190,352 ADSs), is free to dispose of any or all of its common shares or ADSs at any time in its discretion. 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 ADSs.
 
We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States.
 
There may be less publicly available information about the issuers of securities listed on the Buenos Aires Stock Exchange (the “Bolsa de Comercio de Buenos Aires”or “BASE”) than is regularly published by or about domestic issuers of listed securities in the United States and certain other countries.
 
We are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
 
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 stock 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. 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 of ADSs would suffer negative consequences.
 
Based on the current and projected composition of our income and valuation of our assets we do not believe we were a passive foreign investment company (“PFIC”), for United States federal income tax purposes for the tax year ending June 30, 2013, and we 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 differing interpretation.If we become a PFIC, U.S. Holders (as defined in “Taxation—United States Taxation”) of our shares or 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 shares or ADSs at a gain, as well as reporting requirements. Please see ‘‘Taxation—United States Taxation’’ 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.
 
Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions.
 
Our corporate affairs are governed by our by-laws 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.
 

 
30
 


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.
 
Holders of common shares may determine to 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 financial statements prepared in accordance with Argentine GAAP. 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 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 shareholders’ ability to receive cash dividends may be limited.
 
Our shareholders’ ability to receive cash dividends may be limited by the ability of the 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 ADS depositary can in its judgment, and in accordance with local exchange regulations, convert Pesos (or any other foreign currency) into U.S. dollars on a reasonable basis and transfer the resulting U.S. dollars abroad, the ADS depositary will promptly as practicable convert or cause to be converted all cash dividends received by it in Pesos on the deposited securities into U.S. dollars. If in the judgment of the depositary this conversion is not possible on a reasonable basis (or is not permitted by applicable Argentine laws, regulations and approval requirements), the ADS depositary may distribute the foreign currency received by it in Pesos in Argentina 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.
 
Item 4.                      Information on the Company
 
 
General Information
 
Our legal name is Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, and our commercial name is “Cresud”. We were incorporated and organized on December 31, 1936 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), on February 19, 1937 under number 26, on page 2, book 45 of National By-laws Volume. Pursuant to our bylaws, our term of duration expires on July 6, 2082. Our headquarters are located at Moreno 877, (C1091AAQ), Ciudad Autónoma de Buenos Aires, Argentina. Our telephone is +54 (11) 4814-7800, and our website is www.cresud.com.ar.
 
Information contained in or accessible through our website is not a part of this annual report on Form 20-F. All references in this annual report on Form 20-F 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.
 
History
 
We were incorporated in 1936 as a subsidiary of Credit Foncier, a Belgian company engaged in the business of providing rural and urban loans in Argentina. We were incorporated to administer real estate holdings foreclosed by Credit Foncier which was liquidated in 1959, and as a part of such liquidation, our shares were distributed to Credit Foncier’s shareholders, and in 1960  ous shares were listed on the Buenos Aires Stock Exchange. During the 1960s and1970s, our business shifted to exclusively agricultural activities; during 1993 and 1994, Consultores Asset Management acquired on behalf of certain investors approximately 22% of our shares on the Buenos Aires Stock Exchange. In late 1994, an investor group led by Consultores Asset Management (and including Dolphin Fund plc.) purchased additional shares increasing their aggregate shareholding to approximately 51.4% of our outstanding shares. In 1995, we increased our capital through a rights offering and global public offering of ADRs representing our common shares and listed such ADRs on the NASDAQ.
 
On September 25, 2007, we converted US$12.0 million of IRSA’s convertible notes into 22.0 million of IRSA’s common shares. From July 30, 2007 to November 14, 2007 we exercised 33.0 million of warrants to acquire an additional 60.5 million common share of IRSA for a total cost of approximately US$40.0 million. The term for the exercise of IRSA’s outstanding warrants and the conversion of IRSA’s outstanding convertible notes issued on November 21, 2002 expired on November 14, 2007, and subsequently, from December 1, 2007 to June 30, 2009, we acquired 122,625,854 additional shares of IRSA, increasing our interest to 55.64% as of June 30, 2009. We started consolidating the accounts and results of operations of IRSA as from October 1, 2008.
 
In March 2008 we concluded a capital increase of 180 million common shares. As a result, 180 million shares offered at the subscription price of US$ 1.60 or Ps.5.0528 per share was fully subscribed, both locally and internationally. In addition, each shareholder received, without additional cost, one warrant for each share subscribed. See Item 9 “The Offer and Listing – A. Offer and Listing Details - Stock Exchanges in which our securities are listed”.
 

 
31
 


In line with our international expansion strategy, on September of 2005 we participated in the creation of Brasilagro with the purpose of replicating our business model in Brazil. As of June 30, 2013 we were a direct holder of shares equivalent to 39.64% of Brasilagro’s outstanding capital stock.
 
As of June 30, 2013, we have invested approximately Ps. 1,026.8 million to acquire our current 65.45% equity interest of IRSA. IRSA is one of Argentina’s largest real estate companies. IRSA is engaged in a range of diversified real estate activities including residential properties, office buildings, shopping centers and luxury hotels in Argentina. A majority of our directors are also directors of IRSA.
 
Acquisitions, dispositions and authorization pending approval
 
Year ended June 30, 2013

Sale of farmlands

On June 19, 2013, the title deed was executed, by which Cresud sold to Vargas Derka SH a portion of “La Suiza” ranch of 5,613 hectares engaged in livestock activities located near “Villa Angela”, Province of Chaco, remaining in this establishment 36,380 hectares used by the company to cattle and crop activities. The offer price amounts to US$ 6.7 million, which had been totally collected by the date of the execution of the title deed, generating a gain of Ps. 29.8 million.
 
On October 11, 2012 Brasilagro sold Horizontina, a field of land located in Tasso Fragoso, State of Maranhão, Brazil for a total amount of Rs. 75 million ( Ps. 174.8 million). The payments were collected as follows: an initial payment of Rs. 1 million, Rs. 26 million in October, 2012 and Rs. 45 million upon execution of the conveyance, on January 22, 2013. The remaining balance of Rs. 3 million has been collected on Augusts 31, 2013. The gain of the sale was Ps. 53.9 million less commission, expenses and taxes.
 
The Horizontina farmland has an area of 14,359 hectares and was acquired on March 10, 2010 by the subsidiary Inmobiliaria Ceibo for a total amount of Rs. 37.7 million. Until December 31, 2012, the Company invested Rs. 10.4 million (net of accumulated depreciation) in infrastructure improvements.
 
On April 25, 2013, Brasilagro sold a total area of 394 hectares of Araucaria field. The establishment, located in the municipality of Mineros – GO was acquired in 2007 and has a total area of 9,862 hectares.
 
The sale was priced at Rs. 11.7 million (Ps. 26.6 million). The buyer made an initial payment of Rs. 1.7 million and remaining balance will be paid in eight installments every six month. The first installment is due in August, 2013, and the last one, at the moment of the execution of the title deed, in August, 2016. We recognized a gain for the sale of the Araucaria farmland for an amount of Rs. 6.7 million (Ps. 12.6 million).
 
On May 10, 2013, Brasilagro sold a total area of 4,895 hectares of Cremaq field. The establishment, located in the municipality of Ribeiro Gonçalves-PI, Brazil was purchased in 2007 and has a total area of 32,702.
 
The sale was priced at Rs. 42.1 million (Ps. 96.3 million). The buyer made an initial installment of Rs. 4.6 million and the remaining balance will be paid in five installments every six months. The first installment is due in August, 2013 and the last one, at the moment of the execution of the title deed, in June, 2016. We recognized a gain for the sale Cremaq field of Rs. 26.5 million (Ps. 53.2 million).
 
Transactions with non controlling interests

IRSA

During the current fiscal year, we acquired an additional 1.25% interest in IRSA for a total consideration of Ps. 45.8 million. This resulted in a decrease in non-controlling interests of Ps. 33.9 million and a decrease in equity attributable to owners of the parent of Ps. 11.9 million. The effect of changes in the ownership interest of IRSA on the equity attributable to owners of the Company is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of the Company’s interest acquired of                                                                                                          
     33.9  
Consideration paid for non-controlling interests                                                                                                          
     (45.8 )
Reserve recorded within parent’s equity                                                                                                          
     (11.9 )

APSA

During the fiscal year, we, through IRSA and E-Commerce Latina S.A., acquired an additional 0.1% interest in APSA for a total consideration of Ps. 2.3 million. This resulted in a decrease in non-controlling interests of Ps. 0.8 million and a decrease in equity attributable to the owners of the parent of Ps. 1.5 million. The effect of changes in the ownership interest of APSA on the equity attributable to owners of the Company is summarized as follows:
 
 
Ps. (million)
  
Carrying amount of the Company’s interest acquired of
       0.8  
Consideration paid for non-controlling interests
       (2.3 )
Reserve recorded within parent’s equity                                                                                                          
(i)
     (1.5 )
(i)  
The Reserve includes Ps. 0.5 million for non-controlling interest

 
32
 

 
Arcos del Gourmet S.A.

On June 07, 2013, we, through APSA, acquired an additional 1.815% equity interest of its controlled company Arcos for a total amount of US$ 0.8 million. The carrying amount of the non-controlling interest in Arcos on the date of acquisition was Ps. 7,357 (representing a 11.815% interest). The effect on shareholder´s equity of the parent of this change in the equity interest in Arcos is summarized as follows:
 
 
Ps. (million)
  
Carrying amount of the Company’s interest acquired of
       0.8  
Consideration paid for non-controlling interests
       (4.5 )
Reserve recorded within parent’s equity                                                                                                          
(i)
     (3.7 )
 
(i)     The reserve includes Ps. 1.4 million for non-controlling interest

Acquisition of joint venture

On November 29, 2012, we acquired through APSA shares of common stock, representing 50% of Entertainment Holdings S.A. (“EHSA”)’s capital stock and votes for Ps. 32.0 million. Under the acquisition agreement, APSA is entitled to exercise joint control over EHSA. EHSA is an Argentine company whose main asset consists of an indirect interest of 50% in the capital and voting rights of La Rural S.A. (“LRSA”), whereby it has joint control over this Company together with Sociedad Rural Argentina (“SRA”), who owns the remaining 50%. Thus, APSA is the owner of an indirect interest of 25% in LRSA, whose main asset consists of an usufruct agreement on the Predio Ferial de Buenos Aires, located between Cerviño, Sarmiento, Santa Fe Avenues and Oro street, in the City of Buenos Aires (the “Predio Ferial”) entered in 1999 into with SRA, owner of such Predio Ferial.
 
The fair value of the APSA’s investment in the joint venture was determined based on the fair value of EHSA’s net assets, with the rights of use being the main asset. APSA has allocated the price paid at the fair value of the net assets preliminary acquired based on the information available as of the closing date of these Consolidated Financial Statements. Such fair value amounted to Ps. 15.2 million, which means a goodwill amount of Ps. 10.7 million recognized under the line “Investments in associates and joint venture” in the statement of financial position ended June 30, 2013 and a credit of Ps. 6.1 million, recognized under the line “Trade and other receivables” in the Statement of Financial position.
 
On September 25 of 2013, Sociedad Rural Argentina (SRA), La Rural de Palermo S.A. (LRPSA), Boulevard Norte S.A. (BNSA), Ogden Argentina S.A., Entertainment Holdings S.A. (EH), Entretenimiento Universal S.A., and La Rural S.A., entered into an agreement that mainly consist of an amendment to the preexisting agreements under the joint venture pursuant to which they agreed to revise, amend and/or clarify certain provisions. Following this agreement, APSA is currently in the process of evaluating any potential effect on the preliminary purchase price allocation of its joint venture acquisition.
 
 
The fair value of the right of use has been determined by the application of the discounted cash flow method. This estimate considered a discount rate that reflects the market assessments regarding uncertainties in terms of the cash flow amount and timing. The amount of net future cash flows was estimated based on the specific features of the property, the agreements in force, market information and future forecasts as of the valuation date.
 
Net income forecasts, revenues growth rates and discount rates are among the most important assumptions used in the valuation.
 
Disposal of financial assets

During the current fiscal year, we sold, through our subsidiaries, 17,105,629 ordinary shares of Hersha, Hospitality Trust (Hersha) for a total amount of US$ 92.5 million. Consequently, as of the end of year, our interest in Hersha’s capital stock decreased from 9.13% (at the beginning of the year) to 0.49%.
 
Significant sale of investment properties

On August 31, 2012, IRSA sold certain functional units of the building “Libertador 498” of the Autonomous City of Buenos Aires. The total price of the transaction amounted to Ps. 15 million and was collected upon the execution of the title conveyance deeds. This transaction generated a gain of Ps. 12.7 million.
 
On September 14, 2012, IRSA sold certain functional units on floors 18 and 19, as well as parking areas, of the building Bouchard 551. The total price of the transaction was US$ 8.5 million paid upon execution of the conveyance deed. This transaction generated a gain of Ps. 18.4 million.
 
On October 4 and 11, 2012, IRSA signed the transfer deed for the sale of several functional units (stores and parking spaces) of the building “Libertador 498”. The transactions price was set at Ps. 29.4 million, amount that has been completely collected. This transaction generated a gain of Ps. 24.9 million.
 
On January 8, 2013, IRSA sold several functional units (stores and parking spaces) of the building “Costeros Dique IV”. The total price of the transaction was Ps. 9.2 million. This transaction generated a gain of Ps. 7.8 million.
 
On May 8, 2013, IRSA signed the transfer deed for the sale of the 17th floor and two parking units of the Building Maipú 1300 and two parking units of the building Libertador 498. The total price of the transaction was Ps. 7.8 million (US$ 1.5 million). Such transaction generated a gain of approximately Ps. 6.0 million.
 

 
33
 


On May 20, 2013, IRSA signed the transfer deed for the sale of the 6th floor and two parking units of the Building Maipú 1300 and two parking units of the building Libertador 498. The transactions price was set at Ps. 7.6 million (US$ 1.45 million), amount that has been completely collected. This transaction generated a gain of Ps. 6.0 million.
 
On June 28, 2013, IRSA signed the transfer deed for the sale of 4th, 5th and 6th floors and 56 parking units of the building Bouchard 551. The total price of the transaction was Ps. 148.7 million, equivalent to US$ 27.6 million. This transaction generated a gain of Ps. 108.0 million.
 
Acquisition of Rigby 183 LLC

On June 30, 2012, IRSA held, through its subsidiary IMadison LLC, a 49% interest in the capital stock of Rigby 183 LLC (“Rigby”), a company that owns office buildings for rental at Madison Avenue 183, New York, USA. On November 27, 2012, we, through our subsidiary IRSA International LLC, acquired an additional equity interest of 25.5% in Rigby’s capital stock reaching 74.5%, thus taking control over said company. As a result of the acquisition, we expect to increase its footprint in the US real estate market. The goodwill from the acquisition, which amounts to Ps. 45.7 million, is attributable to the synergies expected to be achieved by combining our and Rigby’s operations.
 
The following chart shows the consideration paid by the us, and our subsidiaries, the fair value of the acquired assets, the assumed liabilities and the non-controlling interest as of the acquisition date.
 
      11.27.2012  
Consideration paid:
  
Ps. (million)
  
Cash                                                                                                          
     118.4  
Total consideration paid                                                                                                          
     118.4  
Fair value of the interest in Rigby’s equity held before the business combination
     227.4  
Total consideration                                                                                                          
     345.8  
Recognized balances of acquired identifiable assets and assumed liabilities:
        
Cash and cash equivalents                                                                                                          
     0.5  
Investments properties                                                                                                          
     679.2  
Restricted assets (i)                                                                                                          
     11.8  
Trade and other receivables                                                                                                          
     2.3  
Borrowings                                                                                                          
     (252.8 )
Trade and other payables                                                                                                          
     (12.1 )
Deferred income tax liabilities                                                                                                          
     (26.1 )
Total net identifiable assets                                                                                                          
     402.8  
Non-controlling interest                                                                                                          
     (102.7 )
Goodwill                                                                                                          
     45.7  
Total                                                                                                          
     345.8  

(i)  
Corresponds to cash held in escrow as security deposits and taxes paid in advance by tenants.

The acquisition-related costs (which amount to Ps. 2.6 million) were charged under “General and Administrative Expenses” line in the statement of income.
 
The fair value of the investment property acquired for Ps. 679.2 million was assessed by a qualified independent appraiser. The fair value of trade receivables and other receivables amounts to Ps. 2.3 million, including trade receivables in the amount of Ps. 0.1 million. As of the acquisition date, we estimate that these receivables are recoverable. The fair value of the non-controlling interest in Rigby, an unlisted company, has been determined on a proportional basis to the fair value of net acquired assets.
 
We recognized gains of Ps. 124.1 million derived from the reassessment of the fair value of the 49% interest held in Rigby before the business combination. In addition, all exchange gains (losses) accumulated in shareholder’s equity from the interest held in Rigby before the business combination (Ps. 12.9 million) were charged to income. These gains were disclosed under "Other operating results" line in the income statement.
 
The revenues Rigby has generated since November 27, 2012 and that have been disclosed in the consolidated income statement amount to Ps. 40.9 million. Rigby has also run a net gain of Ps. 8.1 million during said period. If Rigby had been included in the consolidation since July 1, 2012, the consolidated income statement would have shown pro-forma revenues in the amount of Ps. 2,202.9 million and pro-forma net income of Ps. 297.5 million.
 
Disposal of joint ventures

On June 28, 2013, IRSA sold, assigned and transferred to Euromayor S.A. de Inversiones the 100% of its equity interest in Canteras Natal Crespo S.A., accounting for a 50% interest in that company’s capital stock for an aggregate amount of US$ 4.2 million; out of that amount, US$ 1.4 million was cashed in July 2013, with the balance being payable as follows: US$ 2.4 million on March 31, 2014 and US$ 0.4 million against delivery to IRSA of certain lots in the development to be carried out in Canteras Natal Crespo S.A.’s property. IRSA was granted a security interest on the 100% of Canteras Natal Crespo S.A.’s shares to secure payment of the remaining balance.
 
Year ended June 30, 2012

 
34
 
 
Sale of farmlands

On September 28, 2011, Brasilagro sold the Sao Pedro farmland, a rural property located in the Municipality of Chapadão do Céu – GO with a total surface area of 2,447 hectares, including 1,724 hectares suitable for agriculture. The transaction price was R$ 23.3 million (equivalent to Ps. 59.8 million and 580,000 bags of soybean seeds). The result of the sale was a gain of Ps. 27.8 million.
 
The purchaser has paid the amount in Reais equivalent to 352,500 tons of soybean. The remaining balance is payable in three annual installments due on March 30 of each year, for an amount of 92,500 bags of soybean each.
 
On March 2, 2012, we agreed upon the sale of 1,194 additional hectares of “La Fon Fon” farmland for US$ 4.8 million, US$ 2.4 million of which have been collected. The balance will be payable in four semi-annual consecutive installments, which is due on November 30, 2013 and thereafter. Possession was surrendered on June 30, 2012. The result of the sale was a gain of Ps. 6.6 million.
 
On May 22, 2012, the Company sold, assigned and conveyed to APSA a 115-hectare plot of land that forms part of the property “Puerta de Luján” located in the District of Luján, Province of Buenos Aires, for a total amount of US$ 8.9 million (Ps. 15.5 million), which has been fully collected. The result of the sale was a gain of Ps. 11.1 million.
 
Acquisition of associates
 
Agro Managers S.A.

In March 2012, we acquired a 46.8% interest in Agro Managers S.A., an Argentine-based investment company whose principal asset is a 0.24% interest in BrasilAgro, our subsidiary. The purchase price was US$ 0.5 million and was paid in cash.
 
Bitania 26 S.A.
 
On December 12, 2011, we, through Ritelco S.A., acquired a 49% interest in Bitania 26 S.A., an Argentine-based company which owns the “Esplendor Savoy” hotel in the city of Rosario, Province of Santa Fe. The purchase price was US$ 5.0 million and was paid in cash.
 
Acquisition of joint ventures
 
Nuevo Puerto Santa Fe S.A.
 
On August 18, 2011, we, through APSA, acquired a 50% interest in Nuevo Puerto Santa Fe S.A. (“NPSF”), an Argentine-based company located in the Province of Santa Fe (La Ribera Shopping). The purchase price was US$ 4.5 million payable over equal and consecutive monthly installments through February, 2013.
 
Transactions with non controlling interests
 
IRSA
 
During the fiscal year ended June 30, 2012, we acquired an additional 6.5% interest in IRSA for a total consideration of Ps. 158.9 million. This resulted in a decrease in non-controlling interests of Ps. 178.5 million and and increase in equity attributable to owners of the parent of Ps. 19.6 million. The effect of changes in the ownership interest of IRSA on the equity attributable to owners of the Company is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of the Company’s interest acquired of
     178.5  
Consideration paid for non-controlling interests                                                                                                            
     (158.9 )
Gain on acquisition recorded within parent’s equity                                                                                                            
     19.6  

APSA
 
During the fiscal year ended June 30, 2012, we acquired an additional 0.038% interest in APSA for a total consideration of Ps. 0.8 million. This resulted in a decrease in non-controlling interests of Ps. 0.4 million. The effect of changes in the ownership interest of APSA on the equity attributable to owners of the Company is summarized as follows:
 
 
Ps. (million)
  
Carrying amount of the Company’s interest acquired of
       0.3  
Consideration paid for non-controlling interests
       (0.7 )
Loss on acquisition recorded within parent’s equity
(i)
     (0.4 )
(i)  
The Reserve includes Ps. 0.2 million for non-controlling interest

Arcos del Gourmet S.A.

 
35
 
 
On September 7, 2011, we, acquired through APSA, an additional 8.185% interest in its subsidiary Arcos for a total consideration of US$ 4.5 million. The carrying amount of the non-controlling interest in Arcos on the date of acquisition was Ps. 0.8 million (representing a 20% interest). The effect on shareholders equity of the parent of this change in the equity interest in Arcos is summarized as follows:
 
 
Ps. (million)
  
Carrying amount of the Company’s interest acquired of
       0.2  
Consideration paid for non-controlling interests                                                                                                            
       (16.2 )
Reserve created due to the acquisition recorded within parent’s equity
(i)
     (16.0 )
(i)  
The Reserve includes Ps. 6.2 million for non-controlling interest

Cactus Argentina S.A.
 
In December 2011, we acquired the remaining 20% interest in Cactus Argentina S.A. for a total consideration of US$ 1.4 million. This resulted in a decrease in non-controlling interests of Ps. 4.6 million and a decrease in equity attributable to owners of the parent of Ps. 10.6 million. The effect of changes in the ownership interest of Cactus Argentina S.A. on the equity attributable to owners of the Company is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of the Company’s interest acquired of
     (4.6 )
Consideration paid for non-controlling interests                                                                                                            
     (6.0 )
Loss on acquisition recorded within parent’s equity                                                                                                            
     (10.6 )

Jaborandi Ltda.
 
On September 22, 2011, through Brasilagro, we have amended the by-laws of Jaborandi Ltda. (“Jaborandi”), and transferred 1,766,038 quotas of Jaborandi to Maeda, non-controlling shareholder of Jaborandi. This transfer generated an increase in the non-controlling interest held by us in Jaborandoni for an amount of Ps. 2.9 million and a decrease in equity attributable to owners of the parent of Ps. 1.1 million.
 
 
On March 21, 2012, we, trough Brasilagro, acquired the remaining 49% interest in Jaborandi Ltda. for a consideration of Ps. 45.3 million. This resulted in a decrease in non-controlling interest of Ps. 32.2 million and a decrease in equity attributable to owners of the parent of Ps. 13.1 million. The effect of changes in the ownership interest of Jaborandi Ltda. on the equity attributable to owners of the Company is summarized as follows:
 
 
Ps. (million)
  
Carrying amount of the Company’s interest acquired of
       32.2  
Consideration paid for non-controlling interests                                                                                                          
       (45.3 )
Reserve created due to the acquisition recorded within parent’s equity
(i)
     (13.1 )
(i)  
The Reserve includes Ps. 7.8 million for non-controlling interest

Purchase of financial assets
 
Acquisition of preferred shares and warrants of Supertel Hospitalitary Inc. (“Supertel”)
 
On February 2012, IRSA through IRSA's subsidiary Real Estate Strategies L.P., acquired 3 million preferred shares (“Preferred Shares”) and 30 million warrants (“Warrants”) of Supertel for a total amount of US$ 30 million. Supertel is a Real Estate Investment Trust that focuses its activity on medium class long-stay hotels. Supertel owns approximately 80 hotels in 21 states of the United States of America, which are managed by diverse operators and franchises, such as Comfort Inn, Days Inn, Hampton Inn, Holiday Inn, Sleep Inn and Super 8, among others.
 
The mentioned Preferred Shares accrue a preferred dividend of 6.25% per annum and are convertible into 30 million common shares at a rate of 10 common shares for each preferred share. Subject to certain limitations, they can be exercised completely or partially at any time until February, 2017. Preferred shares grant IRSA, the same politic rights as those of Supertel’s common shares.
 
The Warrants grant IRSA the right to acquire 30 million Supertel’s common shares at a fixed price of US$ 1.20 per share. Subject to certain limitations, these warrants can be exercised at IRSA'soption, either fully or partially, at any time until February 2017.
 
As a holder of the Preferred Shares, we have a voting right in Supertel’s Shareholders’ Meetings of approximately 34%. Additionally, IRSA is entitled to appoint up to 4 directors, out of a total of 9, and takes part in the decisions made by the Board of Directors of Supertel, as to the acquisition, sale and management of Supertel’s real estate property. However, under no circumstance, can we hold an interest in Supertel in excess of 34% and/or exercise voting rights in excess of 34% at any Supertel Shareholders’ Meeting.
 
Even though we exercises material influence on Supertel, neither the Preferred Shares nor the Warrants give us access to economic rights associated to Supertel capital stock (we do not hold any interest in Supertel capital stock). As a result, the Preferred Shares and the Warrants have been accounted for as financial assets at fair value through profit or loss, as established by IFRS 9.
 
Upon initial recognition, the consideration paid for the preferred shares and warrants was assigned to both instruments based on the relative fair values of those instruments upon acquisition. The fair value of these instruments exceeded the transaction price and were determined using a valuation
 

 
36
 
 
technique that uses inputs not observable in the market. As a result of the use of this technique, we have not recognized a gain at the time of initial recognition in the amount of US$ 7.9 million.
 
Contribution to Don Mario S.G.R.
 
On June 29, 2012, we, through APSA, effectively made a contribution in the amount of Ps. 10,000 to Don Mario S.G.R., a reciprocal guarantee company under Argentine law. The SGRs are legal entities created for promoting financing for small and medium businesses (PYMES) and for reactivating national economy. The SGRs are funded through the contributions of investors who, in turn, obtain tax benefits. The SGRs act in their capacity of guarantors for pymes in relation to the borrowings they receive from financial institutions. The funds received are generally invested in fixed-term deposits by the SGRs. We have received five shares with a nominal value of Ps. 0.005. These shares are symbolic and merely represent our rights in the investment. These shares do not grant control or significant influence over the entity’s activities. APSA must maintain the investment in the SGR for a minimum period of 2 years and APSA must grant with its contribution certain financing obtained by PyME´s of APSA's supply chain to make use of the tax benefit.
 
Significant sale of investment properties
 
On October 17, 2011, we, through IRSA, sold certain functional units of the building “Libertador 498” of the Autonomous City of Buenos Aires. The total price of the transaction amounted to US$ 2.5 million and was collected as of June 30, 2012. This transaction generated a gain of Ps. 7.9 million.
 
On October 25, 2011, we, through IRSA, sold the property “Thames” located in the Province of Buenos Aires. The total transaction price amounted to US$ 4.7 million and was collected as of June 30, 2012. This transaction generated a gain of Ps. 14.7 million.
 
Likewise, we, though IRSA, sold in two separate transactions performed in March and May, 2012, all the functional units from the property known as "Museo Renault" at Figueroa Alcorta 3301 of the Autonomous City of Buenos Aires. The total price agreed amounted to US$ 11.7 million. For the sale executed in May 2012, the price was financed with a mortgage loan of US$ 3.3 million repayable in two annual installments and with an annual rate of 8.5%. The transactions described above recorded a profit of Ps. 23.9 million.
 
On June 16, 2012, we, through IRSA, sold and transferred a covered area of 4,703 square meters for offices and 46 car parking spaces and 4 complementary units to be used as storage units in the building identified as Yacht V and VI of the complex known as “Puerto del Centro”, located in Dique IV, Puerto Madero. The amount of the transaction was Ps. 69 million, which was paid by the buyer upon execution of the conveyance deed. The result for this transaction amounted to Ps. 53.7 million.
 
The properties mentioned above were classified as investment properties until the above mentioned transactions were executed, which represents a gross lease area of approximately 41,193 square meters.
 
Transactions and authorizations pending
 
Urban properties and investments business

Paraná plot of land
 
On June 30, 2009, we, through APSA, subscribed a “Letter of Intent” by which it stated its intention to acquire from Wal-Mart Argentina S.A. a plot of land of about 10,022 square meters located in Paraná, Province of Entre Ríos, to be used to build, develop and exploit a shopping center or mall.
 
On August 12, 2010, the agreement of purchase was executed. The purchase price stood at US$ 0.5 million to be paid as follows: i) US$ 0.05 million was settled as a prepayment on July 14, 2009, ii) US$ 0.1 million had been settled upon executing such agreement, and iii) US$ 0.35 million will be paid upon executing the title deed. The mentioned payments were recorded as an advance under “Trade and other receivables” line.
 
On December 29, 2011, possession of the real estate was granted, and a minute was signed in which the parties agreed that the deed transferring ownership would be granted on June 30, 2012, or within sixty (60) consecutive days as from the date in which the selling party evidenced with a certified copy before the buying party that the real estate was not subject to any encumbrance, burden, limit or restriction to the ownership, except for the electroduct administrative easement in favor of EDEER S.A.
 
 
On June 29, 2012, the parties have agreed to extend the term for the execution of the title conveyance deed, which shall be executed within sixty (60) days as from the date in which the selling party evidences to the buying party with a certified copy that the real estate is not subject to any encumbrance, burden, limit or restriction to the ownership, except for the mentioned administrative easement.
 
Acquisition of commercial center goodwill
 
We, through APSA, signed an offering letter for acquiring, building and running a commercial center in a real estate owned by INC S.A., located in the City of San Miguel de Tucumán, Province of Tucumán. The price of this transaction was US$ 1.3 million, of which US$ 0.05 million were paid. The mentioned payment was recorded as an advance under “Trade and other receivables” line.
 
This transaction was subject to certain conditions precedent, among which we through APSA should acquire from INC S.A. the goodwill constituted by the commercial center operating in Soleil Factory. Having complied with such condition on July 1, 2010, APSA should have started the works: i) 12 months after complying with such conditions, or ii) on May 2, 2011, whichever occurs earlier. However, before starting with the works, INC S.A. should have: i) granted the title deeds to APSA's future units to APSA, and ii) transferred to APSA the rights to the registered architectural project and the effective permissions and authorizations to be carried out in APSA's future units. As of June 30, 2013, the two conditions have not been fulfilled.
 
 
37
 

Antitrust Law
 
For more information about this item, please see: “Item 8. Financial information-A. Consolidated Statements and Other Financial Information”
 
Capital Expenditures
 
Our capital expenditures totaled Ps. 1,048.0 and Ps. 243.1 million for the fiscal years ended on June 30, 2013 and 2012, including other property and equipment acquired in business combinations. Our capital expenditures consisted in the purchase of real estate and farmlands, acquisition and improvement of productive agricultural assets, completion of building a shopping center, construction of real estate and acquisition of land reserves.
 
Our capital expenditures for the new fiscal year will depend on the prices of real estate, land for agriculture and beef cattle as well as the evolution of commodity prices.
 
Fiscal Year Ended June 30, 2013
 
Fiscal Year 2013. During the fiscal year ended June 30, 2013, we invested Ps. 920.9 million in the urban properties and investment business, mainly due to (a) improvements in our hotels Sheraton Libertador, Intercontinental and Llao Llao for Ps. 0.9 million, Ps. 2.6 million and Ps.0.4 million, respectively, (b) acquisition of furniture and fixtures, machinery and equipment, and other buildings and facilities for Ps. 11.6 million, (c)  improvements made to our shopping centers for Ps. 56.9 million, (d)  development of properties for Ps. 144.2 million, corresponding Ps. 117.9 million to “Arcos” project and Ps. 26.3 million to Shopping Neuquén project (e) improvements in our Office buildings and other rental properties for Ps. 7.6 million, (f) Ps. 679.2 million were related  to the purchased an additional 25.5% equity interest in Rigby 183 LLC ’s capital stock, (g) Ps.15.8 million are related to suppliers advances and (h) Ps. 1.8 million were related to the acquisition of plots of lands.
 
In addition, our main investments in the agricultural business during the fiscal year 2013 were Ps. 127.1 million, mainly due (a) acquisition and development of owner occupied farmland for Ps. 109.4 million (including Ps. 61.5 million of our subsidiary Brasilagro), (b) Ps. 10.4 million in machinery, (c) Ps. 2.6 million in investment properties, (d) Ps. 1.6 million in vehicles, (e) Ps. 2.4 million in other building and facilities and (f) Ps. 0.7 million in furniture and fixtures.
 
Fiscal Year Ended June 30, 2012
 
Fiscal Year 2012. During the fiscal year ended June 30, 2012, we invested Ps. 106.3 million in the urban properties and investment business, mainly due to (a) improvements in our hotels Sheraton Libertador, Intercontinental and Llao Llao for Ps. 0.9 million, Ps. 3.5 million and Ps.0.4 million, respectively, (b) acquisition of furniture and fixtures, machinery, equipment, and facilities for Ps. 8.2 million, (c)  improvements made to our shopping centers for Ps. 31.3 million, (d)  development of properties for Ps. 23.9 million, corresponding Ps. 18.4 million to “Arcos” project and Ps. 5.5 million to Shopping Neuquén project (e) improvements in our office buildings and other rental properties for Ps. 8.8 million and (f) Ps. 29.3 million in the acquisition of plots of land, mainly the Lujan plots of land (Ps. 24.2 million).
 
In addition, our main investments in the agricultural business during the fiscal year 2012 were Ps. 136.8 million, mainly due (a) acquisition and development of owner occupied farmland for Ps. 93.8 million (including Ps. 55.0 million of our subsidiary Brasilagro), (b) Ps. 20.1 million in machinery, (c) Ps. 14.8 million in investment properties, (d) Ps. 4.3 million in vehicles, (e) Ps. 2.7 million in other building and facilities and (f) Ps. 1.0 million in furniture and fixtures.
 
Recent Developments
 
Repurchase of IRSA´s shares
 

 
38
 


IRSA´s Board of Directors has resolved to approve a stock repurchase plan under the terms of Section 64 of the Capital Markets Law (as defined herein below) and the CNV Rules (as defined herein below); the aforementioned stock repurchase plan will be enforce until June 30, 2014; and shall be performed with liquid and realized profits and freely available reserves, for total amount of up to Ps. 200,000,000 or up to 5% of our capital stock.
 
Banco Hipotecario’s Dividends

The Shareholders’ Meeting of Banco Hipotecario S.A.has approved a dividend distribution for the amount of Ps. 30.0 million charged to the fiscal year ended December 31, 2012. In accordance with its shareholding, through IRSA, we will receive Ps. 9.2 million.

Shareholders´Meeting:
 
Our Shareholders´Annual Meeting will be held on October 31, 2013, in order to consider and approve, among others, (i)  Consideration of the rules contained in Resolution 609/2012 issued by the Argentine Securities Commission and the creation of a special reserve in the Shareholders’ Equity, (ii) Consideration of net loss for the fiscal year ended June 30th, 2013, amounting to Ps. 26,907,000, and its full or partial absorption by the “Special Reserve” account mentioned in item 2)above, (v) Consideration of reversal for up to Ps. 120,000,000 of the balance in the “Reserve for New Projects” account and its distribution as dividends in cash and/or in kind for an amount of up to Ps. 120,000,000. Delegation on the Board of Directors of powers for its implementation, (iii) Consideration of the Board of Directors’ performance, (iv) Consideration of the Supervisory Committee’s performance, (v) Consideration of compensation payable to the Board of Directors for Ps. 17,547,324 (allocated amount) for the fiscal year ended June 30th, 2013 which recorded a computable loss within the meaning of the regulations issued by the Argentine Securities Commission. Delegation on the Board of Directors of powers to approve the Audit Committee’s budget, (vi) Consideration of compensation payable to the Supervisory Committee for the fiscal year ended June 30th, 2013, (vii) Determination of the number and election of Regular Directors and Alternate Directors, as applicable, (viii) Appointment of Regular and Alternate Members of the Supervisory Committee, (ixi) Appointment of Certifying Accountant for the next fiscal year and determination of its compensation. Delegation of powers, (xiii) Updating of Shared Services Agreement report, (x) Treatment of amounts paid as personal asset tax levied on the shareholders,  (xi) Consideration of renewing the delegation on the Board of Directors of the powers to determine the time and currency of issuance and further terms and conditions as resolved by the Shareholders’ Meetings dated October 29th, 2009 and October 31st, 2011, for the issuance of short-term debt securities ( “VCP”) for a maximum outstanding amount which shall not exceed at any time the peso equivalent of US$ 30,000,000.
 
Acquisition of Shares of Avenida.com
 
Through IRSA´s  subsidiary APSA, we have subscribed for 3,703,704 shares of Avenida Inc., representing 26.09% of its stock capital. Avenida Inc. will be engaged in the e-commerce business. The transaction price was Ps. 13.0 million, which have already been fully paid. APSA has the option to increase its interest up to 37.04% of such company.
 

 
39
 
 
 
General
 
We are a leading Latin American agricultural company engaged in the production of basic agricultural commodities with a growing presence in the agricultural sector of Brazil, through our investment in Brasilagro—Companhia Brasileira de Propriedades Agrícolas, as well as in other Latin American countries. We are currently involved in several farming activities including grains and sugarcane production, beef cattle raising and milk production. Our business model focuses on the acquisition, development and exploitation of agricultural properties having attractive prospects for agricultural production and/or value appreciation and the selective sale of such properties where appreciation has been realized. In addition, we lease lands to third parties and perform agency and agro-industrial services, including a feedlot and a meat packing plant. Our shares are listed on the Buenos Aires Stock Exchange (“BCBA”) and the NASDAQ.
 
We are also directly engaged in the Argentine real estate business through our subsidiary IRSA, one of Argentina’s leading real estate companies. IRSA is engaged in the development, acquisition and operation of shopping centers, premium offices, and luxury hotels in Argentina, as well as the development of residential properties. IRSA’s shares are listed on the BCBA and the NYSE. We hold a 65.45% interest in IRSA and a majority of our directors are also directors of IRSA.

During the fiscal years ended June 30, 2012 and 2013, we had consolidated revenues of Ps. 2,859.8 million and Ps. 3,528.5 million, initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest  of Ps. 886.7 million and Ps. 700.9 million, and consolidated net income of Ps. 58.5 million and Ps. 154.3 million, respectively. During the fiscal years ended June 30, 2012 and June 30, 2013, our total consolidated assets increased 20% from Ps. 10,324.9 million to Ps. 12,410.7 million, and our consolidated shareholders’ equity increased 0.6% from Ps. 4,691.5 million to Ps. 4,719.1 million.

We operate in two businesses areas, namely, “Agricultural” and “Investment and Development Properties” businesses, as further described below.

Our Agricultural business is further comprised of eight reportable segments:

·  
Our “Crops” segment consists of planting, harvesting and sale of crops including wheat, corn, soybeans, cotton, and sunflower, which do not represent separate operating segments on an individual basis. We seek to maximize the use of our land through crop rotation, the use of technology and techniques, and the type and amount of crops cultivated may vary from one harvest year to another harvest year. In this way, we are focused on the long-term performance of our land, and to that extent, we assess the performance considering the aggregated combination, if any, of crops planted in the land. Our Crops Segment had assets of Ps. 1,406.6 million and Ps. 1,462.4 million as of June 30, 2013 and 2012, respectively, representing 59% and 62% of our agricultural business assets at such dates, respectively. Our Crops segment generated operating loss of Ps. 107.7 million and Ps. 133.1million for the financial years ended June 30, 2013 and 2012, respectively, representing -306% and 136%, of our consolidated operating income from Agricultural Business for such years, respectively.

·  
Our “Beef cattle” segment consists of breeding, purchasing and/ or fattening of free-range beef cattle for sale to meat processors and local livestock auction markets. Our Beef cattle segment had assets of Ps. 357.6 million and Ps. 393.5  million as of June 30, 2013 and 2012, respectively, representing 15% and 17% of our agricultural business assets at such dates, respectively. Our Beef cattle segment generated operating loss of Ps. 17.0 million and operating income of Ps. 18.4 million for the financial years ended June 30, 2013 and 2012, respectively, representing -48% and -19%, of our consolidated operating income from Agricultural Business for such years, respectively.

·  
Our “Milk” segment consists of breeding and/ or purchasing dairy cows for the production of raw milk for sale to local milk and milk-related products producers. Our Milk segment had assets of Ps. 49.6 million and Ps. 42.1 million as of June 30, 2013 and 2012, respectively, representing 2.0% and 1.8% of our agricultural business assets at such dates, respectively. Our Milk segment generated operating loss of Ps. 0.6 million and operating income of Ps. 1.6 million for the financial years ended June 30, 2013 and 2012, respectively, representing -2% and -2%, of our consolidated operating income from Agricultural Business for such years, respectively.

·  
Our “Sugarcane” segment consists of planting, harvesting and sale of sugarcane. Our Sugarcane segment had assets of Ps. 417.3 million and Ps. 322.8 million as of June 30, 2013 and 2012, respectively, representing 18% and 14% of our agricultural business assets at such dates, respectively. Our Sugarcane segment generated operating income of Ps. 27.2 million and operating loss of Ps. 6.2 for the financial years ended June 30, 2013 and 2012, respectively, representing 77% and 6%, of our consolidated operating income from Agricultural Business for such years, respectively.

·  
Our “Farmland Leases and Services” segment includes services, i.e. irrigation and farmland leases out to third parties. Our Farmland Leases and Services Segment had assets of Ps. 25.8 million and Ps. 34.7 million as of June 30, 2013 and 2012, respectively, representing 1% and 1% of our agricultural business assets at such dates, respectively. Our Farmland Leases and Services segment generated operating income of Ps. 12.1 million and Ps. 17.0 million for the financial years ended June 30, 2013 and 2012, respectively, representing 34% and -17%, of our consolidated operating income from Agricultural Business for such years, respectively.

·  
Our “Land Transformation and Sales” segment comprises the identification and acquisition of underdeveloped and undermanaged farmland property and the sale of farmland to profit from land value appreciation generated through the use of the land. Our Land Transformation and Sales segment had assets of Ps. 58.0 million and Ps. 55.6 million as of June 30, 2013 and 2012, respectively, representing 2% and 2% of our agricultural business assets at such dates, respectively. Our Land Transformation and Sales segment generated operating income of Ps. 132.6 million and Ps. 39.2 million for the financial years ended June 30, 2013 and 2012, respectively, representing 377% and -40%, of our consolidated operating income from Agricultural Business for such years, respectively.

·  
Our “Agro-industrial” segment consists of feedlot farming for slaughtering process in our own packing plant or for beef cattle finishing services to third parties. Feedlot farming is distinctive and requires specific care and diets, which differ from those, provided to free-range beef cattle. We assess this activity separately due to the distinctive characteristics of the beef cattle feedlot system and its integration with industrialized meat processing. Our Agro-industrial segment had assets of Ps. 30.7  million and Ps. 21.3 million as of June 30, 2013 and 2012, respectively, representing 1% and 1% of our agricultural business assets at such dates, respectively. Our Agro-Industrial segment generated operating loss of Ps. 24.5 million and Ps. 25.6 million for the financial years ended June 30, 2013 and 2012, respectively, representing -69% and 26%, of our consolidated operating income from Agricultural Business for such years, respectively.

·  
Our “All Others” segment comprises the aggregation of the remaining operating segments, which do not meet the quantitative thresholds for disclosure, mainly brokerage activities. Our All Others segment had assets of Ps. 34.4 million and Ps. 13.6 million as of June 30, 2013 and 2012,

 
40
 

·  
respectively, representing 1% and 1% of our agricultural business assets at such dates, respectively. Our All Others segment generated operating income of Ps. 13.0 million and operating loss of Ps. 9.3 million for the financial years ended June 30, 2013 and 2012, respectively, representing 37% and 9%, of our consolidated operating income from agricultural business for such years, respectively.

Our Investment and Development Properties is further comprised of six reportable segments:

·  
Our Shopping Centers segment includes the operating results from our portfolio of shopping centers principally comprised of lease and service revenue from tenants. Our Shopping Centers segment had assets of Ps. 2,136.6 million and Ps. 2,247.7 million as of June 30, 2013 and 2012, respectively, representing 36% and 41% of our investment and development properties business assets at such dates, respectively. Our Shopping Centers segment generated operating income of Ps. 681.6 million and Ps. 564.0 million for the financial years ended June 30, 2013 and 2012, respectively, representing 63% and 75%, of our consolidated operating income for such years, respectively.

·  
Our “Offices and Other Rentals” segment includes the operating results of our lease and service revenues of office space and other non-retail building properties principally comprised of lease and service revenue from tenants. Our Offices and Other Rentals segment had assets of Ps. 922.8 million and Ps. 1,092.8 million as of June 30, 2013 and 2012, respectively, representing 15% and 20% of our investment and development properties business assets at such dates, respectively. Our Offices and Other Rentals segment generated operating income of Ps. 121.8 million and Ps. 101.8 million for the financial years ended June 30, 2013 and 2012, respectively, representing 11% and 14%, of our consolidated operating income for such years, respectively.

·  
Our “Development and Sales of Properties” segment includes the operating results of our acquisition and/or construction of housing and other properties for sale in the ordinary course of business. Our Development and Sales of Properties segment had assets of Ps. 780.0 million and Ps. 671.9 million as of June 30, 2013 and 2012, respectively, representing 13% and 12% of our investment and development properties business assets at such dates, respectively. Our Development and Sales of Properties segment generated operating income of Ps. 170.5 million and Ps. 95.4 million for the financial years ended June 30, 2013 and 2012, respectively, representing 13% and 16%, of our consolidated operating income for such years, respectively.

·  
Our “Hotels” segment includes the operating results of our hotels mainly comprised of room, catering and restaurant revenues. Our Hotels segment had assets of Ps. 207.7 million and Ps. 220.3 million as of June 30, 2013 and 2012, respectively, representing 3% and 4% of our investment and development properties business assets at such dates, respectively. Our Hotels segment generated operating loss of Ps. 21.8 million and Ps. 9.6 million for the financial years ended June 30, 2013 and 2012, respectively, representing -2% and -1%, of our consolidated operating income for such years, respectively.

·  
Our “International” segment includes mainly the consolidated results of operations of our office building property located at 183 Madison Avenue in New York, United States of America as from the date we obtained control of this operation plus our share of profit or loss of our associate  New Lipstick, a holding company which is the owner of Metropolitan. Metropolitan’s main asset is the Lipstick Building, a 34-story building located on Third Avenue between 53rd and 54th streets in Manhattan, New York City. Our International segment had assets of Ps. 877.1  million and Ps. 180.0 million as of June 30, 2013 and 2012, respectively, representing 15% and 3% of our investment and development properties business assets at such dates, respectively. Our International segment generated operating income of Ps. 129.3 million and operating loss of Ps. 8.8 million for the financial years ended June 30, 2013 and 2012, respectively, representing 4% and -1%, of our consolidated operating income for such years, respectively, mainly due to the consolidation of this investment in our audited consolidated financial statements, after increasing our interest up to 74.5% in Rigby 183 LLC on November 27, 2012.

·  
Our “Financial Operations and Others” segment includes the income or loss generated by our associates Banco Hipotecario and Tarshop S.A. and the residual financial operations from our subsidiary Apsamedia. Banco Hipotecario is a full-service commercial bank offering a wide variety of banking activities and related financial services to individuals, small-and medium-sized companies and large corporations (mainly mortgage lender, provider of mortgage-related insurance and mortgage loan services). Both Tarshop’s and Apsamedia’s operations consist primarily of lending and servicing activities related to the credit card offered to consumers at retail venues. Our Financial Operations and Others segment had assets of Ps. 1,084.6 million and Ps. 1,043.8 million as of June 30, 2013 and 2012, respectively, representing 18% and 19% of our investment and development properties business assets at such dates, respectively. Our Financial Operations and Others segment generated operating loss of Ps. 5.5  million and operative income of Ps. 5.8 million for the financial years ended June 30, 2013 and 2012, respectively, representing -1% and 1%, of our consolidated operating income for such years, respectively.

 
Agricultural Business
 
As of June 30, 2013, we owned 33 farmlands with approximately 643,891 hectares distributed in Argentina, Brazil, Bolivia and Paraguay. Approximately 110,447 hectares of the land we own are used for crop production, approximately 77,963 hectares are for beef cattle production, 85,000 hectares are for sheep production, 2,780 hectares are for milk production and approximately 21,277 hectares are leased to third parties for crop and cattle beef production. The remaining 346,424 hectares of land reserve are primarily natural woodlands. In addition, we have the rights to hold approximately 132,000 hectares of land under concession for a 35-year period that can be extended for another 29 years. Out of this total, we have developed 21,947 hectares for crop production. Also, during fiscal the year 2013 ended on June 30, 2013, we leased 45,492 hectares from third parties for crop production and 12,635 hectares for beef cattle production.
 
The following table sets forth, at the dates indicated, the amount of land used for each production activity (including owned, leased land and land under concession):
 
   
2009(1) (5)
    
2010(1) (5)
    
2011(1) (5)
    
2012(1) (6)
    
2013(1) (6) (7)
  
Crops (2)
     115,411       104,627       126,178       181,079       168,134  
Beef Cattle (3)
     128,859       105,857       102,279       95,995       91,053  
Milk
     4,334       4,900       2,571       3,022       2,780  
Sheep
     100,911       100,911       100,911       85,000       85,000  
Land reserves (4)
     356,796       343,153       339,744       459,680       478,246  
Owned farmlands leased to third parties
     8,317       11,049       14,026       25,538       31,593  
Total (5)
     714,628       670,497       685,709       850,314       856,806  
 
 
41
 


(1)      Includes 35.723% of approximately 8,299 hectares owned by AgroUranga S.A., an associated Argentine company in which we own a non-controlling 35.7% interest.
(2)      Includes wheat, corn, sunflower, soybean, sorghum and others.
(3)      Breeding and fattening.
(4)
We use part of our land reserves to produce charcoal, rods and fence posts.
(5)
Does not include Brasilagro.
(6)
As from fiscal year 2012, it includes Brasilagro and 100% of Cactus.
(7)
Includes farmlands owned by Brasilagro and Cresud sold in 2013.
 
In September 2005, we, together with other Brazilian partners, founded Brasilagro, a company organized to exploit opportunities in the Brazilian agricultural sector. In April 2006, Brasilagro increased its capital through a global and domestic offering of common shares, and as of June 30, 2013, we owned 39.64% of the outstanding common shares of Brasilagro. Through this company we control 7 farmlands, extending over a total surface area of 158,404 hectares allocated to the production of sugarcane, corn, soybean and timber.

Strategy
 
We seek to maximize our return on assets and overall profitability by (i) identifying, acquiring and operating agricultural properties having attractive prospects for increased agricultural production and/or medium or long-term value appreciation and selectively disposing of properties as appreciation is realized, (ii) optimizing the yields and productivity of our agricultural properties through the implementation of state-of-the-art technologies and agricultural techniques and (iii) preserving the value of our significant long-term investment in the urban real estate sector through our subsidiary IRSA.
 
Focus on maximizing value of our agricultural real estate assets
 
We conduct our agricultural activities with a focus on maximizing the value of our agricultural real estate assets. We rotate our portfolio of properties over time by purchasing properties which we believe have a high potential for appreciation and selling them selectively as opportunities arise to realize attractive capital gains. We achieve this by relying on the following principles:
 
•
Acquiring under-utilized properties and enhancing their land use: We seek to purchase under-utilized properties at attractive prices and develop them to achieve more productive uses. We seek to do so by (i) transforming non-productive land into beef cattle feeding land, (ii) transforming beef cattle feeding land into land suitable for more productive agricultural uses, (iii) enhancing the value of agricultural lands by changing their use to more profitable agricultural activities; and (iv) reaching the final stage of the real estate development cycle by transforming rural properties into urban areas as the boundaries of urban development continue to extend into rural areas. To do so, we generally focus on acquisitions of properties outside developed agricultural regions and/or properties that we believe will increase in value due to their proximity to existing or expected infrastructure.
•
Applying modern technologies to enhance operating yields and property values. We believe there is an opportunity to improve the productivity and long-term value of inexpensive and/or underdeveloped land by investing in modern technologies, such as genetically modified and high-yield seeds, direct sowing techniques, machinery, crop yield optimization through land rotation, irrigation and the use of fertilizers and agrochemicals. To enhance our beef cattle production, we use genetic technology and have a strict animal health plan, controlled periodically through traceability systems. In addition, we have introduced a feedlot to optimize our beef cattle management and modern milking technologies in our milk business.
•
Anticipating market trends. We seek to anticipate market trends in the agribusiness sector by (i) identifying opportunities generated by economic development at local, regional and worldwide levels, (ii) detecting medium- and long-term increases or decreases in supply and demand caused by changes in the world’s food consumption patterns and (iii) using land for the production of food and energy, in each case in anticipation of such market trends.
•
International expansion. We believe that an attractive opportunity exists to acquire and develop agricultural properties outside Argentina, and our objective is to replicate our business model in other countries. Although most of our properties are located in different areas of Argentina, we have begun a process of expansion into other Latin American countries, including Brazil, Bolivia, Paraguay and Uruguay.
 
 
Increase and optimize production yields
 
We seek to increase and improve our production yields through the following initiatives:
 
 
Implementation of technology.
 
•
To improve crop production, we use state-of-the-art technology. We invest in machinery and the implementation of agricultural techniques such as direct sowing. In addition, we use high-potential seeds (GMOs) and fertilizers and we apply advanced land rotation techniques. In addition, we consider installing irrigation equipment in some of our farmlands.
 
•
To increase beef cattle production we use advanced breeding techniques and technologies related to animal health. Moreover, we optimize the use of pastures and we make investments in infrastructure, including installation of watering troughs and electrical fencing. In addition, we have one of the few vertically integrated beef cattle processing operations in Argentina through Cactus Argentina S.A. (“Cactus”), a feedlot and slaughterhouse operator.
 

 
42
 


•
In our milking facility, we have implemented an individual animal identification system, using plastic tags for our beef cattle and “RFID” tags. We use software from Westfalia Co. which enables us to store individual information about each of our dairy cows.
   
 
Increased production.
 
Our goal is to increase our crop, beef cattle and milk production in order to achieve economies of scale by:
 
•
Increasing our owned land in various regions by taking advantage of attractive land purchase opportunities. In addition, we expand our production areas by developing lands in regions where agricultural and livestock production is not developed to its full potential. We believe in the use of technological tools for improving the productivity of our land reserves and enhancing their long-term value. However, current or future environmental regulations could prevent us from fully developing our lands by demanding us to maintain part of them as natural woodlands not allocated to production.
 
•
Diversifying our production and the weather risk by leasing farmlands, thus expanding our product portfolio and optimizing our geographic focus, in particular in areas that are not appealing in terms of land value appreciation but with attractive productivity levels. We believe that this diversification mix mitigates our exposure to seasonality, commodity price fluctuations, weather conditions and other factors affecting the agricultural and livestock sector.
 
•
Moreover, we believe that continuing to expand our agricultural operations outside of Argentina will help us improve even more our ability to produce new agricultural products, further diversifying our mix of products, and mitigating our exposure to regional weather conditions and country-specific risks.
Diversifying market and weather risk by expanding our product and land portfolio.
 
•
We seek to continue diversifying our operations to produce a range of different agricultural commodities in different markets, either directly or in association with third parties. We believe that a diversified product mix mitigates our exposure to seasonality, commodity price fluctuations, weather conditions and other factors affecting the agricultural and livestock sector. To achieve this objective in Argentina, we expect to continue to own and lease farmlands in various regions with differing weather patterns and to continue to offer a range of diversified products. Moreover, we believe that continuing to expand our agricultural operations outside of Argentina will enhance our ability to produce new agricultural products, further diversifying our mix of products and mitigating our exposure to regional weather conditions and country-specific risks.
 
Focus on preserving long-term value of our investment in our real estate subsidiary IRSA
 
We seek to maintain the long-term value of our significant investment in the urban real estate sector through IRSA. We believe that IRSA is an ideal vehicle through which to participate in the urban real estate market due to its substantial and diversified portfolio of residential and commercial properties, the strength of its management and what we believe are its attractive prospects for future growth and profitability.
 
•
Shopping centers. We believe that the Argentine shopping center sector offers attractive prospects for long-term growth due to, among other factors, a continuing evolution of consumer preferences in favor of shopping malls (away from small neighborhood shops) and a low level of shopping center penetration compared to many developed countries. Our main objectives are to generate sustained cash flow growth from our shopping centers and increase their value in the long-term, while maintaining a leading position in Argentina’s shopping center industry by developing new shopping centers in urban areas with attractive prospects for growth, including the Buenos Aires’ Metropolitan area, Argentine provinces and elsewhere in Latin America.
•
Development and sale of properties. We seek to purchase undeveloped properties in densely-populated areas and build apartment complexes offering green space for recreational activities. We also seek to develop residential communities by acquiring undeveloped properties with convenient access to Buenos Aires, developing roads and other basic infrastructure such as power and water, and then selling lots for the construction of residential units. After the Argentine economic crisis in 2001 and 2002, the scarcity of mortgage financing restricted the growth in middle class home purchases and, as a result, we mainly focused on the development of residential communities for middle and high-income individuals, who do not need to finance their home purchases. In addition, we seek to develop residential properties for other segments of the residential market in Argentina and during the first quarter of the 2000 fiscal year, we entered into a partnership with Cyrela Empreendimentos e Participações, a leading Brazilian residential real estate developer, to penetrate new market segments.
•
Office and other non-shopping center properties. Since the Argentine economic crisis in 2001 and 2002, there have been limited investments in high-quality office buildings in Buenos Aires and, as a result, we believe there is currently substantial demand for more desirable office spaces. We seek to purchase and develop premium office buildings in strategically-located business districts in Buenos Aires and other strategic locations that we believe offer attractive returns and potential for long-term capital gain. We expect to continue our focus on attracting premium corporate tenants to our office buildings. Furthermore, we intend to selectively consider new opportunities to acquire or construct new rental office buildings.
•
Hotel operations. We believe our portfolio of three luxury hotels is positioned to take advantage of the future growth in tourism and business travel in Argentina. We seek to continue with our strategy to invest in high-quality properties that are operated by leading international hotel companies to capitalize on their operating experience and international reputation. We also seek to continue to invest in improvements for our hotels.

 
43
 


•
Banco Hipotecario. Banco Hipotecario is a full-service commercial bank offering a wide variety of banking activities and related financial services to individuals, small- and medium-sized companies and large corporations. Among these services, Banco Hipotecario stands out as a leader in mortgage loans in Argentina. Since 1999, Banco Hipotecario’s shares have been listed on the Buenos Aires Stock Exchange, and since 2006 it has obtained the Level 1 ADR program from the Bank of New York. We currently seek to keep our investment in Banco Hipotecario, as we believe that Argentina has a low level of mortgages outstanding measured in terms of GDP.
•
Land reserves. We seek to continue to acquire undeveloped land at locations we consider attractive within and outside Buenos Aires. In each case, our intention is to purchase land with significant development or appreciation potential to resell. We believe that holding a portfolio of desirable undeveloped plots of land enhances our ability to make strategic long-term investments and affords us a valuable pipeline of new development projects for upcoming years.
•
International. In the past, IRSA has made significant real estate investments outside of Argentina, including investments in Brazil Realty S.A. in Brazil and Fondo de Valores Inmobiliarios in Venezuela which we disposed of in 2002 and 2001, respectively. In this segment, we seek investments that represent an opportunity of capital appreciation potential in the long term. After the international financial crisis in 2008, we took advantage of the price opportunity in the real estate sector in the United States and invested in two office buildings in Manhattan, New York. We have recently increased our interest to 74.5% of the office building located at Madison Avenue in the City of New York. We also have a 49.87% interest in a US company, whose main asset is the so-called “Lipstick” office building located in the City of New York. In addition, jointly with subsidiaries, we hold 34% of Supertel Hospitality Inc REIT’s voting rights (NASDAQ: SPPR) and we have recently sold our almost entire shareholding in the Hersha REIT (NYSE: HT), which holds a controlling interest in 65 hotels in the United States, totaling around 9,221 rooms. As of June 30, 2013, IRSA held a 0.49% stake in the company. We intend to continue evaluating -on a selective basis- investment opportunities outside Argentina as long as they offer attractive investment and development options.
 
Our Principal Agricultural Business Activities
 
During the fiscal year ended June 30, 2013, we conducted our operations on 33 owned farmlands and 78 leased farmlands. Some of the farmlands we own are engaged in more than one productive activity at the same time.

Volume (in tons)
  
Stock
as of 06/30/2012
    
Fiscal Year 2013
Production
    
Fiscal Year 2013
Sales
    
Stock
as of 06/30/2013
  
Wheat
     6,360       4,505       10,735       -  
Corn
     90,177       107,257       271,144       34,667  
Sunflower
     3,501       12,437       10,551       5,855  
Soybean
     47,587       220,293       208,814       45,928  
Sugarcane
     45,819       1,156,848       1,179,877       -  
Milk (1)
     -       18,459       17,870       -  
Beef
     22,882       8,196       10,180       20,898  

(1)  
In thousands of liters.

Crops and Sugarcane
 
Our crop production is mainly based on grains and oilseeds and sugarcane. Our main crops include wheat, corn, soybean and sunflower. Other crops, such as sorghum, are sown occasionally and represent only a small percentage of total sown land.
 
Production
 
The following table shows, for the fiscal years indicated, our crop and sugarcane production volumes measured in tons:
 
   
2009(1)
    
2010(1)
    
2011(1)
    
2012(2)
    
2013(2)
  
Wheat
     21,375       11,636       16,386       18,200       4,505  
Corn
     110,149       127,060       171,614       143,639       107,257  
Sunflower
     13,030       7,641       13,512       14,524       12,436  
Soybean
     76,893       126,956       154,008       193,554       220,293  
Sugarcane
     -       -       -       576,048       1,156,848  
Other
     15,584       49,323       111,391       16,400       10,899  
Total
     237,031       322,616       466,911       962,365       1,512,238  
 
(1)  
Does not include production from Agro-Uranga S.A. or Brasilagro.
(2)  
Does not include production from Agro-Uranga S.A. Includes Brasilagro.

Below is the geographical distribution of our agricultural production for the last two seasons, measured in hectares:
 
2013 Season
  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
    
Total
  
Wheat
     3,224       -       1,281       -       4,505  
Corn
     58,336       34,630       14,291       -       107,257  
Sunflower
     12,089       -       347       -       12,436  
Soybean
     82,229       106,276       31,601       187       220,293  
Sorghum
     2,543               2,638       305       5,486  
Other
     3,055       2,358       -       -       5,413  
Sugarcane
     -       1,014,234       142,614       -       1,156,848  
Total
     161,476       1,157,498       192,772       492       1,512,238  

 
44
 

 
 
2012 Season  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
     Total  
Wheat
     17,212       -       988       -       18,200  
Corn
     49,689       72,387       21,563       -       143,639  
Sunflower
     13,231       -       1,293       -       14,524  
Soybean
     79,164       83,319       29,976       1,096       193,555  
Sorghum
     949       -       4,431       2,133       7,513  
Other
     7,606       1,280       -       -       8,886  
Sugarcane
     -       576,030       18       -       576,048  
Total
     167,851       733,016       58,269       3,229       962,365  

Sales

Below is the total volume of crops and sugarcane sold broken down into geographical areas, measured in tons:

2013 Season
  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
    
Total
  
Wheat
     9,566       -       1,169       -       10,735  
Corn
     184,515       64,913       21,715       -       271,143  
Sunflower
     9,667       -       884       -       10,551  
Soybean
     79,255       100,311       27,645       1,603       208,814  
Sorghum
     1,278       -       3,939       590       5,807  
Other
     9,274       4,778       -       -       14,052  
Sugarcane
     -       1,047,792       132,085       -       1,179,877  
Total
     293,555       1,217,794       187,437       2,193       1,700,979  

2012 Season
  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
    
Total
  
Wheat
     19,758       -       988       -       20,746  
Corn
     154,845       55,974       13,295       -       224,114  
Sunflower
     16,802       -       1,293       -       18,095  
Soybean
     104,378       111,080       33,567       2,615       251,640  
Sorghum
     3,660       -       3,254       1,583       8,497  
Other
     5,366       6,153       -       -       11,519  
Sugarcane
     -       636,335       -       -       636,335  
Total
     304,809       809,542       52,397       4,198       1,170,946  

The following table shows the hectares of sown land for the fiscal years indicated below:

   
2009(1)(2)
    
2010(1)(2)
    
2011(1)(2)
    
2012(1)(3)
    
2013(1)(3)
  
Own
     43,193       47,448       59,122       127,793       113,705  
Under lease
     59,615       42,696       52,205       44,508       45,492  
Under concession
     8,067       10,816       10,401       8,778       8,937  
Leased to third parties
     -       -       -       23,595       18,223  
Total
     110,875       100,960       121,728       204,674       186,357  
 
(1)
Sown land may differ from that indicated under “Uses of Land”, since some hectares are sown twice in the same season and therefore are counted twice.
(2)
Does not include Brasilagro or Agro-Uranga S.A.
(3)
Includes Brasilagro. Does not include Agro-Uranga S.A.
 
Stock
  
2013 Season
    
2012 Season
    
Variation
  
Corn
     34,667       90,177       -61.6 %
Soybean
     45,928       47,587       -3.5 %
Sunflower
     5,855       3,501       67.2 %
Sorghum
     3,577       2,581       38.6 %
Wheat
     -       6,360       (100.0 )% 
Cotton
     239       1,269       -81.2 %
Sugarcane
     -       45,819       (100.0 )% 
Other
     -       1,321       (100.0 )%
Total
     90,266       198,615       -54.6 %

 
We seek to diversify our mix of products and the geographic location of our farmlands to achieve an adequate balance between the two principal risks associated with our activities: weather conditions and the fluctuations in the prices of commodities. In order to reduce such risks, we own and lease land in several areas of Argentina with different climate conditions that allow us to sow a diversified range of products. Our leased land for crops is mostly located in the Pampas region, a favorable area for crop production. The leased farmlands are previously studied by technicians who analyze future production expectations based on the historic use of the land. The initial duration of lease agreements is typically one or three seasons. Leases of farmlands for production of crops generally consist of lease agreements with payments based on a fixed amount of Pesos per hectare or crop sharing agreements (“aparcería”) with payments in kind based on a percentage of the crops obtained or a fixed amount of tons of grains obtained or their equivalent value in Pesos. The principal advantage of leasing farmlands is that leases do not require us to commit large amounts of capital to the acquisition of lands but allow us to increase our scale in the short term and reduce the risk of inclement weather. The disadvantage of this strategy is that the cost of leasing can increase over time, in part, because increased demand for leased land increases the price of leased land.
 
In order to increase our production yields, we use, besides state-of-the-art technology, labor control methods which imply the supervision of the seeding’s quality (density, fertilization, distribution, and depth), crop monitoring (determination of natural losses and losses caused by harvester) and verification of bagged crop quality. In this way, we work jointly with our suppliers to achieve the best management of inputs, water and soil.

 
45
 
 
Wheat seeding takes place from June to August, and harvesting takes place from December to January. Corn, soybean and sunflower are sown from September to December and are harvested from February to June. Grains are available to be sold as commodities after the harvest from December to June and we usually store part of our production until prices recover after the drop that normally takes place during the harvesting season. A major part of production, especially soybean, wheat and sunflower seeds, corn and sorghum, is sold and delivered to buyers pursuant to agreements in which price conditions are fixed by reference to the market price at a specific time in the future that we determine. The rest of the production is either sold at current market prices or delivered to cover any futures contract that we may have entered into.
 
Results
 
The following table shows this segment’s results for the fiscal year 2013, compared to the previous fiscal year:

 Crops
 
In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     750.2       636.1       17.9 %
Costs
     (1,227.8 )     (1,051.9 )     16.7 %
Initial recognition and changes in Fair value of biological assets and agricultural produce at the point of harvest
     572.1       513.4       11.4 %
Changes in the net realizable value of agricultural produce after harvest
     11.8       2.5       379.7 %
Gross Income
     106.2       100.1       6.1 %
General and administrative expenses
     (87.7 )     (86.8 )     1.1 %
Selling expenses
     (115.0 )     (88.4 )     30.1 %
Other operating results, net
     (11.2 )     (58.1 )     (80.6 %)
Operating Income / (Loss)
     (107.7 )     (133.1 )     (19.1 %)
Share of Profits/(Loss) of associates
     8.1       6.0       34.9 %
Segment (Loss)
     (99.6 )     (127.1 )     (21.7 %)

 Sugarcane
 
In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     160.3       98.9       62.1 %
Costs
     (302.2 )     (167.9 )     80.0 %
Initial recognition and changes in Fair value of biological assets and agricultural produce at the point of harvest
     197.3       82.3       139.9 %
Gross Income
     55.4       13.2       319.1 %
General and administrative expenses
     (24.2 )     (19.4 )     24.4 %
Selling expenses
     (4.0 )     -       (100 )% 
Other operating results, net
     -       -       -  
Operating Income / (Loss)
     27.2       (6.2 )     538.8 %
Share of Profits/(Loss) of associates
     -       -       -  
Segment Income / (Loss)
     27.2       (6.2 )     538.8 %

During this season we expected better results; yet, weather conditions prevented us from reaching our projections. On the one hand, part our seeding was delayed due to excessive rainfall, leading to a reduction in planted area and yields. Besides, during the summer rainfall levels were lower than required, affecting the productivity of our crops. The lower production was offset by slightly higher prices.
 
Beef Cattle
 
Our beef cattle production involves the breeding and fattening of our own animals. In some cases, if market conditions are favorable, we also purchase and fatten beef cattle which we sell to slaughterhouses and supermarkets. As of June 2013, our beef cattle aggregated 57,209 heads, and we had a total surface area of 91,053 hectares of own and leased lands devoted to this business activity. In addition, we have leased to third parties 13,371 hectares assigned to these activities.
 
During the fiscal year ended June 30, 2013, our beef cattle activities generated sales of Ps. 76.7 million, representing 5.7% of our total consolidated sales from the agricultural business, and our production was 8,196 tons, a decrease of 12.1% compared to the previous fiscal year. This fall was mainly due to adverse weather conditions that affected our beef cattle’s fattening capacity.
 
The following table sets forth, for the fiscal years indicated below, the beef cattle production volumes measured in tons:
 
 
2009(1)
2010(1)
2011(1)
2012(1)
2013(1)
Beef cattle production (2)
7,112
3,153
6,519
9,329
8,196
 
(1)
Does not include production from Agro-Uranga S.A.
(2)
Production measured in tons of live weight. Production is the sum of the net increases (or decreases) during a given period in live weight of each head of beef cattle owned by us.
 
Management by lot in our pastures is aided by electrical fencing which may be easily relocated to supplement our land-rotation cycles. Our beef cattle herd is subject to a 160 kg to 360 kg fattening cycle by grazing in pastures located in our north farmlands, where conditions are adequate for initial fattening. For fattening above 360 kg, beef cattle are fattened in our San Luis feedlot until they reach 430 kg. The feedlot fattening system leads to homogeneity in production and beef of higher quality and tenderness because of the younger age at which animals are slaughtered.
 
Our beef cattle breeding activities are carried out with breeding cows and bulls and our fattening activities apply to steer, heifers and calves. Breeding cows calve approximately once a year and their productive lifespan is from six to seven years. Six months after birth, calves are weaned and transferred to fattening pastures. Acquired beef cattle are directly submitted to the fattening process. Upon starting this process, beef cattle have been grazing for approximately one year to one and a half year in order to be fattened for sale. Steer and heifers are sold when they have achieved a weight of 380–430 kg and 280–295 kg, respectively, depending on the breed.
 
 
46
 
 
Pregnancy levels, which have been improving over the years, showed satisfactory levels of efficiency notwithstanding the adverse weather conditions. Genetics and herd management are expected to further improve pregnancy levels in the coming years. Reproductive indicators improved thanks to the implementation of technologies, which have included handling techniques and females artificial insemination with beef cattle genetics especially selected for the stock which is purchased from specialized companies in quality semen elaboration for meat production. We use veterinarian products manufactured by leading national and international laboratories. It is important to emphasize the work of a veterinarian advising committee, who are external to us and visit each establishment monthly to control and agree tasks.
 
Currently, the beef cattle raising farmlands are officially registered as export farmlands pursuant to the identification and traceability rules in force in Argentina. Animals are individually identified, thus allowing for the development of special businesses in this area.
 
Our beef cattle stock is organized into breeding and fattening activities. The following table shows, for the fiscal years indicated, the number of head of beef cattle for each activity:
 
   
2009(2)
    
2010(2)
    
2011(2)
    
2012(2)
    
2013(2)
  
Breeding (1)
     59,283       61,859       50,430       42,109       35,743  
Fattening
     28,520       9,379       22,697       17,326       21,466  
Total
     87,803       71,238       73,127       59,435       57,209  
 
(1)           For classification purposes, upon birth, all calves are considered to be in the breeding process.
(2)           Does not include heads of beef cattle from Agro-Uranga S.A.

 
We seek to improve beef cattle production and quality in order to obtain a higher price through advanced breeding techniques. We cross breed our stock of Indicus, British (Angus and Hereford) and Continental breeds to obtain herds with characteristics better suited to the pastures in which they graze. To enhance the quality of our herds even further, we plan to continue improving our pastures through permanent investment in seeds and fertilizers, an increase in the watering troughs available in pastures, and the acquisition of round bailers to cut and roll grass for storage purposes.
 
Our emphasis on improving the quality of our herd also includes the use of animal health-related technologies. We comply with national animal health standards that include laboratory analyses and vaccination aimed at controlling and preventing disease in our herd, particularly FMD.
 
Direct costs of beef production consist primarily of seeds for pasture (for instance, gatton panic, oats and barley) and crops for feeding and dietary supplementation purposes and animal health costs, among others.
 
Results
 
The following table shows this segment’s results for the fiscal year 2013, compared to the previous fiscal year:

In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     76.7       132.3       (42.0 %)
Costs
     (145.9 )     (163.5 )     (10.7 %)
Initial recognition and changes in Fair value of biological assets and agricultural produce at the point of harvest
     79.3       79.0       0.4 %
Changes in the net realizable value of agricultural produce after harvest
     -       0.1       (100 %)
Gross Income
     10.0       47.9       (79.1 %)
General and administrative expenses
     (12.8 )     (14.9 )     (14.2 %)
Selling expenses
     (10.9 )     (11.6 )     (5.4 %)
Other operating results, net
     (3.3 )     (3.0 )     9.1 %
Operating (Loss)
     (17.0 )     18.4       192.2 %
Share of profit/(loss) of associates
     -       -       -  
Segment (Loss)/income
     (17.0 )     18.4       192.2 %

 
Milk Production
 
As of June 30, 2013, we conducted our milk business in the dairy facility located in “El Tigre” farmland in La Pampa, Argentina. We have a capacity of 2,392 cows in milking per day and seek to increase total productivity through the application of new technologies including improved genetic management for milk production, feeding strategic planning based on beef cattle specific requirements and the use of individual traceability to know the productivity history of each animal. Also we use computer science in milk business to make more efficient the manual labor by surveying the information supplied by the farmland.
 
Within the process of de-commoditization and technological innovation, we implemented an identification and tracing system in compliance with European and SENASA standards. We also obtained Global Gap and HCCP certification. Our goal in this respect is to distinguish our production and obtain higher prices in production sales.
 
Our milk production is based on a herd of Holando Argentina dairy cows, genetically selected through the use of imported frozen semen of North American Holando bulls. Male calves are sold, at calving, for a given amount per head, whereas female calves are weaned after 24 hours, spend approximately 60 days in raising and approximately 100 days being fed on the basis of grass, grains and supplements. Young heifers then graze for an additional 12 to 15 month period, prior to artificial insemination at the age of 18 to 20 months and they calve nine months later. Heifers are subsequently milked for an average of 300 days. Milking dairy cows are once again inseminated during the 60 to 90 day subsequent period. This process is repeated once a year during six or seven years. The pregnancy rate for our dairy cows is 80-90%.
 
Our dairy herd is milked mechanically twice a day. The milk obtained is cooled to less than five degrees centigrade to preserve quality and is then stored in a tank for delivery once a day to trucks sent by buyers. Dairy cows are fed mainly with grass, supplemented as needed with grains, hay and silage. We have invested in certain technologies that focus on genetic improvement, animal health and feeding in order to improve our milk production. These investments include imports of top quality frozen semen from genetically improved North American Holstein bulls, agricultural machinery and
 
 
47
 


devices such as feed-mixer trucks, use of dietary supplements and the installation of modern equipment to control milk cooling. We are currently acquiring dietary supplements for our dairy cows and have made investments with the aim of increasing the quantity and quality of forage (pasture, alfalfa and corn silage) in order to reduce feeding costs.
 
The following table sets forth, for the periods indicated, the average number of our dairy cows, average daily production per cow and our total milk production:
 
   
2009(1)
    
2010(1)
    
2011(1)
    
2012(1)
    
2013(1)
  
Average dairy cows per day
     3,286       3,297       2,816       2,046       2,392  
Production (daily liters per cow)
     17.4       18       19.1       22.9       20.4  
Total production (thousands of liters)
     20,898       21,690       19,605       16,563       18,459  
 
(1)  
Does not include production from AgroUranga S.A.
 
At the closing of the fiscal year 2013, we had 6,529 heads of beef cattle on 2,780 hectares involved in the production of milk; whereas as of June 30, 2012, we had 6,184 heads of beef cattle on 3,022 hectares.
 
Results
 
The following table shows this segment’s results for the fiscal year 2013, compared to the previous fiscal year:

In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     38.8       30.2       28.7 %
Costs
     (74.8 )     (57.8 )     29.4 %
Initial recognition and changes in Fair value of biological assets and agricultural produce at the point of harvest
     40.7       34.0       19.8 %
Gross Income
     4.7       6.3       (25.3 %)
General and administrative expenses
     (2.9 )     (2.9 )     (0.9 %)
Selling expenses
     (1.7 )     (1.2 )     38.4 %
Other operating results, net
     (0.7 )     (0.6 )     26.6 %
Operating (Loss)
     (0.6 )     1.6       139.9 %
Share of profit/(loss) of associates
     -       -       -  
Segment (Loss)/income
     (0.6 )     1.6       139.9 %
 
Agro-industrial
 
This segment consists in the fattening of beef cattle in feedlots for own or third-party slaughterhouses. Feedlot beef cattle breeding requires specific care and diets that differ from those applicable to natural grass-fed beef cattle breeding.
 
Our feedlot operations are developed through our subsidiary Cactus Argentina S.A. and take place in a 170-hectare farmland located in Villa Mercedes, Province of San Luis, which started to operate in September 1999. Cactus has been a pioneer in feedlot services with 18,000 heads of beef cattle capacity, depending on the size of the beef cattle.
 
Moreover, through our subsidiary Sociedad Anónima Carnes Pampeanas S.A. (“Carnes Pampeanas”) we own a meat packing plant in Santa Rosa, Province of La Pampa, with capacity to slaughter and process approximately 9,600 beef cattle heads per month.
 
During the last years, the smaller supply of beef cattle has adversely affected the value chain by reducing cold-storage plant utilization. This has left several plants struggling to remain operational in view of the poor returns and shortage of raw materials. Our investment in Carnes Pampeanas has not escaped unscathed of this situation.
 
Since December 2011, the packing plant had remained closed due to the difficult situation experienced by the industry. With the support of the Provincial Government of La Pampa and the Federal Government, combined with Cresud’s confidence that the business could be successfully resumed, in August 2012 the packing plant was reopened and restarted production.
 
Fiscal year 2013 has been a tough year for our agro-industrial segment due to the unfavorable market scenario. We expect it to improve in the next year and to be able to increase production levels and recover this segment’s profitability.
 
Results
 
The following table shows this segment’s results for the fiscal year 2013, compared to the previous fiscal year:

In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     207.8       100.1       107.6 %
Costs
     (198.4 )     (110.8 )     79.1 %
Gross income / (loss)
     9.4       (10.7 )     -  
General and administrative expenses
     (11.0 )     (7.4 )     49.1 %
Selling expenses
     (21.5 )     (7.6 )     181.3 %
Other operating results, net
     (1.3 )     0.1       -  
Operating loss
     (24.4 )     (25.6 )     (4.5 %)
Share of profit/(loss) of associates
     -       -       -  
Segment loss
     (24.4 )     (25.6 )     (4.5 %)
 
 
48
 


Other Segments

Results
 
The following table shows this segment’s results for the fiscal year 2013, compared to the previous fiscal year:

In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     83.3       55.1       51.3 %
Costs
     (71.2 )     (46.1 )     54.5 %
Initial recognition and changes in Fair value of biological assets and agricultural produce at the point of harvest
     (1.0 )     0.1       -  
Gross Income
     11.1       9.0       23.1 %
General and administrative expenses
     (7.1 )     (4.9 )     44.2 %
Selling expenses
     (6.9 )     (5.3 )     30.0 %
Management fee
     -       (8.7 )     -  
Other operating results, net
     15.9       0.7       2,283.8 %
Operating Income / (loss)
     13.0       (9.2 )     -  
Share of profit/(loss) of associates
     1.1       (0.4 )     -  
Segment Income / (loss)
     14.1       (9.6 )     -  
 
Leases and Agricultural Services
 
Lease of Farmlands
 
 
We conduct our business on owned and leased land. Rental payments increase our production costs, as the amounts paid as rent are accounted for as operating expenses. As a result, production costs per hectare of leased land are higher than for the land owned by us.
 
Our land leasing policy is designed to supplement our expansion strategy, using our liquidity to make productive investments in our principal agricultural activities. On the other hand, our leasing strategy provides us with an added level of flexibility in the share of each of our products in total production, providing for greater diversification.
 
The initial duration of lease agreements is typically one crop season. Leases of farmlands for production of crops consist in lease agreements with payments based on a fixed amount of Pesos per hectare or crop sharing agreements (“aparcería”) with payments in kind based on a percentage of the crops obtained or a fixed amount of tons of grains obtained or their equivalent value in Pesos. Leases of farmlands for beef cattle breeding consist in lease agreements with fixed payments based on a fixed amount of Pesos per hectare or steer kilograms or capitalization agreements with payments in kind or in cash based on the weight gain in kilograms.
 
During the fiscal year 2013, we leased to third parties a total of 78 fields, covering 60,685 hectares, including 7,699 hectares in Brazil. Out of the total leased area, 45,624 hectares were assigned to agricultural production, including double crops, and 12,635 hectares to beef cattle raising. The properties for agricultural production were leased, primarily, for a fixed price prior to harvest and only a small percentage consisted of crop sharing agreements.

The following table shows a breakdown of the number of hectares of leased land used for each of our principal production activities:
 
   
2009
    
2010
    
2011
    
2012(1)
    
2013(1)
  
   
(in hectares)
        
Crops
     59,615       42,696       52,205       42,515       45,492  
Beef cattle
     32,795       12,635       12,635       12,635       12,635  
 
 (1) Includes Brasilagro.
 
Due to the rise in the price of land, we adopted a policy of not validating excessive prices and applying strict criteria upon adopting the decision to lease, selecting those lands with values that would ensure appropriate margins.
 
We lease own farmlands to third parties for agriculture, beef cattle breeding and seed production, mainly in two types of farmlands. On the one hand, we lease our farmlands under irrigation in San Luis (Santa Bárbara and La Gramilla) to seed producers. These farmlands are ideal for obtaining steady production levels, given the quality of their soil and the weather conditions of the area, along with the even humidity provided by irrigation.
 
On the other hand, we lease farmlands recently put into production after agricultural development. In this way we manage to reduce our production risk, ensuring fixed rental income until the new farmlands reach stable productivity levels.
 
In addition, in this segment we include the irrigation service we provide to our own farmlands leased to third parties.
 
Results
 
The following table shows this segment’s results for fiscal year 2013, compared to the previous fiscal year:

In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     30.8       25.3       21.8 %
Costs
     (12.1 )     (2.6 )     369.5 %
Gross income
     18.8       22.7       (17.5 %)
General and administrative expenses
     (4.1 )     (3.7 )     11.2 %
Selling expenses
     (1.5 )     (1.3 )     17.2 %
Other operating results, net
     (1.0 )     (0.7 )     42.3 %
Operating income
     12.1       17.0       (29.0 %)
Share of profit/(loss) of associates
     -       -       -  
Segment income
     12.1       17.0       (29.0 %)

 
49
 

Acquisition, Sale and Transformation of Lands
 
Land Acquisitions
 
We intend to increase our farmland portfolio by acquiring large extensions of land with high appreciation or production potential. We also intend to transform the land acquired from non-productive to beef cattle breeding, from beef cattle breeding to farming, or applying technology to improve farming yields so as to generate higher land appreciation.
 
In our view, the sector’s potential lies in developing marginal areas and/or under-utilized areas. As a result of current technology, we may achieve similar yields with higher profitability than core areas; this may result in the appreciation of land values.
 
At present, prices of farmlands used in agricultural production have increased in the southern hemisphere (mainly South America) but continue to be relatively low compared to the northern hemisphere (U.S. and Europe). Our financial strength relative to other Argentine producers gives us the chance to increase our land holdings at attractive prices, improve our production scale and create potential for capital appreciation.
 
Several important intermediaries, with whom we usually work, bring farmlands available for sale to our attention. The decision to acquire farmlands is based on the assessment of a number of factors. In addition to the land’s location, we normally carry out an analysis of soil and water, including the quality of the soil and its suitability for our intended use (crops, beef cattle, or milk production), classify the various sectors of the lot and the prior use of the farmland; analyze the improvements in the property, any easements, rights of way or other variables in relation to the property title; examine satellite photographs of the property (useful in the survey of soil drainage characteristics during the different rain cycles) and detailed comparative data regarding neighboring farmlands (generally covering a 50-km area). Based on the foregoing factors, we assess the farmland in terms of the sales price compared against the production potential of the land and the appreciation potential of the capital. We consider that competition for the acquisition of farmlands is, in general, limited to small farmers for the acquisition of smaller lots, and that there is scarce competition for the acquisition of bigger lots.
 
In addition, we may consider the acquisition of farmlands in marginal zones and their improvement by irrigation in non-productive areas as well as the installation of irrigation devices in order to obtain attractive production yields and create potential for capital appreciation.
 
On May 30, 2008, IRSA signed, as nominee, a bill of purchase with delivery of possession for 115 hectares of a portion of a farmland located in the District of Luján, Province of Buenos Aires. The transaction was agreed for a price of US$ 3.0 million, US$ 1.2 million of which were paid on that date.
 
On December 13, 2008, the Company was formally recognized as principal of the transaction; the balance of US$ 1.8 million will be paid by the Company upon execution of the title deed.
 
On September 5, 2008, we signed the title deed for the purchase of 10,910 hectares of “Estancia Carmen” farmland located in the Province of Santa Cruz. The transaction was agreed for a price of US$ 0.7 million, that was paid in full.
 
On July 28, 2008, we signed a bill of purchase for 4,566 hectares of “Las Londras” farmland located in the Province of Guarayos, Republic of Bolivia. The transaction was agreed for a price of US$ 11.4 million, which had been fully paid as of June 30, 2011.
 
On July 28, 2008, we signed a bill of purchase for 883 and 2,969 hectares of “San Cayetano” and “San Rafael” farmlands, respectively, located in the Province of Guarayos, Republic of Bolivia. The transaction was agreed for a price of US$ 8.8 million, which had been fully paid as of June 30, 2012.
 
On July 28, 2008, we signed a bill of purchase for 3,748 hectares of “La Fon Fon” farmland, located in the Province of Obispo Santiesteban, Republic of Bolivia. The transaction was agreed for a price of US$ 8.6 million, which had been fully paid as of June 30, 2012.
 
Following our expansion strategy at international level, during September 2008, we signed a bill of purchase for a 50% undivided interest in 41,931 hectares located in Mariscal José Felix Estigarribia, Department of Boquerón, Chaco Paraguayo, Republic of Paraguay, owned by Carlos Casado S.A., for a price of US$ 5.2 million, in order to contribute them to the new company recently organized (Cresca S.A.). The contribution was made on January 26, 2009, and the title deed to the property was executed on February 3, 2009.
 
On March 19, 2010, in connection with the option previously exercised with respect to the property, Cresca required Carlos Casado S.A. to transfer to it 3,614 hectares. As agreed in the Option Agreement, Cresca have to pay Carlos Casado S.A. US$ 350 per hectare. The last payment was made on March 4, 2011.
 
On June 2 and 8, 2011, the companies Yuchán Agropecuaria S.A. and Yatay Agropecuaria S.A. (bolivian related companies of cresud) entered into purchase agreements for two plots of land located in Santa Cruz, Bolivia, with a total surface area of approximately 5,000 hectares, to be allocated to agriculture.
 
The first plot is a farmland of approximately 2,660 hectares allocated to sugar cane production. Its purchase price was US$ 8.4 million. Upon the execution of the purchase agreement US$ 2 million were paid, and the balance is payable in four installments, the first of which installment was paid in July 2011 and the last one will be paid in October 2012.
 
The second purchase involves a farmland of approximately 2,340 hectares allocated to soybean production. Its purchase price was US$ 5 million, US$ 1.7 million of which has been paid already while the remaining balance is payable in four semi-annual consecutive installments, the first installment was paid in December 2011 and the last one will be paid in June 2013.
 
On March 2, 2011, we acquired, as co-owner, 40% of a rural property composed by thirteen plots of land located in the district of Perdriel, department of Luján de Cuyo, in the province of Mendoza. The purchase price for the 100% of the property was US$4.0 million which has been paid in full.
 

 
50
 
 
The following chart shows, for the fiscal years indicated below, certain information concerning our land acquisitions for each of the last fifteen fiscal years ended on June 30:
 
Fiscal Year
  
Number of Farmlands
    
Amount of Acquisitions
(Ps. million)
  
1998 (1)
     8       31.5  
1999
     -       -  
2000
     -       -  
2001
     -       -  
2002
     -       -  
2003 (2)
     1       25.0  
2004
     -       -  
2005 (3)
     2       9.3  
2006 (4)
     1       45.9  
2007 (5)
     1       7.3  
2008 (6)
     2       4.5  
2009 (7)
     7       133.2  
2010 (8)
     -       5.0  
2011 (9)
     3       61.5  
2012
     -       -  
2013
     -       -  

(1)
Includes the acquisition of “Ñacurutú,” “Tapenagá,” “Santa Bárbara" and “La Gramilla,” “La Sofia,” “La Suiza,” “La Esmeralda” and “Tourné” farms of 30,350 hectares, 27,312 hectares, 7,052 hectares, 1,223 hectares, 41,993 hectares, 11,841 hectares and 19,614 hectares, respectively. It also includes the acquisition of “Las Vertientes” which is a silo plant.
(2)
Includes the acquisition of “El Tigre” farm of 8,360 hectares.
(3)
Includes the acquisition of “La Adela” and “El Invierno” farms of 72 hectares and 1,946 hectares, respectively.
(4)
Includes the acquisition of “San Pedro” farm of 6,022 hectares.
(5)
Includes the acquisition of “8 de Julio” farm of 90,000 hectares.
(6)
Includes the acquisition of the remaining 25% of “La Adela” farm of 18 hectares and 80% of “La Esperanza” farm of 980 hectares.
(7)
Includes the acquisition of "Estancia Carmen", "Puertas de Luján", "Las Londras", "San Cayetano", "San Rafael", and "La Fon Fon" farms and 50% of "Jerovia" farm, of 10,911, 115, 4,566, 883, 2,969, 3,748 and 20,966 hectares, respectively.
(8)
Includes exercise of the option over 50% of the “Jerovía” farm of 3,646 hectares.
(9)
Includes the acquisition of “La Primavera” and “4 Vientos” farms of 2,341 hectares and 2,659 hectares, respectively.
 
In addition, it includes the acquisition of 943 hectares of the Mendoza farm.

Farmland Sales
 
We periodically sell properties that have reached a considerable appraisal to reinvest in new farmlands with higher appreciation potential. We analyze the possibility of selling based on a number of factors, including the expected future yield of the farmland for continued agricultural and livestock exploitation, the availability of other investment opportunities and cyclical factors that have a bearing on the global values of farmlands.
 
The following chart shows, for the fiscal years indicated below, certain information concerning our land sales for each of the last 15 fiscal years ended on June 30:
 
Fiscal Year
  
Number of Farmlands
    
Gross Proceeds from Sales
(Ps. million)
    
Profit/ (Loss) (1)
(Ps. million )
  
1998 (2)
     2       6.8       4.1  
1999 (3)
     2       27.8       9.4  
2000
     -       -       -  
2001 (4)
     2       9.0       3.0  
2002 (5)
     3       40.6       14.8  
2003 (6)
     2       12.0       4.9  
2004 (7)
     2       4.1       1.7  
2005 (8)
     2       29.8       20.0  
2006 (9)
     1       16.1       9.9  
2007 (10)
     3       29.9       22.3  
2008 (11)
     2       23.0       20.0  
2009 (12)
     2       2.0       1.9  
2010 (13)
     1       18.6       13.7  
2011 (14)
     2       84.5       54.6  
2012 (15)
     3       93.7       45.5  
2013 (16)
     4       332.6       149.6  
 
(1)
Includes the difference between the gross proceeds from sales (net of all taxes and commissions) and the book value of the assets sold.

(2)
Includes the sale of 7,878 hectares of “Moroti” and “Santa Rita” farmlands.

(3)
Includes the sale of “El Meridiano” and “Runciman” farmlands of 6,302 and 3,128 hectares, respectively.

(4)
Includes the sale of “El Bañadito” and “Tourne” farmlands of 1,789 and 19,614 hectares, respectively.

(5)
Includes the sale of “El Silencio”, “La Sofia” and “El Coro” farmlands of 397 hectares, 6,149 hectares and 10,321 hectares, respectively.

(6)
Includes the sale of “Los Maizales” and “San Luis” farmlands of 618 and 706 hectares, respectively.

(7)
Includes the sale of “41-42” farmland of 6,478 hectares and 5,997 hectares of IGSA’s land reserves.

(8)
Includes the sale of “Ñacurutú” and “San Enrique” farmlands of 30,350 and 977 hectares, respectively. It also includes the results of the sale of a two-hectare parcel owned by IGSA.

(9)
Includes the sale of “El Gualicho” farmland of 5,727 hectares.


 
51
 


(10)
Includes the sale of 20,833 hectares of “Tapenagá” farmland and the partial sale of 14,516 hectares of “Los Pozos” farmland and 50 hectares of “El Recreo” farmland.

(11)
Includes the partial sale of 4,974 hectares of “Los Pozos” farmland and the partial sale of 2,430 hectares of “La Esmeralda” farmland.

(12)
Includes the partial sale of 1,658 hectares of “Los Pozos” farmland and the partial sale of 1,829 hectares of “El Recreo” farmland.

(13)
Includes the sale of 12,071 hectares of “Tali Sumaj”.

(14)
 
(15)
 
Includes the sale of “La Juanita” farmland, of 4,302 hectares, and the partial sale of 910 hectares of “La Fon Fon”.
 
Includes the sale of 2,447 hectares of “San Pedro” farmland, the partial sale of 1,194 hectares of “La Fon Fon” farmland, and the partial sale of 115 hectares of “Puerta de Lujan” farmland.
 
(16)
Includes the sale of 14,359 hectares of “Horizontina” farmland , the partial sale of 394 hectares of  “Araucaria” farmland,  the partial sale of “Cremaq” farmland of  4.985 hectares, and the partial sale of  5,613 hectares of La “Suiza” farmland.
 
On July 24, 2008, we signed the deed of sale for two parcels of "El Recreo" farmland (1,829 hectares), located in the Province of Catamarca. The transaction was agreed for a price of US$ 0.36 million, which was collected in full. This transaction generated a gain of US$ 0.3 million.
 
On April 7, 2009, we signed the deed of sale for 1,658 hectares of "Los Pozos" farmland located in the Province of Salta. The transaction was agreed for a price of US$ 0.5 million, that was collected in full. This transaction generated a gain of US$0.5 million.
 
On June 15, 2010, we signed the deed of sale of the “Tali Sumaj” farmland (12,701 hectares), located in the Province of Catamarca. The transaction was agreed for a price of US$ 4.8 million, that was collected in full.
 
As of the date of this annual report, the preliminary attachment levied in the matter of “EXAGRIND S.A.- Estancia San Rafael v. Tali Sumaj et al, on Damages” has not been released, we promised to take all actions available to obtain the release and/or the replacement of the attachment, and undertook to perform all obligations that might arise if an adverse judgment was entered against it and to bear all legal costs and further procedural expenses resulting from the entry of a final and conclusive judgment in the case. To such end, we delivered a performance bond for the benefit of the purchaser as security for its obligations.
 
On September 3, 2010, we signed the title deed of sale of the “La Juanita” farmland, located in the District of Trenque Lauquen, Province of Buenos Aires. The transaction was agreed for a total price of US$ 18 million, which have been fully paid. The result of the sale was a gain of approximately Ps.49.6 million.
 
In June, 2011, we agreed upon the sale of 910 hectares of “La Fon Fon” farmland, located in the Province of Obispo Santiesteban, Republic of Bolivia. This parcel of land was allocated to agriculture and its total agreed amount was US$ 3.6 million, equivalent to US$ 4,000 per hectare, which had been purchased in 2008 for a price of US$ 2,300 per hectare. We have received 80.0% of the purchase price and the balance will be collected in December 2013.
 
On September 28, 2011, Brasilagro sold the Sao Pedro farmland, a rural property located in the Municipality of Chapadão do Céu – GO with a total surface area of 2,447 hectares, including 1,724 hectares suitable for agriculture. The transaction price was R$ 23.3 million (equivalent to Ps. 59.8 million and 580,000 bags of soybean seeds). The result of the sale was a gain of Ps. 27.8 million.
 
The purchaser has paid the amount in Reais equivalent to 352,500 tons of soybean. The remaining balance is payable in three annual installments due on March 30 of each year, for an amount of 92,500 bags of soybean each.
 
On March 2, 2012, we agreed upon the sale of 1,194 additional hectares of “La Fon Fon” farmland for US$ 4.8 million, US$ 2.4 million of which have been collected. The balance will be payable in four semi-annual consecutive installments, which is due on November 30, 2013 and thereafter. Possession was surrendered on June 30, 2012. The result of the sale was a gain of Ps. 6.6 million.
 
On May 22, 2012, the Company sold, assigned and conveyed to APSA a 115-hectare plot of land that forms part of the property “Puerta de Luján” located in the District of Luján, Province of Buenos Aires, for a total amount of US$ 8.9 million (Ps. 15.5 million), which has been fully collected. The result of the sale was a gain of Ps. 11.1 million.
 
On October 11, 2012, our subsidiary Brasilagro announced the sale of Horizontina, a 14,359-hectare farmland located in the State of Maranhão. The transaction’s total price was R$ 75.0 million, out of which R$ 27 million have been already collected. R$ 22.0 million were paid in January 2013 and R$ 3 million were collected in August 2013. As of June 30, 2012, the asset was valued at R$ 46.0 million. This transaction reflects a full development cycle, where the acquisition, development, production and sale stages generated an Internal Rate of Return (real estate + output) of approximately 27%. The result of the sale was Ps. 53.9 million less commission, expenses and taxes.
 
On April 25 2013, Brasilagro sold 394 hectares of Araucaria farmland which is located in the municipal district of Mineiros – GO. The total transaction amount was fixed in an amount of cash equivalent to 248,000 bags of soybean (amounting approximately R$ 11.7 million). From this amount an initial payment in cash equivalent to 36,000 bags of soybean was received, and the balance is payable in eight semi-annual installments, the first of which falls due in August 2013. We recognized a gain for the sale of Rs. 6.7 million (equivalent to Ps. 12.6 million).
 
On May 10, 2013, Brasilagro sold 4,895 hectares of Cremaq farmland which is located in the municipal district of Baixa Grande do Ribeiro – PI. The total transaction amount was fixed in an amount of cash equivalent to 901,481 bags of soybean (amounting to approximately R$ 42.1 million). From this amount, an initial payment in cash equivalent to 90,148 bags of soybean was received, and the balance is payable in five installments, the first of which falls due in August 2013. We recognized a gain for the sale of Rs. 26.5 million (equivalent to Ps. 53.2 million).
 
On June 19, 2013, Cresud executed with Vargas Derka SH a deed of sale of a parcel of the “La Suiza” farmland, consisting of 5,613 hectares allocated to beef cattle production, located close to the “Villa Angela” district, in the Province of Chaco. The remaining portion of such farmland is a 36,380-hectare parcel intended for mixed activities. The total transaction amount was US$ 6.7 million, which had been fully collected as of the date of execution of the title deed, generating a gain of Ps. 29.8 million.
 
 
 
52
 

Farmland Development

We consider that there is great potential in farmland development where, through the use of current technology, we may achieve similar yields with higher profitability than in core areas.
 
As of June 30, 2013, we owned land reserves in the region extending over more than 339,226 hectares (after deducting the land reserves of the farms that have been sold during this fiscal year. For more information see "Acquisitions, dispositions and authorization pending approval"). In addition, we have a concession over 132,000 hectares, of which 112,747 are reserved for future development, and 19,253 are used for agricultural activities. This land reserves were purchased at very attractive prices and we believe that there are technological tools available to improve productivity in these farmlands and, therefore, achieve appreciation in the long term. However, current or future environmental regulations could prevent us from fully developing our land reserves by requiring that we maintain part of this land as natural woodlands not to be used for production purposes.
 
We conducted our land development business in Argentina mainly in our “Los Pozos” farmland in the Province of Salta. In fiscal the year 2013, we had 58,751 hectares in operation. During the fiscal year 2013, we developed 3,650 hectares intended for agricultural production and 1,705 hectares intended for beef cattle raising, reaching 58,714 hectares in operation.
 
Furthermore, during the fiscal year 2013 we continued with the development of 1,497 hectares intended for agriculture and 629 hectares intended for beef cattle raising at Agropecuaria ANTA S.A., whether through our own agricultural activities or by leasing lands to third parties thus we reached 21,947 hectares devoted to agricultural production.
 
In connection with our business in Paraguay, during the fiscal year 2013 Cresca S.A. made progress in the development of its farmlands, developing 937 hectares during 2013, and reaching an aggregate of 12,330 hectares in operation intended for agriculture and beef cattle breeding. For the next fiscal year, Cresca plans to continue to develop 1,000 hectares for agricultural production. Our developments in Brazil, through our subsidiary Brasilagro, consisted of 11,805 hectares of developed land.
 
Results
 
The following table shows this segment’s results for the fiscal year 2013, compared to the previous fiscal year:

In millions of Ps.
  
FY 2013
    
FY 2012
    
YoY var
  
Revenues
     -       -       -  
Costs
     (5.7 )     (4.7 )     22.0 %
Gross Loss
     (5.7 )     (4.7 )     22.0 %
Gain from disposal of farmlands
     149.6       45.5       228.8 %
General and administrative expenses     (0.5 )       (0.5 )        
Selling expenses     (10.6  )     (1 )      (960.0 )% 
Other operating results, net      (0.1 )     (0.1 )         
Operating Income
     132.6       39.2       238.1 %
Segment Income
     132.6       39.2       238.1 %


 
53
 

Farmland Portfolio
 
As of June 30, 2013, we owned, together with our subsidiaries, 32 farmlands, with a total surface area of 619,841 hectares.
 
The following table sets forth our exploited farmland portfolio as of June 30, 2013:
 
Use of Farmlands Owned and under Concession as of June 30, 2013
  
 
Locality
Province
Date of
  
Surface Area
  
Main Business
  
Beef Cattle
    
Sheep
    
Milk
    
Agriculture
    
Beef cattle
  
     
Acquisition
  
(has)
      
(has)
    
(has)
    
(has)
    
(has)
    
(Head)
  
La Adela
Lujan
Buenos Aires
Original
     1,054  
Agriculture
                       861        
El Recreo
Recreo
Catamarca
May 95
     12,395  
Natural woodlands
                                
Los Pozos
JV González
Salta
May 95
     240,858  
Beef cattle/ Agriculture/ Natural woodlands
     46,979                   11,772       28,548  
San Nicolás (1)
Rosario
Santa Fe
May 97
     1,431  
Agriculture
                         1,331          
Las Playas (1)
Idiazabal
Cordoba
May 97
     1,534  
Agriculture/ Milk
                         1,493          
La Gramilla/ Santa Bárbara
Merlo
San Luis
Nov 97
     7,072  
Agriculture Under irrigation
                         3,897          
La Suiza(5)
Villa Angela
Chaco
Jun 98
     41,993  
Agriculture/ Beef cattle
     36,694                   3,893       18,677  
La Esmeralda
Ceres
Santa Fe
Jun 98
     9,370  
Agriculture/ Beef cattle
                         8,430          
El Tigre
Trenel
La Pampa
Apr 03
     8,360  
Agriculture/ Milk
                   2,780       4,210       6,529  
El Invierno
Rancul
La Pampa
Jun 05
     1,946  
Agriculture
                           1,844          
San Pedro
Concepción de Uruguay
Entre Rios
Sep 05
     6,022  
Agriculture
     1,143                     4,408          
8 De Julio/ Estancia Carmen
Puerto Deseado
Santa Cruz
May 07/ Sep 08
     100,911  
Sheep
             85,000                       8,869  
Cactus Argentina
Villa Mercedes
San Luis
Dec 97
     171  
Feedlot
     170                                  
Las Vertientes
Las Vertientes
Cordoba
Mar 98
     4  
Silo
                                        
La Esperanza
Rancul
La Pampa
Mar 08
     980  
Agriculture
                             334          
Las Londras
Santa Cruz
Bolivia
Nov 08
     4,566  
Agriculture
                             3,892          
San Cayetano
Santa Cruz
Bolivia
Nov 08
     883  
Agriculture
                             862          
San Rafael
Santa Cruz
Bolivia
Nov 08
     2,969  
Agriculture
                             2,919          
La Fon Fon
Santa Cruz
Bolivia
Nov 08
     1,643  
Agriculture
                             1,643          
La Primavera
Santa Cruz
Bolivia
Jun 11
     2,340  
Agriculture
                             1,460          
Cuatro Vientos
Santa Cruz
Bolivia
Jun 11
     2,658  
Agriculture
                             1,943          
Jerovia (2)
Mariscal Estigarribia
Paraguay
Feb 09
     22,789  
Agriculture/ Natural woodlands
     455                       3,258       446  
Establecimiento Mendoza
Lujan de Cuyo
Mendoza
Mar 11
     389                                            
Cremaq(7)
Baixa Grande Ribeiro/PI
Brazil
Oct 06
     32,702  
Agriculture
                             19,698          
Jatoba
Jaborandi/BA
Brazil
Mar 07
     31,606  
Agriculture
                             14,394          
Alto Taquari
Alto Taquari/MT
Brazil
Aug 07
     5,186  
Agriculture
                             3,084          
Araucaria(6)
Mineiros/GO
Brazil
Apr 07
     9,682  
Agriculture
                             5,106          
Chaparral
Correntina/BA
Brazil
Nov 07
     37,182  
Agriculture
                             10,261          
Nova Buruti
Januária/MG
Brazil
Dec 07
     24,247  
Forestry
                             0          
Preferencia
Barreiras/BA
Brazil
Sep 08
     17,799  
Beef cattle
     5,892                       200          
Horizontina(4)
Tasso Fragoso/MA
Brazil
Apr 10
     14,359  
Agriculture
                             7,161          
                                                         
Subtotal Own (4) (5) (6) (7)
           645,101         91,333       85,000       2,780       118,354       63,069  
Agropecuaria Anta SA (3)
Las Lajitas
Salta
       132,000                                 19,253          
Subtotal under Concession
           132,000                                 19,253          
Total
           777,101         91,333       85,000       2,780       137,607       63,069  

(1)     Hectares in proportion to our 35.723% interest in AgroUranga S.A.
   (2)
Hectares in proportion to our 50.0% interest in Cresca S.A.
(3)     Hectares under concession. Includes 13,605 hectares operated by third parties.
(4)     Horizontina farmland was totally sold in October 2012.
(5)     On February 1st, 2013, a fraction of 5,613 hectares of La Suiza farmland was sold.
(6)     On May 6, 2013, Brasilagro informed the sale of 394 hectares of Araucaria farmland.
(7)     On May 14, 2013, Brasilagro informed the sale of 4,895 hectares of Cremaq farmland.

 
54
 


La Adela
 
“La Adela” farmland is located 60 kilometers northwest of Buenos Aires, it is one of our original farmlands. In December 2001, the dairy facility was closed down, using its total surface area for crop production. Between March 2005 and December 2007 we bought 72 additional hectares which were added to the existing 982 hectares. During the fiscal year ended June 30, 2013, 861 hectares were used for corn and soybean crops.
 
El Recreo
 
“El Recreo” farmland, located 970 kilometers northwest of Buenos Aires, in the Province of Catamarca, was acquired in May 1995. It has semi-arid climate and annual rainfall not in excess of 400 mm. This farmland is maintained as a productive reserve.
 
Los Pozos.
 
The “Los Pozos” farmland, located 1,600 kilometers northwest of Buenos Aires, in the Province of Salta, was acquired in May 1995. This property is located in a semi-arid area with average annual rainfall of 500 mm. The area is naturally suited to beef cattle raising and forestry activities (poles and fence posts), and it has agricultural potential for summer crops such as sorghum and corn, among others. For the fiscal year ended June 30, 2013, we used 6,849 hectares in agricultural production and 4,923 hectares intended for agriculture were leased to third parties. We completed the development of tropical pastures in almost 45,000 hectares. As of June 30, 2013, there were 28,548 heads of beef cattle in this farmland.
 
San Nicolás
 
“San Nicolás” is a 4,005-hectare farmland owned by AgroUranga S.A., and is located in the Province of Santa Fe, approximately 45 kilometers from the Port of Rosario. As of June 30, 2013, approximately 6,328 hectares were in use for agricultural production, including double crops. The farmland has two plants of silos with a storage capacity of 14,950 tons.
 
Las Playas
 
           The “Las Playas” farmland has a surface area of 4,294 hectares and is owned by AgroUranga S.A. Located in the Province of Córdoba, it is used primarily for agricultural and milk production purposes. As of June 30, 2013, the farmland had a sown surface area, including double crops, of 5,683 hectares for grain production.
 
La Gramilla and Santa Bárbara
 
These farmlands have a surface area of 7,052 hectares in Valle de Conlara, in the Province of San Luis. Unlike other areas in the Province of San Luis, this valley has a high quality underground aquifer which makes these farmlands well suited for agricultural production after investments were made in the development of lands, wells and irrigation equipment. In the course of the 2012/2013 farm season, a total of 2,531 hectares were sown, 716 hectares of which were sown under contractual arrangements with seed producers, and we leased, in turn, 1,366 hectares to third parties. The remaining hectares are used as land reserves.
 
La Suiza
 
           The “La Suiza” farmland has a surface area of 41,993 hectares and is located in Villa Ángela in the Province of Chaco. It is used for raising beef cattle. As of June 30, 2013, “La Suiza” had a stock of approximately 18,677 heads of beef cattle. During the 2012/13 season, we used 4,935 hectares for growing cotton, corn, soybean and sorghum and we leased to third parties 6,336 hectares allocated to beef cattle production. On June 19, 2013, we executed a deed of sale for 5,613 hectares for a total sale price of US$ 6.7 million, generating a gain of Ps. 29.8 million.
 
La Esmeralda
 
The “La Esmeralda” farmland has a surface area of 9,370 hectares and is located in Ceres in the Province of Santa Fe. This farmland, acquired in June 1998, has potential for both agricultural production and beef cattle raising. During the 2011/12 farm season, we used a total area of 9,802 hectares, including double crops, for production of corn, soybean, wheat, sunflower and sorghum. During the 2012/2013 season, we used a total area of 8,430 hectares, including double crops, for production of corn, soybean, sunflower and sorghum. During the 2012/13 season we leased to third parties 1,617 hectares intended for agricultural production.
 
El Tigre
 
The “El Tigre” farmland was acquired on April 30, 2003 and has a surface area of 8,360 hectares. This farmland has a high-tech dairy facility where we develop our milk production business in compliance with the highest quality standards. It is located in Trenel in the Province of La Pampa. As of June 30, 2013, 4,210 hectares were assigned to crop production, including double crops. This farmland produced 18.4 million liters of milk in the fiscal year ended June 30, 2013, with an average of 2,392 cows being milked and an average daily production of 20.4 liters per cow.
 
El Invierno
 
The “El Invierno” farmland was acquired on June 24, 2005 and has a surface area of 1,946 hectares. It is located in Rancul in the Province of La Pampa, 621 kilometers to the west of Buenos Aires. During the fiscal year ended June 30, 2013, we used the land exclusively for crop production and planted 1,844 hectares.
 
San Pedro
 
 The “San Pedro” farmland was purchased on September 1, 2005. It has a surface area of 6,022 hectares and is located in Concepción del Uruguay, Province of Entre Ríos, which is 305 kilometers north of Buenos Aires. In the course of the 2012/2013 farm season, 4,408 hectares were used for agricultural production, including double crops, and 1,143 hectares were leased to third parties for livestock activities.
 
8 de Julio and Estancia Carmen
 
The “8 de Julio” farmland was acquired on May 15, 2007 and has a surface area of 90,000 hectares. It is located in the department of Deseado in the Province of Santa Cruz. Due to its large surface area, this farmland offers excellent potential for sheep production. In addition, we believe the land has potential for future tourism and recreational activities, as the southeast border of the farmland stretches over 20 kilometers of coast. "Estancia Carmen" was acquired on September 5, 2008 and has a surface area of 10,911 hectares. It is located in the Province of Santa Cruz, next to our "8 de Julio" farmland, and as the latter, it has excellent potential for sheep production. As of June 30, 2013, these farmlands had a stock of 8,869 sheep.
 
 Cactus
 
The feedlot has a surface area of 170 hectares and is owned by Cactus Argentina S.A. It is located in Villa Mercedes, Province of San Luis. Cactus was a joint venture between us, Cactus Feeders Inc., one of the largest feedlot companies in the United States, and Tyson Foods, a leading beef and poultry meat processing company. The feedlot began to operate in September 1999. On June 30, 2009, Cactus Feeders Inc. sold its equity interest in Cactus Argentina S.A. On December 21, 2011, Cresud acquired Provemex Holding LLC (Tyson Foods)’s entire stake in Cactus Argentina S.A. As of June 30, 2013, our direct and indirect interest was 100%. As of the closing of the fiscal year 2013, Cactus had no beef cattle of its own.


 
55
 


Las Vertientes
 
The “Las Vertientes” storage facility has a surface area of 4 hectares and 10,000 tons capacity, and is located in Las Vertientes, Río Cuarto, in the Province of Córdoba.
 
La Esperanza
 
In 2008 we acquired “La Esperanza” farmland located in the Province of La Pampa with a surface area of 980 hectares. The transaction was agreed for a price of US$ 1.3 million that has been paid in full. During the year ended June 30, 2013, we used this farmland solely for crop production.
 
Las Londras
 
On January 22, 2009, the bill of purchase for "Las Londras" farmland was cast into public deed; it has a surface area of 4,566 hectares, and is located in the Province of Guarayos, Republic of Bolivia. During the 2012/2013 farm season it was used for crop production.
 
San Cayetano
 
On November 19, 2008, the bill of purchase for "San Cayetano" farmland was cast into public deed. This farmland is located in the Province of Guarayos, Republic of Bolivia, and has a surface area of 883 hectares, which were used for crop production during the 2012/2013 farm season.
 
San Rafael
 
On November 19, 2008, the bill of purchase for "San Rafael" farmland was cast into public deed. This farmland is located in the Province of Guarayos, Republic of Bolivia, and has a surface area of 2,969 hectares, which were used for crop production during the 2012/2013 farm season.
 
La Fon Fon (I & II)
 
On November 19, 2008, the bill of purchase for "La Fon Fon" farmland was cast into public deed; it has a surface area of 3,748 hectares, and is located in the Province of Obispo Santiesteban, Republic of Bolivia. During the fiscal years 2011 and 2012 we sold “La Fon Fon II” farmland; therefore, at present we own a total area of 1,634 hectares corresponding to La Fon Fon I. During the 2012/2013 season, this farmland was used for crop production.
 
 4 Vientos
 
On June 3, 2011, we executed the purchase agreement for the “4 Vientos” farmland, with a surface area of approximately 2,658 hectares, allocated to sugarcane production. Its purchase price was US$ 8.4 million.
 
 La Primavera
 
On June 7, 2011 we acquired “La Primavera” farmland, with a surface area of approximately 2,340 hectares.
 
Jerovia
 
Cresca owns 50% of "Jerovia" farmland, located in Mariscal José Félix Estigarribia, Department of Boquerón, Chaco Paraguayo, Republic of Paraguay, with a surface area of 45,578 hectares. During the 2012/13 season 6,516 hectares were used for crop production and 910 hectares were used for beef cattle raising.
 
Establecimiento Mendoza
 
On March 2, 2011, the Company purchased, jointly with Zander Express S.A,, a rural property composed of thirteen plots of land located in the District of Perdriel, Luján de Cuyo Department, in the Province of Mendoza. As a result of this acquisition, Cresud has become owner of a 40% undivided estate in all and each of the properties, while Zander Express S.A. holds the remaining 60%. The total agreed price for this transaction was US$ 4.0 million; therefore, the amount of US$ 1.6 million was payable by Cresud.
 
Cremaq
 
Cremaq was acquired in October 2006 for R$ 42 million. It is located in the State of Piauí, in the northeastern region of Brazil, close to the Itaqui Port, in the State of Maranhão. It has a surface area of 32,702 hectares, out of which approximately 19,698 hectares are used for agriculture. This farmland was fully transformed and allocated to agriculture.
 
In May 2013, the sale of 4,895 hectares (approximately 3,201 of which are used for agriculture) was agreed upon for a total price of R$ 42.1 million. We recognized a gain for the sale of Rs. 26.5 million (Ps. 53.2 million).
 
Jatobá
 
Jatobá is a farmland in the northeastern region of Brazil, with a total surface area of 31,606 hectares, 14,394 of which are intended for agriculture. Jatobá was acquired in March 2007 for R$ 33 million. We consider that this farmland is in a very advantageous location for the movement of crops, as it is close to the Candeias Port, in the State of Bahia.
 
Araucária
 
Araucária is a farmland located in the municipal district of Mineiros, in the State of Goiás, and it has a total surface area of 9,682 hectares. Araucaria was acquired in 2007 for R$ 70.4 million. Before we purchased it, Araucária had been used for grain planting. The farmland was transformed, and at present it is planted with sugarcane.
 
In May 2013, an area of 394 hectares (310 of which are used for agriculture) was sold. The sale price was R$ 11.7 million. We recognized a gain for the sale of Rs. 6.7 million (Ps. 12.6 million).
 
Alto Taquarí
 
Alto Taquarí is located in the municipal district of Alto Taquarí, State of Mato Grosso, and it has a total surface area of 5,186 hectares, 3,084 of which are used for agriculture. The farmland was acquired in August 2007 for R$ 33.2 million. Before we purchased it, the farmland was used for agriculture and beef cattle raising. Following its transformation, it is being used for sugarcane production.
 

Chaparral
 
Chaparral is a 37,182-hectare farmland, with 10,261 hectares used for agriculture. It is located in the municipal district of Correntina, State of Bahia. The farmland was acquired in November 2007 for R$ 47.8 million.
 
 
 
56
 

Nova Buriti

Located in the municipal district of Januária, State of Minas Gerais, Nova Buriti has a surface area of 24,247 hectares, 19,004 of which are used for forestry. Nova Buriti was acquired in December 2007 for R$ 21.5 million. It is located in the southeastern region of Brazil and it is close to the large iron industries. At present, it is undergoing proceedings for obtaining the environmental licenses required for starting operations.
 

Preferencia
 
Preferencia is located in the municipal district of Barreiras, in the State of Bahia. It has a total surface area of 17,799 hectares, 200 of which are used for agricultural activities. It was acquired for R$ 10.1 million in September 2008. The farmland is being transformed into a pasturing area and will be later developed for agricultural purposes. At present, 5,892 hectares are leased and destined to beef cattle raising.
 
Horizontina
 
Horizontina is located in the municipal district of Tasso Fragoso, in the State of Maranhão. It has a total surface area of 14,359 hectares, 7,161 of which are used for agriculture. Horizontina was acquired for R$ 38 million in April 2010. It was then transformed and sold in October 2012 for R$ 75 million. On October 11, 2012 Brsilagro sold this farmland. We recognized a gain for the sale of Ps. 53.9 million.
 
Lease of Farmlands
 
We conduct our business on owned and leased land. Rental payments increase our production costs, as the amounts paid as rent are accounted for as operating expenses. As a result, production costs per hectare of leased land are higher than for the land owned by us.
 
Our land leasing policy is designed to supplement our expansion strategy, using our liquidity to make productive investments in our principal agricultural activities. On the other hand, our leasing strategy provides us with an added level of flexibility in the share of each of our products in total production, providing for greater diversification.
 
The initial duration of lease agreements is typically one crop season. Leases of farmlands for production of crops consist in lease agreements with payments based on a fixed amount of Pesos per hectare or crop sharing agreements (“aparcería”) with payments in kind based on a percentage of the crops obtained or a fixed amount of tons of grains obtained or their equivalent value in Pesos. Leases of farmlands for beef cattle breeding consist in lease agreements with fixed payments based on a fixed amount of Pesos per hectare or steer kilograms or capitalization agreements with payments in kind or in cash based on the weight gain in kilograms.
 
During the fiscal year 2013, we leased to third parties a total of 78 fields, covering 60,685 hectares, including 7,699 hectares in Brazil. Out of the total leased area, 45,624 hectares were assigned to agricultural production, including double crops, and 12,635 hectares to beef cattle raising. The properties for agricultural production were leased, primarily, for a fixed price prior to harvest and only a small percentage consisted of crop sharing agreements.
 
The following table shows a breakdown of the number of hectares of leased land used for each of our principal production activities:
 
   
2009
    
2010
    
2011
    
2012(1)
    
2013(1)
  
   
(in hectares)
        
Crops
     59,615       42,696       52,205       42,515       45,624  
Beef cattle
     32,795       12,635       12,635       12,635       12,635  
 
 (1) Includes Brasilagro.
 
Due to the rise in the price of land, we adopted a policy of not validating excessive prices and applying strict criteria upon adopting the decision to lease, selecting those lands with values that would ensure appropriate margins.
 
Storage Facilities
 
As of June 30, 2013, we had storage capacity of approximately 105,541 tons (including 35.723% of the storage capacity of over 14,950 tons available at AgroUranga S.A.).
 
The following table shows, for the fiscal years presented, our storage facilities:
 
   
2009
    
2010
    
2011
    
2012(2)
    
2013(2)
  
Las Vertientes(1)
     10,000       10,000       10,000       10,000       10,000  
San Nicolás (1)
     5,341       5,341       5,341       5,341       5,341  
Brasilagro
     -       -       -       90,200       90,200  
      Total
     15,341       15,341       15,341       105,541       105,541  

(1)  
Owned by us through AgroUranga S.A. (which represents 35.723% of the total capacity).
(2)  
Includes Brasilagro.


Land Management
 
In contrast to traditional Argentine farmlands, run by families, we centralize policy making in an Executive Committee that meets on a weekly basis in Buenos Aires. Individual farmland management is delegated to farmland managers who are responsible for farmland operations. The Executive Committee lays down commercial and production rules based on sales, market expectations and risk allocation.
 
We rotate the use of our pasture lands between agricultural production and beef cattle feeding and the frequency depends on the location and characteristics of the farmland. The use of preservation techniques (including exploitation by no till sowing) frequently allows us to improve farmland performance.
 
Subsequent to the acquisition of the properties, we make investments in technology in order to improve productivity and increase the value of the property. It may be the case that upon acquisition, a given extension of the property is under-utilized or the infrastructure may be in need of improvement. We have invested in traditional fencing and in electrical fencing, watering troughs for beef cattle herds, irrigation equipment and machinery, among other things.
 
 
57
 


Principal Markets
 
Crops
 
Our crop production is entirely sold in the local market. The prices of our grains are based on the market prices quoted in Argentine grains exchanges such as the Bolsa de Cereales de Buenos Aires and the Bolsa de Cereales de Rosario that take as reference the prices in international grains exchanges. The largest part of this production is sold to exporters who offer and ship this production to the international market. Prices are quoted in relation to the month of delivery and the port in which the product is to be delivered. Different conditions in price, such as terms of storage and shipment, are negotiated between the end buyer and ourselves.

Beef Cattle
 
Our beef cattle production is sold in the local market. The main buyers are slaughterhouses and supermarkets.
 
Prices in the beef cattle market in Argentina are basically fixed by local supply and demand. The Liniers Market (on the outskirts of the Province of Buenos Aires) provides a standard in price formation for the rest of the domestic market. In this market live animals are sold by auction on a daily basis. At Liniers Market, prices are negotiated by kilogram of live weight and are mainly determined by local supply and demand. Prices tend to be lower than in industrialized countries. Some supermarkets and meat packers establish their prices by kilogram of processed meat; in these cases, the final price is influenced by processing yields.

Milk
 
During the fiscal year 2013 we sold our entire milk production to the largest Argentine dairy company, Mastellone S.A., which in turn manufactures a range of mass consumption dairy products sold in Argentina and abroad. The price of the milk we sell is mainly based on the percentage of fat and protein that it contains and the temperature at which it is cooled. The price we obtain from our milk also rises or drops based on the content of bacteria and somatic cells.
 
Customers
 
For the fiscal year 2013 our sales from the agribusiness segment (excluding sales of farmlands) were made to approximately 500 customers. Sales to our ten largest customers represented approximately 45% to 50% of our net sales. Of these customers, our biggest three customers were Bunge Alimentos S.A., Brenco Companhia Brasileira de Energia Renovável and Molinos Río de la Plata S.A. We have signed non-binding letters of intent with some of our largest customers that allow us to estimate the volume of the demand for certain products and to plan production accordingly. We generally enter into short-term agreements with a term of less than a year.
 
Marketing Channels and Sales Methods
 
Crops
 
We normally work with grains brokers and other intermediaries to trade in the exchanges. We sell part of our production in advance through futures contracts and buy and sell options to hedge against a drop in prices. Approximately 87% of the futures and options contracts are closed through the Bolsa de Cereales de Buenos Aires (Buenos Aires Grains Exchange) and 13% in the Chicago Board of Trade for hedging purposes.
 
Our storage capabilities allow us to condition and store grains with no third-party involvement and thus to capitalize the fluctuations in the price of commodities. Our largest storage facilities in Argentina, with capacity for 10,000 tons, are located in “Las Vertientes”, close to Río Cuarto, Province of Córdoba. In addition, we store grains in silo bags. On the other hand, in Brazil we have a total storage capacity of 88,500 tons.
 
Beef Cattle
 
We have several marketing channels. We sell directly to local meat processors and supermarkets, as well as in markets and auctions. Our customers include Arre Beef S.A., Quickfood S.A., Friar S.A., Frigorífico Forres Beltrán S.A., Madelán S.A., Frigorífico Bermejo S.A., Frigorífico Amancay S.A., Colombo y Colombo S.A., Iván O’Farrell S.R.L. and José A. Llorente S.A., for prices based on the price at Liniers Market.
 
We usually are responsible for the costs of the freight to the market and, in general, we do not pay commissions on our transactions.
 
Supplies
 
The current direct cost of our production of grains varies in relation to each crop and normally includes the following costs: tillage, seeds, agrochemicals and fertilizers. We buy in bulk and store seeds, agrochemicals and fertilizers to benefit from discounts offered during off-season sales.
 
Competition
 
The agricultural and livestock sector is highly competitive with a huge number of producers. We are one of the leading producers in Argentina and the region. However, if we compare the percentage of our production to the country’s total figures, our production would appear as extremely low, since the agricultural market is highly atomized. Our leading position improves our bargaining power with suppliers and customers. In general, we obtain discounts in the region in the acquisition of raw materials and an excess price in our sales.
 
Historically, there have been few companies competing for the acquisition and leases of farmlands for the purpose of benefiting from land appreciation and optimization of yields in the different commercial activities. However, we anticipate the possibility that new companies, some of them international, may become active players in the acquisition of farmlands and the leases of sown land, which would add players to the market in coming years.
 
Seasonality
 
As is the case with any company in the agro-industrial sector, our business activities are inherently seasonal. Harvest and sales of grains (corn, soybean and sunflower) in general take place from February to June. Wheat is harvested from December to January. With respect to our international market, in Bolivia
 
 
 
58
 


climate conditions allow a double season of soybean, corn and sorghum production and, accordingly, these crops are harvested in April and October, while wheat and sunflower are harvested during August and September, respectively. Other segments of our activities, such as our sales of beef cattle and milk and our forestry activities tend to be more of a successive character than of a seasonal character. However, the production of beef and milk is generally higher during the second quarter, when pasture conditions are more favorable. In consequence, there may be significant variations in results from one quarter to the other.
 
Our Investments
 
Agricultural Business
 
Brasilagro Companhia Brasileira de Propriedades Agrícolas
 
Brasilagro was created in September 2005 in order to replicate our business in Brazil. Brasilagro is engaged mainly in two business segments: (i) sugar cane and (ii) crops and cotton.
 
We created Brasilagro together with our partners, Cape Town Llc, Tarpon Investimentos S.A., Tarpon Agro LLC, Agro Investments S.A. and Agro Managers S.A.
 
Part of the knowledge and experience required to implement BrasilAgro’s proposed business plan was initially provided pursuant to a consulting agreement with Paraná Consultora do Investimentos S.A., a special purpose advisory company, 50% owned by Tarpon BR, 37.5% owned by Consultores Assets Management, a company controlled by Mr. Eduardo Elsztain, and 12.5% owned by Mr. Alejandro Elsztain. In February 2011, the consulting agreement was terminated.
 
On May 2, 2006, Brasilagro’s shares were listed in the Novo Mercado of the Brazilian Stock Exchange (BOVESPA) with the symbol AGRO3. BrasilAgro’s shares were placed jointly with Banco de Investimentos Credit Suisse (Brazil) S.A. in the Brazilian market through investment mechanisms regulated by controlling authorities and with sales efforts pursuant to an exception from registration under the US Securities Act of 1933. The amount originally offered was R$ 532 million, equivalent to 532,000 book-entry common shares at a price of R$ 1,000 per share of Brasilagro. In November 2012, Brasilagro's shares became listed as level II ADRs on the NYSE, under the ticker symbol LND.
 
In addition, as is customary in the Brazilian market, Brasilagro had an option to increase the size of the issue by 20% and Banco de Investimentos Credit Suisse (Brazil) S.A. had another option to increase it by 15% (Green shoe). Given the high demand shown by the placement, both Brasilagro and Banco de Investimentos Credit Suisse (Brazil) S.A. exercised such options increasing the placement up to 583,200 shares equivalent to R$ 583.2 million, which were fully placed and paid in.
 
In addition to the funds we originally contributed, we purchased shares in the offering for R$ 42.4 million (approximately US$ 20.6 million). Following such contribution we held a total amount of 42,705 shares, equivalent to 7.4% of Brasilagro’s capital stock.
 
On October 31, 2007, BrasilAgro carried out a 1-for-100 share split approved at the Special Shareholders' Meeting held on March 15, 2007 and ratified at the Annual Shareholders' Meeting held on October 29, 2007. Following this split, Brasilagro's capital stock was composed of 58,422,400 common shares.
 
On July 22, 2010, the board of directors of Brasilagro approved the proposal to terminate the consulting services agreement executed with Paraná Consultora de Investimentos S.A.
 
On October 20, 2010 and on December 23, 2010, we and Tarpon executed two addenda to the share purchase agreement dated as of April 28, 2010, under which we acquired 9,581,750 shares of common stock of Brasilagro, representing 16.40% of the outstanding stock. Consequently, on October 20, 2010 we paid R$25.2 million and on December 23, 2010 we paid R$50.8 million, and the price reminder of R$52.6 million was paid on April 27, 2011.
 
Consequently, we own 20,883,916 shares or 39.64% of Brasilagro’s outstanding capital stock. It should be noted that such acquisition of shares does not imply any change of control within the shareholders’ group of Brasilagro according to the legal regime in Brazil; Additionally, we own 168,902 Brasilagro’s first issuance warrants and 168,902 Brasilagro’s second issuance warrants.
 
In addition, during the last quarter of calendar year 2010, we entered into an agreement by means of which we assigned all equity and political rights related to 2,276,534 shares of Brasilagro for two years. The agreement also provides a promise to sell, under which the assignee may at any time request the sale of BM&FBOVESPA’s shares or the transfer of shares on its behalf. In consideration for the assignment, we paid a fixed value of US$0.8 million and additionally, in the event the assignee requested the sale or transfer of share, it should paid US$7.15 per share sold or transferred. As of June 30, 2012 the option expired and as a result we are the owners of 39,64% of Brasilagro’s outstanding capital stock.
 
On June 27, 2012, together with Mr. Elie Horn and Cape Town Llc. we agreed to terminate the shareholders’ agreement.
 
As concerns its portfolio as of June 30, 2013, Brasilagro had 7 properties, with an aggregate surface area of 153,116 hectares, acquired at highly attractive prices as compared to the average in the respective regions, all of which offering high appreciation potential.
 
     
Surface area
      
Purchase Price
  
 
Property
 
Province
  
(in hectares)
  
Main Activity
  
(R$ MM)
  
Cremaq Farmland(1)
Baixa Grande Ribeiro/PI
     27,807  
Crops
   $ R 42.00  
Jatobá Farmland
Jaborandi/BA
     31,606  
Crops and Cotton
   $ R 33.00  
Alto Taquari Farmland
Alto Taquari/MT
     5,186  
Sugar cane
   $ R 33.20  
Araucária Farmland (2)
Mineiros/GO
     9,288  
Sugar cane
   $ R 70.40  
Chaparral Farmland
Correntina/BA
     37,183  
Crops and Cotton
   $ R 47.80  
Nova Buriti Farmland
Januária/MG
     24,247  
Forest
   $ R 21.50  
Preferência Farmland
Barreiras/BA
     17,799  
Cattle
   $ R 9.50  
 
Total
     153,116       $ R 257.40  

 
 
(1) On May 14, 2013, Brasilagro announce the sale of 4,895 hectares.
 
 
59
 


 
(2) On May 6, 2013, Brasilagro announce the sale of  394 hectares.
 
 
Cremaq is a farmland in Baixa Grande do Ribeiro (Piaui). Acquired for R$ 42 million and with a surface area of 32,702 hectares, it is estimated that the total production area will be 21,800 hectares. The farmland is close to the Itaqui Port and to the Norte-Sul railway. Weather and topographic conditions in the area are quite suited to soybean, corn and cotton crops. This property has also been bought for a value lower than average in the region and it offers major appreciation potential. During the 2012/13 season, 20,697 hectares were used for crop production, including double crops. On May 14, 2013 it was announced  the sale of 4,895 hectares.
 
Jatobá is a farmland located in the Jaborandi district, in the State of Bahía. The acquisition price was R$ 33 million and it has 31,606 hectares. It is estimated that the total production area will be 24,250 hectares. During the 2012/13 season, 10,943 hectares were used for crop production.
 
Alto Taquarí is a farmland with a total area of 5,186 hectares, and it is located in the municipality of Alto Taquarí, Mato Grosso. This property was purchased for R$ 33.2 million. Its estimated production area is 3,666 hectares. Alto Taquarí executed an agreement with ETH Bioenergía for supplying sugar cane during two full cycles (six harvesting years, including five harvests).
 
Araucária is a farmland which has a total area of 9,682 hectares, and is located in the municipality of Mineiros, Goiás. The production area is estimated at 7,205 hectares. Araucária executed an agreement with ETH Bioenergía for supplying sugar cane during two full cycles (six harvesting years, including five harvests). 100% of the area is planted with sugar cane, totaling 5,428 hectares.On May 6, 2013 it was announced the sale of 394 hectares.
 
Chaparral is a farmland located in Correntina, Bahía. This farmland has a surface area of 37,182 hectares and was purchased for R$ 47.8 million. Its potential production area is 27,400 hectares and Brasilagro has harvested 9,054 hectares of soybean and 1,106 hectares of cotton.
 
Nova Buriti is a farmland with a total surface area of  24,247 hectares, and it is located in the municipality of Januaria, Minas Gerais. With a production area estimated at 19,000 hectares, it will be used for forestry activities. At present, Brasilagro is awaiting the licenses required to start operating this farmland.
 
Preferencia is a 17,799-hectare farmland located in the municipality of Barreiras, Bahía. The purchase transaction was closed in September 2008 and it was agreed for a price of R$ 500.0 per hectare. This property has good conditions for cattle breeding and crops growing. We have 4,200 hectares of pastures.
 
Futuros y Opciones.Com S.A.
 
In May 2000, we acquired 70% of the shares of FyO S.A. (“Futuros y Opciones.Com”) for Ps. 3.5 million. The site was launched in November 1999 and was aimed at becoming the most important agriculture business community in Latin America. Futuros y Opciones.Com launched its e-commerce strategy in March 2001, in order to sell products, buy inputs, arrange loans, and obtain insurance, among other things. Currently, the main activity of Futuros y Opciones.Com is crops brokerage.
 
The areas with the greatest potential for growth are: input commercialization and grain brokerage. Regarding input commercialization, the business volume was concentrated in a small number of suppliers, the agreements with the suppliers were improved in order to increase the margin of the business, and contracts of direct distribution were achieved. In terms of cereals, the crops trading unit was created, with the purpose of participating directly in the business by trading and offering services.
 
During the fiscal year 2007, Futuros y Opciones.Com started to trade futures and options: it acquired a share in the Buenos Aires futures and options exchange market (Mercado a Término de Buenos Aires) and has also become a dealer. The service consisting in hedging with futures has consolidated into an essential tool for our customers to manage their price risks. 
 
Futuros y Opciones.Com is committed to excellence through quality and continued improvement. For this reason, since 2008 all its business and administrative processes have been certified under ISO 9001:2008 standards.
 
As of June 30, 2013, our interest in Futuros y Opciones.Com was 60.50%.
 
As of the end of fiscal year 2013, the company’s total revenues from its crops brokerage business unit were Ps. 30.3 million with a trading volume of 1.9 million tons, 15% higher than the volume traded in the fiscal year 2012 and thus accumulating a 135% growth in the last 4 years. The main crops traded were corn and soybean, and to a lesser extent, wheat and sunflower.
 
The portal fyo.com has reached its thirteenth anniversary, consolidating as the benchmark site for agricultural marketing and adding year after year new and significant agricultural customers of various sizes to its user community. At the closing of this fiscal year, it has reached over 860,000 visits per month. Plans are being made for relaunching the website with revamped features during the coming fiscal year.
 
Futuros y Opciones.Com’s goal is to continue consolidating itself as leading company in the crops brokerage business, standing out from its competitors by offering a full suite of advisory services to its clients and contributing its broad experience in the industry along with its staff’s expertise.
 
On September 19, 2013, FyO paid a cash dividend of Ps. 1.28 million, and regarding our interest in such subsidiary we received a total amount of Ps. 0.78 million
 
Cactus
 
Cactus was initially a joint venture between Cresud and Cactus Feeders Inc., one of the largest feedlot companies in the United States. The site of the joint venture’s operations is a 170 hectare farmland in Villa Mercedes, in the Province of San Luis, which began operations in September 1999.
 
During the fiscal year 2007, Cactus entered into a joint venture with Tyson Foods, Inc (“Tyson”), a leading meat processing company, pursuant to which Tyson, through Provemex Holdings LLC (“Provemex”), acquired a 52% equity interest in Cactus to establish the first integrated cattle operation in Argentina. Consequently, the stock holdings of Cactus Feeders, Inc. and Cresud in Cactus were reduced to 24% each.
 
On January 11, 2007, Cactus and us (solely as nominee for Argentine legal purposes) acquired 100% of the shares of Sociedad Anónima Carnes Pampeanas S.A. (previously named Exportaciones Agroindustriales Argentinas S.A.) (“SACP”). SACP owns a meat packing plant in Santa Rosa, Province of La Pampa, with capacity to slaughter and process approximately 9,500 cattle heads per month. Cactus has been a pioneer in feedlot services with a 25,000 heads of cattle capacity, depending on the size of the cattle. Cactus’ customer base changed during recent years, as many companies related to the beef sector bought calves to be fed at the feedlot. To assure themselves a constant supply of high quality beef, these companies keep an inventory of cattle on feed.
 

 
60
 


On June 30, 2009, we entered into a shareholders' agreement with Cactus Feeders for the purchase of its 24% interest in Cactus and 0.24% interest of  SACP. The agreed purchase price was US$ 2.4 million. At the same time, our Company and Tyson made contributions to Cactus in the amount of US$ 2.4 million and US$ 2.6 million, respectively. As a consequence of the transaction, we increased our interest in Cactus to 48%.
 
On December 23, 2010, in order to provide Cactus with funds to satisfy its capital requirements, we made a capital contribution of US$ 4.0 million. Therefore, we increased our equity interest in Cactus from 48% to 80%. The remaining 20% were held by our partner Tyson. As part of this transaction, Tyson and us decided to introduce certain amendments to the shareholders’ agreement, and in this context we granted a put option to Tyson in respect of its 20% interest in Cactus.
 
On December 21, 2011, Cresud purchased from Provemex, Tyson’s subsidiary, its entire equity interest in both Cactus and SACP. Therefore, as from such date, Cresud holds 100% of the stock capital and voting rights in Cactus and SACP.
 
The feedlot cattle beef production is processed in SACP’s packing plant for the domestic and foreign markets. Feedlot fattening with a corn-based diet has been growing at a very dynamic pace. The company has gained market reputation thanks to the uniform final product offered by feedlot-finished animals, which provides purchasers with high-quality products and higher yields, succeeding in offering differential sales prices. Cactus continues to receive cattle from farmers that repeat their productive process whereby they breed and re-breed their animals in their own farmlands and slaughter them at Cactus.
 
The decrease in supply has adversely affected the value chain by reducing cold-storage plant utilization, which in turn has left several plants struggling to remain operational in view of the poor returns and shortage of raw materials. Our investment in SACP has not escaped unscathed of this situation.
 
Since December 2011, the packing plant has remained closed due to the difficult situation within the industry. With the support of the Provincial Government of La Pampa and the Federal Government, combined with Cresud’s confidence that the business could be successfully resumed, in August 2012 the packing plant was reopened and restarted production.
 
Fiscal year 2013 has been a tough year for our Agro-industrial segment due to the unfavorable market scenario. We expect it to improve in the next year and to be able to increase production levels and recover this segment’s profitability.
 
AgroUranga S.A. (“Agro Uranga”)
 
We have a 35.72 % interest in Agro Uranga. This company optimizes production processes and has obtained excellent results, with special emphasis in soil conservation, the application of rational techniques and care of the environment.
 
Agro Uranga S.A. has two farmlands: Las Playas and San Nicolás, with a combined area of 8,305 hectares, located in the core region of the Pampas prairies.
 
Agro Uranga’s crop production revenues are derived in the following way: 40% of the revenues from Agro Uranga’s crop production derives from its special products division, including popcorn, chickpea, peas and lentils, whereas the remaining 60% derives from commodities, such as soybean, corn and wheat.
 
At present, with the assistance of its foreign trade team it is seeking to develop new products so as to significantly increase export volumes, encouraged by the world’s growing demand.
 
Expansion in Paraguay
 
In the context of operations that represent a new expansion of our agricultural business in South America, on September 2008, we entered into several agreements to carry out real estate and agricultural, livestock and forestry activities in the Republic of Paraguay. Under these agreements, a new corporation was organized together with Carlos Casado S.A. under the name Cresca, in which we hold a 50% equity interest. Additionally, we provide consulting services for the agricultural, livestock and forestry development of a rural property of 41,931 hectares.
 
We entered into a promise agreement to purchase a 50% interest in a rural property located in Mariscal José Felix Estigarribia, Department of Boquerón, Chaco Paraguayo, Republic of Paraguay, owned by Carlos Casado S.A., for a price of US$5.2 million, in order to contribute them to the new company organized. The contribution was made on January 26, 2009, and the title deed to the property was executed on February 3, 2009. Therefore, jointly with the contribution made by Carlos Casado S.A., the total value of the contributions in Cresca is US$10.5 million. In addition, Cresca has an option granted by Carlos Casado S.A. for the purchase of 100,000 additional hectares located in Paraguay.
 
On March 19, 2010 the option granted under the agreement dated September 3, 2008 (Call Option Agreement) was partially exercised, whereby 3,614 hectares, valued at US$350 each, were transferred to Cresca.
 
Finally, on June 29, 2010, the title deed was executed, involving the conveyance of 3,646 hectares.
 
During the fiscal year 2012 Cresca added 1,347 hectares to the area under operation and expects to add 3,187 more hectares during the next season. As of June 30, 2012, Cresca had 1,084 hectares intended for beef cattle, 8,378 hectares intended for agriculture and 36,116 hectares of natural woodlands for future developments.
 
During the fiscal year 2013 Cresca added  937 hectares to the area under operation and expects to add 1,000 more hectares during the next season. As of June 30, 2013, Cresca had 12,330 hectares intended for agriculture and beef cattle.
 
Expansion in the Republic of Bolivia and the Oriental Republic of Uruguay
 
In the framework of a series of transactions that represent a new expansion of our agribusiness operations in South America, in line with our business plan, we have incorporated companies that own land in the Republic of Bolivia and have acquired a company in the Republic of Uruguay.
 
For such purposes, the following companies were incorporated: Agropecuaria Acres del Sud S.A, Ombú Agropecuaria S.A., Yatay Agropecuaria S.A and Yuchan Agropecuaria S.A. The preceding Bolivia-based companies acquired land for agricultural operations. We maintain a 100.00% ownership interest in the capital stock of those companies, all engaged in agricultural operations.
 
In addition, during October 2008, we acquired, a company named Helmir S.A., domiciled in the Republic of Uruguay and incorporated with a broad-ranging corporate purpose.
 

 
61
 


In line with our international expansion strategy, we have entered into a number of agreements to formalize our position in various South American countries. In July 2008, we, executed several promise to purchase agreements for an aggregate of 12,166 hectares in the Republic of Bolivia for a total price of US$28.9 million.
 
In connection with these lands, on November 20, 2008, two purchase instruments including delivery of possession were executed, as part of the process of casting into public deed and filing of deeds with the relevant registries, involving the purchase of 883, 2,969 and 3,748 hectares in “San Cayetano,” “San Rafael” and “La Fon Fon” farmlands, respectively, located in Santa Cruz, Bolivia. We have already paid 43% of the agreed price of US$17.5 million. The remaining balance was payable in two annual installments: the first one was paid during the 2010 fiscal period, and the second one was paid in the fiscal year 2011.
 
On January 22, 2009, we executed a deed of purchase for 4,566 hectares in Las Londras farmland, located in the Province of Guarayos, Bolivia. On that date, the sum of US$3.8 million was paid, representing 42.9% of the total agreed price. The remaining balance is payable in two annual installments: the first one was paid during the 2010 fiscal period, and the second one was paid in the fiscal year 2011.
 
During the fiscal year 2010, 10,800 hectares of the farmlands located in Bolivia were sown. This region has traditionally achieved double harvesting of soybean, which means that better results can be obtained per hectare during a single season; yet, the weather conditions that prevailed during the last year have not allowed double harvesting.
 
In June 2011, we entered into a purchase agreement for two agricultural parcels located at Santa Cruz, Bolivia, with a total surface of 5,000 hectares, which are used for agricultural exploitation:
 
(i) The first parcel has a surface of approximately 2,660 hectares for sugar cane exploitation purposes. The purchase price was US$8.4 million which was fully paid.
 
(ii) The second parcel has a surface of approximately 2,340 hectares for soybeans exploitation purposes. The purchase price was US$4.9 million which was fully paid.
 
Additionally, in June, 2011, we agreed upon the sale of 910 hectares of “La Fon Fon” farmland for US$ 3.6 million. We have received 80.0% of the purchase price and the balance will be collected in December 2013. Afterwards, on March 2, 2012, we agreed upon the sale of 1,194 additional hectares of “La Fon Fon” farmland for US$ 4.8 million, US$ 2.4 million of which have been collected. The balance will be payable in four semi-annual consecutive installments, which is due on November 30, 2013 and thereafter. Possession was surrendered on June 30, 2012.
 
Urban properties and investment business
 
Please see our “Urban properties and investment business” overview, below for a more details.
 
 
Regulation and Government Supervision of our Agricultural Business

Farming and Animal Husbandry Agreements
 
Agreements relating to farming and animal husbandry activities are regulated by Argentine law, the Argentine Civil Code and local customs.
 
According to the Law No. 13,246, as amended, all lease agreements related to rural properties and land are required to have a minimum duration of 3 years. Upon death of the tenant farmer, the agreement may continue with his successors. Upon misuse of the land by the tenant farmer or default on payment of the rent, the land owner may initiate an eviction proceeding.
 
Law No. 13,246, as amended, also regulates agreements for crop sharing pursuant to which one of the parties furnishes the other with farmland animals or land with the purpose to share benefits between tenant farmer and land owner. These agreements are required to have a minimum term of duration of 3 years. The tenant farmer must perform the obligations under the agreement himself and may not, assign it under any circumstances. Upon death, incapacity of the tenant farmer or other impossibility, the agreement will be terminated.
 
Quality control of Grains and Beef cattle
 
The quality of the grains and the health measures of the beef cattle are regulated and controlled by the Servicio Nacional de Sanidad y Calidad Agroalimentaria (“SENASA”), which is an entity within the Ministry of Agriculture, Livestock and Fishing and Production (“Ministerio de Agricultura, Ganaderia y Pesca”) that oversees the farming and animal sanitary activities.
 
Argentine law establishes that the brands should be registered with each provincial registry and that there cannot be brands alike within the same province.
 
Sale and Transportation of Beef cattle
 
Even though the sale of beef cattle is not specifically regulated, general contract provisions are applicable. Further, every province has its own rural code regulating the sale of beef cattle.
 
Argentine law establishes that the transportation of beef cattle is lawful only when it is done with the respective certificate that specifies the relevant information about the beef cattle. The required information for the certificate is established by the different provincial regulations, the inter-provinces treaties and the regulations issued by the SENASA.
 
Export Restriction of Beef
 
The Ministry of Agriculture, Livestock and Fishing oversees the farming and animal sanitary activities and controls the distribution of the annual regular quota of top quality chilled beef without bones, the “Cuota Hilton.” The destination of the Cuota Hilton is the European Union.
 
In August 2013, the Secretaria de Agricultura Ganadería Pesca y Alimentos granted to our subsidiary EAASA 916.69 tons to export beef under the authorized quotas, known as Cuota Hilton. As of the date of these annual report, such quotas have not been modified
 

 
62
 


Environment
 
The development of our agribusiness depends on a number of federal, state and municipal laws and regulations related to environmental protection.
 
We may be subject to criminal and administrative penalties, including taking action to reverse the adverse impact of our activities on the environment and to reimburse third parties for damages resulting from contraventions of environmental laws and regulations. Based on the Argentine Criminal Code, persons (including directors, officers and legal entity managers) who commit crimes against public health, such as poisoning or dangerously altering water, food or medicine used for public consumption and selling products that are dangerous to health, without the necessary warnings, may be subject to fines, imprisonment or both. Some courts have utilized these provisions in the Argentine Criminal Code to sanction the discharge of substances which are hazardous to human health. At the administrative level, the penalties vary from notices and fines to the full or partial suspension of the activities, which may include the revocation or annulment of tax benefits, cancellation or interruption of credit lines granted by state banks and a restriction on entering into contracts with public entities.
 
The Forestry Legislation of Argentina prohibits the devastation of forest and forest land, as well as the irrational use of forest products. Landowners, tenants and holders of natural forests require an authorization from the Forestry Competent Authority for the cultivation of forest land. The legislation also promotes the formation and conservation of natural forests in properties used for agriculture and farming purposes.
 
As of June 30, 2013, we owned land reserves in excess of 357,505 hectares, which are located in under-utilized areas where agricultural production is not yet fully developed. We believe that technological tools are available to improve the productivity of such land and enhance its long-term value. However, existing or future environmental regulations may prevent us from completely developing our land reserves, requiring us to maintain a portion of such land as unproductive land reserves.
 
In accordance with legislative requirements, we have applied for approval to develop certain parts of our land reserves, to the extent allowed. We cannot assure you that current or future development applications will be approved, and if so, to what extent we will be allowed to develop our land reserves. We intend to use genetically modified organisms in our agricultural activities. In Argentina, the cultivation of genetically modified organisms is subject to special laws and regulations and specific authorizations.
 
On November 28, 2007, Argentine Congress passed a law known as the Forest Law which sets minimum standards for the conservation of native forests and incorporates minimum provincial expenditures to promote the protection, restoration, conservation and sustainable use of native forests. The Forest Law prevents landowners, including deforestation of native forests or converting non-forested areas in forested land for other commercial uses without prior permission from each local government that gives the permit and requires the preparation, appraisal and approval of a report environmental impact. The Forest Law also provides that each province should adopt its own legislation and its map of regional order within one year. During the time that such an implementation requires provincial new clearing will be authorized a plan for implementation within one year and not allow any deforestation during this period of one year. In addition, the Forest Law also establishes a national policy for sustainable use of native forests and includes the recognition of native communities and aims to provide preferential use rights to indigenous communities living and farming near the forest. In case a project affects such communities, the relevant provincial authority may not issue permits without formal public hearings and written consent of the communities.
 
Our activities are subject to a number of national, provincial and municipal environmental provisions. Section 41 of the Argentine Constitution, as amended in 1994, provides that all Argentine inhabitants have the right to a healthy and balanced environment fit for human development and have the duty to preserve it. Environmental damage shall bring about primarily the obligation to restore it as provided by applicable law. The authorities shall protect this right, the rational use of natural resources, the preservation of the natural and cultural heritage and of biodiversity, and shall also provide for environmental information and education. The National Government shall establish minimum standards for environmental protection and Provincial and Municipal Governments shall fix specific standards and regulatory provisions.
 
On November 6, 2009, the Argentine Congress passed Law No. 25,675. The law regulates the minimum standards for the achievement of a sustainable environment and the preservation and protection of biodiversity and fixes environmental policy goals.
 
Law No. 25,675 establishes the activities that will be subject to an environmental impact assessment procedure and certain requirements applicable thereto. In addition, the Law sets forth the duties and obligations that will be triggered by any damage to the environment and mainly provides for restoration of the environment to its former condition or, if that is not technically feasible, for payment of a compensation in lieu thereof. The Law also fosters environmental education and provides for certain minimum reporting obligations to be fulfilled by natural and artificial persons.
 
In accordance with the Rules of the CNV (as defined herein below), the issuers involved in activities which may have an impact on the environment have to comply with certain disclosure requirements in order to inform its investors, shareholders and the general public about the fulfillment of the current environmental regulations.
 
One of our goals is that business be conducted  consistently with environmental laws and regulations at all times.
 
Property and Transfer Taxes
 
Value Added Tax. Under Argentine law, the sale of beef cattle and grains are taxable at a rate equal to 10.5% of the sale price. The sale of milk is taxable at a rate equal to 21%. The sale of land is not taxable.
 
Gross Sales Tax. A local transfer tax is imposed on the sale price of beef cattle, grains and milk at a general rate of 1%. In some provinces the sale of primary goods is not taxable.
 
Stamp Tax. This is a local tax that 23 provinces and the City of Buenos Aires collect based on similar rules regarding subject matter, tax base and rates.In general, this tax is levied on acts validated by documents, (e.g. acts related to the constitution, transmission, or expiration of rights, contracts, contracts for sales of stock and company shares, public deeds relating to real property, etc.).
 
In the City of Buenos Aires (federal district) the stamp tax only applies to public deeds for the transfer of real estate, or for any other contract whereby the ownership of real property is transferred and commercial leases. The purchase and sale of real estate through public deed is not taxable if the real estate will be used for housing. In the City of Buenos Aires the tax rate is 2.5%. In the Province of Buenos Aires, the tax rate is 3% for public deeds of transfer of real property.
 
Antitrust Law. Law No. 25,156, as amended, prevents anticompetitive practices and requires administrative authorization for transactions that according to the Antitrust Law would lead to market concentration. According to this law, such transactions would include mergers, transfers of goodwill, acquisitions of property or rights over shares, capital or other convertible securities, or similar operations by which the acquirer controls or substantially influences a company. Whenever such a transaction involves a company or companies with accumulated sales volume greater than Ps.200.0 million in Argentina, then the respective transaction should be submitted for approval to the Antitrust Authority (Comisión Nacional de Defensa de la Competencia, or “CNDC”). The request for approval may be filed, either prior to the transaction or within a week after its completion.
 
 
63
 


When a request for approval is filed, the Antitrust Authority may (i) authorize the transaction, (ii) subordinate the transaction to the accomplishment of certain conditions, or (iii) reject the authorization. 
 
The Antitrust Law provides that economic concentrations in which the transaction amount and the value of the assets absorbed, acquired, transferred or controlled in Argentina do not exceed Ps.20.0 million are exempted from the administrative authorization. Notwithstanding the foregoing, when all transactions effected in the last twelve months exceed in total Ps.20.0 million or in total Ps.60.0 million in the last 36 months, these transactions must be notified to the Antitrust Authority.
 
As our and IRSA’s consolidated annual sales volume exceeds Ps.200.0 million, we should give notice to the Antitrust Authority of any transaction within the scope of the Antitrust Law.
 
Urban properties and investment business
 
 
Our Principal Urban Properties and Investment Business
 
We are one of Argentina’s leading real estate companies in terms of total assets. We are engaged, directly and indirectly through subsidiaries and joint ventures, in a range of diversified real estate related activities in Argentina, including:
 
 
•
the acquisition, development and operation of shopping centers, including consumer financing activities,
 
 
•
the development and sale of residential properties,
 
 
•
the acquisition and development of office and other non-shopping center properties primarily for rental purposes,
 
 
•
the acquisition and operation of luxury hotels,
 
 
•
the acquisition of undeveloped land reserves for future development and sale, and
 
 
•
selected real estate investments outside Argentina.


Business Strategy

As a leading company in Argentina dedicated to acquiring, developing and managing real estate, we seek to (i) generate stable cash flows through the operation of our real estate rental assets (shopping centers, office buildings, hotels), (ii) achieve long-term appreciation of our asset portfolio by taking advantage of development opportunities, and (iii) increase the productivity of our land reserves and enhance the margins of our Sales and Development segment through partnerships with other developers, and (iv) look for opportunities abroad offering capital gain potential..
 
Shopping centers. Our main purpose is to maximize our shareholders’ profitability. By using our know-how in the shopping center industry in Argentina as well as our leading position, we seek to generate a sustainable growth of cash flow and to increase the long-term value of our real estate assets.
 
We attempt to take advantage of the unsatisfied supply in different urban areas of the region, as well as of our customers’ purchase experience. Therefore, we seek to develop new shopping centers in urban areas with attractive prospects for growth, including Buenos Aires’ Metropolitan area, some cities in the provinces of Argentina and possibly, other places abroad. To achieve this strategy, the close business relationship we have had for years with more than 1000 retail companies and trademarks composing our selected group of tenants is of utmost importance, as it allows us to offer an adequate mix of tenants for each particular case.
 
Office and Other Rentals. Since the Argentine economic crisis in 2001 and 2002, there has been limited investment in high-quality office buildings in Buenos Aires and, as a result, we believe there is currently substantial demand for those desirable office spaces. We seek to purchase and develop premium office buildings in strategically-located business districts in the City of Buenos Aires and other strategic locations that we believe offer return and potential for long-term capital gain. We expect to continue our focus on attracting premium corporate tenants to our office buildings. Furthermore, we intend to consider on a selective basis new opportunities to acquire or construct new rental office buildings.
 
Sales andDevelopment. We seek to purchase undeveloped properties in densely-populated areas and build apartment complexes offering green space for recreational activities. We also seek to develop residential communities by acquiring undeveloped properties with convenient access to the City of Buenos Aires, developing roads and other basic infrastructure such as electric power and water, and then selling lots for the construction of residential units. After the economic crisis in 2001 and 2002, the scarcity of mortgage financing restricted the growth in middle class home purchases, and as a result, we mainly focused on the development of residential communities for middle and high-income individuals, who do not need to finance their home purchases. Furthermore, we seek to continue to acquire undeveloped land at attractive locations inside and outside Buenos Aires for the purpose of their appreciation for subsequent sale. We believe that holding a portfolio of desirable undeveloped plots of land enhances our ability to make strategic long-term investments and affords us a valuable “pipeline” of new development projects for upcoming years.
 
Hotels. We believe our portfolio of three luxury hotels is positioned to take advantage of future growth in tourism and travel in Argentina. We seek to continue with our strategy to invest in high-quality properties which are operated by leading international hotel companies to capitalize on their operating experience and international reputation.
 
International. In this segment, we seek investments that represent an opportunity of capital appreciation potential in the long term. After the international financial crisis in 2008, we took advantage of the price opportunity in the real estate sector in the United States and invested in two office buildings in Manhattan, New York. We have recently increased our interest to 74.5% of the office building located at 183 Madison Avenue in the City of New York. We also have a 49.87% interest in a US company, whose main asset is the so-called “Lipstick” office building located in the City of New York. In addition, jointly with subsidiaries, we hold 34% of Supertel Hospitality Inc. voting rights (NASDAQ: SPPR) and we have recently sold our almost entire share in Hersha (NYSE: HT), which holds a controlling interest in 65 hotels in the United States, totaling around 9,616 rooms. As of June 30, 2013, we held a 0.49% stake in the company. We intend to continue evaluating -on a selective basis- investment opportunities outside Argentina as long as they offer attractive investment and development options.
 
Financial Operations and Other. We currently plan to keep our investment in Banco Hipotecario, as we believe that Argentina has a low level of outstanding mortgages measured in terms of GDP and as a result, our investment in Banco Hipotecario is interesting in the long term.
 
Shopping Centers
 
           We are engaged in purchasing, developing and managing shopping centers through our subsidiary, Alto Palermo. As of June 30, 2013, Alto Palermo operated and owned majority interests in thirteen shopping centers, six of which are located in the City of Buenos Aires (Abasto, Paseo Alcorta, Alto Palermo, Patio Bullrich, Buenos Aires Design and Dot Baires Shopping), two of which are located in the greater Buenos Aires (Alto Avellaneda and Soleil Factory) metropolitan area and the other ones are located in the Argentine provinces: Alto Noa in the City of Salta, Alto Rosario in the City of Rosario, Mendoza Plaza in the City of Mendoza, Córdoba Shopping Villa Cabrera in the City of Córdoba and La Ribera Shopping in the City of Santa Fe.
 

 
64
 


As of June 30, 2013, IRSA  owned 95.69% of Alto Palermo. The remaining shares are held by the investor public and traded on the Bolsa de Comercio de Buenos Aires and the related ADRs are listed and traded on the Nasdaq National Market (USA) under the symbol “APSA.”
 
As of June 30, 2013, Alto Palermo’s shopping centers comprised a total of 308,793 square meters of gross leaseable area (excluding certain space occupied by hypermarkets which are not Alto Palermo’s tenants). For the fiscal year 2013, the average occupancy rate of Alto Palermo’s shopping center portfolio was approximately 99.1%.
 
We centralized management of our shopping centers in Alto Palermo, which is responsible for providing common area electrical power, a main telephone switchboard, central air conditioning and other basic common area services.
 
The following table shows certain information concerning our Alto Palermo subsidiary’s shopping centers as of June 30, 2013:

   
Date of Acquisition
    
Leaseable Area
sqm
    
APSA’s Interest
    
Occupancy
Rate
    
Accumulated Annual Rental
Income as of fiscal year ended
    
Book Value
(in thousands of Ps.)
  
            (1)       (3)       (2)       2013       2012       (4)  
Shopping Centers (5)
                                                      
Alto Palermo
     11/97       18,690       100.0 %     98.4 %     269,921       220,714       233,937  
Abasto Shopping (6)
     07/94       37,708       100.0 %     99.8 %     274,018       222,314       318,855  
Alto Avellaneda
     11/97       36,943       100.0 %     99.9 %     190,470       159,309       146,428  
Paseo Alcorta
     06/97       14,141       100.0 %     99.8 %     126,950       101,018       121,424  
Patio Bullrich
     10/98       11,683       100.0 %     99.7 %     103,159       90,086       114,564  
Alto Noa Shopping
     03/95       19,141       100.0 %     99.7 %     47,047       39,300       36,703  
Buenos Aires Design
     11/97       13,746       53.7 %     99.0 %     42,432       36,361       18,512  
Alto Rosario Shopping (6)
     11/04       27,691       100.0 %     97.1 %     123,510       97,656       128,774  
Mendoza Plaza Shopping
     12/94       42,238       100.0 %     97.7 %     101,419       81,822       115,480  
Dot Baires Shopping
     05/09       49,719       80.0 %     99.4 %     189,271       150,503       472,325  
Córdoba Shopping Villa Cabrera
     12/06       15,106       100.0 %     100.0 %     58,359       47,160       65,820  
Soleil
     07/10       13,609       100.0 %     100.0 %     45,039       34,564       91,690  
La Ribera Shopping
     08/11       8,378       50.0 %     97.7 %     11,910       3,833       18,123  
GENERAL TOTAL
             308,793               99.1 %     1,583,505       1,281,640       1,882,635  

 
Notes:
(1) Total leaseable area in each property. Excludes common areas and parking spaces.-
(2) Calculated dividing occupied square meters by leaseable area on the last day of the period.-
(3) APSA’s effective interest in each of its business units. IRSA has a 95.69% interest in APSA.-
(4) Cost of acquisition plus improvements, less accumulated depreciation, plus adjustment for inflation, less allowance for impairment in value, plus recovery of allowances, if applicable. Does not include works in progress.
(5) Through Alto Palermo S.A.
(6) Excludes Museo de los Niños (3,732 in Abasto and 1,261 in Alto Rosario).-
 
Tenants’ Retail Sales(1)
 
The following table sets forth the total approximate tenant retail sales in Pesos at the shopping centers in which Alto Palermo had an interest for the periods shown below:
 
   
2013
(in thousands of Ps.)
    
2012
(in thousands of Ps.)
    
Var
  
Alto Palermo
     1,609.8       1,304.6       23.4 %
Abasto Shopping
     1,939.0       1,537.3       26.1 %
Alto Avellaneda
     1,868.8       1,466.9       27.4 %
Paseo Alcorta
     822.7       667.8       23.2 %
Patio Bullrich
     548.3       498.5       10.0 %
Alto Noa Shopping
     609.2       500.4       21.7 %
Buenos Aires Design
     241.5       235.8       2.4 %
Alto Rosario Shopping
     1,060.2       825.2       28.5 %
Mendoza Plaza Shopping
     1,206.7       929.1       29.9 %
Córdoba Shopping
     432.9       340.3       27.2 %
Dot Baires Shopping
     1,566.6       1,271.2       23.2 %
Soleil
     366.4       254.1       44.2 %
La Ribera Shopping (3)
     209.9       135.2       55.3 %
Total Sales (2)
     12,482.0       9,966.4       25.2 %
 
 
Notes:
 
  (1) 
Retail sales based upon information provided to us by retailers and past owners. The amounts shown reflect 100% of the retail sales of each shopping center, sales of each shopping center, although in certain cases we own less than 100% of such shopping centers.
  (2)   
Excludes sales from the booths and spaces used for special exhibitions.
  (3) 
Includes income since its acquisition in August 2011.

 
Expiration of lease agreements
 
 The following table shows a schedule of lease expirations for our shopping center properties in place as of June 30, 2013, assuming that none of the tenants exercise renewal options or terminate their lease early.
 

 
65
 


Fiscal year of lease expiration
  
Number of leases expiring
    
Surface area subject to expiring leases
    
Percentage of total surface area subject to expiration
    
Annual rental income under expiring leases
    
Percentage of total rental income under expiring leases
  
         
(sqm)
    
(%)
    
(Ps. thousand)
    
(%)
  
2013
     16       29,774       15 %     19.375       9 %
2014
     52       69,800       35 %     86.724       39 %
2015
     46       41,195       20 %     66.722       30 %
2016+
     44       60,758       30 %     49.979       22 %
Total
     158       201,527       100 %     222.800       100 %
 
*Includes Offices which contract has not been renewed as of June 30, 2013.
*Does not include vacant leased square meters.
*Does not include square meters or revenues from parking spaces.
 
Occupancy Rate
 
The following table shows the average occupancy rate of each shopping center during the fiscal years ended June 30, 2013 and 2012:
 
   
2013
    
2012
  
Abasto
     99.8 %     99.1 %
Alto Palermo
     98.5 %     98.3 %
Alto Avellaneda
     99.9 %     96.1 %
Paseo Alcorta
     99.8 %     100.0 %
Patio Bullrich
     99.7 %     100.0 %
Alto Noa
     99.7 %     98.9 %
Buenos Aires Design
     99.0 %     100.0 %
Mendoza Plaza
     97.1 %     96.4 %
Alto Rosario
     97.7 %     97.6 %
Córdoba Shopping Villa Cabrera
     100.0 %     99.6 %
Dot Baires Shopping
     99.4 %     99.4 %
Soleil Factory Shopping
     100.0 %     100.0 %
La Ribera Shopping
     97.7 %     98.7 %
Overall Average
     99.1 %     98.4 %

 
Rental Price
 
The following table shows the annual average rental price per square meter for the fiscal years ended June 30, 2013 and 2012(1):
 
Fiscal year ended, June 30
  
   
2013
    
2012
    
Var
  
Abasto
     7,337.5       5,895.2       24.5 %
Alto Palermo
     14,442.2       11,802.1       22.4 %
Alto Avellaneda
     5,155.8       4,312.3       19.6 %
Buenos Aires Design
     3,086.9       2,640.8       16.9 %
Paseo Alcorta
     8,977.5       7,161.0       25.4 %
Patio Bullrich
     8,829.8       7,710.3       14.5 %
Alto Noa
     2,457.9       2,064.3       19.1 %
Alto Rosario
     4,460.2       3,526.5       26.5 %
Mendoza Plaza
     2,401.2       1,937.2       24.0 %
Córdoba Shopping- Villa Cabrera
     3,863.4       3,104.6       24.4 %
Dot Baires Shopping
     3,806.8       3,038.8       25.3 %
Soleil Factory Shopping
     3,309.5       2,349.3       40.9 %
La Ribera Shopping
     1,421.5       497.1       186.1 %

(1)           Annual rental price per gross leasable square meter reflects the sum of base rent, percentage rent and revenues from admission rights (excluding any applicable tax on sales) divided by gross leasable square meters.

Depreciation
 
Depreciation, based on a component approach, is calculated using the straight-line method to allocate the cost over the assets’ estimated useful lives.
 
Principal Terms of Alto Palermo’s Leases
 
Under Argentine Law, terms of commercial leases must be between three to ten years, with most leases in the shopping center business having terms of no more than five years. Alto Palermo’s lease agreements are generally denominated in Pesos.
 
Decree No. 214/2002 and Decree No. 762/2002, which modify Public Emergency Law No. 25,561, determine that duties to turn over sums of money which are denominated in U.S. Dollars and which are not related to the financial system prior to January 7, 2002 are subject to the following:
 
 
•
  
obligations will have to be paid in Pesos at a rate of Ps.1.00 = US$1.00. Additionally, these obligations are subject to inflation adjustment through the CER index;
 
•
  
if, as a consequence of this adjustment, the agreement is unfair to any of the parties, as long as the party that has the obligation to pay is not overdue and the adjustment is applicable, either may ask the other for a fairness adjustment. If they do not reach an agreement, a court will make the decision in order to preserve the continuity of the contract relation in a fair way; and

 
66
 


 
•
  
new lease agreements may be freely entered into between parties, even U.S. Dollar denominated lease agreements.
Leaseable space at Alto Palermo’s shopping centers is marketed through an exclusive arrangement with its real estate brokers, Fibesa S.A. (“Fibesa”) and Comercializadora Los Altos S.A. (merged with Fibesa S.A. as of July 1, 2009). Alto Palermo has a standard lease agreement, the terms and conditions of which are described below, which it uses for most tenants. However, Alto Palermo’s largest tenants generally negotiate better terms for their respective leases. No assurance can be given that lease terms will be as set forth in the standard lease agreement.
 
Alto Palermo charges its tenants a rent which consists of the higher of (i) a monthly base rent (the “Base Rent”) and (ii) a specified percentage of the tenant’s monthly gross sales in the store (the “Percentage Rent”) (which generally ranges between 4% and 10% of tenant’s gross sales). Furthermore, pursuant to the rent escalation clause in most leases, a tenant’s Base Rent generally increases between 7% and 24% on an annual and cumulative basis as from the thirteenth (13th) month of effectiveness of  the lease. Although many of our lease agreements contain readjustment clauses, these are not based on an official index nor do they reflect the inflation index. In the event of litigation, there can be no assurance that we may be able to enforce such clauses contained in our lease agreements. See “Risk Factors” for a more detailed discussion.
 
In addition to rent, Alto Palermo charges most of its tenants an admission right, which is required to be paid upon entering into a lease agreement and upon a lease agreement renewal. The admission right is normally paid in one lump sum or in a small number of monthly installments, range between 3 and 6. If the tenant pays this fee in installments, it is the tenant’s responsibility to pay for the balance of any such amount unpaid in the event the tenant terminates its lease prior to its expiration. In the event of unilateral termination and/or resolution for breach of duties by the tenant, a tenant will not be refunded its admission right without Alto Palermo´s consent.
 
Alto Palermo is responsible for supplying each shopping center with the electrical power connection and provision, a main telephone switchboard, central air conditioning connection and a connection to a general fire detection system. Each rental unit is connected to these systems. Alto Palermo also provides the food court tenants with sanitation and with gas systems connections. Each tenant is responsible for completing all the necessary installations within its own rental unit, in addition to the direct expenses generated by these items within each rental unit. These direct expenses generally include: electricity, water, gas, telephone and air conditioning. Tenants must also pay for a percentage of total charges and general taxes related to the maintenance of the common areas. Alto Palermo determines this percentage based on different factors. The common area expenses include, among others, administration, security, operations, maintenance, cleaning and taxes.
 
Alto Palermo carries out promotional and marketing activities to attendance visits to its shopping centers. These activities are paid for with the tenants’ contributions to the Common Promotional Fund (“CPF”), which is administered by Alto Palermo. Every month tenants contribute to the CPF an amount equal to approximately 15% of their rent (Base Rent plus Percentage Rent), in addition to rent and expense payments. Alto Palermo may increase the percentage that tenants must contribute to the CPF, but the increase cannot exceed 25% of the original amount set forth in the corresponding lease agreement for the contributions to the CPF. Alto Palermo also require tenants to make extraordinary contributions to the CPF to fund special promotional and marketing campaigns or to cover the costs of special promotional events that benefit all tenants. We may require tenants to make these extraordinary contributions up to four times a year provided that each such extraordinary contribution may not exceed 25% of the preceding monthly rental payment of the tenant.
 
Each tenant leases its rental unit as a shell without any fixtures. Each tenant is responsible for the interior design of its rental unit. Any modifications and additions to the rental units must be pre-approved by Alto Palermo. Alto Palermo has the option to decide tenants’ responsibility for all costs incurred in remodeling the rental units and for removing any additions made to the rental unit when the lease expires. Furthermore, tenants are responsible for obtaining adequate insurance for their rental units, which must include, among other things, coverage for fire, glass breakage, theft, flood, civil liability and workers’ compensation.
 
Sources of Shopping Center Revenues
 
Set forth below is a breakdown of the sources of our shopping center revenues (in millions of Ps.) for the fiscal years ended June 30, 2013 and 2012:
 
 
      2013        2012        Var   
Type of Business                        
Anchor Store
     869.5       708.2       22.8 %
Clothes and footwear
     6,149.9       4,932.8       24.7 %
Entertainment
     461.5       351.5       31.3 %
Home
     2,322.6       1,795.6       29.3 %
Restaurant
     1,161.5       937.4       23.9 %
Miscellaneous
     1,438.2       1,186.2       21.2 %
Services
     78.8       54.7       44.1 %
Total
     12,482.0       9,966.4       25.2 %

 
Additional Information about Alto Palermo´s Shopping Centers
 
Set forth below is a brief description of each of Alto Palermo’s shopping centers.
 
Alto Palermo Shopping, City of Buenos Aires. Alto Palermo Shopping is a 146-store shopping center that opened in 1990 and is located in the densely populated middle-income neighborhood of Palermo in the City of Buenos Aires. Alto Palermo Shopping is located only a few minutes from downtown Buenos Aires and with nearby subway access at the intersection of Avenues Santa Fe and Coronel Díaz. Alto Palermo Shopping has a total constructed area of 65,029 square meters (including parking lot) that consists of 18,690 square meters of gross leasable area. The shopping center has a food court with 19 stores. Alto Palermo Shopping is spread out over four levels and its parking lot may accommodate 654 cars for a fee over an area of 32,405 square meters. The shopping center target customer is a middle-income shopper aged 28 to 40.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales totaling approximately Ps. 1,609.8 million, 23.4% higher than the Ps. 1,304.6 million invoiced in the same period of the previous fiscal year. Sales per square meter reached Ps. 86,130.2. Total rental income increased from about Ps. 220.7 million for the fiscal year ended June 30, 2012 to Ps. 269.9 million for the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Alto Palermo Shopping was 98.5%.
 
Alto Avellaneda, Avellaneda, Greater Buenos Aires. Alto Avellaneda is a 140-store shopping center that opened in October 1995 and is located in the densely populated neighborhood known as Avellaneda, on the southern border of the City of Buenos Aires. This shopping center is located near a railway station and close to downtown Buenos Aires City. Alto Avellaneda has a total constructed area of 108,598.8 square meters (including parking lot) that includes 36,943
 

 
67
 
 
square meters of gross leasable area. Alto Avellaneda has a six-screen multiplex movie theatre, a Wal-Mart megastore, an entertainment center, a 20-restaurant food court and starting in April 28, 2008, it also hosts a Falabella department store. Wal-Mart (not included in the gross leasable area) acquired the space it occupies, but it pays a share of the common expenses of Alto Avellaneda’s parking lot. This shopping center offers free-of-charge parking space for 2,700 cars over an area of 47,856 square meters.
 
Alto Avellaneda’s target customer is a middle-income shopper aged 16 to 30.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,868.8 million, which represents a year-on-year growth of 27.4%. Sales per square meter were Ps. 50,586.9. Total rental income increased from Ps. 159.3 million for the fiscal year ended June 30, 2012 to Ps. 190.5 million for the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Alto Avellaneda was 99.9%.
 
Paseo Alcorta, City of Buenos Aires. Paseo Alcorta is a 109-store shopping center that opened in 1992 and is located in the residential neighborhood of Palermo Chico, one of the most exclusive areas in the City of Buenos Aires, within a short drive from downtown Buenos Aires. Paseo Alcorta has a total constructed area of approximately 87,553.8 square meters (including parking lot) that consists of 14,141 square meters of gross leasable area. Paseo Alcorta has a 12-restaurant food court and a Carrefour hypermarket on the ground floor. Carrefour purchased the space it now occupies but it pays a share of the expenses of the shopping center’s parking lot. It is a three-level shopping center that includes a parking lot that charges a fee (as from June 2008) with approximately 1,300 spaces.
 
The shopping center target customer is a high-income shopper aged 34 to 54.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 822.7 million, which represents annual sales for approximately Ps. 58,182.5 per square meter and a year-on-year growth of 23.2%. Total rental income increased from approximately Ps. 101.0 million in the fiscal year ended June 30, 2012 to Ps. 126.9 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Paseo Alcorta was 99.8%.
 
Abasto Shopping, City of Buenos Aires. Abasto Shopping is a 175-store shopping center located in the City Buenos Aires. Abasto Shopping is directly accessible by Carlos Gardel subway station; it is six blocks away from Once railway station and near the highway to Ezeiza International Airport. Abasto Shopping opened on November 10, 1998. Our investment in Abasto amounted to US$ 111.6 million. The principal building is a landmark building, which during the period 1889 to 1984 operated as the primary fresh produce market for the City of Buenos Aires. The property was converted into a 116,646 square meter shopping center (including parking lot and common areas), with approximately 37,708 square meters of gross leasable area (41,440 square meters including Museo de los Niños). Abasto is ranked #4 in terms of gross leasable area in Argentina. The shopping center is near Torres de Abasto, our apartment complex, and Coto supermarket.
 
Abasto Shopping has a 27-restaurant food court, a 12-screen movie theatre complex seating approximately 3,100 people, covering a surface area of 8,021 square meters, entertainment area and Museo de los Niños with a surface area of 3,732 square meters (the latter is not included within the gross leasable area). The shopping center is distributed in five stories and includes a parking lot for 1,200 vehicles with a surface area of 40,169 square meters.
 
Abasto Shopping’s target customer is a middle-income shopper aged 25 to 45, that in our opinion, represents an important portion of the population in this area of Buenos Aires.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,939.0 million, 26.1% higher than the sales recorded in the same period of the previous fiscal year. Sales per square meter were approximately Ps. 51,420.5. Total rental income increased from approximately Ps. 222.3 million in the fiscal year ended June 30, 2012 to Ps. 276.9 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Abasto Shopping was 99.8%.
 
Patio Bullrich, City of Buenos Aires. Patio Bullrich is located in the Recoleta neighborhood, one of the most prosperous areas of the City of Buenos Aires. This district is a residential, cultural and tourist center that includes distinguished private homes, historical sites, museums, theatres and embassies. The shopping center is located within walking distance of the most prestigious hotels of Buenos Aires and the subway, bus and train systems. Additionally, the shopping center is only 10 minutes by car from the downtown area of the City of Buenos Aires.
 
Patio Bullrich has a total constructed area of 29,982 square meters (including parking lot) that consists of 11,683 square meters of gross leasable area and common areas consisting of 12,472 square meters. The shopping center includes a four-screen multiplex movie theatre seating 1,381 people and a 12-store food court. The four-story shopping center has a parking lot that charges a fee with 215 spaces over an area of 4,825 square meters.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 548.3 million, which represents annual sales for approximately Ps. 46,930.3 per square meter. Total rental income increased from approximately Ps. 90.1 million in the fiscal year ended June 30, 2012 to Ps. 103.1 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Patio Bullrich was 99.7%.
 
Alto Noa, Salta, Province of Salta. Alto Noa is a 91-store shopping center that opened in 1994. Alto Noa is located in the City of Salta, the capital of the Province of Salta, in the northwestern region of Argentina. The province of Salta has a population of approximately 1.2 million inhabitants with approximately 0.6 million inhabitants in the City of Salta. The shopping center has a total constructed area of approximately 30,876 square meters (including parking) which consists of 19,141 square meters of gross leasable area. Alto Noa has a food court with 13 restaurants, a large entertainment center, a supermarket and a multiplex cinema with eight screens. The shopping center occupies one floor and has free parking lot available 551 cars.
 
Alto Noa’s target customer is a middle-income shopper aged 28 to 40.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 609.2 million, which represents annual sales for approximately Ps. 31.827.9 per square meter. Total rental income increased from approximately Ps. 39.3 million in the fiscal year ended June 30, 2012 to Ps. 47.0 million in the fiscal year ended June 30, 2013.
 
 
68
 


As of June 30, 2013, the occupancy rate at Alto Noa was 99.7%.
 
Buenos Aires Design, City of Buenos Aires. Buenos Aires Design is a 62-store shopping center intended for specialty interior, home decorating and restaurants that opened in 1993. Alto Palermo owns Buenos Aires Design through a 53.68% interest in Emprendimiento Recoleta S.A., which owns the concession to operate the shopping center. Buenos Aires Design is located in Recoleta, one of the most popular tourist zones in Buenos Aires City. Buenos Aires Design has a total constructed area of 26,131.5 square meters (including parking) that consists of 13,776 square meters of gross leasable area. The shopping center has 8 restaurants anchored by the Hard Rock Café and a terrace that covers 3,700 square meters. The shopping center is divided into two floors and has a 174-car pay parking lot.
 
Buenos Aires Design’s targeted clientele consists of upper-middle income individuals between the ages of 25 and 45.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 241.5 million, which represents approximately Ps. 17,571.7 per square meter. Total rental income increased from approximately Ps. 36.4 million in the fiscal year ended June 30, 2012 to Ps. 42.4 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Buenos Aires Design was 99.0%.
 
Alto Rosario, Santa Fe, City of Rosario. Alto Rosario is a 146-store shopping center located in the City of Rosario, the third largest city in Argentina in terms of population. It has a total constructed area of approximately 100,750 square meters (including parking), which consists of 27,691 square meters of gross leaseable area. Alto Rosario has a food court with 17 restaurants, a large entertainment center, a supermarket and a Showcase cinema with 14 state-of-the-art screens. The shopping center occupies one floor and has free parking lot available 1,736 cars.
 
Alto Rosario’s targeted clientele consists of middle-income individuals between the ages of 28 and 40.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,060.2 million, which represents a year-on-year growth of 28.5%. Sales per square meter were approximately Ps. 38,288.0. Total rental income increased from approximately Ps. 97.6 million in the fiscal year ended June 30, 2012 to Ps. 123.5 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Alto Rosario was 97.7%.
 
Mendoza Plaza Shopping, Mendoza, City of Mendoza. Mendoza Plaza is a 147-store shopping center which opened in 1992 and is in the City of Mendoza, the capital of the Province of Mendoza. The city of Mendoza has a population of approximately 1.0 million inhabitants, making it the fourth largest city in Argentina. Mendoza Plaza Shopping consists of 42,238 square meters of gross leasable area and has a multiplex cinema covering an area of approximately 3,659 square meters with ten screens, the Chilean department store Falabella, a food court with 21 restaurants, an entertainment center and a supermarket, which is also a tenant. The shopping center has two levels and has free parking lot available 2,600 cars.
 
Mendoza Plaza’s targeted clientele consists of middle-income individuals between the ages of 28 and 40.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,206.7 million, which represents a year-on-year growth of 29.9%. Sales per square meter were approximately Ps. 28,569.4. Total rental income increased from approximately Ps. 81.8 million in the fiscal year ended June 30, 2012 to Ps. 101.4 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Mendoza Plaza Shopping was 97.1%.
 
Córdoba Shopping, Villa Cabrera, City of Córdoba. Córdoba Shopping Villa Cabrera is a 106-store commercial center with a covered area of 35,000 square meters, consisting of 15,106 square meters of gross leasable area located in Villa Cabrera, City of Córdoba. It has a 12-screen movie theatre complex and a parking lot for 1,500 vehicles.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 432.9 million, which represents a year-on-year growth of 27.2%. Sales per square meter were approximately Ps. 28,657.5. Total rental income increased from Ps. 47.1 million in the fiscal year ended June 30, 2012 to Ps. 58.3 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Córdoba Shopping was 100.0%.
 
Dot Baires Shopping, Autonomous City of Buenos Aires. Dot Baires Shopping is a shopping center that was opened in May 2009. It has 4 floors and 3 underground levels, a covered surface area of 173,000 square meters, out of which 49,719 constitute Gross Leasable Area, 153 retail stores, a hypermarket, a 10-screen multiplex movie theater and parking space for 2,200 vehicles.
 
Dot Baires Shopping is located in the Saavedra neighborhood, at the spot where Av. General Paz meets the Panamerican Highway and it is the largest shopping center in the City of Buenos Aires in terms of square meters.
 
As of June 30, 2013, our equity interest in Panamerican Mall S.A. was 80%.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,566.6 million, which represents annual sales for approximately Ps. 31,509.7 per square meter. Total rental income increased from approximately Ps. 150.5 million in the fiscal year ended June 30, 2012 to Ps. 189.3 million in the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Dot Baires Shopping was 99.4%.
 
Soleil Premium Outlet, Greater Buenos Aires. Soleil Premium Outlet is a shopping center that has been managed by us since 2010. As from April 2013, as a result of its refurbishment and reengineering and a strong advertising campaign, it was renamed Soleil Premium Outlet. At present, it has a surface area of 48,313 square meters, 13,609 square meters of which are gross leasable area, and we are authorized to build more than 9,697 square meters. It comprises 75 stores and 2,335 parking spaces.
 
 
69
 


Soleil Premium Outlet is located in San Isidro, Province of Buenos Aires. It opened in Argentina more than 25 years ago and it is the first Premium Outlet in the country.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 366.4 million, which represents period average sales for approximately Ps. 26,922.6 per square meter and a year-on-year growth of 44.2% in invoicing. Total rental income increased from approximately Ps. 34.6 million in the fiscal year ended June 30, 2012 to Ps. 45.0 million for the fiscal year ended June 30, 2013.
 
As of June 30, 2013, the occupancy rate at Soleil Premium Outlet was 100%.
 
La Ribera Shopping, City of Santa Fe. La Ribera Shopping has a surface area of 43,219 square meters, comprising 50 retail stores and a 7 2D and 3D-screen multiplex cinema, the last one was opened in August 2012 with state-of-the-art sound and imaging technology. It also comprises a 510-square meter Cultural Center and 24,553 square meters in outdoor areas and free parking space. Its gross leasable area is approximately 8,378 square meters.
 
The shopping center is strategically located within the Port of Santa Fe, the most developed area in terms of real estate in the City of Santa Fe, 27 km away from the City of Paraná and 96 km away from the City of Rafaela. Its influence area represents a potential market consisting of over one million people.
 
In the fiscal year ended June 30, 2013, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 209.9 million, which represents period average sales for approximately Ps. 25,051.9 per square meter. Total rental income increased from Ps. 3.8 million in the fiscal year ended June 30, 2012 to Ps. 11.9 million during 2013.
 
As of June 30, 2013, the occupancy rate at La Ribera Shopping was 97.7%.
 
Control Systems
 
Alto Palermo has a computer system to monitor tenants’ sales in all of our shopping centers (except Nuevo Puerto Santa Fe) . We also conduct regular manual audits of our tenants accounting sales records in all of our shopping centers. Almost every store in those shopping centers has a point of sale that is linked to a main computer server in the administrative office of such shopping center. We use the information generated from the computer monitoring system for statistics regarding total sales, average sales, peak sale hours, etc., for marketing purposes and as a reference for the processes of internal audit. The lease contracts for tenants in Alto Avellaneda, Alto Palermo, Paseo Alcorta, Patio Bullrich, Buenos Aires Design (only with in respect to agreements signed after its acquisition), Abasto, Alto Rosario Shopping, Alto NOA, Dot Baires, Córdoba Shopping, Soleil and Mendoza Plaza Shopping contain a clause requiring tenants to be linked to the computer monitoring system, there being certain exceptions to this requirement.
 
Related Business
 
Development and Sales of Properties and Land Reserves
 
Residential Development Properties
 
The acquisition and development of residential apartment complexes and residential communities for sale is one of IRSA’s core activities. IRSA’s development of residential apartment complexes consists of the new construction of high-rise towers or the conversion and renovation of existing structures such as factories or warehouses. In connection with the development of residential communities, IRSA frequently acquires vacant land, develops infrastructure such as roads, utilities and common areas, and sells plots of land for construction of single-family homes. It may also develop or sell portions of land for others to develop complementary facilities such as shopping areas within residential developments.
 
In the fiscal year ended June 30, 2013, revenues from the Development and Sales of Properties segment amounted to Ps. 142.0 million, compared to Ps. 162.8 million posted in the fiscal year ended June 30, 2012.
 
Construction and renovation works on IRSA’s residential development properties are currently performed, under our supervision, by independent Argentine construction companies that are selected through a bidding process. IRSA enters into turnkey contracts with the selected company for the construction of residential development properties pursuant to which the selected company agrees to build and deliver the development for a fixed price and at a fixed date. IRSA is generally not responsible for any additional costs based upon the turnkey contract. All other aspects of the construction, including architectural design, are performed by third parties.
 
Another modality for the development of residential undertakings is the exchange of land for constructed square meters. In this way, IRSA delivers undeveloped pieces of land and another firm is in charge of building the project. In this case, IRSA receives finished square meters for commercialization, without taking part in the construction works.
 
The following table shows certain information and gives an overview regarding our sales and development properties as of June 30, 2013 and 2012:
 

 
70
 


 
Developments
  
Date of Acquisition
    
Estimated /Real Cost (in thousands of Ps.) (1)
    
Area intended for sale (sqm)
    
Total Units / Lots (2)
    
IRSA’s Effective Interest
    
Percentage Built
    
Percentage Sold (3)
    
Accumulated Sales (in thousands of Ps.)
    
Accumulated Sales as of June 30, (in thousands of Ps.) (4)
    
Book Value (in thousands of Ps.)
  
                                                   
2013
    
2012
    
2013
  
Residential Apartments
                                                                  
Torres Renoir(10)
  
Sep-99
       22,861       5,383       28       100.00 %     100.00 %     100.00 %     53,940                   -  
Caballito Nuevo(10)
  
Nov-97
       -       67       1       100.00 %     100.00 %     99.07 %     55,401       6,983       9,248       425  
Torres de Rosario (5) (10)
  
Apr-99
       -       2,509       16       95.67 %     100.00 %     60.00 %     14,982       4,262       5,002       3,166  
Libertador 1703/1755 (Horizons) (9)
  
Jan-07
       399,355       44,648       467       50.00 %     100.00 %     100.00 %     241,266       117,090       110,596       19,396  
Other Residential Apartments (6)
     N/A       231,677       138,520       1,438                               310,895       811       371       75,837  
Subtotal Residential Apartments
             653,893       191,127       1,950                               676,484       129,146       125,217       98,824  
                                                                                         
Residential Communities
                                                                                        
Abril/Baldovinos (7) (10)
  
Jan-95
       130,955       5,137       4       100.00 %     100.00 %     99.50 %     238,175       1,113               2,928  
El Encuentro(10)
  
Nov-97
       -       6,628       5       100.00 %     100.00 %     85.00 %     15,180       11,698       10,260       2,705  
Villa Celina I, II and III
  
May-92
       4,742       75,970       219       100.00 %     100.00 %     100.00 %     14,028                       -  
Subtotal Residential Communities
             135,697       87,735       228                               267,383       12,811       10,260       5,633  
                                                                                         
Land Reserves
                                                                                        
Puerto Retiro (10)
  
May-97
               82,051       -       50.00 %     0.00 %     0.00 %     -                       51,337  
Santa María del Plata
  
Jul-97
               715,951       -       100.00 %     0.00 %     10.00 %     -                       222,787  
Pereiraola(10)
  
Dec-96
               1,299,630       -       100.00 %     0.00 %     100.00 %     46,311                       8,215  
Rosario Plot of land (5) (10)
  
Apr-99
               31,000       -       95.67 %     0.00 %     100.00 %     11,072               27,273       7,665  
Baicom Plot of land (10)
  
Dec-09
               34,500       1       50.00 %     0.00 %     0.00 %     -                       4,459  
Pilar
  
Oct-98
               740,237       -       100.00 %     0.00 %     0.00 %     -                       2,208  
Coto Air Space (5)
  
Sep-07
               16,167       284       95.67 %     0.00 %     0.00 %     -                       10,429  
Catalinas Norte Plot of land
  
Dec-09
               42,625       -       100.00 %     0.00 %     100.00 %     -                       109,170  
UOM Lujan
  
Jul-97
               1,176,000                                                               24,598  
Other Land Reserves (8)
  
Dec-96
               13,547,860       -                               2,213       39               21,995  
Subtotal Land Reserves
                     17,686,021       285                               59,596       39       27,273       462,863  
                                                                                         
TOTAL
             789,590       17,964,883       2,463                               1,003,463       141,996       162,750       567,320  
 
                                               
Notes:
                        
(1) Total area intended for sale upon completion of the development or acquisition and before the sale of any of the units (including parking and storage spaces but excluding common areas).
In the case of Land Reserves the land area was considered.
  
(2) Represents the total units or plots upon completion of the development or acquisition (excluding parking and storage spaces).
      
(3) The percentage sold is calculated dividing the square meters sold by the total saleable square meters.
      
(4) Corresponds to the company’s consolidated total sales.
      
(5) Through Alto Palermo S.A.
      
(6) Includes the following properties: Torres de Abasto through APSA (fully sold), units to be received by Beruti through APSA, Torres Jardín,  Edificios Cruceros (fully sold),
San Martin de Tours, Rivadavia 2768, Alto Palermo Park (fully sold), Minetti D (fully sold), Dorrego 1916 (fully sold), Padilla 902 (fully sold), Terreno Caballito and
Lotes Pereiraola through IRSA.
(7) Includes the sales of Abril’s shares.
      
(8) Includes the following land reserves: Terreno Pontevedra, Isla Sirgadero, Terreno San Luis, Mariano Acosta, Merlo and Intercontinental Plaza II through IRSA,
and C.Gardel 3134 (fully sold), C.Gardel 3128 (fully sold), Aguero 596 (fully sold), República Arabe Siria (fully sold), Terreno Mendoza (fully sold),
Zelaya 3102, Conil, Soleil air space and Other APSA (Through APSA)
(9) Owned by CYRSA S.A.
(10) Barter Transactions.
                        

 
71
 

Residential Apartments and Lofts
 
In the residential market, we acquire undeveloped properties strategically located in densely populated areas of the City of Buenos Aires, particularly properties located near shopping centers and hypermarkets or those to be constructed. We then develop multi-building high-rise complexes targeting the middle- and high- income market. These are equipped with modern comforts and services, such as open “green areas,” swimming pools, sports and recreation facilities and 24-hour security. In the loft buildings market, our strategy is to acquire old buildings no longer in use located in areas with a significant middle and upper-income population. The properties are then renovated into unfinished lofts allowing buyers the opportunity to design and decorate them according to their preferences.
 
Apartment Projects Developed
 
Horizons Project, Vicente López, Olivos, Province of Buenos Aires.

The project was developed by IRSA-CYRELA. It is one of the most significant developments in Greater Buenos Aires, featuring a new concept in residential complexes given its emphasis on the use of common spaces. This project includes two complexes with a total of six buildings.
 
As of June 30, 2013, preliminary sales agreements had been executed for 100% of our own units on sale. The Towers located in both blocks are completed.
 
Private Residential Communities
 
In the residential communities market, we acquire undeveloped properties located in suburban areas or neighborhoods near the large cities to develop private neighborhoods and country clubs in which to sell vacant lots for the construction of single family homes. In these properties we build streets and roads and arrange for the provision of basic municipal services and amenities such as open spaces, sports facilities and security. We seek to capitalize on improvements in transportation and communication around the City of Buenos Aires, the growing suburbanization of the region and the shift of the population moving to countryside-type residential communities.
 
An important factor in the trend towards living in suburban areas has been the improvements and additions to the Autopista Panamericana, Avenida General Paz and Acceso Oeste highways, which significantly reduce traveling time, encouraging a significant number of families to move to the new residential neighborhoods. Furthermore, improvements in public train, subway and bus transportation since their privatization have also influenced the trend to adopt this lifestyle.
 
As of June 30, 2013, IRSA's residential communities for the construction of single-family homes for sale in Argentina had a total of 5,137 square meters of saleable area in Abril, and 6,628 square meters of saleable area in “El Encuentro” (Benavidez). Both residential communities are located in the province of Buenos Aires.
 
Abril, Hudson, Greater Buenos Aires.
 
Abril is a 312-hectare private residential community located near Hudson City, approximately 34 kilometers south of the City of Buenos Aires. We have developed this property into a private residential community for the construction of single family homes targeting the upper-middle income market. The project includes 20 neighborhoods subdivided into 1,273 lots of approximately 1,107 square meters each. Abril also includes an 18-hole golf course, 130 hectares of woodlands, a 4,000-square meter mansion and entertainment facilities. A bilingual school, horse stables and sports centers and the construction of the shopping center were concluded in 1999. The neighborhoods have been completed, and as of June 30, 2013, 99.6% of the property had been sold for an aggregate of over Ps. 240 million, with 4 lots (5,137 square meters) available for sale.
 
Land Reserves
 
IRSA has acquired large undeveloped properties as land reserves located in strategic areas for the future development of office and apartment buildings, shopping centers and single family housing. IRSA has acquired what we believe to be two of the largest and most important undeveloped river front plots in Buenos Aires, Puerto Retiro and Santa María del Plata, for the future development of residential and office spaces. In addition, we have benefited from the improvement of land values during periods of economic growth. As of June 30, 2013, our land reserves totaled approximately 1,782 hectares (including the lot in Caballito, and the air space over Coto C.I.C.S.A. - “Coto”- where we hold interests through our subsidiary Alto Palermo).
 
Land Reserves in the City of Buenos Aires
 
Solares de Santa Maria, City of Buenos Aires, (formerly Santa María del Plata). Solares de Santa María is a 70-hectare property facing the Río de la Plata in the south of Puerto Madero, 10 minutes from downtown Buenos Aires. Through our subsidiary Solares de Santa María S.A. (“Solares de Santa María”) we are owners of this property. We intend to develop this property for mixed purposes, i.e. our development project involves residential complexes as well as offices, stores, hotels, sports and sailing clubs, services areas with schools, supermarkets and parking lots.

As part of the project, we have sold 10% of Solares de Santa María capital stock for US$10.6 million to Mr. Israel Sutton Dabbah, who is part of the Sutton Group. An initial payment of US$1.5 million was made and the balance of US$9.1 million was capitalized in September 2010.

In September 2010, we acquired through E-Commerce Latina 100% of the capital stock of Unicity S.A. for an amount of US$ 2.5 million. Unicity capitalized its US$ 9.1 million debt with us and we received in exchange 36,036,000 shares representing 88.61% of Unicity, being held by E-Commerce the remaining 11.39%. Following this transaction, we own 100% of capital stock of Solares de Santa María.

In 1997 we acquired the site which the National Executive Branch had assigned to be the Olympic village of the Olympic Games in case Buenos Aires was chosen as host city to hold the Olympic Games. A rule passed by the Legislative Branch of the City of Buenos Aires in 1992, provided general urban standards to the site, and stated that the “Site urban design” was to be submitted for approval of the Environmental Urban Plan Council (Consejo de Planificación Urbana - “COPUA”). As from the acquisition of this property, we have been seeking the municipal approvals necessary for the development of a mixed project in the area.

In the year 2000, we filed a master plan for the Santa María del Plata site, which was assessed by COPUA and submitted to the Town Treasurer’s Office for its consideration. In 2002, the Government of the City of Buenos Aires issued a notice of public hearing and in July 2006, the COPUA made some recommendations about the project, and in response to the recommendations made by COPUA to the project on December 13, 2006, we filed an amendment to the project to adjust it to the recommendations made by COPUA, making material amendments to our development plan for the Area, which amendments included the donation of 50% of the site to the City of Buenos Aires for public use and convenience and a perimetrical pedestrian lane along the entire site on the river bank.

In March 2007, a committee of the Government of the City of Buenos Aires, composed of representatives from the Legislative and Executive Branches issued a report stating that such Committee had no objections to our development plan and requested that the General Treasury render a decision concerning the scope of the development plan submitted for the project.

In November 2007, 15 years after the Legislative Branch of the City of Buenos Aires granted the general zoning standards for the site, the Government Chief of the City of Buenos Aires executed Decree No. 1584/07, which passed the specific ruling, set forth certain rules for the urban development of the project, including types of permitted constructions and the obligation to assign certain spaces for public use and convenience.

Notwithstanding the approval of Decree No. 1584/07 in 2007, several municipal approvals are still pending and in December 2007, a municipal court rendered a decision restricting the implementation of our proposed development plan, due to objections made by a legislator of the City of Buenos Aires, alleging the suspension of Decree No. 1584/07, and each construction project and/or the municipal permits granted for business purposes. Notwithstanding the legality and validity of the Decree No. 1584/07, we entered into an agreement 5/10 that was executed with the Government of the City of Buenos Aires, which has been sent with a legislative bill to the Legislature of the City of Buenos Aires under number 976-J-2010, for approval. Once approved, these regulations will have the hierarchy of a law.

Puerto Retiro. Puerto Retiro is an 8.2 hectare undeveloped riverside property bounded by the Catalinas and Puerto Madero office zones to the west, the Retiro railway station to the north and the Río de la Plata to the south and east. One of the only two significant privately owned waterfront properties in the City of Buenos Aires, Puerto Retiro may currently be utilized only for port activities, so we have initiated negotiations with municipal authorities in order to rezone the area. Our plan is to develop a 360,000 square meters financial center. The launching date has not been settled and consequently, the estimated cost and financing method are not decided yet. We own a 50% interest in Puerto Retiro.

Caballito lot, Ferro Project. This is a property of approximately 23,791 square meters in the City of Buenos Aires, neighborhood of Caballito, one of the most densely populated of the city, which Alto Palermo purchased in November 1997. This plot would allow developing a shopping center having 30,000 square meters, a hypermarket, a cinema complex, and several recreation and entertainment activity areas. At present, the legislature of the City of Buenos Aires has received a legislative bill to approve the zoning parameters corresponding to this property which already has the consent of the Executive Branch.

Coto Residential Project. Alto Palermo owns approximately 24,000 square meters (includes parking spaces) in air space over the top of the Coto hypermarket that is close to the Abasto Shopping Center in the heart of the City of Buenos Aires.
 
New Projects and undeveloped properties
 
 
72
 
 
Purchase of Nobleza Piccardo’s Plant (through our subsidiary APSA) On December 28, 2012, in compliance with the lease agreement executed upon the acquisition of the site, Nobleza Piccardo partially vacated the property located in the district of San Martín. Quality Invest received approximately 2,100 square meters of offices and 50,300 square meters of industrial units. Pursuant to the agreement, vacation of the remaining surface area is scheduled for May 2014.

On March 20, Quality Invest S.A. completed the payment for the purchase of the site where Nobleza Piccardo’s plant was located. It had been originally agreed that the balance would be payable in three annual consecutive installments of US$ 7.7 million of principal plus interest at a rate of 7.5%. By means of this payment, the installments for 2013 and 2014 were advanced.

PAMSA-Dot Baires Offices (through our subsidiary APSA) Panamerican Mall S.A., a subsidiary of our subsidiary APSA, developed an office building with a gross leasable area of 11,242 square meters adjacent to Dot Baires Shopping. This building was inaugurated in May 2009. As of June 30, 2013 the building’s occupancy rate was 100%, which marks the entrance by the Company into the booming rental office corridor in the northern area of the City of Buenos Aires

DOT Adjoining Plot (ex Philips) (through our subsidiary APSA) On May 3, 2012, the Government of the City of Buenos Aires, through the General Office of Zoning Interpretation (Dirección General de Interpretación Urbanística) approved, through a pre-feasibility study, the parcel subdivision of the Ex-Philips plot contingent upon the observance of the applicable building regulations in each of the resulting parcels. In addition, all the uses and parameters established under the municipal ordinance previously issued by the above mentioned authority are being observed.

On June 3, 2013, we were given notice that the Government of the City of Buenos Aires had approved the requested parcel subdivision of the ex-Philips plot. As a result, the property was divided into three parcels: 2 parcels of approximately 6,400 square meters and a parcel adjoining DOT Shopping of 15,900 square meters intended for the future extension of the shopping center.

Neuquén Project, Province of Neuquén (through our subsidiary APSA). The main asset of the project is a plot of land of approximately 50,000 square meters. The project contemplates the construction of a shopping center, a hypermarket, a hotel and an apartment building.

On June 4, 2012, pursuant to an agreement entered into between Shopping Neuquén S.A. and the Municipality of Neuquén, a new extension was agreed to resume works on the site, following appointment of a new constructor. The new deadlines contemplate the appointment of a constructor and resumption of works. As of June 30, 2013, the works related to the Shopping are in progress.
 
APSA signed an agreement with the Municipality of Neuquén in which APSA committed to construct the whole shopping center in a maximum term of 24 months, these will be counted starting from the date of signature of the act of beginning of works. On June 30, 2013 and 2012 and on July 1, 2011 the amount of the developments in Shopping Neuquén rise to Ps. 36.1, Ps. 9.1 and Ps. 4.5 million, respectively.
 
On June 30, 2013 the contractual obligations corresponds mainly to constructions related with the project above and they rise to Ps. 205 million. The project is estimated to be concluded on September 2014, the project is financed through a syndicated loan subscribed with different bank institutions, for further information see Item 5.b Indebtedness.

Terreno Paraná On June 30, 2009, Alto Palermo S.A. (APSA) executed a letter of intent whereby it stated its intention to acquire a plot of land of approximately 10,022 square meters in the City of Paraná, Province of Entre Ríos, to be allocated to the construction, development and operation of a shopping center or retail space. The purchase price was US$ 0.5 million, out of which US$ 0.05 million were paid as advance payment at the beginning of July 2010, US$ 0.1 million were paid in August 2010, and the remaining US$ 0.35 million will be paid upon the execution of the title deed. The certificate of possession of the plot was executed on December 29, 2012.

Arcos del Gourmet. In December 2011, Alto Palermo started to develop “Arcos” project located in the neighborhood of Palermo, City of Buenos Aires. “Distrito Arcos” will be an open - air space with a variety of premium brands in the exclusive neighborhood of Palermo. APSA expects to open it by the end of 2013 with a high occupancy rate as it has been highly accepted by tenants, with more than 80% of the lease agreements having been executed as of today, almost all of the total clothes an footwear stores among them.

This new retail hub is expected to add approximately 13,000 square meters of gross leasable area and 65 stores to APSA´s portfolio, including one cinema of approximately 800 square meters and more than 1000 square meters directed to restaurant business.

We hope that this new proposal, which will combine a retail and cultural concept, will achieve the success of our latest developments.
 
APSA maintain engagements with the City of Buenos Aires´ Government in order to develop the Arcos del Gourmet project. The amount of the construction as of June 30, 2013 and 2012 rise to Ps. 136.3 million and 17.8 million, respectively. On June 30, 2013 the contractual obligations corresponds mainly to constructions related with the project above and rise to Ps 227.3 million. The project is estimated to be concluded by the end of 2013, the project is financed through a syndicated loan subscribed with different bank institutions, for further information see Item 5.b Indebtedness.

Other Land Reserves

Our portfolio also includes twelve land reserve properties located in the City of Buenos Aires and its surrounding areas. These properties are projected for future developments of offices, shopping centers, apartment buildings and residential communities. The main properties under this category include Merlo, Mariano Acosta, Pilar and Pontevedra. We also own a property in the surroundings of the City of Santa Fe called Isla Sirgadero.
 
Barters Transactions
 
El Encuentro, Benavidez, Tigre. In the district of Benavidez, Municipality of Tigre, 35 kilometers north from downtown Buenos Aires, a 110-hectare gated residential complex known as “El Encuentro” is located, consisting of a total of 527 lots with a total saleable area of 610,785.15 square meters with two privileged front accesses: the main one to Vía Bancalari and the service one to Highway No. 9, allowing an easy way to and from the city. On May 21, 2004 an exchange deed was signed for the original lot whereby DEESA agreed to pay US$ 4.0 million to our subsidiary Inversora Bolívar, of which US$ 1.0 million were paid in cash and the balance of US$ 3.0 million was paid on December 22, 2009, with the transfer of 110 residential plots already chosen, totaling a saleable area of 127,795 square meters. The development of the project is completed and equipped with power supply, water, sewage, effluent treatment plant, public lighting, finished driveways and accesses, buildings, sports facilities, etc.

As of June 30, 2013, after having started its commercialization in March 2010, 109 units had been sold; and 5 units were available for sale.
 
Sale of Pereiraola, Hudson. Pereiraola S.A., owns 130-hectare undeveloped property adjacent to Abril, a private residential community developed by us. On April 21, 2010, IRSA entered into a purchase and sale agreement with a third party by means of which we agreed to sell 100% of Pereiraola S.A.’s capital stock. The purchase price of the transaction was set at US$11.8 million plus VAT, which represented a gain of Ps.21.7 million over book value.

On July 2012, the buyer paid the monetary portion of consideration and, as of June 30, 2013, therefore only delivery of the promised lots is pending.
 
 
73
 
 
To secure payment of the price, the buyer pledged in IRSAs favor its Pereiraola’s shares, which remain in IRSAs custody. Additionally, the buyer created a first-degree mortgage over the property in favor of IRSA

Torre Caballito, City of Buenos Aires. This property, with a surface of 8,404 square meters, is situated in the northern area of Caballito’s residential neighborhood in the City of Buenos Aires. On May 4, 2006, IRSA and KOAD S.A. (“KOAD”), an Argentine developer, entered into an asset exchange agreement valued at US$ 7.5 million pursuant to which it sold to Koad plot number 36 of “Terrenos de Caballito” whereby KOAD has agreed to develop a residential complex called “Caballito Nuevo”, at its costs, consisting of two 34-story towers containing 220 apartments each, consisting of one, two and three bedroom residential units with surface areas ranging from 40 to 85 square meters, totaling approximately 28,000 saleable square meters. The project offers a wide variety of amenities and services. As a result of this transaction, Koad delivered to IRSA 118 apartments and 61 parking lots in the first tower, representing 25% of the total square meters for sale. As of June 30, 2013, 1 apartment and 13 parking spaces were available for sale.

Caballito plot. During fiscal year 2011, IRSA and TGLT executed a barter deed pursuant to which the Company transferred to TGLT under a swap agreement the property detailed in the deed as described below, which has a total surface area of 9,784 square meters: plot of land, designated as Parcel ONE L, in block 35, facing Méndez de Andes street between Rojas and Colpayo streets in the Caballito neighborhood.

In turn, TGLT agreed to carry out in the property a real estate development for residential use. In exchange for the transfer of the property, APSA will receive non-cash considerations equivalent to US$ 12.75 million, which consist in transferring under barter to APSA certain home units in the buildings to be built which will represent 23.1% of the saleable area and 21.1% of the parking spaces area. As security for the transaction, TGLT has granted to IRSA a first-degree mortgage over the property in the amount of US$ 12.75 million.
 
Pursuant to the Barter Deed executed by the parties the units in Tower 1 will be delivered in October 2014, the units in Tower 2 will be delivered in April 2015 and the units in Tower 3 will be delivered in October 2015.
 
Torres Rosario Project, City of Rosario, Province of Santa Fe (through our subsidiary APSA) APSA owns a block of land of approximately 50,000 square meters divided into 8 smaller plots in the City of Rosario, near the Alto Rosario Shopping Center. At June 30, 2011,  2 of the plots had been bartered with Condominios del Alto S.A. (plots 2-G and 2-H).

Condominios del Alto I- (parcel 2-G) The project is composed of two opposite blocks of buildings, commercially divided into 8 sub-blocks. Apartments (97 units) are distributed in 6 floors with parking spaces (98 units) in the basement. Condominios del Alto I’s amenities include a swimming pool with solarium, a multiple use room, sauna, a gym with dressroom and a laundry. Given its excellent location and construction quality, this development is targeted at a medium-high income segment.
As of June 30, 2013, the project had been completed, with 4 apartments, 5 parking spaces and one storage space being available for sale.

Condominios del Alto II – (parcel 2-H) The project will be composed of two opposite blocks of buildings, commercially divided into 10 sub-blocks. The project will include a total of 189 apartments distributed in 6 floors and 195 parking spaces located in two basements. The amenities will include a swimming pool with solarium, a multiple use room, sauna, a gym with dressroom and a laundry.

As of June 30, 2013, works in parcel H were completed, with 12 apartments (1,608 square meters), 24 parking spaces and 2 storage spaces being available for sale.

Beruti Plot of land. During June 2008, IRSA acquired a plot of land located at Beruti 3351/3359, between Bulnes and Avenida Coronel Díaz in Palermo, a neighborhood in the City of Buenos Aires close to our Shopping Center known as “Alto Palermo Shopping”. The transaction involved a surface area of 3,207 square meters for a price of US$ 18.8 million. This has been a significant acquisition because of the strategic location of the property. On October 13, 2010, IRSA and TGLT executed the preliminary purchase agreement whereby IRSA sold the lot. As consideration, we received US$ 10.7 million, 17.33% of the saleable square meters, 15.82% of the residential parking spaces and 170 of the business parking spaces located in the first and second underground levels. As security for the transaction, TGLT delivered the company a performance bond for US$ 4.0 million and a first-degree mortgage in name of IRSA for US$ 8,143,231, over the lot. Delivery is scheduled for November 2013.
 
Hotels
 
At the end of the 1997 fiscal year, IRSA acquired the Hotel Llao Llao, IRSA’s first luxury hotel. Some months later, as part of the acquisition from Pérez Companc of the Old Alto Palermo, IRSA acquired an indirect 50% interest in the Hotel Intercontinental in Buenos Aires which IRSA owns through its subsidiary Inversora Bolívar S.A. In March 1998, IRSA acquired the Hotel Libertador. During the fiscal year 1999, IRSA sold a 20% interest in the Hotel Libertador to Hoteles Sheraton de Argentina S.A., (“Hoteles Sheraton de Argentina”) and during the fiscal year 2000, IRSA sold 50% of its interest in the Hotel Llao Llao to the Sutton Group. During the fiscal year 2007 IRSA increased its share in Inversora Bolivar S.A. by 100% and obtained an indirect share in the Hotel Intercontinental of 76.34%.
 
The following chart shows certain information regarding IRSA’s luxury hotels:
 
Hotels
Date of Acquisition
  
IRSA’s Effective Interest
    
Number of Rooms
    
Average Occupancy Rate
    
Average Price per Room (Ps.)
    
Accumulated Sales as of June 30 (in thousands of Ps.)
    
Book Value (in thousands of Ps.)
  
                             
2013
    
2012
        
Intercontinental (3)
11/01/97
     76.34 %     309       67.9 %     737       87.081       85.977       58,013  
Sheraton Libertador (4)
03/01/98
     80.00 %     200       74.1 %     684       52.089       55.642       33,719  
Llao Llao (5)
06/01/97
     50.00 %     201       54.2 %     1,401       86.666       28.393       88,616  
Terrenos Bariloche (5)
12/01/06
     50.00 %     N/A       N/A       N/A                          
Total
-
     -       710       65.4 %     941       225.836       170.012       180,348  
 
Notes:
(1) Accumulated average in the twelve-month period.
(2) Accumulated average in the twelve-month period.
(3) Indirectly owned through Nuevas Fronteras S.A.
(4) Indirectly owned through Hoteles Argentinos S.A.
(5) Indirectly owned through Llao Llao Resorts S.A.

Hotel Llao Llao, San Carlos de Bariloche, Province of Rio Negro. In June 1997 IRSA acquired the Hotel Llao Llao from Llao Llao Holdings S.A. 50% is currently owned by the Sutton Group. The Hotel Llao Llao is located on the Llao Llao peninsula, 25 kilometers from San Carlos de Bariloche and is one of the most important tourist hotels in Argentina. Surrounded by mountains and lakes, this hotel was designed and built by the famous architect Bustillo in a traditional alpine style and first opened in 1938. The hotel was renovated between 1990 and 1993 and had a total constructed surface area of 15,000 square meters
 
 
74
 
 
and 158 rooms. The hotel-resort also includes an 18-hole golf course, tennis courts, health club, spa, game room and swimming pool. The hotel is a member of The Leading Hotels of the World, Ltd., a prestigious luxury hospitality organization representing 430 of the world’s finest hotels, resorts and spas. The Hotel Llao Llao is currently being managed by Compañía de Servicios Hoteleros S.A., which manages the Alvear Palace Hotel, a luxury hotel located in the Recoleta neighborhood of Buenos Aires. During 2007, the hotel was subject to an expansion and the number of suites in the hotel rose to 201 rooms.
 
Hotel Intercontinental, City of Buenos Aires. In November 1997, IRSA acquired 51% of the Hotel Intercontinental from the Pérez Companc S.A. and during the fiscal year 2007 IRSA increased its share in Inversora Bolivar S.A. by 100% and obtained an indirect share in the Hotel Intercontinental of 76.34%. The Hotel Intercontinental is located in the downtown City of Buenos Aires neighborhood of Monserrat, adjacent to the Intercontinental Plaza office building. Intercontinental Hotels Corporation, a United States corporation, currently owns 24% of the Hotel Intercontinental. The hotel’s meeting facilities include eight meeting rooms, a convention center and a divisible 588 square meters ballroom. Other amenities include a restaurant, a business center, a spa and a fitness facility with swimming pool. The hotel was completed in December 1994 and has 309 rooms. The hotel is managed by the Intercontinental Hotels Corporation.

Hotel Sheraton Libertador, City of Buenos Aires. In March 1998 IRSA acquired 100% of the Hotel Sheraton Libertador from Citicorp Equity Investment for an aggregate purchase price of US$23 million. This hotel is located in downtown Buenos Aires. The hotel contains 193 rooms and 7 suites, eight meeting rooms, a restaurant, a business center, a spa and fitness facilities with a swimming pool. In March 1999, we sold 20% of our interest in the Sheraton Libertador Hotel for US$4.7 million to Hoteles Sheraton de Argentina. The hotel is currently managed by Sheraton Overseas Management Corporation, a United States corporation.
 
Terreno Bariloche, “El Rancho,” San Carlos de Bariloche, Province of Río Negro. On December 14, 2006, through IRSA’s hotel operator subsidiary, Llao Llao Resorts S.A., IRSA acquired a land covering 129,533 square meters of surface area in the City of San Carlos de Bariloche in the Province of Río Negro. The total price of the transaction was US$7.0 million, of which US$4.2 million were paid cash and the balance of US$2.8 million was financed by means of a mortgage to be paid in 36 monthly, equal and consecutive installments of US$0.086 million each. The land is in the border of the Lago Gutiérrez, close to the Hotel Llao Llao in an outstanding natural environment and it has a large cottage covering 1,000 square meters of surface area designed by the architect Ezequiel Bustillo.
 
International Investments
 
Acquisition of companies in the real estate business in the Republic of Uruguay. In the course of the fiscal year 2009 we acquired a 100% ownership interest in Liveck S.A., a company organized under the laws of Uruguay, in exchange for a token consideration. In June 2009, Liveck acquired a 90% stake in the capital stock of Vista al Muelle S.A. and Zetol S.A., two Uruguay-based real estate companies, for US$ 7.8 million. The remaining 10% ownership interest in both companies is held by Banzey S.A. These companies have undeveloped lands in Canelones, Uruguay, close to the capital city of Uruguay, Montevideo.
 
The total purchase price for Zetol S.A. was US$ 7.0 million; there has been a down payment for US$ 2.0 million and it has been agreed that the balance shall be cancelled in 5 installments of US$ 1.0 million each, accruing interest at an annual 3.5% rate on outstanding balances, against the consummated launches of the projected construction or within a maximum term of 93 months counted as from the date of acquisition by us. The sellers may choose to receive, in lieu of cash for the outstanding balances (principal plus interest), ownership over units in the buildings to be constructed in the land owned by Zetol S.A. equivalent to 12% of the total marketable meters to be constructed.
 
The total price for the acquisition of Vista al Muelle S.A. was US$ 0.83 million, as follows: there has been a US$ 0.5 million down payment and it has been agreed that the balance will be cancelled within a maximum term of two years plus an annual 8% interest rate on balances.
 
To secure compliance with the obligations assumed by Liveck in connection with the above-mentioned transactions, Ritelco S.A. has tendered a surety bond to secure 45% of the price balance, interest, and the sellers’ option rights.
 
There is a mortgage over the land bought, which means that the sellers rely on a dual guarantee. As of June 30, 2009, we sold a 50% stake in Liveck to Cyrela Brazil Realty S.A for US$ 1.3 million.
 
Under the agreement for the purchase and sale of Zetol and Vista al Muelle and its respective addenda, Liveck has undertaken to acquire the shareholding held by Banzey (or by Ernesto Kimelman or by an entity owned by him, as applicable) in those companies and Banzey has agreed to sell the shares for the amount in US Dollars or in Uruguayan Pesos, as applicable, that any of them would have effectively contributed to Zetol and Vista al Muelle, until the transaction is consummated.
 
In December 2009, Vista al Muelle acquired a real property for a purchase price of US$ 1.9 million; there has been a US$ 0.3 million down payment and the balance shall be cancelled through the delivery of housing units and/or storefronts to be constructed and equivalent to 12% of a 65.54% portion of the sum of the prices of all the units covered by the Launching Price List for Sector B (the parties have already signed a plat of subdivision to this end).
 
In February 2010, it acquired a real estate for a purchase price of US$ 1.0 million in exchange for a down payment of US$ 0.15 million with the balance to be paid in 3 consecutive and equal installments maturing on December 31, 2011, June 30, 2013 and December 30, 2014 and accruing an annual 3% interest rate on the outstanding balance, payable quarterly and in arrears as from December 31, 2009.
 
On December 17, 2010, we entered into a stock purchase agreement with Cyrela pursuant to which we purchased from Cyrela a 50% interest in Liveck S.A. for US$ 2.7 million. Accordingly, as of June 30, 2012, our interest, through Tyrus, in Liveck is 100%.
 
We intend to carry out an urban project consisting of the construction of apartment buildings to be subsequently sold. The project has been granted the requisite “urban feasibility” status by the Mayor’s Office of the Canelones department and by its local legislature.
 
As of June 30, 2013 the architectural project continues to progress. The local firms involved are Gómez Platero and Kimelman Moraes.
 
Lipstick building, New York, United States. In July 2008, we (through our subsidiaries) acquired a 30% equity interest in Metropolitan, whose principal asset is an office building known as “Lipstick Building”, and the debt related to this asset. The transaction included the acquisition of (i) put rights effective July 2011 over 50% of the interest purchased for a price equal to the amount invested plus interest at rate of 4.5% per annum and (ii) a right of first offering for the acquisition of 60% of the 5% equity interest. The price paid for the transaction was US$ 22.6 million.
 
During the fiscal year 2011, as a result of negotiations successfully undertaken, an agreement was reached to restructure Metropolitan’s debt as follows:
 
(i) the mortgage debt was reduced from US$ 210.0 million to US$ 130.0 million at a Libor rate + 400 basis points, subject to a cap of 6.25% and a 7-year maturity term;
 
(ii) the junior debt, amounting to US$ 45.0 million (excluding accrued interest) was repaid with the payment of US$ 2.25 million; and
 
(iii) the existing ground leases will be maintained under the same terms and conditions as they were granted, in principle for a remaining period of 66 years.
 

 
75
 


This restructuring took place on December 30, 2010. On such date, a principal payment of US$ 15.0 million (previously contributed by us) was made under the new restructured mortgage debt, reducing it from US$ 130.0 million to US$ 115.0 million.
 
Following such closing, we indirectly hold 49% of New Lipstick LLC, a holding company that is owner of Metropolitan, and under the scope of these agreements, we cancelled the put option for 50% of the equity interest initially acquired.
 
The Lipstick Building is a landmark building in the City of New York, located on Third Avenue and 53rd Street in Midtown-Manhattan, New York. It was designed by architects John Burgee and Philip Johnson (Glass House and Seagram Buildings among other remarkable works) and its name is due to its original elliptic form and the redish color of its façade. Its gross leaseable area is around 57,500 square meters distributed in 34 stories.
 
As of June 30, 2013, this building had an occupancy rate of 86.2% generating average revenues above US$ 62.9 per square meters per month.
 
 Building located at 183 Madison Avenue, New York, NY. In December 2010, we, through Rigby 183 LLC (“Rigby 183”), in which we indirectly hold a 49% stake through IMadison LLC (“IMadison”), jointly with otherpartners, acquired a building located at 183 Madison Avenue, Midtown South, Manhattan, New York. This area involves famous and prominent buildings such as, the Empire State Building, the Macy’s Herald Square, and the Madison Square Garden and it also has one of the largest office and store markets, excellent access to transportation, restaurants, stores and entertainment options.
 
The purchased property consists of a pre-war building built in 1925 designed by the architecture firm Warren & Wetmore (the same that designed the Grand Central Terminal of New York).It has 19 office stories for rent and a store on its Ground Floor. The net leaseable area is approximately 22,893 square meters, 3,523 square meters of which correspond to retail storesand 19,677 square meters are offices.
 
The total purchase price was US$ 85.1 million (US$ 3,793 per leaseable square meters) composed of US$ 45.1 million of principal (IMadison contributed US$ 23.5 million) and US$ 40 million under a loan granted by M&T Bank at a rate of 5.01% per annum due in 5 years and a facilities loan for US$ 10 million to carry out the capex and prebuilds program.
 
On November 27, 2012, we increased our interest in Rigby 183 LLC, owner of the Madison 183 building located in Manhattan, to 74.50%, thus consolidating the results of the investment in the company’s statement of income.
 
As of June 30, 2013, the building’s occupancy rate was 98.5%.
 
Supertel Hospitality Inc.
 
In March 2012, through our subsidiary Real Estate Strategies, L.P. in which we hold a 66.8% interest, we have consummated the acquisition of 3,000,000 Series C convertible preferred shares issued by Supertel Hospitality Inc. for a total amount of US$ 30,000,000. Such preferred shares will bear an annual 6.25% preferred dividend and will carry the same voting rights as common shares.
 
In addition and subject to certain restrictions, it will be convertible into common shares at the rate of ten shares for each preferred share for a term of 5 years.Furthermore, pursuant to the has aforementioned acquisition we have received warrants to acquire 30 million additional common shares, that, subject to certain restrictions, can be exercised at any time during the 5-year period from closing of the transaction (such exercise being mandatory under certain conditions following 3 years from such closing) at a price of US$ 1.20 per share.Pursuant to the investment agreements, we are entitled to appoint up to 4 directors of 9 directors and to exercise preemptive rights over future issues of shares. As of the date hereof, we hold voting rights in respect of a 34% interest in Supertel Hospitality Inc. Likewise, exercise of the rights of conversion into common shares under both the preferred shares and warrants is limited to the same percentage.
 
 Investment in Hersha Hospitality Trust. Hersha’s portfolio of hotels comprises majority stakes in 56 hotels and ownership interests in 8 hotels through joint ventures. These hotels are all within the "select service" and "upscale hotels" categories. In the aggregate, Hersha’s 64 hotels represent over 9,221 rooms and are mainly located in Arizona, California, Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, North Caroline, Pennsylvania, Rhode Island and Virginia. The properties are operated under highly prestigious, leading franchises (such as Marriott ®, Courtyard by Marriott ®, Residence Inn ®, Fairfield Inn ®, Springhill Suites ®, TownePlace Suites ®, Hilton ®, Hilton Garden Inn ®, Hampton Inn ®, Homewood Suites ®, Hyatt Summerfield Suites ®, Holiday Inn ®, Holiday Inn Express ®, Comfort Inn ®, Mainstay Suites ®, Sleep Inn ®, Sheraton Hotel ®, and Hawthorn Suites ®)). Hersha also operates some of its hotels through independent boutique hotel chains.
 
On August 4, 2009, through Real Estate Investment Group L.P. (“REIG”), a company indirectly controlled and managed by us, together with other minority investors, we acquired 5.7 million common shares of Hersha, a leading company in the hotels segment in the United States, for a total purchase price of US$ 14.3 million. Accessorily to the initial acquisition of our equity interest in Hersha, we have an option to buy up to 5.7 million additional common shares in Hersha at a price of US$ 3.00 per share exercisable at any time prior to July 31, 2014 subject to certain conditions. In addition, as a part of the investment agreements, our Director and Chief Real Estate Business Officer, Mr. Daniel R. Elsztain, was appointed member of the board of trustees of Hersha.
 
In January 2010, we acquired 4.8 million additional shares for a total price of US$ 14.4 million, increasing our stake in Hersha to 10.3%. In turn, on March 24, 2010, Hersha resolved upon a capital increase whereby it issued 27,600,000 Class A common shares. In connection with this increase we exercised our preemptive subscription rights granted under the initial transaction and acquired 3,864,000 additional Class A common shares for a price per share of US$ 4.25, for a total amount of US$ 16.4 million. In October 2010, under the scope of the new issue of capital, we acquired 2,952,625 Class A common shares, at a price per share of US$ 5.8 for a total amount of US$ 17.1 million. Then, during this fiscal period, we sold a total of 2,542,379 Class A common shares, at a weighted average price of US$ 5.63 for a total amount of US$ 14.3 million. Therefore, as of June 30, 2011, our interest in Hersha amounted to 9.2%.
 
On February 10, 2012, Hersha gave notice to REIG of exercise of its call option for 5,700,000 shares in Hersha granted in August 2009 under the agreements executed in due course. Therefore, Hersha issued 2,521,561 shares and REIG was not required to pay any price. The price of the shares is US$ 13.6 million. In addition, pursuant to the investment agreements, we have a representative in Hersha’s Board of Trustees, which is currently composed of nine members.
 
During the fiscal year 2013, IRSA sold 17,105,629 ordinary shares of Hersha for a total amount of US$ 92.5 million. Consequently, as of the date of issuance of this consolidated financial statements, the company interest in Hersha’s capital stock decreased from 9.13% (at the beginning of this year) to 0.49%. At present, IRSA holds a residual interest of 1,000,000 common shares.
 

Office and Other
 
Overview
 
Offices and Other Rental Properties
 
Our subsidiary IRSA is engaged in the acquisition, development and management of Offices and other non-shopping center rental properties in Argentina. As of June 30, 2013, it directly and indirectly owned interests in office and other rental properties in Argentina, which comprised 205,273 square meters of gross leaseable area. Out of these properties, 12 were office properties, which comprised 131,085 square meters of gross leaseable area. For the fiscal year 2013, IRSA had revenues from Offices and other non shopping centers rental properties of Ps. 291.1 million.
 
All our office rental property in Argentina is located in Buenos Aires City. For the year ended June 30, 2013, the average occupancy rate for all our properties in the Offices and Other segment was approximately 97.1%.
 
 
76
 
 
Management
 
Our subsidiary IRSA generally acts as the managing agent of the office properties in which we own an interest. These interests consist primarily of the ownership of entire buildings or a substantial number of floors in a building. The buildings in which we own floors are generally managed pursuant to the terms of a condominium agreement that typically provides for control by a simple majority of the interests (based on the area owned) in the building. As the managing agent of operations, IRSA is responsible for handling services, such as security, maintenance and housekeeping. These services are generally outsourced. The cost of the services is passed-through and paid for by the tenants, except in the case of units not rented, in which case we absorb the cost. The leaseable space is marketed through commissioned brokers, the media and directly by IRSA.
 
Leases
 
Our subsidiary IRSA usually leases offices and other rental properties by using contracts with an average term of three years, with the exception of a few contracts with terms of five years. These contracts are renewable for two or three years at the tenant’s option. Contracts for the rental of office buildings and other commercial properties are generally stated in U.S. dollars, and in accordance with Argentine law they are not subject to inflation adjustment. Rental rates for renewed periods are negotiated at market value.
 
Properties.
 
The following table sets forth certain information regarding our direct and indirect ownership interest in office and other non-shopping center rental properties:
 
   
Date of Acquisition
    
Gross Leaseable Area (sqm) (1)
    
Occupancy Rate (2)
    
IRSA’s Effective Interest
    
Monthly Rental Income
(in thousands of Ps.) (3)
    
Annual Accumulated Rental Income over Fiscal Years ended June 30, (in Thousand of Ps.)
    
Book Value
(in thousands of Ps.)
  
                                 
2013
    
2012
        
Offices
                                                
República Building
  
04/28/08
       19,884       95,2 %     100 %     2,988       45,381       36,716       206,927  
Bankboston Tower
  
08/27/07
       14,873       96,4 %     100 %     2,277       34,181       30,233       143,328  
Bouchard 551
  
03/15/07
       12,081       100 %     100 %     1,965       42,740       39,626       97,252  
Intercontinental Plaza
  
11/18/97
       22,535       100 %     100 %     2,739       43,566       35,296       82,666  
Bouchard 710
  
06/01/05
       15,014       100 %     100 %     2,404       32,825       26,309       85,679  
Dique IV, Juana Manso 295
  
12/02/97
       11,298       94,4 %     100 %     1,657       23,262       20,405       61,973  
Maipú 1300
  
09/28/95
       9,399       97,3 %     100 %     1,238       21,359       19,036       40,190  
Libertador 498
  
12/20/95
       620       100 %     100 %     241       3,077       5,256       4,275  
Suipacha 652/64
  
11/22/91
       11,453       89,9 %     100 %     809       11,672       9,877       15,446  
Madero 1020
  
12/21/95
       101       100 %     100 %     2       24       31       215  
Dot Building (7)
  
1             01/28/06
       11,242       100 %     96 %     1,125       18,660       12,673       102,155  
Other Offices (4)
     -       2,585       89,4 %     N/A       210       2,652       8,655       5,629  
Subtotal Offices
             131,085       97,1 %     N/A       17,655       279,399       244,113       845,735  
                                                                 
Other Properties
                                                                
Commercial Properties (5)
     -       274       -       N/A       -                       771  
Santa María del Plata S.A.
  
07/10/97
       60,100       100 %     100 %     129       3,804       1,594       12,495  
Predio San Martín
  
05/31/11
       13,814       100 %     50 %     931       7,117       8,150       10,567  
Other Properties(6)
  
12/17/09
                                       803       115       8,763  
Subtotal Other Properties
             74,188       100 %     N/A       1,060       11,724       9,859       32,596  
                                                                 
Total Offices and Other
             205,273       98,0 %     N/A       18,715       291,123       253,972       878,331  

Notes:
(1) Total leaseable area for each property as of June 30, 2013. Excludes common areas and parking.
(2) Calculated dividing occupied square meters by leaseable area as of June 30, 2013.
(3) Agreements in force as of 06/30/13 for each property were computed.
(4) Includes the following properties: Av. de Mayo 595, Rivadavia 2774, Costeros Dique IV.
(5) Includes the following properties: Constitución 1111.
(6) Includes the following properties: Constitución 1159.
(7) Through Alto Palermo S.A. – The building has income as from August 2010.
 
The following table shows a schedule of the lease expirations of our office and other properties for leases outstanding as of June 30, 2013, assuming that none of the tenants exercise renewal options or terminate their lease early. Most tenants have renewal clauses in their leases.
 
Fiscal Year of lease
expiration
  
Number of
Leases expiring
    
Surface area subject
to expiring leases (sqm)
    
Percentage ot total surface area subject
to expiration
    
Annual rental income
under expiring leases
(thousands of Ps.)
    
Percentage of
Total rental Income under
expiring leases (%)
  
2013
     16       29,774       15 %     19,375       9 %
2014
     52       69,800       35 %     86,724       39 %
2015
     46       41,195       20 %     66,722       30 %
2016+
     44       60,758       30 %     49,979       22 %
Total
     158       201,527       100 %     222,800       100 %

 
*Includes Offices which contract has not been renewed as of June 30, 2013.
*Does not include vacant leased square meters.
*Does not include square meters or revenues from parking spaces.

The following table shows our offices occupancy percentage(1) as of the end of the fiscal years ended June 30, 2013 and 2012:
 
 
77
 

   
Occupancy Rate Fiscal Year ended June 30,
  
    FY 2013     FY 2012  
Offices
            
Edificio República
     95.2 %     90.0 %
Torre Bankboston
     96.4 %     96.0 %
Bouchard 551
     100.0 %     100.0 %
Intercontinental Plaza
     100.0 %     100.0 %
Bouchard 710
     100.0 %     100.0 %
Dique IV, Juana Manso 295
     94.4 %     92.0 %
Maipú 1300
     97.3 %     98.0 %
Libertador 498
     100.0 %     100.0 %
Suipacha 652/64
     89.9 %     90.0 %
Madero 1020
     100.0 %     0.0 %
DOT Building
     100.0 %     100.0 %
Others (2)
     97.1 %     88.0 %
 
(1)Leased surface area in accordance with agreements in effect as of June 30, 2013 and 2012 considering the total leaseable office area for each year.
(2)Includes the following properties: Madero 942 (fully sold), Av. de Mayo 595, Av. Libertador 602 (fully sold), Rivadavia 2774, Sarmiento 517, Dock del Plata (fully sold), Edificio Costeros (fully sold), Laminar (fully sold) and Reconquista 823/41 (fully sold).

The following table sets forth the annual average income per square meter for our offices during the fiscal years ended June 30, 2013 and 2012.


Annual Average income per square meter Fiscal year ended June 30,

   
2013
(Ps./sqm)
    
2012
(Ps./sqm)
    
Var
  
Offices
                  
Intercontinental Plaza
     2,282       1,847       23.6 %
Bouchard 710
     2,298       2,033       13.0 %
Bouchard 557
     2,033       1,695       19.9 %
Libertador 498
     1,933       1,566       23.4 %
Maipú 1300
     2,186       1,752       24.8 %
Madero 1020
     2,059       1,806       14.0 %
Suipacha 652/64
     2,078       1,852       12.2 %
Costeros Dock IV
     4,963       2,122       133.9 %
Torre Bankboston
     1,019       862       18.2 %
Edificio República
     238       -       -  
Dique IV, Juana Manso 295
     1,660       1,127       47.3 %
Dot Building
     894       3,878       (76.9 %)
Others (2)
     2,282       1,847       23.6 %
 
(1)  
Calculated considering annual leases to total leaseable office area, in accordance with our percentage of ownership in each building.
(2)  
Includes the following properties: Madero 942 (fully sold), Av. de Mayo 595, Av. Libertador 602 (fully sold), Rivadavia 2774, Sarmiento 517, Dock del Plata (fully sold), Edificio Costeros (fully sold), Laminar (fully sold) and Reconquista 823/41 (fully sold).


Additional Information About IRSA’s Office Properties
 
Below you will find information regarding IRSA’s principal currently owned office properties, including the names of the tenants occupying 5% or more of the gross leasable area of each property.
 
Edificio República, City of Buenos Aires. This property, which was designed by the renowned architect César Pelli (who also designed the World Financial Center in New York and the Petronas Towers in Kuala Lumpur) is a unique premium office building in downtown Buenos Aires and adds approximately 19,884 gross leaseable square meters to our portfolio distributed in 20 floors. The main tenants include Apache Energía, Deutsche Bank, Estudio Beccar Varela, BASF Argentina S.A., Enap Sipetrol Argentina S.A. and Facebook.
 
Torre Bank Boston, City of Buenos Aires. The Bank Boston tower is a modern office building in Carlos Maria Della Paolera 265 in the City of Buenos Aires. Having been designed by the renowned architect Cesar Pelli, it has 31,670 square meters in gross leasable area. We have a 48.5% ownership interest in the building. At present, its main tenants are Exxon Mobile and Kimberly Clark de Argentina.
 
Bouchard 551, City of Buenos Aires. Bouchard 551, known as “Edificio La Nación”, is an office building we acquired in March 2007, located in the Retiro area close to the intersection of the Leandro N. Alem and Córdoba avenues and opposite Plaza Roma. The building is a 23-story tower covering a surface area of 2,900 square meters in the low floors that becomes smaller as it goes higher up to 900 square meters approximately, and parking for 177 units. We have approximately 12,100 leaseable square meters in the building and our main tenants include Price Waterhouse & Co., AS. EM. S.R.L.
 
On September 19, 2012, we sold 2,384 square meters from two floors of offices with their parking lots, at approximately USD/sqm 3,570. On July 2, 2013, we sold three floors of offices (8,481 square meters) and 56 parking spaces at approximately USD/sqm 3,250.
 
Intercontinental Plaza, City of Buenos Aires. Intercontinental Plaza is a modern 24-story building located next to the Intercontinental Hotel in the historic neighborhood of Monserrat in downtown City of Buenos Aires. We own the entire building, which has floors averaging 900 square meters with 324 parking spaces. The principal tenants currently include Total Austral S.A., Danone Argentina S.A., IRSA, Alto Palermo, Cognizat Technology Solutions de Argentina S.A. and Industrias Pugliese S.A..
 
Dique IV, Juana Manso 295, Puerto Madero, City of Buenos Aires. About mid-May 2009 we completed an office building located in Puerto Madero’s Dock IV. It is a luxury building with a leaseable area of approximately 11,298 square meters composed of large and versatile spaces. Its lay-out is optimum both for companies that require smaller office space at an average 200 square meters and for corporations that need the entire floor. The building has nine office stories and retail stores in the first story. The main tenant in the building is Exxon Mobile.
 

 
78
 


Bouchard 710, City of Buenos Aires. Bouchard 710 is an office building acquired by us in June 2005, located in the Retiro area. The building is a 12-story tower, with an average area per floor of 1,251 square meters, with 180 units for car parking. Tenants are Sibille S.C. (KPMG), and Microsoft de Argentina S.A., Samsung Electronics Argentina S.A., Energy Consulting Services S.A. and Chubb Argentina de Seguros S.A.
 
Maipú 1300, City of Buenos Aires. Maipú 1300 is a 23-story office tower opposite Plaza San Martín, a prime office zone facing Avenida del Libertador, an important north-to-south avenue. The building is also located within walking distance of the Retiro commuter train station, the city’s most important public transportation hub, connecting rail, subway and bus transportation. We own 9,400 square meters, with an average area per floor of 440 square meters. The building’s principal tenants currently include Allende & Brea, Verizon Argentina S.A., PPD Argentina S.A. and TV Quality SRL.
 
Libertador 498, Ciudad de Buenos Aires. Libertador 498 is a 27-story office tower at the intersection of three of the most important means of access to the city. This location allows for easy access to the building from northern, western and southern Buenos Aires. We are owners of 4 stories with an average area per floor of 620 square meters and of 137 parking spaces. This building features a unique design in the form of a cylinder and a highly visible circular lighted sign at the top which turn it into a landmark in the Buenos Aires skyline. The main tenants include Sideco Americana S.A., Goldman Sachs Argentina LLC, Empresa Argentina de Soluciones Satelitales S.A., Japan Bank for the International Cooperation, Gates Argentina S.A., Kandiko S.A. and Allergan Productos Farmacéuticos S.A.
 
During the Fiscal Year 2013, IRSA sold all but 1,857 square meters of this building.
 
Edificios Costeros, Dique IV, City of Buenos Aires. On August 29, 2001, we signed the deed of purchase of “Section C” of the office complex known as Puerto del Centro that includes buildings “5” and “6.” The property is located in the Puerto Madero area and has approximately 5,500 square meters of gross leaseable area and 50 parking spaces. The building’s principal tenants currently include Nextel Argentina S.A., Celistics S.A., London Supply S.A.C.I.F.I., Banco Río de la Plata S.A. and Escuela Argentina de Marketing S.A. On June 15, 2012, we sold 4,703 square meters in built office space with 46 parking spaces and 4 supplementary storage spaces. The transaction price was Ps. 69.0 million. On January 8, 2013 we sold two functional units, two parking spaces and a storage space totaling 381 square meters at Ps. 9.2 million.
 
Suipacha 652/64, City of Buenos Aires. Suipacha 652/64 is a 7-story office building located in the office district of the city. We own the entire building and 70 parking spaces. The building has unusually large floors, most measuring 1,580 square meters. This property underwent substantial renovations shortly after we acquired the deed in 1991 to prepare the building for rental. The building’s principal tenants currently include Gameloft Argentina S.A., Monitor de Medios Publicitarios S.A, Organización de Servicios Directos Empresarios (OSDE) and Alto Palermo’s subsidiary, Tarshop S.A.
 
PAMSA-Dot Baires Offices. Panamerican Mall S.A., a subsidiary of our subsidiary APSA, developed an office building with a gross leaseable area of 11,241 square meters adjacent to Dot Baires Shopping. This building was opened in July 2010, which means our landing in the booming rental office corridor in the northern area of the City of Buenos Aires. As of June 30, 2012 the building’s occupancy rate was 100%. The principal tenants include General Electric International Inc., Metrogames, Mallinckrodt Medical Arg. Limited, Carrier and Boston Scientific Argentina S.A.
 
Other office properties. We also have interests in other office properties, all of which are located in the City of Buenos Aires. These properties are either entire buildings or floors in buildings. These properties include Suipacha 664 and Av. de Mayo 589.
 
Retail and other properties. Our portfolio of rental properties as of June 30, 2013 includes 5 non-shopping center leaseable properties that may be leased as shops on streets, a lot in industrial premises, undeveloped plots of land or other properties for various uses. Most of these properties are located in the City of Buenos Aires, although some are located in other cities in Argentina. These properties include Constitución 1111, Solares de Santa María, Constitución 1159, Madero 1020 and Rivadavia 2774.
 
Terreno Catalinas Norte. On May 26, 2010, jointly with the Government of the City of Buenos Aires, we executed a deed of conveyance of title whereby we acquired a property located at Avenida Eduardo Madero 150, between Av. Córdoba and San Martín. The total price of the transaction was fixed in the amount of Ps. 95 million, Ps. 19 million of which were paid upon the execution of the preliminary sales agreement (on December 17, 2009), whereas the balance of Ps. 76 million was paid upon the execution of the deed on May 26, 2010.
 
IRSA’s Investment in Banco Hipotecario
 
As of June 30, 2013, we owned approximately 29.77% of Banco Hipotecario which represented 8.31% of our consolidated assets as of such date. Established in 1886 by the Argentine government and privatized in 1999, Banco Hipotecario has historically been Argentina’s leading mortgage lender, provider of mortgage-related insurance and mortgage loan services. All of its operations and customers are located in Argentina where it operates a nationwide network of 56 branches and 16 sales offices. Additionally, its subsidiary Tarshop S.A. has 31 sales offices.
 
Banco Hipotecario is a full-service commercial bank offering a wide variety of banking activities and related financial services to individuals, small-and medium-sized companies and large corporations. As of June 30, 2013, Banco Hipotecario ranked eleventh in the Argentine financial system in terms of shareholders’ equity and thirteenth in terms of total assets. As of June 30, 2013, Banco Hipotecario’s shareholders’ equity was Ps.3,608.3 million, its consolidated assets were Ps.17,340.4 million, and its net income for the twelve-month period ended June 30, 2013 was Ps.339.1 million. Since 1999, Banco Hipotecario’s shares have been listed on the Buenos Aires Stock Exchange in Argentina, and since 2006 it has had a Level I GDR program.
 
Banco Hipotecario’s business strategy is focused on leveraging its financial position and developing a diversified banking business built on its existing mortgage franchise. Since its debt restructuring in 2004, it began to make progress in this diversification strategy, growing its lending business and developing new business lines, implementing integrated technological solutions to enable its entry into retail banking, extending its marketing network and creating back-office services to support its new operations.
 
As part of its business diversification strategy, Banco Hipotecario expanded its products offering personal loans, mortgages and asset-backed loans. It also expanded its corporate loan product offerings and implemented certain customer loyalty strategies. In response to demand for retail and wholesale time deposits and savings accounts, Banco Hipotecario expanded its deposit base offering personal checking accounts and launched the Visa Banco Hipotecario credit card which has steadily grown in terms of market penetration and transaction size. Banco Hipotecario also continued its strategy of expanding the offering of non-mortgage related insurance products, including combined family, life, unemployment, health, personal accident and ATM theft insurance.
 
Banco Hipotecario seeks to achieve a balanced portfolio of mortgage loans, consumer financing and corporate credit lines, while maintaining an adequate risk management policy. As of June 30, 2013, its portfolio of non-mortgage loans represented 80.3% of its total loan portfolio, compared to 79.5% as of June 30, 2012.
 
During the fiscal year ended June 30, 2013, Banco Hipotecario also experienced continued growth in deposits, including savings accounts and time deposits.
 
The following table sets forth Banco Hipotecario’s sources of funding as of the dates indicated.
 

 
79
 


   
As of June 30,
    
% Change
  
   
2013
    
2012
       2013/2012  
   
(in millions of Pesos, except for percentages) (2)
  
Deposits
     8,978.1       6,943.2       29.3 %
Bonds(1) 
     2,291.7       1,984.0       15.5 %
Repo
     -       90.5       (100 %)
Borrowings from Central Bank
     -       6.9       (100 %)
Borrowings from bank and international entities
     393.0       550.9       (28.7 )%
Total
     11,662.8       9,575.5       30.1 %

 
(1)  
Excludes accrued interest.
 
(2)  
Consolidated information.
 
On October 10, 2012 Banco Hipotecario paid dividends for the total amount of Ps. 100 million, corresponding to the dividends approved on April, 2011 by the shareholder meeting.
 
On August 23, 2013 the Ordinary General Shareholders’ Meeting resolved to distribute Ps. 30 million of cash dividends on ordinary shares. This decision has been approved by BCRA.
 
Seasonality
 
IRSA’s “shopping centers” business unit is subject to strong seasonality. During the summer holiday season (January and February) IRSA’s tenants experience their minimum sales levels, compared to the winter holiday season (July) and December (Christmas) when IRSA’s tenants tend to reach their peak sales figures. Clothes and footwear tenants tend to change their collections in the spring and fall. This has a positive effect on the sales of stores. Discount sales at the end of each season also have a major impact on our business.
 
Competition
 
Office and Other
 
Substantially all of our office and other non-shopping center rentals are located in developed urban areas. There is a great number of 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 as well as the sale and rental price of the properties.
 
In the future, both national and foreign companies may participate in Argentina’s real estate development market, competing with us for business opportunities. Moreover, in the future we may participate in the development of real estate in foreign markets, potentially encountering well established competitors.
 
Shopping centers
 
Because most of our shopping centers are located in developed and highly populated areas, there are competing shopping centers within, or in close proximity to, our targeted areas. The number of shopping centers in a particular area could have a material effect on our ability to lease space at our shopping centers and on the amount of rent that we are able to charge. We believe that due to the limited availability of large plots of land and zoning restrictions in the City of Buenos Aires, it will be difficult for other companies to compete with us in areas through the development of new shopping center properties. Our principal competitor is Cencosud S.A. which owns and operates Unicenter shopping center and the Jumbo hypermarket chain, among others.
 
The following chart shows certain information relating to the most important owners and operators of shopping centers in Argentina:
 
Company
Shopping Center
Location (1)
  
Gross Leaseable Area
    
Stores
    
National GLA Percentage (2)
    
Stores Percentage (2)
  
APSA
                            
 
Abasto de Buenos Aires
CABA
     41,440       175       2.26 %     2.77 %
 
Alto Palermo Shopping
CABA
     18,690       146       1.12 %     2.31 %
 
Buenos Aires Design (3)
CABA
     13,746       61       0.82 %     0.97 %
 
Dot Baires Shopping
CABA
     49,719       153       2.98 %     2.42 %
 
Paseo Alcorta (4)
CABA
     52,791       109       0.85 %     1.73 %
 
Patio Bullrich
CABA
     11,683       82       0.70 %     1.30 %
 
Córdoba Shopping (4)
Córdoba
     22,088       105       0.91 %     1.66 %
 
Alto Avellaneda (4)
GBA
     67,897       140       2.21 %     2.22 %
 
Mendoza Plaza Shopping (4)
Mendoza
     42,238       147       2.53 %     2.33 %
 
Alto Rosario
Rosario
     39,952       146       1.66 %     2.31 %
 
Alto Noa (4)
Salta
     19,141       91       1.15 %     1.44 %
 
La Ribera Shopping
Santa Fe
     8,378       50       0.50 %     0.79 %
 
Soleil (4)
GBA
     24,109       75       0.82 %     1.19 %
 
Subtotal
       411,872       1,480       18.51 %     23.44 %
  Cencosud S.A.(4)
       617,924       1,438       37.07 %     22.75 %
  Other Operators
       741,295       3,396       44.45 %     53.82 %
  Total
       1,771,091       6,314       100 %     100 %
 
(1)       “GBA” means Greater Buenos Aires, the Buenos Aires metropolitan area, and “CABA” means the Autonomous City of Buenos Aires.
(2)       Percentage over total shopping centers in Argentina. Figures may not sum due to rounding.
(3)       The effective interest held by Alto Palermo S.A., the company that operates the concession of this building, is 53.684% in ERSA.
(4)       Includes total leaseable area occupied by supermarkets and hypermarkets.

Source: Argentine Chamber of Shopping Centers.
 

 
80
 


Development and sale of properties
 
A large number of companies are currently competing with us in the development and sale of properties in Argentina, as this segment is highly fragmented. In addition, there is a substantial supply of comparable properties in the vicinity of our developed properties which may adversely affect our ability to sell our developed properties at prices that generate a positive return on our investment.
 
Hotels
 
We own three luxury hotels in Argentina which are managed through strategic alliances by international operators including Sheraton Overseas Management Corporation, Intercontinental Hotels Corporation and the local operator Compañía de Servicios Hoteleros S.A. which manages the Hotel Alvear. The Hotel Llao Llao is unique for its landscape and beauty, and our other two hotels, Hotel Intercontinental and Hotel Sheraton Libertador, are located in the City of Buenos Aires. We compete with many other leading luxury hotels in the City of Buenos Aires including, among others: Abasto Plaza, Alvear Palace, Caesar Park, Claridge, Emperador, Feir’s Park, Four Seasons, Hilton, Loi Suites, Marriot Plaza, Meliá, NH City, Panamericano, Sheraton, Sofitel, Madero, MayFlower, Etoile, Faena, and Regal Pacific.
 
IRSA’s Regulation and Government Supervision of its Real Estate Business
 
The laws and regulations governing the acquisition and transfer of real estate, as well as municipal zoning ordinances and environmental regulations among others, are applicable to the development and operation of IRSA’s properties.
 
Currently, Argentine law does not specifically regulate shopping center lease agreements. Since IRSA’s shopping center leases generally differ from ordinary commercial leases, IRSA has created standard provisions which govern the relationship with its shopping center tenants.
 
Leases
 
Argentine law imposes certain restrictions on property owners, including:
 
•
a prohibition to include price adjustment clauses based on inflation increases in lease agreements; and
•
the imposition of a three-year minimum lease term for retail property, except in the case of stands and/or spaces in markets and fairs.
 
Although IRSA’s lease agreements were U.S. dollar-denominated, Executive Branch Decree No. 214/2002, Executive Branch Decree No.762/2002 and Law No. 25,820 that amended the Public Emergency Law, provided that monetary obligations in force as of January 7, 2002 arising from agreements governed by private law and which provided for payments in U.S. dollars were subject to the following rules:
 
      •     financial obligations were to be paid in Pesos at the exchange rate of Ps.1.00 = US$1.00 plus the CER for commercial leases;
 
•
from October 1, 2002 until March 31, 2004 for residential leases, the obligations where the tenant is an individual and the dwelling is used as the family residence of permanent use were to be paid in Pesos at the exchange rate of Ps.1.00 = US$1.00 plus the CVS;
•
if due to the application of these provisions, the amount of the installment were higher or lower than the amount at the moment of the payment, any of the parties could require an equitable adjustment of the price. If the parties did not reach an agreement, the judicial courts could decide on a case by case basis; and
•
pursuant to Executive Branch Decree No. 117/2004 and Law No. 25,796 that amends Law No. 25,713, the CVS became unenforceable since April 1, 2004.
 
Under the Argentine Civil Code and Lease Law No.23,091, lease terms may not exceed ten years, except for leases regulated by Law No. 25,248 (which provides that real estate leases containing purchase options –leasing inmobiliario- are not subject to term limitations). Generally, terms in IRSA’s lease agreements go from 3 to 10 years.
 
Despite this restriction, in November 2007, the Courts authorized IRSA’s subsidiary Alto Palermo to enter into a lease agreement with Wal Mart Argentina S.R.L. for a term of 30 years. This exception was authorized taking into consideration the size of the investment required and the time necessary to recoup this investment.
 
Lease Law No. 23,091, as amended by Law No. 24,808 provides that tenants may rescind commercial lease agreements after the first six months by sending a written notice at least 60 days before the intended termination date of the contract. Such rescission is subject to penalties which range from one to one and a half months of rent. If the tenant rescinds during the first year of the lease the penalty is one and a half month’s rent and if the rescission occurs after the first year of lease the penalty is one month’s rent.
 
While current Argentine government policy discourages government regulation of lease agreements, there can be no assurance that additional regulations will not be imposed in the future by the Argentine Congress, including regulations similar to those previously in place. Furthermore, most of our leases provide that the tenants pay all costs and taxes related to the property in proportion to their respective leasable areas. In the event of a significant increase in the amount of such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby negatively affecting our rental income. The Argentine Civil and Commercial Procedure Code enables the lessor to pursue what is known as an “executory proceeding” upon lessees failure to pay rent. In executory proceedings debtors have fewer defenses available to prevent foreclosure, making these proceedings substantially shorter than ordinary ones. In executory proceedings the origin of the debt is not under discussion; the trial focuses on the debt instrument itself. The aforementioned code also permits special eviction proceedings, which are carried out in the same way as ordinary proceedings. The Argentine Civil Code enables judges to summon tenants who fall two months in arrears to vacate the property they are renting within 10 days of having received notice to such effect. However, historically, large court dockets and numerous procedural hurdles have resulted in significant delays to eviction proceedings, which generally last from six months to two years from the date of filing of the suit to the time of actual eviction.
 

 
81
 
 
Development and Land Use
 
Buenos Aires Urban Planning Code. IRSA’s real estate activities are subject to several municipal zoning, building and environmental regulations. In the city of Buenos Aires, where the vast majority of its real estate properties are located, the Buenos Aires Urban Planning Code (Código de Planeamiento Urbano de la Ciudad de Buenos Aires) generally restricts the density and use of property and controls physical features of improvements on property, such as height, design, set-back and overhang, consistent with the city’s urban landscape policy. The administrative agency in charge of the Urban Planning Code is the Secretary of Urban Planning of the City of Buenos Aires.
 
Buenos Aires Building Code. The Buenos Aires Building Code (Código de Edificación de la Ciudad de Buenos Aires) complements the Buenos Aires Urban Planning Code and regulates the structural use and development of property in the city of Buenos Aires. The Buenos Aires Building Code requires builders and developers to file applications for building permits, including the submission to the Secretary of Work and Public Services (Secretaría de Obras y Servicios Públicos) of architectural plans for review, to assure compliance therewith.
 
We believe that all of our real estate properties are in material compliance with all relevant laws, ordinances and regulations.
 
Sales and Ownership
 
Real Estate Installment Sales Law. The Real Estate Installment Sales Law No. 14,005, as amended by Law No. 23,266 and Executive Branch Decree No. 2015/1985, imposes a series of requirements on contracts for the sale of subdivided real estate property regarding, for example, the sale price which is paid in installments and the deed, which is not conveyed until final payment of such price. The provisions of this law require, among other things:
 
•
the registration of the intention to sell the property in subdivided plots in the Real Estate Registry (Registro de la Propiedad Inmueble) corresponding to the jurisdiction of the property. Registration will only be possible with regard to unencumbered property. Mortgaged property may only be registered where creditors agree to divide the debt in accordance with the subdivided plots. However, creditors may be judicially compelled to agree to the division;
•
the preliminary registration with the Real Estate Registry of the purchase instrument within 30 days of execution of the agreements.
Once the property is registered, the installment sale may not occur in a manner inconsistent with the Real Estate Installment Sales Act, unless seller registers his decision to desist from the sale in installments with the Real Estate Registry. In the event of a dispute over the title between the purchaser and third-party creditors of the seller, the installment purchaser who has duly registered the purchase instrument with the Real Estate Registry will obtain the deed to the plot. Further, the purchaser can demand conveyance of title after at least 25% of the purchase price has been paid, although the seller may demand a mortgage to secure payment of the balance of the purchase price.
 
After payment of 25% of the purchase price or the construction of improvements on the property equal to at least 50% of the property value, the Real Estate Installment Sales Act prohibits the rescission of the sales contract for failure by the purchaser to pay the balance of the purchase price. However, in such event the seller may take action under any mortgage on the property.
 
Consumer Protection Law. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers in the arrangement and execution of contracts. The Consumer Protection Law purports to prevent potential abuses deriving from the strong bargaining position of sellers of goods and services in a mass-market economy where standard form contracts are widespread. As a result, the Consumer Protection Law deems void and unenforceable certain contractual provisions in consumer contracts, including those which contain:
 
•
warranty and liability disclaimers;
•
waiver of consumer rights;
•
extension of seller rights; and
•
shifting of the burden of proof against consumers.
 
In addition, the Consumer Protection Law imposes penalties ranging from fines to closing down of establishments in order to induce compliance from sellers.
 
The Consumer Protection Law defines consumers or users, as the individuals or legal entities that (i) acquire or use goods or services free of charge or for a price for their own final use and benefit or that of their family or social group, including the acquisition of rights on a time-share leasing, country club, private cemetery, among others, (ii) though not being party to a consumer relationship, as a result thereof acquire or use goods or services for their own final use or that of their family or social group, and (iii) are otherwise exposed to a consumer relationship.
 
In addition, the Consumer Protection Law defines the suppliers of goods and services as the individuals or legal entities, either public or private that in a professional way, even occasionally, produce, import, distribute or commercialize goods or supply services to consumers or users.
 
The Consumer Protection Law excludes the services supplied by professionals that require a college degree and registration in officially recognized professional organizations or by a governmental authority. However, this law regulates the advertisements that promote the services of such professionals.
 
The Consumer Protection Law determines that the information contained in the offer addressed to undetermined prospective consumers, binds the offeror during the period in which the offer takes place and until its public revocation. Further, it determines that specifications included in advertisements, announcements, prospectuses, circulars or other media bind the offeror and are considered part of the contract entered into by the consumer. On June 2005, Resolution No. 104/05, which complements the Consumer Protection Law, adopted MERCOSUR’s Resolution on which requires that those who engage in commerce over the Internet (E-Business) to disclose in a precise and clear manner the characteristics of the products and/or services offered and the sale terms. Failure to comply with the terms of the offer is deemed an unjustified denial to sell and gives rise to sanctions.
 
Buildings Law. Buildings Law No. 19,724, as amended, sets forth a regime for the construction of buildings for subsequent subdivision into condominium (Propiedad Horizontal). Under this law, developers must inform potential purchasers of their intention to sell the building as a condominium, as well as of all sale conditions, and the size of each unit in relation to the whole building. The sale of these units is subject to subdivision approval and in order to be included in Buildings Law regime must be registered with the Real Estate Registry (Registro de la Propiedad Inmueble). This law also states that, in the event that construction is not completed, all amounts already deposited must be repaid to the purchasers. All intervening parties are jointly and severally liable to reimburse all amounts deposited or paid by the purchasers. All agreements entered into with the purchasers shall be filed with the relevant real estate registry.
 
Mortgage Regulation. The Argentine Civil Code regulates mortgages both as a contract and as a right over property. There are no special provisions in the Civil Code aimed at protecting mortgagors. Any agreement entered into by a mortgagor and a mortgagee at time of execution of the mortgage or prior to the default of the mortgagor allowing the mortgagee to recover the property without a public auction of the property will not be enforced by the courts as contrary to Argentine public policy.
 
 
82
 
 
Until the enactment of Trust Law No. 24,441, the only procedure available to collect unpaid amounts secured by a mortgage was a proceeding regulated by the Civil and Commercial Procedure Code. The heavy caseload on the courts that hear such matters usually delays the proceeding, which currently takes 1 to 2 years to be completed.
 
Title V of Trust Law No. 24,441 institutes a new procedure which may expedite collection of unpaid amounts secured by a mortgage. To be applicable, the new rules, which allow an out-of-court auction, need to be expressly agreed to by the parties in the mortgage contract.
 
Currently, IRSA includes in its mortgages a clause enabling the enforcement of Law No. 24,441. However, there can be no assurance that such collection provisions will accelerate the recovery of unpaid amounts under mortgage guarantees.
 
The Argentine Government has tried to avoid the massive foreclosure of mortgages since the 2001 crisis. The Public Emergency Law, as amended, established the suspension for the term of 270 days from the enactment of that law, of all the judicial or non-judicial enforcement procedures, including the enforcement of mortgages and pledges, regardless of their origin. On February 14, 2002, Law No. 25,563 amending the Bankruptcy Law (the “New Bankruptcy Law”) was enacted. Under the New Bankruptcy Law, certain bankruptcies and foreclosures (including foreclosures on mortgage loans) were suspended for a period of 180 days from the law’s effective date. Such period was extended for 180 additional days by law Nº 25,589 and afterwards for 90 additional days by Law No. 25,640 dated September 2002, expiring on February, 2003.
 
On February 4, 2003, the Executive Branch enacted Executive Branch Decree No. 204/2003 creating a mediation proceeding, for a limited period of 90 days, to be conducted through the Legal Emergency Units (Unidades de Emergencias Legales) depending from the Ministry of Labor, Employment and Social Security and the Ministry of Production. Such Emergency Legal Units shall intervene at the request of debtors or creditors in foreclosure cases.
 
The mediation procedure was voluntary and free. Proposals and negotiations made by the parties were subject to the confidentiality of ordinary mediations. The mediation procedure in no case shall result in the suspension or interruption of the legal terms running in judicial or out-of-court foreclosure proceedings.
 
The Legal Emergency Units should try to approximate the parties’ proposals to reach an agreement enabling the debtor the performance of his obligations without lessening the creditor’s rights. The intervention of the Emergency Legal Units shall conclude with an agreement or with the impossibility of reaching such agreement. The Executive Branch Decree establishes that the conciliation proceeding shall be in force from the day of its publication in the Official Gazette and will have a term of 90 days.
 
On May 2003, the Argentine Congress enacted Law No. 25,737 which suspended foreclosures for an additional period of 90 days, which ended in May 2003. On September 2003, several financial institutions voluntarily agreed not to foreclose on their mortgage loans. On November 2005, the Argentine congress enacted Law No. 26,062 that extended the foreclosures suspension for an additional 120 days period, which was extended for 90 days more by Law No. 26,084 and for 180 days more by Law No. 26,103. Pursuant to these successive extensions, foreclosure on mortgaged property was suspended until December 2006.
 
On November 6, 2003 Law No. 25,798 was enacted. It established a mechanism to reschedule debts resulting from unpaid mortgages, by creating a trust (financed by the Argentine Government) which would purchase the mortgage debts and reschedule the maturity date thereof. Financial institutions were afforded until June 22, 2004 to accept said terms. This law was partially modified by Law No. 25,908 (enacted on July 13, 2004) which included various conditions referring to the incorporation into this system of the mortgage loans that were in judicial or private execution proceedings. The parties to secured loan agreements were given a term to express their adhesion to this system. This term was extended twice first by Executive Branch Decree No. 352/2004 for a period of sixty days and then by Law No. 26,062 effective as of November 4, 2005, which extended the foreclosures suspension for an additional 120 days, which was again extended for 90 days more by Law No. 26,084 and for 180 days more by Law No. 26,103.
 
On November 8, 2006, Law No. 26,167 was enacted. It established a special proceeding to replace ordinary trials for the enforcement of some mortgage loans. These special proceedings give creditors ten days to inform the debtor of the amounts owed to them and agree with the debtor on the amount and terms of payment. In case the parties fail to reach an agreement, payment conditions are to be determined by the judge. Also, this law established the suspension of the execution of judicial judgments, judicial and out of court auctions, evictions and other proceedings related to the mortgage loans contemplated in this law.
 
Most mortgages executed by us provide that we are empowered to declare the anticipated expiration of the loan upon non-payment of an installment. This enables us to recover the unpaid amounts through the sale of the relevant property pursuant to the Civil and Commercial Procedure Code and Law No. 24,441.
 
Pursuant to Argentine law, fees and expenses related to collection procedures must be borne by the debtor, and the proceeds from any auction of the property may be used for the settlement of such obligation.
 
Although IRSA’s mortgages are U.S. dollar-denominated, Executive Branch Decree No. 214/2002 and Executive Branch Decree No. 762/2002 that amend the Public Emergency Law provide that monetary obligations in force as of January 7, 2002, resulting from agreements governed by private law and which provide for payments in U.S. dollars are subject to the following rules:
 
•
financial obligations were to be paid in Pesos at the exchange rate of Ps.1.00 = US$1.00 plus the CER for commercial leases;
•
from October 1, 2002 and until March 31, 2004 for residential leases, the obligations where the tenant is an individual and the dwelling is used as the family residence of permanent use were to be paid in Pesos at the exchange rate of Ps.1.00 = US$1.00 plus the CVS;
•
if due to the application of these provisions, the amount of the installment became higher or lower than the amount at the moment of the payment, any of the parties could require an equitable adjustment of the price. If the parties did not reach an agreement, the judicial courts could decide on a case by case basis; and
•
pursuant to Executive Branch Decree No. 117/2004 and Law No. 25,796 that amends Law No. 25,713, the CVS became unenforceable since April 1, 2004.
 
Protection for the Disabled Law. The Protection for the Disabled Law No. 22,431, enacted on March 20, 1981, as amended, provides that in connection with the construction and renovation of buildings, obstructions to access must be eliminated in order to enable access by handicapped individuals. In the construction of public buildings, entrances, transit pathways and adequate facilities for mobility impaired individuals must be provided for.
 
Buildings constructed before the enforcement of the Protection for the Disabled Law must be adapted to provide accesses, transit pathways and adequate facilities for mobility-impaired individuals. Those pre-existing buildings, which due to their architectural design may not be adapted to the use by mobility-impaired individuals, are exempted from the fulfillment of these requirements. The Protection for the Disabled Law provides that residential buildings must ensure access by mobility impaired individuals to elevators and aisles.
 
 
 
83
 


Credit Cards Law. Law No. 25,065, amended by Law No. 26,010 and Law No. 26,361, regulates different aspects of the business known as “credit card system.” The regulations impose minimum contractual contents and the approval thereof by the Industry, Commerce and Mining Secretary (Secretaría de Industria, Comercio y Minería de la Nación), as well as the limitations on the interest to be collected from users and the commissions charged to the stores adhering to the system. The Credit Card Law applies to banking and non-banking cards, such as “Tarjeta Shopping”, issued by Tarshop.
 
Antitrust Law. Law No. 25,156, as amended, prevents trust practices and requires administrative authorization for transactions that according to the Antitrust Law constitute an economic concentration. According to this law, mergers, transfers of goodwill, acquisitions of property or rights over shares, capital or other convertible securities, or similar operations by which the acquirer controls or substantially influences a company, are considered as an economic concentration. Whenever an economic concentration involves a company or companies which exceed the accumulated sales volume of Ps.200.0 million in Argentina; then the respective concentration should be submitted for approval to the Comisión Nacional de Defensa de la Competencia, or Antitrust Authority. The request for approval may be filed, either prior to the transaction or within a week after its completion.
 
When a request for approval is filed, the Antitrust Authority may (i) authorize the transaction, (ii) subordinate the transaction to the accomplishment of certain conditions, or (iii) reject the authorization.
 
The Antitrust Law provides that economic concentrations in which the transaction amount and the value of the assets absorbed, acquired, transferred or controlled in Argentina, do not exceed Ps.20.0 million are exempted from the administrative authorization. Notwithstanding the foregoing, when the transactions effected during the prior 12-month period exceed in the aggregate Ps.20.0 million or Ps.60.0 million during the last 36 months, these transactions must be notified to the Antitrust Authority.
 
As the consolidated annual sales volume of Alto Palermo and IRSA exceed Ps.200.0 million, we should give notice to the Antitrust Authority of any concentration provided for by the Antitrust Law.
 
Environmental Regulation Law. IRSA’s activities are subject to a number of national, provincial and municipal environmental provisions. Section 41 of the Argentine Constitution, as amended in 1994, provides that all Argentine inhabitants have the right to a healthy and balanced environment fit for human development and have the duty to preserve it. Environmental damage shall bring about primarily the obligation to restore it as provided by applicable law. The authorities shall control the protection of this right, the rational use of natural resources, the preservation of the natural and cultural heritage and of biodiversity, and shall also provide for environmental information and education. The National Government shall establish minimum standards for environmental protection whereas Provincial and Municipal Governments shall fix specific standards and regulatory provisions.
 
On November 6, 2009, the Argentine Congress passed Law No. 25,675. Such law regulates the minimum standards for the achievement of a sustainable environment and the preservation and protection of biodiversity and fixes environmental policy goals.
 
Law No. 25,675 establishes the activities that will be subject to an environmental impact assessment procedure and certain requirements applicable thereto. In addition, such Law sets forth the duties and obligations that will be triggered by any damage to the environment and mainly provides for restoration of the environment to its former condition or, if that is not technically feasible, for payment of a compensation in lieu thereof. Such Law also fosters environmental education and provides for certain minimum reporting obligations to be fulfilled by natural and legal entities.
 
In accordance with the Rules of the CNV (as defined herein below), the issuers involved in activities which may have an impact on the environment have to comply with certain disclosure requirements in order to inform its investors, shareholders and the general public about the fulfillment of the current environmental regulations.
 
For more information see Item 3 "Key Information – D. Risk Factors – Risks related to IRSA’s business is subject to extensive regulation and additional regulations may be imposed in the future."

 
84
 

 
Subsidiaries and associated companies
 
The following table includes a description of our subsidiaries and associated companies as of June 30, 2013:
 
Subsidiaries
Effective Ownership and Voting Power Percentage
Property/Activity
Cactus Argentina S.A. 
100%(3)
This company is dedicated to feed lot production. It owns a 170-hectare farmland located in the district of Villa Mercedes in the Province of San Luis. It will have the capacity to support 75,000 head of beef cattle per year, in cycles of approximately 28,000 head each.
Futuros y Opciones.Com S.A.
60.50%
A leading agricultural web site which provides information about markets and services of economic and financial consulting through the Internet. The company has begun to expand the range of commercial services offered to the agricultural sector by developing direct sales of supplies, crops brokerage services and beef cattle operations.
IRSA Inversiones y Representaciones Sociedad Anónima
65.45%(1)
It is a leading Argentine company devoted to the development and management of real estate.
Brasilagro Companhia Brasileira de Propiedades Agrícolas
39.64%
Brasilagro is mainly involved in four areas: sugar cane, crops and cotton, forestry activities, and livestock.
Sociedad Anónima Carnes Pampeanas S.A.  (formerly known as Exportaciones Agroindustriales Argentinas S.A.)
100%(1)
Sociedad Anónima Carnes Pampeanas, a company that owns a cold storage plant in Santa Rosa, Province of La Pampa, with capacity to slaughter and process approximately 9,500 beef cattle head per month.
FyO Trading S.A.
60,50%(2)
FyO Trading S.A.’s purpose is to engage, in its own name or on behalf of or associated with third parties, in activities related to the production of agricultural products and raw materials, export and import of agricultural products and national and international purchases and sales of agricultural products and raw materials.
Agrotech S.A.
100%(1)
Agrotech S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Argentina or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and to the management and administration of the capital stock it owns on companies controlled by it.
Northagro S.A.
100%
Northagro S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Argentina or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and to the management and administration of the capital stock it owns on companies controlled by it.
Pluriagro S.A.
100%
Pluriagro S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Argentina or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and to the management and administration of the capital stock it owns on companies controlled by it.
Helmir S.A.
100%
Helmir S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and to the management and administration of the capital stock it owns on companies controlled by it.
Agropecuaria Acres del Sud S.A.
100%(4)
Agropecuaria Acres del Sud SA is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
Ombú Agropecuaria S.A
  100%(5)
Ombú Agropecuaria S.A  is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
Yatay Agropecuaria S.A
 100%(6)
Yatay Agropecuaria S.A is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
Yuchán Agropecuaria S.A
100%(7)
Yuchán Agropecuaria S.A is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
Agro-Uranga S.A
35.72%
Agro-Uranga S.A. is an agricultural, beef cattle and dairy company which owns 2 farmlands (Las Playas and San Nicolás) that have 8.299 hectares on the state of Santa Fe and Córdoba and approximately 1.434 beef cattle heads.
Agro Managers S.A
46.84%
Agro Managers S.A. is engaged in doing by itself or in behalf of third parties investments in the country or overseas through long and short term loans with or without  warranties, derivatives, stocks and commodities as well as any kind of debentures or credit notes.
Doneldon
100%
Doneldon S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
Sedelor
100%
Sedelor S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
Codalis
100%
Codalis S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
Alafox
100%
Alafox S.A. is involved in contributions, association or investment of capital in individuals or companies organized or to be organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
 
(1) Includes the interest in Cactus.
(2) Includes Futuros y Opciones.Com S.A.’s interest.
(3) Includes Helmir’s interest.
(4) Includes the interest in Doneldon, Alafox and Sedelor.
(5) Includes the interest in Codalis, Alafox and Sedelor.
(6) Includes the interest in Doneldon, Sedelor and Codalis.
(7) Includes the interest in Doneldon, Alafox and Codalis.


 
85
 

 
Overview of Agricultural Properties
 
As of June 30, 2013, we owned, together with our subsidiaries, 32 farmlands, which have a total surface area of 619,841 hectares.
 
The following table sets forth our properties’ size (in hectares), primary current use and book value. The market value of farmland is generally higher the closer a farmland is located to Buenos Aires:
 
Owned Farmlands as of June 30, 2013
  
 
Facility
Province
Country
  
Gross Size
    
Date of Acquisition
  
Primary Current Use
  
Net Carrying Value
  
         
(in hectares)
            
(Ps. Millions) (1)
  
1
La Adela
Buenos Aires
Argentina
     1,054    
Original
  
Crops
     9.8  
2
El Invierno
La Pampa
Argentina
     1,946    
Jun-05
  
Crops
     9.3  
3
El Tigre
La Pampa
Argentina
     8,360    
Apr-03
  
Crops/Milk
     33.5  
4
San Pedro
Entre Ríos
Argentina
     6,022    
Sep-05
  
Crops/Beef Cattle
     47.9  
5/6
Santa Bárbara/La Gramilla
San Luis
Argentina
     7,072    
Nov-97
  
Crops under irrigation
     24.6  
7
Cactus Argentina S.A.
San Luis
Argentina
     171    
Dec-97
  
Feed lot
     2.0  
8/9
Las Playas/San Nicolás (2)
Córdoba / Santa Fe
Argentina
     2,965    
May-97
  
Crops/Milk/Beef Cattle
     8.1  
10
La Esmeralda
Santa Fe
Argentina
     9,370    
Jun-98
  
Crops/Beef Cattle
     15.1  
11
Las Vertientes
Córdoba
Argentina
     4       -  
Silo
     0.4  
12
La Suiza
Chaco
Argentina
     36,380    
Jun-98
  
Beef Cattle
     37.0  
13/14
8 de Julio/Carmen
Santa Cruz
Argentina
     100,911    
May-07/Sep-08
  
Sheep Production
     10.9  
15
El Recreo
Catamarca
Argentina
     12,395    
May-95
  
Beef Cattle/Natural Woodlands
     1.3  
16
Los Pozos
Salta
Argentina
     240,858    
May-95
  
Beef Cattle/Crops/Natural Woodlands
     136.0  
17
La Esperanza
La Pampa
Argentina
     980    
Mar-08
  
Crops
     4.3  
18/19/
20/21/22/23
Las Londras/San Cayetano/San Rafael/La Fon Fon/ 4 Vientos/ La Primavera
Santa Cruz
Bolivia
     15,059    
Nov-08/Jan-11
  
Crops
     184.9  
24
Jerovia (3)
Boquerón
Paraguay
     22,789    
Feb-09
  
Natural Woodlands
     65.6  
25
Estab. Mendoza
Lujan de Cuyo
Argentina
     (5) 389    
Mar. ´11
         6.8  
26/32
Brasilagro(4)
  
Brazil
     153,116                 993.4  
                                 
 
Subtotal
         619,841                 1,590.9  

(1)
Acquisition costs plus improvements and furniture necessary for the production, less depreciation.
(2)
Hectares and carrying amount in proportion to our 35.72% interest in Agro-Uranga S.A.
(3)
Hectares and carrying amount in proportion to our 50.00% interest in Cresca S.A through Agrotech S.A.
(4)
See the section “Overview of Brasilagro´s Properties”.
(5)  Corresponds to our 40% ownership of Establecimiento Mendoza 
 
Overview of Brasilagro´s Properties
 
As of June 30, 2013, we owned, together with our subsidiaries, 7 farmlands, which have a total surface area of 153.116 hectares, Acquired at a highly convenient value compared to the average of the region, all of them with a great appreciation potential.
 
     
Total Area
      
Price of acquisition
  
Properties
Place
  
(ha)
  
Use
  
(R$ MM)
  
Cremaq Farmland
Baixa Grande Ribeiro/PI
     27,807  
Grane
   $ R 42.00  
Jatobá Farmland
Jaborandi/BA
     31,606  
Grane and Cotton
   $ R 33.00  
Alto Taquari Farmland
Alto Taquari/MT
     5,186  
Sugar Cane
   $ R 33.20  
Araucária Farmland
Mineiros/GO
     9,288  
Sugar Cane
   $ R 70.40  
Chaparral Farmland
Correntina/BA
     37,183  
Grane and Cotton
   $ R 47.80  
Nova Buriti Farmland
Januária/MG
     24,247  
Florestal
   $ R 21.50  
Preferência Farmland
Barreiras/BA
     17,799  
Beef Cattle
   $ R 9.50  
 
Total
     153,116       $ R 257.4  

Overview of Urban properties and investment business
 
As of June 30, 2013, most of IRSA’s property (consisting of rental properties in the office and retail real estate sectors, development properties primarily in the residential real estate sector, and shopping centers) was located in Argentina. IRSA leases its headquarters, located at Bolívar 108, C1066AAD and Moreno 877, piso 22, C1091AAQ Buenos Aires, Argentina, pursuant to a lease agreement that expires on February 28, 2014. IRSA does not currently lease any material properties other than the headquarters.
 

 
86
 

The following table sets forth certain information about our properties as of June 30, 2013:
 
Property (6)
Date of Acquisition
  
Leasable/ Sale sqm(1)
  
Location
  
Net Book Value Ps.(2)
    
Encumbrance
    
Outstanding principal amount Ps./000
    
Maturity Date
    
Balance due at maturity
Ps./000
    
Rate
  
Use
  
Occupancy rate (7)
  
Intercontinental Plaza
11/18/1997
     22,535  
City of Buenos Aires
     82,666       -       -       -       -       -  
Office Rental
     100.0 %
Bouchard 710
06/01/2005
     15,014  
City of Buenos Aires
     85,679       -       -       -       -       -  
Office Rental
     100.0 %
Bouchard 551
03/15/2007
     12,081  
City of Buenos Aires
     97,252       -       -       -       -       -  
Office Rental
     100.0 %
Libertador 498
12/20/1995
     620  
City of Buenos Aires
     4,275       -       -       -       -       -  
Office Rental
     100.0 %
Maipú 1300
09/28/1995
     9,399  
City of Buenos Aires
     40,190       -       -       -       -       -  
Office Rental
     97.3 %
Madero 1020
12/21/1995
     101  
City of Buenos Aires
     215       -       -       -       -       -  
Office Rental
     100.0 %
Suipacha 652
11/22/1991
     11,453  
City of Buenos Aires
     15,446       -       -       -       -       -  
Office Rental
     89.9 %
Costeros Dique IV
08/29/2001
     620  
City of Buenos Aires
     1,526       -       -       -       -       -  
Office Rental
     100.0 %
República Building
04/28/2008
     19,884  
City of Buenos Aires
     206,927       -       -       -       -       -  
Office Rental
     95.2 %
Dique IV, Juana Manso 295
12/02/1997
     11,298  
City of Buenos Aires
     61,973       -       -       -       -       -  
Office Rental
     94.4 %
Avda. de Mayo 595
08/19/1992
     1,958  
City of Buenos Aires
     3,964       -       -       -       -       -  
Office Rental
     100.0 %
Rivadavia 2768
09/19/1991
     274  
City of Buenos Aires
     139       -       -       -       -       -  
Office Rental
     0.0 %
Constitución 1111
06/16/1994
     274  
City of Buenos Aires
     771       -       -       -       -       -  
Commercial Rental
     0.0 %
Bank Boston Tower
08/27/2007
     14,873  
City of Buenos Aires
     143,328       -       -       -       -       -  
Office Rental
     96.4 %
Santa María del Plata
07/10/1997
     60,100  
City of Buenos Aires
     12,495       -       -       -       -       -  
Other Rentals
     100.0 %
Constitución 1159
01/16/1994
     2,072  
City of Buenos Aires
     8,763       -       -       -       -       -  
Other Rentals
     100.0 %
Plot of Land Catalinas Norte
12/17/2009
     N/A  
City of Buenos Aires
     109,170       -       -       -       -       -  
Other Rentals
     N/A  
Dot Building (3)
11/28/2006
     11,242  
City of Buenos Aires
     102,155       -       -       -       -       -  
Office Rental
     100.0 %
Other Properties (5)
N/A
     N/A  
City of Buenos Aires
     34,004       -       -       -       -       -  
Other Rentals
     N/A  
Madison 183
11/27/2012
     23,200  
New York
     744,367    
Mortgage
       404.1    
Dec-19
       373.7    
Libor+2,55%
  
Office Rental
     98.5 %
Alto Palermo Shopping  (3)
11/23/1997
     18,690  
City of Buenos Aires
     233,937       -       -       -       -       -  
Shopping Center
     98.4 %
Abasto Shopping (3)
07/17/1994
     37,708  
City of Buenos Aires
     318,855       -       -       -       -       -  
Shopping Center
     99.8 %
Alto Avellaneda (3)
11/23/1997
     36,943  
Province of Buenos Aires
     146,428       -       -       -       -       -  
Shopping Center
     99.9 %
Paseo Alcorta (3)
06/06/1997
     14,141  
City of Buenos Aires
     121,424       -       -       -       -       -  
Shopping Center
     99.8 %
Patio Bullrich (3)
10/01/1998
     11,683  
City of Buenos Aires
     114,564       -       -       -       -       -  
Shopping Center
     99.7 %
Alto Noa (3)
03/29/1995
     19,141  
City of Salta
     36,703       -       -       -       -       -  
Shopping Center
     99.7 %
Buenos Aires Design (3)
11/18/1997
     13,746  
City of Buenos Aires
     18,512       -       -       -       -       -  
Shopping Center
     99.0 %
Alto Rosario Shopping (3)
11/09/2004
     27,691  
City of Rosario
     128,774       -       -       -       -       -  
Shopping Center
     97.1 %
Mendoza Plaza Shopping (3)
12/02/1994
     42,238  
City of Mendoza
     115,480       -       -       -       -       -  
Shopping Center
     97.7 %
Córdoba Shopping – Villa Cabrera (3)
12/31/2006
     15,106  
City of Cordoba
     65,820    
Mortgage -Antichresis
       15.5    
Jan-26
       15.5    
Libor+1,5%+CER
  
Shopping Center
     100.0 %
Dot Baires Shopping (3)
12/01/2009
     49,719  
City of Buenos Aires
     472,325       -       -       -       -       -  
Shopping Center
     99.4 %
Soleil Factory (3)
07/01/2010
     13,609  
Province of Buenos Aires
     91,690    
Mortgage
       71.3    
jul-17
       71.3    
Annual Rate 5.00%
  
Shopping Center
     100.0 %
Neuquén Project (3) (9) (11)
07/06/1999
     N/A  
Province of Neuquen
     49,810       -       -       -       -       -  
Shopping Center (in construction)
     N/A  
Arcos Project (3) (10) (11)
12/01/2011
     N/A  
City of Buenos Aires
     136,313       -       -       -       -       -  
Shopping Center (in construction)
     N/A  
Beruti (3)
06/24/2008
     3,207  
City of Buenos Aires
     9,264       -       -       -       -       -  
Land Reserve
     N/A  
Santa María del Plata
07/10/1997
     715,951  
Province of Buenos Aires
     222,787       -       -       -       -       -  
Land Reserve
     N/A  
Patio Olmos (3)
09/25/2007
     5,147  
City of Cordoba
     31,709       -       -       -       -       -  
Land Reserve
     N/A  
Caballito plot of land
11/03/1997
     7,451  
City of Buenos Aires
     49,699       -       -       -       -       -  
Land Reserve
     N/A  
Others Reserves of Land(4)
N/A
     13,548,200  
City and Province of Bs. As.
     14,333       -       -       -       -       -  
Land Reserve
     N/A  
Lujan (3)
05/31/08
     1,176,000  
Province of Bs. As.
     24,598       -       -       -       -       -  
Land Reserve
     N/A  
Hotel Llao Llao
06/01/1997
     24,000  
Ciudad de Bariloche
     88,616       -       -       -       -       -  
Hotel
     54.0 %
Hotel Intercontinental
11/01/1997
     37,600  
City of Buenos Aires
     58,013       -       -       -       -       -  
Hotel
     68.0 %
Hotel Libertador
03/01/1998
     17,463  
City of Buenos Aires
     33,719    
Escrow (8)
       19.4    
Sep-13
       19.4    
Annual Rate 17.29%
  
Hotel
     74.0 %

 
87
 


 
(1)
Total leasable area for each property. Excludes common areas and parking spaces.
(2)
Cost of acquisition or development, plus improvements, less accumulated depreciation, less allowances.
(3)
Through Alto Palermo.
(4)
Includes the following land reserves: Pontevedra plot; Isla Sirgadero; Mariano Acosta, Intercontinental Plaza II, San Luis and Merlo (through IRSA) and  Zelaya 3102 and Conil (through Alto Palermo).
(5)
Includes the following properties: Anchorena 559 and Parking spaces Ocampo (through Alto Palermo).
(6)
All assets are owned by us or through any our subsidiary.
(7)
Percentage of occupation of each property. The land reserves are assets that the company remains in the portfolio for future development.
(8)
As collateral for the new debt Hoteles Argentinos S.A. (HASA) contracted with ICBC, we entered into a put option.
(9)
APSA signed an agreement with the Municipality of Neuquén in which APSA committed to construct the whole shopping center in a maximum term of 24 months, these will be counted starting from the date of signature of the act of beginning of works. On June 30, 2013 and 2012 and on July 1°, 2011 the amount of the developments in Shopping Neuquén rise to Ps. 36.1, Ps. 9.1 and Ps. 4.5 million, respectively.On June 30, 2013 the contractual obligations corresponds mainly to constructions related with the project above and they rise to Ps. 205 million. The project is estimated to be concluded on September, 2014.
(10)
APSA maintains engagements with the City of Buenos Aires´ Government in order to develop the Arcos del Gourmet project. The amount of the construction as of June 30, 2013 and 2012 rise to Ps. 136.3 million and 17.8 million, respectively. On June 30, 2013 the contractual obligations corresponds mainly to constructions related with the project above and rise to Ps 227.3 million. The project is estimated to be concluded by the end of 2013.
(11)
Both projects are financed through syndicated loans subscribed with different bank institutions, for further information see Item 5.b Indebtedness.
 
 
 
88
 
 
Insurance
 
Agricultural Business
 
We carry insurance policies with insurance companies that we consider to be financially sound.
 
We employ multi-risk insurance for our farming facilities and industrial properties, which covers property damage, negligence liability, fire, falls, collapse, lightning and gas explosion, electrical and water damages, theft, and business interruption.
 
Such insurance policies have specifications, limits and deductibles which we believe are customary. Nevertheless, they do not cover damages to our crops.
 
We carry directors and officer’s insurance covering management’s civil liability, as well as legally mandated insurance, including employee personal injury.
 
We also provide life or disability insurance for our employees as benefits.
 
We believe our insurance policies are adequate to protect us against the risks for which we are covered. Nevertheless, some potential losses are not covered by insurance and certain kinds of insurance coverage may become prohibitively expensive.
 
The types of insurance used by us are the following:
 
Insured Property
Risk Covered
  
Amount Insured (in thousands of
    
Book Value (in thousands of
  
     
Ps.)
    
Ps.)
  
Buildings, machinery, silos, installation and furniture and equipment
Theft, fire and technical insurance
     263,908       384,517  
Vehicles
Theft, fire and civil and third parties liability
     9,726       3,470  

Urban properties and investment business
 
IRSA carries insurance policies with insurance companies that it considers to be financially sound. IRSA purchases multiple peril insurance for the shopping centers covering fire and negligence liability, electrical or water damages, theft and business interruption. IRSA has submitted a limited number of claim reports under the shopping center insurance, including a claim for a reported loss caused by fire in Alto Avellaneda Shopping on March 5, 2006 and, as of this date IRSA has been able to recover substantially all such claims from the insurance companies.
 
In our Development and Sales of Properties segment, IRSA only maintains insurance when it retains ownership of the land under development or when IRSA develops the property itself. The liability and fire insurance policies cover potential risks such as property damage, business interruption, fire, falls, collapse, lightning and gas explosion. Such insurance policies contain specifications, limits and deductibles which we believe are customary. IRSA maintains insurance policies for the properties after the end of construction only if it retains ownership, primarily in the Offices and Other Properties segment.
 
IRSA carries insurance for directors and officers covering management's civil liability, as well as legally mandated insurance, including employee personal injury. IRSA does not provide life or disability insurance for its employees as benefits. IRSA believes its insurance policies are adequate to protect it against the risks for which it is covered. Nevertheless, no assurances can be given that the insurance amount purchased by IRSA will be enough to protect itself from significant losses. See “Risk Factors—Risks Related to IRSA’s Business.” Some potential losses are not covered by insurance, and certain kinds of insurance coverage may become prohibitively expensive.
 
 
None.
 
 
 
The following management’s discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data” and our audited consolidated financial statements and related notes appearing elsewhere in this annual report. This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. These forward-looking statements include such words as, “expects”, “anticipates”, “intends”, “believes” and similar language. Our actual results may differ materially and adversely from those anticipated in these forward-looking statements as a result of many factors, including without limitation those set forth elsewhere in this annual report. See Item 3 “Key Information – D.  Risk Factors” for a more complete discussion of the economic and industry-wide factors relevant to us.
 
For purposes of the following discussion and analysis, unless otherwise specified, references to fiscal years 2013 and 2012 relate to the fiscal years ended June 30, 2013 and 2012, respectively.
 
For a discussion of results of operations of IRSA and to assist in understanding changes in the Investment and development properties business, please see “Item 5 Operating and financial review and prospects”in IRSA's annual report on Form 20-F for the year ended June 30, 2013 which is publicly available on the SEC's website (www.sec.gov). The discussion and analysis of IRSA is for the full annual periods ended June 30, 2013 compared to June 30, 2012. 
 
The management's discussion and analysis of IRSA’s operating financial review and prospects included in IRSA's 20-F for the year ended June 30, 2013 and 2012 is included only on a supplemental basis.
 
We maintain our accounting books and records in Pesos. Our audited consolidated financial statements as of June 30, 2013 and 2012 have been prepared in accordance with the accounting policies based on the IFRS issued by the IASB and the interpretations issued by the IFRIC applicable as of such date.


 
89
 


Factors affecting Comparability
 
Our results of operations for the year ended June 30, 2013 were affected by the consolidation of the results of operations of Rigby 183 LLC as from October 1, 2012. Prior to October 1, 2012, our investment in Rigby 183 LLC was accounted for under the equity method of accounting. Thus, our results of operations for the year ended June 30, 2012 are not fully comparable to the results of operations for the year ended June 30, 2013.
 
Purchase and Sale of Farmlands
 
Our strategy includes the identification, acquisition, exploitation and selective disposition of rural properties that have attractive prospects for long-term value appreciation. As part of this strategy, from time to time we purchase and sell farmlands. The acquisition or disposition of farmlands in any given period may make the production results of that period difficult to compare to those of other periods.
 
Seasonality
 
As is the case with any company in the agro-industrial sector, our business activities are inherently seasonal. Harvest and sales of grains (corn, soybean and sunflower) in general take place from February to June. Wheat is harvested from December to January. With respect to our international market, in Bolivia climate conditions allow a double season of soybean, corn and sorghum production and, accordingly, these crops are harvested in April and October, while wheat and sunflower are harvested during August and September, respectively. Other segments of our activities, such as our sales of beef cattle and milk and our forestry activities, tend to be more of a successive character than of a seasonal character. However, the production of beef and milk is generally higher during the second quarter, when pasture conditions are more favorable. In consequence, there may be significant variations in results from one quarter to the other.
 
Revenue Recognition
 
We derive our revenues primarily from:
 
(i) the production and sale of crops, sugarcane, beef cattle and milk,
 
(ii) beef cattle feedlot operations,
 
(iii) leasing of our farmlands from third parties;
 
(iv) commodity brokerage activities; and
 
(v) through the consolidation of our financial statements with IRSA's, we record revenue from the rental and operation of services at offices and shopping centers in Argentina, the development and sale of properties, consumer finance transactions, and hotel operations.
 
Revenues from sales of goods are recognized when: (a) any significant risks and rewards of ownership of such goods have been transferred; (b) the entity is no longer related to the management of the assets sold and neither does the entity retain control over them; (c) the amount of the revenues and costs associated with the transaction can be reliably measured; and (d) there is a likelihood that the entity will receive the economic benefits associated with the transaction.
 
The revenues arising from the supply of services are recognized when (a) the amount of the revenues and costs associated with the services can be reliably measured; (b) there is a likelihood that the entity will receive the economic benefits associated with the transaction, and (c) the degree of progress of the service can be reliably measured.
 
Agricultural business
 
The revenues from the agriculture and livestock business activities originate mainly in sales of both agricultural and livestock products and biological assets, in the supply of different services related to agribusiness and in the lease of agricultural land.
 
Revenues from sales are accounted for when the agricultural products or the biological assets are delivered and the customers acquire ownership and assume the associated risks, all of which habitually happens when the products are either received, or directly picked up by customers, the collection of receivables is likely and the value of revenues may be reliably measured. Net sales of agricultural products represent the amount billed, net of discounts and bonuses, if any.
 
Besides, there is the supply of different services associated with the agricultural and livestock breeding business (including, though not limited to, irrigation and feedlot services) as well as brokerage services. Revenues from services are accounted for when the services are rendered.
 
We also lease land to third parties in the framework of operating leases. Revenues from leases are accounted for using the straight-line method throughout the lease period.
 
Investment and development properties business
 
Our revenues derive basically from leasing and operating space at offices and shopping centers in Argentina, developing and selling properties, financing consumption and operating hotels. This section reflects our policies concerning revenue recognition as well as the policies of our subsidiaries, both those in which we have a controlling stake and those in which we have joint control.
 
Sales and Developments
 
Revenues from the development and sales of real estate include mainly the revenues from the sale of properties held for sale. The revenues from the sale of real estate are booked when the significant risks and rewards of ownership have been transferred to the buyer. This usually happens when the purchase and sale deeds are signed and when the transaction is not subject to conditions (except when the expectation is that the payment or completion will significantly occur after such exchange). When sales are subject to conditions, it is only when the conditions are satisfied that the sales are booked.
 

 
90
 
 
We apply the IFRIC 15 “Agreements for the Construction of Real Estate'”. The IFRIC 15 lays down the guidelines to decide which standard to apply when accounting for the construction of real estate, that is the IAS 11 “Construction Contracts ” or the IAS 18 “Revenue”. IFRIC 15 interprets that an agreement satisfies the requirements to be considered a construction contract under IAS 11 when the buyer is in a position to specify the main structural elements of the design of the property before or during the works. Besides, IFRIC 15 interprets that an agreement is for the sale of goods within the scope of IAS 18 when the construction works is conducted independently from the agreement and the buyer only has limited influence on the design. The company analyzed the nature of its agreements and determined that they fall within the scope of IAS 18. Therefore, the company recognizes revenues associated with the sale of residential homes and commercial units when the legal conveyance takes place according to IAS 18.
 
We also generally conduct barter transactions where we exchange plots of land for properties to be built on them with third-party developers for future units that are an integral part of the planned buildings. At times, the company also receives cash as a part of the transaction. The title deed to the plots of land that are bartered, together with the risks and rewards associated with them, are transferred to the developer at the time of the sale. The Company generally demands that the developer should post surety bonds or raise mortgages over the plot of land in favor of the Company to guarantee performance. If the developer does not meet his duties, the Company forecloses on the mortgage or demands compensation on the surety bond, together with a cash penalty.
 
The Company determines that its barters are in a commercial nature and that the conditions for recognizing income from the transfer of the plots have been satisfied at the time of execution of the barter transaction. Revenues are recognized at the fair value of the property delivered, adjusted by the cash amount received, if any. In exchange for the land assigned, the Company receives cash, if any, and a receivable in kind. Such receivable in kind is initially recognized at fair value but it is not adjusted in subsequent fiscal years. The receivable in kind is classified as Property held for sale in the financial statements.
 
The Company may sell residential units to third-party buyers once they are finished and have been transferred by the developer. In these cases, the revenues from these transactions are recognized when the significant risks and rewards of ownership have been actually transferred to the buyer. This normally happens when the title deed to the property is drawn up.
 
However, the Company may start to sell the residential units during the construction period or even before the construction period starts. In these cases, buyers generally make an initial payment to the Company, with the outstanding balance being paid at the time when the unit sold to the buyer is actually delivered. In these cases, it is only when the units have been transferred to the buyers and the title deeds are signed, in other words, at the time of the legal closing, that the revenues from these sales are booked. And the reason for this is that in the event of the developer failing to complete the residential units, and thus, failing to deliver them to the buyer, the Company will be contractually bound to reimburse the buyer for any initial payment received plus a fine. The Company may then institute legal proceedings against the developer on grounds of defaulting on the agreement. The Company considers that the most significant risk associated with the asset held by the company (that is, the right to receive the units) is non-performance by the developer (that is, failure to complete the construction of the units) which risk is not been transferred to the buyers at the moment when the initial payment is received.
 
Office buildings and other leases and services
 
Revenues from office and other property rentals include mainly the revenues from office rentals in the form of operating leases, revenues from services and the expenses recovered from lessees.
 
Revenues from the rental of offices and other properties assigned in lease under operating leases are recognized in the statement of income using the straight-line method for the duration of such operating leases. When incentives are conferred, these are accounted for as a part of consideration for the use of the property and are therefore recognized by application of the straight-line method.
 
Contingent leases are booked as income in the periods in which they are collected. Rental increases are booked when they are agreed upon with the lessees.
 
Lease agreements also stipulate that the common area maintenance expenses associated with the Company’s buildings and other rental properties are to be borne by the lessees, generally in a percentage proportion. Common area maintenance expenses comprise all those expenses that are necessary or advisable to operate, maintain, manage, safeguard, preserve, repair, supervise, cover with insurance and perfect the Company’s rental buildings and properties. It is the Company who carries out management functions over its rental properties. The Company assumes responsibility for initially paying these expenses, which are subsequently recovered from lessees. The Company considers that it acts as principal in these cases. Revenues for these items are recognized when the services are supplied and are included within revenues from rentals and services, though separate from common area maintenance expenses. These expenses are charged to the statement of income as soon as they are incurred.
 
Shopping center leases and services
 
The revenues derived from the businesses conducted in the Company’s shopping centers mainly comprise revenues from retail store rentals in the form of operating leases, admission fees, commissions and revenues from the different services rendered to the Company’s lessees.
 
Pursuant to the Argentine Law No. 23,091, as amended by Law No, 24,808, the “Law of Leases”, all lease agreements within its scope can be cancelled. Pursuant to the Law of Leases, no lease can be terminated during the first six months of the agreement, and once this term has expired, lessees are entitled to cancel their leases at any time subject to a previous notice served on the lessors. The payments for cancellation prescribed by the law to compensate lessors are equivalent to a month and a half’s rental if the agreement is terminated during the first year of the lease and a month’s rental if they are terminated after the first year.
 
The Company analyzed the definition of the lease term under IAS 17, which lays down that a noncancellable lease is a lease that can be cancelled only (a) in the event of any remote contingency, (b) when the lessor has given permission, (c) if the lessee enters into a new lease with the same lessor, or (d) when the lessee pays an additional amount at the inception of the lease that results in assuming that lease continuity is reasonably certain.
 
The Company has determined that in all operating leases, the term of the lease for accounting purposes coincides with the lease term. The Company concluded that in spite of the ability to cancel leases contemplated by the law, lessees would incur significant economic penalties and other setbacks if their leases were cancelled prior to their expiration dates. The Company considers that the scope of these setbacks is such that lease continuity on the part of lessees is reasonably certain at the inception of the lease. The Company drew this conclusion in view of factors such as (i) the strategic geographical location of the Company’s investment properties; (ii) the characteristics of lessees (most of whom are locally and internationally renowned chain stores), (iii) the limited availability of similar spaces in areas where the Company has its investment properties; (iv) lessees’ brand images and other competition-related aspects; (v) the significant expenses incurred by lessees to renew, maintain and improve the spaces rented for them to reflect the lessee’s own image; and (vi) that most of the Company’s lessees only have shopping center outlets with only a few, or sometimes without, stores at the street level.

 
 
91
 

Lessees at shopping centers are generally bound to pay a lease that consists in the highest of: (i) a basic monthly rental (the "Base Rent"), and (ii) a specific percentage of monthly gross retail sales of the lessee (the "Percentage Rent") (which generally ranges from 4% to 10% of gross sales of the lessee). In addition, pursuant to the rental indexation clause in most leases, the lessee's Base Rent is generally increased between 7% and 12% per year during the term of the lease.
 
Besides, certain lease agreements include provisions that set forth variable rentals based on specific sales volumes or some other type of index.
 
The revenues derived from rentals of stores and other spaces in shopping centers in the form of operating leases with scheduled rental increases are recognized on a straight-tine basis over the term of those leases. Any incentives conferred by the Company to the lessees, if any, are recognized as reductions in the revenues from rentals on a straight-line basis over the term of the lease.
 
Contingent rentals, that is, the rentals whose prices are not pre-established and may not be determined at the inception of the lease, are recognized as revenues in the periods in which they are known and can be determined. The increases in rentals are accounted for at the time they are agreed upon with the lessees.
 
Lessees at the Company’s shopping centers generally pay a non-reimbursable admission fee at the time they sign a lease agreement or when they renew an existing agreement. These admission fees are considered as additional revenues from rentals and are recognized in the statement of income on a straight-line basis over the term of the respective lease agreements.
 
The Company also acts as a real estate broker in negotiating and entering into the lease agreements for its shopping centers: it therefore receives commissions when acting in such capacity. A transaction is deemed to have been successful when both parties have signed the respective lease agreement. Commissions are considered to be additional revenues from rentals and are recognized in the statement of income on a straight-line basis over the term of the respective lease agreement.
 
Lease agreements also stipulate that the common area maintenance expenses associated with the Company’s shopping centers are to be borne by the lessees, generally in a percentage proportion. Common area maintenance expenses comprise all those expenses that are necessary or advisable to operate, maintain, manage, safeguard, preserve, repair, supervise, cover with insurance and perfect the Company’s shopping centers. It is the lessor who determines whether it is necessary or advisable to incur a given common area maintenance expense. The Company assumes responsibility for initially paying these expenses, which are subsequently recovered from lessees. The Company considers that it acts as principal in these cases.
 
Revenues for these items are included within revenues from rentals and services, though separate from common area maintenance expenses. These expenses are charged to the statement of income as soon as they are incurred.
 
Pursuant to the lease agreements, lessees are also obligated to participate in Common Advertising Funds (“FPC”, as per its Spanish acronym) aimed at providing for the Company’s advertising and promotional activities. Participation in these funds generally comprises a percentage calculated over the lease prices accrued every month. Revenues for these items are equally included within revenues from rentals and services, though separate from advertising and promotional expenses. These expenses are charged to the statement of income as soon as they are incurred.
 
Besides, revenues from shopping centers also include revenues from management and other services, such as parking lots. These revenues are recognized in profit and loss for the year when the services are rendered.
 
Hotels
 
Revenues from hotel operations include mainly room services, catering and other services. Revenues from the sale of products at hotels are accounted for when the products are delivered and any significant risks and rewards of ownership are transferred to the buyer. Any revenues derived from sales of services are recognized at the time of rendering the service. All other revenues are booked on an accrual basis.
 
Segment Reporting
 
IFRS 8 mandates that entities should present financial and detailed information on its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity over which there is separately available financial information that is reviewed regularly by the Company’s Executive Committee (the entity's chief operating decision maker when it comes to day-to-day decisions, without prejudice to the powers and duties of the Board in its role as the Company’s management body) to make decisions about how to allocate resources and assess segment performance. The Executive Committee evaluates the businesses based on the differences in the nature of their products, operations and risks. The amount reported for each segment item is the measurement relayed to the Executive Committee and subsequently reported to the highest-ranking decision maker in the Company’s management, that is, the Board of Directors, to this end. The actions taken by the Board are then evaluated by the Shareholders’ Meeting in its role as the Company’s governance body.
 
Any operating segments identified are presented as reportable segments if any of the following quantitative thresholds are reached:
 
·  
its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments; or
 
·  
the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of
 
·  
the combined reported profit of all operating segments that did not report a loss and
 
·  
the combined reported loss of all operating segments that reported a loss;
 
·  
or its assets are 10 per cent or more of the combined assets of all operating segments
 
Additionally, any operating segments that do not reach any of the preceding quantitative thresholds could be considered to be reportable segments if the Company’s Management estimates that said information could be useful to the users of its financial statements.
 

 
92
 
 
If, having determined reportable segments in accordance with the preceding quantitative thresholds, the total external revenues attributable to these segments total less than 75% of the Company’s total consolidated external revenues, additional segments will be identified as reportable segments even when the preceding quantitative thresholds are not reached up and until at least 75% of the Company’s total consolidated external revenues are included in the reportable segments. Once 75% of the Company’s total consolidated external revenues are included as reportable segments, the rest of the operating segments are included in the column “Other”.
 
Segment-based reports have been prepared and classified in accordance with the different types of businesses in which the Company conducts activities.
 
Agricultural business
 
We are primarily engaged in agricultural operations which are subject to risk, including market prices, weather conditions and environmental concerns. From time to time, we sell properties to profit from real estate appreciation opportunities and which, in the judgment of management, are surplus to the Company’s primary operations.
 
During the fiscal years ended June 30, 2013 and 2012, our principal operations were carried out in Argentina, our country of domicile, Brazil, Bolivia and Paraguay.
 
We conduct business in eight business segments, organized primarily on a product line and geographical area basis, with each segment offering a variety of different but interrelated products:
 
Crops
 
This segment includes activities related to planting, harvesting and sale of cereals such as wheat, corn, soybean, cotton and sunflower. The Company is focused on the long-term yield of the land, seeking to maximize its use by means of crop rotation and the use of different technologies and techniques. In this way, the type and quantity of grains that are harvested varies from one farming season to another.
 
Beef cattle
 
This segment consists of the purchase and/or fattening of beef cattle herds in natural pastures for sale to meat packing plants and local beef cattle markets.
 
Milk
 
This segment consists of the breeding and/or purchase of milking cows for the production of milk for sale to local producers of milk and dairy products.
 
Sugarcane
 
This segment consists in the planting, harvesting and sale of sugarcane.
 
Leases and Agricultural Services
 
This segment includes the provision of agricultural services (for example, irrigation) and the lease of farmlands owned by the Company to third parties.
 
Sale and Transformation of Lands
 
This segment comprises the results generated by the sale of farmlands and land development activities.
 
Agro-industrial
 
This segment consists in the fattening of beef cattle in feedlots for own or third-party slaughterhouses. Feedlot beef cattle breeding requires specific care and diets that differ from those applicable to natural grass-fed beef cattle breeding. This activity represents a distinct operating segment due to the special features of the feedlot system and its integration with industrialized beef processing.
 
Other
 
This segment includes the remaining operating segments that do not reach the quantity thresholds required for individual disclosure and comprises, inter alia, brokerage services.
 
Urban Properties and Investments Business
 
We have determined that the reportable business units are those based on management information generated by the Company. Consequently, we have six reportable business units. These units are: "Shopping Centers", "Offices”, "Sales and Developments", "Hotels", “International” and "Financial Transactions and Other".
 
Below is a general description of each segment:
 
Shopping Centers
 
This segment includes the results from the activities related to the commercial operation and development of shopping centers, originated mainly in the lease of and provision of lease-related services to retail stores and other spaces in the Company’s shopping centers.
 
Offices


 
93
 


This segment includes mainly the Company’s operating results from the lease of office spaces and the supply of services related to this activity.
 
Sales and Developments
 
This segment includes both the results from the sale of land reserves and/or real properties for sale and the results originated in their development and maintenance.
 
Hotels
 
This segment comprises the activities developed by the Company’s hotels, primarily composed of revenue from accommodation, catering services and restaurants.
 
International
 
This segment includes the results from investments in equity investees that operate mainly in the United States, related to the lease of office buildings and hotels in such country.
 
Financial Transactions and Other
 
This segment includes the income or loss generated by our associates Banco Hipotecario and Tarshop S.A. and the residual financial operations from our subsidiary Apsamedia. BHSA is a commercial bank offering a wide variety of banking activities and related financial services to individuals, small and medium-sized companies and large corporations, including the provision of mortgaged loans. BHSA’s shares are listed on the Buenos Aires Stock Exchange. Both Tarshop’s and Apsamedia’s operations consist primarily of lending and servicing activities related to the credit card and personal loan products offered to consumers at retail revenues.
 
Effects of inflation
 
From 1997 until the end of year 2001, the Argentine government’s policies substantially reduced the level of inflation. Therefore, during that period inflation did not significantly affect our financial condition and results of operations. The following are annual inflation rates since 2002, published by the Argentine Ministry of Economy and Production:
 
Year ended June 30,
  
Consumer Price
Index
    
Wholesale Price
Index
  
             
2002
     28.4 %     88.2 %
2003
     10.2 %     8.1 %
2004
     4.9 %     8.6 %
2005
     9.0 %     7.7 %
2006
     11.0 %     12.1 %
2007
     8.8 %     9.4 %
2008
     9.3 %     13.8 %
2009
     5.26 %     5.4 %
2010
     11.0 %     15.2 %
2011
     9.67 %     12.5 %
2012
     9.90 %     12.8 %
2013
     10.5 %     13.5 %

 
The increase in inflation may erode our present macroeconomic stability, causing a negative impact on our operations. The wholesale price index increased by 13.5% in the fiscal year 2013, and the Consumer Price Index increased 10.5% in the same period.
 
Critical Accounting Policies
 
 Our audited consolidated financial statements are prepared in accordance with IFRSs as issued by the IASB, and the accounting policies employed are set out in our Company’s Accounting Policies section in the financial statements. In applying these policies, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. The actual outcome could differ from those estimates. Some of these policies require a high level of judgment because the areas are especially subjective or complex.
 
The discussion below should also be read in conjunction with the Company’s disclosure of significant IFRSs accounting policies, which is provided in Note 2 to our audited consolidated financial statements, “Significant accounting policies”.
 
We believe that the most critical accounting policies and significant areas of judgment and estimation are in:
 
§  
Business combinations
§  
Fair value of derivatives and other financial instruments
§  
Allowance for trade receivables
§  
Taxation
§  
Trading properties
§  
Impairment testing of goodwill and intangible assets
§  
Biological assets and agricultural produce at the point of harvest

·  
Business combinations – purchase price allocation

We account for the acquisition of subsidiaries using the acquisition method. Accounting for business combinations requires us the determination of the fair value of the various assets and liabilities of the acquired business. We use all available information to make these fair value determinations, and for major acquisitions, may hire an independent appraisal firm to assist us in making these fair value estimates. In some instances, assumptions with respect to the timing and amount of future revenues and expenses associated with an asset might have to be used in determining its fair value. Actual timing and amount of net cash flows from revenues and expenses related to that asset over time may differ materially from those initial estimates, and if the timing is delayed significantly or if the net cash flows decline significantly, the asset could become impaired.
 
 
94
 
 
The amount of goodwill initially recognized as a result of a business combination is dependent on the allocation of the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed.

Allocation of the purchase price affects our results as any identified finite lived intangible assets are amortized, whereas indefinite lived intangible assets, including goodwill, are not amortized and could result in differing amortization charges based on the allocation to indefinite lived and finite lived intangible assets.

Upon our transition to IFRS we elected not to apply IFRS 3, “Business combinations”, retrospectively as the difficulty in applying these requirements to the large number of business combinations we completed from incorporation through to transition date exceeded any potential benefits. Therefore, business combinations occurred prior to transition date have not been restated.

·  
Fair value of derivatives and other financial instruments

The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. We use our judgment to select a variety of methods and make assumptions that are based on market conditions existing at statement of financial position.
 
When no quoted prices in an active market are available, fair values (particularly with derivatives) are based on recognized valuation methods. The Group uses a range of valuation models for the measurement of Level 3 instruments, details of which may be obtained from the following table:

Description
Pricing model
Pricing method
Parameters
Shares of Supertel
Binomial tree
Theoretical price
Underlying asset price (Market price); share price volatility (historical) and money markey interest-rate  curve (libor rate).
Warrants of Supertel
Black-Scholes
Theoretical price
Underlying asset price (Market price); share price volatility (historical) and money markey interest-rate  curve (libor rate).


·  
Allowance for trade receivables

We maintain an allowance for trade receivables to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for trade receivables, we base our estimates on the aging of accounts receivable balances and historical write-off experience, customer credit worthiness and changes in customer payment terms. If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected.

·  
 Taxation

We are subject to income taxes in numerous jurisdictions. Our tax charge on ordinary activities is the sum of the total current and deferred tax charges. The calculation of the Company’s total tax charge necessarily involves a degree of estimation and judgment in respect of certain items whose tax treatment may not be always determined with certainty due to interpretation. The final resolution of some of these items may give rise to material profits, losses and/or cash flows. The complexity of the Company’s structure makes the degree of estimation and judgment more challenging. The resolution of issues may not always be within our control and may depend on the efficiency of legal action, if necessary. Issues can, and often do, take many years to resolve. Payments in respect of tax liabilities for an accounting period result from payments on account and on the final resolution of open items. As a result there can be substantial differences between the tax charge in the consolidated income statement and tax payments.

We recognize deferred tax assets only to the extent it is probable that future taxable profit will be available against which the temporary differences can be utilized. We assess the realizability of deferred tax assets by considering whether it is probable that some portion or all of the deferred tax assets will not be realized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

The amounts recognized in our audited consolidated financial statements in respect of each matter are derived from our best estimate and judgment as described in Note 6 to our audited consolidated financial statements.

·  
Trading properties

Trading properties include land and work in progress in respect of development sites with a view to sale. Trading properties are carried at the lower of cost or net realizable value. On each development, judgment is required to assess whether the cost of land and any associated construction work in progress is in excess of its net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs to completion and estimated selling costs.

The estimation of the net realizable value of our trading properties under development is inherently subjective due to a number of factors, including their complexity, unusually large size, the substantial expenditure required and long timescales to completion. In addition, as a result of these timescales to completion, the plans associated with these developments could be subject to significant variation. As a result, the net realizable values of our trading properties are subject to a degree of uncertainty and are made on the basis of assumptions, which may not prove to be accurate.

If actual results differ from the assumptions upon which the external valuer has based its valuation, this may have an impact on the net realizable value of our trading properties, which would in turn have an effect on our financial condition.

·  
Impairment testing of goodwill and non-current assets other than goodwill

IFRS requires us to undertake an annual test for impairment of indefinite lived assets and, for finite lived assets, to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Impairment testing is an area involving management judgment, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, we are required to make certain assumptions in respect of highly uncertain matters including management’s expectations of estimates of future cash flows, market rents for similar properties in the same location and condition, and discount rates.

 
95
 

 
For purposes of the impairment testing, we group assets at the lowest levels for which there are separately identifiable cash flows, known as cash generating units or CGUs. Given the nature of our assets and activities, most of our individual assets do not generate independent cash flows that are independent of those from CGUs. Therefore, we estimate the recoverable amount of the CGU to which the asset belongs, except where the fair value less costs to sell of the individual asset is higher than its book value; or the value in use of the asset can be estimated as being close to its fair value less costs to sell, where fair value can be reliably determined.

Generally, we consider each shopping center, office building, hotel and undeveloped property within our, shopping centers, offices and other rentals, development and sales of properties, hotels, international and financial operations and others activities as a separate CGU. On the other hand, to the extent permitted by nature conditions of the soil and technology, we may use our farmland can for different agricultural activities that may generate independent cash flows from each other or within one single farmland. When we use farmland for single activities (i.e. crops), we consider it as one CGU. Otherwise, when we use a same farmland for more than one activity (i.e. crops and beef cattle), we further subdivide it into two or more CGUs, as appropriate, for purposes of impairment testing.

We determine the fair value less costs-to-sell of farmland properties using the sales comparison approach. The sales comparison approach is based on the theory that the fair value of a property is directly related to the selling prices of similar properties.  The fair value is the amount of money we would realize if sold at arm’s length by a willing seller to a willing buyer. Prices of comparable properties nearby are used, which are adjusted due to differences in its size and condition. The most significant input in the valuation is the price per square meter determined by extensive analysis where farmland values are based on each land’s productive capability and other factors such as climate and location including soil properties.

Further details of the methods, estimates and assumptions we make in our annual impairment testing of goodwill are included in Note 6 in the Consolidated Financial Statements. No impairment of goodwill was identified.

·  
Biological assets and agricultural produce at the point of harvest

We measure biological assets, which include unharvested crops, beef and dairy cattle, sheep, and sugarcane plantations (at initial recognition, when the biological asset has attained significant biological growth, and at each subsequent measurement reporting date) and agricultural produce, which include harvested crop, raw meat, raw milk, wool and harvested sugarcane, among others, at fair value less costs to sell. We measure biological assets that have not attained significant biological growth or when the impact of biological transformation on price is not expected to be material, at cost less any impairment losses, which approximates fair value.

In determining the point in time at which our biological assets attain significant biological growth, and therefore, a fair value model is used, we are required to make certain significant assumptions in respect of highly uncertain matters. We generally use agronomical studies and other inputs and the corresponding agricultural produce obtained as a basis to determine these points in time. Details of the assumptions we make in our determination of significant biological growth are included in Note 6 in our audited consolidated financial statements.

When an active market exists for biological assets, we use the quoted market price in the most relevant market as a basis to determine the fair value of our biological assets, as in the case of beef cattle. For other biological assets where there is neither an active market nor market-determined prices during the growth cycle, we determine their fair value through the use of discounted cash flow (DCF) valuation techniques.

Therefore, we generally derive the fair value of our growing biological assets from the expected cash flows of the related agricultural produce. The DCF method requires us to populate the models with highly subjective assumptions, including observable and unobservable inputs. The models we use to estimate the fair value of our biological assets are generally based on data not observable in the market, and the use of unobservable inputs is significant to the overall valuation of the assets. The unobservable inputs we use are generally determined based on the best information available, for example, by reference to historical information regarding past practices and results, statistical and agronomical information and other analytical techniques. Changes in the assumptions underlying such subjective inputs can materially affect our fair value estimates and impact our results of operations and financial condition from period to period. In contrast to biological assets whose fair value is generally determined using the DCF method, we typically determine the fair value of our agricultural produce at the point of harvest using market prices.

The key assumptions used in our models include market prices, estimated yields, and estimated costs, discount rates and others.

The market prices used in our DCF models are determined by reference to observable data in the relevant market for specific crops. We estimate our harvesting costs and other costs based on historical and statistical data. We estimate yields based on several factors, including the location of the farmland, soil type, environmental conditions, infrastructure and other restrictions and growth at the time of measurement. Yields are subject to a high degree of uncertainty and may be affected by several factors out of our control, including but not limited to extreme or unusual weather conditions, plagues and other diseases. Discount rates reflect current market assessments of the assets involved and the time value of money.

All of these assumptions are highly sensitive. Reasonable shifts in assumptions including but not limited to increases or decreases in prices, costs and discount factors used may result in a significant increase or decrease to the fair value of biological assets recognized at any given time. Cash flows are projected based on estimated production. Estimates of production in themselves are dependent on various assumptions, in addition to those described above, including but not limited to several factors such as location, environmental conditions and other restrictions. Changes in these estimates could materially impact on estimated production, and could therefore affect estimates of future cash flows used in the assessment of fair value. The valuation models and their assumptions are reviewed annually, or quarterly if warranted, and, if necessary, adjusted.

Further details on valuation methods, sensitivity analysis and other factors is included in Note 6 to the audited consolidated financial statements.

Business Segment Information
 
We are required to disclose segment information in accordance with IFRS 8, which establishes that an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”). Such function is carried out by our Executive Committee in deciding how to allocate resources and in assessing performance, without prejudice of the powers and responsibilities of the management body, that is to say, the Board of Directors. Our current members of the Executive Committee are Mrs. Eduardo S. Elsztain, Saúl Zang and Alejandro G. Elsztain. CODM evaluates the business based on the differences in the nature of its products, operations and risks. The amount reported for each segment item is the measure reported to the CODM for these purposes. In turn, the Board of Directors’ management is assessed by the Shareholders’ Meeting, which is the governance body.

We operate in two businesses areas, namely, “Agricultural” and “Investment and Development Properties” businesses, as further described below.

We operate our Agricultural business through eight reportable segments, namely “Crops”, “Cattle”, “Milk”, “Sugarcane”, “Farmland Leases and Services”, “Land Transformation” and Sales”, “Agro-industrial” and “All Others” as further described below:

 
 
96
 
 
·  
Our “Crops” segment consists of planting, harvesting and sale of crops including wheat, corn, soybeans, cotton, and sunflower, which do not represent separate operating segments on an individual basis. We seek to maximize the use of our land through crop rotation, the use of technology and techniques, and the type and amount of crops cultivated may vary from one harvest year to another harvest year. In this way, we are focused on the long-term performance of our land, and to that extent, we assess the performance considering the aggregated combination, if any, of crops planted in the land.

·  
Our “Cattle” segment consists of breeding, purchasing and/ or fattening of free-range beef cattle for sale to meat processors and local livestock auction markets.

·  
Our “Milk” segment consists of breeding and/ or purchasing dairy cows for the production of raw milk for sale to local milk and milk-related products producers.

·  
Our “Sugarcane” segment consists of planting, harvesting and sale of sugarcane.

·  
Our “Farmland Leases and Services” segment includes services, i.e. irrigation and farmland leases out to third parties.
·  
Our “Land Transformation” and Sales” segment comprises the identification and acquisition of underdeveloped and undermanaged farmland property and the sale of farmland to profit from land value appreciation generated through the use of the land.

·  
Our “Agro-industrial” segment consists of feedlot farming for slaughtering process in our own packing plant or for cattle finishing services to third parties. Feedlot farming is distinctive and requires specific care and diets, which differ from those, provided to free-range cattle. We assess this activity separately due to the distinctive characteristics of the cattle feedlot system and its integration with industrialized meat processing.

·  
Our “All Others” segment comprises the aggregation of the remaining operating segments, which do not meet the quantitative thresholds for disclosure, mainly brokerage activities.

We operate our Investment and Development Properties business through six reportable segments, namely “Shopping Centers”, “Office and Other Rentals”, “Development and Sale of Properties”, “Hotels”, “International” and “Financial Operations and Others” as further described below:

·  
Our Shopping Centers segment includes the operating results from our portfolio of shopping centers principally comprised of lease and service revenue from tenants.

·  
Our “Offices and Other Rentals” segment includes the operating results of our lease and service revenues of office space and other non-retail building properties principally comprised of lease and service revenue from tenants.

·  
Our “Development and Sales of Properties” segment includes the operating results of our acquisition and/or construction of housing and other properties for sale in the ordinary course of business.

·  
Our “Hotels” segment includes the operating results of our hotels mainly comprised of room, catering and restaurant revenues.

·  
Our “International” segment includes mainly the consolidated results of operations of our office building property located at Madison Avenue 183 in New York, United States of America as from the date we obtained control of this operation plus our share of profit or loss of our associate New Lipstick which owns the Lipstick Building at Manhattan also in New York.

·  
Our “Financial Operations and Others” segment includes the income or loss generated by our associates Banco Hipotecario and Tarshop S.A. and the residual financial operations from our subsidiary Apsamedia. BHSA is a commercial bank offering a wide variety of banking activities and related financial services to individuals, small and medium-sized companies and large corporations, including the provision of mortgaged loans. BHSA’s shares are listed on the Buenos Aires Stock Exchange. Both Tarshop’s and Apsamedia’s operations consist primarily of lending and servicing activities related to the credit card and personal loan products offered to consumers at retail venues.

For summarized analysis of the lines of business for the year ended June 30, 2013 and 2012. Please see the section Revenues by Business Segment for details.

In our Agricultural business, cattle, dairy and agro-industrial activities are mainly conducted in Argentina, crops activity is developed in Argentina, Brazil, Bolivia and Paraguay, while that sugarcane activity is developed in Brazil and Bolivia.

Our shopping center properties are all located in Argentina. Substantially all of our office and other rental properties are located in Argentina, except for two office building properties located in the United States of America which are owned by our associates. Our hotel properties are also located in Argentina. Our development properties are also located in Argentina. The operating results of the Cresca, Cyrsa, Nuevo Puerto Santa Fe, Canteras Natal Crespo, Baicom Networks and Quality Invest joint venture operations have been presented on a proportionate format.

The proportionate format presents the net income from the equity-accounted joint venture on a line-by-line basis rather than as a single line item as IFRS requires to be shown in the consolidated statement of income. Management considers that given that the assets underlying both the consolidated and equity-accounted operations are similar and the drivers of their results are similar, that the proportionate consolidation format is a more useful way to understand the performance of the trading property business. This is because the proportionate format aggregates both revenue and expense items rather than netting them for equity accounted ventures and only reflecting their performance as a single line item of profit or loss. As a result, the proportionate format is what the CODM considers in assessing and understanding the performance and results of operations of the development property business as a whole.

The CODM evaluates performance of business segments based on segment profit. The measurement principles for our segment reporting structure are based on the IFRS principles adopted in the consolidated financial statements, except for our share of profit or loss of joint ventures as discussed in the segment tables above. Revenue generated and goods and services exchanged between segments are calculated on the basis of market prices. Intercompany transactions between segments, if any, are eliminated.

The following tables present a reconciliation between the total results of operations as shown in the section Revenues by Business Segment and the results of operations as per the statement of income for the fiscal years ended June 30, 2013 and 2012. The adjustments relate to the presentation of the results of operations of the joint ventures on an equity-accounted basis for IFRS income statement purposes


 
97
 



Below is a summarized analysis of the lines of business of the Company for the years ended June 30, 2013 and 2012:

   
Year ended June 30, 2013
  
   
Agricultural business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues
     1,347,801       2,323,409       3,671,210  
Costs
     (2,038,150 )     (1,203,146 )     (3,241,296 )
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
     888,493       -       888,493  
Changes in net realizable value of agricultural produce after harvest
     11,756       -       11,756  
Gross Profit
     209,900       1,120,263       1,330,163  
Gain from disposal of investment properties
     -       178,026       178,026  
Gains from disposal of farmlands
     149,584       -       149,584  
General and administrative expenses
     (150,332 )     (196,998 )     (347,330 )
Selling expenses
     (172,139 )     (117,119 )     (289,258 )
Other operating results, net
     (1,837 )     91,771       89,934  
Profit from operations 
     35,176       1,075,943       1,111,119  
Share of profit/ (loss) of associates
     9,191       (20,864 )     (11,673 )
Segment Profit 
     44,367       1,055,079       1,099,446  
                         
Investment properties
     25,317       4,316,248       4,341,565  
Property, plant and equipment
     1,675,420       231,734       1,907,154  
Trading properties
     -       213,638       213,638  
Goodwill
     6,438       75,852       82,290  
Biological assets
     402,594       -       402,594  
Inventories
     239,011       16,428       255,439  
Interests in associates
     31,223       1,154,830       1,186,053  
Total segment assets
     2,380,003       6,008,730       8,388,733  

 
 
98
 

   
Year ended June 30, 2012
  
   
Agricultural
business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues                                                                                                         
     1,077,862       1,912,373       2,990,235  
Costs                                                                                                         
     (1,605,254 )     (971,684 )     (2,576,938 )
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
     708,706       -       708,706  
Changes in net realizable value of agricultural produce after harvest
     2,600       -       2,600  
Gross Profit                                                                                                         
     183,914       940,689       1,124,603  
Gain from disposal of investment properties                                                                                                         
     -       116,689       116,689  
Gain from disposal of farmlands                                                                                                         
     45,490       -       45,490  
General and administrative expenses                                                                                                         
     (140,571 )     (175,903 )     (316,474 )
Selling expenses                                                                                                         
     (116,401 )     (95,991 )     (212,392 )
Management fees                                                                                                         
     (8,696 )     -       (8,696 )
Other operating results, net                                                                                                         
     (61,729 )     (36,995 )     (98,724 )
Operating Profit / (Loss) 
     (97,993 )     748,489       650,496  
Share of profit/ (loss) of associates                                                                                                         
     5,655       28,922       34,577  
Segment Profit / (Loss) 
     (92,338 )     777,411       685,073  
                         
Investment properties                                                                                                         
     30,398       3,649,381       3,679,779  
Trading properties                                                                                                         
     -       306,434       306,434  
Property, plant and equipment                                                                                                         
     1,675,841       252,399       1,928,240  
Goodwill                                                                                                         
     5,927       20,388       26,315  
Biological assets                                                                                                         
     366,102       -       366,102  
Inventories                                                                                                         
     240,207       15,659       255,866  
Interests in associates                                                                                                         
     27,452       1,212,114       1,239,566  
Total segment assets                                                                                                         
     2,345,927       5,456,375       7,802,302  


 
99
 


(I)  
Agriculture line of business:

The following tables present the reportable segments of the agriculture line of business of the Company for the years ended June 30, 2013 and 2012:

   
June 30, 2013
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Milk
    
Sugarcane
    
Farmland leases and services
    
 
Subtotal Agricultural Business
    
Land sale and transformation
    
Agro-industrial
    
Other
segments
    
Total agricultural business (i)
  
Revenues (i)  
     750,192       76,679       38,818       160,259       30,815       1,056,763       -       207,755       83,283       1,347,801  
Costs                                                                           
     (1,227,832 )     (145,940 )     (74,826 )     (302,206 )     (12,052 )     (1,762,856 )     (5,675 )     (198,402 )     (71,217 )     (2,038,150 )
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
     572,081       79,336       40,741       197,317       -       889,475       -       -       (982 )     888,493  
Changes in net realizable value of agricultural produce after harvest
     11,801       (45 )     -       -       -       11,756       -       -       -       11,756  
Gross Profit / (Loss) 
     106,242       10,030       4,733       55,370       18,763       195,138       (5,675 )     9,353       11,084       209,900  
Gain from disposal of farmlands 
     -       -       -       -       -       -       149,584       -       -       149,584  
General and administrative expenses 
     (87,714 )     (12,800 )     (2,912 )     (24,163 )     (4,115 )     (131,704 )     (533 )     (10,986 )     (7,109 )     (150,332 )
Selling expenses
     (114,976 )     (10,926 )     (1,713 )     (4,006 )     (1,530 )     (133,151 )     (10,604 )     (21,507 )     (6,877 )     (172,139 )
Other operating results, net 
     (11,249 )     (3,264 )     (738 )     (27 )     (1,043 )     (16,321 )     (135 )     (1,305 )     15,924       (1,837 )
Profit / (Loss) from Operations 
     (107,697 )     (16,960 )     (630 )     27,174       12,075       (86,038 )     132,637       (24,445 )     13,022       35,176  
Share of profit / (loss) of associates  
     8,117       -       -       -       -       8,117       -       -       1,074       9,191  
Segment Profit / (Loss) 
     (99,580 )     (16,960 )     (630 )     27,174       12,075       (77,921 )     132,637       (24,445 )     14,096       44,367  
                                                                                 
Investment properties 
     -       -       -       -       25,317       25,317       -       -       -       25,317  
Property, plant and equipment 
     1,115,211       136,824       21,440       303,283       456       1,577,214       58,026       20,287       19,893       1,675,420  
Goodwill                                                                           
     4,443       -       -       1,995       -       6,438       -       -       -       6,438  
Biological assets
     56,394       197,202       28,134       111,064       -       392,794       -       -       9,800       402,594  
Inventories                                                                           
     201,729       23,617       -       939       -       226,285       -       10,419       2,307       239,011  
Interests in associates 
     28,858       -       -       -       -       28,858       -       -       2,365       31,223  
Total segment assets (ii) 
     1,406,635       357,643       49,574       417,281       25,773       2,256,906       58,026       30,706       34,365       2,380,003  

(i)  
From all of the Company’s revenues corresponding to agricultural business, Ps. 796.3 million is originated in Argentina and Ps. 551.5 million in other countries, principally Brazil for Ps. 453.2 million.
(ii)  
From all of the Company´s assets included in the segment corresponding to agricultural business, Ps. 883.1 million is located in Argentina and Ps. 1,496.9 million in other countries, principally Brazil for Ps. 1,190.1 million.


 
100
 

   
June 30, 2012
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Milk
    
Sugarcane
    
Farmland leases and services
    
Subtotal Agricultural Business
    
Land sale and transformation
    
Agro-industrial
    
Other
segments
    
Total Agricultural business
(I)
  
Revenues (I)  
     636,112       132,280       30,168       98,882       25,310       922,752       -       100,058       55,052       1,077,862  
Costs                                                                                               
     (1,051,867 )     (163,531 )     (57,841 )     (167,921 )     (2,567 )     (1,443,727 )     (4,653 )     (110,764 )     (46,110 )     (1,605,254 )
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
     513,404       78,982       34,010       82,251       -       708,647       -       -       59       708,706  
Changes in net realizable value of agricultural produce after harvest
     2,460       140       -       -       -       2,600       -       -       -       2,600  
Gross Profit / (Loss) 
     100,109       47,871       6,337       13,212       22,743       190,272       (4,653 )     (10,706 )     9,001       183,914  
Gain from disposal of investment properties  
     -       -       -       -       -       -       -       -       -       -  
Gain from disposal of farmlands  
     -       -       -       -       -       -       45,490       -       -       45,490  
General and administrative expenses
     (86,771 )     (14,926 )     (2,939 )     (19,429 )     (3,700 )     (127,765 )     (507 )     (7,370 )     (4,929 )     (140,571 )
Selling expenses 
     (88,367 )     (11,550 )     (1,238 )     -       (1,306 )     (102,461 )     (1,002 )     (7,646 )     (5,292 )     (116,401 )
Management fees 
     -       -       -       -       -       -       -       -       (8,696 )     (8,696 )
Other operating results, net
     (58,113 )     (2,991 )     (583 )     (12 )     (733 )     (62,432 )     (101 )     136       668       (61,729 )
Profit / (Loss) from Operations       
     (133,142 )     18,404       1,577       (6,229 )     17,004       (102,386 )     39,227       (25,586 )     (9,248 )     (97,993 )
Share of profit/ (loss) of associates  
     6,018       -       -       -       -       6,018       -       -       (363 )     5,655  
Segment Profit 
     (127,124 )     18,404       1,577       (6,229 )     17,004       (96,368 )     39,227       (25,586 )     (9,611 )     (92,338 )
                                                                                 
Investment properties 
     -       -       -       -       30,398       30,398       -       -       -       30,398  
Property, plant and equipment 
     1,182,139       169,060       14,545       222,050       2,363       1,590,157       55,555       21,303       8,826       1,675,841  
Goodwill                                                                                               
     4,090       -       -       1,837       -       5,927       -       -       -       5,927  
Biological assets   
     57,102       183,817       25,987       96,389       -       363,295       -       -       2,807       366,102  
Inventories                                                                                               
     193,534       40,597       1,596       2,474       1,950       240,151       -       -       56       240,207  
Interests in associates       
     25,563       -       -       -       -       25,563       -       -       1,889       27,452  
Total segment assets (ii)  
     1,462,428       393,474       42,128       322,750       34,711       2,255,491       55,555       21,303       13,578       2,345,927  

(i)  
From all of the Company’s revenues corresponding to agricultural business, Ps. 647.8 million is originated in Argentina and Ps. 430.0 million in other countries, principally Brazil for Ps. 347.2 million.
(ii)  
From all of the Company’s assets included in the segment corresponding to agricultural business, Ps. 813.7 million is located in Argentina and Ps. 1,548.2 million in other countries, principally Brazil for Ps. 1,287.2 million.

 
101
 

 
(ii)  
Urban properties and investments

The following tables present the reportable segments of the urban properties and investments line of business of the Company for the years ended June 30, 2013 and 2012:

   
June 30, 2013
  
   
Shopping Center Properties
    
Offices
    
Sales and developments
    
Hotels
    
International
    
Financial operations
and others
    
Total urban and investment properties (II)
  
Revenues (I)  
     1,622,346       291,123       141,996       225,836       40,905       1,203       2,323,409  
Costs                                                                      
     (770,320 )     (122,186 )     (106,558 )     (169,071 )     (33,494 )     (1,517 )     (1,203,146 )
Gross Profit 
     852,026       168,937       35,438       56,765       7,411       (314 )     1,120,263  
Gain from disposal of investment properties
     -       -       178,026       -       -       -       178,026  
General and administrative expenses
     (66,476 )     (34,876 )     (32,901 )     (49,337 )     (13,158 )     (250 )     (196,998 )
Selling expenses 
     (58,908 )     (11,360 )     (16,456 )     (28,807 )     -       (1,588 )     (117,119 )
Other operating results, net   
     (45,020 )     (901 )     6,342       (369 )     135,082       (3,363 )     91,771  
Profit / (Loss) from Operations        
     681,622       121,800       170,449       (21,748 )     129,335       (5,515 )     1,075,943  
Share of profit / (loss) of associates   
     -       (2,514 )     1,570       83       (82,552 )     62,549       (20,864 )
Segment Profit / (Loss)  
     681,622       119,286       172,019       (21,665 )     46,783       57,034       1,055,079  
                                                         
Investment properties 
     2,258,444       857,782       447,363       -       744,587       8,072       4,316,248  
Property, plant and equipment 
     17,385       29,828       3,972       180,350       199       -       231,734  
Trading properties
     1,484       106       131,587       -       80,461       -       213,638  
Goodwill                                                                      
     8,582       11,661       4,540       -       51,069       -       75,852  
Inventories                                                                      
     10,003       -       463       5,962       -       -       16,428  
Investments in associates  
     -       23,385       32,759       21,339       802       1,076,545       1,154,830  
Total segment assets (ii)  
     2,295,898       922,762       620,684       207,651       877,118       1,084,617       6,008,730  

(i)  
From all of the Company’s revenues corresponding to urban properties and investment business, Ps. 2,283 million is originated in Argentina and Ps. 41 million in United States, respectively.
(ii)  
From all of the Company´s assets included in the urban properties and investment segment, Ps. 5,132 million is located in Argentina and Ps. 877 million in other countries, principally in United States for Ps. 800 million.

 
102
 

 
   
June 30, 2012
  
   
Shopping Center Properties
    
Offices and other rental properties
    
Sales and developments
    
Hotels
    
International
    
Financial operation and others
    
Total urban and investment properties (II)
  
Revenues (I)
     1,321,589       253,186       162,750       170,012       -       4,836       1,912,373  
Costs
     (633,473 )     (99,027 )     (119,623 )     (117,874 )     -       (1,687 )     (971,684 )
Gross Profit / (Loss)
     688,116       154,159       43,127       52,138       -       3,149       940,689  
Gain from disposal of investment properties
     -       -       116,689       -       -       -       116,689  
General and administrative expenses
     (56,863 )     (36,058 )     (36,473 )     (37,375 )     (8,838 )     (296 )     (175,903 )
Selling expenses
     (44,175 )     (10,049 )     (21,136 )     (22,788 )     -       2,157       (95,991 )
Other operating results,net
     (23,126 )     (6,302 )     (6,820 )     (1,526 )     43       736       (36,995 )
Profit / (Loss) from Operations
     563,952       101,750       95,387       (9,551 )     (8,795 )     5,746       748,489  
Share of profit/ (Loss) of associates
     -       -       1,046       (134 )     (56,241 )     84,251       28,922  
Segment Profit / (Loss)
     563,952       101,750       96,433       (9,685 )     (65,036 )     89,997       777,411  
                                                         
Investment properties
     2,178,353       1,047,242       423,786       -       -       -       3,649,381  
Trading properties
     -       -       244,990       -       61,444       -       306,434  
Property, plant and equipment
     15,989       37,789       4,164       194,258       199       -       252,399  
Goodwill
     7,758       7,751       4,879       -       -       -       20,388  
Inventories
     10,394       -       474       4,791       -       -       15,659  
Investments in associates
     -       -       28,727       21,256       118,326       1,043,805       1,212,114  
Total segment assets (ii)
     2,212,494       1,092,782       707,020       220,305       179,969       1,043,805       5,456,375  

(i)  
The Company’s revenues are entirely originated in Argentina.
(ii)  
From all of the Company´s assets included in the segment, Ps. 5,291 million is located in Argentina and Ps. 180 million in other countries, principally in United States for Ps. 118.


 
103
 

 
The following tables present a reconciliation between the total results of segment operations and the results of operations as per the statement of income. The adjustments relate to the presentation of the results of operations of joint ventures accounted for under the equity method under IFRS.

   
June 30, 2013
  
   
Total segment information
    
Adjustment for share of profit / (loss) of joint ventures
    
Total
Statement of Income
  
Revenues
     3,671,210       (142,659 )     3,528,551  
Costs
     (3,241,296 )     120,774       (3,120,522 )
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
     888,493       (1,749 )     886,744  
Changes in net realizable value of agricultural produce after harvest
     11,756       -       11,756  
Gross Profit
     1,330,163       (23,634 )     1,306,529  
Gain from disposal of investment properties
     178,026       -       178,026  
Gain from disposal of farmlands
     149,584       -       149,584  
General and administrative expenses
     (347,330 )     4,846       (342,484 )
Selling expenses
     (289,258 )     11,632       (277,626 )
Other operating results, net
     89,934       2,398       92,332  
Profit from Operations before share of Profit / (Loss) of Associates and Joint Ventures
     1,111,119       (4,758 )     1,106,361  
Share of profit / (loss) of associates and joint ventures
     (11,673 )     1,855       (9,818 )
Profit from operations before financing and taxation
     1,099,446       (2,903 )     1,096,543  


 
June 30, 2012
 
Total segment information
  
Adjustment for share of profit / (loss) joint ventures
  
Total
Statement of Income
Revenues
2,990,235
  
(130,386)
  
2,859,849
Costs
(2,576,938)
  
112,729
  
(2,464,209)
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
708,706
  
(7,760)
  
700,946
Changes in net realizable value of agricultural produce after harvest
2,600
  
120
  
2,720
Gross Profit
1,124,603
  
(25,297)
  
1,099,306
Gain from disposal of investment properties
116,689
  
-
  
116,689
Gain from disposal of farmlands                                                              
45,490
  
-
  
45,490
General and administrative expenses                                                              
(316,474)
  
4,512
  
(311,962)
Selling expenses                                                              
(212,392)
  
11,902
  
(200,490)
Management fees
(8,696)
  
-
  
(8,696)
Other operating results, net
(98,724)
  
5,343
  
(93,381)
Profit from Operations before share of Profit / (Loss) of Associates and Joint Ventures
650,496
  
(3,540)
  
646,956
Share of profit / (loss) of associates and joint ventures
34,577
  
(31,781)
  
2,796
Profit from operations before financing and taxation
685,073
  
(35,321)
  
649,752

 
Total segment assets are allocated based on the operations of the segment and the physical location of the asset. According to the analysis above, segment assets include the proportionate share of the assets of joint ventures. The statement of financial position under IFRS shows the net investment in these joint ventures as a single item.
 
 
104
 

Cresud’s Results of Operations
 
The following terms used herein with the meanings specified:
 
Agricultural Business
 
Revenues.
 
Sales: consist of sales of crops, milk and cattle beef. Sales are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. Revenue from cattle feeding operations, primarily comprised of feeding, animal health and yardage, and revenue from operating leases and brokerage activities are recognized as services are performed.
 
Costs.
 
Cost of Production: cost of production consists of costs directly related to the transformation of biological assets and agricultural produce
 
Cost of Sales: Our cost of sales consists of:
 
(i) the book value of the product sold at the time of sale; and
 
(ii) certain direct costs related to the sales of agricultural produce other than selling expenses
 

Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
 
Biological assets and agriculture produce at the point of harvest are measured at fair value less costs to sell on initial recognition and at each statement of financial position date, except where fair value cannot be reliably measured. Cost approximates fair value when little or no biological transformation has taken place since the costs were originally incurred or the impact of biological transformation on price is not expected to be material. Changes in fair value less cost to sell are charged to income as incurred.

Changes in net realizable value of agricultural produce after harvest
 
Our gain (loss) from holding inventories and biological assets (livestock) consists of changes in their carrying amount.
 
Urban properties and investment properties business

Shopping centers portfolio

Revenues derived from business activities developed in our shopping centers mainly include rental income under operating leases, admission rights, commissions and revenue from several services provided to our lessees. In addition, some lease contracts include provisions that set forth variable rent based on specific volumes of sales and other types of ratios.
 
Revenue includes income from managed operations such as car parking lots. In addition, revenue includes income from property management fees.
 
Office and other rental properties portfolio

Rental income from office and other rental properties include rental income from office leased out under operating leases, income for services and expenses recovery paid from tenants.

Development and sale property activities of the Company

Revenue primarily comprises the proceeds from development and sale of trading properties.

Hotel operations of the Company:

Revenue from hotel operations primarily comprises room accommodation, catering and other services.

 
105
 
 
OPERATING RESULTS
 
Fiscal year ended June 30, 2013 compared to fiscal year ended June 30, 2012
 
REVENUES
 
Total sales of the Company increased 22.8% from Ps. 2,990.2 million for the fiscal year 2012 to Ps. 3,671.2 million for the fiscal year 2013. This was mainly due to a 25.04% increase in the Agricultural business, from Ps. 1,077.9 million in the fiscal year 2012 to Ps. 1,347.8 million in the fiscal year 2013 and a 21.5% increase in the Urban properties and investment business, from Ps. 1,912.4 million in the fiscal year 2012 to Ps. 2,323.4 million in the fiscal year 2013.
 
Agricultural business
 
Total sales increased 25.04%, from Ps. 1,077.9 million in the fiscal year 2012 to Ps. 1,347.8 million in the fiscal year 2013. This was due to an increase of Ps. 114.1 million in the Crops segment, an increase of Ps. 8.7 million in the Milk segment, an increase of Ps. 61.4 million in the Sugarcane segment, an increase of Ps. 5.5 million in the Farmland Leases and Services segment, an increase of Ps. 107.7 million in the Agro-industrial segment and an increase of Ps. 28.2 million in the Other segment, offset by a Ps. 55.6 million reduction in the beef Cattle segment.
 
Crops
 
Sales from the Crops segment rose 17.9%, from Ps. 636.1 million in the fiscal year 2012 to Ps. 750.2 million in the fiscal year 2013, mainly as a result of:

·  
a 21.0% increase in average prices of grains sold, from Ps. 1,191 per ton in the fiscal year 2012 to Ps. 1,440 per ton in the fiscal year 2013;
 
·  
partially offset by a slight reduction of 13,509 tons in the volume of grains sold in the fiscal year 2013 compared to the previous fiscal year; and
 
·  
a 8.0% reduction in production volume, from 383,088 tons in the fiscal year 2012 to 355,390 tons in the fiscal year 2013.
 
The following table shows a breakdown of the sales of grains:

   
Sale of Crops (in tons)
  
   
Fiscal Year ended June 30,
  
   
2013
    
2012
    
Variation
  
Corn
     271,143       224,114       47,029  
Soybean
     208,814       251,640       (42,826 )
Wheat
     10,735       20,746       (10,011 )
Sorghum
     5,807       8,497       (2,690 )
Sunflower
     10,551       18,095       (7,544 )
Other
     14,052       11,519       2,533  
Total Sales
     521,102       534,611       (13,509 )

Beef cattle
 
Sales from the Beef cattle segment decreased 42.0%, from Ps. 132.3 million in the fiscal year 2012 to Ps. 76.7 million in the fiscal year 2013, mainly as a result of:

·  
a 4.7% reduction in the average price per kilogram sold, from Ps. 8.92 in the fiscal year 2012 to Ps. 8.49 in the fiscal year 2013;
 
·  
a 35.4% reduction in the beef sales volume, from 15,075 tons in the fiscal year 2012 to 9,745 tons in the fiscal year 2013; and
 
·  
a 14.1% reduction in the volume of beef production, from 9,045 tons in the fiscal year 2012 to 7,772 tons in the fiscal year 2013.
 
Milk
 
Sales from the Milk segment increased 28.7%, from Ps. 30.2 million in the fiscal year 2012 to Ps. 38.8 million in the fiscal year 2013, mainly as a result of:

·  
a 19.8% increase in the average price of milk, from Ps. 1.69 per liter in the fiscal year 2012 to Ps. 2.02 per liter in the fiscal year 2013;
 
·  
a 11.5% increase in milk production volume, reflecting mainly a larger average number of milking cows;
 
·  
partially offset by a 4.7% reduction in production efficiency levels.
 
Sugarcane
 
Sales from the Sugarcane segment increased 62.1%, from Ps. 98.9 million in the fiscal year 2012 to Ps. 160.3 million in the fiscal year 2013, mainly as a result of:

·  
543,541 more tons of sugarcane sold in the fiscal year 2013 as compared to the previous fiscal year (mainly because during the fiscal year 2012 no sales were made in our subsidiaries from Bolivia);
 
·  
a 100.8% increase in production volume, from 576,048 tons in the fiscal year 2012 to 1,156,848 tons in the fiscal year 2013;
 
 
106
 
 
·  
partially offset by a 12.6% reduction in the average sales price of sugarcane, from Ps. 155 per ton in the fiscal year 2012 to Ps. 136 per ton in the fiscal year 2013.
 
Farmland Leases and Services
 
Sales from the Farmland Leases and Services segment increased by 21.8%, from Ps. 25.3 million in the fiscal year 2012 to Ps. 30.8 million in the fiscal year 2013, mainly as a result of:

·  
a 12.0% increase in leases, from Ps. 19.9 million in the fiscal year 2012 to Ps. 22.3 million in the fiscal year 2013; and
 
·  
an increase of 57.6% in irrigation services and other agricultural services, from Ps. 5.4 million in the fiscal year 2012 to Ps. 8.5 million in the fiscal year 2013.
 
Agro-industrial
 
Sales from the Agro-industrial segment increased 107.6%, from Ps. 100.1 million in the fiscal year 2012 to Ps. 207.8 million in the fiscal year 2013, mainly as a result of:

·  
a 110.2% increase in sales from our meat packing plant due to the acceleration in slaughtering levels during the first half of fiscal year 2013. It should be noted that during the second half of fiscal year 2012 the plant had been inactive. During the fiscal year 2013 44,202 heads were slaughtered, virtually doubling the output of own animals for the previous fiscal year and totaling more than 7,600 heads from users of our slaughtering service. During the fiscal year 2012 alone, 662 heads were slaughtered under this pattern;
 
·  
during the last two months of fiscal year 2013, the sales prices of sub products recorded a sustained increase which, added to the firm appreciation of the exchange rate and the sustained rise in slaughtering volumes, led to the above mentioned increase;
 
·  
offset by a decrease of 19.3% in revenues from sales in our feedlot facility, mainly reflecting the 71.5% reduction in average occupancy, from 4,400 heads in the fiscal year 2012 to 1,252 heads in the fiscal year 2013.
 
Other
 
Sales from the Other segment increased by 51.3%, from Ps. 55.1 million in the fiscal year 2012 to Ps. 83.3 million in the fiscal year 2013, mainly due to:

·  
an increase of Ps. 18.8 million in resales of supplies and others; and
 
·  
an increase of Ps. 9.4 million in commodity brokerage services.
 
Urban Properties and Investment Business
 
Sales from the Urban properties and investment business increased 21.5%, from Ps. 1,912.4 million in the fiscal year 2012 to Ps. 2,323.4 million in the fiscal year 2013. This was mainly due to an increase of Ps. 300.8 million in the Shopping Centers segment, an increase of Ps. 37.9 million in the Offices and Other Rental segment, an increase of Ps. 55.8 million in the Hotels segment and an increase of Ps. 40.9 million in the International segment, partially offset by a reduction of Ps. 20.8 million in the Development and Sales of Properties segment and of Ps. 3.6 million in the Financial Operations and Others segment.
 
COSTS
 
Total costs of the Company increased 25.8%, from Ps. 2,576.9 million in the fiscal year 2012 to Ps. 3,241.3 million in the fiscal year 2013. This was mainly a result of a 27.0% increase in the Agricultural business, from Ps. 1,605.3 million in the fiscal year 2012 to Ps. 2,038.2 million in the fiscal year 2013 and a 23.8% increase in the Urban properties and investment business from Ps. 971.7 million in the fiscal year 2012 to Ps. 1,203.1 million in the fiscal year 2013.
 

Agricultural business
 
Total costs increased 27.0%, from Ps. 1,605.3 million in the fiscal year 2012 to Ps. 2,038.2 million in the fiscal year 2013. This was caused mainly by an increase of Ps. 176.0 million in the Crops segment, an increase of Ps. 17.6 million in the Milk segment, an increase of Ps. 134.3 million in the Sugarcane segment, an increase of Ps. 9.5 million in the Farmland Leases and Services segment, an increase of Ps. 1.0 million in the Land Transformation and Sales  segment, an increase of Ps. 87.6 million in the Agro-industrial segment and an increase of Ps. 25.1 million in the Other segment, slightly offset by a reduction of Ps. 17.6 million in the Beef segment.

Crops
 
Costs from the Crops segment increased 16.7%, from Ps. 1,051.9 million for fiscal year 2012 to Ps. 1,227.8 million for fiscal year 2013. Costs from the Crops segment are detailed in the following table:
 
   
In thousands of Ps.
  
   
06/30/2013
    
06/30/2012
  
Cost of sales
     626,922       554,220  
Cost of production
     600,910       497,647  
Total Costs
     1,227,832       1,051,867  
 
 
 
107
 
The cost of sales from the Crops segment increased 13.1%, from Ps. 554.2 million in the fiscal year 2012 to Ps. 626.9 million in the fiscal year 2013, mainly as a result of:

·  
a 16.1% increase in the average cost per ton of grain sold in the fiscal year 2013, from Ps. 1,037 in the fiscal year 2012 to Ps. 1,203 in the fiscal year 2013, mainly as a result of the higher average market prices of grains; and
 
·  
slightly offset by a 2.5% reduction in the volume of tons sold as compared to the previous fiscal year.
 
The cost of sales as a percentage of sales was 87.1% in the fiscal year 2012 and 83.6% in the fiscal year 2013.

The cost of production from the Crops segment increased 20.8% from Ps. 497.6 million in the fiscal year 2012 to Ps. 600.9 million in the fiscal year 2013, mainly as a result of:

·  
a 20.1% increase in direct production costs during this fiscal year as compared to the previous one, mainly reflecting higher prices of leases and supplies used (agrochemicals and seeds);
 
·  
slightly offset by lower production volumes in the fiscal year 2013 as compared to fiscal year 2012; and
 
·  
a smaller number of hectares in operation in own farmlands in the fiscal year 2013 as compared to fiscal year 2012.
 
Total cost of production per ton increased 30.2%, from Ps. 1,299 in the fiscal year 2012 to Ps. 1,691 in the fiscal year 2013, mainly as a result of higher direct costs of production and lower yields per hectare in the fiscal year 2013 as compared to fiscal year 2012.

Beef cattle
 
Costs of the Beef cattle segment decreased 10.8%, from Ps. 163.5 million for fiscal year 2012 to Ps. 145.9 million for fiscal year 2013. The following table shows the costs from the Beef cattle segment:

   
In thousands of Ps.
  
   
06/30/2013
    
06/30/2012
  
Cost of sales
     74,064       123,974  
Cost of production
     71,876       39,557  
Total Costs
     145,940       163,531  

The cost of sales from the Beef cattle segment decreased 40.3%, from Ps. 124.0 million in the fiscal year 2012 to Ps. 74.1 million in the fiscal year 2013, mainly as a result of:

·  
a 7.6% reduction in the average cost per kilogram sold, from Ps. 8.2 in the fiscal year 2012 to Ps. 7.6 in the fiscal year 2013, largely due to the reduction in average price per kilogram sold from Ps. 8.92 in the fiscal year 2012 to Ps. 8.49 in the fiscal year 2013; and
 
·  
a 35.4% reduction in beef sales volumes in the fiscal year 2013.
 
Cost of production of the Beef cattle segment increased 81.7%, from Ps. 39.6 million in the fiscal year 2012 to Ps. 71.9 million in the fiscal year 2013. The higher cost of production from the Beef cattle segment during the fiscal year 2013 was mainly due to:

·  
higher feed costs due to the increase of animals fattened in feedlots in own farmlands;
 
·  
higher supplement costs due to the drought experienced in livestock raising areas during this fiscal year; and
 
·  
offset by a lower production volume in the fiscal year 2013 as compared to fiscal year 2012.
 
Milk
 
Costs of the Milk segment increased 29.4%, from Ps. 57.8 million for fiscal year 2012 to Ps. 74.8 million for fiscal year 2013. The following table contains a detail of the costs of the Milk segment:
 
   
In thousands of Ps.
  
   
06/30/2013
    
06/30/2012
  
Cost of sales
     37,667       29,928  
Cost of production
     37,159       27,913  
Total Costs
     74,826       57,841  

The cost of sales from the Milk segment increased 25.9%, from Ps. 29.9 million in the fiscal year 2012 to Ps. 37.7 million in the fiscal year 2013, mainly as a result of:
 
 
108
 
 
·  
a 9.9% increase in milk sales volumes; and
 
·  
a 19.8% increase in milk price levels that impacted on the cost of sales.
 
Cost of production of the Milk segment increased 33.1%, from Ps. 27.9 million in the fiscal year 2012 to Ps. 37.2 million in the fiscal year 2013. This rise was mainly due to the impact of higher direct and indirect costs, affecting the cost of production per liter of milk, which increased from Ps. 1.69 in the fiscal year 2012 to Ps. 2.01 in the fiscal year 2013.

Sugarcane
 
Costs of the Sugarcane segment increased 80.0%, from Ps. 167.9 million for fiscal year 2012 to Ps. 302.2 million for fiscal year 2013. The following table contains a detail of the costs of the Sugarcane segment:
 
   
In thousands of Ps.
  
   
06/30/2013
    
06/30/2012
  
Cost of sales
     158,152       91,203  
Cost of production
     144,054       76,718  
Total Costs
     302,206       167,921  

Cost of sales from the Sugarcane segment increased 73.4%, from Ps. 91.2 million in the fiscal year 2012 to Ps. 158.2 million in the fiscal year 2013, mainly as a result of:
 
·  
a 85.4% increase in the volume of tons sold as compared to the previous fiscal year;
 
·  
offset by a 6.5% reduction in the average cost per ton of sugarcane sold in the fiscal year 2013, from Ps. 143 in the fiscal year 2012 to Ps. 134 in the fiscal year 2013, mainly as a result of a reduction in sugarcane market prices.
 
The cost of sales as a percentage of sales was 92.2% in the fiscal year 2012 and 98.7% in the fiscal year 2013.
 
The cost of production of the Sugarcane segment increased 87.8%, from Ps. 76.7 million in the fiscal year 2012 to Ps. 144.1 million in the fiscal year 2013, mainly as a result of a higher production volume in the fiscal year 2013 as compared to fiscal year 2012.
 
The total cost of production per ton decreased 6.5%, from Ps. 133 in the fiscal year 2012 to Ps. 125 in the fiscal year 2013, mainly as a result of higher yields per hectare in the fiscal year 2013 as compared to fiscal year 2012.
 
Farmland Leases and Services
 
Cost of sales from the Farmland Leases and Services segment increased significantly, from Ps. 2.6 million for the fiscal year 2012 to Ps. 12.1 million for fiscal year 2013, mainly as a result of:

·  
an increase of Ps. 8.3 million in the costs of lease services, mainly resulting from higher administrative expenses and costs related to the business; and
 
·  
an increase of Ps. 1.1 million in irrigation and other agricultural services.
 
Land transformation and sales
 
Cost of sales from the Land Transformation and Sales segment increased 22.0%, from Ps. 4.7 million for fiscal year 2012 to Ps. 5.7 million for fiscal year 2013, mainly due to salary rises.

Agro-industrial
 
Cost of sales from the Agro-industrial segment increased 79.1%, from Ps. 110.8 million for fiscal year 2012 to Ps. 198.4 million for fiscal year 2013, mainly due to the acceleration of slaughtering levels in our meat packing plant, resulting in a higher volume of operations that led to significant wage increases.

Other
 
The cost of sales of the Other segment increased 54.5%, from Ps. 46.1 million in the fiscal year 2012 to Ps. 71.2 million in the fiscal year 2013, mainly as a result of higher costs from the brokerage business related to the increase in the number of commodity trading transactions through our subsidiary Futuros y Opciones.com for Ps. 6.3 million and higher costs generated by the resale of supplies and others for Ps. 18.8 million.
 
 
109
 

Urban Properties and Investment Business
 
Cost of sales from our Urban properties and investment business increased 23.8%, from Ps. 971.7 million in the fiscal year 2012 to Ps. 1,203.1 million in the fiscal year 2013. This was mainly due to an increase of Ps. 136.8 million in the Shopping Center segment, an increase of Ps. 23.2 million in the Offices and Other Rental segment, an increase of Ps. 51.2 million in the Hotels segment and an increase of Ps. 33.5 million in the International segment, slightly offset by a decrease of Ps. 13.1 million in the Development and Sales of Properties segment and a decrease of Ps. 0.2 million in the Financial Operation and Other segment.
 
INITIAL RECOGNITION AND CHANGES IN FAIR VALUE OF BIOLOGICAL ASSETS AND AGRICULTURAL PRODUCE AT THE POINT OF HARVEST
 
The Company’s revenues from initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest increased 25.4%, from Ps. 708.7 million for fiscal year 2012 to Ps. 888.5 million for fiscal year 2013.

Crops
 
Production income from the Crops segment increased 8.6%, from Ps. 439.9 million in the fiscal year 2012 to Ps. 477.8 million in the fiscal year 2013, mainly as a result of:

·  
a 17.1% increase in the average production price of grains;
 
·  
partially offset by a 7.2% reduction in the total production volume, from 383,088 tons in the fiscal year 2012 to 355,390 tons in the fiscal year 2013, mainly due to a reduction in the harvested volumes of wheat (75.2%), corn (25.3%) and sunflower (14.4%), partially offset by an increase in harvested volumes of soybean (14.5%) and sorghum (2.0%) in the fiscal year 2013.
 
The 7.2% decrease in production volume of our Crops segment was mainly due to a 13.8% reduction in our average yield, from 2.7 tons per hectare in the fiscal year 2012 to 2.3 tons per hectare in the fiscal year 2013, mainly as a result of the mix of grains harvested and unfavorable weather conditions. In addition, during the fiscal year 2013 the surface area in operation decreased from 181,079 hectares (including 8,778 hectares under concession) as of June 30, 2012 to 168,134 hectares (including 8,937 hectares under concession) as of June 30, 2013.

As of June 30, 2013 the harvested area was 95.2% of our total sown area, compared to 90.0% as of June 30, 2012.

The following table shows the number of tons produced and total production income as of June 30, 2013 and 2012:
 
   
Crops Production Income (in tons and thousands of Ps.)
  
   
Fiscal year ended June 30,
  
   
2013
    
2012
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Corn
     107,257       83,416       143,639       90,097  
Soybean
     220,292       354,485       192,458       308,855  
Wheat
     4,505       3,740       18,200       7,062  
Sorghum
     5,486       3,118       5,380       4,116  
Sunflower
     12,437       21,230       14,524       20,041  
Other
     5,413       11,855       8,887       9,686  
TOTAL
     355,390       477,844       383,088       439,857  

Estimated results from the valuation of our crops in progress at reasonable value increased 28.2% from Ps. 73.5 million in the fiscal year 2012 to Ps. 94.2 million in the fiscal year 2013 mainly due to increases in corn (64.9%) and sunflower (53.6%) crops, partially offset by a reduction in soybean crops (48.3%) and wheat crops (18.6%) in the fiscal year 2013.

Beef cattle
 
Production income from the Beef cattle segment increased 7.7%, from Ps. 65.0 million in the fiscal year 2012 to Ps. 70.0 million in the fiscal year 2013, mainly as a result of:

·  
a 23.8% increase in the average price per kilogram produced, from Ps. 7.1 in the fiscal year 2012 to Ps. 8.8 in the fiscal year 2013;
 
·  
offset by a 14.1% reduction in beef production volume from 9,045 tons in the fiscal year 2012 to 7,772 tons in the fiscal year 2013.
 
The calving rate decreased slightly, whereas the death rate recorded a mild increase during the fiscal year 2013 as compared to fiscal year 2012.
 
The number of hectares devoted to beef cattle production decreased from 95,995 hectares in the fiscal year 2012 to 91,053 hectares in the fiscal year 2013 due to a smaller number of own hectares devoted to beef cattle production.
 
Results from beef cattle holdings decreased 33.6%, from a gain of Ps. 14.0 million in the fiscal year 2012 to a gain of Ps. 9.3 million in the fiscal year 2013, mainly as a result of the reduction in beef cattle stocks and lower beef cattle market prices.
 
 
110
 
 
Milk
 
Production income from the Milk segment increased 21.0%, from Ps. 31.1 million in the fiscal year 2012 to Ps. 37.6 million in the fiscal year 2013. This increase was mainly due to:

·  
a 11.5% increase in milk production volumes, from 16.6 million liters in the fiscal year 2012 to 18.5 million liters during this fiscal year. This increase in production volume was mainly due to a higher average number of milking cows per day, from 2,046 in the fiscal year 2012 to 2,392 in the fiscal year 2013, partially offset by a 4.7% reduction in the efficiently level of average daily milk production per cow, from 22.2 liters in the fiscal year 2012 to 21.1 liters in the fiscal year 2013; and
 
·  
a 19.8% increase in the average price of milk, from Ps. 1.69 per liter in the fiscal year 2012 to Ps. 2.02 per liter in the fiscal year 2013.
 
Results from holding of milking cows increased 10.3%, from a gain of Ps. 2.9 million in the fiscal year 2012 to a gain of Ps. 3.2 million in the fiscal year 2013.

Sugarcane
 
Production income from the Sugarcane segment increased 113.2%, from Ps. 71.3 million in the fiscal year 2012 to Ps. 152.0 million in the fiscal year 2013, mainly as a result of:

·  
an increase in total production volume of 100.8%, from 576,048 tons in the fiscal year 2012 to 1,156,848 tons in the fiscal year 2013; and
 
·  
an increase of 6.2% in the average production price of sugarcane.
 
The 100.8% increase in production volume from the Sugarcane segment was mainly due to a 40.4% increase in our average yield, from 65.4 tons per hectare in the fiscal year 2012 to 91.7 tons per hectare for fiscal year 2013, mainly due to favorable weather conditions.
 
As of June 30, 2013, the harvested area was 94.9% of the total sown area compared to 82.3% as of June 30, 2012.
 
The following table shows the tons produced and actual income as of June 30, 2013 and 2012:
 
   
Sugarcane Production Income (in tons and thousands of Ps.)
  
   
Fiscal year ended June 30,
  
   
2013
    
2012
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Sugarcane
     1,156,848       152,037       576,048       71,306  

 
Estimated results from the valuation of our crops in progress at reasonable value increased significantly from Ps. 10.9 million in the fiscal year 2012 to Ps. 45.3 million in the fiscal year 2013 mainly generated by Brasilagro, where higher productivity and higher prices are estimated and new planted hectares were added.

Other
 
Income from initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest point from the Other segment decreased significantly, from an income of Ps. 0.06 million in the fiscal year 2012 to a Ps. 1.0 million loss in the fiscal year 2013, due to the variation in the valuation of the timber stocks at reasonable value in the fiscal year 2013.

CHANGES IN NET REALIZABLE VALUE OF AGRICULTURAL PRODUCE AFTER HARVEST
 
Income from changes in net realizable value of agricultural produce after harvest increased significantly, from Ps. 2.6 million in the fiscal year 2012 to Ps. 11.8 million in the fiscal year 2013. This was caused mainly by an increase of Ps. 9.3 million in the Crops segment (due to higher market prices), offset by a Ps. 0.2 million reduction in the beef cattle segment.

GROSS INCOME / (LOSS)
 
As a result of the above mentioned factors, the Company’s gross income increased 18.3%, from Ps. 1,124.6 million in the fiscal year 2012 to Ps. 1,330.2 million in the fiscal year 2013. This was caused mainly by:

·  
a 14.1% increase in the Agricultural business, from a Ps. 183.9 million income in the fiscal year 2012 to a Ps. 209.9 million income in the fiscal year 2013; and
 
·  
a 19.1% increase in the Investment and development properties business, from a Ps. 940.7 million income in the fiscal year 2012 to a Ps. 1,120.3 million income in the fiscal year 2013.
 
Agricultural business
 
As a result of the above mentioned factors, gross income increased 14.1%, from Ps. 183.9 million in the fiscal year 2012 to Ps. 209.9 million in the fiscal year 2013.

 
111
 
 
Crops
 
Gross income from this segment increased 6.1%, from Ps. 100.1 million in the fiscal year 2012 to Ps. 106.2 million in this fiscal year.

Beef cattle
 
Gross income from this segment decreased 79.1%, from Ps. 47.9 million in the fiscal year 2012 to Ps. 10.0 million in this fiscal year.

Milk
 
Gross income from this segment decreased 25.3%, from Ps. 6.3 million in the fiscal year 2012 to Ps. 4.7 million in this fiscal year.

Sugarcane
 
Gross income from this segment increased 319.1%, from Ps. 13.2 million in the fiscal year 2012 to Ps. 55.4 million in this fiscal year.

Farmland Leases Services
 
Gross income from this segment decreased 17.5%, from Ps. 22.7 million in the fiscal year 2012 to Ps. 18.8 million in this fiscal year.

Land Transformation and sales
 
Gross loss from this segment increased 21.3%, from Ps. 4.7 million in the fiscal year 2012 to Ps. 5.7 million in this fiscal year.

Agro-industrial
 
Gross income / (loss) from this segment increased 187.4%, from a Ps. 10.7 million loss in the fiscal year 2012 to a Ps. 9.4 million income in this fiscal year.

Other
 
Gross income from this segment increased 23.3%, from Ps. 9.0 million in the fiscal year 2012 to Ps. 11.1 million in this fiscal year.

Urban Properties and Investment Business
 
Gross income from the Urban properties and investment business increased 19.1% from Ps. 940.7 million in the fiscal year 2012 to Ps. 1,120.3 million in the fiscal year 2013. This was due to an increase of Ps. 163.9 million in the Shopping Centers segment; an increase of Ps. 14.8 million in the Offices and Other Rental segment; an increase of Ps. 4.6 million in the Hotels segment and an increase of Ps. 7.4 million in the International segment, partially offset by a reduction of Ps. 7.7 million in the Development and Sales of Properties segment and of Ps. 3.5 million in the Financial Transactions and Other segment.
 

GAIN FROM DISPOSAL OF INVESTMENT PROPERTIES
 
Income / (loss) from sale of investment properties derived from the Investment and development properties business increased 52.6%, from an Ps. 116.7 million income in the fiscal year 2012 to a Ps. 178.0 million income for fiscal year 2013.

 
GAIN FROM DISPOSAL OF FARMLANDS
 
Income / (loss) from the sale of farmlands derived from the Sale and Transformation of Lands segment increased 228.8%, from a Ps. 45.5 million income in the fiscal year 2012 to a Ps. 149.6 million income in the fiscal year 2013, mainly as a result of:

During the fiscal year 2013
 
·  
On June 19, 2013 the deed of sale for 5,613 hectares of the “La Suiza” farmland, located in Villa Ángela, Province of Chaco, was executed. The transaction price was Ps. 34.9 million (US$ 6.7 million). The result from the sale was a gain of Ps. 29.8 million;
 
·  
On October 11, 2012, Brasilagro sold the Horizontina farmland, located in the municipal district of Tasso Fragoso. Sate of Maranhão, Brazil, for a total price of R$ 75 million (equivalent to Ps. 174.8 million). The Horizontina farmland has a surface area of 14,359 hectares. The result of the sale was a gain of Ps. 53.9 million;
 
·  
On April 25, 2013, Brasilagro sold an aggregate of 394 hectares of the Araucaria farmland, located in the municipal district of Mineros – GO, Brazil. The sale price was R$ 11.7 million (equivalent to Ps. 26.6 million). The result of the sale was a gain of Ps. 12.6 million; and
 
·  
On May 10, 2013, Brasilagro sod an aggregate of 4,895 hectares of the Cremaq farmland, located in the municipal district of Ribeiro Gonçalves-PI, Brazil. The sale price was R$ 42.1 million (equivalent to Ps. 96.3 million). The result of the sale was a gain of Ps. 53.2 million.
 
During the fiscal year 2012
 
·  
On September 28, 2011, Brasilagro sold the Sao Pedro farmland, a rural property located in the Municipality of Chapadão do Céu – GO with a total surface area of 2,447 hectares. The transaction price was R$ 23.3 million (equivalent to Ps. 59.8 million and 580,000 bags of soybean seeds). The result of the sale was a gain of Ps. 27.8 million;
 
 
112
 
 
·  
On March 2, 2012, the sale of 1,194 additional hectares in La Fon Fon farmland, located in the Province of Obispo Santiesteban, Republic of Bolivia, was agreed upon for Ps. 18.3 million (US$ 4.8 million). The result of the sale was a gain of Ps. 6.6 million; and
 
·  
On May 22, 2012, the Company sold, assigned and conveyed to APSA a 115-hectare plot of land that forms part of the property “Puerta de Luján” located in the District of Luján, Province of Buenos Aires, for a total amount of Ps. 15.5 million, which has been fully collected. The result of the sale was a gain of Ps. 11.1 million.
 
GENERAL AND ADMINISTRATIVE EXPENSES
 
Total general and administrative expenses of the Company increased 9.7%, from Ps. 316.5 million for fiscal year 2012 to Ps. 347.3 million for fiscal year 2013. This was mainly due to an increase of Ps. 9.8 million in the Agricultural business and an increase of Ps. 21.1 million in the Investment and development properties business.

Agricultural business
 
General and Administrative expenses from our Agricultural business increased 6.9%. from Ps. 140.6 million in the fiscal year 2012 to Ps. 150.3 million in the fiscal year 2013.

Crops
 
General and Administrative expenses from the Crops segment increased 1.1%. from Ps. 86.8 million in the fiscal year 2012 to Ps. 87.7 million in the fiscal year 2013, mainly due to:

·  
higher salaries, wages and social security contributions;
 
·  
higher Directors’ fees; and
 
·  
slightly offset by a reduction in fees and compensation from services.
 
Beef cattle
 
General and administrative expenses from the Beef cattle segment decreased 14.2%, from Ps. 14.9 million in the fiscal year 2012 to Ps. 12.8 million in the fiscal year 2013. Although there were increases in salaries, wages and social security contributions and Directors’ fees, administrative expenses lowered due to a reduction in proration percentages between both fiscal years, along with lower fees and compensation from services.

Milk
 
General and administrative expenses from the Milk segment decreased 1.0%, from Ps. 2.94 million in the fiscal year 2012 to Ps. 2.91 million in the fiscal year 2013. Although there were increases in salaries, wages and social security contributions and Directors’ fees, administrative expenses lowered due to a reduction in proration percentages between both fiscal years, along with a reduction in fees and compensation from services.

Sugarcane
 
General and administrative expenses from the Sugarcane segment increased 24.4%, from Ps. 19.4 million in the fiscal year 2012 to Ps. 24.2 million in the fiscal year 2013, mainly as a result of higher salaries, wages and social security contributions, Directors’ fees and maintenance and repairs.

Farmland Leases and Services
 
General and administrative expenses from the Farmland Leases and Services segment increased 11.2%, from Ps. 3.7 million in the fiscal year 2012 to Ps. 4.1 million in the fiscal year 2013, mainly as a result of higher salaries, wages and social security contributions and Directors’ fees, offset by lower fees and compensation from services.

Land Transformation and sales
 
General and administrative expenses from the Land Transformation and Sales segment increased 5.1%, from Ps. 0.51 million in the fiscal year 2012 to Ps. 0.53 million in the fiscal year 2013, mainly as a result of higher salaries, wages and social security contributions and Directors’ fees, offset by lower fees and compensation from services.

Agro-industrial
 
General and administrative expenses from the Agro-industrial segment increased 49.1%, from Ps. 7.4 million in the fiscal year 2012 to Ps. 11.0 million in the fiscal year 2013, mainly as a result of higher salaries, wages and social security contributions due to the resumption of operations in the meat packing plant.

Other
 
General and administrative expenses from the Other segment increased 44.2%, from Ps. 4.9 million in the fiscal year 2012 to Ps. 7.1 million in the fiscal year 2013, mainly due to higher salaries, wages and social security contributions.

Urban Properties and Investment Business
 
General and administrative expenses from the Urban Properties and Investment Business segment increased 12.0%, from Ps. 175.9 million in the fiscal year 2012 to Ps. 197.0 million in the fiscal year 2013. This was mainly due to an increase of Ps. 9.6 million in the Shopping Centers segment, an increase of Ps. 12.0 million in the Hotels segment, and an increase of Ps. 4.3 million in the International segment, partially offset by reduction of Ps. 3.6 million in the Development and Sales of Properties segment and a reduction of Ps. 1.2 million in the Offices and Other Rental segment.
 

 
113
 
 
SELLING EXPENSES
 
Total selling expenses of the Company increased 36.2%, from Ps. 212.4 million in the fiscal year 2012 to Ps. 289.3 million in the fiscal year 2013. This was mainly due to an increase of Ps. 55.7 million in the Agricultural business and an increase of Ps. 21.1 million in the Investment and development properties business.

Agricultural business
 
Selling expenses from the Agricultural business increased 47.9%, from Ps. 116.4 million in the fiscal year 2012 to Ps. 172.1 million in the fiscal year 2013.

Crops
 
Selling expenses from the Crops segment increased 30.1% from Ps. 88.4 million in the fiscal year 2012 to Ps. 115.0 million in the fiscal year 2013, mainly due to:

·  
an increase in freight, conditioning and storage costs and other taxes, rates and contributions;
 
·  
slightly offset by a reduction in commissions.
 
Beef cattle
 
Selling expenses of the Beef cattle segment decreased 5.4%, from Ps. 11.6 million in the fiscal year 2012 to Ps. 10.9 million in the fiscal year 2013, mainly due to:

·  
a reduction in other taxes, rates and contributions, commissions and conditioning and storage costs;
 
·  
partially offset by higher freight costs.
 
Milk
 
Selling expenses of the Milk segment increased 38.4%, from Ps. 1.2 million in the fiscal year 2012 to Ps. 1.7 million in the fiscal year 2013, mainly due higher other taxes, rates and contributions.

Sugarcane
 
Selling expenses of the Sugarcane segment increased Ps. 4.0 million, mainly due to higher freight costs for $ 2.6 million, conditioning and storage costs for $ 1.1 million and other taxes, rates and contributions for $ 0.4 million from Bolivia in the fiscal year 2013 reflecting the fact that in the previous fiscal year there had been no sales of sugarcane in Bolivia and in Brazil no selling expenses are incurred.

Farmland Leases and Services
 
Selling expenses of the Farmland Leases and Services segment increased 17.2%, from Ps. 1.3 million in the fiscal year 2012 to Ps. 1.5 million in the fiscal year 2013, mainly due to the increase in other taxes, rates and contributions and commission and advertising expenses.

Land Transformation and sales
 
Selling expenses of the Land Transformation and sales segment increased significantly, from Ps. 1.0 million in the fiscal year 2012 to Ps. 10.6 million in the fiscal year 2013, mainly as a result of higher commissions directly related to the sale of farmlands.

Agro-industrial
 
Selling expenses from the Agro-industrial segment increased 181.3% from Ps. 7.6 million in the fiscal year 2012 to Ps. 21.5 million in the fiscal year 2013, mainly due to the increase in other taxes, rates and contributions, freight costs, commercial indemnifications and bad debtors.

Other
 
Selling expenses from the Other segment increased 30.0% from Ps. 5.3 million in the fiscal year 2012 to Ps. 6.9 million in the fiscal year 2013, mainly as a result of an increase in turnover tax, salaries and social security contributions and hired services, partially offset by a reduction in bad debtors.

Urban Properties and Investment Business
 
Selling expenses of the Urban Properties and Investment Business increased 22.0% from Ps. 96.0 million in the fiscal year 2012 to Ps. 117.1 million in the fiscal year 2013. This was mainly due to an increase of Ps. 14.7 million in the Shopping Centers segment, an increase of Ps. 6.0 million in the Hotels segment, an increase of Ps. 3.7 million in the Financial operation and Other segment, and an increase of Ps. 1.3 million in the Offices and Other Rental segment, partially offset by a reduction of Ps. 4.7 million in the Development ans Sales of Properties segment.
 
 
114
 

MANAGEMENT FEES
 
The company entered into a management agreement with Consultores Asset Management S.A. that contemplates the payment of a fee equivalent to 10% of our net income for agricultural advisory services and other related management services. During the fiscal year 2013 no charge was recorded for these fees, which correspond to the Other segment of the Agriculture and Beef cattle Raising business, whereas this charge had amounted to Ps. 8.7 million during the fiscal year 2012.

OTHER OPERATING RESULTS, NET
 
Other operating results, net of the Company increased Ps. 188.7 million, from a Ps. 98.7 million loss in the fiscal year 2012 to a Ps. 89.9 million income in the fiscal year 2013.

Agricultural business
 
Crops
 
Other operating results, net of the Crops segment increased Ps. 46.9 million, from a Ps. 58.1 million loss in the fiscal year 2012 to a Ps. 11.2 million loss in the fiscal year 2013, mainly as a result of the commodity derivatives held by Brasilagro and Cresud (Ps. 56.4 million), partially offset by the charge to income of Brasilagro’s contingency allowance for Ps. 9.1 million.

Other
 
Other operating results, net of the Other segment increased Ps. 15.3 million, from a Ps. 0.7 million income in the fiscal year 2012 to a Ps. 15.9 million income in the fiscal year 2013.

The rest of the segments of the Agricultural business did not record significant changes.

Urban Properties and Investment Business
 
Other operating results, net from the Urban properties and investment business increased Ps. 128.8 million, from a Ps. 37.0 million loss in the fiscal year 2012 to a Ps. 91.8 million income in the fiscal year 2013, generated mainly by a Ps. 137.1 million income from the purchase of subsidiaries during this fiscal year.
 

PROFIT FROM OPERATION
 
As a result of the factors explained above, the Company’s operating income / (loss) increased Ps. 460.6 million (71.0%), from a Ps. 650.5 million income in the fiscal year 2012 to a Ps. 1,111.1 million income in the fiscal year 2013.

Agricultural business
 
Operating income / (loss) from the Agricultural business increased Ps. 133.2 million (135.9%), from a Ps. 98.0 million loss in the fiscal year 2012 to a Ps. 35.2 million income in the fiscal year 2013.

Crops
 
Operating income / (loss) from this segment decreased Ps. 25.4 million (19.1%) from a Ps. 133.1 million loss in the fiscal year 2012 to a Ps. 107.7 million loss in the fiscal year 2013.

Beef cattle
 
Operating income / (loss) from this segment decreased Ps. 35.4 million (192.2%), from a Ps. 18.4 million income in the fiscal year 2012 to a Ps. 17.0 million loss in the fiscal year 2013.

Milk
 
Operating income / (loss) from this segment decreased Ps. 2.2 million (139.9%), form a Ps. 1.6 million income in the fiscal year 2012 to a Ps. 0.6 million loss in the fiscal year 2013.

Sugarcane
 
Operating income / (loss) from this segment increased Ps. 33.4 million from a Ps. 6.2 million loss in the fiscal year 2012 to a Ps. 27.2 million income in the fiscal year 2013.

Farmland Leases and Services
 
Operating income / (loss) from this segment decreased Ps. 4.9 million (29.0%) from a Ps. 17.0 million income in the fiscal year 2012 to a Ps. 12.1 million income in the fiscal year 2013.

Land Transformation and sales
 
Operating income / (loss) from this segment increased Ps. 93.4 million from a Ps. 39.2 million income in the fiscal year 2012 to a Ps. 132.6 million income in the fiscal year 2013.
 
 
115
 

Agro-industrial
 
Operating income / (loss) from this segment decreased Ps. 1.1 million, from a Ps. 25.6 million loss in the fiscal year 2012 to a Ps. 24.5 million loss in the fiscal year 2013.

Other
 
Operating income / (loss) from this segment increased Ps. 22.3 million, from a Ps. 9.2 million loss in the fiscal year 2012 to a Ps. 13.0 million income in the fiscal year 2013.

Urban Properties and Investment Business
 
Operating income / (loss) from this business increased Ps. 327.4 million (43.7%) from a Ps. 748.5 million income in the fiscal year 2012 to a Ps. 1,075.9 million income in the fiscal year 2013. This was mainly due to a increase of Ps. 350.9 million in the Shopping Centers, Offices and other rental, Development and sales of properties and International segments, partially offset by a Ps. 23.5 million reduction in the Hotels and Financial Operation and Other segments.
 
SHARE OF PROFIT / (LOSS) OF ASSOCIATES
 
Share of profit / (loss) of associates decreased Ps. 46.3 million (133.8%) from a Ps. 34.6 million gain in the fiscal year 2012 to a Ps. 11.7 million loss in the fiscal year 2013. This was primarily due to:
 
·  
a reduction of Ps. 49.8 million in income from related companies in our Investment and development properties business in the fiscal year 2013;
 
·  
slightly offset by higher income of Ps. 3.5 million from the Agricultural business, mainly reflecting a Ps. 2.1 million income from our investment in AgroUranga (corresponding to the Crops segment); and
 
·  
a lower loss of Ps. 6.5 million in the fiscal year 2013 as a result of the amortization of higher values generated by the combination of businesses and other results from the Investment and development properties business.
 
FINANCIAL RESULTS, NET
 
We had a higher net financial loss of Ps. 333.5 million, from a loss of Ps. 575.2 million in the fiscal year 2012 to a loss of Ps. 908.8 million in the fiscal year 2013. This was primarily due to:
 
·  
a higher loss of Ps. 266.1 million in net exchange differences in the fiscal year 2013;
 
·  
a higher loss of Ps. 22.2 million in net financial interest recorded in the fiscal year 2013;
 
·  
a higher loss of Ps. 18.9 million in revaluation of receivables from sale of farmlands in the fiscal year 2013;
 
·  
a higher loss of Ps. 6.5 million in derivative financial instruments in the fiscal year 2013; and
 
·  
a higher loss of Ps. 26.9 million generated by the results from financial transactions and other in the fiscal year 2013.
 
Our financial loss in the fiscal year 2013 was mainly attributable to (i) a Ps. 586.4 million loss generated by exchange differences mainly as a result of a higher liability position in U.S. dollars due to the issuance of new series of notes; and (ii) a loss of Ps. 483.8 million generated by interest accrued on debt financing, mainly due to increased indebtedness and higher interest rates.
 
There was a 19% variation in the U.S. dollar seller exchange rate during the fiscal year 2013 (it increased from Ps. 4.527 as of June 30, 2012 to Ps. 5.388 as of June 30, 2013) as compared to the previous fiscal year, when the U.S. Dollar quotation had experienced a smaller variation, of 10% (from Ps. 4.110 as of June 30, 2011 to Ps. 4.527 as of June 30, 2012).
 
INCOME TAX EXPENSE
 
Our income tax expense increased Ps. 17.5 million (109.1%), from Ps. 16.0 million in the fiscal year 2012 to Ps. 33.5 million in the fiscal year 2013. The Company recognizes the income tax expense on the basis of the deferred tax liability method, thus recognizing temporary differences between accounting and tax assets and liabilities measurements. The main temporary differences for the Agricultural business derive from valuation of beef cattle stock and sale and replacement of property, plant and equipment, while those corresponding to the Investment and development properties business derive from the sale and replacement of investment properties.
 
For purposes of determining the deferred assets and liabilities, the tax rate expected to be in force at the time of their reversion or use, according to the legal provisions enacted as of the date of issuance of these financial statements (35%), has been applied to the identified temporary differences and tax losses.
 
NET INCOME
 
Due to the above mentioned factors, our net income increased by Ps. 95.8 million (163.8%) from Ps. 58.5 million for fiscal year 2012 to Ps. 154.3 million in the fiscal year 2013. Net income for the fiscal years 2013 and 2012 is attributable to the controlling company’s shareholders and non-controlling interest as per the following detail:
 
 
116
 
 
·  
Net income attributable to the controlling company’s shareholders increased by Ps. 5.6 million, from a loss of Ps. 21.3 million in the fiscal year 2012 to a loss of Ps. 26.9 million in the fiscal year 2013; and
 
·  
the non-controlling interest in controlled companies increased by Ps. 101.4 million (127%), from an income of Ps. 79.8 million in the fiscal year 2012 to an income of Ps. 181.2 million in the fiscal year 2013, mainly due to an increase of Ps. 47.2 million in Brasilagro, an increase of Ps. 11.0 million in our subsidiary IRSA, and an increase of Ps. 38.2 million in other companies from the Investment and development properties business.
 
 
 
Liquidity
 
Our main sources of liquidity have historically been:
 
·  
cash generated from operations;
 
·  
cash generated from the issuance of common shares and non-convertible notes;
 
·  
cash proceeds from borrowings (including cash from bank loans and overdrafts) and financing arrangements (including cash from the exercise of warrants); and
 
·  
cash proceeds from sale of investment and trading properties and property, plant and equipment (including cash proceeds from the sale of farmlands).
 
Our main cash requirements or uses (other than in connection with our operating activities) have historically been:
 
·  
acquisition of subsidiaries and non-controlling interest in subsidiaries;
 
·  
acquisition of interest in associates and joint ventures;
 
·  
capital contributions to associates and joint ventures;
 
·  
capital expenditures in property, plant and equipment (including acquisitions of farmlands) and investment and trading properties;
 
·  
payments of short-term and long-term debt and payment of the related interest expense; and
 
·  
payment of dividends.
 
Cash Flows
 
The table below shows our cash flow for the fiscal years ended June 30, 2013 and 2012:
 
   
For the fiscal year ended June 30,
   
2013
    
2012
  
   
(in millions of Pesos)
Net cash provided by operating activities
     648.5       668.4  
Net cash used in investing activities
     (93.0 )     (353.9 )
Net cash used in financing activities
     (17.2 )     (478.9 )
Net  increase (decrease) in cash and cash equivalents
     538.3       (164.4 )
                 

 
As of June 30, 2013, we had cash and cash equivalents of Ps. 1,047.6 million, an increase compared to Ps. 471.9 million as of June 30, 2012. The increase was primarily due to cash inflows from operating activities of Ps. 648.5 million, an increase in the short and long-term debt of Ps. 878.6 million, the issuance of non-convertible notes of Ps. 800.4 million, and the disposal of investments in financial assets, Farms and Investment properties of Ps. 1,193.4 million, Ps. 230.4 million and Ps. 128.6 million, respectively;  partially offset by the cash outflows related with the cancellation of non-convertible notes, financial loans and financial interests of Ps. 1,308.4 million, the acquisition of investments in financial assets of Ps. 1,070.0 million, the payment of dividends of Ps. 239.4 million, the acquisition of investment properties of Ps. 213.0 million, the acquisition of property, plant and equipment of Ps. 137.5 million, the acquisition of subsidiaries of Ps. 117.9 million, and capital contributions and acquisitions of interest in associates and joint ventures for Ps. 93.3 millions.
 
 
117
 
 
Net cash provided by operating activities
 
Fiscal Year ended June 30, 2013 and 2012
 
Net cash provided by operations decreased from a net cash inflow of Ps.668.4 million during the fiscal year ended June 30, 2012 to a net cash inflow of Ps. 648.5 million during the fiscal year ended June 30, 2013. The decrease in net cash provided by operating activities was primarily due to a decrease of Ps. 29.3 million in operating gains, an increase of Ps. 206.5 million in trade and other receivables, an increase in inventories of Ps. 173.4 million, an increase in the paid income tax of Ps. 140.1 million, and the increase of Ps. 123.5 million in derivative financial instruments; that was partially offset by an increase of Ps. 441.1 million in trade and other payables, an increase of Ps. 42.8 million in payroll and social security liabilities, and a decrease of Ps. 140.3 million in biological assets, during the fiscal year ended June 30, 2013 compared to fiscal year ended June 30, 2012.
 
Our operating activities resulted in net cash inflows of Ps. 648.5 million for the fiscal year ended on June 30, 2013, mainly due to operating gains of Ps. 747.5 million, a decrease of Ps. 286.7 million in biological assets, an increase of Ps. 220.1 million in trade and other payables, partially offset by the income tax paid of Ps. 282.8 million, an increase of 265.4 million in trade and other receivables, an increase of Ps. 56.9 million in inventories, and an increase of Ps. 32.0 million in derivative financial instruments.
 
Net cash used in investing activities
 
Fiscal Year ended June 30, 2013 and 2012
 
Net cash used in investing activities decreased from a net cash outflow of Ps. 353.9 million during the fiscal year ended on June 30, 2012 to a net cash outflow of Ps. 93.0 million during the fiscal year ended on June 30, 2013. This variation was mainly due to an increase in the inflows of cash arising from the sale of financial instruments of Ps. 1,176.1 million and the sale of farms of Ps. 199.6 million, and a decrease in the outflows of cash applied in loans granted to associates and joint ventures of Ps. 47.5 million and acquisition of interest in associates and joint ventures of Ps. 22.9 million; this decrease was partially offset by an increase of Ps. 877.0 million in investments in financial assets, an increase of Ps. 104.9 million in investment properties, an increase of Ps. 117.9 million in subsidiaries, an increase of Ps. 51.7 million in capital contributions to associates and joint ventures, and an increase of 41.6 million in loans granted, during the fiscal year ended June 30, 2013 compared to fiscal year ended June 30, 2012.
 
Our investing activities resulted in net cash outflows of Ps. 93.0 million for the fiscal year ended June 30, 2013 mainly due to acquisitions of investments in financial assets of Ps. 1,070.0 million, investment properties of Ps. 213.0 million, property, plant and equipment of Ps. 137.5 million and subsidiaries, associates and joint ventures of Ps. 143.8 million, capital contributions to associates and joint ventures of Ps. 67.4 million, loans granted of Ps. 41.6 million, and suppliers advances for Ps. 15.8 million; partially offset by cash inflows related to the sale of financial instruments,  farms and investment properties of Ps. 1,193.4 million, Ps. 230.4 million and Ps. 128.6 million, respectively, and dividends collected of Ps. 53.4 million.
 
Net cash used in financing activities
 
Fiscal Year ended June 30, 2013 and 2012
 
Net cash used in financing activities decreased from Ps.478.9 million during the fiscal year ended June 30, 2012 to Ps. 17.2 million during the fiscal year ended June 30, 2013, mainly due to an increase of Ps. 111.3 million in the cancellation of non-convertible notes and financial interests, an increase of Ps. 98.3 million in dividends paid, a decrease of Ps. 152.1 million in capital reduction of subsidiaries, a decrease in the inflow of cash arising from the issuance of non-convertible notes of Ps. 113.4 million, a decrease of Ps. 68.3 million in contributions from non-controlling interest; the decrease was partially offset by an increase in the cash inflows of cash arising from borrowings from financial entities of Ps. 617.9 million and from associates and joint ventures of Ps. 59.6 million, a decrease of Ps. 152.6 million in acquisitions of non-controlling interest, a decrease of Ps. 95.3 million in payments of financial loans, and a decrease of Ps. 76.4 million in payments of seller financing, during the fiscal year ended June 30, 2013 compared to fiscal year ended June 30, 2012.
 
Our financing activities resulted in net cash outflows of Ps. 17.2 million for the fiscal year ended on June 30, 2013 mainly due to the cancellation of non-convertible notes, financial loans and financial interests of Ps. 1,308.4 million, payment of dividends of Ps. 239.4 million, capital reduction of subsidiaries of Ps. 152.1 million, acquisition of non-controlling interest in subsidiaries of Ps. 49.9 million  and payments of seller financing of Ps. 25.2 million; partially offset by cash inflows associated with the issuance of non-convertible notes of Ps. 800.4 million, borrowings taking from financial entities of Ps. 878.6 million and from associates and joint ventures of Ps. 70.7 million .
 
We believe our working capital (calculated by subtracting current liabilities from current assets) and our cash from operating activities are adequate for our present and future requirements. In the event that cash generated from our operations is at any time insufficient to finance our working capital, we would seek to finance such working capital needs through new debt, equity financing or selective asset sales. For more information about liquidity please see Item 3 “Key Information – D. Risk Factors”.
 
 
118
 
 
 Indebtedness
 
As of June 30, 2013, we had total loans in the amount of Ps. 5,717.3 million. The table below sets forth our indebtedness by maturing date:
 
Schedule of Maturities or Amortization
 
Currency
  
LESS THAN 1 YEAR
(1)
    
MORE THAN 1 YEAR AND UP TO 2 YEARS
    
MORE THAN 2 YEARS AND UP TO 3 YEARS
    
MORE THAN 3 YEARS AND UP TO 4 YEARS
    
MORE THAN 4 YEARS
    
TOTAL
(2)
  
ANNUAL AVERAGE INTEREST RATE
 
(in million Pesos, constant currency as of June 30, 2013) (3)
    
Bank and Other debt
                                        
Bank loans (4)
Ps.
     461,9       22,7       19,8       6,6       3,1       514,1    
Bank loans (3)
US$
     16,2       10,2       4,1       8,2       61,5       100,2    
Bank loans (3) (4)
R$
     84,9       -       -       -       -       84,9    
Secured bank loans (3)
 
US$
     -       8,0       7,2       7,5       377,1       399,8  
variable (Libor + 3.25%)
Secured bank loans (3)
R$
     24,4       39,6       26,5       17,9       54,5       162,9    
Cresud’s Series VIII Notes (3)
US$
     6,1       322,9       -       -       -       329,0  
7.50
Cresud’s Series IX Notes
Ps.
     101,3       -       -       -       -       101,3  
variable (Badlar + 300 bps)
Cresud’s Series X Notes (3)
US$
     165,8       -       -       -       -       165,8  
7.75
Cresud’s Series X Notes- 2nd tranche (3)
US$
     163,5       -       -       -       -       163,5  
7.75
Cresud’s Series XI Notes (3)
US$
     19,7       39,4       -       -       -       59,1  
variable (Badlar + 375 bps)
Cresud’s Series XII Notes
Ps.
     35,1       67,8       -       -       -       102,9  
variable (Badlar + 410bps)
Cresud’s Series XIII Notes (3)
US$
     (2,0 )     425,7       -       -       -       423,7  
1.9
Cresud’s Series XIV Notes (3)
US$
     (0,1 )     -       -       -       171,1       171,0  
1.5
APSA’s Series I Notes (3) (5)
US$
     5,5       (6,7 )     (6,7 )     584,1       (2,1 )     574,1  
7.875
IRSA’s Series I Notes (3) (6)
US$
     26,7       (7,8 )     (7,8 )     800,4       -       811,5  
8.50
IRSA’s Series II Notes (3)
US$
     40,6       (2,8 )     (2,8 )     (2,8 )     789,7       821,9  
11.50
IRSA’s Series III Notes
Ps.
     52,2       -       -       -       -       52,2  
Variable (Badlar + 249 bps)
IRSA’s Series IV Notes (3)
US$
     137,8       -       -       -       -       137,8  
7.45
Syndicated loans
Ps.
     51,0       87,8       87,8       -       -       226,6  
15.01
                                                     
Secured seller financing (3)
US$
     29,2       4,1       4,5       4,4       65,4       107,6    
Unsecured debt for purchase of establishments (3)
R$
     106,2       -       -       -       -       106,2    
Secured financial leases (3)
US$
     1,4       1,6       -       -       -       3,0    
Related parties
Ps.
     -       98,3       -       -       -       98,3    
Total bank and other debt
       1,527,4       1,110,8       132,6       1,426,3       1,520,3       5,717,3    
 

 
(1) Includes accrued interest.
 
(2) Figures may not sum due to rounding.
 
(3) Exchange rate as of June 30, 2013 US$ 1.00 = Ps.5.388 and R$ = Ps.2.432
 
(4) Includes bank overdrafts.
 
(5) Includes (7.3) of higher values.
 
(6) Includes (8.3) of higher values.
 
 
119
 
 
CRESUD’s Outstanding Notes
 
On September 7, 2011, we issued Series VIII Notes, for a principal amount of US$ 60 million due 2014, at a fixed rate of 7.5%, payable on a semi-annually basis, on September 7 and March 7 of each year, the principal amount is payable at maturity.
 
On June 21, 2012, we issued three new series of Notes for a total amount of Ps. 383.5 million under our Global Note Program:
 
Series IX Notes, for a principal amount of Ps. 161.0 million, maturing 18 months after the issue date, and accruing interest at a variable rate (BADLAR Privada + 300 basis points), payable on quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 12, 15 and 18 months as from the issue date.
 
Series X Notes, for a principal amount of US$ 31.5 million, maturing 24 months after the issue date, and payable in pesos at an applicable exchange rate in connection with each payment date. The notes accrue interest at a fixed rate of 7.75% per annum, payable quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 18, 21 and 24 months as from the issue date. On September 19, 2012, we issued the second tranche of the Series X note, for a principal amount of US$ 30.0 million at a price of 105,2%
 
Series XI Notes, for a principal amount of Ps. 80.5 million, maturing 36 months after the issue date, and accruing interest at a variable rate (BADLAR Privada + 375 basis points), payableon quarterly baiss in arrears, and the principal amount is payable in quarterly payments due within 24, 30 and 36 months as from the issue date.
 
On February 22, 2013, we issued two new series of Notes for a total amount of Ps. 500 million under our Global Note Program:
 
Series XII Notes, for a principal amount of Ps. 102.1 million, maturing 21 months after the issue date, and accruing interest at a variable rate (BADLAR Privada + 410 basis points), payable on quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 15, 18 and 21 months after the issue date.
 
Series XIII Notes, for a principal amount of US$ 79.4 million, maturing 27 months after the issue date, and payable in pesos at an applicable exchange rate in connection with each payment date. The notes accrue interest at a fixed rate of 1.90% per annum, payable quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 24 and 27 months after the issue date.
 
On May 17, 2013, we issued series XIV Notes for a total amount of U$S 32 million under our Global Note Program, which will mature as from 60 months from the issue date, the aforementioned notes will be payable in pesos at an applicable exchange rate in connection with each payment date. The notes accrue interest at a fixed rate of 1.5% per annum, on payable quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 54 and 60 months after the issue date.
 
 
120
 
 
Alto Palermo 10% convertible notes due 2014
 
On July 19, 2002, APSA issued US$50.0 million unsecured Convertible Notes into their capital stock. The proceeds from the Convertible Notes were used to settle short-term bank loans for the sum of Ps.27.3 million, and to redeem secured corporate notes issued by us for a principal amount of Ps.52.8 million. The Convertible Notes accrue interest (payable semi-annually) at a 10.0% fixed annual rate, and are convertible, at any time, at the holder’s option into common shares at a par value of Ps.0.10 per share. The exchange rate per U.S. Dollar is Ps.3.08642 or the result obtained from dividing the exchange rate effective at the exchange date by the par value of our common shares, whichever is lower. The original maturity date was stated for July 19, 2006, but at a special noteholders’ meeting held on May 2, 2006, approved the extension of the maturity date to July 19, 2014, the other terms and conditions of the Convertible Notes remained unchanged. On January 14, 2013, IRSA accepted the repurchase offer submitted by APSA for an amount face value of US$ 31.7 million, for a total price of US$ 35.4 million. On January 15, 2013, APSA paid to IRSA the amount of Ps. 175.2 million. As of June 30, 2013, APSA has repurchased the total Convertible Notes.
 
Alto Palermo Series I and Series II Notes
 
On May 11, 2007, Alto Palermo issued two new series of notes under its global program. Series I consists of notes for a principal amount of US$120 million, which accrue interest at a fixed rate of 7.875% per annum, payable semi-annually, and with maturity on May 11, 2017.
 
Series II consists of notes for a principal amount of Ps.154 million (equivalent to US$50 million), which accrue interest at 11% per annum, payable semi-annually, and are repayable in seven semi-annual installments commencing on June 11, 2009. This note was fully repaid as scheduled and the last installment was paid in January 2012.
 
Acquisition of Alto Palermo’s Series I Notes
 
During the fiscal year 2009, IRSA purchased US$ 39.6 million in principal amount of Alto Palermo’s Series I Notes, for a total amount of US$ 19.3 million.
 
In turn, in the course of fiscal 2009, our subsidiary Alto Palermo repurchased some of its Series I notes for US$ 5.0 million in nominal value. As a weighted average, the price paid was US$ 0.3978 for a total of US$ 1.9 million.
 
In the fiscal year 2011, IRSA sold US$ 39.6 million in principal amount of such notes for an average price of US$ 0.9605, totaling US$ 38.08 million. In addition, during this fiscal year APSA has repurchased US$ 5.0 million in principal amount of its Series I notes. The average weighted price paid was US$ 1.0201 for a total amount of US$ 5.1 million.
 
Therefore, as of June 30, 2013, IRSA’s consolidated holdings of Alto Palermo’s Series I notes amounted to US$ 10.0 million (The entire amount is held by APSA) in nominal value.
 
IRSA’S 8.5% Series I Notes due 2017
 
On February 2, 2007, IRSA issued 2017 fixed-rate notes for a total amount of US$150.0 million, which accrue interest at an annual interest rate of 8.5% payable semi-annually and which mature in a single installment on February 2, 2017.
 
These notes also contain a covenant limiting our ability to pay dividends which may not exceed the sum of:
 
•
50% of the cumulative consolidated net income; or
•
75% of the cumulative consolidated net income if the consolidated interest coverage ratio for the most recent four consecutive fiscal quarters is at least 3.0 to 1; or
•
100% of the cumulative consolidated net income if the consolidated interest coverage ratio for the most recent four consecutive fiscal quarters is at least 4.0 to 1; plus
•
100% of the aggregate net cash proceeds (with certain exceptions) and the fair market value of property other than cash received by the company or by its restricted subsidiaries from (a) any contribution to the company’s capital stock or the capital stock of its restricted subsidiaries or issuance and sale of the company’s qualified capital stock or the qualified capital stock of its restricted subsidiaries subsequent to the issue of IRSA’s notes due 2017, or (b) issuance and sale subsequent to the issuance of the company’s notes due 2017 or its indebtedness or the indebtedness of its restricted subsidiaries that has been converted into or exchanged for qualified capital stock of IRSA, (c) any kind of reduction in the Company’s indebtedness or the indebtedness of any of its restricted subsidiaries; or (d) any kind of reduction in investments in debt certificates (other than permitted investments) and in the return on assets; or (e) any distribution received from unrestricted subsidiary.
 
 
 
121
 
 
IRSA’S 11.5% Series II Notes due 2020
 
On July 20, 2010, IRSA issued fixed-rate notes due in 2020 for a total amount of US$ 150.0 million, which accrue interest at an annual interest rate of 11.5% payable semi-annually and which mature in a single installment on July 20, 2020.
 
Series II notes are subject to the same covenants as described above for Series I notes due 2017.
 
Issuance of Series III and Series IV Notes

On February 10, 2012, IRSA issued:
 
· Series III Notes, for a principal amount of Ps. 153.2 million, accrue interest at BADLAR rate plus 249 basis points, and mature 18 months from their issue date. They are repayable in three consecutive payments due within 12, 15 and 18 months after their issue date. The Series III were dully cancelled in its maturity date, and;
 
· Series IV Notes, for a principal amount of US$ 33.8 million (equivalent to Ps. 146.9 million), accrue interest at a fixed rate of 7.45%, are subscribed and repayable in Pesos at the applicable exchange rate, and mature 24 months after the issue date. They are repayable in 4 equal consecutive payments due within 15, 18, 21 and 24 months after their issue date.
 
 
 
Investments in technology amounted to Ps.12.1 million and Ps.24,4 million for the fiscal years 2013 and 2012, respectively. Our total technology investments aim to increase the productivity of purchased land have amounted to Ps.425.5 million since fiscal year 1995.
 
We reach our objectives within this area through the implementation of domestic and international technological development projects focusing mainly on:
 
•
Quality and productivity improvement.
•
Increase in appreciation value of land through the development of marginal areas.
•
Increase in the quality of food in order to achieve global food safety standards. We aim to implement and perform according to official and private quality protocols that allow us to comply with the requirements of our present and future clients. Regarding official regulations, in 2003 we implemented the Servicio Nacional de Sanidad y Calidad Agroalimentaria law on animal identification for livestock in six farmlands. Simultaneously, in 2004 we implemented EurepGap Protocols with the objective of complying with European Union food safety standards and as a mean for continuous improvement of the internal management and system production of our farmlands. Our challenge is to achieve global quality standards.
•
Certification of suitable quality standards, since in recent years worldwide agriculture has evolved towards more efficient and sustainable schemes in terms of environmental and financial standpoints, where the innocuousness and quality of the production systems is becoming increasingly important. In this context, Good Agricultural Practices (GAP) have emerged, as a set of practices seeking to ensure the innocuousness of agricultural products, the protection of the environment, the workers’ safety and well-being, and agricultural health, with a view to improving conventional production methods. Certification of such standards allows to demonstrate the application of Good Agricultural Practices to production systems and ensures product traceability, allowing to impose stricter controls to verify the enforcement of the applicable laws.
•
The implementation of a system of control and assessment of agricultural tasks for analyzing and improving efficiency in the use of agricultural machinery hired. For each of the tasks, a minimum standard to be fulfilled by contractors was set, which has led to do an improvement in the plant stand upon sowing, a better use of supplies and lower harvesting losses.
 
We do not have any patents or licenses that are material for conducting our business.
 
 
International Outlook:

As reported by the International Monetary Fund (“IMF”) in its “World Economic Outlook” (“WEO”), the world’s recovery, which until now had been a two-speed trend, is now a three-speed trend: whilst the developing economies grow at a pace expected to attain an annualized 6%, developed economies will grow at values a bit in excess of 2% though showing a bifurcation between growth in the US, which has been at an annualized 2% pace, and growth in the Euro Zone, which has reached the end of the year with virtually nil growth rates.
 
According to forecasts, it will not be until 2014 that such region will grow by less than 1% as slow progress is being made in the reforms required to resume the road to growth.
 
Growth trends in emerging markets have been similar to those posted last year, with India and Brazil having returned to the growth path offset by lesser growth in Russia and China and showing stabilization in growth at a bit less than 8%. The expectation is that this will have a slightly adverse impact on the price of commodities.
 
 
122
 
 
During 2011, financial markets exhibited a somber outlook that seemed to recover a little in 2012. The MSCI World index (representative of developed markets) fell during 2011 and showed strong recovery in 2012 and in the year 2013 to date, the earnings heard of are in the region of 12.8%. The yields in the MSCI Emerging Markets index were negative during 2011 and last year they showed a slight offset. In the year 2013 to date, however, yields were far from encouraging. In line with this, the indices in the world’s largest stock exchanges performed poorly during 2011, except for the S&P500, which followed through the year almost without movement. A recovery was seen during 2012 and it was maintained at different speeds. These trends continued in 2013.
 
The Argentine Economy:

Argentina is expected to grow by 3% on average in 2013-14 mainly thanks to the growth projected for Brazil for this period.
 
Private consumption continues to be the driver of economic activity. Household expenditure increases in tandem with household nominal income. According to data from INDEC, the salary variation ratio increased by 24.3% in May 2013 compared to the figure recorded in May 2012.
 
The Shopping Centers sector behaved in a similar way. Based on the information released by INDEC, sales recorded a cumulative increase of 23.8% for the 12 months to June 2013 compared to the same period of 2012, boosted by the improvements in household nominal income.
 
Although forecasts for 2013 predict a contraction in the growth of activity due to the international context, employment and salary evolution levels are expected to remain firm, which augurs well for the Company’s business in so far as consumption and the purchasing power of the population are the main propellers of our Shopping Centers’ sales.
 
Agricultural Business
 
Our future operating results may be affected by variations in some factors, such as adverse changes in the price of commodities, the yield of crops, or changes in regulations. Though a significant drought has affected the main productive regions of the country, with a negative impact on the agriculture and livestock sectors in the 2008/2009 farm season, historical tendencies may not be representative of our future results. Our past results must not be considered indicative of our future performance. To mitigate certain risks associated with changes in weather and prices, we seek to apply hedging mechanisms through futures and option agreements in the grain market and to diversify our geographic areas of production.
 
Production and sales
 
At present we are engaged in various operations and activities including crops, beef cattle breeding and fattening and milk production. We complement our operations with the purchase and sale of land to benefit from real estate valuations.
 
As of June 30, 2013, we owned 33 farmlands with approximately 643,891 hectares distributed in Argentina, Brazil, Bolivia and Paraguay. Approximately 110,447 hectares of the land we own are used for crop production, approximately 77,963 hectares are for beef cattle production, 85,000 hectares are for sheep production, 2,780 hectares are for milk production and approximately 21,277 hectares are leased to third parties for crop and cattle beef production. The remaining 346,424 hectares of land reserve are primarily natural woodlands. In addition, we have the rights to hold approximately 132,000 hectares of land under concession for a 35-year period that can be extended for another 29 years. Out of this total, we have developed 21,947 hectares for crop production. Also, during the fiscal year 2013 ended on June 30, 2013, we leased 45,492 hectares from third parties for crop production and 12,635 hectares for beef cattle production.
 
The following table sets forth, at the dates indicated, the amount of land used for each production activity (including owned, leased land and land under concession):
 

   
2009(1) (5)
    
2010(1) (5)
    
2011(1) (5)
    
2012(1) (6)
    
2013(1) (6) (7)
  
Crops (2)
     115,411       104,627       126,178       181,079       168,134  
Beef Cattle (3)
     128,859       105,857       102,279       95,995       91,053  
Milk
     4,334       4,900       2,571       3,022       2,780  
Sheep
     100,911       100,911       100,911       85,000       85,000  
Land reserves (4)
     356,796       343,153       339,744       459,680       478,246  
Owned farmlands leased to third parties
     8,317       11,049       14,026       25,538       31,593  
Total (5)
     714,628       670,497       685,709       850,314       856,806  

(1)   Includes 35.723% of approximately 8,299 hectares owned by AgroUranga S.A., an associated Argentine company in which we own a non-controlling 35.7% interest.
(2)   Includes wheat, corn, sunflower, soybean, sorghum and others.
(3)   Breeding and fattening.
(4)
We use part of our land reserves to produce charcoal, rods and fence posts.
(5)
Does not include Brasilagro.
(6)
As from fiscal year 2012, it includes Brasilagro and 100% of Cactus.
(7)
Includes farmlands owned by Brasilagro and Cresud sold in 2013.

 
 
123
 
 
REVENUES
 
Agricultural business
 
Crops
 
 
Sales from the Crops segment rose 17.9%, from Ps. 636.1 million in fiscal year 2012 to Ps. 750.2 million in fiscal year 2013, mainly as a result of:
 

·  
a 21.0% increase in average prices of grains sold, from Ps. 1,191 per ton in fiscal year 2012 to Ps. 1,440 per ton in fiscal year 2013;
 
·  
partially offset by a slight reduction of 13,509 tons in the volume of grains sold in fiscal year 2013 compared to the previous fiscal year; and
 
·  
a 8.0% reduction in production volume, from 383,088 tons in fiscal year 2012 to 355,390 tons in fiscal year 2013.
 
 
The following table shows a breakdown of the sales of grains:

   
Sale of Crops (in tons)
  
   
Fiscal Year ended June 30,
  
   
2013
    
2012
    
Variation
  
Corn
     271,143       224,114       47,029  
Soybean
     208,814       251,640       (42,826 )
Wheat
     10,735       20,746       (10,011 )
Sorghum
     5,807       8,497       (2,690 )
Sunflower
     10,551       18,095       (7,544 )
Other
     14,052       11,519       2,533  
Total Sales
     521,102       534,611       (13,509 )


The following table shows the board prices(1) as of June 30, 2013 and 2012:
 
   
Fiscal year ended June 30,
  
   
2013
    
2012
  
   
Ps.
    
Ps.
  
Wheat
     2,400       740  
Sunflower
     1,500       1,600  
Corn
     950       690  
Soybean
     1,714       1,645  
 
(1) Rosario Commodities Exchange board prices
 
Beef cattle
 
Sales from the Beef cattle segment decreased 42.0%, from Ps. 132.3 million in fiscal year 2012 to Ps. 76.7 million in fiscal year 2013, mainly as a result of:
 

·  
a 4.7% reduction in the average price per kilogram sold, from Ps. 8.92 in fiscal year 2012 to Ps. 8.49 in fiscal year 2013;
 
·  
a 35.4% reduction in the beef sales volume, from 15,075 tons in fiscal year 2012 to 9,745 tons in fiscal year 2013; and
 
·  
a 14.1% reduction in the volume of beef production, from 9,045 tons in fiscal year 2012 to 7,772 tons in fiscal year 2013.
 
Milk
 
Sales from the Milk segment increased 28.7%, from Ps. 30.2 million in fiscal year 2012 to Ps. 38.8 million in fiscal year 2013, mainly as a result of:
 

·  
a 19.8% increase in the average price of milk, from Ps. 1.69 per liter in fiscal year 2012 to Ps. 2.02 per liter in fiscal year 2013;
 
·  
a 11.5% increase in milk production volume, reflecting mainly a larger average number of milking cows;
 
·  
partially offset by a 4.7% reduction in production efficiency levels.
 
Sugarcane
 
Sales from the Sugarcane segment increased 62.1%, from Ps. 98.9 million in fiscal year 2012 to Ps. 160.3 million in fiscal year 2013, mainly as a result of:
 

·  
543,541 more tons of sugarcane sold in fiscal year 2013 as compared to the previous fiscal year (mainly because during fiscal year 2012 no sales were made in our subsidiaries from Bolivia);
 
·  
a 100.8% increase in production volume, from 576,048 tons in fiscal year 2012 to 1,156,848 tons in fiscal year 2013;
 
·  
partially offset by a 12.6% reduction in the average sales price of sugarcane, from Ps. 155 per ton in fiscal year 2012 to Ps. 136 per ton in fiscal year 2013.
 
 
124
 
 
Farmland Leases and Services
 
Sales from the Farmland Leases and Services segment increased by 21.8%, from Ps. 25.3 million in fiscal year 2012 to Ps. 30.8 million in fiscal year 2013, mainly as a result of:

·  
a 12.0% increase in leases, from Ps. 19.9 million in fiscal year 2012 to Ps. 22.3 million in fiscal year 2013; and
 
·  
an increase of 57.6% in irrigation services and other agricultural services, from Ps. 5.4 million in fiscal year 2012 to Ps. 8.5 million in fiscal year 2013.
 
Agro-industrial
 
Sales from the Agro-industrial segment increased 107.6%, from Ps. 100.1 million in fiscal year 2012 to Ps. 207.8 million in fiscal year 2013, mainly as a result of:

·  
a 110.2% increase in sales from our meat packing plant due to the acceleration in slaughtering levels during the first half of fiscal year 2013. It should be noted that during the second half of fiscal year 2012 the plant had been inactive. During fiscal year 2013 44,202 heads were slaughtered, virtually doubling the output for the previous fiscal year as concerns own animals and totaling more than 7,600 heads from users of our slaughtering service. During fiscal year 2012 alone, 662 heads were slaughtered under this pattern;
 
·  
during the last two months of fiscal year 2013, the sales prices of sub products recorded a sustained increase which, added to the firm appreciation of the exchange rate and the sustained rise in slaughtering volumes, led to the above mentioned increase;
 
·  
offset by a decrease of 19.3% in revenues from sales in our feedlot facility, mainly reflecting the 71.5% reduction in average occupancy, from 4,400 heads in fiscal year 2012 to 1,252 heads in fiscal year 2013.
 
Other
 
Sales from the Other segment increased by 51.3%, from Ps. 55.1 million in fiscal year 2012 to Ps. 83.3 million in fiscal year 2013, mainly due to:
 

·  
an increase of Ps. 18.8 million in resales of supplies and others; and
 
·  
an increase of Ps. 9.4 million in commodity brokerage services.
 
 
INITIAL RECOGNITION AND CHANGES IN FAIR VALUE OF BIOLOGICAL ASSETS AND AGRICULTURAL PRODUCE AT THE POINT OF HARVEST
 
Crops
 
Production income from the Crops segment increased 8.6%, from Ps. 439.9 million in fiscal year 2012 to Ps. 477.8 million in fiscal year 2013, mainly as a result of:

·  
a 17.1% increase in the average production price of grains;
 
·  
partially offset by a 7.2% reduction in the total production volume, from 383,088 tons in fiscal year 2012 to 355,390 tons in fiscal year 2013, mainly due to a reduction in the harvested volumes of wheat (75.2%), corn (25.3%) and sunflower (14.4%), partially offset by an increase in harvested volumes of soybean (14.5%) and sorghum (2.0%) in fiscal year 2013.
 
The 7.2% decrease in production volume of our Crops segment was mainly due to a 13.8% reduction in our average yield, from 2.7 tons per hectare in fiscal year 2012 to 2.3 tons per hectare in fiscal year 2013, mainly as a result of the mix of grains harvested and unfavorable weather conditions. In addition, during fiscal year 2013 the surface area in operation decreased from 181,079 hectares (including 8,778 hectares under concession) as of June 30, 2012 to 168,134 hectares (including 8,937 hectares under concession) as of June 30, 2013.

As of June 30, 2013 the harvested area was 95.2% of our total sown area, compared to 90.0% as of June 30, 2012.

The following table shows the number of tons produced and total production income as of June 30, 2013 and 2012:
 
   
Crops Production Income (in tons and thousands of Ps.)
  
   
Fiscal year ended June 30,
  
   
2013
    
2012
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Corn
     107,257       83,416       143,639       90,097  
Soybean
     220,292       354,485       192,458       308,855  
Wheat
     4,505       3,740       18,200       7,062  
Sorghum
     5,486       3,118       5,380       4,116  
Sunflower
     12,437       21,230       14,524       20,041  
Other
     5,413       11,855       8,887       9,686  
TOTAL
     355,390       477,844       383,088       439,857  
 
 
125
 
 
Estimated results from the valuation of our crops in progress at reasonable value increased 28.2% from Ps. 73.5 million in fiscal year 2012 to Ps. 94.2 million in fiscal year 2013 mainly due to increases in corn (64.9%) and sunflower (53.6%) crops, partially offset by a reduction in soybean crops (48.3%) and wheat crops (18.6%) in fiscal year 2013.

Beef cattle
 
Production income from the Beef cattle segment increased 7.7%, from Ps. 65.0 million in fiscal year 2012 to Ps. 70.0 million in fiscal year 2013, mainly as a result of:

·  
a 23.8% increase in the average price per kilogram produced, from Ps. 7.1 in fiscal year 2012 to Ps. 8.8 in fiscal year 2013;
 
·  
offset by a 14.1% reduction in beef production volume from 9,045 tons in fiscal year 2012 to 7,772 tons in fiscal year 2013.
 
The calving rate decreased slightly, whereas the death rate recorded a mild increase during fiscal year 2013 as compared to fiscal year 2012.
 
The number of hectares devoted to beef cattle production decreased from 95,995 hectares in fiscal year 2012 to 91,053 hectares in fiscal year 2013 due to a smaller number of own hectares devoted to beef cattle production.
 
Results from beef cattle holdings decreased 33.6%, from a gain of Ps. 14.0 million in fiscal year 2012 to a gain of Ps. 9.3 million in fiscal year 2013, mainly as a result of the reduction in beef cattle stocks and lower beef cattle market prices.
 
Milk
 
Production income from the Milk segment increased 21.0%, from Ps. 31.1 million in fiscal year 2012 to Ps. 37.6 million in fiscal year 2013. This increase was mainly due to:

·  
a 11.5% increase in milk production volumes, from 16.6 million liters in fiscal year 2012 to 18.5 million liters during this fiscal year. This increase in production volume was mainly due to a higher average number of milking cows per day, from 2,046 in fiscal year 2012 to 2,392 in fiscal year 2013, partially offset by a 4.7% reduction in the efficiently level of average daily milk production per cow, from 22.2 liters in fiscal year 2012 to 21.1 liters in fiscal year 2013; and
 
·  
a 19.8% increase in the average price of milk, from Ps. 1.69 per liter in fiscal year 2012 to Ps. 2.02 per liter in fiscal year 2013.
 
Results from holding of milking cows increased 10.3%, from a gain of Ps. 2.9 million in fiscal year 2012 to a gain of Ps. 3.2 million in fiscal year 2013.

Sugarcane
 
Production income from the Sugarcane segment increased 113.2%, from Ps. 71.3 million in fiscal year 2012 to Ps. 152.0 million in fiscal year 2013, mainly as a result of:

·  
an increase in total production volume of 100.8%, from 576,048 tons in fiscal year 2012 to 1,156,848 tons in fiscal year 2013; and
 
·  
an increase of 6.2% in the average production price of sugarcane.
 
The 100.8% increase in production volume from the Sugarcane segment was mainly due to a 40.4% increase in our average yield, from 65.4 tons per hectare in fiscal year 2012 to 91.7 tons per hectare for fiscal year 2013, mainly due to favorable weather conditions.
 
As of June 30, 2013, the harvested area was 94.9% of the total sown area compared to 82.3% as of June 30, 2012.
 
The following table shows the tons produced and actual income as of June 30, 2013 and 2012:
 
   
Sugarcane Production Income (In tons y thousands of Ps.)
  
   
Fiscal year ended June 30,
  
   
2013
    
2012
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Sugarcane
     1,156,848       152,037       576,048       71,306  

 
 
126
 
 
Estimated results from the valuation of our crops in progress at reasonable value increased significantly from Ps. 10.9 million in fiscal year 2012 to Ps. 45.3 million in fiscal year 2013 mainly generated by Brasilagro, where higher productivity and higher prices are estimated and new planted hectares were added.

Other
 
Income from initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest point from the Other segment decreased significantly, from an income of Ps. 0.06 million in fiscal year 2012 to an Ps. 1.0 million loss in fiscal year 2013, due to the variation in the valuation of the timber stocks at reasonable value in fiscal year 2013.

 
GAIN FROM DISPOSAL OF FARMLANDS
 
Income / (loss) from the sale of farmlands derived from the Sale and Transformation of Lands segment increased 228.8%, from an Ps. 45.5 million income in fiscal year 2012 to an Ps. 149.6 million income in fiscal year 2013, mainly as a result of:

During fiscal year 2013
 
·  
On June 19, 2013 the deed of sale for 5,613 hectares of the “La Suiza” farmland, located in Villa Ángela, Province of Chaco, was executed. The transaction price was Ps. 34.9 million (US$ 6.7 million). The result from the sale was a gain of Ps. 29.8 million;
 
·  
On October 11, 2012, Brasilagro sold the Horizontina farmland, located in the municipal district of Tasso Fragoso. Sate of Maranhão, Brazil, for a total price of R$ 75 million (equivalent to Ps. 174.8 million). The Horizontina farmland has a surface area of 14,359 hectares. The result of the sale was a gain of Ps. 53.9 million;
 
·  
On April 25, 2013, Brasilagro sold an aggregate of 394 hectares of the Araucaria farmland, located in the municipal district of Mineros – GO, Brazil. The sale price was R$ 11.7 million (equivalent to Ps. 26.6 million). The result of the sale was a gain of Ps. 12.6 million; and
 
·  
On May 10, 2013, Brasilagro sod an aggregate of 4,895 hectares of the Cremaq farmland, located in the municipal district of Ribeiro Gonçalves-PI, Brazil. The sale price was R$ 42.1 million (equivalent to Ps. 96.3 million). The result of the sale was a gain of Ps. 53.2 million.
 
During fiscal year 2012
 
·  
On September 28, 2011, Brasilagro sold the Sao Pedro farmland, a rural property located in the Municipality of Chapadão do Céu – GO with a total surface area of 2,447 hectares. The transaction price was R$ 23.3 million (equivalent to Ps. 59.8 million and 580,000 bags of soybean seeds). The result of the sale was a gain of Ps. 27.8 million;
 
·  
On March 2, 2012, the sale of 1,194 additional hectares in La Fon Fon farmland, located in the Province of Obispo Santiesteban, Republic of Bolivia, was agreed upon for Ps. 18.3 million (US$ 4.8 million). The result of the sale was a gain of Ps. 6.6 million; and
 
On May 22, 2012, the Company sold, assigned and conveyed to APSA a 115-hectare plot of land that forms part of the property “Puerta de Luján” located in the District of Luján, Province of Buenos Aires, for a total amount of Ps. 15.5 million, which has been fully collected. The result of the sale was a gain of Ps. 11.1 million.
 
Product Prospects
 
The sources of the following information are the Ministerio de Agricultura, Pesca y Alimentación de la República Argentina and the United States Department of Agriculture (“USDA”).
 
Wheat
 
USDA projections for the 2013/2014 campaign at global level estimate a production of 705.38 million tons of wheat, 50,11 million tons more than the 2012/2013 campaign. While world harvested area is expected to reach again the record level of the 2010/2011 campaign, the world average wheat yield forecast, shows an increase of 0.15 tons per hectare due to better believede yields in Kazakhstan, Russia, Ukraine and EU-27. The wheat production forecast for Argentina is 12.0 million tons while wheat area is projected to be 3.9 million hectares by the end of the campaign.
 
Corn
 
USDA projections for the 2013-14 season estimate that world production would reach 957 million tons, with an average yield of 5.42 tons per hectare. In the case of Argentina, the planted area is expected to decrease from 4.0 to 3.5 million hectares due to higher costs, although production is estimated to increase by 0,5 million tons to 27 million tons.
 
 
127
 
 
Soybean
 
As concerns projections for the 2013-14 season, the USDA estimated that the world production would be in the whereabouts of 281.72 million tons (5.28% higher than in the previous season).
 
The USDA estimates that Argentina’s soybean production will increase by 4.0 million tons, reaching 53,5 million tons. This increase is expected to result from both an expansion in the land allocated to soybean and a higher average yield (that would reach 2.74 million tons per hectare).
 
Sunflower
 
Globally, sunflower production estimates for the 2013/2014 campaign are projected by USDA at approximately 40.34 million tons compared to the estimate of 36.4 million tons in the previous year.
 
According to the source, the Argentine production of sunflower is forecast to be 3.4 million tons during 2013/14 campaign, 6.25% higher than the 2012/13 campaign.
 
Beef Cattle
 
According to FAO (Food and Agriculture Organization) projections, the market has been characterized by high prices, driven mainly, on the side of demand, by the higher income recorded in developing countries, and on the side of supply, by high production costs, mainly feed crops, energy costs and labor. These factors have boosted production in more countries, although the rate of growth of supply could not keep up with the increase in poultry production.
 
According to FAO’s estimates, the cattle beef price index reached 150 points (4,654 US$/tn) in 2013, compared to 141 points in 2012 (4,368 US$/tn). World production will reach 67.2 million tons in 2013, out of which Argentina is expected to produce 2.7 million tons.
 
Milk
 
The USDA estimates show that the world production of milk will increase from the current level of 544.7 million tons in 2012 to 554.4 million tons in 2013.
 
In the case of Argentina, the 11.8 million ton production recorded in 2012 is expected to increase to 12.23 million in 2013, while exports of dairy products would reach 2.5 million tons in 2013.
 
As reported by the FAO, fueled by the robust growth in the demand by developing countries, milk prices grew strongly in 2010 and the first half of 2011, reaching peaks close to those recorded during the commodity boom of 2007/2008. The high returns and excellent pasturing conditions in Oceania and certain regions of South America boosted supply, causing prices to decline. This fall continued during the second half of 2012, and was accompanied by an increase in export volumes. Against the broadening demand, especially from China, bottom prices were higher than in the 2009 slump.
 
The droughts experienced in the United States and Russia in 2012 increased the prices of grains, leading to a lower production growth rate in the United States and the European Union and higher prices. In early 2013, the recovery of prices intensified as drier weather conditions were reported in Oceania which impacted on grain availability expectations.
 
While the short-term scenario seems complex, weather conditions are expected to return to normal in the medium term, pushing down prices below the high levels recorded in 2011.
 
For additional information about our Agricultural business, please see Item 4 Information on the Company “B, Business Overview - Agricultural Business”.
 
Urban Properties and Investment Business
 
 
The Shopping Centers sector exhibited major sales growth in the first six months of 2013. Shopping Centers’ turnover benefited greatly from the expansion that is being perceived in consumption. Based on the information released by INDEC, sales recorded a cumulative increase of 26,2% for the 12 months to June 2013 compared to the same period of 2012, boosted by the good mood amongst consumers and the tangible improvements in household nominal income.
 
 
Most of the retail offering sectors exhibited outstanding dynamism in that period. The principal increases were in “Furniture”, “Apparel” and in “Electronics”, with increases in excess of 30%.
 
 
Although forecasts for 2012 are not as favorable as in the past, economic activity levels will continue to grow, which augurs well for the Company’s business in so far as consumption and inflation accompanied by salary raises are the main propellers of sales in the Company’s Shopping Centers.
 
 
As concerns the office market, Cushman & Wakefield’s latest market report shows that by the end of June the general vacancy rate of class A buildings in Buenos Aires was 7.5% (3.3 percentage points under last year’s figures) while rental prices per square meter per month reached US$ 28.8.
 
 
In terms of the office rental market, even though a number of submarkets have been more active, the demand has become more selective while lease prices have started to moderately go down, and the vacancy rate has been showing a slight growth. Today there are approximately 50,700 square meters of leasable space under construction, which will be incorporated to the market throughout 2013. 88% of such space is located in the GBA Libertador submarket.
 
 
The construction industry outlook showed a slight recovery in the first half of 2013, after the downturn of 2012, where the more restrictive exchange rate controls implemented by the end of 2011 had a stong impact on the activity. According to INDEC’s Summary Construction Activities Indicator (ISAC, as per the initials in Spanish), the construction industry decreased a 3.2% in 2012, whereas it posted a cumulative increase of 2.8% for the first half of 2013 as compared to the same period of 2012.
 
 
According to ISAC, the surface area covered by the permits granted for private construction works decreased 13.3% in June 2013 compared to the previous month. Moreover, as compared to the same month of the previous year, this figure decreased by 4.5%. However, in the aggregate, the cumulative value for the first half of 2013 records a fall of 0.8% as compared to the same period of 2012.
 
 
In connection with the Hotel sector, the Argentine Ministry of Tourism reported that 5,598,646 tourists visited Argentina in 2012, a decrease of 1.9% as compared to 2011. In connection with the Hotel sector, the hotel occupancy survey carried out by INDEC shows that the average hotel occupancy rate as of May 2013 was 52.9%, falling by approximately 6%, compared to the same period of 2012. This is mainly due to the smaller inflow of travelers from Brazil and Europe.
 
 
128
 
 
 
Agricultural Business
 
In the ordinary course of business, FyO.com guarantees certain brokerage transactions. Under the agreement, FyO.com guarantees the performance of the producer in case it does not comply with the physical delivery. We have recourse against the non-performing party. As of June 30, 2013, the value of transacted merchandise for which guarantees were granted amounted to Ps. 1.2 million. As of the date of this annual report, there were non-performing parties under the agreements for which we had to respond as guarantor. As of the date of this annual report, the value of transacted merchandise for which guarantees were granted amounted to Ps. 14.6 million.
 
Urban Properties and Investment Business